<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended June 30, 1996
- ---- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from to
----------- -----------
Commission File Number 0-18525
CB COMMERCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1616016
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
533 South Fremont Avenue
Los Angeles, California 90071-1798
(Address of principal executive offices) (Zip Code)
(213) 613-3123 Not Applicable
(Registrant's telephone (Former name, former address and
number, including area code) formal fiscal year if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Number of shares of common stock outstanding at August 13, 1996:
<TABLE>
<S> <C>
Class B-1.......1,854,106
Class B-2.......6,066,949
Class C-1....... 800,000
Class C-R....... 800,000
Class J......... 2
</TABLE>
1
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets at June 30, 1996 (Unaudited) and December
31, 1995..................................................................................... 3
Unaudited Consolidated Statements of Operations for the Three Months
Ended June 30, 1996, and 1995 and for the Six Months Ended
June 30, 1996, and 1995...................................................................... 4
Unaudited Consolidated Condensed Statements of Cash Flows for the Three
Months Ended June 30, 1996, and 1995 and for the Six Months Ended
June 30, 1996, and 1995...................................................................... 5
Notes to Consolidated Condensed Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................... 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 12
Item 4. Submission of Matters to Vote of Security Holders........................................... 12
Item 6. Exhibits and Reports on Form 8-K............................................................ 12
Signatures............................................................................................ 14
</TABLE>
2
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 27,451 $ 23,045
Receivables, less allowance of $4,008 and $4,400 for doubtful
accounts at June 30, 1996, and December 31, 1995, respectively........... 29,739 28,322
Prepaid expenses and other................................................. 7,828 5,654
-------- --------
Total current assets..................................................... 65,018 57,021
Property and equipment, net................................................... 42,972 44,500
Other intangible assets, net.................................................. 9,370 10,783
Goodwill, net................................................................. 58,373 59,491
Inventoried property.......................................................... 7,355 7,355
Other assets, net............................................................. 6,675 11,804
-------- --------
Total assets............................................................ $189,763 $190,954
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Compensation and employee benefits......................................... $ 23,566 $ 28,324
Accounts payable and accrued expenses...................................... 17,778 19,245
Senior revolving credit line............................................... 16,323 -
Current maturities of long-term debt....................................... 11,002 8,250
Reserve for bonus and profit sharing....................................... 5,805 12,997
Current portion of capital lease obligations............................... 2,592 2,592
-------- --------
Total current liabilities............................................... 77,066 71,408
-------- --------
Long-term debt, less current maturities:
Senior term loans.......................................................... 142,172 157,282
Senior subordinated term loans............................................. 82,108 78,963
Inventoried property loan.................................................. 7,470 7,470
Other long-term debt....................................................... 3,275 3,315
-------- --------
Total long-term debt.................................................... 235,025 247,030
-------- --------
Other long-term liabilities................................................... 28,679 27,204
-------- --------
Total liabilities...................................................... 340,770 345,642
-------- --------
Commitments and contingencies
Stockholders' Equity (Deficit):
Preferred stock, $.01 par value............................................ 40 40
Common stock, $.01 par value............................................... 95 93
Deferred compensation...................................................... 123 -
Common stock options outstanding........................................... 263 263
Additional paid-in capital................................................. 111,993 110,063
Accumulated deficit........................................................ (263,521) (265,147)
-------- --------
Total stockholders' equity (deficit)................................... (151,007) (154,688)
-------- --------
Total liabilities and stockholders' equity (deficit)................... $189,763 $190,954
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Operating revenues............................. $ 130,823 $ 108,361 $ 243,423 $ 208,287
Interest income................................ 485 393 1,021 883
----------- ---------- ----------- ----------
131,308 108,754 244,444 209,170
----------- ---------- ----------- ----------
Costs and Expenses:
Commissions, fees and other incentives......... 60,635 51,780 110,852 99,014
Operating, administrative and other............ 60,003 50,337 115,135 98,869
Interest....................................... 5,689 5,244 11,547 10,379
Depreciation and amortization.................. 2,326 1,825 4,894 3,682
----------- ---------- ----------- ----------
128,653 109,186 242,428 211,944
----------- ---------- ----------- ----------
Income (loss) before provision for income taxes.... 2,655 (432) 2,016 (2,774)
Provision for income taxes......................... 438 26 390 100
----------- ---------- ----------- ----------
Net income (loss).................................. $ 2,217 $ (458) $ 1,626 $ (2,874)
=========== ========== =========== ==========
Per share data:
Net income (loss) per common and common
equivalent share outstanding................. $ .16 $ (.04) $ .12 $ (.25)
=========== ========== =========== ==========
Weighted average common and common
equivalent shares outstanding................ 13,561,494 11,481,434 13,449,967 11,412,655
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ 2,217 $ (458) $ 1,626 $(2,874)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 2,326 1,825 4,894 3,682
Net change in other operating assets and
liabilities......................................... 8,610 5,051 (5,924) (9,345)
------- ------- ------- -------
Net cash provided by (used in) operating
activities........................................ 13,153 6,418 596 (8,537)
------- ------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment................... (938) (282) (1,512) (1,299)
Net proceeds from the sale of property and equipment.. 1 - 1 -
Acquisitions of businesses including net assets
acquired and goodwill............................... - (19,865) (1,321) (19,865)
Proceeds from collections on notes receivable......... 2,705 180 2,716 194
Decrease (increase) in short term investments......... - 1,000 - (400)
Other investing activities, net....................... - 80 - 5
------- ------- ------- -------
Net cash provided by (used in) investing activities. 1,768 (18,887) (116) (21,365)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from senior revolving credit line............ 6,323 10,000 18,323 13,000
Proceeds from senior subordinated term loans.......... - 10,000 - 10,000
Repayment of senior revolving credit line............. (2,000) - (2,000) -
Repayment of senior term loans........................ (7,898) (4,475) (12,358) (9,737)
Other financing activities, net....................... (19) (134) (39) (160)
------- ------- ------- -------
Net cash provided by (used in) financing
activities........................................ (3,594) 15,391 3,926 13,103
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents..... 11,327 2,922 4,406 (16,799)
Cash and cash equivalents, at beginning of period........ 16,124 9,049 23,045 28,770
------- ------- ------- -------
Cash and cash equivalents, at end of period.............. $27,451 $11,971 $27,451 $11,971
======= ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (none capitalized)......................... $ 3,214 $ 3,294 $ 6,666 $ 6,346
======= ======= ======= =======
Federal and state income taxes...................... $ 142 $ 47 $ 320 $ 236
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include the
accounts of CB Commercial Holdings, Inc., a holding company that conducts its
operations solely through CB Commercial Real Estate Group, Inc. ("CB
Commercial") and its subsidiaries (collectively, the "Company"). In the opinion
of management, the accompanying consolidated condensed financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of financial position and results of
operations. The consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995. The results of operations for interim periods are not necessarily
indicative of results for a full year.
