<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1996
REGISTRATION NO. 333-12757
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CB COMMERCIAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6531 52-1616016
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
533 SOUTH FREMONT AVENUE
LOS ANGELES, CALIFORNIA 90071-1798
(213) 613-3123
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JAMES J. DIDION
CHIEF EXECUTIVE OFFICER
CB COMMERCIAL HOLDINGS, INC.
533 SOUTH FREMONT AVENUE
LOS ANGELES, CALIFORNIA 90071-1798
(213) 613-3123
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
RICHARD S. GREY, ESQ. GREGG A. NOEL, ESQ.
PETER V. LEPARULO, ESQ. RAND S. APRIL, ESQ.
PILLSBURY MADISON & SUTRO LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
P.O. BOX 7880 300 GRAND AVENUE, SUITE 3400
SAN FRANCISCO, CALIFORNIA 94120 LOS ANGELES, CALIFORNIA 90071
---------------
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
a 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
<TABLE>
<CAPTION>
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value................................. $117,477,675 $39,205(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) This filing fee has previously been paid.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 19, 1996
PROSPECTUS
4,347,000 SHARES
[LOGO OF CB COMMERCIAL]
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
COMMON STOCK
-----------
All of the 4,347,000 shares (the "Shares") of common stock, par value $.01
per share (the "Common Stock"), of CB Commercial Real Estate Services Group,
Inc. (the "Company") offered hereby (the "Offering") are being sold by the
Company. Prior to the Offering, there has been no established public market for
the Common Stock. It is currently estimated that the initial public offering
price of the Common Stock offered hereby will be between $21.50 and $23.50 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price of the Common Stock. The Common
Stock has been approved for listing on the Nasdaq National Market under the
symbol "CBCG."
The Company has been a reporting company under the Securities Exchange Act of
1934, as amended, since 1989 as a result of an offering to its employees
registered under the Securities Act of 1933, as amended, of shares of its B-2
common stock, which are currently held of record by 1,467 holders. See "The
Recapitalization."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES.
-----------
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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share..................................... $ $ $
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Total(3)...................................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,111,000.
(3) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date of the Prospectus, to purchase up to an
additional 652,050 shares of Common Stock to cover over-allotments, if any.
If all of such shares of Common Stock are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
-----------
The Shares are offered by the several Underwriters, subject to prior sale
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Shares
will be made in New York, New York on or about , 1996.
-----------
MERRILL LYNCH & CO. MONTGOMERY SECURITIES
-----------
The date of this Prospectus is November , 1996.
<PAGE>
[MAP OF U.S. WITH LOCATION OF OFFICES AND BAR CHART]
A bar graph which depicts the Company's revenue for each of the four
quarters and the trailing four quarters in the years 1992-1995 and for the
first two quarters of 1996.
Photographs of directors and officers along the left side of the fold
out. Graphic depiction of World Map showing location of Company's offices.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes appearing
elsewhere in this Prospectus. Prospective investors should carefully consider
the matters set forth in "Risk Factors." Except as set forth in the
consolidated financial statements and notes thereto or otherwise as specified
herein, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Effective upon consummation of the
Offering, the Company will change its name from CB Commercial Holdings, Inc. to
CB Commercial Real Estate Services Group, Inc. Unless the context requires
otherwise, the term the "Company" or "CB Commercial" means CB Commercial Real
Estate Services Group, Inc. and each of its consolidated subsidiaries.
COMPANY OVERVIEW
Founded in 1906, the Company believes that it is the largest vertically-
integrated commercial real estate services company in the United States with
aggregate 1995 revenue of $468.5 million and 231 business unit offices in 107
locations. The Company provides a full range of services to commercial real
estate tenants, owners, and investors including: (i) brokerage (facilitating
sales and leases), investment properties (acquisitions and sales on behalf of
investors), corporate services, property management, and real estate market
research (collectively, "Property and User Services"), and (ii) mortgage
banking (mortgage loan origination and servicing), investment management and
advisory services, and valuation and appraisal services (collectively,
"Investor Services"). The Company believes that, on the basis of revenues, its
brokerage and independent commercial mortgage origination businesses are the
largest such businesses in the United States, and that the Company is among the
top ten providers of commercial property management, investment management and
advisory services and commercial mortgage loan servicing in the United States.
The Company's diverse client base includes local, national and multinational
corporations, financial institutions, pension funds and other tax exempt
entities, local, state and national governmental entities, and individuals.
The Company believes that it enjoys a variety of competitive advantages in
the commercial real estate services industry, including the Company's--
. Significant deal flow and strong market presence in its core brokerage and
property management businesses, both of which are employed for the benefit
of all of the Company's business disciplines;
. 90-year tradition and history of providing high-quality services and client
coverage and internationally recognized "brand" identity which the Company
believes is widely respected in the real estate services industry;
. Experienced and trained professionals in all business disciplines, including
almost 2,000 sales professionals in Property and User Services who have an
average tenure of more than eight years with the Company;
.Multi-discipline capabilities and extensive multi-market network;
. State-of-the-art technology and professional education programs which enable
the Company to deliver superior services;
. Experienced management team, the members of which have an average tenure of
more than 16 years with the Company and will own approximately 15.2% of the
Company's Common Stock (including exercisable stock options and shares held
through the Company's Deferred Compensation Plan) after the Offering; and
. Employees who will own more than 40% of the Company's Common Stock after the
Offering.
3
<PAGE>
As part of its growth strategy, the Company is continually assessing
acquisition opportunities. Management believes that there are significant
opportunities in the fragmented and consolidating real estate services industry
to acquire additional companies to complement and expand the Company's existing
operations. Since the beginning of 1995, the Company has completed three
strategic acquisitions. In July 1996, the Company acquired L.J. Melody &
Company and L.J. Melody & Company of California (collectively "L.J. Melody"), a
nationally-known mortgage banking firm, for $15 million. The L.J. Melody
acquisition provides the Company with leadership for its own mortgage banking
business, access to loan sources not previously available to the Company and an
enhanced ability to access the Company's deal flow in its investment properties
and brokerage businesses as a source of mortgage originations. In June 1995,
the Company acquired Westmark Realty Advisors L.L.C. ("Westmark"), an
investment management and advisory business with approximately $3.0 billion of
assets under management, for $37.5 million, plus a supplemental purchase price
component of up to $18.0 million based upon Westmark's adjusted operating
income. The Westmark acquisition has moved the Company into a business area
which the Company believes has the potential for significant growth. In April
1995, the Company acquired Langdon Rieder Corporation ("Langdon Rieder"), a
nationally-known tenant representation firm, for $1.5 million in cash and a
deferred payment of $1.9 million payable over three years. The deferred payment
is subject to forfeiture under certain circumstances. The Langdon Rieder
acquisition strengthened the Company's ability to provide sophisticated tenant
representation services to its corporate clients. See "Business--Acquisitions."
INDUSTRY TRENDS
Over the last ten years, the commercial real estate industry has experienced
various structural changes and more recently has been experiencing a broad
recovery from the real estate "depression" of the early 1990s. The Company
believes that these factors and the resulting trends, which are summarized
below, create an opportunity for the Company to leverage its experience, multi-
discipline integrated services, multi-market presence and brand equity to its
competitive advantage--
. CHANGING COMPOSITION AND NEEDS OF INVESTORS AND OWNERS. Investors in and
owners of commercial real estate assets have become increasingly
institutional (including pension funds, life insurance companies, banks and
publicly-held REITs) with geographically diverse portfolios. With respect to
institutions other than REITs, this change in the ownership characteristics
and management requirements of institutional real estate investors and
owners has fueled the demand for, and growth of, sophisticated multi-
service, nationally-oriented real estate service providers. As REITs are
internally managed and therefore tend to outsource only their brokerage
services, their demand for the Company's other real estate services is
expected to be less than that of other institutional investors.
. CONTINUING OUTSOURCING TREND. The Company believes that the combination of
corporate managements' heightened awareness that corporate real estate
assets are a major component of corporate net worth and competitive
pressures encouraging a greater focus on core businesses has caused
corporations to downsize and, as a result, outsource their non-core
activities to third-parties. As a consequence, the demand for multi-
disciplined, multi-market professional real estate services firms that
provide integrated services capable of supplementing a corporate real estate
department has increased significantly.
. ONGOING INDUSTRY CONSOLIDATION. The Company also believes that the
combination of institutional and corporate real estate service needs and
demands, together with the real estate "depression" of the early 1990s, has
made it necessary for real estate services firms to (i) provide
comprehensive, high-quality services, (ii) make significant investments in
corporate infrastructure, including information technology and professional
education, and (iii) have access to sufficient capital to support these
service and investment needs. These factors have fueled the consolidating
industry environment, which the Company believes will motivate local and
regional real estate service providers to sell to, or form alliances with,
major national and international companies.
. EXPANDING CMBS MARKET. Wall Street firms and financial institutions have
recently been providing a significant amount of third-party commercial
mortgage financing and have been accessing the public debt
4
<PAGE>
markets by issuing commercial mortgage-backed securities ("CMBS") in order
to securitize their portfolios and avoid holding mortgage loans for the
long-term, resulting in increasing liquidity in the real estate markets.
The Company's access to real estate transaction deal flow and national
mortgage origination capabilities enable it to benefit from this expansion
of the CMBS market which creates demand for mortgage originations.
. RECOVERING MARKETS. Coincident with the long term structural shifts in the
commercial real estate industry, commercial real estate markets in the
United States have been recovering over the last several years,
experiencing increased leasing and sale activity in many product types and
geographic market areas. As a result, brokerage and property management
fees, which are based upon a percentage of transaction value and total rent
collections, respectively, have begun to increase.
THE COMPANY'S BUSINESSES
PROPERTY AND USER SERVICES
Property and User Services include a broad range of services, delivered
primarily to users and owners of commercial real estate, including brokerage
(facilitating sales and leases), investment properties (acquisitions and sales
on behalf of investors), corporate services, property management, and real
estate market research. These services are provided with respect to a wide
range of commercial real estate properties, including, but not limited to,
office space, industrial buildings, retail properties, multifamily residential
properties and unimproved land.
Brokerage. Brokerage, the Company's original and core business, advises
buyers, sellers, landlords and tenants in connection with the leasing and sale
of office space, industrial buildings, retail properties, multifamily
residential properties and unimproved land. Brokerage employs approximately
1,640 sales professionals nationally generating significant deal flow and
real-time market data. This market presence provides the Company with a
competitive advantage in developing business opportunities and client contacts
and in developing CB Commercial's brand identity for the Company's other
business disciplines. The Company believes its commercial brokerage business
is the market-leader in the United States based upon both 1995 revenue, which
totaled approximately $294.3 million, and the number of completed
transactions, which totaled approximately 19,800.
Investment Properties. The Company provides sophisticated strategic planning
for, and execution of, acquisitions and sales of income-producing commercial
properties for its clients through its investment properties sales
professionals. In 1995, approximately 1,000 sales transactions were completed
with some of the country's largest and most sophisticated investors,
including, as examples, Prudential Insurance Co., RREEF and Security Capital.
With aggregate estimated sales consideration of more than $4.0 billion in
1995, the Company believes that it is one of the largest providers of
investment properties sales services in the United States.
Corporate Services. Corporate services, which generally operates through the
CBC/Madison Advisory Group, addresses the multiple-market domestic and
international real estate needs of corporate America by providing
comprehensive, quality services on a cost efficient basis through a single
point-of-contact at the Company. Corporate services coordinates the
utilization of all the Company's various disciplines to deliver an integrated
service to some of the largest and most sophisticated companies in the United
States, including, as examples, Eastman Kodak, Ford Motor Company, and
Allstate Insurance Company. CBC/Madison Advisory Group directly addresses
client demand driven by corporate downsizing, outsourcing, and alliance
partnering, expanding a client's real estate department and performing most of
the functions involved in corporate real estate administration. CBC/Madison
Advisory Group has been one of the Company's fastest growing services, with
revenue having increased at a compound annual rate of 50% from 1993 through
1995.
5
<PAGE>
Property Management. Property management provides operations, maintenance,
marketing and leasing services for income-producing properties owned primarily
by institutional investors. The Company provides asset management-oriented
services to its clients to implement their specific goals and objectives,
focusing on the enhancement of property values through maximization of cash
flow. The Company was recently ranked the eighth largest property management
firm in the United States by National Real Estate Investor's 1996 Annual Survey
based on square footage under management during 1995. As of September 30, 1996,
the Company managed 792 properties aggregating approximately 104 million square
feet.
Real Estate Market Research. The Company provides its research and
forecasting services to its other businesses as well as outside corporate and
institutional investor clients through CB Commercial/Torto Wheaton Research,
the widely-recognized research division of the Company based in Boston,
Massachusetts. The Company's research reports and forecasts are utilized by all
of the Company's businesses to assist clients with analysis and interpretation
of market data in order to provide them with a competitive edge in the rapidly
changing real estate marketplace. The Company's publications and products
provide real estate data for more than 50 of the largest Metropolitan
Statistical Areas ("MSAs") in the United States and are sold on a subscription
basis to many of the largest portfolio managers, insurance companies and
pension funds in the United States.
INVESTOR SERVICES
Investor Services includes mortgage banking (mortgage loan origination and
servicing), investment management and advisory services, and valuation and
appraisal services relating primarily to office space, industrial buildings,
retail properties, multifamily residential properties and unimproved land.
Mortgage Banking. The Company provides its mortgage origination and servicing
through L.J. Melody, a wholly-owned subsidiary of the Company acquired in July
1996 and based in Houston, Texas. On a combined basis including originations by
L.J. Melody prior to its acquisition, the Company originated approximately
$2.3 billion, $2.0 billion and $1.1 billion of mortgage loans in 1995, 1994 and
1993, respectively. As part of these origination activities, the Company
originates mortgages through special conduit arrangements with affiliates of
Merrill Lynch, Citicorp, and Lehman Brothers which permit it to service the
mortgage loans that it originates and is currently negotiating a similar
arrangement with an affiliate of NationsBank. In addition, the Company is a
major mortgage originator for insurance companies having originated, on a
combined basis, mortgage loans in the names of the insurance companies valued
at approximately $1.6 billion in 1995, of which it serviced $891.4 million. As
of December 31, 1995, 1994 and 1993, the Company, on a combined basis, serviced
mortgage loan portfolios of approximately $7.3 billion, $7.1 billion and $6.3
billion, respectively. Based upon available statistics, the Company believes
that, on a combined basis, it is the largest independent commercial mortgage
originator in the United States (originating mortgage loans for others, as
opposed to originating mortgage loans for its own account). As of December 31,
1995, the Company, on a combined basis, was the eighth largest commercial
mortgage loan servicer in the United States. The Company believes it will have
a significant competitive advantage in the commercial mortgage loan origination
business due to its anticipated integration with the deal flow generated
through the Company's brokerage and investment properties sales activities.
This integration will not only provide advantages to mortgage banking, but will
also facilitate sales transactions enhancing the Company's capability to
execute clients' sales assignments.
Investment Management and Advisory. The Company provides its investment
management and advisory services primarily to large institutions and pension
funds through Westmark which employs over 100 professionals and operates
nationally from its headquarters in Los Angeles, California. Westmark operates
as a separate and independent subsidiary, providing advisory services and
managing approximately $3.7 billion in tax-exempt capital invested in more than
220 office, industrial and retail properties located in more than 40 major U.S.
markets with an aggregate of more than 40 million square feet. The Company's
investment management and advisory activities include creating investment
products, raising investor capital, identifying and acquiring specific
properties and managing the operations and dispositions of the assets. As of
September 30, 1996, the
6
<PAGE>
Company represented more than 180 investors in 13 commingled funds and a
variety of nondiscretionarily managed separate accounts.
Valuation and Appraisal Services. Valuation and appraisal services delivers
sophisticated commercial real estate valuations through a variety of products
including market value appraisals, portfolio valuations, discounted cash flow
analyses, litigation support, feasibility land use studies and fairness
opinions. The Company's appraisal staff has more than 80 professionals with
approximately 50% of its professionals holding the Member Appraisal Institute
("MAI") professional designation. Valuation and appraisal services operates
nationally through 21 regional offices, and its clients are generally portfolio
owners, both corporate and institutional. The Company believes it is among the
leading commercial real estate appraisal firms in the United States.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Compa- 4,347,000 shares(1)
ny................................
Common Stock to be outstanding af- 13,266,171 shares(1)(2)
ter the Offering..................
Use of proceeds.................... The net proceeds from the Offering will be
used to repay a portion of the Company's
senior secured indebtedness and to pay
accrued and unpaid interest on the
Company's senior subordinated indebtedness.
Any remaining net proceeds will be used for
general corporate purposes, including to
fund acquisitions. See "Use of Proceeds."
Listing............................ The Common Stock has been approved for
listing on the Nasdaq National Market under
the symbol "CBCG."
</TABLE>
- --------
(1) Does not include up to 652,050 shares subject to an over-allotment option
granted to the Underwriters by the Company. See "Underwriting."
(2) Excludes (i) 1,046,890 shares issuable upon exercise of stock options under
the Company's stock option plans as of September 30, 1996, (ii) shares of
Class C-R and Class J common stock to be repurchased by the Company for an
aggregate of $8,000 in connection with the Offering and (iii) 4,000,000
shares of Preferred Stock convertible into a lesser number of shares of
Common Stock at the option of the holder after the Offering, which number
will not exceed 3,120,000 (assuming there are no dilutive issuances
requiring adjustment under the Certificates of Designation for such
Preferred Stock). Includes 444,444 shares of Common Stock issuable upon
conversion of the 800,000 shares of the Company's Class C-1 common stock
(assuming an initial public offering price per share of $22.50). See
"Capitalization" and "Description of Capital Stock--Preferred Stock" and
"--The Recapitalization."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary financial and other data for the
Company on a consolidated historical basis and a consolidated pro forma basis
for the periods and dates indicated. The summary historical balance sheet data
as of December 31, 1995 and 1994 and the statement of operations data for each
of the three years in the period ended December 31, 1995 are derived from the
financial statements of the Company that have been audited by Arthur Andersen
LLP, independent public accountants, included herein. The summary historical
balance sheet data as of December 31, 1993, 1992 and 1991 and the statement of
operations data for the years ended December 31, 1992 and 1991 are derived from
audited financial statements not included herein. The summary historical
financial data for each of the nine month periods ended September 30, 1996 and
1995 are derived from unaudited financial statements prepared on the same basis
as the audited financial statements and containing, in the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position at such dates and
the operating results and cash flows for such periods. Period to period
comparability in 1995 and 1996 is affected by the Westmark acquisition
completed in June 1995 and the L.J. Melody acquisition completed in July 1996.
A significant portion of the Company's revenue is transactional in nature and
seasonal. Historically, this seasonality has caused the Company's revenue,
operating income and net income to be lower in the first two calendar quarters
and higher in the third and fourth calendar quarters of each year. The results
of operations for the nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for the entire year ending December 31,
1996 or for any future period.
The summary unaudited pro forma statement of operations data, balance sheet
data and other data give effect to the acquisitions of Westmark, L.J. Melody as
well as the Offering and Recapitalization as if such transactions had occurred
as of January 1, 1995 with respect to operating and other data, and as if the
Offering and the Recapitalization had occurred as of September 30, 1996 with
respect to the pro forma balance sheet data. The pro forma financial data set
forth below is not necessarily indicative of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
The information set forth below should be read in conjunction with "Unaudited
Pro Forma Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements for
each of the Company, L.J. Melody and Westmark and related notes thereto which
are included elsewhere in this Prospectus.
8
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
1996 1996 1996 1995
----------- ----------- ---------- ----------
PRO FORMA
------------------------
ACQUISITION
ACQUISITION AND
ONLY OFFERING
----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue......... $ 394,280 $ 394,280 $ 390,863 $ 324,890
Costs and
expenses:
Commissions,
fees and other
incentives..... 198,240 198,240 195,465 167,569
Operating,
administrative
and other...... 160,741 160,741 159,196 134,839
Depreciation and
amortization (1). 10,267 10,267 9,749 8,173
Non-recurring
charges........ -- -- -- --
---------- ---------- ---------- ----------
Operating income
(loss)......... 25,032 25,032 26,453 14,309
Interest income. 1,180 1,180 1,035 1,228
Interest
expense........ 18,099 13,672 17,883 16,944
---------- ---------- ---------- ----------
Income (loss)
before
provision
(benefit) for
income tax..... 8,113 12,540 9,605 (1,407)
Provision for
income tax..... 4,323 6,094 4,610 238
Reduction of
valuation
allowances..... (40,400) (40,400) (40,400) --
---------- ---------- ---------- ----------
Net provision
(benefit) for
income tax (2). (36,077) (34,306) (35,790) 238
---------- ---------- ---------- ----------
Net income
(loss)......... $ 44,190 $ 46,846 $ 45,395 $ (1,645)
========== ========== ========== ==========
Net income
(loss) per
common and
common
equivalent
share
outstanding.... $ 3.19 $ 3.36 $ 3.28 $ (0.14)
Number of shares
used in
computing per
share
amounts (3).... 13,858,176 13,049,618 13,858,176 11,908,995
OTHER DATA:
EBITDA (4)...... $ 36,202 $ 22,482
Ratio of
earnings to
fixed
charges (5).... 1.42 --
Deficiency of
earnings to
fixed charges
(5)............ -- $ (1,407)
Net cash
provided by
(used in)
operating
activities..... $ 24,170 $ 551
Net cash (used
in) investing
activities..... $ (9,517) $ (21,960)
Net cash
provided by
(used in)
financing
activities..... $ (12,795) $ 3,481
Investments
under
management at
period end (6). $3,730,226 $3,918,825
Loans originated
(7)............ $1,715,467 $ 603,097
Loans serviced
(7)............ $7,498,905 $3,671,532
Total
consideration
of properties
sold ......... $6,393,389 $4,517,550
Number of sale
transactions... 2,758 2,491
Number of lease
transactions... 12,521 12,733
---------- ----------
Total sale and
lease
transactions... 15,279 15,224
========== ==========
Square feet
under
management (8). 103,754 95,406
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1995 1995 1995 1994 1993 1992 1991
------------ ------------ ---------- ---------- ---------- ---------- ----------
PRO FORMA
-------------------------
ACQUISITIONS
ACQUISITIONS AND
ONLY OFFERING
------------ ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue......... $ 489,684 $ 489,684 $ 468,460 $ 428,988 $ 392,037 $ 360,223 $ 338,119
Costs and
expenses:
Commissions,
fees and other
incentives..... 245,564 245,564 239,018 225,085 206,070 187,582 175,142
Operating,
administrative
and other...... 200,341 200,341 187,968 170,234 160,073 152,402 159,791
Depreciation and
amortization (1). 14,502 14,502 11,631 8,091 49,606 45,855 51,946
Non-recurring
charges........ -- -- -- -- -- 4,500 12,030
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)......... 29,277 29,277 29,843 25,578 (23,712) (30,116) (60,790)
Interest income. 1,926 1,926 1,674 1,109 915 1,083 1,349
Interest
expense........ 26,080 20,177 23,267 17,362 14,240 15,516 24,805
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss)
before
provision
(benefit) for
income tax..... 5,123 11,026 8,250 9,325 (37,037) (44,549) (84,246)
Provision for
income tax..... 220 2,581 841 152 112 12 135
Reduction of
valuation
allowances..... -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net provision
(benefit) for
income tax (2). 220 2,581 841 152 112 12 135
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income
(loss)......... $ 4,903 $ 8,445 $ 7,409 $ 9,173 $ (37,149) $ (44,561) $ (84,381)
========== ========== ========== ========== ========== ========== ==========
Net income
(loss) per
common and
common
equivalent
share
outstanding.... $ 0.36 $ 0.35 $ 0.55 $ 0.69 $ (3.21) $ (3.88) $ (7.39)
Number of shares
used in
computing per
share
amounts (3).... 13,591,420 12,782,862 13,591,420 13,355,997 11,555,523 11,496,256 11,398,967
OTHER DATA:
EBITDA (4)...... $ 41,474 $ 33,669 $ 25,894 $ 15,739 $ (8,844)
Ratio of
earnings to
fixed
charges (5).... 1.28 1.40 -- -- --
Deficiency of
earnings to
fixed charges
(5)............ -- -- $ (37,037) $ (44,549) $ (84,246)
Net cash
provided by
(used in)
operating
activities..... $ 30,632 $ 31,418 $ 19,609 $ 10,911 $ (25,307)
Net cash (used
in) investing
activities..... $ (24,888) $ (3,865) $ (5,629) $ (4,821) $ (3,715)
Net cash
provided by
(used in)
financing
activities..... $ (11,469) $ (4,923) $ (14,662) $ (2,157) $ 16,012
Investments
under
management at
period end (6). $3,901,727 $ 879,809 $ 760,554 $ 883,761 $ 776,010
Loans originated
(7)............ $ 989,872 $ 874,159 $ 613,071 $ 458,792 $ 135,022
Loans serviced
(7)............ $3,779,069 $3,578,962 $3,140,635 $3,787,941 $3,830,502
Total
consideration
of properties
sold ......... $6,549,861 $6,521,451 $4,995,234 $4,478,472 $3,986,576
Number of sale
transactions... 3,503 3,693 3,249 3,042 2,590
Number of lease
transactions... 17,476 17,930 18,338 17,909 17,431
---------- ---------- ---------- ---------- ----------
Total sale and
lease
transactions... 20,979 21,623 21,587 20,951 20,021
========== ========== ========== ========== ==========
Square feet
under
management (8). 105,356 92,311 76,065 70,707 71,156
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
------------------------------- ----------------------------------------------------
1996 1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- --------- --------
PRO FORMA
OFFERING
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 26,502 $ 24,903 $ 10,842 $ 23,045 $ 28,770 $ 6,140 $ 6,822 $ 2,889
Total assets............ 248,835 232,575 180,038 190,954 150,100 128,914 173,274 212,249
Total long-term debt.... 143,113 231,986 252,468 250,142 233,571 239,853 239,473 240,401
Total liabilities....... 250,596 339,469 344,184 345,642 314,648 303,774 311,630 306,123
Total stockholders' eq-
uity (deficit)......... (1,761) (106,894) (164,146) (154,688) (164,548) (174,860) (138,356) (93,874)
</TABLE>
(footnotes on following page)
9
<PAGE>
- -------
(1) 1993, 1992, and 1991 reflect the amortization of intangibles associated
with the acquisition in 1989 of CB Commercial Real Estate Group, Inc. of
$42.9 million, $40.7 million and $47.1 million, respectively.
(2) Net provision (benefit) for income tax on a consolidated basis for the nine
months ended September 30, 1996 was a benefit of ($35.8) million, a change
of $36.0 million from a $0.2 million provision for the nine months ended
September 30, 1995. During the quarter ended September 30, 1996, the
Company projected, on a more likely than not basis, that a portion of its
net operating loss carryforwards ("NOLs") would be realized in current and
future periods and, accordingly, reduced existing deferred tax asset
valuation allowances by $45.7 million, of which $5.3 million has been
allocated to the purchase price of L.J. Melody, based on its estimated
future potential to generate taxable income, and the remaining $40.4
million has been recorded as a tax benefit (a reduction in income taxes
provision). With the recognition of the deferred tax asset, current and
future provisions for income tax will be recorded at the full effective tax
rate. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Net Operating Losses."
(3) Includes the dilutive effect of 1,046,890 shares issuable upon exercise of
stock options outstanding as of September 30, 1996 under the Company's
stock option plans. Acquisitions and offering pro forma data excludes
shares of Class C-R and Class J common stock to be repurchased by the
Company in connection with the Offering and shares of Preferred Stock
convertible at the option of the holder into Common Stock after the
Offering. Pro forma data includes 444,444 shares of Common Stock issuable
upon conversion of the 800,000 shares of the Company's Class C-1 common
stock (assuming an initial public offering price per share of $22.50). See
"Description of Capital Stock--Preferred Stock" and "--The
Recapitalization."
(4) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, thereby removing the effect of certain non-cash charges on
income, consisting of depreciation and the amortization of intangible
assets relating to acquisitions. Management believes that the presentation
of EBITDA will enhance a reader's understanding of the Company's operating
performance and ability to service debt as it provides a measure of cash
generated that can be used by the Company to service its debt and for other
required or discretionary purposes. Management has used EBITDA as one of
the primary measures of operating performance in evaluating its recent
acquisitions. Net cash available to the Company for discretionary purposes
represents remaining cash, after debt service and other cash requirements,
such as capital expenditures are deducted from EBITDA. EBITDA should not be
considered as an alternative either (i) to operating income (determined in
accordance with generally accepted accounting principles ("GAAP")) or (ii)
operating cash flow (determined in accordance with GAAP).
(5) The ratio of earnings to fixed charges represents earnings before income
taxes and fixed charges divided by fixed charges. Fixed charges include
interest expense, one-third of rent expense relating to operating leases,
and, for purposes of the pro forma ratios, preferred stock dividends. For
purposes of this calculation preferred stock dividends are computed to
demonstrate earnings required on a pre-tax basis. Deficiency of earnings to
fixed charges is presented for periods when the Company's earnings were not
sufficient to cover its fixed charges requirement. Earnings included non-
cash depreciation and amortization charges of $9.7 million, $8.2 million,
$11.6 million, $8.1 million, $49.6 million, $45.9 million and $51.9 million
for the nine month periods ended September 30, 1996 and 1995, and for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively.
(6) Investments under management represent the market value of the assets
managed as of the end of the period shown.
(7) Mortgage loans originated represent the initial principal amount of loans
originated during the period and loans serviced represents the outstanding
principal balance of loans being serviced as of the end of the period
shown. The increase in mortgage loans originated and serviced primarily
reflects the acquisition of L.J. Melody on July 1, 1996.
(8) Square feet under management represents the total square footage of
properties for which the Company provided property management services as
of the end of the period shown.
10
<PAGE>
THE RECAPITALIZATION
Immediately prior to the closing of the Offering, (i) the Company's
Certificate of Incorporation will be amended to, among other things, change the
name of the Company from CB Commercial Holdings, Inc. to CB Commercial Real
Estate Services Group, Inc., effect the conversion of the Class B-1 and Class
B-2 common stock of the Company into the Common Stock on a 1-for-1 basis,
effect the conversion of the Class C-1 common stock of the Company into a
lesser number of shares of Common Stock based upon the initial public offering
price per share and provide for the convertibility of the Company's Preferred
Stock into Common Stock at the holder's option, and (ii) the Company will
repurchase all of the outstanding shares of its Class C-R common stock and
Class J common stock for $.01 per share, in each case upon the consummation of
the Offering, as part of the proposed recapitalization of the Company's capital
structure (the "Recapitalization"). The term Recapitalization as used herein
refers to the above-described changes in the Company's capital structure and
corporate governance, but does not include the Offering. After the
Recapitalization, the holders of the 1,000,000 shares of Series A-1 Preferred
Stock and the 2,000,000 shares of Series A-2 Preferred Stock will continue to
have two votes and one vote per share, respectively, for such shares on all
matters submitted to a vote of stockholders of the Company, and the 1,000,000
shares of Series A-3 Preferred Stock will continue to have no right to vote on
matters unless otherwise entitled by statute. The Company is effecting the
Recapitalization in order to simplify the Company's capital structure, whereas
the Offering is being effected in order to enable the Company to pay down a
portion of its outstanding secured debt and help to provide liquidity to the
Company's stockholders. See "Description of Capital Stock--Preferred Stock" and
"--The Recapitalization."
FORWARD LOOKING INFORMATION
When used in this Prospectus, the words "expects," "anticipates,"
"estimates," "believes" and words of similar import may constitute "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended. Such statements, which include statements contained in
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" concerning
projections of revenue growth and statements of management's objectives and
expectations as to levels of expenditures, are subject to risks and
uncertainties, including those set forth under "Risk Factors" and elsewhere in
this Prospectus, that could cause actual results to differ materially from
those projected. These forward-looking statements speak only as of the date of
this Prospectus. The Company expressly disclaims any obligation or undertaking
to publicly release any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectation with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
11
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors
in addition to the other information presented in this Prospectus before
purchasing the shares of Common Stock offered hereby.
GENERAL ECONOMIC CONDITIONS
Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate will 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 revenues from property
management fees and brokerage commissions derived from property sales and
leases. Such conditions could also lead to a decline in sale prices as well as
a decline in demand for funds invested in commercial real estate and related
assets. An economic downturn or increase in interest rates also may reduce the
amount of loan originations and related servicing by the Company's commercial
mortgage banking business. If the Company's brokerage and mortgage banking
businesses are adversely affected, it is also quite likely that other segments
of the Company's business will also be adversely affected, due to the
relationship among the Company's various business segments.
GEOGRAPHIC CONCENTRATION
For the year ended December 31, 1995, approximately $141.4 million or 37.0%
of total sale and lease revenue of $382.4 million was generated from
transactions originated in the state of California. Total revenue from sale
and lease transactions for 1995 was 81.6% of the Company's total revenue for
1995. As a result of the geographic concentration in California, any negative
performance of the commercial real estate markets and the local economies in
various areas within California could materially adversely affect the
Company's results of operations.
COMPETITION
The Company competes in a variety of service disciplines within the
commercial real estate industry, including (i) brokerage (facilitating sales
and leases on behalf of investors), investment properties (acquisitions and
sales), corporate services, property management, and real estate market
research and (ii) mortgage banking (loan origination and servicing),
investment management and advisory services, and valuation and appraisal
services. Each of these business areas is highly competitive on a national as
well as local level. The Company faces competition not only from other real
estate service providers, but also from institutional lenders, insurance
companies and investment advisory, mortgage banking, accounting and appraisal
firms. Some of the Company's principal competitors in certain of these
business areas are better established and have substantially more experience
than the Company. Moreover, although many of the Company's competitors are
local or regional firms that are substantially smaller than the Company on an
overall basis, they may be substantially larger on a local or regional basis.
Because of these factors, these companies may be better able than the Company
to obtain new customers, pursue new business opportunities or to survive
periods of industry consolidation. In addition, the Company has faced
increased competition in recent years in the property management and
investment advisory segment of its business which has resulted in decreased
property management fee rates and margins and decreased investment advisory
fees and margins. In general, in each of the Company's businesses there can be
no assurance that the Company will be able to continue to compete effectively
or that it will be able to maintain current commission or fee levels or
margins or that it will not encounter increased competition which could limit
the Company's ability to maintain or increase its market share.
Coldwell Banker, a former sister company of CB Commercial Real Estate Group,
Inc., recently acquired by HFS, Inc., has announced that it intends to expand
its franchise program from the residential real estate brokerage franchising
business into commercial brokerage franchising. The activities of Coldwell
Banker franchisees as direct competitors of the Company could cause name
confusion in the industry between the Company and Coldwell Banker franchisees,
which could result in a dilution of the value of the trade name "CB
Commercial." See "Business--Competition."
12
<PAGE>
RISKS INHERENT IN ACQUISITION GROWTH STRATEGY
Lack of Availability of Acquisition Candidates
A significant component of the Company's growth in 1995 and 1996 has been,
and part of its principal strategy for continued growth is, through
acquisitions. Recent acquisitions have included L.J. Melody (mortgage banking
services), Westmark (investment management and advisory services) and Langdon
Rieder Corporation (tenant advisory services). The Company expects to continue
its acquisition program. The Company's future growth through acquisitions will
be partially dependent upon the continued availability of suitable acquisition
candidates at favorable prices and upon favorable terms and conditions;
however, there can be no assurance that future acquisitions can be consummated
at favorable prices or upon favorable terms and conditions. In addition,
acquisitions entail risks that businesses acquired will not perform in
accordance with expectations and that business judgments with respect to the
value, strengths and weaknesses of businesses acquired or the consequences of
any such acquisition will prove incorrect. See "Business--Acquisitions."
Difficulty of Integration
In addition, there can be no assurance that significant difficulties in
integrating operations acquired from other companies will not be encountered,
including difficulties arising from the diversion of management's attention
from other business concerns and the potential loss of key employees of either
the Company or the acquired operations. The Company encountered a number of
these difficulties when it acquired Westmark and, to a lesser extent, when it
acquired L.J. Melody. The Company believes that most acquisitions will have an
adverse impact on operating income and net income during the first six months
following the acquisition. There can be no assurance that the Company's
management will be able to effectively manage the acquired businesses or that
such acquisitions will benefit the Company overall.
Lack of Available Financing
The Company will require additional financing to sustain its acquisition
program. The Company expects to finance future acquisitions and internal
growth through a combination of funds available under its senior secured
credit facilities (as in effect following the consummation of the Offering),
cash flow from operations, additional indebtedness incurred by the Company
(including, in the case of acquisitions, seller financing) and public or
private sales of the Company's capital stock. The covenants in the Company's
credit agreements as in effect following the consummation of the Offering will
restrict the Company's ability to raise additional capital in certain
respects. There can be no assurance that financing will be available to the
Company or, if available, that it will be sufficient to finance acquisitions
and internal growth. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and "The
Company's Credit Agreements."
SEASONALITY
A substantial component of the Company's revenues is transactional in nature
and as a result is subject to seasonality. Historically, the Company's
revenues, operating income and net income in the first two calendar quarters
are generally lower than in the third and fourth calendar quarters due to
seasonal fluctuations, which are consistent with the industry generally. In
the first quarter of the calendar year, the Company has historically sustained
a loss. The Company's non-variable operating expenses, which are treated as
expenses when incurred during the year, are relatively constant in total
dollars on a quarterly basis. As a consequence of the seasonality of revenues
and the relatively constant level of quarterly expenses, a substantial
majority of the Company's operating income and net income has historically
been realized in the third and fourth calendar quarters. The Company believes
that future operating results will continue to follow these historical
patterns, although revenues are also likely to be affected by both broad
economic fluctuations and supply and demand cyclicality relating to commercial
real estate. There can be no assurance that the Company will be profitable on
a quarterly or annual basis in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
13
<PAGE>
THE COMPANY'S LEVERAGE AND INTANGIBLE NATURE OF ITS ASSETS
Following the Offering, the Company will have indebtedness of approximately
$167.7 million as to which it will have annual principal and interest
obligations of more than $35.0 million which must be paid regardless of the
Company's operating cash flow. Any material downturn in the Company's revenue
or increase in its costs and expenses could result in the Company's being
unable to meet its debt obligations.
After giving effect to the Offering, the Company will have total assets of
$248.8 million on a pro forma basis, approximately $73.5 million of which will
be goodwill and other intangible assets which would not be realizable at their
carrying amounts in liquidation.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering could have an adverse effect on the market price of the Common
Stock. Of the approximately 13.26 million shares to be outstanding after the
Offering, approximately 6.8 million shares will be eligible for sale in the
public market immediately following the Offering. The Company's directors,
executive officers and certain other officers and certain stockholders,
including the trustee of the Company's 401(k) plan on behalf of the Company's
employee plan participants holding approximately 6.8 million shares of Common
Stock (including exercisable stock options and excluding shares held by the
Company as fiduciary on behalf of its Deferred Compensation Plan participants)
have agreed not to sell such shares or options convertible into such shares
for a period of 180 days after the date of this Prospectus without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith, Incorporated. After
such 180 day period, approximately 5 million shares (including exercisable
stock options and excluding shares held by the Company as fiduciary on behalf
of its Deferred Compensation Plan participants) will become eligible for sale
without any volume restriction, and approximately 1.8 million shares will
become eligible for sale, subject to the volume limitations of Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"). Furthermore,
holders of the Company's 4,000,000 shares of outstanding Preferred Stock have
the right to convert such shares into Common Stock after the date of the
Offering at a conversion ratio ranging from .60 to .78 shares of Common Stock
for each share of Preferred Stock, depending on the market price of the Common
Stock. The holders of the Preferred Stock have agreed not to sell any shares
of Common Stock they acquire upon such conversion for 180 days from the date
of this Prospectus without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. Thereafter, for an additional six months, such
holders are contractually bound to sell such shares within the volume
limitations of Rule 144 if the sale is made at a price per share below the
initial public offering price unless such sales are pursuant to block trades
which do not involve a broker's transaction executed on any exchange or in the
over-the-counter market. See "Shares Eligible for Future Sale" and
"Underwriting."
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the Nasdaq National
Market, 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 bear no relationship to the price at which the Common
Stock will trade after completion of the Offering. See "Underwriting" 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. In addition, the stock market in recent years has
experienced extreme 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 "Underwriting."
14
<PAGE>
RETAINED RISKS OF MORTGAGE LOANS SOLD
In connection with the Company's origination and sale of certain mortgage
loans in its mortgage banking business, the Company must make certain
representations and warranties concerning mortgages originated by the Company
and sold to "conduit" purchasers or to the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). These representations and warranties cover such
matters as title to the mortgaged property, lien priority, environmental
reviews and certain other matters. The Company's representations and
warranties rely in part on similar representations and warranties made by the
borrower or others. The Company would have a claim against the borrower or
another party in the event of a breach of any of these representations or
warranties; however, the Company's ability to recover on any such claim would
be dependent upon the financial condition of the party against which such
claim is asserted. There can be no assurance that the Company will not
experience a material loss as a result of representations and warranties it
makes.
POTENTIAL LACK OF SPACE TO LEASE
A significant portion of the Company's brokerage business involves
facilitating the lease of commercial property including retail, industrial,
and office space. Since the real estate depression of the early 1990s, the
development of new retail, industrial, and office space has been limited. As a
consequence, in certain areas of the country there is beginning to be
inadequate office, industrial and retail space to meet demand and there is a
potential for a decline in the Company's overall number of lease transactions,
the effect of which may, over time, be partially offset by increasing sales,
including sales of undeveloped land (which would benefit the Company's
brokerage business). There can be no assurance that any such increase in the
sale of undeveloped land will coincide with any decline in the number of lease
transactions.
STOCK OWNERSHIP BY OFFICERS AND EMPLOYEES
Upon completion of this Offering, the present executive officers and
employees of the Company will beneficially own more than 40% of the
outstanding shares of Common Stock. These stockholders will have significant
influence over the election of directors of the Company. Additionally, such a
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company and may allow significant influence and
control over board decisions and corporate actions. See "Management" and
"Principal Stockholders."
DILUTION
The initial public offering price is expected to be substantially higher
than the 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.
ENVIRONMENTAL CONCERNS
Numerous laws and regulations have been enacted which regulate exposure to
potentially hazardous materials often found in and around buildings. Some of
these laws and regulations directly and indirectly impact the commercial real
estate market by imposing additional costs and liability on owners, operators
and sellers as well as lenders. Such laws and regulations tend to discourage
sales and leasing activities and mortgage lending with respect to some
properties, and may therefore adversely affect the Company. In addition, the
failure of the Company to disclose environmental issues may subject the
Company to liability to a buyer or lessee of property or to a purchaser of a
mortgage loan.
FORWARD-LOOKING STATEMENTS
When used in this Prospectus, the words "expects," "anticipates,"
"estimates," "believes" and words of similar import may constitute "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended. Such statements, which include statements contained in
"Prospectus Summary,"
15
<PAGE>
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" concerning projections of revenue
growth and statements of management's objectives and expectations as to levels
of expenditures, are subject to risks and uncertainties, including those set
forth under "Risk Factors" and elsewhere in this Prospectus, that could cause
actual results to differ materially from those projected. These forward-
looking statements speak only as of the date of this Prospectus. The Company
expressly disclaims any obligation or undertaking to publicly release any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectation with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
16
<PAGE>
THE COMPANY
The Company's business was founded under the name Tucker, Lynch & Coldwell
by Colbert Coldwell in San Francisco in 1906 as a commercial real estate
brokerage firm. The firm was renamed Coldwell, Cornwall & Banker with the
arrival of Benjamin Arthur Banker in 1913, became Coldwell, Banker & Company
in 1940 and was acquired by Sears, Roebuck & Co. ("Sears") in 1981.
In March 1989 the Company was incorporated in Delaware for the purpose of
acquiring Coldwell Banker Commercial Group, Inc. from Sears by a group of six
officers of Coldwell Banker Commercial Group, Inc. led by Mr. James J. Didion,
the Company's Chairman and Chief Executive Officer, and an investor group
formed by Mr. Frederic V. Malek and The Carlyle Group, L.P., a Washington,
D.C.-based private merchant bank. The acquisition was completed in April 1989
and the name of Coldwell Banker Commercial Group, Inc. was changed to
CB Commercial Real Estate Group, Inc. in 1991. The Company is a holding
company that conducts its operations solely through CB Commercial Real Estate
Group, Inc. and its subsidiaries. In connection with the Offering the Company
will change its name to CB Commercial Real Estate Services Group, Inc.
The Company's executive offices are located at 533 South Fremont Avenue, Los
Angeles, California 90071-1798 and its telephone number is (213) 613-3123.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 4,347,000 shares of Common
Stock offered by the Company hereby are estimated to be approximately $90.5
million ($104.0 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $22.50 per
share and after deducting the estimated underwriting discount and offering
expenses payable by the Company.
The Company intends to use $79.9 million of the net proceeds ($86.7 million
if the Underwriter's over-allotment option is exercised in full) to repay a
portion of the Company's senior secured indebtedness and $9.0 million (whether
or not the Underwriter's over-allotment option is exercised in full) to pay
accrued and unpaid interest on the Company's senior subordinated indebtedness.
The remaining $1.6 million of net proceeds ($8.3 million if the Underwriters'
over-allotment option is exercised in full) will be used for general corporate
purposes, including to fund acquisitions. Pending such uses, the net proceeds
will be invested in short-term, investment grade, interest-bearing securities.
As of September 30, 1996, the balance of the Company's outstanding senior
secured indebtedness was $139.8 million and bore interest at a rate of
approximately 7.0% per annum. The terms of the senior secured indebtedness, as
amended in connection with the Recapitalization and the Offering, will provide
for a final maturity date of December 31, 2001. As of September 30, 1996, the
balance of the Company's senior subordinated indebtedness was $71.0 million
and bore interest at a rate of 5.875% per annum. The terms of the senior
subordinated indebtedness, as amended in connection with the Recapitalization
and the Offering, will provide for a final maturity date of July 23, 2002. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--The Company's Credit Agreements."
17
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
does not anticipate paying any dividends on its Common Stock in the
foreseeable future. The holders of the Company's Series A-1, Series A-2 and
Series A-3 Preferred Stock (collectively, the "Preferred Stock") are entitled
to quarterly dividends of $0.25 per share. Until the Company has completed its
acquisition program, it does not intend to pay the dividend on the Preferred
Stock. As a consequence, such dividend will accumulate and bear interest which
will be paid on a current basis, and the Company will be prohibited from
voluntarily prepaying long-term debt until such accumulated dividend and
interest have been paid in full. In addition to the restrictions imposed by
the terms of the Preferred Stock, the Company's credit agreements, as amended,
will restrict its ability to pay dividends with respect to the Common Stock.
See "Business--The Company's Credit Agreements" and "Description of Capital
Stock--Preferred Stock."
Prior to the Offering, there has been no established public market for the
Company's Common Stock. As of September 30, 1996, there were 1,467 holders of
record of the Company's Class B-2 Common Stock, nine holders of record of the
Company's Class B-1 Common Stock, two holders of record of the Company's Class
C-R Common Stock, three holders of record of the Company's Class C-1 Common
Stock and two holders of record of the Company's Class J Common Stock. As of
September 30, 1996, there was one holder of record of the Company's Series A-1
Preferred Stock, two holders of record of the Company's Series A-2 Preferred
Stock and one holder of record of the Company's Series A-3 Preferred Stock.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to the Offering at an
assumed initial public offering price of $22.50 per share and the application
of the estimated net proceeds therefrom as set forth under "Use of Proceeds."
This table should be read in conjunction with "Unaudited Pro Forma Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Company's consolidated financial statements,
including the related notes thereto, all appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------
ACTUAL AS ADJUSTED(1)
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, less current portion...... $ 231,986 $ 143,113
Stockholders' equity:
Preferred Stock, $.01 par value;--8,000,000
shares authorized; 4,000,000 shares issued and
outstanding;--4,000,000 shares issued and
outstanding, as adjusted(2)................... 40 40
Common Stock, $.01 par value;--100,000,000
shares authorized; 10,074,729 shares issued
and outstanding; 13,266,171 shares issued and
outstanding, as adjusted...................... 101 133
Additional paid-in capital..................... 117,826 208,266
Notes receivable from sale of stock............ (5,109) (5,109)
Accumulated deficit............................ (219,752) (205,091)
------------ ------------
Total stockholders' equity (deficit)......... $ (106,894) $ (1,761)
------------ ------------
Total capitalization............................. $ 125,092 $ 141,352
============ ============
</TABLE>
- --------
(1) Assumes an increase in the Company's authorized Common Stock to
100,000,000 shares of Common Stock, the conversion of the Class B-1 and
Class B-2 common stock of the Company into Common Stock on a 1-for-1
basis, the conversion of the 800,000 shares of the Class C-1 common stock
of the Company into 444,444 shares of Common Stock assuming an initial
public offering price per share in the Offering of $22.50, and the
repurchase by the Company for $0.01 per share of the 800,000 outstanding
shares of the Company's Class C-R common stock and two outstanding shares
of the Company's Class J common stock, which in each case will occur upon
the consummation of the Offering as part of the Recapitalization. See
"Description of Capital Stock--The Recapitalization."
(2) The Preferred Stock is convertible into Common Stock at the holder's
option after the consummation of the Offering at a ratio based upon the
per share market price of the Common Stock, ranging from .60 shares of
Common Stock per share of Preferred Stock at a market price of $30.00 or
more per share of Common Stock to .78 shares of Common Stock per share of
Preferred Stock at a market price of $10.00 to $21.99 per share of Common
Stock. No conversion of the Preferred Stock is permitted when the market
price of the Common Stock is below $10.00 per share. See "Description of
Capital Stock--Preferred Stock."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data for the
Company on a consolidated historical basis and a consolidated pro forma basis
for the periods and dates indicated. The selected historical balance sheet
data as of December 31, 1995 and 1994 and the statement of operations data for
each of the three years in the period ended December 31, 1995 are derived from
the financial statements of the Company that have been audited by Arthur
Andersen LLP, independent public accountants, included herein. The selected
historical balance sheet data as of December 31, 1993, 1992 and 1991 and the
statement of operations data for the years ended December 31, 1992 and 1991
are derived from audited financial statements not included herein. The
selected historical financial data for each of the nine-month periods ended
September 30, 1996 and 1995 are derived from unaudited financial statements
prepared on the same basis as the audited financial statements and containing,
in the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position at such dates and the operating results and cash flows for such
periods. Period to period comparability in 1995 and 1996 is affected by the
Westmark acquisition completed in June 1995 and the L.J. Melody acquisition
completed in July 1996. A significant portion of the Company's revenue is
transactional in nature and seasonal. Historically, this seasonality has
caused the Company's revenue, operating income and net income to be lower in
the first two calendar quarters and higher in the third and fourth calendar
quarters of each year. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of results to be expected
for the entire year ending December 31, 1996 or for any future period.
The selected unaudited pro forma statement of operations data, balance sheet
data and other data give effect to the acquisitions of Westmark, L.J. Melody
as well as the Offering and Recapitalization as if such transactions had
occurred as of January 1, 1995 with respect to operating and other data, and
as if the Offering and the Recapitalization had occurred as of September 30,
1996 with respect to the pro forma balance sheet data. The pro forma financial
data set forth below is not necessarily indicative of the results that would
have been achieved had such transactions been consummated as of the dates
indicated or that may be achieved in the future.
The information set forth below should be read in conjunction with
"Unaudited Pro Forma Financial Statements," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements for each of the Company, L.J. Melody and Westmark and related notes
thereto which are included elsewhere in this Prospectus.
20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
1996 1996 1996 1995
----------- ----------- ---------- ----------
PRO FORMA
------------------------
ACQUISITION
ACQUISITION AND
ONLY OFFERING
----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenue......... $ 394,280 $ 394,280 $ 390,863 $ 324,890
Costs and
expenses:
Commissions,
fees and other
incentives..... 198,240 198,240 195,465 167,569
Operating,
administrative
and other...... 160,741 160,741 159,196 134,839
Depreciation and
amortization (1). 10,267 10,267 9,749 8,173
Non-recurring
charges........ -- -- -- --
---------- ---------- ---------- ----------
Operating income
(loss)......... 25,032 25,032 26,453 14,309
Interest income. 1,180 1,180 1,035 1,228
Interest
expense........ 18,099 13,672 17,883 16,944
---------- ---------- ---------- ----------
Income (loss)
before
provision
(benefit) for
income tax..... 8,113 12,540 9,605 (1,407)
Provision for
income tax..... 4,323 6,094 4,610 238
Reduction of
valuation
allowances..... (40,400) (40,400) (40,400) --
---------- ---------- ---------- ----------
Net provision
(benefit) for
income tax (2). (36,077) (34,306) (35,790) 238
---------- ---------- ---------- ----------
Net income
(loss)......... $ 44,190 $ 46,846 $ 45,395 $ (1,645)
========== ========== ========== ==========
Net income
(loss) per
common and
common
equivalent
share
outstanding.... $ 3.19 $ 3.36 $ 3.28 $ (0.14)
Number of shares
used in
computing per
share
amounts (3).... 13,858,176 13,049,618 13,858,176 11,908,995
OTHER DATA:
EBITDA (4)...... $ 36,202 $ 22,482
Ratio of
earnings to
fixed charges
(5)............ 1.42 --
Deficiency of
earnings to
fixed
charges (5).... -- $ (1,407)
Net cash
provided by
(used in)
operating
activities..... $ 24,170 $ 551
Net cash (used
in) investing
activities..... $ (9,517) $ (21,960)
Net cash
provided by
(used in)
financing
activities..... $ (12,795) $ 3,481
Investments
under
management at
period end (6). $3,730,226 $3,918,825
Loans originated
(7)............ $1,715,467 $ 603,097
Loans serviced
(7)............ $7,498,905 $3,671,532
Total
consideration
of properties
sold ......... $6,393,389 $4,517,550
Number of sale
transactions... 2,758 2,491
Number of lease
transactions... 12,521 12,733
---------- ----------
Total sale and
lease
transactions... 15,279 15,224
========== ==========
Square feet
under
management (8). 103,754 95,406
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1995 1995 1995 1994 1993 1992 1991
------------ ------------ ---------- ---------- ---------- ---------- ----------
PRO FORMA
-------------------------
ACQUISITIONS
ACQUISITIONS AND
ONLY OFFERING
------------ ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenue......... $ 489,684 $ 489,684 $ 468,460 $ 428,988 $ 392,037 $ 360,223 $ 338,119
Costs and
expenses:
Commissions,
fees and other
incentives..... 245,564 245,564 239,018 225,085 206,070 187,582 175,142
Operating,
administrative
and other...... 200,341 200,341 187,968 170,234 160,073 152,402 159,791
Depreciation and
amortization (1). 14,502 14,502 11,631 8,091 49,606 45,855 51,946
Non-recurring
charges........ -- -- -- -- -- 4,500 12,030
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)......... 29,277 29,277 29,843 25,578 (23,712) (30,116) (60,790)
Interest income. 1,926 1,926 1,674 1,109 915 1,083 1,349
Interest
expense........ 26,080 20,177 23,267 17,362 14,240 15,516 24,805
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss)
before
provision
(benefit) for
income tax..... 5,123 11,026 8,250 9,325 (37,037) (44,549) (84,246)
Provision for
income tax..... 220 2,581 841 152 112 12 135
Reduction of
valuation
allowances..... -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net provision
(benefit) for
income tax (2). 220 2,581 841 152 112 12 135
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income
(loss)......... $ 4,903 $ 8,445 $ 7,409 $ 9,173 $ (37,149) $ (44,561) $ (84,381)
========== ========== ========== ========== ========== ========== ==========
Net income
(loss) per
common and
common
equivalent
share
outstanding.... $ 0.36 $ 0.35 $ 0.55 $ 0.69 $ (3.21) $ (3.88) $ (7.39)
Number of shares
used in
computing per
share
amounts (3).... 13,591,420 12,782,862 13,591,420 13,355,997 11,555,523 11,496,256 11,398,967
OTHER DATA:
EBITDA (4)...... $ 41,474 $ 33,669 $ 25,894 $ 15,739 $ (8,844)
Ratio of
earnings to
fixed charges
(5)............ 1.28 1.40 -- -- --
Deficiency of
earnings to
fixed
charges (5).... -- -- $ (37,037) $ (44,549) $ (84,246)
Net cash
provided by
(used in)
operating
activities..... $ 30,632 $ 31,418 $ 19,609 $ 10,911 $ (25,307)
Net cash (used
in) investing
activities..... $ (24,888) $ (3,865) $ (5,629) $ (4,821) $ (3,715)
Net cash
provided by
(used in)
financing
activities..... $ (11,469) $ (4,923) $ (14,662) $ (2,157) $ 16,012
Investments
under
management at
period end (6). $3,901,727 $ 879,809 $ 760,554 $ 883,761 $ 776,010
Loans originated
(7)............ $ 989,872 $ 874,159 $ 613,071 $ 458,792 $ 135,022
Loans serviced
(7)............ $3,779,069 $3,578,962 $3,140,635 $3,787,941 $3,830,502
Total
consideration
of properties
sold ......... $6,549,861 $6,521,451 $4,995,234 $4,478,472 $3,986,576
Number of sale
transactions... 3,503 3,693 3,249 3,042 2,590
Number of lease
transactions... 17,476 17,930 18,338 17,909 17,431
---------- ---------- ---------- ---------- ----------
Total sale and
lease
transactions... 20,979 21,623 21,587 20,951 20,021
========== ========== ========== ========== ==========
Square feet
under
management (8). 105,356 92,311 76,065 70,707 71,156
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
------------------------------- ----------------------------------------------------
1996 1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- --------- --------
PRO FORMA
OFFERING
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 26,502 $ 24,903 $ 10,842 $ 23,045 $ 28,770 $ 6,140 $ 6,822 $ 2,889
Total assets............ 248,835 232,575 180,038 190,954 150,100 128,914 173,274 212,249
Total long-term debt.... 143,113 231,986 252,468 250,142 233,571 239,853 239,473 240,401
Total liabilities....... 250,596 339,469 344,184 345,642 314,648 303,774 311,630 306,123
Total stockholders' eq-
uity (deficit)......... (1,761) (106,894) (164,146) (154,688) (164,548) (174,860) (138,356) (93,874)
</TABLE>
(footnotes on following page)
21
<PAGE>
- --------
(1) 1993, 1992, and 1991 reflect the amortization of intangibles associated
with the acquisition in 1989 of CB Commercial Real Estate Group, Inc. of
$42.9 million, $40.7 million and $47.1 million, respectively.
(2) Net provision (benefit) for income tax on a consolidated basis for the
nine months ended September 30, 1996 was a benefit of ($35.8) million, a
change of $36.0 million from a $0.2 million provision for the nine months
ended September 30, 1995. During the quarter ended September 30, 1996, the
Company projected, on a more likely than not basis, that a portion of its
NOLs would be realized in current and future periods and, accordingly,
reduced existing deferred tax asset valuation allowances by $45.7 million,
of which $5.3 million has been allocated to the purchase price of L.J.
Melody, based on its estimated future potential to generate taxable
income, and the remaining $40.4 million has been recorded as a tax benefit
(a reduction in income taxes provision). With the recognition of the
deferred tax asset, current and future provisions for income tax will be
recorded at the full effective tax rate. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Net Operating
Losses."
(3) Includes the dilutive effect of 1,046,890 shares issuable upon exercise of
stock options outstanding as of September 30, 1996 under the Company's
stock option plans. Acquisitions and offering pro forma data excludes
shares of Class C-R and Class J common stock to be repurchased by the
Company in connection with the Offering and shares of Preferred Stock
convertible at the option of the holder into Common Stock after the
Offering. Pro forma data includes 444,444 shares of Common Stock issuable
upon conversion of the 800,000 shares of the Company's Class C-1 common
stock (assuming an initial public offering price per share of $22.50). See
"Description of Capital Stock--Preferred Stock" and "--The
Recapitalization."
(4) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, thereby removing the effect of certain non-cash charges on
income, consisting of depreciation and the amortization of intangible
assets relating to acquisitions. Management believes that the presentation
of EBITDA will enhance a reader's understanding of the Company's operating
performance and ability to service debt as it provides a measure of cash
generated that can be used by the Company to service its debt and for
other required or discretionary purposes. Management has used EBITDA as
one of the primary measures of operating performance in evaluating its
recent acquisitions. Net cash available to the Company for discretionary
purposes represents remaining cash, after debt service and other cash
requirements, such as capital expenditures are deducted from EBITDA.
EBITDA should not be considered as an alternative either (i) to operating
income (determined in accordance with GAAP) or (ii) operating cash flow
(determined in accordance with GAAP).
(5) The ratio of earnings to fixed charges represents earnings before income
taxes and fixed charges divided by fixed charges. Fixed charges include
interest expense, one-third of rent expense relating to operating leases,
and, for purposes of the pro forma ratios, preferred stock dividends. For
purposes of this calculation preferred stock dividends is computed to
demonstrate earnings required on a pre-tax basis. Deficiency of earnings
to fixed charges is presented for periods when the Company's earnings were
not sufficient to cover its fixed charges requirement. Earnings included
non-cash depreciation and amortization charges of $9.7 million, $8.2
million, $11.6 million, $8.1 million, $49.6 million, $45.9 million and
$51.9 million for the nine month periods ended September 30, 1996 and
1995, and for the years ended December 31, 1995, 1994, 1993, 1992 and
1991, respectively.
(6) Investments under management represent the market value of the assets
managed as of the end of the period shown.
(7) Mortgage loans originated represent the initial principal amount of loans
originated during the period and loans serviced represents the outstanding
principal balance of loans being serviced as of the end of the period
shown. The increase in mortgage loans originated and serviced primarily
reflects the acquisition of L.J. Melody on July 1, 1996.
(8) Square feet under management represents the total square footage of
properties for which the Company provided property management services as
of the end of the period shown.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The integrated real estate services provided by the Company include (i)
Property and User Services, consisting of brokerage (facilitating sales and
leases), investment properties (acquisitions and sales on behalf of
investors), corporate services, property management, and real estate market
research, and (ii) Investor Services, consisting of mortgage banking (mortgage
loan origination and servicing) through L.J. Melody, investment management and
advisory services through Westmark, and valuation and appraisal services.
During the third quarter of 1996, the Company projected, on a more likely
than not basis, that a portion of its net operating loss carryforwards ("NOL")
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
has been allocated to the purchase price of L.J. Melody based on its estimated
future potential to generate taxable income, and the remaining $40.4 million
has been recorded as a tax benefit (a reduction in income tax provision). With
the recognition of deferred tax assets, the current and future period
provisions for income tax will be recorded at the full effective tax rate
excluding the impact of other adjustments, if any, to valuation allowances.
For the nine months ended September 30, 1996, a $4.6 million provision for
income taxes has been recorded. Net income for the nine months ended
September 30, 1996 was $45.4 million ($3.28 per share of common stock), which
includes the net benefit for income tax of $35.8 million. If the Company had
not recorded tax benefits related to projected future taxable income for the
nine months ended September 30, 1996, the Company's net income for such period
would have been $8.8 million ($.64 per share of common stock). The provision
for income tax would have consisted of current and deferred state tax
provisions and provision for Federal alternative minimum tax. Provision for
regular Federal taxes would have been offset by reductions in valuation
allowances to the extent of such regular Federal taxes. The $40.4 million
recognized tax benefit has a material effect on the reported net income for
the nine months ended September 30, 1996. This $40.4 million tax benefit is a
non-recurring item and is unrelated to the Company's performance and should
not be used in evaluating the Company's prospects or future performance. An
additional $16.3 million reduction of valuation allowances and related tax
benefit is expected to be recorded in the fourth quarter of 1996 as a result
of the Offering and related reduction in future interest expense. See "Net
Operating Losses" below and "Unaudited Pro Forma Balance Sheet."
A significant portion of the Company's revenue is transactional in nature
and seasonal. Historically, this seasonality has caused the Company's revenue,
operating income and net income to be lower in the first two calendar quarters
and higher in the third and fourth calendar quarters of each year. The results
of operations for the nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for the entire year ending December 31,
1996 or for any future period. See "Risk Factors--Seasonality."
Revenue from Property and User Services, which constitutes a substantial
majority of the Company's revenue, is largely transactional in nature and
subject to economic cycles. However, the Company's significant size,
geographic coverage, number of transactions, diversity of services offered and
large client base tend to reduce the impact on annual revenue caused by
economic cycles. Due in large part to acquisitions, revenue from Investor
Services, a significant portion of which is non-transactional in nature, has
grown more rapidly than revenue from Property and User Services. Approximately
54.0% of the costs and expenses associated with Property and User Services are
directly correlated to revenue while approximately 25.0% of the costs and
expenses of Investor Services are directly correlated to revenue.
The Company has recently completed three strategic acquisitions and is
continually assessing acquisition opportunities as part of its growth strategy
(see "Business--Acquisitions"). Because of the substantial non-cash goodwill
and intangible amortization charges incurred by the Company in connection with
acquisitions subject to purchase accounting, management anticipates that
future acquisitions may result in a decrease in net income. In addition,
during the first six months following an acquisition, the Company believes
there are generally significant one-time costs relating to integrating
information technology, accounting and management services
23
<PAGE>
and rationalizing personnel levels. Management's strategy is to pursue
acquisitions that are expected to be accretive to income before interest
expense and provision for amortization of goodwill and intangibles, if any,
resulting from the acquisitions, and to operating cash flows after all
integration costs.
Since 1992, the Company's results have benefitted from its ability to take
advantage of a significant and ongoing recovery in U.S. commercial real estate
markets and the generally rising level of occupancy and rental levels, and, as
a result, property values. Since brokerage fees are typically based upon a
percentage of transaction value, and property management fees are typically
based upon a percentage of total rent collections, recent occupancy and rental
rate increases at the property level have generated an increase in brokerage
and property management fees to the Company.
Upon consummation of the Offering, the Company's total outstanding
indebtedness will be reduced from $256.5 million to $167.7 million. The
reduction of the Company's total outstanding indebtedness, net of the effect
of the increase in the interest rate on the Senior Subordinated Credit
Agreement, will result in a savings in interest expense to the Company of
approximately $5.9 million per year. See "The Company's Credit Agreements--
Senior Subordinated Debt Amendments." The $0.25 per share quarterly dividend
on the Company's Preferred Stock, which will accrue from October 1, 1996, will
result, if and when paid, in a cost of $1.0 million per quarter. Until the
Company has completed its acquisition program, it does not intend to pay
dividends on the Preferred Stock. As a consequence, such dividends will
accumulate and bear interest which will be paid on a current basis and the
Company will be prohibited from voluntarily prepaying long-term debt until
such accumulated dividend has been paid in full. Effective upon the
consummation of the Offering, the terms of the Company's Preferred Stock will
be amended to provide that it is convertible at the option of the holders into
shares of Common Stock. See "Description of Capital Stock--Preferred Stock."
RESULTS OF OPERATIONS
The following unaudited table sets forth items derived from the Company's
consolidated statements of operations for each of the periods presented in
dollars and as a percentage of revenue.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------------------- -----------------------------------------------
1996 1995 1995 1994 1993
------------------ ------------------ -------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $390,863 100.0 % $324,890 100.0 % $468,460 100.0% $428,988 100.0% $392,037 100.0 %
Costs and Expenses:
Commissions, fees and
other incentives...... 195,465 50.1 167,569 51.6 239,018 51.0 225,085 52.5 206,070 52.6
Operating,
administrative and
other................. 159,196 40.7 134,839 41.5 187,968 40.1 170,234 39.7 160,073 40.8
Depreciation and
amortization.......... 9,749 2.4 8,173 2.5 11,631 2.5 8,091 1.9 49,606 12.7
--------- ------ --------- ------ -------- ----- -------- ----- -------- -----
Operating income (loss). 26,453 6.8 14,309 4.4 29,843 6.4 25,578 5.9 (23,712) (6.1)
Interest income......... 1,035 0.2 1,228 0.3 1,674 0.4 1,109 0.3 915 0.2
Interest expense........ 17,883 4.5 16,944 5.2 23,267 5.0 17,362 4.0 14,240 3.6
--------- ------ --------- ------ -------- ----- -------- ----- -------- -----
Income (loss) before
provision (benefit) for
income tax............. 9,605 2.5 (1,407) (0.5) 8,250 1.8 9,325 2.2 (37,037) (9.5)
Provision for income
tax.................... 4,610 1.2 238 0.0 841 0.2 152 0.0 112 0.0
Reduction of valuation
allowances............. (40,400) (10.3) -- -- -- -- -- -- -- --
--------- ------ --------- ------ -------- ----- -------- ----- -------- -----
Net provision (benefit)
for income tax......... (35,790) (9.1) 238 0.0 841 0.2 152 0.0 112 0.0
--------- ------ --------- ------ -------- ----- -------- ----- -------- -----
Net income (loss)....... $ 45,395 11.6 % $ (1,645) (0.5)% $ 7,409 1.6% $ 9,173 2.2% $(37,149) (9.5)%
========= ====== ========= ====== ======== ===== ======== ===== ======== =====
</TABLE>
24
<PAGE>
The following unaudited tables summarize the revenue, cost and expenses, and
operating income by operating segment for the nine months ended September 30,
1996 and 1995 and the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30, YEAR ENDED DECEMBER 31,
------------------------------- ---------------------------------------------------
1996 1995 1995 1994 1993
-------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY AND USER SERV-
ICES
Revenue:
Brokerage.............. $227,756 66.7% $208,913 70.8% $294,290 69.6% $284,775 71.1% $270,063 74.2%
Investment Properties.. 80,406 23.5 58,520 19.9 87,576 20.7 81,394 20.4 67,388 18.5
Corporate Services..... 17,436 5.1 13,524 4.6 21,723 5.1 15,631 3.9 9,640 2.6
Property Management(1)
...................... 14,705 4.3 13,139 4.5 18,332 4.4 17,692 4.4 16,432 4.5
Real Estate Market
Research.............. 1,198 0.4 627 0.2 912 0.2 758 0.2 649 0.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
341,501 100.0 294,723 100.0 422,833 100.0 400,250 100.0 364,172 100.0
Costs and expenses:
Commissions, fees and
other incentives...... 183,951 53.9 159,475 54.1 227,387 53.8 215,506 53.8 196,425 53.9
Operating,
administrative and
other................. 130,764 38.3 116,085 39.4 160,415 37.9 152,141 38.0 143,394 39.4
Depreciation and
amortization.......... 6,830 2.0 6,617 2.2 8,889 2.1 7,485 1.9 44,268 12.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income
(loss)................ $ 19,956 5.8% $ 12,546 4.3% $ 26,142 6.2% $ 25,118 6.3% $(19,915) (5.5)%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
INVESTOR SERVICES
Mortgage Banking
Revenue................ $ 14,035 100.0% $ 6,533 100.0% $ 10,417 100.0% $ 9,488 100.0% $ 7,218 100.0%
Costs and expenses:
Commissions, fees and
other
incentives............ 5,611 40.0 2,663 40.8 4,209 40.4 3,914 41.3 2,805 38.9
Operating,
administrative and
other................. 6,409 45.6 4,823 73.8 6,338 60.8 5,538 58.4 4,521 62.6
Depreciation and
amortization.......... 386 2.8 184 2.8 268 2.6 195 2.1 1,372 19.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income....... $ 1,629 11.6% $ (1,137) (17.4)% $ (398) (3.8)% $ (159) (1.8)% $ (1,480) (20.5)%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Investment Management
and Advisory
Revenue................ $ 22,239 100.0% $ 11,575 100.0% $ 18,610 100.0% $ 5,902 100.0% $ 5,091 100.0%
Costs and expenses:
Operating,
administrative and
other................. 16,351 73.5 8,451 73.0 13,745 73.9 5,580 94.5 5,103 100.2
Depreciation and
amortization.......... 2,207 9.9 1,126 9.7 2,148 11.5 149 2.5 1,245 24.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income
(loss)................ $ 3,681 16.6% $ 1,998 17.3% $ 2,717 14.6% $ 173 3.0% $ (1,257) (24.7)%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Valuation and Appraisal
Services
Revenue................ $ 13,088 100.0% $ 12,059 100.0% $ 16,600 100.0% $ 13,348 100.0% $ 15,556 100.0%
Costs and expenses:
Commissions, fees and
other incentives...... 5,903 45.1 5,431 45.1 7,422 44.7 5,665 42.4 6,840 44.0
Operating,
administrative and
other................. 5,672 43.3 5,480 45.4 7,470 45.0 6,975 52.3 7,055 45.4
Depreciation and
amortization.......... 326 2.5 246 2.0 326 2.0 262 2.0 2,721 17.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income
(loss)................ $ 1,187 9.1% $ 902 7.5% $ 1,382 8.3% $ 446 3.3% $ (1,060) (6.9)%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
TOTAL INVESTOR SERVICES
Revenue................ $ 49,362 100.0% $ 30,167 100.0% $ 45,627 100.0% $ 28,738 100.0% $ 27,865 100.0%
Costs and expenses:
Commissions, fees and
other incentives...... 11,514 23.3 8,094 26.8 11,631 25.5 9,579 33.3 9,645 34.6
Operating,
administrative and
other................. 28,432 57.6 18,754 62.2 27,553 60.4 18,093 63.0 16,679 59.9
Depreciation and
amortization.......... 2,919 5.9 1,556 5.2 2,742 6.0 606 2.1 5,338 19.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income
(loss)................ $ 6,497 13.2% $ 1,763 5.8% $ 3,701 8.1% $ 460 1.6% $ (3,797) (13.7)%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- -------
(1) Does not include reimbursable costs associated with the wages of on-site
employees and the cost of field office rent, furniture, computers,
supplies and utilities. Revenues from leasing services provided to the
Company's property management clients are reflected in brokerage rather
than property management revenue.
25
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
REVENUE on a consolidated basis for the nine months ended September 30, 1996
was $390.9 million, an increase of $66.0 million or 20.3% from $324.9 million
for the nine months ended September 30, 1995. The overall increase in revenue,
compared to the same period in 1995, reflected a continued improvement in the
commercial real estate markets in many areas of the United States. This
improvement reflected increasing investor confidence, increasing prices and a
more liquid market than in prior periods resulting from declining vacancy
levels and the return of some bargaining power to landlords.
Property and User Services revenue was $341.5 million for the nine months
ended September 30, 1996, an increase of $46.8 million or 15.9% from $294.7
million for the nine months ended September 30, 1995. Brokerage revenue
accounted for $227.8 million, an increase of $18.8 million or 9.0% from $208.9
million, and investment properties revenue accounted for $80.4 million, an
increase of $21.9 million or 37.4% from $58.5 million. These increases
resulted in part from an increase in the total number and size of brokerage
and investment properties sale transactions closed during the nine months
ended September 30, 1996 compared to transactions closed during the nine
months ended September 30, 1995. Although the number of lease transactions
declined from the nine months ended September 30, 1995 to the nine months
ended September 30, 1996, the average commission amount for lease transactions
increased from the nine months ended September 30, 1995 to the nine months
ended September 30, 1996, resulting in an increase in revenue from leasing.
Property management revenue was $14.7 million, an increase of $1.6 million or
11.9% from $13.1 million and corporate services revenue was $17.4 million, an
increase of $3.9 million or 28.9% from $13.5 million.
Investor Services revenue was $49.4 million for the nine months ended
September 30, 1996, an increase of $19.2 million or 63.6% from $30.2 million
for the nine months ended September 30, 1995. This increase was primarily due
to an increase in investment management and advisory revenue to $22.2 million
from $11.6 million, resulting from the Westmark acquisition. Valuation and
appraisal services revenue accounted for $13.1 million, an increase of
$1.0 million or 8.5% from $12.1 million, and mortgage banking revenue was
$14.0 million, an increase of $7.5 million or 114.8% from $6.5 million,
primarily as a result of the Melody acquisition together with increased sales
and refinancing activity.
COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis for the nine
months ended September 30, 1996 were $195.5 million, an increase of $27.9
million or 16.6% from $167.6 million for the nine months ended September 30,
1995. The increase in these costs is directly correlated to the increase in
revenue since most of the Company's sales professionals are compensated based
on revenue. As a percentage of revenue, commissions, fees and other incentives
decreased from 51.6% to 50.0%. The decrease in commissions, fees and other
incentives as a percentage of revenue is primarily due to the acquisition of
Westmark, which significantly increased the revenue of investment management
and advisory which does not incur this type of revenue-based expense.
Excluding investment management and advisory, commissions, fees and other
incentives, on a consolidated basis, were relatively flat as a percentage of
revenue decreasing to 53.0% for the nine months ended September 30, 1996 from
53.5% for the nine months ended September 30, 1995.
Property and User Services commissions, fees and other incentives were
$184.0 million for the nine months ended September 30, 1996, an increase of
$24.5 million or 15.3% from $159.5 million for the nine months ended
September 30, 1995 and a decrease as a percentage of revenue from 54.1% to
53.9%.
Investor Services commissions, fees and other incentives were $11.5 million
for the nine months ended September 30, 1996, an increase of $3.4 million or
42.3% from $8.1 million for the nine months ended September 30, 1995 and a
decrease as a percentage of revenue from 26.8% to 23.3%.
OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis for the nine
months ended September 30, 1996 was $159.2 million, an increase of $24.4
million or 18.1% from $134.8 million for the nine months ended September 30,
1995, and decreased as a percentage of revenue for such periods from 41.5% to
40.7%.
Property and User Services operating, administrative and other was $130.8
million for the nine months ended September 30, 1996, an increase of $14.7
million or 12.6% from $116.1 million for the nine months ended September 30,
1995. This increase was primarily associated with increased operating
activities.
Investor Services operating, administrative and other was $28.4 million for
the nine months ended September 30, 1996, an increase of $9.7 million or 51.6%
from $18.8 million for the nine months ended September 30, 1995, primarily
resulting from the Westmark acquisition.
26
<PAGE>
DEPRECIATION AND AMORTIZATION on a consolidated basis for the nine months
ended September 30, 1996 was $9.7 million, an increase of $1.5 million or
19.3% from $8.2 million for the nine months ended September 30, 1995,
resulting primarily from the Westmark and Melody acquisitions.
Property and User Services depreciation and amortization was $6.8 million
for the nine months ended September 30, 1996, an increase of $0.2 million or
3.2% from $6.6 million for the nine months ended September 30, 1995.
Investor Services depreciation and amortization was $2.9 million for the
nine months ended September 30, 1996, an increase of $1.4 million or 87.6%
from $1.6 million for the nine months ended September 30, 1995.
OPERATING INCOME on a consolidated basis for the nine months ended September
30, 1996 was $26.5 million, an increase of $12.2 million or 84.9% from $14.3
million for the nine months ended September 30, 1995. The increase in
operating income resulted from an increase in revenue of $66.0 million or
20.3% partially offset by a related increase in commission expense of
$27.9 million or 16.6%, a $24.4 million or 18.1% increase in operating
expenses and a $1.5 million or 19.3% increase in depreciation and amortization
as described above.
Property and User Services operating income was $20.0 million for the nine
months ended September 30, 1996, an increase of $7.4 million or 59.1% from
$12.5 million for the nine months ended September 30, 1995. The increase in
Property and User Services operating income resulted from an increase in
Property and User Services revenue of $46.8 million or 15.9% partially offset
by a related increase in commission expense of $24.5 million or 15.3%, a $14.7
million or 12.6% increase in operating expenses and a $0.2 million or 3.2%
increase in depreciation and amortization as described above.
Investor Services operating income was $6.5 million for the nine months
ended September 30, 1996, an increase of $4.7 million or 268.5% from $1.8
million for the nine months ended September 30, 1995. The increase in Investor
Services operating income resulted from an increase in Investor Services
revenue of $19.2 million or 63.6% partially offset by a related increase in
commission expense of $3.4 million or 42.3%, a $9.7 million or 51.6% increase
in operating expenses and a $1.4 million or 87.6% increase in depreciation and
amortization as described above.
INTEREST INCOME on a consolidated basis for the nine months ended September
30, 1996 was $1.0 million, a decrease of $0.2 million or 15.7% from $1.2
million for the nine months ended September 30, 1995.
INTEREST EXPENSE on a consolidated basis for the nine months ended September
30, 1996 was $17.9 million, an increase of $1.0 million or 5.5% from $16.9
million for the nine months ended September 30, 1995, primarily resulting from
additional debt incurred with respect to the Westmark and Melody acquisitions,
offset by reduced average bank borrowing levels on other Company indebtedness
and a decline in interest rates on bank debt.
NET PROVISION (BENEFIT) FOR INCOME TAX on a consolidated basis for the nine
months ended September 30, 1996 was a benefit of ($35.8) million, compared to
a $0.2 million provision for the nine months ended September 30, 1995. During
the third quarter of 1996, the Company projected, on a more likely than not
basis, that a portion of its NOL would be realizable in future periods and,
accordingly, reduced its existing deferred tax asset valuation allowances by
$45.7 million of which $5.3 million has been allocated to the purchase price
of L.J. Melody based on its estimated future potential to generate taxable
income, and the remaining $40.4 million has been recorded as a tax benefit (a
reduction in income tax provision). With the recognition of deferred tax
assets, the current and future period provisions for income tax will be
recorded at the full effective tax rate excluding the impact of other
adjustments, if any, to valuation allowances. For the nine months ended
September 30, 1996, a $4.6 million provision for income taxes has been
recorded. Net income for the nine months ended September 30, 1996 was
$45.4 million ($3.28 per share of common stock), which includes the net
benefit for income tax of $35.8 million. If the Company had not recorded tax
benefits related to projected future taxable income for the nine months ended
September 30, 1996, the Company's net income for such period would have been
$8.8 million ($.64 per share of common stock). The provision for income tax
would have consisted of current and deferred state tax provisions and
provision for Federal alternative minimum tax. Provision for regular Federal
taxes would have been offset by reductions in valuation allowances to the
extent of such regular Federal taxes. The $40.4 million recognized tax benefit
has a material effect on the reported net income for the nine months ended
September 30, 1996. This $40.4 million tax benefit is a non-recurring item and
is unrelated to the
27
<PAGE>
Company's performance and should not be used in evaluating the Company's
prospects or future performance. An additional $16.3 million reduction of
valuation allowances and related tax benefit is expected to be recorded in the
fourth quarter of 1996 as a result of the Offering and related reduction in
future interest expense.
NET INCOME on a consolidated basis for the nine months ended September 30,
1996 was $45.4 million ($3.28 per share of common stock), after giving effect
to the tax benefit resulting from the reduction of valuation allowances of
$40.4 million ($2.92 per share of common stock) an improvement of
$47.0 million from a net loss of $1.6 million ($0.14 loss per share of common
stock) for the nine months ended September 30, 1995. The improvement also
resulted from a revenue increase of $66.0 million or 20.3% which was partially
offset by a related increase in commission expense of $27.9 million or 16.6%,
a $24.4 million or 18.1% increase in operating expenses and a $1.5 million or
19.3% increase in depreciation and amortization as described above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUE on a consolidated basis in 1995 was $468.5 million, an increase of
$39.5 million or 9.2% from $429.0 million in 1994. The overall increase in
revenue, compared to 1994, reflected a continued improvement in the commercial
real estate markets in most areas of the United States. This improvement
reflected increasing investor confidence, increasing prices and a more liquid
market than in prior years resulting from declining vacancy levels and the
return of some bargaining power to landlords.
Property and User Services revenue was $422.8 million in 1995, an increase
of $22.5 million or 5.6% from $400.3 million in 1994. Brokerage revenue
accounted for $294.3 million, an increase of $9.5 million or 3.3% from $284.8
million and investment properties revenue accounted for $87.6 million, an
increase of $6.2 million or 7.6% from $81.4 million. Corporate services
revenue accounted for $21.7 million, an increase of $6.1 million or 39% from
$15.6 million. Although the number of sale and lease transactions closed
decreased in 1995 from 1994, the average dollar amount of both sale and lease
transactions increased approximately 9.0%, resulting in a net increase in
brokerage and investment properties revenue.
Investor Services revenue was $45.6 million in 1995, an increase of $16.9
million or 58.8% from $28.7 million in 1994, largely due to an increase in
investment management and advisory revenue to $18.6 million from $5.9 million,
primarily resulting from the Westmark acquisition. Valuation and appraisal
services revenue accounted for $16.6 million, an increase of $3.3 million or
24.4% from $13.3 million and mortgage banking revenue accounted for $10.4
million, an increase of $0.9 million or 9.8% from $9.5 million.
COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis in 1995 were
$239.0 million, an increase of $13.9 million or 6.2% from $225.1 million in
1994. The increase in these costs is directly correlated to the increase in
revenue since most of the Company's sales professionals are compensated based
on revenue. As a percentage of revenue, commissions, fees and other incentives
decreased from 52.5% in 1994 to 51.0% in 1995. The decrease in commissions,
fees and other incentives as a percentage of revenue is primarily due to the
significant revenue growth of investment management and advisory, which does
not incur this type of revenue-based expense. Excluding investment management
and advisory, commissions, fees and other incentives on a consolidated basis
remained constant as a percent of revenues at 53.2% for 1995 and 1994.
Property and User Services commissions, fees and other incentives was
$227.4 million in 1995, an increase of $11.9 million or 5.5% from $215.5
million in 1994 and a decrease as a percentage of revenue from 53.9% to 53.8%.
Investor Services commissions, fees and other incentives was $11.6 million
in 1995, an increase of $2.0 million or 21.4% from $9.6 million in 1994 and a
decrease as a percentage of revenue from 33.4% to 25.6%.
OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis in 1995 was
$188.0 million, an increase of $17.8 million or 10.4% from $170.2 million in
1994, remaining relatively stable as a percentage of revenue for such periods
at 40.0% and 39.7%, respectively.
28
<PAGE>
Property and User Services operating, administrative and other was $160.4
million in 1995, an increase of $8.3 million or 5.4% from $152.1 million in
1994. This increase was caused, in part, by additions to staff in anticipation
of further increases in operating activities and resulted in higher levels of
administrative, technical and other support expenditures and related personnel
costs, as well as higher business promotion and other expenses.
Investor Services operating, administrative and other was $27.6 million in
1995, an increase of $9.5 million or 52.3% from $18.1 million in 1994,
primarily resulting from the Westmark acquisition.
DEPRECIATION AND AMORTIZATION on a consolidated basis in 1995 was $11.6
million, an increase of $3.5 million or 43.8% from $8.1 million in 1994 as a
result of the Westmark acquisition and new capital leases for computer
equipment entered into in 1995.
Property and User Services depreciation and amortization was $8.9 million in
1995, an increase of $1.4 million or 18.8% from $7.5 million in 1994.
Investor Services depreciation and amortization was $2.7 million in 1995, an
increase of $2.1 million or 352.5% from $0.6 million in 1994.
OPERATING INCOME on a consolidated basis in 1995 was $29.9 million, an
increase of $4.3 million or 16.7% from $25.6 million in 1994. The increase in
operating income resulted from an increase in revenue of $39.5 million or 9.2%
partially offset by a related increase in commission expense of $13.9 million
or 6.2%, a $17.8 million or 10.4% increase in operating expenses and a $3.5
million or 43.8% increase in depreciation and amortization as described above.
Property and User Services operating income was $26.1 million in 1995, an
increase of $0.9 million or 4.1% from $25.2 million in 1994. The increase in
Property and User Services operating income resulted from an increase in
Property and User Services revenue of $22.5 million or 5.6% partially offset
by a related increase in commission expense of $11.9 million or 5.5%, an $8.3
million or 5.4% increase in operating expenses and a $1.4 million or 18.8%
increase in depreciation and amortization as described above.
Investor Services operating income was $3.7 million in 1995, an increase of
$3.3 million or 704.6% from $0.4 million in 1994. The increase in Investor
Services operating income resulted from an increase in Investor Services
revenue of $16.9 million or 58.8% partially offset by a related increase in
commission expense of $2.0 million or 21.4%, a $9.5 million or 52.3% increase
in operating expenses and a $2.1 million or 352.5% increase in depreciation
and amortization primarily as a result of the Westmark acquisition as
described above.
INTEREST INCOME on a consolidated basis in 1995 was $1.7 million, an
increase of $0.6 million or 50.1% from $1.1 million in 1994. This increase
primarily resulted from increased interest rates and improved cash management.
INTEREST EXPENSE on a consolidated basis in 1995 was $23.3 million, an
increase of $5.9 million or 34.0% from $17.4 million in 1994. This increase
resulted from a general increase in interest rates, the full year impact of
the higher interest rates on the senior secured and senior subordinated debt
of LIBOR plus 250 basis points and LIBOR plus 125 basis points, respectively,
which were effective June 30, 1994, and the addition of the debt incurred with
respect to the Westmark acquisition, offset in part by reduced average
borrowing levels on other Company indebtedness.
NET INCOME on a consolidated basis in 1995 was $7.4 million ($0.55 per share
of common stock), a decrease of $1.8 million or 19.2% from $9.2 million ($0.69
per share of common stock) in 1994. The decrease in net income resulted from
an increase in commission expense of $13.9 million or 6.2%, a $17.8 million or
10.4% increase in operating expenses, a $3.5 million or 43.8% increase in
depreciation and amortization and an increase in interest expense of
$5.9 million or 34.0% partially offset by an increase in revenue of $39.5
million or 9.2% as described above.
29
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUE on a consolidated basis in 1994 was $429.0 million, an increase of
$37.0 million or 9.4% from $392.0 million in 1993.
Property and User Services revenue was $400.3 million in 1994, an increase
of $36.1 million or 9.9% from $364.2 million in 1993. Brokerage revenue
accounted for $284.8 million, an increase of $14.7 million or 5.5% from $270.1
million and investment properties revenue accounted for $81.4 million, an
increase of $14.0 million or 20.8% from $67.4 million. Corporate services
revenue accounted for $15.6 million, an increase of $6.0 million or 62.1% from
$9.6 million and property management revenue accounted for $17.7 million, an
increase of $1.3 million or 7.7% from $16.4 million. These increases resulted
in part from an increase in the total number and size of brokerage, investment
properties and corporate services sale transactions closed during 1994 and in
part from an increase in total size of brokerage lease transactions closed
during 1994. Although the number of lease transactions declined in 1994 from
1993, the average lease commission amount increased by approximately 9.7%,
resulting in an overall increase in revenue from leasing.
Investor Services revenue was $28.7 million in 1994, an increase of $0.9
million or 3.1% from $27.8 million in 1993. Investment Management and Advisory
revenue accounted for $5.9 million, an increase of $0.8 million or 15.9% from
$5.1 million. Valuation and Appraisal Services revenue accounted for $13.3
million, a decrease of $2.3 million or 14.2% from $15.6 million as a result of
a change in federal regulations, which modified appraisal standards and
requirements. Mortgage Banking revenue accounted for $9.5 million, an increase
of $2.3 million or 31.5% from $7.2 million, primarily resulting from improved
availability of credit to finance commercial real estate transactions.
COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis in 1994 were
$225.1 million, an increase of $19.0 million or 9.2% from $206.1 million in
1993. An increase in these costs is directly correlated to an increase in
revenue since most of the Company's sales professionals are compensated based
on revenue. As a percentage of revenue, commissions, fees and other expenses
remained relatively flat decreasing from 52.6% in 1993 to 52.5% in 1994.
Property and User Services commissions, fees and other incentives was $215.5
million in 1994, an increase of $19.1 million or 9.7% from $196.4 million in
1993 and a decrease as a percentage of revenue from 53.9% to 53.8%.
Investor Services commissions, fees and other incentives was $9.6 million
for both years, a decrease as a percentage of revenues from 34.6% to 33.3%.
OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis in 1994 was
$170.2 million, an increase of $10.2 million or 6.3% from $160.1 million in
1993, and remained relatively flat as a percentage of revenue for such periods
at 39.7% and 40.8%, respectively, due to the cost control measures implemented
in 1994. These increases were primarily the result of the Company's expansion
of loan closing and underwriting activities and continuing investments in
information technology and the additions of sales support personnel and LAN
(local area network) administrators and technicians to enhance the
productivity of sales personnel.
Property and User Services operating, administrative and other was $152.1
million in 1994, an increase of $8.7 million or 6.1% from $143.4 million in
1993.
Investor Services operating, administrative and other was $18.1 million in
1994, an increase of $1.4 million or 8.5% from $16.7 million in 1993.
DEPRECIATION AND AMORTIZATION on a consolidated basis in 1994 was $8.1
million, a decrease of $41.5 million or 83.7% from $49.6 million in 1993 as a
result of the write-off of intangibles in 1993 associated with the
Acquisition.
30
<PAGE>
Property and User Services depreciation and amortization was $7.5 million in
1994, a decrease of $36.8 million or 83.1% from $44.3 million in 1993.
Investor Services depreciation and amortization was $0.6 million in 1994, a
decrease of $4.7 million or 88.7% from $5.3 million in 1993.
OPERATING INCOME on a consolidated basis in 1994 was $25.6 million, an
improvement of $49.3 million from an operating loss of $23.7 million in 1993.
The improvement in operating income resulted from an increase in revenue of
$37.0 million or 9.4% partially offset by a related increase in commission
expense of $19.0 million or 9.2%, a $10.2 million or 6.3% increase in
operating expenses and a $41.5 million or 83.7% decrease in depreciation and
amortization as a result of the write-off of intangibles in 1993 as described
above.
Property and User Services operating income was $25.2 million in 1994, an
improvement of $45.1 million from $(19.9) million in 1993. The improvement in
Property and User Services operating income resulted from an increase in
Property and User Services revenue of $36.1 million or 9.9% partially offset
by a related increase in commission expense of $19.1 million or 9.7%, an $8.7
million or 6.1% increase in operating expenses and a $36.8 million or 83.1%
decrease in depreciation and amortization as a result of the write-off of
intangibles in 1993 as described above.
Investor Services operating income was $0.4 million in 1994, an improvement
of $4.2 million from an operating loss of $3.8 million in 1993. The
improvement in Investor Services operating income resulted primarily from a
$4.7 million or 88.7% decrease in depreciation and amortization as a result of
the write-off of intangibles in 1993 as described above.
INTEREST INCOME on a consolidated basis in 1994 was $1.1 million, an
increase of $0.2 million or 21.2% from $0.9 million in 1993.
INTEREST EXPENSE on a consolidated basis in 1994 was $17.4 million, an
increase of $3.2 million or 21.9% from $14.2 million in 1993. This increase
resulted from a general increase in interest rates and the impact of the
higher interest rates on the senior secured indebtedness and senior
subordinated indebtedness, which were effective June 30, 1994.
NET INCOME on a consolidated basis in 1994 was $9.2 million ($0.69 per share
of common stock), an improvement of $46.4 million from a net loss of
$37.2 million ($3.21 loss per share of common stock) in 1993. The improvement
in net income resulted from an increase in revenue of $37.0 million or 9.4%
partially offset by a related increase in commission expense of $19.0 million
or 9.2%, a $10.2 million or 6.3% increase in operating expenses, a $41.5
million or 83.7% decrease in depreciation and amortization as a result of the
write-off of intangibles in 1993 and an increase in interest expense of $3.3
million or 21.9% as described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and non-acquisition
related capital expenditures primarily with internally generated funds,
operating leases and, to a much lesser extent, capital leases, and borrowings
under a revolving credit facility. In order to finance the acquisition of CB
Commercial Real Estate Group, Inc. and related expenses, in April 1989 the
Company incurred borrowings of $251.0 million, which included $170.0 million
under a senior secured credit agreement (the "Senior Secured Credit
Agreement") and $81.0 million under a senior subordinated credit agreement
(the "Senior Subordinated Credit Agreement"). As of September 30, 1996, the
Company had outstanding $139.8 million, including $4.8 million of deferred
interest, under the Senior Secured Credit Agreement and $8.0 million under a
revolving credit facility ("Revolving Credit Facility A"), no amounts
outstanding under its second revolving credit facility ("Revolving Credit
Facility B" and together with Revolving Credit Facility A, the "Revolving
Credit Facilities") and $71.0 million (including $9.0 million of deferred
interest) under the Senior Subordinated Credit Agreement. The outstanding
amount under the Senior Secured Credit Agreement reflects principal repayments
of $41.3 million since June 30, 1994.
31
<PAGE>
In addition, as of September 30, 1996 the Company had outstanding other long-
term indebtedness, consisting primarily of acquisition debt, totaling
approximately $45.7 million. Consistent with the seasonality of the Company's
revenue, as of October 31, 1996 all outstanding borrowings under the Revolving
Credit Facility A have been repaid.
Of the net proceeds of the Offering, $79.9 million will be used to repay a
portion of the indebtedness outstanding under the Senior Secured Credit
Agreement and $9.0 million will be used to pay accrued and unpaid interest on
the indebtedness outstanding under the Senior Subordinated Credit Agreement.
The remaining $1.6 million of net proceeds will be used for general corporate
purposes, including to fund acquisitions. As proposed, effective upon
completion of the Offering, the Revolving Credit Facility B will be converted
into a facility that can be used for acquisitions and will bear interest at
LIBOR plus 300 basis points. The Company has begun discussions to increase
Revolving Credit Facility B from $10.0 million to $20.0 million sometime in
1997, although there can be no assurance that such discussions will be
successful or if successful that $20.0 million will be adequate to finance the
Company's acquisition program.
In connection with and conditional upon the Offering and the repayment of a
portion thereof, the senior secured lenders have agreed to amend the terms of
the Senior Secured Credit Agreement. As amended, the Company will be required
to make quarterly principal payments of $2.625 million commencing March 31,
1997 with a final payment of $2.2 million on September 30, 2001. Revolving
Credit Facility A permits maximum borrowings of $20.0 million which must be
paid off in full for at least 30 consecutive days in each year commencing with
1997. See "The Company's Credit Agreements--Senior Secured Debt Repayment and
Amendments."
Also in connection with and conditional upon the Offering, the senior
subordinated lenders have agreed to amend the terms of the Senior Subordinated
Credit Agreement. As amended, interest will be payable on a current basis
commencing January 1, 1997 and the entire amount outstanding under the Senior
Subordinated Credit Agreement will be due on July 23, 2002. Interest payments
on the amounts outstanding under Senior Subordinated Credit Agreement had been
deferred since June 1994 until the payment in full of amounts outstanding
under the Senior Secured Credit Agreement. See "The Company's Credit
Agreements--Senior Subordinated Debt Amendments."
Upon consummation of the Offering and the Recapitalization, principal
payments on the Senior Secured Credit Agreement, Senior Subordinated Credit
Agreement and the Company's other indebtedness, including debt incurred to
finance the acquisitions of Westmark and L.J. Melody, are as follows (in
thousands):
<TABLE>
<CAPTION>
PRO FORMA
---------
<S> <C>
1996........................................................... $ 13,841
1997........................................................... 22,470
1998........................................................... 18,516
1999........................................................... 12,827
2000........................................................... 26,283
2001........................................................... 8,536
2002........................................................... 62,000
Thereafter..................................................... 3,181
--------
$167,654
========
</TABLE>
The Company expects to have capital expenditures of approximately $4.0
million in 1997 exclusive of acquisitions. In connection with the Westmark
acquisition, the sellers may be entitled to a supplemental purchase price
based on the operating results of Westmark payable over a period of six years
and subject to a maximum aggregate payment of $18.0 million. See "Note 1 of
Notes to Consolidated Financial Statements." The Company expects to use net
cash provided by operating activities for the next several years primarily to
fund acquisitions, including earnout payments, and to make required principal
payments under the Company's outstanding indebtedness. The Company believes
that it can satisfy these obligations as well as working capital requirements
from internally generated cash flow, borrowings under the Revolving Credit
Facilities and, with respect to acquisitions, seller financing and third-party
borrowing.
32
<PAGE>
Effective October 1996 and conditional upon the Offering, a dividend on the
Company's Preferred Stock will be reinstated. The $0.25 per share quarterly
dividend on the Company's Preferred Stock, which will accrue from October 1,
1996, will result, if and when paid, in a cost of $1.0 million per quarter.
The Company currently expects to pay dividends on the Preferred Stock out of
working capital generated from operating cash flow after it has completed its
acquisition program.
The Company anticipates that its existing sources of liquidity, including
cash flow from operations, will be sufficient to fund its operations for at
least the next twelve months.
The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") was $36.2 million, $22.5 million, $41.5 million, $33.7
million and $25.9 million for the nine months ended September 30, 1996, and
September 30, 1995, and the years ended December 31, 1995, December 31, 1994
and December 31, 1993, respectively. The improvement in EBITDA in the nine
months ended September 30, 1996 and the years ended December 31, 1995 and 1994
reflects the overall period to period revenue growth discussed above.
EBITDA effectively removes the impact of certain non-cash charges on income
such as depreciation and the amortization of intangible assets relating to
acquisitions and Federal income taxes (to the extent they are offset by NOLs).
Management believes that the presentation of EBITDA will enhance a reader's
understanding of the Company's operating performance and ability to service
debt as it provides a measure of cash generated that can be used by the
Company to service its debt and other required or discretionary purposes. Net
cash that will be available to the Company for discretionary purposes
represents remaining cash, after debt service and other cash requirements,
such as capital expenditures, are deducted from EBITDA. EBITDA should not be
considered as an alternative to (i) operating income determined in accordance
with GAAP or (ii) operating cash flow determined in accordance with GAAP.
Ratio of earnings to fixed charges was 1.42, 1.28 and 1.40 for the nine
months ended September 30, 1996, and for the years ended December 31, 1995 and
1994, respectively. Fixed charges exceeded earnings by $1.4 million for the
nine months ended September 30, 1995 and $37.0 million for the year ended
December 31, 1993. Earnings included non-cash depreciation and amortization
charges of $9.7 million, $8.2 million, $11.6 million, $8.1 million and $49.6
million for the nine months ended September 30, 1996 and 1995 and the years
ended December 30, 1995, 1994 and 1993, respectively.
CASH FLOWS
Net cash provided by operating activities for the nine months ended
September 30, 1996 was $24.2 million, an increase of $23.6 million from $0.6
million for the nine months ended September 30, 1995. The increase resulted
primarily from an improvement in net income, excluding the tax benefit from
the reduction of valuation allowances. See "Net Operating Losses" below.
Additionally, non-cash charges, consisting of depreciation, amortization and
deferred compensation and interest, included in net income for the nine months
ended September 30, 1996, were $3.6 million higher than for the nine months
ended September 30, 1995. Net cash provided by operating activities was also
impacted by changes in components of other operating assets and liabilities
which provided a net increase to net cash provided by operating activities of
$9.5 million.
Net cash used in investing activities was $9.5 million for the nine months
ended September 30, 1996, compared to $22.0 million for the nine months ended
September 30, 1995 as a result of the Westmark acquisition in June 1995 and
the L. J. Melody acquisition in July 1996.
Net cash provided by (used in) financing activities was $(12.8) million for
the nine months ended September 30, 1996, compared to $3.5 million for the
nine months ended September 30, 1995. The $16.3 million difference between
periods resulted from $18.2 million repayment of amounts outstanding under the
Senior Secured Credit Agreement as compared to $14.8 million repayment for the
nine months ended September 30, 1995, $21.0 million proceeds offset by $13.0
million repayment from the Revolving Credit Facility A during the
33
<PAGE>
nine months ended September 30, 1996 as compared to $14.0 million proceeds
offset by $4.0 million repayment for the nine months ended September 30, 1995,
a $0.7 million reduction in capital lease repayments and $10.0 million
proceeds from senior subordinated loans in connection with the Westmark
acquisition during the nine months ended September 30, 1995.
Net cash provided by operating activities was $30.6 million in 1995 compared
to $31.4 million in 1994. The decrease primarily resulted from a reduction in
net income of $1.8 million in 1995 compared to 1994, offset in part by changes
in components of operating assets and liabilities. Net cash provided by
operating activities in 1994 was $31.4 million compared to $19.6 million in
1993. The increase primarily resulted from an increase in net income of $46.3
million, offset by changes in components of operating assets and liabilities.
Net cash used in investing activities was $24.9 million in 1995 compared to
$3.9 million in 1994. The increase was caused by the acquisitions of Westmark
and Langdon Rieder in 1995 for $22.4 million (see "Business--Acquisitions"),
partially offset by a $2.1 million decrease in purchases of property and
equipment. Net cash used in investing activities was $3.9 million in 1994
compared to $5.6 million in 1993. The decrease was primarily caused by a
decrease in purchases of property and equipment and a reduction in other
investing activities.
Net cash used in financing activities was $11.5 million in 1995 compared to
$4.9 million in 1994. The increase in 1995 resulted from the $19.0 million
repayment of senior term loans and $2.2 million repayment of capital leases,
partially offset by proceeds from the senior subordinated loan of $10.0
million. Net cash used in financing activities was $4.9 million in 1994
compared to $14.7 million in 1993. The decrease in 1994 resulted from the
$14.0 million net repayment of senior revolving credit line in 1993, partially
offset by the $4.1 million repayment of senior term loans in 1994.
NET OPERATING LOSSES
The Company had NOLs of approximately $221.0 million as of December 31,
1995, corresponding to $77.6 million of the Company's $87.5 million in net
deferred tax assets, all of which were reserved through valuation allowances.
The valuation allowances were based on management's conclusion regarding the
realizability of this deferred tax asset on a more likely than not basis, as
defined in SFAS No. 109. In reaching this conclusion, management considered
the Company's past operating results, the current year events and trends,
including the impact, if any, of the acquisitions that were concluded during
the year and other factors.
Management evaluates the appropriateness of all or part of these valuation
allowances on a periodic basis and if the Company concludes there is a change
with respect to realizability, any necessary adjustments are made at that
time. As of September 30, 1996, the Company has experienced continuing
profitability due to a variety of reasons, including the strength of the
commercial real estate markets. In addition, the Company has operated Westmark
for one full year since acquiring Westmark in June 1995, and as a result has
concluded that Westmark should make a positive contribution to the Company's
consolidated taxable income. Finally, the acquisition of L.J. Melody in July
1996 is also expected to make a positive contribution to the Company's
consolidated taxable income. As a result of these factors, during the third
quarter of 1996, the Company projected, on a more likely than not basis, that
a portion of its NOL would be realizable in future periods and, accordingly,
reduced its existing deferred tax asset valuation allowances by $45.7 million
of which $5.3 million has been allocated to the purchase price of L.J. Melody
based on its estimated future potential to generate taxable income, and the
remaining $40.4 million has been recorded as a tax benefit (a reduction in
income tax provision). With the recognition of deferred tax assets, the
current and future period provisions for income tax will be recorded at the
full effective tax rate excluding the impact of other adjustments, if any, to
valuation allowances. For the nine months ended September 30, 1996, a $4.6
million provision for income taxes has been recorded. Net income for the nine
months ended September 30, 1996 was $45.4 million ($3.28 per share of common
stock), which includes the net benefit for income tax of $35.8 million. If the
Company had not recorded tax benefits related to projected future taxable
income for the nine months ended September 30, 1996, the Company's net income
for such period would have been $8.8 million ($0.64 per share of common
stock). The provision for income tax would have
34
<PAGE>
consisted of current and deferred state tax provisions and provision for
Federal alternative minimum tax. Provision for regular Federal taxes would
have been offset by reductions in valuation allowances to the extent of such
regular Federal taxes. The $40.4 million recognized tax benefit has a material
effect on the reported net income for the nine months ended September 30,
1996. This $40.4 million tax benefit is a non-recurring item and is unrelated
to the Company's performance and should not be used in evaluating the
Company's prospects or future performance. The Company would have to generate
future taxable income of approximately $110 million to realize the deferred
tax assets recorded on the consolidated balance sheet as of September 30,
1996. The Company's taxable income has historically been higher than pretax
income for financial reporting primarily due to certain charges in the
financial statements that were not deductible for tax purposes. The Company
expects its full year 1996 taxable income to be higher than its full year
pretax earnings for financial reporting purposes. The Company believes that
its future taxable income will be adequate to realize the deferred tax assets
on the September 30, 1996 balance sheet.
In addition, the Company believes that when the Offering is completed, it
will be able to generate additional taxable income in the future through
interest savings resulting from the paydown of part of its Senior Secured
Credit Agreement using the proceeds from the Offering. Accordingly, the
Company expects to record an estimated additional reduction in the deferred
tax asset valuation allowances of $16.3 million upon completion of the
Offering.
The ability of the Company to utilize NOLs may also be limited in the future
if an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code of 1986, as amended, were deemed to occur. Such an ownership
change may be deemed to occur if the Company engages in certain transactions
involving the issuance of shares of Common Stock, including the issuance of
shares of Common Stock in connection with an acquisition or otherwise or by
reason of a sale of capital stock by an existing shareholder. If an ownership
change were to occur, Section 382 would impose an annual limit on the amount
of NOLs the Company could utilize. The Company believes that the Offering and
Recapitalization will not result in an ownership change. An ownership change
may not be within the control of the Company, however, and therefore there is
no assurance that an ownership change will not occur in the future. The
availability of NOLs is, in any event, subject to uncertainty since their
validity is not reviewed by the Internal Revenue Service until such time as
they are utilized to offset income.
INFLATION
The Company's operations are directly affected by various national and
economic conditions, including interest rates, the availability of credit to
finance commercial real estate transactions and the impact of tax laws. To
date, the Company does not believe that general inflation has had a material
impact upon its operations. Revenues, commissions and other variable costs
related to revenues are primarily affected by real estate market supply and
demand versus general inflation.
NEW ACCOUNTING PRONOUNCEMENTS
In 1993, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions and SFAS No. 112, Employers' Accounting for Postemployment Benefits.
These standards did not have a material impact on the Company's financial
statements.
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, SFAS No. 122, Accounting for Mortgage Servicing Rights and SFAS No. 123,
Accounting for Stock-Based Compensation. These standards did not have a
material impact on the Company's financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This
statement is required to be adopted by the Company in 1997 and only
35
<PAGE>
applies to the operations of L.J. Melody. Under SFAS No. 125, the Company will
be required to recognize, at fair value, financial and servicing assets it has
acquired control over and related liabilities it has incurred and amortize
them over the period of estimated net servicing income or loss. Write-off of
the asset is required when control is surrendered and of the liability when
extinguished. The Company does not currently recognize the value of financial
and servicing assets when loans are originated. The adoption of the new
statement will result in the recognition of amortization cost along with
income from servicing as services are performed and the recognition of gains
or losses at the time servicing rights are sold. Management of the Company has
not yet determined the impact, if any, that the adoption of this standard will
have on the Company's financial position or results of operations.
36
<PAGE>
QUARTERLY RESULTS OF OPERATIONS AND OTHER FINANCIAL DATA
The following table sets forth certain unaudited consolidated statement of
operations data for each of the Company's last eleven quarters and the
percentage of the Company's revenues represented by each line item reflected
in each consolidated income statement. 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
quarterly information should be read in conjunction with the audited financial
statements of the Company and the notes thereto. The operating results for any
quarter are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- -------------------------------------- --------------------------------------
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Opera-
tions:
Revenue.......... $147,168 $130,954 $112,741 $143,570 $116,603 $108,361 $ 99,926 $128,905 $112,843 $103,730 $ 83,510
Costs and
expenses:
Commissions,
fees and other
incentives..... 74,196 66,262 55,007 71,449 57,804 57,370 52,395 67,919 59,645 54,367 43,154
Operating,
administrative
and other....... 56,042 53,594 49,560 53,129 47,803 44,206 42,830 46,316 42,675 42,487 38,756
Depreciation and
amortization... 3,431 3,038 3,280 3,458 3,546 2,297 2,330 2,562 1,797 1,783 1,949
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).......... 13,499 8,060 4,894 15,534 7,450 4,488 2,371 12,108 8,726 5,093 (349)
Interest income.. 286 354 395 446 345 393 490 370 270 255 214
Interest expense. 6,196 5,759 5,928 6,323 6,428 5,313 5,203 4,747 5,383 3,790 3,442
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before provision
(benefit) for
income tax...... 7,589 2,655 (639) 9,657 1,367 (432) (2,342) 7,731 3,613 1,558 (3,577)
Provision
(benefit) for
income tax...... 4,220 438 (48) 603 138 26 74 (73) 75 75 75
Reduction of
valuation
allowances...... (40,400) -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net provision
(benefit) for
income tax...... (36,180) 438 (48) 603 138 26 74 (73) 75 75 75
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... $ 43,769 $ 2,217 $ (591) $ 9,054 $ 1,229 $ (458) $ (2,416) $ 7,804 $ 3,538 $ 1,483 $ (3,652)
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Other Financial
Data:
EBITDA........... $ 16,930 $ 11,098 $ 8,174 $ 18,992 $ 10,996 $ 6,785 $ 4,701 $ 14,670 $ 10,523 $ 6,876 $ 1,600
Net cash provided
by (used in)
operating
activities...... $ 22,150 $ 13,865 $(11,845) $ 30,082 $ 8,143 $ 6,890 $(14,483) $ 21,911 $ 13,817 $ 5,894 $(10,204)
Net cash (used
in) investing
activities...... $ (9,401) $ 1,768 $ (1,884) $ (2,928) $ (595) $(18,887) $ (2,478) $ (1,321) $ (1,006) $ (748) $ (790)
Net cash provided
by (used in)
financing
activities...... $(15,297) $ (4,306) $ 6,808 $(16,002) $ (8,098) $ 15,391 $ (2,760) $ (4,369) $ (5,114) $ (5,407) $ 9,967
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
--------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ---------------------------------- ----------------------------------
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................ 100.0 % 100.0% 100.0 % 100.0% 100.0% 100.0 % 100.0 % 100.0 % 100.0% 100.0% 100.0 %
Costs and expenses:
Commissions, fees and
other incentives..... 50.4 50.6 48.8 49.8 49.6 52.9 52.4 52.7 52.9 52.4 51.7
Operating,
administrative and
other................ 38.1 40.9 44.0 37.0 41.0 40.8 42.9 35.9 37.8 41.0 46.4
Depreciation and
amortization......... 2.3 2.3 2.9 2.4 3.0 2.1 2.3 2.0 1.6 1.7 2.3
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................ 9.2 6.2 4.3 10.8 6.4 4.2 2.4 9.4 7.7 4.9 (0.4)
Interest income........ 0.2 0.3 0.3 0.3 0.3 0.3 0.5 0.3 0.3 0.3 0.2
Interest expense....... 4.2 4.4 5.2 4.4 5.5 4.9 5.2 3.7 4.8 3.7 4.1
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision (benefit)
for income tax........ 5.2 2.1 (0.6) 6.7 1.2 (0.4) (2.3) 6.0 3.2 1.5 (4.3)
Provision for income
tax................... 2.9 0.3 (0.0) 0.4 0.1 0.0 0.1 (0.1) 0.1 0.1 0.1
Reduction of valuation
allowances............ (27.5) -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net provision (benefit)
for income tax........ (24.6) 0.3 (0.0) 0.4 0.1 0.0 0.1 (0.1) 0.1 0.1 0.1
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)...... 29.7 % 1.8% (0.6)% 6.3% 1.1% (0.4)% (2.4)% 6.1 % 3.1% 1.4% (4.4)%
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
37
<PAGE>
BUSINESS
COMPANY OVERVIEW
Founded in 1906, the Company believes that it is the largest vertically-
integrated commercial real estate services company in the United States with
aggregate 1995 revenue of $468.5 million, and 231 business unit offices in 107
locations. In addition, the Company has established exclusive alliances with
international commercial real estate services firms which have offices in an
additional 109 locations in 30 countries. These alliances have not generated
significant revenues to the Company to date. The Company provides a full range
of services to commercial real estate tenants, owners, and investors
including: (i) brokerage (facilitating sales and leases), investment
properties (acquisitions and sales on behalf of investors), corporate
services, property management, and real estate market research (collectively,
"Property and User Services"), and (ii) mortgage banking (mortgage loan
origination and servicing), investment management and advisory services, and
valuation and appraisal services (collectively, "Investor Services").
Management believes that, on the basis of revenue, its brokerage and
independent commercial mortgage loan origination are the largest such
businesses in the United States, and that the Company is among the top ten
providers of commercial property management and mortgage loan servicing in the
United States.
The Company believes that one of its most important competitive advantages
as a diversified commercial real estate services provider is its ability to
capitalize on the significant deal flow and strong market presence of its core
brokerage, investment properties and property management businesses. These
businesses provide the Company with real-time, in-depth local, national and,
through its alliances, international market information and entree to clients.