2. ACQUISITIONS
On June 30, 1995, CB Commercial, 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 a realty 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 million in costs related to the
Westmark acquisition. Approximately $20 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 million. The supplemental purchase
price will be recorded as additional goodwill, if and when earned. As of
December 1995, approximately $871,000 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 and $10 million of
proceeds from a senior subordinated loan bearing interest at 20% per annum
issued to WREAP, which is nonrecourse to CB Commercial (except for a portion of
the interest payable). The interest is deferred until the Westmark Senior Notes
are paid or cash collateralized in full and is, therefore, reflected as an
increase in principal amount.
The acquisition was accounted for as a purchase. The Company has allocated
approximately $6.9 million of the total initial 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 are being amortized over their
estimated useful lives or the lives of the underlying contracts, as applicable,
over periods ranging from five to ten years. 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 thirty years and is being amortized on a straight
line basis over this period. Based upon experience, this useful life could be
decreased. In that event, the charge for goodwill would be increased and
earnings decreased. (See Note 5)
On April 11, 1995, the Company also acquired certain assets of Langdon Rieder, a
tenant advisory business, for approximately $1.5 million in cash plus other
consideration. The purchase price has largely been allocated to intangibles and
goodwill, which is being amortized on a straight line basis over their useful
lives ranging from three to seven years.
3. OTHER ASSETS
Included in other assets at December 31, 1995, were two notes receivables
totaling $5 million. The notes were secured by first mortgage liens on hotel
properties bearing interest at 9% and 9.5% due at maturity in July 1997. During
the second quarter of 1996 payment in full on one note totaling $2.7 million was
received. The remaining note has been reclassified to current.
6
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. OTHER LONG-TERM LIABILITIES
Included in other long-term liabilities is deferred interest on the senior term
loans of $4.2 million and $3.1 million at June 30, 1996, and December 31, 1995,
respectively.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at June 30, 1996, consisted of $37.1 million related to the 1995
acquisitions and $21.3 million related to the Company's original acquisition in
1989 which is being amortized over an estimated useful life of 40 years.
Other intangible assets at June 30, 1996, included approximately $4.1 million of
deferred financing costs and $5.3 million of intangibles stemming from the
Westmark and Langdon Rieder acquisitions.
The Company periodically evaluates the recoverability of the carrying amounts of
goodwill and other intangible assets. In this assessment the Company considers
the expected useful lives of its goodwill and intangibles and the estimated
future cash flows associated with these assets. If any of the significant
assumptions inherent in the estimated future cash flows change in a material way
due to market, economic and/or other factors, the recoverability is assessed
based on the revised assumptions, and any resulting impairment would be recorded
in the period such changes occur.
6. DEFERRED COMPENSATION PLAN
Under the Company's Deferred Compensation Plan, 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 Plan 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 Plan 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. From
Plan inception through June 30, 1996, approximately $1.3 million (including
interest) and $2.6 million have been deferred in cash and stock, respectively,
all of which was charged to expense in the period of referral. Of the $2.6
million deferred in stock, all but approximately $123,000, which will be issued
in August 1996, has been issued in Class B-2 Common Stock as of June 30, 1996.
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
resolution of these lawsuits will not have a material effect on the consolidated
financial position or results of operations of the Company.
8. STOCKHOLDERS' EQUITY
During the first and second quarters of 1996 the Company issued 95,833 and 1,084
shares, respectively, of its Class B-2 Common Stock in connection with the
Deferred Compensation Plan (including bonuses deferred in stock). In March 1996
the Company also issued 125,389 shares of its Class B-2 Common Stock with a
stated value of approximately $1,047,000 to the Company's Capital Accumulation
Plan for the year ended December 31, 1995, and 8,501 shares were issued to sales
professionals who elected to receive a portion of their annual premium on
earnings payments in stock rather than cash.
As of June 30, 1996, 6,066,949 shares of Class B-2 Common Stock were
outstanding.
7
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
9. 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>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Preferred stock:
Series A-1 .................... 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
Series A-3.................... 1,000,000 1,000,000 1,000,000 1,000,000
Common stock:
Class B-1 ..................... 1,854,106 1,850,000 1,854,106 1,850,000
Class B-2 ..................... 6,066,675 5,631,434 5,955,148 5,562,655
Class C-1 ..................... 800,000 - 800,000 -
Class C-R ..................... 800,000 - 800,000 -
Stock options:
Service Providers Plan......... 40,713 - 40,713 -
---------- ---------- ---------- ----------
13,561,494 11,481,434 13,449,967 11,412,655
========== ========== ========== ==========
</TABLE>
10. SUBSEQUENT EVENT
Effective July 1, 1996, CB Commercial Mortgage Company, Inc. ("CB Mortgage"), a
wholly owned subsidiary of CB Commercial, 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 "LJMCo") are commercial mortgage banking firms engaged in loan
origination and loan servicing. LJMCo is headquartered in Houston, Texas.
The purchase price for LJMCo was $15 million, of which $9 million was paid in
cash and the remaining $6 million in notes. The notes bear interest of 10% per
annum, with $3 million maturing on July 1, 1998, and $3 million maturing on July
1, 2001, and are secured by a $3 million letter of credit. The portion of the
initial purchase price paid in cash at the closing was provided by CB Commercial
from a combination of cash on hand and borrowings under a credit facility with
The Sumitomo Bank, Limited, which borrowings are expected to be repaid by the
end of 1996.
The acquisition was accounted for as a purchase. The Company allocated
approximately $3.7 million of the total purchase price of $15 million to
identifiable intangible assets acquired, consisting of loan servicing and asset
management contracts, trade name, a covenant not to compete and other
intangibles, and the remaining $11.3 million was 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.
8
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION -
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 Commercial"). CB
Holdings is a holding company that conducts its operations solely through CB
Commercial and its subsidiaries (collectively, the "Company").
The Company has significant annual interest expense related to the indebtedness
incurred in connection with the Acquisition. Prior to 1994 the Company also had
substantial noncash expenses associated with amortization and depreciation of
intangible assets and fixed assets arising from the allocation of the
Acquisition purchase price. This interest, amortization and depreciation
resulted in a deficit equity balance and a substantial net operating loss
carryforward, which can be used to reduce the Company's federal and certain
state income tax liabilities, if any, over the next several years.
The Company's operations are directly affected by various national and local
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. Commissions and other variable costs related to revenues
are primarily affected by real estate market supply and demand. In addition, the
Company's revenues are seasonal, with generally lower revenue in the first two
calendar quarters and higher revenue in the third and fourth quarters.
The effects of seasonality on revenues are accentuated with respect to operating
income due to non-variable cost components of the Company's operating expenses,
including office lease expenses, utilities and other general and administrative
costs. These non-variable costs are charged to expense as they are incurred
during the year. Accordingly, non-variable costs represent a greater percentage
of revenues during the first two quarters of each year.
On June 30, 1995, CB Commercial, 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 a realty 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 million in costs related to the
Westmark acquisition. Approximately $20 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 million. The supplemental purchase
price will be recorded as additional goodwill, if and when earned. As of
December 31, 1995, approximately $871,000 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 and $10 million of
proceeds from a senior subordinated loan bearing interest at 20% per annum
issued to WREAP, which is nonrecourse to CB Commercial (except for a portion of
the interest payable). The interest is deferred until the Westmark Senior Notes
are paid or cash collateralized in full.
The acquisition was accounted for as a purchase. The Company 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 are being amortized over their
estimated useful lives or the lives of the underlying contracts, as applicable,
over periods ranging from five to ten years. 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 thirty years and is being amortized on a straight
line basis over this period. Based upon experience, this useful life may
be decreased. In that event, the charge for intangibles and goodwill would be
increased and earnings decreased.
9
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)
On April 11, 1995, the Company also acquired certain assets of Langdon Rieder, a
tenant advisory business, for approximately $1.5 million in cash plus other
consideration. The purchase price has largely been allocated to intangibles and
goodwill, which is being amortized on a straight line basis over their useful
lives ranging from three to seven years.
Effective July 1, 1996, CB Commercial Mortgage Company, Inc. ("CB Mortgage"), a
wholly owned subsidiary of CB Commercial, 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 "LJMCo") are commercial mortgage banking firms engaged in loan
origination and loan servicing. LJMCo is headquartered in Houston, Texas.
The purchase price for LJMCo was $15 million, of which $9 million was paid in
cash and the remaining $6 million in notes. The notes bear interest of 10% per
annum, with $3 million maturing on July 1, 1998, and $3 million maturing on July
1, 2001, and are secured by a $3 million letter of credit. The portion of the
initial purchase price paid in cash at the closing was provided by CB Commercial
from a combination of cash on hand and borrowings under a credit facility with
The Sumitomo Bank, Limited, which borrowings are expected to be repaid by the
end of 1996.
The acquisition was accounted for as a purchase. The Company allocated
approximately $3.7 million of the total purchase price of $15 million to
identifiable intangible assets acquired, consisting of loan servicing and asset
management contracts, trade name, a covenant not to compete and other
intangibles, and the remaining $11.3 million was 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.
RESULTS OF OPERATIONS -
QUARTER ENDED JUNE 30, 1996, COMPARED TO THE QUARTER ENDED JUNE 30, 1995
Total revenues for the second quarter of 1996 were up 20.7% from the second
quarter of 1995 -- $131.3 million compared to $108.8 million, an increase of
$22.6 million. Increases were realized in all major categories of revenue with
sales commissions increasing 15.2%, from $41.7 million to $48.1 million, and
lease commissions increasing 12.5%, from $48.7 million to $54.7 million.
Additionally, realty advisor acquisition fees and asset management fees
increased 235.8%, from $2.3 million to $7.8 million, primarily as a result of
the Westmark acquisition; brokerage consulting and referral fees increased
71.9%, from $4 million to $6.9 million, and appraisal fees, loan origination
fees and management fees increased 27.9%, 27.7% and 10.1%, respectively.
Commissions, fees and other incentives are directly related to revenues since a
substantial majority of the sales force compensation is based on revenue.
However, realty advisor acquisition fees, which have increased significantly,
incur no commissions. After removing the effect of realty advisor fees,
commissions, fees, and other incentives have remained comparable as a percent of
revenues for both periods.
Operating and administrative expenses for the quarter ended June 30, 1996,
totaled $60 million compared to $50.3 million in 1995, an increase of 19.2%. Of
the increase, $3.7 million was attributable to Westmark's operations.
Interest expense for the second quarter of 1996 was $5.7 million compared to
$5.2 million for the second quarter of 1995. This increase of $445,000, or 8.5%,
resulted from the addition of debt incurred with respect to the Westmark
acquisition, offset in part by reduced average bank borrowing levels on other
Company indebtedness and a decline in interest rates on bank debt.
Depreciation and amortization of intangible assets was $2.3 million for the
second quarter of 1996 compared to $1.8 million for the second quarter of 1995.
This increase of $500,000 resulted primarily from the Westmark acquisition.
The net result for the second quarter of 1996 was income of $2.2 million
compared to a net loss of $458,000 in the second quarter of 1995.
10
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Total revenues for the first six months of 1996 were up 16.9% over the prior
year -- $244.4 million, an increase of $35.3 million. Major revenue increases
were produced from brokerage commissions -- sales commissions increased 14.9%,
from $77.8 million to $89.4 million, and lease commissions increased 4.5%, from
$96.4 million to $100.7 million. Realty advisor acquisition fees and asset
management fees increased 257.6%, from $4.5 million to $16 million, primarily as
a result of the Westmark acquisition. Brokerage consulting and referral fees
increased 42.4%, from $8.2 million to $11.7 million, and appraisal fees,
management fees and loan origination fees increased 23%, 12.3% and 55.6%,
respectively.