This real-time information is employed for the benefit of all of the Company's
business disciplines and enables the Company to capitalize upon client demand
for a variety of integrated commercial real estate services. The Company's
diverse client base includes local, national and multinational corporations,
financial institutions, pension funds and other tax exempt entities, local,
state and national governmental entities, and individuals.
The Company believes that it enjoys a variety of competitive advantages in
the commercial real estate services industry, including the Company's--
. 90-year tradition and history of providing high-quality services and client
coverage;
. Internationally recognized "brand" identity which the Company believes is
widely respected in the real estate services industry;
. Experienced and trained professionals in all business disciplines,
including approximately 2,000 sales professionals in Property and User
Services who have an average tenure of more than eight years with the
Company;
. Multi-discipline capabilities and extensive multi-market network;
. State-of-the-art technology and professional education programs which
enable the Company to deliver superior services;
. Experienced management team, the executive and key employees of which have
an average tenure of more than 16 years with the Company and will own
collectively approximately 15.2% of the Company's Common Stock (including
exercisable stock options and shares held through the Company's Deferred
Compensation Plan) after the Offering; and
. Employees who will own more than 40% of the Common Stock of the Company
after the Offering.
INDUSTRY TRENDS
Over the last ten years, the commercial real estate industry has experienced
various structural changes and more recently has been experiencing a broad
recovery from the real estate "depression" of the early 1990s. Management
believes these factors and the resulting trends, the most important of which
are discussed below, create an opportunity for the Company to leverage its
experience, multi-discipline integrated services, multi-market presence and
brand equity to its competitive advantage.
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. CHANGING COMPOSITION AND NEEDS OF INVESTORS IN AND OWNERS OF COMMERCIAL
REAL ESTATE ASSETS.
Investors in and owners of commercial real estate assets have become
increasingly institutional (including pension funds, life insurance companies,
banks and publicly-held REITs). Simultaneously, their investment and
management needs have become increasingly multi-market due to the fact that
the commercial real estate properties in their portfolios are typically
located in numerous geographic locations. With respect to institutions other
than REITs, this change in the ownership characteristics and management
requirements of institutional real estate investors and owners has fueled the
demand for and growth of sophisticated multi-service, nationally-oriented real
estate service providers. As REITs are internally managed and therefore tend
to outsource only their brokerage service needs, their demand for the
Company's other real estate services is expected to be less than that of other
institutional investors.
. CONTINUING CORPORATE OUTSOURCING TREND.
Shareholder pressure for higher performance and return on equity within most
American corporations in the 1980's heightened corporate managements'
awareness that corporate real estate assets are a major component of corporate
net worth. Simultaneously, with competitive pressures encouraging greater
focus on core businesses, companies have emphasized leaner staffing in non-
core activities and, as a result, outsourced certain non-core activities to
third-parties. As a consequence, the demand for multi-discipline, multi-market
professional real estate service firms that provide integrated services
capable of supplementing a corporate real estate department has increased
significantly.
. ONGOING INDUSTRY CONSOLIDATION.
The Company believes that the combination of more intense institutional and
corporate real estate service needs and demands, together with the real estate
"depression" of the early 1990s, has made it imperative that real estate
service firms (i) provide comprehensive, high-quality services, (ii) make
significant investments in corporate infrastructure, including information
technology and professional education, and (iii) have access to sufficient
capital to support these service and investment needs. These factors have
fueled the current consolidating industry environment, which the Company
believes will motivate local and regional real estate service providers to
sell to, or form alliances with, major national and international companies.
. EXPANDING CMBS MARKET.
Historically, the majority of third-party financing for commercial real
estate assets was provided by banks and insurance companies who generally held
the mortgage loans they originated to the maturity date of the mortgage loans.
More recently, Wall Street firms and financial institutions have been
providing a significant amount of third-party mortgage financing, and have
been accessing the public debt markets by issuing CMBs in order to securitize
their portfolios and avoid holding mortgage loans for the long-term. The
Company believes that its overall market presence, extensive available market
data and access to real estate transaction deal flow positions its mortgage
banking business to benefit substantially from the expansion of the CMBS
market. The Company's national geographic coverage and mortgage origination
capabilities create the opportunity to be a major supplier of mortgages to the
CMBS market. In addition, the Company expects to service a majority of the
mortgage loans that it originates, and the profit margin potential for
servicing an increasing volume of mortgage loans may be significant to the
Company's mortgage banking business. The acquisition and subsequent
combination with L.J. Melody in July 1996 was a strategic step in
substantially expanding the Company's capabilities in this area. The Company
does not currently securitize loans and has no present intention of doing so.
. RECOVERING COMMERCIAL REAL ESTATE MARKETS.
Coincident with the longer term structural shifts in the commercial real
estate industry, commercial real estate markets in the United States have been
recovering over the last several years, experiencing increased activity in
many product types and geographic market areas. This has been particularly
true in California, where the Company has a significant market presence.
National office and industrial building occupancy levels have generally been
rising, rental rates are beginning to increase, and correspondingly, property
values are increasing.
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Geographically, recoveries are underway in a number of major U.S. real
estate markets where the Company has operations, including California,
Arizona, Texas, and the Washington, D.C./Baltimore areas. Additionally, the
Company believes market activity levels in Chicago, Philadelphia, Seattle, and
Atlanta have increased.
BUSINESS OBJECTIVE AND GROWTH STRATEGIES
The Company's primary business objective is to continue to expand through
acquisitions and internal growth, while simultaneously delivering strong
consistent growth in its annual results of operations. The key business
strategies by which the Company plans to accomplish this objective include--
. LEVERAGING EXISTING BUSINESS DISCIPLINES, MARKET PRESENCE AND "BRAND"
EQUITY TO CAPITALIZE ON INDUSTRY STRUCTURAL CHANGES.
The Company believes that structural changes in the market for commercial
real estate have led to an increasing demand for real estate services
providers who can satisfy a wide range of customer needs on a vertically-
integrated basis. Furthermore, as the ownership of commercial real estate
becomes increasingly institutional, large firms who can efficiently service a
nationwide real estate portfolio are gaining market share over smaller local
and regional operators. The Company's ability to provide multi-discipline,
integrated real estate services on a nationwide basis with strong brand
identity is an important competitive advantage. The Company's strategy is to
leverage these advantages to grow its revenues and market share in the large
and fragmented real estate services industry.
. PURSUING STRATEGIC ACQUISITIONS AND PARTNERSHIPS TO STRENGTHEN EXISTING
BUSINESS AND EXPAND GEOGRAPHIC COVERAGE.
Although the Company is currently a leading national provider of multi-
discipline, integrated commercial real estate services, 37% of its total sale
and lease revenue in 1995 was generated from transactions originated in the
state of California. Through strategic acquisitions and partnerships, the
Company intends to continue to strengthen, not only the range and quality, but
also the geographic coverage of its services. The Company has recently
completed three strategic acquisitions -- L.J. Melody (mortgage banking),
Westmark (investment management and advisory services), and Langdon Rieder
(corporate services). In addition, through its "CB Commercial/Partners"
program, the Company has begun establishing relationships with leading local
brokerage firms in order to expand the Company's geographic coverage in
markets that are not currently being served by the Company. Due to the
fragmented nature of the commercial real estate services industry, the Company
believes that there will be substantial opportunities to strengthen its
capabilities through acquisitions and strategic partnerships, and a tactical
plan for growth through acquisitions has been developed for implementation
over the next several years.
As the Company continues to strengthen its integrated services capability,
it intends to develop and/or acquire additional service disciplines to expand
its client relationships. Development and construction management, dedicated
facilities management, and real estate merchant banking are a few of the
services under consideration and study. The Company believes it can increase
its market share by increasing its services "menu" and the capabilities
offered to its clients.
. BENEFITTING FROM RECOVERING COMMERCIAL REAL ESTATE MARKETS.
In addition to growth through expansion opportunities, brokerage fees and
property management fees from contracts with existing clients have begun to
increase as a result of the recovery in U.S. commercial real estate markets
and the generally rising level of occupancy and rental levels and, as a
result, property values. Since brokerage fees are typically based upon a
percentage of transaction value, and property management fees are typically
based upon a percentage of total rent collections, recent occupancy and rental
rate increases at the property level have generated an increase in brokerage
and property management fees to the Company.
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. CAPITALIZING ON THE CORPORATE OUTSOURCING TREND.
Large corporations seeking to focus on core businesses and reduce operating
costs are looking to the multi-discipline, integrated national and
international real estate service provider to outsource their real estate
needs. By relying on a single integrated provider for all their real estate-
related needs, corporations are able to reduce their ongoing overhead expense
while taking advantage of the Company's real estate expertise. This
outsourcing trend has accelerated in recent years and the Company believes
that it will continue in the future. The Company is one of the major
participants in this segment of the real estate services industry and believes
that only a small percentage of the market has been penetrated. As a result,
this trend provides the Company with attractive revenue opportunities.
. GENERATING INTERNAL GROWTH BY INCREASING MARKET SHARE AND EMPLOYEE
PRODUCTIVITY.
Market Share. In order to increase its market share in the markets that the
Company currently serves, the Company is focusing on increasing the number of
brokerage professionals in its existing national network of offices. The
Company's current sales professionals only occupy approximately 73%, on
average, of its available office space for sales professionals, and the
Company believes that revenue growth can be generated without a corresponding
growth in management and infrastructure costs through the hiring of additional
professionals.
Employee Productivity. The Company also focuses on the enhancement of
revenues and profit margins through the delivery of services to its clients in
a more efficient manner. In order to improve each employee's productivity, the
Company invests a substantial amount on an annual basis in information
technology and for the professional education of both its management and
revenue-producing professionals through its training programs, provided by its
CB Commercial University. The success of this strategy is evidenced by the
annual improvement in revenues per employee in the Company's brokerage group.
Since 1993, the average revenue per sales professional has increased
approximately 23% from $176,000 to $216,000 in 1995, while spending on
information technology and professional development per employee increased
approximately 16% from $2,800 to $3,300 in 1995. Through previously made and
continuing investments in information technology and professional education,
the Company believes it is well-positioned for further employee productivity
gains.
. ENCOURAGING LOCAL MARKET INNOVATION WITHIN CB COMMERCIAL'S QUALITY
FRAMEWORK.
In order to deliver consistently superior, vertically-integrated services,
the Company requires each office to adhere to strict standards of quality
consistency. Although the Company encourages each business discipline to
innovate locally to meet its respective clients' needs, the Company believes
that this framework, or "envelope" of consistency, is responsive to client
demand, strengthening client relationships and increasing the potential for
multiple assignments with each client.
. CAPITALIZING ON CROSS BORDER ACTIVITY BY INCREASING INTERNATIONAL
PRESENCE.
Internationally, the Company has established exclusive alliances in various
markets throughout Europe with DTZ and in Asia with C.Y. Leung, both leading
firms in their respective markets. Historically, the Company's ability to
offer real estate acquisition and disposition services, including related
advisory services, internationally has enabled it to expand market share with
its domestic clients, especially corporations. In addition, Westmark is
currently exploring the development of new cross-border investment products in
conjunction with DTZ and C.Y. Leung.
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ACQUISITIONS
The Company is continually assessing acquisition opportunities as part of
its growth strategy. Management believes that there are significant
opportunities in the fragmented and consolidating real estate services
industry to acquire additional companies to complement and expand the
Company's existing operations. Since the beginning of 1995, the Company has
completed three strategic acquisitions--
L.J. MELODY. In July 1996, the Company acquired L.J. Melody for $15.0
million, including $6.0 million in seller financing, of which $2.3 million is
contingent upon the continued employment by the Company of the former owner of
L.J. Melody. The combined pre-acquisition mortgage originations of the Company
and L.J. Melody for 1995 were $2.3 billion, and the combined pre-acquisition
mortgage loans serviced as of December 31, 1995 were $7.3 billion. The L.J.
Melody acquisition provides the Company with leadership for its own mortgage
banking business, access to mortgage loan sources not previously available to
the Company and the enhanced ability to access its investment properties and
brokerage businesses as a source of mortgage loan originations. The Company
expects to complete the integration of its mortgage banking business with that
of L.J. Melody in the fourth quarter of 1996. The combined businesses will be
headquartered in Houston, Texas.
WESTMARK. In June 1995, the Company acquired Westmark, a Los Angeles,
California-based investment management and advisory business with
approximately $3.0 billion of assets under management. The purchase price for
Westmark was $37.5 million plus $2.9 million in net liabilities assumed and an
additional $1.0 million in costs related to the acquisition, with $20.0
million financed by the sellers, $10.0 million financed by a venture capital
affiliate of a national bank and $7.5 million paid in cash by the Company. The
sellers are also entitled to receive up to an additional $18.0 million of
purchase price (the "Supplemental Purchase Price") and $4.0 million of bonuses
over a six-year period based upon Westmark's adjusted operating income. The
sellers' notes and the Supplemental Purchase Price are secured by a pledge of
the Company's interests in Westmark. By early 1996, the Company had combined
its investment management and advisory business with that of Westmark to
create a company with approximately $3.7 billion in tax-exempt assets under
management. The Westmark acquisition has moved the Company into a business
area which the Company believes has the potential for significant growth and
high margins.
LANGDON RIEDER. In April 1995, the Company acquired Langdon Rieder, a
nationally-known tenant representation firm based in Los Angeles, California,
for $1.5 million in cash, and a deferred payment of $1.9 million payable over
three years ($633,333 payable on each of January 2, 1997, 1998 and 1999) plus
interest on the entire outstanding deferred portion of the deferred payment at
an annual rate of 8%. The deferred payment is subject to forfeiture under
certain circumstances, including any breach of representations and warranties
under the purchase agreement, violation of a non-compete agreement and
termination of employment. This acquisition strengthened the Company's ability
to provide sophisticated tenant representation services to its corporate
clients. Langdon Rieder has been combined with the Company's CBC/Madison
Advisory Group, enhancing the Company's corporate services capabilities.
The Company expects to continue its acquisitions program over the next
several years and will focus on acquisitions in its mortgage banking, property
management, and investment management and advisory businesses. The Company
will also consider opportunistic acquisitions for its brokerage and investment
properties businesses. Based upon its historical experience, the Company
believes that seller financing generally will provide 40% to 50% of the
purchase price for an acquisition, with the balance financed from third-party
borrowings and internally generated cash flow.
Because of the substantial non-cash goodwill and intangible amortization
charges incurred by the Company in connection with acquisitions subject to
purchase accounting and because of interest expense associated with
acquisition financing, management anticipates that future acquisitions may
result in a decrease in net income. In addition, during the first six months
following an acquisition, the Company believes there are generally significant
one-time costs relating to integrating information technology, accounting and
management services and rationalizing personnel levels. Management's strategy
is to pursue acquisitions that are expected to be accretive to income before
interest expense and provision for amortization of goodwill and intangibles,
if any, resulting from the acquisitions, and to operating cash flows after all
integration costs.
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THE COMPANY'S BUSINESSES
PROPERTY AND USER SERVICES
BROKERAGE
The Company has provided commercial real estate brokerage services since
1906 through the representation of buyers, sellers, landlords and tenants in
connection with the sale and lease of office space, industrial buildings,
retail properties, multifamily residential properties and unimproved land. The
Company believes that it is the largest provider of commercial real estate
brokerage services in the United States, based upon both 1995 total revenues,
and the number of completed transactions, which totaled approximately $294.3
million and approximately 19,800, respectively. In 1995, brokerage facilitated
over 2,500 sale transactions with an aggregate estimated total consideration
over $2.5 billion and approximately 17,500 lease transactions involving
aggregate rents, under the terms of leases facilitated, of over $8.1 billion.
Brokerage services comprise the largest source of revenue for the Company
and provide a foundation for growing the Company's other disciplines which
make up its multi-discipline integrated commercial real estate services. The
Company believes that its position in the brokerage services industry provides
a competitive advantage for all of its lines of business by enabling them to
leverage off brokerage's (i) national network of relationships with owners and
users of commercial real estate, (ii) real-time knowledge of completed
transactions and real estate market trends, and (iii) brand recognition in the
brokerage area.
Operations. As of September 30, 1996 the Company employed approximately
1,640 brokerage professionals in 79 offices located in most of the largest
MSAs in the United States. The Company maintains a decentralized approach to
brokerage services, bringing significant local knowledge and expertise to each
assignment. Each local office draws upon the broad range of support services
provided by the Company's other business groups, including a national network
of market research, mortgage originations, client relationships and
transaction referrals which the Company believes provide it with significant
economies of scale over many local competitors.
Each brokerage services professional is carefully selected based upon
education, experience and knowledge of commercial real estate and receives on-
going training through centralized and local office education programs. The
Company believes that its market position provides a competitive advantage for
recruiting and retaining its employees. As of September 30, 1996, the average
tenure of sales professionals in Property and User Services was over eight
years. Collectively, the Company's sales professionals only occupy
approximately 73%, on average, of the Company's available office space for
sales professionals, and substantive revenue growth can be generated without
corresponding growth in management and infrastructure costs through the hiring
of additional professionals.
In order to increase market share in its domestic brokerage business, the
Company recently announced a plan to establish "partnerships" with leading
local firms in order to institute geographic coverage in markets that
currently are not being served by the Company. To date, through the "CB
Commercial/Partners" program, the Company has identified approximately 70
markets on which it intends to focus during the next three years. To date, the
Company has established such partnership-type arrangements in Pittsburgh,
Pennsylvania and Memphis, Tennessee. Revenue anticipated from this program
will be a combination of an initial fee, fixed annual fees and a percentage of
revenue in excess of a pre-agreed threshold, comparable to a classic franchise
program. This program requires minimal capital outlay, and management believes
it has an attractive profit potential once the initial infrastructure is
established.
Compensation. Under a typical brokerage services agreement, the Company is
entitled to receive sale or lease commissions. Sale commissions, which are
calculated as a percentage of sales price, are generally earned by the Company
at the close of escrow. Sale commissions typically range from approximately 1%
to 6% with the rate of commission declining as the price of the property
increases. Lease commissions, which are calculated as a percentage of the
minimum rent payable during the term of the lease, are generally earned by the
Company
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at the commencement of a lease and are not contingent upon the tenant
fulfilling the terms of the lease. In cases where a third-party brokerage firm
is not involved, lease commissions earned by the Company for a new lease
typically range between 2% and 6% of minimum rent payable under the lease
depending upon the value of the lease. For renewal of an existing lease, such
fees are generally 50% of a new lease commission. In sales and leases where a
third-party broker is involved, the Company must typically share 50% of the
commission it would have otherwise received with the third-party broker. The
Company's brokerage sales professionals typically receive 50% of the Company's
share of commissions before costs and expenses.
INVESTMENT PROPERTIES
Since 1992, investment properties has provided sophisticated strategic
planning for, and execution of, acquisitions and sales of income-producing
properties for its clients. In 1995, the Company completed approximately 1,000
investment property transactions with an aggregate value over $4.0 billion,
generating total revenues of $87.6 million, exceeding the transaction volume
of most of its major competitors, including investment banking firms in the
United States. Based upon these results, the Company believes that it is one
of the largest providers of commercial real estate investment properties
services in the United States. On behalf of property owners seeking to dispose
of investment properties, the Company strives to ensure that the owner
achieves the maximum value in the minimum amount of time by providing services
which include (i) accessing the Company's proprietary databases and other
information sources to provide real-time knowledge of available properties,
completed comparable transactions, real estate market trends, and active
investors in the market, and to assist with valuation and buyer
identification, and (ii) designing the appropriate marketing strategy that
allows the owner to target probable buyers or buyer categories. On behalf of
prospective investors, access to the same sources of information provides the
Company's clients with a competitive advantage by enabling the Company's
professionals (i) to identify the geographical areas and specific properties
which are most suitable for the investor and (ii) to advise investors in
negotiations and due diligence.
Operations. As of September 30, 1996, the Company employed approximately 280
investment properties professionals who exclusively handle acquisitions and
sales of investment properties and are located in 37 offices in most of the
largest MSAs in the United States. As of September 30, 1996, the average
tenure of brokerage and investment properties sales professionals with the
Company was more than eight years.
A team of professionals with expertise within a given market and property
type is assembled for each investment properties assignment to best accomplish
the client's objectives. As necessary, the team may also include professionals
from the Company's other disciplines. On larger and more complex assignments,
the Company's financial consulting professionals provide sophisticated
financial and analytical resources to the client, the marketing team and the
investor. This counseling is accomplished by identifying cash flow, accounting
and tax issues in order to propose appropriate strategies for optimal
financial results. These services provide the client with in-depth analyses of
transaction specific data as well as real estate market data. Additionally,
mortgage banking may be involved to provide advice regarding available debt
financing as well as the origination of new debt.
Compensation. Under a typical investment properties agreement, the Company
is entitled to receive sale commissions, which are calculated as a percentage
of sales price and are generally earned by the Company at the close of escrow.
In cases where another real estate broker is not involved, sale commissions
earned by the Company typically range from 1% to 6% of the sales price, with
the rate of commissions generally declining as the sales price increases. In
cases where another firm is involved in the transaction, the Company must
typically share up to 50% of the commission it would have otherwise received
with the other firm. The Company's investment properties professionals
typically receive 50% of the Company's commission before costs and expenses.
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CORPORATE SERVICES
Since 1992, the Company has provided corporate services through CBC/Madison
Advisory Group, assisting corporations in developing and executing multiple-
market real estate strategies. The Company's objective is to establish long-
term relationships with corporations that require continuity in the delivery
of high-quality, multi-market management services and strategic advisory
services including acquisition, disposition and consulting services. Global
competition, the focus on quality, "right-sizing" of corporate organizations
and changes in management philosophy have all contributed to an increased
interest in and reliance on outside third-party real estate service providers.
Specifically, through contractual relationships, the Company assists major,
multi-market companies in developing and executing real estate strategies as
well as addressing specific occupancy and facilities management objectives.
Corporate services coordinates the utilization of all the Company's various
disciplines to deliver an integrated service to its clients. Essentially,
Corporate Services expands a client's real estate department and supports most
of the functions involved in a corporate real estate department. The Company's
clients include, as examples, the following Fortune 500 companies -- Allstate
Insurance Co. Inc., American Express, Eastman Kodak Co. Inc., Ford Motor
Company, IBM, John Hancock Mutual Life Insurance Co. Inc., McDonald's, and
Prudential Insurance Co.
Operations. CBC/Madison Advisory Group is organized into three geographic
regions in the Eastern, Western and Central areas of the United States, with
each geographic region comprised of consulting, corporate services and team
management professionals who provide corporate service clients with a broad
array of financial, real estate, technological and general business skills. In
addition to CBC/Madison Advisory Group's objective of providing a full range
of corporate services in a contractual relationship, the group will respond to
client requests generated by other Company business groups for significant,
single-assignment acquisition, disposition and consulting assignments that may
lead to long-term relationships.
Compensation. A typical corporate services agreement gives the Company the
right to execute some or all of the client's future sales and leasing
transactions. The commission rate with respect to such transactions frequently
reflects a discount for the captive nature and large volume of the business.
Term. A typical corporate services agreement includes a stated term of at
least one year and normally contains provisions for extensions of the
agreement. Agreements typically include a provision for cancellation by either
party, upon notice, within a specified short time frame.
PROPERTY MANAGEMENT
The Company provides value-added property management services for income-
producing properties owned primarily by institutional investors and, as of
September 30, 1996, managed approximately 104 million square feet of
commercial space.
According to National Real Estate Investor's 1996 Annual Survey of property
managers, the Company's property management business was ranked the eighth
largest in the United States based on square footage under management during
1995. Property management services include maintenance, marketing and leasing
services for investor-owned properties, including office, industrial, retail
and multi-family residential properties. Additionally, the Company provides
construction management services, which relate primarily to tenant
improvements. The Company works closely with its clients to implement their
specific goals and objectives, focusing on the enhancement of property values
through maximization of cash flow. The Company markets its services primarily
to long-term institutional owners of large commercial real estate assets. The
Company's property management clients include Allstate Insurance Co. Inc., AMB
Institutional Realty Advisors Inc., Citicorp, The Equitable Life Assurance
Society of the United States, GE Capital Investment Advisors, Prudential
Insurance Company of America, Inc., Metropolitan Life Insurance Co., Westmark
Realty Advisors L.L.C. and The Yarmouth Group, Inc.
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Operations. The Company employs approximately 130 property management
professionals in 31 offices. Most property management services are performed
by management teams located on-site or in the vicinity of the properties they
manage. This provides property owners and tenants with immediate and easily
accessible service enhancing client awareness of manager accountability. All
personnel are extensively trained and are encouraged to continue their
education through both Company-sponsored and outside training. The Company
provides each local office with centralized corporate resources including
investments in computer software and hardware as described below under the
caption "Information Technology." Property management personnel utilize state-
of-the-art computer systems for accounting, marketing, and maintenance
management. The Company believes that these investments in technology
represent a competitive advantage for (i) accumulating and synthesizing
property data from multiple locations into customized financial and operating
reports required by clients, and (ii) providing its services on a cost
effective basis relative to smaller competitors by spreading these fixed costs
over its large revenue base.
Compensation. Under a typical property management agreement, the Company
will be entitled to receive management fees and lease commissions. The
management fee in most cases is based upon a formula which gives the Company a
specified percentage of the monthly gross rental income collected from tenants
occupying the property under management and, as a result, will increase and
decrease as building rents and occupancies increase and decrease. Many of
these property management agreements also include a stated minimum management
fee. The Company also may be entitled to reimbursement for costs incurred that
are directly attributable to management of the property. Reimbursable costs,
which are not included in the Company's revenue, include the wages of on-site
employees and the cost of field office rent, furniture, computers, supplies
and utilities. The Company pays its property management professionals a
combination of salary and incentive-based bonuses. Lease commissions, which
are paid in addition to the management fee, are similar to those described for
brokerage services. Revenue from leasing services provided to the Company's
property management clients are reflected in brokerage rather than property
management revenue since brokerage professionals are normally engaged to
accomplish the leasing.
Term. A typical property management agreement contains an evergreen
provision which provides that the agreement remains in effect for an
indefinite period, but enables the property owner to terminate the agreement
upon 30 days prior written notice, which the Company believes to be customary
in the commercial real estate industry. As of September 30, 1996, the average
duration of the Company's tenure as property manager for properties under
contract was approximately 2.5 years.
REAL ESTATE MARKET RESEARCH
Real estate market research services are provided by eight professionals in
Boston, Massachusetts employed by CB Commercial/Torto Wheaton Research. Real
estate market research services are provided to the Company's other businesses
as well as sold to third-party clients and include (i) data collection and
interpretation, (ii) econometric forecasting, and (iii) evaluating marketing
opportunities and portfolio risk for institutional clients within and across
U.S. commercial real estate markets. The Company's publications and products
provide real estate data for more than 50 of the largest MSA's in the United
States and are sold on a subscription basis to many of the largest portfolio
managers, insurance companies and pension funds in the United States.
INVESTOR SERVICES
MORTGAGE BANKING
The Company provides its mortgage origination and mortgage loan servicing
through L.J. Melody, which was acquired in July 1996 and is based in Houston,
Texas. The Company, on a combined basis with L.J. Melody, originated
approximately $2.3 billion, $2.0 billion and $1.1 billion of mortgages in
1995, 1994 and 1993, respectively. As part of these origination activities,
the Company has special conduit arrangements with affiliates of Merrill Lynch
& Co., Citicorp, and Lehman Brothers which permit it to service the mortgage
loans which it
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originates, and is currently negotiating a similar arrangement with an
affiliate of NationsBank. Under these arrangements, the Company generally
originates mortgages in its name, makes certain representations and warranties
based upon representations made to it by the borrower or another party and
immediately sells them into a conduit program. The Company also originates
mortgages into other conduit programs where it does not have servicing rights.
In addition, the Company is a major mortgage originator for insurance
companies having originated on a combined basis, mortgages in the names of the
insurance companies valued at approximately $1.6 billion in 1995. The Company
has correspondency arrangements with various life insurance companies which
entitle it to service the mortgage loans it originates. As of December 31,
1995, 1994 and 1993, the Company, on a combined basis with L.J. Melody,
serviced mortgage loan portfolios of approximately $7.3 billion, $7.1 billion
and $6.3 billion, respectively. Based upon available statistics, the Company
believes that it is the largest independent commercial mortgage originator
(originating mortgage loans for others as opposed to originating mortgage
loans for its own account), in general, as well as through conduits, in the
United States. As of December 31, 1995, the Company was, on a combined basis,
the eighth largest commercial mortgage loan servicer in the United States. The
Company's life insurance and pension plans clients on whose behalf it both
originates and services mortgage loans include AETNA, Allstate Life Insurance
Co., CIGNA, Lincoln National Life, Massachusetts Mutual Life, Phoenix Home
Life and New York State Teachers' Retirement System. For 1995, CIGNA accounted
for approximately 29.6% of the Company's mortgage origination business on a
combined basis.
Operations. The Company employs approximately 90 mortgage banking
professionals in 21 offices in the United States. The Company's mortgage loan
originations take place throughout the United States, with support from L.J.
Melody's headquarters in Houston, Texas. All of the Company's mortgage loan
servicing is handled by L.J. Melody in Houston, Texas. The Company believes
that the L.J. Melody acquisition will give it a significant competitive
advantage in the mortgage origination business due to the anticipated
integration with the deal flow generated through the Company's brokerage and
investment properties sales activities. This integration will not only provide
competitive advantages to mortgage banking, but will also facilitate sales
transactions, enhancing the Company's capability to execute clients' sales
assignments. In 1995, less than 5% of the Company's property sales were
financed by its commercial mortgage origination capabilities.
Compensation. The Company typically receives origination fees, ranging from
0.5% for large insurance company mortgage loans to 1.0% for most conduit
mortgage loans. In situations where the Company services the mortgage loans
which it originates, it also receives a servicing fee between .03% and .25%,
calculated as a percentage of the outstanding mortgage loan balance. These
agreements generally contain an evergreen provision with respect to servicing
which provides that the agreement remains in effect for an indefinite period,
but enables the lender to terminate the agreement upon 30 days prior written
notice, which the Company believes to be a customary industry termination
provision. Approximately 55.5% of the Company's 1995 mortgage loan origination
revenue, on a combined basis with L.J. Melody, was from agreements which
entitle it to both originate and service mortgage loans. The Company also
originates mortgage loans on behalf of conduits and insurance companies for
whom it does not perform servicing. In 1995, approximately 44.5% of its
revenues, on a combined basis, was attributable to such originations. The
Company's client relationships have historically been long-term. The Company
pays its mortgage banking professionals a combination of salary, commissions
and incentive-based bonuses which typically average between 46% and 49% of the
Company's loan origination fees.
INVESTMENT MANAGEMENT AND ADVISORY
The Company provides its investment management and advisory services
primarily to tax-exempt corporate and public pension funds through Westmark.
Since 1971, the Company has provided its clients with investment management
and advisory services, including the creation of investment products, raising
of investor capital, identification and acquisition of specific properties and
management and disposition of the assets. Currently, the Company represents
more than 180 clients in 13 commingled funds and a variety of separate
accounts. Westmark separate account clients include the AFL-CIO Building
Investment Trust, Alaska Permanent Fund Corporation,
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AT&T Telephone Real Estate Equity Trust, California Public Employees'
Retirement System (CalPERS), California State Teachers' Retirement System
(CalSTRS), Delta Air Lines Benefit Trust, Eastman Kodak Retirement Income
Plan, GTE Service Corporation Plan for Employees' Pensions, Utah State
Retirement Fund, Pacific Telesis Group Master Pension Trust and McDonnell
Douglas Corporation Master Retirement Trust.
Operations. Westmark operates as a separate and independent subsidiary of
the Company, providing advisory services and managing approximately $3.7
billion in tax-exempt capital invested in more than 220 office, industrial and
retail properties located in more than 40 major U.S. markets with an aggregate
of more than 40 million square feet. Westmark's headquarters are located in
Los Angeles and it maintains regional offices in Boston, Dallas, New York
City, and Washington D.C. Westmark develops and markets a variety of
investment alternatives designed to meet its client's risk, reward, and
liquidity requirements. Westmark employs approximately 100 professionals who
perform the following services for its investors -- market research and
forecasting, acquisition strategy and implementation, portfolio strategy and
management, specific asset management, and development and dispositions.
Westmark uses a state-of-the-art portfolio information system that integrates
property and fund-level accounting with specific asset management data.
Westmark's investors invest through separate accounts, commingled funds, and
real estate operating companies, including limited partnerships. Certain funds
and separate accounts are subject to ERISA regulations and, with respect to
such funds and accounts, Westmark is limited in its ability to employ any
affiliated company, including the Company. Because Westmark must conduct its
operations in compliance with ERISA, where applicable, Westmark maintains both
internal and external control mechanisms to assure compliance.
While Westmark has experienced significant growth in its separate accounts
business, it has been impacted by the industry's adverse investor response to
non-property specific commingled funds. The Company believes that this lack of
investor interest in non-property specific commingled funds has been replaced
with interest in new, more narrowly focused investment vehicles. The Company
believes that the consolidation of the industry combined with the development
of these new investment vehicles should reduce pressures on fees and margins
in the second half of 1997.
Compensation. Westmark's fees are typically higher for managing commingled
and other funds than they are for separate accounts, but all of the fees are
within the ranges indicated below. Westmark receives an annual asset
management fee which is typically 0.5% to 1.2% of the lower of the cost of the
assets managed or their fair market value. When debt is managed, the asset
management fee is at the lower end of the range. Westmark also receives an
acquisition fee when it acquires property or places debt on behalf of a client
that is typically 0.5% to 1.0% of funds invested or debt placed (the placement
fee for debt is at the low end of this range). In some, but not all cases,
Westmark receives an incentive fee when an asset or a fund is sold. Typically,
the incentive fee will only be payable after the client has achieved a
specified real (adjusted for inflation) rate of return of 8% to 12% and is a
percentage of value in excess of that return. In recent years, Westmark has
experienced reduced rates of asset management and acquisition fees.
Term. The term of Westmark's advisory agreements vary by the form of
investment vehicle utilized. In the commingled funds, the term is generally 10
years with extension provisions based upon a vote of the investors. In the
Company's separate account relationships, the agreements are generally one to
three years in term, with "at will" termination provisions. In general, both
the capital managed by Westmark and its client relationships are long-term in
nature.
VALUATION AND APPRAISAL SERVICES
The Company's valuation and appraisal services business delivers
sophisticated commercial real estate valuations through a variety of products
including market value appraisals, portfolio valuations, discounted cash flow
analyses, litigation support, feasibility land use studies and fairness
opinions. The Company's appraisal staff has more than 80 professionals with
approximately 50% of the staff holding the MAI professional designation. The
business is operated nationally through 21 regional offices and its clients
are generally corporate and
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institutional portfolio owners and lenders. The Company believes it is among
the leading real estate appraisal firms on the basis of revenues generated in
1995.
INTERNATIONAL ALLIANCES AND ACTIVITIES
In response to growing cross-border capital flows for investment in
commercial real estate, and the multinational strategies of the Company's U.S.
corporate clients, the Company has developed exclusive alliances with leading
firms in various countries in Europe, the Far East and Southeast Asia,
Australia and New Zealand. The relationships with DTZ, a consortium of 23 real
estate advisory firms operating in 15 countries in Europe, as well as
Australia and New Zealand, and C. Y. Leung & Company, a locally-owned firm
operating in China, Singapore, and Malaysia, have allowed the Company to
provide global corporate service capabilities and significantly strengthen its
client relationships in the United States. These relationships are reciprocal
referral arrangements whereby the Company's clients who require services in a
geographic region serviced by its alliance partners must be referred by the
Company to its alliance partner operating in that region. Conversely, the
Company's alliance partners are obligated to refer their clients with
commercial real estate needs in the United States to the Company.
Representative international clients include Blockbuster Videos Entertainment
Corp., Coca-Cola Co. Inc., Tenneco, U. S. Robotics Corp. and Westinghouse
Electric Corp. Revenues from the Company's international activities currently
represent a small portion of total revenues. In addition to cross-border
corporate space acquisition and disposition activity, Westmark is exploring
the development of new cross-border investment products with DTZ and C.Y.
Leung.
INFORMATION TECHNOLOGY
In order to enhance the quality of its real estate services and improve the
productivity of its employees, the Company has invested in state-of-the-art
computer and telecommunication systems to provide real-time real estate
information and sophisticated presentation and analysis tools. The Company's
information technology group ("IT Group"), headquartered in Torrance,
California, employs 40 professionals that operate the Company's data center,
develop custom programs, implement special systems software, and provide
support for hardware and software utilized in the Company's national network
of offices.
The Company has adopted computer hardware and software standards to maintain
the consistency and quality of its real estate services. Each office is
connected directly to the Company's IBM mainframe computer for real-time
access to the Company's centralized databases and customized software
applications. The Company also utilizes PeopleSoft's client server financial
applications on a Sun/Oracle platform to support its accounting functions.
Each evening all data is backed up to tape and stored off-site. The Company's
disaster recovery services, including a "hot site," are provided by Comdisco
Disaster Recovery Services, Inc.
The Company believes that it maintains one of the nation's largest databases
of commercial properties in the United States. The CB Commercial proprietary
property information database contains over 20 years of comprehensive data on
over 17 billion square feet of office, industrial and retail space. Nearly 150
information services coordinators, researchers, and analysts located
throughout the United States and over 2,000 of the Company's real estate
professionals support the centralized, real-time information gathering
activities. The Company also purchases commercial real estate data from third
parties.
Local Area Networks (LANs), connected to the Company's wide area network
(WAN) through Frame Relay, provide the Company's professionals with direct and
simultaneous access to current market information and industry-specific
software applications that synthesize complex and comprehensive information
into charts, spreadsheets and presentations. Products and systems available to
the Company's professionals include: (i) "virtual" property tours which
incorporate demographics, pictures, floor plans and sound providing current
information on properties located throughout the United States, (ii)
standardized financial analyses and presentation of multiple lease scenarios
to compare total occupancy costs, (iii) tracking of owned and leased property
information, including photographs, locator maps and site/floor plans, (iv)
transaction management for a corporate multi-market real estate portfolio to
coordinate, facilitate, and expedite acquisition, disposition and
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consulting requirements and, (v) centralized property management data bases
with an array of management, valuation, accounting and reporting applications.
Mobile computing with remote, on-line access to the Company's databases and
software applications is available to the Company's professionals. By special
arrangement, some of the Company's clients have remote modem access to
selected client-customized software applications. The CB Commercial Web Site
has also given clients direct access through the CB Internet home page. These
systems allow clients to gain access to various levels of information,
maintain day-to-day contact with the Company's professionals, and track and
monitor property acquisition and disposition activities and property
portfolios.
EMPLOYEE EDUCATION
In 1991, the Company founded its training program, known as CB Commercial
University ("CBCU") to provide professional development and industry training
for its key professional employees. CBCU is distinguished in the industry for
its quality, intensity, scope and results. Through CBCU and its professional
education department, the Company currently offers 39 training programs and
courses. The courses offered at CBCU are typically one week in length and are
customized to meet both employees' and clients' needs and skill levels.
Courses focus on (i) employees' productivity and quality consistency; (ii)
management leadership and effectiveness in the context of the latest industry
knowledge and technology; and (iii) clients' needs in the Company's various
business lines and specialty practice areas. Although CBCU was originally
established to develop the skills of the Company's employees, in 1995 in
response to demand from its clients, the Company added courses to the CBCU
curriculum which involve its clients. In 1995, more than 450 employees and
clients took courses at CBCU.
COMPETITION
The market for commercial real estate brokerage and other real estate
services provided by the Company is both highly fragmented and highly
competitive. Thousands of local commercial real estate brokerage firms and
hundreds of regional commercial real estate brokerage firms have offices in
the United States. The Company believes that no more than two other major
firms have the ability to compete nationally with the Company's brokerage
business, and that the Company's national brokerage network enables it to
compete effectively with these organizations. Most of the Company's
competitors are local or regional firms that are substantially smaller than
the Company on an overall basis, but in some cases, may be larger locally.
L.J. Melody competes with a large number of mortgage banking firms and
institutional lenders as well as regional and national investment banking
firms and insurance companies in providing its mortgage banking services.
Appraisal services are provided by other national, local and regional
appraisal firms and national and regional accounting firms. Consulting
services are provided by numerous commercial real estate firms (national,
regional and local), accounting firms, appraisal firms and others.
The Company's property management business competes for the right to manage
properties controlled by third parties. The competitor may be the owner of the
property (who is trying to decide the efficiency of outsourcing) or another
property management company. Increasing competition in recent years has
resulted in having to provide additional services at lower rates through
eroding margins. In 1996, however, rates have stabilized and in some cases
increased.
Westmark competes with a significant number of investment advisors, banks
and insurance companies in attracting investor money. Over the last several
years, Westmark experienced growth in its separate accounts and its commingled
debt funds, but not in its commingled equity funds.
In all of its business disciplines, the Company competes on the basis of the
skill and quality of its personnel, the variety of services offered, the
breadth of geographic coverage and the quality of its infrastructure,
including technology. See "Risk Factors--Competition."
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EMPLOYEES
As of September 30, 1996, the Company had approximately 4,000 employees,
approximately 66% of whom work in the areas of brokerage and investment
properties. All of the Company's sales professionals are parties to contracts
with the Company which subject them to the Company's rules and policies during
their employment, and limit their post-employment activities in terms of
soliciting clients or employees of the Company. The Company believes that
relations with its employees are good.
FACILITIES
The Company owns its headquarters building in downtown Los Angeles,
California. In addition to the Company's headquarters, the Company owns and
occupies three smaller office buildings in Phoenix, Arizona, San Diego and
Carlsbad, California. These properties are mortgaged to secure loans to the
Company.
The Company also leases office space on terms that vary depending on the
size and location of the office. The leases expire at various dates through
2006. For those leases that are not renewable, the Company believes there is
adequate alternative office space available at acceptable rental rates to meet
its needs.
LEGAL PROCEEDINGS
As a result of the thousands of transactions in which the Company
participates and its employment of almost 4,000 people, it is a party to a
number of pending or threatened lawsuits, arising out of or incident to the
ordinary course of its business. At any given time, the Company typically is a
defendant in 150 to 175 legal proceedings and a plaintiff in 50 to 100 legal
proceedings. Management believes that any liability to the Company, net of
insurance proceeds, that may result from the proceedings to which it is
currently a party will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
As part of its process of minimizing, to the extent possible, potential
litigation, the Company requires its sales professionals to agree to
contribute each month toward a "Reserve Account" to be used whenever a claim
of professional liability is asserted. In addition, each sales professional
contractually agrees to be responsible for a portion of any amount paid to
defend or settle a claim against that professional or for any resulting
judgment.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James J. Didion......... 56 Chairman of the Board and Chief Executive Officer
Gary J. Beban........... 50 President/Director
David A. Davidson....... 61 Senior Executive Vice President, Chief Financial Officer and
Treasurer
Thaddeus W. Jones....... 54 Senior Executive Vice President/Senior Executive Director--
CBC/Madison Advisory Group
George J. Kallis........ 53 Senior Executive Vice President--Brokerage Western U.S./ Director
Charles O. McBride, Jr.. 54 Senior Executive Vice President/Chief Operating Officer--
Property Management Services
Jeffrey S. Morgan....... 42 Senior Vice President/Director
Ronald J. Platisha...... 49 Executive Vice President and Principal Accounting Officer
Richard A. Pogue........ 54 Senior Executive Vice President--Brokerage/Director
Kenneth D. Sandstad..... 50 Senior Executive Vice President--Brokerage Eastern U.S.
Walter V. Stafford...... 56 Senior Executive Vice President and General Counsel
John L. Stanfill........ 55 President--CB Commercial Investment Properties
Richard C. Clotfelter... 59 President--Westmark Realty Advisors L.L.C./Director
Lawrence J. Melody...... 58 President--L.J. Melody & Company/Director
Stanton D. Anderson(2).. 56 Director
Richard C. Blum(1)(2)(3) 61 Director
Frank C. Carlucci....... 65 Director
Daniel A. D'Aniello(2).. 50 Director
Hiroaki Hoshino......... 54 Director
Takayuki Kohri.......... 44 Director
Paul C. Leach(2)........ 51 Director
Frederic V. Malek(1)(3). 59 Director
Peter V. Ueberroth(1)(3) 58 Director
Gary L. Wilson(1)(3).... 56 Director
</TABLE>
- --------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
(3) Member of Acquisition/Investment Committee of the Board of Directors
James J. Didion. Mr. Didion has been Chairman and Chief Executive Officer of
CB Commercial since January 1987 and a Director since the Company's
incorporation. Previously, he served as President of CB Commercial Real Estate
Group, Inc., following a career of almost 24 years in sales and management
positions in the commercial brokerage operations of CB Commercial Real Estate
Group, Inc. Mr. Didion is a member and current trustee of the Urban Land
Institute. He is also a member of the National Realty Committee and was
Chairman of the National Realty Committee from 1993 through June 1996.
Mr. Didion holds an A.B. degree from the University of California, Berkeley
and serves on the University's Advisory Board for the Haas School of Business.
Gary J. Beban. Mr. Beban has been the President of the Company since May
1995 and a Director since 1989. He joined the Company's Los Angeles office in
1970 as an industrial and investment properties specialist and thereafter
served in several management positions in Chicago. Mr. Beban has also been the
President of CB Commercial Brokerage Services since 1987. He is a member of
the Industrial Development Research Council and the National Realty Committee.
Mr. Beban serves on the Board of Directors of The First American Financial
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Corporation and its wholly-owned subsidiary, First American Title Insurance,
Inc. Mr. Beban holds a B.A. degree from the University of California, Los
Angeles.
David A. Davidson. Mr. Davidson has been Senior Executive Vice President,
Chief Financial Officer and Treasurer of the Company since November 1992. From
February 1991 to November 1992, he served as Executive Vice President and from
July 1990 to February 1991 was Senior Vice President. Mr. Davidson joined the
Company as Vice President, Treasurer and Assistant Secretary in June 1989.
During 1987 and 1988 he was Executive Vice President and Chief Operating
Officer of Nationwide Health Properties, a real estate investment trust.
Subsequently, he served as Executive Vice President of Corporation Operations
and Chief Financial Officer for Voluntary Hospitals of America, an alliance of
not-for-profit hospitals located in Dallas, Texas. From 1981 to 1987, Mr.
Davidson was Vice President, Treasurer of Beverly Enterprises, a provider of
health care services. Mr. Davidson holds a B.S. degree and a Masters of
Accountancy degree from Brigham Young University.
Thaddeus W. Jones. Mr. Jones has been Senior Executive Vice President of the
Company and Senior Executive Director of CBC/Madison Advisory Group since
1994, after having served as Executive Director--CBC/Madison Advisory Group
from 1992 to 1994. From 1986 to 1992 Mr. Jones was President of CB Commercial
Realty Advisors and from 1984 to 1986 he was a Senior Vice President, after
having served in various management positions in the Company's brokerage
business. Mr. Jones rejoined CB Commercial in 1982 after leaving in 1979.
Mr. Jones holds a B.S. degree from the University of California, Los Angeles.
George J. Kallis. Mr. Kallis has been the Company's Senior Executive Vice
President--Brokerage Western U.S. since 1992 and a Director of the Company
since 1995. Prior to that time, he served as Executive Vice President from
1991 to 1992 and as Senior Vice President and Regional Manager--Brokerage from
1988 to 1991. Mr. Kallis joined the Company in 1977. Mr. Kallis is a member of
the International Council of Shopping Centers and the Urban Land Institute and
is on the Board of Directors of the Los Angeles County Economic Development
Council. Mr. Kallis holds a B.S. degree in Business Administration from the
University of Maryland.
Charles O. McBride. Mr. McBride has been Senior Executive Vice President of
the Company and Chief Operating Officer--Property Management Services since
April 1991. He joined the Company in 1989 as Executive Vice President/Chief
Operating Officer--Property Management Services. Mr. McBride was a senior
officer with PM Realty Group, a national real estate management and services
company, from 1971 to 1989, serving as Executive Vice President from 1981 to
1989. Mr. McBride holds a B.A. degree from the University of Texas.
Jeffrey S. Morgan. Mr. Morgan has been a Senior Vice President of the
Company since 1991 and a Director of the Company since 1995. He joined the
Company in 1978 and is a specialist in industrial properties. He has been
named to the Company's Colbert Coldwell Circle (representing the top three
percent of the Company's sales force) for five of the last nine years. In 1994
he was awarded the William H. McCarthy Award, the highest honor awarded
producing professionals within the Company. Mr. Morgan holds a B.S. degree in
Marketing from California State University (Northridge).
Ronald J. Platisha. Mr. Platisha has been the Company's Executive Vice
President and Principal Accounting Officer since 1992. Mr. Platisha was
promoted to Senior Vice President in 1991, after serving as First Vice
President and Controller from 1982 to 1991. Mr. Platisha joined the Company in
1976. Mr. Platisha holds a B.S. degree from California State University
(Long Beach).
Richard A. Pogue. Mr. Pogue has been the Company's Senior Executive Vice
President--Brokerage since January 1996 and a Director of the Company since
1996. From 1994 to 1995 he was Senior Executive Vice President (Brokerage
Division) of the Company and from 1992 to 1994, he served as the Company's
Senior Vice President--Investment Properties. From 1984 to 1992, he was
Division President of The Koll Company, a real estate investment and
development company. Mr. Pogue originally joined the Company in 1971. Mr.
Pogue is a member of the National Realty Committee and the Urban Land
Institute. Mr. Pogue holds a B.A. degree from the University of Oklahoma.
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Kenneth D. Sandstad. Mr. Sandstad has been the Company's Senior Executive
Vice President--Brokerage Eastern U.S. since 1991. He has also held the
following positions with the Company: Institutional Services Manager from 1994
to 1996, Division Manager (Central Division) from 1990 to 1994 and Regional
Manager (South Central) from 1985 to 1990. Mr. Sandstad was also a Director of
the Company from 1992 to 1994. Mr. Sandstad joined the Company in 1974,
beginning at the Minneapolis office in the brokerage division. He holds a B.A.
degree from St. Olaf College and a J.D. degree from the University of
Minnesota.
Walter V. Stafford. Mr. Stafford has served as Senior Executive Vice
President and General Counsel of the Company since 1995. Mr. Stafford was a
partner at the law firm Pillsbury Madison & Sutro LLP from 1988 to 1995 and
from 1973 to 1982. From 1982 to 1988 he was Senior Vice President and General
Counsel at Diasonics, Inc., a medical device manufacturer, and from 1982 to
1994 he was a director of that company. Mr. Stafford holds a B.A. from the
University of California, Berkeley and an L.L.B. degree from Boalt Hall.
John L. Stanfill. Mr. Stanfill is President of CB Commercial Investment
Properties. Previously, he was Managing Director--Special Investments, a
position he was appointed to when he rejoined the Company in 1990 after
founding a real estate investment banking firm in 1979. From 1976 to 1979, Mr.
Stanfill served as Vice President of Investment Marketing of the Company. He
originally joined the Company in 1971. Mr. Stanfill holds a B.A. in English
Literature from the University of California, Los Angeles.
Richard C. Clotfelter. Mr. Clotfelter was elected Chairman and President,
Westmark Realty Advisors, an indirect wholly-owned subsidiary of the Company
in 1995, and has been a Director of the Company since 1993. Mr. Clotfelter
joined the Company in 1993 as President--Capital Markets, Asset Valuation and
Management Activities. From April 1977 through 1992, he was President of
Prescott, Inc., a real estate development and management company.
Mr. Clotfelter is on the Board of Directors of The Commerce Bancorporation.
Mr. Clotfelter is also a member of the Urban Land Institute, serving on its
Urban Development/Mixed Used Council. Mr. Clotfelter holds a B.A. degree from
Stanford University.
Lawrence J. Melody. Mr. Melody has served as a Director since August 1996.
He is also President of L.J. Melody & Company which he founded in February
1978. He is a member of the International Council of Shopping Centers, the
Urban Land Institute (a member of the Multifamily Council), the Pension Real
Estate Association, the National Association of Industrial and Office Parks,
the National Multi Housing Council, as well as other professional
organizations. He is a member of Board of Trustees of the Mortgage Bankers
Association of America and past President and Director of the Texas Mortgage
Bankers Association, who awarded him their Distinguished Service Award in
1995. Mr. Melody holds a B.A. degree from the University of Notre Dame.
Stanton D. Anderson. Mr. Anderson has been a Director of the Company since
1989. In 1995, he became counsel to the law firm of McDermott, Will & Emery.
Prior to 1995, Mr Anderson was a founding partner in the law firm of Anderson,
Hibey & Blair. He is also a founder of Global USA, Inc. an international
consulting company, where he serves as Chairman and President. He served as
Deputy Director of the Republican Convention in 1980, 1984 and 1988, as
counsel to the Reagan-Bush Campaign in 1980 and as a Director of the 1980
Presidential Transition. Mr. Anderson serves on the Board of Directors of
International Management & Development Group, Ltd. Mr. Anderson holds a B.A.
degree from Westmont College and a J.D. degree from Willamette University
School of Law.
Richard C. Blum. Mr. Blum has been a Director of the Company since 1993. He
is the Chairman and President of Richard C. Blum & Associates, Inc., a
merchant banking firm he founded in 1975. Mr. Blum is a member of the Board of
Directors of National Education Corporation; Sumitomo Bank of California;
Triad Systems Corporation; Northwest Airlines Corporation; and URS
Corporation. Mr. Blum also serves as Vice Chairman of URS Corporation. Mr.
Blum holds a B.A. from the University of California, Berkeley, a graduate
degree from the University of Vienna and an M.B.A. degree from the University
of California, Berkeley.
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Frank C. Carlucci. Mr. Carlucci has been a Director of the Company since
1989. In 1993, Mr. Carlucci became Chairman of The Carlyle Group, a merchant
banking firm where he had served as Vice Chairman since 1989. From 1987 to
1989, Mr. Carlucci served as the Secretary of Defense. From 1986 to 1987, Mr.
Carlucci was Assistant to the President for National Security Affairs. From
1983 to 1986, Mr. Carlucci served as Chairman and Chief Executive Officer of
Sears World Trade. Mr. Carlucci is on the Board of Directors of Ashland Oil,
Inc.; BDM International, Inc.; Bell Atlantic Corporation; General Dynamics
Corporation; Kaman Corporation; Neurogen Corporation; Northern Telecom, Ltd.;
The Quaker Oats Company; Sun Resorts, Ltd., N.V.; Texas Biotechnology
Corporation; Pharmacia & Upjohn, Inc.; and Westinghouse Electric Corporation.
Mr. Carlucci holds an A.B. degree from Princeton University.
Daniel A. D'Aniello. Mr. D'Aniello has been a Director of the Company since
1989. He has served as Managing Director of The Carlyle Group, a merchant
banking firm since May 1987. From August 1986 through April 1987,
Mr. D'Aniello was Vice President--Finance and Development of Marriott Inflite
Services, Inc., a subsidiary of Marriott Corp. Mr. D'Aniello is Chairman of
the Board of Directors of GTS Duratek, Inc. Mr. D'Aniello holds a B.S. degree
from Syracuse University and an M.B.A. from the Harvard University Graduate
School of Business.
Hiroaki Hoshino. Mr. Hoshino has been a Director of the Company since 1992.
Previously, he served as Senior Vice President, Treasurer and Chief Financial
Officer of Kajima International, Inc. from April 1987 to March 1990 and as
Senior Vice President and Chief Financial Officer of that company from April
1990 to March 1991. From April 1991 to March 1993, he served as Executive Vice
President and Chief Financial Officer of Kajima International Inc. Since April
1991, he has served as the Chief Financial Officer and since April 1993 he has
been Executive Vice President and Chief Financial Officer of Kajima U.S.A.,
Inc. From September 1992 to April 1996, he was Executive Vice President, Chief
Financial Officer and Director of Kajima Capital of America, Inc. Since April
1996 he has been President, Chief Executive Officer, Chief Financial Officer
and Director of Kajima Capital of America, Inc. Mr. Hoshino holds a B.A.
degree from Gakushuin University.
Takayuki Kohri. Mr. Kohri has been a Director of the Company since 1989.
Previously, he was Assistant Manager of Sumitomo Real Estate Sales in Japan
from 1984 to August 1988. From August 1988 to July 1993, he was an Executive
Vice President of Sumitomo Real Estate Sales L.A., Inc. Since July 1993, he
has been Deputy Manager of Sumitomo Real Estate Sales Japan, a real estate
sales and development firm. Mr. Kohri holds a B.A. degree in Economics from
Keio University.
Paul C. Leach. Mr. Leach has been a Director of the Company since August
1996. Since its founding in 1991, Mr. Leach has served as president of Paul
Leach & Company, a private investment banking firm in San Francisco which
specializes in international and domestic acquisitions and investments. He is
also Managing Director of The Lone Cypress Company, the owner of Pebble Beach
Company, and Managing Director of Rancho Cielo Company, a developer in Rancho
Santa Fe, California. From 1988 through 1991, Mr. Leach was a senior manager
and partner in the international merger and acquisition group at Deloitte &
Touche. Prior to 1988, he held several positions in San Francisco, including
serving as a partner with both Osterweis Capital Management and Centennial
Petroleum Company and manager of corporate development for Natomas Company.
From 1975 through 1977, Mr. Leach served as associate director of the Domestic
Council Staff at the White House during the Ford Administration. Mr. Leach
holds an A.B. degree from Dartmouth College and M.B.A. and J.D. degrees from
Stanford Graduate School of Business and Stanford Law School, respectively.
Frederic V. Malek. Mr. Malek has been a Director of the Company since 1989.
He has served as Chairman of Thayer Capital Partners, a merchant banking firm
he founded since 1993. He was President of Marriott Hotels and Resorts from
1981 through 1988 and was Executive Vice President of Marriott Corp. from 1978
through 1988. He was Senior Advisor to The Carlyle Group, a merchant banking
firm, from November 1988 through December 1991. From September 1989 through
June 1990, he was President of Northwest Airlines and from June 1990 until
December 1991 he served as Vice Chairman of Northwest Airlines. From December
1991 through November 1992, Mr. Malek served as Campaign Manager for the 1992
Bush/Quayle presidential
55
<PAGE>
campaign. He also serves on the Board of Directors of American Management
Systems, Inc.; Automatic Data Processing Corp.; Avis, Inc.; FPL Group Inc.;
ICF Kaiser International, Inc.; Intrav, Inc.; Manor Care, Inc.; National
Education Corp.; Northwest Airlines Corporation; and Paine Webber Funds. Mr.
Malek holds a B.S. degree from the United States Military Academy at West
Point and an M.B.A. degree from the Harvard University Graduate School of
Business.
Peter V. Ueberroth. Mr. Ueberroth has been a Director of the Company since
1989. Since 1989, he has been an investor and Managing Director of Contrarian
Group, Inc., a business management company. From 1984 through 1989, he was the
Commissioner of Major League Baseball in the United States. Mr. Ueberroth is a
member of the Board of Directors of The Coca Cola Company; Ambassadors
International, Inc.; Doubletree Hotels Corp; and Transamerica Corporation.
Gary L. Wilson. Mr. Wilson has been a Director of the Company since 1989.
Since 1991, he has been Co-Chairman of Northwest Airlines, Inc., Northwest
Airlines Corporation and NWA, Inc. From 1985 until January 1990, Mr. Wilson
was an Executive Vice President and Chief Financial Officer and Director for
The Walt Disney Company and remains a Director of The Walt Disney Company.
From 1974 until 1985, he was Executive Vice President and Chief Financial
Officer of Marriott Corporation. Mr. Wilson holds a B.A. degree from Duke
University and an M.B.A. from the Wharton Graduate School of Business and
Commerce at the University of Pennsylvania.
All directors are elected to hold office until the next annual meeting of
stockholders of the Company and until their successors have been elected.
Officers serve at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive officers of the
Company. See "Description of Capital Stock--The Recapitalization."
BOARD COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Effective upon the closing of the Offering, there will be three committees
of the Board of Directors: a Compensation Committee, an Audit Committee and an
Acquisition/Investment Committee. See "Description of Capital Stock--The
Recapitalization."
The Compensation Committee members are Messrs. Blum, Malek, Ueberroth and
Wilson, who are outside directors of the Company. Currently this committee
determines the salary and incentive compensation, if any, of executive
officers of the Company whose annual base salary exceeds $300,000, may
authorize employment agreements with such officers, and in exceptional
circumstances, may review and approve compensation arrangements with other
employees. Effective upon the closing of the Offering, the Compensation
Committee will determine the salaries of the Chairman and Chief Executive
Officer and, upon the recommendation of the Chief Executive Officer, the
salaries and incentive compensation of the President and the Chief Financial
Officer. The salaries and incentive compensation of all other officers are
determined by the Chief Executive Officer.
The members of the Audit Committee are Messrs. Anderson, Blum, D'Aniello and
Leach, who are outside directors of the Company. The purpose of the Audit
Committee is to recommend a firm of independent public accountants to be
appointed by the Board subject to stockholder ratification, review the
Company's annual consolidated financial statements and consult with the
representatives of the independent public accountant and the Chief Financial
Officer and Principal Accounting Officer with regard to the adequacy of
internal controls.
The Acquisition/Investment Committee members are Messrs. Blum, Malek,
Ueberroth and Wilson. The purpose of the Acquisition/Investment Committee is
to authorize the undertaking by the Company of definitive negotiations with
respect to any acquisition or investment that contemplates the issuance of any
class of the Company's stock or the aggregate cost of which is likely to
exceed $10 million.
56
<PAGE>
DIRECTOR COMPENSATION
Each of the directors of the Company who is not also an executive officer is
entitled to receive a fee of $2,500 for attendance at each meeting of the
Board of Directors, $2,500 for attendance at each meeting of a board committee
which does not coincide with a Board of Directors meeting and an annual
retainer of $15,000. No director received compensation from the Company for
services as a director in excess of $27,500 in 1995. Non-employee directors
are reimbursed for their expenses for each meeting attended. In 1993, below
market options were granted to certain non-employee directors in partial
payment of directors' fees. See "Employee Benefit Plans." In October 1996, the
Compensation Committee (Messrs. Blum, Ueberroth and Wilson abstaining) granted
each of Messrs. Blum, Ueberroth and Wilson a 10,000 share stock option under
the Company's Service Providers Stock Option Plan exercisable at the initial
public offering price and vesting over three years. The Company is considering
the adoption of a longer term stock option program for its independent
directors.
57
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to the Company's nine other most highly compensated
executive officers other than the Chief Executive Officer whose total annual
salary and bonus exceeded $100,000, for services rendered in all capacities to
the Company for each of the fiscal years in the three year period ended
December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------- ---------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK STOCK COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) SATION(2) AWARDS(3) OPTIONS SATION(4)
--------------------------- ---- -------- -------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
James J. Didion............. 1995 $390,000 $279,160 $51,212 -- -- $1,520
Chairman of the Board and 1994 390,000 300,000 82,005 -- -- 1,105
Chief Executive Officer 1993 375,000 250,000 -- $90,000 -- 978
Gary J. Beban............... 1995 300,000 190,527 -- -- -- 1,520
President 1994 300,000 236,118 -- -- 10,000 273
1993 270,000 233,899 -- 60,000 -- --
Richard C. Clotfelter....... 1995 250,000 174,475 -- -- -- --
President--Westmark Realty 1994 225,000 123,192 3,506 32,500 20,000 --
Advisors L.L.C. 1993(6) 183,334 106,671 -- 150,000 40,000 --
David A. Davidson...........
Senior Executive Vice 1995 225,000 109,919 19,295 -- -- 1,291
President, Chief Financial 1994 215,000 112,660 16,032 -- 20,000 1,105
Officer and Treasurer 1993 185,000 72,730 -- 60,000 -- 978
Thaddeus W. Jones........... 1995 210,000 173,079 -- -- -- --
Senior Executive Vice 1994 210,000 177,259 -- -- 20,000 --
President 1993 210,000 140,514 -- -- -- --
Senior Executive Director--
CBC/Madison Advisory Group
George J. Kallis............
Senior Executive Vice 1995 200,000 153,538 8,770 -- -- --
President--Brokerage 1994 200,000 177,944 10,129 32,500 -- 747
Western U.S. 1993 170,000 140,805 -- -- -- 876
Charles O. McBride.......... 1995 194,479 134,345 5,722 -- -- 1,520
Senior Executive Vice 1994 189,000 137,735 4,760 -- -- 1,105
President/ 1993 183,750 76,366 -- -- -- 978
Chief Operating Officer--
Property Management Services
Richard A. Pogue............ 1995 192,000 143,767 -- -- -- --
Senior Executive Vice 1994 177,708 158,780 4,431 97,500 40,000 --
President--Brokerage 1993 125,000 72,035 -- -- -- --
Kenneth D. Sandstad.........
Senior Executive Vice 1995 200,000 139,580 1,328 -- -- 1,520
President--Brokerage 1994 200,000 162,887 -- -- -- 1,105
Eastern U.S. 1993 185,000 116,367 -- -- -- 978
John L. Stanfill............ 1995 197,600 142,581 -- -- -- --
President--CB Commercial 1994 190,000 146,485 -- 32,500 -- --
Investment Properties 1993 175,000 120,253 -- -- -- --
</TABLE>
58
<PAGE>
- --------
(1) Bonus for each year is paid in the first quarter of the following year.
Pursuant to the Company's Deferred Compensation Plan, Mr. Didion elected
to defer his entire bonuses in 1993, 1994 and 1995, and Mr. Davidson and
Mr. Kallis elected to defer all or a substantial portion of their bonuses
in 1994 and 1995. All such amounts were invested in shares of the
Company's Common Stock.
(2) Under the Company's Deferred Compensation Plan beginning in 1994, an
individual who defers an amount payable as bonus in the first 90 days of
1994, 1995 or 1996 for investment in shares of the Company's Common Stock
was credited with such shares based on the appraised value of such shares
at the time the election to defer was made. The amounts shown represent
the difference between the aggregate appraised value of such shares at the
time the bonus was paid and the aggregate appraised value of such shares
at the time the election to defer was made. The amounts shown relate to
bonuses payable in the first quarter of the following year.
(3) Represents the appraised value of restricted stock awards at the date of
grant. The aggregate number of shares and appraised value of restricted
stock (excluding stock no longer subject to any specified vesting period)
held by the individuals named above as of December 31, 1995 was as
follows: Mr. Didion--15,000 ($149,100); Mr. Beban--10,000 ($99,400); Mr.
Clotfelter--30,000 ($298,200); Mr. Davidson--10,000 ($99,400); Mr. Jones--
0; Mr. Kallis--5,000 ($49,700); Mr. McBride--0; Mr. Pogue--15,000
($149,100); Mr. Sandstad--0; and Mr. Stanfill--5,000 ($49,700). The
holders of shares of restricted stock are entitled to receive dividends on
such shares to the extent dividends are paid on the Common Stock. Does not
include income recognized for income tax purposes upon vesting of
restricted stock awards.
(4) Consists of each individual's allocable share of profit sharing
contributions in the form of shares of Common Stock made by the Company to
the Company's Capital Accumulation Plan, based on the appraised value of
the stock at the time of contribution.
(5) Mr. Clotfelter's employment by the Company commenced in February 1993.
AGGREGATED 1995 YEAR-END OPTION VALUES
The following table sets forth certain information as of December 31, 1995
with respect to the number and value of unexercised stock options held by
individuals named in the Summary Compensation Table above. In fiscal 1995,
none of the such individuals either were granted or exercised any options. At
December 31, 1995 all options listed below had exercise prices which exceeded
the value of the underlying stock and, therefore, had no value.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING
UNEXERCISED OPTIONS(1) AT
DECEMBER 31, 1995
-------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
James J. Didion.................................... 75,000 0
Gary J. Beban...................................... 62,500 7,500
Richard C. Clotfelter.............................. 31,667 28,333
David A. Davidson.................................. 45,000 15,000
Thaddeus W. Jones.................................. 25,000 15,000
George J. Kallis................................... 40,000 0
Charles O. McBride................................. 40,000 0
Richard A. Pogue................................... 10,000 30,000
Kenneth D. Sandstad................................ 40,000 0
John L. Stanfill................................... 20,000 0
</TABLE>
- --------
(1) All options have an exercise price of $10.00 per share.
59
<PAGE>
EMPLOYEE BENEFIT PLANS
Omnibus Stock and Incentive Plan. The Company's Omnibus Stock and Incentive
Plan (the "Omnibus Plan") is a restricted stock plan which provides for the
issuance of shares of the Company's Common Stock, subject to vesting
provisions. No shares remain available for issuance under the Omnibus Plan,
but additional shares will become available if forfeited by any of the current
holders.
1990 Stock Option Plan. One million shares have been reserved for issuance
under the Company's 1990 Stock Plan (the "Stock Option Plan"). These options
vest over one to four years. Options exercisable at $10.00 per share for
920,000 shares are outstanding as of August 31, 1996. If options are
forfeited, the underlying shares again become available for grant under the
Stock Option Plan.
Service Providers Stock Option Plan. A total of 600,000 shares of Common
Stock have been reserved for issuance under the Company's 1991 Service
Providers Stock Option Plan. In 1993, 5,922 below-market options were granted
to certain directors in partial payment of director fees. During 1996 and 1995
options to purchase 467 and 4,106 shares, respectively, of Common Stock were
exercised. As of September 30, 1996, options to purchase 36,140 shares of
Common Stock are outstanding. In October 1996, the Compensation Committee
(Messrs. Blum, Ueberroth and Wilson abstaining) granted each of Messrs. Blum,
Ueberroth and Wilson a 10,000 share option under the Service Providers Plan.
Each option is exercisable at the initial public offering price and vests over
a three year period.
1996 Equity Incentive Plan. In November 1995 the Board of Directors
authorized, and in January 1996 the Compensation Committee of the Board
adopted, a restricted stock purchase plan (the "Equity Incentive Plan") for
the purpose of retaining selected executives by offering them an opportunity
to acquire a proprietary interest, or to increase such interest, in the
success of the Company by purchasing shares of the Common Stock. A total of
550,000 shares of Common Stock have been reserved for issuance under the
Equity Incentive Plan. In January 1996, the Compensation Committee awarded ten
senior executives a total of approximately 540,000 shares under the Equity
Incentive Plan, subject to the authority of Chief Executive Officer to reduce
any grants. After reductions a total of 510,906 shares were purchased. The
following amounts of shares were purchased by the individuals named in the
Summary Compensation Table above: James J. Didion--175,027; Gary J. Beban--
53,910; Richard C. Clotfelter--33,750; George J. Kallis--42,750; Richard A.
Pogue--35,750; Kenneth D. Sandstad--44,586; and John L. Stanfill--54,383. The
shares may be issued to senior executives for a purchase price equal to the
greater of $10.00 per share or fair market value, and the shares previously
acquired were purchased at $10.00 per share. The purchase price for shares
under this plan must be paid either in cash or by delivery of a full recourse
promissory note. Any shares purchased vest at the rate of 5% per quarter.
Bonuses. The Company has bonus programs covering certain employees,
including senior management. Awards are based on the position and performance
of the employee and the achievement of pre-established financial, operating
and strategic objectives. Although bonuses are generally paid in cash, the
Company retains the discretion to pay any bonus in shares of the Company's
Common Stock.
Capital Accumulation Plan. The Company's Capital Accumulation Plan (the "Cap
Plan") is a defined contribution profit sharing plan under Section 401(k) of
the Internal Revenue Code and is the Company's only such plan. Under the Cap
Plan, each participating employee may elect to defer a portion of his or her
earnings and the Company may make additional contributions from the Company's
current or accumulated net profits to the Cap Plan in such amounts as
determined by the Board of Directors. During each year that the Cap Plan has
been in existence except 1991, the Company has made an additional contribution
of stock having a fair market value equal to 2 1/2% of the Company's operating
income for the year for which such contribution was made. Each such
contribution has been allocated among the participating employees in
proportion to their respective contributions to the Cap Plan during the year
for which such contribution was made. At September 30, 1996, Cap Plan held
2,842,775 shares of the Company's Common Stock.
60
<PAGE>
Deferred Compensation Plan. In 1993, the Company's Board of Directors
approved the adoption and implementation of a Deferred Compensation Plan (the
"DCP") effective January 1, 1994. Under the DCP, a select group of management
and highly-compensated employees are permitted to defer the payment of all or
a portion of their compensation (including any bonus). The DCP permits
participating employees to make an irrevocable election at the beginning of
each year to receive amounts deferred at a future date either in cash, which
accrues at a rate of interest determined in accordance with the DCP, or in
newly-issued shares of Common Stock of the Company. For the year ended
December 31, 1995, approximately $698,000 (including interest) and $1.1
million were deferred in cash and stock, respectively. The accumulated
deferrals as of September 30, 1996 are approximately $1.5 million in cash
(including interest) and $2.8 million in stock for a total of $4.3 million.
L.J. Melody Stock Option Acquisition Plan. A total of 90,750 shares of Class
B-2 Common Stock have been reserved for issuance under the L.J. Melody
Acquisition Stock Option Plan, which was adopted by the Board of Directors in
September 1996. Options for all of such shares have been issued at an exercise
price of $10.00 per share and vest over a period of five years at the rate of
5% per quarter. Options for 90,750 were outstanding as of September 30, 1996.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
In connection with the Offering and Recapitalization, the Company's Third
Restated Certificate of Incorporation will be amended and restated as the
Fourth Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"). See "Description of Capital Stock--The Recapitalization." The
Certificate of Incorporation will include provisions that limit the liability
of its directors for monetary damages for breach of their fiduciary duty as
directors, except for liability that cannot be limited under the Delaware
General Corporation Law ("Delaware Law"). Delaware Law provides that a
corporation may eliminate or limit the personal liability of a director to the
corporation or its stockholders, for monetary damages for breach of their
fiduciary duty as directors, except for liability (i) for any breach of their
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payment of dividend or unlawful stock
repurchase or redemption, as provided Section 174 of the Delaware Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Company's Certificate of Incorporation also provides that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the Delaware Law. The Company has entered into separate indemnification
agreements with its directors that could require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors and to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified. The Company believes that the limitation of liability provision
in its Certificate of Incorporation and the indemnification agreements will
facilitate the Company's ability to continue to attract and retain qualified
individuals to serve as directors and officers of the Company.
CERTAIN TRANSACTIONS
Mr. Clotfelter, a director of the Company and president of Westmark, owns
85% of the stock of Prescott, Inc. ("Prescott"), a property management company
based in Seattle, Washington. In 1994, the Company completed the acquisition
of certain assets of Prescott, which consisted of property management
agreements, for an aggregate purchase price of $175,000. In connection with
the acquisition of assets from Prescott, in 1994 Mr. Clotfelter incurred
indebtedness to the Company in an aggregate principal amount of $106,000. The
indebtedness bore interest at nine percent, which was determined under the
Company's policies for employee loans, and the largest amount outstanding at
any time (including principal and interest) was $109,000. The loan was repaid
in full as of March 20, 1996.
61
<PAGE>
In February 1995, the Company retained the law firm of McDermott, Will &
Emery, to which Mr. Anderson, a director of the Company, is counsel, to
provide services to the Company consisting of legal counsel in connection with
the Company's activities with certain federal agencies.
On June 30, 1995, the Company, through a general partnership (the
"Acquisition Partnership") in which it directly or indirectly owns all of the
partnership interests, acquired Westmark. The purchase price was funded in
part by a $10 million senior subordinated loan (the "Westmark Senior
Subordinated Loan") from 399 Venture Partners, Inc., which owns 427,750 shares
of the Company's common stock, to the Acquisition Partnership. See "Principal
Stockholders." In November 1996, the terms of the Westmark Senior Subordinated
Loan were amended to provide for interest to be payable quarterly on a current
basis at a rate of 11%, effective June 30, 1995, and to provide for quarterly
amortization payments by the Company of $500,000. As amended, interest will
accrue on the Westmark Senior Subordinated Loan at the original interest rate
of 20%, but interest in excess of 11% will be forgiven upon the payment of the
Westmark Senior Subordinated Loan in full. If the Company defaults on its
payment obligations under the loan at any time, such excess interest will not
be forgiven and the Westmark Senior Subordinated Loan will bear interest at
the rate of 20% from June 30, 1995. The terms of the Westmark Senior
Subordinated Loan originally provided for the interest to be deferred until
the debt payable to the Westmark sellers was paid or cash collateralized in
full.
Pursuant to the terms of his employment arrangements, in each of 1991, 1992
and 1993 the Company paid Mr. Stanfill $50,000 as an interest free advance
against future bonuses. Mr. Stanfill's maximum obligation pursuant to such
advances was $133,463.50 and his current obligation is $33,363.50 which is
scheduled to be repaid in February of 1997.
In connection with the Company's acquisition of L.J. Melody the Company
entered into an Employment Agreement, dated as of July 1, 1996 ("Melody
Employment Agreement"), pursuant to which the Company agreed to employ Mr.
Melody as President and Chief Executive Officer of L.J. Melody through
June 30, 2001. Pursuant to the Melody Employment Agreement, Mr. Melody is
entitled to receive (a) a base salary of $26,000 per month and (b) certain
"incentive compensation," based on L.J. Melody's profits.
Under certain conditions, Mr. Melody is entitled to severance benefits from
L.J. Melody if the Melody Employment Agreement is terminated. If the
termination occurs prior to July 1, 1997, the severance benefit is $43,750 per
month multiplied by 36 less the number of months elapsed since June 30, 1996.
If the termination occurs on or after July 1, 1997, the severance benefit is
equal to approximately two years of salary and two years of incentive
compensation. In addition, in connection with the acquisition, the Company
granted Mr. Melody an option to purchase 30,250 shares of the Company's Class
B-2 common stock. See "Management--Principal Stockholders."
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
62
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's voting capital stock as of September 30, 1996,
assuming the completion of the Recapitalization and the conversion of the
Class C-1 common stock assuming an initial public offering price per share of
$22.50 and as adjusted to reflect the sale by the Company of the shares
offered hereby (assuming no exercise of the Underwriters' over-allotment
option), by: (i) each person who is known by the Company to own beneficially
more than 5% of each class of the Company's voting stock, (ii) each of the
Company's directors, (iii) each of the Company's executive officers named
under "Management--Summary Compensation Table," and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
----------------------- ------------
TITLE OF CLASS NUMBER PERCENT PERCENT
-------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Kajima U.S.A., Inc.
Park Avenue Plaza
55 East 52nd Street
32nd Floor Series A-1 Preferred Stock 1,000,000 100% 100%
New York, NY 10055..... Common 2,609(1) * *
Fukoku Mutual Life
Insurance Company
2-2, Uchisaiwaicho 2-
chome
Chiyoda-ku, Tokyo 100
Japan.................. Series A-2 Preferred Stock 1,000,000 50% 50%
S.R.E.S.--Fifth Avenue,
Inc.
666 Fifth Avenue
New York, NY 10103..... Series A-2 Preferred Stock 1,000,000 50% 50%
Common 4,106(2) * *
Entities associated with
Mellon Family Invest-
ment Company V (3)
Mill Street Extension
Laughlintown, PA 15655. Common 466,300 5.23% 3.51%
Gary J. Beban (6)....... Common 193,959 2.16% 1.45%
Richard C. Clotfelter
(4)(6)................. Common 113,835 1.27% *
David A. Davidson
(4)(6)................. Common 93,055 1.04% *
James J. Didion
(4)(5)(6).............. Common 403,067 4.48% 3.02%
Thaddeus Jones (6)...... Common 77,233 * *
George J. Kallis (4).... Common 114,864 1.28% *
Charles O. McBride
(4)(6)................. Common 56,631 * *
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
----------------------------------
TITLE OF CLASS NUMBER PERCENT PERCENT
-------------- ----------- ----------------------
<S> <C> <C> <C> <C>
Lawrence J. Melody (6).. Common 1,513 * *
Richard A. Pogue (4)(6). Common 71,468 * *
Kenneth D. Sandstad
(4)(6)................. Common 117,756 1.31% *
John L. Stanfill (6).... Common 94,822 1.06% *
Stanton D. Anderson (6). Common 27,779 * *
Richard C. Blum (6)(7).. Common 437,500 4.91% 3.30%
Frank C. Carlucci (6)... Common 2,287 * *
Daniel A. D'Aniello
(6)(8)................. Common 309,795 3.47% 2.34%
Hiroaki Hoshino (9)..... -- -- -- --
Takayuki Kohri (10)..... -- -- -- --
Paul C. Leach........... -- -- -- --
Frederic V. Malek
(6)(11)................ Common 322,634 3.61% 2.43%
Jeffrey S. Morgan....... Common 9,837 * *
Peter V. Ueberroth...... Common 10,000 * *
Gary L. Wilson.......... -- -- -- --
All directors and
executive officers as a
group
(24 persons) (12)...... Common 2,559,460 27.33% 18.66%
</TABLE>
- --------
* Less than 1%.
(1) Represents options to purchase 2,609 shares of Common Stock exercisable
on or before November 30, 1996 issued to Kajima U.S.A., Inc. in respect
of services rendered as a director by Mr. Hoshino.
(2) Represents 4,106 shares of Common Stock issued upon exercise of options
issued to S.R.E.S.-Fifth Avenue, Inc. in respect of services rendered as
a director by Mr. Kohri.
(3) Includes 225,000 shares of Common Stock issued in the name of Richard
King Mellon Foundation.
(4) Does not include shares of Common Stock issued in the name of the Company
in respect of Common Stock units credited to the following persons in the
following amounts under the Company's Deferred Compensation Plan but
which are not beneficially owned by such persons: Clotfelter--1,895;
Davidson-- 23,598; Didion--121,970; Kallis--10,991; McBride--6,087;
Pogue--3,592; and Sandstad 1,506.
(5) Includes 6,000 shares held by a trust for the benefit of three members of
Mr. Didion's immediate family.
(6) Represents number of shares of Common Stock which the named individual
beneficially owns as well as those which the individual has options to
acquire that are exercisable on or before November 30, 1996, which
options have not been exercised. The respective numbers shown in the
table include the following number of option shares for the following
individuals: Anderson--4,235; Beban--65,000; Carlucci--2,287;
Clotfelter--50,000; D'Aniello--4,235 (options issued to Carlyle);
Davidson--50,000; Didion--75,000; Jones--30,000; Kallis--40,000; Malek--
5,934; McBride--40,000; Melody--1,513; Pogue--20,000; Sandstad--40,000;
and Stanfill--20,000. Such shares do not include options for 2,609 shares
of Common Stock issued to Kajima U.S.A., Inc. in respect of services
rendered as a director by Mr. Hoshino.
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(7) Represents 437,500 shares owned by BK Capital Partners and BK Capital
Partners II, limited partnerships of which Richard C. Blum & Associates,
L.P. is the general partner. Mr. Blum holds the majority of the interests
in Richard C. Blum & Associates, L.P.
(8) Includes 4,235 shares of Common Stock subject to outstanding options
exercisable on or before November 30, 1996 issued in the name of the
Carlyle Group, L.P., which, by virtue of Mr. D'Aniello's interest in the
general partner of the Carlyle Group, L.P., and investment control over
such shares, may be deemed to be beneficially owned by Mr. D'Aniello.
Includes shares of Class C-1 common stock which will convert into 168,360
shares of Common Stock upon the consummation of the Offering (assuming an
initial public offering price of $22.50 per share).
(9) Mr. Hoshino is a Director of Kajima U.S.A., Inc., which together with an
affiliate owns 2,000,000 shares of the Company's Preferred Stock,
1,000,000 of which are voting securities, and 2,609 shares of Common
Stock. Mr. Hoshino disclaims beneficial ownership of such shares.
(10) Mr. Kohri is Deputy Manager of Sumitomo Real Estate Sales Japan, an
affiliate of S.R.E.S.--Fifth Avenue, Inc., which owns 1,000,000 shares of
the Company's Preferred Stock and 4,106 shares of the Company's Common
Stock. Mr. Kohri disclaims beneficial ownership of such shares.
(11) Includes shares of C-1 common stock which will convert into 210,450
shares of Common Stock upon the consummation of the Offering (assuming an
initial public offering price of $22.50 per share).
(12) Includes 448,204 shares of Common Stock subject to outstanding options
exercisable on or before November 30, 1996.
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DESCRIPTION OF CAPITAL STOCK
The following summary is a description of certain provisions of the
Company's Certificate of Incorporation and Bylaws that will be in effect upon
the completion of the Recapitalization, which will occur concurrently with the
closing of the Offering. Such summary does not purport to be complete, and is
qualified in its entirety by all of the provisions of the Certificate of
Incorporation and Bylaws. Copies of the Certificate of Incorporation and
Bylaws are filed as exhibits to the Registration Statement of which this
Prospectus forms a part. Upon the closing of the Offering, the authorized
capital stock of the Company, after giving effect to the Recapitalization,
will consist of 100,000,000 shares of Common Stock, $.01 par value ("Common
Stock"), and 8,000,000 shares of preferred stock, $.01 par value ("Preferred
Stock").
COMMON STOCK
Assuming the completion of the Recapitalization and the conversion of the
Class C-1 common stock (assuming an initial public offering price per share of
$22.50), as of September 30, 1996, there were 8,919,171 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders,
including the election of directors, and do not have cumulative voting rights.
Accordingly, the holders of shares of Common Stock and Preferred Stock with a
majority of the votes entitled to vote in any election of directors can elect
all of the directors standing for election, if they so choose. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Upon a liquidation, dissolution or
winding up of the Company, subject to the payment of any amounts which holders
of Preferred Stock are entitled to receive in preference to holders of Common
Stock, to the extent any assets of the Company remain available for
distribution to stockholders, the holders of Common Stock and Preferred Stock
are entitled to receive $10.00 per share, reduced by any prior payments to
such holder in connection with any liquidation, dissolution or winding up of
the Company (not including accrued and unpaid dividends and accrued interest
thereon). The holders of Common Stock will be entitled to share in the
remaining assets of the Company legally available for distribution. Holders of
Common Stock have no preemptive or conversion rights or other subscription
rights and there are no redemption or sinking funds provisions applicable to
the Common Stock. All outstanding shares of Common Stock are, and the shares
of Common Stock to be outstanding upon completion of the Offering will be,
fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock consists of a single class of 8,000,000 shares, of which
three series will be outstanding: (a) 1,000,000 shares of Series A-1 Preferred
Stock ("Series A-1 Preferred Stock"), (b) 2,000,000 shares of Series A-2
Preferred Stock ("Series A-2 Preferred Stock") and (c) 1,000,000 shares of
Series A-3 Preferred Stock ("Series A-3 Preferred Stock"). The authorized
shares of Preferred Stock not included in such series may be issued from time
to time in one or more series upon authorization by the Board of Directors. In
addition, upon conversion of any of the Series A-1 Preferred Stock, Series A-2
Preferred Stock or Series A-3 Preferred Stock (collectively, "Preferred
Stock"), the shares converted will be available for issuance in one or more
series from time to time. Subject to certain limitations set forth in the
Certificate of Incorporation, the Board of Directors may determine the
designation and number of shares of any such series of Preferred Stock and the
designation, preferences and relative participating, optional or other special
rights and the qualifications, limitations and restrictions thereon.
Effective upon the completion of the Recapitalization, holders of Preferred
Stock are entitled to dividends ("Preference Dividend") at the rate of $0.25
per quarter on each share of Preferred Stock, payable out of funds legally
available therefor. The accrual of such dividend will be retroactive to
October 1, 1996. Until the Company has completed its acquisition program, it
does not intend to pay the dividend on the Preferred Stock. As a consequence,
such dividend will accumulate and bear interest which will be paid on a
current basis, and the
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Company will be prohibited from voluntarily pre-paying long-term debt until
such accumulated dividend and interest have been paid in full.
In the event the Preference Dividend is not declared and paid within one
year after the last day of the quarter to which it relates, it will bear
compound annual interest at either (i) a fixed rate of 8% annually or (ii) an
annual rate equal to the six-month rate offered to The Sumitomo Bank, Limited
in the London interbank market, for amounts comparable to the amount of any
unpaid dividend, plus 2 1/2%. Pursuant to an agreement between the Company and
the existing preferred stockholders, the holders of 3,000,000 shares of
Preferred Stock have elected the 8% fixed rate annually and the holder of the
remaining 1,000,000 shares has elected the variable rate option. Until all
accrued and unpaid Preference Dividends are paid, no shares of Common Stock
will be redeemed by the Company (other than in connection with the
Recapitalization and other than shares issued pursuant to stock option, stock
purchase or similar plans), and no dividends will be paid on any shares of
Preferred Stock (other than the Series A-1, Series A-2 and Series A-3
Preferred Stock) or Common Stock.
The Preference Dividend will not be paid and no interest will accrue or be
paid thereon if applicable law restricts or prohibits the declaration or
payment of the Preference Dividend. The Preference Dividend will also not be
required to be declared or paid to the extent it would violate any contractual
restrictions in a credit agreement of the Company. The Company has agreed that
it will not enter into any contractual prohibition with respect to the
accumulation of dividends or the accrual and payment of interest on any unpaid
dividends with respect to the Preferred Stock.
In addition to the Preference Dividend and any interest payable thereon,
each share of Preferred Stock is entitled to receive dividends in the amount
of sixty percent (60%) of the amount received by each share of Common Stock.
Upon any liquidation, dissolution or winding up of the Company, holders of
Preferred Stock and Common Stock will be entitled to share in the remaining
assets of the Company after payment of liabilities and any accrued and unpaid
Preference Dividend, including any interest thereon, subject to prior
distribution rights of other preferred stock, if any, then outstanding, as
follows: (i) each holder of Preferred Stock and Common Stock will be entitled
to receive an amount, reduced by any prior payments to such holder pursuant to
such liquidation, dissolution or winding up of the Company, other than the
Preference Dividend and any interest therein, equal to $10.00 per share and
(ii) each holder of Preferred Stock will be entitled to share ratably in all
remaining assets of the Company to the extent of sixty percent (60%) of the
distribution, with respect to each share of Common Stock in excess of $10.00.
The holders of shares of Series A-1 Preferred Stock will have two (2) votes
per share of Series A-1 Preferred Stock on all matters submitted to a vote of
the stockholders of the Company and, except as provided by law, will vote
together with the holders of shares of Series A-2 Preferred Stock and the
holders of Common Stock as one class on all matters submitted to a vote of
stockholders of the Company. The holders of Series A-3 Preferred Stock will
not be entitled to vote on any matters, except as may be required by law.
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The Preferred Stock is convertible into shares of Common Stock at the option
of the holder at a ratio ranging from .60 to .78 shares of Common Stock for
each share of Preferred Stock, depending on the Market Price (as defined
below) of the Common Stock at the time of conversion as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK FOR EACH
"MARKET PRICE" OF SHARE OF PREFERRED
COMMON STOCK STOCK
----------------- -----------------------
<S> <C>
Under $10.00 No conversion permitted
$10.00 - $21.99 0.78
22.00 - 22.99 0.76
23.00 - 23.99 0.74
24.00 - 24.99 0.72
25.00 - 25.99 0.70
26.00 - 26.99 0.68
27.00 - 27.99 0.66
28.00 - 28.99 0.64
29.00 - 29.99 0.62
$30.00 or more 0.60
</TABLE>
The term "Market Price" means (i) during the first 20 consecutive days in
which the Common Stock is traded after the closing of the Offering, the
initial public offering price and (ii) thereafter, the average closing price
for a share of Common Stock as reported by The Wall Street Journal (West Coast
Edition) for 20 consecutive trading days immediately preceding the date as of
which conversion occurs.
Upon consummation of the Offering, 4,000,000 shares of undesignated
preferred stock will be authorized. The Board of Directors has the authority,
subject to certain rights of the Series A-1, Series A-2 and Series A-3
Preferred Stock and without further action by the stockholders, to issue
shares of preferred stock from time to time in one or more series and to fix
the number of shares, designations, preferences, powers, and relative,
participating, optional or other special rights and qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and purchase funds and other matters. The
issuance of additional preferred stock could decrease the amount of earnings
and assets available for distribution to holders of Common Stock or adversely
affect the rights and powers, including voting rights, of the holders of
Common Stock, and may have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of preferred stock other than in connection with the Recapitalization.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement between the Company and the
holders of the Preferred Stock (the "Registration Rights Agreement"), until
expiration of the Rule 144 Period (as defined below), if the Company proposes
to register any of its securities, it will use its best efforts to include in
such registration Common Stock acquired by the holders of Preferred Stock upon
conversion of the Preferred Stock. The registration rights granted to the
holders of Preferred Stock do not apply to certain transactions, including the
Offering, registrations relating solely to employee benefit plans, a corporate
reorganization, reclassification, merger, consolidation or acquisition or a
registration that does not permit secondary sales. The "Rule 144 Period" means
the period beginning at the date of this Prospectus and continuing until the
Common Stock acquired on conversion of the Preferred Stock is no longer
subject to the volume limitation provisions of Rule 144 of the Securities Act,
either pursuant to the provisions of the Registration Rights Agreement or by
operation of law.
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THE RECAPITALIZATION
The Company has obtained stockholder approval for the Recapitalization
pursuant to which, among other things, the Company's Certificate of
Incorporation and Bylaws will be amended. The Company's Certificate of
Incorporation which was in effect prior to the Offering will be amended to
effect the following changes, among others: (i) change the name of the Company
from CB Commercial Holdings, Inc. to CB Commercial Real Estate Services Group,
Inc., (ii) provide for (A) the automatic conversion, concurrently with the
consummation of the Offering, of the Class B-1 common stock and Class B-2
common stock (which will be replaced on a one-for-one basis with Common
Stock), the Class C-1 common stock (which will be replaced with Common Stock
determined according to the formula set forth below) and each existing series
of preferred stock (which will be replaced on a one-for-one basis with
corresponding new series of preferred stock, respectively), and (B) the Common
Stock as the only class of common stock of the Company following the closing
of the Offering, (iii) provide for the elimination of Class C-R common stock
and Class J common stock (the outstanding shares of which will be repurchased
for $0.01 per share or an aggregate of $8,000), (iv) provide for an increase
in the total number of shares of capital stock which the Company is authorized
to issue from 27,200,002 to 108,000,000 and an increase in the number of
shares of common stock (which will be comprised of the Common Stock) which the
Company is authorized to issue from 19,200,002 to 100,000,000, (v) provide
that the Common Stock and the Series A-1 and Series A-2 Preferred Stock will
vote together as a class for directors and on other matters, except where a
separate class vote is required by law and except with respect to any changes
in any of the rights, preferences or privileges of the Preferred Stock (for
which the holders of a majority of all series of Preferred Stock voting as a
single class is required), and (vi) eliminate super majority and cumulative
voting by stockholders. Each share of C-1 common stock will be converted into
a number of shares of Common Stock equal to (i) the greater of the initial
public offering price per share and $22.00, minus $10.00 divided by (ii) the
greater of the initial public offering price per share and $22.00.
Also as part of the Recapitalization, the Company's Bylaws will be amended
to, among other things, (i) eliminate the requirement of supermajority
stockholder approval to amend or repeal existing Bylaws, so that the Bylaws
may be amended by a majority vote of the directors or a majority vote of the
stockholders entitled to vote and (ii) eliminate the Operating Committee (the
powers and authority of which were not clearly delineated) and grant to the
Executive Committee and other committees of the Board of Directors the power
to take such actions as may be authorized by resolution of the Board of
Directors, consistent with the limitations of the Delaware Law, and (iii)
modify certain requirements for the calling of meetings of the Board of
Directors.
DELAWARE ANTI-TAKEOVER LAW
Following the consummation of the Offering, the Company will be subject to
the "business combination" statute of the Delaware General Corporation Law
(Section 203). In general, such statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) such
transaction is approved by the board of directors prior to the date the
interested stockholder obtains such status, (ii) upon consummation of such
transaction, the "interested stockholder" beneficially owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) the "business
combination" is approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to the "interested stockholder."
An "interested stockholder" is a person who together with affiliates and
associates owns (or within three years, did own) beneficially 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
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THE COMPANY'S CREDIT AGREEMENTS
The following summary is a description of certain provisions of the
Company's Senior Secured Credit Agreement and Senior Subordinated Credit
Agreement that will be in effect after the closing of the Offering. Such
summary does not purport to be complete and is qualified in its entirety by
all of the provisions of such agreements. Copies of the Senior Secured Credit
Agreement and the Senior Subordinated Credit Agreement are filed as exhibits
to the Registration Statement of which this Prospectus forms a part.
Senior Secured Debt Repayment and Amendments
After the consummation of the Offering, approximately $51.9 million of
indebtedness ("Term Debt"), including $18 million of indebtedness secured by
certain mortgages (the "Mortgage Debt"), will be outstanding under the
Company's Senior Secured Credit Agreement. The Senior Secured Credit Agreement
also provides for a $20 million revolving credit facility ("Revolving Credit
Facility A") and an additional $10 million revolving credit facility
("Revolving Credit Facility B"). No indebtedness is expected to be outstanding
under Revolving Credit Facility A or Revolving Credit Facility B immediately
after completion of the Offering. Effective upon consummation of the Offering,
the Senior Secured Credit Agreement will be amended and restated to contain
substantially the terms and conditions described below. All indebtedness
outstanding under the Senior Secured Credit Agreement other than that
outstanding under Revolving Credit Facility B will bear interest at a rate
equal to, at the Company's option, LIBOR plus 250 basis points or the prime
rate plus 150 basis points. Amounts outstanding on Revolving Credit Facility B
will bear interest at a rate equal to, at the Company's option, LIBOR plus 300
basis points or the prime rate plus 200 basis points. Principal payments on
the Term Debt of $2.625 million each will be due quarterly, commencing March
31, 1997, with final payment of $2.2 million on September 30, 2001. The
availability period of Revolving Credit Facility A ends December 31, 2001. As
proposed, effective upon completion of the Offering, Revolving Credit Facility
B will be converted into a facility that can be used for acquisitions. As
proposed, principal payments on amounts outstanding under such facility will
be paid quarterly at the rate of 5% of the outstanding balance. All amounts of
principal which are prepaid may be reborrowed until the December 31, 1999
expiration date of such facility. The Company has begun discussions to
increase Revolving Credit Facility B from $10 million to $20 million sometime
in 1997 and to extend the due date until December 31, 2001.
Subject to certain exceptions and limitations, the Company will be obligated
to make prepayments in respect of indebtedness outstanding under the Senior
Secured Credit Agreement equal to (a) 100% of the net cash proceeds from any
sale or other disposition of assets resulting in aggregate consideration in
excess of $1 million in any twelve-month period, or (b) 25% of the net cash
proceeds from a sale of the Company's capital stock. In general, prepayments
are applied first to Term Debt (other than the Mortgage Debt) and then to
indebtedness outstanding under Revolving Credit Facility A and Revolving
Credit Facility B, pro rata according to the respective principal amounts then
outstanding thereunder, and then to the Mortgage Debt. A prepayment required
to be made as a result of the sale of real property which secures the Mortgage
Debt is applied, first, to Mortgage Debt, next to other Term Debt, and,
finally, to indebtedness outstanding under Revolving Credit Facility A and
Revolving Credit Facility B, pro rata according to the respective principal
amounts then outstanding thereunder. All of the foregoing prepayments in
respect of Revolving Credit Facility A and Revolving Credit Facility B
permanently reduce the amount available under the respective revolving credit
facility by the amount of the prepayment.
The obligations of the Company under the Senior Secured Credit Agreement are
secured by substantially all of the assets of the Company and its
subsidiaries, including cash, accounts receivable, equipment, intellectual
property, and real property as well as the stock of certain of the Company's
subsidiaries.
The Senior Secured Credit Agreement, as amended, will contain certain
financial tests which the Company is obligated to satisfy. These tests include
a leverage ratio, an interest coverage ratio, a fixed charges coverage ratio,
and a senior loan debt service coverage ratio. The Senior Secured Credit
Agreement will also contain a number of affirmative and negative covenants
covering such matters as maintenance of corporate existence,
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payment of taxes, maintenance of properties, maintenance of insurance, the
granting or existence of certain liens, incurrence of additional indebtedness,
payment of dividends, investments, capital expenditures, sales or other
dispositions of property, payments in respect of subordinated debt, and
compliance with ERISA.
The financial and other covenants in the Senior Secured Credit Agreement may
prevent the Company from carrying out a transaction or taking other action
otherwise determined by the Board of Directors to be in the Company's best
interests. For example, the covenant regarding limitations on incurrence of
indebtedness or regarding limitations on liens may preclude the Company and
its subsidiaries from making an acquisition (whether by merger or in some
other form). Although the Company would intend to seek a waiver or
modification of these covenants under appropriate circumstances, there can be
no assurance that the Company will be able to obtain such a waiver or
modification upon terms and conditions acceptable to the Company on a timely
basis, or at all. As a result, the covenants in the Senior Secured Credit
Agreement may effectively preclude the Company from pursuing its strategy of
growth through acquisitions or delay the Company's ability to carry out that
strategy.
The Senior Secured Credit Agreement will contain a number of events of
default (each an "Event of Default"), including, without limitation, failure
to make required payments or prepayments of principal or interest, breach of
covenant, breach of a representation or warranty in a material respect,
default in respect of other indebtedness in excess of $500,000, insolvency of
the Company or any of its subsidiaries, failure to discharge or pay or obtain
a stay in respect of a judgment in excess of $100,000, certain events relating
to ERISA involving a liability or payment in excess of $100,000, a change of
control, as defined below, and a material adverse change in the business,
assets, prospects, results of operation or the financial condition of the
Company or of the Company and its subsidiaries taken as a whole. Change of
control is defined under the Senior Secured Credit Agreement as (i) the
acquisition, by any person (other than the Company's Capital Accumulation
Plan), of more than 25% of the total voting power of all classes of the
Company's equity securities (excluding the acquisition by the Underwriters of
Common Stock in the Offering) or (ii) a change in the board of directors of
the Company such that board members at the beginning of any one-year period no
longer constitute a majority of the board at the end of such period, or (iii)
the Company ceases to own 100% of the outstanding common stock of the
Company's primary operating subsidiary. Upon the occurrence of an Event of
Default (other than an Event of Default relating to insolvency), the lenders
under the Senior Secured Credit Agreement have the right, in addition to other
available remedies, to terminate the revolving credit facilities, to declare
all indebtedness outstanding thereunder immediately due and payable, and to
thereafter pursue applicable remedies against any and all collateral securing
payment of such indebtedness.
Senior Subordinated Debt Amendments
After the consummation of the Offering, approximately $62.0 million of
indebtedness will be outstanding under the Company's Senior Subordinated
Credit Agreement. Effective upon consummation of the Offering the Senior
Subordinated Credit Agreement will be amended and restated. As so amended such
credit agreement will contain financial and other covenants and events of
default no more restrictive than those under the Senior Secured Credit
Agreement. Interest on the senior subordinated debt, will be LIBOR plus
125 basis points from the Offering through December 31, 1998, LIBOR plus 200
basis points during 1999, LIBOR plus 300 basis points during 2000 and LIBOR
plus 400 basis points during 2001 and beyond. Interest in excess of LIBOR plus
125 basis points will be deferred and added to principal until the final
maturity date. The principal outstanding under the Senior Subordinated Credit
Agreement will be due and payable in full on July 23, 2002 and may not be
prepaid while any amount is unpaid under the Senior Secured Credit Agreement.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering there has been no active public market for the Common
Stock of the Company. Although the Common Stock has been approved for listing
on the Nasdaq National Market, no predictions can be made regarding the
effect, if any, that market sales of shares or the availability of shares for
sale will have on
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the market price prevailing from time to time. As described below, only a
limited number of shares will be available for sale shortly after the Offering
due to certain contractual and legal restrictions on resale. Nevertheless,
sales of substantial amounts of Common Stock of the Company in the public
market after the restrictions lapse could adversely affect the prevailing
market price.
Upon consummation of the Offering, the Company will have outstanding
13,266,171 shares of Common Stock, of which approximately 6.8 million shares
will be freely tradable without restriction.
The Company's directors, executive officers and certain other officers and
certain stockholders, including the trustee of the Company's 401(k) plan, on
behalf of its employee plan participants, who collectively hold an aggregate
of approximately 6.8 million shares of Common Stock (including shares
represented by exercisable stock options and excluding shares held by the
Company as fiduciary on behalf of its Deferred Compensation Plan
participants), have agreed subject to certain exceptions that they will not
directly or indirectly (i) sell, grant any option to purchase or otherwise
transfer or dispose of any Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock or file a registration statement
under the Securities Act with respect to the foregoing or (ii) enter into any
swap or other agreement or transaction that transfers, in whole or in part,
the economic consequence of ownership of the Common Stock without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated for a
period of 180 days from the date of this Prospectus (the "Lockup Period").
Following the expiration of the Lockup Period, approximately 1.8 million
shares of Common Stock, including shares issuable upon the exercise of certain
options and excluding shares held by the Company as fiduciary on behalf of its
Deferred Compensation Plan participants, will be available for sale in the
public market subject to compliance with Rule 144, and approximately 5 million
shares will be eligible for sale without restriction. See "Underwriting."
Holders of the Company's 4,000,000 shares of outstanding Preferred Stock
have the right to convert such shares into Common Stock after the date of the
Offering at a conversion ratio ranging from .60 to .78 shares of Common Stock
for each share of Preferred Stock, depending on the market price of the Common
Stock. The holders of the Preferred Stock have agreed not to sell Preferred
Stock or any shares of Common Stock they acquire upon such conversion for 180
days from the date of this Prospectus without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. Thereafter, for an
additional six months, such holders are contractually bound to sell such
shares only within the volume limitations of Rule 144 for sales made at a
price per share below the initial public offering price unless such sales are
pursuant to block trades which do not involve a broker's transaction executed
on any exchange or in the over-the-counter market. See "Description of Capital
Stock--Preferred Stock."
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or a holder of Restricted Shares who beneficially owns shares that
were not acquired from the Company or an affiliate of the Company within the
previous two years, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 133,000 shares immediately
after the Offering, assuming no exercise of the Underwriters' over-allotment
option) or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission. Sales under Rule 144 are subject
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. However, a person (or persons
whose shares are aggregated) who is not deemed to have been an affiliate of
the Company at any time during the 90 days immediately preceding the sale and
who owns beneficially Restricted Shares is entitled to sell such shares under
Rule 144(k) without regard to the limitations described above, provided that
at least three years have elapsed since the later of the date the shares were
acquired from the Company or from an affiliate of the Company. The Securities
and Exchange Commission has recently proposed reducing the initial Rule 144
holding period from two years to one year and the Rule 144(k) holding period
from three years to two years. There can be no assurance as to when or whether
such rule changes will be enacted. The foregoing is a summary of Rule 144 and
is not intended to be a complete description of it.
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Pursuant to the Registration Rights Agreement, until expiration of the Rule
144 Period (as defined below), if the Company proposes to register any of its
securities, it will use its best efforts to include in such registration
Common Stock acquired by the holders of the Preferred Stock upon conversion of
the Preferred Stock. The registration rights granted to the holders of the
Preferred Stock do not apply to the Offering, registrations at the request of
stockholders granted registration rights by the Company, registrations
relating to solely employee benefit plans, a corporate reorganization,
reclassification, merger, consolidation or acquisition or a registration that
does not permit secondary sales. The "Rule 144 Period" means the period
beginning at the date of this Prospectus and continuing until the Common Stock
acquired on conversion of the Preferred Stock is no longer subject to the
volume limitation provisions of Rule 144 of the Securities Act, either
pursuant to the provisions of the Registration Rights Agreement or operation
of law.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company and each of the Underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters agreed to purchase from the
Company, the number of shares of Common Stock set forth opposite its name
below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
Montgomery Securities.............................................
---------
Total........................................................ 4,347,000
=========
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Montgomery Securities
are acting as representatives (the "Representatives") of the Underwriters.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, a discount
not in excess of $ per share to certain other dealers. After the
initial public offering, the public offering price, concession and discount
may be changed.
The Company has granted the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to an aggregate of
652,050 additional shares of Common Stock to cover over-allotments, if any, at
the initial public offering price set forth on the cover of this Prospectus
less the underwriting discount. If the Underwriters exercise this option, each
of the Underwriters will be obligated, subject to certain conditions, to
purchase the number of shares of Common Stock proportionate to such
Underwriter's initial amount reflected in the foregoing table.
The Company's executive officers and certain other officers, directors and
certain other stockholders of the Company, including the trustee of the
Company's 401(k) plan on behalf of its employee plan participants, who
collectively hold in the aggregate approximately 6.8 million shares of Common
Stock (including shares represented by exercisable stock options and excluding
shares held by the Company as fiduciary for its Deferred Compensation Plan
participants), and the Company have agreed, subject to certain exceptions, not
to, directly or indirectly, (i) sell, grant any option to purchase or
otherwise transfer or dispose of any Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock or file a registration
statement under the Securities Act with respect to the foregoing or (ii) enter
into any swap or other agreement or transaction that transfers, in whole or in
part, the economic consequence of ownership of the Common Stock, for a period
of 180 days from the date of this Prospectus.
Prior to the Offering, there has been no established public market for the
Common Stock of the Company. The initial public offering price will be
determined through negotiations by and among the Representatives and the
Company. Among the factors to be considered in determining the initial public
offering price, in addition to prevailing market conditions, will be the
Company's historical performance, capital structure, estimates of the business
potential and earnings prospects of the Company, an assessment of the
Company's management, and the consideration of the above factors in relation
to market valuations of companies in related businesses.
74
<PAGE>
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Pillsbury Madison &
Sutro LLP, San Francisco, California and for the Underwriters by Skadden,
Arps, Slate, Meagher & Flom LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements and related schedules of (i) the
Company as of December 31, 1995 and 1994 and for each of the three years in
the period ended December 31, 1995 and (ii) L.J. Melody as of December 31,
1995 and for the year then ended and L.J. Melody & Company of California as of
December 31, 1995 and for year then ended, in each case included in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The financial statements of Westmark Realty Advisors L.L.C. (formerly
Westmark Realty Advisors, a partnership) as of December 31, 1994 and 1993,
included in this Prospectus have been audited by KPMG Peat Marwick LLP.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to such Registration
Statement, exhibits and schedules. Statements contained in this Prospectus
regarding the contents of any contract or other document are not necessarily
complete; with respect to each such contract or document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. A copy of the Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of such material may be obtained from
such office upon payment of the fees prescribed by the Commission.
Additionally, the Company is subject to the public reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and thus
files with the Commission periodic reports pursuant to Section 13(d) and proxy
statements pursuant to Section 14 of the Exchange Act. These filings may also
be inspected at or obtained from the Commission. In addition, the Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission through the
Electronic Data Gathering, Analysis and Retrieval System.
The Company furnishes its stockholders with annual reports containing
financial statements audited by independent certified public accountants and
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
75
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of September 30, 1996 and
statements of operations for the nine months ended September 30, 1996 and for
the year ended December 31, 1995 ("the pro forma financial statements") give
effect to (i) the acquisitions of Westmark Realty Advisors L.L.C., a Delaware
limited liability company ("Westmark"), L.J. Melody & Company, a Texas
corporation, and L.J. Melody & Company of California, a Texas corporation
(together, "L.J. Melody"), by CB Commercial Holdings, Inc. and Subsidiaries
("CB Commercial") (together with Westmark and L.J. Melody, the "Company") and
the Offering and the Recapitalization as if all transactions occurred as of
January 1, 1995 in the pro forma combined statement of operations and (ii) the
Offering and the Recapitalization as if they occurred as of September 30, 1996
in the pro forma combined balance sheet. See "Description of Capital Stock--
The Recapitalization." The pro forma financial statements also reflect the
effects of the financing obtained to conclude the acquisitions, as well as
certain other related assumptions.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management believes are reasonable. The
acquisitions have been accounted for by the Company as purchases. The
adjustments included in the pro forma financial statements represent the
effects of the Company's preliminary determination and allocation of the
purchase price to the fair value of the assets and liabilities acquired, based
upon currently available information. There can be no assurance that the
actual effects will not differ significantly from the pro forma adjustments
reflected in the pro forma financial statements.
The pro forma financial statements are not necessarily indicative of either
future results of operations or results that might have been achieved if the
transactions had been consummated as of the dates indicated. The pro forma
financial statements should be read in conjunction with the historical
consolidated financial statements and footnotes of CB Commercial, Westmark,
and L.J. Melody.
P-1
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CB COMMERCIAL ADJUSTMENTS OFFERING
------------- ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............. $ 24,903 $ 1,599 (c) $ 26,502
Receivables, net...................... 30,741 -- 30,741
Deferred taxes........................ 3,983 -- 3,983
Prepaid expense and other............. 7,498 -- 7,498
--------- -------- ---------
Total current assets................ 67,125 1,599 68,724
Property and equipment, net............. 41,795 -- 41,795
Goodwill, net........................... 62,999 -- 62,999
Other intangibles, net.................. 12,138 (1,639)(a) 10,499
Inventoried property.................... 7,355 -- 7,355
Deferred tax asset...................... 34,562 16,300 (b) 50,862
Other assets, net....................... 6,601 -- 6,601
--------- -------- ---------
Total assets........................ $ 232,575 $ 16,260 $ 248,835
========= ======== =========
Current Liabilities:
Compensation and employee benefits.... $ 28,489 $ -- $ 28,489
Accounts payable and accrued expenses. 17,931 -- 17,931
Senior revolving credit lines......... 8,000 -- 8,000
Reserve for bonus and profit sharing.. 11,292 -- 11,292
Current maturities of long-term debt.. 16,541 -- 16,541
Current portion of capital lease obli-
gations.............................. 2,669 -- 2,669
--------- -------- ---------
Total current liabilities........... 84,922 -- 84,922
--------- -------- ---------
Long-term debt, less current maturities
Senior term loans..................... 142,101 (79,911)(c) 62,190
Senior subordinated term loans........ 78,462 (8,962)(c) 69,500
Inventoried property loan............. 7,470 -- 7,470
Other long-term debt.................. 3,953 -- 3,953
--------- -------- ---------
Total long-term debt................ 231,986 (88,873) 143,113
--------- -------- ---------
Other long-term liabilities............. 22,561 -- 22,561
--------- -------- ---------
Total liabilities................... 339,469 (88,873) 250,596
--------- -------- ---------
Stockholders' Equity (Deficit)
Preferred stock, $.01 par value....... 40 -- 40
Common stock, $.01 par value.......... 101 32 (c) 133
Additional paid-in capital............ 117,826 90,440 (c) 208,266
Notes receivable from sale of stock... (5,109) -- (5,109)
Accumulated deficit................... (219,752) 16,300 (b) (205,091)
(1,639)(a)
--------- -------- ---------
Total stockholders' equity (defi-
cit)............................... (106,894) 105,133 (1,761)
--------- -------- ---------
Total liabilities and stockholders'
equity (deficit)................... $ 232,575 $ 16,260 $ 248,835
========= ======== =========
</TABLE>
- -------
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(a) Reflects pro-rata write-off of unamortized debt costs related to the
portion of debt to be extinguished.
(b) Reflects deferred tax asset that will be recognized as a result of the
Offering due to the estimated increase in taxable income resulting from
reduced interest expense from the repayment, in part, of the Company's
indebtedness.
(c) Reflects the Recapitalization and the Offering, net of estimated
underwriting discount and Offering expenses, and use of proceeds from the
Offering to repay, in part, the Company's indebtedness. The
Recapitalization largely involves the conversion of various classes of the
Common Stock into a single class, the addition of a convertibility feature
to the preferred stock and the repurchase of 800,000 shares of Class C-R
and 2 shares of Class J common stock for $.01 per share. The
Recapitalization will not have a material effect on the Company's balance
sheet and results only in reclassifications within the Common Stock
accounts.
P-2
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
L.J.