Commissions, fees and other incentives are directly related to revenues since a
substantial majority of the sales force compensation is based on revenue.
However, realty advisor acquisition fees, which have increased significantly,
incur no commissions. After removing the effect of realty advisor fees,
commissions, fees and other incentives have remained comparable as a percent of
revenues for both periods.
Operating and administrative expenses for the six months ended June 30, 1996,
were $115.1 million, an increase of $16.3 million, or 16.5%, from the first six
months of 1995. Of this increase, $7.6 million was attributable to Westmark's
operations.
Interest expense for the six months was $11.5 million compared to $10.4 million
in 1995. This increase of $1.1 million, or 11.3%, resulted from the addition of
debt incurred with respect to the Westmark acquisition, offset in part by
reduced average bank borrowing levels on other Company indebtedness and a
decline in interest rates on bank debt.
Depreciation and amortization of intangible assets was $4.9 million for the six
months ended June 30, 1996, compared to $3.7 million for the comparable period
in 1995. This $1.2 million increase resulted primarily from the Westmark
acquisition.
Net income for the six months ended June 30, 1996, was $1.6 million compared to
a net loss of $2.9 million for the six months ended June 30, 1995, an
improvement of $4.5 million.
LIQUIDITY AND CAPITAL RESOURCES -
During the first quarter of each year the Company has substantial cash
requirements to pay compensation and employee benefits associated with the
volume of business activity that occurs in the last days of December of the year
just ended and the payment of incentive compensation based on the preceding
year's operating results. In 1996 these payments, together with the regular
quarterly operating expenses, were provided from operating cash flow and cash
equivalents on hand at the beginning of the quarter together with a net
borrowing of $16.3 million under the Company's revolving credit facility. The
Company has no material obligations for capital expenditures.
The Company's revenues have continued to increase coincident with the return of
liquidity to the commercial real estate business. The Company believes,
therefore, that it will be in a position to satisfy its obligations with respect
to the Senior Term Loans and the Subordinated Term Loans, as well as other
working capital requirements from internally generated cash flow, although no
assurances can be given in this regard.
11
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1993 a significant jury verdict was entered against the Company in the
amount of $2,105,328. Post-verdict motions resulted in an order granting a
trial as to damages by reason of judicial errors in the trial and
insufficiency of the evidence to support the damage award. Upon appeal by
the plaintiff, the appellate court affirmed the new trial order on damages
and also ordered a new trial on the issue of liability. In June 1996 the
Company settled the case with the plaintiff for an amount less than the
verdict, a major portion of which was covered by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting of Stockholders held on May 21, 1996
(b) Not Applicable
(c) The holders of the Series A-1 and A-2 Preferred Stock elected the
nominees for Class I-1 Directors (Stanton D. Anderson, Frank C.
Carlucci, Hiroaki Hoshino, Takayuki Kohri and Masayasu Ueno) by the
affirmative vote of 4,000,000 shares, representing 100 percent of the
outstanding shares of such Series. The holders of the Class B-1 Common
Stock elected the nominees for Class 1-2 Directors (Frederic V. Malek
and Daniel A. D'Aniello) by the affirmative vote of 1,729,106 shares,
representing 93.3 percent of the outstanding shares of such Class. The
holders of the Class B-2 Common Stock elected the nominees for Class M
Directors by the following votes: Gary J. Beban (4,569,381 for, 11,161
withheld); Richard C. Clotfelter (4,550,013 for, 30,529 withheld);
James J. Didion (4,541,880 for, 38,662 withheld); George J. Kallis
(4,460,666 for, 119,876 withheld); Jeffrey S. Morgan (4,560,591 for,
19,951 withheld); Richard A. Pogue (4,478,874 for, 101,668 withheld);
and Walter V. Stafford (4,548,147 for, 32,395 withheld). The
stockholders elected the nominees for Class J Directors as follows: by
the affirmative vote of 4,000,000 shares of the Series A-1 and A-2
Preferred Stock (representing 100 percent of the outstanding shares of
such Series), by the affirmative vote of 1,729,106 shares of the Class
B-1 Common Stock (representing 93.3 percent of the outstanding shares
of such Class) and by the vote of the holders of the Class B-2 Common
Stock as follows: Richard C. Blum (4,556,188 for, 20,918 withheld);
Peter V. Ueberroth (4,576,276 for, 4,266 withheld); and Gary L. Wilson
(4,572,662 for, 7,880 withheld).
The stockholders ratified the appointment of Arthur Andersen LLP as
independent accountants for the Company as follows, with all
stockholders voting as a single class: by the affirmative vote of
4,000,000 shares of the Company's Series A-1 and A-2 Preferred Stock
(representing 100 percent of the outstanding shares of such Series),
by the affirmative vote of 1,729,106 shares of the Class B-1 Common
Stock (representing 93.3 percent of the outstanding shares of such
Class) and by the affirmative vote of 4,493,141 shares of the
Company's Class B-2 Common Stock, with 43,740 shares of Class B-2
Common Stock voting in the negative and 40,225 shares of Class B-2
Common Stock abstaining.
(d) Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.6 (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.
12
<PAGE>
CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (CONTINUED)
l0.7 (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,
CB Commercial Holdings, Inc. and certain subsidiaries of CB
Commercial Real Estate Group, Inc., as guarantors, and
Sumitomo Finance (Dublin) Limited, as lender.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CB COMMERCIAL HOLDINGS, INC.
Date: August 13, 1996 /s/ Ronald J. Platisha
---------------------------
Ronald J. Platisha
Executive Vice President,
Principal Accounting Officer
14
<PAGE>
EXHIBIT 10.6(iii)
AMENDMENT NO. 2 TO SECOND AMENDED AND
RESTATED SENIOR SECURED CREDIT AGREEMENT
AMENDMENT NO. 2 dated as of June 30, 1996 (the "Amendment") to the
SECOND AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT dated as of June
30, 1994 (as amended by the Limited Waiver, Consent and Amendment No. 1 dated as
of June 30, 1995, the "Restated Credit Agreement") between CB COMMERCIAL REAL
ESTATE GROUP, INC., a Delaware corporation (the "Borrower"), and THE SUMITOMO
BANK, LIMITED (the "Lender").
RECITALS
--------
WHEREAS, the Borrower has advised the Lender that it proposes to
acquire all of the issued and outstanding capital stock of L.J. Melody &
Company, a Texas corporation, and L.J. Melody & Company of California, a Texas
corporation;
WHEREAS, after the Melody Acquisition, Melody will be a wholly-owned
Subsidiary of the Borrower;
WHEREAS, the Borrower has requested the Lender to modify the
provisions of Sections 6.01 and 6.02 to permit the Borrower to consummate the
Melody Acquisition on substantially the terms set forth in the Melody
Acquisition Documents as in effect on the Amendment Effective Date; and
WHEREAS, the Lender is willing to enter into this Amendment on the
terms and conditions set forth herein.
AGREEMENT
---------
1. Definitions. Terms defined in the Restated Credit Agreement (as
-----------
amended hereby) and not otherwise defined herein are used herein as therein
defined.
2. Amendments to Restated Credit Agreement. Effective on the
---------------------------------------
Amendment Effective Date (as defined in Section 8 below), the Restated Credit
Agreement is hereby amended as follows:
2.01. Amendment to Section 1.01. Section 1.01 of the Restated
-------------------------
Credit Agreement is hereby amended by inserting therein, in appropriate
alphabetical order, the following new definitions of terms:
(i) The term "Melody" shall have the following meaning:
"Melody" shall mean L.J. Melody & Company, a Texas corporation.
------
(ii) The term "Melody Acquisition" shall have the following meaning:
"Melody Acquisition" shall mean, collectively, (i) the
------------------
purchase by CB Commercial Mortgage Company, Inc., a California
corporation that is a wholly-owned Subsidiary of
<PAGE>
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 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, for aggregate consideration
in an amount not in excess of $15,000,000, of which not more than
$9,000,000 shall be paid in cash upon consummation thereof and at
least $3,000,000 of which shall be paid by issuance of the Melody
Seller Senior Notes to the Melody Stockholders and at least
$3,000,000 shall be paid by issuance of the Melody Seller
Contingent Notes to the Melody Stockholders, 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.
(iii) The term "Melody Acquisition Documents" shall have the following
meaning:
"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.
(iv) The term "Melody California" shall have the following meaning:
"Melody California" shall mean L.J. Melody & Company of
-----------------
California, a Texas corporation.
(v) The term "Melody California Stock Purchase Agreement" shall have
the following meaning:
"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 hereto dated as of June 30, 1996 (the "Second
Amendment")).
(vi) The term "Melody Loan Arbitrage Facility" shall have the
following meaning:
2
<PAGE>
"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.
(vii) The term "Melody Merger Agreement" shall have the following
meaning:
"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.
(viii) The term "Melody Mortgage Warehousing Facility" shall have the
following meaning:
"Melody Mortgage Warehousing Facility" means the credit facility
------------------------------------
provided by Residential Funding Corporation ("RFC"), pursuant to
which RFC 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 to Melody
thereunder are secured by a pledge of commercial mortgage loans
made by Melody with the proceeds of such loans, and RFC has a
perfected first priority security interest therein, to secure
loans made under such credit facility.
(ix) The term "Melody Permitted Indebtedness" shall have the following
meaning:
"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.
3
<PAGE>
(x) The term "Melody Seller Contingent Notes" shall have the
following meaning:
"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.
(xi) The term "Melody Seller Senior Notes" shall have the following
meaning:
"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.
(xii) The term "Melody Stock Purchase Agreement" shall have the
following meaning:
"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).
(xiii) The term "Melody Stockholders" shall have the following
meaning:
"Melody Stockholders" means, together, Lawrence J. Melody and
-------------------
John M. Bradley.
(xiv) The term "Melody Working Capital Facility" shall have the
following meaning:
"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.
4
<PAGE>
2.02. Amendment to Section 6.01. Section 6.01 of the Restated
-------------------------
Credit Agreement is hereby amended by (i) deleting the word "and" at the end of
clause (f) therein, and (ii) inserting after clause (g) and before the proviso
at the end of Section 6.01, new clauses (h) and (i), as follows:
(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; and
(i) 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;
2.03. Amendment to Section 6.02. Section 6.02 of the Restated
-------------------------
Credit Agreement is hereby amended by (i) deleting the word "and" at the end of
clause (j) therein, (ii) deleting the period at the end of clause (k) and
inserting in place thereof a semicolon, and (iii) inserting at the end thereof
new clauses (1) and (m), as follows:
(l) Melody Permitted Indebtedness; and
(m) Indebtedness of the Borrower comprised of a guaranty by Borrower
of the Melody Seller Senior Notes and the Melody Seller Contingent Notes.
2.04. Amendment to Section 7.01. Section 7.01 of the Restated
-------------------------
Credit Agreement is hereby amended by (i) deleting the word "and" at the end of
clause (m) therein, (ii) deleting the period at the end of clause (o) and
inserting in place thereof a semicolon and the word "and", and (iii) inserting
at the end thereof a new clause (p), as follows:
(p) 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.
3. Financial Reporting. In addition to the financial statements and
-------------------
other reports required by Section 5.01 of the Credit Agreement to be delivered
by the Borrower to the Lender, the Borrower will deliver to the Lender (a) as
soon as practicable and in any event within 90 days after the end of each Fiscal
Year, a balance sheet of Melody and the related statements of income,
stockholders' equity and cash flow of Melody for such Fiscal Year, setting forth
in each case in comparative form the figures for the previous Fiscal Year, all
in reasonable detail, certified by the Chief Financial Officer of the Borrower
as fairly presenting the financial condition of Melody as at the end of such
Fiscal Year and the results of its operations and cash flow for such Fiscal
Year; and (b) as soon as practicable and in any event within 30 days after the
end of each month, a balance sheet of Melody as at the end of such month and the
related statement of income of Melody for such month and the portion of the
Fiscal Year ended at the end of such month, setting forth in each case in
comparative form the figures for the corresponding periods of the prior Fiscal
Year, all in reasonable detail and certified by the Borrower's Chief Financial
Officer as fairly presenting the financial condition
5
<PAGE>
of Melody as at the date indicated and the results of its operations for the
period indicated, subject to normal year-end adjustments.