MELODY
CB COMMERCIAL SIX MONTHS PRO FORMA PRO FORMA
NINE MONTHS ENDED ENDED ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
SEPTEMBER 30, JUNE 30, ----------- ACQUISITION ----------- ACQUISITION
1996 1996 ACQUISITION ONLY OFFERING AND OFFERING
----------------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ 390,863 $ 3,417 $ -- $ 394,280 $ -- $ 394,280
Costs and Expenses:
Commissions, fees and
other incentives ..... 195,465 3,612 (1,070)(a) 198,240 -- 198,240
233 (b)
Operating,
administrative and
other................. 159,196 1,545 -- 160,741 -- 160,741
Depreciation and amor-
tization ............. 9,749 163 355 (c) 10,267 10,267
---------- ------- ------- ---------- ------- ----------
Operating income (loss). 26,453 (1,903) 482 25,032 -- 25,032
Interest income......... 1,035 145 -- 1,180 -- 1,180
Interest expense........ 17,883 -- 216 (d) 18,099 (5,126)(f) 13,672
(479)(g)
1,178 (h)
---------- ------- ------- ---------- ------- ----------
Income (loss) before
provision (benefit) for
income tax............. 9,605 (1,758) 266 8,113 4,427 12,540
---------- ------- ------- ---------- ------- ----------
Provision (benefit) for
income tax ............ 4,610 -- (287)(e) 4,323 1,771 (i) 6,094
Reduction of valuation
allowances............. (40,400) -- -- (40,400) -- (40,400)
---------- ------- ------- ---------- ------- ----------
Net provision (benefit)
for income tax......... (35,790) -- (287) (36,077) 1,771 (34,306)
---------- ------- ------- ---------- ------- ----------
Net income (loss)....... $ 45,395 $(1,758) $ 553 $ 44,190 $ 2,656 $ 46,846
========== ======= ======= ========== ======= ==========
Per share data:
Net income per common
and common equivalent
share outstanding..... $ 3.28 $ 3.19 $ 3.36
========== ========== ==========
Weighted average common
and common equivalent
shares outstanding.... 13,858,176 13,858,176 13,049,618 (j)
========== ========== ==========
</TABLE>
- -------
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
ACQUISITION:
(a) Reflects the reversal of an accrual for a one-time acquisition related
bonus to L.J. Melody employees prior to the acquisition.
(b) Reflects additional compensation expense attributable to Lawrence J.
Melody's employment.
(c) Reflects the amortization of net $9.0 million in intangible assets and
goodwill. Amortization period is 30 years.
(d) Reflects interest on acquisition financing.
(e) Reflects deferred tax benefit of certain pro forma adjustments relating to
L.J. Melody purchase accounting entries, consisting of additional
compensation expense, interest expense and amortization of intangible
assets.
OFFERING:
(f) Reflects interest expense savings resulting from the repayment of $88.9
million of the total indebtedness, bearing interest estimated at 8.2% for
senior secured debt and 6.2% for senior subordinated debt. Debt paydown
results from the net proceeds of the Offering.
(g) Represents reduction in amortization expense for portion of unamortized
debt costs written off.
(h) Reflects the additional interest expense resulting from the higher interest
rate on senior subordinated indebtedness after the Offering.
(i) Represents tax effect of income and expenses from Offering adjustments.
Does not reflect the $16.3 million benefit attributable to a reduction in
valuation allowances since it is a nonrecurring item.
P-3
<PAGE>
(j) Reflects the effect of the Recapitalization as follows:
<TABLE>
<S> <C>
Weighted average common and common equivalent shares--histori-
cal........................................................... 13,858,176
Remove the Preferred Stock which will not be a common stock
equivalent after the Offering................................. (4,000,000)
Net reduction in shares of common stock resulting from the con-
version of Class C-1 common stock............................. (355,556)
Reduction in shares of common stock resulting from the repur-
chase of Class C-R and Class J common stock................... (800,002)
Shares issued in the Offering.................................. 4,347,000
----------
Weighted average common and common equivalent shares--pro
forma......................................................... 13,049,618
==========
</TABLE>
P-4
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
WESTMARK
CB COMMERCIAL SIX MONTHS L.J. MELODY PRO FORMA PRO FORMA
YEAR ENDED ENDED YEAR ENDED ADJUSTMENTS ADJUSTMENTS
DECEMBER 31, JUNE 30, DECEMBER 31, ------------ PRO FORMA ----------- PRO FORMA
1995 1995 1995 ACQUISITIONS ACQUISITIONS OFFERING COMBINED
------------- ---------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 468,460 $10,887 $10,337 $ -- $ 489,684 $ -- $ 489,684
Costs and Expenses:
Commissions, fees and
other incentives...... 239,018 -- 6,546 -- 245,564 -- 245,564
Operating,
administrative and
other................. 187,968 9,285 2,393 50 (a) 200,341 -- 200,341
178 (b)
467 (c)
Depreciation and
amortization.......... 11,631 163 438 17 (d) 14,502 14,502
2,253 (e)
----------- ------- ------- ------- ----------- ------- -----------
Operating income........ 29,843 1,439 960 (2,965) 29,277 -- 29,277
Interest income......... 1,674 36 216 -- 1,926 -- 1,926
Interest expense........ 23,267 19 -- 2,794 (f) 26,080 (6,834)(i) 20,177
1,570 (j)
(639)(k)
----------- ------- ------- ------- ----------- ------- -----------
Income (loss) before
provision (benefit) for
income tax............. 8,250 1,456 1,176 (5,759) 5,123 5,903 11,026
Provision (benefit) for
income tax............. 841 -- -- 2 (g) 220 2,361 (l) 2,581
(623)(h)
----------- ------- ------- ------- ----------- ------- -----------
Net income (loss)....... $ 7,409 $ 1,456 $ 1,176 $(5,138) $ 4,903 $ 3,542 $ 8,445
=========== ======= ======= ======= =========== ======= ===========
Per share data:
Net income per common
and common equivalent
share outstanding..... $ 0.55 $ 0.36 $ 0.35
=========== =========== ===========
Weighted average common
and common equivalent
shares outstanding.... 13,591,420 13,591,420 12,782,862(m)
=========== =========== ===========
</TABLE>
- -------
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
ACQUISITIONS:
(a) Reflects elimination of Westmark's historical amortization of deferred
leasing concessions (free rent).
(b) Reflects increased compensation resulting from new employment agreements
with certain Westmark executives, and the straight-lining of rents from
the date of the Westmark acquisition.
(c) Reflects additional compensation expense relating to Lawrence J. Melody's
employment.
(d) Reflects increase in depreciation expense associated with reducing the
useful life of Westmark's computers from 5 to 3 years.
(e) Reflects the amortization of $41.4 million (Westmark) and net $9.0 million
(L.J. Melody) in intangible assets and goodwill. Amortization expense is
$1.5 million for Westmark and $0.7 million for L.J. Melody.
(f) Reflects interest on acquisition financing ($2.3 million for Westmark and
$0.5 million for L.J. Melody).
(g) Reflects the additional minimum tax resulting from combined operations of
Westmark.
(h) Reflects deferred tax benefit of certain pro forma adjustments relating to
L.J. Melody purchase accounting entries, consisting of additional
compensation expense, interest expense and amortization of intangible
assets.
P-5
<PAGE>
OFFERING:
(i) Reflects interest expense savings resulting from the repayment of $88.9
million of the total indebtedness, bearing interest estimated at 8.2% for
the senior secured debt and 6.2% for senior subordinated debt, from
Offering proceeds.
(j) Reflects additional interest expense resulting from the higher interest
rate on senior subordinated indebtedness after the Offering.
(k) Represents reduction in amortization expense for portion of unamortized
debt costs written off.
(l) Represents tax effect of income and expenses from Offering adjustments.
Does not reflect the $16.3 million benefit attributable to a reduction in
valuation allowances since it is a nonrecurring item.
(m) Reflects the effect of the Recapitalization as follows:
<TABLE>
<S> <C>
Weighted average common and common equivalent shares--histori-
cal.......................................................... 13,591,420
Remove the Preferred Stock which will not be a common stock
equivalent after the Offering................................ (4,000,000)
Net reduction in shares of common stock resulting from the con-
version of Class C-1 common stock............................ (355,556)
Reduction in shares of common stock resulting from the repur-
chase of Class C-R and Class J common stock.................. (800,002)
Shares issued in the Offering................................. 4,347,000
----------
Weighted average common and common equivalent
shares--pro forma............................................ 12,782,862
==========
</TABLE>
P-6
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (TO BE RENAMED CB COMMERCIAL
REAL ESTATE SERVICES GROUP, INC. EFFECTIVE UPON THE CONSUMMATION OF THE
OFFERING)
Report of Independent Public Accountants................................ F-3
Consolidated Balance Sheets as of September 30, 1996 (Unaudited), Decem-
ber 31, 1995 and 1994.................................................. F-4
Consolidated Statements of Operations for the nine months ended
September 30, 1996 and 1995 (Unaudited) and for the years ended
December 31, 1995, 1994 and 1993....................................... F-5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 (Unaudited) and for the years ended
December 31, 1995, 1994 and 1993....................................... F-6
Consolidated Statements of Stockholders' Equity (Deficit) for the nine
months ended September 30, 1996 and for the years ended December 31,
1995, 1994 and 1993.................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
WESTMARK REALTY ADVISORS
JUNE 30, 1995 AND 1994 (UNAUDITED)
Statements of Income for the six months ended June 30, 1995 and 1994.... F-25
Statements of Changes in Owners' Equity (Deficit) for the six months
ended June 30, 1995 and 1994........................................... F-26
Statements of Cash Flows for the six months ended June 30, 1995 and
1994................................................................... F-27
Notes to Financial Statements........................................... F-28
DECEMBER 31, 1994 AND 1993
Independent Auditors' Report............................................ F-30
Balance Sheets as of December 31, 1994 and 1993......................... F-31
Statements of Income for the years ended December 31, 1994 and 1993..... F-32
Statements of Changes in Partners' Capital for the years ended December
31, 1994 and 1993...................................................... F-33
Statements of Cash Flows for the years ended December 31, 1994 and 1993. F-34
Notes to Financial Statements........................................... F-35
L.J. MELODY & COMPANY
JUNE 30, 1996 (UNAUDITED)
Consolidated Balance Sheet as of June 30, 1996.......................... F-38
Consolidated Statement of Operations and Retained Earnings for the six
months ended June 30, 1996............................................. F-39
Consolidated Statement of Cash Flows for the six months ended June 30,
1996................................................................... F-40
Notes to Consolidated Financial Statements.............................. F-41
DECEMBER 31, 1995
Report of Independent Public Accountants................................ F-45
Consolidated Balance Sheet as of December 31, 1995...................... F-46
Consolidated Statement of Operations and Retained Earnings for the year
ended December 31, 1995................................................ F-47
Consolidated Statement of Cash Flows for the year ended December 31,
1995................................................................... F-48
Notes to Consolidated Financial Statements.............................. F-49
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
L.J. MELODY & COMPANY OF CALIFORNIA
JUNE 30, 1996 (UNAUDITED)
Balance Sheet as of June 30, 1996...................................... F-53
Statement of Operations for the six months ended June 30, 1996......... F-54
Statement of Shareholders' Equity for the six months ended June 30,
1996.................................................................. F-55
Statement of Cash Flows for the six months ended June 30, 1996......... F-56
Notes to Financial Statements.......................................... F-57
DECEMBER 31, 1995
Report of Independent Public Accountants............................... F-60
Balance Sheet as of December 31, 1995.................................. F-61
Statement of Operations for the year ended December 31, 1995........... F-62
Statement of Shareholders' Equity for the year ended December 31, 1995. F-63
Statement of Cash Flows for the year ended December 31, 1995........... F-64
Notes to Financial Statements.......................................... F-65
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CB Commercial Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of CB
Commercial Holdings, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1995, and 1994, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules 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 financial statements referred to above present fairly,
in all material respects, the financial position of CB Commercial Holdings,
Inc. and subsidiaries as of December 31, 1995, and 1994, and the results of
their operations and their cash flows for the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Los Angeles, California Arthur Andersen LLP
January 31, 1996 (Except with respect to
certain matters discussed in Notes 1, 2
and 13, as to which the date is November 11, 1996)
F-3
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1994
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................. $ 24,903 $ 23,045 $ 28,770
Receivables, less allowance of $3,959,
$4,400 and $4,544 for doubtful accounts
at September 30, 1996, December 31, 1995
and 1994, respectively................... 30,741 28,322 23,723
Deferred taxes............................ 3,983 765 --
Prepaid expenses and other................ 7,498 4,889 3,682
--------- --------- ---------
Total current assets..................... 67,125 57,021 56,175
Property and equipment, net................ 41,795 44,500 47,140
Goodwill, net of accumulated amortization
of $6,949, $5,194 and $3,672 at September
30, 1996, December 31, 1995 and 1994...... 62,999 59,491 22,251
Other intangible assets, net of accumulated
amortization of $251,690, $249,726 and
$245,722 at September 30, 1995 and 1994... 12,138 10,783 6,192
Inventoried property....................... 7,355 7,355 7,355
Deferred taxes............................. 34,562 -- --
Other assets, net.......................... 6,601 11,804 10,987
--------- --------- ---------
Total assets............................. $ 232,575 $ 190,954 $ 150,100
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Compensation and employee benefits........ $ 28,489 $ 28,324 $ 26,989
Accounts payable and accrued expenses..... 17,931 19,245 19,429
Senior revolving credit lines............. 8,000 -- --
Reserve for bonus and profit sharing...... 11,292 12,997 11,573
Current maturities of long-term debt...... 16,541 8,250 4,500
Current portion of capital lease obliga-
tions.................................... 2,669 2,592 1,493
--------- --------- ---------
Total current liabilities................ 84,922 71,408 63,984
--------- --------- ---------
Long-term debt, less current maturities:
Senior term loans......................... 142,101 160,394 160,390
Senior subordinated term loans............ 78,462 78,963 63,694
Inventoried property loan................. 7,470 7,470 7,470
Other long-term debt...................... 3,953 3,315 2,017
--------- --------- ---------
Total long-term debt..................... 231,986 250,142 233,571
--------- --------- ---------
Other long-term liabilities................ 22,561 24,092 17,093
--------- --------- ---------
Total liabilities........................ 339,469 345,642 314,648
--------- --------- ---------
Commitments and contingencies
Stockholders' Equity (Deficit):
Preferred stock, $.01 par value........... 40 40 40
Common stock, $.01 par value.............. 101 93 89
Additional paid-in capital................ 117,826 110,326 108,002
Notes receivable from sale of stock....... (5,109) -- --
Accumulated deficit....................... (219,752) (265,147) (272,679)
--------- --------- ---------
Total stockholders' equity (deficit)..... (106,894) (154,688) (164,548)
--------- --------- ---------
Total liabilities and stockholders' eq-
uity (deficit).......................... $ 232,575 $ 190,954 $ 150,100
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- --------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................. $ 390,863 $ 324,890 $ 468,460 $ 428,988 $ 392,037
Costs and Expenses:
Commissions, fees and
other incentives...... 195,465 167,569 239,018 225,085 206,070
Operating, administra-
tive and other........ 159,196 134,839 187,968 170,234 160,073
Depreciation and amor-
tization.............. 9,749 8,173 11,631 8,091 49,606
---------- ---------- ---------- ---------- ----------
Operating income (loss). 26,453 14,309 29,843 25,578 (23,712)
Interest income......... 1,035 1,228 1,674 1,109 915
Interest expense........ 17,883 16,944 23,267 17,362 14,240
---------- ---------- ---------- ---------- ----------
Income (loss) before
provision for income
tax.................... 9,605 (1,407) 8,250 9,325 (37,037)
Provision for income tax 4,610 238 841 152 112
Reduction of valuation
allowances............. (40,400) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net provision (benefit)
for income tax......... (35,790) 238 841 152 112
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 45,395 $ (1,645) $ 7,409 $ 9,173 $ (37,149)
========== ========== ========== ========== ==========
Per share data:
Net income (loss) per
common and common
equivalent share
outstanding........... $ 3.28 $ (0.14) $ 0.55 $ 0.69 $ (3.21)
========== ========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding.... 13,858,176 11,908,995 13,591,420 13,355,997 11,555,523
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------
1996 1995 1995 1994 1993
--------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)......... $ 45,395 $ (1,645) $ 7,409 $ 9,173 $(37,149)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and amorti-
zation excluding de-
ferred financing fees... 9,749 8,173 11,631 8,091 49,606
Amortization of deferred
financing costs......... 1,065 1,018 1,392 1,551 1,784
Equity interest in (earn-
ings) loss of unconsoli-
dated subsidiaries...... -- -- 180 (44) (35)
Provision for (reversal
of) doubtful accounts... (44) 71 306 696 3,525
Deferred interest........ 6,515 4,946 7,738 2,338 --
Deferred compensation.... 1,672 1,286 1,762 877 --
Deferred taxes........... (36,906) -- -- -- --
(Decrease) increase in re-
ceivables................ (2,242) (1,110) (1,778) 1,534 (6,319)
Decrease (increase) in
prepaid expenses and
other assets............. (158) 236 396 (885) 1,179
(Decrease) increase in
compensation and employee
benefits payable......... (147) (5,537) 3,276 7,222 5,841
(Decrease) increase in
other operating liabili-
ties..................... (729) (6,887) (1,680) 865 1,177
--------- --------- -------- -------- --------
Net cash provided by op-
erating activities...... 24,170 551 30,632 31,418 19,609
--------- --------- -------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................ (2,302) (1,798) (2,143) (4,250) (4,841)
Proceeds from collections
on notes receivable...... 2,721 205 215 445 121
Disposition of property
and equipment............ 10 94 128 195 107
Acquisitions of businesses
including net assets ac-
quired, intangibles and
goodwill................. (8,625) (20,049) (22,376) -- --
Other investing activi-
ties, net................ (1,321) (412) (712) (255) (1,016)
--------- --------- -------- -------- --------
Net cash used in invest-
ing activities.......... (9,517) (21,960) (24,888) (3,865) (5,629)
--------- --------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from senior re-
volving credit line...... 21,000 14,000 14,000 11,000 9,038
Repayment of senior re-
volving credit line...... (13,000) (4,000) (14,000) (11,000) (23,038)
Repayment of senior term
loans.................... (18,233) (14,797) (18,997) (4,100) --
Proceeds from inventoried
property loan............ -- -- -- -- 270
Repayment of capital
leases................... (2,167) (1,524) (2,167) -- --
Proceeds from senior sub-
ordinated loan........... -- 10,000 10,000 -- --
Other financing activi-
ties, net................ (395) (198) (305) (823) (932)
--------- --------- -------- -------- --------
Net cash provided by
(used in) financing ac-
tivities................ (12,795) 3,481 (11,469) (4,923) (14,662)
--------- --------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents. 1,858 (17,928) (5,725) 22,630 (682)
Cash and cash equivalents,
at beginning of period.... 23,045 28,770 28,770 6,140 6,822
--------- --------- -------- -------- --------
Cash and cash equivalents,
at end of period.......... $ 24,903 $ 10,842 $ 23,045 $ 28,770 $ 6,140
========= ========= ======== ======== ========
Supplemental disclosures of
cash flow information:
Cash paid during the pe-
riod for:
Interest (none capital-
ized)................... $ 9,981 $ 9,585 $ 14,410 $ 12,172 $ 12,610
Federal and state income
taxes................... $ 622 $ 364 $ 497 $ 152 $ 162
Non-cash investing and fi-
nancing activities:
Portion of Westmark ac-
quisition financed by
notes payable........... $ -- $ 20,283 $ 20,283 $ -- $ --
Portion of L.J. Melody
acquisition financed by
notes payable........... $ 3,667 $ -- $ -- $ -- $ --
Equipment acquired under
capital leases.......... $ 1,255 $ 2,658 $ 3,347 $ 4,569 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
PREFERRED COMMON OPTIONS PAID-IN FROM SALE ACCUMULATED
STOCK STOCK OUTSTANDING CAPITAL OF STOCK DEFICIT TOTAL
--------- ------ ------------ ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... $ 40 $ 86 $260 $105,945 $ -- $(244,687) $(138,356)
Net loss............... -- -- -- -- -- (37,149) (37,149)
Common stock issued for
bonus and profit
sharing............... -- 2 -- 668 -- -- 670
Common stock options
granted............... -- -- 34 -- -- -- 34
Foreign currency
translation
adjustment............ -- -- -- -- -- (59) (59)
---- ---- ---- -------- ------- --------- ---------
Balance, December 31,
1993................... 40 88 294 106,613 -- (281,895) (174,860)
Net income............. -- -- -- -- -- 9,173 9,173
Common stock issued for
deferred compensation,
bonuses and profit
sharing............... -- 1 -- 1,095 -- -- 1,096
Foreign currency
translation
adjustment............ -- -- -- -- -- 43 43
---- ---- ---- -------- ------- --------- ---------
Balance, December 31,
1994................... 40 89 294 107,708 -- (272,679) (164,548)
Net income............. -- -- -- -- -- 7,409 7,409
Common stock issued for
deferred compensation. -- 4 -- 2,322 -- -- 2,326
Common stock options
exercised............. -- -- (31) 33 -- -- 2
Foreign currency
translation
adjustment............ -- -- -- -- -- 123 123
---- ---- ---- -------- ------- --------- ---------
Balance, December 31,
1995................... 40 93 263 110,063 -- (265,147) (154,688)
Net income (unaudited). -- -- -- -- -- 45,395 45,395
Common stock issued for
deferred compensation,
bonuses and profit
sharing (unaudited)... -- 8 -- 7,404 -- -- 7,412
Common stock options
exercised............. -- -- (4) 100 -- -- 96
Notes receivable from
sale of stock......... -- -- -- -- (5,109) -- (5,109)
---- ---- ---- -------- ------- --------- ---------
Balance, September 30,
1996
(unaudited)............ $ 40 $101 $259 $117,567 $(5,109) $(219,752) $(106,894)
==== ==== ==== ======== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 IS
UNAUDITED)
1. ORGANIZATION AND ACQUISITIONS
ORGANIZATION. CB Commercial Holdings, Inc. ("CB Holdings") was organized to
acquire Coldwell Banker Commercial Group, Inc. and had no operations prior
to the acquisition on April 19, 1989 (the "Acquisition"). In 1991 Coldwell
Banker Commercial Group, Inc. was renamed CB Commercial Real Estate Group,
Inc. CB Holdings is a holding company that conducts its operations solely
through CB Commercial Real Estate Group, Inc. and its subsidiaries
(collectively, the "Company"). Concurrently with the closing of the IPO (as
defined in Note 13, below), CB Holdings will be renamed CB Commercial Real
Estate Services Group, Inc. (see Note 13). The results of operations for
interim periods are not necessarily indicative of results for a full year.
NATURE OF OPERATIONS. The Company provides a full range of services to
commercial real estate tenants, owners, and investors including: (i)
brokerage (facilitating sales and leases), investment properties
(acquisitions and sales on behalf of investors), corporate services,
property management, and real estate market research (collectively,
"Property and User Services"), and (ii) mortgage banking (mortgage loan
origination and servicing), investment management and advisory services and
valuation and appraisal services (collectively, "Investor Services"). The
Company's diverse client base includes local, national and multinational
corporations, financial institutions, pension funds and other tax exempt
entities, local, state and national governmental entities, and individuals.
A significant portion of the Company's revenue is transactional in nature
and seasonal. Historically, this seasonality has caused the Company's
revenue, operating income and net income to be lower in the first two
calendar quarters and higher in the third and fourth calendar quarters of
each year. The results of operations for the nine months ended September
30, 1996 are not necessarily indicative of results to be expected for the
entire year ending December 31, 1996 or for any future period.
ACQUISITIONS. Effective July 1, 1996, CB Commercial Mortgage Company, Inc.
("CB Mortgage"), a wholly-owned subsidiary of the Company, acquired all of
the outstanding capital stock of L.J. Melody & Company, a Texas
corporation, and L.J. Melody & Company of California, a Texas corporation
("LJMCal"). On July 9, 1996, CB Mortgage merged into L.J. Melody & Company.
As a result, LJMCal is a wholly-owned subsidiary of L.J. Melody & Company.
L.J. Melody & Company and LJMCal (collectively "L.J. Melody") are
commercial mortgage banking firms engaged in mortgage loan origination and
loan servicing. L.J. Melody is headquartered in Houston, Texas. The
purchase consideration for L.J. Melody was $15.0 million, including a $2.3
million note to the principal seller bearing 10.0% interest with principal
payments starting in 1998, $9.0 million in cash and $3.7 million in
additional notes to the sellers. The notes bear interest of 10.0% per
annum, with maturities through June 2001. The $2.3 million note will be
accounted for as compensation over the term of the note as the payment of
this note is contingent upon the principal seller's continued employment
with the Company.
The acquisition was accounted for as a purchase. The Company allocated
approximately $3.7 million of the total purchase price to identifiable
intangible assets, consisting of loan servicing and asset management
contracts, trade name, a covenant not to compete and other intangibles. The
remaining $9.0 million and a $1.5 million deferred tax liability resulting
from the acquisition were recorded to goodwill. The intangibles are being
amortized over their estimated useful lives or the lives of the underlying
contracts, as applicable, over periods ranging from three to 13 years.
Goodwill is being amortized on a straight line basis over 30 years.
F-8
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
On June 30, 1995, CB Commercial Real Estate Group, Inc., through a general
partnership ("WREAP") in which it directly or indirectly owns all of the
partnership interests, acquired Westmark Realty Advisors L.L.C.
("Westmark"). Westmark is an investment management and advisory business
headquartered in Los Angeles. The purchase price consisted of an aggregate
initial purchase price of $37.5 million plus $2.9 million in net
liabilities assumed and an additional $1.0 million in costs related to the
Westmark acquisition. Approximately $20.0 million of the $37.5 million is
payable to the sellers ("Westmark Senior Notes") over periods ranging from
one to five years. The sellers may also be entitled to a supplemental
purchase price based on the operating results of Westmark payable over a
period of six years and subject to a maximum aggregate payment of $18.0
million. The supplemental purchase price will be recorded as additional
goodwill, if and when earned. As of December 31, 1995, approximately $0.9
million was earned and was paid to the sellers on March 31, 1996.
Approximately $17.5 million of the purchase price was paid in cash using
$7.5 million contributed to WREAP by CB Commercial Real Estate Group, Inc.
and $10.0 million of proceeds from a senior subordinated loan ("Westmark
Senior Subordinated Loan"). In November 1996, the terms of the Westmark
Senior Subordinated Loan were amended to provide for interest to be payable
quarterly on a current basis at a rate of 11.0%, effective June 30, 1995,
and to provide for quarterly amortization payments by the Company of
$500,000. As amended, interest will accrue on the Westmark Senior
Subordinated Loan at the original interest rate of 20.0%, but interest in
excess of 11.0% will be forgiven upon the payment of the Westmark Senior
Subordinated Loan in full. If the Company defaults on its payment
obligations under the loan at any time, such excess interest will not be
forgiven and the Westmark Senior Subordinated Loan will bear interest at
the rate of 20.0% from June 30, 1995. The terms of the Westmark Senior
Subordinated Loan originally provided for the interest to be deferred until
the debt payable to the Westmark sellers was paid or cash collateralized in
full.
The acquisition was accounted for as a purchase. The Company has allocated
approximately $6.9 million of the total purchase price of $41.4 million to
identifiable intangible assets acquired, consisting of asset management
contracts, employment agreements, and trade name and the remaining $34.5
million was recorded as goodwill. The intangibles will be amortized over
their estimated useful lives of 6 years, 5 years, and 10 years,
respectively. Based on the nature of the business, Westmark's market
position, its workforce and other factors, management estimates that the
goodwill resulting from this acquisition has a useful life of approximately
30 years and will be amortized on a straight line basis over this period.
Based upon future experience, this useful life could be decreased. In that
event, the charge for intangibles and goodwill would be increased and
earnings decreased. (See Note 6).
On April 11, 1995, the Company acquired certain assets of Langdon Rieder
Corporation ("Langdon Rieder"), a tenant advisory business. The purchase
price consisted of a closing payment of $1.5 million cash and a deferred
payment of $1.9 million payable over three years ($633,333 payable on each
of January 2, 1997, 1998 and 1999), plus interest on the entire outstanding
portion of the deferred payment at an annual rate of 8.0%. The deferred
payment is subject to forfeiture under certain circumstances. The purchase
price has largely been allocated to intangibles and goodwill, which will be
amortized on a straight line basis over their useful lives ranging from
three to seven years.
The assets and liabilities of Westmark and Langdon Rieder, along with the
related goodwill, intangibles and indebtedness resulting from the
acquisitions, are reflected in the accompanying consolidated financial
statements as of December 31, 1995. The results of operations of the
acquired companies are included in the consolidated results from the dates
they were acquired, and were not material to the Company's results for the
year ended December 31, 1995. The pro forma results of operations of the
Company for the nine months ended September 30, 1996 and 1995 and for the
years ended December 31, 1995 and 1994,
F-9
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
assuming the Westmark and Langdon Rieder acquisitions had occurred on
January 1, 1994, and the L.J. Melody acquisition had occurred on January 1,
1995 would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------
1996 1995 1995 1994
-------- -------- ----------- -----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Revenue.......................... $394,280 $337,041 $ 489,684 $ 452,284
Net income (loss)................ 44,190 (5,681) 4,903 4,092
Net income (loss) per common and
common equivalent share
outstanding..................... 3.19 (0.48) 0.36 0.31
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements as of
September 30, 1996 and 1995 have been prepared in accordance with generally
accepted accounting principles and the requirements of Regulation S-X for
interim financial information. Accordingly, they do not include all of the
information 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 nine
months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. The
Company provides for income taxes during interim periods based on the
estimated annual effective tax rate.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company. All significant intercompany accounts and transactions have
been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with an original maturity of less than three months.
INTANGIBLE ASSETS AND GOODWILL
The Company had approximately $214.0 million of intangible assets (other
than goodwill) arising from the Acquisition, comprised of a covenant not to
compete, a trademark, deferred financing costs and other items, which had
been substantially amortized through December 31, 1993 partly through
shortening of their estimated lives. The change in useful lives resulted in
a $16.5 million increase in depreciation and amortization in 1993. Of the
remaining intangibles of approximately $10.8 million at December 31, 1995,
approximately $4.8 million relates to deferred financing costs, and $6.0
million are intangibles stemming from the Westmark and Langdon Rieder
acquisitions. (See Note 1) Other intangible assets at September 30, 1996
include approximately $3.7 million of deferred financing costs and $8.5
million of intangibles stemming from the Westmark, Langdon Rieder and L.J.
Melody acquisitions.
Goodwill of $63.0 million and $59.5 million at September 30, 1996 and
December 31, 1995, respectively, consists of $21.1 million and $21.6
million, respectively, related to the Acquisition and $41.9 million and
$37.9 million, respectively, related to Westmark and other acquisitions.
Goodwill related to the Acquisition
F-10
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
is being amortized over an estimated useful life of 40 years. Goodwill
related to the Westmark and other acquisitions is being amortized over an
estimated useful life of 30 years.
The Company periodically evaluates the recoverability of the carrying
amount of goodwill and other intangible assets. In this assessment, the
Company considers macro market conditions and trends in the Company's
relative market position, its capital structure, lender relationships and
the estimated undiscounted future cash flows associated with these assets.
If any of the significant assumptions inherent in this assessment change in
a material way due to market, economic and/or other factors, the
recoverability is assessed based on the revised assumptions and resultant
undiscounted cash flows. If such analysis indicates impairment, it would be
recorded in the period such changes occur based on the fair value of the
goodwill and other intangible assets.
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
Investments in unconsolidated subsidiaries in which the Company does not
have majority control are accounted for under the equity method. (See Note
4)
INCOME RECOGNITION
Real estate commissions on sales are recorded as income upon close of
escrow or upon transfer of title. Real estate commissions on leases are
generally recorded as income upon date of occupancy. Realty advisor
incentive fees are recognized when earned under the provisions of the
related advisory agreements. Other commissions and fees are recorded as
income at the time the related services have been performed unless
significant future contingencies exist.
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 certain assets and
liabilities at the date of the financial statements and the reported
amounts of certain revenues and expenses during the reporting period.
Actual results could differ from those estimates. Management believes that
these estimates provide a reasonable basis for the fair presentation of its
financial condition and results of operations.
CERTAIN SIGNIFICANT ESTIMATES
DEFERRED TAXES. The Company has net deferred tax assets of approximately
$87.5 million at December 31, 1995 all of which has been reserved through a
valuation allowance. The valuation allowance is based on management's
conclusion regarding the realizability of this asset on a more likely than
not basis, as defined in SFAS No. 109. In reaching this conclusion
management considered the Company's past operating results, the current
year events and trends, including the impact if any, of the acquisitions
that were concluded during the year and other factors. Management will
continue to evaluate the appropriateness of all or part of this valuation
allowance on a periodic basis and if its conclusions change with respect to
realizability, any necessary adjustments will be made at that time. The
impact of these adjustments, if any, could be material to the Company's
financial statements. (See Note 9)
F-11
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
PER SHARE INFORMATION
Earnings per share is calculated based on weighted average common shares
and dilutive stock options outstanding. When the Company is in a net loss
position for a particular reporting period, the Class C-1 and Class C-R
shares, as well as the stock options outstanding, are excluded as they are
anti-dilutive. This may result in variations in the weighted average number
of shares outstanding between periods.
Weighted average common and common equivalent shares outstanding are
comprised of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- --------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Preferred stock:
Series A-1.......... 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Series A-2.......... 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
Series A-3.......... 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Common stock:
Class B-1........... 1,854,113 1,850,000 1,850,034 1,850,000 1,850,000
Class B-2........... 6,079,259 5,636,550 5,678,262 5,442,839 5,283,078
Class C-1........... 800,000 -- 800,000 800,000 --
Class C-R........... 800,000 -- 800,000 800,000 --
Promotional shares... 288,204 422,445 422,445 422,445 422,445
Stock options........ 36,600 -- 40,679 40,713 --
---------- ---------- ---------- ---------- ----------
13,858,176 11,908,995 13,591,420 13,355,997 11,555,523
========== ========== ========== ========== ==========
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards ("'SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," SFAS No. 122, "Accounting for Mortgage
Servicing Rights" and SFAS No. 123, "Accounting for Stock-Based
Compensation," on January 1, 1996. These statements did not have a material
impact on the financial statements.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." This statement is required to be adopted by
the Company in 1997 and applies only to the operations of L.J. Melody.
Under SFAS No. 125, the Company will be required to recognize, at fair
value, financial and servicing assets it has acquired control over and
related liabilities it has incurred and amortize them over the period of
estimated net servicing income or loss. Write-off of the asset is required
when control is surrendered and of the liability when extinguished. The
Company does not currently recognize the value of financial and servicing
assets when loans are originated. The adoption of the new statement will
result in the recognition of amortization cost along with income from
servicing as services are performed and the recognition of gains or losses
at the time servicing rights are sold. Management of the Company has not
yet determined the impact, if any, that the adoption of this standard will
have on the Company's financial position or results of operations.
F-12
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
RESTATEMENT
Certain reclassifications, which do not have any effect on net income, have
been made to the 1994 and 1993 financial statements to conform to the 1995
presentation and to the September 30, 1995 financial statements and to the
December 31, 1995 balance sheet to conform to the September 30, 1996
presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Land..................................................... $ 11,843 $ 11,843
Buildings and improvements............................... 26,553 26,646
Furniture and equipment.................................. 35,828 34,057
Equipment under capital leases........................... 7,916 4,569
-------- --------
82,140 77,115
Accumulated depreciation and amortization................ (37,640) (29,975)
-------- --------
Property and equipment, net.............................. $ 44,500 $ 47,140
======== ========
</TABLE>
The Company capitalizes expenditures that materially increase the life of
the related assets and charges the costs of maintenance and repairs to
expense. Upon sale or retirement, the costs and related accumulated
depreciation or amortization are eliminated from the respective accounts,
and the resulting gain or loss is included in income.
Depreciation is computed primarily using the straight-line method over
estimated useful lives ranging from 3 to 45 years. Leasehold improvements
are amortized over the term of the leases, excluding options to renew.
Equipment under capital leases is depreciated over the related term of the
leases.
4. OTHER ASSETS
Included in other assets at December 31, 1995 and 1994 are $1.7 million and
$2.4 million, respectively, of investments in limited partnerships managed
for a fee for institutional investors. The Company has a 1% general partner
interest in each of the limited partnerships which is accounted for under
the equity method. Although the Company is the general partner of each
limited partnership, it does not have majority control over investment
decisions in any of the limited partnerships. Management fee income from
the partnerships was approximately $11.0 million, $4.8 million and $5.7
million for the years ended December 31, 1995, 1994, and 1993,
respectively. The limited partnerships' total assets were approximately
$1.27 billion and $259.6 million and total liabilities were approximately
$162.4 million and $19.3 million as of December 31, 1995 and 1994,
respectively. The partnerships' net income (loss) for the years ended
December 31, 1995, 1994, and 1993 was approximately $22.0 million, $(18.3)
million and $2.5 million, respectively.
The general partner capital contributions for four of the partnerships are
in the form of unsecured notes payable totaling approximately $3.2 million
and $2.0 million at December 31, 1995 and 1994, respectively. (See Note 6)
F-13
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
Also included in other assets are investments in four and five
unconsolidated commercial real estate broker subsidiaries as of December
31, 1995 and 1994, respectively: 25% interest in CB Commercial Real Estate
Group Canada Inc.; 40% interest in CB Comercial de Mexico, S.A. de C.V.;
19% interest in DTZ Leung Pte Ltd.; and 50% interest in CB
Commercial/Hampshire L.L.C. On August 31, 1995, the Company increased its
interest in CB Commercial Real Estate Group of Hawaii, Inc., from 35.04% to
76%, thus making it a consolidated subsidiary. Investments in and advances
to (from) unconsolidated subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
------ ------
<S> <C> <C>
CB Commercial Real Estate Group Canada Inc................... $1,604 $1,523
CB Comercial de Mexico, S.A. de C.V.......................... (294) (221)
DTZ Leung Pte Ltd............................................ 210 --
CB Commercial/Hampshire L.L.C................................ 22 --
</TABLE>
Equity interest in earnings (losses) of the unconsolidated subsidiaries of
$180,000, $(44,000) and $35,000 for the years ended December 31, 1995, 1994
and 1993, respectively, have been included in "Operating, administrative
and other" on the Consolidated Statements of Operations.
In addition, included in other assets were notes receivable aggregating
$5.0 million and $5.2 million at December 31, 1995 and 1994, respectively.
During the second quarter of 1996, payment in full on the 9.0% note
totaling $2.7 million was received. The remaining 9.5% note has been
reclassified to current and is secured by a first mortgage lien on hotel
properties. Unpaid principal is due at maturity in July 1997.
5. EMPLOYEE BENEFIT PLANS
OPTION PLANS. One million shares of Class B-2 common stock have been
reserved for issuance under the CB Commercial Holdings, Inc. 1990 Stock
Option Plan. Options for 1,000,000 shares, at an exercise price of $10 per
share, were granted pursuant to the plan and vest over one to four year
periods, expiring at various dates through September 2001. Options for
960,000 Class B-2 shares were outstanding as of December 31, 1995. Options
for 920,000 Class B-2 shares were outstanding as of September 30, 1996.
A total of 600,000 shares of Class B-1 common stock have been reserved for
issuance under the CB Commercial Holdings, Inc. 1991 Service Providers
Stock Option Plan to enable the Company to pay certain service providers
with options to purchase shares of the Company's common stock instead of
with cash. In 1993 below market options were granted to certain directors
in partial payment of director fees. All options vested at grant date and
expire at various dates through October 2003. During 1996 and 1995, options
to purchase 467 and 4,106 shares, respectively, of Class B-1 common stock
were exercised. As of December 31, 1995, options to purchase 36,607 shares
of Class B-1 common stock were outstanding at $262,500. As of September 30,
1996, options to purchase 36,140 shares of Class B-1 common stock were
outstanding at $258,750. In October 1996, options to purchase 30,000 shares
were granted to certain directors at the IPO price and vest over a three-
year period (see Note 13).
A total of 90,750 shares of Class B-2 common stock have been reserved for
issuance under the L.J. Melody Acquisition Stock Option Plan, which was
adopted by the Board of Directors in September 1996. Options for all such
shares have been issued at an exercise price of $10 per share and vest over
a period of five years at the rate of five percent per quarter. Options for
90,750 shares of Class B-2 common stock were outstanding as of September
30, 1996.
F-14
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
STOCK PURCHASE PLAN. The Company has a restricted stock purchase plan
covering certain key employees including senior management. A total of
550,000 shares of Class B-2 common stock have been reserved for issuance
under the 1996 Equity Incentive Plan of CB Holdings. The shares may be
issued to senior executives for a purchase price equal to the greater of
$10 per share or fair market value. The purchase price for shares under
this plan must be paid either in cash or by delivery of a full recourse
promissory note. As of September 30, 1996, the Company issued 510,906
shares of Class B-2 stock to certain key employees at $10 per share. The
related promissory notes are also included in stockholders' equity.
BONUSES. The Company has bonus programs covering certain key employees,
including senior management. Awards are based on the position and
performance of the employee and the achievement of pre-established
financial, operating and strategic objectives. The amounts charged to
expense for bonuses were $10.2 million, $10.3 million and $8.7 million for
the years ended December 31, 1995, 1994, and 1993, respectively.
CAPITAL ACCUMULATION PLAN (THE "CAP PLAN"). The Cap Plan is a defined
contribution profit sharing plan under Section 401(k) of the Internal
Revenue Code and is the Company's only such plan. Under the Cap Plan, each
participating employee may elect to defer a portion of his or her earnings
and the Company may make additional contributions from the Company's
current or accumulated net profits to the Cap Plan in such amounts as
determined by the Board of Directors. The Company expensed, in connection
with the Cap Plan, $1.0 million, $1.0 million and $0.9 million for the
years ended December 31, 1995, 1994, and 1993, respectively. (See Note 8)
DEFERRED COMPENSATION PLAN (THE "DCP"). In the last quarter of 1993, the
Company's Board of Directors approved the adoption and implementation of
the DCP effective January 1, 1994. Under the DCP, a select group of
management and highly compensated employees can defer the payment of all or
a portion of their compensation (including any bonus). The DCP permits
participating employees to make an irrevocable election at the beginning of
each year to receive amounts deferred at a future date either in cash,
which accrues at a rate of interest determined in accordance with the DCP
and is an unsecured long term liability of the Company, or in newly issued
shares of Class B-2 common stock of the Company which elections are
recorded as additions to Stockholders' Equity. For the year ended December
31, 1995 approximately $0.7 million (including interest) and $1.1 million
has been deferred in cash and stock, respectively, all of which was charged
to expense in 1995. The accumulated deferrals as of December 31, 1995 were
approximately $1.0 million in cash (including interest) and $1.6 million in
stock for a total of $2.6 million. The accumulated deferrals at September
30, 1996 were approximately $1.5 million in cash (including interest) and
$2.8 million in stock, for a total of $4.3 million all of which was charged
to expense in the period of deferral.
F-15
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
6.LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Senior Term Loans, with interest at variable rates based
on LIBOR plus 2.5% (7% and 6.98% weighted average at
December 31, 1995 and 1994, respectively)
Senior Term Loan due in quarterly installments of $1,500
commencing June 30, 1995, $2,250 commencing June 30,
1996, and $2,750 commencing June 30, 1997, with the
remaining balance due March 31, 1999................... $130,021 $146,820
Mortgage Term Loan due in full March 31, 1999........... 18,340 18,070
Westmark Senior Notes, with interest at 12%, $1 million
due January 2, 1997, $5,722 million due June 30, 1998,
with the remaining balance due June 30, 2000............ 20,283 --
Senior Subordinated Term Loan, with interest at LIBOR
plus .25%
(6% and 6.5625% at December 31, 1995 and 1994,
respectively)
due in full on July 23, 2000............................ 67,896 63,694
Westmark Senior Subordinated Loan, with interest at 20%,
due in full July 31, 2001............................... 11,067 --
Inventoried Property Loan, secured by inventoried
property, with interest at
short-term commercial paper borrowing rate plus 3.5%
(9.37% and 8.5% at December 31, 1995 and 1994,
respectively) due in full April 30, 1997................ 7,470 7,470
Other Loans, secured by computer equipment with interest
at the prime rate plus .5% (9.25% at December 31, 1995). 164 --
Unsecured Notes Payable, with fixed interest ranging from
6% to 13% and variable interest at the higher of the
Applicable Federal Rate or Consumer Price Index plus 6%
(Note 4)................................................ 3,151 2,017
-------- --------
Total................................................... 258,392 238,071
Less current maturities................................. 8,250 4,500
-------- --------
$250,142 $233,571
======== ========
</TABLE>
Annual aggregate maturities of long-term debt as of December 31, 1995 are
as follows (in thousands): 1996--$8,250; 1997--$18,970; 1998--$16,722;
1999--$124,671; 2000--$75,561; and $14,218 thereafter.
The Company has two Senior Revolving Credit Lines of $10.0 million and
$20.0 million expiring in December 1996 and March 1999, respectively.
Commitment fees of 0.5% and 0.375% per annum are payable quarterly in
arrears on the unused portion of the lines. As of December 31, 1995, there
were no amounts outstanding under the lines. Up to $10.0 million of the
Senior Revolving Credit Lines may be used to secure letters of credit. As
of December 31, 1995, $1.0 million of letters of credit have been issued.
During 1994, the terms of the Senior Term Loans and Senior Subordinated
Term Loan were modified. Under the modified terms, the Company has the
right to invest a portion of its excess cash flow discretionarily and is
required to apply a portion of excess cash flow not available for
investments to the prepayment of principal. The other key provisions of the
debt modifications include: 1) lower scheduled principal payments on the
senior debt consisting of $1.5 million per quarter for four quarters,
commencing June 1995, increasing to $2.25 million for four quarters and
then increasing to $2.75 million per quarter until maturity; and 2)
interest on the senior secured indebtedness of LIBOR plus 2.5% and on the
senior
F-16
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
subordinated indebtedness of LIBOR plus 0.25%. A portion of the interest
payments on the Senior Term Loans is deferred until maturity. All of the
interest on the Senior Subordinated Term Loan is deferred until repayment
of the Senior Term Loans. Deferred interest amounts are included in the
reported outstanding principal balances. These interest rates are effective
through the maturity of both the senior and the subordinated debt, in 1999
and 2000, respectively.
The Senior Term Loans, Mortgage Term Loan and the Senior Revolving Credit
Lines are secured by substantially all of the personal and real property
assets of CB Commercial Real Estate Group, Inc. and its subsidiaries.
Collectively these loans are guaranteed by CB Commercial Real Estate Group,
Inc. and all the common stock of CB Commercial Real Estate Group, Inc. is
pledged to secure the guarantee. The Senior Subordinated Term Loan is
secured by a second priority lien on the common stock of CB Commercial Real
Estate Group, Inc.
The Senior Term Loan agreement contains numerous restrictive covenants
that, among other things, limit the Company's ability to incur or repay
other indebtedness, make advances or loans to subsidiaries and other
entities, make capital expenditures, incur liens, enter into mergers or
effect other fundamental corporate transactions, sell its assets, or
declare dividends. As of December 31, 1995, the Company did not have any
dividend payment capacity based on the terms of its loan covenants. In
addition, the Company is required to meet certain ratios relating to its
adjusted net worth, level of indebtedness, fixed charges and interest
coverage. The Company is in compliance with all covenants as of December
31, 1995.
The Company had an interest rate swap agreement on $50.0 million of its
Senior Subordinated Term Loan for the period from December 27, 1990 to
December 27, 1994 under which the Company made payments at the fixed rate
of 12.35% and received payments at a variable rate of LIBOR plus 4.0%.
During 1994, the net effect was to increase interest expense by
approximately 4.1 percentage points.
See Note 1 for indebtedness regarding the Westmark acquisition and Note 13
for contemplated amendments to the Company's long-term debt.
7. COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of pending or threatened lawsuits
arising out of, or incident to, its ordinary course of business. Management
believes that any liability to the Company, net of insurance proceeds, that
may result from disposition of these lawsuits will not have a material
effect on the consolidated financial position or results of operations of
the Company.
Future minimum rental commitments for noncancelable operating leases at
December 31, 1995 are as follows (in thousands): 1996--$18,767; 1997--
$15,781; 1998--$13,505; 1999--$10,822; 2000--$8,448; and $14,430
thereafter.
Future minimum lease commitments for noncancelable capital leases at
December 31, 1995 are as follows (in thousands): 1996--$2,820; 1997--
$2,044; 1998--$482; 1999--$30; and $0 thereafter. The interest portion of
these payments totals $362. Capital lease payments due within one year are
classified as current liabilities.
Substantially all leases require the Company to pay maintenance, insurance
and property taxes, and generally may be renewed for five year periods.
Total rental expense under noncancelable operating leases was $22.5
million, $21.3 million and $22.2 million for the years December 31, 1995,
1994, and 1993, respectively.
F-17
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
8. STOCKHOLDERS' EQUITY
Stockholders' equity by class of stock as of December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
VOTES SHARES ORIGINAL PURCHASE
PER SHARES ISSUED AND PRICE OF SHARES
SHARE AUTHORIZED OUTSTANDING OUTSTANDING
----- ---------- ----------- -----------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Preferred stock:
Series A-1................... 2 2,000,000 1,000,000 $10,000,000
Series A-2................... 1 4,000,000 2,000,000 20,000,000
Series A-3................... -- 2,000,000 1,000,000 10,000,000
---------- --------- -----------
8,000,000 4,000,000 $40,000,000
========== ========= ===========
Common stock:
Class B-1.................... 1 4,000,000 1,854,106 $18,532,892
Class B-2.................... 1 12,000,000 5,836,142 55,483,519
Class C-1.................... -- 1,600,000 800,000 8,000
Class C-R.................... -- 1,600,000 800,000 8,000
Class J...................... -- 2 2 --
---------- --------- -----------
19,200,002 9,290,250 $74,032,411
========== ========= ===========
DECEMBER 31, 1994
Preferred stock:
Series A-1................... 2 2,000,000 1,000,000 $10,000,000
Series A-2................... 1 4,000,000 2,000,000 20,000,000
Series A-3................... -- 2,000,000 1,000,000 10,000,000
---------- --------- -----------
8,000,000 4,000,000 $40,000,000
========== ========= ===========
Common stock:
Class B-1.................... 1 4,000,000 1,850,000 $18,500,000
Class B-2.................... 1 12,000,000 5,480,235 53,055,852
Class C-1.................... -- 1,600,000 800,000 8,000
Class C-R.................... -- 1,600,000 800,000 8,000
Class J...................... -- 2 2 --
---------- --------- -----------
19,200,002 8,930,237 $71,571,852
========== ========= ===========
</TABLE>
The preferred stock has a 10.0% preferential dividend which became
cumulative upon the earlier of the date on which certain thresholds were
met or January 2, 1992. Unpaid dividends were to bear interest at 12.0% if
such thresholds were met. Effective January 1, 1991 the Preferred
Stockholders waived their rights to dividends and agreed that no dividends
would accrue until such time as all amounts under the Senior Term Loans and
Senior Subordinated Term Loan are paid in full (See Note 13).
Extraordinary distributions to stockholders, if any, and any proceeds
available to stockholders from any sale of all or substantially all of the
Company's assets, or a merger or liquidation of the Company, will be
applied first to pay accumulated but unpaid preference dividends, should
they exist, and thereafter to the return of the original purchase price of
the shares outstanding to all stockholders on a pro rata basis, regardless
of class or series. After payment in full of the original purchase price,
additional distributions, if any, will be made on a share-for-share basis,
but each share of preferred stock will be counted as 60.0% of a share.
F-18
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
The Company's Class J common stock does not participate in any dividends or
liquidation proceeds and has no voting rights except for the nomination and
election of Class J Directors or as required by law.
The Class C-1 and C-R common shares are non-voting (other than as required
by law) and upon liquidation do not share in the return of the first $10 of
capital to stockholders to the extent of their par value of $.01 per share
but participate fully in proceeds in excess of $10 per share and in all
dividends declared on common stock.
In 1996 the Company issued 125,389 shares of its Class B-2 common stock
with a stated value of approximately $1.0 million to the Cap Plan for the
year ended December 31, 1995, 8,501 shares to sales professionals who
elected to receive a portion of their annual premium on earnings payments
in stock rather than cash and 96,917 shares in connection with the DCP
(including bonuses deferred in stock). In 1995 the Company issued 159,432
shares of its Class B-2 common stock to the Cap Plan in connection with the
profit sharing contribution, 33,636 shares to sales professionals who
elected to receive a portion of their annual premium on earnings payments
in stock rather than cash and 162,839 shares in connection with the DCP,
for a total of 355,907 Class B-2 common shares issued in 1995. In 1994 the
Company issued 134,270 shares of its Class B-2 stock in connection with the
profit sharing contribution. (See Note 5)
As of September 30, 1996, 6,620,154 shares of Class B-2 common stock were
outstanding.
9. INCOME TAXES
The regular federal tax return loss carryforward is $202.5 million as of
September 30, 1996, expiring in the years 2004 through 2008 as follows:
$11.6 million--2004; $61.9 million--2005; $76.2 million--2006;
38.0 million--2007; and $14.8 million--2008. The loss carryforward for
federal alternative tax purposes is $196.0 million as of September 30, 1996
due to depreciation differences. Use of the federal alternative tax loss
carryforward is limited to the lesser of 90.0% of the year's alternative
minimum taxable income or the remaining alternative minimum tax loss
carryforward. The current federal tax includes alternative minimum tax
paid, for which credit carryforwards are available, totaling $0.6 million
as of September 30, 1996. Loss carryforwards for state income tax purposes
expire in various states beginning in 1995.
The tax provision for the nine months ended September 30, 1996 and the
years ended December 31, 1995, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------
1996 1995 1994 1993
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Federal:
Current......................... $ 388 $ 503 $ 47 $ --
Deferred tax.................... 3,549 1,231 (3,563) 7,758
Reduction of valuation allow-
ances.......................... (40,400) (1,231) 3,563 (7,758)
-------- ------- ------- -------
$(36,463) $ 503 $ 47 $ --
State:
Current......................... 419 338 105 112
Deferred........................ 254 209 (773) 1,683
Reduction of valuation allow-
ances.......................... -- (209) 773 (1,683)
-------- ------- ------- -------
673 338 105 112
-------- ------- ------- -------
$(35,790) $ 841 $ 152 $ 112
======== ======= ======= =======
</TABLE>
F-19
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
The following is a reconciliation, stated as a percentage of pre-tax
income, of the U.S. statutory federal income tax rate to the Company's
effective tax rate on income (loss) from operations:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER
ENDED 31,
SEPTEMBER 30, --------------------------
1996 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
Federal statutory tax rate......... 35 % 34 % 35 % (35)%
Permanent differences, including
goodwill, meals and entertainment. 8 14 9 1
State taxes, net of federal bene-
fit............................... 5 3 6 (4)
Utilization of previously unrecog-
nized net operating losses........ -- (41) (48) --
Valuation allowance for net operat-
ing losses and other deferred tax
assets............................ (421) -- -- 38
---- ------ ------ ------
Effective tax rate................. (373)% 10 % 2 % 0 %
==== ====== ====== ======
</TABLE>
Beginning in 1992 the Company implemented Statement of Financial Accounting
Standards No. 109, the modified liability method of accounting for income
taxes. Until the third quarter of 1996, the resulting net deferred tax
asset had been fully reserved except for utilization against earnings as
realized. Such asset was being recognized to the extent of the tax effect
of current taxable earnings. Cumulative tax effects of temporary
differences are shown below as of September 30, 1996, December 31, 1995 and
December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1996 1995 1994
------------- -------- --------
<S> <C> <C> <C>
ASSET (LIABILITY)
Property and equipment.................... $ 2,823 $ 1,289 $ 1,655
Reserves for bad debts, building write
down, legal expenses..................... 3,785 3,860 3,628
Intangible amortization................... 75 1,213 4,211
Bonus, unexercised restricted stock, de-
ferred compensation...................... 2,047 1,901 1,819
Partnership income........................ 608 608 705
Debt modification......................... 1,599 1,549 1,470
Net operating loss carryforwards.......... 71,169 77,600 79,832
-------- -------- --------
Total deferred tax assets................ 82,106 88,020 93,320
Unconsolidated affiliates................. (218) (218) (218)
All other, net............................ 1,170 (273) (200)
-------- -------- --------
Total deferred tax liabilities........... (952) (491) (418)
-------- -------- --------
Net deferred tax assets................... 83,058 87,529 92,902
Valuation allowances...................... (44,513) (87,529) (92,902)
-------- -------- --------
$ 38,545 $ -- $ --
======== ======== ========
</TABLE>
Management evaluates the appropriateness of all or part of these valuation
allowances on a periodic basis and if the Company concludes there is a
change with respect to realizability, any necessary adjustments are made at
that time. As of September 30, 1996, the Company has experienced continuing
profitability due to a variety of reasons, including the strength of the
commercial real estate markets. In addition, the Company has operated
Westmark for one full year since acquiring Westmark in June 1995, and as a
result has
F-20
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
concluded that Westmark should make a positive contribution to the
Company's consolidated taxable income. Finally, the acquisition of L.J.
Melody in July 1996 should make a positive contribution to the Company's
consolidated taxable income. As a result of these factors, management has
determined that it now has sufficient reliable information to conclude that
part of the Company's net operating loss carryforwards ("NOLs") are
realizable on a more likely than not basis. During the third quarter of
1996, the Company projected, on a more likely than not basis, that a
portion of the NOLs would be realizable in future periods and, accordingly,
reduced its existing deferred tax asset valuation allowances by $45.7
million of which $5.3 million has been allocated to the purchase price of
L.J. Melody based on its estimated future potential to generate taxable
income, and the remaining $40.4 million has been recorded as a tax benefit
(a reduction in income tax provision). With the recognition of deferred tax
assets, the current and future period provisions for income tax will be
recorded at the full effective tax rate excluding the impact of other
adjustments, if any, to valuation allowances. For the nine months ended
September 30, 1996, a $4.6 million provision for income taxes has been
recorded. Net income for the nine months ended September 30, 1996 was
$45.4 million ($3.28 per share of common stock), which includes the
$40.4 million tax benefit. The $40.4 million recognized tax benefit has a
material effect on the reported net income for the nine months ended
September 30, 1996.
The ability of the Company to utilize NOLs may also be limited in the
future if an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended, were deemed to occur. Such an
ownership change may be deemed to occur if the Company engages in certain
transactions involving the issuance of shares of Common Stock, including
the issuance of shares of Common Stock in connection with an acquisition or
otherwise or by reason of a sale of capital stock by an existing
shareholder. If an ownership change were to occur, Section 382 would impose
an annual limit on the amount of NOLs the Company could utilize. The
Company believes that the Offering and Recapitalization will not result in
an ownership change. An ownership change may not be within the control of
the Company, however, and therefore there is no assurance that an ownership
change will not occur in the future. The availability of NOLs is, in any
event, subject to uncertainty since their validity is not reviewed by the
Internal Revenue Service until such time as they are utilized to offset
income.
10. FIDUCIARY FUNDS
The consolidated balance sheets do not include the net assets of escrow,
agency and fiduciary funds, which amounted to $28.4 million and $24.2
million as of December 31, 1995 and 1994, respectively.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
NOTES RECEIVABLE. The Company has determined that it is not practicable to
estimate the fair value of the notes receivable due to the cost involved in
developing the information as such notes are not publicly traded.
LONG-TERM DEBT. The Senior Term Loans, the Senior Subordinated Term Loan,
the Senior Revolving Credit Lines and the Westmark Senior Notes, including
their respective maturities, are discussed in Note 6. Estimated fair values
for these liabilities are not presented because the Company believes that
the unique circumstances that include the Company's leverage, the terms of
its loans, the timing of the interest and principal payments, the relative
priorities of the senior and subordinated indebtedness and other terms and
conditions associated with these loans require the expertise of an
investment banker to determine the fair values. The Company does not
consider it practicable to incur the excessive costs to engage an
investment banker to perform a fair value analysis of these liabilities.
The effective interest rates associated with these loans at December 31,
1995 were: 7.8% for the Senior Term Loans, 6.4% for the Senior Subordinated
Term Loan and 12.0% for the Westmark Senior Notes. No balances were
outstanding under the Senior Revolving Credit Lines.
F-21
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
The fair value of the Inventoried Property Loan discussed in Note 6 is not
materially different from the carrying value of the debt.
The Unsecured Notes Payable discussed in Note 6, which represent the
Company's share of unfunded equity participation, are not considered
financial instruments.
12. INDUSTRY SEGMENTS
The Company operates in two business segments--Property and User Services
and Investor Services. Property Services including brokerage (facilitating
sales and leases), investment properties (acquisitions and sales on behalf
of investors), corporate services, property management and real estate
market research. Investor Services includes mortgage banking (loan
origination and servicing), investment management and advisory services,
and valuation and appraisal services.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue
Property and User Services..................... $422,833 $400,250 $364,172
Investor Services.............................. 45,627 28,738 27,865
-------- -------- --------
$468,460 $428,988 $392,037
======== ======== ========
Operating income (loss)
Property and User Services..................... $ 26,142 $ 25,118 $(19,915)
Investor Services.............................. 3,701 460 (3,797)
-------- -------- --------
29,843 25,578 (23,712)
Interest income................................. 1,674 1,109 915
Interest expense................................ 23,267 17,362 14,240
-------- -------- --------
Income (loss) before provision for income taxes. $ 8,250 $ 9,325 $(37,037)
======== ======== ========
Depreciation and amortization
Property and User Services..................... $ 8,889 $ 7,485 $ 44,268
Investor Services.............................. 2,742 606 5,338
-------- -------- --------
$ 11,631 $ 8,091 $ 49,606
======== ======== ========
Capital expenditures (purchases)
Property and User Services..................... $ 1,987 $ 3,984 $ 4,509
Investor Services.............................. 156 266 332
-------- -------- --------
$ 2,143 $ 4,250 $ 4,841
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Identifiable assets
Property and User Services................................ $ 85,182 $ 89,011
Investor Services......................................... 58,800 10,682
Corporate................................................. 46,972 50,407
-------- --------
$190,954 $150,100
======== ========
</TABLE>
Identifiable assets by industry segment are those assets used in the
Company operations in each segment. Corporate identified assets are
principally made up of cash and cash equivalents, inventoried property,
general prepaids and deferred taxes.
F-22
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
13. SUBSEQUENT EVENTS
STOCK OFFERING. During September 1996 the Company announced its intent to
provide liquidity to its common stockholders by publicly registering its
common stock and to raise additional capital in an initial public offering
("IPO"). The proceeds from the IPO will be used to repay a portion of the
Company's senior secured and subordinated indebtedness. The Company also
announced a recapitalization which will be contingent upon and executed in
conjunction with the IPO and which will help to provide liquidity to its
common stockholders. The following summarizes the terms of the
recapitalization:
. Class B-1 and B-2 common stock of the Company will be converted into the
common stock to be issued in the IPO ("Common Stock") on a one-for-one
basis;
. Class C-1 common stock of the Company will be converted into Common
Stock at a conversion ratio based on the initial public offering price
per share;
. The Company will acquire all issued and outstanding shares of the Class
C-R and Class J common stock at $.01 per share;
. The Preferred Stock will be convertible into Common Stock at the
holder's option after the completion of the IPO at a ratio based upon
the per share market price of the Common Stock, ranging from .60 shares
of Common Stock per share of Preferred Stock at a market price of $30.00
or more per share of Common Stock to .78 shares of Common Stock per
share of Preferred Stock at a market price of $10.00 to $21.99 per share
of Common Stock. No conversion of the Preferred Stock is permitted when
the market price of the Common Stock is below $10.00 per share.
DEBT MODIFICATIONS. In connection with and conditional upon the IPO, the
Company's senior secured lenders have agreed to amend the terms of the
senior secured indebtedness effective upon consummation of the IPO.
F-23
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
As amended, the senior secured indebtedness will bear interest at the rate
of LIBOR plus 2.5%, all of which interest will be payable currently, will
have a final maturity date of December 31, 2001 and will provide for
quarterly principal repayments of $2.625 million with a final payment of
$2.2 million on September 30, 2001. A $10.0 million line of credit will be
established that can be used to fund acquisitions. It will bear interest at
a rate equal to, at the Company's option, LIBOR plus 300 basis points or
the prime rate plus 200 basis points payable quarterly. Quarterly principal
payments are required but may be borrowed back in full until the line
expires on December 31, 1999, at which time it must be repaid in full.
The terms of the Company's senior subordinated indebtedness will also be
amended effective upon consummation of the IPO. As amended, from January 1,
1997 through December 31, 1998, the senior subordinated indebtedness will
bear interest at a rate of LIBOR plus 1.25%, all of which interest will be
payable currently. The interest rate will increase to LIBOR plus 2.0%
during 1999, LIBOR plus 3.0% during 2000 and LIBOR plus 4.0% during 2001
and subsequent periods. Interest in excess of LIBOR plus 1.25% would be
deferred and added to the principal balance of the senior subordinated
indebtedness until the final maturity of the senior subordinated
indebtedness. The senior subordinated indebtedness will have a final
maturity date of July 23, 2002. The senior subordinated indebtedness may be
prepaid at any time without penalty.
PRO FORMA INFORMATION (UNAUDITED)
If the IPO had occurred at January 1, 1995, together with the acquisitions,
the Company's earnings per share, on a pro forma basis, would have been
$3.36 per share for the nine months ended September 30, 1996 and $0.35 per
share for the year ended December 31, 1995.
F-24
<PAGE>
WESTMARK REALTY ADVISORS L.L.C.
STATEMENTS OF INCOME
SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Fee income (note 2)................................... $10,873,613 $10,922,274
Other................................................. 44,225 51,714
----------- -----------
10,917,838 10,973,988
----------- -----------
Expenses:
Salaries and related expenses......................... 7,034,219 7,076,791
General and administrative expenses
(including interest expense of $61,088 in 1995 and
$21,979 in 1994)..................................... 1,324,877 1,085,573
Occupancy expense (note 4)............................ 569,546 676,671
Business promotion, travel and advertising expense.... 406,509 365,728
Office expense........................................ 269,447 298,679
----------- -----------
9,604,598 9,503,442
----------- -----------
Net income........................................... $ 1,313,240 $ 1,470,546
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
WESTMARK REALTY ADVISORS L.L.C.
STATEMENTS OF CHANGES IN OWNERS' EQUITY (DEFICIT)
SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Owners' equity at beginning of six-month periods
ended June 30...................................... $ 2,108,326 $ 1,875,446
Net income.......................................... 1,313,240 1,470,546
Cash distributions.................................. (2,550,000) (1,055,000)
Noncash distribution................................ (2,177,244) --
------------ -----------
Owners' equity (deficit) at end of six-month periods
ended June 30...................................... $ (1,305,678) $ 2,290,992
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
WESTMARK REALTY ADVISORS L.L.C.
STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 1,313,240 $1,470,546
----------- ----------
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization....................... 162,692 173,359
Distributions of income from TCW Realty Funds VB and
VIB................................................ 13,289 30,503
Decrease in fee income receivable................... 247,144 646,819
Increase in other assets............................ 65,959 51,326
Increase in accounts payable and other liabilities.. 634,208 800,456
Decrease in deferred leasing concessions............ (56,539) (56,539)
----------- ----------
Total adjustments................................. 1,066,753 1,645,924
----------- ----------
Net cash provided by operating activities......... 2,379,993 3,116,470
----------- ----------
Cash flows from investing activities--acquisition of
property and equipment............................... (148,268) (10,083)
----------- ----------
Net cash used in investing activities............. (148,268) (10,083)
----------- ----------
Cash flows from financing activities:
Repayments of notes payable to bank.................. (69,437) (81,480)
Distributions to owners.............................. (2,550,000) (1,055,000)
----------- ----------
Net cash used in financing activities............. (2,619,437) (1,136,480)
----------- ----------
Net (decrease) increase in cash................... (387,712) 1,969,907
Cash at beginning of six-month period ended June 30... 492,039 105,044
----------- ----------
Cash at end of six-month period ended June 30......... $ 104,327 $2,074,951
=========== ==========
Supplemental disclosures of cash flow information--in-
terest paid.......................................... $ 21,088 $ 21,979
=========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:
As of the close of business on June 30, 1995, the Company was acquired by CB
Commercial Real Estate Group, Inc. In connection with such acquisition, a
distribution totaling $2,177,244 to the former owners was declared. Such amount
was paid by the Company subsequent to June 30, 1995.
See accompanying notes to financial statements.
F-27
<PAGE>
WESTMARK REALTY ADVISORS L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Westmark Realty Advisors, a California general partnership, was formed on
January 7, 1982 under the laws of the state of California and effective
January 1, 1995 became a limited liability company known as Westmark Realty
Advisors L.L.C. (hereinafter referred to as Westmark). The primary purpose
of Westmark is to provide real estate investment and property management
services. Effective as of the close of business on June 30, 1995, CB
Commercial Real Estate Group, Inc. acquired ownership of Westmark Realty
Advisors L.L.C.
INVESTMENT IN TCW REALTY FUNDS VB AND VIB
The equity method of accounting is used for Westmark's general partnership
interests in TCW Realty Fund VB, a limited partnership, and TCW Realty Fund
VIB, a limited partnership, as Westmark has significant influence as one of
the two general partners of these limited partnerships.
FEE INCOME
Fee income is recorded in the period in which it is earned.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation
and amortization.
Depreciation of furniture and equipment is calculated using the straight-
line method over the estimated useful lives (five years) of the assets.
Amortization of leasehold improvements is calculated using the straight-
line method over the shorter of the asset or remaining lease life.
INCOME TAXES
No income taxes are provided by Westmark since the owners' proportionate
shares of Westmark's operating results are includable in the owner's
respective income tax returns.
(2) FEE INCOME AND RECEIVABLE
Westmark has an agreement with Trust Company of the West (TCW) to form real
estate investment funds and to provide for the sale of participating
interests to qualified pension and profit sharing trusts or other permitted
investors for the purpose of investing in real estate or interests therein.
TCW serves as trustee of the various real estate investment funds. In
addition to providing real estate services to real estate investment funds,
TCW and Westmark provide similar services to individual pension plans that
invest in real estate.
Westmark has been engaged by TCW to provide administrative services and act
as investment consultant and portfolio manager. For these services,
Westmark is paid consulting fees up to a maximum of 85% of the fees
received by TCW from the real estate investment funds and pension plans.
F-28
<PAGE>
WESTMARK REALTY ADVISORS L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1995 AND 1996
(UNAUDITED)
(3) INVESTMENT IN TCW REALTY FUNDS VB AND VIB AND NOTES PAYABLE TO TCW REALTY
FUND VB
Westmark and an affiliate of TCW are general partners in TCW Realty Fund
VB, a limited partnership (Fund VB), and TCW Realty Fund VIB, a limited
partnership (Fund VIB). Westmark's percentage interest is .85% for Fund VB
and Fund VIB.
(4) LEASES
In December 1991, Westmark moved its headquarters and the new landlord
granted leasing concessions to Westmark, including assumption of all of
Westmark obligations under the old lease and payment of a move-in bonus to
Westmark. These amounts have been deferred as leasing concessions and will
be amortized over the term of the lease.
Rental expense related to Westmark's office leases totaled $672,530 and
$779,655 for the six months ended June 30, 1995 and 1994, respectively, and
income related to space subleased by Westmark to other tenants totaled
$102,984 for the six months ended June 30, 1995 and June 30, 1994. Future
minimum rental commitments, net of minimum sublease payments for office
leases, are as follows:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
RENTAL SUBLEASE
PAYMENTS PAYMENTS NET
----------- -------- -----------
<S> <C> <C> <C>
Year ending June 30:
July through December 1995................ $ 656,503 $131,820 $ 524,683
1996...................................... 1,539,150 167,332 1,371,818
1997...................................... 1,539,150 157,152 1,381,998
1998...................................... 1,501,278 161,079 1,340,199
1999...................................... 1,540,524 172,860 1,367,664
2000...................................... 1,540,524 72,025 1,468,499
Thereafter................................ 6,289,998 -- 6,289,998
----------- -------- -----------
$14,607,127 $862,268 $13,744,859
=========== ======== ===========
</TABLE>
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH, RECEIVABLES AND ACCOUNTS PAYABLE
The fair value of these financial instruments is approximately equal to the
carrying value due to the short-term nature of the instruments.
NOTES PAYABLE
The fair value of the notes payable is approximately equal to the carrying
value as the interest rates on the notes payable to banks are variable
rates that are considered to be market rates, and the interest rates on the
notes payable to Fund VB are considered to be approximately equal to
current market rates for similar debt.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Members of
Westmark Realty Advisors L.L.C.
(formerly Westmark Realty Advisors, a partnership):
We have audited the accompanying balance sheets of Westmark Realty Advisors
(a partnership) as of December 31, 1994 and 1993 and the related statements of
income, changes in partners' capital and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Westmark Realty Advisors
as of December 31, 1994 and 1993 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Los Angeles, California
February 25, 1995
F-30
<PAGE>
WESTMARK REALTY ADVISORS
(A PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash...................................................... $ 492,039 $ 105,044
Fee income receivable (note 2)............................ 3,102,515 3,325,074
Property and equipment (note 3)........................... 623,311 788,333
Investment in TCW Realty Funds VB and VIB (note 4)........ 1,446,127 1,457,991
Other assets.............................................. 180,089 153,470
---------- ----------
$5,844,081 $5,829,912
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable to bank (note 5)............................ $ 381,430 $ 531,813
Notes payable to TCW Realty Fund VB (note 4).............. 952,172 952,172
Accounts payable and other liabilities.................... 1,046,117 1,001,442
---------- ----------
Total liabilities........................................ 2,379,719 2,485,427
Deferred leasing concessions (note 6)..................... 1,356,036 1,469,039
Partners' capital......................................... 2,108,326 1,875,446
---------- ----------
$5,844,081 $5,829,912
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
WESTMARK REALTY ADVISORS
(A PARTNERSHIP)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Revenues:
Fee income (note 2)................................... $22,035,883 $22,944,148
Other................................................. 151,293 378,683
----------- -----------
22,187,176 23,322,831
----------- -----------
Expenses:
Salaries and related expenses......................... 13,884,136 14,233,320
General and administrative expenses (including inter-
est expense of
$120,762 in 1994 and $95,688 in 1993)................ 2,259,390 2,857,709
Occupancy expense (note 6)............................ 1,369,230 1,507,359
Business promotion, travel and advertising expense.... 813,143 978,012
Office expense........................................ 553,397 670,858
----------- -----------
18,879,296 20,247,258
----------- -----------
Net income............................................ $ 3,307,880 $ 3,075,573
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
WESTMARK REALTY ADVISORS
(A PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Balance at beginning of year.......................... $ 1,875,446 $ 2,042,274
Net income............................................ 3,307,880 3,075,573
Cash distributions.................................... (3,075,000) (3,242,401)
----------- -----------
Balance at end of year................................ $ 2,108,326 $ 1,875,446
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
WESTMARK REALTY ADVISORS
(A PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 3,307,880 $ 3,075,573
----------- -----------
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization...................... 335,632 444,647
Equity in income from TCW Realty Funds VB and VIB.. (54,136) (20,824)
Distributions of income from TCW Realty Funds VB
and VIB........................................... 66,000 17,000
Decrease (increase) in fee income receivable....... 222,559 (256,124)
Increase in other assets........................... (26,619) (51,396)
Increase in accounts payable and other liabilities. 44,675 183,637
Decrease in deferred leasing concessions........... (113,003) (113,003)
----------- -----------
Total adjustments................................ 475,108 203,937
----------- -----------
Net cash provided by operating activities........ 3,782,988 3,279,510
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment............... (170,610) (214,751)
Investment in TCW Realty Fund VIB................... -- (75,000)
----------- -----------
Net cash used in investing activities............ (170,610) (289,751)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable to bank................. -- 400,000
Repayments of notes payable to bank................. (150,383) (84,626)
Distributions to partners........................... (3,075,000) (3,242,401)
----------- -----------
Net cash used in financing activities............ (3,225,383) (2,927,027)
----------- -----------
Net increase in cash............................. 386,995 62,732
Cash at beginning of year............................ 105,044 42,312
----------- -----------
Cash at end of year.................................. $ 492,039 $ 105,044
=========== ===========
Supplemental disclosures of cash flow information--
interest paid....................................... $ 38,000 $ 23,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
WESTMARK REALTY ADVISORS
(A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Westmark Realty Advisors, a California general partnership, was formed on
January 7, 1982 under the laws of the state of California and effective
January 1, 1995 became a limited liability company known as Westmark Realty
Advisors, L.L.C. (hereinafter referred to as Westmark). The primary purpose
of Westmark is to provide real estate investment and property management
services.
INVESTMENT IN TCW REALTY FUNDS VB AND VIB
The equity method of accounting is used for Westmark's general partnership
interests in TCW Realty Fund VB, a limited partnership, and TCW Realty Fund
VIB, a limited partnership, as Westmark has significant influence as one of
the two general partners of these limited partnerships.
FEE INCOME
Fee income is recorded in the period in which it is earned.
ALLOCATION OF INCOME AND LOSSES
Net income and losses are allocated to the partners in accordance with the
partnership agreement, in proportion to their respective ownership
percentages.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation
and amortization.
Depreciation of furniture and equipment is calculated using the straight-
line method over the estimated useful lives (five years) of the assets.
Amortization of leasehold improvements is calculated using the straight-
line method over the shorter of the asset or remaining lease life.
INCOME TAXES
No income taxes are provided by Westmark since the partners' proportionate
shares of Westmark's operating results are includable in their respective
income tax returns.
(2) FEE INCOME AND RECEIVABLE
Westmark has an agreement with Trust Company of the West (TCW) to form real
estate investment funds and to provide for the sale of participating
interests to qualified pension and profit sharing trusts or other permitted
investors for the purpose of investing in real estate or interests therein.
TCW serves as trustee of the various real estate investment funds. In
addition to providing real estate services to real estate investment funds,
TCW and Westmark provide similar services to individual pension plans that
invest in real estate.
Westmark has been engaged by TCW to provide administrative services and act
as investment consultant and portfolio manager. For these services,
Westmark is paid consulting fees up to a maximum of 85% of the fees
received by TCW from the real estate investment funds and pension plans.
F-35
<PAGE>
WESTMARK REALTY ADVISORS
(A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1993
(3) PROPERTY AND EQUIPMENT
Property and equipment as of December 31 is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Furniture and equipment............................ $ 2,980,926 $ 2,853,643
Leasehold improvements............................. 72,467 96,623
----------- -----------
Total cost........................................ 3,053,393 2,950,266
Less accumulated depreciation and amortization..... (2,430,082) (2,161,933)
----------- -----------
$ 623,311 $ 788,333
=========== ===========
</TABLE>
(4) INVESTMENT IN TCW REALTY FUNDS VB AND VIB AND NOTES PAYABLE TO TCW REALTY
FUND VB
Westmark and an affiliate of TCW are general partners in TCW Realty Fund
VB, a limited partnership (Fund VB), and TCW Realty Fund VIB, a limited
partnership (Fund VIB). Westmark's percentage interest is .85% for Fund VB
and Fund VIB. The general partner capital contributions for Fund VB are in
the form of notes payable. As of December 31, 1994 and 1993, Westmark has
21 notes payable outstanding totaling $952,172 with interest rates ranging
from 8.25% to 9.01%. The interest, and then the principal, will be paid as
Westmark receives cash distributions of operating cash flow from Fund VB.
Any unpaid interest and principal will be due on December 31, 1997.
(5) NOTES PAYABLE TO BANK
Notes payable to bank as of December 31 consists of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Principal of $6,667, payable monthly, and remaining
principal balance due on December 1, 1998. Interest
payable monthly at the prime rate (8.5% and 6.0% at
December 31, 1994 and 1993, respectively) plus .5%.... $321,222 $400,000
Principal of $6,021, payable monthly, and remaining
principal balance due on November 1, 1995. Interest
payable monthly at the prime rate (8.5% and 6.0% at
December 31, 1994 and 1993, respectively) plus 1%..... 60,208 131,813
-------- --------
$381,430 $531,813
======== ========
</TABLE>
Principal payments are as follows:
<TABLE>
<S> <C>
1995............................................................ $140,208
1996............................................................ 80,000
1997............................................................ 80,000
1998............................................................ 81,222
--------
Total......................................................... $381,430
========
</TABLE>
F-36
<PAGE>
WESTMARK REALTY ADVISORS
(A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1993
(6) LEASES
In December 1991, Westmark moved its headquarters and the new landlord
granted leasing concessions to Westmark, including assumption of all of
Westmark obligations under the old lease and payments of a move-in bonus to
Westmark. These amounts have been deferred as leasing concessions and will
be amortized over the term of the lease.
Rental expense related to Westmark's office leases totaled $1,568,698 and
$1,575,241 for the years ended December 31, 1994 and 1993, respectively,
and income related to space subleased by Westmark to other tenants totaled
$199,468 and $68,508 for the years ended December 31, 1994 and 1993,
respectively. Future minimum rental commitments, net of minimum sublease
payments for office leases, are as follows:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
RENTAL SUBLEASE
PAYMENTS PAYMENTS NET
----------- -------- -----------
<S> <C> <C> <C>
Year ending December 31:
1995...................................... $ 1,313,007 $206,016 $ 1,106,991
1996...................................... 1,539,150 167,332 1,371,818
1997...................................... 1,539,150 157,152 1,381,998
1998...................................... 1,501,278 161,079 1,340,199
1999...................................... 1,540,524 172,860 1,367,664
Thereafter................................ 7,830,522 72,025 7,758,497
----------- -------- -----------
$15,263,631 $936,464 $14,327,167
=========== ======== ===========
</TABLE>
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH RECEIVABLES AND ACCOUNTS PAYABLE
The fair value of these financial instruments is approximately equal to the
carrying value due to the short-term nature of the instruments.
NOTES PAYABLE
The fair value of the notes payable is approximately equal to the carrying
value as the interest rates on the notes payable to banks are variable
rates that are considered to be market rates, and the interest rates on
the notes payable to Fund VB are considered to be approximately equal to
current market rates for similar debt.
F-37
<PAGE>
L.J. MELODY & COMPANY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996
----------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 375,706
Investment in mutual funds, at fair value......................... 2,403,590
Accounts receivable and other current assets...................... 480,178
Short-term investment in note receivable.......................... --
----------
Total current assets............................................. 3,259,474
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net.......................... 147,590
NOTES RECEIVABLE FROM OFFICER...................................... --
OTHER ASSETS, net.................................................. 44,856
----------
TOTAL ASSETS..................................................... $3,451,920
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued employee benefits......................................... $ 159,735
Accounts payable and accrued expenses............................. 127,575
Warehouse credit line............................................. --
----------
Total current liabilities........................................ 287,310
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $100 per share, 3,000 shares authorized,
1,350 shares issued
and outstanding.................................................. 135,000
Unrealized depreciation on investment in mutual funds............. (75,021)
Retained earnings................................................. 3,104,631
----------
3,164,610
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................... $3,451,920
==========
</TABLE>
F-38
<PAGE>
L.J. MELODY & COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
REVENUES:
Loan placement and brokerage...................................... $ 958,096
Loan servicing and asset management............................... 987,016
Other income...................................................... 350,846
-----------
2,295,958
EXPENSES:
Salaries and other compensation................................... 2,536,662
General and administrative........................................ 920,922
Depreciation and amortization..................................... 35,711
-----------
3,493,295
NET LOSS........................................................... (1,197,337)
RETAINED EARNING AT BEGINNING OF PERIOD............................ 4,766,968
DISTRIBUTIONS TO SHAREHOLDERS...................................... (465,000)
-----------
RETAINED EARNINGS AT END OF PERIOD................................. $ 3,104,631
===========
</TABLE>
F-39
<PAGE>
L.J. MELODY & COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................ $ (1,197,337)
Adjustments to reconcile net loss to net cash used in operating
activities--
Depreciation and amortization.................................. 35,711
Equity in loss of joint venture................................ 22,187
Loss on disposal of equipment.................................. 148,877
Reinvestment of dividends on investment in mutual funds........ (62,375)
Origination of multifamily mortgage loans for sale............. (20,550,000)
Proceeds from sales of multifamily mortgage loans.............. 27,950,000
Changes in operating assets and liabilities--
Accounts receivable and other current assets................... 244,998
Accrued employee benefits...................................... (344,335)
Accounts payable and accrued expenses.......................... (473,141)
------------
Net cash provided by (used in) operating activities............. 5,774,585
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment........................................... --
Payments received on notes receivable from officers............. 361,749
Purchase of other assets........................................ (4,092)
------------
Net cash provided by (used in) investing activities............. 357,657
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders................................... (465,000)
Payment of dividends............................................ --
Advances on warehouse line...................................... 20,550,000
Payments on warehouse line...................................... (27,950,000)
------------
Net cash provided by (used in) financing activities............. (7,865,000)
------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................ (1,732,758)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 2,108,464
------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 375,706
============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest........................ $ 218,967
Cash paid during the period for state income taxes.............. $ 43,192
</TABLE>
F-40
<PAGE>
L.J. MELODY & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING MATTERS:
L.J. Melody & Company (the Company) is a commercial mortgage banker and is
registered with the Securities and Exchange Commission as an investment
adviser. The Company services commercial mortgages and manages real estate
investments for institutional clients. As of June 30, 1996, the Company was
servicing loans for others with principal balances aggregating
approximately $1.9 billion. During the six-month period ended June 30,
1996, approximately 25 percent of loan servicing and asset management fees
and 40 percent of loan placement and brokerage fees were earned from one of
the Company's clients. In addition, approximately 45 percent of loan
servicing and asset management fees and 10 percent of loan placement and
brokerage fees were earned from two separate clients. The Company primarily
operates in the southwestern United States; however, it pursues mortgage
banking operations in other areas of the country as they arise. L.J. Melody
Investments, Inc., a majority-owned subsidiary, operates as a commercial
mortgage broker doing business in Colorado. The following is a summary of
significant accounting matters.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiary. Minority interest amounts relating to
such subsidiary are not material to the financial statements. All
significant intercompany transactions and balances have been eliminated
upon consolidation. In the opinion of management, the accompanying
consolidated financial statements reflect all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of
financial position and results of operation.
The consolidated financial statements for the interim period have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information not misleading.
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, if any, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." In May 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights." Effective January 1, 1996, the Company adopted
SFAS No. 121 and 122. The adoption of these standards did not have a
material effect on the Company's financial position or results of
operations.
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." Under
SFAS No. 125, the Company will be required to recognize, at fair value,
financial and servicing assets it has acquired control over and related
liabilities it has incurred
F-41
<PAGE>
L.J. MELODY & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
and amortize them over the period of estimated net servicing income or
loss. Write-off of the asset is required when control is surrendered and of
the liability when extinguished. The Company does not currently recognize
the value of financial and servicing assets when loans are originated. The
adoption of the new statement will result in the recognition of
amortization cost along with income from servicing as services are
performed and the recognition of gains or losses at the time servicing
rights are sold. This statement is required to be adopted by the Company in
1997. Management of the Company has not yet determined the impact, if any,
that the adoption of this standard will have on the Company's financial
position or results of operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and money market mutual funds,
the fair value of which approximates cost. The Company considers all
investments with an original maturity of less than three months to be cash
equivalents.
INVESTMENTS IN MUTUAL FUNDS
The Company accounts for its investments in mutual funds in accordance with
SFAS No. 115, "Accounting for Investments in Debt and Equity Securities,"
whereby investments classified as "available for sale" are reported at fair
value, with unrealized appreciation and depreciation excluded from earnings
and reported as a separate component of shareholders' equity. During the
six months ended June 30, 1996, interest received on the Company's
investments of $62,375 was reinvested in the mutual funds. Additionally,
unrealized appreciation/depreciation on investments reflected as a separate
component of shareholders' equity decreased $101,711 during the six months
ended June 30, 1996.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Direct costs
incurred in connection with software development for internal use are
capitalized. Depreciation and amortization are computed using the straight-
line or double-declining methods over the assets' estimated useful lives,
which range from three to ten years.
LOAN PLACEMENT AND BROKERAGE REVENUES
Revenue from loan placement and brokerage is recognized at the time that a
noncontingent commitment is obtained and the Company has no significant
remaining obligations for performance in connection with the transaction.
Loan placement and brokerage expenses are charged to income as incurred.
LOAN SERVICING AND ASSET MANAGEMENT REVENUES
Loan servicing revenue represents a participation in interest collections
on loans serviced for investors, normally based upon a stipulated
percentage of the outstanding monthly principal balance of such loans.
These revenues are credited to income as monthly principal and interest
payments are collected from mortgagors, and expenses of loan servicing are
charged to income as incurred.
F-42
<PAGE>
L.J. MELODY & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
FEDERAL INCOME TAXES
The Company operates under Subchapter S of the Internal Revenue Code and,
consequently, is not subject to federal income tax. The shareholders
include the Company's taxable income or loss in their individual tax
returns.
2. INVESTMENT IN JOINT VENTURE:
In June 1994 the Company entered into a joint venture with W. L. Case
Holding Company (Case), an Ohio corporation, to form WLC Real Estate
Finance L.L.C. (WLC), a Delaware limited liability company. WLC was formed
for the purpose of developing and originating mortgage loans under programs
developed by certain lenders. The Company and Case each contributed
$100,000 for 50 percent interests in WLC. Case applied to Freddie Mac and
received approval as a Multifamily Program Plus Seller/Servicer. In
connection therewith, the Company signed an agreement effectively
guaranteeing the performance of Case to Freddie Mac of any and all
obligations, as defined, up to a maximum amount of $1,000,000. WLC has
entered into an exclusive mortgage correspondent agreement dated December
1, 1994, whereby WLC will serve as Case's exclusive mortgage correspondent
in connection with the origination, underwriting and closing of commercial
and multifamily mortgage loans for certain lenders.
WLC is jointly managed by Case and the Company and, accordingly, is
accounted for under the equity method of accounting. During the six months
ended June 30, 1996, the Company recorded equity in losses of WLC of
approximately $22,000, representing its pro rata share of WLC's net loss.
Such amount has been included as a component of other income on the
accompanying consolidated statements of operations while the Company's net
investment in the joint venture of approximately $13,000 at June 30, 1996,
has been included as a component of other assets in the accompanying
consolidated balance sheet.
3. WAREHOUSE CREDIT LINE:
During 1994, the Company entered into a warehouse credit line (the Line)
with a bank to provide funding for 99 percent of the principal balance of
multifamily loans originated and warehoused for sale to Freddie Mac. Under
the terms of the Line, interest is paid on outstanding borrowings at the
Freddie Mac-required net yield as specified in the Freddie Mac purchase
contract issued to the Company and borrowings are repaid upon purchase of
the notes receivable from Freddie Mac. The Line includes covenants which
require the Company to meet certain ratios and levels of tangible net worth
and debt coverage and maintain a minimum loan servicing portfolio. As of
June 30, 1996, the Company was in compliance with the covenants contained
in the Line. At June 30, 1996, no amount was outstanding under the line.
4. RELATED-PARTY TRANSACTIONS:
At June 30, 1995, the Company had unsecured notes receivable from two
officers (who are also shareholders of the Company) in the amounts of
$363,245 and $16,622. The outstanding borrowings have maturity dates
ranging from December 31, 1995, to December 31, 1999, and bear interest
ranging from 7.5 percent to 9 percent payable annually in arrears. The
Company recognized $14,622 of interest income on these notes for the six
months ended June 30, 1996. In May 1996 the notes, including accrued
interest, were repaid in full.
F-43
<PAGE>
L.J. MELODY & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
L.J. Melody & Company of California (LJMCal) is owned 99 percent by one of
the shareholders of the Company. The Company provides loan servicing on
certain loans obtained by LJMCal for which services the Company earned
$130,608 during the six months ended June 30, 1996. The Company also
provides accounting and other administrative services for LJMCal for which
the Company received $36,000 during the six months ended June 30, 1996.
5. REGULATORY REQUIREMENTS:
The Company is a Department of Housing and Urban Development (HUD) approved
Title II mortgagee as well as a Freddie Mac-approved Multifamily Program
Plus Seller/Servicer. The Company is subject to the minimum net worth
requirements of HUD and Freddie Mac. At June 30, 1996, the Company's net
worth, as calculated in accordance with HUD and Freddie Mac guidelines, was
in excess of the minimum required net worth. Additionally, as of June 30,
1996, the Company carried errors and omission insurance coverage of
$5,000,000 and fidelity bond insurance coverage of $4,000,000, which are in
excess of the minimum required insurance coverage of each program.
As a Freddie Mac Multifamily Program Plus Seller/Servicer, the Company is
obligated to advance funds to ensure the timely payment of insurance and
taxes on loans serviced on behalf of Freddie Mac. Advances are recovered
through subsequent collections from the borrower or from Freddie Mac in the
event of default by the borrower. At June 30, 1996, no amount was
outstanding for advances made by the Company for insurance and taxes on
behalf of Freddie Mac.
6. SUBSEQUENT EVENT:
Effective July 1, 1996, CB Commercial Mortgage Company, Inc. (CB Mortgage),
a wholly owned subsidiary of CB Commercial Real Estate Group, Inc.,
acquired all of the outstanding capital stock of the Company and of LJMCal.
Concurrent with this transaction the Company distributed approximately
$3.9 million of assets to its shareholders. On July 9, 1996, CB Mortgage
merged into the Company, with the Company surviving the merger. As a result
of the merger, LJMCal became a wholly owned subsidiary of the Company, and
it is intended that at the end of 1996 LJMCal will be merged into the
Company.
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
L.J. Melody & Company:
We have audited the accompanying consolidated balance sheet of L.J. Melody &
Company (a Texas corporation) and subsidiary as of December 31, 1995, and the
related consolidated statements of operations and retained earnings and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of L.J. Melody & Company and
subsidiary as of December 31, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Houston, Texas Arthur Andersen LLP
March 18, 1996 (except with
respect to the matter discussed
in Note 10, as to which the date
is July 12, 1996)
F-45
<PAGE>
L.J. MELODY & COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 2,108,464
Investment in mutual funds, at fair value......................... 2,442,926
Accounts receivable and other current assets...................... 725,176
Short-term investment in notes receivable......................... 7,400,000
-----------
Total current assets............................................. 12,676,566
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture and fixtures............................................ 558,879
Computer hardware and software.................................... 750,672
Leasehold improvements............................................ 229,404
-----------
1,538,955
Less--Accumulated depreciation and amortization................... (1,206,777)
-----------
332,178
NOTES RECEIVABLE FROM OFFICER...................................... 361,749
OTHER ASSETS, net.................................................. 62,951
-----------
Total assets..................................................... $13,433,444
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued employee benefits......................................... $ 504,070
Accounts payable and accrued expenses............................. 600,716
Warehouse credit line............................................. 7,400,000
-----------
Total current liabilities........................................ 8,504,786
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common stock, par value $100 per share, 3,000 shares authorized,
1,350 shares issued and outstanding.............................. 135,000
Unrealized appreciation on investment in mutual funds............. 26,690
Retained earnings................................................. 4,766,968
-----------
4,928,658
-----------
Total liabilities and shareholders' equity....................... $13,433,444
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE>
L.J. MELODY & COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES:
Loan placement and brokerage....................................... $4,395,956
Loan servicing and asset management................................ 2,035,147
Other income....................................................... 643,002
----------
7,074,105
EXPENSES:
Salaries and other compensation.................................... 4,453,309
General and administrative......................................... 1,416,630
Depreciation and amortization...................................... 164,897
----------
6,034,836
NET INCOME.......................................................... $1,039,269
==========
RETAINED EARNINGS AT BEGINNING OF YEAR.............................. $4,254,490
DISTRIBUTIONS TO SHAREHOLDERS....................................... (526,791)
NET INCOME.......................................................... 1,039,269
----------
RETAINED EARNINGS AT END OF YEAR.................................... $4,766,968
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE>
L.J. MELODY & COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 1,039,269
Adjustments to reconcile net income to net cash used in operating
activities--
Depreciation and amortization.................................. 164,897
Equity in loss of joint venture................................ 37,403
Reinvestment of dividends on investment in mutual funds........ (128,474)
Origination of multifamily mortgage loans for sale............. (33,169,500)
Proceeds from sales of multifamily mortgage loans.............. 25,769,500
Changes in operating assets and liabilities--
Accounts receivable and other current assets.................. 133,598
Accrued employee benefits..................................... 192,229
Accounts payable and accrued expenses......................... (196,138)
-----------
Net cash used in operating activities........................ (6,157,216)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment............................................ (103,747)
Payments received on notes receivable from officers.............. 18,118
Purchase of other assets......................................... (13,499)
-----------
Net cash used in investing activities........................ (99,128)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders.................................... (526,791)
Advances on warehouse line....................................... 33,169,500
Payments on warehouse line....................................... (25,769,500)
-----------
Net cash provided by financing activities.................... 6,873,209
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 616,865
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................... 1,491,599
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................... $ 2,108,464
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest........................... $ 247,425
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-48
<PAGE>
L.J. MELODY & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING MATTERS:
L.J. Melody & Company (the Company) is a commercial mortgage banker and is
registered with the Securities and Exchange Commission as an investment
adviser. The Company services commercial mortgages and manages real estate
investments for institutional clients. As of December 31, 1995, the Company
was servicing loans for others with principal balances aggregating
approximately $2.1 billion. Approximately 28 percent of loan servicing and
asset management fees and 41 percent of loan placement and brokerage fees
were earned from one of the Company's clients. In addition, approximately
44 percent of loan servicing fees and asset management fees and
approximately 11 percent of loan placement and brokerage fees were earned
from two separate clients. The Company primarily operates in the
southwestern United States; however, it pursues mortgage banking operations
in other areas of the country as they arise. L.J. Melody Investments, Inc.,
a majority-owned subsidiary, operates as a commercial mortgage broker doing
business in Colorado. The following is a summary of significant accounting
matters.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiary. Minority interest amounts relating to
such subsidiary are not material to the financial statements. All
significant intercompany transactions and balances have been eliminated
upon consolidation.
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, if any, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement established the recognition and measurement standards
related to the impairment of long-lived assets. Effective January 1, 1996,
the Company adopted SFAS No. 121. The adoption of this standard did not
have a material effect on the Company's financial position or results of
operations.
In May 1995, the Financial Accounting Standards Board issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights." This statement requires that a
mortgage banking enterprise recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are acquired.
This statement is required to be adopted by the Company in 1996. Management
of the Company has not yet determined the impact, if any, that the adoption
of this statement will have on the Company's financial position or results
of operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and money market mutual funds,
the fair value of which approximates cost.
F-49
<PAGE>
L.J. MELODY & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
INVESTMENTS IN MUTUAL FUNDS
The Company accounts for its investments in mutual funds in accordance with
SFAS No. 115, "Accounting for Investments in Debt and Equity Securities,"
whereby investments classified as "available for sale" are reported at fair
value, with unrealized appreciation and depreciation excluded from earnings
and reported as a separate component of shareholders' equity. During the
year ended December 31, 1995, interest received on the Company's
investments of $128,474 was reinvested in the mutual funds. Additionally,
unrealized appreciation/depreciation on investments reflected as a separate
component of shareholders' equity increased $216,874 during the year ended
December 31, 1995.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Direct costs
incurred in connection with software development for internal use are
capitalized. Depreciation and amortization are computed using the straight-
line or double-declining methods over the assets' estimated useful lives,
which range from three to ten years.
LOAN PLACEMENT AND BROKERAGE REVENUES
Revenue from loan placement and brokerage is recognized at the time that a
noncontingent commitment is obtained and the Company has no significant
remaining obligations for performance in connection with the transaction.
Loan placement and brokerage expenses are charged to income as incurred.
LOAN SERVICING AND ASSET MANAGEMENT REVENUES
Loan servicing revenue represents a participation in interest collections
on loans serviced for investors, normally based upon a stipulated
percentage of the outstanding monthly principal balance of such loans.
These revenues are credited to income as monthly principal and interest
payments are collected from mortgagors, and expenses of loan servicing are
charged to income as incurred. Also included in loan servicing are fees
earned under asset management contracts. At December 31, 1995, escrow funds
of $38,297,945, held in connection with servicing activities, were on
deposit in bank accounts held in trust for investors and are not included
in the accompanying balance sheet.
FEDERAL INCOME TAXES
The Company operates under Subchapter S of the Internal Revenue Code and,
consequently, is not subject to federal income tax. The shareholders
include the Company's taxable income or loss in their individual tax
returns.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are either carried at fair value or
cost. The carrying amounts of financial instruments reported at cost
approximate their fair values because of the short maturity, short lapse of
time between their issuance and year-end, and market interest rates, as
applicable, of those instruments.
F-50
<PAGE>
L.J. MELODY & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
2. ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS:
The components of accounts receivable and other current assets at December
31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Loan placement and brokerage fees receivable....................... $512,529
Asset management fees receivable................................... 29,222
Other receivables.................................................. 170,087
Other current assets............................................... 13,338
--------
$725,176
========
</TABLE>
3. SHORT-TERM INVESTMENT IN NOTES RECEIVABLE:
On December 20, 1995, the Company originated and funded two notes
receivable for $2,300,000 and $5,100,000, respectively, through advances on
its warehouse credit line (see Note 4). The Company had received purchase
commitments from the Federal Home Loan Mortgage Corporation (Freddie Mac)
as of the date of origination and subsequently sold the notes receivable to
Freddie Mac on January 19, 1996, and February 28, 1996, respectively.
4. INVESTMENT IN JOINT VENTURE:
In June 1994, the Company entered into a joint venture with W. L. Case
Holding Company (Case), an Ohio corporation, to form WLC Real Estate
Finance L.L.C. (WLC), a Delaware limited liability company. WLC was formed
for the purpose of developing and originating mortgage loans under programs
developed by certain lenders. The Company and Case each contributed
$100,000 for 50 percent interests in WLC. Case applied to Freddie Mac and
received approval as a Multifamily Program Plus Seller/Servicer. In
connection therewith, the Company signed an agreement effectively
guaranteeing the performance of Case to Freddie Mac of any and all
obligations, as defined, up to a maximum amount of $1,000,000. WLC has
entered into an exclusive mortgage correspondent agreement dated December
1, 1994, whereby WLC will serve as Case's exclusive mortgage correspondent
in connection with the origination, underwriting and closing of commercial
and multifamily mortgage loans for certain lenders.
WLC is jointly managed by Case and the Company and, accordingly, is
accounted for under the equity method of accounting. During the period
ended December 31, 1995, the Company recorded equity in losses of WLC of
approximately $37,000 representing its pro rata share of WLC's net loss.
Such amount has been included as a component of other income on the
accompanying consolidated statement of operations while the Company's net
investment in the joint venture of approximately $36,000 at December 31,
1995, has been included as a component of other assets in the accompanying
consolidated balance sheet.
5. WAREHOUSE CREDIT LINE:
During 1994, the Company entered into a warehouse credit line (the Line)
with a bank to provide funding for 99 percent of the principal balance of
multifamily loans originated and warehoused for sale to Freddie Mac. Under
the terms of the Line, interest is paid on outstanding borrowings at the
Freddie Mac-required net yield as specified in the Freddie Mac purchase
contract issued to the Company and borrowings are repaid upon purchase of
the notes receivable from Freddie Mac (see Note 2). The Line includes
covenants which require the Company to meet certain ratios and levels of
tangible net worth and debt coverage and maintain a minimum loan servicing
portfolio. As of December 31, 1995, the Company was in compliance with the
covenants contained in the Line. At December 31, 1995, $7,400,000 was
outstanding under the line.
F-51
<PAGE>
L.J. MELODY & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
6. PROFIT-SHARING PLANS:
The Company has a 401(k) profit-sharing plan under which all employees of
the Company and its affiliates are eligible for participation after
completing six months of service. Participating employees can elect to make
contributions to the plan on a pretax salary deduction basis in accordance
with the provisions of Section 401(k) of the Internal Revenue Code. Under
the provisions of the plan, the Company may make discretionary matching
contributions. The Company's contribution to the plan in 1995 was $94,300.
7. RELATED-PARTY TRANSACTIONS:
At December 31, 1995, the Company had unsecured notes receivable from one
officer (who is also a shareholder) in the amounts of $31,749 and $330,000.
The outstanding borrowings have a maturity date of December 31, 1999, and
bear interest ranging from 7.5 percent to 9 percent payable annually in
arrears. The Company recognized $27,742 of interest income on these notes
in 1995.
L.J. Melody & Company of California (LJMCal) is owned 99 percent by one of
the shareholders of the Company. The Company provides loan servicing on
certain loans obtained by LJMCal for which services the Company earned
$261,246 during 1995. The Company also provides accounting and other
administrative services for LJMCal for which the Company received $72,000
during 1995.
8. LEASES:
Future minimum lease payments for noncancelable operating leases for office
space and equipment approximate $304,000, $49,000, $48,000, $19,000 and $0
for the years ended December 31, 1996 through 2000, respectively. Rent
expense under these operating leases aggregated approximately $327,000 for
the year ended December 31, 1995.
9. REGULATORY REQUIREMENTS:
The Company is a Department of Housing and Urban Development (HUD) approved
Title II mortgagee as well as a Freddie Mac-approved Multifamily Program
Plus Seller/Servicer. The Company is subject to the minimum net worth
requirements of HUD and Freddie Mac. At December 31, 1995, the Company's
net worth, as calculated in accordance with HUD and Freddie Mac guidelines,
was in excess of the minimum required net worth. Additionally, as of
December 31, 1995, the Company carried errors and omission insurance
coverage of $5,000,000 and fidelity bond insurance coverage of $4,000,000,
which are in excess of the minimum required insurance coverage of each
program.
As a Freddie Mac Multifamily Program Plus Seller/Servicer, the Company is
obligated to advance funds to ensure the timely payment of insurance and
taxes on loans serviced on behalf of Freddie Mac. Advances are recovered
through subsequent collections from the borrower or from Freddie Mac in the
event of default by the borrower. At December 31, 1995, there were no
advances outstanding for insurance and taxes.
10. SUBSEQUENT EVENT:
On July 1, 1996, CB Commercial Mortgage Company, Inc. (CB Mortgage), a
wholly owned subsidiary of CB Commercial Real Estate Group, Inc., acquired
all of the outstanding capital stock of the Company and of LJMCal.
Concurrent with this transaction the Company distributed approximately $3.1
million of assets to its shareholders. On July 9, 1996, CB Mortgage merged
into the Company, with the Company surviving the merger. As a result of the
merger, LJMCal became a wholly owned subsidiary of the Company, and it is
intended that, at the end of 1996, LJMCal will be merged into the Company.
F-52
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996
----------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 257,892
Accounts receivable and other current assets...................... 78,753
----------
Total current assets............................................. 336,645
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net.......................... 169,060
OTHER ASSETS:
Employment agreements and covenants not to compete, net........... 63,787
Purchased loan servicing rights and related assets, net........... 372,135
----------
TOTAL ASSETS..................................................... $ 941,627
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued employee benefits......................................... $ 197,491
Accounts payable and accrued expenses............................. 69,755
----------
TOTAL CURRENT LIABILITIES........................................ 267,246
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Voting common stock, par value $1 per share, 3,000 shares autho-
rized, $1,000 shares issued and outstanding...................... 1,000
Non-voting common stock, par value $1 per share, 1,000 shares au-
thorized, 1 share issued and held in treasury.................... --
Additional paid-in capital........................................ 1,179,974
Retained earnings................................................. (506,593)
----------
674,381
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................... $ 941,627
==========
</TABLE>
F-53
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996
----------
<S> <C>
REVENUES:
Loan placement and brokerage....................................... $ 942,981
Loan servicing..................................................... 326,798
Other income (loss)................................................ (3,350)
----------
1,266,429
EXPENSES:
Salaries and other compensation.................................... 1,074,529
General and administrative......................................... 624,358
Depreciation and amortization...................................... 128,382
----------
1,827,269
NET LOSS.......................................................... $ (560,840)
==========
</TABLE>
F-54
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
VOTING ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ---------- --------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........... $1,000 $1,407,247 $ 54,247 $1,462,494
Distributions to or on behalf of
shareholders........................ -- (227,273) -- (227,273)
Net loss............................. -- -- (560,840) (560,840)
------ ---------- --------- ----------
Balance, June 30, 1996............... $1,000 $1,179,974 $(506,593) $ 674,381
====== ========== ========= ==========
</TABLE>
F-55
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996
---------
<S> <C>
OPERATING ACTIVITIES:
Net Loss........................................................... $(560,840)
Adjustments to reconcile net loss to net cash used in operating
activties--
Depreciation and amortization..................................... 128,382
Loss on disposal on equipment..................................... 28,626
Changes in operating assets and liabilities--
Accounts receivable and other current assets..................... 1,089,436
Accrued employee benefits........................................ (227,116)
Accounts payable and accrued expenses............................ (60,860)
---------
Net cash provided by (used in) operating activities................ 397,628
INVESTING ACTIVITIES:
Purchase of other assets........................................... --
Purchase of equipment.............................................. (93,863)
---------
Net cash used in investing activities.............................. (93,863)
FINANCING ACTIVITIES:
Repurchase of non-voting common stock.............................. --
Distributions to shareholders...................................... (227,273)
---------
Net cash used in financing activities.............................. (227,273)
---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ 76,492
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 181,400
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................... $ 257,892
=========
</TABLE>
F-56
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING MATTERS:
L.J. Melody & Company of California (the Company) is a commercial mortgage
banker and servicer of commercial mortgages. As of June 30, 1996, the
Company was servicing loans for others with principal balances aggregating
approximately $1.6 billion. Approximately 50 percent of loan placement and
brokerage revenue and 70 percent of loan servicing revenue were earned from
one client. In addition, approximately 10 percent of loan placement and
brokerage revenue and 25 percent of loan servicing revenue were earned from
two separate clients. The Company primarily operates in southern California
and Arizona; however, it pursues mortgage banking operations in other areas
of the country as they arise. The following is a summary of the Company's
significant accounting matters.
BASIS OF PRESENTATION
The financial statements for the interim period have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information not misleading. In the opinion of
management, the accompanying consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of financial position and results of operation.
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, if any, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." This statement established the recognition and measurement
standards related to the impairment of long-lived assets. In May 1995, the
FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights."
Effective January 1, 1996, the Company adopted SFAS No. 121 and 122. The
adoption of these standards did not have a material effect on the Company's
financial position or results of operations.
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." Under
SFAS No. 125, the Company will be required to recognize, at fair value,
financial and servicing assets it has acquired control over and related
liabilities it has incurred and amortize them over the period of estimated
net servicing income or loss. Write-off of the asset is required when
control is surrendered and of the liability when extinguished. The Company
does not currently recognize the value of financial and servicing assets
when loans are originated. The adoption of the new statement will result in
the recognition of amortization cost along with income from servicing as
services are performed and the recognition of gains or losses at the time
servicing rights are sold. This
F-57
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
statement is required to be adopted by the Company in 1997. Management of
the Company has not yet determined the impact, if any, that the adoption of
this standard will have on the Company's financial position or results of
operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and money market mutual funds.
Cash equivalents are carried at cost, which approximates fair value. The
Company considers all investments with an original maturity of less than
three months to be cash equivalents.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Depreciation and
amortization are computed using the straight-line or double declining
balance methods over the assets' estimated useful lives, which range from
three to ten years.
PURCHASED LOAN SERVICING RIGHTS
The cost of purchased loan servicing rights is being amortized in
proportion to and over the period of estimated servicing income and on a
straight-line basis. Adjustments are made for unexpected loan prepayments
as they occur.
EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE
Capitalized costs relating to employment agreements and covenants not to
compete are amortized on a straight-line basis over the term of the related
agreement.
LOAN PLACEMENT AND BROKERAGE
Revenue from loan placement and brokerage is recognized at the time that a
noncontingent commitment is obtained and the Company has no significant
remaining obligations for performance in connection with the transaction.
Related expenses are charged to income as incurred.
LOAN SERVICING
Loan servicing revenue represents a participation in interest collections
on loans serviced for investors, normally based upon a stipulated
percentage of the outstanding monthly principal balance of such loans.
These revenues are credited to income as monthly principal and interest
payments are collected from mortgagors, and expenses of loan servicing are
charged to income as incurred.
INCOME TAXES
The Company operates under Subchapter S of the Internal Revenue Code and,
consequently, is not subject to federal income tax. The shareholders
include the Company's taxable income or loss in their individual tax
returns. For California state income tax purposes, the Company is taxed
under Subchapter S status.
F-58
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
2. RELATED-PARTY TRANSACTIONS:
L.J. Melody & Company provides loan servicing on certain loans obtained by
the Company and also provides administrative services for which the Company
paid $130,608 during the six months ended June 30, 1996.
3. SUBSEQUENT EVENT:
Effective July 1, 1996, CB Commercial Mortgage Company, Inc. (CB Mortgage),
a wholly owned subsidiary of CB Commercial Real Estate Group, Inc.,
acquired all of the outstanding capital stock of the Company and of L.J.
Melody & Company (LJMCo), an affiliate of the Company. Concurrent with this
transaction the Company distributed approximately $66,000 of assets to its
shareholders. On July 9, 1996, CB Mortgage merged into LJMCo, with the
LJMCo surviving the merger. As a result of the merger, the Company became a
wholly owned subsidiary of LJMCo, and it is intended that at the end of
1996 the Company will be merged into LJMCo.
F-59
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
L.J. Melody & Company of California:
We have audited the accompanying balance sheet of L.J. Melody & Company of
California (a Texas corporation) as of December 31, 1995, and the related
statements of operations, changes in shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of L.J. Melody & Company of
California as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Houston, Texas
March 18, 1996 (except with Arthur Andersen LLP
respect to the matter discussed
in Note 6, as to which the date
is July 12, 1996)
F-60
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 181,400
Accounts receivable and other current assets....................... 1,168,189
----------
Total current assets.............................................. 1,349,589
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture and fixtures............................................. 135,796
Computer hardware and software..................................... 23,744
Leasehold improvements............................................. 65,665
----------
225,205
Less--Accumulated depreciation and amortization.................... (103,625)
----------
121,580
OTHER ASSETS:
Employment agreements and covenants not to compete,
net of accumulated amortization of $427,816....................... 111,624
Purchased loan servicing rights and related assets,
net of accumulated amortization of $540,490....................... 434,923
----------
Total assets...................................................... $2,017,716
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued employee benefits.......................................... $ 424,607
Accounts payable and accrued expenses.............................. 130,615
----------
Total current liabilities......................................... 555,222
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Voting common stock, par value $1 per share, 3,000 shares
authorized, 1,000 shares issued and outstanding................... 1,000
Nonvoting common stock, par value $1 per share, 1,000 shares
authorized, 1 share issued and held in treasury................... --
Additional paid-in capital......................................... 1,407,247
Retained earnings.................................................. 54,247
----------
1,462,494
----------
Total liabilities and shareholders' equity........................ $2,017,716
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES:
Loan placement and brokerage....................................... $2,776,119
Loan servicing..................................................... 693,926
Other income....................................................... 8,970
----------
3,479,015
EXPENSES:
Salaries and other compensation.................................... 2,093,064
General and administrative......................................... 975,849
Depreciation and amortization...................................... 273,393
----------
3,342,306
----------
NET INCOME.......................................................... $ 136,709
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
VOTING NONVOTING ADDITIONAL RETAINED
COMMON COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT) TOTAL
------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.. $1,000 $ 1 $1,205,025 $(81,268) $1,124,758
DISTRIBUTIONS TO OR ON BE-
HALF OF SHAREHOLDERS....... -- -- (25,000) -- (25,000)
CAPITAL CONTRIBUTIONS....... -- -- 227,222 -- 227,222
NET INCOME.................. -- -- -- 136,709 136,709
REPURCHASE OF NONVOTING
COMMON STOCK............... -- (1) -- (1,194) (1,195)
------ --- ---------- -------- ----------
BALANCE, December 31, 1995.. $1,000 $-- $1,407,247 $ 54,247 $1,462,494
====== === ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income......................................................... $ 136,709
Adjustments to reconcile net income to net cash used in operating
activities--
Depreciation and amortization..................................... 273,393
Changes in operating assets and liabilities--
Accounts receivable and other current assets..................... (991,917)
Accrued employee benefits........................................ 176,847
Accounts payable and accrued expenses............................ 59,031
---------
Net cash used in operating activities........................... (345,937)
INVESTING ACTIVITIES:
Proceeds from sale of equipment.................................... 1,577
Purchase of equipment.............................................. (69,483)
Purchase of loan servicing rights and related assets............... (41,124)
---------
Net cash used in investing activities........................... (109,030)
FINANCING ACTIVITIES:
Capital contributions.............................................. 227,222
Distributions to shareholders...................................... (25,000)
Repurchase of nonvoting common stock............................... (1,195)
---------
Net cash provided by financing activities....................... 201,027
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................... (253,940)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................... 435,340
---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................ $ 181,400
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for state income taxes................... $ 800
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING MATTERS:
L.J. Melody & Company of California (the Company) is a commercial mortgage
banker and servicer of commercial mortgages. As of December 31, 1995, the
Company was servicing loans for others with principal balances aggregating
approximately $1.4 billion. Approximately 52 percent of loan placement and
brokerage revenue and 71 percent of loan servicing revenue were earned from
one investor. In addition, 12 percent of loan placement and brokerage
revenue and 25 percent of loan servicing revenue were earned from two
separate investors. The Company primarily operates in Southern California
and Arizona; however, it pursues mortgage banking operations in other areas
of the country as they arise. The following is a summary of the Company's
significant accounting matters.
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, if any, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement established the recognition and measurement standards
related to the impairment of long-lived assets. In May 1995, the Financial
Accounting Standards Board issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement requires that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans
for others, however those servicing rights are acquired. Effective January
1, 1996, the Company adopted SFAS No. 121 and 122. The adoption of these
standards did not have a material effect on the Company's financial
position or results of operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and money market mutual funds.
Cash equivalents are carried at cost, which approximates fair value.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Depreciation and
amortization are computed using the straight-line or double declining
balance methods over the assets' estimated useful lives, which range from
three to ten years.
PURCHASED LOAN SERVICING RIGHTS
The cost of purchased loan servicing rights is being amortized in
proportion to and over the period of estimated servicing income and on a
straight-line basis. Adjustments are made for unexpected loan prepayments
as they occur.
F-65
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE
Capitalized costs relating to employment agreements and covenants not to
compete are amortized on a straight-line basis over the term of the related
agreement.
LOAN PLACEMENT AND BROKERAGE
Revenue from loan placement and brokerage is recognized at the time that a
noncontingent commitment is obtained and the Company has no significant
remaining obligations for performance in connection with the transaction.
Related expenses are charged to income as incurred.
LOAN SERVICING
Loan servicing revenue represents a participation in interest collections
on loans serviced for investors, normally based upon a stipulated
percentage of the outstanding monthly principal balance of such loans.
These revenues are credited to income as monthly principal and interest
payments are collected from mortgagors, and expenses of loan servicing are
charged to income as incurred. As of December 31, 1995, escrow funds of
$6,691,225, held in conjunction with servicing activities, were on deposit
in bank accounts held in trust for investors and are not included in the
accompanying balance sheet.
INCOME TAXES
The Company operates under Subchapter S of the Internal Revenue Code and,
consequently, is not subject to federal income tax. The shareholders
include the Company's taxable income or loss in their individual tax
returns. For California state income tax purposes, the Company is taxed
under Subchapter S status.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are either carried at fair value or
cost. The carrying amounts of financial instruments reported at cost
approximate their fair values because of the short maturity, short lapse of
time between their issuance and year-end, and market interest rates, as
applicable, of those instruments.
2. ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS:
The components of accounts receivable and other current assets at December
31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Loan placement and brokerage fees receivable..................... $1,063,766
Other receivables................................................ 51,715
Other current assets............................................. 52,708
----------
$1,168,189
==========
</TABLE>
3. RELATED-PARTY TRANSACTIONS:
L.J. Melody & Company provides loan servicing on certain loans obtained by
the Company and also provides administrative services for which the Company
paid $261,246 and $72,000, respectively, during 1995.
F-66
<PAGE>
L.J. MELODY & COMPANY OF CALIFORNIA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
4. LEASES:
Future minimum lease payments for noncancelable operating leases for office
space and equipment approximate $241,000, $230,000, $223,000, $207,000 and
$213,000 for the years ended December 31, 1996 through 2000, respectively.
Rent expense under these operating leases aggregated approximately $247,000
for the year ended December 31, 1995.
5. PROFIT-SHARING PLANS:
The Company has a 401(k) profit-sharing plan under which all employees are
eligible for participation after completing six months of service.
Participating employees can elect to make contributions to the plan on a
pretax salary deduction basis in accordance with the provisions of Section
401(k) of the Internal Revenue Code. Under the provisions of the plan, the
Company may make discretionary matching contributions. The Company's
contribution to the plan in 1995 was $42,867.
6. SUBSEQUENT EVENT:
On July 1, 1996, CB Commercial Mortgage Company, Inc. (CB Mortgage), a
wholly owned subsidiary of CB Commercial Real Estate Group, Inc., acquired
all of the outstanding capital stock of the Company and of L.J. Melody &
Company (LJMCo), an affiliate of the Company. On July 9, 1996, CB Mortgage
merged into LJMCo, with LJMCo surviving the merger. As a result of the
merger, the Company became a wholly owned subsidiary of LJMCo, and it is
intended that, at the end of 1996, the Company will be merged into LJMCo.
F-67
<PAGE>
Graphic on Inside Back Cover
Circular Diagram of arrows illustrating the integration
of all of the Company's commercial real estate services with
the needs of real estate owners and investors.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY
JURISDICTION WHERE OR, TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
The Company............................................................... 17
Use of Proceeds........................................................... 17
Price Range of Common Stock and Dividend Policy........................... 18
Capitalization............................................................ 19
Selected Consolidated Financial and Other Data............................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 38
Management................................................................ 52
Certain Transactions...................................................... 61
Principal Stockholders.................................................... 63
Description of Capital Stock.............................................. 66
The Company's Credit Agreements........................................... 70
Shares Eligible For Future Sale........................................... 71
Underwriting.............................................................. 74
Legal Matters............................................................. 75
Experts................................................................... 75
Additional Information.................................................... 75
Pro Forma Financial Statements............................................ P-1
Financial Statements...................................................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,347,000 SHARES
[LOGO OF CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.]
CB COMMERCIAL REAL ESTATE
SERVICES GROUP, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
----------
<S> <C>
SEC registration fee............................................. $ 39,205
National Association of Securities Dealers, Inc. filing fee...... 12,250
Nasdaq Stock Market Listing Fee.................................. 49,000
Blue Sky fees and expenses....................................... 20,000
Accounting fees and expenses..................................... 365,000
Legal fees and expenses.......................................... 300,000
Printing and engraving expenses.................................. 250,000
Registrar and Transfer Agent's fees.............................. 15,000
Miscellaneous fees and expenses.................................. 60,545
----------
Total........................................................ $1,111,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article Six of the
Registrant's Fourth Amended Restated Certificate of Incorporation (Exhibit
3(i).2 hereto) provides for the indemnification of the Company's directors and
officers to the extent and under the circumstances permitted by the Delaware
General Corporation Law.
The Purchase Agreement (Exhibit 1.1) will provide for indemnification by the
Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, the Company has sold 510,906 shares of Common Stock
to eight executive officers of the Company under the Company's 1996 Equity
Incentive Plan at $10.00 per share. These sales were made by private placement
in reliance on the exemption from registration provisions provided for in
Section 4(2) of the Securities Act.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. All recipients had adequate access,
through employment, to information about the Registrant.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1++ Form of Purchase Agreement.
3(i).1* Third Restated Certificate of Incorporation of Registrant
filed as Exhibit 3.1 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1989.
3(i).2* Form of Fourth Restated Certificate of Incorporation of
Registrant to be filed after the effective date of this
Registration Statement filed as Exhibit A to Proxy
Statement dated October 4, 1996 relating to Special Meeting
of Stockholders held October 30, 1996.
3(ii).1* Second Amended and Restated Bylaws of the Registrant filed
as Exhibit 3.4 to Registrant's Post-Effective Amendment No.
1 to its Form S-1 Registration Statement, File No. 33-
29410.
3(ii).2* Form of Third Amended and Restated Bylaws of the Registrant
to be adopted after the effective date of this Registration
Statement filed as Exhibit B to the Registrant's Proxy
Statement dated October 4, 1996 relating to a Special
Meeting of Stockholders held on October 30, 1996.
4.1 Specimen Form of Common Stock Certificate.
4.2* Form of CB Commercial Holdings, Inc. Restricted Stock
Agreement between CB Commercial Holdings, Inc. and CB
Commercial Holdings, Inc.'s Officer or Employee, filed as
Exhibit 4.8 to the Registrant's Form S-1 Registration
Statement, File No. 33-29410.
4.3* First Amendment to CB Commercial Holdings, Inc. Restricted
Stock Agreement filed as Exhibit 4.9 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1989.
4.4++ Agreement by and between CB Commercial Holdings, Inc. and
Kajima U.S.A., Inc., Fukoku Mutual Life Insurance Company,
Kasen Development, Inc. and S.R.E.S.--Fifth Avenue, Inc.
dated August 30, 1996.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
10.1(i)* CB Commercial Holdings, Inc. Omnibus Stock and Incentive
Plan filed as Exhibit 10.13 to the CB Commercial Holdings,
Inc. Post-Effective Amendment No. 1 to the Registrant's
Form S-1 Registration Statement, File No. 33-29410.
10.1(ii)* First Amendment to the CB Commercial Holdings, Inc. Omnibus
Stock and Incentive Plan filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
10.1(iii)* Second Amendment to the CB Commercial Holdings, Inc. Omnibus
Stock and Incentive Plan filed as Exhibit 10.16 (iii) to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.1(iv)* Third Amendment to the CB Commercial Holdings, Inc. Omnibus
Stock and Incentive Plan filed as Exhibit 10.4 (iv) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.2(i)* 1990 Stock Option Plan filed as Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990.
10.2(ii)* First Amendment to the 1990 Stock Option Plan, filed as
Exhibit 10.15(ii) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.2(iii)* Second Amendment to the 1990 Stock Option Plan filed as Exhibit
10.8 (iii) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.
10.2(iv)* Third Amendment to the 1990 Stock Option Plan filed as Exhibit
10.5 (iv) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.
10.3* Form of Incentive Stock Option Agreement filed as Exhibit 4(b)
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990.
10.4* Form of Nonstatutory Stock Option Agreement filed as Exhibit
4(c) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990.
10.5(i)* Second Amended and Restated Senior Secured Credit Agreement,
dated as of June 30, 1994 between CB Commercial Real Estate
Group, Inc. and The Sumitomo Bank, Limited filed as Exhibit
10.9 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.5(ii)* Limited Waiver, Consent and Amendment No. 1 dated as of June
30, 1995 to Second Amended and Restated Senior Secured Credit
Agreement dated as of June 30, 1995 between CB Commercial Real
Estate Group, Inc. and The Sumitomo Bank, Limited, filed as
Exhibit 10.6(ii) to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1995.
10.5(iii)* Amendment No. 2 dated as of June 30, 1996, to Second Amended
and Restated Senior Secured Credit Agreement dated as of June
30, 1994, between CB Commercial Real Estate Group, Inc. and
The Sumitomo Bank, Limited filed as Exhibit 10.6(iii) to the
Registrant's Quarterly Report on 10-Q for the quarter ended
June 30, 1996.
10.5(iv) Form of Third Amended and Restated Senior Secured Credit
Agreement between CB Commercial Real Estate Group, Inc. and
The Sumitomo Bank, Limited.
10.6(i)* Senior Subordinated Credit Agreement among Coldwell Banker
Commercial Group, Inc., CB Commercial Holdings, Inc. and
certain subsidiaries of Coldwell Banker Commercial Group,
Inc., as guarantors and Sumitomo Finance (Dublin) Limited,
dated July 20, 1990 (the "Senior Subordinated Credit
Agreement") filed as Exhibit 4(e) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1990.
10.6(ii)* Amendment No. 1 to Senior Subordinated Credit Agreement dated
as of October 10, 1991 among CB Commercial Real Estate Group,
Inc., as borrower, CB Commercial Holdings, Inc. and certain
subsidiaries of CB Commercial Real Estate Group, Inc., as
guarantors, and Sumitomo Finance (Dublin) Limited, as lender
filed as Exhibit 10.19 to the Registrant's Current Report on
Form 8-K dated March 27, 1992.
10.6(iii)* Amendment No. 2 to Senior Subordinated Credit Agreement dated
as of June 30, 1994 among CB Commercial Real Estate Group,
Inc., as borrower, CB Commercial Holdings, Inc. and certain
subsidiaries of CB Commercial Real Estate Group, Inc., as
guarantors, and Sumitomo Finance (Dublin) Limited, as lender,
filed as Exhibit 10.11 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.6(iv)* Limited Waiver, Consent and Amendment No. 3 dated as of June
30, 1995 to Senior Subordinated Credit Agreement dated as of
October 10, 1991 among CB Commercial Real Estate Group, Inc.,
as borrower, the Registrant, and certain subsidiaries of CB
Commercial Real Estate Group, Inc., as guarantors, and
Sumitomo Finance (Dublin) Limited, as lender, filed as exhibit
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
10.6(v)* Amendment No. 4 dated as of June 30, 1996, to Senior
Subordinated Credit Agreement dated as of October 10, 1991,
among CB Commercial Real Estate Group, Inc. as borrower, the
Registrant and certain subsidiaries of CB Commercial Real
Estate Group, Inc., as guarantors, and Sumitomo Finance
(Dublin) Limited, as lender filed as Exhibit 10.7(v) to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1996.
10.6(vi) Form of Amended and Restated Senior Subordinated Credit
Agreement dated as of November , 1996 among CB Commercial
Real Estate Group, Inc., the Registrant and certain
subsidiaries of CB Real Estate Group, Inc., as guarantors, and
Sumitomo Finance (Dublin) Limited.
10.7* CB Commercial Holdings, Inc. 1991 Service Providers Stock
Option Plan filed as Exhibit 10.27 to the Registrant's Current
Report on Form 8-K dated April 1, 1992.
10.8(i)* CB Commercial Holdings, Inc. Deferred Compensation Plan filed
as Exhibit 10.21 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1993.
10.8(ii)* First Amendment to the CB Commercial Holdings, Inc. Deferred
Compensation Plan filed as Exhibit 10.13 (ii) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.8(iii)* Second Amendment to the CB Commercial Holdings, Inc. Deferred
Compensation Plan, filed as exhibit to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.
10.9* 1996 Equity Incentive Plan of CB Commercial Holdings, Inc.,
filed as exhibit to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1995.
10.10* Form of Indemnification Agreement between CB Commercial
Holdings, Inc., CB Commercial Real Estate Group, Inc. and
directors and officers, filed as Exhibit 10.29 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
10.11* Purchase Agreement dated as of May 15, 1995 among CB Commercial
Real Estate Group, Inc., Westmark Real Estate Acquisition
Partnership, L.P., and certain individuals signatory thereto,
filed as Exhibit 10.1 to the Registrant's Current Report on
Form 8-K dated June 30, 1995.
10.12* Employment Agreement between the Registrant and Lawrence J.
Melody dated July 1, 1996.
10.13++ Registration Rights Agreement among the Registrant and Kajima
U.S.A., Inc., Fukoko Mutual Life Insurance Company, Kasen
Development, Inc. and S.R.E.S.-Fifth Avenue, Inc., to be dated
as of the closing date 1996.
10.14 Amended and Restated Senior Subordinated Credit Agreement,
dated as of November , 1996, between Westmark Real Estate
Acquisition Partners and 399 Venture Partners.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
11.1* Statement of computation of earnings per share.
12. Computation of Ratio of Earnings to Fixed Charges.
21.1++ Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP regarding Registrant.
23.2 Consent of Arthur Andersen LLP regarding L.J. Melody.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Pillsbury Madison & Sutro LLP (included in its opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1++ Power of Attorney.
</TABLE>
- --------
* Incorporated by reference.
+ To be filed by amendment.
++ Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Opinion of Arthur Anderson LLP.......................................... S-1
I--Condensed Financial Information of Registrant....................... S-2
II--Valuation and Qualifying Accounts................................... S-3
</TABLE>
All other schedules are not submitted because either they are not
applicable, not required or the information required is included in the
Consolidated Financial Statements, including the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (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 of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(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.
(3) It will provide to the underwriters at the closing(s) specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS
ANGELES, STATE OF CALIFORNIA, ON THE 19TH DAY OF NOVEMBER, 1996.
CB Commercial Holdings, Inc.
By: /s/ Walter V. Stafford
----------------------------------
WALTER V. STAFFORD
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
---- ----- ----
* Chief Executive November 19, 1996
- ------------------------------------- Officer (Principal
JAMES J. DIDION Executive Officer)
and Director
* Senior Executive
- ------------------------------------- Vice President,
DAVID A. DAVIDSON Chief Financial
Officer, Treasurer
(Principal
Financial Officer)
* Executive Vice November 19, 1996
- ------------------------------------- President
RONALD J. PLATISHA (Principal
Accounting Officer)
* Director November 19, 1996
- -------------------------------------
STANTON D. ANDERSON
* Director November 19, 1996
- -------------------------------------
GARY J. BEBAN
* Director November 19, 1996
- -------------------------------------
RICHARD C. BLUM
II-6
<PAGE>
NAME TITLE DATE
---- ----- ----
* Director November , 1996
- -------------------------------------
FRANK C. CARLUCCI
* Director November , 1996
- -------------------------------------
RICHARD C. CLOTFELTER
Director November , 1996
- -------------------------------------
DANIEL A. D'ANIELLO
Director November , 1996
- -------------------------------------
HIROAKI HOSHINO
Director November 19, 1996
- -------------------------------------
PAUL C. LEACH
* Director November 19, 1996
- -------------------------------------
GEORGE J. KALLIS
* Director November 19, 1996
- -------------------------------------
TAKAYUKI KOHRI
* Director November 19, 1996
- -------------------------------------
FREDERIC V. MALEK
* Director November 19, 1996
- -------------------------------------
LAWRENCE J. MELODY
* Director November 19, 1996
- -------------------------------------
JEFFREY S. MORGAN
* Director November 19, 1996
- -------------------------------------
RICHARD A. POGUE
II-7
<PAGE>
NAME TITLE DATE
---- ----- ----
* Director November , 1996
- -------------------------------------
PETER V. UEBERROTH
* Director November 19, 1996
- -------------------------------------
GARY L. WILSON
*By: /s/ Walter V. Stafford
--------------------------------
WALTER V. STAFFORD
ATTORNEY-IN-FACT
II-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CB Commercial Holdings, Inc.
We have audited in accordance with generally accepted auditing standards,
the financial statements of CB Commercial Holdings, Inc. included in this
Registration statement and have issued our report thereon dated January 31,
1996. Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Schedule of Condensed
Financial Information of the Company and the Schedule of Valuation and
Qualifying Accounts of the Company are for purposes of complying with the
Securities Exchange Commission rules and are not part of the basic
consolidated financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
January 31, 1996
Los Angeles, California
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
BALANCE SHEET
Advances to CB Commercial.................................... $ 42,918 $ 40,682
Investment in CB Commercial and subsidiaries................. 62,124 62,124
-------- --------
Total assets............................................... $105,042 $102,806
======== ========
Stockholders' Equity......................................... $105,042 $102,806
======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INCOME STATEMENT
Expenses--other.............................................. $ 39 $(45) 47
Provision for income taxes................................... 51 -- 1
---- ---- ----
Net income (loss).......................................... $(90) $ 45 $(48)
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF CASH FLOWS
Net income (loss)............................................ $(90) $ 45 $(48)
Adjustments to reconcile net income (loss) to net cash used
in operating activities..................................... -- -- --
Advances to CB Commercial................................... 90 (45) 48
---- ---- ----
Net cash provided by operating activities................... -- -- --
Cash flows from investing activities......................... -- -- --
Cash flows from financing activities......................... -- -- --
Net change in cash and cash equivalents...................... -- -- --
Cash and cash equivalents, at beginning of period............ -- -- --
---- ---- ----
Cash and cash equivalents, at end of period.................. $ -- $ -- $ --
==== ==== ====
</TABLE>
NOTES TO CONDENSED FINANCIAL INFORMATION
Note 1--In connection with the Acquisition, the Company, together with all
other CB Commercial subsidiaries, has guaranteed any and all
obligations of CB Commercial.
S-2
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
RESERVE FOR ALLOWANCE
EMPLOYEE FOR BAD LEGAL
LOANS DEBTS RESERVE
----------- --------- -------
<S> <C> <C> <C>
Balance, December 31, 1992....................... $ -- $1,238 $1,226
Charges to expense.............................. 1,810 4,275 1,500
Write-offs...................................... (42) (975) (117)
------ ------ ------
Balance, December 31, 1993....................... 1,768 4,538 2,609
Charges to expense.............................. -- 1,096 1,250
Write-offs...................................... (23) (1,090) (404)
------ ------ ------
Balance, December 31, 1994....................... 1,745 4,544 3,455
Charges to expense.............................. -- 346 --
Write-offs...................................... (210) (490) --
------ ------ ------
Balance, December 31, 1995....................... $1,535 $4,400 $3,455
====== ====== ======
</TABLE>
S-3
<PAGE>
EXHIBIT 4.1
[LOGO OF CB COMMERCIAL]
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS SEE REVERSE FOR CERTAIN DEFINITIONS
TRANSFERABLE IN THE AND A STATEMENT AS TO THE RIGHTS,
CITY OF NEW YORK, NEW YORK PREFERENCES AND PRIVILEGES AND
RESTRICTIONS OF SHARES
CUSIP 12479F 10 3
This Certifies That:
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
transferable only on the books of the Corporation by the holder hereof in
person, or by duly authorized Attorney upon surrender of this Certificate
properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SEAL]
/s/ ^^ /s/ ^^
SECRETARY CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
THE BANK OF NEW YORK
(NEW YORK, NEW YORK) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
The Corporation is authorized to issue Common Stock and Preferred Stock.
The Board of Directors of the Corporation has authority to fix the number of
shares and the designation of any series of Preferred Stock and to determine or
alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any unissued Preferred Stock.
A statement of rights, preferences, privileges, and restrictions granted to
or imposed upon the respective classes or series of stock and upon the holders
thereof as established, from time to time, by the Certificate of Incorporation
of the Corporation and by any certificate of designation, the number of shares
constituting each class and series, and the designations thereof, may be
obtained by the holder hereof upon request and without charge from the
Corporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-________ Custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of Act ________________
survivorship and not as tenants (State)
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
Please insert social security or other
identifying number of assignee
[_______________________________________]
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
___________________________________________________________________ shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_________________________________ Attorney to transfer the said stock on the
books of the within-named Corporation with full power of substitution in the
premises.
Dated ______________________
_______________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE GUARANTEED: _______________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
PILLSBURY MADISON & SUTRO LLP
235 Montgomery Street
San Francisco, California 94104
EXHIBIT 5.1
November 18, 1996
CB Commercial Holdings, Inc.
533 South Fremont Avenue
Los Angeles, CA 90071
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We are acting as counsel for CB Commercial Holdings, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, of 4,999,050 shares of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company, all of which are
authorized but heretofore unissued shares and are to be offered and sold by the
Company (including 652,050 shares subject to the underwriters' over-allotment
option). In this regard we have participated in the preparation of a
Registration Statement on Form S-1 (Registration No. 333-12757) relating to such
4,999,050 shares of Common Stock. (Such Registration Statement, as amended, and
including any registration statement related thereto and filed pursuant to Rule
462(b) under the Securities Act (a "Rule 462(b) registration statement") is
herein referred to as the "Registration Statement.")
We are of the opinion that the shares of Common Stock to be offered and
sold by the Company (including any shares of Common Stock registered to a Rule
462(b) registration statement) have been duly authorized and, when issued and
sold by the Company in the manner described in the Registration Statement and in
accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally issued, fully paid and nonassessable.
<PAGE>
CB Commercial Holdings, Inc.
November 18, 1996
Page 2
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
<PAGE>
EXHIBIT 10.5(iv)
- --------------------------------------------------------------------------------
THIRD AMENDED AND RESTATED
SENIOR SECURED CREDIT AGREEMENT
Dated as of November __, 1996
AMONG
CB COMMERCIAL REAL ESTATE GROUP, INC.,
THE LENDERS FROM TIME TO TIME PARTY HERETO
and
THE SUMITOMO BANK, LIMITED,
as Agent
- --------------------------------------------------------------------------------
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<TABLE>
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Page
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<S> <C>
ARTICLE I. DEFINITIONS AND RELATED MATTERS..................................... 1
Section 1.01. Definitions......................................................... 1
Section 1.02. Construction........................................................ 26
Section 1.03. Accounting Terms and Determinations................................. 27
Section 1.04. Exhibits............................................................ 27
Section 1.05. Other Definitions................................................... 27
ARTICLE II. AMOUNTS AND TERMS OF THE LOANS...................................... 28
Section 2.01. Facilities.......................................................... 28
Section 2.02. Interest............................................................ 34
Section 2.03. Notes............................................................... 36
Section 2.04. Fees................................................................ 37
Section 2.05. Payments and Prepayments............................................ 38
Section 2.06. Manner of Payment................................................... 42
Section 2.07. Mandatory Suspension and Conversion of Euro-Dollar Rate Loans....... 42
Section 2.08. Regulatory Changes.................................................. 42
Section 2.09. Taxes............................................................... 43
Section 2.10. Lending Office...................................................... 43
Section 2.11. Compensation for Funding Losses..................................... 44
Section 2.12. Determinations...................................................... 44
ARTICLE III. CONDITIONS TO LOANS................................................. 45
Section 3.01. Conditions Precedent to Effective Date.............................. 45
Section 3.02. Conditions Precedent to all Revolving Loans and Letters of Credit... 47
ARTICLE IV. REPRESENTATIONS AND WARRANTIES...................................... 49
Section 4.01. Organization, Powers and Good Standing.............................. 49
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Section 4.02. Authorization, Binding Effect, No Conflict, Etc..................... 49
Section 4.03. Collateral Documents................................................ 51
Section 4.04. Financial Information............................................... 51
Section 4.05. No Material Adverse Changes......................................... 52
Section 4.06. Litigation.......................................................... 52
Section 4.07. Agreements; Applicable Law.......................................... 52
Section 4.08. Taxes............................................................... 52
Section 4.09. Governmental Regulation............................................. 52
Section 4.10. Margin Regulations.................................................. 52
Section 4.11. Employee Benefit Plans.............................................. 53
Section 4.12. Title to Property; Liens............................................ 53
Section 4.13. No Materially Adverse Agreements; No Defaults....................... 53
Section 4.14. Capitalization and Ownership........................................ 54
Section 4.15. Licenses, Trademarks, Etc........................................... 54
Section 4.16. Environmental Condition............................................. 54
Section 4.17. Absence of Certain Restrictions..................................... 55
Section 4.18. Location of Assets and Chief Executive Offices...................... 55
Section 4.19. No Defaults......................................................... 55
Section 4.20. Disclosure.......................................................... 55
ARTICLE V. AFFIRMATIVE COVENANTS OF THE BORROWER............................... 56
Section 5.01. Financial Statements and Other Reports.............................. 56
Section 5.02. Records and Inspection.............................................. 58
Section 5.03. Corporate Existence, Etc............................................ 58
Section 5.04. Payment of Taxes.................................................... 58
Section 5.05. Maintenance of Properties........................................... 59
</TABLE>
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Section 5.06. Maintenance of Insurance............................................ 59
Section 5.07. Conduct of Business................................................. 59
Section 5.08. Further Assurances.................................................. 60
Section 5.09. Additional Collateral............................................... 60
Section 5.10. Future Information.................................................. 61
Section 5.11. Proceeds of Asset Dispositions By Subsidiaries...................... 61
Section 5.12. Subordination of Intercompany Loans and Advances to the Borrower.... 61
Section 5.13. Deposit Accounts.................................................... 61
ARTICLE VI. NEGATIVE COVENANTS OF THE BORROWER.................................. 62
Section 6.01. Liens............................................................... 62
Section 6.02. Indebtedness........................................................ 63
Section 6.03. Restricted Payments................................................. 64
Section 6.04. Investments......................................................... 65
Section 6.05. Capital Expenditures................................................ 66
Section 6.06. Financial Covenants................................................. 66
Section 6.07. Restriction on Fundamental Changes.................................. 66
Section 6.08. Asset Dispositions.................................................. 67
Section 6.09. Transactions with Affiliates........................................ 67
Section 6.10. Payments with Respect to Subordinated Debt.......................... 68
Section 6.11. ERISA............................................................... 68
Section 6.12. Amendments of or Waivers Under Subordinated Debt Documents.......... 68
Section 6.13. Issuance of Capital Stock........................................... 69
Section 6.14. Event of Illegality under the Senior Subordinated Credit Agreement.. 69
ARTICLE VII. EVENTS OF DEFAULT................................................... 70
Section 7.01. Events of Default................................................... 70
</TABLE>
iii
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<TABLE>
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<S> <C>
Section 7.02. Remedies............................................................ 73
ARTICLE VIII. THE AGENT AND THE LENDERS........................................... 74
Section 8.01. Authorization and Action............................................ 74
Section 8.02. Exculpation; Agent's Reliance, Etc.................................. 74
Section 8.03. Agent and Affiliates................................................ 75
Section 8.04. Lender Credit Decision.............................................. 75
Section 8.05. Indemnification..................................................... 76
Section 8.06. Successor Agent..................................................... 76
Section 8.07. Excess Payments..................................................... 76
Section 8.08. Lenders............................................................. 76
Section 8.09. Collateral and Guaranty Matters..................................... 77
Section 8.10. Payments; Availability of Funds; Certain Notices.................... 77
Section 8.11. Obligations of Lender Parties Several; Enforcement by the Agent..... 78
ARTICLE IX. MISCELLANEOUS....................................................... 79
Section 9.01. Expenses............................................................ 79
Section 9.02. Indemnity........................................................... 79
Section 9.03. Waivers; Modifications in Writing................................... 80
Section 9.04. Failure or Delay.................................................... 81
Section 9.05. Notices, Etc........................................................ 81
Section 9.06. Successors and Assigns.............................................. 81
Section 9.07. Confidentiality..................................................... 82
Section 9.08. Governing Law and Venue; Waiver of Trial By Jury.................... 82
Section 9.09. Severability of Provisions.......................................... 83
Section 9.10. Independence of Covenants........................................... 83
Section 9.11. Set Off............................................................. 83
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Section 9.12. Changes in Accounting Principles.................................... 83
Section 9.13. Publicity........................................................... 83
Section 9.14. Survival of Agreements, Representations and Warranties.............. 83
Section 9.15. Headings............................................................ 84
Section 9.16. Execution in Counterparts........................................... 84
Section 9.17. Complete Agreement.................................................. 84
Section 9.18. Knowledge of Borrower............................................... 84
Section 9.19. Waiver of Anti-Deficiency Protection................................ 84
</TABLE>
v
<PAGE>
THIRD AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT
----------------------------------------------------------
THIRD AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT dated as of
November __, 1996 (as amended, supplemented or modified from time to time, the
"Agreement") among CB COMMERCIAL REAL ESTATE GROUP, INC., a Delaware corporation
(the "Borrower"), and THE SUMITOMO BANK, LIMITED, a banking corporation
organized under the laws of Japan (the "Lender", and, together with the
Revolving Credit Facility B Lender and any additional Lenders party to this
Agreement from time to time, the "Lenders", and, in its capacity as such, the
"Issuing Bank"), and THE SUMITOMO BANK, LIMITED, as agent for the Lenders (in
such capacity, together with any successor in such capacity, the "Agent").
R E C I T A L S
---------------
A. The Borrower and the Lender desire to amend and restate the terms
and provisions of the Second Amended and Restated Senior Secured Credit
Agreement dated as of June 30, 1994, as amended to the date hereof, between the
Borrower and the Lender upon the terms and subject to the conditions set forth
in this Agreement.
B. There are outstanding, as of the date hereof (after giving effect
to application of IPO Net Proceeds in the manner contemplated herein), Revolving
Credit Facility A Loans in an aggregate principal amount of $[ ], and
accrued and unpaid interest thereon, a Senior Term Loan in an aggregate
principal amount of $[ ], and accrued and unpaid interest thereon, a
Mortgage Term Loan in an aggregate principal amount of $18,000,000, and accrued
and unpaid interest thereon (such outstanding Loans being referred to herein as
the "Outstanding Loans"), and Letter of Credit Fees in respect of Revolving
Credit Facility A Letters of Credit in the aggregate amount of $[ ].
There are no Revolving Credit Facility B Loans outstanding, and there is no
Letter of Credit Liability in respect of Revolving Credit Facility A Letters of
Credit or Revolving Credit Facility B Letters of Credit on the date hereof. In
addition, there are outstanding certain deferred fees payable from the Borrower
to the Lender, including without limitation the Deferred Amendment Fee and the
Deferred Letter of Credit Fee.
AGREEMENT
ARTICLE I
DEFINITIONS AND RELATED MATTERS
-------------------------------
SECTION 1.01 DEFINITIONS. Terms used in this Agreement shall have
-----------
the meanings set forth in this Section 1.01, in the sections of this Agreement
or the other Loan Documents referred to in this Section 1.01 or as specified in
Section 1.05.
"Acquisition Advance" means any Revolving Credit Facility B Loan the
-------------------
proceeds of which are applied, in whole or in part, directly or indirectly, by
the Borrower or a Subsidiary to make any cash payment in respect of an
Investment that constitutes a Permitted Acquisition.
"Affiliate" means, with respect to a Person, any other Person that,
---------
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person other than, in
the case of the Borrower, a Wholly Owned Subsidiary. The term "control" means
the possession, directly or indirectly, of the power, whether or not exercised,
(i) to vote five percent (5%) or more of the securities having voting power for
the election of directors of such Person or (ii) to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities or other equity interests, by contract or
otherwise, and the terms "controlled" and "common control" shall have
1
<PAGE>
correlative meanings. Notwithstanding the foregoing provisions of this
definition, in no event shall any Lender or any Affiliate of any Lender be
deemed to be an Affiliate of Holdings, the Borrower or any Subsidiary of the
Borrower.
"Agent" shall have the meaning ascribed to it in the preamble hereto.
-----
"Agreement" shall have the meaning ascribed to it in the preamble
---------
hereto.
"Amended and Restated Security Agreement" means the Second Amended and
---------------------------------------
Restated Security Agreement dated as of November __, 1996 between the Borrower
and the Agent, for the benefit of the Lenders, encumbering the Collateral
thereunder, together with the exhibits thereto and financing statements
delivered by the Borrower to the Agent in connection therewith, as the same may
from time to time be amended, supplemented or otherwise modified.
"Amended and Restated Senior Subordinated Credit Agreement" means the
---------------------------------------------------------
Amended and Restated Senior Subordinated Credit Agreement dated as of November
__, 1996 among the Borrower, Holdings and the other guarantors identified
therein and Sumitomo Finance (Dublin) Limited, as the same thereafter may be
amended, modified or supplemented in accordance with the terms hereof and
thereof.
"Amended and Restated Westmark Subordinated Credit Agreement" means
-----------------------------------------------------------
the Amended and Restated Senior Subordinated Credit Agreement dated as of
October __, 1996 between WREAP and 399 Venture Partners, Inc.
"Applicable Law" means all applicable provisions of all (i)
--------------
constitutions, treaties, statutes, laws, rules, regulations, ordinances and
orders of any Governmental Authority, (ii) Governmental Approvals, and (iii)
orders, decisions, judgments, awards and decrees of any Governmental Authority.
"Applicable Margin" means (i) in respect of Loans other than Revolving
-----------------
Credit Facility B Loans, (a) 1.50% per annum in respect of Prime Rate Loans, and
(b) 2.50% per annum in respect of Euro-Dollar Rate Loans, and (ii) in respect of
Revolving Credit Facility B Loans, (x) 2.00% per annum in respect of Prime Rate
Loans and (y) 3.00% per annum in respect of Euro-Dollar Rate Loans.
"Assessment Rate" means, for any Interest Period, the annual
---------------
assessment rate (rounded upwards, if necessary, to the next higher 1/100 of 1%),
for determining the then current net annual assessment payable by the Lender to
the Federal Deposit Insurance Corporation (or any successor) for insuring Dollar
time deposits of the Lender in the United States.
"Asset Disposition" means any sale, assignment, transfer, lease or
-----------------
other disposition (including a Sale-Leaseback Transaction and any such sale or
other disposition effected by way of merger or consolidation (other than a
merger or consolidation permitted pursuant to Section 6.07 hereof), sale of
Capital Stock or otherwise) of any asset to any Person, except (i) the sale,
------
liquidation or disposition of any Permitted Investment, (ii) sales or other
dispositions of inventory held or purchased for sale to others, or other
property that has become obsolete or worn out, in each case in the ordinary
course of business, (iii) sales or other dispositions of assets by any
Subsidiary to the Borrower or a Wholly Owned Subsidiary (sales or other
dispositions described in clauses (i), (ii) and (iii) of this definition being
referred to herein collectively as "Excluded Dispositions"), (iv) any other
---------------------
sales or other dispositions of assets if the aggregate amount of Net Cash
Proceeds and the fair value of Non-Cash Proceeds of such sale or other
disposition, together with the Net Cash Proceeds and the fair value of Non-Cash
Proceeds of any other such sale or other disposition of assets of the Borrower
or any Subsidiary in a series of related transactions (other than such proceeds
derived from Excluded Dispositions), does not exceed $1,000,000 in the
aggregate, and if, after giving effect to such transaction, there shall not have
been within the immediately preceding twelve (12) month period sales or other
dispositions of assets of the Borrower or any Subsidiary (other than Excluded
Dispositions) with an
2
<PAGE>
aggregate sales consideration of more than $1,000,000 of Net Cash Proceeds and
fair value of Non-Cash Proceeds (provided, that, if such consideration in any
--------
such transaction or transactions exceeds such amount, the entire amount of such
consideration shall be subject to Section 2.05(b)(i) hereof, and provided
--------
further that to the extent that any sale or other disposition of an asset that
- -------
would not otherwise be an Asset Disposition for purposes hereof shall be treated
as an asset disposition giving rise to a requirement to make a payment pursuant
to the Senior Subordinated Credit Agreement or under any other agreement or
other document pursuant to which Indebtedness is outstanding (other than
Indebtedness described in Section 6.02(f) or (g) or (i) hereof), such asset
disposition shall, notwithstanding any other provision of this Agreement, be an
Asset Disposition hereunder for which a Mandatory Prepayment shall be required
to be made pursuant to Section 2.05(b) hereof) or (v) the sale, assignment,
transfer or other disposition of mortgage loans and the related mortgages in
connection with Mortgage Banking Activities (provided that this clause (v) shall
--------
not exclude from "Asset Disposition" any sale, assignment or liquidation of (x)
the Borrower's or any Subsidiary's interest, if any, in any Person that has
purchased or is to purchase mortgage loans from the Borrower or a Mortgage
Banking Subsidiary in connection with Mortgage Banking Activities or (y) the
Borrower's or any Subsidiary's servicing rights with respect to mortgage loans
originated in connection with Mortgage Banking Activities).
"Bankruptcy Code" shall mean Title 11 of the United States Code (11
---------------
U.S.C. 101 et seq.), as amended from time to time, or any successor statute.
"Book Value" means, with respect to any assets of the Borrower or any
----------
Subsidiary, the value at which such assets are carried on its books for
financial accounting purposes, in accordance with GAAP.
"Borrower" shall have the meaning ascribed to it in the preamble
--------
hereto.
"Business Day" means any day which is not a Saturday, Sunday or other
------------
day on which banks in New York, New York or Los Angeles, California are
authorized or obligated to close.
"California Mortgages" means all of the deeds of trust, assignments of
--------------------
lease, environmental indemnities and any and all similar agreements entered into
between the Borrower or any of its Subsidiaries and the Agent (or for the
benefit of Agent) that from time to time encumber the interests of the Borrower
or any of its Subsidiaries in Real Property that is situated in the State of
California.
"Capital Expenditures" means, for any period, the aggregate of all
--------------------
expenditures (whether paid in cash or accrued as liabilities during that period
and including Capitalized Lease Obligations of the Borrower and its Subsidiaries
during such period) that, in conformity with GAAP, are required to be
capitalized and reflected in the property, plant and equipment or similar fixed
asset accounts in the consolidated balance sheet of the Borrower and its
Subsidiaries (including equipment which is purchased simultaneously with the
trade-in of existing equipment owned by the Borrower or its Subsidiaries to the
extent of (i) the gross amount of such purchase price less (ii) the Book Value
----
of the equipment being traded in at such time) or are otherwise required to be
capitalized in conformity with GAAP (other than capitalized interest); provided
--------
that, notwithstanding classification thereof in accordance with GAAP, "Capital
Expenditures" shall not include any expenditure designated by the Borrower in
writing to the Lender as an "Investment" or a "Permitted Acquisition" made in
conformity herewith at least ten days prior to consummation thereof.
"Capital Stock" of any Person means any and all (i) shares, interests,
-------------
participations, or other equivalents (however designated) of capital stock and
all other equity interests of such Person (including without limitation, with
respect to any limited liability company, any membership interest therein, and
with respect to any partnership, any general or limited partnership interest
therein) and (ii) any rights (other than debt securities convertible into
capital stock), warrants or options to acquire such capital stock or other
equity interests.
3
<PAGE>
"Capitalized Lease" means any lease (or other agreement conveying the
-----------------
right to use) of property (real, personal or mixed) by a Person as lessee or
guarantor which would, in conformity with GAAP, be required to be accounted for
as a capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" means all obligations under
-----------------------------
Capitalized Leases of a Person that would, in conformity with GAAP, appear on a
balance sheet of that Person.
"CBC Partners Program" means a program established and operated by the
--------------------
Borrower pursuant to which (i) the Borrower or a Subsidiary enters into
agreements with commercial real estate brokerage firms granting such firms (x)
the right to use the name "CB Commercial" and certain other service marks and
slogans in an agreed upon territory, (y) certain rights to access the Borrower's
technology, databases and educational programs, and (z) certain rights to
referrals from Borrower and other participants in the CBC Partners Program, and
(ii) the Borrower or a Subsidiary acquires an equity interest in such firms.
"CBCREG Capital Stock" means all outstanding Capital Stock of the
--------------------
Borrower and all dividends, securities and any other property distributed in
respect of or in exchange for such Capital Stock.
"CBCREG Pledge Agreement" means the Restated Stock Pledge Agreement
-----------------------
dated as of November __, 1996 between the Borrower and the Agent, for the
benefit of the Lenders, as it may from time to time be amended, supplemented or
otherwise modified.
"Change of Control" shall be deemed to have occurred (a) with respect
-----------------
to Holdings, (i) at such time as any person (as defined in Section 13(d)(3) of
the Exchange Act ) (other than the Holdings Capital Accumulation Plan) at any
time shall directly or indirectly acquire more than twenty-five percent (25%) of
the total voting power of all classes of Capital Stock of Holdings (provided,
--------
however, that the acquisition of voting stock of Holdings by underwriters in the
- -------
Initial Public Offering named in the prospectus relating thereto shall not be
deemed to be a Change of Control pursuant to this clause (a)(i)), or (ii) at
such time as during any one year period, individuals who at the beginning of
such period constitute the Borrower's Board of Directors cease to be a majority
of the Board of Directors and (b) with respect to the Borrower, at such time as
Holdings ceases to own 100% of the issued and outstanding Capital Stock of the
Borrower.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, or any successor or superseding tax laws of the United States of
America, together with all regulations promulgated thereunder.
"Collateral" means the collateral under, and as defined in, each of
----------
the Collateral Documents.
"Collateral Documents" means the Security Agreements, the Pledge
--------------------
Agreements, the Mortgages and any and all other documents, agreements,
assignments, financing statements or instruments executed or delivered from time
to time in connection therewith or otherwise to secure the Borrower's or any
Guarantor's obligations under this Agreement or other Loan Documents as the same
may from time to time be amended, supplemented or otherwise modified.
"Commitments" means the Revolving Credit Facility A Commitment and the
-----------
Revolving Credit Facility B Commitment.
"Consolidated EBITDA" means, for any period, an amount equal to (i)
-------------------
Consolidated Net Income for such period, plus (ii) Consolidated Interest Expense
----
for such period, plus (iii) the amount of Taxes, based on or measured by income,
----
deducted in the determination of Consolidated Net Income for such period, plus
----
(iv) the amount of depreciation and amortization expense deducted in the
determination of Consolidated Net Income for such period, minus (v)
-----
extraordinary gains and interest income for such period, all on a consolidated
basis for Borrower and its Subsidiaries determined in accordance with GAAP.
4
<PAGE>
"Consolidated Interest Expense" means, for any period, total interest
-----------------------------
expense of the Borrower and its Subsidiaries on a consolidated basis, determined
in accordance with GAAP, including Revolving Credit Facility A Commitment Fees
and Revolving Credit Facility B Commitment Fees, and the portion of any
Capitalized Lease Obligations allocable to interest expense, but excluding
amortization or write-off of debt discount and expense.
"Consolidated Net Income" means, for any period, the net earnings (or
-----------------------
loss) after taxes of the Borrower and its Subsidiaries on a consolidated basis
for such period taken as a single accounting period, determined in accordance
with GAAP, provided that there shall be excluded therefrom (i) the income (or
--------
loss) of any Person (other than a Subsidiary of the Borrower) in which any other
Person (other than the Borrower and its Subsidiaries) has an equity interest,
except to the extent of dividends or other distributions actually paid to the
Borrower or its Subsidiaries by such Person during such period, (ii) portions of
income properly attributable to minority interests, if any, in the stock and
surplus of such Subsidiaries held by anyone other than the Borrower or any of
its Subsidiaries, (iii) the income (or loss) of any Person accrued prior to the
date it becomes a Subsidiary of the Borrower or is merged with or into the
Borrower or any of its Subsidiaries or such Person's assets are acquired by the
Borrower or any of its Subsidiaries, and (iv) the undistributed earnings of any
Subsidiary of the Borrower (other than Westmark and its Subsidiaries) to the
extent that, and so long as, the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by the terms of
its charter or Contractual Obligations or Applicable Law binding on such
Subsidiary.
"Consolidated Net Worth" means, at any date, the consolidated
----------------------
stockholders' equity of the Borrower and its Subsidiaries, excluding any amounts
attributable to mandatorily redeemable preferred stock.
"Consolidated Rental Payments" means, for any period, payments made
----------------------------
with respect to Capitalized Lease Obligations (other than the portion of such
payments allocable to interest expense) plus the aggregate of all rents paid
----
during such period under Operating Leases that are not cancelable upon notice of
thirty (30) days or less by the lessee thereunder, determined on a consolidated
basis for the Borrower and its Subsidiaries in accordance with GAAP.
"Consolidated Total Debt" means, at any date, without duplication, all
-----------------------
Indebtedness and all Contingent Obligations of the Borrower and its Subsidiaries
then outstanding or existing.
"Contingent Obligation" means, as to any Person, and without
---------------------
duplication, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation any direct or indirect
guarantee of such Indebtedness, obligation or liability, endorsement (other than
for collection or deposit in the ordinary course of business) thereof or
discount or sale thereof by such Person with recourse to such Person, or any
other direct or indirect obligation, by agreement or otherwise, to purchase or
repurchase any such Indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge of any such
Indebtedness, obligation or liability (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise), (ii) to provide funds to
maintain working capital or equity capital of another Person (other than a
Wholly-Owned Subsidiary, to the extent that Investments therein are permitted
under Section 6.04(c)) or otherwise to maintain the net worth, solvency or
financial condition of the other Person, (iii) to make payment for any products,
property, securities or services regardless of non-delivery thereof, if the
purpose of any agreement so to do is to provide assurance that any Indebtedness,
obligation or liability of another Person (other than a Wholly-Owned Subsidiary,
to the extent that Investments therein are permitted under Section 6.04(c)) will
be paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of another Person's Indebtedness, obligation or
liability will be protected (in whole or in part) against loss in respect
thereof, or (iv) otherwise to assure or hold harmless the holders of
Indebtedness or other obligation or liability or another Person against loss in
respect thereof; provided that indemnities given by Borrower or its Subsidiaries
--------
to employees or independent contractors in the ordinary course of business and
consistent with past practices shall not be considered Contingent Obligations;
provided, further that the
- -------- -------
5
<PAGE>
provisions in the By-laws of the Borrower, its Subsidiaries or Holdings holding
harmless and indemnifying their respective officers and directors shall not be
considered Contingent Obligations so long as such provisions are not materially
different from such provisions in the Borrower's By-laws in effect on the
Effective Date; provided, further, that the term "Contingent Obligation" shall
-------- -------
not include any obligation of a Mortgage Banking Subsidiary relating to unfunded
mortgage loans or under any indemnity made by a Mortgage Banking Subsidiary in a
purchase and sale agreement with respect to any mortgage loan, which guaranty or
indemnity is made, and which obligations are incurred, in connection with
Mortgage Banking Activities. The amount of any Contingent Obligation shall be an
amount equal to the amount of the indebtedness, obligation or liability
guaranteed or otherwise supported thereby.
"Contractual Obligation" means, as applied to any Person, any
----------------------
provision of any security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement, or other written instrument to
which that Person is a party or by which it or any of its owned properties is
bound or to which it or any of its owned properties is subject.
"Controlled Group" means all domestic and foreign members of a
----------------
controlled group of corporations under Section 1563(a) of the Code (determined
without regard to Section 1563(b)(2)(C) of the Code) and all trades or
businesses (irrespective of whether incorporated) which are under common control
of Borrower or its Subsidiaries. With regard to all Plans and Multiemployer
Plans, "Controlled Group" shall also include all ERISA Affiliates.
"Customary Permitted Liens" shall mean (i) Liens (other than
-------------------------
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority or claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with the provisions of GAAP; (ii) statutory Liens of landlords and
Liens of carriers, warehousemen, mechanics, materialmen and other Liens (other
than any Lien imposed under ERISA) imposed by law and created in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with the
provisions of GAAP or in respect of which a payment or performance bond has been
obtained; (iii) Liens (other than any Lien imposed under ERISA) incurred or
deposits made in the ordinary course of business (including, without limitation,
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than the repayment of
Indebtedness), statutory obligations and other similar obligations or arising as
a result of progress payments under contracts; (iv) easements (including,
without limitation, reciprocal easement agreements and utility agreements),
rights-of-way, covenants, consents, reservations, encroachments, variations and
other restrictions, charges or encumbrances (whether or not recorded), which do
not interfere materially with the ordinary conduct of the business of the
Borrower or its Subsidiaries and which do not materially detract from the value
of the property to which they attach or materially impair the use thereof to the
Borrower or its Subsidiaries; and (v) building restrictions, zoning laws and
other statutes, laws, rules, regulations, ordinances and restrictions, and any
amendments thereto, now or at any time hereafter adopted by any Governmental
Authority having jurisdiction.
"Default" means any condition or event which, with the giving of
-------
notice or lapse of time or both, would, unless cured or waived, become an Event
of Default.
"Deferred Amendment Fee" shall have the meaning ascribed to it in the
----------------------
Second Amended and Restated Senior Secured Credit Agreement.
"Deferred Interest" shall have the meaning ascribed to it in the
-----------------
Second Amended and Restated Senior Secured Credit Agreement.
6
<PAGE>
"Deferred Letter of Credit Fee" shall have the meaning ascribed to it
-----------------------------
in the Second Amended and Restated Senior Secured Credit Agreement.
"Dollars and '$'" means lawful money of the United States of America.
---------------
"Domestic Lending Office" means the office, branch or affiliate of
-----------------------
each Lender identified on the signature page hereto as its Domestic Lending
Office or such other office, branch or affiliate as such Lender may hereafter
designate as its Domestic Lending Office by notice to the Borrower.
"Domestic Loans" means Prime Rate Loans.
--------------
"Domestic Mortgage Loan" means any portion of the Mortgage Term Loan
----------------------
that bears interest at a rate determined by reference to the Prime Rate.
"Domestic Mortgage Term Note" means the promissory note or notes of
---------------------------
the Borrower, in substantially the form of Exhibit A hereto, evidencing the
obligation of the Borrower to repay the Domestic Mortgage Loan, and shall
include any note issued in exchange or substitution therefor. The Domestic
Mortgage Term Note amends and restates the Domestic Mortgage Term Note dated
April 18, 1989 in the original principal amount of $18,000,000, as amended and
restated June 30, 1994, previously executed by the Borrower.
"Domestic Notes" means, collectively, the Domestic Senior Term Note,
--------------
the Domestic Mortgage Term Note, the Domestic Revolving Credit Facility A Note
and the Domestic Revolving Credit Facility B Note.
"Domestic Revolving Credit Facility A Loan" means any Revolving Credit
-----------------------------------------
Facility A Loan, or any portion thereof, that bears interest at a rate
determined by reference to the Prime Rate.
"Domestic Revolving Credit Facility A Note" means the promissory note
-----------------------------------------
or notes of the Borrower, in substantially the form of Exhibit B hereto,
evidencing the obligation of the Borrower to repay the Domestic Revolving
Facility A Loans, and shall include any Note issued in exchange or substitution
therefor. The Domestic Revolving Credit Facility A Note amends and restates the
Domestic Revolving Note dated April 18, 1989 in the original principal amount of
$20,000,000, as amended and restated June 30, 1994, previously executed by the
Borrower.
"Domestic Revolving Credit Facility B Loan" means any Revolving
-----------------------------------------
Facility B Loan, or any portion thereof, that bears interest at a rate
determined by reference to the Prime Rate.
"Domestic Revolving Credit Facility B Note" means the promissory note
-----------------------------------------
or notes of the Borrower, in substantially the form of Exhibit C hereto,
evidencing the obligation of the Borrower to repay the Domestic Revolving
Facility B Loans, and shall include any note issued in exchange or substitution
therefor. The Domestic Revolving Credit Facility B Note amends and restates the
Domestic Revolving Credit Facility B Note dated October 10, 1991 and amended and
restated June 30, 1994 in the original principal amount of $20,000,000.
"Domestic Senior Term Loan" means any portion of the Senior Term Loan
-------------------------
that bears interest at a rate determined by reference to the Prime Rate.
"Domestic Senior Term Note" means the promissory note of the Borrower,
-------------------------
in substantially the form of Exhibit D hereto, evidencing the obligation of the
Borrower to repay the Domestic Senior Loans, and shall include any note issued
in exchange or substitution therefor. The Domestic Senior Term Note
7
<PAGE>
amends and restates the Domestic Senior Term Note dated April 18, 1989 in the
original principal amount of $152,000,000, as amended and restated June 30,
1994, previously executed by the Borrower.
"Earn-out Payment Obligations" means, with respect to any Permitted
----------------------------
Acquisition, the Westmark Acquisition and the Melody Acquisition, any and all
deferred payment obligations (other than Permitted Seller Indebtedness) of the
Borrower or any of its Subsidiaries incurred in connection therewith (including
non-competition payments).
"Effective Date" means the date on which all conditions precedent set
--------------
out in Section 3.01 are satisfied or waived in writing by the Agent.
"Environmental Damages" means all claims, judgments, damages, losses,
---------------------
penalties, fines, liabilities (including strict liability), costs and expenses
of defense of any claim and of any settlement of claims, including without
limitation reasonable attorneys' fees and consultants' fees, which are incurred
at any time as a result of the existence of Hazardous Material upon, about, or
beneath the Real Property or migrating or threatening to migrate to or from the
Real Property, or arising in any manner whatsoever out of the violation of
Environmental Requirements pertaining to the Real Property and the activities
thereon, or the breach of any warranty or covenant or the inaccuracy of any
representation of Borrower contained in the Mortgages pertaining to
environmental matters, unless and to the extent such Environmental Damages were
caused solely by the Lender or its agents or employees, including, without
limitation:
(i) damages for personal injury, or injury to property or natural
resources occurring upon or off of the Real Property, foreseeable or
unforeseeable, including, without limitation, lost profits, consequential
damages, interest and penalties including but not limited to claims brought by
or on behalf of employees of the Borrower;
(ii) diminution in the value of the Real Property and damages for the
loss of or restriction on the use of or adverse impact on the marketing of
rentable or usable space or of any amenity of the Real Property; and
(iii) fees incurred for the services of attorneys, consultants,
contractors, experts, laboratories and all other costs and liabilities
(including liabilities to indemnity any Person for costs) incurred in connection
with the investigation or remediation of such Hazardous Materials or violation
of Environmental Requirements including, but not limited to, the preparation of
any feasibility studies or reports or the performance of any cleanup, remedial,
removal, containment, restoration or monitoring work required by any federal,
state or local governmental agency or political subdivision, or reasonably
necessary to make full economic use of the Real Property or any other property
or otherwise expended in connection with such conditions.
"Environmental Lien" shall mean a Lien in favor of any Governmental
------------------
Authority for (i) any liability under federal or state environmental laws or
regulations or (ii) damages arising from or costs incurred by such Governmental
Authority in response to a release or threatened release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment.
"Environmental Requirements" means all Applicable Laws relating to the
--------------------------
protection of human health or the environment, including, without limitation:
(i) all requirements pertaining to reporting, licensing, permitting,
investigation and remediation of emissions, discharges, releases or threatened
releases of Hazardous Materials into the air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials; and
8
<PAGE>
(ii) all requirements pertaining to the protection of the health and
safety of employees or the public.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
the same may from time to time be amended or supplemented, including any rules
or regulations issued in connection therewith.
"ERISA Affiliate" means any trade or business (irrespective of whether
---------------
incorporated) which is a member of a group of which the Borrower is a member
(determined immediately following the Initial Funding Date and thereafter)
treated as a single employer under subsection (b), (c), (m) or (o) of Section
414 of the Code or the regulations promulgated thereunder.
"Euro-Dollar Business Day" means any Business Day on which commercial
------------------------
banks are open for international business (including dealings in interbank
Dollar deposits) in London, England.
"Euro-Dollar Lending Office" means the office, branch or affiliate of
--------------------------
each Lender identified on the signature page hereto as its Euro-Dollar Lending
Office or such other office, branch or affiliate as such Lender may hereafter
designate as its Euro-Dollar Leading Office by notice to the Borrower.
"Euro-Dollar Mortgage Term Note" means the promissory note or notes of
------------------------------
the Borrower, in substantially the form of Exhibit E hereto, evidencing the
obligation of the Borrower to repay the Euro-Dollar Rate Mortgage Loans, and
shall include any note issued in exchange or substitution therefor. The Euro-
Dollar Mortgage Term Note amends and restates the Euro-Dollar Rate Mortgage Term
Note dated April 18, 1989 in the original principal amount of $18,000,000, as
amended and restated June 30, 1994, previously executed by the Borrower.
"Euro-Dollar Notes" means, collectively, the Euro-Dollar Senior Term
-----------------
Note, the Euro-Dollar Mortgage Term Note, the Euro-Dollar Revolving Credit
Facility A Note and the Euro-Dollar Revolving Credit Facility B Note.
"Euro-Dollar Rate" means, with respect to any Interest Period, a rate
----------------
per annum equal to the quotient obtained (rounded upwards, if necessary, to the
next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered
Rate by (ii) 1.00 minus the Reserve Requirement for Euro-Dollar Loans for such
period (expressed as a decimal). The Euro-Dollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve
Requirement for Euro-Dollar Loans.
"Euro-Dollar Rate Loans" means Euro-Dollar Rate Senior Loans, Euro-
----------------------
Dollar Rate Mortgage Loans, Euro-Dollar Rate Revolving Credit Facility A Loans
and Euro-Dollar Rate Revolving Credit Facility B Loan or any or all of such
Loans.
"Euro-Dollar Rate Mortgage Loan" means any portion of the Mortgage
------------------------------
Term Loan that bears interest at a rate determined by reference to a Euro-Dollar
Rate and as to which a single Interest Period is applicable.
"Euro-Dollar Rate Revolving Credit Facility A Loan" means any
-------------------------------------------------
Revolving Credit Facility A Loan, or any portion thereof, that bears interest at
a rate determined by reference to a Euro-Dollar Rate and as to which a single
Interest Period is applicable.
"Euro-Dollar Rate Revolving Credit Facility B Loan" means any
-------------------------------------------------
Revolving Credit Facility B Loan, or any portion thereof, that bears interest at
a rate determined by reference to a Euro-Dollar Rate and as to which a single
Interest Period is applicable.
9
<PAGE>
"Euro-Dollar Rate Senior Loan" means any portion of the Senior Term
----------------------------
Loan that bears interest at a rate determined by reference to a Euro-Dollar Rate
and as to which a single Interest Period is applicable.
"Euro-Dollar Revolving Credit Facility A Note" means the promissory
--------------------------------------------
note or notes of the Borrower, in substantially the form of Exhibit F hereto,
evidencing the obligation of the Borrower to repay the Euro-Dollar Rate
Revolving Credit Facility A Loans, and shall include any note issued in exchange
or substitution therefor. The Euro-Dollar Revolving Credit Facility A Note
amends and restates the Euro-Dollar Revolving Note dated April 18, 1989 in the
original principal amount of $20,000,000, as amended and restated June 30, 1994,
previously executed by the Borrower.
"Euro-Dollar Revolving Credit Facility B Note" means the promissory
--------------------------------------------
note of the Borrower, in substantially the form of Exhibit G hereto, evidencing
the obligation of the Borrower to repay the Euro-Dollar Rate Revolving Credit
Facility B Loans, and shall include any Note issued in exchange or substitution
therefor. The Euro-Dollar Revolving Credit Facility B Note amends and restates
the Euro-Dollar Revolving Credit Facility B Note dated October 10, 1991 in the
original principal amount of $20,000,000, as amended and restated June 30, 1994,
previously executed by the Borrower.
"Euro-Dollar Senior Term Note" means the promissory note or notes of
----------------------------
the Borrower, in substantially the form of Exhibit H hereto, evidencing the
obligation of the Borrower to repay the Euro-Dollar Rate Senior Loans, and shall
include any Note issued in exchange or substitution therefor. The Euro-Dollar
Senior Term Note amends and restates the Euro-Dollar Senior Term note dated
April 18, 1989 in the original principal amount of $152,000,000, as amended and
restated June 30, 1994, previously executed by the Borrower.
"Event of Default" means any of the events specified in Section 7.01
----------------
hereof.
"Event of Loss" means, with respect to any of the Collateral, the
-------------
actual or constructive loss thereof or of the use thereof due to theft,
destruction, damage beyond repair or damage to an extent which makes repair
uneconomical, or the condemnation, confiscation or seizure thereof, or
requisition of title to or to the use thereof by any Governmental Authority or
any other Person, whether or not acting under color of governmental
authorization, provided that no such event shall constitute an Event of Loss,
--------
unless the property which is the subject of such Event of Loss has a replacement
value of $250,000 or more.
"Excess Proceeds of Issuance of Stock" means net cash proceeds
------------------------------------
received by Holdings, the Borrower or any Subsidiary of the Borrower on account
of the issuance and sale of Capital Stock of such corporation, but excluding (x)
proceeds of shares of Capital Stock issued to, and of contributions to the
capital of the Borrower or any Subsidiary made by, Holdings or the Borrower or
any other Subsidiary (to the extent permitted by Section 6.04 of this
Agreement), (y) proceeds received by Holdings on account of the Initial Public
Offering, and (z) net cash proceeds received by Holdings from stock option,
stock purchase and similar plans that are part of an overall compensation
program for employees, officers, individuals employed by the Borrower or any
Subsidiary that elect "independent contractor" status under Section 3508(a) of
the Code, and directors. As used herein, "net" shall mean net of all
transaction costs, commissions and underwriters' discount.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time, and any successor statute, and the rules and regulations
thereunder.
"Existing Indebtedness" means, with respect to the Borrower and its
---------------------
Subsidiaries, the Indebtedness set forth and described on Schedule 6.02 hereto.
10
<PAGE>
"Existing Liens" means, with respect to the Borrower and its
--------------
Subsidiaries, (i) Liens on computers and related equipment, telecommunications
equipment and copy and facsimile equipment leased by the Borrower and its
Subsidiaries in the ordinary course of business and (ii) those Liens set forth
and described on Schedule 6.01 hereto.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if the day for which such rate is to be
--------
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Lender on such day as such transactions as determined by the
Lender.
"Federal Reserve Board" means the Board of Governors of the Federal
---------------------
Reserve System, or any successor thereto.
"Fee Letter" shall have the meaning ascribed to it in Section 2.04(c)
----------
hereof.
"Fees" means, collectively, the Senior Term Loan Fees, the Mortgage
----
Term Loan Fees, the Revolving Credit Fees, the Revolving Credit Facility A
Extension Fee, the Term Loan Extension Fee, the Deferred Amendment Fee, and the
Deferred Letter of Credit Fees.
"Fiscal Quarter" means the three month period ending on March 31, June
--------------
30, September 30 or December 31 in any year.
"Fiscal Year" means the fiscal year of the Borrower, which shall be
-----------
the twelve (12) month period ending on December 31 in each year.
"Fixed Charges" means, for any period, the sum of the amounts for such
-------------
period, without duplication, of (i) scheduled payments of principal of the Term
Loans and other Indebtedness permitted under Section 6.02 hereof to be incurred,
(ii) interest expense in respect of the Loans and such other Indebtedness during
such period, (iii) Consolidated Rental Payments during such period, (iv) income
tax payments paid in cash during such period, (v) Capital Expenditures paid in
cash during such period, (vi) dividends paid in cash by the Borrower to Holdings
to permit Holdings to pay in cash dividends on Holdings Preferred Stock that are
payable in such period and (vii) payments made pursuant to Earn-Out Payment
Obligations in such period.
"Fixed Charges Coverage Ratio" means, as of the last day of any Fiscal
----------------------------
Quarter of the Borrower, the ratio of (i) the sum of (a) Consolidated EBITDA for
the four (4) consecutive Fiscal Quarters ended on such day plus (b) Consolidated
----
Rental Payments for such period, to (ii) Fixed Charges for such period.
"Funding Date" means a date on which a Revolving Loan is made pursuant
------------
to Section 2.01 hereof, including the Effective Date.
"GAAP" means generally accepted accounting principles as in effect in
----
the United States of America (as such principles may change from time to time);
provided that for purposes of Section 6.06 of this Agreement, and the terms used
- --------
therein which are defined "in accordance with GAAP", "GAAP" means generally
accepted accounting principles in the United States of America as in effect on
the Effective Date.
11
<PAGE>
"Governmental Approval" means an authorization, consent, approval,
---------------------
permit, license or exemption of, registration or filing with, or report or
notice to, any Governmental Authority.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including without limitation any governmental authority, court,
agency, department, board, commission or instrumentality of the United States,
any State of the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction.
"Guaranties" means, collectively, the Holdings Guaranty, the
----------
Subsidiary Guaranty, and the Westmark Guaranty.
"Hazardous Materials" means any chemical substance:
-------------------
(i) the presence of which requires investigation or remediation under
any Applicable Law; or
(ii) which is or becomes defined as a "hazardous waste" or "hazardous
substance" under any Applicable Law, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
Section 9601 et seq.) or the Resource Conservation and Recovery Act (42 U.S.C.
-- ---
Section 6901 et seq.); or
-- ---
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes
regulated by any Governmental Authority; or
(iv) the presence of which on the Real Property causes or threatens to
cause a nuisance upon the Real Property or to adjacent properties or poses or
threatens to pose a hazard to Real Property or to the health or safety of
Persons on or about the Real Property; or
(v) without limitation which contains gasoline, diesel fuel or other
petroleum hydrocarbons; or
(vi) without limitation which contains polychlorinated biphenyls
(PCBs) or asbestos.
"Holdings" means CB Commercial Holdings, Inc., a Delaware corporation.
--------
"Holdings Capital Accumulation Plan" means the CB Commercial Holdings
----------------------------------
Inc. Capital Accumulation Plan, a plan intended to be qualified under Section
401(a) of the Code, as in effect on the Effective Date.
"Holdings Common Stock" means all series or classes of the common
---------------------
stock, par value $0.01 per share, of Holdings designated as "Common Stock" in
the Certificate of Incorporation of Holdings, and any other class of Capital
Stock of Holdings now or hereafter authorized having the right to participate in
distributions either of earnings or assets of Holdings upon liquidation,
dissolution or winding up of Holdings without limit as to amount or percentage
of par value, but has no preferential right to participate in distribution of
such earnings or assets.
"Holdings Guaranty" means the Amended and Restated Guaranty dated as
-----------------
of November __, 1996, made by Holdings in favor of the Lenders, as it may from
time to time be amended, supplemented or otherwise modified.
12
<PAGE>
"Holdings Pledge Agreement" means the Amended and Restated Stock
-------------------------
Pledge Agreement dated as of November __, 1996, between Holdings and the
Lenders, as it may from time to time be amended, supplemented or otherwise
modified.
"Holdings Preferred Stock" means all series or classes of Preferred
------------------------
Stock, par value $0.01 per share, of Holdings designated as "Preferred Stock"
in, and having the preferences and relative, participating, optional and other
special rights and the qualifications, limitations and restrictions of such
rights set out in, the Certificate of Incorporation of Holdings, as in effect on
the Effective Date.
"Indebtedness" means, with respect to any Person, the aggregate amount
------------
of, without duplication: (i) all obligations for borrowed money; (ii) all
obligations evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations to pay the deferred purchase price of property or services
(including without limitation Earn-out Payment Obligations), except trade
accounts payable, accrued commissions and other similar accrued current
liabilities in respect of such obligations, in any case arising in the ordinary
course of business; (iv) all Capitalized Lease Obligations; (v) all obligations
or liabilities of others secured by a Lien on any asset owned by such Person or
Persons whether or not such obligation or liability is assumed by such Person;
(vi) all obligations of such Person, contingent or otherwise, in respect of any
letters of credit or bankers' acceptances, and (vii) all Contingent Obligations.
"Indemnitees" has the meaning ascribed to it in Section 9.02 hereof.
-----------
"Initial Funding Date" means April 19, 1989.
--------------------
"Initial Public Offering" shall have the meaning ascribed to it in
-----------------------
Section 3.01 hereof.
"Installment Payment Dates" means the last day of March, June,
-------------------------
September and December in each year, commencing March 31, 1997.
"Intercompany Indebtedness" means any Indebtedness of the Borrower or
-------------------------
any Subsidiary of the Borrower which, in the case of the Borrower, is owed to
any Wholly-Owned Subsidiary of the Borrower and which, in the case of any
Subsidiary, is owed to the Borrower or any other Wholly-Owned Subsidiary of the
Borrower.
"Intercreditor Agreement" means the Intercreditor Agreement dated as
-----------------------
of July 23, 1990, among Holdings, the Borrower, Sumitomo Finance (Dublin)
Limited and the Lenders, as it may from time to time be amended, supplemented or
otherwise modified.
"Interest Coverage Ratio" means, as of the last day of any Fiscal
-----------------------
Quarter of the Borrower, the ratio of (i) Consolidated EBITDA for the four (4)
consecutive Fiscal Quarters ended on such day to (ii) Consolidated Interest
Expense for such period.
"Interest Payment Date" means (i) in the case of Prime Rate Loans, the
---------------------
last day of March, June, September and December in each year, and (ii) in the
case of Euro-Dollar Rate Loans, the last day of each Interest Period applicable
thereto, provided that in the case of an Interest Period applicable to a Euro-
--------
Dollar Rate Loan that is longer in duration than three (3) months, from the date
such Interest Period commenced, then the last day of such third month or, if
such date is not a Business Day, the next succeeding Business Day, also shall be
an Interest Payment Date.
"Interest Period" means, with respect to each Euro-Dollar Loan, the
---------------
period commencing on the date specified in the Notice of Borrowing delivered by
the Borrower pursuant to Section 2.01(e) hereof, or the Notice of
Conversion/Continuation with respect thereto delivered by the Borrower pursuant
to Section 2.02(g)(iii) hereof, and ending one (1), two (2), three (3) or six
(6) months thereafter, as the Borrower may
13
<PAGE>
elect in such Notice of Conversion/Continuation, provided that (a) any such
--------
Interest Period that would otherwise end on a day that is not a Euro-Dollar
Business Day shall be extended to the next succeeding Euro-Dollar Business Day
unless such succeeding Euro-Dollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding Euro-Dollar
Business Day and (b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the Calendar month at the end of such Interest Period)
shall end on the last Euro-Dollar Business Day of a calendar month.
"Investment" means, as applied to any Person, (i) any direct or
----------
indirect purchase or other acquisition by that Person of (x) any interest in
Capital Stock of any other Person, including, without limitation, any record or
beneficial interest in stock or securities of, or any partnership interest
(whether general or limited) in, any other Person, or (y) all or any substantial
portion of the business or assets of any other Person or any business unit of
such other Person, (ii) any direct or indirect loan, advance or capital
contribution by that Person to any other Person, including all indebtedness and
accounts receivable or trade credits from that other Person which are not
current assets arising from transactions entered into in a manner that is
substantially consistent with past practices or did not arise from sales to that
other Person in the ordinary course of business (provided that interim draws
paid by the Borrower or its Subsidiaries to its brokers in the ordinary course
of business substantially consistent with past practices as an advance against
commissions payable or to become payable shall not constitute an Investment),
and (iii) any Contingent Obligation undertaken by that Person with respect to
Indebtedness of any other Person. "Investment" shall include any expenditure
made by the Borrower or any of its Subsidiaries in connection with any Permitted
Acquisition, including an expenditure that would be classified as a capital
expenditure in accordance with GAAP that is not a "Capital Expenditure" as a
result of designation by the Borrower in writing to the Agent at least ten days
prior to consummation thereof. The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto, without
any adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment, together with, in the case of a
Permitted Acquisition, any related Earn-out Payment Obligations (in an amount
equal to the maximum amount thereof, or if there is no prescribed maximum
amount, then the greater of (x) the Borrower's reasonable estimate of its future
liability with respect thereto (estimated on the basis of reasonable financial
projections at the time of consummation of such Permitted Acquisition) and (y)
the aggregate amount of payments actually made with respect thereto), but
excluding any amounts capitalized in accordance with GAAP to reflect probable
severance, office closing and similar payments and expenses.
"IPO Net Proceeds" shall mean the cash proceeds received by or for the
----------------
account of the Holdings or any of its Subsidiaries attributable to the Initial
Public Offering, minus amounts expended in connection with the Initial Public
-----
Offering for (a) underwriters' discounts and commissions, (b) prospectus and
stock certificate printing and distribution fees, (c) fees and reimbursed
expenses of the Borrower's counsel and independent public accountants, (d) fees
and reimbursed expenses of the underwriters' counsel relating to compliance with
the blue sky laws of the various states, (e) fees and reimbursed expenses of
counsel to the Agent, (f) fees payable to the SEC, and minus the Revolving
-----
Credit Facility A Extension Fee and the Term Loan Extension Fee.
"Issuing Bank" shall mean, with respect to a Revolving Credit Facility
------------
A Letter of Credit, The Sumitomo Bank, Limited, and with respect to a Revolving
Credit Facility B Letter of Credit, the Revolving Credit Facility B Lender.
"Lenders" shall have the meaning ascribed to it in the preamble to
-------
this Agreement.
"Lending Office" means the Lender's Domestic Lending Office or its
--------------
Euro-Dollar Lending Office, as the context may require.
"Letter of Credit Amount" means $10,000,000.
-----------------------
14
<PAGE>
"Letter of Credit Application" shall have the meaning set forth in
----------------------------
Section 2.01(h)(ii) of this Agreement.
"Letter of Credit Fee" shall have the meaning set forth in Section
--------------------
2.01(h)(vii) of this Agreement.
"Letter of Credit Liability" means Revolving Credit Facility A Letter
--------------------------
of Credit Liability and Revolving Credit Facility B Letter of Credit Liability.
"Leverage Ratio" means, at any date of determination thereof, the
--------------
ratio of (i) Consolidated Total Debt existing as at such date to (ii)
Consolidated EBITDA for the period of four consecutive fiscal quarters ended on
the last day of the last quarter ended prior to such date.
"Lien" means any lien, mortgage, pledge, security interest, charge, or
----
encumbrance of any kind (including any conditional sale or other title retention
agreement or any lease in the nature thereof) and any agreement to give or
refrain from giving any lien, mortgage, pledge, security interest, charge, or
other encumbrance of any kind.
"Loan" means any portion of either of the Term Loans or any Revolving
----
Loan (i) as to which the rate at which interest accrues is determined by
reference to the Prime Rate, or (ii) as to which (a) the rate at which interest
accrues is determined by reference to a Euro-Dollar Rate and (b) a single
Interest Period is applicable thereto. The continuation of a Loan from Interest
Period to Interest Period or the conversion of a Loan in whole or in part from
one interest rate option to another shall not be deemed to be the making of a
Loan.
"Loan Documents" means, collectively, this Agreement, the Notes, the
--------------
Collateral Documents, the Guaranties, the Intercreditor Agreement, and any
supplemental agreement, instrument or other writing executed or delivered by
Holdings, the Borrower or any of its Subsidiaries in connection herewith, and
all amendments, modifications or supplements, and appendices, exhibits and
schedules to, any of the foregoing.
"London Interbank Offered Rate" means, with respect to any Interest
-----------------------------
Period, the rate per annum (rounded upwards, if any, to the next higher 1/16th
of 1%) at which deposits in Dollars are offered to the Agent in the London
interbank market in amounts comparable to the Euro-Dollar Loan to which such
Interest Period is to apply and for a period equal to such Interest Period, at
approximately 11:00 a.m. (London time) two (2) Euro-Dollar Business Days before
the first day of such Interest Period.
"Mandatory Prepayment" means each prepayment required pursuant to
--------------------
Section 2.05(b)(i).
"Margin Regulations" means Regulations G, T, U and X of the Board of
------------------
Governors of the Federal Reserve System, as in effect from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U.
------------
"Maturity Date" means December 31, 2001.
-------------
"Melody" shall mean L.J. Melody & Company, a Texas corporation and a
------
Wholly-Owned Subsidiary of the Borrower.
"Melody Acquisition" shall mean, collectively, (i) the purchase by CB
------------------
Commercial Mortgage Company, Inc., a California corporation that is a wholly-
owned Subsidiary of the Borrower ("CB Mortgage"), of (x) all of the issued and
outstanding capital stock of Melody pursuant to and in accordance with the terms
of
15
<PAGE>
the Melody Stock Purchase Agreement and (y) all of the issued and outstanding
capital stock of Melody California pursuant to and in accordance with the terms
of the Melody California Stock Purchase Agreement, and (ii) consummation of the
merger (the "Melody Merger") of CB Mortgage with and into Melody, a wholly-owned
Subsidiary of CB Mortgage, pursuant to and in accordance with the terms of the
Melody Merger Agreement and the subsequent merger of Melody California with and
into Melody.
"Melody California" shall mean L.J. Melody & Company of California, a
-----------------
Texas corporation and a Wholly-Owned Subsidiary of Melody.
"Melody California Stock Purchase Agreement" means the Stock Purchase
------------------------------------------
Agreement dated as of June 27, 1996 among the Borrower, CB Mortgage and the
Melody Stockholders party thereto, and all schedules and exhibits thereto, as in
effect on the Amendment Effective Date (as defined in the Limited Waiver,
Consent and Amendment No. 2 dated as of June 30, 1996 (the "Second Amendment")
to the Second Amended and Restated Senior Secured Credit Agreement).
"Melody Loan Arbitrage Facility" means a credit facility provided to
------------------------------
Melody by any depository bank in which Melody deposits payments made on mortgage
loans for which Melody is servicer prior to distribution of such payments to or
for the benefit of the holders of such loans, so long as (i) Melody applies all
proceeds of loans made under such credit facility to purchase Permitted
Investments, and (ii) all Permitted Investments purchased by Melody with the
proceeds of loans thereunder (and proceeds thereof and distributions thereon)
are pledged to the depository bank providing such credit facility, and such bank
has a first priority perfected security interest therein, to secure loans made
under such credit facility.
"Melody Merger Agreement" means the Agreement and Plan of Merger
-----------------------
between CB Mortgage and Melody providing for the merger of CB Mortgage with and
into Melody, and the articles or certificate of merger, if any, required to be
in the office of the secretary of state, or other public official, in any
jurisdiction in order to effect the Melody Merger.
"Melody Mortgage Warehousing Facility" means the credit facility
------------------------------------
provided by Residential Funding Corporation ("RFC") or any substantially similar
facility, pursuant to which RFC or another lender makes loans to Melody, the
proceeds of which loans are applied by Melody to fund commercial mortgage loans
originated and owned by Melody subject to an unconditional, irrevocable
commitment to purchase such mortgage loans by the Federal Home Loan Mortgage
Corporation, so long as loans made by RFC or such other lender to Melody
thereunder are secured by a pledge of commercial mortgage loans made by Melody
with the proceeds of such loans, and RFC or such other lender has a perfected
first priority security interest therein, to secure loans made under such credit
facility.
"Melody Permitted Indebtedness" shall mean Indebtedness of Melody
-----------------------------
under the Melody Loan Arbitrage Facility, the Melody Mortgage Warehousing
Facility and the Melody Working Capital Facility, and in respect of the Melody
Seller Senior Notes and the Melody Seller Contingent Notes.
"Melody Seller Contingent Notes" means the Contingent Promissory Notes
------------------------------
due July 1, 2001 issued by CB Mortgage to the Melody Stockholders, in
substantially the form attached as Exhibit B to the Melody Stock Purchase
Agreement, in an aggregate principal amount not in excess, at any time, of
$3,000,000 less the aggregate amount of payments of principal thereof required
----
to be made in respect thereof at or prior to such time in accordance with the
terms thereof.
"Melody Seller Senior Notes" means the Senior Promissory Notes due
--------------------------
July 1, 1998 issued by CB Mortgage, to the Melody Stockholders, in substantially
the form attached as Exhibit A to the Melody Stock Purchase Agreement, in an
aggregate principal amount not in excess, at any time, of $3,000,000 less the
----
aggregate amount of payments of principal required to be made in respect thereof
at or prior to such time in accordance with the terms thereof.
16
<PAGE>
"Melody Stock Purchase Agreement" means the Stock Purchase Agreement
-------------------------------
dated as of June 27, 1996 among the Borrower, CB Mortgage and the Melody
Stockholders party thereto, and all schedules and exhibits thereto, as in effect
on the Amendment Effective Date (as defined in the Second Amendment).
"Melody Stockholders" means, together, Lawrence J. Melody and John M.
-------------------
Bradley.
"Melody Working Capital Facility" means a credit facility provided by
-------------------------------
a financial institution to Melody, so long as (i) the proceeds of loans
thereunder are applied only to provide working capital to Melody, (ii) loans
under such credit facility are unsecured, and (iii) the aggregate principal
amount of loans outstanding under such credit facility at no time exceeds
$1,000,000.
"Mortgage Banking Activities" means the origination by a Mortgage
---------------------------
Banking Subsidiary of mortgage loans in respect of commercial and multi-family
residential real property, and the sale or assignment of such mortgage loans and
the related mortgages to another Person (other than the Borrower or another of
its Subsidiaries) within 60 days after the origination thereof; provided,
--------
however, that in each case prior to origination of any mortgage loan, the
- -------
Borrower or a Mortgage Banking Subsidiary, as the case may be, shall have
entered into a legally binding and enforceable purchase and sale agreement with
respect to such mortgage loan with a Person that purchases such loans in the
ordinary course of its business.
"Mortgage Banking Subsidiary" means Melody and its Subsidiaries that
---------------------------
are engaged in Mortgage Banking Activities.
"Mortgage Term Loan" means the Term Loan outstanding pursuant to
------------------
Section 2.01(b) of this Agreement.
"Mortgages" means the California Mortgages and the Other Mortgages.
---------
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 3(37) and Section 4001(a)(3)(A) of ERISA to which the Borrower or any of
its ERISA Affiliates is making or accruing an obligation to make contributions
or has within any of the preceding five plan years made or accrued an obligation
to make contributions.
"Multiple Employer Plan" shall mean "a single employer plan," as
----------------------
defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees
of the Borrower or an ERISA Affiliate and at least one Person other than the
Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of
which the Borrower or an ERISA Affiliate could have liability under Section 4064
or 4069 of ERISA in the event such plan has been or were to be terminated.
"Net Cash Proceeds" means, with respect to any sale, assignment,
-----------------
lease, transfer or other disposition of assets (including, without limitation,
an Asset Disposition), the sum of:
(i) the cash and cash equivalent proceeds received by or for the
account of the Borrower or any of its Subsidiaries attributable to such sale or
other disposition;
(ii) the amount of cash and cash equivalents received by or for the
account of the Borrower or any of its Subsidiaries upon the sale, conversion,
collection or other liquidation of any Non-Cash Proceeds attributable to such
sale or other disposition; and
(iii) the amount of cash and cash equivalents in respect of any run-
off of receivables or in respect of dispositions of inventory, in each case
retained in connection with a sale or other disposition
17
<PAGE>
constituting a sale of all or substantially all of the other assets or a line of
business of the Person making the disposition;
in each case net of any amount required to be paid to any Person (other than
Holdings, the Borrower or any Subsidiary) owning a beneficial interest in the
stock or other assets disposed of, any amount applied to the repayment of
Indebtedness (other than the Obligations) secured by a Lien permitted under
Section 6.01 hereof on the asset disposed of, any transfer taxes paid or payable
as a result of such sale or other disposition and professional fees and
expenses, broker's commissions and other out-of-pocket costs of sale actually
paid to any Person (other than Holdings, the Borrower or any Subsidiary)
attributable to such sale or other disposition up to the limit, if any, set
forth in a relevant Collateral Document.
"Non-Cash Proceeds" means any notes, debt securities, other rights to
-----------------
payment, equity securities and any other consideration received from any sale,
assignment, lease, transfer or other disposition of assets (including, without
limitation, an Asset Disposition), except consideration initially received as
Net Cash Proceeds.
"Notes" means, collectively, the Domestic Notes and the Euro-Dollar
-----
Notes.
"Notice of Borrowing" means an irrevocable notice, executed by a
-------------------
Responsible Officer of the Borrower, in substantially the form of Exhibit I
hereto.
"Notice of Conversion/Continuation" means a notice to convert or
---------------------------------
continue a Fixed Rate Loan as the same or to another type of Loan given by the
Borrower pursuant to Section 2.02(e)(iii) hereof, in substantially the form of
Exhibit J hereto.
"Obligated Party" shall have the meaning ascribed to it in Section
---------------
2.01(f) hereof.
"Obligations" means, collectively, the Senior Secured Obligations and
-----------
the Specified Mortgage Loan Obligations.
"Operating Lease" means, as applied to any Person, any lease of any
---------------
property (whether real, personal, or mixed) which is not a Capitalized Lease
other than any such lease under which that Person is the lessor.
"Other Mortgages" means all of the deeds of trust, assignments of
---------------
leases, environmental indemnities and any and all similar agreements with
respect to Real Property (other than California Mortgages) entered between the
Borrower or any of its Subsidiaries and the Agent, in form satisfactory to the
Agent, encumbering the interests of the Borrower or such Subsidiary in and to
any Real Property, as amended, supplemented or modified from time to time.
"Outstanding Loans" shall have the meaning set forth in the recitals
-----------------
hereto.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
----
Title IV of ERISA, or any successor thereto.
"Permitted Acquisition" means the acquisition by the Borrower or any
---------------------
of its Subsidiaries after the Effective Date of assets constituting an entire
business or division of any Person that is not already a Subsidiary of the
Borrower or any of its Subsidiaries, or the acquisition by Borrower or any of
its Subsidiaries of one hundred percent (100%) of the capital stock (except for
directors' qualifying shares) of any such Person, including by any merger or
consolidation permitted under Section 6.07 hereof, so long as (i) such
acquisition and all transactions related thereto are consummated in accordance
with Applicable Law; (ii) such acquisition, in the case of a Permitted
Acquisition of capital stock, results in such domestic corporation
18
<PAGE>
becoming a Wholly-Owned Subsidiary; (iii) the Borrower shall have delivered to
the Agent a certificate demonstrating in reasonable detail compliance with
Sections 6.01, 6.02, 6.03, 6.04, 6.05 and 6.06 of this Agreement immediately
after giving effect to such acquisition and giving pro forma effect thereto as
--- -----
if such acquisition had been consummated, and any Indebtedness incurred in
connection therewith had been incurred, on the first day of the period of four
consecutive fiscal quarters most recently ended prior to the date on which such
acquisition is completed (provided, however, that with respect to any such
-------- -------
acquisition consummated by Borrower during the 1997 calendar year, such pro
---
forma compliance with Section 6.06(a) shall be determined after giving effect to
- -----
the prepayment of the Term Loans from IPO Net Proceeds contemplated by Section
3.01(c)); (iv) no capital stock or other assets acquired in connection with such
acquisition shall be subject to any Lien (other than Liens permitted by Section
6.01); and (v) no Default or Event of Default shall have occurred and be
continuing on the date such acquisition is completed or shall result therefrom.
"Permitted Investments" means (i) marketable direct obligations issued
---------------------
by the United States Government and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and having, at the time of acquisition, the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (iii) commercial paper having, at the time of acquisition, the
highest rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (iv) certificates of deposit, other time deposits, and
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any bank operating under the laws of the United States of
America or any state thereof or the District of Columbia which has combined
capital and surplus of not less than $500,000,000, (v) institutional money
market funds organized under the laws of the United States of America or any
state thereof that invest solely in any of the Investments permitted under
clauses (i), (ii), (iii) and (iv) hereof, or (vi) repurchase agreements with
respect to Investments permitted under clause (i) or (ii) with counterparties
acceptable to the Lender.
"Permitted Seller Indebtedness" means Indebtedness of the Borrower or
-----------------------------
a Subsidiary of the Borrower acquired in, or formed in connection with, a
Permitted Acquisition, owing to the Seller therein and constituting a portion of
the aggregate consideration paid with respect to such Permitted Acquisition;
provided, that (x) such Indebtedness shall not be guaranteed by any other
- ---------
Subsidiary of the Borrower, and (y) unless (i) such Permitted Acquisition
consists of an acquisition of a business or assets directly by the Borrower, or
(ii) the acquired Subsidiary (or, in the case of a Permitted Acquisition
involving the acquisition of assets, the acquiring Subsidiary) has executed and
delivered to the Agent the Subsidiary Guaranty and the Subsidiary Security
Agreement, any such Indebtedness shall constitute the obligation only of the
Subsidiary of the Borrower acquired or formed in connection with the related
Permitted Acquisition, and shall not be guaranteed by the Borrower.
"Permitted Liens" means, collectively, the Customary Permitted Liens
---------------
and the Existing Liens.
"Permitted Tax Payment" means, for any taxable year of the Borrower in
---------------------
which it joins in filing a consolidated federal income tax return with Holdings,
a payment by the Borrower to Holdings in an amount not in excess of the lesser
of (i) the separate return federal income tax liability (if any) of the
affiliated group (within the meaning of Section 1504 of the Code) of which the
Borrower would be the parent (the "Borrower Group") if it were not a member of
--------------
another affiliated group for that or any other taxable year, and (ii) the
portion of the actual tax liability (if any) of the affiliated group of which
the Borrower is actually a member (the "Holdings Group") for such year allocable
to the Borrower Group under the rules set forth in Section 1552(a)(1) of the
Code and the Department of the Treasury regulations promulgated thereunder;
provided that such payment can be made by the Borrower no earlier than the date
- --------
on which the Holdings Group is required to make federal income tax payments for
such year to the Internal Revenue Service, and provided, further, that for
-------- -------
purposes of clause (ii) above actual tax liability of the Holdings Group shall
be
19
<PAGE>
computed without regard to any income, gain, loss, deduction or credit generated
by a corporation other than Holdings, the Borrower or a Subsidiary of the
Borrower. In the event that Holdings and any member of the Borrower Group join
in filing any combined or consolidated (or similar) state or local income or
franchise tax returns, then "Permitted Tax Payment" shall include payments with
respect to such state or local income or franchise taxes determined in a manner
as similar as possible to that provided in the preceding sentence for federal
income taxes.
"Person" means an individual, a corporation, a partnership, a trust,
------
an unincorporated organization or any other entity or organization, including a
government or any agency or political subdivision thereof and, for the purpose
of the definition of "ERISA Affiliate," a trade or business.
"Plan" means any pension, retirement, disability, defined benefit,
----
defined contribution, profit sharing, deferred compensation, employee stock
ownership, employee stock purchase, or other employee benefit plan or
arrangement, other than a Multiemployer Plan, irrespective of whether any of the
foregoing is funded, including without limitation any employee benefit plan as
defined in Section 3(3) of ERISA which was (within six (6) years prior to the
date of this Agreement), is or will be sponsored or maintained by Borrower or
its ERISA Affiliates, in which any personnel of the Borrower or its ERISA
Affiliates participates or from which any such personnel may derive a benefit.
"Pledge Agreements" means the Holdings Pledge Agreement and the CBCREG
-----------------
Pledge Agreement.
"Post-Default Rate" means, at any time, a rate per annum equal to the
-----------------
rate of interest otherwise in effect at such time pursuant to the terms hereof,
plus two percent (2%); provided that as to any amount not paid when due (whether
of principal, interest, Fees, expenses or otherwise) the Post-Default Rate shall
be the Prime Rate plus two percent (2%) per annum.
"Prime Rate" means, as of any date, a rate per annum equal to the
----------
greater of (i) the Federal Funds Rate as in effect at such time plus 0.5% or
(ii) the per annum rate of interest most recently announced by the Lender
publicly as its prime rate for domestic commercial loans. The prime rate is not
necessarily the lowest rate of interest charged by the Lender in connection with
extensions of credit. Each change in any interest rate provided for herein
based upon the Prime Rate resulting from a change in the Prime Rate (or any
component thereof) shall take effect at the time of such change in the Prime
Rate.
"Prime Rate Loan" means a Loan that bears interest by reference to the
---------------
Prime Rate.
"Pro Forma Fixed Charges Coverage Ratio" means, with respect to any
--------------------------------------
Indebtedness proposed to be incurred in connection with a Permitted Acquisition,
the ratio of (i) the sum of (a) Consolidated EBITDA for the four (4) consecutive
Fiscal Quarters ended on the last day of the last quarter ended prior to the
date on which such Indebtedness is proposed to be incurred plus (b) Consolidated
Rental Payments for such period, to (ii) Fixed Charges for such period
determined giving pro forma effect to the incurrence of such Indebtedness (and
the incurrence of all other Indebtedness incurred, and the repayment of all
Indebtedness repaid (to the extent that no commitment exists to permit re-
incurrence of such Indebtedness) after the first day of such four-quarter
period) as though it had been incurred on the first day of such four-quarter
period.
"Prohibited Transaction" means a transaction which is prohibited under
----------------------
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA.
"Pro Rata Share" means (i) with respect to the Revolving Credit
--------------
Facility A Commitment, and with respect to any Lender, a number equal to the
percentage of such Lender's portion of the Revolving Credit Facility A
Commitment (as set forth on Schedule 1.01A hereto); and (ii) with respect to the
20
<PAGE>
Term Loans, and with respect to any Lender, a number equal to the percentage of
such Lender's portion of the Term Loans (as set forth on Schedule 1.01B hereto).
"Real Property" means each of those parcels (or portions thereof) of
-------------
real property, improvements and fixtures thereon and appurtenances thereto now
or hereafter owned or leased by the Borrower or any of its Subsidiaries.
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System and any successor regulation, in each case as in effect
from time to time.
"Regulation U" means Regulation U of the Board of Governors of the
------------
Federal Reserve System or any successor regulation, in each case as in effect
from time to time.
"Regulatory Change" means (i) the adoption after the date hereof of
-----------------
any new, or any change in any existing, treaty or Federal, state, local or
foreign law, rule, regulation (including but not limited to Regulation D) or
guideline (whether or not having the force of law), (ii) the adoption or making
after the date hereof of, or compliance by any Lender with, any interpretation,
directive, request, order or decree (whether or not having the force of law)
applicable to any Lender by any court or Governmental Authority or central bank
or other monetary authority, or compliance after the date hereof by the Leader
with any such law, rule, regulation, guideline, interpretation, directive,
request, order or decree (whether adopted, made or issued before or after the
date hereof), or (iii) any change in the administration or enforcement of or
under any such law, rule, regulation or guideline by any court or Governmental
Authority or central bank or other monetary authority charged with the
interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section
----------------
4043(b) of ERISA or the regulations thereunder, except any such event as to
which the provision for thirty (30) days' notice to the PBGC is waived under
applicable regulations.
"Reporting Subsidiary" means any Subsidiary that has, on any date of
--------------------
determination, total assets in excess of $25,000 or total liabilities in excess
of $50,000, as determined in accordance with GAAP.
"Required Lenders" means (i) Lenders holding Pro Rata Shares equal to
----------------
or greater than 50% of the aggregate unpaid principal amount of the Term Loans,
(ii) Lenders having Pro Rata Shares equal to or greater than 50% of the
aggregate amount of the Revolving Credit Facility A Commitment, and (iii) the
Revolving Credit Facility B Lender.
"Reserve Requirement" means, with respect to any Euro-Dollar Loan for
-------------------
any Interest Period, the maximum rate for which reserves (including any
marginal, supplemental, special or emergency reserve) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits comparable in amount to
those of the Lender against "Euro-Currency Liabilities," as that term is used in
Regulation D (or in respect of any other category of liabilities which includes
deposits by reference to which the interest rate on Euro-Dollar Loans is
determined or any category of extensions of credit or other assets which
includes loans by a non-United States office of the Lender to United States
residents).
"Responsible Officer" means the Chairman of the Board of Directors,
-------------------
the President, the Chief Executive Officer, the Chief Operating Officer, the
Chief Financial Officer, the Secretary, the Treasurer or any Vice President in
charge of a principal business unit or division.
"Restricted Payment" means (i) any dividend or other distribution,
------------------
direct or indirect, on account of any shares of CBCREG Capital Stock now or
hereafter outstanding, except a dividend payable solely in shares of a class of
CBCREG Capital Stock to the holders of that class of CBCREG Capital Stock,
21
<PAGE>
(ii) any redemption, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any class of
CBCREG Capital Stock now or hereafter outstanding or (iii) any payment made to
redeem, purchase, repurchase or retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of any class of
CBCREG Capital Stock or any class of Capital Stock of its Subsidiaries now or
hereafter outstanding (other than the issuance to the extent permitted by this
Agreement of shares of the relevant CBCREG Capital Stock or of Capital Stock of
any Subsidiary upon the exercise of any warrants, options or rights to acquire
such stock).
"Revolving Credit Commitments" means, collectively, the Revolving
----------------------------
Credit Facility A Commitment and the Revolving Credit Facility B Commitment.
"Revolving Credit Facility A Commitment" means the Lender's
--------------------------------------
commitment, in accordance with the terms of this Agreement, to make Revolving
Credit Facility A Loans in an aggregate principal amount at any time outstanding
not to exceed $20,000,000 or such lesser amount to which such commitment may be
reduced pursuant to this Agreement.
"Revolving Credit Facility A Commitment Fee" has the meaning ascribed
------------------------------------------
to it in Section 2.04(a) hereof.
"Revolving Credit Facility A Extension Fee" shall have the meaning
-----------------------------------------
ascribed to it in Section 2.04(e) hereof.
"Revolving Credit Facility A Letter of Credit" means a Letter of
--------------------------------------------
Credit issued upon satisfaction of the conditions set forth in Section
2.01(h)(iii)(B) hereof.
"Revolving Credit Facility A Letter of Credit Liability" means all
------------------------------------------------------
liabilities of the Borrower to the Lenders in respect of Revolving Credit
Facility A Letters of Credit, whether or not such liability is contingent, and
shall consist of the sum of (i) the amount available to be drawn or which may
become available to be drawn under any and all outstanding Revolving Credit
Facility A Letters of Credit (regardless whether any conditions precedent to
such drawing have been satisfied), and (ii) all amounts which have been paid by
the Lenders thereunder, if and to the extent that the Lenders have not received
reimbursement therefor.
"Revolving Credit Facility A Loan" has the meaning ascribed to it in
--------------------------------
Section 2.01(c) hereof and shall include Outstanding Loans of that type.
"Revolving Credit Facility A Termination Date" has the meaning
--------------------------------------------
ascribed to it in Section 2.05(a)(ii) hereof.
"Revolving Credit Facility B Borrowing Date" means each Business Day
------------------------------------------
on and after the Effective Date and prior to the Revolving Credit Facility B
Termination Date.
"Revolving Credit Facility B Commitment" means the Lender's
--------------------------------------
commitment, in accordance with the terms of this Agreement, to make Revolving
Credit Facility B Loans in an aggregate principal amount at any time outstanding
not to exceed $10,000,000 or such lesser amount to which such commitment may be
reduced pursuant to this Agreement.
"Revolving Credit Facility B Commitment Fee" has the meaning ascribed
------------------------------------------
to in Section 2.04(b) hereof.
"Revolving Credit Facility B Extension Fee" shall have the meaning
-----------------------------------------
ascribed to it in Section 2.04(e) hereof.
22
<PAGE>
"Revolving Credit Facility B Lender" means The Sumitomo Bank, Limited
----------------------------------
and its successors and assigns in such capacity.
"Revolving Credit Facility B Letter of Credit" means a Letter of
--------------------------------------------
Credit issued upon satisfaction of the conditions set forth in Section
2.01(h)(iii)(C) hereof.
"Revolving Credit Facility B Letter of Credit Liability" shall mean
------------------------------------------------------
all liabilities of the Borrower to the Revolving Credit Facility B Lender in
respect of Revolving Credit Facility B Letters of Credit, whether or not such
liability is contingent, and shall consist of the sum of (i) the amount
available to be drawn or which may become available to be drawn under any and
all outstanding Revolving Credit Facility B Letters of Credit (regardless
whether any conditions precedent to such drawing have been satisfied), and (ii)
all amounts which have been paid by the Revolving Credit Facility B Lender
thereunder, if and to the extent that the Revolving Credit Facility B Lender has
not received reimbursement therefor.
"Revolving Credit Facility B Loan" has the meaning ascribed to it in
--------------------------------
Section 2.01(d) hereof.
"Revolving Credit Facility B Maturity Date" has the meaning ascribed
-----------------------------------------
to it in Section 2.05(a)(iii) hereof.
"Revolving Credit Facility B Termination Date" has the meaning
--------------------------------------------
ascribed to it in Section 2.05(a)(iii) hereof.
"Revolving Credit Fees" means, collectively, the Revolving Credit
---------------------
Facility A Commitment Fee and the Revolving Credit Facility B Commitment Fee.
"Revolving Loan" means, individually, each Revolving Credit Facility A
--------------
Loan and Revolving Credit Facility B Loan.
"Revolving Loans" means, collectively, all Revolving Credit Facility A
---------------
Loans and Revolving Credit Facility B Loans.
"Sale-Leaseback Transaction" means any arrangement with any Person
--------------------------
providing for the leasing by the Borrower or any Subsidiary of any real or
personal property that, or of any property similar to and used for substantially
the same purposes as any other property that, has been or is to be sold or
otherwise transferred by the Borrower or any of the Subsidiaries to such Person
with the intention of entering into such a lease, other than transactions with
respect to computer and related equipment entered into in the ordinary course of
business.
"SEC" means the United States Securities and Exchange Commission, and
---
any successor thereto.
"Second Amended and Restated Senior Secured Credit Agreement" means
-----------------------------------------------------------
the Second Amended and Restated Senior Secured Credit Agreement dated as of June
30, 1994 between Borrower and Lender, as amended by Amendment No. 1 thereto
dated as of June 30, 1995 and Amendment No. 2 thereto dated as of June 30, 1996.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time, and any successor statute.
"Security Agreements" means the Amended and Restated Security
-------------------
Agreement and the Subsidiary Security Agreement.
"Senior Loan Debt Service Coverage Ratio" means, at any date of
---------------------------------------
determination thereof, the ratio of (i) Consolidated EBITDA less all
----
contributions thereto of Subsidiaries except to the extent actually
23
<PAGE>
received as dividends by the Borrower, for the period of four consecutive fiscal
quarters ended on the last day of the last quarter ended prior to such date, to
(ii) scheduled principal payments under the Term Loan Installment Payment
Schedule and projected interest expense (at the interest rate in effect at the
date of determination) on the Loans, for the period of four consecutive fiscal
quarters beginning on the last day of the last quarter ended prior to such date.
"Senior Secured Obligations" means all present and future obligations
--------------------------
and liabilities of the Borrower of every type and description arising under or
in connection with this Agreement (other than liability for payment of principal
of or interest on the Mortgage Term Loan and the Mortgage Term Loan Fees) or any
other Loan Document (other than the Domestic Mortgage Term Note and the Euro-
Dollar Mortgage Term Note and the California Mortgages), due or to become due to
the Lenders or any Person entitled to indemnification pursuant to Section 9.02
hereof, or any of their respective successors, transferees or assigns, and shall
include, without limitation, (i) all liability of the Borrower for payment of
principal of and interest on the Senior Term Loan and the Revolving Loans and
under the Domestic Senior Term Note, the Euro-Dollar Senior Term Note, the
Domestic Revolving Credit Facility A Note, the Euro-Dollar Revolving Credit
Facility A Note, the Domestic Revolving Credit Facility B Note and the Euro-
Dollar Revolving Credit Facility B Note, (ii) all liability of the Borrower
hereunder or under the Loan Documents (other than the Domestic Mortgage Term
Note and the Euro-Dollar Mortgage Term Note and the California Mortgages) for
any fees, expense reimbursements and indemnifications, and (iii) any and all
other debts, obligations and liabilities of the Borrower to the Lenders
heretofore, now or hereafter incurred or created (and all renewals, extensions,
modifications and rearrangements thereof), under, in connection with, in respect
of, or evidenced or created by this Agreement (other than liability for payment
of principal of or interest on the Mortgage Term Loan and the Mortgage Term Loan
Fees) or any or all of the other Loan Documents (other than the Domestic
Mortgage Term Note and the Euro-Dollar Mortgage Term Note and the California
Mortgages), whether voluntary or involuntary, however arising, and whether due
or not due, absolute or contingent, secured or unsecured, liquidated or
unliquidated, determined or undetermined, direct or indirect, and whether the
Borrower may be liable individually or jointly with others, provided, however,
-------- -------
that the term "Senior Secured Obligations" shall not in any event include any of
the Specified Mortgage Loan Obligations.
"Senior Term Loan" means the Term Loan made pursuant to Section
----------------
2.01(a) hereof.
"Single Employer Plan" means a Plan which is not a Multiemployer Plan.
--------------------
"Solvent" means, with respect to any Person, that:
-------
(i) the total present fair salable value of such Person's assets on a
going concern basis is in excess of the total amount of such Person's
liabilities;
(ii) such Person is able to pay its debts as they become due; and
(iii) such Person does not have unreasonably small capital to carry on
such Person's business as theretofore operated and all businesses in which such
Person is about to engage.
"Specified Mortgage Loan Obligations" means (i) all liability of the
-----------------------------------
Borrower for payment of principal of and interest on the Mortgage Term Loan and
under the Domestic Mortgage Term Note and the Euro-Dollar Mortgage Term Note,
(ii) all liability of the Borrower for payment of the Mortgage Term Loan Fees
payable hereunder, and (iii) all present and future obligations and liabilities
of the Borrower of every type and description arising under or in connection
with any of the California Mortgages, including without limitation all liability
of the Borrower for any fees, expense reimbursements and indemnifications due or
to become due under Sections 1.04, 1.05, 1.07(a), 1.08(e), 1.11, 1.12, 1.17,
1.22, 1.25 and 6.07 of the California Mortgages or are otherwise payable
thereunder, in each case whether now or hereafter incurred or created (and all
renewals, extensions, modifications and rearrangements thereof, whether
voluntary or involuntary,
24
<PAGE>
however arising, and whether due or not due, absolute or contingent, secured or
unsecured, liquidated or unliquidated, determined or undetermined, direct or
indirect and whether the Company may be liable individually or jointly with
others.
"Stated Amount" means, with respect to a Letter of Credit, the maximum
-------------
amount available to be drawn thereunder, without regard to whether any
conditions to drawing could be met.
"Subordinated Debt" means Indebtedness outstanding under the Senior
-----------------
Subordinated Credit Agreement and any refinancing thereof permitted by Section
6.10 hereof, and any additional Indebtedness hereafter incurred by the Borrower
that is subordinated in right of payment to the Obligations on terms that are
satisfactory to the Agent.
"Subsidiary" means any corporation or other entity (i) of which more
----------
than fifty percent (50%) of the total voting power of the shares of capital
stock or other securities or other ownership interests entitled to vote in the
election of the Board of Directors or other persons performing similar functions
are at any time directly or indirectly owned by the Borrower or (ii) of which
more than fifty percent (50%) of the outstanding shares of stock of any class
(or of any other class of ownership interests), is owned, beneficially or of
record, directly or indirectly, by the Borrower or any of its Subsidiaries;
provided, however, that the term "Subsidiary" shall not include any of the
- -----------------
Persons set forth on Schedule 1.01(C).
"Subsidiary Guaranty" means the Amended and Restated Joint and Several
-------------------
General Continuing Guaranty dated as of November __, 1996 made by certain
Subsidiaries of the Borrower, including the Westmark Guarantors (the "Subsidiary
Guarantors") in favor of the Agent, for the benefit of the Lenders, as it may be
from time to time amended, supplemented or otherwise modified.
"Subsidiary Security Agreement" means the Amended and Restated
-----------------------------
Subsidiary Security Agreement dated as of November __, 1996 made by certain of
the Subsidiary Guarantors in favor of the Agent, for the benefit of the Lenders,
as it may be from time to time amended, supplemented or otherwise modified.
"Taxes" means any income, stamp and other taxes, charges, fees,
-----
levies, duties, imposts, withholdings or other assessments, together with any
interest and penalties, additions to tax and additional amounts imposed by any
federal, state, local or foreign taxing authority upon any Person, including
without limitation those assessed, levied or collected on or in respect of a
Loan solely as a result of the interest rate being determined by reference to
the Euro-Dollar Rate or the provisions of this Agreement relating to the Euro-
Dollar Rate, but excluding income taxes imposed on the Lender or its Euro-Dollar
Lending Office by the jurisdiction under the laws of which the Lender is
organized or the jurisdiction in which the Lender's Euro-Dollar Lending Office
is located.
"Term Loan Extension Fee" shall have the meaning ascribed to it in
-----------------------
Section 2.04(e) hereof.
"Term Loan Installment Payment Schedule" shall have the meaning set
--------------------------------------
forth in Section 2.05(a).
"Term Loans" means, collectively, the Senior Term Loan and the
----------
Mortgage Term Loan made pursuant to Section 2.01 hereof.
"Termination Event" means: (a) a Reportable Event or an event
-----------------
described in Section 4068(f) of ERISA; (b) the withdrawal of Borrower or any of
its ERISA Affiliates from a Multiple Employer Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the
cessation of operations at a facility in the circumstances described in Section
4068(f) of ERISA; (c) the filing of a notice of intent to terminate a Plan
(including any such notice with respect to a Plan amendment referred
25
<PAGE>
to in Section 4041(e) of ERISA) or the termination of a Plan excluding, for
purposes of this clause (c), any standard termination under Section 4041(b) of
ERISA; (d) the institution of proceedings to terminate a Plan by the PBGC; (e)
the appointment of a trustee to administer any Plan; or (f) any other event or
condition which might reasonably constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Trademarks" means trademarks, servicemarks and trade names, all
----------
registrations and applications to register such trademarks, servicemarks and
trade names and all renewals thereof, and the goodwill of the business
associated with or relating to such trademarks, servicemarks and trade names,
including without limitation any and all licenses and rights granted to use any
trademark, servicemark or trade name owned by any other person.
"Voting Stock" shall mean Capital Stock, the holders of which are
------------
entitled to vote on matters generally submitted for a vote of the stockholders
of a corporation.
"Westmark" shall mean, collectively, WREAP and Westmark Realty
--------
Advisors L.L.C., a Delaware limited liability company and a Wholly-Owned
Subsidiary of WREAP.
"Westmark Acquisition Agreement" shall mean the Purchase Agreement
------------------------------
dated as of May 15, 1995 among Westmark Acquisition Partnership, the Borrower,
and Vincent F. Martin, Jr., Stanton H. Zarrow, Bruce L. Ludwig, Sol L. Rabin,
Roger C. Schultz and certain other individuals (together, the "Westmark
Sellers"), and all schedules and exhibits thereto, as in effect on the Amendment
Effective Date (as defined in the Limited Waiver, Consent and Amendment No. 1
hereto dated as of June 30, 1995 (the "First Amendment")).
"Westmark Acquisition" shall mean the transactions contemplated by the
--------------------
Westmark Acquisition Documents.
"Westmark Acquisition Documents" means, collectively, the Agreement of
------------------------------
Limited Partnership of WREAP, dated as of May 15, 1995, the Westmark Acquisition
Agreement, the Realty Advisors Management Agreement, and each agreement
ancillary thereto, in each case together with all schedules and exhibits
thereto.
"Westmark Guaranty" shall mean the Continuing Guaranty dated as of
-----------------
November __, 1996, made by Westmark Real Estate Acquisition Partnership, L.P., a
Delaware partnership, in favor of the Lenders, as it may from time to time be
amended, supplemented or otherwise modified.
"Westmark Guarantors" shall mean the entities set forth on Schedule
-------------------
1.01D.
"Westmark Sellers" has the meaning ascribed to it in the definition of
----------------
Westmark Acquisition.
"Wholly Owned Subsidiary" means any Subsidiary all the shares of
-----------------------
Capital Stock or other ownership interests of which (except for directors'
qualifying shares) are at the time directly or indirectly owned by the Borrower.
"WREAP" means Westmark Real Estate Acquisition Partnership, L.P., a
-----
Delaware partnership, of which the Borrower and one or more Subsidiaries of the
Borrower are the only partners.
SECTION 1.02 CONSTRUCTION. Unless the context of this Agreement
------------
clearly requires otherwise, references herein to the plural include the
singular, the singular includes the plural, the part includes the whole, and the
word "including" is not limiting. References in this Agreement to any
"determination" by the Lender include good faith estimates by the Lender, as
applicable (in the case of quantitative determinations), and good faith beliefs
by the Lender, as applicable (in the case of qualitative determinations). The
words "hereof," "herein," '"hereby," "hereunder," and similar terms in this
Agreement
26
<PAGE>
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Article, section, subsection, exhibit and schedule references are to
this Agreement unless otherwise specified.
SECTION 1.03 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP as
in effect from time to time, applied on a basis consistent (except for changes
concurred in by the Borrower's independent public accountants) with the audited
consolidated financial statements of the Borrower and its consolidated
Subsidiaries referred to in Section 4.04.
SECTION 1.04 EXHIBITS. All of the exhibits and schedules attached to
--------
this Agreement shall be deemed incorporated herein by reference.
SECTION 1.05 OTHER DEFINITIONS. Terms otherwise defined in the
-----------------
description of the parties, the Recitals, within another definition in Section
1.01 hereof and in any other provisions of this Agreement or any of the other
Loan Documents not defined or referenced in Section 1.01 hereof shall have their
respective defined meanings when used herein or therein.
27
<PAGE>
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
------------------------------
SECTION 2.01 FACILITIES
----------
(a) Senior Term Loan Commitment. The Lender made a term loan (the
---------------------------
"Senior Term Loan") to the Borrower in a single borrowing on the Initial Funding
Date, in the principal amount of $152,000,000, of which $[ ] in
principal is outstanding on the date hereof.
(b) Mortgage Term Loan Commitment. The Lender made a term loan (the
-----------------------------
"Mortgage Term Loan") to the Borrower in a single borrowing on the Initial
Funding Date, in the principal amount of $18,000,000, all of which is
outstanding on the date hereof.
(c) Revolving Credit Facility A Commitment.
--------------------------------------
(i) Each Lender agrees, upon the terms and subject to the
conditions set forth in this Agreement, to make to the Borrower, from time to
time until the Business Day next preceding the Revolving Credit Facility A
Termination Date, revolving loans (each individually, a "Revolving Credit
Facility A Loan" and collectively, the "Revolving Credit Facility A Loans"), in
an amount which shall not exceed, in the aggregate at any time outstanding, such
Lender's Pro Rata Share of the then Revolving Credit Facility A Commitment less
----
such Lender's Pro Rata Share of the amount of Revolving Credit Facility A Letter
of Credit Liability then existing.
(ii) Revolving Credit Facility A Loans may be voluntarily prepaid
pursuant to Section 2.05(c)(ii) and, subject to the provisions of this
Agreement, any amounts so prepaid, or prepaid pursuant to Section 2.05(b) if the
Revolving Credit Facility A Commitment is not reduced as a result thereof
pursuant hereto, may be re-borrowed, up to the amount available under this
Section 2.01(c) at the time of such re-borrowing.