4. No Further Amendments. Except as expressly or amended hereby,
---------------------
(a) the Restated Credit Agreement, the Notes issued thereunder and all other
Loan Documents are in all respects ratified and confirmed and shall remain
unchanged and in full force and effect, (b) the Lender does not hereby waive any
existing or future Default or Event of Default or any right or privilege of the
Lender under the Restated Credit Agreement, and (c) the Lender is not precluded
from exercising any of its rights or privileges under the Restated Credit
Agreement. Nothing contained in this Amendment shall obligate the Borrower or
the Lender to enter into any further amendment or modification of the Restated
Credit Agreement.
5. Representation and Warranties. (a) The Borrower hereby represents
-----------------------------
and warrants to the Lender that no Default or Event of Default exists under the
Restated Credit Agreement, or would occur under the Restated Credit Agreement as
a result of the modifications thereto effected hereby, and that the
representations and warranties of the Borrower set forth in Article IV of the
Restated Credit Agreement are true and correct on and as of the Amendment
Effective Date, except to the extent that such representations and warranties
expressly speak only as of a prior date, in which case such representations and
warranties were true and correct on and as of such prior date.
(b) The Borrower hereby represents and warrants to the Lender that it
has provided to the Lender copies of all Melody Acquisition Documents, and that
the form of each Melody Acquisition Document last furnished to the Lender prior
to the Amendment Effective Date is a true, correct and complete copy of such
document as executed by the parties thereto on or prior to the Closing Date (as
defined in the Melody Stock Purchase Agreement), and is in full force and effect
in such form, without amendment, modification or waiver on and as of the Closing
Date. The Borrower agrees that it shall not, without the prior written consent
of the Lender, which may be given or withheld in the Lender's sole discretion,
enter into any amendment or modification of any Melody Acquisition Document, or
enter into any agreement ancillary thereto, which would increase the obligations
of or burdens on the Borrower or any of its Subsidiaries under any Melody
Acquisition Document or decrease the benefits to which it is entitled
thereunder.
6. Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of California.
7. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which, when so executed and delivered, shall be deemed an
original. All such counterparts taken together shall constitute but one and the
same instrument.
8. Effectiveness. This Amendment shall be effective as of the date
-------------
first written above on the later of (a) the Closing Date (as defined in the
Melody Stock Purchase Agreement) or (b) the date on which a counterpart hereof
shall have been executed and delivered by each of the parties hereto, including
without limitation the Guarantors identified below or (c) the date on which an
amendment or waiver, in form and substance satisfactory to the Lender, becomes
effective under the Senior Subordinated Credit Agreement, with respect to the
matters referred to herein, or (d) the date on which the Borrower causes to be
delivered to the Lender (i) the Subsidiary Guaranty and the Subsidiary Security
Agreement, both duly executed by Melody, or a reaffirmation thereof and its
obligations thereunder duly executed by Melody, as successor by merger to CB
Mortgage, in form and substance satisfactory to the
6
<PAGE>
Lender, together with financing statements on Form UCC-1 executed by Melody
and in form sufficient for filing in California, Texas and each other
jurisdiction in which Melody conducts business, and (ii) in pledge, pursuant to
the CBCREG Pledge Agreement, certificates representing all of the issued and
outstanding capital stock of Melody, as the corporation surviving the Melody
Merger, and Melody California, or (e) the date of payment of all fees provided
in the letter dated June 30, 1996 from the Borrower to the Lender (the
"Amendment Effective Date").
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first set forth above.
CB COMMERCIAL REAL ESTATE GROUP, INC.
By: /s/ David A. Davidson
------------------------
Name: David A. Davidson
Title: Senior Executive
Vice President
THE SUMITOMO BANK, LIMITED
By: /s/ Goro Hirai
------------------------
Name: Goro Hirai
Title: Joint General Manager
7
<PAGE>
ACKNOWLEDGMENT, CONSENT AND REAFFIRMATION OF GUARANTORS
The undersigned Guarantors hereby acknowledge that they have
reviewed this Amendment and the Restated Credit Agreement. The undersigned
consent to the Amendment, confirm that they agree to the terms thereof and
hereby reconfirm the Guaranties and other Loan Documents to which they are a
party, which they acknowledge shall remain in full force and effect.
CB COMMERCIAL HOLDINGS, INC.
By: /s/ David Davidson
--------------------------
Name: David A. Davidson
Title: Senior Executive
Vice President
CB COMMERCIAL MORTGAGE COMPANY, INC. (formerly CB
COMMERCIAL MORTGAGE BANKING, INC., formerly CB
COMMERCIAL, INC., formerly CB FUNDING
CORPORATION); CB COMMERCIAL REAL ESTATE GROUP OF
IOWA, INC. (formerly COLDWELL BANKER, INC.); CB
COMMERCIAL REALTY ADVISORS, INC. (formerly
COLDWELL BANKER REAL ESTATE ADVISORY SERVICES,
INC.); SUTTER FREMONT REAL ESTATE MERCHANT CAPITAL
CORPORATION (formerly CB COMMERCIAL REAL ESTATE
SERVICES INC.), (formerly COLDWELL BANKER
COMMERCIAL REAL ESTATE SERVICES INC.); CB
COMMERCIAL BROKERAGE, INC., COLDWELL BANKER
COMMERCIAL BROKERAGE, INC. (formerly COLDWELL
BANKER & COMPANY REAL ESTATE AND INSURANCE
BROKERS); SUTTER FREMONT PROPERTY SERVICES, INC.
(formerly CB COMMERCIAL PROPERTY SERVICES, INC.,
(formerly COLDWELL BANKER PROPERTY SERVICES,
INC.); CB COMMERCIAL REAL ESTATE FUND MANAGEMENT,
INC. (formerly COLDWELL BANKER REAL ESTATE FUND
MANAGEMENT, INC.); CB COMMERCIAL REAL ESTATE
MANAGEMENT SERVICES, INC. (formerly COLDWELL
BANKER REAL ESTATE MANAGEMENT SERVICES, INC.); CB
COMMERCIAL SUTTON & TOWNE, INC. (formerly COLDWELL
BANKER
8
<PAGE>
SUTTON & TOWNE, INC.); SUTTON & TOWNE N.J., INC.;
SUTTER FREMONT, INC. (formerly CB COMMERCIAL);
HOLDINGS SECURITIES CORPORATION, (formerly
COLDWELL BANKERS SECURITIES CORPORATION); CB
COMMERCIAL WAREHOUSE PROPERTY CORP. (formerly CB
WAREHOUSE PROPERTY CORP.)