(d) Revolving Credit Facility B Commitment.
--------------------------------------
(i) The Revolving Credit Facility B Lender agrees, upon the terms
and subject to the conditions set forth in this Agreement, to make to the
Borrower, on each Revolving Credit Facility B Borrowing Date occurring from time
to time on and after the date hereof until the Business Day next preceding the
Revolving Credit Facility B Termination Date, revolving loans (each
individually, a "Revolving Credit Facility B Loan" and collectively, the
"Revolving Credit Facility B Loans"), in an amount which shall not exceed, in
the aggregate at any time outstanding, the then Revolving Credit Facility B
Commitment less the amount of Revolving Credit Facility B Letter of Credit
----
Liability then existing.
(ii) Revolving Credit Facility B Loans may be voluntarily prepaid
pursuant to Section 2.05(c) and, subject to the provisions of this Agreement,
any amounts so prepaid, or prepaid pursuant to Section 2.05(a) or Section
2.05(b) if the Revolving Credit Facility B Commitment is not reduced as a result
thereof pursuant hereto, may be re-borrowed, up to the amount available under
this Section 2.01(d) at the time of such re-borrowing.
(e) Notice of Borrowing
-------------------
(i) When the Borrower desires to borrow Revolving Credit Facility
A Loans, it shall deliver to the Agent a Notice of Borrowing no later than 10:00
a.m. (Los Angeles time) (A) at least two (2) Business Days in advance of the
proposed Funding Date, in the case of a borrowing of Prime Rate Loans,
28
<PAGE>
and (B) at least three (3) Euro-Dollar Business Days in advance of the proposed
Funding Date, in the case of a borrowing of Euro-Dollar Rate Loans.
(ii) When the Borrower desires to borrow Revolving Credit Facility
B Loans, it shall deliver to the Agent a Notice of Borrowing no later than 10:00
a.m. (Los Angeles time) (A) on the Revolving Credit Facility B Borrowing Date,
in the case of a borrowing of Prime Rate Loans, and (B) at least three (3) Euro-
Dollar Business Days in advance of the proposed Revolving Credit Facility
Borrowing Date, in the case of a borrowing of Euro-Dollar Rate Loans.
(iii) A Notice of Borrowing delivered pursuant to Section
2.01(e)(i) or (ii) shall specify (A) whether the proposed Revolving Loan is a
Revolving Credit Facility A Loan or a Revolving Credit Facility B Loan, (B) the
Funding Date (which shall be a Business Day and, in the case of a borrowing of
Euro-Dollar Rate Loans, a Euro-Dollar Business Day) in respect of the Revolving
Loan, (C) the amount of the proposed borrowing (which shall not in any event be
less than Five Hundred Thousand Dollars ($500,000), (D) whether the proposed
borrowing will be of Prime Rate Loans or Euro-Dollar Rate Loans, (E) in the case
of Euro-Dollar Rate Loans, the requested Interest Period; and (F) in the case of
a proposed borrowing of Revolving Credit Facility B Loans, whether the proposed
borrowing shall constitute an Acquisition Advance.
(iv) The Borrower shall notify the Agent in writing of the names of
its officers and employees authorized to request Revolving Loans on behalf of
the Borrower and shall provide the Agent with a specimen signature of each such
officer or employee. The Agent shall be entitled to rely conclusively on such
officer's or employee's authority to request a Revolving Loan on behalf of the
Borrower until the Agent receives written notice to the contrary. The Agent
shall not have any duty to verify the authenticity of the signature appearing on
any Notice of Borrowing.
(v) Any Notice of Borrowing delivered pursuant to this Section
2.01(e) shall be irrevocable.
(f) Funding of Revolving Loans.
--------------------------
(i) Upon receipt of a Notice of Borrowing delivered pursuant to
Section 2.01(e) that proposes a Revolving Loan that is a Revolving Credit
Facility A Loan, the Agent shall promptly notify each Lender with a Pro
Rata Share of the Revolving Credit Facility A Commitment of the contents
thereof and of such Lender's Pro Rata Share of such borrowing. Upon receipt
of a Notice of Borrowing delivered pursuant to Section 2.01(e) that
proposes a Revolving Loan that is a Revolving Credit Facility B Loan, the
Agent shall promptly notify the Revolving Credit Facility B Lender of the
contents thereof.
(ii) If a Notice of Borrowing delivered pursuant to Section 2.01(e)
proposes a Revolving Loan that is a Revolving Credit Facility A Loan, then
not later than 12:00 noon (Los Angeles time) on the Funding Date specified
in such Notice of Borrowing delivered pursuant to Section 2.01(e), each
Lender shall make available its Pro Rata Share of such borrowing, in
immediately available funds, to the Agent. If a Notice of Borrowing
delivered pursuant to Section 2.01(e) proposes a Revolving Loan that is a
Revolving Credit Facility B Loan, then not later than 12:00 noon (Los
Angeles time) on the Funding Date specified in such Notice of Borrowing
delivered pursuant to Section 2.01(e), the Revolving Credit Facility B
Lender shall make available the aggregate principal amount of such
borrowing, in immediately available funds, to the Agent.
(iii) If a Notice of Borrowing delivered pursuant to Section 2.01(e)
proposes a Revolving Loan that is a Revolving Credit Facility A Loan, then
not later than 2:00 p.m. (Los Angeles time) on the Funding Date specified
in such Notice of Borrowing delivered pursuant to Section 2.01(e), and
subject to and upon fulfillment of the applicable conditions set forth in
Article III
29
<PAGE>
hereof, the Agent shall make the aggregate principal amount of such
borrowing available to the Borrower in Dollars in immediately available
funds. If a Notice of Borrowing delivered pursuant to Section 2.01(e)
proposes a Revolving Loan that is a Revolving Credit Facility B Loan, then
not later than 2:00 p.m. (Los Angeles time) on the Funding Date specified
in such Notice of Borrowing delivered pursuant to Section 2.01(e), and
subject to and upon fulfillment of the applicable conditions set forth in
Article III hereof, the Agent shall make the aggregate principal amount of
such borrowing available to the Borrower in Dollars in immediately
available funds.
(iv) Unless (a) the Agent shall have been notified by a Lender
prior to the date upon which a Loan is to be made or (b) the Agent shall
have been notified by the Borrower prior to the date on which the Borrower
is required to make any payment hereunder that such Lender or the Borrower,
as the case may be (the "Obligated Party"), does not intend to make
available to the Agent the Obligated Party's portion of such Loan or such
payment, the Agent may assume that the Obligated Party will make such
amount available to the Agent on such date and the Agent may, in reliance
upon such assumption (but shall not be required to), make available to the
Borrower (in the case of a Loan) or the Lenders (in the case of a payment
by the Borrower) a corresponding amount. If such corresponding amount is
not in fact made available to the Agent by the Obligated Party, the Agent
shall be entitled to recover such amount on demand from the Obligated Party
(or, in the case of a Loan, if the Lender that is the Obligated Party fails
to pay such amount forthwith upon such demand, from the Borrower). Such
amount shall be payable together with interest thereon from the day on
which such corresponding amount was made available by the Agent to the
Lender or the Borrower, as applicable, to the date of payment by the
Obligated Party (or the Borrower, as applicable), at a rate of interest
equal to (i) in the case of any payment by any other Lender, the Federal
Funds Rate, and (ii) in the case of any payment by the Borrower, the
interest rate applicable to the Loan.
(g) Use of Proceeds of Revolving Loans.
----------------------------------
(i) The proceeds of Revolving Credit Facility A Loans may be used
for general corporate purposes of the Borrower; provided, that the proceeds of
--------
any Revolving Credit Facility A Loan made on the date of a drawing under a
Revolving Credit Facility A Letter of Credit and referred to in Section
2.01(h)(v)(B) hereof shall be applied to satisfy the reimbursement obligation of
the Borrower to the Issuing Bank in respect of such drawing.
(ii) The proceeds of Revolving Credit Facility B Loans may be used
for general corporate purposes of the Borrower, including without limitation
Permitted Acquisitions; provided, that the proceeds of any Revolving Credit
--------
Facility B Loans made on the date of a drawing under a Revolving Credit Facility
B Letter of Credit and referred to in Section 2.01(h)(v)(B) hereof shall be
applied to satisfy the reimbursement obligation of the Borrower to the Revolving
Credit Facility B Lender in respect of such drawing.
(iii) No part of the proceeds of Revolving Loans shall be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock or maintaining or extending
credit to others for such purpose or for any other purpose which otherwise
violates the Margin Regulations.
(h) Letters of Credit.
-----------------
(i) Issuance. Subject to the provisions of this Section 2.01(h)
--------
and Sections 3.02 and 3.03 hereof, the Borrower may request that the Issuing
Bank issue for the account of the Borrower one or more Letters of Credit as
provided herein with expiry dates not later than 365 days from the date of
issuance and in any event, in the case of a Revolving Credit Facility A Letter
of Credit, not later than thirty (30) days prior to the Revolving Credit
Facility A Termination Date and in the case of a Revolving Credit
30
<PAGE>
Facility B Letter of Credit, not later than thirty (30) days prior to the
Revolving Credit Facility B Maturity Date.
(ii) Procedure. The Borrower shall have delivered to the Issuing
---------
Bank and the Agent at least five (5) Business Days prior to the date on which
the Letter of Credit is requested to be issued a letter of credit application
and a letter of credit reimbursement agreement (collectively, a "Letter of
Credit Application") and such other documents and materials as may be required
pursuant to the terms thereof, and each of such documents shall be in form and
substance satisfactory to the Issuing Bank and the Agent. In the event of a
conflict between the terms of any Letter of Credit Application and this
Agreement, the terms of this Agreement shall govern. Upon receipt by the Agent
of a Letter of Credit Application, the Agent shall promptly notify each Lender
of the consents thereof and such Lender's Pro Rata Share of such Letter of
Credit.
(iii) Additional Conditions Precedent to Issuance of Letters of
---------------------------------------------------------
Credit
- ------
(A) In addition to the issuance of any Letter of Credit being
subject to the satisfaction of the conditions precedent set forth in
Sections 3.02 and 3.03 hereof, the Issuing Bank shall not be obligated to
issue any Letter of Credit hereunder if, as of the date of issuance of the
proposed Letter of Credit, any order, judgment or decree of any court,
arbitrator or Governmental Authority shall purport by its terms to enjoin
or restrain the Issuing Bank from issuing the Letter of Credit or any law,
rule or regulation applicable to the Issuing Bank or any request or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over the Issuing Bank shall prohibit or request
that the Issuing Bank refrain from the issuance of letters of credit
generally or such Letter of Credit or shall impose upon the Issuing Bank
with respect to that Letter of Credit any restriction or reserve
requirement not in effect on the date of this Agreement or any unreimbursed
cost or expense which was not applicable, in effect or known to the Issuing
Bank on or as of the date of this Agreement and which the Issuing Bank in
good faith deems materially adverse to it in respect of circumstances known
to it as of the date of this Agreement;
(B) In addition to the conditions precedent set forth in
Section 2.01(h)(iii)(A) above and the conditions precedent set forth in
Section 3.02 hereof, the Issuing Bank shall not be obligated to issue any
Revolving Credit Facility A Letter of Credit hereunder if the maximum
amount available for drawing under the proposed Revolving Credit Facility A
Letter of Credit, when added to the aggregate existing Letter of Credit
Liability, would exceed the lesser of (i) the Letter of Credit Amount, or
(ii) the then effective Revolving Credit Facility A Commitment less the
----
aggregate amount of Revolving Credit Facility A Loans then outstanding and
Revolving Credit Facility A Loans, if any, requested to be made
simultaneously with the issuance of such proposed Revolving Credit Facility
A Letter of Credit;
(C) In addition to the conditions precedent set forth in
Section 2.01(h)(iii)(A) above and the conditions precedent set forth in
Sections 3.02 and 3.03 hereof, the Issuing Bank shall not be obligated to
issue any Revolving Credit Facility B Letter of Credit if the maximum
amount available for drawing under the proposed Revolving Credit Facility B
Letter of Credit, when added to the aggregate existing Revolving Credit
Facility B Letter of Credit Liability, would exceed the Revolving Credit
Facility B Commitment less the aggregate amount of Revolving Credit
----
Facility B Loans then outstanding and Revolving Credit Facility B Loans, if
any, requested to be made simultaneously with the issuance of such proposed
Revolving Credit Facility B Letter of Credit.
(D) The requirements of this Section 2.01(h) and the
provisions of Sections 3.02 and 3.03 shall also apply to any extension,
renewal or increase of a Letter of Credit.
(iv) Participations in Revolving Credit Facility A Letters of
--------------------------------------------------------
Credit.
- ------
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(A) Immediately upon the issuance of a Revolving Credit
Facility A Letter of Credit, each Lender with a Revolving Credit Facility A
Commitment shall be deemed to have irrevocably purchased from the relevant
Issuing Bank a participation in such Letter of Credit and any drawing
thereunder in an amount equal to such Lender's Pro Rata Share of the Stated
Amount of such Letter of Credit.
(B) If the Issuing Bank shall not be reimbursed for any
drawing under any Revolving Credit Facility A Letter of Credit issued by it
as provided in Section 2.01(h)(v), the Issuing Bank shall promptly notify
the Agent, and the Agent shall promptly notify each Lender of the
unreimbursed amount of such drawing and of such Lender's respective
participation therein. Each Lender shall make available to the Issuing Bank
an amount equal to its respective participation in immediately available
funds, at the office of such Issuing Bank specified in such notice, not
later than the Business Day after the date on which the Agent gives such
notice. Each Lender's obligations under this Section 2.01(h)(iv)(B): (a)
shall not be subject to any set-off, counterclaim or defense to payment
that the Lender may have against the Borrower or against the Issuing Bank
and (b) shall be absolute, unconditional and irrevocable, and as a primary
obligor, not as a surety, notwithstanding any circumstance or event
whatsoever, including (i) the occurrence of an Event of Default or Default,
(ii) the failure of any other Lender to fund its participation as required
hereby, (iii) the financial condition of the Borrower or any Lender or any
set-off, counterclaim or defense to payment that the Borrower may have, or
(iv) the termination or cancellation of the Revolving Credit Facility A
Commitment. If any Lender fails to make available to the Issuing Bank the
amount of such Lender's participation in the Letter of Credit as provided
in this Section 2.01(h)(iv)(B), such amount shall bear interest at the
Federal Funds Rate from the day on which the Agent's notice referred to
above is given until paid. The Issuing Bank shall pay to the Agent, and the
Agent shall distribute to each Lender that has paid all amounts payable by
it under this Section (iv)(B), such Lender's Pro Rata Share of all payments
received by the Issuing Bank from the Borrower in reimbursement of drawings
honored by the Issuing Bank under a Letter of Credit, as and when such
payments are received.
(v) Reimbursement Obligations. Notwithstanding any provisions to
-------------------------
the contrary in any Letter of Credit Application:
(A) Any reimbursement obligation owing with respect to a
drawing under any Letter of Credit shall be due and payable on the date of
such drawing. In the case of a Revolving Credit Facility A Letter of
Credit, such reimbursement obligation shall be first paid with the proceeds
of a Revolving Credit Facility A Loan which the Borrower shall be deemed to
have requested pursuant to Section 2.01(e) hereof, which Revolving Credit
Facility A Loan shall be made on the date of such drawing without regard to
satisfaction of conditions precedent to the making of Revolving Loans set
out in Section 3.02 hereof. In the case of a Revolving Credit Facility B
Letter of Credit, such reimbursement obligation shall be paid with the
proceeds of a Revolving Credit Facility B Loan which the Borrower shall be
deemed to have requested pursuant to Section 2.01(e) hereof, which
Revolving Credit Facility B Loan shall be made on the date of such drawing
without regard to the satisfaction of conditions precedent to the making of
Revolving Loans set out in Sections 3.02 and 3.03 hereof;
(B) All Letter of Credit Liability shall constitute part of
the Senior Secured Obligations and shall be secured by the Collateral
securing the Senior Secured Obligations. All payments and proceeds of such
Collateral at any time available for application to the payment of the
Obligations may be applied, at the sole discretion of the Agent, to pay any
past due Revolving Credit Facility B Letter of Credit Liability, to fund
any deposit to secure any Revolving Credit Facility B Letter of Credit
Liability, to pay any Revolving Credit Facility B Loans, to pay any past
due Revolving Credit Facility A Letter of Credit Liability or to fund any
deposit to secure any Revolving Credit Facility A Letter of Credit
Liability.
32
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(vi) Indemnification; Nature of Issuing Bank's Duties. The Borrower
------------------------------------------------
hereby agrees to protect, indemnify and save any Issuing Bank harmless from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees) which the Issuing
Bank may incur or be subject to as a consequence, direct or indirect, of (A) the
issuance of any Letter of Credit, other than as a result of the willful
misconduct or gross negligence of the Issuing Bank, as determined by a court of
competent jurisdiction, or (B) the failure of the Issuing Bank to honor a
drawing under such Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
Governmental Authority having jurisdiction over the Issuing Bank. As between the
Borrower and the Issuing Bank, the Borrower assumes all risks of the acts and
omissions of, or misuse of such Letters of Credit by, the respective
beneficiaries of the Letters of Credit. In furtherance and not in limitation of
the foregoing, subject to the provisions of any of the Letter of Credit
Applications, the Issuing Bank shall not be responsible:
(I) For the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted to the Issuing Bank
by any party in connection with the application for and issuance of the
Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(II) For the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole
or in part, which may prove to be invalid or ineffective for any reason;
(III) For failure of the beneficiary of a Letter of Credit to
comply fully with conditions required by the Letter of Credit in order to
draw upon such Letter of Credit;
(IV) For errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex
or otherwise;
(V) For errors in interpretation of technical terms;
(VI) For any loss or delay in the transmission of any document
required in order to make a drawing under any Letter of Credit or of the
Proceeds thereof;
(VII) For the misapplication by the beneficiary of a Letter of
Credit of the Proceeds of any drawing under such Letter of Credit; or
(VIII) For any consequences arising from causes beyond the
control of the Issuing Bank.
None of the above shall affect, impair, or prevent the vesting of any
of the Issuing Bank's rights or powers hereunder, or limit the liability of the
Issuing Bank in the event of willful misconduct by or gross negligence of the
Issuing Bank or its officers, directors, employees or agents. The indemnity
described in this Section 2.01(h)(vi) shall be subject to the procedures set out
in Section 9.02(b) hereof.
(vii) Increased Capital. If either (A) the introduction of or any
-----------------
change in the interpretation of any law or regulation or (B) compliance by the
Issuing Bank or any Lender with any guideline or request from any central bank
or other Governmental Authority (whether or not having the force of law) affects
or would affect the amount of capital required or expected to be maintained by
the Issuing Bank or any corporation controlling the Issuing Bank, or any Lender
or any corporation controlling any such Lender, and the Issuing Bank or the
Lender reasonably determines that the amount of such capital is increased by or
based upon the existence of such Letter of Credit (or participation therein)
then, upon demand by the Issuing Bank or the Lender, the Borrower shall pay to
the Issuing Bank or the Lender, as the case may be,
33
<PAGE>
from time to time such additional amounts as may be specified by the Issuing
Bank or the Lender as sufficient to compensate it in light of such
circumstances, to the extent that the Issuing Bank or the Lender, as the case
may be, reasonably determines such increase in capital to be allocable to the
issuance or maintenance of any Letter of Credit. A certificate as to such
amounts submitted to the Borrower by the Issuing Bank or the Lender shall, in
the absence of manifest error, be conclusive and binding for all purposes.
(viii) Letter of Credit Fees. The Borrower shall pay in advance on
---------------------
the date of issuance of any Letter of Credit and annually in advance thereafter
for so long as such Letter of Credit is outstanding, a fee (a "Letter of Credit
Fee") of two and one-half percent (2.50%) per annum, computed by applying the
annual rate, on the basis of the actual number of days elapsed in a 360-day
year, to the maximum amount available under such Letter of Credit as of the date
the fee is payable, for the number of days in the succeeding year or (if fewer
days) until the expiry date of the Letter of Credit. Such Letter of Credit Fee
shall be paid (A) to the Agent, for the account of the Lenders, in the case of
any Revolving Credit Facility A Letter of Credit, in accordance with their
respective Pro Rata Shares, and (B) to the Agent, for the account of the
Revolving Credit Facility B Lender, in the case of any Revolving Credit Facility
B Letter of Credit. A Letter of Credit Fee shall also be payable, on the same
basis, for any extension, increase or renewal of a Letter of Credit. A
certificate as to such amounts submitted to the Borrower by the Agent shall, in
the absence of manifest error, be conclusive and binding for all purposes.
SECTION 2.02 INTEREST. Each Term Loan and Revolving Loan shall bear,
--------
and the Borrower agrees to pay, interest on the outstanding principal amount
thereof at the applicable rates and at the times set forth below:
(a) Prime Rate Loans. Each Term Loan and Revolving Loan, or a portion
----------------
of any thereof, shall, for so long as it shall be a Prime Rate Loan, bear, and
the Borrower agrees to pay, interest on the outstanding principal amount thereof
until due (whether at maturity, by reason of prepayment or acceleration or
otherwise), or converted into a Loan of another type, at a rate per annum equal
to the Prime Rate as in effect from time to time plus the Applicable Margin.
----
(b) Euro-Dollar Rate Loans. Each Term Loan and Revolving Loan, or a
----------------------
portion of any thereof, shall, for so long as it shall be a Euro-Dollar Rate
Loan, bear, and the Borrower agrees to pay, interest on the outstanding
principal amount thereof until due (whether at maturity, by reason of prepayment
or acceleration or otherwise), or converted into a Loan of another type, at a
rate per annum equal to the Euro-Dollar Rate for each Interest Period applicable
thereto plus the Applicable Margin.
----
(c) Post-Default Rate. Notwithstanding Section 2.02(a) and (c)
-----------------
hereof, (i) if at any time an Event of Default shall occur, and for as long
thereafter as such Event of Default shall be continuing, without further notice
or demand, the outstanding principal amount of the Term Loans and Revolving
Loans (and overdue interest thereon, if any, to the extent permitted by
Applicable Law) and (ii) any amount due and payable hereunder or under any other
Loan Document not paid when due, shall bear interest at a rate per annum equal
to the applicable Post-Default Rate.
(d) Payment. Interest shall be payable in arrears on each Interest
-------
Payment Date. Interest also shall be payable, in respect of any Loan, when such
Loan becomes due (whether at maturity, by reason of prepayment or acceleration
or otherwise) or is converted, but only to the extent then accrued on the amount
then so due or converted. Interest accrued at the Post-Default Rate shall be
payable on demand.
(e) Conversion or Continuation.
--------------------------
(i) Subject to the provisions of this Section 2.02(e) and Section
2.07 hereof, the Borrower shall have the option (A) to convert all or any part
of its outstanding Prime Rate Loans to Euro-Dollar Rate Loans at any time, (B)
to convert all or any part of its outstanding Euro-Dollar Rate Loans to a
34
<PAGE>
Prime Rate Loan upon the expiration of the Interest Period applicable thereto,
or (C) to continue all or any part of any Euro-Dollar Rate Loan as a Loan of the
same type upon the expiration of the Interest Period applicable thereto,
provided that, in the case of clause (A) or (C), there does not exist a Default
- --------
or an Event of Default at such time.
(ii) Each Euro-Dollar Rate Loan constituting all or a portion of
either of the Term Loans shall be in an amount equal to at least $1,000,000 and
integral multiples of $1,000,000 in excess thereof, and each Euro-Dollar Rate
Loan constituting all or a portion of the Revolving Loans shall be in an amount
equal to $500,000 or an integral multiple thereof. The Senior Term Loan shall
not at any time be divided into more than one (1) Prime Rate Loan and three (3)
Euro-Dollar Rate Loans; the Mortgage Term Loan shall not at any time be divided
into more than one (1) Prime Rate Loan and one (1) Euro-Dollar Rate Loan; the
Revolving Credit Facility A Loans shall not at any time be divided into more
than one (1) Prime Rate Loan and four (4) Euro-Dollar Rate Loans; and the
Revolving Credit Facility B Loans shall not at any time be divided into more
than one (1) Prime Rate Loan and one (1) Euro-Dollar Rate Loan.
(iii) If the Borrower elects or is required to convert or continue a
Loan under this Section 2.02(e), it shall deliver a Notice of
Conversion/Continuation to the Agent not later than 10:00 a.m. (Los Angeles
time) (A) at least three (3) Euro-Dollar Business Days in advance of the
proposed conversion or continuation date, if the Borrower proposes or is
required to convert into, or to continue, a Euro-Dollar Rate Loan, and (B)
otherwise not later than 10:00 a.m. (Los Angeles time) on the Business Day next
preceding the proposed conversion or continuation. A Notice of
Conversion/Continuation shall specify, if applicable, (I) the proposed
conversion or continuation date (which shall be a Business Day and, if the
Borrower proposes to convert into, or continue, a Euro-Dollar Rate Loan, a Euro-
Dollar Business Day), (II) the amount and type of the Loan to be converted or
continued, (III) the nature of the proposed conversion or continuation, and (IV)
in the case of a conversion to, or continuation of, a Euro-Dollar Rate Loan, the
Interest Period to be applicable to such Euro-Dollar Rate Loan. If a Notice of
Continuation of any Euro-Dollar Rate Loan is not made in accordance with this
Section 2.02(e) with respect to any Euro-Dollar Rate Loan, then, subject to
Section 2.02(e)(iv), such Euro-Dollar Rate Loan shall, without any action on the
part of the Borrower, be converted into a Prime Rate Loan with a one (1) month
Interest Period.
(iv) Notwithstanding anything in this Agreement to the contrary, if
a Default or an Event of Default shall have occurred and is then continuing,
upon the expiration of the Interest Period applicable to Euro-Dollar Rate Loan,
such Euro-Dollar Rate Loan shall then be converted into a Prime Rate Loan,
provided that each Euro-Dollar Rate Loan shall be converted into a Prime Rate
- --------
Loan immediately upon the Term Loan (or either of them) and/or the Revolving
Loans becoming due and payable pursuant to Section 7.02(a) hereof or being
declared to be due and payable pursuant to Section 7.02(b) hereof.
(v) Any Notice of Conversion/Continuation for conversion into, or
continuation of, a Euro-Dollar Rate Loan shall be irrevocable and the Borrower
shall be bound to convert or continue in accordance therewith.
(vi) The Borrower may not select, with respect to any Loans
constituting all or a portion of the Senior Term Loan, any Interest Period that
ends after any Installment Payment Date for the Senior Term Loans unless, after
giving effect to such selection, the aggregate principal amount of Prime Rate
Loans and of Euro-Dollar Rate Loans constituting all or a portion of the Senior
Term Loans having Interest Periods which end prior to such Installment Payment
Date shall be greater than or equal to the amount of principal that is due and
payable on such Installment Payment Date. The Borrower may not select, with
respect to any Revolving Loans, any Interest Period that ends after the
Revolving Credit Facility A Termination Date, in the case of Revolving Credit
Facility A Loans, or the Revolving Credit Facility B Maturity Date, in the case
of Revolving Credit Facility B Loans. The Borrower may not select an Interest
Period for any Loan that terminates later than the Maturity Date.
35
<PAGE>
(f) Computations. Interest on each Loan shall accrue from day to day
------------
from and including the date of the making of such Loan to and excluding the due
date or the date of any repayment thereof. Interest on each Loan shall be
computed on the basis of a 360-day year and paid for the actual number of days
elapsed. Any change in the interest rate on any Loan resulting from a change in
the rate applicable thereto in accordance with the terms hereof shall become
effective as of the opening of business on the day on which such change in the
applicable rate shall become effective. Each determination of an interest rate
by the Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower in the absence of manifest error.
(g) Maximum Lawful Rate of Interest. The rate of interest payable on
-------------------------------
any Loan shall in no event exceed the maximum rate permissible under Applicable
Law. If the rate of interest payable on any Loan is ever reduced as a result of
this subsection and at any time thereafter the maximum rate permitted by
Applicable Law shall exceed the rate of interest provided for in this Agreement,
then the rate provided for in this Agreement shall be increased to the maximum
rate provided by Applicable Law for such period as is required so that the total
amount of interest received by each Lender is that which would have been
received by such Lender but for the operation of the first sentence of this
subsection.
SECTION 2.03 NOTES.
-----
(a) Senior Term Loan Notes. The portion of the Senior Term Loan owing
----------------------
to each Lender that constitutes a Domestic Loan or Domestic Loans shall be
evidenced by a single Domestic Senior Term Note of the Borrower made payable to
the order of such Lender and representing the obligation of the Borrower to pay
the lesser of (i) the amount of such Lender's Senior Term Loan or (ii) the
aggregate unpaid principal amount of such Lender's Senior Term Loan that from
time to time constitutes a Domestic Loan, with interest thereon as prescribed by
Section 2.02 hereof. The portion of the Senior Term Loan owing to each Lender
that constitutes a Euro-Dollar Loan or Euro-Dollar Loans shall be evidenced by a
single Euro-Dollar Senior Term Note of the Borrower made payable to the order of
such Lender and representing the obligation of the Borrower to pay the lesser of
(i) the amount of such Lender's Senior Term Loan or (ii) the aggregate unpaid
principal amount of all such Euro-Dollar Loans outstanding, with interest
thereon as prescribed by Section 2.02 hereof. Each Senior Term Loan Note shall
be dated the date of this Agreement and stated to mature in accordance with the
Senior Term Loan Installment Payment Schedule.
(b) Mortgage Term Loan Notes. The portion of the Mortgage Term Loan
------------------------
owing to each Lender that constitutes a Domestic Loan or Domestic Loans shall be
evidenced by a single Domestic Mortgage Term Note of the Borrower made payable
to the order of such Lender and representing the obligation of the Borrower to
pay the lesser of (i) the amount of such Lender's Mortgage Term Loan or (ii) the
aggregate unpaid principal amount of such Lender's Mortgage Term Loan that from
time to time constitutes a Domestic Loan, with interest thereon as prescribed by
Section 2.02. The portion of the Mortgage Term Loan owing to each Lender that
constitutes a Euro-Dollar Loan or Euro-Dollar Loans shall be evidenced by a
single Euro-Dollar Mortgage Term Note of the Borrower made payable to the order
of such Lender and representing the obligation of the Borrower to pay the lesser
of (i) the amount of such Lender's Mortgage Term or (ii) the aggregate unpaid
principal amount of all such Euro-Dollar Loans outstanding, with interest
thereon as prescribed by Section 2.02 hereof. Each Mortgage Term Loan Note
shall be dated the date of this Agreement and stated to mature on the Maturity
Date.
(c) Revolving Credit Facility A Loan Notes. The portion of the
--------------------------------------
Revolving Credit Facility A Loans owing to each Lender that constitutes a
Domestic Loan or Domestic Loans shall be evidenced by a single Domestic
Revolving Credit Facility A Note of the Borrower payable to the order of such
Lender and representing the obligation of the Borrower to pay the lesser of (i)
the amount of the such Lender's Pro Rata Share of the Revolving Credit Facility
A Commitment or (ii) the aggregate unpaid principal amount of such Lender's
Revolving Credit Facility A Loans, with interest thereon as prescribed by
Section 2.02 hereof. The portion of the Revolving Credit Facility A Loans that
constitutes a Euro-Dollar Loan or Euro-Dollar Loan
36
<PAGE>
owing to each Lender shall be evidenced by a single Euro-Dollar Revolving Credit
Facility A Note of the Borrower payable to the order of such Lender and
representing the obligation of the Borrower to pay the lesser of (i) the amount
of the Revolving Credit Facility A Commitment or (ii) the aggregate unpaid
principal amount of all such Euro-Dollar Revolving Credit Facility A Loans
outstanding, with interest thereon as prescribed by Section 2.02 hereof. Each
Revolving Credit Facility A Note shall be dated the date of this Agreement and
stated to mature on the Maturity Date.
(d) Revolving Credit Facility B Loan Notes. The portion of the
--------------------------------------
Revolving Credit Facility B Loans that constitutes a Domestic Loan shall be
evidenced by a single Domestic Revolving Credit Facility B Note of the Borrower
made payable to the order of the Revolving Credit Facility B Lender and
representing the obligation of the Borrower to pay the lesser of (i) the amount
of the Revolving Credit Facility B Commitment or (ii) the aggregate unpaid
principal amount of all such Revolving Credit Facility B Loans, with interest
thereon as prescribed by Section 2.02 hereof. The portion of the Revolving
Credit Facility B Loans that constitutes a Euro-Dollar Loan or Euro-Dollar Loans
shall be evidenced by a single Euro-Dollar Revolving Credit Facility B Note of
the Borrower made payable to the order of the Revolving Credit Facility B Lender
and representing the obligation of the Borrower to pay the lesser of (i) the
amount of the Revolving Credit Facility B Commitment or (ii) the aggregate
unpaid principal amount of all such Euro-Dollar Revolving Credit Facility B
Loans outstanding, with interest thereon as prescribed by Section 2.02 hereof.
Each Revolving Credit Facility B Note shall be dated the date of this Agreement
and stated to mature on the Revolving Credit Facility B Maturity Date.
(f) Substitution of Notes; Notation of Amounts and Maturities. Each
---------------------------------------------------------
Lender is hereby irrevocably authorized to record on each Note the date, type
and amount of each Loan outstanding hereunder, the Interest Period and interest
rate applicable thereto in the case of Loans bearing interest at a Fixed Rate,
and the date and amount of each borrowing, in the case only of the Domestic
Revolving Note and the Euro-Dollar Revolving Note, and each payment or
prepayment of principal thereof on the schedules forming a part thereof and to
attach to and make a part of any Note a continuation of any such schedule as and
when required. The failure to record, or any error in recording, any such Loan
or repayment on such schedule (or continuation thereof) or similar records shall
not, however, affect the obligations of the Borrower hereunder or under any Note
to repay the principal amount of the Loans together with all interest accrued
thereon. All such notations shall constitute conclusive evidence of the
accuracy of the information so recorded, in the absence of manifest error.
SECTION 2.04 FEES.
----
(a) Revolving Credit Facility A Commitment Fees. The Borrower shall
-------------------------------------------
pay to the Agent, for the account of the Lenders in accordance with their
respective Pro Rata Shares of the Revolving Credit Facility A Commitment, a
commitment fee (a "Revolving Credit Facility A Commitment Fee") accruing at the
rate of one-half of one percent (0.50%) per annum from and after the date of
this Agreement until the Revolving Credit Facility A Termination Date, upon the
excess from time to time, if any, of the Lender's Revolving Credit Facility A
Commitment over the sum of (i) the aggregate principal amount of Revolving
Credit Facility A Loans outstanding and (ii) the existing Revolving Credit
Facility A Letter of Credit Liability. The Revolving Credit Facility A
Commitment Fee shall be payable quarterly in arrears on the first Business Day
of the immediately succeeding calendar quarter. All Revolving Credit Facility A
Commitment Fees shall be calculated on the basis of the actual number of days
elapsed in a 360-day year. The Borrower shall pay to the Agent, for the account
of the Lenders in accordance with their respective Pro Rata Shares of the
Revolving Credit Facility A Commitment, the amount of any accrued but unpaid
Revolving Credit Facility A Commitment fee under the Second Amended and Restated
Senior Secured Credit Agreement in full on the Effective Date.
(b) Revolving Credit Facility B Commitment Fees. The Borrower shall
-------------------------------------------
pay to the Agent, for the account of the Revolving Credit Facility B Lender, a
commitment fee (a "Revolving Credit
37
<PAGE>
Facility B Commitment Fee") accruing at the rate of one-half of one percent
(0.50%) per annum from and after the date of this Agreement until the Revolving
Credit Facility B Termination Date, upon the excess from time to time, if any,
of the Lender's Revolving Credit Facility B Commitment over the sum of (i) the
aggregate principal amount of Revolving Credit Facility B Loans outstanding and
(ii) the existing Revolving Credit Facility B Letter of Credit Liability. The
Revolving Credit Facility B Commitment Fee that accrues in any calendar quarter
from and after the date of this Agreement shall be payable quarterly in arrears
on the first Business Day of the immediately succeeding calendar quarter. All
Revolving Credit Facility B Commitment Fees shall be calculated on the basis of
the actual number of days elapsed in a 360-day year. The Borrower shall pay to
the Agent, for the account of the Revolving Credit Facility B Lender, the amount
of any accrued but unpaid Revolving Credit Facility B Commitment fee under the
Second Amended and Restated Senior Secured Credit Agreement in full on the
Effective Date.
(c) Agent Fee. On or before the Effective Date, the Borrower shall
---------
pay to the Agent, for its own account, the agent's fee set forth in that certain
letter agreement dated November __, 1996 between Borrower and the Agent (the
"Fee Letter"). In addition, the Borrower shall pay to the Agent an annual
Agent's fee in accordance with, and in an amount set out in, the Fee Letter.
(d) Accrued Fees. On or before the Effective Date, the Borrower shall
------------
pay to the Agent, for the account of the Lenders, all accrued and unpaid
Revolving Credit Facility A Commitment Fees under the Second Amended and
Restated Senior Secured Credit Agreement and all accrued and unpaid Letter of
Credit Fees relating to any Revolving Credit Facility A Letter of Credit under
the Second Amended and Restated Senior Secured Credit Agreement. On or before
the Effective Date, the Borrower shall pay to the Agent, for the Account of the
Revolving Credit Facility B Lender, all accrued and unpaid Revolving Credit
Facility B Commitment Fees under the Second Amended and Restated Senior Secured
Credit Agreement and all accrued and unpaid Letter of Credit Fees relating to
any Revolving Credit Facility B Letter of Credit under the Second Amended and
Restated Senior Secured Credit Agreement.
(e) Extension Fees. On or before the Effective Date, the Borrower
--------------
shall pay an extension fee in the amount of $100,000 (the "Revolving Credit
Facility A Extension Fee") to the Agent, for the account of the Lenders, ratably
in accordance with each such Lender's Pro Rata Share of the Revolving Credit
Facility A Commitment. On or before the Effective Date, the Borrower shall pay
an extension fee in the amount of $100,000 (the "Revolving Credit Facility B
Extension Fee") to the Agent for the account of the Revolving Credit Facility B
Lender. On or before the Effective Date, the Borrower shall pay an extension
fee in the total amount of $315,000 (the "Term Loan Extension Fee") to the
Agent, for the account of the Lenders, ratably in accordance with each such
Lender's Pro Rata Share of the Term Loans.
(f) Deferred Amendment Fee. On or before the Effective Date, the
----------------------
Borrower shall pay to the Agent, for the account of the Lenders, the Deferred
Amendment Fee.
(g) Deferred Letter of Credit Fee. On the Maturity Date, the Borrower
-----------------------------
shall pay to the Agent, for the account of the Lenders, ratably in accordance
with their respective Pro Rata Shares of the Revolving Credit Facility A
Commitment, the Deferred Letter of Credit Fee.
SECTION 2.05 PAYMENTS AND PREPAYMENTS.
------------------------
(a) Repayment; Termination of Revolving Credit Commitments.
------------------------------------------------------
(i) (A) The Borrower shall repay to the Agent, for the account of
the Lenders, ratably in accordance with their respective Pro Rata Shares of the
outstanding Term Loans, the Term Loans in installments each equal to $2,625,000,
commencing on March 31, 1997 and continuing on each Installment Payment Date
thereafter to and including September 30, 2001, and the remaining principal
amount thereof on the Maturity Date (such schedule of mandatory installment
payments of the Term Loans being referred to
38
<PAGE>
herein as the "Term Loan Installment Payment Schedule"). Each such payment shall
be applied first to the Senior Term Loans until the Senior Term Loans are paid
in full, and then to the Mortgage Term Loans. Each Term Loan shall be paid in
full on or prior to the Maturity Date. The principal amount of the Term Loans
prepaid or repaid by the Borrower may not be re-borrowed. The Borrower shall, at
all times during the period that any of the Term Loans remain outstanding,
maintain Prime Rate Loans or Euro-Dollar Rate Loans with Interest Periods
expiring on or before the next scheduled Installment Payment Date in an
aggregate amount at least equal to the next scheduled principal repayment
thereof.
(B) The Borrower shall prepay to the Agent, for the account
of the Revolving Credit Facility B Lender, each Revolving Credit Facility B Loan
that constitutes an Acquisition Advance in installments each equal to 5% of the
original principal amount of such Acquisition Advance, commencing on the second
Installment Payment Date to occur after the Funding Date of such Acquisition
Advance and continuing on each Installment Payment Date thereafter to and
including September 30, 1999, and the remaining principal amount thereof on the
Revolving Credit Facility B Termination Date. Any amount prepaid pursuant to
this Section 2.05(a)(i)(B) can, subject to the conditions and upon the terms
hereof, be re-borrowed at any time up to and including the Business Day next
preceding the Revolving Credit Facility B Termination Date.
(ii) The Revolving Credit Facility A Commitment shall expire
without further action on the part of the Lenders on the earlier of (A) December
31, 2001 and (B) the date of termination of the Revolving Credit Facility A
Commitment pursuant to Section 2.05(b)(v) or 2.05(c)(iii) or Section 7.02(a) or
7.02(b) hereof (such earlier date being referred to herein as the "Revolving
Credit Facility A Termination Date"). All outstanding Revolving Credit Facility
A Loans shall be paid in full on the Revolving Credit Facility A Termination
Date.
(iii) The Revolving Credit Facility B Commitment shall expire
without further action on the part of the Revolving Credit Facility B Lender on
the earlier of (A) December 31, 1999 (the "Revolving Credit Facility B Maturity
Date"), and (B) the date of termination of the Revolving Credit Facility B
Commitment pursuant to Section 2.05(b)(v) or 2.05(c)(iv) or Section 7.02(a) or
7.02(b) hereof, or (C) such later date to which the Revolving Credit Facility B
Lender may, in its sole and absolute discretion, extend such termination date
(the earlier of the Revolving Credit Facility B Maturity Date or any such
earlier or later date of termination being referred to herein as the "Revolving
Credit Facility B Termination Date"); provided, however, that any extension of
-------- -------
the Revolving Credit Facility B Termination Date to a date after December 31,
1999 shall not affect the maturity date of any other Loan or any installment
payment of principal due thereon. All outstanding Revolving Credit Facility B
Loans shall be paid on the Revolving Credit Facility B Termination Date.
(b) Mandatory Prepayments.
---------------------
(i)(A) Upon receipt (x) subject to the limitation set forth in
Section 2.05(b)(ii)(B), by or for the account of the Borrower or any of its
Subsidiaries of any Net Cash Proceeds derived from any Asset Disposition or
(y) by or for the account of Holdings, the Borrower or any of its
Subsidiaries of any Excess Proceeds of Issuance of Stock, the Borrower
shall make a prepayment, without premium or penalty, of the Term Loans and
Revolving Loans (and deliver cash collateral to the Agent in respect of,
and to the extent of, any existing Letter of Credit Liability) in an amount
equal to one hundred percent (100%) of such Net Cash Proceeds or twenty-
five percent (25%) of such Excess Proceeds of Issuance of Stock so
received.
(B) The Borrower shall give the Agent not less than three (3)
Business Days' prior written notice of the date on which each Mandatory
Prepayment will be made (which date shall be no later than the date on
which such Mandatory Prepayment becomes due and payable pursuant to this
Section 2.05(b)(i)).
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(ii) Mandatory Prepayments shall be applied as follows:
(A) Each Mandatory Prepayment based upon Net Cash Proceeds
derived from an Asset Disposition relating to assets other than Real
Property subject to a California Mortgage shall be applied first, to prepay
installments of principal of the Senior Term Loan in the inverse order of
maturity thereof until the Senior Term Loan is paid in full, second, to
prepay the principal of the Revolving Loans then outstanding and to provide
cash collateral in respect of Letter of Credit Liability then existing,
provided that such prepayment and provision of cash collateral shall be
--------
made pro rata as between Revolving Credit Facility A Loans and Letters of
--- ----
Credit, on one hand, and Revolving Credit Facility B Loans and Letters of
Credit, on the other hand, on the basis of the respective aggregate amounts
of principal of such Loans then outstanding and Letter of Credit Liability
then existing with respect to such Letters of Credit, and then to prepay
the installments of principal of the Mortgage Term Loan in the inverse
order of maturity thereof until the Mortgage Term Loan is paid in full;
(B) Each Mandatory Prepayment based upon Net Cash Proceeds
derived from an Asset Disposition relating to Real Property subject to a
California Mortgage shall be applied first, to prepay the installments of
principal of the Mortgage Term Loan in the inverse order of maturity
thereof until the Mortgage Term Loan is paid in full, second, to prepay the
installments of principal of the Senior Term Loan in the inverse order of
maturity thereof until the Senior Term Loan is paid in full, and then, to
prepay the principal of Revolving Loans then outstanding and to provide
cash collateral in respect of Letter of Credit Liability then existing,
provided that such prepayment and provision of cash collateral shall be
--------
made pro rata as between Revolving Credit Facility A Loans and Letters of
--- ----
Credit, on one hand, and Revolving Credit Facility B Loans and Letters of
Credit, on the other hand, on the basis of the respective aggregate amounts
of principal of such Loans then outstanding and Letter of Credit Liability
then existing with respect to such Letters of Credit (provided, however,
--------
that notwithstanding any other provision of this Agreement or any
California Mortgage, the application of any such Net Cash Proceeds to any
Indebtedness other than the Mortgage Term Loan secured by such California
Mortgage shall not be a condition to the release of such California
Mortgage); and
(C) Each Mandatory Prepayment based upon Excess Proceeds of
Issuance of Stock shall be applied first, to prepay the installments of
principal of the Senior Term Loan in the inverse order of maturity thereof
until the Senior Term Loan is paid in full, second, to prepay the principal
of Revolving Loans then outstanding and to provide cash collateral in
respect of Letter of Credit Liability then existing, provided that such
--------
prepayment and provision of cash collateral shall be made pro rata as
--- ----
between Revolving Credit Facility A Loans and Letters of Credit, on one
hand, and Revolving Credit Facility B Loans and Letters of Credit, on the
other hand, on the basis of the respective aggregate amounts of principal
of such Loans then outstanding and Letter of Credit Liability then existing
with respect to such Letters of Credit, and then to prepay the installments
of principal of the Mortgage Term Loan in the inverse order of maturity
thereof until the Mortgage Term Loan is paid in full.
(iii) If at any time the aggregate principal amount of Revolving
Credit Facility A Loans then outstanding plus the Revolving Credit Facility A
----
Letter of Credit Liability then existing exceeds the Revolving Credit Facility A
Commitment, the Borrower shall make a prepayment to the extent of such excess,
without premium or penalty, of the Revolving Credit Facility A Loans, and then,
to the extent of any remaining excess, provide cash collateral in respect of
Revolving Credit Facility A Letter of Credit Liability. If at any time the
aggregate principal amount of the Revolving Credit Facility B Loans then
outstanding plus the Revolving Credit Facility B Letter of Credit Liability then
----
existing exceeds the Revolving Credit Facility B Commitment, the Borrower shall
make a prepayment to the extent of such excess, without premium or penalty, of
the Revolving Credit Facility B Loans, and then, to the extent of any remaining
excess, provide
40
<PAGE>
cash collateral in respect of Revolving Credit Facility B Letter of Credit
Liability.
(iv) Each prepayment of the Term Loans and the Revolving Loans
shall be made together with payment of accrued interest on the amount prepaid to
the date of prepayment and any amounts payable in respect of such prepayment
pursuant to Section 2.11 hereof.
(v) Each Mandatory Prepayment applied to prepay the outstanding
Revolving Loans pursuant to Section 2.05(b)(ii)(A) or Section 2.05(b)(ii)(B)
shall permanently reduce, on the date on which such prepayment is made and by
the amount so applied, the Revolving Credit Facility A Commitment and the
Revolving Credit Facility B Commitment. Any Mandatory Prepayment applied to
prepay the outstanding Revolving Loans pursuant to Section 2.05(b)(ii)(C), and
any prepayment pursuant to Section 2.05(b)(iii) applied to prepay the
outstanding Revolving Loan, shall not result in a reduction of the Revolving
Credit Facility A Commitment or the Revolving Credit Facility B Commitment, as
the case may be.
(vi) Each Mandatory Prepayment shall be deemed applied first to
reduce the Prime Rate Loan constituting a portion of the respective Term Loans
or the Revolving Loans, as the case may be, and then to the Euro-Dollar Rate
Loans constituting a portion of any thereof, in each case in inverse order of
termination of Interest Periods applicable thereto.
(c) Optional Prepayments.
--------------------
(i) The Borrower may, at its option, at any time or from time to
time, prepay the Term Loans in whole or in part, without premium or penalty,
upon not less than ten (10) Business Days' notice, except that (A) any
prepayment shall be in an aggregate principal amount of at least $500,000, and
in integral multiples of $100,000 in excess thereof (or, alternatively, the
whole amount of either of the Term Loans then outstanding), and (B) any
prepayment of a Euro-Dollar Rate Loan shall (unless the Borrower pays
concurrently therewith any amounts coming due pursuant to Section 2.11 hereof in
respect of such prepayment) be made only on the last day of the Interest Period
applicable thereto. Any notice of optional prepayment shall be irrevocable, and
the payment amount specified in such notice shall be due and payable on the date
specified in such notice, together with interest accrued thereon to such date.
Each such optional prepayment of the Term Loans shall be applied first to the
installments of principal of the Senior Term Loan in the inverse order of
maturity thereof until the Senior Term Loan is paid in full, and then to the
installments of principal of the Mortgage Term Loan in the inverse order of
maturity thereof until the Mortgage Term Loan is paid in full.
(ii) The Borrower may, at its option, prepay any outstanding
Revolving Loans in whole or in part at any time, without premium or penalty,
except that (A) any prepayment shall be in an aggregate principal amount of at
least $100,000 and in integral multiples thereof (or, alternatively, the whole
amount of all of the Revolving Loans then outstanding), and (B) any prepayment
of a Euro-Dollar Rate Loan shall be made only on the last day of the Interest
Period applicable thereto. Any amount prepaid pursuant to this Section
2.05(c)(ii) can, subject to the conditions and upon the terms hereof, be re-
borrowed at any time up to and including the Business Day next preceding the
Revolving Credit Facility A Termination Date, in the case of re-borrowings of
Revolving Credit Facility A Loans, or the Business Day next preceding the
Revolving Credit Facility B Termination Date, in the case of re-borrowings of
Revolving Credit Facility B Loans.
(iii) The Borrower shall have the right, at any time or from time
to time after the date hereof, to terminate in whole or permanently reduce in
part, without premium or penalty, the Revolving Credit Facility A Commitment in
an amount up to the difference between the then Revolving Credit Facility A
Commitment and the aggregate principal amount of Revolving Credit Facility A
Loans outstanding. The Borrower shall give the Agent not less than three (3)
Business Days' prior written notice of such termination or reduction and the
amount of any partial reduction. Such termination or partial reduction of the
Revolving Credit Facility A Credit Commitment shall be effective on the date
specified in the Borrower's
41
<PAGE>
notice. Any such partial reduction of the Revolving Credit Facility A Commitment
shall be in a minimum amount of $1,000,000 and an integral multiple thereof.
(iv) The Borrower may, with the prior written consent of the Agent
and the Revolving Credit Facility B Lender, at any time or from time to time
after the date hereof, terminate in whole or permanently reduce in part, without
premium or penalty, the Revolving Credit Facility B Commitment in an amount up
to the difference between the then Revolving Credit Facility B Commitment and
the aggregate principal amount of Revolving Credit Facility B Loans outstanding.
Any such partial reduction of the Revolving Credit Facility B Commitment shall
be in a minimum amount of $1,000,000 and an integral multiple thereof.
(d) Mandatory Zero Balance Period. The Borrower shall prepay in full
-----------------------------
the principal amount of all Revolving Credit Facility A Loans and maintain a
zero balance for a minimum of 30 consecutive days during each twelve month
period, beginning with the twelve month period commencing on the Effective Date.
SECTION 2.06 MANNER OF PAYMENT. All payments due to the Lenders
-----------------
hereunder shall be made to the Agent not later than 12:00 noon local time on the
due date thereof, in Dollars in immediately available funds, without any
deduction whatsoever, including but not limited to any deduction for any set-
off, recoupment, counterclaim or Taxes.
SECTION 2.07 MANDATORY SUSPENSION AND CONVERSION OF EURO-DOLLAR RATE
-------------------------------------------------------
LOANS. Each Lender's obligation to make or continue, or convert Prime Rate
- -----
Loans into, Euro-Dollar Rate Loans shall be suspended, all outstanding Euro-
Dollar Loans shall be converted on the last day of the respective Interest
Periods applicable thereto (or, if earlier, in the case of clause (ii) below, on
the last day that the Lender can lawfully continue to maintain Loans of that
type) into Prime Rate Loans and all pending requests for the making of,
conversion into, or continuation of, Euro-Dollar Loans shall be disregarded, if:
(i) on or prior to the determination of an interest rate for a
Euro-Dollar Rate Loan for any Interest Period, the Agent determines that for any
reason appropriate quotations are not available to it in the London interbank
market for purposes of determining the Euro-Dollar Rate or that such rate would
not accurately reflect the cost to the Lenders of continuing, or converting a
Prime Rate Loan into, a Euro-Dollar Rate Loan for such Interest Period; or
(ii) at any time a Lender determines that any Regulatory Change
makes it unlawful or impossible for such Lender or its Lending Office to make or
maintain any Euro-Dollar Rate Loan, or to comply with its obligations hereunder
in respect thereof.
SECTION 2.08 REGULATORY CHANGES.
------------------
(a) Increased Costs. If any Regulatory Change:
---------------
(i) shall subject any Lender (or its Lending Office) to any
Tax or change the basis of taxation of payments to such Lender of principal,
interest, Fees or any other amount payable hereunder (except for changes in the
rate of Tax on the overall net income of the Lender); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit, compulsory loan, insurance or similar requirement (other than
any such requirement with respect to any Fixed Rate Loan to the extent included
in the applicable Reserve Requirement or Assessment Rate), against, or any fees
or charges in respect of, assets held by, deposits with or other liabilities for
the account of, commitments of, advances or loans by or other credit extended
by, any Lender (or its Lending Office) or shall impose on such Lender (or such
Lending Office) or on the relevant interbank market any other condition
affecting the
42
<PAGE>
Euro-Dollar Rate Loans, the Euro-Dollar Notes or such Lender's obligation to
make Euro-Dollar Rate Loans, and the effect of the foregoing is to increase the
cost to such Leader (or its Lending Office) of making, renewing or maintaining
any Euro-Dollar Rate Loan or the Commitments, to reduce the amount of any sum
received or receivable by such Lender (or such Lending Office) under this
Agreement or under the Euro-Dollar Notes, or to require such Lender to make any
payment on or calculated by reference to the gross amount of any amount received
by it hereunder or under any Euro-Dollar Notes;
then the Borrower shall from time to time pay to the Agent, for the account of
such Lender, upon demand by such Lender, such additional amounts as may be
specified by such Lender as sufficient to compensate such Lender for such
increased cost, reduction or requirement. A certificate as to the amount of such
increased cost, reduction or requirement, submitted to the Borrower by such
Lender, shall be final and conclusive and binding upon the Borrower for all
purposes, absent manifest error.
(b) Capital Costs. The Borrower shall from time to time pay to each
-------------
Lender, upon demand by such Lender, such additional amounts as may be specified
by such Lender as sufficient to compensate such Lender for any costs which such
Lender determines are attributable to the maintenance by it (or its Lending
Office), pursuant to any Regulatory Change that affects or would affect the
amount of capital required or expected to be maintained by such Lender (or its
Lending Office) or any corporation controlling such Lender, of capital in
respect of its Loans and Commitments hereunder (such compensation to include,
without limitation, an amount equal to any reduction of the rate of return on
the capital of such Lender (or its Lending Office) to a level below that which
such Lender (or its Lending Office) could have achieved but for such Regulatory
Change). A certificate as to such amounts, submitted to the Borrower by such
Lender, shall be conclusive and binding for all purposes, absent manifest error.
SECTION 2.09 TAXES. The Borrower agrees (a) to pay all amounts
-----
payable by it under this Agreement or any Note free and clear of and without
liability for, and, subject to the provisions of this Section 2.09, without
deduction or withholding for, any and all Taxes; and (b) to pay when due, and
reimburse each Lender upon demand for any payment made by such Lender of, and
indemnify and hold such Lender harmless against any liability for, (i) any and
all Taxes in any way related to this Agreement, the Term Loans or the Revolving
Loans or any Loan or the Revolving Credit Commitment, other than income and
franchise taxes imposed upon such Lender by the jurisdictions (or any political
subdivision thereof) in which such Lender's principal executive office or a
Lending Office is located, and (ii) all interest and penalties resulting from or
related to any delay in paying any such Taxes; provided that such Lender shall
--------
deliver to the Borrower upon request by the Borrower a duly executed certificate
to the effect that, as of the date of such certificate, such Lender is entitled
to receive all payments made hereunder without deduction or withholding of
United States federal income tax (A) pursuant to the terms of an applicable tax
treaty in effect with the United States of America (in which case such
certificate shall be accompanied by two executed copies of Internal Revenue
Service Form 1001), (B) under Code Section 1441(c) (in which case such
certificates shall be accompanied by two executed copies of Form 4224 of the
Internal Revenue Service), or (C) pursuant to an exemption certificate received
from the Internal Revenue Service (in which case such certificates shall be
accompanied by a copy of said exemption certificate). Promptly after the date
on which payment of any Taxes are due pursuant to applicable law, the Borrower
will furnish to the Agent evidence, in form and substance satisfactory to the
Agent, that the Borrower has satisfied its obligations under this Section 2.09.
If the Borrower is required by Applicable Law to make any deduction or
withholding in respect of any Taxes from any amount payable under this Agreement
or any Note, the Borrower agrees to pay to each Lender, on the date such amount
is payable, such additional amounts as each Lender determines may be necessary
so that the net amounts received by the Lenders, in the aggregate, after all
applicable deductions or withholdings, shall equal the amount that the Lenders
would have been entitled to receive if no deductions or withholdings were made.
SECTION 2.10 LENDING OFFICE. Each Lender may make, carry or transfer
--------------
Euro-Dollar Rate Loans at, to, or for the account of an Affiliate of the Lender,
provided, however, the Lender shall not be entitled to receive any greater
- -------- -------
amount under Section 2.08 or 2.09 hereof as a result of the transfer of any such
43
<PAGE>
Loan than the Lender would be entitled to immediately prior thereto unless (a)
such transfer occurred at a time when circumstances giving rise to the claim for
such greater amount did not exist and (b) such claim would have arisen even if
such transfer had not occurred.
SECTION 2.11 COMPENSATION FOR FUNDING LOSSES. In addition to the
-------------------------------
amounts required to be paid by the Borrower pursuant to Sections 2.07, 2.08 and
2.09 hereof, the Borrower shall pay to the Agent, for the account of each
Lender, upon demand by such Lender, such amount or amounts as such Lender
determines is or are necessary to compensate it for any loss, cost, expense or
liabilities incurred (including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or redeployment of deposits) by it as a
result of (a) any payment, prepayment or conversion of a Euro-Dollar Rate Loan
for any reason (including, without limitation, upon a Mandatory Prepayment
pursuant to Section 2.05(b), by reason of an acceleration pursuant to Section
7.02 hereof or pursuant to Section 2.07 hereof) on a date other than the last
day of an Interest Period applicable to such Euro-Dollar Rate Loan, or (b) a
Euro-Dollar Rate Loan for any reason not being made, converted or continued, or
any payment of principal of or interest thereon not being made, on the date
therefor determined in accordance with the applicable provisions of this
Agreement.
SECTION 2.12 DETERMINATIONS. Any determination contemplated by
--------------
Section 2.07, 2.08, 2.09, 2.10 or 2.11 that is made by the Agent, the Required
Lenders, or the Lenders, as the case may be, shall be final, conclusive and
binding upon the Borrower, in the absence of manifest error in computation, and
shall be communicated in sufficient detail to permit the Borrower to understand
such determination.
44
<PAGE>
ARTICLE III
CONDITIONS TO LOANS
-------------------
SECTION 3.01 CONDITIONS PRECEDENT TO EFFECTIVE DATE. The occurrence
--------------------------------------
of the Effective Date shall be subject to satisfaction of all of the following
conditions precedent:
(a) Effective Date. The Effective Date shall have occurred on or
--------------
before [March 31, 1997].
(b) Public Offering. Holdings shall have completed a public offering
---------------
of shares of its Capital Stock (the "Initial Public Offering"), and the IPO Net
Proceeds shall be at least $65,000,000.
(c) Distribution of IPO Net Proceeds.
--------------------------------
(i) The total amount of IPO Net Proceeds up to $69,350,000 shall
have been paid to the Agent, for the account of the Lenders in accordance
with their Pro Rata Shares, and applied first, to Deferred Interest, and
second, to prepay principal of the Senior Term Loan.
(ii) The amount of IPO Net Proceeds, if any, in excess of
$69,350,000 shall have been paid as follows: (x) 50% of the amount of IPO
Net Proceeds, if any, in excess of $69,350,000 shall have been paid to the
Agent, for the account of the Lenders in accordance with their respective
Pro Rata Shares, and applied first, to prepay principal of the Senior Term
Loan until the Senior Term Loan is paid in full, and second, to prepay
principal of the Mortgage Term Loan, and (y) 50% of such amount of IPO Net
Proceeds in excess of $69,350,000 shall be retained by Borrower to use for
general corporate purposes that are not prohibited by the terms of this
Agreement; provided, that the Borrower may use up to $____________ of the
--------
amount retained by it pursuant to clause (y) above to pay in cash unpaid
interest accrued under the Senior Subordinated Credit Agreement from June
30, 1994 to the Effective Date.
(d) Certain Loan Documents. The Agent shall have received all of the
----------------------
following, all of which shall be in form and substance satisfactory to the
Lenders:
(i) This Agreement, executed by the Borrower, together with all
required Schedules hereto, which are in each case complete and correct in
all material respects as of the Effective Date;
(ii) Each Note, executed by the Borrower and payable to the order
of each Lender;
(iii) Guaranties executed by each of Holdings and the Subsidiary
Guarantors; and
(iv) the Amended and Restated Senior Subordinated Credit
Agreement, executed by the Borrower, Holdings and the other guarantors
identified therein and Sumitomo Finance (Dublin) Limited.
(e) Certain Corporate Documentation. The Agent shall have received
-------------------------------
all of the following, all of which shall be in form and substance satisfactory
to the Lenders:
45
<PAGE>
(i) a copy of the Borrower's Certificate of Incorporation, as
amended, modified or supplemented as of a date not more than five days
prior to the Effective Date, certified to be true, correct and complete by
the Secretary of State of Delaware as of a recent date prior to such date,
together with a long-form good standing certificate from the Secretary of
State of Delaware and a good standing certificate from the Secretary of
State of each State in which Holdings is qualified to do business, each to
be dated a recent date prior to such date; and
(ii) a copy of Holdings' Certificate of Incorporation, as
amended, modified or supplemented as of a date not more than five days
prior to the Effective Date, certified to be true, correct and complete by
the Secretary of State of Delaware as of a recent date prior to such date,
together with a long-form good standing certificate from the Secretary of
State of Delaware and a good standing certificate from the Secretary of
State of each State in which Holdings is qualified to do business, each to
be dated a recent date prior to such date.
(f) Legal Opinion. The Lender shall have received a favorable legal
-------------
opinion dated the Effective Date addressed to the Lender from Pillsbury Madison
& Sutro LLP, counsel to the Borrower, Holdings and the Subsidiaries, in
substantially the form of Exhibit K hereto.
(g) Certain Collateral Documents. The Agent shall have received all
----------------------------
other notices, consents, waivers, estoppel certificates and other documents
relating to the Collateral or the Collateral Documents that the Agent may
request.
(h) Certain Other Documents. The Agent shall have received copies of
-----------------------
the financial information described in Section 4.04 hereof, certified as
specified therein.
(i) Certain Corporate Officers' Certificates. The Agent shall have
----------------------------------------
received:
(i) A certificate, in substantially the form of Exhibit L-1
hereto, signed by the Chairman of the Board or President and by the Chief
Financial Officer or Treasurer of the Borrower, dated the Effective Date,
certifying, after due inquiry, (A) that the representations and warranties
herein contained as to the Borrower and its Subsidiaries are true and
correct in all material respects, as if made on and as of the Effective
Date, (B) that no Default or Event of Default has occurred and is
continuing and (C) that all of the conditions precedent set forth in this
Section 3.01 and in Section 3.02 hereof have been satisfied;
(ii) A certificate or certificates of the Secretary of the
Borrower dated the Effective Date certifying (A) the names and true
signatures of the officers of the Borrower authorized to sign the Loan
Documents executed by the Borrower, (B) the By-laws of the Borrower as in
effect on the date of such certification, (C) the resolutions of the
Borrower's Board of Directors approving and authorizing the transactions
contemplated by the Loan Documents, (D) that such resolutions have not been
modified or rescinded and remain in full force and effect, and (E) that
there have been no changes in the Certificate of Incorporation of the
Borrower since the date of the certification thereof by the Secretary of
State of Delaware;
(iii) A certificate signed by the Chairman of the Board or
President of Borrower in substantially the form of Exhibit L-2 hereto,
dated the Effective Date, certifying the Amended Certificate of
Incorporation of Borrower to be filed with the Secretary of State of
Delaware on the Effective Date; and
(iv) A certificate signed by the Chairman of the Board or
President of Holdings in substantially the form of Exhibit L-3 hereto,
dated the Effective Date, certifying the
46
<PAGE>
Amended Certificate of Incorporation of Holdings to be filed with the
Secretary of State of Delaware on the Effective Date.
(j) Corporate Proceedings. All corporate proceedings taken or to be
---------------------
taken by Holdings, the Borrower and the Borrower's Subsidiaries in connection
herewith shall be satisfactory to the Agent in its sole discretion, and it shall
have received original or certified copies of such documents as it may request.
(k) Interest, Fees and Expenses Paid. The Borrower shall have paid to
--------------------------------
the Agent, for the account of the Lenders, all of the accrued Deferred Interest
and all Fees (including, without limitation, all Deferred Letter of Credit Fees
and the Deferred Amendment Fee) and other fees and expenses that are due and
payable on or before the Effective Date. The Borrower shall have paid to the
Agent, for the account of the Lenders, all accrued and unpaid interest due on
the Loans under the Second Amended and Restated Senior Secured Credit Agreement
as of the Effective Date.
(l) Approvals and Consents. All Government Approvals and material
----------------------
third party consents required to effect the transactions contemplated hereby, or
by any other Loan Document, shall have been obtained and be in full force and
effect, without imposition of onerous conditions upon any such transaction.
(m) No Material Adverse Change. No material adverse change shall have
--------------------------
occurred since June __, 1996 in the business, assets, prospects, results of
operations or financial condition of the Borrower or the Borrower and its
Subsidiaries, taken as a whole.
(n) Filing of Amended Certificates of Incorporation for Borrower and
----------------------------------------------------------------
Holdings. Within five (5) Business Days after the Effective Date, Holdings
- --------
shall have filed an Amended Certificate of Incorporation of Holdings with the
Secretary of State of Delaware in the form certified to the Agent and the
Lenders on the Effective Date pursuant to Section 3.01(i)(iv) hereof. Within
five (5) Business Days after the Effective Date, Borrower shall have filed an
Amended Certificate of Incorporation of Borrower with the Secretary of State of
Delaware in the form certified to the Agent and the Lenders on the Effective
Date pursuant to Section 3.01(i)(iii) hereof.
(o) General. All other documents and legal matters in connection with
-------
the transactions contemplated by this Agreement shall have been delivered or
executed or recorded in form and substance satisfactory to the Lender in its
sole discretion, and Lender shall have received all such counterpart originals
or certified copies thereof as Lender may request.
SECTION 3.02 CONDITIONS PRECEDENT TO ALL REVOLVING LOANS AND LETTERS
-------------------------------------------------------
OF CREDIT. The obligation of the Lenders to make Revolving Loans and to issue
- ---------
Letters of Credit on any Funding Date, including, without limitation, the
Effective Date, shall be subject to satisfaction of all of the following
conditions precedent:
(a) Notice of Borrowing; Letter of Credit Application. The Borrower
-------------------------------------------------
shall have delivered to the Agent a Notice of Borrowing in accordance with
Section 2.01(e) hereof, in the case of a Revolving Loan, or to the Issuing Bank
a Letter of Credit Application in accordance with Section 2.01(h) hereof, in the
case of a Letter of Credit. Each submission by the Borrower to the Agent of a
Notice of Borrowing with respect to a Revolving Loan or to an Issuing Bank of a
Letter of Credit Application with respect to a Letter of Credit and the
acceptance by the Borrower of the proceeds of each such Revolving Loan made
hereunder or the issuance of a Letter of Credit for the account of the Borrower,
shall constitute a representation and warranty by the Borrower as of the Funding
Date in respect of such Revolving Loan, or the date of issuance of such Letter
of Credit, as the case may be, that all of the conditions contained in this
Section 3.02 have been satisfied.
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(b) Representations and Warranties. All of the representations and
------------------------------
warranties of the Borrower contained in Article IV hereof and in any other Loan
Documents shall be true and correct in all material respects on and as of the
Funding Date as though made on and as of that date (except to the extent that
such representations and warranties expressly were made only as of a specific
date).
(c) No Default. No Default or Event of Default shall have occurred
----------
and be continuing or would result from the making of the Revolving Loan or the
issuance of the Letter of Credit.
(d) No Prohibition or Adverse Litigation. No Applicable Law shall
------------------------------------
prohibit, and no litigation shall be pending or threatened which in the judgment
of the Lender could, if adversely determined, prevent or make unlawful, or
impose any material adverse condition upon, the Revolving Loans or any other
Loan Document, or Holdings' or the Borrower's or any of its Subsidiaries'
ability to perform their respective obligations hereunder or thereunder (except,
in the case of any Subsidiary, if such condition upon such Subsidiary's ability
to perform would not have a material adverse effect upon the business, assets,
prospects, results of operation or financial condition of the Borrower or the
Borrower and its Subsidiaries, taken as a whole).
48
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants as follows:
Section 4.01 ORGANIZATION, POWERS AND GOOD STANDING.
--------------------------------------
(a) Organization and Powers. The Borrower and each of its
-----------------------
Subsidiaries is a corporation or other business entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite power and authority and the legal right to
own and operate its properties and to carry on its business as heretofore
conducted. The Borrower has all requisite corporate power and authority to
enter into this Agreement, the other Loan Documents to which it is a party, to
issue the Notes and to carry out the transactions contemplated hereby and
thereby. Each Subsidiary has all requisite power and authority to enter into
each Loan Document to which it is a party and to carry out the transactions
contemplated thereby. The Borrower and each of its Subsidiaries possesses all
Governmental Approvals, in full force and effect, free from burdensome
restrictions, that are necessary for the ownership, maintenance and operation of
its properties and conduct of its business as now conducted and is not in
violation thereof, except where the failure to so possess such Governmental
Approvals or a violation of any such Governmental Approval would not have a
material adverse effect upon the business, assets, prospects, results of
operation or financial condition of the Borrower or the Borrower and its
Subsidiaries, taken as a whole.
(b) Good Standing. The Borrower and each of its Subsidiaries is duly
-------------
qualified and in good standing as a foreign corporation or other business entity
and authorized to do business in each state where the nature of its business
activities conducted or properties owned or leased requires it to be so
qualified and where the failure to be so qualified could have a material adverse
effect upon the business, assets, prospects, results of operation or financial
condition of the Borrower or the Borrower and its Subsidiaries, taken as a
whole.
(c) Subsidiaries. On the date hereof, the Borrower has no
------------
Subsidiaries other than those identified in Schedule 4.01 hereto. Except as set
forth on Schedule 4.01 hereto, on the date hereof neither the Borrower nor any
of its Subsidiaries owns or holds, directly or indirectly, any Capital Stock or
equity security of, or any equity interest in, any corporation or business other
than the Borrower's Subsidiaries.
(d) Capital Stock of Subsidiaries. The authorized Capital Stock of
-----------------------------
each of the Borrower's Subsidiaries on the date hereof, and the number of shares
of Capital Stock of each such Subsidiary outstanding on the date hereof, is set
out in Schedule 4.01. Except as disclosed in Schedule 4.01, on the date hereof
the Borrower is the sole legal and beneficial owner of all shares of outstanding
Capital Stock of each of its Subsidiaries, free and clear of any Lien, except
(when effective in accordance with its terms) as provided by the CBCREG Pledge
Agreement. All of the outstanding shares of Capital Stock of each of the
Borrower's Subsidiaries have been duly authorized and validly issued and are
fully paid and nonassessable. There are not outstanding any securities
convertible into or exchangeable for shares or other units of Capital Stock of
any of the Borrower's Subsidiaries, or any options, warrants or rights to
purchase any such Capital Stock or any commitments of any kind for the issuance
of additional shares or other units of such Capital Stock or any such
convertible or exchangeable securities or options, warrants or rights to
purchase such Capital Stock.
SECTION 4.02 AUTHORIZATION, BINDING EFFECT, NO CONFLICT, ETC.
------------------------------------------------
(a) Authorization by the Borrower and its Subsidiaries. The
--------------------------------------------------
execution, delivery and performance by the Borrower and each of its Subsidiaries
of each Loan Document to which it is or will be a
49
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party has been duly authorized by all necessary corporate or partnership action
on the part of the Borrower and its Subsidiaries.
(b) Execution and Delivery by the Borrower and its Subsidiaries. Each
-----------------------------------------------------------
Loan Document to which it is party has been duly executed and delivered by the
Borrower and each of its Subsidiaries.
(c) Binding Obligations of the Borrower and its Subsidiaries. Each
--------------------------------------------------------
Loan Document to which it is party is the legal, valid and binding obligation of
the Borrower and each of its Subsidiaries, enforceable against each of them in
accordance with their respective terms, except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors' rights generally.
(d) No Conflict. The execution, delivery and performance by the
-----------
Borrower and each of its Subsidiaries of each Loan Document, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (i) violate any provision of the charter or bylaws of the Borrower or
any of its Subsidiaries or any provision of Applicable Law binding on the
Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of,
or constitute (or, with the giving of notice or lapse of time or both, would
constitute) a default under, or require the approval or consent of any Person
pursuant to (which consents have been obtained and are in full force and effect,
except as disclosed in Schedule 4.02 hereto), any Contractual Obligation of the
Borrower or any of its Subsidiaries except as would not have a material adverse
effect upon the business, assets, prospects, results of operation or financial
condition of the Borrower and its Subsidiaries taken as a whole, or (iii) result
in the creation or imposition of any Lien upon any asset of the Borrower or any
Subsidiary, except for Liens in favor of the Lender.
(e) Government Approvals. Except for filings and recordings in
--------------------
connection with the perfection of Liens created by the Collateral Documents or
which are described on Schedule 4.02, which in each case have been made and are
in full force and effect, no Governmental Approval is or will be required in
connection with the execution, delivery and performance by the Borrower or any
of its Subsidiaries of each Loan Document to which it is party or the
transactions contemplated hereby or thereby or to ensure the legality, validity
or enforceability hereof or thereof.
(f) Authorization by Holdings. The execution, delivery and
-------------------------
performance by Holdings of the Holdings Guaranty and the Holdings Pledge
Agreement has been duly authorized by all necessary corporate action on the part
of Holdings.
(g) Execution and Delivery by Holdings. Each of the Holdings Guaranty
----------------------------------
and the Holdings Pledge Agreement have been duly executed and delivered by
Holdings.
(h) Binding Obligation of Holdings. The Holdings Guaranty and the
------------------------------
Holdings Pledge Agreement are the legal, valid and binding obligations of
Holdings, enforceable against it in accordance with their respective terms,
except as enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally.
(i) No Conflict -- Holdings. The execution, delivery and performance
-----------------------
by Holdings of the Holdings Guaranty and the Holdings Pledge Agreement do not
and will not (i) violate any provision of the certificate of incorporation or
bylaws of Holdings or any provision of Applicable Law binding on Holdings, (ii)
conflict with, result in a breach of or constitute (or, with the giving of
notice or lapse of time or both, would constitute) a default under, or require
the approval or consent of any Person pursuant to, any Contractual Obligation of
Holdings, or (ii) result in the creation or imposition of any Lien upon any
asset of Holdings, except for a first priority Lien in the CBCREG Capital Stock
securing the Senior Secured Obligations and a second priority Lien in the CBCREG
Capital Stock securing the Subordinated Debt.
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(j) Governmental Approvals -- Holdings. No Governmental Approval is
----------------------------------
or will be required in connection with the execution, delivery and performance
by Holdings of the Holdings Guaranty, the Holdings Pledge Agreement or the
transactions contemplated hereby or thereby, or to ensure the legality, validity
or enforceability hereof or thereof.
SECTION 4.03 COLLATERAL DOCUMENTS.
--------------------
(a) The provisions of the Security Agreements are effective to create
in favor of the Agent, on behalf of the Lenders, a legal, valid and enforceable
security interest in all right, title and interest of the Borrower and its
Subsidiaries in the Collateral (as defined therein); and the security interest
of the Agent, on behalf of the Lenders, in such Collateral constitutes a valid,
perfected first priority security interest, to the extent the filing of
financing statements under the applicable Uniform Commercial Code in the
appropriate jurisdictions, or the delivery of instruments, is a permissible
method of perfection of such security interests in the Collateral described
therein, subject to no prior Liens, except for Permitted Liens.
(b) The provisions of each Mortgage to which the Borrower or any of
its Subsidiaries is a party are effective to grant to the Agent, on behalf of
the Lenders, a legal, valid and enforceable mortgage Lien on all of its right,
title and interest in the mortgaged Real Property thereunder. When each
Mortgage is duly recorded in the office(s) listed on Schedule 3.01(i) hereto and
the mortgage recording fees and taxes in respect thereof are paid and compliance
is otherwise had with the formal requirements of state law applicable to the
recording of real estate mortgages generally, each Mortgage shall constitute a
fully perfected lien on and security interest in such mortgaged property,
subject only to Permitted Liens.
(c) The provisions of the Pledge Agreements are effective to create in
favor of the Agent, on behalf of the Lenders, a legal, valid and enforceable
security interest in the Collateral (as defined therein). The security interest
of the Agent, on behalf of the Lenders, in such Pledged Stock constitutes a
valid, perfected security interest, subject to no prior Liens.
SECTION 4.04 FINANCIAL INFORMATION.
---------------------
(a) The consolidated balance sheets of the Borrower and its
Subsidiaries as at December 31, 1995 and the consolidated statements of income,
retained earnings and cash flow of the Borrower and its Subsidiaries for the
fiscal year then ended, certified by the Borrower's independent certified public
accountants, copies of which have been delivered to the Agent, were prepared in
accordance with GAAP consistently applied and fairly present the consolidated
financial position of the Borrower and its Subsidiaries as at the respective
dates thereof and the results of operations and cash flows of the Borrower and
its Subsidiaries for the periods then ended. Neither the Borrower nor any of
its Subsidiaries had on such dates any material Contingent Obligations,
liabilities for Taxes or long-term leases, unusual forward or long-term
commitments or unrealized or unanticipated losses from any unfavorable
commitments which are not reflected or reserved against in the foregoing
statements or in the notes thereto.
(b) The Borrower's unaudited consolidated balance sheet as at June 30,
1996 and related statements of income, retained earnings and cash flow for the
period then ended certified by the Chief Financial Officer of the Borrower, a
copy of which has been delivered to the Lender, were prepared in accordance with
GAAP consistently applied (except to the extent noted therein) and fairly
present the financial position of the Borrower and its Subsidiaries as of such
date and the results of operations and cash flows for the period covered
thereby, subject to normal year-end audit adjustments. Neither the Borrower nor
any of its Subsidiaries had on such date any material Contingent Obligations,
liabilities for Taxes or long-term leases, unusual forward or long-term
commitments or unrealized or unanticipated losses from any unfavorable
commitments which are not reflected or reserved against in the foregoing
statements or in the notes thereto.
51
<PAGE>
SECTION 4.05 NO MATERIAL ADVERSE CHANGES. There has been no material
---------------------------
adverse change in the business, assets, prospects, results of operation or
financial condition of the Borrower or the Borrower and its Subsidiaries, taken
as a whole, since either (a) June 30, 1995 or (b) the date of any financial
statements delivered after the date hereof by the Borrower to the Agent pursuant
to Section 5.01 hereof.
SECTION 4.06 LITIGATION. Except as disclosed in Schedule 4.06
----------
hereto, on the date hereof there are no material actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any Subsidiary or any of its or their respective properties
before any Governmental Authority and, in the opinion of the Borrower as of the
date hereof, there are no actions, suits or proceedings pending, (a) in which
there is a reasonable possibility of an adverse determination that could have a
material adverse effect on the business or financial condition of the Borrower
and its Subsidiaries taken as a whole, or (b) which in any manner draws into
question the validity or the enforceability of this Agreement or any other Loan
Document or could materially impair the ability of the Borrower to fulfill its
obligations under this Agreement or any other Loan Document. For purposes of
this representation, "material actions, suits or proceedings" shall mean any
litigation which the Borrower has determined could result in a judgment in
excess of $1,000,000.
SECTION 4.07 AGREEMENTS; APPLICABLE LAW. Neither the Borrower nor
--------------------------
any Subsidiary is in violation of any Applicable Law, or in default under any
Contractual Obligations to which it is a party or by which its property is
bound, where such default could have a material adverse effect on the business,
assets, prospects, results of operation or financial condition of the Borrower
and its Subsidiaries taken as a whole.
SECTION 4.08 TAXES. Holdings has filed all United States federal
-----
income tax returns and all other tax returns required to be filed in respect of
the consolidated group of which the Borrower and its Subsidiaries are a part,
and each of Holdings and each other member of such group has paid all Taxes
shown to be due on the returns so filed as well as all other assessments,
governmental charges and other Taxes which are due. The Borrower does not know
of any proposed, asserted or assessed tax deficiency against the Borrower or any
of its Subsidiaries that would be material to the financial condition of the
Borrower or the Borrower and its Subsidiaries, taken as a whole. Neither the
Borrower nor any of its Subsidiaries is a party to or obligated under any tax
sharing or similar agreement.
SECTION 4.09 GOVERNMENTAL REGULATION.
-----------------------
(a) Neither the Borrower nor any Subsidiary is (i) an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, or a company controlled by such a company or (ii)
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act or to any Federal or state
statute or regulation limiting its ability to incur Debt for money borrowed.
(b) Neither the making of the Loans hereunder nor the use of the
proceeds thereof as contemplated hereby will violate the Foreign Assets Control
Regulations, the Foreign Funds Control Regulations, the Transaction Control
Regulations, the Cuban Assets Control Regulations, the Iranian Assets Control
Regulations, the Nicaraguan Trade Control Regulations, the Libyan Sanctions
Regulations or the South African Transactions Regulations of the United States
Treasury Department (as defined in 31 C.F.R., Subtitle B, Chapter V, as
amended).
SECTION 4.10 MARGIN REGULATIONS.
------------------
(a) Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purposes of purchasing or carrying Margin Stock.
52
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(b) The Borrower does not own any Margin Stock.
SECTION 4.11 EMPLOYEE BENEFIT PLANS.
----------------------
(a) The Borrower and each of its ERISA Affiliates is as of the date of
this Agreement in compliance in all material respects with any applicable
provisions of ERISA and the regulations and published interpretations thereunder
with respect to all Plans and Multiemployer Plans. There has been no prohibited
transaction within the meaning of Section 406 of ERISA and Section 4975 of the
Code, with respect to any Plan or Multiemployer Plan, which could result in any
material liability of the Borrower or any of its respective ERISA Affiliates.
The Borrower and its ERISA Affiliates have made any and all payments required to
be made under any agreement relating to a Multiemployer Plan or any law
pertaining thereto.
(b) Except as set forth on Schedule 4.11 hereto, neither the Borrower
nor any ERISA Affiliate of the Borrower has during the last six (6) years
sponsored, maintained, or contributed to:
(i) Any multiemployer plan as defined in Sections 3(37) and
4001(a)(3)(A) of ERISA;
(ii) Any employee benefit plan (as defined in Section 3(3) of
ERISA) subject to Title IV of ERISA or the minimum funding standards of Section
412 of the Code;
(iii) Any "employee welfare benefit plan" as defined in Section
3(1) of ERISA which covers retirees (except to the extent that such coverage is
limited to coverage required by Title 1, Part 6 of ERISA); or
(iv) Any employee benefit plan (as defined in Section 3(3) of
ERISA) or other fringe benefit plan maintained in connection with any trust
described in Section 501(c)(9) of the Code.
(c) Neither the Borrower nor any of its ERISA Affiliates has incurred
or (based on the information set forth on Schedule 4.11) reasonably expects to
incur any withdrawal liability under ERISA to any Multiemployer Plan. Neither
the Borrower nor any ERISA Affiliate has been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan
is reasonably expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA.
(d) To the extent that any Plan (which is a "welfare plan" under
Section 3(1) of ERISA) is insured, and except as otherwise disclosed on Schedule
4.11, the Borrower, its Subsidiaries and their respective ERISA Affiliates have
paid all premiums required to be paid for all periods through and including the
most recent full month prior to the Closing Date. To the extent that any Plan
(which is a "welfare plan" as defined above) is funded (other than with
insurance), the Borrower, its Subsidiaries and their respective ERISA Affiliates
have made all contributions required to be paid for all periods through and
including the most recent full month period to the Closing Date and such Plans,
to the extent that their funding is based on actuarial principles, are
actuarially sound at the Closing Date.
SECTION 4.12 TITLE TO PROPERTY; LIENS. Except as disclosed in
------------------------
Schedule 4.12 hereto, the Borrower and its Subsidiaries have good and marketable
title to, or valid and subsisting leasehold interests in, all of their
respective Real Property, and good title to or valid and subsisting leasehold
interests in all of their respective other property reflected in their books and
records as being owned by them, and none of such property is subject to any
Lien, except for Permitted Liens and Liens securing the Obligations and other
Liens permitted under Section 6.01 hereof.
SECTION 4.13 NO MATERIALLY ADVERSE AGREEMENTS; NO DEFAULTS.
---------------------------------------------
53
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(a) Neither the Borrower nor any of its Subsidiaries is a party to or
bound by any unduly burdensome Contractual Obligation which materially and
adversely affects the business, assets, prospects, results of operations or
financial condition of the Borrower and its Subsidiaries taken as a whole.
(b) Neither the Borrower nor any of its Subsidiaries is in default in
the performance or observance of any of the covenants or conditions contained in
any of its Contractual Obligations, except where such default or defaults, if
any, would not have a material adverse effect on the business, assets,
prospects, results of operation or financial condition of the Borrower and its
Subsidiaries taken as a whole.
SECTION 4.14 CAPITALIZATION AND OWNERSHIP.
----------------------------
(a) The authorized Capital Stock of the Borrower on the date hereof
consists of one thousand (1,000) shares of common stock, par value $0.01 per
share, of which one hundred (100) shares are issued and outstanding. All such
outstanding shares of such common stock were duly authorized and validly issued
and are fully paid and nonassessable and are owned beneficially and of record by
Holdings, free and clear of all Liens and encumbrances whatsoever, except for
the first priority Lien securing the Obligations and a second priority Lien
securing the Subordinated Debt.
(b) There are no outstanding subscriptions, options, warrants, calls,
rights (including preemptive rights) or other agreements or commitments of any
nature relating to any Capital Stock of the Borrower or any of its Subsidiaries.
(c) The Borrower is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
Capital Stock.
SECTION 4.15 LICENSES, TRADEMARKS, ETC. The Borrower and its
-------------------------
Subsidiaries own or hold valid licenses in all necessary Trademarks, copyrights,
patents, patent rights and licenses to conduct their respective businesses as
heretofore operated and as proposed to be conducted. All of the Borrower's and
its Subsidiaries' registered Trademarks, copyrights, patents, patent rights,
licenses (excluding unregistered licenses of computer software owned by the
Borrower or any Subsidiary) or other similar rights owned or used by the
Borrower or any Subsidiary are listed in Schedule 4.15 hereto, showing for each
item the owner thereof, and the date (except with respect to trade names) and
place of registration thereof. Neither the Borrower nor any of its Subsidiaries
has been charged or, to the knowledge of the Borrower, threatened to be charged
with any infringement of, nor has any of them infringed on, any unexpired
Trademark, patent, patent registration, copyright, copyright registration or
other proprietary right of any Person.
SECTION 4.16 ENVIRONMENTAL CONDITION. Except as set forth on
-----------------------
Schedule 4.16 hereto:
(a) To the Borrower's knowledge, all Real Property that the Borrower
or any of its Subsidiaries owns or possesses is free from contamination from any
Hazardous Materials. Neither the Borrower nor any of its Subsidiaries has
caused or suffered, nor to the knowledge of the Borrower, has any other party
previously involved in operations at any Real Property owned or possessed by the
Borrower or any of its Subsidiaries caused or suffered any Environmental Damages
that would have a material adverse effect on the business or financial condition
of the Borrower and its Subsidiaries taken as a whole.
(b) Neither the Borrower nor any Subsidiary or, to the Borrower's
knowledge, any prior owner or occupant, of the Real Property owned by the
Borrower or any of its Subsidiaries has received notice of any alleged violation
of Environmental Requirements of the type set forth in clause (i) in the
definition thereof or, to Borrower's knowledge, of the type set forth in clause
(ii) in the definition thereof, or notice of any alleged liability for
Environmental Damages in connection with the Real Property, and there exists no
writ, injunction, decree, order or judgment outstanding, nor any claim, suit,
proceeding, citation, directive,
54
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summons or investigation, pending or threatened, relating to the ownership, use,
maintenance or operation of the Real Property by any Person, or from alleged
violation of Environmental Requirements, or from the suspected presence of
Hazardous Materials thereon, nor, to the knowledge of the Borrower, does there
exist any basis for such claim, suit, proceeding, citation, directive, summons
or investigation being instituted or filed.
(c) To the Borrower's knowledge, there is not constructed, placed,
deposited, stored, disposed of nor located on the Real Property any
polychlorinated biphenyls (PCBs) nor transformers, capacitors, ballasts, or
other equipment which contains dielectric fluid containing PCBs, or any
asbestos.
SECTION 4.17 ABSENCE OF CERTAIN RESTRICTIONS. Neither the Borrower
-------------------------------
nor any Subsidiary is subject to any Contractual Obligation (other than the Loan
Documents and the Subordinated Debt Documents) which restricts or limits the
ability of any Subsidiary to (a) pay dividends or make any distributions on its
Capital Stock, (b) pay Indebtedness owed the Borrower or any Subsidiary, (c)
make any loans or advances to the Borrower or (d) transfer any of its property
to the Borrower, except as set forth on Schedule 4.17 hereto.
SECTION 4.18 LOCATION OF ASSETS AND CHIEF EXECUTIVE OFFICES. As of
----------------------------------------------
the date hereof, the chief executive office of the Borrower is located in Los
Angeles, California, and the Real Property and no tangible personal property of
the Borrower having a fair value, in the aggregate, in excess of $50,000 is
located at any location or locations other than those identified on Schedule
4.18.
SECTION 4.19 NO DEFAULTS. No Default or Event of Default has
-----------
occurred and is continuing. Neither the Borrower nor any Subsidiary is in
violation of or in default under any Applicable Law binding on the Borrower or
any Subsidiary or any Contractual Obligation binding upon or affecting it or any
of its properties that could have a material adverse effect on the business,
assets, prospects, results of operation or financial condition of the Borrower
and its Subsidiaries taken as a whole.
SECTION 4.20 DISCLOSURE. No representation or warranty of Holdings,
----------
the Borrower or any Subsidiary contained in this Agreement or any other Loan
Document or any information in any other document, certificate or written
statement furnished to the Lender by or on behalf of Holdings, the Borrower or
any Subsidiary with respect to the business, assets, prospects, results of
operation or financial condition of Holdings or the Borrower or any Subsidiary
of the Borrower for use in connection with the transactions contemplated by this
Agreement, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to the Borrower (other than
matters of a general economic nature) which materially and adversely affects the
business, assets, prospects, results of operations or financial condition of the
Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower
to perform its obligations under this Agreement, which has not been disclosed
herein or in such other documents, certificates, and statements furnished to the
Lender for use in connection with the transactions contemplated hereby.
55
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ARTICLE V
AFFIRMATIVE COVENANTS OF THE BORROWER
-------------------------------------
The Borrower covenants and agrees that, so long as any portion of the
Commitments shall be in effect and until all Obligations of the Borrower are
paid in full, the Borrower shall perform each and all of the following:
SECTION 5.01 FINANCIAL STATEMENTS AND OTHER REPORTS. The Borrower
--------------------------------------
will deliver to the Agent:
(a) as soon as practicable and in any event within ninety (90) days
after the end of each Fiscal Year of Holdings, consolidated and consolidating
balance sheets of Holdings and its Subsidiaries as of the end of such year and
the related consolidated (and, except as to statements of stockholders' equity,
consolidating) statements of income, stockholders' equity and cash flow of the
Borrower and its Subsidiaries for such fiscal year, setting forth in each case
in comparative form the consolidated figures for the previous fiscal year, all
in reasonable detail and (i) in the case of such consolidated financial
statements, accompanied by an unqualified report thereon of Arthur Andersen LLP
or other independent certified public accountants of recognized national
standing selected by the Borrower and satisfactory to the Lender, which report
shall state that such consolidated financial statements fairly present the
financial position of Holdings and its Subsidiaries as at the date indicated and
the results of their operations and cash flow for the periods indicated in
conformity with GAAP (except as otherwise stated therein) and that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards, and (ii) in the case of such consolidating financial statements,
certified by the Chief Financial Officer or Chief Accounting Officer of Holdings
as being fairly stated in all material respects when considered in relation to
the audited consolidated financial statements of the Holdings, provided that the
--------
Borrower shall be required to deliver such consolidating balance sheets and
statements of income and cash flow as to Holdings and its Reporting
Subsidiaries;
(b) as soon as practicable and in any event within thirty (30) days
after the end of each Fiscal Quarter, a consolidated balance sheet of Holdings
and its Reporting Subsidiaries as at the end of such quarter and the related
consolidated statement of income of Holdings and its Subsidiaries for such
quarter and the portion of Holdings' fiscal year ended at the end of such
quarter, setting forth in each case in comparative form the consolidated figures
for the corresponding periods of the prior fiscal year, all in reasonable detail
and certified by Holdings' Chief Financial Officer or Chief Accounting Officer
as fairly presenting the financial condition of Holdings and its Subsidiaries as
at the dates indicated and the results of their operations and cash flows for
the periods indicated, subject to normal year-end adjustment;
(c) together with each delivery of financial statements of Holdings
and its Subsidiaries pursuant to subsections (a) and (b) above, a certificate of
the Chief Financial Officer and the Secretary of Holdings (i) stating that such
officers have reviewed the terms of the Loan Documents and have made, or have
caused to be made under their supervision, a review in reasonable detail of the
transactions and condition of the Borrower and its Subsidiaries during the
accounting period covered by such financial statements and that such review has
not disclosed the existence of any Default or Event of Default during or at the
end of such accounting period and that such officers do not have knowledge of
the existence, as at the date of such certificate, of any Default or Event of
Default, or, if they do have knowledge that a Default or an Event of Default
existed or exists, specifying the nature and period of existence thereof and
what action the Borrower has taken, is taking, or proposes to take with respect
thereto, and (ii) setting forth the calculations required to establish whether
the Borrower was in compliance with Section 6.06, on the date of such financial
statements;
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(d) together with each delivery of consolidated financial statements
of Holdings and its Subsidiaries pursuant to subsection (a) above, and so long
as and to the extent not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, a written statement by the
independent certified public accountants giving the report thereon (i) stating
that their audit examination has included a review of the terms of this
Agreement and the Notes as they relate to accounting matters, (ii) stating
whether in connection with their audit examination, any Default or Event of
Default has come to their attention and, if so, specifying the nature and period
of existence thereof, and (iii) confirming the calculations set forth in the
officer's certificate delivered simultaneously therewith pursuant to subsection
(c) above;
(e) immediately upon any Responsible Officer becoming aware thereof,
notice of any Default or Event of Default, setting forth the details thereof and
the action which the Borrower is taking or proposes to take with respect
thereto;
(f) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available by
Holdings or the Borrower to its security holders, all registration statements
(other than the exhibits thereto) and annual, quarterly or monthly reports, if
any, filed by Holdings with the SEC;
(g) promptly upon becoming aware of the occurrence of (i) any
Reportable Event, (ii) any "prohibited transaction," as such term is defined in
Section 4975 of the Code (which prohibited transaction could subject any member
of the Controlled Group (including ERISA Affiliates) to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code
in connection with any Plan (or any trust created thereunder)), (iii) any
assertion of withdrawal liability of any Multiemployer Plan, (iv) any partial or
complete withdrawal (by the Borrower or an ERISA Affiliate) under Title IV of
ERISA (or assertion thereof), (v) any cessation of operations (by the Borrower
or an ERISA Affiliate) at a facility in the circumstances described in Section
4068(f) of ERISA, (vi) the withdrawal by the Borrower or an ERISA Affiliate from
a Multi-Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA, (vii) the failure by the
Borrower or any ERISA Affiliate to make a payment to a Plan required under
Section 302(f)(1) of ERISA, which section imposes a lien for failure to make
required payments, or (viii) the adoption of an amendment to a Plan requiring
the provision of security to such Plan pursuant to Section 307 of ERISA;
(h) promptly, copies of (i) all notices received by any member of the
Controlled Group of the PBGC's intent to terminate any Plan administered or
maintained by the Borrower or its ERISA Affiliates or to have a trustee
appointed to administer any such Plan and (ii) at the request of the Agent each
annual report (IRS Form 5500 Series) and all accompanying schedules, the most
recent actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrower or its
ERISA Affiliates, and schedules showing the amounts contributed to each such
Plan by or on behalf of the Borrower or its Subsidiaries in which any of their
personnel participate or from which such personnel may derive a benefit, and
each Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by any member of the Controlled Group with the IRS with respect to each
such Plan;
(i) promptly after the Borrower obtains knowledge thereof, notice of
all litigation or proceedings commenced or threatened affecting the Borrower in
which there is a reasonable possibility of an adverse decision and (i) which
involves alleged liability in excess of $1,000,000, (ii) in which injunctive or
similar relief is sought which if obtained could have a material adverse effect
on the business, assets, prospects, results of operation or financial condition
of the Borrower and its Subsidiaries taken as a whole or (iii) which questions
the validity or enforceability of any Loan Document or Acquisition Document;
(j) promptly upon receipt thereof, copies of all final reports or
letters submitted to the Borrower by its independent certified public
accountants in connection with each annual, interim or special audit of the
financial statements of the Borrower or its Subsidiaries made by such
accountants, including,
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without limitation, any management report, and the Borrower agrees to obtain
such a report in connection with each of its annual audits;
(k) upon request by the Agent, an appraisal of all Real Property of
the Borrower and its Subsidiaries (including both fee and leasehold interests),
performed by an appraiser of recognized national standing selected by the
Borrower and satisfactory to the Required Lenders, which appraisal shall set
forth the fair market value and orderly liquidation value of the Real Property
and equipment and shall otherwise be in form and substance satisfactory to the
Required Lenders;
(l) promptly upon receipt or availability thereof, a copy of any
notices or reports received or sent to any Person in connection with
Subordinated Debt and a copy of any amendment or supplement to, or material
extension, renewal or waiver with respect to, any of the documents or
instruments governing Subordinated Debt;
(m) promptly after the availability thereof, copies of all amendments
to the certificate of incorporation or bylaws of the Borrower and any of its
Subsidiaries;
(n) promptly after the receipt thereof, a copy of any notice, summons,
citation, letter or other communication concerning any actual, alleged,
suspected or threatened violation of Environmental Requirements, or liability of
the Borrower or any of its Subsidiaries for Environmental Damages in connection
with its Real Property or past or present activities of any Person thereon;
(o) as soon as practicable and in any event within forty-five (45)
days after the end of each Fiscal Quarter, or more frequently if requested by
the Lender, a report of all Investments made in such Fiscal Quarter pursuant to
Section 6.04, the amount of such Investments and a summary, in reasonable
detail, of the Borrower's good faith estimate of the fair value of all
Investments made to the end of such Fiscal Quarter; and
(p) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Lender may request.
SECTION 5.02 RECORDS AND INSPECTION. The Borrower shall, and shall
----------------------
cause each Subsidiary to, maintain adequate books, records and accounts as may
be required or necessary to permit the preparation of consolidated financial
statements in accordance with sound business practices and GAAP. The Borrower
shall, and shall cause each Subsidiary to, permit such persons as the Agent or
any Lender may designate, at reasonable times and as often as may be requested,
to (a) visit and inspect any properties of the Borrower and its Subsidiaries,
(b) inspect and copy their books and records, and (c) discuss with their
officers and employees and their independent accountants, their respective
businesses, assets, liabilities, prospects, results of operation and financial
condition. The Agent and each Lender will use reasonable efforts, consistent
with its normal business practices, to maintain the confidentiality of any
information so received.
SECTION 5.03 CORPORATE EXISTENCE, ETC. The Borrower will, and will
------------------------
cause each Subsidiary to, at all times preserve and keep in full force and
effect its corporate existence and any rights and franchises material to its
business, provided, however, that the corporate existence of any Subsidiary may
-------- -------
be terminated if such termination is not disadvantageous in any material respect
to the Lenders.
SECTION 5.04 PAYMENT OF TAXES. The Borrower shall, and shall cause
----------------
each Subsidiary to, pay and discharge all Taxes imposed upon it or any of its
properties or in respect of any of its franchises, business, income or property
before any material penalty shall be incurred with respect to such Taxes,
provided, however, that, unless and until foreclosure, distraint, levy, sale or
- -------- -------
similar proceedings shall have commenced, the Borrower and its Subsidiaries need
not pay or discharge any such Tax so long as the validity
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or amount thereof is contested in good faith and by appropriate proceedings and
so long as any reserves or other appropriate provisions as may be required by
GAAP shall have been made therefor.
SECTION 5.05 MAINTENANCE OF PROPERTIES. The Borrower shall maintain
-------------------------
or cause to be maintained in good repair, working order and condition (ordinary
wear and tear excepted), all of those properties useful or necessary to its
business, and from time to time the Borrower will make or cause to be made all
appropriate repairs, renewals and replacements thereto.
SECTION 5.06 MAINTENANCE OF INSURANCE.
------------------------
(a) The Borrower shall, and shall cause each Subsidiary to, maintain,
with financially sound and reputable insurance companies satisfactory to the
Lender, insurance in at least such amounts, of such character and against at
least such risks as is maintained by the Borrower and its Subsidiaries on the
date of this Agreement and described on Schedule 5.06 hereto, or, if such
insurance is not available on a commercially reasonable basis, with the Agent's
prior written consent, such insurance, in at least such amounts, of such
character and as against at least such risks as are usually insured against in
the same general area by companies of established repute engaged in the same or
a similar business. The Borrower shall furnish to the Agent, upon written
request, full information as to the insurance in effect at any time.
(b) As soon as practicable after the Effective Date, the Borrower
shall cause (i) all liability insurance policies to name the Agent as an
additional insured, (ii) all property loss or damage insurance policies with
respect to any assets of the Borrower to contain a loss payable clause in favor
of the Agent as provided in the respective Collateral Documents, (iii) all
insurance policies to provide that no cancellation, reduction in amount or
material adverse change in coverage thereof shall be effective until at least
thirty (30) days after receipt by the Agent of written notice thereof, (iv) all
insurance policies to insure the interests of the Agent regardless of any breach
of or violation by the Borrower or any other Person of any warranties,
declarations or conditions contained therein, (v) all insurance policies to
provide that the Agent shall have no obligation or liability for premiums,
commissions, assessments or calls in connection with such insurance or in
connection with any representation or warranty made by the Borrower in
connection with obtaining such insurance, (vi) all business interruption
insurance to name the Agent as a loss payee, and (vii) all applicable insurance
policies to contain such other provisions as are set forth in the relevant
Collateral Documents.
(c) Any payments received by the Agent or any Lender from any insurer
with respect to loss or damage to any buildings, equipment and facilities
constituting a portion of the Collateral shall, if an Event of Default shall
have occurred and be continuing or under other circumstances as may be provided
in the respective Collateral Document, be treated as Net Cash Proceeds of an
Asset Disposition and applied as a mandatory repayment of the Term Loans as set
forth in Section 2.05(b).
(d) As soon as practicable, and in any event no later than the
expiration date of each policy maintained hereunder, the Borrower shall either
(i) deliver to the Agent copies of the renewals of the insurance policies (in
each case, with a certified true and correct copy of such policy by the insurer
named therein if available, or in any event, not later than fifteen (15) days
after the expiration date of the prior policy) maintained by the Borrower as
required by this Section 5.06 or (ii) notify the Agent of the policies which
have not been renewed.
SECTION 5.07 CONDUCT OF BUSINESS. The Borrower will not, and will
-------------------
not permit any of its Subsidiaries to, engage in any business other than the
businesses in which the Borrower and its Subsidiaries are engaged as of the date
hereof or any businesses or activities substantially similar or related thereto,
except for other businesses which constitute an insubstantial part of the
business of the Borrower and its Subsidiaries taken as a whole. The Borrower
shall, and shall cause each Subsidiary to, conduct its business in compliance in
all material respects with Applicable Law and all material Contractual
Obligations.
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SECTION 5.08 FURTHER ASSURANCES.
------------------
(a) At any time or from time to time upon the request of the Agent,
the Borrower shall execute and deliver, and shall cause its Subsidiaries to
execute and deliver, such further documents and do such other acts and things as
the Agent may reasonably request in order to effect fully the purpose of this
Agreement, the Collateral Documents, the other Loan Documents and any other
agreement contemplated hereby and to provide for payment with respect to the
Term Loans in accordance with the terms of this Agreement and the other Loan
Documents.
(b) Within ten (10) days after the earlier of (i) payment in full or
defeasance (including without limitation by delivery of one or more letters of
credit) of the obligations of WREAP to the Westmark Sellers or (ii) at such time
as such a security interest or lien no longer is prohibited by the Westmark
Acquisition Documents, Borrower shall, or shall cause a Subsidiary to, grant to
the Agent, for the benefit of the Lenders, a security interest in or lien on the
Capital Stock of each Westmark Guarantor, and shall cause each Westmark
Guarantor to grant a lien in substantially all of its assets to the Agent, for
the benefit of the Lenders.
SECTION 5.09 ADDITIONAL COLLATERAL.
---------------------
(a) With respect to any Real Property of the Borrower or any
Subsidiary, whether now owned or acquired after the date hereof, the Borrower or
such Subsidiary shall, promptly upon request therefor by the Agent, grant or
cause to be granted to the Agent, for the benefit of the Lenders, a Mortgage
Lien on any or all such Real Property, upon terms substantially the same as
those set forth in the Mortgages, and such other terms as may be reasonably
requested by the Agent with respect to the particular collateral, and subject
only to those types of Liens permitted by Section 6.01; provided, however, that
-------- -------
neither Borrower nor any Subsidiary shall be required to grant a Mortgage Lien
on any such Real Property if the granting of such Mortgage Lien would conflict
with or constitute a default under any document or instrument creating a Lien
permitted by Section 6.01(d). The Borrower, at its own expense, shall execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
and thereafter cause to be registered, filed or recorded, in each appropriate
governmental office, any document or instrument deemed by the Lender to be
necessary or desirable for the creation and perfection of the foregoing Liens
and shall pay all taxes and fees related to such registration, filing or
recording.
(b) Upon the creation or acquisition of any direct or indirect
Subsidiary of the Borrower after the date hereof, the Borrower shall immediately
(i) pledge to the Agent for the benefit of the Lenders all of the issued and
outstanding Capital Stock of such Subsidiary pursuant to a pledge agreement in
form and substance satisfactory to the Agent, and (ii) cause each such
Subsidiary to execute and deliver to the Agent for the benefit of the Lenders
the Subsidiary Guaranty, the Subsidiary Security Agreement and such other
Collateral Documents as the Agent may request; provided, however, that the Agent
-------- -------
hereby agrees to subordinate such Subsidiary's obligations under the Subsidiary
Guaranty to such Subsidiary's obligations with respect to any Permitted Seller
Indebtedness incurred in connection with the acquisition of such Subsidiary on
customary terms reasonably satisfactory to the Agent.
(c) Upon consummation of any Investment in excess of $100,000, the
Borrower shall pledge such Investment to the Agent for the benefit of the
Lenders as additional Collateral, and shall take any and all action necessary to
perfect and protect the lien or security interest created thereby.
(d) Notwithstanding the foregoing provisions of this Section 5.09 or
any other provision hereof, unless the Agent shall specifically waive this
Section 5.09(d) in writing, all additional collateral consisting of Real
Property in California shall secure only the Specified Mortgage Loan Obligations
and all other additional collateral shall secure the Senior Secured Obligations.
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SECTION 5.10 FUTURE INFORMATION. All data, certificates, reports,
------------------
statements, documents and other information furnished to the Agent or the
Lenders in connection with this Agreement or any amendment or modification of,
or waiver under, this Agreement shall, at the time the information is so
furnished, (i) be complete and correct in all material respects to the extent
necessary to give the Agent and the Lenders sufficient and accurate knowledge of
the subject matter thereof, (ii) not contain any untrue statement of a material
fact and (iii) not omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which such information is furnished.
SECTION 5.11 PROCEEDS OF ASSET DISPOSITIONS BY SUBSIDIARIES.
----------------------------------------------
(a) The Borrower will cause each Subsidiary to pay to or transfer to
the Borrower, as dividends or distributions on Capital Stock, the Borrower's
ratable interest, in accordance with its percentage ownership, direct or
indirect, of such Subsidiary, in Net Cash Proceeds of Asset Dispositions and
Excess Proceeds of the Sale of Stock received by or for the account of such
Subsidiary, except to the extent that, at the time such payment or transfer is
required by this Section 5.11 to be made, such payment or transfer as a dividend
or distribution on Capital Stock is not permitted under Applicable Law or by the
terms of a written agreement binding on such Subsidiary; provided, that no such
--------
legal or contractual prohibition shall affect the Borrower's obligations under
Section 2.05(b)(i) hereof.
(b) Concurrently with the receipt by or for the account of the
Borrower or any Subsidiary of Non-Cash Proceeds of any Asset Disposition, the
Borrower shall, or shall cause the relevant Subsidiary to, promptly perform all
actions necessary or deemed necessary or advisable by the Lender to grant,
create, perfect and maintain perfected a security interest therein in favor of
the Lender.
SECTION 5.12 SUBORDINATION OF INTERCOMPANY LOANS AND ADVANCES TO THE
-------------------------------------------------------
BORROWER. The Borrower shall cause any Indebtedness owed by the Borrower to any
- --------
Subsidiary to be subordinated to the Obligations on terms of subordination
satisfactory to the Agent and no less favorable to the Lenders than the terms of
subordination set forth in the Senior Subordinated Credit Agreement as in effect
on the date hereof.
SECTION 5.13 DEPOSIT ACCOUNTS. The Borrower will maintain and will
----------------
cause its Subsidiaries to maintain all deposit accounts in accordance with the
terms of the Security Agreements and the exhibits thereto.
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ARTICLE VI
NEGATIVE COVENANTS OF THE BORROWER
----------------------------------
The Borrower covenants and agrees that, so long as any portion of the
Commitments shall be in effect and until all Obligations of the Borrower are
paid in full, the Borrower shall perform each and all of the following:
SECTION 6.01 LIENS. The Borrower shall not, and shall not permit any
-----
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any Lien on or with respect to any property or asset of the Borrower or
any Subsidiary, whether now owned or hereafter acquired, or any income or
profits therefrom or rights in respect thereof, except:
(a) Liens securing the Obligations;
(b) Permitted Liens;
(c) Any attachment or judgment Lien (i) execution of which has been
stayed, (ii) payment of which is covered in full by insurance, or (iii) in
respect of which the Borrower or its Subsidiary shall in good faith be
prosecuting an appeal or proceedings for review and shall have set aside on its
books such reserves as may be required by GAAP with respect to such judgment or
award;
(d) Liens existing on property or assets of any Person at the time
such Person becomes a Subsidiary of the Borrower, but only, in any such case,
(i) if such Lien was not created in contemplation of such Person becoming a
Subsidiary of the Borrower, (ii) so long as the obligation secured by such Lien
is not in default at the time such Person becomes a Subsidiary of the Borrower,
and (iii) so long as such Lien does not encumber any assets other than the
property subject to such Lien immediately prior to the time such Person becomes
a Subsidiary of the Borrower; and Liens existing on assets acquired by Borrower
or a Subsidiary of the Borrower, but only, in any such case, (x) if such Lien
was not created in contemplation of such assets being acquired by Borrower or
the Subsidiary, (y) so long as the obligation secured by such Lien is not in
default at the time such assets are acquired by Borrower or the Subsidiary, and
(z) so long as such Lien does not encumber any assets other than the assets
subject to such Lien immediately prior to the time such assets are acquired by
Borrower or the Subsidiary;
(e) Liens on assets securing Indebtedness permitted to be incurred or
assumed pursuant to Section 6.02 (f) hereof, including any interest or title of
a lessor under any Capitalized Lease, provided that any such Lien does not
--------
encumber any property other than assets constructed or acquired with the
proceeds of such Indebtedness;
(f) leases or subleases granted to others not interfering with the
ordinary and usual course of business of, and consistent with past practices of,
the Borrower or any of its Subsidiaries;
(g) any Lien constituting a renewal, extension or replacement of any
Existing Lien or any Lien permitted by clause (d) or (e) of this Section 6.01,
but only, in the case of each such renewal, extension or replacement Lien, to
the extent that (i) the principal amount of Indebtedness secured thereby does
not exceed the principal amount of such Indebtedness secured by such Existing
Lien or Lien permitted by clause (d) or (e), and (ii) such Lien is limited to
all or a part of the property subject to the Lien extended, renewed or replaced;
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(h) Liens on Permitted Investments owned by Melody, to secure
Indebtedness under the Melody Loan Arbitrage Facility, if such Permitted
Investments were acquired by Melody with the proceeds of incurrence of such
Indebtedness;
(i) Liens on commercial mortgage loans originated and owned by Melody
subject to an irrevocable, unconditional commitment to purchase such commercial
mortgage loans, to secure Indebtedness of Melody under the Melody Warehousing
Facility; and
(j) Liens on the assets of any direct or indirect Subsidiary of the
Borrower created or acquired in connection with a Permitted Acquisition and
Liens on assets acquired by the Borrower or a Subsidiary in a Permitted
Acquisition, which Liens secure Permitted Seller Indebtedness permitted by
Section 6.02(e) in connection with such Permitted Acquisition (but not including
any refinancing thereof pursuant to Section 6.02(i));
provided that if, notwithstanding this Section 6.01, any Lien which
- --------
this Section 6.01 prohibits shall be created or arise without the prior written
consent of Lender (including with respect to this proviso), the specified
Mortgage Loan Obligations (if such Lien is on Real Property in California) or
the Senior Secured Obligations (if such Lien is on other property) shall be
secured by such Lien equally and ratably with the other Indebtedness secured
thereby, the Borrower will take or cause to be taken all such action as may be
requested by the Agent to confirm and protect such Lien in favor of the Lender
and the holder of such other Indebtedness, by accepting such Lien, shall be
deemed to have agreed thereto and to share ratably with the Lender on that
basis, the proceeds of such Lien, whether or not the Lender's security interest
shall be perfected; provided further, however, that notwithstanding such equal
and ratable securing and sharing, the existence of such Lien shall constitute a
default by the Borrower in the performance or observance of this Section 6.01.
SECTION 6.02 INDEBTEDNESS. The Borrower shall not, and shall not
------------
permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume, guarantee, or otherwise become or remain liable with respect to any
Indebtedness, except:
(a) the Obligations;
(b) any Indebtedness of Subsidiaries under the Loan Documents;
(c) Subordinated Debt under the Senior Subordinated Credit Agreement
and guaranties thereof by Subsidiaries which are subordinated, on terms
satisfactory to the Agent, to the Subsidiary Guaranty;
(d) Existing Indebtedness, but not any extension, refunding or
refinancing thereof;
(e) Indebtedness incurred in connection with Permitted Acquisitions
(including, without limitation, (x) existing Indebtedness of any Person that
becomes a Subsidiary and (y) Indebtedness assumed by the Borrower or any
Subsidiary or that is secured by any asset acquired by the Borrower or any
Subsidiary, in each case upon consummation of such Permitted Acquisition), in an
aggregate amount not to exceed $50,000,000 at any time outstanding, provided
--------
that (i) at the time of incurrence of any such Indebtedness, the Pro Forma Fixed
Charges Coverage Ratio shall be not less than 1.0:1.0; (ii) no Default or Event
of Default shall have occurred and be continuing or shall result from the
Permitted Acquisition (including by reason of any Indebtedness incurred in
connection with such Permitted Acquisition), and (iii) not more than $15,000,000
of such Indebtedness at any time outstanding shall be Indebtedness that is not
Permitted Seller Indebtedness.
(f) purchase money Indebtedness, including Capitalized Lease
Obligations; provided that (i) such Indebtedness is incurred in connection with
--------
a Capital Expenditure permitted by Section 6.05
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hereof, (ii) is secured only by Liens permitted by Section 6.01(e), (iii) does
not exceed the cost to the Borrower or its Subsidiary of the assets constructed
or acquired with the proceeds of such Indebtedness and (iv) is incurred within
twelve (12) months following the date of the completion or acquisition of the
asset so constructed or acquired;
(g) Intercompany Indebtedness of a Subsidiary to the Borrower or a
Wholly Owned Subsidiary, to the extent permitted by Sections 6.04(c) and (d)
hereof;
(h) other unsecured Indebtedness not in excess of $5,000,000 at any
time outstanding;
(i) Indebtedness incurred to refinance Indebtedness described in
clauses (e) and (f), provided, that (i) the unpaid balance is not increased,
--------
(ii) such refinancing Indebtedness is Subordinated Debt if (x) the Indebtedness
being refinanced is Subordinated Debt or (y) the Indebtedness being refinanced
is Permitted Seller Indebtedness, and (iii) if the Indebtedness being refinanced
is Subordinated Debt, (a) no mandatory payments of principal thereof are
required prior to the date that is one year after the Maturity Date, (b) the
final maturity thereof is not before the later of (I) one year after the
Maturity Date or (II) the final maturity date of the Subordinated Debt being
refinanced, (c) the terms thereof are not in any respect more restrictive than
the terms of the Subordinated Debt being refinanced and the subordination
provisions applicable thereto are at least as favorable to the Lenders as such
provisions applicable to the Subordinated Debt being refinanced and (d) cash
interest payments payable with respect thereto are payable at an interest rate
not materially higher than the interest rate applicable to the Indebtedness
being refinanced;
(j) Indebtedness of the Borrower or a Mortgage Banking Subsidiary
comprised of its obligation to repurchase mortgage loans pursuant to mortgage
loan purchase and sale agreements entered into in connection with Mortgage
Banking Activities;
(k) Melody Permitted Indebtedness; and
(l) Indebtedness of the Borrower comprised of a guaranty by Borrower
of (i) the Melody Seller Senior Notes and the Melody Seller Contingent Notes and
(ii) the obligations of WREAP under the Amended and Restated Westmark
Subordinated Credit Agreement, provided that in respect of clause (ii) such
guaranty is subordinated to prior payment in full of the Obligations on terms
satisfactory to the Agent and the Lenders, and such guaranty shall constitute
"Subordinated Debt" for all purposes hereof.
SECTION 6.03 RESTRICTED PAYMENTS. The Borrower shall not, and shall
-------------------
not permit any of its Subsidiaries to, declare, pay or make, or agree to
declare, pay or make, any Restricted Payment, except (a) dividends,
distributions or payments by any Subsidiary to the Borrower or a Wholly Owned
Subsidiary of the Borrower, (b) so long as no Default or Event of Default has
occurred and is continuing, dividends or distributions by any Subsidiary to the
Borrower and any other Person that is a stockholder or owner of another equity
interest in such Subsidiary, so long as, in the case of each such dividend and
distribution, the amounts thereof paid to the Borrower and such other Person are
in the same proportion as the respective contributions to the capital of such
Subsidiary made by the Borrower and such other Person, and (c) if no Default or
Event of Default shall exist, or as a result of the proposed declaration,
payment or other event would exist:
(i) the Borrower may declare and pay dividends on the CBCREG Capital
Stock to the extent necessary to enable Holdings to pay expenses of its
operations in the ordinary course of business, in an amount not to exceed
$50,000 in any year;
(ii) the Borrower may declare and pay dividends on the CBCREG Capital
Stock as follows:
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(A) prior to December 31, 1999, the Borrower may declare and pay
dividends on the CBCREG Capital Stock to the extent necessary to permit
Holdings to pay dividends accrued on its Series A-1, Series A-2 and Series
A-3 Preferred Stock in the period from October 1, 1996 through the Fiscal
Quarter last ended prior to the date of such payment by the Borrower (and
not dividends accrued on such Preferred Stock in any period prior to
October 1, 1996), or interest with respect to accrued but unpaid dividends,
all in accordance with the certificates of designation with respect thereto
in effect on the Effective Date; and
(B) after December 31, 1999, the Borrower may declare and pay
dividends on the CBCREG Capital Stock to the extent necessary to permit
Holdings to pay any dividends accrued on its outstanding Series A-1, Series
A-2 and Series A-3 Preferred Stock in the period of four Fiscal Quarters
ended immediately prior to the date of such payment by the Borrower (and
not dividends accrued on such Preferred Stock in any prior period) that may
be declared by the Board of Directors of Holdings, or interest with respect
to accrued but unpaid dividends, all in accordance with the certificates of
designation with respect thereto in effect on the Effective Date;
provided, however, that the total amount of dividend and interest
- -------- -------
payments made by Borrower pursuant to clauses (ii)(A) and (ii)(B) does not
exceed 50% of Consolidated Net Income for the period commencing on the first day
of the Fiscal Quarter within which the Effective Date occurs and ending on the
last day of the last Fiscal Quarter ending prior to the date of declaration,
taken as a single accounting period; and
(iii) the Borrower may make Permitted Tax Payments to Holdings.
SECTION 6.04 INVESTMENTS. The Borrower shall not, and shall not
-----------
permit any of its Subsidiaries to, make or own any Investment in any Person,
except:
(a) Permitted Investments;
(b) Investments existing on the Effective Date and listed on Schedule
6.04;
(c) Investments by any Subsidiary in the Borrower, or by the Borrower
or any Subsidiary in any Wholly Owned Subsidiary that (i) has executed and
delivered to the Agent the Subsidiary Guaranty and the Subsidiary Security
Agreement, and (ii) is not subject to any Contractual Obligation that restricts
or limits the ability of such Subsidiary to pay dividends or make distributions
on its Capital Stock or otherwise transfer property to the Borrower or another
Subsidiary or to make loans or advances to the Borrower or repay Indebtedness
owing to the Borrower;
(d) the Borrower may make loans or advances for working capital
purposes to any of its Subsidiaries so long as (i) the aggregate amount of the
Indebtedness of such Subsidiary to the Borrower is less than the net worth of
such Subsidiary, (ii) such Indebtedness is incurred in the ordinary course of
business of the Borrower and such Subsidiary, (iii) such Indebtedness is
evidenced by a note or other instrument that is subject to a valid, perfected
first priority Lien in favor of the Lender, and (iv) the aggregate amount of
such Debt owing to the Borrower by all Subsidiaries of the Borrower is less than
$5,000,000;
(e) trade credit extended on usual and customary terms in the ordinary
course of business;
(f) so long as no Default or Event of Default shall have occurred and
be continuing at the time such Investment is made, Investments constituting
Permitted Acquisitions, up to an aggregate amount of such Investments equal to
$100,000,000;
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(g) loans and advances to employees of the Borrower or its
Subsidiaries for travel, entertainment and relocation expenses, and advances of
commissions payable to employees, in each case in the ordinary course of
business in an aggregate amount for the Borrower and its Subsidiaries not to
exceed [$ ] at any one time outstanding;
(h) Investments by Mortgage Banking Subsidiaries comprised of (i)
commitments to make mortgage loans in connection with Mortgage Banking
Activities, (ii) mortgage loans made in connection with Mortgage Banking
Activities, and (iii) advances of payments of principal and interest on mortgage
loans originated in connection with Mortgage Banking Activities, made on terms
customary in the mortgage banking industry by the Borrower or a Mortgage Banking
Subsidiary in its capacity as servicer of such mortgage loans;
(i) Investments in Capital Stock of a Person, where such Investments
are conditioned upon the payment by such Person to the Borrower of a fee in
connection with the CBC Partners Program and the amount of such Investment does
not exceed the amount of such fee; and
(j) other Investments in an aggregate amount not to exceed $2,500,000.
SECTION 6.05 CAPITAL EXPENDITURES. The Borrower shall not, and shall
--------------------
not permit any of its Subsidiaries to, make or incur any Capital Expenditures in
any Fiscal Year, if, after giving effect thereto, the aggregate amount of all
Capital Expenditures made by Borrower and its Subsidiaries in such Fiscal Year
would exceed $10,000,000.
SECTION 6.06 FINANCIAL COVENANTS.
--------------------
(a) Leverage Ratio. The Borrower shall not permit, at any time, the
--------------
Leverage Ratio to be greater than 4.0 : 1.0.
(b) Interest Coverage Ratio. The Borrower shall not permit, on the
-----------------------
last day of any Fiscal Quarter, the Interest Coverage Ratio to be less than the
amount shown below opposite such Fiscal Quarter, or opposite the period in which
such Fiscal Quarter occurs:
<TABLE>
<CAPTION>
Period Interest Coverage Ratio
------ -----------------------
<S> <C>
October 1, 1996 to December 31, 1998 2.5:1.0
January 1, 1999 to December 31, 2001 3.0:1.0
</TABLE>
(c) Fixed Charges Coverage Ratio. The Borrower shall not permit, on
----------------------------
the last day of any Fiscal Quarter, the Fixed Charges Coverage Ratio to be less
than 1.0:1.0.
(d) Senior Loan Debt Service Coverage Ratio. The Borrower shall not
---------------------------------------
permit, at any time, the Senior Loan Debt Service Coverage Ratio to be less than
2.25 : 1.
SECTION 6.07 RESTRICTION ON FUNDAMENTAL CHANGES. The Borrower will
----------------------------------
not, and will not permit any of its Subsidiaries to, enter into any merger,
consolidation, reorganization or recapitalization, reclassify its Capital Stock,
liquidate, wind up or dissolve or sell, lease, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or substantially all of its
or their business or assets, whether now owned or hereafter acquired, except
that, as long as no Default or Event of Default shall exist after giving effect
to such transaction, any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower or any other Wholly Owned Subsidiary or
be liquidated, wound up or dissolved, or all or
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substantially all of its business or assets may be sold, leased, transferred, or
otherwise disposed of, in one transaction or a series of transactions in
accordance with Section 6.08, if (a) Consolidated Net Worth after giving effect
to such transaction shall not be less than Consolidated Net Worth after giving
effect to such transaction, (b) in the case of a merger or consolidation, such
transaction occurs in connection with a Permitted Acquisition, and (c) in the
case of a merger or consolidation, the surviving corporation shall be the
Borrower or a Wholly Owned Subsidiary of the Borrower.
SECTION 6.08 ASSET DISPOSITIONS.
------------------
(a) The Borrower will not, and will not permit any of its
Subsidiaries to, make or agree to make any Asset Disposition, including, without
limitation, any Sale-Leaseback Transaction, unless (i) the Borrower applies any
Net Cash Proceeds thereof to repay obligations under this Agreement as and to
the extent provided in Section 2.05(b) and pledges any Non-Cash Proceeds thereof
to secure obligations under this Agreement as provided in Section 5.11(b) and
(ii) in the case of an Asset Disposition involving any Collateral, such
transaction satisfies the conditions for release of such Collateral under the
respective Collateral Documents (which may, among other possible conditions,
require the prior written consent of the Agent) or the terms of such transaction
shall have been approved in advance by the Required Lenders; provided that the
--------
Borrower will not sell or otherwise dispose of Real Property subject to a
California Mortgage unless, in addition to satisfaction of the requirement of
clauses (i) through (ii) above, the Lenders shall have been furnished with an
appraisal, in form and substance satisfactory to the Required Lenders and from
an independent appraiser satisfactory to the Required Lenders, of the fair value
of Collateral for the Mortgage Term Loan remaining after giving effect to such
sale or other disposition indicating that such fair value is at least equal to
one hundred twenty-five percent (125%) of the principal amount of the Mortgage
Term Loan remaining unpaid after giving effect to application of the proceeds of
such sale or other disposition pursuant to Section 2.05(b)(iii) hereof.
(b) The Borrower in any event will not, and will not permit any of
its Subsidiaries to, directly or indirectly, sell with recourse, discount
(except in the ordinary course of business consistent with past practice to
compromise disputes with customers), or otherwise sell for less than the face
value thereof or for consideration other than cash, any of their respective
accounts receivable.
(c) As promptly as practicable in connection with any Asset
Disposition, the Borrower shall deliver to the Agent a certificate, duly
executed by the Responsible Officer of the Borrower, setting forth in detail a
description of such Asset Disposition or other sale or disposition, copies of
any related agreements, the date or scheduled date of such Asset Disposition or
other sale or disposition, the determination of the Net Cash Proceeds of such
Asset Disposition or other sale or disposition, the description of any Non-Cash
Proceeds thereof and the Collateral arrangements with respect thereto and such
other documents and information as is necessary to demonstrate compliance with
this Section 6.08.
SECTION 6.09 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
----------------------------
will not permit any of its Subsidiaries to, directly or indirectly, enter into
any transaction (including the purchase, sale, lease, or exchange of any
property or the rendering of any service) with any Affiliate of the Borrower,
unless (a) such transaction is not otherwise prohibited by this Agreement, (b)
such transaction is in the ordinary course of business and (c) such transaction
is on fair and reasonable terms no less favorable to the Borrower or its
Subsidiary, as the case may be, than those terms which might be obtained at the
time in a comparable arm's length transaction with a Person who is not an
Affiliate or, if such transaction is not one which by its nature could be
obtained from such other Person, is on fair and reasonable terms and was
negotiated in good faith on an arm's length basis; provided that this Section
--------
6.09 shall not restrict (x) dividends, distributions and other payments and
transfers on account of any shares of Capital Stock of the Borrower or any
Subsidiary of the Borrower, (y) payments pursuant to the terms of any
Contractual Obligations in effect on the date hereof listed on Schedule 6.09
hereto, and (z) the grant of capital stock of Holdings or options or rights to
purchase
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such stock, the sale of such stock and the payment of reasonable compensation to
employees, directors and independent contractors pursuant to an overall
compensation program.
SECTION 6.10 PAYMENTS WITH RESPECT TO SUBORDINATED DEBT. The Borrower
------------------------------------------
will not, and will not permit any Subsidiary to, voluntarily purchase, acquire,
redeem or retire, make any payment or distribution on account of principal of
or, if an Event of Default has occurred and is continuing, interest on any
Subordinated Debt at a rate in excess of the Applicable LIBOR Based Rate (as
defined in the Amended and Restated Senior Subordinated Credit Agreement);
provided, however, that if no Event of Default has occurred or is continuing,
- -------- -------
this Section 6.10 shall not prohibit repayments in connection with refinancings
of Subordinated Debt permitted under Section 6.02(i).
SECTION 6.11 ERISA. The Borrower will not, and will not permit any
-----
member of the Controlled Group to:
(a) engage in any transaction which it knows or has reason to know
could subject any member of the Controlled Group to either a civil penalty in
excess of $100,000 assessed pursuant to Section 502(i) of ERISA or a tax imposed
by Section 4975 of the Internal Revenue Code;
(b) permit the present value of all benefits on a termination basis
(whether or not vested) under all Plans subject to Title IV of ERISA to exceed
the current value of the assets of such Plans allocable to such benefits by an
amount in excess of $100,000;
(c) fail to make any payments aggregating in excess of $100,000 to any
Multiemployer Plan that the Borrower or any of its ERISA Affiliates may be
required to make under any agreement relating to such Multiemployer Plan, or any
law pertaining thereto;
(d) voluntarily terminate any one or more of their Plans, if such
termination would result in the imposition of Liens on the Borrower or any
member of the Controlled Group under Section 4068 of ERISA securing a liability
exceeding $100,000;
(e) fail to make required contributions to any Plan subject to Section
412(n) of the code that with the passage of time reasonably could result in
imposition of a Lien upon the assets of the Borrower or any member of its
Controlled Group securing a liability in excess of $100,000;
(f) create or suffer to exist any liability with respect to Plans that
are welfare plans within the meaning of Section 3(1) of ERISA if, after
immediately giving effect to such liability, the aggregate annualized cost with
respect to such Plans for post retirement benefits for any fiscal year would
exceed $100,000;
(g) adopt an amendment to any Plan with respect to which security in
an amount in excess of $100,000 is required under Section 307 of ERISA; or
(h) enter into any arrangement or agreement pursuant to which the
Borrower or any ERISA Affiliate is treated as a member of an affiliated service
group (as defined in Code Section 414(m)) of which any shareholder of Holdings
is a member.
For purposes of this Section 6.11, the term "Controlled Group" shall
include any ERISA Affiliates of the Borrower.
SECTION 6.12 AMENDMENTS OF OR WAIVERS UNDER SUBORDINATED DEBT
------------------------------------------------
DOCUMENTS. The Borrower will not, and will not permit any Subsidiary to, amend
- ---------
or supplement the Senior Subordinated Credit Agreement, or waive or otherwise
relinquish any of its rights or causes of action under or arising out of the
Senior Subordinated Credit Agreement, with respect to terms and provisions
regarding interest rates, principal
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<PAGE>
or interest payment amounts, principal or interest payment dates, subordination,
representations by or covenants of the Borrower, or events of default, or other
material provisions, without in each case obtaining the prior written consent of
the Required Lenders.
SECTION 6.13 ISSUANCE OF CAPITAL STOCK. No Subsidiary shall issue any
-------------------------
of its Capital Stock to any Person other than the Borrower or a Wholly Owned
Subsidiary.
SECTION 6.14 EVENT OF ILLEGALITY UNDER THE SENIOR SUBORDINATED CREDIT
--------------------------------------------------------
AGREEMENT. The Borrower shall give the Lender immediate notice of the occurrence
- ---------
of an Event of Illegality (as such term is defined in the Senior Subordinated
Credit Agreement) and shall not make any payments on Subordinated Debt upon the
occurrence of an Event of Illegality without the prior written consent of the
Lender.
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<PAGE>
ARTICLE VII
EVENTS OF DEFAULT
-----------------
SECTION 7.01 EVENTS OF DEFAULT. The occurrence of any one or more of
-----------------
the following events, acts or occurrences shall constitute an event of default
(an "Event of Default") hereunder:
(a) Failure to Make Payments. The Borrower shall fail to pay when due
------------------------
any principal (whether at stated maturity, upon acceleration, by notice of or
other requirement of prepayment, by operation of Section 2.05 or otherwise) of
or interest on either of the Term Loans or any Revolving Loan, or shall fail to
pay within three (3) Business Days after the Lender notifies the Borrower that
such amount has become due any fees, costs, expenses or other amounts payable
hereunder or under the Notes or any other Loan Documents;
(b) Default in Other Agreements. The Borrower or any of its
---------------------------
Subsidiaries (i) shall default in the payment (whether at scheduled maturity,
required prepayment, upon demand or otherwise), beyond any period of grace
provided therefor, of any principal of or interest on (A) the Obligations (as
therein defined) under the Senior Subordinated Credit Agreement or (B) any other
Indebtedness in a principal amount in excess of $500,000, or (ii) shall commit
any breach of or default under any other term of any agreement or indenture or
instrument governing or evidencing Subordinated Debt or any agreement or
indenture or instrument relating to any such other Indebtedness, if the effect
of such breach or default is to cause, or to permit the holder or holders of the
Subordinated Debt or other Indebtedness or a trustee on behalf of such holder or
holders) to cause, the Subordinated Debt or any such other Indebtedness to
become or be declared due and payable prior to its stated maturity;
(c) Breach of Certain Covenants. The Borrower shall fail duly and
---------------------------
punctually to perform, comply with or observe any agreement, covenant,
obligation to be performed, observed or complied with by it pursuant to Section
2.01(g), Section 5.01(e), Section 5.03 (insofar as such Section requires the
preservation of the corporate existence of the Borrower), Section 5.11, or 5.13,
or any Section of Article VI hereof;
(d) Breach of Warranty. Any representation or warranty or
------------------
certification made or furnished (before, on or after the Effective Date) by the
Borrower under this Agreement (before or after giving effect to the amendment
and restatement effected hereby), the Collateral Documents, the other Loan
Documents, the Acquisition Documents or any agreement, instrument or document
contemplated hereby and thereby shall, at any time, prove to have been false or
incorrect in any material respect when made;
(e) Other Defaults Under Agreement and Other Loan Documents. The
-------------------------------------------------------
Borrower or any Subsidiary shall fail duly and punctually to perform, comply
with or observe any covenant or obligation to be performed, observed or complied
with by it under this Agreement (other than those provisions referred to in
subsections (a) and (c) above) or under the Collateral Documents or the other
Loan Documents and such failure shall not have been remedied or waived within
thirty (30) days after receipt of notice thereof from the Lender;
(f) Involuntary Bankruptcy; Appointment of Receiver, Etc. There shall
-----------------------------------------------------
be commenced against the Borrower or any of its Subsidiaries an involuntary case
seeking the liquidation or reorganization of the Borrower or any of its
Subsidiaries under Chapter 7 or Chapter 11, respectively, of the federal
Bankruptcy Code or any similar proceeding under any other Applicable Law or an
involuntary case or proceeding seeking the appointment of a receiver,
liquidator, sequestrator, custodian, trustee or other officer having similar
powers of the Borrower or any of its Subsidiaries to take possession of all or a
substantial portion of the property or to operate all or a substantial portion
of the business of the Borrower or any of its Subsidiaries, and
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<PAGE>
any of the following events occur: (i) the Borrower or any of its Subsidiaries
consents to the institution of the involuntary case or proceeding; (ii) the
petition commencing the involuntary case or proceeding is not timely
controverted; (iii) the petition commencing the involuntary case or proceeding
remains undismissed and unstayed for a period of sixty (60) days (provided,
--------
however, that, during the pendency of such period, the Lender shall be relieved
- -------
of its Commitments); or (iv) an order for relief shall have been issued or
entered therein; or
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower
---------------------------------------------------
or any of its Subsidiaries shall institute a voluntary case seeking liquidation
or reorganization under Chapter 7 or Chapter 11, respectively, of the federal
Bankruptcy Code; or the Borrower or any of its Subsidiaries shall file a
petition, answer, or complaint or shall otherwise institute any similar
proceeding under any other Applicable Law, or shall consent thereto; or the
Borrower or any of its Subsidiaries shall consent to the conversion of an
involuntary case to a voluntary case; or the Borrower or any of its Subsidiaries
shall file a petition, answer a complaint or otherwise institute any proceeding
seeking, or shall consent or acquiesce to the appointment of, a receiver,
liquidator, sequestrator, custodian, trustee or other officer with similar
powers to take possession of all or a substantial portion of the property or to
operate all or a substantial portion of the business of the Borrower or any of
its Subsidiaries; or the Borrower or any of its Subsidiaries shall make a
general assignment for the benefit of creditors; or the Borrower or any of its
Subsidiaries shall generally not pay its debts as they become due; or the Board
of Directors of Borrower or any of its Subsidiaries (or any committee thereof)
adopts any resolution or otherwise authorizes action to approve any of the
foregoing;
(h) Judgments and Attachments. The Borrower or any of its
-------------------------
Subsidiaries shall suffer any money judgments, writs, or warrants of attachment,
or similar processes which individually or in the aggregate involve an amount in
excess of $100,000 at any time unpaid and shall not discharge, vacate, bond, or
stay the same within a period of thirty (30) days or, in any event, within ten
(10) days of the date of any proposed sale thereunder; or a judgment creditor
shall obtain possession of any material portion of the assets of the Borrower or
any of its Subsidiaries by any means, including, without limitation, levy,
distraint, replevin or self-help;
(i) Change of Control. A Change of Control shall occur at any time;
-----------------
(j) ERISA Liabilities.
-----------------
(i) Any Termination Event occurs which, when taken together with
all other Termination Events that have occurred, can reasonably be expected to
result in a liability of the Borrower or any of its ERISA Affiliates in excess
of $100,000; or
(ii) The Borrower or any ERISA Affiliate shall have committed a
failure described in Section 302(f)(1) of ERISA and the amount determined under
Section 302(f)(3) of ERISA is at least $100,000; or
(iii) Failure to make full payment (including all required
installments) when due of all amounts which, under the provisions of any Plan or
Multiemployer Plan or applicable law, the Borrower or any member of its
Controlled Group is required to pay as contributions thereto, which failure
would result in a liability to the Borrower or its Subsidiaries exceeding
$100,000; or
(iv) The Borrower or any ERISA Affiliate shall have incurred any
accumulated funding deficiency in excess of $100,000, whether or not waived,
with respect to any Plan; or
(v) The Borrower or any of its ERISA Affiliates as an employer
under a Multiemployer Plan shall have made a complete or partial withdrawal from
such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall
have notified such withdrawing employer that such employer
71
<PAGE>
has incurred a withdrawal liability in an annual amount exceeding $100,000 or
the aggregate amount of such withdrawal liabilities for which the Borrower and
its Subsidiaries together shall have received such notices exceeds $100,000; or
(vi) The Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan that such plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans which are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Plan for the respective plan
years which include the Closing Date by an amount exceeding $100,000; or
(vii) Any Lien on the assets of the Borrower or any of its ERISA
Affiliates under the Pension Protection Act securing a liability exceeding
$100,000; or
(viii) Borrower or any ERISA Affiliate becomes, or is reasonably
expected to become, subject to any liability with respect to the Sears Plans (as
defined below) not covered by the indemnification set forth in Section 11.1(a)
of the Stock Purchase Agreement which liability (together with the liability
described in (x) below) is in excess of $100,000; or
(ix) Borrower or any ERISA Affiliate becomes subject to any
liability with respect to the Sears Plans (as defined below) covered by the
indemnification set forth in Section 11.1(a) of the Stock Purchase Agreement,
which liability (together with the liability described in (ix) above) is in
excess of $100,000 and Borrower has been unable to collect on the
indemnification within one hundred twenty (120) days after it first becomes
subject to such liability; or
(x) Any one of the events described in (i) through (ix) above
occurs (without application of any required level of liability), which taken
together with all other such events that have occurred can reasonably be
expected to result in a liability of Borrower or any of its ERISA Affiliates in
excess of $500,000.
For purposes of clauses (ix) and (x) above, the term "Sears Plan"
shall mean any employee benefit plan (as defined in Section 3(3) of ERISA)
sponsored or maintained by, or to which contributions have ever been made by,
any organization other than the Borrower which was, prior to the Closing Date
(as defined in the Stock Purchase Agreement), a member of a group described in
Code Sections 414(b), (c), (m) or (o), of which the Borrower was a member prior
to the Closing Date (as defined in the Stock Purchase Agreement);
(k) Failure of Subordination. Any agreement to subordinate other
------------------------
Indebtedness in right of payment to the Obligations, at any time and for any
reason other than satisfaction in full of all of the Obligations or satisfaction
in full of the subordinated Indebtedness upon the stated maturity thereof,
whether incorporated in the Intercreditor Agreement or in the indenture or
agreement governing, or instrument evidencing, such subordinated Indebtedness,
ceases to be in full force and effect or is declared to be null and void; or any
holder of subordinated Indebtedness repudiates or disavows such subordination or
denies that it has any further liability or obligation under such subordination
agreement or gives notice to such effect;
(1) Termination of Collateral Documents or Loan Documents, Etc. Any
----------------------------------------------------------
of the Collateral Documents or the Guaranties or any other Loan Document, or
any material provision in any of them, shall cease to be in full force and
effect for any reason other than (a) a release or termination thereof upon the
full payment and satisfaction of the Indebtedness due hereunder and under the
Notes to the Lenders or (b) upon the written consent of the Required Lenders, or
any of Holdings, the Borrower or any of its Subsidiaries shall contest or
purport to repudiate or disavow any of the Collateral Documents or Guaranties to
which it is a party;
72
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(m) Material Adverse Change. There shall occur after the Effective
-----------------------
Date a material adverse change in the business, assets, prospects, results of
operation or financial condition of the Borrower or the Borrower and its
Subsidiaries taken as a whole.
SECTION 7.02 REMEDIES. Upon the occurrence of an Event of Default:
--------
(a) If an Event of Default occurs under Section 7.01(f) or (g), then
the Revolving Credit Facility A Commitment and the Revolving Credit Facility B
Commitment shall automatically and immediately terminate, and the obligation of
the Lenders to make any Revolving Loan or issue any Letter of Credit hereunder
thereupon shall cease, and the unpaid principal amount of, and accrued interest
on, both of the Term Loans and all of the Revolving Loans shall automatically
become immediately due and payable, without presentment, demand, protest, notice
or other requirements of any kind, all of which are hereby expressly waived by
the Borrower, and the Borrower shall be unconditionally obligated to deposit
with the Agent cash collateral in an amount equal to any and all existing Letter
of Credit Liability.
(b) If an Event of Default occurs under Section 7.01 hereof, other
than under Section 7.01(f) or (g), the Agent may or upon written request of the
Required Lenders shall, by written notice to the Borrower, declare that the
Revolving Credit Facility A Commitment and the Revolving Credit Facility B
Commitment are terminated, whereupon the obligation of any Lender to make any
Revolving Loan or issue any Letter of Credit hereunder shall cease, and/or
declare the unpaid principal amount of the Term Loans and all of the Revolving
Loans, or any of them individually, to be, and the same shall thereupon become,
due and payable together with any and all accrued interest thereon, without
presentment, demand, protest, any additional notice whatsoever or other
requirements of any kind, all of which are hereby expressly waived by the
Borrower, except as otherwise provided in this Agreement or by Applicable Law,
and the Borrower shall be unconditionally obligated to deposit with the Agent
cash collateral in an amount equal to any and all existing Letter of Credit
Liability.
73
<PAGE>
ARTICLE VIII
THE AGENT AND THE LENDERS
-------------------------
SECTION 8.01 AUTHORIZATION AND ACTION.
------------------------
(a) Each Lender and each Issuing Bank hereby irrevocably appoints and
authorizes the Agent to act as its agent hereunder and under the other Loan
Documents to execute and deliver or accept, on its behalf, the other Loan
Documents and any other documents, instruments and agreements related thereto or
hereto to take such action on its behalf under the provisions hereof and thereof
and to exercise such rights, remedies, powers and privileges hereunder and
thereunder as are delegated to the Agent by the terms hereof and thereof,
together with such rights, remedies, powers and privileges as are reasonably
incidental thereto.
(b) Except for any matters expressly subject to the consent or
approval of the Agent under the Loan Documents, the Agent shall not, without the
prior approval of the Required Lenders (or, as provided in Section 9.03, all of
the Lenders), consent to any departure by the Borrower from the terms of, waive
any default or otherwise amend this Agreement or any other Loan Documents. The
Agent will, to the extent practicable under the circumstances, consult with the
other Lenders prior to taking action on their behalf under the Loan Documents
and in acting as their Agent thereunder. The Agent will not take any action
contrary to the written direction of Required Lenders, will take any lawful
action not contrary to the provisions of the Loan Documents prescribed in
written instructions of the Required Lenders (or, as provided in Section 9.03,
all the Lenders) and, as to any matters not expressly provided for by the Loan
Documents (including enforcement or collection), may decline to take any action,
except upon the written instructions of the Required Lenders (or, as provided in
Section 9.03, all the Lenders). If such instructions are requested reasonably
promptly, the Agent shall be absolutely entitled to refrain from taking any
action and shall not have any liability to the Borrower, any Affiliate of the
Borrower, any Subsidiary of the Borrower, or any Lender for refraining from
taking any action until it shall have received such instructions; provided,
--------
however, that the Agent shall in no event be required to take or refrain from
- -------
taking any action that would, in the Agent's opinion, be inconsistent with the
Agent's practice in similar situations when acting solely for its own account or
be contrary to the provisions of any Loan Document or Applicable Law.
(c) The Agent shall not have any duties or responsibilities except
those expressly set forth in the Loan Documents. No duty to act, or refrain
from acting, and no other obligation whatsoever, shall be implied on the basis
of any right, power or authority granted to the Agent or shall become effective
in the event of any temporary or partial exercise of such rights, power or
authority. The Agent shall not be required to exercise any right, power, remedy
or privilege granted to it in any Loan Document, to ascertain or inquire whether
any Default or Event of Default has occurred and is continuing, or to inspect
the property (including the books and records) of the Borrower or any Affiliate
of the Borrower, or any Subsidiary of the Borrower, or to take any other
affirmative action, except as provided in Section 7.01, or unless requested or
directed to do so in accordance with the provisions of Section 8.01(b).
(d) The duties of the Agent shall be mechanical and administrative in
nature. The Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any other Lender. Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower, any
Affiliate or the Borrower, or any Subsidiary of the Borrower that may come into
the possession of the Agent or any of its Affiliates.
SECTION 8.02 EXCULPATION; AGENT'S RELIANCE; ETC. Neither the Agent
----------------------------------
nor any of its directors, officers, agents, attorneys or employees shall be
liable to the Borrower, any Affiliate of the
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Borrower, any Subsidiary of the Borrower, or any other Lender Party for any
action taken or omitted to be taken by it or them under or in connection with
any Loan Document (a) with the consent or at the request of the Required Lenders
(or, as provided in Section 9.03, all the Lenders), or (b) in any other
circumstances, except for its or their own gross negligence or wilful misconduct
as determined by a final judgment of a court of competent jurisdiction. The
Agent makes no warranty or representation to any other Lender and shall not be
responsible to any other Lender for any recitals, statements, warranties or
representations made in, or in connection with, any Loan Document or for the
execution, effectiveness, genuineness, validity, enforceability, collectibility,
or sufficiency of any Loan Document or any financial information, opinions of
counsel or other documents executed and delivered pursuant thereto, or for the
financial condition of the Borrower, any Affiliate of the Borrower, or any
Subsidiary of the Borrower. The Agent shall not be responsible to any Lender for
the satisfaction of any condition specified in Article III. The Agent may treat
the payee of any Note as the holder thereof until the Agent receives the related
assignment and acceptance documentation signed by such holder and the assignee
and in form satisfactory to the Agent. The Agent shall be entitled to rely upon
any notice, certificate or other writing believed by the Agent to be genuine and
correct and to have been signed or sent by the proper Person or Persons. The
Agent shall be entitled to consult with legal counsel, independent public
accountants and other experts selected by the Agent and to act in reliance upon
the advice of such counsel and other experts concerning its actions and duties
hereunder.
SECTION 8.03 AGENT AND AFFILIATES. The Agent shall in its capacity
--------------------
as a Lender have the same rights, powers and obligations under this Agreement
and the other Loan Documents as any other Lender and may exercise or refrain
from exercising the same as though it were not the Agent, including the right to
give or deny consent to any action requiring consent or direction of the
Required Lenders or all the Lenders. The Agent and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower, any Affiliate of the
Borrower, and any Subsidiary of the Borrower, all as if the Agent were not the
Agent and without any duty to account therefor to the Lenders. The Agent shall
be entitled to receive from the Borrower its fees or portions thereof in
connection with this transaction without any liability to account therefor to
any other Lender, except as the Agent and such Lender may have expressly agreed.
SECTION 8.04 LENDER CREDIT DECISION. Each Lender acknowledges that
----------------------
it has, independently and without reliance upon the Agent or any other Lender
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents.
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SECTION 8.05 INDEMNIFICATION.
----------------
The Agent shall in no event be required to take any action under the
Loan Documents or in relation thereto unless it shall first be indemnified to
its satisfaction by the other Lenders against any and all liability and expense
that it may incur by reason of taking any such action. Each Lender agrees to
indemnify and hold the Agent harmless (to the extent not promptly paid or
reimbursed by the Borrower, ratably according to their respective Commitments,
from and against any and all (a) costs, expenses and other amounts incurred by
the Agent otherwise payable by the Borrower pursuant to Section 9.01 and (b)
Indemnified Liabilities that may be imposed on, incurred by, or asserted against
the Agent, except to the extent they are finally adjudged by a court of
competent jurisdiction to have directly resulted from the gross negligence or
willful misconduct of the Agent.
SECTION 8.06 SUCCESSOR AGENT. The Agent may resign at any time as
---------------
Agent under the Loan Documents by giving written notice thereof to the Lenders
and the Borrower and the Agent may be removed at any time with or without cause
by written action of all Lenders (other than the Agent) delivered to the Agent.
Upon any such resignation or removal, the Required Lenders shall have the right
to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's notice of resignation or the
removal of the Agent, then the retiring or removed Agent may, on behalf of the
other Lender Parties, appoint a successor Agent, which shall be a financial
institution having a combined capital and surplus of at least $100,000,000, or a
branch or agency of such a financial institution, organized or licensed to do
business under the laws of the United States of America or any State thereof.
Upon the acceptance of any appointment as the Agent by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged of its duties and obligations under the Loan
Documents. In making such appointment the Agent shall consult with the
Borrower; provided, however, that the Agent shall not be required to obtain any
-------- -------
consent by the Borrower with respect to such successor Agent. Upon the
acceptance of any appointment as the Agent by a successor Agent, such successor
Agent shall give notice to the Borrower of its appointment as Agent. Upon any
retiring Agent's resignation or removal, the provisions of this Article VIII (as
well as other expense reimbursement, indemnification and exculpatory provisions
in the other Loan Documents) shall continue in effect for its benefit as to any
actions taken or omitted by it while it was Agent.
SECTION 8.07 EXCESS PAYMENTS. If any Lender shall obtain any payment
---------------
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Obligations in excess of its pro rata share of
payments and other recoveries on account of such Obligations obtained by all
Lenders, such Lender shall purchase from the other Lenders such participations
in such Obligations held by them as shall be necessary to cause such purchasing
Lender to share the excess payment or other recovery ratably with each of the
other Lenders; provided, however, that if all or any portion of the excess
-------- -------
payment or other recovery is thereafter recovered from such purchasing Lender,
the purchase shall be rescinded and the purchase price restored to such Lender
to the extent of such recovery, but without interest. The Borrower agrees that
any Lender so purchasing a participation from another Lender pursuant to this
Section 8.07 may, to the fullest extent permitted by Applicable Law and by
Section 9.11 hereto, exercise all of its rights of payment (including setoff)
with respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
SECTION 8.08 LENDERS.
-------
The provisions of this Article VIII are solely for the benefit of the
Agent and the other Lenders and the Borrower shall not have any rights to rely
on or enforce any of the provisions hereof. In performing its functions and
duties under the Loan Documents, the Agent shall act solely as agent of the
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for the Borrower.
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SECTION 8.09 COLLATERAL AND GUARANTY MATTERS.
-------------------------------
(a) Except as specifically otherwise provided in any of the Collateral
Documents, the Agent is hereby authorized on behalf of all of the Lenders,
without assumption of any duty or obligation in respect of and without the
necessity of any notice to or further consent from any other Lender, to take any
action with respect to any Collateral or Collateral Documents that may be
necessary to perfect and maintain perfected the Agent's Liens upon the
Collateral.
(b) The Lenders hereby irrevocably authorize the Agent, in its
discretion, to release any Lien held by the Agent upon any Collateral (i) from
and after the day of termination of any Collateral Document pursuant to the
terms thereof; (ii) constituting property being sold or disposed of if the
Borrower certifies to the Agent that the sale or disposition is permitted under
the relevant Collateral Document and this Agreement (and the Agent may rely
conclusively on any such certificate, without further inquiry, unless notified
to the contrary by the Required Lenders); or (iii) approved, authorized or
ratified in writing by all Lender Parties; provided, however, that (x) the Agent
-------- -------
shall not be required to execute any such documents on terms that create any
obligation or entail any consequence other than the release of such Liens
without recourse or warranty, and (y) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of
the Borrower in respect of) all assets retained by the Borrower/Borrowers,
including the proceeds of any Asset Disposition, all of which shall continue to
constitute part of the Collateral. Upon request by the Agent at any time, the
other Lender Parties will confirm in writing the Agent's authority to release
particular types or items of Collateral pursuant to this Section 8.09(b).
(c) The Agent shall have no obligation whatsoever to any other Lender
or other Person to assure that the Collateral exists or is owned by the Borrower
or (except as otherwise expressly required by the Collateral Documents) is cared
for, protected or insured, or that the Liens of the Agent thereunder have been
properly created, perfected, protected or enforced or are entitled to any
particular priority.
(d) Except as otherwise provided in the Loan Documents, the Agent may
act in any manner it may deem appropriate in respect of the Collateral, in its
discretion, given the Agent's own interest in the Collateral as a Lender, and
the Agent shall have no duty or liability whatsoever with respect thereto to any
other Lender.
(e) Each Lender hereby approves the form of the other Loan Documents
attached as exhibits to this Agreement and hereby authorizes the Agent on its
behalf to accept from Holdings, the Borrower and the Subsidiary Guarantors and
execute and deliver as Agent, the other Loan Documents in substantially the form
of such exhibits, with such changes, additions or deletions as the Agent, in its
discretion, may approve as necessary or appropriate, such approval to be
conclusively evidenced by the Agent's acceptance or execution thereof. Each
Lender also authorizes the Agent to accept, or execute and deliver, such
additional documents (including financing statements, opinions, certificates and
other documents in form and substance satisfactory to the Agent, in its
discretion) in connection with the closing pursuant to Section 3.01, or any
subsequent closing for the pledge of any other Collateral, or any additional
Guaranties as the Agent, in its discretion, may approve, such approval to be
conclusively evidenced by the Agent's acceptance or execution thereof.
SECTION 8.10 PAYMENTS; AVAILABILITY OF FUNDS; CERTAIN NOTICES. If
------------------------------------------------
the Agent shall fail to deliver to any other Lender its share of any payment
received from the Borrower as and when required under Article II hereof, the
Agent shall pay to such Lender its share of such payment together with interest
on such amount at the Federal Funds rate, for each day from the date such amount
was required to be paid to such Lender until the date the Agent pays such amount
to such Lender.
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SECTION 8.11 OBLIGATIONS OF LENDER PARTIES SEVERAL; ENFORCEMENT BY
-----------------------------------------------------
THE AGENT.
- ---------
(a) Each Lender's obligations hereunder are several, and not joint or
joint and several. The failure of any Lender to make any Loan or otherwise to
perform its obligations hereunder will not increase the obligations of any other
Lender. Notwithstanding the foregoing, any Lender may assume, but shall have no
obligation to any Person to assume, any non-performing Lender's obligation to
make a Loan. Nothing contained in this Agreement and no action taken by the
Agent or any other Lender pursuant to this Agreement shall be deemed to
constitute the Agent and any other Lender to be a partnership, an association, a
joint venture or any other kind of entity.
(b) Each Lender agrees that, except with the prior written consent of
the Agent or as provided in Section 9.11, no Lender shall have any right
individually to realize upon the Collateral or otherwise enforce any Loan
Document or any provision thereof, or make demand thereunder, it being agreed
that such rights and remedies may only be exercised by the Agent for the ratable
benefit of the Lenders upon the terms of this Agreement.
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ARTICLE IX
MISCELLANEOUS
-------------
SECTION 9.01 EXPENSES. The Borrower agrees to pay on demand:
--------
(a) the reasonable fees, expenses and disbursements of counsel to the
Agent in connection with the negotiation, preparation, execution and delivery
and administration of this Agreement and all other Loan Documents and any
amendments, modifications and waivers hereof or thereto;
(b) all other actual and reasonable out-of-pocket expenses incurred by
the Agent in connection with the negotiation, preparation, execution, delivery
and administration of this Agreement and all other Loan Documents and any
amendments, modifications and waivers hereto or thereto, and the making of the
Loans hereunder; and
(c) all costs and expenses (including reasonable attorneys' fees and
disbursements and costs of settlement) incurred by the Agent in any workout,
restructuring or similar arrangements or after an Event of Default in connection
with the protection, preservation, exercise or enforcement of any of the terms
hereof or of its rights hereunder or under the Notes, the Collateral Documents
and all other Loan Documents and instruments contemplated hereby and thereby;
provided, however, that, without impairing or otherwise affecting provisions in
- -------- -------
the California Mortgages, this Section 9.01 shall not in any event extend to or
include any costs and expenses incurred by the Agent that are included in the
Specified Mortgage Loan Obligations.
SECTION 9.02 INDEMNITY.
---------
(a) In addition to the payment of expenses pursuant to Section 9.01
hereof, the Borrower agrees to indemnify, defend and hold harmless the Agent and
each Lender and any holder of any interest in the Notes and the officers,
directors, employees and agents of the Agent and each Lender and such holders
(the "Indemnitees") from and against (i) any and all transfer taxes, documentary
taxes, assessments or charges made by any Governmental Authority by reason of
the execution and delivery of this Agreement and the other Loan Documents or the
making of the Term Loans or the Revolving Loans, and (ii) any and all
liabilities, losses, damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection with any
investigative, administrative or judicial proceeding, whether or not such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against such Indemnitee, in any manner relating to or
arising out of or in connection with the making of the Senior Term Loan or the
Revolving Loans, this Agreement and all other Loan Documents (other than the
California Mortgages) or the use or intended use of the proceeds of the Senior
Term Loan and the Revolving Loans (the "Indemnified Liabilities"), provided,
--------
however, that the Borrower shall have no obligation hereunder with respect to
- -------
any of the Indemnified Liabilities arising from the gross negligence or willful
misconduct of any Indemnitee.
(b) Each Indemnitee will promptly notify the Borrower of each event of
which it has knowledge which may give rise to a claim under the indemnification
provisions of this Section 9.02, provided that the failure to so notify the
--------
Borrower shall in no way impair the Borrower's obligations under this Section
9.02. If any investigative, judicial or administrative proceeding arising from
any of the foregoing is brought against any Indemnitee indemnified or intended
to be indemnified pursuant to this Section 9.02, the Borrower, to the extent and
in the manner directed by the Indemnitee, will resist and defend such action,
suit, or proceeding or cause the same to be resisted and defended by counsel
designated by the Borrower (which counsel shall be satisfactory to the
Indemnitee), provided that if Borrower shall provide the Indemnitee with
--------
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adequate security for its indemnity obligations in form reasonably satisfactory
to Indemnitee the Borrower may direct the manner in which such action, suit or
proceeding is resisted or defended. Each Indemnitee will use its best efforts
to cooperate in the defense of any such action, writ, or proceeding. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in the
preceding provisions may be unenforceable because it is violative of any law or
public policy, the Borrower shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under Applicable Law.
(c) The obligations of the Borrower under this Section 9.02 shall
survive the termination of this Agreement and the discharge of the Borrower's
other obligations hereunder.
(d) Notwithstanding the foregoing (but without impairing or otherwise
affecting provisions in the California Mortgages), this Section 9.02 shall not
in any event extend to or include any liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
that are included in the Specified Mortgage Loan Obligations.
SECTION 9.03 WAIVERS; MODIFICATIONS IN WRITING.
---------------------------------
(a) The rights and remedies provided for under this Agreement and in
the other Loan Documents are cumulative and are not exclusive of any rights and
remedies that may be available to the Lender at law, in equity, or otherwise.
No amendment, modification, supplement, termination, consent, or waiver of this
Agreement or any other Loan Documents shall in any event be effective unless the
same shall be in writing and signed by the Agent and the Required Lenders.
Notwithstanding the foregoing,
(i) no amendment that has the effect of (A) reducing the rate or
amount, or extending the stated maturity or due date, of any amount payable
by the Borrower to any Lender under the Loan Documents, (B) increasing the
amount, or extending the stated termination or reduction date, of any
Lender's Pro Rate Share of the Revolving Credit Facility A Commitment or
subjecting any Lender to any additional obligation to extend credit, (C)
altering the rights and obligations of the Borrower to prepay the Loans,
(D) permitting the creation of any Lien ranking prior to or on a parity
with the Lien of any Collateral Document, releasing any part of the
Collateral (except as permitted under the Loan Documents) or depriving any
Lender of the security afforded by the Lien of any Collateral Document, (E)
releasing any party under any of the Guaranties (except as permitted under
the Loan Documents), or (F) changing this Section 9.03 or the definition of
the term "Required Lenders," shall be effective unless the same shall be
signed by or on behalf of all of the Lenders;.
(ii) no amendment that has the effect of (A) increasing the duties
or obligations of the Agent, (B) increasing the standard of care or
performance required on the part of the Agent, or (C) reducing or
eliminating the indemnities or immunities to which the Agent is entitled
(including any amendment of this Section 9.03), shall be effective unless
the same shall be signed by or on behalf of the Agent; and
(iii) no amendment that has the effect of (A) increasing the
duties or obligations of any Issuing Bank; (B) increasing the standard of care
or performance required on the part of any Issuing Bank; or (C) reducing or
eliminating the indemnities or immunities to which any Issuing Bank is entitled
(including any amendment of this Section 9.03(a)(iii)) shall be effective unless
the same shall be signed by or on behalf of each Issuing Bank.
(b) Any waiver of any provision of this Agreement or the other Loan
Documents shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances. Any amendment, modification, termination, waiver or
consent effected in accordance
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with this Section 9.03 shall be binding upon each holder of any Note, each
future holder of any Note, and the Borrower.
(c) Notwithstanding anything contained in this Section 9.03, the
Revolving Credit Facility B Commitment and the Revolving Credit Facility B
Termination Date may each be changed by agreement among the Borrower, the Agent
and the Revolving Credit Facility B Lender without notice to or consent of any
of the other Lenders.
SECTION 9.04 FAILURE OR DELAY. No failure or delay on the part of
----------------
the Agent or any Lender or any holder of any Note in the exercise of any power,
right or remedy under this Agreement or the other Loan Documents shall impair
such power, right or remedy or shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy preclude other or
further exercise of any other power, right or remedy.
SECTION 9.05 NOTICES, ETC. All notices, demands, instructions and
------------
other communications required or permitted to be given to or made upon any party
hereto shall be in writing and (except for financial statements, other related
informational documents and routine communications to be furnished pursuant
hereto, which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by courier, by overnight mail, by registered mail
or certified mail, postage prepaid, or by prepaid telex, telecopy or telegram
(with messenger delivery specified) and shall be deemed to be given for purposes
of this Agreement on the day that such writing is received by the intended
recipient thereof. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this Section 9.05, notices, demands,
instructions and other communications in writing shall be given to or made upon
the respective parties hereto at their respective addresses (or to their
respective telex or telecopier numbers) indicated on Schedule 9.05 attached
hereto.
SECTION 9.06 SUCCESSORS AND ASSIGNS.
----------------------
(a) This Agreement and any amendments hereto shall be binding upon and
inure to the benefit of and be enforceable by the Borrower and the Lenders and
their respective successors and assigns. The Borrower may not assign or
transfer any interest hereunder without the prior written consent of the
Lenders.
(b) The Lender shall have the right at any time to do either or both
of the following: (i) subject to the provisions of Section 9.07, furnish one or
more purchasers or potential purchasers of all or any portion of the Term Loans,
the Revolving Loans or the Notes or of a participation interest therein, with
any and all information concerning Holdings, Borrower or its Subsidiaries which
has been supplied by Holdings or the Borrower to the Lender; or (ii) sell,
assign, syndicate, transfer or negotiate all or any portion of the Lender's
interests in the Term Loans, the Revolving Loans or the Notes, so long as the
Lender at all times acts as agent for itself and/or its transferees (unless and
until the Lender is removed and a successor agent is appointed) or sell, assign,
transfer, or grant participations in all or any portion of the Lender's
interests in the Term Loans, the Revolving Loans or the Notes. In this regard,
the Borrower specifically acknowledges that The Sumitomo Bank, Limited will be
the only Lender party to this Agreement on the date of this Agreement. To the
extent that after the date of this Agreement any other financial institution
becomes a Lender hereunder, the Borrower and the Lender agree to execute such
amendments or new documentation as may be necessary to reflect and join any such
financial institutions as parties hereto and to reflect properly their pro rata
benefits and obligations hereunder. At such time the Agreement shall be
modified to reflect the pro rata share of the Term Loans and or the Revolving
Loans of such new Lender and of the existing Lenders and new Notes will be
issued to such new Lender and to the assigning Lender in conformity with the
requirements of Article II to the extent needed to reflect each Lender's revised
pro rata share of the Term Loans and/or the Revolving Loans.
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(c) Notwithstanding Section 2.09, in the event that a Foreign Bank
becomes a signatory to this Agreement, the Borrower shall withhold tax with
respect to payments to such Foreign Bank in accordance with the United States
federal income tax laws then in effect and shall have no obligation to make
payments to such Foreign Bank that are free and clear of such properly withheld
amounts, unless such Foreign Bank shall have delivered to the Agent, in its
capacity as agent for the Lenders, and the Agent shall have delivered to the
Borrower, a duly executed certificate in form reasonably satisfactory to the
Borrower to the effect that as of that date such Foreign Bank is entitled to
receive all payments made hereunder without deduction or withholding of United
States federal income tax (x) pursuant to the terms of an applicable tax treaty
in effect with the United States of America (in which case such certificates
shall be accompanied by two executed copies of Form 1001 of the Internal Revenue
Service), (y) under Code Section 1441(c) (in which case such certificates shall
be accompanied by two executed copies of Form 4224 of the lnternal Revenue
Service), or (z) pursuant to an exemption certificate received from the Internal
Revenue Service (in which case such certificate shall be accompanied by a copy
of such exemption certificate). Each Foreign Bank, upon becoming aware of the
occurrence of any event requiring a change in its prior Certificate, shall
promptly deliver to the Lender, in its capacity as agent for the Lenders, for
delivery to the Borrower duly executed certificates to the effect that (as the
case may be):
(i) such Foreign Bank is not capable of receiving future payments
hereunder without deduction or withholding of United States federal income tax,
in which case such Foreign Bank shall be entitled to the benefits of Section
2.09 hereof; or
(ii) such Foreign Bank is capable of receiving all payments
hereunder without deduction or withholding of United States federal income tax,
pursuant to a tax treaty of the United States, pursuant to Code Section 1441(c),
or pursuant to an exemption certificate received from the Internal Revenue
Service, a copy of which shall be attached to such certificate.
(d) "Foreign Bank" shall, for purposes of subsection (c) above, mean
and refer to any bank, financial institution or other entity other than a bank,
financial institution or other entity organized and existing under the laws of
the United States of America or any political subdivision thereof or therein.
SECTION 9.07 CONFIDENTIALITY. Each Lender agrees to maintain any
---------------
confidential information that it may receive from the Borrower or one of its
Subsidiaries pursuant to this Agreement confidential and shall not disclose such
information to third parties without the prior consent of the Borrower, except
for disclosure: (a) to legal counsel, accountants and other professional
advisors to the Lenders; (b) to regulatory officials having jurisdiction over
such Lender; (c) as required by law or legal process or in connection with any
legal proceeding to which the Lender is a party or is otherwise subject; (d) to
another financial institution in connection with a disposition or proposed
disposition of all or part of a Lender's interests hereunder, whether by
participation, assignment or other transfer, which financial institution shall
have agreed in writing to be subject to the confidentiality provisions of this
Section 9.07; and (e) to prospective purchasers of Collateral in connection with
any disposition thereof after an Event of Default. Each Lender shall undertake
to return, upon request by the Borrower made within a reasonable time after all
obligations of the Borrower under this Agreement, the Notes and the other Loan
Documents have been paid in full and the Agreement has been terminated, any
confidential material which Borrower clearly and conspicuously marked
"Confidential and Subject to Return" prior to or in connection with furnishing
or making available the same to the Lender, provided that the return of such
--------
material is not inconsistent with standard banking practice or, in the judgment
of the Lender, otherwise disadvantageous to the Lender.
SECTION 9.08 GOVERNING LAW AND VENUE; WAIVER OF TRIAL BY JURY. The
------------------------------------------------
validity of this Agreement and each Note, the construction, interpretation and
enforcement thereof and the rights of the parties thereto shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California. The parties agree that all actions or proceedings arising
in connection with this Agreement and the Notes shall be tried and litigated in
State and Federal Courts located in the County of Los
82
<PAGE>
Angeles, State of California, unless such actions or proceedings are required to
be brought in another court to obtain subject matter jurisdiction over the
matter in controversy. THE BORROWER AND EACH LENDER WAIVE THE RIGHT TO A TRIAL
BY JURY AND ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
---------
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
- ----------
ACCORDANCE WITH THIS SECTION 9.08. SERVICE OF PROCESS, SUFFICIENT FOR PERSONAL
JURISDICTION IN ANY ACTION AGAINST THE BORROWER, MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS INDICATED IN SCHEDULE
8.05 HERETO.
SECTION 9.09 SEVERABILITY OF PROVISIONS. Any provision of this
--------------------------
Agreement which is illegal, invalid, prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity, prohibition or unenforceability without
invalidating or impairing the remaining provisions hereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 9.10 INDEPENDENCE OF COVENANTS. All covenants under this
-------------------------
Agreement shall each be given independent effect so that if a particular action
or condition is not permitted by any such covenant, the fact that it would be
permitted by another covenant, by an exception thereto, or be otherwise within
the limitations thereof, shall not avoid the occurrence of a Default or an Event
of Default if such action is taken or condition exists.
SECTION 9.11 SET OFF. In addition to any rights now or hereafter
-------
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence of any Event of Default, each Lender and each holder or
transferee of any Note or any Person with any interest in any Note is hereby
authorized by the Borrower at any time or from time to time, without notice to
the Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits (general
or special, including, but not limited to, indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other indebtedness at any time held or owing by the Lender or
that subsequent holder to or for the credit or the account of the Borrower or
against and on account of the Debt of the Borrower to the Lender or that
subsequent holder under this Agreement and the Notes, including, but not limited
to, all claims of any nature or description arising out of or connected with
this Agreement or the Notes, irrespective of whether or not that Lender or that
subsequent holder shall have made any demand under this Agreement.
SECTION 9.12 CHANGES IN ACCOUNTING PRINCIPLES. If any changes in
--------------------------------
generally accepted accounting principles from those used in the preparation of
the financial statements referred to in this Agreement are hereafter occasioned
by the promulgation of rules, regulations, pronouncements, or opinions of or
required by the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants (or successors thereto or agencies with similar
functions), or there shall occur any change in the Borrower's fiscal or tax
years and, as a result of any such changes, there shall result a change in the
method of calculating any of the financial covenants, negative covenants,
standards, or other terms or conditions found in this Agreement, then the
parties hereto agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired result that
the criteria for evaluating the Borrower's financial condition shall be the same
after such changes as if such changes had not been made.
SECTION 9.13 PUBLICITY. Any publicity release, advertisement,
---------
filing, public statement or announcement made by or at the request of the
Borrower or any Subsidiary regarding this Agreement or the financing provided
under this Agreement which makes reference to the Lender, or describes the
financing provided by the Lenders, shall be first reviewed by and must be
satisfactory to the Lender.
SECTION 9.14 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
------------------------------------------------------
All agreements, representations, and warranties made herein shall survive the
execution and delivery of this
83
<PAGE>
Agreement, the making of the Term Loans hereunder and the execution and delivery
of the Notes and shall continue until one (1) year after repayment of the Notes
and the Obligations, and any investigation at any time made by or on behalf of
the Lender shall not diminish the Lender's right to rely thereon.
SECTION 9.15 HEADINGS. Article and section headings used in this
--------
Agreement are for convenience of reference only and shall not constitute a part
of this Agreement for any other purpose or affect the construction of this
Agreement.
SECTION 9.16 EXECUTION IN COUNTERPARTS. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement. This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.
SECTION 9.17 COMPLETE AGREEMENT. This Agreement, together with the
------------------
exhibits and schedules to this Agreement, the Notes and the other Loan
Documents, is intended by the parties as a final expression of their agreement
and is intended as a complete statement of the terms and conditions of their
agreement.
SECTION 9.18 KNOWLEDGE OF BORROWER. Whenever reference is made to a
---------------------
fact or the occurrence of an event as being known to or within the knowledge of
the Borrower, the Borrower shall be deemed to have such knowledge immediately
after the appropriate employee or the agent of the Borrower to whose attention
such fact or event would be brought in the ordinary course of the affairs of the
Borrower, knows or should have known of such fact or event in the performance of
his duties in the ordinary course of the affairs of the Borrower.
SECTION 9.19 WAIVER OF ANTI-DEFICIENCY PROTECTION. FURTHER, WITHOUT
--------------------------------------------------
LIMITATION TO THE FOREGOING, THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
DISCLAIMS AND RENOUNCES ANY RIGHT AND HEREBY IRREVOCABLY WAIVES ANY DEFENSE,
PROTECTION OR RIGHT UNDER: (A) CALIFORNIA CODE OF CIVIL PROCEDURE ("CCP")
SECTION 580D CONCERNING THE BAR AGAINST RENDITION OF A DEFICIENCY JUDGMENT AFTER
FORECLOSURE UNDER A POWER OF SALE; (B) CCP SECTION 580A PURPORTING TO LIMIT THE
AMOUNT OF A DEFICIENCY JUDGMENT WHICH MAY BE OBTAINED FOLLOWING EXERCISE OF A
POWER OF SALE UNDER A DEED OF TRUST; (C) CCP SECTION 726 CONCERNING EXHAUSTION
OF COLLATERAL, THE FORM OF FORECLOSURE PROCEEDINGS WITH RESPECT TO REAL PROPERTY
SECURITY LOCATED IN CALIFORNIA AND OTHERWISE LIMITING THE AMOUNT OF A DEFICIENCY
JUDGMENT WHICH MAY BE RECOVERED FOLLOWING COMPLETION OF JUDICIAL FORECLOSURE BY
REFERENCE TO THE "FAIR VALUE" OF THE FORECLOSURE COLLATERAL; (D) ANY DUTY ON THE
PART OF THE LENDER TO CONDUCT A COMMERCIALLY REASONABLE SALE UNDER UCC SECTION
9504(3) TO THE EXTENT ANY PORTION OF THE COLLATERAL FOR THE OBLIGATIONS OF THE
BORROWER TO THE LENDER CONSISTS OF PERSONAL PROPERTY OR FIXTURES, INCLUDING,
WITHOUT LIMITATION, THE MAKING OF ANY ELECTION UNDER UCC SECTION 9501(4) IN
RESPECT OF ANY SUCH PERSONAL PROPERTY OR FIXTURES, IT BEING EXPRESSLY AGREED BY
EACH BORROWER THAT THE BORROWER HAS HERETOFORE DEFAULTED AND IS PRESENTLY IN
DEFAULT UPON ITS OBLIGATIONS TO THE LENDER; AND (E) ANY RIGHT TO OBJECT TO THE
COMMENCEMENT BY THE LENDER OF ANY ADDITIONAL OR FURTHER ACTION TO JUDICIALLY
FORECLOSE THE LIEN OF ANY MORTGAGE OR DEED OF TRUST OR ANY OTHER LIEN OR
SECURITY INTEREST GRANTED BY THE BORROWER UPON ANY ITEM OF COLLATERAL OR THE
FILING BY LENDER OF ANY PLEADINGS IN THE ACTION INTENDED TO CONSOLIDATE THE
SUBJECT MATTER OF THE ACTION WITH
84
<PAGE>
ANY CAUSE OF ACTION TO FORECLOSE ANY MORTGAGE OR DEED OF TRUST OR REALIZE UPON
ALL OR ANY PART OF THE COLLATERAL.
85
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first set forth above.
CB COMMERCIAL REAL ESTATE GROUP, INC., a Delaware
corporation
By:
---------------------------------------
Title:
------------------------------------
LENDER:
------
THE SUMITOMO BANK, LIMITED, a banking corporation
organized under the laws of Japan
By:
---------------------------------------
Title:
------------------------------------
The Euro-Dollar Lending Office of
THE SUMITOMO BANK, LIMITED is
The Sumitomo Bank--
Los Angeles Branch
-----------------------------------------
The Domestic Lending Office of
THE SUMITOMO BANK, LIMITED is
The Sumitomo Bank--
Los Angeles Branch
------------------------------------------
THE SUMITOMO BANK--
777 South Figueroa Street, Suite 2600
Los Angeles, California 90017
ISSUING BANK:
------------
THE SUMITOMO BANK, LIMITED, a banking corporation
organized under the laws of Japan
By:
---------------------------------------
Title:
------------------------------------
AGENT:
-----
THE SUMITOMO BANK, LIMITED, a banking corporation
organized under the laws of Japan
By:
---------------------------------------
Title:
------------------------------------
86
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C> <C>
Schedule 1.01A - Revolving Credit Facility A Lender Pro Rata Shares
Schedule 1.01B - Term Loan Lender Pro Rata Share
Schedule 1.01C - Excluded Subsidiaries
Schedule 1.01D - Westmark Guarantors
Schedule 3.01(i) - Recordation of Mortgages
Schedule 4.01 - Subsidiaries and Joint Ventures
Schedule 4.02 - Consents and Approvals
Schedule 4.06 - Litigation
Schedule 4.08 - Taxes
Schedule 4.11 - Employee Benefit Plans
Schedule 4.12 - Title to Property
Schedule 4.15 - Licenses, Trademarks
Schedule 4.16 - Environmental Condition
Schedule 4.17 - Certain Restrictions
Schedule 4.18 - Location of Assets
Schedule 5.06 - Required Insurance
Schedule 6.01 - Existing Liens
Schedule 6.02 - Existing Indebtedness
Schedule 6.04 - Existing Investments
Schedule 6.09 - Certain Contractual Obligations
Schedule 9.05 - Notices
EXHIBITS
Exhibit A - Domestic Mortgage Term Note
Exhibit B - Domestic Revolving Credit Facility A Note
Exhibit C - Domestic Revolving Credit Facility B Note
Exhibit D - Domestic Senior Term Note
Exhibit E - Euro-Dollar Mortgage Term Note
Exhibit F - Euro-Dollar Revolving Credit Facility A Note
Exhibit G - Euro-Dollar Revolving Credit Facility B Note
Exhibit H - Euro-Dollar Senior Term Note
Exhibit I - Notice of Borrowing
Exhibit J - Notice of Conversion/Continuation
Exhibit K - Form of Legal Opinion of Pillsbury, Madison
& Sutro
Exhibit L-1 - Officer's Certificate of Borrower
Exhibit L-2 - Officer's Certificate of Borrower re: Amended
Certificate of Incorporation
Exhibit L-3 - Officer's Certificate of Holdings re: Amended
Certificate of Incorporation
</TABLE>
87
<PAGE>
EXHIBIT 10.6(vi)
AMENDED AND RESTATED
SENIOR SUBORDINATED CREDIT AGREEMENT
AMONG
CB COMMERCIAL REAL ESTATE GROUP, INC.
AND
CB COMMERCIAL HOLDINGS, INC.,
CB COMMERCIAL, INC., CB COMMERCIAL
REAL ESTATE GROUP OF IOWA, INC.,
CB COMMERCIAL REALTY ADVISORS, INC.,
CB COMMERCIAL REAL ESTATE SERVICES, INC.,
CB COMMERCIAL BROKERAGE, INC.,
SUTTER FREMONT PROPERTY SERVICES, INC.,
CB COMMERCIAL REAL ESTATE FUND MANAGEMENT, INC.,
CB COMMERCIAL REAL ESTATE MANAGEMENT SERVICES, INC.,
CB COMMERCIAL SUTTON & TOWNE, INC.,
HENRY BRODERICK, INC.,
SUTTON & TOWNE N.J., INC.
SUTTER FREMONT, INC.,
CB COMMERCIAL WAREHOUSE PROPERTY CORP.,
L.J. MELODY & COMPANY, AND
L.J. MELODY & COMPANY OF CALIFORNIA
as Guarantors
and
SUMITOMO FINANCE (DUBLIN) LIMITED
Dated as of November ___, 1996
===============================================================================
<PAGE>
AMENDED AND RESTATED
SENIOR SUBORDINATED CREDIT AGREEMENT
This Amended and Restated Senior Subordinated Credit Agreement is
dated as of November ___, 1996 (this "Agreement"), and entered into by and among
CB Commercial Real Estate Group, Inc. (formerly known as "Coldwell Banker
Commercial Group, Inc."), a Delaware corporation ("Company"), CB Commercial
Holdings, Inc., a Delaware corporation ("CB Holdings"), and the other parties
listed on the signature pages hereto (collectively with CB Holdings, the
"Guarantors"), and Sumitomo Finance (Dublin) Limited, a limited liability
company organized and existing under the laws of the Republic of Ireland (the
"Lender").
RECITALS
WHEREAS, the Company and the Lender desire to amend and restate the
terms and provisions of the Senior Subordinated Credit Agreement dated as of
July 20, 1990, as amended to the date hereof, between the Company and the Lender
upon the terms and conditions set forth in this Agreement; and
WHEREAS, as of the date hereof, there are outstanding $62,000,000
representing original principal amount and $_____________ representing Deferred
Interest (as hereinafter defined); and
WHEREAS, the Guarantors have agreed to guarantee the Obligations (as
hereinafter defined) pursuant to the Guarantee set forth in Article X hereof;
and
WHEREAS, CB Holdings pledged the Collateral (as hereinafter defined)
to secure its Guarantee.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Company and the Lender agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions
-----------
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section 1.1 shall, for all purposes of this
Agreement, have the meanings herein specified, the following definitions to be
equally applicable to both the singular and plural forms of any of the terms
herein defined:
<PAGE>
"ADJUSTED CONSOLIDATED NET WORTH" means [under review.]
"AFFILIATE", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly,
indirectly or beneficially, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities or by contract or otherwise. Notwithstanding the foregoing, in no
event shall the Lender or any of its Affiliates be deemed to be an Affiliate of
CB Holdings, the Company or any subsidiary of the Company.
"AGENT" means any agent appointed by the Lender to administer the Loan
pursuant to Section 9.20 of this Agreement.
"AGENCY AGREEMENT" has the meaning ascribed to such term in Section
9.20 of this Agreement.
"AGREEMENT" means this Amended and Restated Senior Subordinated Credit
Agreement dated as of November __, 1996, as it may be amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"APPLICABLE LIBOR BASED RATE" means (i) during the period from the
date hereof to and including December 31, 1996, (a) LIBOR plus (b) one-quarter
----
of a percentage point (0.25%) and (ii) during the period from and including
January 1, 1997 and thereafter, (x) LIBOR plus (y) one and one-quarter
----
percentage points (1.25%).
"APPLICABLE LIBOR MARGIN" means (i) during the period from June 30,
1994 to and including December 31, 1996, one-quarter of a percentage point
(0.25%); (ii) during the period from and including January 1, 1997 to and
including December 31, 1998, one and one-quarter percentage points (1.25%);
(iii) during the period from and including January 1, 1999 to and including
December 31, 1999, two percentage points (2.00%); (iv) during the period from
and including January 1, 2000 to and including December 31, 2000, three
percentage points (3.00%); and (v) during the period from and including January
1, 2001 and thereafter, four percentage points (4.00%).
"ASSET SALE" means the sale, transfer or other disposition by the
Company or any of its Subsidiaries to any Person other than the Company or any
of its Subsidiaries of (i) any of the stock of any of the Company's
Subsidiaries, (ii) substantially all of the assets of any geographic or other
division or line of business of the Company or any of its Subsidiaries, or (iii)
any other assets (including, without limitation, any assets which do not
constitute substantially all of the assets of any geographic or other division
or line of business but excluding any assets purchased for sale to others (other
than Warehoused Real Property) in the ordinary course of business consistent
with the past practices of the Company and its Subsidiaries), in the case of
each of clauses (i), (ii) and (iii), having a value in excess of $250,000;
provided that any asset sale described in clause (i), (ii) or (iii) shall be
- --------
deemed not
2
<PAGE>
to be an "Asset Sale" until the aggregate amount of all such sales by the
Company and its Subsidiaries occurring in any fiscal year equals or exceeds
$1,000,000; provided, further, that an Asset Sale shall not include (A)
-------- -------
inventory sales in the ordinary course of business; (B) sales or other
dispositions of obsolete equipment or other operating assets which are either no
longer needed for the ordinary course of business of the Company or its
Subsidiaries or are being replaced by equipment or other operating assets of at
least comparable value and utility; and (C) sales, transfers and other
dispositions of assets between the Company and its Subsidiaries and between the
Company's Subsidiaries; and provided, further, that the sale, assignment,
-------- -------
transfer, lease or other disposition of Warehoused Real Property to an
investment partnership or another pooled investment entity sponsored or managed
by the Company or a wholly-owned Subsidiary of the Company or to a third party
for consideration in excess of the sum of (A) the Company's or such wholly-owned
Subsidiary's Investment therein, (B) the outstanding amount of any Non-Recourse
Debt secured thereby, to the extent that such amount is repaid in connection
with such sale or otherwise is not assumed by the transferee of such Warehoused
Real Property, and (C) the Company's or its Subsidiary's Carrying Cost with
respect thereto, shall be deemed to be an Asset Sale only to the extent of such
excess.
"BAILEE" means The Sumitomo Bank, Limited, acting as agent for the
Lender, and any successor thereto as provided in the Intercreditor Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy," as now and hereafter in effect, or any successor statute.
"BOARD OF DIRECTORS" means the Board of Directors of CB Holdings, the
Company or a Subsidiary of the Company, as applicable, or any duly authorized
committee of that Board.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
which is a day on which banking institutions located in Dublin, London, New York
or California are authorized or required by law or other government action to
close.
"CAPITAL EXPENDITURE" means any expenditure (other than capitalized
interest) by any Person which would be capitalized in accordance with GAAP,
except that the acquisition of Warehoused Real Property by the Company or any
Subsidiary shall not constitute a Capital Expenditure until the date that is
eight months after the date of the acquisition thereof if such Warehoused Real
Property has not been sold, assigned, transferred or otherwise disposed of by
such date and in any such event shall, notwithstanding GAAP, be treated as a
Capital Expenditure incurred on the date that such eight-month period expires to
the extent of the Company's or such Subsidiary's Investment in such Warehoused
Real Property.
"CAPITAL LEASE," as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person; provided, however, that leases of computer and related equipment
of the type treated by the Company as Operating Leases for its fiscal year 1993
and prior periods shall be treated, after September 30, 1994, as Operating
Leases and not Capital Leases, notwithstanding the classification thereof under
GAAP.
3
<PAGE>
"CAPITAL STOCK" of any person means any and all shares, interests,
participations, or other equivalents (however designated) of capital stock and
any rights (other than debt securities convertible into capital stock), warrants
or options to acquire such capital stock or other equity interests.
"CARRYING COST" means, as to any Warehoused Real Property, the sum of
(without duplication) (i) the amount of any payment of principal of Non-Recourse
Debt secured thereby actually made by CB Holdings, the Company or any of their
respective Subsidiaries, (ii) interest on such Non-Recourse Debt accrued and
actually paid by CB Holdings, the Company or any of their respective
Subsidiaries (net of rental and other income actually received by CB Holdings,
the Company or any such Subsidiary in respect of such Warehoused Real Property
from the date of direct or indirect acquisition thereof by CB Holdings, the
Company or such Subsidiary in respect of such Warehoused Real Property from the
date of acquisition thereof by CB Holdings, the Company or such Subsidiary to
the date of sale or other disposition), and (iii) any and all fees, costs,
expenses and transfer taxes incurred by CB Holdings, the Company or any of their
respective Subsidiaries in connection with the purchase or other acquisition of
such Warehoused Real Property (including, without limitation, any fees, costs
and expenses incurred in connection with financing such purchase or other
acquisition) and the holding and the subsequent sale or other disposition
thereof.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from Standard & Poor's Corporation, Moody's Investors Service, Inc.
or other nationally recognized rating agency; (iii) commercial paper maturing no
more than one year from the date of creation thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from Standard &
Poor's Corporation, Moody's Investors Service, Inc. or other nationally
recognized rating agency; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by the
Lender or any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia having combined capital
and surplus of not less than $250,000,000; (v) Eurodollar time deposits having a
maturity of less than one year purchased from the Lender or other financial
institutions approved by the Lender; and (vi) repurchase agreements and reverse
repurchase agreements with the Lender or other financial institutions approved
by the Lender relating to marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof;
provided that the terms of such agreements comply with the guidelines set forth
- --------
in the Federal Financial Institutions Examination Council Supervisory Policy--
Repurchase Agreements of Depository Institutions With Securities Dealers and
Others, as adopted by the Comptroller of the Currency on October 31, 1985.
4
<PAGE>
"CASH PROCEEDS" means, with respect to any Asset Sale, cash payments
received from such Asset Sale (including any cash received by way of deferred
payment pursuant to a note receivable or otherwise, but only as and when so
received, other than the portion of such deferred payment constituting interest,
which shall be deemed not to constitute Cash Proceeds).
"CB HOLDINGS" means CB Commercial Holdings, Inc., a Delaware
corporation.
"CB CANADA" means Coldwell Banker Canada, Inc., a corporation
organized under the laws of the Province of Ontario, Canada.
"CERTIFICATE OF INCORPORATION" means CB Holdings's Restated
Certificate of Incorporation as in effect on the Effective Date.
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any treaty, law, regulation
or ruling relating to any Tax (or in the application or interpretation of any
treaty, law, regulation or ruling relating to any Tax) that occurs on or after
the Effective Date.
"CHANGE OF CONTROL" shall be deemed to have occurred (a) with respect
to CB Holdings, (i) at such time as any person (as defined in Section 13(d)(3)
of the Exchange Act) (other than the Holdings Capital Accumulation Plan) at any
time shall directly or indirectly acquire more than twenty-five percent (25%) of
the total voting power of all classes of Capital Stock of CB Holdings (provided,
--------
however, that the acquisition of voting stock of CB Holdings by underwriters in
- -------
the IPO named in the prospectus relating thereto shall not be deemed to be a
Change of Control pursuant to this clause (a)(i)), or (ii) at such time as
during any one year period, individuals who at the beginning of such period
constitute the Company's Board of Directors cease to be a majority of the Board
of Directors and (b) with respect to the Company, at such time as CB Holdings
ceases to own 100% of the issued and outstanding Capital Stock of the Company.
"CHIEF FINANCIAL OFFICER" means the highest ranking officer of any
company then in charge of the financial matters of such company.
"COLLATERAL" means the capital stock of the Company.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of CB Holdings, par value $.01
per share.
"COMPANY" means CB Commercial Real Estate Group, Inc., formerly known
as Coldwell Banker Commercial Group, Inc.
"COMPANY SECURITIES" means, collectively, any senior subordinated or
subordinated indebtedness and any Capital Stock of the Company or any Capital
Stock of CB Holdings.
5
<PAGE>
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
annexed hereto as Exhibit II delivered to the Lender by the Company pursuant to
subsection 5.1(c) of this Agreement.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" means, for any
period, the sum of the amounts for such period of (i) Consolidated Net Operating
Income, (ii) Consolidated Interest Expense (less that portion allocable to
Capital Leases), (iii) provisions for taxes based on income, (iv) depreciation
expense, (v) amortization expense, (vi) Consolidated Rental Payments and (vii)
all other non-cash items (other than working capital) reducing Consolidated Net
Operating Income, minus all non-cash items (other than working capital)
increasing Consolidated Net Operating Income, all as determined on a
consolidated basis for any Person and its Subsidiaries in conformity with GAAP.
"CONSOLIDATED FIXED CHARGE RATIO" means the ratio, on a pro forma
--- -----
basis, giving effect to any Indebtedness to be incurred as if it had been
incurred on the first day of the four-fiscal-quarter period referred to in
clause (i), of (i) the aggregate amount of Consolidated Cash Flow Available for
Fixed Charges of any Person for the four fiscal quarters for which financial
information in respect thereof is available immediately prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Ratio (the "Transaction Date") to (ii) the aggregate Consolidated Fixed Charges
of such Person during such four fiscal quarters; provided that in making such
computation, Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being incurred) computed on a pro forma basis
--- -----
and bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire period.
"CONSOLIDATED FIXED CHARGES" of any Person means, for any period, the
sum of the amounts for such period of (i) Consolidated Interest Expense (less
that portion allocable to Capital Leases) and (ii) Consolidated Rental Payments,
all as determined on a consolidated basis for such Person and its Subsidiaries
in conformity with GAAP.
"CONSOLIDATED INTEREST EXPENSE" of any Person means, for any period,
the aggregate Interest Expense of such Person and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period taken as one
accounting period, the net income (or loss) of any Person and its Subsidiaries
on a consolidated basis for such period determined in conformity with GAAP;
provided that there shall be excluded (i) the income (or loss) of any Person
- --------
(other than a Subsidiary of such Person) in which any other Person (other than
such Person or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to such
Person or any of its Subsidiaries by such other Person during such period, (ii)
except to the extent includable pursuant to the foregoing clause (i), the income
(or loss) of any Person accrued prior to the date it becomes a Subsidiary of
such Person or is merged into or consolidated with such Person or any of its
Subsidiaries or that Person's assets are acquired by such Person or any of its
Subsidiaries, (iii) the income of any Subsidiary (other than Westmark and its
Subsidiaries) to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of
6
<PAGE>
that income is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary and (iv) any gains or
losses attributable to Asset Sales. In determining the Consolidated Net Income
of the Company, provision for tax payments by the Company shall be assumed to be
made at the then effective corporate statutory tax rate.
"CONSOLIDATED NET OPERATING INCOME" of any Person means, for any
period taken as one accounting period, the aggregate Consolidated Net Income of
such Person and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP, adjusted by excluding (to the extent not otherwise
excluded in calculating Consolidated Net Income) any net extraordinary gains and
losses during such period except that no adjustment shall be made for
extraordinary items consisting of income tax effects associated with net
operating loss carry forwards incurred by such Person after the Funding Date.
"CONSOLIDATED NET WORTH" means, as at any date of determination, the
sum of the Capital Stock (excluding any mandatorily redeemable preferred stock)
and additional paid-in capital plus retained earnings (or minus accumulated
deficit) of the Company and its Subsidiaries on a consolidated basis calculated
in conformity with GAAP.
"CONSOLIDATED RENTAL PAYMENTS" means, for any period, the aggregate
amount of the interest component of all rents paid under all Capital Leases and
the interest component of all rents paid under all Operating Leases of the
Company and its Subsidiaries as lessee (net of sublease income) that are not
cancelable upon 30 days' or less notice by the lessee thereunder, all as
determined on a consolidated basis in conformity with GAAP.
"CONTESTED CLAIM" means any Tax, Indebtedness, Contingent Liability or
other claim or liability, (i) the validity or amount of which is being contested
in good faith by appropriate proceedings, (ii) which has been bonded or for
which adequate reserves, as required by GAAP, have been established and (iii)
with respect to which any right to execute upon or sell any assets of the
Company or its Subsidiaries has not matured or has been and continues to be
effectively enjoined, superseded or stayed.
"CONTINGENT LIABILITIES" means, as applied to any Person, any
guaranties, endorsements, agreements to purchase or provide funds for the
payment of obligations of others, or other liabilities which would be classified
as contingent in accordance with GAAP.
"CONTINGENT OBLIGATION" means, as to any Person, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) with respect to
any Indebtedness or other obligation or liability of another Person, including
without limitation any direct or indirect guarantee of such Indebtedness,
obligation or liability, endorsement (other than for collection or deposit in
the ordinary course of business) thereof or discount or sale thereof by such
Person with recourse to such Person, or any other direct or indirect obligation,
by agreement or otherwise, to purchase or repurchase any such Indebtedness,
obligation or liability or any security therefor, or to provide funds for the
payment or discharge of any such Indebtedness, obligation or liability (whether
in the form of loans, advances, stock purchases, capital contributions or
otherwise), (ii) to provide funds to maintain working capital or equity capital
7
<PAGE>
of another Person or otherwise to maintain the net worth, solvency or financial
condition of the other Person, (iii) to make payment for any products, property,
securities or services regardless of non-delivery thereof, if the purpose of any
agreement so to do is to provide assurance that another Person's Indebtedness,
obligation or liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of another Person's
Indebtedness, obligation or liability will be protected (in whole or in part)
against loss in respect thereof, or (iv) otherwise to assure or hold harmless
the holders of Indebtedness or other obligation or liability or another Person
against loss in respect thereof; provided, that indemnities given by the Company
--------
or its Subsidiaries to employees or independent contractors in the ordinary
course of business and consistent with past practices shall not be considered
Contingent Obligations; provided, further, that the provisions in the By-laws of
-------- -------
the Company, its Subsidiaries or CB Holdings holding harmless and indemnifying
their respective officers and directors shall not be considered Contingent
Obligations so long as such provisions are not materially different from such
provisions in the Company's By-laws in effect on the Effective Date; and
provided, further, that the term "Contingent Obligation" shall not include any
- -------- -------
obligation of the Company under any guaranty made by it with respect to
obligations of a Mortgage Banking Subsidiary (as defined below) relating to
unfunded mortgage loans, or any obligation of the Company or a Mortgage Banking
Subsidiary under any indemnity made by the Company or a Mortgage Banking
Subsidiary in a purchase and sale agreement with respect to any mortgage loan,
which guaranty or indemnity is made, and which obligations are incurred, in
connection with Mortgage Banking Activities (as defined below). The amount of
any Contingent Obligation shall be an amount equal to the amount of the
indebtedness, obligation or liability guaranteed or otherwise supported thereby.
For purposes hereof, (x) "MORTGAGE BANKING ACTIVITIES" means the origination by
the Company or a Mortgage Banking Subsidiary of mortgage loans in respect of
commercial and multi-family residential real property, and the sale or
assignment of such mortgage loans and the related mortgages to another Person
(other than the Company or another of its Subsidiaries) within 60 days after the
origination thereof, provided, however, that in each case prior to origination
-------- -------
of any mortgage loan, the Company or a Mortgage Banking Subsidiary, as the case
may be, shall have entered into a legally binding and enforceable purchase and
sale agreement, with respect to such mortgage loan with a Person that purchases
such loans in the ordinary course of its business; and (y) "MORTGAGE BANKING
SUBSIDIARY" means any Wholly-owned Subsidiary of the Company that is engaged in
Mortgage Banking Activities.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any
provision of any security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement, or other written instrument to
which that Person is a party or by which it or any of its owned properties is
bound or to which it or any of its owned properties is subject.
"DEFERRED INTEREST" means all accrued and deferred interest under this
Agreement and the Notes, of which $___________ remains outstanding as of the
date hereof, and any and all interest which shall hereafter accrue and be
deferred under this Agreement and the Notes.
"DOLLARS" or the sign "$" means the lawful money of the United States
of America.
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"EARN-OUT PAYMENT OBLIGATIONS" means, with respect to any Permitted
Acquisition, the Westmark Acquisition and the Melody Acquisition, any and all
deferred payment obligations (other than Permitted Seller Indebtedness) of the
Company or any of its Subsidiaries incurred in connection therewith (including
non-competition payments).
"EFFECTIVE DATE" shall have the meaning set forth in Section 9.21.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA AFFILIATE" means any trade or business (whether or not
unincorporated) which is a member of a group of which the Company is a member
and which is under common control within the meaning of Section 414 of the
Internal Revenue Code and the regulations thereunder.
"ESTIMATED NET CASH PROCEEDS" means with respect to any Asset Sale, an
amount equal to 90% of the amount estimated in good faith by the Company to be
Net Cash Proceeds of Sale of such Asset Sale.
"EVENT OF DEFAULT" means each of the events set forth in Section 7.1
of this Agreement.
"EVENT OF ILLEGALITY" means that due to the adoption of, or any
changes in, any applicable treaty, law, rule or regulation after the Effective
Date or due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of any
applicable treaty, law, rule or regulation after the Effective Date, it becomes
unlawful for the Lender to receive a payment in respect of this Agreement or any
Note or to maintain the Loan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXCLUDED JOINT VENTURE" means any Joint Venture in which the Company
and its Subsidiaries, together, own 1% or less of the equity interests and any
Joint Venture designated as an "Excluded Joint Venture" by the Company (which
designation shall be made by written notice to the Lender at least 30 days prior
to the proposed effective date of such designation) with the written consent of
the Lender, which consent may be given or withheld in the sole discretion of the
Lender.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries listed on Schedule B annexed hereto.
"FULLY DILUTED BASIS" means the aggregate number of outstanding shares
of Common Stock (assuming, for this purpose, exercise or conversion, or both, of
all outstanding securities of CB Holdings that are exercisable or convertible
into shares of Common Stock).
9
<PAGE>
"FUNDING DATE" means July 23, 1990.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after the
date hereof so as to properly reflect the financial conditions, and the results
of operations and cash flows, of the Company and its Subsidiaries, except that
any accounting principle or practice required to be changed by the Accounting
Principles Board or Financial Accounting Standards Board (or other appropriate
board or committee of such boards) in order to continue as a generally accepted
accounting principle or practice may so be changed.
"GUARANTEE" means the guarantee by the Guarantors of the Obligations
pursuant to Article X of this Agreement.
"GUARANTORS" means CB Holdings, CB Commercial, Inc., CB Commercial
Real Estate Group of Iowa, Inc., CB Commercial Realty Advisors, Inc., CB
Commercial Real Estate Services, Inc., CB Commercial Brokerage, Inc., Sutter
Fremont Property Services, Inc., CB Commercial Real Estate Fund Management,
Inc., CB Commercial Real Estate Management Services, Inc., CB Commercial Sutton
& Towne, Inc., Henry Broderick, Inc., Sutton & Towne N.J., Inc., Sutter Fremont,
Inc., CB Commercial Warehouse Property Corp., L.J. Melody & Company, and L.J.
Melody & Company of California [VERIFY]
"GUARANTY" means, with respect to any Person, any contract, agreement
or understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including without limitation:
(a) agreements to purchase such Indebtedness or any property
constituting security therefor;
(b) agreements to advance or supply funds (i) for the purchase or
payment of such Indebtedness, or (ii) to maintain working
capital, equity capital or other balance sheet conditions;
(c) agreements to purchase property, securities or services primarily
for the purpose of assuring the holder of such Indebtedness of
the ability of the primary obligor to make payment of the
Indebtedness;
(d) letters or agreements commonly known as "comfort" or "keepwell"
letters or agreements; or
(e) any other agreements to assure the holder of the Indebtedness of
the primary obligor against loss in respect thereof;
10
<PAGE>
except that "guaranty" shall not include (i) the endorsement by a Person in the
ordinary course of business of negotiable instruments or documents for deposit
or collection or (ii) indemnities given by the Company or its Subsidiaries in
brokerage, management and other agreements in the ordinary course of business
substantially consistent with past practices.
"HOLDINGS CAPITAL ACCUMLATION PLAN" means the CB Commercial Holdings,
Inc. Capital Accumlation Plan, a plan intended to be qualified under Section
401(a) of the Internal Revenue Code, as in effect on the Effective Date.
"INDEBTEDNESS" means, with respect to any Person, the aggregate amount
of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services, except Trade Payables, accrued commissions and other
similar accrued current liabilities in respect of such
obligations, in any case, not overdue, arising in the ordinary
course of business;
(d) all Capital Lease obligations;
(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons whether or not such
obligation or liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers'
acceptances; and
(g) all guaranties and other Contingent Obligations.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means (i) any insolvency or
bankruptcy case or proceeding (including any case under the Bankruptcy Code), or
any receivership, liquidation, reorganization or other similar case or
proceeding, relative to CB Holdings, the Company or any Guarantor or to their
respective creditors, as such, or to their respective assets, or (ii) any
liquidation, dissolution, reorganization or winding up of CB Holdings, the
Company or any Guarantor, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or (iii) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of CB Holdings, the
Company or any Guarantor.
"INTERCOMPANY INDEBTEDNESS" means any Indebtedness of the Company or
any Subsidiary of the Company which, in the case of the Company, is owing to any
Subsidiary of the Company and which, in the case of any such Subsidiary, is
owing to the Company or any other Subsidiary of the Company.
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<PAGE>
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement dated as
of ___________, 1996 among the Lender, The Sumitomo Bank, Limited, as agent, CB
Holdings and the Company as such agreement may hereafter may be amended,
restated, supplemented or otherwise modified from time to time.
"INTEREST EXPENSE" means, for any period, the consolidated interest
charges paid or accrued by the Company or any of its Subsidiaries during such
period (including imputed interest on Capital Lease obligations, but excluding
amortization or write-off of debt discount and expense) on Indebtedness of the
Company or any of its Subsidiaries.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time hereafter, and any successor code or statute.
"INVESTMENT" means, with respect to any Person, any direct, indirect
or beneficial investment (other than Cash Equivalents), whether by means of
share purchase, loan, advance, extension of credit (other than accounts
receivable and trade credits arising in the ordinary course of business),
capital contribution or otherwise, in or to such Person, the guaranty of any
Indebtedness of such Person or the subordination of any claim against such
Person to other Indebtedness of such Person or any direct or indirect purchase
or other acquisition by that Person of Warehoused Real Property, through
purchase or exchange for cash, securities or other property (including, without
limitation, any distribution, upon liquidation or otherwise, of Warehoused Real
Property to such Person by any partnership or other investment entity). The
amount of any Investment shall be the original cost of such Investment plus the
cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment together with, in the case of a Permitted Acquisition, any related
Earn-out Payment Obligations (in an amount equal to the maximum amount thereof,
or if there is no prescribed maximum amount, then the greater of (x) the
Company's reasonable estimate of its future liability with respect thereto
(estimated on the basis of reasonable financial projections at the time of
consummation of such Permitted Acquisition) and (y) the aggregate amount of
payments actually made with respect thereto), but excluding any amounts
capitalized in accordance with GAAP to reflect probable severance, office
closing and similar payments and expenses, less in the case of the Warehoused
----
Real Property, the amount of any Non-Recourse Debt incurred by such Person in
connection therewith and (to the extent included in the cost thereof) Non-
Recourse Debt to which such Warehoused Real Property is subject at the time of
the acquisition thereof. Notwithstanding the foregoing, any promissory note
issued by the Company or any of its Subsidiaries to fund the general partner's
capital contribution in an investment partnership or other pooled investment
vehicle of which the Company or any of its Subsidiaries is the general partner
and which partnership or other investment vehicle is engaged solely in the
business of acquiring, holding and disposing of Real Property shall not be
deemed to be an Investment unless and until the aggregate amount of principal
and interest payments made under such promissory note by such general partner
exceeds the aggregate amount of such general partner's partnership distributions
and management fees received as of the date of determination. In such event,
the entire principal amount of such promissory note shall be deemed an
Investment for purposes of Section 6.11 and shall remain an Investment until the
aggregate amount of partnership distributions and management fees received by
such general partner exceeds the aggregate amount of principal
12
<PAGE>
and interest paid by such general partner on such promissory note for 18
consecutive months; provided, that an Event of Default shall not be deemed to
--------
have resulted from a violation of Section 6.11 solely from the operation of the
immediately preceding sentence. The term "Investment" shall not include (i)
customary loans or advances (including draw payments) to employees of the
Company or its Subsidiaries, (ii) notes for deferred sales or leasing
commissions received by the Company or its Subsidiaries in the ordinary course
of business and substantially consistent with past practices or (iii) any
investment by the Company in or with respect to C.B. Commercial Acquisition
Associates, Inc. in an aggregate amount not in excess of $187,000.
"IPO" means the initial public offering of Common Stock of CB Holdings
underwritten by ___________________________ and as further described in the
prospectus of CB Holdings dated as of November __, 1996.
"IPO NET PROCEEDS" shall mean the cash proceeds received by or for the
account of the CB Holdings or any of its Subsidiaries attributable to the IPO
minus amounts expended in connection with the IPO for (a) underwriters'
discounts and commissions, (b) prospectus and stock certificate printing and
distribution fees, (c) fees and reimbursed expenses of the Company's counsel and
independent public accountants, (d) fees and reimbursed expenses of the
underwriters' counsel relating to compliance with the blue sky laws of the
various states, (e) fees and reimbursed expenses of counsel to the Senior Agent,
and minus the Revolving Credit Facility A Extension Fee and the Term Loan
Extension Fee (such terms as defined in the Senior Credit Agreement).
"JOINT VENTURE" means a joint venture partnership or other similar
arrangement between or among the Company or any of its Subsidiaries on one hand,
and another Person or Persons that is or are not Affiliates with the Company or
any of its Subsidiaries, on the other hand, whether in corporate, partnership or
other legal form; provided that, as to any such arrangement in corporate form,
--------
such corporation shall not, as to any Person of which such corporation is a
Subsidiary, be considered to be a Joint Venture to which such Person is a party.
"LAWS" means all applicable statutes, laws, ordinances, regulations,
orders, judgments, writs, injunctions or decrees of any state, commonwealth,
nation, territory, possession, province, county, parish, town, township,
village, municipality or Tribunal, and "Law" means each of the foregoing.
"LENDER" means Sumitomo Finance (Dublin) Limited, a limited liability
company organized and existing under the Laws of the Republic of Ireland or its
successors and assigns pursuant to the provisions of this Agreement.
"LETTER AGREEMENT" has the meaning ascribed to such term in Section
2.4 of this Agreement.
"LIBOR" means, for any LIBOR Interest Period, the rate at which
deposits in Dollars are offered by the Reference Bank at approximately 11:00
A.M., London Time, on the day which is two London Banking Days preceding the
first day of such LIBOR Interest Period
13
<PAGE>
to prime banks in the London interbank market for a period equal to such LIBOR
Interest Period and in the same or approximately the same amount as the Loan.
For the purposes of this definition, the term "London Banking Day" shall mean
any day on which dealings in deposits in Dollars are transacted in the London
interbank market.
"LIBOR INTEREST PERIOD" means the period commencing as of June 30,
1994 and having a duration of three months, and, thereafter, each subsequent
period commencing on the last day of the then current LIBOR Interest Period and
having a duration of three months, except that (i) each LIBOR Interest Period
------
which would otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day or, if such next succeeding Business Day would fall
in a succeeding calendar month, the next preceding Business Day, (ii) if any
LIBOR Interest Period commences on the last day of a calendar month and there is
no corresponding day in the month in which such LIBOR Interest Period would
otherwise end, such LIBOR Interest Period shall end on the last day of such
succeeding calendar month and (iii) if any LIBOR Interest Period would otherwise
end after the date on which the principal of the Loan is to be repaid pursuant
to Section 2.2 of this Agreement, such LIBOR Interest Period shall end on such
principal repayment date. Notwithstanding the foregoing, the duration of LIBOR
Interest Periods for purposes of determining the Post-Default Rate for the Loan
or interest thereon shall be selected by the Lender at the commencement of each
such LIBOR Interest Period.
"LIEN" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest).
"LITIGATION" means any proceeding, claim, lawsuit and/or investigation
conducted or overtly threatened by or before any Tribunal.
"LOAN" shall have the meaning ascribed to such term in Section 2.1 of
this Agreement.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letter
Agreement, the Stock Pledge Agreement and all schedules and exhibits hereto and
thereto.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from time
to time.
"MATERIAL ADVERSE EFFECT" means any circumstance or event which (i)
could have any material adverse effect whatsoever upon the validity, performance
by the Company, perfection or enforceability of any Loan Document, (ii) is
material and adverse to the financial condition or business operations of the
Company and its Subsidiaries, taken as a whole, or (iii) could materially impair
the ability of the Company to fulfill its obligations under the Loan Documents.
"MATERIAL SUBSIDIARY" means each Subsidiary of the Company now
existing or hereafter acquired or formed by the Company which (x) for the most
recent fiscal year of the
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<PAGE>
Company, accounted for more than 10% of the consolidated revenues of the
Company, or (y) as at the end of such fiscal year, was the owner of more than
10% of the consolidated assets of the Company.
"MELODY" means L.J. Melody & Company, a Texas corporation that is a
Wholly-owned Subsidiary of the Company.
"MELODY ACQUISITION" means, collectively, (i) the purchase by CB
Commercial Mortgage Company, Inc., a California corporation that is a Wholly-
owned Subsidiary of the Company ("CB Mortgage"), of (x) all of the issued and
outstanding capital stock of Melody pursuant to and in accordance with the terms
of the Melody Stock Purchase Agreement and (y) all of the issued and outstanding
capital stock of Melody California pursuant to and in accordance with the terms
of the Melody California Stock Purchase Agreement, and (ii) consummation of the
merger (the "Melody Merger") of CB Mortgage with and into Melody, pursuant to
and in accordance with the terms of the Melody Merger Agreement and the
subsequent merger of Melody California with and into Melody.
"MELODY ACQUISITION DOCUMENTS" means, collectively, the Melody Stock
Purchase Agreement, the Melody California Stock Purchase Agreement, the Melody
Merger Agreement and each agreement, document and instrument ancillary thereto
entered into in connection therewith, in each case together with all schedules
and exhibits thereto.
"MELODY CALIFORNIA" means L.J. Melody & Company of California, a Texas
corporation that is a wholly-owned subsidiary of Melody.
"MELODY CALIFORNIA STOCK PURCHASE AGREEMENT" means the Stock Purchase
Agreement dated as of June 27, 1996, among the Company, CB Mortgage and the
Melody Stockholders party thereto, and all schedules and exhibits thereto, as in
effect on the Amendment Effective Date (as defined in Amendment No. 4 to Senior
Subordinated Credit Agreement dated as of June 30, 1996 (the "FOURTH
AMENDMENT")).
"MELODY LOAN ARBITRAGE FACILITY" means a credit facility provided to
Melody by any depository bank in which Melody deposits payments made on mortgage
loans for which Melody is servicer prior to distribution of such payments to or
for the benefit of the holders of such loans, so long as (i) Melody applies all
proceeds of loans made under such credit facility to purchase Permitted
Investments, and (ii) all Permitted Investments purchased by Melody with the
proceeds of loans thereunder (and proceeds thereof and distribution thereon) are
pledged to the depository bank providing such credit facility, and such bank has
a first priority perfected security interest therein, to secure loans made under
such credit facility.
"MELODY MERGER AGREEMENT" means the Agreement and Plan of Merger
between CB Mortgage and Melody providing for the merger of CB Mortgage with and
into Melody, and the articles or certificate of merger, if any, required to be
in the office of the secretary of state, or other public official, in any
jurisdiction in order to effect the Melody Merger.
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<PAGE>
"MELODY MORTGAGE WAREHOUSING FACILITY" means the credit facility
provided by Residential Funding Corporation ("RFC") or any substantially similar
facility, pursuant to which RFC or another lender makes loans to Melody, the
proceeds of which loans are applied by Melody to fund commercial mortgage loans
originated and owned by Melody subject to an unconditional, irrevocable
commitment to purchase such mortgage loans by the Federal Home Loan Mortgage
Corporation so long as loans made by RFC or such other Lender to Melody
thereunder are secured by a pledge of commercial mortgage loans made by Melody
with the proceeds of such loans, and RFC or such other lender has a perfected
first priority security interest therein, to secure loans made under such credit
facility.
"MELODY PERMITTED INDEBTEDNESS" means Indebtedness of Melody under the
Melody Loan Arbitrage Facility, the Melody Mortgage Warehousing Facility and the
Melody Working Capital Facility, and in respect of the Melody Seller Senior
Notes and the Melody Seller Contingent Notes.
"MELODY SELLER CONTINGENT NOTES" means the Contingent Promissory Notes
due July 1, 2001 issued by CB Mortgage to the Melody Stockholders, in
substantially the form attached as Exhibit B to the Melody Stock Purchase
Agreement, in an aggregate principal amount not in excess, at any time, of
$3,000,000 less the aggregate amount of payments of principal thereof required
----
to be made in respect thereof at or prior to such time in accordance with the
terms thereof.
"MELODY SELLER SENIOR NOTES" means the Senior Promissory Notes due
July 1, 1998 issued by CB Mortgage to the Melody Stockholders, in substantially
the form attached as Exhibit A to the Melody Stock Purchase Agreement, in an
aggregate principal amount not in excess, at any time, of $3,000,00 less the
----
aggregate amount of payments of principal required to be made in respect thereof
at or prior to such time in accordance with the terms thereof.
"MELODY STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement
dated as of June 27, 1996 among the Company, CB Mortgage and the Melody
Stockholders party thereto, and all schedules and exhibits thereto, as in effect
on the Amendment Effective Date (as defined in the Fourth Amendment).
"MELODY STOCKHOLDERS" means, together, Lawrence J. Melody and John M.
Bradley.
"MELODY WORKING CAPITAL FACILITY" means a credit facility provided by
a financial institution to Melody, so long as (i) the proceeds of loans
thereunder are applied only to provide working capital to Melody, (ii) loans
under such credit facility are unsecured, and (iii) the aggregate principal
amount of loans outstanding under such credit facility at no time exceeds
$1,000,000.
"MULTI-EMPLOYER PLAN" means a Pension Plan which is a "multi-employer
plan" as defined in Section 4001(a)(3) of ERISA.
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"NET CASH PROCEEDS OF SALE" means cash payments (including Cash
Equivalents and any cash received by way of deferred payment pursuant to a note
receivable or otherwise (other than the portion of such deferred payment
constituting interest, which shall be deemed not to constitute Net Cash Proceeds
of Sale), but only as and when so received) received from an Asset Sale, net of
costs of sale (including payment of the outstanding principal amount of, premium
or penalty, if any, and interest on any Indebtedness other than the Loan
required to be repaid under the terms thereof as a result of such Asset Sale),
taxes to be paid as a result thereof and any amount required to be paid to any
Person (other than the Company or any of its Subsidiaries) owning a beneficial
interest in the assets disposed of in such Asset Sale.
"NON-RECOURSE DEBT" means Indebtedness which is incurred in connection
with the acquisition of Warehoused Real Property as to which, subject to
customary exceptions, (i) the creditor's sole recourse is to the land,
improvements, fixtures and any personal property attached to or used in
connection with such land, improvements and fixtures which secure such
Indebtedness and not to any other assets owned by CB Holdings, the Company or
its Subsidiaries and (ii) the failure to pay or acceleration thereof would not
give rise to the right of cross-default or cross-acceleration on the part of
holders of other Indebtedness in an amount in excess of $2,500,000 created on or
after April 18, 1989; provided, however, Non-Recourse Debt within this
-------- -------
definition shall not cease to be Non-Recourse Debt if the amount of such other
Indebtedness is in excess of $2,500,000, so long as such Indebtedness, at least
to the extent of such excess, is paid or otherwise discharged or the agreement
or instrument evidencing such Indebtedness is amended to eliminate such right of
cross-default or cross-acceleration within 30 days after the incurrence of such
Indebtedness.
"NOTES" means the promissory notes of the Company evidencing the Loan
(including any Deferred Interest).
"OBLIGATIONS" means all obligations of every nature of the Company
from time to time owed to the Lender under the Loan Documents.
"OFFERING CLOSING DATE" the date on which the IPO is consummated and
the IPO raises at least $65,000,000 of IPO Net Proceeds.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer) or its President or one of its Vice Presidents and by its Chief
Financial Officer or its Treasurer; provided that every Officers' Certificate
--------
with respect to the compliance with the conditions precedent or the terms
hereunder shall include (i) a statement that the officer or officers making or
giving such Officers' Certificate have read such condition and any definitions
or other provisions contained in this Agreement relating thereto, (ii) a
statement that, in the opinion of the signers, they have made or have caused to
be made such examination or investigation as is necessary to enable them to
express an informed opinion as to whether or not such condition has been
complied with, and (iii) a statement as to whether, in the opinion of the
signers, such condition has been complied with.
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<PAGE>
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the Lessee at
any time) of any property (whether real, personal or mixed) which is not a
Capital Lease other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"PENSION PLAN" means an employee pension benefit plan as defined in
Section 3(2) of ERISA maintained or contributed to by one or more of the Company
or its Subsidiaries for employees of one or more of the Company or its
Subsidiaries or ERISA Affiliates, and which is subject to the provisions of
Title IV of ERISA.
"PERMITTED ACQUISITIONS" means the acquisition by the Company or any
of its Subsidiaries after the Effective Date of assets constituting an entire
business or division of any Person that is not already a Subsidiary of the
Company or any of its Subsidiaries, or the acquisition by Company or any of its
Subsidiaries of 100% of the Capital Stock (except for directors' qualifying
shares) of any such Person, including by any merger or consolidation permitted
under Section 6.6 of this Agreement, so long as (i) such acquisition and all
transactions related thereto are consummated in accordance with applicable law;
(ii) such acquisition, in the case of a Permitted Acquisition of capital stock,
results in such domestic corporation becoming a Wholly-Owned Subsidiary; (iii)
the Company shall have delivered to the Senior Agent (and a copy to the Lender)
a certificate demonstrating in reasonable detail compliance with Sections 6.01,
6.02, 6.03, 6.04, 6.05 and 6.06 of the Senior Credit Agreement (and if no loan
under the Senior Credit Agreement is outstanding, then the Company shall have
delivered a certificate to Lender demonstrating in reasonable detail compliance
with Article 6 hereof) that immediately after giving effect to such acquisition
and giving pro forma effect thereto as if such acquisition had been consummated,
and any Indebtedness incurred in connection therewith had been incurred, on the
first day of the period of four consecutive fiscal quarters most recently ended
prior to the date on which such acquisition is completed (iv) no Capital Stock
or other assets acquired in connection with such acquisition shall be subject to
any lien (other than liens permitted by Section 6.5 of this Agreement); and (v)
no Default or Event of Default shall have occurred and be continuing on the date
such acquisition is completed or shall result therefrom.
"PERMITTED ENCUMBRANCES" means the following types of Liens:
(i) Liens granted to the lender or lenders, or an agent on their
behalf, securing any Senior Credit Agreement Obligations, (ii) Liens granted
pursuant to the Stock Pledge Agreement, (iii) Liens in existence on the date
hereof described on Schedule C annexed hereto and renewals and extensions
thereof so long as the Indebtedness secured thereby and the interest rate
payable thereon is not increased or the maturity shortened (except to the extent
set forth on such Schedule C), (iv) Liens imposed by mandatory provisions of Law
such as carrier's, materialmen's, mechanics', warehousemen's, landlord's and
other like Liens arising in the ordinary course of business, securing
Indebtedness not yet due or which arise out of or in connection with a Contested
Claim or Liens or exceptions which arise under any real property
18
<PAGE>
leases, (v) Liens for Taxes, if the same are not yet due and payable or qualify
as a Contested Claim, (vi) Liens (other than any Lien imposed by ERISA) incurred
or deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance, pensions and other types of social
security, or to secure the performance of statutory obligations, surety and
appeal bonds, bids, the payment of taxes, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of Indebtedness), (vii) title exceptions consisting of zoning restrictions,
easements or other restrictions on the use of real property, provided that such
items do not materially impair the use of such property for the purposes
intended, and none of which are materially violated by existing or proposed
structures or land use, (viii) title exceptions which would customarily be shown
on an ALTA/ACSM land title "as-built" survey, (ix) Permitted Purchase Money
Liens, (x) Liens and exceptions on mortgage title policies, (xi) Liens securing
Senior Debt, including Liens granted to qualify Indebtedness as Senior Debt,
(xii) non-consensual Liens not otherwise permitted hereby that are removed,
bonded or stayed within 60 days after attachment thereof, (xiii) other Liens
permitted under Section 6.01 of the Senior Credit Agreement as in effect on the
date hereof, and (xiv) in addition to Liens permitted by clauses (i) through
(xiii), Liens in an aggregate amount not to exceed $100,000 at any time
outstanding.
"PERMITTED INVESTMENTS" means (i) marketable direct obligations issued
by the United States Government and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and having, at the time of acquisition, the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (iii) commercial paper having, at the time of acquisition, the
highest rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (iv) certificates of deposit, other time deposits, and
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any bank operating under the laws of the United States of
America or any state thereof or the District of Columbia which has combined
capital and surplus of not less than $500,000,000, (v) institutional money
market funds organized under the laws of the United States of America or any
state thereof that invest solely in any of the Investments permitted under
clauses (i), (ii), (iii) and (iv) hereof, or (vi) repurchase agreements with
respect to Investments permitted under clause (i) or (ii) with counterparties
acceptable to the Lender.
"PERMITTED PURCHASE MONEY INDEBTEDNESS" means (i) purchase money
Indebtedness (other than Indebtedness pursuant to Permitted Acquisitions)
created after the date hereof secured by a Permitted Purchase Money Lien and
Capital Leases, not to exceed $3,000,000 in the aggregate for the Company and
all its Subsidiaries at any time outstanding, and (ii) purchase money
Indebtedness existing on the date hereof described on Schedule B annexed hereto.
"PERMITTED PURCHASE MONEY LIEN" means any purchase money Lien on real
estate, motor vehicles, equipment and other assets acquired or built by the
Company or any of its Subsidiaries (a "Purchase Money Lien"); provided, however,
-------- -------
that: (i) the transaction in which any Purchase Money Lien is proposed to be
created is not then prohibited by this
19
<PAGE>
Agreement; (ii) any Purchase Money Lien shall attach only to the asset acquired
or built in such transaction and shall not extend to or cover any other assets
of the Company or any of its Subsidiaries; (iii) the Indebtedness secured or
covered by any Purchase Money Lien shall not exceed the cost to the Company or
any of its Subsidiaries of the asset acquired or built; (iv) the aggregate
outstanding principal amount of all Indebtedness created after the date hereof
secured by Purchase Money Liens (other than pursuant to Permitted Acquisitions)
shall not at any time exceed $3,000,000; and (v) such Indebtedness is either (x)
incurred within 12 months following the date of the acquisition or completion of
the property or asset so acquired or (y) incurred for the purpose of refinancing
or refunding any Indebtedness secured by a Permitted Purchase Money Lien
provided the unpaid balance is not increased.
"PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness of the Company
all the proceeds of which are used to repay or prepay the Senior Credit
Agreement Obligations and other Indebtedness (which other Indebtedness shall not
exceed $20,000,000 in the aggregate at any time outstanding) then permitted
under Section 6.1(xvi). In addition to the foregoing, Permitted Refinancing
Indebtedness shall also include Indebtedness in an amount equal to the amount
then available under the Revolving Credit Commitment (as such term is defined in
the Senior Credit Agreement) whether under the Senior Credit Agreement or any
other agreement which replaces such agreement at the time such Indebtedness is
incurred and any amount then available under Section 6.1(ii) of this Agreement.
"PERMITTED SELLER INDEBTEDNESS" means Indebtedness of the Company or
a Subsidiary of the Company incurred to finance, a Permitted Acquisition, owing
to the Seller therein and constituting a portion of the aggregate consideration
paid with respect to such Permitted Acquisition; provided, that (x) such
Indebtedness shall not be guaranteed by any other Subsidiary of the Company, and
(y) unless (i) such Permitted Acquisition consists of an acquisition of a
business or assets directly by the Company, or (ii) the acquired Subsidiary (or,
in the case of a Permitted Acquisition involving the acquisition of assets, the
acquiring Subsidiary) has executed and delivered to the Lender the Guarantee,
any such Indebtedness shall constitute the obligation only of the Subsidiary of
the Company acquired or formed in connection with the related Permitted
Acquisition, and shall not be guaranteed by the Company.
"PERMITTED TAX PAYMENT" means for any taxable year of the Company in
which it joins in filing a consolidated federal income tax return with CB
Holdings, a payment by the Company to CB Holdings in an amount not in excess of
the lesser of (i) the separate return federal income tax liability (if any) of
the affiliated group (within the meaning of Section 1504 of the Code) of which
the Company would be the parent (the "Company Group") if it were not a member of
another affiliated group for that or any other taxable year, and (ii) the
portion of the actual tax liability (if any) of the affiliated group of which
the Company is actually a member (the "CB Holdings Group") for such year
allocable to the Company Group under the rules set forth in Section 1552(a)(1)
of the Code and the Treasury Regulations promulgated thereunder; provided that
--------
such payment can be made by the Company no earlier than the date on which the CB
Holdings Group is required to make federal income tax payments for such year to
the Internal Revenue Service; and provided, further, that for purposes of clause
-------- -------
(ii) above, actual tax liability of the CB Holdings Group shall be computed
without regard to any income, gain, loss, deduction or credit generated by a
corporation other than CB Holdings, the Company or
20
<PAGE>
a Subsidiary of the Company. In the event that CB Holdings and any member of
the Company Group join in filing any combined or consolidated (or similar) state
or local income or franchise tax returns, then "Permitted Tax Payment" shall
include payments with respect to such state or local income or franchise taxes
determined in a manner as similar as possible to that provided in the preceding
sentence for federal income taxes.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"PLAN" means an employee benefit plan as defined in Section 3(3) of
ERISA maintained or contributed to by the Company or any of its Subsidiaries for
employees of the Company or any of its Subsidiaries.