By: /s/ David A. Davidson
----------------------------
Name: David A. Davidson
Title: Vice President
9
<PAGE>
EXHIBIT 10.7 (v)
AMENDMENT NO. 4 TO
SENIOR SUBORDINATED CREDIT AGREEMENT
This AMENDMENT NO. 4 (this "Amendment") to the Senior Subordinated
---------
Credit Agreement referred to below is dated as of June 30, 1996 and entered into
by and among CB Commercial Real Estate Group, Inc., a Delaware corporation,
formerly known as Coldwell Banker Group, Inc. (the "Borrower"), CB Commercial
--------
Holdings, Inc., a Delaware corporation ("CB Holdings"), 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 parties hereto are parties to the Senior Subordinated
Credit Agreement dated as of July 20, 1990, as amended by Amendment No. 1
thereto dated as of October 10, 1991, as further amended by Amendment No. 2
thereto dated as of June 30, 1994 and, as further amended by Amendment No. 3
thereto dated as of June 30, 1995 (as so amended, the "Credit Agreement");
------ ---------
WHEREAS, the Borrower has advised the Lender that it proposes to
acquire all of the issued and outstanding capital stock of L.J. Melody &
Company, a Texas corporation, and L.J. Melody & Company of California, a Texas
corporation;
WHEREAS, after the Melody Acquisition, L.J. Melody & Company will be a
wholly-owned Subsidiary of the Borrower;
WHEREAS, the Borrower has requested the Lender to modify the
provisions of Sections 6.1 and 6.5 of the Credit Agreement to permit Borrower to
consummate the Melody Acquisition on substantially the terms set forth in the
Melody Acquisition Documents as in effect on the Amendment Effective Date; and
WHEREAS, the Lender is willing to enter into this Amendment on the
terms and conditions set forth herein.
AGREEMENT
1. Definitions. Terms defined in the Credit Agreement (as amended
-----------
hereby) and not otherwise defined herein are used herein as therein defined.
2. Amendments to Credit Agreement. Effective on the Amendment
------------------------------
Effective Date (as defined in Section 11 herein), the Credit Agreement is hereby
amended as follows:
<PAGE>
2.1 Amendment to Section 1.1.
------------------------
(a) Section 1.1 of the Credit Agreement is hereby amended by inserting
therein, in appropriate alphabetical order, the following definitions of terms:
"Melody" means L.J. Melody & Company, a Texas corporation.
------
"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 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, for aggregate consideration in an amount not in excess
of $15,000,000, of which not more than $9,000,000 shall be paid in cash
upon consummation thereof and at least $3,000,000 of which shall be paid by
issuance of the Melody Seller Senior Notes to the Melody Stockholders and
at least $3,000,000 shall be paid by issuance of the Melody Seller
Contingent Notes to the Melody Stockholders, 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 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.
"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 Amendment No. 4
hereto 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.
2
<PAGE>
"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"), pursuant to which RFC
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 to Melody thereunder are secured by a pledge of commercial mortgage
loans made by Melody with the proceeds of such loans, and RFC 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 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
3
<PAGE>
at no time exceeds $1,000,000.
2.2. Amendment to Section 6. 1. Section 6.1 of the Credit
-------------------------
Agreement is hereby amended as follows:
(a) Exception (xiii) to Section 6.1 is hereby renumbered as
Exception (xv) to Section 6.1, and the reference therein to clauses (i)-(xii)
is hereby amended to be a reference to clauses (i)-(xiv).
(b) The following language is hereby added before the new Exception
(xv) to Section 6.1, as exceptions (xiii) and (xiv), respectively, to Section
6.1:
"(xiii) Melody Permitted Indebtedness;"
"(xiv) Indebtedness of the Borrower comprised of a guarantee by
Borrower of the Melody Seller Senior Notes and the Melody Seller
Contingent Notes; and"
2.3. Amendment to Section 6.5. Section 6.5 of the Credit
------------------------
Agreement is hereby amended by deleting the word "and" and inserting a "," in
lieu thereof before "(ii)" in the paragraph and inserting after the word
"Indebtedness" but before the ";" on the fourth line from the bottom of the
paragraph, the following:
", (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;"
2.4. Amendment to Section 7.1. Section 7.1 of the Credit
------------------------
Agreement is hereby amended by (i) deleting the word "or" at the end of clause
"J"; (ii) inserting the word "or" at the end of clause "K" therein; and (iii)
inserting at the end thereof a new clause "L," as follows:
"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."
3. Financial Reporting. In addition to the financial statements and
-------------------
other reports required by Section 5.1 of the Credit Agreement to be delivered by
the Borrower to the Lender, the Borrower will deliver to the Lender (a) as soon
as practicable and in any event within 90 days after the end of each Fiscal
Year, a balance sheet of Melody and the related statements of income,
stockholders' equity and cash flow of Melody for such Fiscal Year, setting
4
<PAGE>
forth in each case in comparative form the figures for the previous Fiscal Year,
all in reasonable detail, certified by the Chief Financial Officer of the
Borrower as fairly presenting the financial condition of Melody as at the end of
such Fiscal year and the results of its operations and cash flow for such Fiscal
Year; and (b) as soon as practicable and in any event within 30 days after the
end of each month, a balance sheet of Melody as at the end of such month and the
related statement of income of Melody for such month and the portion of the
Fiscal Year ended at the end of such month, setting forth in each case in
comparative form the figures for the corresponding periods of the prior Fiscal
Year, all in reasonable detail and certified by the Borrower's Chief Financial
Officer as fairly presenting the financial condition of Melody as at the date
indicated and the result of its operations for the period indicated, subject to
normal year-end adjustments.