"POST DEFAULT RATE" means in respect of any amount payable hereunder
or under the Notes not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum for each day during the period (the
"Default Period") commencing on the due date of such amount until such amount
shall be paid in full equal to two percentage points (2%) above the Applicable
LIBOR Margin plus LIBOR for such LIBOR Interest Periods during the Default
Period of up to three months' duration as the Lender shall select for the Loan
(the interest rate to be recalculated as aforesaid and adjusted at the end of
each such LIBOR Interest Period for the next succeeding such LIBOR Interest
Period selected by the Lender).
"POTENTIAL EVENT OF DEFAULT" means a condition or event which, after
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable grace or cure
period.
"PREFERRED STOCK" means the preferred stock of CB Holdings.
"REAL PROPERTY" means, with respect to any Person, each of those
parcels (or portions thereof) of real property, improvements and fixtures
thereon and appurtenances thereto now or hereafter owned or leased by such
Person.
"REFERENCE BANK" means the principal London branch of The Sumitomo
Bank, Limited, or such other leading bank as shall be designated from time to
time by the Lender and which shall be reasonably satisfactory to the Company.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as in effect on the date hereof.
"REGULATORY CHANGE" shall have the meaning ascribed to it in Section
2.12 of this Agreement.
21
<PAGE>
"REPORTABLE EVENT" has the meaning set forth in Section 4043 of ERISA,
but excluding any event for which the 30-day notice requirement has been waived
by applicable regulations of the PBGC.
"REPORTING SUBSIDIARY" means any Subsidiary of the Company that has,
on any date of determination, total assets in excess of $25,000 or total
liabilities in excess of $50,000, as determined in accordance with GAAP.
"RESTATED NOTE" means the promissory note attached hereto as Exhibit
I-A.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of Capital Stock of
the Company now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the holders of that class, (ii) loans or
advances by the Company to the holders of its Capital Stock, (iii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any Capital Stock of
the Company now or hereafter outstanding, and (iv) any prepayment of principal,
optional redemption, purchase, retirement prior to stated maturity, defeasance,
or similar optional payment with respect to, any Subordinated Indebtedness.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"SENIOR AGENT" means The Sumitomo Bank, Limited, as agent or lender
under the Senior Credit Agreement, or any successor agent thereunder or under
any agreement governing Permitted Refinancing Indebtedness or, in the absence of
such agent, the lender holding all or the greatest portion of the Indebtedness
thereunder.
"SENIOR CREDIT AGREEMENT" means the Third Amended and Restated Senior
Secured Credit Agreement dated as of November __, 1996, and originally entered
into as of April 18, 1989, as amended and restated in its entirety as of October
10, 1991, as further amended and restated in its entirety as of June 30, 1994,
between the Company and The Sumitomo Bank, Limited, as lender, and the Loan
Documents (as defined therein), and as such agreement may hereafter be amended,
restated, supplemented or otherwise modified from time to time.
"SENIOR CREDIT AGREEMENT NOTES" means the Company's promissory notes
issued pursuant to the Senior Credit Agreement.
"SENIOR CREDIT AGREEMENT OBLIGATIONS" means the "Obligations" as
defined in the Senior Credit Agreement and all Permitted Refinancing
Indebtedness.
"SENIOR DEBT" or "SENIOR INDEBTEDNESS" means collectively, Senior Debt
of the Company and Senior Debt of the Guarantors. All interest accrued on any
Senior Indebtedness, in accordance with and at the contract rate specified in
the agreement or instrument creating, evidencing or governing such Senior
Indebtedness, shall constitute Senior Indebtedness for
22
<PAGE>
periods both before and after the commencement of any Insolvency or Liquidation
Proceeding, even if the claim for such interest is not allowed pursuant to
applicable law. To the extent any payment of Senior Indebtedness (whether by or
on behalf of the Company or the Guarantors, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to a trustee, receiver or other
similar party under any bankruptcy, insolvency, receivership or similar law,
then if such payment is recovered by, or paid over to, such trustee, receiver or
other similar party, the Senior Indebtedness or part thereof originally intended
to be satisfied shall be deemed to be reinstated and outstanding as if such
payment had not occurred.
"SENIOR DEBT OF THE COMPANY" means all Indebtedness and other
obligations specified below payable directly or indirectly by the Company from
time to time outstanding, whether now existing or hereafter arising, fixed or
contingent, due or not due, liquidated or not liquidated, determined or
undetermined:
(1) the principal of and interest on all loans and other extensions of
credit under the Senior Credit Agreement and any other agreement or
instrument providing for, evidencing or securing any Permitted Refinancing
Indebtedness or any other loans or extensions of credit by the lender or
lenders thereunder which are permitted to be incurred under Section 6.1
(including in each case any amendment, renewal, supplement, extension,
refinancing, restructuring, refunding or other modification thereof) and
all premiums, expenses, fees, reimbursements, indemnities and other amounts
owing by the Company pursuant to the Senior Credit Agreement and any such
other agreement or instrument; and
(2) any other Indebtedness of the Company permitted to be incurred
under Section 6.1 (except to the extent excluded below); provided, however,
-------- -------
that the Indebtedness under this clause (2) shall constitute Senior Debt of
the Company only to the extent such Indebtedness is fully and adequately
secured; provided, further, however, that such Indebtedness shall not cease
-------- ------- -------
to be fully and adequately secured merely because of the occurrence of an
unanticipated diminution in value of the collateral; and provided, further,
-------- -------
that such collateral shall be deemed fully and adequately secured if the
Company delivers an Officers' Certificate certifying that such Indebtedness
is fully and adequately secured. "Senior Debt of the Company" shall not
include (a) any Indebtedness of the Company to a Subsidiary of the Company
or to any other Affiliate (which shall not include The Sumitomo Bank,
Limited or any other financial institution that may be a lender under the
Senior Credit Agreement or under any agreement or instrument governing,
evidencing or securing any Permitted Refinancing Indebtedness) of the
Company or any of its Subsidiaries (or an Affiliate of any Affiliate of the
Company or any of its Subsidiaries); (b) any Trade Payable, even if
overdue; (c) any Indebtedness of the Company that by its terms or by the
terms of the instrument creating, governing or evidencing such Indebtedness
expressly provides that such Indebtedness is pari passu or subordinated in
---- -----
right of payment to the Notes or any Indebtedness which by its terms is
subordinated to any other Indebtedness of the Company; (d) any obligation
of the Company arising from redeemable Capital Stock of the Company; (e)
any amounts or other obligations under or relating to any Operating Lease;
(f) any liability for federal,
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<PAGE>
state, local or other taxes, or other governmental charges or claims of
whatever nature, owed or owing by the Company; (g) any Indebtedness or
other obligations (x) owing, directly or indirectly, to any Person under or
in respect of any employee benefit plan, whether pursuant to ERISA, or
otherwise, or (y) owing, directly or indirectly, to employees; (h) any
amounts owing under any promissory note issued by the Company or any of its
Subsidiaries to fund the general partner's capital contribution in an
investment partnership or other pooled investment vehicle of which the
Company or any such Subsidiary is the general partner and which partnership
or other investment vehicle is engaged solely in the business of acquiring,
holding and disposing of Real Property; and (i) any Indebtedness with
respect to which recourse to the Company or its assets is limited in any
manner; provided, however, that in no event shall any Indebtedness or
-------- -------
obligations described in clause (1) be excluded from Senior Indebtedness
pursuant to this sentence.
"SENIOR DEBT OF THE GUARANTORS" means all Indebtedness and other
monetary obligations under a guarantee, security agreement, mortgage, deed of
trust or other agreement or instrument executed by a Guarantor (or any other
Subsidiary or Affiliate of the Company) from time to time outstanding in respect
of the payment or performance of Indebtedness or other obligations included in
Senior Debt of the Company, whether now existing or hereafter arising, fixed or
contingent, due or not due, liquidated or not liquidated, determined or
undetermined, including in each case any amendment, renewal, supplement,
extension, refinancing, restructuring, refunding or modification thereof.
"SENIOR REVOLVING CREDIT FACILITY B TERMINATION DATE" means December
31, [1999] or such earlier date as Senior Revolving Credit Facility B may be
terminated or canceled pursuant to the Senior Credit Agreement.
"STOCK PLEDGE AGREEMENT" means the Stock Pledge Agreement dated as of
the Funding Date between CB Holdings and the Lender, pursuant to which, inter
-----
alia, CB Holdings shall grant a lien on the Collateral to the Lender and all
- ----
holders of any Note, subject only to the first priority lien granted to the
lenders under the Senior Credit Agreement (or to the lenders under any other
agreement providing for Permitted Refinancing Indebtedness), in the form of
Exhibit V hereto, as such Stock Pledge Agreement may hereafter be amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company which is
subordinated in right of payment to the Loan and the Notes at least to the same
extent as the Loan and the Notes are subordinated to Senior Debt.
"SUBSIDIARY" means any corporation or other entity (i) of which more
than fifty percent (50%) of the total voting power of the shares of capital
stock or other securities or other ownership interests entitled to vote in the
election of the Board of Directors or other persons performing similar functions
are at any time directly or indirectly owned by the Company or (ii) of which
more than fifty percent (50%) of the outstanding shares of stock of any class
(or of any other class of ownership interests), is owned, beneficially or of
record, directly or indirectly, by the Company or any of its Subsidiaries;
provided, however, that the term "Subsidiary" shall
- -------- -------
24
<PAGE>
not include any of the Persons set forth on Schedule 1.01(c) to the Senior
Credit Agreement (as in effect on the date hereof).
"TAXES" means all taxes, assessments, fees, levies, imposts, duties,
penalties, deductions, withholdings or other charges of any nature whatsoever
from time to time or at any time imposed by any Law or any Tribunal.
"TRADEMARKS" means trademarks, servicemarks and trade names, all
registrations and applications to register such trademarks, servicemarks and
trade names and all renewals thereof, and the goodwill of the business
associated with or relating to such trademarks, servicemarks and trade names,
including, without limitation, any and all licenses and rights granted to use
any trademark, servicemark or trade name owned by any other person.
"TRADE PAYABLES" of any Person means accounts payable and other
similar accrued current liabilities in respect of such obligations or any other
indebtedness or monetary obligations to trade creditors created, assumed or
guaranteed by such Person or any of its Subsidiaries in the ordinary course of
business in connection with the obtaining of materials or services.
"TRIBUNAL" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any other jurisdiction or any
state, province, commonwealth, nation, territory, possession, county, parish,
town, township, village or municipality, whether now or hereafter constituted
and/or existing or political subdivision thereof.
"UNITED STATES" means the United States of America and its territories
and possessions.
"UNITED STATES PERSON" means any citizen or resident of the United
States, any corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof, and any estate or
trust which is subject to United States Federal income taxation regardless of
the source of its income.
"WAREHOUSED REAL PROPERTY" means Real Property acquired by the Company
or any of its Wholly-owned Subsidiaries with the intention of selling or
transferring such Real Property to any Person, including, but not limited to, a
partnership of which the Company or one of its Wholly-owned Subsidiaries is a
general or limited partner or other investment entity in which the Company or
any of its Subsidiaries has an interest or which is managed by the Company or
any of its Subsidiaries. Warehoused Real Property shall also include the Real
Property identified in Schedule G hereto.
"WESTMARK" means Westmark Realty Advisors L.L.C., a Delaware limited
liability company.
"WESTMARK ACQUISITION AGREEMENT" means the Purchase Agreement dated as
of May 15, 1995 among Westmark Acquisition Partnership, the Company, and Vincent
F.
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<PAGE>
Martin, Jr., Stanton H. Zarrow, Bruce L. Ludwig, Sol L. Rabin, Roger C. Schultz
and certain other individuals (together the "WESTMARK SELLERS"), and all
schedules and exhibits thereto, as in effect on the Amendment Effective Date (as
defined in the Limited Waiver, Consent and Amendment No. 3 hereto dated as of
June 30, 1995 (the "THIRD AMENDMENT")).
"WESTMARK ACQUISITION DOCUMENTS" means, collectively, the Westmark
Acquisition Partnership Agreement, the Westmark Acquisition Agreement, the
Realty Advisors Management Agreement, and the Westmark Subordinated Credit
Agreement and each agreement ancillary thereto entered into in connection with
the Closing (as defined in the Westmark Acquisition Agreement), in each case
together with all schedules and exhibits thereto.
"WESTMARK ACQUISITION PARTNERSHIP" means Westmark Real Estate
Acquisition Partnership, L.P., a Delaware limited partnership formed pursuant
to the Agreement of Limited Partnership of Westmark Real Estate Acquisition
Partnership, L.P. dated as of May 15, 1995 (the "WESTMARK ACQUISITION
PARTNERSHIP AGREEMENT") between the Company, as sole general partner, and the
Citicorp Affiliate, as limited partner.
"WESTMARK EARN-OUT PAYMENTS" means payments of the Supplemental
Purchase Price (as defined in the Westmark Acquisition Agreement) made or
required to be made by Westmark Acquisition Partnership pursuant to the Westmark
Acquisition Agreement and payments under the Incentive Compensation Plan
established pursuant to Section 9.17 of the Westmark Acquisition Agreement and
as in effect on the Closing Date (as defined in the Westmark Acquisition
Agreement).
"WESTMARK SELLER FINANCING" means the aggregate portion of the Initial
Purchase Price deferred by the Westmark Sellers pursuant to Sections 2.6(a) and
2.7(a) of the Westmark Acquisition Agreement.
"WESTMARK SUBORDINATED DEBT" means Indebtedness of Westmark
Acquisition Partnership to the Citicorp Affiliate in an amount not in excess of
$10,000,000 in aggregate principal amount, together with accrued and unpaid
interest thereon (including any such interest that is capitalized or paid-in-
kind by issuance of additional promissory notes), incurred by Westmark
Acquisition Partnership pursuant to the Senior Subordinated Credit Agreement
dated as of June 30, 1995 (the "WESTMARK SUBORDINATED CREDIT AGREEMENT") between
Westmark Acquisition Partnership and the Citicorp Affiliate, as in effect on the
Amendment Effective Date (as defined in the Third Amendment).
"WHOLLY-OWNED SUBSIDIARY" means any corporation, association or other
business entity of which 100% of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
Section 1.2 Accounting Terms
----------------
26
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For the purposes of this Agreement, all accounting terms not otherwise
defined herein shall have the meanings assigned to them in conformity with GAAP.
Section 1.3 Other Definitional Provisions; Anniversaries
--------------------------------------------
Reference to "Sections" and "Subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. For purposes of this Agreement, a monthly anniversary of the Funding
Date shall occur on the same day of the applicable month as the day of the month
on which the Funding Date occurred; provided that if the applicable month has no
--------
such day (i.e., 29, 30 or 31), the monthly anniversary shall be deemed to occur
----
on the last day of the applicable month.
ARTICLE II
LOAN AND NOTE
Section 2.1 Loan and Note.
-------------
The Lender made a loan to the Company on the Funding Date in the
original principal amount of $62,000,000, the entire principal amount of which
remains outstanding as of the date hereof, and the Company has Deferred Interest
on such principal amount owing to the Lender in the aggregate amount of
$___________, which remains outstanding as of the date hereof (together with any
Deferred Interest hereafter arising hereunder, collectively, the "Loan").
The Loan shall be evidenced by a promissory note of the Company such
note to be substantially in the form of Exhibit I-A hereto (the "Term Note"),
dated as of the Effective Date, payable to the order of the Lender and in the
principal amount of $62,000,000 and by a note of the Company such note to be
substantially in form of Exhibit I-B hereto (the "Payment-in-Kind Note") dated
as of the Effective Date. Such notes shall be payable to the order of the
Lender, duly completed, executed and delivered by the Company, as borrower.
Section 2.2 Payment of Loan.
---------------
The Loan and all other amounts owed hereunder with respect to the Loan
shall be paid in full by July 23, 2002, unless earlier prepaid in accordance
with the terms of this Agreement.
In addition to the prepayment or repayment of the obligations under
the Payment-In-Kind Note required as a condition precedent under Article III
hereof, all remaining obligations of the Company represented by the Payment-In-
Kind Note (including any interest accrued to date thereon) shall be paid in cash
on the earlier of (i) the 91st day after the Senior Loan Repayment Date (as
defined below) and (ii) any day on which any principal on the Loan is payable
27
<PAGE>
hereunder (whether at stated maturity, by acceleration, prepayment or offer to
purchase or otherwise, any such day being a "Principal Paying Day").
Section 2.3 Interest on the Loan
--------------------
(a) The Company hereby promises to pay to the Lender interest on the
unpaid principal amount of the Loan, as provided in clauses (i), (ii) and (iii)
below, until all principal (including compounded interest pursuant to clause
(ii) below) shall have been paid in full, at a rate equal to LIBOR for the
relevant LIBOR Interest Period plus the Applicable LIBOR Margin for such period.
(i) All interest on the Loan (including interest on any
Deferred Interest) which becomes due and payable (i.e. on the last day
----
of each LIBOR Interest Period) on or after the earlier of (x) the
Offering Closing Date and (y) January 1, 1997, shall be paid in cash
at the Applicable LIBOR Based Rate on the last day of each LIBOR
Interest Period.
(ii) All interest on the Loan (including interest on any
Deferred Interest) accrued and payable in excess of the interest
computed at the Applicable LIBOR Based Rate shall (x) until the Senior
Loan Repayment Date (as defined below), not be paid in cash and shall
be compounded quarterly on the last day of each LIBOR Interest Period,
and all such accrued and deferred interest (including any Deferred
Interest thereon) shall be paid in cash on the 91st day after the
Senior Loan Repayment Date and on any Principal Paying Day; and (y)
for periods from and after the Senior Loan Repayment Date, be fully
paid in cash on the last day of each LIBOR Interest Period and on any
Principal Paying Day. As used herein, "Senior Loan Repayment Date"
means the date of repayment in full in cash of all amounts of
principal and interest under the Loans (as defined in the Senior
Credit Agreement) under the Senior Credit Agreement (whether at stated
maturity, by acceleration, prepayment or offer to purchase or
otherwise).
(iii) Notwithstanding the foregoing, to the fullest extent
permitted by law, interest shall be payable in cash at the Post-
Default Rate on the amounts payable under this Agreement which shall
not be paid in full when due (whether at stated maturity, by
acceleration, prepayment or offer to purchase or otherwise) for the
period commencing on the due date thereof until the same is paid in
full, and such interest at the Post-Default Rate shall be paid in
cash, on and after the 91st day after the Senior Loan Repayment Date
and on any Principal Paying Day, from time to time on demand of the
Lender.
Interest on the Loan shall be computed on the basis of a 360-day year and the
actual days elapsed in the period during which it accrues. In computing
interest on the Loan, interest shall accrue from and including the first day of
a LIBOR Interest Period to but excluding the last day of such LIBOR Interest
Period.
The obligation of the Company to pay interest in kind and/or cash
interest accrued but not paid currently under clause (ii) above shall be
additionally evidenced by an additional
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<PAGE>
promissory note in the form attached hereto as Exhibit I-C (the "Second Payment-
In-Kind Note"). The Second Payment-In-Kind Note shall be in addition to the Term
Note and the Payment-In-Kind Note.
(b) If on or before the commencement of any LIBOR Interest Period, the
Lender shall have determined either (i) adequate and reasonable means do not
exist for ascertaining LIBOR as herein provided or (ii) U.S. Dollar deposits in
an amount comparable to the outstanding principal amount of the Loan are not
generally available at such time in the London Interbank Eurodollar market for
such LIBOR Interest Period, the Lender shall so notify the Company and both
shall attempt to reach a mutually satisfactory alternative rate. If no such
mutually satisfactory alternative rate has been agreed upon by the Lender and
the Company before the date which is two Business Days prior to the commencement
of the next succeeding LIBOR Interest Period, the rate for such LIBOR Interest
Period shall be equal to a rate which fairly reflects the cost to the Lender
(and, if applicable, any participant holding a funded participation in the Loan)
of obtaining funds in an amount equal to the outstanding principal of the Loan
plus the Applicable LIBOR Margin. The Lender shall use reasonable efforts to
acquire funds from an interbank dollar market other than the London Interbank
Eurodollar market with respect to any LIBOR Interest Period affected by the
circumstances described in this subsection (b) if the use of such other market
will avoid such circumstances without prejudicing the interests of the Lender.
Section 2.4 Loan Extension and Amendment Fees.
---------------------------------
The Company agrees to pay to the Lender certain fees and costs as
separately set forth in a letter agreement dated as of the date hereof between
the Company and the Lender (the "Letter Agreement"). Such fees and costs shall
be paid within three Business Days of the Offering Closing Date or as otherwise
set forth in the Letter Agreement. Such fees and costs shall for all purposes
be deemed amounts payable hereunder.
Section 2.5 Voluntary Prepayments.
---------------------
The Company may, at any time and from time to time, prepay the Loan,
without premium, in whole or in part; provided, that (i) so long as any Senior
--------
Credit Agreement Obligation is outstanding, such prepayment shall only be
accepted by the Lender if accompanied by a certificate of the Senior Agent
stating that such prepayment is not a violation of the Senior Credit Agreement
or the agreement governing Permitted Refinancing Indebtedness, (ii) the Company
shall give the Lender at least five Business Days' prior notice of each
prepayment in accordance with the provisions of Section 9.9 hereof specifying
the principal amount to be prepaid and the date of prepayment (which shall be a
Business Day), (iii) each partial prepayment of the Loan shall be in an
aggregate principal amount of at least equal to $100,000 and in a multiple of
$100,000, (iv) interest on the principal prepaid, accrued to the prepayment
date, shall be paid on the prepayment date and (v) amounts prepaid may not be
reborrowed. Notice of prepayment once given shall be irrevocable and, in
connection with any prepayments, the Company shall comply with the provisions of
Section 2.13 of this Agreement. Voluntary prepayments shall be credited against
the outstanding principal amount of the Loan.
29
<PAGE>
If the Offering Closing Date shall occur on or after [December 28,
1996] but before March 31, 1997 and if the Company is required to pay
$10,000,000 out of IPO Net Proceeds to Lender in accordance with Article III
hereof, the Company shall repay any then outstanding Deferred Interest, up to
$15,664, within three Business Days of the Offering Closing Date.
Section 2.6 Mandatory Prepayments from Asset Sales.
--------------------------------------
In the event of any Asset Sale not permitted by Section 6.7(a) to the
extent not (1) required by the Senior Credit Agreement or any agreement
governing Permitted Refinancing Indebtedness to prepay Senior Credit Agreement
Obligations, (2) voluntarily used by the Company to prepay or repay the Senior
Credit Agreement Obligations and in the case of a repayment of a revolving loan,
a permanent reduction in the commitment in an amount equal to such payment, (3)
prohibited by the Senior Credit Agreement or any agreement governing Permitted
Refinancing Indebtedness or (4) used by the Company to make Capital
Expenditures, in each case within 60 days after receipt by the Company or any
Subsidiary of the Company of Cash Proceeds of any Asset Sales occurring after
the Funding Date, the Company shall (i) prepay the Loan in an amount equal to
the Estimated Net Cash Proceeds of such Asset Sale, but only to the extent that
the Company has actually received Net Cash Proceeds of such Asset Sale (and
subject to the provisions of the next sentence) or (ii) if applicable, within 60
days after any Asset Sale, the Company shall deliver to the Lender an Officers'
Certificate evidencing the extent to which the Cash Proceeds of such Asset Sale
were used or will be used for Capital Expenditures. On the 90th day after
receipt of Cash Proceeds of an Asset Sale in respect of which a prepayment based
on Estimated Net Cash Proceeds has been made, the Company shall make an
additional prepayment of the Loan in an amount equal to the excess ("Proceeds
Adjustment"), if any, of (1) Net Cash Proceeds of such Asset Sale over (2)
Estimated Net Cash Proceeds of such Asset Sale, provided that if either
--------
Estimated Net Cash Proceeds or the Proceeds Adjustments from an Asset Sale is
less than $1,000,000, such amount shall not be applied to the prepayment of the
Loan until the sum of such amounts and all other Estimated Net Cash Proceeds or
Proceeds Adjustments payable by the Company but not previously paid is equal to
or greater than $1,000,000. Concurrently with the making of any prepayment
pursuant to this Section 2.6, the Company shall deliver to the Lender an
Officers' Certificate demonstrating the derivation of Net Cash Proceeds of Sale
from the gross sales price of any correlative Asset Sale.
All mandatory prepayments shall include payment of accrued interest on
the principal amount so prepaid and shall be applied to payment of interest
before application to principal and shall be subject to the provisions of
Section 2.13 of this Agreement.
Section 2.7 Lender's Optional Right of Prepayment.
-------------------------------------
Upon the occurrence of a Change of Control, the Lender shall have the
right to require the prepayment of the Loan provided that prior to any exercise
-------------
by the Lender of such prepayment rights, the Company shall have (i) repaid in
full all Indebtedness under the Senior Credit Agreement and any agreement
governing Permitted Refinancing Indebtedness or (ii) offered to repay in full
all such Indebtedness and repaid the Indebtedness of each lender under
30
<PAGE>
the Senior Credit Agreement or such other agreement who has accepted such offer
or (iii) obtained the requisite consent under the Senior Credit Agreement or
such other agreement to permit the prepayment of the Loan as provided for in
this Section 2.7. The conditions set forth in the foregoing (i)-(iii) shall
have been satisfied before the Company shall be required to prepay the Loan
pursuant to this Section 2.7.
Section 2.8 Manner and Time of Payment.
--------------------------
All payments of principal and interest and loan fees hereunder and
under the Notes by the Company shall be made without defense, set off or
counterclaim and in same day funds and delivered to the Lender not later than
2:00 P.M., New York Time on the date due at its current account number 283 883
at The Sumitomo Bank, Limited New York Branch, 277 Park Avenue, New York, New
York 10172 (or such other account as the Lender shall give the Company at least
5 Business Days notice given in accordance with the provisions of Section 9.9
hereof). Funds received by the Lender after that time shall be deemed to have
been paid by the Company on the next succeeding Business Day.
Any payments made to the Lender shall be applied in the following
order of priority: (a) first, against costs, expenses and indemnities due
hereunder, (b) second, against default interest, if any, (c) third, against
interest due on the Loan and (d) thereafter against the principal of the Loan.
The Lender shall open and maintain on its books a loan account in the Company's
name. Such loan account shall show the Loan, all repayments, the computation,
compounding, accrual and payments of interest and other amounts due and sums
paid hereunder. Such loan account shall be available for inspection by the
Company at reasonable times. The notations in such loan account shall be
conclusive and binding upon the Company as to the amount at any time due from
the Company, absent manifest error.
Whenever any payment to be made hereunder or under the Notes shall be
stated to be due on a day which is not a Business Day, the payment shall be made
on the next succeeding Business Day and such extension of time shall be included
in the computation of the payment of interest hereunder or under the Notes;
provided, that if any extension would result in such payment being made in a
- --------
succeeding calendar month, the payment shall instead be made on the immediately
preceding Business Day.
Section 2.9 Notation of Payment.
-------------------
The Lender agrees that it will make a notation on each Note of all
principal and interest payments made thereon and will notify the Company of the
name and address of the transferee of each Note; provided that the failure to
--------
make (or any error in the making of) a notation of any such payments on any Note
or to notify the Company of the name and address of such transferee shall not
limit or otherwise affect the obligation of the Company hereunder or under such
Note.
Section 2.10 Notice to Senior Credit Agreement Senior Agent.
----------------------------------------------
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<PAGE>
If the Lender receives any payment or prepayment other than its
payment of accrued interest, the Lender will send notice in writing to the
Senior Agent and if, within five Business Days after notice shall have been
given, the Senior Agent notifies the Lender that such payment or prepayment
constitutes an event of default under the Senior Credit Agreement or any
agreement governing Permitted Refinancing Indebtedness or any payment is due and
owing on any Senior Credit Agreement Obligations, the Lender shall immediately
remit any such payment or prepayment to the Senior Agent for application to the
Senior Credit Agreement Obligations.
Section 2.11 Use of Proceeds.
---------------
No portion of the proceeds of the Loan shall be used by the Company in
any manner which might cause the borrowing or the application of such proceeds
to violate Regulation G, Regulation U, Regulation T or Regulation X of the Board
of Governors of the Federal Reserve System or any other regulation of the Board
or to violate the Exchange Act, in each case as in effect on the date or dates
of such borrowing and such use of proceeds.
Section 2.12 Increased Costs.
---------------
(a) Except in respect of an event subject to subsection (c) of this
Section 2.12, which event shall be governed by the provisions of that section,
if, after the Effective Date, the adoption of, or any change in, any law, rule
or regulation (including Regulation D), or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Lender with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency (a "Regulatory
Change") shall impose, modify or deem applicable any reserve (including, without
limitation any reserve imposed by the Board of Governors of the Federal Reserve
System), special deposit or similar requirement against assets of, deposits with
or for the account of credit extended by the Lender or shall impose on the
Lender or the London interbank market any other conditions affecting the Loan,
and the result of any of the foregoing is to increase the cost to the Lender of
maintaining the Loan, or to reduce the amount of any sum received or receivable
by the Lender under this Agreement, then, within 15 days after written request
by the Lender, the Company shall pay to the Lender such additional amount or
amounts as may be necessary to compensate it for such increased cost. As soon
as practicable, the Lender will notify the Company of any event of which it has
knowledge, occurring after the Effective Date, which will entitle it to
compensation pursuant to this Section 2.12 and will use reasonable efforts to
take such action as will avoid the need for, or reduce the amount of, such
compensation and will not, in the reasonable opinion of the Lender, be otherwise
disadvantageous to it.
(b) Without limiting the effect of the foregoing, the Company will pay
to the Lender if it requests compensation under this subsection (b) by written
notice to the Company, on the last day of each LIBOR Interest Period and on any
other day on which interest is payable hereunder, so long as the Lender shall be
required to maintain reserves against "Eurocurrency liabilities" under
Regulation D (or, so long as it may be required, by reason of any Regulatory
Change, to maintain reserves against any other category of liabilities which
includes deposits by reference to which the interest rate on the Loan is
determined as provided
32
<PAGE>
in this Agreement) an additional amount (determined by the Lender and
communicated in writing to the Company) equal to the product of the following
for each day for which the Lender may be required to maintain any such reserves
during such LIBOR Interest Period: (i) the principal amount of the Loan which
is outstanding on such day; and (ii) the amount by which (x) a fraction the
numerator of which is the rate (expressed as a decimal) at which interest
accrues on the Loan for such LIBOR Interest Period as provided in this Agreement
(less the Applicable LIBOR Margin) and the denominator of which is one minus the
rate (expressed as a decimal) at which such reserve requirements are imposed on
the Lender against such "Eurocurrency liabilities" or such other category of
liabilities on such date exceeds (y) such numerator; and (iii) 1/360. A
certificate of the Lender claiming compensation under this Section 2.12 and
setting forth the additional amount or amounts to be paid to it hereunder and
setting forth in reasonable detail the calculations thereof shall be conclusive
in the absence of manifest error.
(c) If the Lender shall reasonably determine that subsequent to the
Effective Date, there shall have occurred the adoption of or any change in any
law, rule or regulation concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, other than a change subsequent to the Effective Date
implementing the capital adequacy proposals of the Bank for International
Settlements - Committee on Banking Regulations and Supervisory Practices
published in July 1988 under the title "International Convergency of Capital
Measurement and Capital Standards", which has the effect of increasing, by an
amount deemed material by the Lender, the amount of capital required to be
maintained by the Lender as a result of the existence of the Loan compared to
the amount of capital which would otherwise be required to be maintained by the
Lender in the absence of the Loan and the Lender desires to obtain compensation
therefor from the Company, the Lender will promptly notify the Company thereof.
Thereafter, subject to the later provisions of this subsection (c), the Company
will pay to the Lender upon written demand such amounts as shall be necessary to
compensate for the increased cost incurred or any resulting reduction in return
on capital suffered by the Lender as a result of an actual increase in the
Lenders' capital due to an event described in the first sentence of this
subsection (c) for the period from the date of any previous payment to the
Lender in relation thereto to the date of receipt of such demand by the Company.
In determining such amount, the Lender will act reasonably and in good faith.
Any demand by the Lender for any payment under this subsection (c) shall be
accompanied by a statement setting forth in reasonable detail the basis for
calculation of such increased costs. As soon as practicable after becoming
aware of the same, the Lender shall notify the Company of any event occurring
after the Effective Date which will entitle it to compensation pursuant to this
subsection (c) and will use reasonable efforts (determined in its absolute
discretion exercised in good faith) to take such action which in its reasonable
opinion will avoid the need for, or reduce the amount of, such compensation and
will not, in the reasonable opinion of the Lender be otherwise disadvantageous
to it.
Section 2.13 Funding Losses.
--------------
The Company shall pay to the Lender, upon its written request (which
request shall set forth in reasonable detail the basis for requesting such
amounts), such amount or amounts as shall compensate the Lender for any loss,
cost or expense incurred by it as a result of:
33
<PAGE>
(a) any prepayment of the Loan or a portion thereof on a date
other than the last day of the LIBOR Interest Period or
(b) any failure by the Company to prepay the Loan or any portion
thereof on the date specified in a notice of prepayment given pursuant to
Section 2.5 of this Agreement or
(c) any Event of Default relating to nonpayment of the Loan
whether at maturity or upon acceleration.
For purposes of this Section 2.13, the costs and losses of the Lender shall
include any funding or carrying costs and/or losses in connection with the
acquisition or liquidation of deposits acquired by the Lender to make or
maintain the Loan and any funding or carrying costs and/or losses in connection
with the re-employment of funds during the remainder of the then current LIBOR
Interest Period, including any loss arising from the re-employment of funds at
rates lower than the cost to the Lender of such funds and any related costs.
The Lender shall certify such costs and losses (including a reasonably detailed
description thereof) to the Company. The Lender shall act in good faith to
minimize its costs and losses otherwise payable by the Company hereunder.
Section 2.14 Deduction or Withholding for Taxes.
----------------------------------
(a) All sums payable by the Company or any Guarantor hereunder,
whether of principal, interest, fees, expenses or otherwise, shall be paid in
full, without set-off or counterclaim for any reason whatsoever, and free of any
deductions or withholdings for any and all taxes, levies, imposts, deductions,
charges, withholdings and all liabilities with respect thereto excluding taxes
on net income, net worth or shareholders' capital imposed by the jurisdiction of
the Lender's incorporation or the jurisdiction of its lending office (and in
each case any political subdivision or taxing authority thereof or therein). In
the event that the Company or any Guarantor is prohibited by law from making
payments hereunder free of such deductions or withholdings, then the Company or
such Guarantor shall pay such additional amounts to the Lender as may be
necessary in order that the actual amount received after such deduction or
withholding (and after deduction of an amount equal to any additional taxes or
other charges payable as a consequence of the payment of such additional amount)
shall equal the amount that would have been received if such deduction or
withholding were not required; provided, that, if the Lender fails to comply
--------
with the provisions of paragraph (d) of this Section 2.14, then all such
payments to the Lender shall be net of any amount the Company or such Guarantor
is required to withhold under applicable law.
(b) The Company shall pay directly to the appropriate taxing
authorities any and all present and future taxes, levies, imposts, stamp and
other duties, and other fees or charges and all liabilities with respect thereto
imposed on or with regard to any aspect of the transactions contemplated by this
Agreement or the execution and delivery of this Agreement or the other Loan
Documents. The Company shall hold the Lender harmless from any liability with
respect to the delay or failure by the Company to pay any such taxes or charges,
and shall reimburse the Lender upon demand for any such taxes paid by the Lender
in connection herewith
34
<PAGE>
whether or not such taxes shall be correctly or legally asserted or otherwise
contested or contestable together with any interest, penalties and expenses in
connection therewith, provided, if such taxes result from the failure of the
--------
Lender to comply with subsection (d) of this Section 2.14, the Company shall not
have any obligation to reimburse the Lender under this subsection (b).
(c) If the Company or any Guarantor shall pay any tax or charge as
provided herein or shall make any deductions or withholdings from amounts paid
hereunder, the Company or such Guarantor shall forthwith forward to the Lender
copies of official receipts or other evidence acceptable to the Lender to
establish any tax credit to which the Lender may be entitled.
(d) The Lender agrees promptly to deliver, to the extent that it may
lawfully do so, to the Company on the Funding Date and each year thereafter that
the Loan remains outstanding, such forms (including Internal Revenue Service
Form 1001), duly completed and executed by the Lender, sufficient to establish
that all payments under this Agreement by the Company may be paid without
deduction or withholding for or on account of any taxes, levies, imposts,
duties, fees, assessments or other charges of any nature imposed by any
government or any political subdivision or taxing authority thereof. Upon
request of the Lender, the Company shall provide the Lender with the appropriate
forms in order to enable it to comply with this provision.
(e) The Lender agrees to use reasonable efforts to take such action to
avoid the imposition of withholding liability hereunder or reduce the amount
thereof which in the reasonable opinion of the Lender would not otherwise be
disadvantageous to it.
Section 2.15 Event of Illegality.
-------------------
Upon the occurrence of an Event of Illegality, then the Lender shall
promptly notify the Company and the Senior Agent thereof and, unless such
prepayment is a violation of the Senior Credit Agreement or any agreement
governing Permitted Refinancing Indebtedness, the Company shall prepay the
outstanding Loan together with interest accrued to the date of prepayment within
30 days after such notice and consent shall have been received by the Company.
Such notice shall include evidence certified by the Lender as to such Event of
Illegality. As soon as practicable, the Lender will notify the Company and the
Senior Agent of any event of which it has knowledge, occurring after the Funding
Date which will or is likely to become an Event of Illegality. The Lender will
take such reasonable action as will avoid such Event of Illegality.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent to Effective Date.
--------------------------------------
35
<PAGE>
The occurrence of the Effective Date shall be subject to satisfaction
of all of the following conditions precedent all in form and substance
satisfactory to the Lender:
A. Effective Date. The Effective Date shall have occurred on or
--------------
before March 31, 1997.
B. Public Offering. The IPO shall have been completed and such
---------------
completion shall have occurred on or before March 31, 1997, and the IPO Net
Proceeds shall be at least $65,000,000.
C. Distribution of IPO Net Proceeds.
--------------------------------
(1) The total amount of IPO Net Proceeds up to $69,350,000 shall
have been paid to the Senior Agent, for the account of the lenders
under the Senior Credit Agreement [in accordance with their Pro Rata
Shares (as defined in the Senior Credit Agreement) and applied first,
to Deferred Interest (as defined in the Senior Credit Agreement), and
second, to prepay principal of the Senior Term Loan (as defined in the
Senior Credit Agreement).]
(2) The amount of IPO Net Proceeds, if any, in excess of
$69,350,000 shall have been paid as follows: (x) 50% of the amount of
IPO Net Proceeds, if any, in excess of $69,350,000 shall have been
paid to the Senior Agent[, for the account of the lenders in
accordance with their Pro Rata Shares, and applied first, to prepay
principal of the Senior Term Loan until the Senior Term Loan is paid
in full, and second, to prepay principal of the Mortgage Term Loan],
and (y) 50% of such amount of IPO Net Proceeds in excess of
$69,350,000 shall be paid to Lender, up to the amount of all accrued
and deferred interest or $10,000,000, whichever is less, as payment of
Deferred Interest.
D. On or before the Effective Date, the Lender shall have received
the following, each of which, unless otherwise noted, shall be dated the
Effective Date:
(1) a certified copy of the charter of each of the Guarantors and
the Company, certified by the Secretary or one of the Assistant
Secretaries of each of the Guarantors and the Company, respectively,
together with a good standing certificate from the Secretary of State
of the state of incorporation of each of the Guarantors and the
Company, each to be dated a recent date on or prior to the Effective
Date;
(2) a copy of the By-laws of each of the Guarantors and the
Company, certified as of the Effective Date, in each case, by the
Secretary or one of the Assistant Secretaries of each of the
Guarantors and the Company, respectively;
(3) (a) Resolutions of the Company's Board of Directors
approving and authorizing the execution, delivery and performance of
this Agreement and any other documents, instruments and certificates
required to be executed by the
36
<PAGE>
Company in connection herewith and approving and authorizing the
execution, delivery and payment of the Notes, each certified as of the
Effective Date by the Company's Secretary or one of its Assistant
Secretaries as being in full force and effect without modification or
amendment;
(b) Resolutions of CB Holdings's Board of Directors
approving and authorizing the execution, delivery and performance of
this Agreement and certified as of the Effective Date by CB Holdings's
Secretary or one of its Assistant Secretaries as being in full force
and effect without modification; and
(c) Resolutions of the Board of Directors of each Guarantor
approving and authorizing the execution, delivery and performance of
the Guarantee, certified as of the Effective Date by each of the
Guarantors' Secretaries or one of its Assistant Secretaries as being
in full force and effect without modification.
(4) (i) Signature and incumbency certificates of the Company's
and the Guarantors' officers executing this Agreement, and the
Company's officers executing the Notes;
(5) Executed copies of this Agreement, the Third Amended and
Restated Senior Credit Agreement, the Letter Agreement, the Notes and
the schedules and exhibits hereto and thereto; and
(6) Such other documents as the Lender may reasonably request.
E. On or before the Effective Date, the Company shall have paid all
fees and expenses that are due and payable on or before the Effective Date.
F. On or before the Effective Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Lender, shall be reasonably satisfactory in form and substance
to the Lender, and the Lender shall have received all such counterpart originals
or certified copies of such documents as the Lender may reasonably request.
G. The Lender shall have received originally executed copies of
opinions of Pillsbury, Madison & Sutro LLP, counsel for CB Holdings, the
Subsidiaries and the Company and of general counsel of the Company, in
substantially the forms of Exhibits III and IV annexed hereto, respectively,
dated as of the Effective Date.
H. The Company and CB Holdings shall have performed in all material
respects all agreements which this Agreement provides shall be performed on or
before the Effective Date except as otherwise disclosed to and agreed to in
writing by the Lender.
37
<PAGE>
I. No event shall have occurred and be continuing or would result
from the consummation of the transactions contemplated hereunder or under the
Senior Credit Agreement or IPO Documents which would constitute an Event of
Default or Potential Event of Default.
J. No order, judgment or decree of any court, arbitrator or
governmental authority shall enjoin or restrain the Lender from entering into
this Agreement or consummating the transactions contemplated hereby.
K. There shall not be existing, or to the knowledge of the Company
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting the Company or any of its Subsidiaries or any
property of the Company or any of its Subsidiaries, which has not been disclosed
by the Company in writing pursuant to Section 4.11 of this Agreement, and there
shall have occurred no development not so disclosed in any such action, suit,
proceeding, governmental investigation or arbitration so disclosed, which, in
the opinion of the Lender, could reasonably be expected to materially and
adversely affect the business, operations, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
or to impair the ability or obligation of the Company to perform or of the
Lender to enforce the Obligations. No injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of this
Agreement.
L. The use of proceeds of the Loan by the Company shall not violate
Regulation U of the Federal Reserve Board.
M. No material adverse change shall have occurred since December 31,
1995 in the business, assets, prospects, results of operations or financial
condition (i) of the Company or the Company and its Subsidiaries, taken as a
whole or (ii) CB Holdings and its consolidated subsidiaries, taken as a whole.
N. On or before the Effective Date, all required approvals, consents
and waivers under the Senior Credit Agreement to this Agreement and the
transactions contemplated hereby shall have been obtained.
O. On the Offering Closing Date and the Effective Date the Company
shall provide the Lender with an Officer's Certificate (A) that all of the
Company's representations set forth in this Agreement are true and correct on
such date as if made on and as of such date, and (B) that no Default or Event of
Default has occurred and is existing under this Agreement and (C) that the Third
Amended and Restated Senior Credit Agreement will concurrently be in full force
and effect as of the Effective Date.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES
Section 4.1 General.
-------
In order to induce the Lender to enter into this Agreement and to
extend the maturity of the Loan, each of CB Holdings and the Company, as the
case may be, represents and warrants to the Lender that, at the time of the
Offering Closing Date and the Effective Date and after consummation of the
transactions contemplated hereby and by the Senior Credit Agreement, the
statements set forth in this Article IV are true, correct and complete.
Section 4.2 Organization and Good Standing.
------------------------------
Each of CB Holdings, the Company and its United States Subsidiaries is
a corporation or other business entity, duly organized and existing in good
standing under the laws of its jurisdiction of incorporation or formation. Each
of CB Holdings, the Company and its United States Subsidiaries has the
corporate power and authority to own its properties and assets and to transact
the business in which it is engaged and is duly qualified as a foreign
corporation and in good standing in all states in which it is doing business,
except where failure to be so qualified will not have a Material Adverse Effect.
Section 4.3 Authorization and Power.
-----------------------
Each of CB Holdings, the Company and its Subsidiaries has the
corporate power and requisite authority, and has taken all action necessary, to
execute, deliver and perform the Loan Documents, the Senior Credit Agreement and
the Senior Credit Agreement Notes executed or to be executed by it and to issue
the Notes and the Senior Credit Agreement Notes and to grant the security
interest in the Collateral pursuant to the Stock Pledge Agreement.
Section 4.4 No Conflicts or Consents.
------------------------
Except as disclosed in Schedule F, to the knowledge of CB Holdings and
the Company, the execution and delivery of the Loan Documents, the Senior Credit
Agreement, the Senior Credit Agreement Notes, the consummation of any of the
transactions herein or therein contemplated, and compliance with the terms and
provisions hereof or thereof, the issuance, delivery and performance of the
Notes, the Senior Credit Agreement Notes and the grant of the security interest
in the Collateral pursuant to the Stock Pledge Agreement, will not contravene or
materially conflict with any provision of Law to which CB Holdings, the Company
or any of its Subsidiaries is subject or any material judgment, license, order
or permit applicable to CB Holdings, the Company or any of its Subsidiaries, or
any material contract, lease, indenture, loan agreement, mortgage, deed of trust
or other agreement or instrument to which CB Holdings, the Company or any of its
Subsidiaries is a party or by which CB Holdings, the Company or any of its
Subsidiaries may be bound, or to which CB Holdings, the Company or any of its
Subsidiaries may be subject, or violate any provision of the charters or bylaws
of CB Holdings, the Company or any of its Subsidiaries, which would in any case
have a Material Adverse Effect. Except as disclosed in Schedule 4.02 to the
Senior Credit Agreement, no
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consent, approval, authorization or order of any Tribunal or other Person is
required in connection with the execution and delivery by CB Holdings, the
Company or any of its Subsidiaries of the Loan Documents, the Senior Credit
Agreement, the Senior Credit Agreement Notes, the grant of the security interest
in the Collateral pursuant to the Stock Pledge Agreement or the consummation of
the transactions contemplated hereby or thereby, all of which required consents,
approvals and authorizations have been obtained by the Company or waived in
writing by the Lender, except with respect to which the failure to obtain would
not have a Material Adverse Effect.
Section 4.5 Enforceable Obligations.
-----------------------
The Loan Documents, the Senior Credit Agreement, the Senior Credit
Agreement Notes have been duly executed and delivered by CB Holdings, the
Company and each of its Subsidiaries party thereto and are, or will be, the
legal and binding obligations of CB Holdings, the Company and each such
Subsidiary, enforceable in accordance with their respective terms, except to the
extent that their enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 4.6 Title to Properties; Liens.
--------------------------
Except for Permitted Encumbrances and except as disclosed in Schedule
C, all of the material assets owned or leased by CB Holdings and the Company and
its Subsidiaries are free and clear of all Liens and other adverse claims of any
nature, each of CB Holdings, the Company and its Subsidiaries has good and
indefeasible title to, or valid and subsisting interests in, all Real Property
included in such assets and good and marketable title to, or valid and
subsisting interests in, all personal property included in such assets, and, to
the knowledge of CB Holdings and the Company and its Subsidiaries, except for
financing statements with respect to Permitted Encumbrances, there are no
presently effective financing statements of record in any jurisdiction covering
any material tangible or intangible assets of CB Holdings, the Company or its
Subsidiaries.
Section 4.7 Financial Condition.
-------------------
(a) The consolidated balance sheet of CB Holdings and its consolidated
subsidiaries at December 31, 1995, and the consolidated statements of income,
retained earnings and cash flows of CB Holdings and its consolidated
subsidiaries for the fiscal year then ended, copies of which have been
delivered to the Lender, were prepared in accordance with GAAP consistently
applied and fairly present the consolidated financial position of CB Holdings
and its consolidated subsidiaries, as at the date thereof and the results of
operations and cash flows of CB Holdings and its consolidated subsidiaries for
the periods then ended. Neither CB Holdings nor the Company or any of its
Subsidiaries, as the case may be, had on such dates any material Contingent
Liabilities, liabilities for Taxes or long-term leases, unusual forward or long-
term commitments or unrealized or unanticipated losses from any unfavorable
commitments which are not reflected or reserved against in the foregoing
statements or in the notes thereto. Other
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than changes disclosed to the Lender in writing prior to the Effective Date, no
changes having a Material Adverse Effect have occurred since the date of such
financial information.
(b) CB Holding's unaudited consolidated balance sheets as at September
30, 1996, and related statements of income and retained earnings for the periods
then ended certified by the Chief Financial Officer, copies of which have been
delivered to the Lender, were prepared in accordance with GAAP consistently
applied (except to the extent noted therein) and fairly present the financial
position of CB Holdings and its consolidated subsidiaries as of such dates and
the results of operations for the periods covered thereby, subject to normal
year-end audit adjustments. CB Holdings, the Company or any of its Subsidiaries
did not have on such date any material Contingent Liability, liabilities for
Taxes or long-term leases, unusual forward or long-term commitment or unrealized
or unanticipated losses from any commitment or unrealized or unanticipated
losses from any unfavorable commitments which are not reflected or reserved
against in the foregoing statements or in the notes thereto.
(c) Solvency. Upon giving effect to the consummation of the
--------
transactions contemplated hereby and by the Senior Credit Agreement, the
following are true and correct to the best knowledge of the Company, after
reasonable investigation:
(i) The fair salable value of the Company and each of its
Subsidiaries exceeds the amount that will be required to be paid on or
in respect of the existing debts and other liabilities (including
Contingent Liabilities) of the Company or its Subsidiaries, as they
mature.
(ii) The assets of the Company and its Subsidiaries do not
constitute unreasonably small capital for each such company to carry
out its business as now conducted and as proposed to be conducted,
including the capital needs of each such company, taking into account
the particular capital requirements of the business conducted by such
company, and the projected capital requirements and capital
availability thereof.
(iii) The Company does not intend to, and will not permit
any of its Subsidiaries to, incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts or
cash to be payable on or in respect of debt of each of the Company and
it Subsidiaries). The cash flow of the Company and each of its
Subsidiaries, after taking into account all anticipated uses of the
cash of each such company, will at all times be sufficient to pay all
amounts on or in respect of debt of each such company when such
amounts are required to be paid.
(iv) The Company does not believe that final judgments
against any of the Company or its Subsidiaries in currently pending
actions for money damages will be rendered at a time when, or in an
amount such that, any such company will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account
the maximum reasonable amount of such judgments in any such actions
and the earliest reasonable time at which such
41
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judgments might be rendered). The cash flow of the Company and each
of its Subsidiaries, after taking into account all other anticipated
uses of the cash of the Company and each of its Subsidiaries
(including the payments on or in respect of debt referred to in
paragraph (iii) of this Section 4.7(c)), will at all times be
sufficient to pay all such judgments promptly in accordance with their
terms.
Section 4.8 Accurate Information.
--------------------
All information previously furnished or delivered to Lender in
connection with this Agreement or the transactions contemplated hereunder or
under the Senior Credit Agreement is true and complete in all material respects.
Section 4.9 No Default.
----------
No event has occurred and is continuing which constitutes a Potential
Event of Default or an Event of Default.
Section 4.10 Material Agreements.
-------------------
(a) Neither the Company nor any of its Subsidiaries, is in default
under any Contractual Obligations to which it is a party or by which its
property is bound, where such default could have a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries, is a party to or
bound by any unusual or unduly burdensome Contractual Obligation (excluding the
Senior Credit Agreement) which materially and adversely affects the business,
assets, prospects, results of operations or financial condition of the Company
and its Subsidiaries taken as a whole.
Section 4.11 No Litigation.
-------------
Except for the Litigation described in Schedule D hereto, there is no
material Litigation existing, or to the knowledge of CB Holdings or the Company
threatened, by or against CB Holdings, the Company or any of its Subsidiaries,
and in the opinion of the Company as of the date hereof and as of the date on
which such representation is deemed to have been made, no existing or threatened
Litigation will have a Material Adverse Effect. There are no outstanding
injunctions or restraining orders prohibiting consummation of any of the
transactions contemplated by the Loan Documents. For purposes of this
representation "material Litigation" shall mean any litigation which the Company
has determined could result in a judgment in excess of $1,000,000.
Section 4.12 Use of Proceeds; Margin Stock.
-----------------------------
The proceeds of the Loan will be used solely for the purposes
specified herein. None of such proceeds will be used for the purpose of
Regulation G, T, U or X, or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry a Margin Stock
or for any other purpose which might constitute a "purpose credit" within
42
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the meaning of Regulation G, T, U or X. Neither the Company nor any of its
Subsidiaries has taken or will take any action which might cause any of the Loan
Documents to violate Regulation G, T, U or X, or any other regulations of the
Board of Governors of the Federal Reserve System or to violate Section 8 of the
Exchange Act or any rule or regulation thereunder, in each case as now in effect
or as the same may hereafter be in effect.
Section 4.13 No Financing of Regulated Corporate Takeovers.
---------------------------------------------
No proceeds of the Loan will be used to acquire any security in any
transaction which is subject to Section 13 or 14 of the Exchange Act, including
particularly (but without limitation) Sections 13(d) and 14(d) thereof.
Section 4.14 Taxes.
-----
All tax returns required to be filed by CB Holdings have been filed,
and all Taxes upon CB Holdings or upon any of its properties, income, franchises
or Plans have been paid prior to the time that such Taxes could give rise to a
Lien thereon, except for Contested Claims. There is no material proposed Tax
assessment against CB Holdings and, to CB Holdings's knowledge, there is no
basis for such assessment.
Section 4.15 ERISA.
-----
Except as disclosed in Schedule E hereto, (i) neither the Company nor
any ERISA Affiliate has sponsored, maintained or contributed to any
Multiemployer Plan or any Pension Plan during the past six years; (ii) no
material liability has been incurred by the Company or any of its Subsidiaries
which remains unsatisfied for any taxes or penalties (A) with respect to any
Plan that is not a Multiemployer Plan and (B) to the best of the Company's
knowledge and belief, with respect to any Multiemployer Plan; (iii) except as
described in Schedule D, no material Litigation is existing or, to the Company's
best knowledge, threatened concerning or involving any Plan; (iv) except as
shown in Schedule E with respect to the date and using the assumptions described
therein, and to the best of the Company's knowledge and belief, no unfunded or
unreserved liability exists for benefits under any Pension Plan; (v) except as
set forth in Schedule E and to the best of the Company's knowledge and belief,
neither the Company nor any of its Subsidiaries contributes to or, within the
prior six-year period contributed to any Multiemployer Plan; (vi) with respect
to each Multiemployer Plan set forth in Schedule E, neither the Company nor any
of its Subsidiaries has suffered or caused to occur a "complete withdrawal" or
"partial withdrawal" (as such terms are respectively defined in Sections 4203
and 4205 of ERISA); and in each of the cases described in any of clauses (i)
through (vi) preceding, an event described therein involving a Multiemployer
Plan shall be disregarded unless the aggregate of all such events and any
liabilities otherwise incurred with respect to a Multiemployer Plan have a
Material Adverse Effect.
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Section 4.16 Compliance with Law.
-------------------
To the knowledge of CB Holdings and the Company, CB Holdings, the
Company and each of its Subsidiaries is in compliance with all Laws, except
where failure to comply will not have a Material Adverse Effect.
Section 4.17 Government Regulation.
---------------------
Neither CB Holdings, the Company, nor any of its Subsidiaries is
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Investment Company Act of 1940 (as any of the preceding
acts have been amended) or other Law which regulates the incurring by the
Company or any of its Subsidiaries of Indebtedness, including, but not limited
to, Laws relating to common contract carriers or the sale of electricity, gas,
steam, water or other public utility services.
Section 4.18 Capital Structure and Subsidiaries.
----------------------------------
(a) As of the Effective Date, CB Holdings owns 100% of all classes of
stock of the Company. The authorized Capital Stock of the Company consists of
1,000 shares of common stock, par value $.01 per share, of which 100 shares are
issued and outstanding. All such outstanding shares of such common stock were
duly authorized and validly issued and, as of such time, are fully paid and
nonassessable and are owned beneficially and of record by CB Holdings free and
clear of all liens and encumbrances whatsoever, except for a first priority Lien
securing CB Holdings's obligations under its guaranty pursuant to the Senior
Credit Agreement and the second priority Lien securing CB Holdings's Guarantee.
(b) There are no outstanding subscriptions, options, warrants, calls,
rights (including preemptive rights) or other agreements or commitments of any
nature relating to any Capital Stock of the Company or any of its Subsidiaries.
(c) The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
Capital Stock.
Section 4.19 Licenses, Trademarks, etc.
-------------------------
The Company and its Subsidiaries own or hold valid licenses in all
necessary Trademarks, copyrights, patents, patent rights and licenses to conduct
their respective businesses as heretofore operated and as proposed to be
conducted. All of the Company's and its Subsidiaries' Trademarks, copyrights,
patents, patent rights, licenses or other similar rights owned or used by the
Company or any of its Subsidiaries are listed in Schedule 4.15 to the Senior
Credit Agreement, showing for each item the owner thereof, and the date (except
with respect to tradenames) and place of registration thereof. Neither the
Company nor any of its Subsidiaries has been charged or, to the knowledge of CB
Holdings and the Company, threatened to be charged with any infringement of,
nor, to their knowledge, has any of them infringed on, any unexpired Trademark,
patent, patent registration, copyright, copyright registration or other
proprietary right of any Person.
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Section 4.20 Permits and Licenses.
--------------------
All material permits, licenses and other governmental authorizations
("Permits") needed by the Company or any of its Subsidiaries to carry on its
business have been obtained and are in full force and effect and have not been
modified or amended. Neither the Company nor any of its Subsidiaries is in
material breach of any such Permits except for breaches which, considered singly
or in the aggregate, would not have a Material Adverse Effect.
Section 4.21 Survival of Representations and Warranties.
------------------------------------------
Subject to Section 9.10, all representations and warranties in the
Loan Documents shall survive the delivery of the Notes, the making of the Loan
and the Effective Date hereof and shall continue until one year after repayment
of the Notes and the Obligations, and any investigation at any time made by or
on behalf of the Lender shall not diminish the Lender's right to rely thereon.
Section 4.22 Environmental Condition.
-----------------------
(a) To CB Holdings's and the Company's knowledge, all Real Property
that the Company or any of its Subsidiaries owns is free from contamination from
any Hazardous Materials (as such term is defined in the Senior Credit
Agreement). Neither the Company nor any of its Subsidiaries has caused or
suffered any Environmental Damage (as such term is defined in the Senior Credit
Agreement) that would have a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries or, to CB
Holdings's and the Company's knowledge, any prior owner or occupant of the Real
Property owned by the Company or any of its Subsidiaries has received notice of
any alleged violation of Environmental Requirements (as defined in the Senior
Credit Agreement) of the type set forth in clause (i) of such definition or, to
the Company's knowledge, of the type set forth in clause (ii) of such
definition, or notice of any alleged liability for Environmental Damages in
connection with the Real Property, and there exists no writ, injunction, decree,
order or judgment outstanding, nor, to the knowledge of CB Holdings and the
Company, any claim, suit, proceeding, citation, directive, summons or
investigation, pending or threatened, relating to the ownership, use,
maintenance or operation of the Real Property by any Person, or from alleged
violation of Environmental Requirements, or from the suspected presence of
Hazardous Material thereon, nor, to the knowledge of CB Holdings and the
Company, does there exist any basis for such claim, suit, proceeding, citation,
directive, summons or investigation being instituted or filed.
(c) To CB Holdings's and the Company's knowledge, there is not
constructed, placed, deposited, stored, disposed of nor located on the Real
Property owned by the Company any polychlorinated biphenyls (PCBs) nor
transformers, capacitors, ballasts, or other equipment which contains dielectric
fluid containing PCBs, or any asbestos that would have a Material Adverse
Effect.
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Section 4.23 Subsidiaries
------------
On the date hereof, the Company has no Subsidiaries other than those
identified in Schedule 4.01 to the Senior Credit Agreement. Except as set forth
on such schedule, on the date hereof neither the Company nor any of its
Subsidiaries owns or holds, directly or indirectly, any Capital Stock or equity
security of, or any equity interest in, any corporation or business other than
the Company's Subsidiaries.
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1 Financial Statements and Other Reports.
--------------------------------------
The Company will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of consolidated financial
statements in conformity with GAAP. The Company will deliver to the Lender:
(a) as soon as practicable and in any event within ninety (90) days
after the end of each fiscal year of the Company, the consolidated balance sheet
of the CB Holdings and its Subsidiaries as of the end of such year and the
related consolidated statements of income, stockholders' equity and cash flow
of CB Holdings and its Subsidiaries for such fiscal year, setting forth in each
case in comparative form the consolidated figures for the previous fiscal year,
all in reasonable detail, accompanied by an unqualified report thereon of Arthur
Andersen LLP or other independent certified public accountants of recognized
national standing selected by CB Holdings and satisfactory to the Lender, which
report shall state that such consolidated financial statements fairly present
the financial position of CB Holdings and its Subsidiaries as at the date
indicated and the results of their operations and cash flow for the periods
indicated in conformity with GAAP (except as otherwise stated therein) and that
the examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards.
(b) as soon as practicable and in any event within forty five (45)
days after the end of each fiscal quarter a consolidated balance sheet of CB
Holdings and its Subsidiaries as at the end of such quarter and the related
consolidated statement of income of CB Holdings and its Subsidiaries for such
quarter and the portion of CB Holdings' fiscal year ended at the end of such
quarter, setting forth in each case in comparative form the consolidated figures
for the corresponding periods of the prior fiscal year, all in reasonable detail
and certified by the Company's Chief Financial Officer as fairly presenting the
financial condition of CB Holdings and its Subsidiaries as at the date indicated
and the results of their operations and cash flows for the periods indicated,
subject to normal year-end adjustment;
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<PAGE>
(c) together with each delivery of financial statements of CB Holdings
and its Subsidiaries pursuant to clauses (a) and (b) above, a Compliance
Certificate of the Company (i) stating that the signers have reviewed the terms
of the Agreement and the Notes and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions and condition of
the Company and its Subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed the existence during
or at the end of such accounting period, and that the signers do not have
knowledge of the existence as at the date of the Compliance Certificate, of any
condition or event which constitutes an Event of Default or Potential Event of
Default, or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action the Company has taken, is
taking and proposes to take with respect thereto and (ii) demonstrating in
reasonable detail compliance (as determined in accordance with GAAP) during and
at the end of such accounting periods with the restrictions contained in Section
6.3;
(d) together with each delivery of consolidated financial statements
pursuant to clause (a) above, and so long as and to the extent not contrary to
the then current recommendations of the American Institute of Certified Public
Accountants, a written statement by the independent certified public accountants
giving the report thereon (i) stating that their audit examination has included
a review of the terms of this Agreement and the Notes as they relate to
accounting matters, (ii) stating whether in connection with their audit
examination, any Event of Default or Potential Event of Default has come to
their attention and if so, specifying the nature and period of existence
thereof, and (iii) confirming the calculations set forth in the Compliance
Certificate delivered simultaneously therewith pursuant to clause (c) above;
(e) promptly after the occurrence of any Event of Default or Potential
Event of Default, an Officers' Certificate of the Company setting forth the
details thereof and the action which the Company is taking or proposes to take
with respect thereto;
(f) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available by CB
Holdings to its security holders, all registration statements (other than the
exhibits thereto) and annual, quarterly or monthly reports, if any, filed by CB
Holdings with the Commission;
(g) promptly, to the extent delivered under the Senior Credit
Agreement or any agreement governing Permitted Refinancing Indebtedness, upon
becoming aware of the occurrence of (i) any Reportable Event involving any
Pension Plan, (ii) any "prohibited transaction," as such term is defined in
Section 4975 of the Internal Revenue Code (which prohibited transaction could
subject any ERISA Affiliate) to a civil penalty assessed pursuant to Section
502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in
connection with any Plan (or any trust created thereunder), (iii) any assertion
of withdrawal liability of any Multiemployer Plan, (iv) any partial or complete
withdrawal (by the Company or an ERISA Affiliate) from any Multiemployer Plan
under Title IV of ERISA (or assertion thereof), (v) any cessation of operations
(by the Company or an ERISA Affiliate) at a facility in the circumstances
described in Section 4068(f) of ERISA, (vi) the withdrawal by the Company or an
ERISA Affiliate from a Pension Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA, (vii) the
failure by the Company or any
47
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ERISA Affiliate to make a payment to a Plan required under Section 302(f)(1) of
ERISA, which Section imposes a lien for failure to make required payments,
(viii) the adoption of an amendment to a Plan requiring the provision of
security to such Plan pursuant to Section 307 of ERISA;
(h) promptly, to the extent delivered under the Senior Credit
Agreement or any agreement governing Permitted Refinancing Indebtedness, copies
of (i) all notices received by any ERISA Affiliate of the PBGC's intent to
terminate any Pension Plan administered or maintained by the Company or its
ERISA Affiliates or to have a trustee appointed to administer any such Pension
Plan; (ii) at the request of the Lender each annual report (IRS Form 5500
Series) and all accompanying schedules, the most recent actuarial reports, the
most recent financial information concerning the financial status of each Plan
administered or maintained by the Company or its ERISA Affiliates, and schedules
showing the amounts contributed to each such Plan by or on behalf of the Company
or its Subsidiaries in which any of their personnel participate or from which
such personnel may derive a benefit, and each Schedule B (Actuarial Information)
to the annual report (Form 5500 Series) filed by any ERISA Affiliate with the
Revenue Service with respect to each such Plan;
(i) promptly after the Company obtains knowledge thereof, notice of
all litigation or proceedings commenced or threatened affecting the Company in
which there is a reasonable possibility of an adverse decision and (i) which
involves alleged liability in excess of $1,000,000 (in the aggregate), (ii) in
which injunctive or similar relief is sought which if obtained could have a
material adverse effect on the business, assets, prospects, results of operation
or financial condition of the Company and its Subsidiaries taken as a whole or
(iii) which questions the validity or enforceability of any Loan Document;
(j) promptly upon receipt thereof, copies of all final reports or
letters submitted to the Company by its independent certified public accountants
in connection with each annual, interim or special audit of the financial
statements of the Company or its Subsidiaries made by such accountants,
including, without limitation, any management report, and the Company agrees to
obtain such a report in connection with each of its annual audits to the extent
required under the Senior Credit Agreement or any agreement governing Permitted
Refinancing Indebtedness;
(k) promptly after the availability thereof, copies of all material
amendments to the certificate of incorporation or By-laws of the Company and any
of its Subsidiaries;
(l) promptly after the receipt thereof, a copy of any notice, summons,
citation, letter or other communication concerning any actual, alleged,
suspected or threatened violation of Environmental Requirements (as defined in
the Senior Credit Agreement), or liability of the Company or any of its
Subsidiaries for Environmental Damages (as defined in the Senior Credit
Agreement) in connection with its real property or past or present activities of
any Person thereon;
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(m) with reasonable promptness, such other information and data with
respect to the Company or any of its Subsidiaries as from time to time may be
reasonably requested by the Lender;
(n) prior written notice of the amount, recipient and time of each
payment or allocation (or other reservation or segregation of funds) of "Excess
Proceeds of Issuance of Stock" (as defined in the Senior Credit Agreement) for
the benefit of the lender under the Senior Credit Agreement or the Company; and
(o) promptly after the Lender's request, such other information
pertaining to the Senior Credit Agreement, collateral therefor or payments or
performance thereunder as the Lender may from time to time request.
Section 5.2 Corporate Existence, etc.
------------------------
The Company will at all times preserve and keep in full force and
effect its corporate existence and rights and franchises to its business and,
those of each of its Subsidiaries, except when failure to so preserve or keep
will not have a material adverse effect on the financial condition, properties
or business operations of the Company and its Subsidiaries, taken as a whole.
The Company and any permitted successor thereto shall at all times be a
"qualified person" within the meaning of the Finance Act of the Republic of
Ireland.
Section 5.3 Payment of Taxes; Tax Consolidation.
-----------------------------------
A. CB Holdings and the Company will, and will cause each of its
Subsidiaries to, pay all Taxes imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income or property
prior to the time when any material penalty or fine shall be incurred with
respect thereto; provided that no such Tax need be paid if being contested in
--------
good faith by appropriate proceedings and if such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor.
B. The Company will not, nor will it permit any of its Subsidiaries
to, file or consent to the filing of any consolidated income tax return with any
Person other than CB Holdings, the Company or any of the Company's Subsidiaries
or such other Person as may be reasonably acceptable to the Lender.
Section 5.4 Maintenance of Properties; Insurance.
------------------------------------
The Company will maintain or cause to be maintained in good repair,
working order and condition all material properties used or useful in the
business of the Company and its Subsidiaries and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof.
The Company will maintain or cause to be maintained, with financially sound and
reputable insurers, insurance with respect to its properties and business and
the properties and business of its Subsidiaries against loss or damage of the
kinds customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such types
and in such amounts as are customarily
49
<PAGE>
carried under similar circumstances by such other corporations and which is
available at a cost which the Company considers to be reasonable and may self-
insure to the extent, and only to the extent, reasonably prudent and in cases in
which the cost of insurance is considered by the Company to be unreasonable.
Section 5.5 Inspection.
----------
The Company shall permit any authorized representatives designated by
the Lender to visit and inspect any of the properties of the Company or any of
its Subsidiaries, including its and their financial and accounting records, and
to make copies and take extracts therefrom, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants, all upon reasonable notice and at such reasonable times
during normal business hours and as often as may be reasonably requested.
Section 5.6 Equal Security for Loan and Notes; No Further Negative
------------------------------------------------------
Pledges.
- -------
A. If the Company or any of its Subsidiaries shall create or assume
any Lien upon any of its property or assets, whether now owned or hereafter
acquired, other than Liens permitted by the provisions of Section 6.5 (unless
prior written consent to the creation or assumption thereof shall have been
obtained from the Lender), it shall, at the request of the Lender, make or cause
to be made effective provision whereby the Obligations will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured as
long as any such Indebtedness shall be secured; provided that this covenant
--------
shall not be construed as consent by the Lender to any violation by the Company
of the provisions of Section 6.5; and provided, further, that the Company shall
-------- -------
under no circumstances be required to make or cause to be made effective
provision whereby the Obligations will be secured, directly or indirectly, by
Margin Stock; and provided, further, that any such Lien granted to the Lender
-------- -------
pursuant to this Section 5.6A shall be subject to the provisions of the
Intercreditor Agreement.
B. Except (i) as otherwise permitted by this Agreement, the Senior
Credit Agreement or any other agreement governing Senior Debt of the Company,
(ii) with respect to specific property encumbered to secure payment of
particular Indebtedness and (iii) with respect to Margin Stock, neither the
Company nor any of its Subsidiaries shall enter into any agreement prohibiting
the creation or assumption of any Lien upon its properties or assets, whether
now owned or hereafter acquired.
Section 5.7 Compliance with Laws, etc.
-------------------------
The Company and each of its Subsidiaries shall exercise all due
diligence in order to comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, noncompliance with
which might have a Material Adverse Effect.
Section 5.8 Maintenance of Accurate Records, etc.
------------------------------------
The Company shall keep, and will cause each of its Subsidiaries to
keep, true books and records and accounts in which full and correct entries will
be made of all its
50
<PAGE>
respective business transactions, and will reflect, and cause each of its
Subsidiaries to reflect, in its respective financial statements adequate
accruals and appropriations to reserves.
Section 5.9 Lender Meeting.
--------------
The Company will participate in a meeting with the Lender once during
each fiscal year to be held at a location and a time selected by the Company.
Section 5.10 ERISA Compliance.
----------------
The Company and each of its Subsidiaries and ERISA Affiliates will
make prompt payment of all contributions which it is obligated to make under all
Pension Plans and which are required to meet the minimum funding standard set
forth in ERISA with respect to each of the Pension Plans.
Section 5.11 Ownership of the Company; No Merger.
-----------------------------------
CB Holdings shall at all times own 100% of the total voting power
entitled to vote in the election of directors of the Company. CB Holdings shall
not merge with or into the Company.
Section 5.12 Subsidiaries of the Company.
---------------------------
The Company shall cause any of its Subsidiaries which guarantee Senior
Debt at any time in the future to also guarantee the Obligations on
substantially similar terms as the Guarantee.
Section 5.13 General.
-------
The Company covenants and agrees that, until payment in full of the
Loan and Notes and all other amounts due under this Agreement have been made
indefeasibly paid in full unless the Lender shall otherwise give prior written
consent, the Company shall perform all covenants in this Article V.
ARTICLE VI
NEGATIVE COVENANTS
Section 6.1 Indebtedness.
------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly create, incur, assume, extend the maturity of, or
otherwise become directly or indirectly liable with respect to, any
Indebtedness; provided the Company may become liable for Indebtedness if after
--------
giving effect to the incurrence of such Indebtedness and all other
51
<PAGE>
Indebtedness incurred subsequent to the four fiscal quarters referred to herein,
the Consolidated Fixed Charge Ratio of the Company for the four fiscal quarters
(taken as a whole) for which financial statements of the Company are available
(provided that the immediately preceding fiscal quarter shall be included in any
- ---------
such determination pursuant to this Section 6.1 made more than 45 days after the
end of such fiscal quarter) immediately preceding the fiscal quarter in which
such Indebtedness is to be created, incurred, issued, assumed, guaranteed or for
which the Company is otherwise to become liable, determined on a pro forma basis
--- -----
as if such Indebtedness has been created, incurred, issued, assumed, guaranteed
or for which the Company had otherwise become liable at the beginning of such
four fiscal quarter period (and, in the event the proceeds of such Indebtedness
are applied to the acquisition or to refinance the acquisition of a business
(within the meaning of Rule 11-01(d) of Regulation S-X (17 C.F.R. 210, 11-01(d))
of the Commission as in effect on the date hereof), after giving effect to the
earnings from continuing operations of such business during such four fiscal
quarters (determined in good faith by the Company in accordance with the rules
and regulations of the Commission, including Rule 11-02 of Regulation S-X (17
C.F.R. 210, 11-02) of the Commission as in effect on the date hereof) would be
greater than 2 to 1.
Notwithstanding the foregoing, the Company may, and may permit any of
its Subsidiaries to, become directly or indirectly liable for the following:
(i) the Company and its Subsidiaries may become liable
with respect to the Obligations and the Guarantee;
(ii) the Company may become and remain liable with respect
to the Indebtedness pursuant to the Senior Credit Agreement and its
Subsidiaries may become and remain liable with respect to their
guarantees of such Indebtedness; provided that the aggregate principal
--------
amount of borrowings outstanding under the Senior Credit Agreement
shall not exceed $210,000,000 less the sum of (a) the aggregate amount
of scheduled amortization payments of the principal amount of Senior
Credit Agreement Obligations to the extent actually made, (b) the
aggregate amount of mandatory prepayments of the principal amount of
Senior Credit Agreement Obligations actually made (including any
amounts paid in accordance with Section 3.01 of the Third Amended and
Restated Senior Secured Credit Agreement to the lenders thereunder)
and (c) each permanent reduction of commitments to extend credit under
the Senior Credit Agreement not otherwise caused pursuant to clause
(a) or (b);
(iii) the Company and its Subsidiaries may remain and may
become and remain liable with respect to Intercompany Indebtedness;
(iv) the Company and its Subsidiaries may remain liable
with respect to, and may refinance, the Indebtedness which is
described on Schedule B annexed hereto;
52
<PAGE>
(v) current liabilities for taxes and assessments incurred
in the ordinary course of business;
(vi) Indebtedness incurred by the Company under an interest
rate swap, cap or similar arrangement entered into in respect of any
Indebtedness permitted hereunder;
(vii) Permitted Purchase Money Indebtedness and refinancings
thereof;
(viii) Indebtedness with respect to letters of credit not
to exceed in the aggregate at any time the sum of $1,000,000;
(ix) Permitted Refinancing Indebtedness;
(x) Non-Recourse Debt incurred in connection with the
acquisition (directly or indirectly) of the Warehoused Real Property
and secured by Liens permitted by Section 6.5(ii) and refinancings
thereof which remain Non-Recourse Debt;
(xi) any promissory note issued by the Company or any of
its Wholly-owned Subsidiaries to fund the general partner's capital
contribution in an investment partnership or other pooled investment
vehicle of which the Company or any of its Subsidiaries is the general
partner and which partnership or other investment vehicle is engaged
solely in the business of acquiring, holding and disposing of Real
Property;
(xii) the Company and any Mortgage Banking Subsidiary may
become and remain liable with respect to Indebtedness of the Company
or such Mortgage Banking Subsidiary comprised of such entity's
obligation to repurchase mortgage loans pursuant to mortgage loan
purchase and sale agreements entered into in connection with Mortgage
Banking Activities;
(xiii) Melody Permitted Indebtedness;
(xiv) Indebtedness of the Company comprised of a guarantee
by Company of the Melody Seller Senior Notes and the Melody Seller
Contingent Notes;
(xv) Indebtedness incurred in connection with Permitted
Acquisitions (including without limitation, (x) existing Indebtedness
of any Person that becomes a Subsidiary and (y) Indebtedness assumed
by the Company or any Subsidiary or that is secured by any asset
acquired by the Company or any Subsidiary, in each case upon
consummation of such
53
<PAGE>
Permitted Acquisition), in an aggregate amount not to exceed
$50,000,000 at any time outstanding, provided that (i) at the time of
--------
incurrence of any such Indebtedness, the Pro Forma Fixed Charges
Coverage Ratio (as defined in the Senior Credit Agreement) shall not
be less than 1.0:1.0, (ii) no Default or Event of Default shall have
occurred and be continuing or shall result from the Permitted
Acquisition (including by reason of any Indebtedness incurred in
connection with such Permitted Acquisition), and (iii) not more than
$25,000,000 of such Indebtedness at any time outstanding shall be
Indebtedness that is not Permitted Seller Indebtedness; and
(xvi) in addition to the Indebtedness permitted by clauses
(i)-(xv), the Company and its Subsidiaries may become and remain
liable with respect to Indebtedness other than indebtedness for
borrowed money (the proceeds of which are not used to buy assets or
make Capital Expenditures) not exceeding $20,000,000 in the aggregate
at any time outstanding.
Section 6.2 Transactions with Shareholders and Affiliates.
---------------------------------------------
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder of 5% or more of any
class of equity securities of the Company (including, but not limited to, CB
Holdings) or with any Affiliate of the Company or of any such holder, on terms
that are less favorable to the Company or that Subsidiary, as the case may be,
than those which might be obtained at the time from Persons who are not such a
holder or Affiliate; provided, that the foregoing restriction shall not apply to
--------
(i) any transaction between the Company and any of its Wholly-owned Subsidiaries
or between any of its Wholly-owned Subsidiaries, (ii) customary fees paid to
members of the Board of Directors of the Company and its Subsidiaries, (iii) any
transaction between the Company or any of its Subsidiaries and any employee of
the Company or any of its Subsidiaries that is approved by the Company's Board
of Directors (provided, that such approval shall not be required with respect to
--------
normal compensation arrangements involving any such employee), (iv) transactions
pursuant to written agreements in effect prior to the Effective Date which have
previously been consented to by the Lender in writing, and (v) the sale,
assignment, transfer, lease or other disposition of Warehoused Real Property to
a partnership in which the Company or a Wholly-owned Subsidiary of the Company
is a general or limited partner or another pooled investment vehicle in which
the Company or any of its Subsidiaries has an interest or which is managed by
the Company or any of its Subsidiaries; and provided, further, that the
-------- -------
transactions referred to in clauses (i) through (v) above are otherwise
permitted by this Agreement.
Section 6.3 Maintenance of Adjusted Consolidated Net Worth.
----------------------------------------------
If the Company's Adjusted Consolidated Net Worth at the end of any two
consecutive fiscal quarters on or after the Senior Revolving Credit Facility B
Termination Date
54
<PAGE>
is less than $30,000,000, the Company shall make an offer to purchase (an
"Offer") on the last Business Day of the then current LIBOR Interest Period (or,
if there is less than 60 days remaining in the current LIBOR Interest Period, on
the last day of the next following LIBOR Interest Period) (the "Purchase Date")
10% of the aggregate principal amount of the Loan then outstanding at a purchase
price of 100% of the principal amount plus interest accrued and unpaid to the
Purchase Date. In no event shall the failure to meet the minimum Adjusted
Consolidated Net Worth requirement stated above at the end of any fiscal quarter
be counted toward the making of more than one Offer hereunder.
Notice of an Offer shall be mailed by the Company not less than 25
days before the Purchase Date to the Lender. The Offer shall remain open from
the time of mailing until the fifth Business Day preceding the Purchase Date.
If less than 60 days remain in the current LIBOR Interest Period, the Company
shall select a one month LIBOR Interest Period as the next LIBOR Interest
Period, and the Purchase Date shall be the last day of such one-month period.
The notice shall contain all instructions and materials necessary to
enable the Lender to accept the Offer. If the Lender elects to accept the
Offer, it will notify the Company at the address specified in the notice five
Business Days prior to the Purchase Date. If the Lender makes timely acceptance
of an Offer then the Company shall pay, as the purchase price, an amount equal
to 10% of the aggregate principal amount of the Loan then outstanding on the
Purchase Date, together with interest accrued on the amount so paid through the
Purchase Date.
Section 6.4 Restricted Junior Payments.
--------------------------
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any Restricted
Junior Payment, except (i) dividends, distributions or payments by any
------
Subsidiary to the Company or a Wholly Owned Subsidiary of the Company, (ii) so
long as no Default or Event of Default has occurred and is continuing, dividends
or distributions by any Subsidiary to the Company and any other Person that is a
stockholder or owner of another equity interest in such Subsidiary, so long as,
in the case of each such dividend and distribution, the amounts thereof paid to
the Company and such other Person are in the same proportion as the respective
contributions to the capital of such Subsidiary made by the Company and such
other Person, and (iii) if no Default or Event of Default shall exist, or as a
result of the proposed declaration, payment or other event would exist:
A. the Company may declare and pay dividends on its Capital Stock to
the extent necessary to enable Holdings to pay expenses of its operations in the
ordinary course of business, in an amount not to exceed $50,000 in any year;
B. the Company may declare and pay dividends on its Capital Stock as
follows:
(1) prior to December 31, 1999, the Company may declare and
pay dividends on its Capital Stock to the extent necessary to permit
CB Holdings to pay dividends accrued on its outstanding Series A-1,
Series A-2 and Series A-3
55
<PAGE>
Preferred Stock in the period from October 1, 1996 through the fiscal
quarter last ended prior to the date of such payment by the Company
(and not dividends accrued on such Preferred Stock in any period prior
to October 1, 1996), or interest with respect to such accrued but
unpaid dividends all in accordance with the certificates of
designation with respect thereto in effect on the Effective Date; and
(2) after December 31, 1999, the Company may declare and pay
dividends on its Capital Stock to the extent necessary to permit CB
Holdings to pay dividends accrued on its outstanding Series A-1,
Series A-2 and Series A-3 Preferred Stock in the period of four fiscal
quarters ended immediately prior to the date of such payment by the
Company (and not dividends accrued on such Preferred Stock in any
prior period) that may be declared by the Board of Directors of
Holdings, or interest with respect to such accrued but unpaid
dividends, all in accordance with the certificates of designation with
respect thereto in effect on the Effective Date;
provided, however, that the total amount of dividend and interest
-------- -------
payments made by Company pursuant to clauses B.(1) and B.(2) does not exceed 50%
of Consolidated Net Income (as defined in the Senior Credit Agreement) for the
period commencing on the first day of the fiscal quarter within which the
Effective Date occurs and ending on the last day of the last fiscal quarter
ending prior to the date of declaration, taken as a single accounting period.
Section 6.5 Liens.
-----
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, create, incur, assume or permit to exist any Lien upon or with
respect to any of the property or assets of the Company or any of its
Subsidiaries whether now owned or hereafter acquired, or on any income or
profits therefrom, or assign or otherwise convey any right to receive income to
secure any Indebtedness which is pari passu or junior in right of payment to the
---- -----
Loan, unless, contemporaneously therewith, effective provision shall be made
whereby the Loan is secured equally and ratably with such other Indebtedness
which is pari passu or junior in right of payment to the Loan and secured by a
---- -----
Lien, pursuant to documentation providing that the Lender shall be entitled to
vote as its interests appear in connection with the release of or enforcement
against any property or assets subject to such Lien; provided that the
--------
restrictions of this Section 6.5 shall not prohibit the creation or incurrence
of (i) Permitted Encumbrances, (ii) Liens on assets securing Non-Recourse Debt
incurred in connection with the acquisition of Warehoused Real Property so long
as any such Lien does not encumber any property other than assets constructed or
acquired with the proceeds of such Indebtedness, (iii) Liens on Permitted
Investments owned by Melody, to secure Indebtedness under the Melody Loan
Arbitrage Facility, if such Permitted Investments were acquired by Melody with
the proceeds of incurrence of such Indebtedness, and (iv) Liens on commercial
mortgage loans originated and owned by Melody subject to an irrevocable,
unconditional commitment to purchase such commercial mortgage loans made by the
Federal Home Loan Mortgage Corporation, to secure Indebtedness of Melody under
the Melody Warehousing Facility; provided further that any Liens granted
--------
pursuant to this Section 6.5 shall be subject to the provisions of the
Intercreditor Agreement.
56
<PAGE>
Section 6.6 Mergers.
-------
A. The Company shall not consolidate or merge with, or sell, assign,
transfer or lease all or substantially all of its assets in a single transaction
or a series of related transactions to, any person unless:
(i) the person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such
sale, assignment, transfer or lease or conveyance shall have been
made, is a corporation organized and existing under the laws of the
United States, any state thereof or the District of Columbia;
(ii) the corporation formed by or surviving any such
consolidation or merger (if other than the Company), or to which such
sale or conveyance shall have been made, assumes by written agreement
all the obligations of the Company under the Loan and this Agreement;
(iii) immediately after giving effect to such transaction
no Event of Default or Potential Event of Default exists and
immediately after such transaction, the Company (or the corporation
formed by or surviving such consolidation or merger if other than the
Company) could incur $1.00 of Indebtedness under the first paragraph
of Section 6.1;
(iv) the Company or any corporation formed by or surviving
any such consolidation or merger, or to which such sale or conveyance
shall have been made shall have Consolidated Net Worth at least equal
to the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(v) the Company has delivered to the Lender an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (iv)) and an Opinion of Counsel, each stating
that such consolidation, merger or transfer complies with this
subsection 6.6A and that all conditions precedent set forth in this
subsection 6.6A relating to such transactions have been complied with
provided that with respect to factual information included in the
foregoing (including, without limitation, matters contained in
subparagraphs (iii) and (iv)), counsel may rely upon a certificate of
an officer of the Company as to such matters.
B. Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with subsection
6.6A, the successor person formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, and
57
<PAGE>
shall perform every obligation of the Company under this Agreement with the same
effect as if such successor person had been named as the Company herein, and all
the obligations of the Company hereunder and under the Notes shall terminate.
Section 6.7 Limitation on Sale of Less Than Substantially All Assets.
--------------------------------------------------------
Neither the Company nor any of its Subsidiaries will make any Asset
Sale, unless (a) at the time thereof and after giving pro forma effect thereto
--- -----
(after application of proceeds), the Company's Consolidated Fixed Charge Ratio
for the four fiscal quarters (taken as a whole) for which financial statements
of the Company are available (provided, that the immediately preceding fiscal
--------
quarter shall be included in any such determination pursuant to this Section 6.7
made more than 45 days after the end of such fiscal quarter) immediately
preceding the fiscal quarter in which such Asset Sale is to occur, determined on
a pro forma basis as if such Asset Sale had occurred at the beginning of such
--- -----
four-fiscal quarter period, is greater than 2.5 to 1 or (b)(i) the Company or
its Subsidiary receives consideration at the time of and for such Asset Sale at
least equal to the fair value (which, if greater than $2,500,000, shall be as
determined in good faith by the Board of Directors, including valuation of all
non-cash consideration) of the assets disposed of in such Asset Sale as of the
date of such Asset Sale and (ii) the Company complies with Section 2.6;
[provided, however, that so long as any loans under the Senior Credit Agreement
- --------- -------
remain outstanding, this Section 6.7 shall not prohibit any Asset Sale which
would be permitted under Section 6.08 of the Senior Credit Agreement].
Notwithstanding the foregoing, nothing contained herein shall prevent the
Company from selling all or any part of its ownership interest in CB Canada.
Section 6.8 Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Subsidiaries.
- ----------------------
The Company will not, and will not permit any Subsidiary of the
Company to, directly or indirectly, create or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction on the ability of
any Subsidiary of the Company to (a) pay dividends or make any other
distributions on its Capital Stock or any other interest or participation in, or
measured by, its profits owned by, or pay any Indebtedness owed to, the Company
or a Subsidiary of the Company, (b) make loans or advances to the Company or a
Subsidiary of the Company or (c) transfer any of its properties or assets to the
Company or to any Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reasons of (i) any restrictions existing under
or contemplated by agreements in effect on the date hereof, (ii) any
restrictions existing under or contemplated by the Senior Credit Agreement;
(iii) any restrictions, with respect to a Subsidiary of the Company that is not
a Subsidiary of the Company on the date hereof, in existence at the time such
Person becomes a Subsidiary of the Company and (iv) any restrictions existing
under any agreement that refinances or replaces the agreements containing the
restrictions in clauses (i) and (ii); provided that the terms and conditions of
--------
any such restrictions are not materially less favorable to the Lender than those
under or pursuant to the agreement evidencing the Indebtedness refinanced.
Nothing contained in this Section 6.8 shall prevent the Company or any of its
Subsidiaries from entering into any agreement (i) imposing any such restrictions
or limitations upon Westmark, Westmark Acquisition Partnership, or any
Subsidiary pursuant to any Permitted Acquisition, (ii) permitting
58
<PAGE>
or providing for the incurrence of Liens otherwise permitted by Section 6.5 or
(iii) restricting the sale or other disposition of property securing
Indebtedness.
Section 6.9 Certain Tax Payments.
--------------------
If the Company Group (as such term is defined in the definition of
"Permitted Tax Payment" in Section 1.1 of this Agreement) would, assuming it has
filed a separate federal consolidated income tax return for each taxable year
ending after April 18, 1989, be entitled to a refund of federal income tax,
together with interest thereon, for a taxable year (whether resulting from a tax
attribute carryback or otherwise) (a "Refund"), then CB Holdings shall pay (at
the time a Refund is received by CB Holdings from the Internal Revenue Service
or a final determination is otherwise made with respect to items resulting in a
Refund) an amount equal to the Refund to the Company; provided that the amount
--------
of such payment shall not exceed the amount paid by the Company as a Permitted
Tax Payment for such taxable year plus interest on such amount at the rate
specified in Section 6621 of the Code for overpayments of tax. In the event
that CB Holdings and any member of the Company Group join in filing any combined
or consolidated (or similar) state or local income or franchise tax returns for
a taxable year and a member of the Company Group is entitled to a refund of
state or local income or franchise taxes with respect to such taxable year, then
CB Holdings shall pay (at the time it receives such refund from such taxing
authority) an amount to the Company determined in a manner as similar as
possible to that provided in the preceding sentence for federal income taxes.
Any refund (together with interest actually received thereon) of taxes
paid by a member of the Company Group for a taxable year ending prior to such
member's becoming a member of the CB Holdings Group (whether such refund arises
from a tax attribute carryback from the CB Holdings Group or otherwise) shall be
the property of such member.
Section 6.10 Limitation on Creation of Senior Debt.
-------------------------------------
The Company will not incur or agree or attempt to incur any Senior
Debt (including Permitted Refinancing Indebtedness) which is not fully and
adequately secured, and the Company will not affirmatively cause any Senior Debt
to become other than fully and adequately secured; provided, however, that this
-------- -------
covenant shall be deemed satisfied if the Company delivers an Officers'
Certificate certifying that such Senior Debt is fully and adequately secured;
and provided, further, that no such Officers' Certificate shall be required and
-------- -------
this Section 6.10 shall be satisfied to the extent that Permitted Refinancing
Indebtedness is secured by the same collateral that secures the Senior Credit
Agreement Obligations at the time of any such refinancing thereof.
Section 6.11 Restrictions on Investments in Warehoused Real Property.
-------------------------------------------------------
The Company or any of its Subsidiaries may make Investments in
Warehoused Real Property so long as at the time any such Investment is made (A)
the aggregate amount of all such Investments then outstanding in connection with
the purchase or other acquisition of all Warehoused Real Property does not
exceed twenty percent (20%) of the Company's Adjusted Consolidated Net Worth as
of the most recent quarter (less the amount by which aggregate losses
59
<PAGE>
exceed aggregate gains realized from all Investments made pursuant to this
Section 6.11) and (B) the amount of any such single Investment made by the
Company or any of its Subsidiaries does not exceed ten percent (10%) of the
Company's Adjusted Consolidated Net Worth as of the most recent fiscal quarter.
Section 6.12 General.
-------
The Company covenants and agrees that until payment in full of the
Loan and the Notes and all amounts due under this Agreement at the time of such
termination or payment have been indefeasibly paid in full, unless the Lender
shall otherwise give prior written consent, the Company will perform all
covenants in this Article VI.
Section 6.13 Certain Financial Covenants in Senior Credit Agreement.
------------------------------------------------------
On and after the Senior Loan Repayment Date, each of the covenants and
agreements of the Company set forth in Section 6.05 and 6.06 of the Third
Amended and Restated Senior Secured Credit Agreement dated as of November ___,
1996 (the "Surviving Financial Covenants") shall be deemed to be included and
-----------------------------
incorporated by reference in this Article VI, mutatis mutandis, for the benefit
of the Lender, without regard to the continuing effectiveness or, or any
amendments of, such Senior Secured Credit Agreement; and the Company covenants
and agrees to perform each and all of the Surviving Financial Covenants as if
expressly contained herein and made in favor of the Lender hereunder; provided,
however, that each requirement established by such Surviving Financial Covenants
shall continue to apply until all amounts owing to the Lender in connection with
the Loan or otherwise hereunder are paid in full; and provided, further, that
for purposes of the calculation of "Consolidated Interest Expense" as used in
the Surviving Financial Covenants shall include all interest payable in kind or
in cash accrued hereunder.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 Events of Default.
-----------------
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
A. Failure to Make Payments When Due.
---------------------------------
Failure to pay any installment of principal of the Loan when due,
whether at stated maturity, by acceleration, by notice of prepayment, by
operation of Section 2.5 or otherwise; or failure to pay any interest on the
Loan within 15 days after the date due (in each case whether or not such payment
is prohibited by Article VIII); or
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B. Default in Other Agreements.
---------------------------
Failure of the Company or any of its Subsidiaries to pay principal of
Indebtedness (other than Indebtedness referred to in subsection A of this
Section 7.1 and Non-Recourse Debt) in an aggregate amount of $2,500,000 or more
at its stated maturity, or breach or default of the Company or any of its
Subsidiaries with respect to any other material term of (x) any evidence of
Indebtedness with an aggregate principal amount of $5,000,000 or more or (y) any
loan agreement, mortgage, indenture or other agreement relating thereto, if the
effect of such failure, default or breach is to cause the holder or holders of
that Indebtedness (or a trustee on behalf of such holder or holders) of the
Company or any of its Subsidiaries then to cause that Indebtedness to be
declared due prior to its stated maturity; or
C. Breach of Certain Covenants.
---------------------------
Failure of the Company to perform or comply with any term or condition
contained in Sections 2.11, 5.2 (in so far as it requires preservation of the
corporate existence of the Company), 5.11 or Article VI; or
D. Breach of Warranty.
------------------
Any representation or warranty made by the Company in any Loan
Document or in any statement or certificate at any time given by the Company in
writing pursuant hereto or thereto or in connection herewith or therewith shall
be false in any material respect on the date as of which made; or
E. Other Defaults Under Agreement or Loan Documents.
------------------------------------------------
(a) The Company shall default in the performance of or compliance with
any material term contained in this Agreement or the other Loan Documents, other
than those referred to above in Subsection A, C or D of this Section 7.1 (b) CB
Holdings shall default in the performance of or compliance with any material
covenant contained in the Stock Pledge Agreement or (c) the Guarantors shall
default in the performance of or compliance with any material covenant contained
in the Guarantee, and, in each case, such default shall not have been remedied
or waived within 30 days after receipt of written notice from the Lender of such
default; or
F. Involuntary Bankruptcy; Appointment of Receiver, Etc.
-----------------------------------------------------
(1) A court having jurisdiction in the premises shall enter a decree
or order for relief in respect of CB Holdings, the Company or any Material
Subsidiary in an involuntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, which
decree or order is not stayed; or any other similar relief shall be granted
under any applicable federal or state law; or (2) an involuntary case is
commenced against CB Holdings, the Company or any Material Subsidiary under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator,
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sequestrator, trustee, custodian or other officer having similar powers over CB
Holdings, the Company, or any Material Subsidiary, or over all or a substantial
part of any of their respective properties, shall have been entered; or an
interim receiver, trustee or other custodian of CB Holdings, the Company or any
Material Subsidiary for all or a substantial part of the property of CB
Holdings, the Company or any Material Subsidiary is involuntarily appointed; or
a warrant of attachment, execution or similar process is issued against any
substantial part of the property of CB Holdings, the Company or any Material
Subsidiary, and the continuance of any such events in subpart (2) for 60 days
unless dismissed, bonded or discharged; or
G. Voluntary Bankruptcy; Appointment of Receiver, Etc.
--------------------------------------------------
CB Holdings, the Company or any Material Subsidiary shall have an
order for relief entered with respect to it or commence a voluntary case under
the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or shall consent to the entry of an order for
relief in an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; the making by CB Holdings, the Company, or any
Material Subsidiary of any assignment for the benefit of creditors; the
admission by CB Holdings, the Company or any of Material Subsidiaries in writing
of its inability to pay its debts as such debts become due; or the Board of
Directors of CB Holdings, the Company or any Material Subsidiary (or any
committee thereof) adopts any resolution or otherwise authorizes action to
approve any of the foregoing; or
H. Judgments and Attachments.
-------------------------
Any money judgment, writ or warrant of attachment, or similar process
involving in any individual case or in the aggregate at any time an amount in
excess of $2,500,000 shall be entered or filed against CB Holdings, the Company,
or any Material Subsidiary or any of their respective assets and shall remain
undischarged, unvacated, unbonded or unstayed for a period of 30 days or in any
event later than ten days prior to the date of any proposed sale thereunder; or
I. Dissolution.
-----------
Any order, judgment or decree shall be entered against CB Holdings,
the Company or any Material Subsidiary decreeing the dissolution or split up of
CB Holdings, the Company or any Material Subsidiary and such order shall remain
undischarged or unstayed for a period in excess of 30 days; or
J. Foreclosure Under Senior Credit Agreement.
-----------------------------------------
The lenders party to the Senior Credit Agreement or Permitted
Refinancing Indebtedness acting together, directly or indirectly, after any
event of default under, and as defined in, the Senior Credit Agreement or other
documents has occurred shall commence judicial proceedings to foreclose upon any
material portion of the collateral subject to the
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security documents delivered in connection with the Senior Credit Agreement or
shall have exercised any right under law or such security documents to take
ownership of any such material portion in lieu of foreclosure; or
K. Payment of Westmark Obligations.
-------------------------------
The Company or any Subsidiary shall pay, or any Person shall demand
payment by the Company or any of its Subsidiaries of, any amount in respect of
the Westmark Seller Financing or any Westmark Earn-Out Payment; or
L. Default Under Melody Permitted Indebtedness.
-------------------------------------------
A default or event of default, however designated, shall occur and be
continuing under any of the Melody Permitted Indebtedness.
THEN (i) upon the occurrence of any Event of Default described in the
foregoing subsections F or G of Section 7.1 the unpaid principal amount of and
accrued interest on the Loan shall automatically become immediately due and
payable, without presentment, demand, protest or other requirements of any kind,
all of which are hereby expressly waived by the Company, and the obligation of
the Lender hereunder shall thereupon terminate, and (ii) upon the occurrence of
any other Event of Default, the Lender may, by written notice to the Company and
the Senior Agent, if applicable declare the Loan to be, and the same shall
forthwith become, due and payable, together with accrued interest thereon and
the obligations of the Lender hereunder shall thereupon terminate; provided,
--------
however, that if any declaration of acceleration under this Agreement occurs
- -------
because an Event of Default set forth in subsection B of this Section 7.1 has
occurred and is continuing, such declaration of acceleration shall be
automatically annulled if the holders of the Indebtedness which is the subject
of such Event of Default have rescinded their acceleration in respect of such
Indebtedness within 30 days thereof and no other Event of Default has occurred
during such 30-day period which has not been cured or waived. Nevertheless, if
any time within 60 days after acceleration of the maturity of the Loan, the
Company shall pay all arrears of interest and all payments on account of the
principal which shall have become due otherwise than by acceleration (with
interest on principal and, to the extent permitted by law, on overdue interest,
at the rates specified in this Agreement or the Notes) and all Events of Default
and Potential Events of Default (other than non-payment of principal of and
accrued interest on the Loan due and payable solely by virtue of acceleration)
shall be remedied or waived pursuant to Section 9.6, then the Lender by written
notice to the Company may rescind and annul the acceleration and its
consequences; but such action shall not affect any subsequent Event of Default
or Potential Event of Default or impair any right consequent thereon.
Notwithstanding anything in this Section 7.1 to the contrary, the Lender shall
not accept any payment or prepayment from the Company until five Business Days
after notice shall have been given to the Senior Agent, if applicable, and the
Lender will be entitled to receive payment or prepayment only to the extent
permissible under the provisions of Article VIII of this Agreement.
ARTICLE VIII
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SUBORDINATION
Section 8.1 Obligations Subordinated to Senior Debt.
---------------------------------------
The Company and the Guarantors covenant and agree, and the Lender
likewise covenants and agrees, that:
(a) to the extent and in the manner hereinafter set forth in this
Article VIII, the Obligations are hereby expressly made subordinate and subject
in right of payment to the prior payment in full in cash of all Senior
Indebtedness;
(b) the subordination is for the benefit of the lender under the
Senior Credit Agreement and other holders of Senior Indebtedness; and
(c) each holder of Senior Indebtedness whether now outstanding or
hereafter created, incurred, assumed or guaranteed shall be deemed to have
extended or acquired such Senior Indebtedness in reliance upon the covenants and
provisions contained in this Agreement.
Section 8.2 Subordination Upon Insolvency or Liquidation Proceedings.
--------------------------------------------------------
In the event of any Insolvency or Liquidation Proceeding:
(a) Upon any payment or distribution of assets or securities of any
kind or character, whether in cash, securities or other property, all Senior
Indebtedness shall first be paid in full in cash or in a manner satisfactory to
the holders of Senior Indebtedness before the Lender is entitled to receive any
payment or distribution of any cash, securities or other property on account of
principal of or interest on or other amounts constituting Obligations.
(b) The holders of Senior Indebtedness shall be entitled to receive
directly (pro rata on the basis of the respective amounts of Senior Indebtedness
--- ----
held by them), for application to the payment thereof (to the extent necessary
to pay all such Senior Indebtedness in full after giving effect to any
substantially concurrent payment to the holders of such Senior Indebtedness),
any payment or distribution of any kind or character, whether in cash,
securities or other property (including any payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Company or the Guarantors being subordinated to the payment of the Obligations)
which may be payable or deliverable in respect of the Obligations in any such
Insolvency or Liquidation Proceeding.
(c) In the event that, notwithstanding the foregoing provisions of
this Section 8.2, the Lender shall have received any payment from or
distribution of assets or securities of the Company or the Guarantors or the
estate created by the commencement of any such Insolvency or Liquidation
Proceeding, of any kind or character in respect of the Obligations, whether in
cash, securities or other property (including any payment or distribution which
may be payable or deliverable by reason of the payment of any other Indebtedness
of the
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Company or the Guarantors being subordinated to the payment of the Obligations)
before all Senior Indebtedness is paid in full, then and in such event such
payment or distribution shall be received and held in trust for and shall be
paid over or delivered to the holders of the Senior Indebtedness remaining
unpaid (pro rata on the basis of the respective amounts of such Senior
--------
Indebtedness held by them), to the extent necessary to pay all such Senior
Indebtedness in full after giving effect to any substantially concurrent payment
to the holders of such Senior Indebtedness, for application to the payment in
full of such Senior Indebtedness.
Section 8.3 No Payment on Obligations in Certain Circumstances.
--------------------------------------------------
(a) Upon the maturity of any Senior Indebtedness, by lapse of time,
acceleration or otherwise (including the time of due payment (including any
mandatory prepayment) of any principal or interest), all principal thereof and
interest thereon and other amounts constituting Senior Indebtedness shall first
be paid in full in cash or in a manner satisfactory to the holders of Senior
Indebtedness before any payment or distribution is made by or on behalf of the
Company or the Guarantors on account of principal of or interest on or other
amounts constituting Obligations.
(b) Upon the happening and continuing of any default in respect of the
payment of any Senior Indebtedness (a "Payment Default"), no direct or indirect
payment or distribution shall be made by the Company or the Guarantors on
account of the principal of or interest on or other amounts constituting
Obligations, unless and until (i) such Payment Default shall have been cured or
waived by the holders of the respective Senior Indebtedness or shall have ceased
to exist or (ii) the holder or holders of the respective Senior Indebtedness
shall have waived in writing the application of this Section 8.3(b) to such
Payment Default.
(c) Without limiting the effect of Section 8.3(b), upon the happening
and continuing of any default or event of default (other than a Payment Default)
with respect to any Senior Indebtedness, as such default or event of default is
defined in the Senior Credit Agreement or in any instrument, agreement or other
document under which such Senior Indebtedness is outstanding (a "Non-Payment
Default"), then upon written notice thereof given to the Company by the Senior
Agent, by holders of a majority in principal amount of the Indebtedness under
the Senior Credit Agreement or the agreement governing Permitted Refinancing
Indebtedness, or by the holders of a majority in principal amount of all Senior
Indebtedness ("Payment Blockage Notice"), no direct or indirect payment or
distribution shall be made by the Company or the Guarantors on account of the
principal of or interest on or other amounts constituting Obligations unless and
until (i) such Non-Payment Default shall have been cured or waived by the holder
or holders of the respective Senior Indebtedness or shall have ceased to exist
or (ii) the holder or holders of the respective Senior Indebtedness shall have
waived in writing the application of this Section 8.3(c) to such Non-Payment
Default; provided, however, that (A) this Section 8.3(c) shall not prevent the
-------- -------
making of any payment for more than 179 days after a Payment Blockage Notice
shall have been given or deemed to have been given ("Payment Blockage Period")
unless the Senior Indebtedness in respect of which such default or event of
default exists has been declared due and payable in its entirety, in which case
no payment or distribution may be made until such acceleration has been
rescinded or annulled and (B) not more than one effective Payment Blockage
Notice shall be given within a period of 360
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consecutive days and there shall be a period of at least 181 consecutive days in
each 360-day period when no Payment Blockage Period is in effect.
(d) In the event that, notwithstanding the foregoing provisions of
Section 8.3(a), (b) or (c), the Lender shall have received any payment or
distribution at a time when such payment was prohibited by the provisions of
Section 8.3(a), (b) or (c) then and in such event such payment or distribution
shall be received and held in trust for and shall be paid over to the holders of
Senior Indebtedness (pro rata, on the basis of the respective amounts of such
--- ----
Senior Indebtedness held by them), to the extent necessary to pay all such
Senior Indebtedness in full after giving effect to any substantially concurrent
payment to the holders of such Senior Indebtedness, for application to the
payment in full of Senior Indebtedness.
(e) The provisions of this Section 8.3 shall not modify or limit in
any way the application of Section 8.2.
Section 8.4 Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
After all amounts payable under or in respect of Senior Indebtedness
are paid in full, the Lender shall be subrogated to the extent of the payments
or distributions made to the holders of, or otherwise applied to payment of,
such Senior Indebtedness pursuant to the provisions of this Article VIII, to the
rights of the holders of such Senior Indebtedness to receive payments and
distributions of cash, securities and other property applicable to the Senior
Indebtedness until the principal of and interest on the Obligations shall be
paid in full. For purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, securities or other property
to which the Lender would be entitled except for the provisions of this Article
VIII, and no payments over pursuant to the provisions of this Article VIII to
the holders of the Senior Indebtedness by the Lender shall be deemed to be a
payment or distribution by the Company or the Guarantors to or on account of the
Senior Indebtedness, it being understood that the provisions of this Article
VIII are solely for the purpose of defining the relative rights of the Lender,
on the one hand, and the holders of Senior Indebtedness on the other hand. A
release of any claim by any holder of Senior Debt shall not, as between the
Company, the Guarantors and the Lender, limit the Lender's rights of subrogation
under this Section 8.4.
Section 8.5 Rights of Holders Not to be Impaired.
------------------------------------
Nothing contained in this Article VIII is intended to or shall:
(a) impair, as among the Company or the Guarantors, their respective
creditors other than holders of Senior Indebtedness and the Lender, the
obligation of the Company or the Guarantors, which is absolute and
unconditional, to pay to the Lender the principal of and interest on the
Obligations as and when the same shall become due and payable in accordance with
its terms; or
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(b) affect the relative rights against the Company or the Guarantors
of the Lender and creditors of the Company or the Guarantors other than the
Senior Indebtedness; or
(c) prevent the Lender from exercising all remedies otherwise
permitted by applicable law upon default under this Agreement, subject to the
rights, if any, under this Agreement of the holders of Senior Indebtedness to
receive payments or distributions otherwise payable or deliverable to, or
received by, such holder upon the exercise of any such remedy and subject to the
restrictions with respect to Liens set forth in Article III of the Intercreditor
Agreement.
Section 8.6 Effectuation of Subordination.
-----------------------------
In the event of any Insolvency or Liquidation Proceeding, the Senior
Agent is irrevocably authorized and empowered, in its discretion, to make and
present for and on behalf of the Lender such proofs of claims against the
Company or the Guarantors on account of the Obligations or other motions or
pleadings as the Senior Agent may deem expedient or proper; provided, however,
-------- -------
the Senior Agent may make and present such proofs of claims only if the Lender
has not filed such proofs of claims by the thirtieth day prior to the date on
which such claims are required to be filed. After such thirty-day period, if
the Lender has not filed such proofs of claims, the Lender irrevocably
authorizes and empowers the Senior Agent to file claims and take such other
actions (other than vote such proof of claims in such proceedings), in the name
of the Senior Agent or the Lender or otherwise, as the Senior Agent may deem
necessary or advisable for the enforcement of this Agreement. In such event,
the Lender will execute and deliver to the Senior Agent such powers of attorney,
assignments and other instruments or documents as may be requested by the Senior
Agent in order to enable such Senior Agent to enforce any and all claims upon or
with respect to the Obligations.
Section 8.7 No Waiver of Subordination Provisions.
-------------------------------------
No right of the Senior Agent under the Senior Credit Agreement or any
other holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or the Guarantors or by any act or
failure to act by the Senior Agent under the Senior Credit Agreement or any such
holder or by any noncompliance by the Company or the Guarantors with the terms,
provisions and covenants of this Agreement or the Senior Credit Agreement
regardless of any knowledge thereof which the Senior Agent or such other holder
thereof may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the Senior Agent under the Senior Credit Agreement and any other holders of
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to the Lender, without incurring responsibility to the Lender and
without impairing or releasing the subordination and other benefits provided in
this Agreement or the obligations hereunder of the Lender to the holders of
Senior Indebtedness, do any one or more of the following even if any right to
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reimbursement or subrogation or other right or remedy of the Lender is affected,
impaired or extinguished thereby:
(a) change the manner, place or terms of payment or change or extend
the time of payment of, or renew, exchange, amend or alter, the terms of any
Senior Indebtedness, any security therefor or guaranty thereof or any liability
of the Company, the Guarantors or any other guarantor to such holder, or any
liability incurred directly or indirectly in respect thereof, or otherwise
amend, renew, exchange, modify or supplement in any manner Senior Indebtedness
or any instrument evidencing or guaranteeing or securing the same or any
agreement under which Senior Indebtedness is outstanding;
(b) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and any order any property pledged, mortgaged
or otherwise securing Senior Indebtedness or any liability of the Company or the
Guarantors or any other guarantor to such holder, or any liability incurred
directly or indirectly in respect thereof;
(c) settle or compromise any Senior Indebtedness or any other
liability of the Company or the Guarantors or any other guarantor of the Senior
Indebtedness to such holder or any security therefor or any liability incurred
directly or indirectly in respect thereof and apply any sums by whomsoever paid
and however realized to any liability (including, without limitation, Senior
Indebtedness) in any manner or order; and
(d) fail to take or to record or otherwise perfect, for any reason or
for no reason, any Lien securing Senior Indebtedness by whomsoever granted,
exercise or delay in or refrain from exercising any right or remedy against the
Company or the Guarantors or any security or any other guarantor or any other
Person, elect any remedy and otherwise deal freely with the Company or the
Guarantors and security and any other guarantor of the Senior Indebtedness or
any liability of the Company or the Guarantors or any other guarantor to such
holder or any liability incurred directly or indirectly in respect thereof.
The Lender by purchasing or accepting the Note waives any and all
notice of the creation, modification, renewal, extension or accrual of any
Senior Indebtedness and notice of or proof of reliance by any holder of Senior
Indebtedness upon this Agreement and the Senior Indebtedness shall conclusively
be deemed to have been created, contracted or incurred in reliance upon this
Agreement, and all dealings between the Company or the Guarantors and the
holders of Senior Indebtedness shall be deemed to have been consummated in
reliance upon this Agreement.
Section 8.8 Reliance on Court Orders; Evidence of Status.
--------------------------------------------
Upon any payment or distribution of assets of the Company or the
Guarantors referred to in Section 8.2, the Lender shall be entitled to rely upon
a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other Person making such payment or distribution delivered to the Lender for
the purpose of ascertaining the Persons entitled to participate in such payment
or distribution, the holders of Senior Indebtedness and other indebtedness of
the Company or the Guarantors, the amount thereof or payable thereon, the
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amount or amounts paid or distributed thereon and all other facts pertinent
thereto or this Article VIII.
Section 8.9 Payment.
-------
A payment with respect to principal of or interest on the Obligations
shall include, without limitation, payment of principal of and interest on the
Loan, any depositing of funds for the defeasance of the Obligations, any sinking
fund and any payment on account of mandatory prepayment or optional redemption
provisions.
Section 8.10 Section Not to Prevent Events of Default.
----------------------------------------
The failure to make a payment on account of principal of or interest
on or other amounts constituting Obligations by reason of any provision of this
Article VIII shall not be construed as preventing the occurrence of an Event of
Default under Article VII.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Representation of the Lender.
----------------------------
The Lender hereby represents that it is a limited liability company
engaged in finance.
Section 9.2 Assignment.
----------
(a) This Agreement shall be binding upon and shall be enforceable by
the Company, the Lender and their respective successors and assigns, provided
--------
that, except as provided in Section 6.6 the Company shall have no right to
- ----
assign or otherwise transfer its rights or obligations hereunder without the
prior written consent of the Lender. The Lender may assign, grant
participations in or otherwise transfer all or any portion of its rights and
obligations hereunder, and any such assignment, participation or other transfer
shall be effective and binding upon the Company as of the date of such
assignment, participation or other transfer subject to the Lender and the
Company having complied with the requirements of subsection (b) of this Section
9.2 hereof. Upon any such assignment or transfer by the Lender, the assignee or
transferee shall be (i) entitled, to the extent of the interest transferred, to
the benefit of the indemnities, the covenants and the yield protection
provisions pursuant to the provisions of this Agreement (including without
limitation the provisions of Section 2.3, 2.12, 2.13, 2.14, 2.15 and 9.4) as
fully as if a party hereto and (ii) subject to all of the obligations of the
Lender hereunder (including without limitation the provisions of Section 2.14
and this Section 9.2) as fully as if a party hereto. Upon any such
participation by the Lender, the participant shall be (i) entitled, to the
extent of the interest transferred, to the benefit of the indemnities, the
covenants and the yield protection provisions pursuant to the provisions of this
Agreement
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(including without limitation the provisions of Section 2.3, 2.12, 2.15, 2.14,
2.15 and 9.4) as fully as if a party hereto and (ii) subject to all of the
obligations of the Lender under the provisions of Section 2.14 and this Section
9.2 as fully as if a party hereto.
(b) The Company shall, during the term of this Agreement, maintain on
its books a record of the beneficial interests held in this Agreement based upon
the information which the Lender is required to provide pursuant to this Section
9.2. Upon any assignment, participation or other transfer by the Lender of any
of its interests hereunder, the Lender shall provide, or cause to be provided,
to the Company, a statement or certificate signed under penalty of perjury by
each person which is a participant, assignee or transferee setting forth such
person's name and address and, with respect to any person which is not a United
States Person, certifying that (i) such person is not a United States Person,
(ii) such person is not licensed to conduct a banking business or to accept
deposits from members of the public and, in fact, does not accept such deposits,
(iii) such person is not a 10% shareholder of the Company or any Guarantor
within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code of 1986,
as amended and (iv) such person undertakes with the Lender for the benefit of
the Lender and the Company, to provide to the Lender and the Company such tax
forms as may reasonably be requested from time to time by the Lender or the
Company to ensure the availability to the Company of an exemption from United
States withholding tax on interest pursuant to Sections 871(h) and 881(c) of the
Internal Revenue Code of 1986, as amended. Such statements or certificates
given by a person that is not a United States Person shall be accompanied by a
copy of a Certificate of Foreign Status (Internal Revenue Code Form W-8) duly
executed by each person named in such statements or certificates. The Lender
shall also provide or cause to be provided to the Company from time to time any
other documentation or information required by Temporary Treasury Regulation
Section 35a.9999-5(b) or any successor provision, or by any other provision of
law, with respect to any such applicable exemption from United States
withholding tax on interest with respect to payments to be made hereunder. The
Company shall promptly record the beneficial interest of each such assignee,
participant or transferee upon the Lender's compliance with the requirements of
subsection (a) hereof and this subsection (b), and the Company shall, upon the
request of the Lender or any such assignee, participant or transferee, provide a
certification of the beneficial interest of such assignee, participant or
transferee (which certification shall be provided at no cost to the Lender or
such assignee, participant or transferee). The Company shall have no liability
to the Lender or any such assignee, participant or transferee for any error in
the recordation of such information on its books other than an error arising
from the Company's gross negligence or willful misconduct.
(c) In connection with any sales, assignments or transfers referred to
in subsection (a) of this Section 9.2, the Lender shall obtain agreements from
the purchasers, assignees and transferees, as the case may be, reasonably
satisfactory to the Company, that all information given to such parties will be
held in strict confidence subject to customary exceptions.
Section 9.3 Expenses.
--------
Whether or not the Effective Date occurs or the transactions
contemplated hereby shall be consummated, the Company agrees to promptly pay to
Lender (i) all the actual and
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reasonable costs and expenses of preparation of the Loan Documents (including,
without limitation, any opinions requested by the Lender as to any legal matters
arising hereunder) and of the Company's performance of and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with; (ii) the reasonable fees, expenses and disbursements of counsel
(including allocated costs of internal counsel) and other professional advisors
(including financial advisors) in connection with the negotiation, preparation,
execution, performance and administration of the Loan Documents, and the Loan
hereunder, and any amendments and waivers hereto or thereto; and (iii) after the
occurrence of an Event of Default, all costs and expenses (including reasonable
attorneys' fees, including allocated costs of internal counsel, fees of other
professional advisors including financial advisors and costs of settlement)
incurred by the Lender in enforcing any Obligations of or in collecting any
payments due from the Company hereunder or under the Notes issued hereunder by
reason of such Event of Default or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or of any insolvency or bankruptcy proceedings. The
Lender agrees to deliver to the Company, as soon as reasonably practicable, a
certificate setting forth in reasonable detail a computation of amounts owing
under this Section 9.3; provided, however, the delivery of such certificate is
-------- -------
not a condition of payment under this Section 9.3.
Section 9.4 Indemnity.
---------
In addition to the payment of expenses pursuant to Section 9.3,
whether or not the Effective Date occurs or the transactions contemplated hereby
shall be consummated, the Company agrees to indemnify, pay and hold the Lender
and any holder of the Note, and the officers, directors, employees, agents, and
affiliates of the Lender and such holders (collectively called the
"Indemnitees") harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of one counsel for
such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against that Indemnitee, in any manner relating to or arising out of
this Agreement, the other Loan Documents, the Lender's agreement to extend the
maturity of the Loan or the use or intended use of the proceeds of any of the
Loan hereunder (the "indemnified liabilities"); provided that the Company shall
--------
have no obligation to an Indemnitee hereunder with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of that
Indemnitee. The Company will not be liable to any Indemnitee for any settlement
of any claim pursuant to this Section 9.4 that is effected without the Company's
prior written consent. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, the Company shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all indemnified liabilities incurred by the
Indemnitees or any of them.
Section 9.5 Set-Off.
-------
71
<PAGE>
Subject to the provisions of Section 2.10, the last sentence of
Section 7.1 and of Article VIII of this Agreement and to any waivers of set-off
that may be required in the exhibits to the Security Agreements (as defined in
the Senior Credit Agreement), in addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Lender and each subsequent holder of any
Notes is hereby authorized by the Company at any time or from time to time,
without notice to the Company, or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured but not
including trust accounts) and any other Indebtedness at any time held or owing
by the Lender or that subsequent holder to or for the credit or the account of
the Company against and on account of the obligations and liabilities of the
Company to the Lender or that subsequent holder under this Agreement and the
Notes, including, but not limited to, all claims of any nature or description
arising out of or connected with this Agreement or the Notes, irrespective of
whether or not (a) the Lender or that subsequent holder shall have made any
demand hereunder or (b) the Lender or that subsequent holder shall have declared
the principal or the interest on the Loan and Notes, and other amounts due
hereunder to be due and payable as permitted by Article VII hereof and although
said obligations and liabilities, or any of them, may be contingent or
unmatured.
Section 9.6 Amendments and Waivers.
----------------------
No amendment, modification, termination or waiver of any provision of
this Agreement or of the Notes, or consent to any departure by the Company
therefrom, shall in any event be effective without the written concurrence of
the Lender and the Company and an opinion of counsel of the Company to the
effect that such amendment, modification, termination, or waiver does not
violate the Senior Credit Agreement or any agreements or documents evidencing
any Senior Indebtedness. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. No
notice to or demand on the Company in any case shall entitle the Company to any
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
Section 9.6 shall be binding upon each holder of the Notes, each future holder
of the Notes, and, if signed by the Company, on the Company.
Section 9.7 Independence of Covenants.
-------------------------
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitation of, another covenant shall not avoid the occurrence of an Event of
Default or Potential Event of Default if such action is taken or condition
exists.
Section 9.8 Change in Federal Tax Laws.
--------------------------
If there is a material change in federal tax laws which materially
affects the Company's ability to comply with the financial covenants, standards
or terms found in Articles
72
<PAGE>
I, V or VI, the parties hereto agree to enter into negotiations in order to
amend such provisions so as to equitably reflect such changes with the desired
result that the criteria for evaluating the Company's financial condition shall
be the same after such changes as if such changes had not been made.
Section 9.9 Notices.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing electronically communicated or hand delivered or
delivered by courier, addressed to the party hereto as provided in this Section
9.9.
All communications intended for the Company shall be sent to:.
CB Commercial Real Estate Group, Inc.
533 South Fremont Avenue
Los Angeles, California 90071-1798
Attention: Treasurer
Fax Numbers: (213) 613-3228
(213) 613-3015
All communications intended for CB Holdings shall be sent to:
CB Commercial Holdings, Inc.
533 South Fremont Avenue
Los Angeles, California 90071-1798
Attention: Treasurer
Fax Numbers: (213) 613-3228 or
(213) 613-3015
All communications intended for the Lender shall be sent to:
Sumitomo Finance (Dublin) Limited.
La Touche House
I.F.S.C.
Custom House Docks
Dublin 1, Ireland
Telex Number: 91909
Fax Number: 353-1-67 003 53
All notices shall be sent as aforesaid or at any other address of
which any of the foregoing shall have notified the others in any manner
prescribed in this Section 9.9.
For all purposes of this Agreement, a notice or communication will be
deemed effective:
73
<PAGE>
(a) if delivered by hand or sent by courier, on the day it is
delivered unless (i) that day is not a day upon which commercial banks are open
for business in the city specified (a "Local Business Day") in the address for
notice provided by the recipient or (ii) if delivered after the close of
business on a Local Business Day, then on the next succeeding Local Business
Day,
(b) if sent by telex, on the day the recipient's answerback is
received unless that day is not a Local Business Day or the answerback is
received after the close of business on such day, in which case on the next
succeeding Local Business Day,
(c) if sent by facsimile transmission, on the date transmitted,
provided oral or written confirmation of receipt is obtained by the sender,
unless the transmission and confirmation date is not a Local Business Day, in
which case on the next succeeding Local Business Day.
provided, that notices to the Lender shall only be effective upon receipt
- --------
thereof by the Lender.
Section 9.10 Survival of Warranties and Certain Agreements.
----------------------------------------------
(a) All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the Effective Date
hereunder and the execution and delivery of the Notes.
(b) Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements of the Company set forth in Sections 2.12, 2.13,
2.14, 9.3 and 9.4, shall survive the payment of the Loan and the Notes and the
termination of this Agreement.
Section 9.11 Failure or Indulgence Not Waiver; Remedies Cumulative.
-----------------------------------------------------
No failure or delay on the part of the Lender or any holder of any
Notes in the exercise of any power, right or privilege hereunder or under the
Notes shall impair such power, right or privilege or be construed to be a waiver
of any default or acquiescence therein, nor shall any single or partial exercise
of any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privilege. All rights and remedies existing
under this Agreement or the Notes are cumulative to and not exclusive of, any
rights or remedies otherwise available.
Section 9.12 Severability; Partial Invalidity.
--------------------------------
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
Section 9.13 Article and Section Headings.
----------------------------
74
<PAGE>
The headings or titles of the several Articles and Sections in this
Agreement and any table of contents appended to copies hereof shall be solely
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
Section 9.14 Applicable Law.
--------------
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 9.15 Successors and Assigns; Subsequent Holders of the Notes.
-------------------------------------------------------
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Lender. The terms and provisions of
this Agreement and all other certificates and opinions delivered pursuant to
Section 3.1 shall inure to the benefit of any assignee, participant or
transferee of the Notes pursuant to Section 9.2, and in the event of such
transfer, participation or assignment, the rights and privileges herein
conferred upon the Lender shall automatically extend to and be vested in such
participant, transferee or assignee, all subject to the terms and conditions
hereof. The Company's rights or any interest therein hereunder may not be
assigned without the written consent of the Lender.
Section 9.16 Consent to Jurisdiction and Service of Process.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY OR ANY GUARANTOR
WITH RESPECT TO THIS AGREEMENT OR THE NOTE MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT THE COMPANY AND EACH GUARANTOR ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST
THE COMPANY OR ANY GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. THE
COMPANY AND EACH GUARANTOR RESPECTIVELY IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID.
Section 9.17 Counterparts; Effectiveness.
---------------------------
This Agreement and any amendments, waivers, consents or supplements
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument. This Agreement shall
75
<PAGE>
be deemed executed and delivered upon the execution of a counterpart hereof by
each of the parties hereto, and written or telephonic notification of such
execution and authorization of delivery thereof has been received by the Company
and the Lender.
Section 9.18 Highest Lawful Rate.
-------------------
The rate of interest payable on the Loan shall in no event exceed the
maximum rate permissible under applicable law. If the rate of interest payable
on the Loan is ever reduced as a result of this Section 9.18 and at any time
thereafter the maximum rate permitted by applicable law shall exceed the rate of
interest provided for in this Agreement, then the rate of interest provided for
in this Agreement shall be increased to the maximum rate provided by applicable
law for such period as is required so that the total amount of interest received
by the Lender is that which would have been received by the Lender but for the
operation of the first sentence of this Section 9.18.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Company from paying all or any portion
of the principal or interest on the Loan or the Notes wherever enacted, or at
any time hereafter in force. The Company (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede, by resort to any such law,
the execution of any power herein granted to the Lender, but will suffer and
permit the execution of every such power as though no such law had been enacted.
Section 9.19 Entire Agreement.
----------------
The Loan Documents embody the entire agreement among the parties and
supersede all prior agreements, oral statements and understandings, if any,
relating to the subject matter hereof and thereof.
Section 9.20 Relationship of the Lender to Participants; Appointment
-------------------------------------------------------
of an Agent.
- -----------
The Company and each of the Guarantors acknowledge and agree that the
Lender may sell interests in the Loan and the Notes to various institutions (the
"Participants") pursuant to participation agreements. The Lender shall have no
liability for any action taken or omitted to be taken pursuant to the
instructions of Participants having direct or indirect interests in the Loan
(including by way of "risk" participations) in excess of fifty percent (50%).
Further, should any such participation be converted to an assignment of the
Lender's interest, the Lender shall have no further rights or obligations with
respect to the Loan or the Company to the extent of the interest transferred
provided, that the indemnities in favor of the Lender, including without
- --------
limitation those contained in Sections 2.12, 2.13 and 2.14, shall continue to
enure to the benefit of the Lender.
76
<PAGE>
The Lender may, at any time, appoint an Agent to act as agent under
this Agreement pursuant to agency provisions substantially in the form of
Exhibit VII (the "Agency Agreement") provided that no such appointment shall
--------
subject the Company to any increased liability or costs under Section 2.12 or
2.14 of this Agreement. Any Agent so appointed shall be a bank or financial
institution having capital and surplus in excess of $500,000,000. The parties
agree to execute the Agency Agreement and such other documentation and
amendments hereto as may be necessary to appoint the Agent. Upon such
appointment all notices hereunder to be given to the Lender shall be given to
the Agent and all actions or consents to be taken or given by the Lender shall
be thereafter taken or given by the Agent acting pursuant to the directions of
the appropriate instructing group under the terms of the Agency Agreement.
Section 9.21 Effective Date.
--------------
This Agreement shall be effective (the "Effective Date") as of the
Offering Closing Date, provided that all conditions precedent set forth in
Section 3.1 are satisfied to the satisfaction of Lender or waived in writing by
the Lender as notified by the Lender and provided that the Offering Closing Date
shall have occurred by not later than March 31, 1997.
ARTICLE X
GUARANTEES
Section 10.1 Guarantees.
----------
Each Guarantor hereby unconditionally guarantees, on a joint and
several basis, to the Lender the due and the punctual payment of the principal
of and interest on the Loan and the Notes, when and as the same shall become due
and payable, whether at stated maturity, by acceleration, by notice of
prepayment or otherwise, the due and punctual payment of interest on the overdue
principal of and interest, if any, on the Loan and the Notes, to the extent
lawful, and the due and punctual performance of all other Obligations of the
Company to the Lender all in accordance with the terms of this Agreement. The
obligations of the Guarantors hereunder constitute a guarantee of payment and
not merely of collection. The Guarantors hereby agree that their respective
obligations under the Guarantees shall be absolute and unconditional and shall
remain in full force and effect until the entire Obligations shall have been
paid and such Guarantee obligations shall not be affected, modified or impaired
upon the happening from time to time of any event, including without limitation
any of the following, whether or not with notice to, or the consent of, any of
the Guarantors:
(a) the waiver, surrender, compromise, settlement, release or
termination of any or all of the obligations, covenants or agreements of the
Company under this Agreement or the Notes;
(b) the failure to give notice to any Guarantor of the occurrence of
an Event of Default under this Agreement;
77
<PAGE>
(c) the waiver, compromise or release of the payment, performance or
observance by the Company or by any Guarantor, respectively, of any or all of
the obligations, covenants or agreements contained in this Agreement;
(d) the extension of the time for payment of any Obligation or of the
time for performance of any other obligations, covenants or agreements under or
arising out of this Agreement;
(e) the modification or amendment (whether material or otherwise) of
any obligation, covenant or agreement set forth in this Agreement;
(f) the taking or the omission of any of the actions referred to in
this Agreement including any acceleration of sums owing hereunder;
(g) any failure, omission, delay or lack on the part of the Lender to
enforce, assert or exercise any right, power or remedy conferred on the Lender
in this Agreement;
(h) the voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all the assets, marshalling of assets
and liabilities, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings affecting any Guarantor or the
Company or any of the respective assets of either of them, or any allegation or
contest of the validity of this Guarantee in any such proceeding;
(i) any defense based upon any legal disability of the Company or any
other party or, to the extent permitted by law, any release, discharge,
reduction or limitation of or with respect to any sums owing the Company or any
other liability of the Company to the Lender;
(j) to the extent permitted by law, the release or discharge by
operation of law of any Guarantor from the performance or observance of any
obligation, covenant or agreement contained in this Guarantee;
(k) the default or failure of any Guarantor fully to perform any of
its obligations set forth in this Guarantee; or
(l) the invalidity of this Agreement or any part hereof or any defense
which the Company may have against the Lender or any other circumstances which
might constitute a legal or equitable discharge or defense of a surety or
guarantor.
If any payment by the Company to the Lender is rescinded or must be
returned by the Lender, the obligations of the Guarantors hereunder shall be
reinstated with respect to such payment.
78
<PAGE>
Each Guarantor waives demand for payment, protest and notice of
nonpayment and all other notices and demands whatsoever relating to the
Obligations.
No set-off, counterclaim, reduction, or diminution of any obligation,
or any defense of any kind or nature which any Guarantor has or may have against
the Lender shall be available hereunder against the Lender to reduce the
payments to the Lender under the Guarantee.
Each Guarantor assumes responsibility for being and remaining informed
of the financial condition of the Company and of all other circumstances bearing
upon the risk of nonpayment of amounts owing under this Agreement which diligent
inquiry would reveal and agrees that the Lender shall have no duty to advise
such Guarantor of information known to it regarding such condition or any such
circumstances.
In the event of a default in the payment of any Obligation when and as
the same shall become due, the Lender shall have the right to proceed first and
directly against any Guarantor without proceeding against the Company or
exhausting any other remedies which it may have. The obligations of each
Guarantor under this Agreement shall be joint and several and are subject to
Article VIII.
The Guarantors shall have no right of subrogation, and hereby waive
and release any right of subrogation (or other right as a creditor) which they
might otherwise have now or in the future vis-a-vis the Company. The Guarantors
waive any and all right to enforce any remedy and to participate in any security
which any Guarantor may now or hereafter have against the Company, any other
Guarantor or any other party.
Demands against any Guarantor hereunder shall be conclusive as to the
amount due from such Guarantor (absent manifest error), and each Guarantor
agrees to pay any amount so demanded on the date of demand to the account
specified in Section 2.8 of this Agreement.
Section 10.2 Contribution.
------------
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors (other than CB Holdings), shall promptly enter into a
contribution agreement providing that such Guarantors agree, inter se, that in
--------
the event any payment or distribution is made by such Guarantor (a "Funding
Guarantor") under this Guarantee, that Funding Guarantor shall be entitled to a
contribution from all other Guarantors for all payments, damages and expenses
incurred by that Funding Guarantor in discharging the Company's Obligations or
any other Guarantor's obligations with respect to the Loan as set forth in such
contribution agreement.
79
<PAGE>
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
CB COMMERCIAL REAL ESTATE GROUP, INC.
By [s/ James J. Didion]
------------------------------------
Chairman and Chief Executive Officer
GUARANTORS:
CB COMMERCIAL HOLDINGS, INC.
By [s/ David A. Davidson]
-----------------------------------
Senior Vice President and Treasurer
CB FUNDING CORPORATION, COLDWELL BANKER, INC., COLDWELL
BANKER CAPITAL MANAGEMENT SERVICES, INC., COLDWELL
BANKER COMMERCIAL REAL ESTATE SERVICES, INC., COLDWELL
BANKER COMMERCIAL BROKERAGE, INC., CB COMMERCIAL
PROPERTY SERVICES, INC., COLDWELL BANKER REAL ESTATE
FUND MANAGEMENT, INC., COLDWELL BANKER REAL ESTATE
MANAGEMENT SERVICES, INC., COLDWELL BANKER SUTTON &
TOWNE, INC., HENRY BRODERICK, INC., SUTTON & TOWNE,
N.J., INC., CB COMMERCIAL HOLDINGS SECURITIES
CORPORATION, CB WAREHOUSE PROPERTY CORP., COLDWELL
BANKER COMMERCIAL GROUP, INC. OF MISSISSIPPI, L.J.
MELODY & COMPANY, and L.J. MELODY & COMPANY OF
CALIFORNIA
By: [s/ ]
--------------------------------
SUMITOMO FINANCE (DUBLIN) LIMITED
By [s/ S. Nishikiori]
--------------------------------
Managing Director
80
<PAGE>
EXHIBIT 10.14
AMENDED AND RESTATED
SENIOR SUBORDINATED CREDIT AGREEMENT
dated as of
November __, 1996
WESTMARK REAL ESTATE
ACQUISITION PARTNERSHIP, L.P.
as Borrower
and
399 VENTURE PARTNERS, INC.
as Lender
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. DEFINITIONS
..................................................................................................... 1
SECTION 1.1 Certain Defined Terms........................................................ 1
---------------------
ARTICLE 2. AMOUNT AND TERMS OF NOTE AND LOAN................................................................. 12
SECTION 2.1 Loan and Note................................................................ 12
-------------
SECTION 2.2 Interest on the Loan......................................................... 12
--------------------
SECTION 2.3 Prepayments and Payments..................................................... 13
------------------------
SECTION 2.4 Use of Proceeds.............................................................. 14
---------------
SECTION 2.5 Alternative Payment Schedule................................................. 15
----------------------------
ARTICLE 3. CONDITIONS TO EFFECTIVENESS....................................................................... 16
SECTION 3.1 Conditions to This Agreement................................................. 16
----------------------------
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.................................................................... 17
SECTION 4.1 Organization and Good Standing............................................... 17
------------------------------
SECTION 4.2 Authorization and Power...................................................... 17
-----------------------
SECTION 4.3 No Conflicts or Consents..................................................... 17
------------------------
SECTION 4.4 Enforceable Obligations...................................................... 18
-----------------------
SECTION 4.5 Title to Properties; Liens................................................... 18
--------------------------
SECTION 4.6 Financial Statements......................................................... 18
--------------------
SECTION 4.7 No Default................................................................... 18
----------
SECTION 4.8 Contractual Obligations...................................................... 18
-----------------------
SECTION 4.9 No Litigation................................................................ 18
-------------
SECTION 4.10 Use of Proceeds; Margin Stock................................................ 19
-----------------------------
SECTION 4.11 Compliance with Law.......................................................... 19
-------------------
SECTION 4.12 Capital Structure............................................................ 19
-----------------
SECTION 4.13 Licenses, Trademarks, etc.................................................... 19
-------------------------
SECTION 4.14 Permits and Licenses......................................................... 19
--------------------
SECTION 4.15 ERISA........................................................................ 19
-----
SECTION 4.16 Investment Company Act....................................................... 20
----------------------
SECTION 4.17 Public Utility Holding Company Act........................................... 20
----------------------------------
SECTION 4.18 Environmental and Safety Matters............................................. 20
--------------------------------
SECTION 4.19 Financial Condition.......................................................... 22
-------------------
SECTION 4.20 Acquisition.................................................................. 22
-----------
SECTION 4.21 Sumitomo Credit Agreement.................................................... 22
-------------------------
ARTICLE 5. AFFIRMATIVE COVENANTS............................................................................. 22
SECTION 5.1 Financial Statements and Other Reports....................................... 22
--------------------------------------
SECTION 5.2 Existence, Etc............................................................... 24
---------------
SECTION 5.3 Payment of Taxes; Tax Consolidation.......................................... 24
-----------------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 5.4 Maintenance of Properties; Insurance........................................ 25
------------------------------------
SECTION 5.5 Inspection.................................................................. 25
----------
SECTION 5.6 No Further Negative Pledges................................................. 25
---------------------------
SECTION 5.7 Compliance with Laws, Etc................................................... 25
-------------------------
SECTION 5.8 Maintenance of Accurate Records, Etc........................................ 25
------------------------------------
SECTION 5.9 Lender Meeting.............................................................. 25
--------------
SECTION 5.10 ERISA Compliance............................................................ 25
----------------
SECTION 5.11 Pledge Agreement............................................................ 26
----------------
SECTION 5.12 S Corporations.............................................................. 26
--------------
ARTICLE 6. NEGATIVE COVENANTS............................................................................... 26
SECTION 6.1 Indebtedness................................................................ 26
------------
SECTION 6.2 Transactions with Members, Partners, Shareholders and Affiliates............ 26
----------------------------------------------------------------
SECTION 6.3 Restricted Junior Payments.................................................. 27
--------------------------
SECTION 6.4 Liens....................................................................... 27
-----
SECTION 6.5 Mergers..................................................................... 27
-------
SECTION 6.6 Limitation on Sale of Less Than Substantially All Assets.................... 27
--------------------------------------------------------
SECTION 6.7 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries 27
----------------------------------------------------------------------------
SECTION 6.8 Restrictions on Additional Subordinated Indebtedness........................ 28
----------------------------------------------------
SECTION 6.9 No Amendment of Certain Documents........................................... 28
---------------------------------
SECTION 6.10 Conduct of Business......................................................... 28
-------------------
SECTION 6.11 No Creation of New Subsidiaries............................................. 28
-------------------------------
SECTION 6.12 Investments................................................................. 28
-----------
SECTION 6.13 Capital Expenditures........................................................ 28
--------------------
ARTICLE 7. EVENTS OF DEFAULT................................................................................ 28
SECTION 7.1 Failure To Make Payments When Due........................................... 28
---------------------------------
SECTION 7.2 Default in Other Agreements................................................. 29
---------------------------
SECTION 7.3 Breach of Certain Covenants and Agreements.................................. 29
------------------------------------------
SECTION 7.4 Breach of Warranty.......................................................... 29
------------------
SECTION 7.5 Involuntary Bankruptcy; Appointment of Receiver, Etc........................ 29
----------------------------------------------------
SECTION 7.6 Voluntary Bankruptcy; Appointment of Receiver, Etc.......................... 29
---------------------------------------------------
SECTION 7.7 Judgments and Attachments................................................... 30
-------------------------
SECTION 7.8 Agreements.................................................................. 30
----------
SECTION 7.9 Change of Control........................................................... 30
-----------------
SECTION 7.10 Management Agreement........................................................ 30
--------------------
ARTICLE 8. MISCELLANEOUS.................................................................................... 30
SECTION 8.1 Participations in Loan and Note............................................. 30
-------------------------------
SECTION 8.2 Expenses.................................................................... 31
--------
SECTION 8.3 Indemnity................................................................... 31
---------
SECTION 8.4 Amendments and Waivers...................................................... 32
----------------------
SECTION 8.5 Independence of Covenants................................................... 32
-------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 8.6 Notices..................................................................... 32
-------
SECTION 8.7 Survival of Warranties and Certain Agreements............................... 34
---------------------------------------------
SECTION 8.8 Failure or Indulgence Not Waiver; Remedies Cumulative....................... 34
-----------------------------------------------------
SECTION 8.9 Severability................................................................ 34
------------
SECTION 8.10 Headings.................................................................... 34
--------
SECTION 8.11 Applicable Law.............................................................. 34
--------------
SECTION 8.12 Successors and Assigns; Subsequent Holders of Notes......................... 34
---------------------------------------------------
SECTION 8.13 Consent to Jurisdiction and Service of Process.............................. 35
----------------------------------------------
SECTION 8.14 Waiver of Jury Trial........................................................ 35
--------------------
SECTION 8.15 Counterparts; Effectiveness................................................. 36
---------------------------
SECTION 8.16 Entirety.................................................................... 36
--------
SECTION 8.17 Nonrecourse to CBC.......................................................... 36
------------------
</TABLE>
<TABLE>
<S> <C>
Exhibit A - Form of Note
Exhibit B - Form of Opinion of Counsel
Exhibit C - Form of Pledge Agreement
Exhibit D - Form of Seller Financing
Exhibit E - Form of Intercreditor Agreement
Exhibit F - Form of Contribution Agreement
Exhibit G - Form of Incentive Plan
Exhibit H - Form of Purchase Agreement Amendment
Exhibit I - Form of Holdings Side Letter
Exhibit J - Form of Partnership Side Letter
Exhibit K - Form of Sumitomo Waiver
Exhibit L - Sumitomo Credit Agreement
Exhibit M - Form of Opinion (Restatement)
Schedule 4.5 - Liens
Schedule 4.6 - Financial Statements
Schedule 4.9 - Litigation
Schedule 4.11 - Compliance with Laws
Schedule 4.12 - Interests
Schedule 4.14 - Permits and Licenses
Schedule 4.15 - ERISA
Schedule 4.18 - Environmental Matters
Schedule 6.10 - Conduct of Business
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED SENIOR SUBORDINATED CREDIT AGREEMENT (the "Agreement")
dated November __, 1996 among WESTMARK REAL ESTATE ACQUISITION PARTNERSHIP, a
Delaware limited partnership (the "Partnership") and 399 VENTURE PARTNERS, INC.
(the "Lender").
The Partnership and the Lender are parties to a Senior Subordinated Credit
Agreement dated as of June 30, 1995 (the "Credit Agreement") pursuant to which
the Lender made a loan to the Partnership of $10,000,000.
The parties have agreed to amend and restate the Credit Agreement to provide
for an alternative repayment regime with respect to the Loan, which, if
performed in full, will reduce the total amount payable by the Partnership.
This amendment and restatement does not change the rate at which interest
accrues on the Loan. However, if the Partnership timely makes payment of all
Principal Contributions and Interest Contributions (as defined below), then at
the time all such payments have been finally and fully made, the Loan will be
deemed satisfied in full and the Partnership will benefit as though the
effective rate of interest on the Loan had been 11% per annum through its term.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Partnership and the Lender agree
that the Credit Agreement shall, from the Restatement Date (as defined below),
be amended and restated to read as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1 Certain Defined Terms.
---------------------
The following terms used in this Agreement shall have the following
meanings:
"Acquisition" means the acquisition by the Partnership of all of the
-----------
outstanding capital stock of each corporation holding an interest in HoldPar A
and all of the outstanding interests of HoldPar B (other than a .000034 percent
interest held beneficially and of record by HoldPar A), pursuant to the Purchase
Agreement.
"Affiliate", as applied to any Person, means any other Person directly or
---------
indirectly controlling, controlled by, or under common control with, that Person
and any officer, director, general partner, 5% stockholder or voting member of
that Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly,
indirectly or beneficially, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities or by contract or otherwise. HoldPar A, HoldPar B and Westmark shall
be deemed to be Affiliates of the Partnership. Neither Lender nor any parent of
Lender nor any Subsidiary of Lender shall be treated as an Affiliate of the
Partnership.
<PAGE>
"Alternative Payment Date" means each date upon which CBC would (assuming
------------------------
CBC had Excess Cash Flow at the relevant time) be required to make a prepayment
pursuant to Section 2.05(b)(i)(B) of the Sumitomo Credit Agreement, as in effect
on the Restatement Date, being no later than 45 days after the end of each March
31, June 30, September 30 and December 31 falling after the Restatement Date up
to the earlier of (i) the date the Loan is repaid in full and (ii) the Maturity
Date, and in the latter case includes the Maturity Date.
"Asset Disposition" means the disposition whether by sale, lease, transfer,
-----------------
loss, damage, destruction or otherwise of any or all of the assets of such
Person other than in the ordinary course of business.
"Bankruptcy Code" means Title 11 of the United States Code, as now and
---------------
hereafter in effect, or any successor statute.
"Base Rate" mean the rate of 20% per annum.
---------
"Business Day" means any day excluding Saturday, Sunday and any day which is
------------
a legal holiday under the laws of the State of New York or California or is a
day on which banking institutions located in such states are authorized or
required by law or other governmental action to close.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations, partnership interest, membership interests or other equivalents
(however designated including stock appreciation rights) of its capital stock,
partnership interests or membership interests and any rights, warrants or
options to acquire such interests.
"CBC" means CB Commercial Real Estate Group, Inc., a Delaware corporation.
---
"CBC Debt" means the Indebtedness contemplated by Section 3.1(l)(i) hereof
--------
and any additional loans made by CBC to the Partnership for contribution to
Westmark to provide Westmark with working capital; provided all such
Indebtedness is subject to the Intercreditor Agreement and interest thereon
shall not accrue at a rate greater than 13% per annum or be payable or compound
more frequently than monthly.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended from time to time, or any successor federal
statute.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
-------
Liability Inventory System.
"Change in Control" means (i) the Partnership shall cease to own 100% of the
-----------------
interests in the General Partnerships, free and clear of any Liens (other than
Liens securing the Seller Financing, the Obligations and Liens permitted by
clause (g) of the definitions of Permitted Liens), (ii) CBC shall cease to be
the sole general partner of the Partnership, (iii) the General Partnerships
shall cease to own beneficially and of record 100% of the membership interests
of Westmark, free
-2-
<PAGE>
and clear of all Liens (other than Liens securing the Seller Financing, the
Obligations and Liens permitted by clause (g) of the definitions of Permitted
Liens), (iv) CB Commercial Holdings, Inc., a Delaware corporation, shall cease
to own beneficially and of record 100% of the Capital Stock of CBC or (v) a
"Change of Control" under the Sumitomo Credit Agreement as in effect on the date
hereof shall have occurred.
"Chief Financial Officer" means the highest ranking officer or equivalent of
-----------------------
any Person then in charge of the financial matters of such Person.
"Closing Date" means June 30, 1995.
------------
"Code" means the Internal Revenue Code of 1986, as amended, or any successor
----
statute.
"Contested Claim" means any Tax, Indebtedness, Contingent Liabilities or
---------------
other claim or liability, (i) the validity or amount of which is being
diligently contested in good faith by appro priate proceedings, (ii) which has
been bonded or for which appropriate reserves, to the extent required by GAAP,
have been established and (iii) with respect to which any right to execute upon
or sell any assets of the Partnership has not matured or has been and continues
to be effectively enjoined, superseded or stayed.
"Contingent Liabilities" means, as applied to any Person, any guarantees,
----------------------
endorsements, agreements to purchase or provide funds for the payment of
obligations of others, or other liabilities which would be classified as
contingent liabilities in accordance with GAAP.
"Contractual Obligations" means, as applied to any Person, any provision of
-----------------------
any security issued by that Person or of any indenture, mortgage, deed of trust,
contract, undertaking, agreement, or other written instrument to which that
Person is a party or by which it or any of its owned properties is bound or to
which it or any of its owned properties is subject.
"Contribution Agreement" means the Contribution Letter Agreement between CBC
----------------------
and the Partnership in the form of Exhibit F hereto.
"Credit Parties" means, collectively, the Partnership, Westmark, each of the
--------------
S Corporations, and the General Partnerships; provided, that each of the S
Corporations shall cease to be a Credit Party at such time as the transactions
contemplated by Section 5.12 are consummated.
"Employee Benefit Plan" means any employee benefit plan within the meaning
---------------------
of Section 3(3) of ERISA maintained or contributed to by any Credit Party, other
than a Multiemployer Plan.
"Environmental and Safety Laws" means any and all federal, state, and local
-----------------------------
statutes, laws, regulations, ordinances and similar provisions having the force
or effect of law, all judicial and administrative orders, and common law
concerning public health or safety, worker health or safety or pollution or
protection of the environment, including, without limitation, those relating to
any emissions, discharges or Releases of Hazardous Materials to ambient air,
surface water, ground water
-3-
<PAGE>
or land, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, control, cleanup or handling of
Hazardous Materials.
"Environmental Claim" means, with respect to any Person, any written notice,
-------------------
claim, demand or other communication alleging or asserting such Person's
liability for investigatory costs, cleanup costs, governmental response costs,
damages to natural resources or other property, personal injuries, fines or
penalties arising out of, based on or resulting from (a) the presence, handling,
generation, treatment, storage, disposal, Release or threatened Release into the
environment of any Hazardous Material at any location, whether or not owned by
such Person, or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental and Safety Law.
"Environmental Permits" has the meaning set forth in Section 4.18(a) hereto.
---------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, or any successor statute.
"ERISA Affiliate" of any Person means any corporation or trade or business
---------------
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as such Person or which is under common
control (within the meaning of Section 414(c) of the Code) with such Person.
"ERISA Event" with respect to any Person means (a) the occurrence of a
-----------
Reportable Event with respect to any Pension Plan of such Person; (b) the
provision pursuant to Section 4041(a)(2) of ERISA by the administrator of any
Pension Plan of such Person of a notice of intent to terminate such Pension Plan
pursuant to Section 4041(c) of ERISA;(c) the cessation of operations at a
facility of such Person in the circumstances described in Section 4068(f) of
ERISA; (d) the withdrawal by such Person from a Pension Plan during a pension
plan year for which it was a substantial employer, as defined in Section
4001(a)(2) of ERISA; (e) the failure by such Person to make a payment to a
Pension Plan that gives rise to a Lien imposed under Section 302(f)(1) of ERISA;
(f) the adoption of an amendment to a Pension Plan of such Person requiring the
provision of security to such Pension Plan pursuant to Section 307 of ERISA; or
(g) the institution by the PBGC of proceedings to terminate a Pension Plan of
such Person pursuant to Section 4042 of ERISA or to seek the appointment of a
trustee to administer such Pension Plan.
"Event of Default" means each of the events set forth in Article 7.
----------------
"Excess Cash Flow" means Excess Cash Flow as defined in the Sumitomo Credit
----------------
Agreement as in effect on the Restatement Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, and any successor statute.
"Fair Market Value" means (i) with respect to any asset (other than a
-----------------
marketable security) at any date, the value of the consideration obtainable in a
sale of such asset at such date assuming a sale by a willing seller to a willing
purchaser dealing at arm's length and arranged in an orderly
-4-
<PAGE>
manner over a reasonable period of time having regard to the nature and
characteristics of such asset, as reasonably determined by the President of
Westmark for assets less than $250,000 or, if such asset shall have been the
subject of a relatively contemporaneous appraisal by an independent third party
appraiser, the basic assumptions underlying which have not materially changed
since its date, as set forth in such appraisal, and (ii) with respect to any
marketable security at any date, the closing sale price of such security on the
business day (on which any national securities exchange is open for the normal
transaction of business) next preceding such date, as appearing in any published
list of any national securities exchange or in the National Market List of the
National Association of Securities Dealers, Inc. or, if there is no such closing
sale price of such security, the final price for the purchase of such security
at face value quoted on such business day by a financial institution of
recognized standing which regularly deals in securities of such type.
"GAAP" means generally accepted accounting principles as set forth in
----
statements from Auditing Standards No. 69 entitled "The Meaning of 'Present
Fairly in Conformance with Generally Accepted Accounting Principles in the
Independent Auditors Reports'" issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"General Partnerships" means, collectively, HoldPar A and HoldPar B.
--------------------
"Hazardous Material" means all or any of the following: (a) substances that
------------------
are defined or listed in, or otherwise classified pursuant to, any applicable
Environmental and Safety Laws as "hazardous substances", "hazardous materials",
"hazardous wastes", "toxic substances" or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, or toxicity; (b) oil,
petroleum or petroleum derived substances, natural gas, natural gas liquids or
synthetic gas and drilling fluids, produced waters and other wastes associated
with the exploration, development or production of crude oil, natural gas or
geothermal resources; (c) any flammable substances or explosives or any
radioactive materials; and (d) asbestos in any form or polychlorinated
biphenyls.
"Holdings Side Letter" means the letter agreement between CB Commercial
--------------------
Holdings, Inc. and the Lender in the form of Exhibit I hereto.
"HoldPar A" means a Delaware general partnership owned as of the Closing
---------
Date by certain corporations owned by the Controlling Westmark Owners (as
defined in the Purchase Agreement) into which partnership the Record Westmark
Owners shall contribute all of their interests in Westmark.
"HoldPar B" means a Delaware general partnership owned as of the Closing
---------
Date by the Individual Westmark Owners (as defined in the Purchase Agreement)
into which partnership such Individual Westmark Owners shall contribute all of
their interests in Westmark.
"Incentive Plan" means the Westmark Realty Advisors L.L.C. Incentive
--------------
Compensation Plan attached hereto as Exhibit G.
-5-
<PAGE>
"Indebtedness" of any Person means, without duplication:
------------
(a) all indebtedness of such Person for borrowed money;
(b) all obligations of such Person for the deferred purchase price of
property or services if the purchase price is due more than six (6) months from
the date the obligation is incurred or is evidenced by a note or similar written
instrument, other than accounts payable and accrued expenses and deferred tax
credits (current or long term) incurred in the ordinary course of business;
(c) all obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property);
(d) any portion of obligations with respect to capital leases that are
properly classified as a liability on the balance sheet of such Person in
conformity with GAAP;
(e) all obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities;
(f) all Indebtedness of others referred to in clauses (a) through (e)
above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement,
(i) to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to or in any
other manner invest in the debtor (including, without limitation, any agreement
to pay for property or services irrespective of whether such property is
received or such services are rendered) or (iv) otherwise to assure a creditor
against loss; and
(g) all Indebtedness referred to in clauses (a) through (f) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness.
"Initial Interest Payment Date" means July 31, 1995.
-----------------------------
"Intercreditor Agreement" means the Intercreditor Agreement in the form of
-----------------------
Exhibit E hereto.
"Interest Contribution" means each payment made by the Partnership pursuant
---------------------
to Section 2.5(b).
-6-
<PAGE>
"Interest Payment Date" means the last day of each Interest Period.
---------------------
"Interest Period" means initially the period commencing on the Closing Date
---------------
and ending on the Initial Interest Payment Date, and, thereafter, each one-month
period; provided, that if an Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day.
"Investment" means, as applied to any Person, (i) any direct or indirect
----------
purchase or other acquisition by that Person of Capital Stock or securities, or
any beneficial interest in Capital Stock or other securities or all or
substantially all the business or assets of any other Person, and (ii) any
direct or indirect loan, advance or capital contribution by that person to any
other Person, including all indebtedness and accounts receivable or trade
credits from that other Person which are not current assets arising from
transactions entered into in a manner that is substantially consistent with past
practices or did not arise from sales to that other Person in the ordinary
course of business.
"Lender" has the meaning assigned to that term in the introduction to this
------
Agreement and shall include any assignees of the Loan or Note pursuant to
Section 8.1.
"Lien" means any lien, mortgage, pledge, security interest, charge or
----
encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Litigation" means any proceeding, claim, lawsuit and/or investigation
----------
conducted or overtly threatened by or before any Tribunal.
"Loan" means the loan made by the Lender to the Partnership pursuant to
----
Section 2.1, plus any interest capitalizing thereon pursuant to Section 2.2(e),
----
less any amounts prepaid pursuant to Section 2.3(a) and any amounts applied
- ----
toward repayment pursuant to Section 2.5(d).
"Loan Documents" shall mean this Agreement, the Note, the Pledge Agreement,
--------------
the Intercreditor Agreement, the Contribution Agreement, the Holdings Side
Letter, the Partnership Side Letter and all other documents, instruments and
agreements (including additional side letters, if any) executed and/or delivered
in connection therewith and shall include, for the purposes of Sections 4.1
through 4.4, 4.10, 4.19, 7.4, 7.8, 8.2, 8.3 and 8.16, the Sumitomo Waiver and
the letters referred to in Section 3.1(h), each as amended, supplemented or
modified from time to time.
"Management Agreement" means the Management Agreement dated as of the date
--------------------
hereof between CBC and Westmark.
"Margin Stock" has the meaning assigned to that term in Regulation U of the
------------
Board of Governors of the Federal Reserve System as in effect from time to time.
"Material Adverse Effect" means, with respect to any Person, any material
-----------------------
adverse effect on (a) the business, condition (financial or otherwise),
operations, prospects or properties of the Partnership, the General Partnerships
or Westmark, (b) the rights and remedies of the Lender under
-7-
<PAGE>
any Loan Document, or (c) the ability of such Person to perform its obligations
under any Loan Document. In determining whether any individual event would
result in a Material Adverse Effect, notwithstanding that such event does not of
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then existing
events could reasonably be expected to result in a Material Adverse Effect.
"Maturity Date" means July 31, 2001.
-------------
"Multiemployer Plan" means a Pension Plan which is a multiemployer plan as
------------------
defined in Section 4001(a)(3) of ERISA.
"Note" means one or more of the notes of the Partnership issued pursuant to
----
Section 2.1 or Section 8.1, substantially in the form of Exhibit A hereto or
issued pursuant to the Contribution Agreement in substitution therefor.
"Obligations" means all obligations of every nature of the Partnership from
-----------
time to time owed to the Lender under the Loan Documents.
"Officer's Certificate" means, as applied to any corporation, a certificate
---------------------
executed on behalf of such corporation by its chief executive officer, its
president or its Chief Financial Officer, and as applied to a partnership, the
general partner of such partnership, and as applied to a limited liability
company, its manager or any other individual authorized to contractually bind
such limited liability company.
"Partnership Side Letter" means the letter agreement between the Partnership
-----------------------
and the Lender in the form of Exhibit J hereto.
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor to
----
all or any of the Pension Benefit Guaranty Corporation's functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in Section
------------
3(2) of ERISA maintained or contributed to by any Credit Party for employees of
any Credit Party or their ERISA Affiliates, and which is subject to the
provisions of Title IV of ERISA.
"Permits" has the meaning provided in Section 4.14.
-------
"Permitted Liens" means such of the following as to which no enforcement,
---------------
collection, execution, levy or foreclosure proceeding shall have been commenced:
(a) Liens for Taxes, assessments or other governmental charges not yet
due and payable (other than Liens relating to environmental claims);
(b) Liens (other than Liens imposed by ERISA) imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing obligations
that (i) are not overdue for a
-8-
<PAGE>
period of more than 30 days or are contested in good faith by appropriate
proceedings and (ii) either individually or when aggregated with all other
Permitted Liens outstanding on any date of determination, do not materially
affect the use or value of the property to which they relate;
(c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or statutory
obligations;
(d) easements, rights of way and other encumbrances on title to real
property that do not render title to the property encumbered thereby
unmarketable or materially adversely affect the use of such property for its
present purposes;
(e) Liens securing purchase money or other Indebtedness the proceeds of
which were used to acquire or finance equipment and fixtures;
(f) Liens securing the Seller Financing on the date hereof or incurred
after the date hereof as contemplated by clause (vii) of the definition of
Priority Payments; and
(g) Liens under the Sumitomo Credit Agreement on the stock of the S
Corporations and CBC's interest in the Partnership.
"Permitted Indebtedness" means:
----------------------
(i) the Loan;
(ii) the Seller Financing (including any Indebtedness constituting a
Priority Payment);
(iii) the CBC Debt;
(iv) Indebtedness in respect of current accounts payable and accrued
expenses in the ordinary course of business;
(v) purchase money indebtedness (including leases required to be
capitalized in accordance with GAAP) to finance the purchase price of fixed
assets; provided that the total of all said Indebtedness does not exceed
$1,000,000 at any time outstanding in the aggregate and the Liens securing such
Indebtedness do not extend to assets other than the assets so purchased;
(vi) Indebtedness representing customary indemnification
arrangements with officers, directors, partners and members; and
(vii) a guarantee by the Borrower of the obligations of CBC under the
Sumitomo Credit Agreement; provided, that such guarantee is subordinated to the
--------
prior payment in full of the Obligation and otherwise on terms satisfactory to
the Lender and is granted in consideration of the Sumitomo Consent and; provided
further, that such guarantee shall not be issued
-9-
<PAGE>
until the Lender has received in form and substance satisfactory to it a similar
guarantee of the Obligations to be granted by CBC upon the consumation of an
initial public offering of the capital stock of CB Commercial Holdings, Inc.
"Permitted Investments" means (i) marketable direct obligations issued by
---------------------
the United States Government and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and having, at the time of acquisition, the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (iii) commercial paper having, at the time of acquisition, the
highest rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (iv) certificates of deposit, other time deposits, and
bankers' acceptance maturing within one year from the date of acquisition
thereof issued by any bank operating under the laws of the United States of
America or any state thereof or the District of Columbia which has combined
capital surplus of not less than $500,000,000, (v) institutional money market
funds organized under the laws of the United States of America or any state
thereof that invest solely in any of the Investments permitted under clauses
(i), (ii), (iii) and (iv) hereof, (vi) repurchase agreements with respect to
Investments permitted under clause (i) or (ii) with counterparties acceptable to
the Lender, or (vii) any investments in or in connection with letters of credit
issued pursuant to the Standby Letter of Credit Purchase Agreement entered into
pursuant to Section 2.5 of the Purchase Agreement.
"Person" means and includes natural persons, corporations, limited
------
partnerships, limited liability companies, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Pledge Agreement" means the Pledge Agreement in the form of Exhibit C
----------------
hereto.
"Potential Event of Default" means a condition or event which, after notice
--------------------------
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within any applicable grace or cure period.
"Principal Contribution" means each payment made by the Partnership pursuant
----------------------
to Section 2.5(a).
"Priority Payments" means for any period, with respect to Westmark, the sum,
-----------------
without duplication, for such period of (i) ordinary course operating expenses
of amounts and types consistent with past practice, including without limitation
salaries and operating leases, (ii) amounts paid pursuant to the capital budget
approved pursuant to the terms of the Purchase Agreement, (iii) interest or
principal payable on amounts deferred pursuant to Section 2.7(a) of the Purchase
Agreement under the notes attached hereto as Exhibits D-1 through D-8, (iv) any
amount paid with respect to a deferral made pursuant to Section 2.6 of the
Purchase Agreement, (v) any amount paid pursuant to Section 3.2(a) of the
Purchase Agreement, (vi) any amount paid pursuant to the Incentive Plan, (vii)
any amount utilized to cash collateralize letters of credit pursuant to the
Standby
-10-
<PAGE>
Letter of Credit Purchase Agreement dated as of the date hereof among CBC,
Westmark and the persons signatory thereto, (viii) up to $500,000 per 12 month
period paid to CBC by Westmark (provided that $250,000 of said amount is
immediately contributed by CBC to the Partnership) and (ix) reserves reasonably
acceptable to the Lender in connection with any of the foregoing.
"Purchase Agreement" means the Purchase Agreement dated as of May 15, 1995
------------------
among the Partnership, CBC, Vincent F. Martin, Stanton H. Zarrow, Bruce L.
Ludwig, Sol L. Rabin and Roger C. Schultz and certain other individuals
signatory thereto, as amended on the date hereof pursuant to the form of
amendment attached hereto as Exhibit H.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as amended.
----
"Regulations G, T, U and X" means Regulations G, T, U and X of the Board of
-------------------------
Governors of the Federal Reserve System as in effect from time to time.
"Release" means any "release" as such term is defined in 42 U.S.C. (S)
-------
9601(22), or any successor federal statute or analogous state law.
"Reportable Event" has the meaning set forth in Section 4043 of ERISA, but
----------------
excluding any event for which the 30-day notice requirement has been waived by
applicable regulations of the PBGC.
"Restatement Date" means the date of this Agreement.
----------------
"Restatement Documents" means this Agreement, the Sumitomo Waiver and the
---------------------
letters referred to in Section 3.1(h).
"Restricted Junior Payment" means (i) any dividend or other distribution,
-------------------------
direct or indirect, on account of any Capital Stock of any of the Credit
Parties, (ii) any redemption, conversion, exchange, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any Capital Stock of any of the Credit Parties, (iii) any payment or prepayment
of principal of, premium, if any, redemption, conversion, exchange, purchase,
retirement, defeasance, sinking fund or similar payment with respect to any
Indebtedness which is subordinated to, or ranks pari passu with, the Note (other
---- -----
than in connection with any refinancing thereof provided that the Indebtedness
incurred in such refinancing shall be at least as subordinated to the Note, or
rank pari passu with the Note, as the case may be) and (iv) any payment made to
---- -----
retire, or to obtain the surrender of, any outstanding warrants, options, or
other rights to acquire shares of any class of Capital Stock of any of the
Credit Parties now or hereafter outstanding.
"S Corporations" means each of Vincent F. Martin, Jr., Inc., Stanton H.
--------------
Zarrow, Inc., Bruce L. Ludwig, Inc., Sol L. Rabin, Inc., and Roger C. Schultz,
Inc., each of which is a California corporation.
"Seller Financing" means, collectively, (i) the Supplemental Purchase Price
----------------
(as defined in Section 3.2 of the Purchase Agreement), (ii) the promissory notes
attached hereto as Exhibits D-1
-11-
<PAGE>
through D-8, (iii) any promissory notes issued under Section 2.7(e) of the
Purchase Agreement and (iv) any amounts payable under the Incentive Plan.
"Subsidiary" means any corporation, association or other business entity of
----------
which more than 50% of the total voting power of shares of stock or other
interests entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof. For purposes of this
Agreement, Westmark shall be deemed to be a Subsidiary of the Partnership.
"Sumitomo Consent" means the limited waiver and consent to be given by the
----------------
Sumitomo Bank, Limited, substantially in the form attached as Exhibit K.
"Sumitomo Credit Agreement" means the Second Amended and Restated Senior
-------------------------
Secured Credit Agreement dated as of June 30, 1994 between CBC and The Sumitomo
Bank, Limited, as such agreement may be amended, modified, refinanced or
restated from time to time.
"Taxes" means all taxes, assessments, fees, levies, imposts, duties,
-----
penalties, deductions, withholdings or other charges of any nature whatsoever
from time to time or at any time imposed by any law or any Tribunal.
"Transactions" has the meaning set forth in Section 4.3.
------------
"Tribunal" means any government, any arbitration panel, any court or any
--------
governmental department, commission, board, bureau, agency or instrumentality of
the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted and/or existing.
"Westmark" means Westmark Realty Advisors L.L.C., a Delaware limited
--------
liability company.
"Wholly-Owned Subsidiary" means any corporation, partnership, limited
-----------------------
liability company, association or other business entity of which 100% of the
total voting power of shares of stock or other interests entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more of the other Subsidiaries
of that Person or a combination thereof.
-12-
<PAGE>
ARTICLE 2. AMOUNT AND TERMS OF NOTE AND LOAN
SECTION 2.1 Loan and Note.
-------------
(a) Loan. Subject to the terms and conditions of this Agreement and in
----
reliance upon the representations and warranties of the Partnership herein set
forth, the Lender has lent to the Partnership on the Closing Date, an amount
equal to $10,000,000.
(b) Payment of Loan. The unpaid principal amount of the Loan plus all
---------------
accrued and unpaid interest thereon and all other amounts owed hereunder with
respect thereto shall be paid in full in cash on the Maturity Date.
(c) Note. The Partnership has executed and delivered to the Lender on
----
the Closing Date the Note dated the Closing Date, to evidence the Loan made on
such date, in the principal amount of $10,000,000 and with other appropriate
insertions.
SECTION 2.2 Interest on the Loan.
--------------------
(a) Rate of Interest. The Loan shall bear interest on the unpaid
----------------
principal amount thereof from the Closing Date through maturity (whether by
acceleration or otherwise) at the Base Rate.
(b) Interest Payments. Subject to the provisions of Section 2.2(e)
-----------------
below, interest shall be payable with respect to the Loan, in arrears on and to
each Interest Payment Date commencing on the Initial Interest Payment Date, and
upon any prepayment of the Loan (to the extent of accrued interest on the
principal amount of the Loan so prepaid) and at maturity of the Loan.
(c) Default Interest. Any principal payments on the Loan not paid when
----------------
due and, to the extent permitted by applicable law, any interest payment on the
Loan not paid in cash when due (other than pursuant to Section 2.2(e)), whether
at stated maturity, by notice of prepayment, by acceleration or otherwise, shall
thereafter bear interest payable upon demand at a rate which is 2.00% per annum
--- -----
in excess of the Base Rate.
(d) Computation of Interest. Interest on the Loan shall be computed on
-----------------------
the basis of a 360-day year of twelve 30-day months. In computing such interest,
the date or dates of the making of the Loan shall be included and the date of
payment shall be excluded.
(e) Capitalization of Interest. For so long as the Partnership continues
--------------------------
to make all payments referred to in Section 2.5 below when due, any interest on
the Loan not paid in cash by the Partnership will be added to the unpaid
principal amount of the Loan. Further, whether or not payments continue to be
made pursuant to Section 2.5, to the extent that as of any Interest Payment Date
the Partnership is unable to make an interest payment in full because it has
received insufficient distributions from Westmark as a result of Priority
Payments being made, the Partnership may, upon written notice to the Lender, pay
any unpaid interest on the Loan by adding such amount to the
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unpaid principal amount of the Loan. Further, Interest capitalized pursuant to
this Section 2.2(e) will remain part of the principal amount of the Loan for all
purposes hereunder.
SECTION 2.3 Prepayments and Payments.
------------------------
(a) Prepayments.
-----------
(i) Voluntary Prepayments. The Partnership may, upon not less than
---------------------
five (5) Business Days and not more than thirty-five (35) Business Days prior
written notice to the Lender (which notice shall be irrevocable), at any time
and from time to time, prepay the Loan, in whole or in part, in an aggregate
minimum amount of $1,000,000 and integral multiples of $200,000 in excess of
that amount.
(ii) Mandatory Prepayments.
---------------------
(A) Asset Dispositions. To the extent not required to be used to
------------------
purchase of credit to secure Seller Financing under the terms of the
Purchase Agreement, immediately upon receipt by any Credit Party of the
net proceeds of any Asset Disposition which exceeds $25,000 for any single
transaction or related transactions, the Partnership shall repay the Loan
in an amount equal to such net proceeds; provided, that no prepayment
shall be required under this Section 2.3(a) (ii)(A) to the extent that the
net proceeds of any loss, damage, or destruction of any assets of any
Credit Party are applied to replace, repair or restore such assets within
3 months of such loss, damage or destruction.
(B) Excess Pre-Tax Income. On March 1 of each year, the Partnership
---------------------
shall repay the Loan in an amount equal to the amount of Westmark's "Pre-
Tax Income" (as defined in Section 3.2 of the Purchase Agreement) to the
extent that Westmark (x) is not required to pay such amount to the
Westmark Owners Representative (as defined in the Purchase Agreement)
under Section 3.2 of the Purchase Agreement, (y) is otherwise required to
use such amount to satisfy or collateralize Westmark's obligations under
the Seller Financing or (z) has reserved any such amount pursuant to
clause (ix) of the definition of Priority Payments.
(iii) Application of Prepayments. All prepayments (whether voluntary or
--------------------------
mandatory) shall include payment of accrued interest on the principal amount
of the Loan so prepaid and shall be applied to payment of interest before
application to principal.
(b) Manner and Time of Payment. All payments by the Partnership under
--------------------------
the Note of principal, interest, and fees hereunder shall be made without
defense, set off or counterclaim, in same day funds and delivered to the Lender
not later than 12:00 noon (New York time) on the date due at 399 Park Avenue,
New York, New York for the account of the Lender; funds received by the Lender
after that time shall be deemed to have been paid by the Partnership on the next
succeeding Business Day.
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<PAGE>
(c) Payments on Non-Business Days. Whenever any payment to be made
-----------------------------
hereunder or under the Note shall be stated to be due on a day which is not a
Business Day, the payment shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the payment of
interest hereunder or under the Note.
(d) Notation of Payment. The Lender agrees that before disposing of the
-------------------
Note held by it, or any part thereof (other than by granting participations
therein), the Lender will make a notation thereon of all principal payments
previously made thereon and of the date to which interest thereon has been paid
and will notify the Partnership of the name and address of the transferee of
that Note; provided, that the failure to make (or any error in the making of) a
notation of the Loan made under such Note or to notify the Partnership of the
name and address of a transferee shall not limit or otherwise affect the
obligation of the Partnership hereunder or under such Note with respect to the
Loan and payments of principal or interest on such Note.
SECTION 2.4 Use of Proceeds. The Partnership confirms that the proceeds
---------------
of the Loan were used in compliance with the provisions of Section 2.4 of the
Credit Agreement and further confirms that the Partnership's covenant to use the
proceeds of the Loan as provided in Section 2.4 of the Credit Agreement survives
the Restatement Date.
SECTION 2.5 Alternative Payment Schedule.
----------------------------
(a) Principal Contributions. The Partnership hereby covenants and agrees
-----------------------
to pay to the Lender a payment of $500,000.00 on the Restatement Date and
thereafter, on each Alternative Payment Date, a quarterly payment of
$500,000.00.
(b) Interest Contributions. The Partnership hereby covenants and agrees,
----------------------
in addition to the payments referred to in Section 2.5(a) above, to make
payments to the Lender as follows. A payment of $1,589,781.51 will be made on
the Restatement Date. Thereafter, on each Alternative Payment Date, the
Partnership will make a payment equal to the product of (i) 11%, (ii) the number
of days elapsed since the last Alternative Payment Date divided by 365 and (iii)
the original principal amount of the Loan, less any Principal Contributions made
by the Partnership, less any repayments made by the Partnership pursuant to
Section 2.3 to the extent the same are applied towards reduction of the original
principal amount of the Loan, in each case prior to such Alternative Payment
Date.
(c) Manner and Time of Payment. All payments by the Partnership
--------------------------
hereunder shall be made in accordance with Sections 2.3(b) and (c) above. Any
Principal Contribution and any Interest Contribution not paid when due in cash
but paid within 15 days of the due date shall bear interest, payable on the date
of payment, at the rate of 13% per annum, calculated on the basis of the number
of days elapsed from the due date until the date of payment and a 365 day year.
(d) Application to Loan. The Lender agrees with the Partnership that all
-------------------
Principal Contributions and Interest Contributions will be applied, as and when
received by the Lender, firstly, toward the payment of any accrued but unpaid
interest on the Loan and secondly, toward prepayment and, subject to the last
sentence of this Section 2.5(d), in permanent reduction of the principal
-15-
<PAGE>
amount of the Loan outstanding. The Lender agrees with the Partnership that if
the Partnership pays all Principal Contributions and all Interest Contributions
within 15 days of their respective due dates, the Partnership's obligation to
pay the balance of the Loan remaining outstanding upon completion of all such
payments and the obligation to pay interest with respect thereto shall, subject
to the last sentence of this Section 2.5(d), be deemed discharged and satisfied
in full. If the Partnership fails to pay all Principal Contributions and all
Interest Contributions within 15 days of their respective due dates, the Loan,
interest thereon, and all other amounts due from the Partnership with respect
thereto, shall continue to accrue and be payable in accordance with the terms of
this Agreement. If at any time and to the extent that payment of the Principal
Contributions or Interest Contributions or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned, whether as a "voidable preference", "fraudulent transfer", or
otherwise, the Loan shall be reinstated as though such Principal Contribution or
Interest Contribution had never been received.
ARTICLE 3. CONDITIONS TO EFFECTIVENESS.
SECTION 3.1 Conditions to This Agreement. This Agreement shall not be
----------------------------
effective until the satisfaction of all of the following conditions:
(a) Organizational Documents. On or before the Restatement Date, the
------------------------
Lender shall have received the following items, each of which shall be in form
and substance satisfactory to the Lender and, unless otherwise noted, dated the
Restatement Date:
(i) A certified copy of the certificate of limited partnership of
the Partnership certified by the Secretary of the State of Delaware, together
with a good standing certificate from the Secretary of State of Delaware to
be dated a recent date prior to the Closing Date.
(ii) Resolutions of the Board of Directors of CBC, as general
partner of the Partnership, approving and authorizing the execution, delivery
and performance of this Restatement Documents and any other documents,
instruments and certificates required to be executed by the Partnership in
connection therewith, certified as of the Restatement Date by the Secretary
or an Assistant Secretary of CBC as being in full force and effect without
modification or amendment.
(iii) Signature and incumbency certificates of the officers of CBC
executing the Restatement Documents on behalf of the Partnership.
(iv) Executed copies of this Agreement.
(b) Opinions of Counsel to the Partnership. The Lender shall have
--------------------------------------
received the opinion of counsel for the Partnership, dated as of the Restatement
Date in the form of Exhibit M hereto.
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<PAGE>
(c) Representations and Warranties. The Partnership shall have delivered
------------------------------
to the Lender an Officer's Certificate in form and substance satisfactory to the
Lender to the effect that the representations and warranties in Article 4 are or
were true, correct and complete in all respects on and as of the Restatement
Date.
(d) Performance of Agreements. Each of the Credit Parties shall have
-------------------------
performed in all material respects all agreements which this Agreement provides
shall be performed on or before the Restatement Date (except as otherwise
consented to in writing by the Lender).
(e) Potential Event of Default; Event of Default. No event shall have
--------------------------------------------
occurred and be continuing or would result from the execution, delivery and
performance of the Restatement Documents which would constitute an Event of
Default or Potential Event of Default.
(f) No Injunction, etc. No order, judgment or decree of any court,
-------------------
arbitrator or governmental authority shall enjoin or restrain the execution,
delivery and performance of the Restatement Documents.
(g) No Litigation, etc. There shall not be existing, or to the knowledge
-------------------
of any Credit Party threatened, any Litigation against or affecting any Credit
Party or any property of any Credit Party, which has not been disclosed in
Schedule 4.9 which could reasonably be expected to have a Material Adverse
Effect, and there shall have occurred no development not so disclosed in any
such Litigation so disclosed, which, in the opinion of the Lender, could
reasonably be expected to have a Material Adverse Effect. No injunction or other
restraining order shall have been issued and no hearing to cause an injunction
or other restraining order to be issued shall be pending or noticed with respect
to any Litigation seeking to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, the Restatement
Documents.
(h) Sumitomo Waiver and Side-Letters. The Sumitomo Waiver shall have
--------------------------------
been executed by The Sumitomo Bank, Limited ("Sumitomo") and delivered to the
Lender and shall be in full force and effect. Further, Sumitomo shall have
delivered to the Lender a letter, in form and content satisfactory to the
Lender, signed by Sumito and CBC to the effect that, upon consumation of an
initial public offering of CBC's common stock, CBC shall be permitted to
guarantee the Obligations and CBC shall have delivered to the Lender a
commitment to issue such guarantee. CB Commercial Holdings, Inc. shall have
delivered to the Lender a letter, in form and content satisfactory to the
Lender, confirming the terms of the Holdings Side Letter notwithstanding the
amendments set forth in this Agreement.
-17-
<PAGE>
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the Partnership
represents and warrants to the Lender that:
SECTION 4.1 Organization and Good Standing. The Partnership is a limited
------------------------------
partnership, duly organized and in good standing under the laws of the State of
Delaware. The General Partnerships are general partnerships duly organized under
the laws of the State of Delaware. Each S Corporation is a corporation duly
organized and in good standing under the laws of the State of California.
Westmark is a limited liability company, duly formed and existing in good
standing under the laws of the State of Delaware. Each Credit Party has the
requisite power and authority to own its properties and assets and to transact
the business in which it is engaged and is duly qualified as a foreign
corporation or partnership and in good standing in all states in which it is
doing business, except where failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect.
SECTION 4.2 Authorization and Power. Each Credit Party to the extent it
-----------------------
is a party thereto, has the requisite power and authority, and has taken all
corporate, partnership or limited liability company action necessary, to
execute, deliver and perform the Loan Documents.
SECTION 4.3 No Conflicts or Consents. The execution, delivery and
------------------------
performance of the Purchase Agreement and the Loan Documents, the consummation
of any of the transactions contemplated thereby (collectively, the
"Transactions"), and compliance with the terms and provisions hereof or thereof
will not contravene or conflict with any provision of law to which any Credit
Party is subject or any material judgment, license, order or permit applicable
to any Credit Party, or any material contract, lease, indenture, loan agreement,
mortgage, deed of trust or other agreement or instrument to which any Credit
Party is a party or by which any Credit Party may be bound, or to which any
Credit Party may be subject, or violate any provision of the charters, by-laws,
partnership agreement or limited liability company agreement of any Credit
Party, which could reasonably be expected, in any case, to have a Material
Adverse Effect. No consent, approval, authorization or order of any Tribunal or
other Person is required in connection with the consummation of the
Transactions, except for such required consents, approvals and authorizations
which (a) have been obtained by the relevant Credit Party or permanently waived
in writing, or (b) the failure to obtain could not reasonably be expected to
have a Material Adverse Effect.
SECTION 4.4 Enforceable Obligations. The Loan Documents have been duly
-----------------------
executed and delivered by each Credit Party (to the extent such Credit Party is
a party thereto) and are, or will be, the legal and binding obligations of each
Credit Party, enforceable in accordance with their respective terms, subject to
applicable laws of bankruptcy, insolvency and similar laws affecting creditors'
rights and the application of general rules at equity.
SECTION 4.5 Title to Properties; Liens. Except for Permitted Liens and
--------------------------
except as set forth on Schedule 4.5, all of the assets owned or leased by the
------------
Credit Parties and their respective Subsidiaries are free and clear of all Liens
and other adverse claims of any nature, each Credit Party has good and
indefeasible title to, or valid and subsisting interests in, all real property
included in
-18-
<PAGE>
such assets and good and marketable title to, or valid and subsisting interests
in, all personal property included in such assets, and there are no presently
effective financing statements, deeds of trust, mortgages and similar documents
or instruments of record in any jurisdiction covering any material tangible or
intangible assets of the Credit Parties.
SECTION 4.6 Financial Statements. Except as set forth on Schedule 4.6,
-------------------- ------------
the financial statements attached hereto as Schedule 4.6 include the audited
------------
balance sheets and statements of operations, shareholders' equity and cash flows
of Westmark and CBC for the year ended December 31, 1995. Except as set forth
on Schedule 4.6, such balance sheets and statements of income and cash flows
------------
present fairly the financial condition and results of operations of Westmark and
CBC as of the dates and for the periods indicated, and, to the knowledge of the
Credit Parties, such balance sheets and the notes thereof disclose all material
liabilities required to be included under GAAP, direct or contingent, of the
applicable person, as of the dates thereof. Except as set forth on Schedule
--------
4.6, no Credit Party has, on the Closing Date, any contingent obligation,
- ---
contingent liability or liability for Taxes, long-term lease or unusual or
forward long-term commitment which would have a Material Adverse Effect and
which has not been listed in such financial statements or otherwise disclosed in
writing to the Lender.
SECTION 4.7 No Default. No event has occurred and is continuing which
----------
constitutes a Potential Event of Default or an Event of Default.
SECTION 4.8 Contractual Obligations. No Credit Party is in default under
-----------------------
any Contractual Obligations to which it is a party or by which its property is
bound, where such default could reasonably be expected to have a Material
Adverse Effect.
SECTION 4.9 No Litigation. Except as set forth on Schedule 4.9, there are
------------- ------------
no actions, suits or proceedings at law or in equity by or before any Tribunal
now pending or, to any Credit Party's best knowledge, threatened against or
affecting any Credit Party or its business, property or rights (i) which involve
any of the Transactions or (ii) which could, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. Except as set
forth on Schedule 4.9, there exists no judgment, order, injunction or other
------------
restraint issued or filed with respect to any Credit Party which could
reasonably be expected to result in a Material Adverse Effect or which prohibits
or adversely affects any of the Transactions.
SECTION 4.10 Use of Proceeds; Margin Stock. The proceeds of the Loan were
-----------------------------
used solely for the purposes specified in Section 2.4 of the Credit Agreement.
None of such proceeds were used to, or to reduce or retire any Indebtedness
which was originally incurred to, purchase or carry a Margin Stock, or for any
other purpose which might constitute this transaction a "purpose credit" within
the meaning of Regulations G, T, U or X. No Credit Party has taken nor will
take any action which might cause any of the Loan Documents to violate
Regulations G, T, U or X, or any other regulations of the Board of Governors of
the Federal Reserve System or to violate Section 8 of the Exchange Act or any
rule or regulation thereunder, in each case as now in effect or as the same may
hereafter be in effect.
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<PAGE>
SECTION 4.11 Compliance with Law. Except as set forth on Schedule 4.11,
------------------- -------------
each Credit Party is in compliance with all laws, except where failure to so
comply could not reasonably be expected to have a Material Adverse Effect.
SECTION 4.12 Capital Structure. As of the Restatement Date, the
-----------------
outstanding partnership interests of the Partnership and the General
Partnerships and the outstanding member interests of Westmark will be held as
set forth on Schedule 4.12.
-------------
SECTION 4.13 Licenses, Trademarks, etc. Each Credit Party owns or holds
--------------------------
valid licenses in all necessary trademarks, copyrights, patents, patent rights
and licenses to conduct its business as operated on the date hereof and as
proposed to be conducted, other than where the failure to so own or hold could
not reasonably be expected to have a Material Adverse Effect. No Credit Party
has been charged or, to its best knowledge, threatened to be charged with any
infringement of, nor, to its best knowledge, has any Credit Party infringed on,
any unexpired trademark, patent, patent registration, copyright, copyright
registration or other proprietary right of any other Person which could
reasonably be expected to have a Material Adverse Effect.
SECTION 4.14 Permits and Licenses. Except as set forth on Schedule 4.14,
-------------------- -------------
all permits, licenses and other governmental authorizations ("Permits") needed
by any Credit Party to carry on its business have been obtained and are in full
force and effect, except for such Permits the failure of which to have could not
reasonably be expected to have a Material Adverse Effect. The Partnership is not
in material breach of any such Permits except for breaches which, individually
or in the aggregate, would not have a Material Adverse Effect.
SECTION 4.15 ERISA.
-----
(a) No Credit Party (i) maintains or contributes to any Pension Plan
other than those identified on Schedule 4.15 or (ii) maintains or contributes to
-------------
any Multiemployer Plan.
(b) Each Credit Party is in compliance with all applicable provisions of
ERISA and the Code with respect to all Employee Benefit Plans, except where the
failure to so comply could not be reasonably expected to have a Material Adverse
Effect. No material liability has been incurred by any Credit Party or any of
its ERISA Affiliates which remains unsatisfied for any Taxes, penalties or other
amount (other than contributions in the ordinary course) with respect to any
Employee Benefit Plan which could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect and, to the knowledge of any
Credit party, no such material liability is expected to be incurred.
(c) To the knowledge of any Credit Party , no Credit Party has: (i)
engaged in a nonexempt prohibited transaction described in Section 406 of ERISA
or Section 4975 of the Code; (ii) incurred any liability to the PBGC which
remains outstanding other than for the payment of premiums; or (iii) failed to
make a required installment or other required payment under Section 412 of the
Code where the occurrence of such transaction or liability or the failure to
make such payment could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
-20-
<PAGE>
(d) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Pension Plan maintained by any Credit Party which could
reasonably be expected to have a Material Adverse Effect.
(e) No proceeding, claim, lawsuit and/or investigation is existing or, to
any Credit Party's knowledge, threatened concerning or involving any Employee
Benefit Plan which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
SECTION 4.16 Investment Company Act. No Credit Party is an "investment
----------------------
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 4.17 Public Utility Holding Company Act. No Credit Party is a
----------------------------------
"holding company", an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
SECTION 4.18 Environmental and Safety Matters. Except as set forth on
--------------------------------
Schedules 4.7(b) and (c) to the Purchase Agreement hereto or to the
- ------------------------
Partnership's knowledge:
(a) Each Credit Party has obtained all material permits, licenses and
other authorizations which are required under Environmental and Safety Laws and
applicable to the conduct of its business (collectively, "Environmental
Permits").
(b) Each Credit Party has complied, and is in compliance with, in all
material respects, the terms and conditions of all such Environmental Permits
and has complied and is in compliance with all Environmental and Safety Laws.
(c) With respect to each Credit Party, no notice, notification, demand,
request for information, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and no investigation is
pending or, to the best knowledge of the Credit Party, threatened by any Person
which remains unresolved with respect to any alleged material failure to obtain
any Environmental Permits or any material violation of any Environmental and
Safety Laws, or with respect to the generation, treatment, storage, recycling,
transportation, discharge or disposal, or any Release or threatened Release, of
any Hazardous Materials.
(d) No property or facility now or previously owned or operated by any
Credit Party has been or is presently operated in a manner which requires
permitting as a hazardous waste treatment, storage or disposal facility for
purposes of RCRA or any analogous state law.
(e) None of the following is present at any property or facility now or
previously owned or operated by any Credit Party: (i) polychlorinated biphenyls
contained in electrical or other equipment; or (ii) asbestos-containing
insulation or building material.
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<PAGE>
(f) There are no active or inactive underground storage tanks present at
any property or facility now or previously owned or operated by any Credit Party
or any of its Environmental Affiliates.
(g) No Credit Party has transported or arranged for the transportation of
any Hazardous Material to any location which is on the CERCLA National
Priorities List (or, to the best of the Partnership's knowledge upon reasonable
inquiry, proposed for such listing), the CERCLIS List or any similar state list
or which is the subject of federal, state or local enforcement actions or other
investigations which could reasonably be expected to lead to material claims
against any Credit Party under any Environmental and Safety Laws.
(h) There has been no Release of Hazardous Materials into the environment
at or from any property or facility now or previously owned or operated by any
Credit Party so as to give rise to any material present or future material
liability or obligation under any Environmental and Safety Laws.
(i) No oral or written notification of a Release of a Hazardous Material
has been filed by or on behalf of any Credit Party and no property or facility
now or previously owned or operated by any Credit Party is on the CERCLA
National Priorities List (or, to the knowledge of any Credit Party, proposed for
such listing), the CERCLIS List or any similar state list.
(j) No material Liens have arisen under or pursuant to any Environmental
and Safety Laws on any property or facility now or previously owned or operated
by any Credit Party, no governmental actions have been taken or are in process
which could subject any such properties or facilities to such Liens; no Credit
Party would be required to place any notice or restriction relating to the
presence of Hazardous Materials in any deed to such property or facility.
(k) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses of any property or facility now or previously
owned or operated by any Credit Party which have not been provided or made
available to the Lender.
(l) No Credit Party has, by operation of law, assumed or undertaken any
liability or corrective or remedial obligation of any other Person relating to
Environmental and Safety Laws.
(m) Without limiting the generality of the foregoing, there are no other
facts, events or conditions relating to the past or present operations,
properties or facilities of any Credit Party which would give rise to any
material liability or material investigatory, corrective or remedial obligation
under any Environmental and Safety Laws.
SECTION 4.19 Financial Condition. No Credit Party is entering into the
-------------------
arrangements contemplated by this Agreement, the Seller Financing and the other
Loan Documents with actual intent to hinder, delay or defraud either present or
future creditors. On and as of the Closing Date on a pro forma basis after
giving effect to the Transactions and to all debts incurred or to be created in
connection herewith, (a) each Credit Party will have sufficient capital with
which to conduct its present and proposed business and the property of such
Credit Party does not
-22-
<PAGE>
constitute unreasonably small capital with which to conduct its present or
proposed business, and (b) no Credit Party has incurred, nor does it intend to
or believe that it will incur, debts (including Contingent Liabilities) beyond
its ability to pay such debts as such debts mature (taking into account the
timing and amounts of cash to be received from any source, and of amounts to be
payable on or in respect of debts), and the amount of cash available to each
such Credit Party after taking into account all other anticipated uses of funds
is anticipated to be sufficient to pay all such amounts on or in respect of
debts, when such amounts are required to be paid.
For purposes of this Section 4.19 "debt" means any liability on a (i) right
to payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured, or (ii) right to an equitable remedy
for breach of performance if such breach gives rise to a payment, whether or not
such a right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
SECTION 4.20 Acquisition. The transactions contemplated by the Purchase
-----------
Agreement to be consummated as of the Closing Date have been consummated in
accordance with the terms of the Purchase Agreement and nothing has come to the
Credit Parties' attention that would indicate that any of the representations
and warranties contained in such agreement were not true and correct and none of
the material terms thereof have been modified, amended or waived.
SECTION 4.21 Sumitomo Credit Agreement. A true and complete copy of the
-------------------------
Sumitomo Credit Agreement, as in effect on the Restatement Date, is attached
hereto as Exhibit L.
ARTICLE 5. AFFIRMATIVE COVENANTS.
The Partnership covenants and agrees that, until the Loan and the Notes and
all other amounts due under this Agreement have been paid in full, unless the
Lender shall otherwise give prior written consent, the Credit Parties shall
jointly and severally perform all covenants in this Article 5:
SECTION 5.1 Financial Statements and Other Reports. Each of the Credit
--------------------------------------
Parties will maintain, and cause each of its Subsidiaries to maintain, a system
of accounting established and administered in accordance with sound business
practices to permit preparation of consolidated financial statements in
conformity with GAAP. The Partnership will deliver to the Lender:
(a) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of the Credit Parties, balance sheets of each of the
Partnership (consolidating the General Partnerships), Westmark and CBC as of the
end of such year and the related consolidated statements of income,
stockholders' equity and cash flow of each of the Partnership (consolidating the
General Partnerships), Westmark and CBC for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail accompanied by an unqualified report thereon of independent
certified public accountants of recognized national standing selected by the
Partnership or CBC, as applicable, and reasonably satisfactory to the
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Lender, which report shall state that such financial statements fairly present
the financial position of the Partnership (consolidating the General
Partnerships), Westmark and CBC as at the date indicated and the results of
their operations and cash flow for the periods indicated in conformity with GAAP
(except as otherwise stated therein) and that the examination by such
accountants in connection with such consolidated financial statements has been
made in accordance with generally accepted auditing standards;
(b) as soon as available and in any event within thirty (45) days after
the end of any fiscal quarter, other than fourth fiscal quarter in a fiscal
year, copies of the balance sheets of the Credit Parties and CBC as of the end
of such quarter, and statements of income and retained earnings and changes in
financial position of the Credit Parties and CBC for such quarter and for the
portion of the fiscal year ending with such fiscal quarter, in each case setting
forth in comparative form the figures for the corresponding periods of the
preceding fiscal year, all in reasonable detail and certified by the Chief
Financial Officer on behalf of each of the Credit Parties as fairly presenting
the financial position of the Credit Parties as at the date indicated and the
results of their operations and cash flow for the periods indicated, subject to
year-end audit adjustments;
(c) together with each delivery of financial statements of the Credit
Parties and CBC pursuant to clauses (a) and (b) above, an Officers' Certificate
of each of the Partnership and CBC providing a calculation of any Priority
Payments and payments under the Management Agreement for such period and stating
that the signers have reviewed the terms of this Agreement and the Notes and
have made or caused to be made under their supervision, a review in reasonable
detail of the transactions and condition of the Credit Parties during the
accounting period covered by such financial statements and that such review has
not disclosed the existence during or at the end of such accounting period, and
that the signers do not have knowledge of the existence as at the date of the
Officers' Certificate, of any condition or event which constitutes an Event of
Default or Potential Event of Default, or, if any such condition or event
existed or exists, specifying the nature and period of existence thereof and
what action the Partnership has taken, is taking and proposes to take with
respect thereto;
(d) not less than thirty (30) days prior to the commencement of each
fiscal year, the Partnership shall deliver to the Lender budgets and forecasts
of the Credit Parties in reasonable detail for each of the forthcoming three
fiscal years, year by year, and for the forthcoming fiscal year, month by month,
including a projected balance sheet and income statement and cash flows, and
otherwise as customarily prepared by management for its internal use, setting
forth, with appropriate discussion, the principal assumptions upon which such
budgets are based. Together with each delivery of financial statements pursuant
to Section 5.l(a), the Partnership shall deliver a comparison of the current
year to date financial results (other than in respect of the balance sheets
included therein) against the budget required to be submitted pursuant to this
Section 5.1(d);
(e) at the same time as they are delivered or required to be delivered to
the Sumitomo Bank, Limited, whichever is earlier, the reports and calculations
required to be delivered pursuant to Section 5.01(c) of the Sumitomo Credit
Agreement as in effect on the Restatement Date, such reports to contain
sufficient information and calculations to enable the determination of Excess
Cash Flow;
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<PAGE>
(f) promptly after the occurrence of any Event of Default or Potential
Event of Default, an Officer's Certificate of the Partnership setting forth the
details thereof and the action which the Partnership, as the case may be, is
taking or proposes to take with respect thereto;
(g) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available by the
Credit Parties to their security holders, all registration statements (other
than the exhibits thereto) and annual, quarterly or other reports, if any, filed
by any Credit Party with the Securities and Exchange Commission and all press
releases by any Credit Party concerning material developments in the business of
such Credit Party;
(h) promptly, notice of all litigation or proceedings commenced or
threatened affecting any Credit Party in which there is a reasonable possibility
of an adverse decision and (x) which involves liability which could reasonably
be expected to have a Material Adverse Effect (in the aggregate), or (y) in
which injunctive or similar relief is sought which if obtained would reasonably
be expected to have a Material Adverse Effect;
(i) promptly upon receipt thereof, copies of all final reports or letters
submitted to any Credit Party by its independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of any Credit Party made by such accountants, including, without
limitation, any management report, and the Partnership agrees to obtain such a
report in connection with each of its annual audits; and
(j) with reasonable promptness, such other information and data with
respect to any Credit Party as from time to time may be reasonably requested by
the Lender.
SECTION 5.2 Existence, Etc. Each of the Credit Parties will at all times
---------------
preserve and keep in full force and effect its legal existence and rights and
franchises to its business.
SECTION 5.3 Payment of Taxes; Tax Consolidation.
-----------------------------------
(a) Each of the Credit Parties and any consolidated group of which any
Credit Party is a member will, and will cause each of their respective
Subsidiaries to, pay all Taxes imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income or property
before any material penalty accrues thereon; provided, that no such Taxes need
be paid with respect to any Contested Claim.
(b) None of the Credit Parties will, or will permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person other than the Credit Parties, or any of their
Subsidiaries or such other Person as may be reasonably acceptable to the Lender.
SECTION 5.4 Maintenance of Properties; Insurance. Except as permitted by
------------------------------------
Section 6.6, each Credit Party will maintain or cause to be maintained in good
repair, working order and condition all material properties used or useful in
the business of the Credit Parties, ordinary wear and tear excepted, and from
time to time will make or cause to be made all appropriate repairs,
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<PAGE>
renewals and replacements thereof. Each Credit Party will maintain or cause to
be maintained, with financially sound and reputable insurers, insurance with
respect to its properties and business and the properties and business of its
Subsidiaries against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar businesses
and similarly situated, of such types and in such amounts as are customarily
carried under similar circumstances by such other corporations.
SECTION 5.5 Inspection. Each Credit Party shall permit any authorized
----------
representatives designated by the Lender (at such representative's expense) to
visit and inspect any of the properties of any Credit Party, including its and
their financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances and accounts with its
and their officers and independent public accountants, all upon reasonable
notice and at such reasonable times during normal business hours and as often as
may be reasonably requested.
SECTION 5.6 No Further Negative Pledges. The Credit Parties and their
---------------------------
respective Subsidiaries shall not enter into any agreement prohibiting the
creation or assumption of any Lien upon its properties or assets, whether now
owned or hereafter acquired.
SECTION 5.7 Compliance with Laws, Etc. Each Credit Party shall comply
--------------------------
with, and shall cause each of their respective Subsidiaries to comply with, all
applicable laws, rules, regulations and orders of any governmental authority,
other than those laws, rules, regulations and orders the noncompliance with
which could not be reasonably expected to have a Material Adverse Effect.
SECTION 5.8 Maintenance of Accurate Records, Etc. Each Credit Party shall
-------------------------------------
keep, and will cause each of its Subsidiaries to keep, true books and records
and accounts in which full and correct entries will be made of all its
respective business transactions, and will reflect, and cause each of its
Subsidiaries to reflect, in its respective financial statements adequate
accruals and appropriations to reserves.
SECTION 5.9 Lender Meeting. Each Credit Party will participate in a
--------------
meeting with the Lender once during each fiscal year to be held at a location
and a time selected by each Credit Party and reasonably acceptable to the
Lender.
SECTION 5.10 ERISA Compliance. Each of the Credit Parties and their ERISA
----------------
Affiliates will make prompt payment of all contributions which it is obligated
to make under all Pension Plans and Multiemployer Plans and which are required
to meet the minimum funding standard set forth in ERISA with respect to each of
the Pension Plans where the failure to make such contributions would reasonably
be expected to have a Material Adverse Effect. Neither any Credit Party nor any
of its ERISA Affiliates shall (i) incur any liability to the Internal Revenue
Service, the Department of Labor or the PBGC (other than for premiums due the
PBGC which shall be paid when due) with respect to any Pension Plan or
Multiemployer Plan which would reasonably be expected to have a Material Adverse
Effect, (ii) terminate any Pension Plan or withdraw (either partially or
completely) from any Multiemployer Plan if the liabilities exceed the assets
under such Pension Plan or if liabilities arising from the complete or partial
withdrawal from the Multiemployer
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<PAGE>
Plan would reasonably be expected to have a Material Adverse Effect, (iii)
provide medical or life insurance benefits to former employees of any Credit
Party (other than in accordance with Section 601 of ERISA or Section 4980B of
the Code) under which the annual liability of any Credit Party exceeds would
have a Material Adverse Effect, or (iv) with respect to any Pension Plan, incur
a reporting obligation for any Reportable Event which could constitute grounds
for termination by the PBGC of any Pension Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Pension
Plan where the occurrence of such liability, such termination or withdrawal,
such provision of benefits or the occurrence of which would reasonable be
expected to have a Material Adverse Effect.
SECTION 5.11 Pledge Agreement. Within 10 days after the release of the
----------------
liens under the pledge agreement attached as Exhibit F to the Purchase
Agreement, the Partnership shall execute and deliver to the Lender the Pledge
Agreement and deliver to the Lender the Pledged Interests (as defined therein)
as security for the Obligations.
SECTION 5.12 S Corporations. Within 60 days following the Closing Date,
--------------
the stock of each of the S Corporations shall be distributed to CBC as general
partner of the Partnership and the interests in HoldPar A held by each such S
Corporation shall have been contributed by CBC to the Partnership on terms
satisfactory to the Lender.
ARTICLE 6. NEGATIVE COVENANTS
The Partnership covenants and agrees that until the Loans and the Notes and
all amounts due under this Agreement at the time of such termination or payment
have been paid in full, unless the Lender shall otherwise give prior written
consent, each of the Credit Parties will perform all covenants in this Article
6:
SECTION 6.1 Indebtedness. None of the Credit Parties shall, and shall not
------------
permit any of their respective Subsidiaries to, directly or indirectly create,
incur, assume, extend the maturity of, or otherwise become directly or
indirectly liable with respect to, any Indebtedness, other than Permitted
Indebtedness.
SECTION 6.2 Transactions with Members, Partners, Shareholders and
-----------------------------------------------------
Affiliates. The Credit Parties will not, and will not permit any of their
- ----------
respective Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any Affiliate
of any Credit Party (other than the Lender) or any officer, director or employee
of any Credit Party (other than an officer of the Lender), except for (i)
transactions in the ordinary course of and pursuant to the reasonable
requirements of such Credit Party's business and upon fair and reasonable terms
and which are no less favorable to such Credit Party than it would obtain in a
comparable arm's-length transaction with an unaffiliated Person (except for
transactions covered by the Management Agreement and provided that the Lender
shall receive full written disclosure of any of the foregoing transactions
(other than payroll and other administrative transactions for which the charge
is cost or a reasonable estimate of cost) which involve payments to any
Affiliate (other than the Lender) or
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<PAGE>
officer, director or employee of any Credit Party of greater than $10,000), (ii)
the Management Agreement, (iii) the Incentive Plan or any employment agreements
existing on the date hereof, (iv) the CBC Debt or (v) the transactions
contemplated by Section 5.12.
SECTION 6.3 Restricted Junior Payments. The Credit Parties will not, and
--------------------------
will not permit any of their respective Subsidiaries to, directly or indirectly,
declare, order, pay, make or set apart any sum of any Restricted Junior Payment,
except that Westmark may make Restricted Junior Payments to the General
Partnerships which in turn may make Restricted Junior Payments to the
Partnership, in each case with respect to their respective Capital Stock, to the
extent necessary to permit the Partnership to (i) make payments with respect to
Priority Payments and (ii) comply with the provisions of Article II and Section
5.12 hereof.
SECTION 6.4 Liens. Except as set forth in Schedule 4.5 and except for
----- ------------
Permitted Liens, none of the Credit Parties shall, nor shall they permit any of
their Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any Lien upon or with respect to any of its properties or assets,
whether now owned or hereafter acquired, or on any income or profits therefrom,
or assign or otherwise convey any right to receive income to secure any
Indebtedness.
SECTION 6.5 Mergers. None of the Credit Parties shall, nor shall they
-------
permit any of their Subsidiaries to, consolidate or merge with, or sell, assign,
transfer or lease all or substantially all of its assets in a single transaction
or a series of related transactions to, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), or acquire by purchase or otherwise
all or substantially all of the business, property or fixed assets or stock of,
any Person; provided that CBC may contribute its real estate investment advisory
business to Westmark.
SECTION 6.6 Limitation on Sale of Less Than Substantially All Assets.
--------------------------------------------------------
Each of the Credit Parties shall not, and shall not permit any of its
Subsidiaries to, make any Asset Disposition, unless (a) such Credit Party
receives consideration at the time of and for such Asset Disposition at least
equal to the Fair Market Value of the assets disposed of in such Asset Sale as
of the date of such Asset Disposition, (b) the Partnership complies with Section
2.3(a)(ii)(A) and (c) no Event of Default or Potential Event of Default shall
result from such Asset Disposition.
SECTION 6.7 Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Subsidiaries. Except as contained herein and in the Seller Financing
- ----------------------
on the date hereof, none of the Credit Parties will, nor will they permit any
of their Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any of its Subsidiaries to (a) pay dividends or make any other
distributions on its Capital Stock or any other interest or participation in, or
measured by, its profits owned by, or pay any Indebtedness owed to, any such
Subsidiary, (b) pay any Indebtedness owed to the Partnership, (c) make loans or
advances to the Partnership or (d) transfer any of its properties or assets to
the Partnership.
SECTION 6.8 Restrictions on Additional Subordinated Indebtedness. No
----------------------------------------------------
Credit Party will, nor will they permit any of their Subsidiaries to, create or
suffer to exist any Indebtedness
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which (i) provides that it is subordinate in right of payment to the Seller
Financing and (ii) is senior in right of payment to or pari passu with the Loan.
---- -----
SECTION 6.9 No Amendment of Certain Documents. Unless required by law, no
---------------------------------
Credit Party shall, and shall not permit any of their Subsidiaries to, amend,
modify or waive (i) their respective articles of incorporation, by-laws,
partnership agreement or limited liability company agreement or (ii) the
Purchase Agreement, any agreement with respect to the Seller Financing, the CBC
Debt, or the Management Agreement.
SECTION 6.10 Conduct of Business. None of the Credit Parties will, or will
-------------------
permit any of their Subsidiaries to, engage in any business other than the
businesses of the type described in Schedule 6.10 attached hereto and activities
-------------
incidental and ancillary thereto. The Partnership will not engage in any
business other than owning all of the general partnership interests of the
General Partnerships, and the General Partnerships will not engage in any
business other than owning all of the interests of Westmark.
SECTION 6.11 No Creation of New Subsidiaries. None of the Credit Parties
-------------------------------
will create, or permit any of their respective Subsidiaries to create, any new
Subsidiaries.
SECTION 6.12 Investments. None of the Credit Parties will make, or permit
-----------
any of their respective Subsidiaries to make, any Investment other than (i) a
Permitted Investment or (ii) Investments by the Partnership in the General
Partnerships and the General Partnerships in Westmark.
SECTION 6.13 Capital Expenditures. Westmark will not make any capital
--------------------
expenditures (as determined in accordance with generally accepted accounting
principles) in excess of $500,000 in any fiscal year, individually or in the
aggregate.
ARTICLE 7. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default") shall
occur and be continuing:
SECTION 7.1 Failure To Make Payments When Due. (i) Failure to pay any
---------------------------------
installment of principal of the Loan when due, whether at stated maturity, by
acceleration, by notice of prepayment, by operation of Section 2.3 or otherwise;
or (ii) failure to pay any interest on any Loan (other than pursuant to Section
2.2(b)(ii)) or any other amount due under this Agreement and such default
continues for a period of five (5) days; or
SECTION 7.2 Default in Other Agreements. (a) Failure of any Credit Party
---------------------------
to pay when due any principal of or interest on any Indebtedness in excess of
$100,000 in principal outstanding and the expiration of any applicable grace
periods or (b) any breach or default by any Credit Party under any evidence of
Indebtedness in excess of $100,000 in the aggregate; provided, that as a result
--------
of any such failure to pay such Indebtedness under clause (a) above, or any such
breach or default
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<PAGE>
under clause (b) above, the Indebtedness thereunder shall have become due and
payable prior to its stated maturity; or
SECTION 7.3 Breach of Certain Covenants and Agreements. Failure of any
------------------------------------------
Credit Party to perform or comply with (a) any term or condition contained in
Section 5.1(a), (b), (c), (d) or (e), Section 5.11 or Article 6, or (b) any
other term contained in this Agreement or the other Loan Documents and, in the
case of clause (b), such failure shall not have been remedied or waived within
thirty (30) days after receipt of written notice from the Lender of such default
(other than any occurrence described in the other provisions of this Article 7
for which a different grace or cure period is specified or which constitutes an
immediate Event of Default); or
SECTION 7.4 Breach of Warranty. Any representation or warranty made by
------------------
any Credit Party in any Loan Document or in any statement or certificate at any
time given by any Credit Party in writing pursuant hereto or thereto or in
connection herewith or therewith shall be false in any material respect on the
date as of when made; or
SECTION 7.5 Involuntary Bankruptcy; Appointment of Receiver, Etc. (a) A
-----------------------------------------------------
court having jurisdiction in the premises shall enter a decree or order for
relief in respect of any Credit Party in an involuntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, which decree or order is not stayed; or any other
similar relief shall be granted and remain unstayed under any applicable federal
or state law; or (b) an involuntary case is commenced against any Credit Party
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over any Credit Party or over
all or a substantial part of any of its property, shall have been entered; or an
interim receiver, trustee or other custodian of any Credit Party or all or a
substantial part of its property is involuntarily appointed; or a warrant of
attachment, execution or similar process is issued against any substantial part
of the property of any Credit Party, and the continuance of any such events in
this clause (b) for sixty (60) days unless dismissed, bonded, stayed, vacated or
discharged; or
SECTION 7.6 Voluntary Bankruptcy; Appointment of Receiver, Etc. Any
---------------------------------------------------
Credit Party shall have an order for relief entered with respect to it or
commence a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a receiver, trustee
or other custodian for all or a substantial part of its property; the making by
any Credit Party of any assignment for the benefit of creditors or the admission
by any Credit Party in writing of its inability to pay its debts as such debts
become due; or the board of directors, general partner or manager of any Credit
Party (or any committee thereof) adopts any resolution or otherwise authorizes
action to approve any of the foregoing; or
SECTION 7.7 Judgments and Attachments. Any final money judgment, writ or
-------------------------
warrant of attachment, or similar process involving in any individual case or in
the aggregate at any time an amount in excess of $100,000 (not covered by
insurance) shall be entered or filed against any Credit
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<PAGE>
Party or any of its respective assets by a final, nonappealable order of a court
of competent jurisdiction and shall remain undischarged, unvacated, unbonded or
unstayed for a period of thirty (30) days; or
SECTION 7.8 Agreements. Any material provision of any Loan Document shall
----------
cease to be a valid and binding obligation against any Credit Party or any
Credit Party shall so state in writing; or
SECTION 7.9 Change of Control. A Change of Control shall have occurred;
-----------------
or
SECTION 7.10 Management Agreement. The Management Agreement is terminated
--------------------
by either of the parties thereto or any of the agreements (or benefits thereof)
listed on Schedule 1 thereto is assigned to, renewed by or otherwise transferred
to CBC or any of its Affiliates (other than Westmark).
THEN, (i) upon the occurrence of any Event of Default described in the
foregoing Section 7.5 or 7.6, the unpaid principal amount of and accrued
interest on the Loan shall automatically become immediately due and payable,
without presentment, demand, protest or other requirements of any kind, all of
which are hereby expressly waived by the Partnership, and the obligations of the
Lender hereunder shall thereupon terminate, and (ii) upon the occurrence of any
other Event of Default, the Lender may, by written notice to the Partnership,
declare the Loan to be, and the same shall forthwith become, due and payable,
together with accrued interest thereon, and the obligations of the Lender
hereunder shall thereupon terminate.
ARTICLE 8. MISCELLANEOUS
SECTION 8.1 Participations in Loan and Note.
-------------------------------
(a) The Lender shall have the right at any time, to sell, assign,
transfer or negotiate all or any part of the Loan or Note to one or more of its
affiliates. In the case of any sale, assignment, transfer or negotiation of all
or part of the Loan or Note authorized under this Section 8.1(a), the assignee,
transferee or recipient shall have, to the extent of such sale, assignment,
transfer or negotiation, the same rights, benefits and obligations as it would
if it were a Lender with respect to such Loan or Note.
(b) The Lender may grant participations in all or any part of the Loan or
Note to one or more Persons.
(c) In connection with any sales, assignments or transfers of any Loan or
Note referred to in Section 8.1(a), the Lender shall give notice to the
Partnership of the identity of such parties and obtain agreements from the
purchasers, assignees and transferees, as the case may be (the "Assignees"),
that all information given to such parties will be held in strict confidence
pursuant to a confidentiality agreement reasonably satisfactory to the
Partnership. The Partnership shall maintain a register on which it will record
the name and address of the Lender and all Assignees and shall be entitled to
treat the holder or holders of record as the Lender for all purposes hereunder.
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(d) In the event of an assignment by the Lender, or any subsequent
assignment, the term "Lender" herein shall be deemed to refer to each such
Lender, the term "Note" shall be deemed to refer to each "Note", and any action
requiring the consent of the Lender shall be deemed to require the consent of
Persons holding in excess of 50% of the outstanding principal amount of the
Note; provided that 399 Venture Partners, Inc. shall retain the ability in
connection with any such assignment to act on each such assignees' behalf in
connection with this Agreement and the Partnership shall only be required to
seek the consent of 399 Venture Partners, Inc.
SECTION 8.2 Expenses. Whether or not the transactions contemplated hereby
--------
shall be consummated, the Partnership agrees to promptly pay (i) all the actual
and reasonable costs and expenses of preparation of the Loan Documents and all
the costs of furnishing all opinions by counsel for the Partnership (including,
without limitation, any opinions requested by the Lender as to any legal matters
arising hereunder), and of the Partnership's performance of and compliance with
all agreements and conditions contained herein on its part to be performed or
complied with; (ii) the reasonable fees, expenses and disbursements of counsel
to the Lender in connection with the negotiation, preparation, execution and
administration of the Loan Documents, and the Loan hereunder, and any amendments
and waivers hereto or thereto; and (iii) after the occurrence of an Event of
Default, all costs and expenses (including reasonable attorneys' fees) incurred
by the Lender in enforcing any Obligations of or in collecting any payments due
from any Credit Party hereunder or under the Note by reason of such Event of
Default or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a workout, or any
insolvency or bankruptcy proceedings.
SECTION 8.3 Indemnity. In addition to the payment of expenses pursuant to
---------
Section 8.2, whether or not the transactions contemplated hereby shall be
consummated, the Partnership (the "Indemnitor") agrees to indemnify, pay and
hold the Lender and any holder of the Note, and the officers, directors,
employees, agents, and Affiliates of the Lender and such holders (collectively
called the "Indemnitees") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of one
counsel for such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
such Indemnitee shall be designated a party thereto), which may be imposed on,
incurred by, or asserted against that Indemnitee, in any manner relating to or
arising out of this Agreement, the other Loan Documents, the Lender's agreement
to make the Loan or the use or intended use of the proceeds of any of the Loan
hereunder, including without limitation any of the foregoing arising pursuant to
any Environmental and Safety Laws (the "Indemnified Liabilities"); provided,
that the Indemnitor shall not have any obligation to an Indemnitee hereunder
with respect to an Indemnified Liability to the extent it is determined pursuant
to a final, non-appealable judgment of a court of competent jurisdiction that
such Indemnified Liability arises from the gross negligence or willful
misconduct of that Indemnitee. Each Indemnitee shall give the Indemnitor prompt
written notice of any claim that might give rise to Indemnified Liabilities
setting forth a description of those elements of such claim of which such
Indemnitee has knowledge; provided, that any failure to give such notice shall
not affect the obligations of the Indemnitor unless (and then solely to the
extent) the Indemnitor is prejudiced. The Indemnitor shall have the right at any
time during which such claim is pending to select counsel to defend and control
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<PAGE>
the defense thereof and settle any claims for which it is responsible for
indemnification hereunder (provided that the Indemnitor will not settle any such
claim without (i) the appropriate Indemnitee's prior written consent which
consent shall not be unreasonably withheld or (ii) obtaining an unconditional
release of the appropriate Indemnitee from all claims arising out of or in any
way relating to the circumstances involving such claim) so long as in any such
event, the Indemnitor shall have stated in a writing delivered to the Indemnitee
that, as between the Indemnitor and the Indemnitee, the Indemnitor is
responsible to the Indemnitee with respect to such claim to the extent and
subject to the limitations set forth herein; provided, however, that the
Indemnitor shall not be entitled to control the defense of any claim in the
event that in the reasonable opinion of counsel for the Indemnitee there are one
or more material defenses available to the Indemnitee which are not available to
the Indemnitor; provided, further, that with respect to any claim as to which
the Indemnitee is controlling the defense, the Indemnitor will not be liable to
any Indemnitee for any settlement of any claim pursuant to this Section 8.3 that
is effected without its prior written consent. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Partnership shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them.
SECTION 8.4 Amendments and Waivers. No amendment, modification,
----------------------
termination or waiver of any provision of this Agreement or of the Note, or
consent to any departure by the Partnership therefrom, shall in any event be
effective without the written concurrence of the Lender and the Partnership;
provided, that no amendment, modification, waiver or consent shall, unless in
writing and signed by all the Lenders, do any of the following: (a) increase or
subject the Lender to any additional obligations; (b) reduce the principal of,
or interest on the Note or any fees, premiums or other amounts payable
hereunder; (c) postpone any date fixed for any payment of principal of, or
premium or interest on, the Note or any fees or other amounts payable hereunder;
or (d) amend this Section 8.4. Any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this Section 8.4 shall be binding upon each holder of the Note at the time
outstanding and each future holder of the Note.
SECTION 8.5 Independence of Covenants. All covenants hereunder shall be
-------------------------
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant shall
not avoid the occurrence of an Event of Default or Potential Event of Default if
such action is taken or condition exists.
SECTION 8.6 Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and delivered personally, mailed by certified or registered mail,
return receipt requested and postage prepaid, sent via a nationally recognized
overnight courier, or via facsimile. Such notices, demands and other
communications will be sent to the address indicated below:
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<PAGE>
To any of the Credit Parties:
c/o CB Commercial Real Estate Group, L.P.
533 South Fremont Avenue
Los Angeles, CA 90017
Attention: David Davidson
Chief Financial Officer
Telecopy No: (213) 613-3228
With a copy to:
Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attention: Ruth Modisette, Esq.
Telecopy No.: (213) 629-1033
To the Lender:
c/o Citicorp Real Estate, Inc.
599 Lexington Avenue
New York, NY 10043
Attention: John D. Hirschfeld
Telecopy No.: (212) 223-0181
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party;
provided, that the failure to deliver copies of notices as indicated above shall
not affect the validity of any notice. Any such communication shall be deemed
to have been received (i) when delivered, if personally delivered, or sent by
nationally-recognized overnight courier or sent via facsimile or (ii) on the
third Business Day following the date on which the piece of mail containing such
communication is posted if sent by certified or registered mail.
SECTION 8.7 Survival of Warranties and Certain Agreements. (a) All
---------------------------------------------
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loan hereunder and
the execution and delivery of the Note and shall continue (but, with respect to
representations and warranties, such representations and warranties
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<PAGE>
are made only as of the date when made pursuant to Section 4) until repayment of
the Note and the Obligations in full; provided, that if all or any part of such
payment is set aside, the representations and warranties in the Loan Documents
shall continue as if no such payment had been made.
(b) Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Credit Parties set forth in Sections 8.2 and 8.3
shall survive the payment of the Loans and the Notes and the termination of this
Agreement.
SECTION 8.8 Failure or Indulgence Not Waiver; Remedies Cumulative. No
-----------------------------------------------------
failure or delay on the part of any Lender or any holder of any Note in the
exercise of any power, right or privilege hereunder or under the Note shall
impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing under
this Agreement or the Notes are cumulative to and not exclusive of, any rights
or remedies otherwise available.
SECTION 8.9 Severability. In case any provision in or obligation under
------------
this Agreement or the Note shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 8.10 Headings. Section and subsection headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 8.11 Applicable Law. THIS AGREEMENT AND THE NOTES SHALL BE
--------------
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 8.12 Successors and Assigns; Subsequent Holders of Notes. This
---------------------------------------------------
Agreement shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
the successors and assigns of the Lender. The terms and provisions of this
Agreement and all other certificates delivered pursuant to Section 3 shall inure
to the benefit of any assignee or transferee of the Notes pursuant to Section
8.1(a), and in the event of such transfer or assignment, the rights and
privileges herein conferred upon the Lender shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof. The Partnership's rights or any interest therein hereunder may not be
assigned without the written consent of the Lender.
SECTION 8.13 Consent to Jurisdiction and Service of Process.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY (OTHER THAN
WESTMARK) WITH RESPECT TO THIS AGREEMENT OR ANY NOTE MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT OF COMPETENT JURISDICTION IN
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<PAGE>
THE STATE OF NEW YORK LOCATED IN THE CITY OF NEW YORK AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT EACH CREDIT PARTY ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS (UNLESS THE LENDER OTHERWISE AGREES), AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT SUBJECT, HOWEVER, TO RIGHTS OF APPEAL. EACH CREDIT PARTY
(OTHER THAN WESTMARK) DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY SUCH CREDIT PARTY IRREVOCABLY
AGREEING IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF
ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY SUCH CREDIT PARTY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT, A COPY OF SUCH PROCESS SO SERVED SHALL BE SENT BY AIR COURIER TO SUCH
CREDIT PARTY AT ITS ADDRESS PROVIDED IN SECTION 8.6 HEREOF, EXCEPT THAT UNLESS
OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT
AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY ANY CREDIT
PARTY REFUSES TO ACCEPT SERVICE, EACH CREDIT PARTY HEREBY AGREES THAT SERVICE
UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT
THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE
COURTS OF ANY OTHER JURISDICTION.
SECTION 8.14 Waiver of Jury Trial. EACH CREDIT PARTY HEREBY WAIVES, TO THE
--------------------
EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT
WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR
ENFORCEMENT THEREOF. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE
CONTRARY, NO CLAIM MAY BE MADE BY ANY CREDIT PARTY AGAINST ANY LENDER FOR ANY
LOST PROFITS OR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY
BREACH OR WRONGFUL CONDUCT (OTHER THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL
FRAUD) IN CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THE
TRANSACTIONS CONTEMPLATED HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS, OR ANY
ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH; EACH CREDIT PARTY
HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH
DAMAGES. EACH CREDIT PARTY AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL
ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE LENDER WOULD NOT EXTEND TO
THE PARTNERSHIP ANY LOAN HEREUNDER IF THIS SECTION WERE NOT PART OF THIS
AGREEMENT.
SECTION 8.15 Counterparts; Effectiveness. This Agreement and any
---------------------------
amendments, waivers, consents or supplements may be executed in any number of
counterparts and by different
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<PAGE>
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto, and written or telephonic notification of such execution and
authorization of delivery thereof has been received by the Partnership and the
Lender.
SECTION 8.16 Entirety. This Agreement and the other Loan Documents embody
--------
the entire agreement among the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof.
SECTION 8.17 Nonrecourse to CBC Notwithstanding anything in the Loan
------------------
Documents to the contrary and notwithstanding Section 403 of the Delaware
Revised Uniform Limited Partnership Act or any other applicable provision of law
that would, under any circumstances whatsoever, impose liability on CBC, in its
capacity as general partner of the Partnership, for liabilities or obligations
of the Partnership to the Lender with respect to the Loan, the Lender, for
itself and its assigns, hereby waives irrevocably any claim that it might have,
now or at any time in the future, against CBC, in its capacity as general
partner of the Partnership, for payment or performance of any obligations of the
Partnership to the Lender with respect to the Loan.
* * * * *
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<PAGE>
IN WITNESS WHEREOF the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
WESTMARK REAL ESTATE ACQUISITION PARTNERSHIP, L.P.
By: CB Commercial Real Estate Group, Inc.,
its general partner
By: _________________________________________
James J. Didion
Chief Executive Officer
and Chairman of the Board
399 VENTURE PARTNERS, INC.
By: _________________________________________
Name:
Title:
EACH OF THE FOLLOWING CREDIT PARTIES AGREES TO BE
BOUND BY THE TERMS HEREOF:
HOLDPAR A, a Delaware General Partnership
By Westmark Real Estate Acquisition Partnership,
its general partner,
By CB Commercial Real Estate Group, Inc.,
its general partner
By: __________________________________________
Name: James J. Didion
Title: Chief Executive Officer
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<PAGE>
HOLDPAR B, a Delaware General Partnership
By Westmark Real Estate Acquisition Partnership,
its general partner,
By CB Commercial Real Estate Group, Inc.,
its general partner
By: __________________________________________
Name: James J. Didion
Title: Chief Executive Officer
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<PAGE>
EXHIBIT 12
CB Commercial Holdings, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges (1)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------ ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Pre-tax income from continued operations $ 9,605 $ (1,407) $ 8,250 $ 9,325 $(37,037) $(44,549) $(84,246)
Fixed Charges 22,725 21,450 29,172 23,283 20,570 22,370 31,887
------- -------- ------- ------- -------- -------- --------
Total Earnings $32,330 $ 20,043 $37,422 $32,608 $(16,467) $(22,179) $(52,359)
======= ======== ======= ======= ======== ======== ========
FIXED CHARGES
Portion of rent expense representative
of the interest factor $ 4,842 $ 4,456 $ 5,905 $ 5,921 $ 6,330 $ 6,854 $ 7,082
Interest expense 17,883 16,994 23,267 17,362 14,240 15,516 24,805
------- -------- ------- ------- ------- ------- -------
Total Fixed charges $22,725 $ 21,450 $29,172 $23,283 $20,570 $22,370 $31,887
======= ======== ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 1.42 -(2) 1.28 1.40 -(2) -(2) -(2)
======= ======== ======= ======= ======= ======= =======
</TABLE>
(1) In computing the ratio of earnings to fixed charges: (a) earnings have been
based on income from continuing operations before income taxes and fixed
charges (exclusive of interest capitalized) and (b) fixed charges consist
of interest and amortization of debt discount and expense (including
amounts capitalized) and the estimated interest portion of rents.
(2) The Company's earnings were not sufficient to cover its fixed charge
requirements by $1.4 million for the nine months ended September 30, 1995,
and $37.0 million, $44.5 million and $84.2 million for the years ended
December 31, 1993, 1992 and 1991, respectively.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 31, 1996 (except with respect to certain matters
discussed in Notes 1, 2 and 13, for which the date is November 11, 1996) on
the CB Commercial Holdings, Inc. and Subsidiaries financial statements and to
all references to our firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
November 19, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports on the consolidated financial statements of L.J. Melody & Company and
the financial statements of L.J. Melody & Company of California, and to all
references to our firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Houston, Texas
November 19, 1996
<PAGE>
EXHIBIT 23.3
WESTMARK REALTY ADVISORS L.L.C.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
November 19, 1996