4. No Further Amendments. Except as expressly waived herein or
---------------------
amended hereby, (a) the Credit Agreement, as amended hereby, the Note, the
Payment-in-Kind Note, the Pledge Agreement and all other instruments and
agreements executed thereunder and all other Loan Documents are in all respects
ratified and confirmed and shall remain unchanged and in full force and effect,
(b) the Lender does not hereby waive any existing or future Default or Event of
Default or any right or privilege of the Lender under the Credit Agreement, and
(c) the Lender is not precluded from exercising any of its rights or privileges
under the Credit Agreement. Nothing contained in this Amendment shall obligate
the Borrower or the Lender to enter into any further amendment or modification
of the Credit Agreement.
5. Representation and Warranties.
------------------------------
5.1. General. Borrower hereby represents and warrants to Lender that
-------
no Default or Event of Default exists under the Credit Agreement, or would occur
under the Credit Agreement as a result of the modifications thereto effected
hereby, and that the representations and warranties of Borrower set forth in
Article IV of the Credit Agreement, Section 4 of Amendment No. 1 thereto,
Section 3 of Amendment No. 2 thereto, and Section 7 of Amendment 3 thereto,
respectively, are true and correct on and as of the Amendment Effective Date,
except to the extent that such representations and warranties expressly speak
only as of a prior date, in which case such representations and warranties were
true and correct on and as of such prior date.
5.2. The Melody Acquisition. The Borrower hereby represents and
----------------------
warrants to the Lender that it has provided to the Lender copies of all Melody
Acquisition Documents, and that the form of each Melody Acquisition Document
last furnished to the Lender prior to the Amendment Effective Date is a true,
correct and complete copy of such document as executed by the parties thereto on
or prior to the Closing Date (as defined in the Melody Stock Purchase Agreement)
and is in full force and effect in such form, without amendment, modification or
waiver on and as of the Closing Date. The Borrower hereby agrees that it shall
not, without the prior written consent of the Lender, which may be given or
withheld in the Lender's sole discretion, enter into any amendment or
modification of any Melody Acquisition Document, or enter into any agreement
ancillary thereto, which would increase the obligations of or burdens on the
Borrower or any of its Subsidiaries under any Melody Acquisition Document or
decrease the benefits to which it is entitled thereunder.
5
<PAGE>
6. Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
7. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which, when so executed and delivered, shall be deemed an
original. All such counterparts taken together shall constitute but one and the
same instrument.
8. Reaffirmation of Guarantee. Each Guarantor (a) consents to the
--------------------------
amendments, waivers and other transactions effected by this Amendment and (b)
confirms and agrees that the Guarantees contained in Article X of the Credit
Agreement (i) are the legal, valid and binding obligations of the Guarantors
enforceable against each of them in accordance with their respective terms, and
(ii) shall after the Amendment Effective Date extend to and guarantee all
obligations of the Borrower arising under or in connection with the Credit
Agreement as amended by this Amendment.
9. Pledge Agreement. CB Holdings, as Pledgor under the Stock Pledge
----------------
Agreement, (a) consents to the amendments, waivers and other transactions
effected by this Amendment and (b) confirms and agrees that (i) all references
in the Stock Pledge Agreement to the Credit Agreement shall be deemed to be
references to the Credit Agreement as amended hereby, (ii) the pledge set forth
therein of the "Collateral" (as defined therein) is, and will as of the
Amendment Effective Date be the legal, valid and binding obligation of CB
Holdings, enforceable against it in accordance with its terms, securing the
"Secured Obligations" (as defined therein), and (iii) after the Amendment
Effective Date all of such Collateral shall additionally extend to and secure
all obligations of the Borrower arising under or in connection with the Credit
Agreement as amended by this Amendment.
10. Fees and Expenses. The Borrower shall reimburse the Lender on
------------------
demand for all expenses incurred by the Lender, including but not limited to
reasonable fees and expenses of counsel, in connection with the preparation,
negotiation, execution, administration and enforcement of this Amendment and
other documents contemplated by this Amendment.
11. Effectiveness. This Amendment shall be effective as of the date
-------------
first written above on the later of (a) the Closing Date (as defined in the
Melody Stock Purchase Agreement, or (b) the date on which a counterpart hereof
shall have been executed and delivered by each of the parties hereto, including
without limitation the Guarantors identified below, or (c) the date on which an
amendment or waiver, in form and substance satisfactory to the Lender, becomes
effective under the Senior Credit Agreement, with respect to the matters
referred to herein, or (d) the date on which the Additional Guarantee and
Affirmation of Guarantee shall have been executed by Melody and Melody
California and become effective or (e) the date on which the fees described in
this Amendment have been paid (the "Amendment Effective Date").
12. Subordination. The Borrower, the Guarantors and the Lender
-------------
confirm and agree for the benefit of the lender under the Senior Credit
Agreement and any other holders of Senior Debt that (a) the subordination
provisions contained in Article VIII of the Credit Agreement continue in full
force and effect and apply to the Credit Agreement as amended hereby, and (b)
the Intercreditor Agreement continues in full force and effect, in each case
after giving effect hereto and to Amendment No. 2 to Second Amended and Restated
Senior Secured
6
<PAGE>
Credit Agreement dated as of June 30, 1996 (the "New Senior Amendment"). The
--------------------
Senior Credit Agreement, as amended and modified by the New Senior Amendment,
shall continue to enjoy the benefits of the subordination set forth in Article
VIII of the Credit Agreement and in the Intercreditor Agreement.
13. Amendment Fee. The Borrower hereby agrees to pay to the Lender,
-------------
concurrently with the execution of this Amendment, a non-refundable amendment
fee in the amount of Twenty Thousand Dollars ($20,000) in lawful money of the
United States of America.
[signature page follows]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
BORROWER: LENDER:
- -------- ------
CB COMMERCIAL REAL ESTATE SUMITOMO FINANCE (DUBLIN)
GROUP, INC. LIMITED
By: By:
-------------------------------- --------------------------------
Name: David A. Davidson Name: Yozo Furuya
Title: Senior Executive Vice President Title: Managing Director
GUARANTORS:
- ----------
CB COMMERCIAL HOLDINGS, INC.
By:
--------------------------------
Name: David A. Davidson
Title: Senior Executive Vice President
CB COMMERCIAL MORTGAGE COMPANY, INC.,
CB COMMERCIAL REAL ESTATE GROUP OF IOWA,
INC., CB COMMERCIAL REALTY ADVISORS,
INC., SUTTER FREMONT REAL ESTATE MERCHANT
CAPITAL CORPORATION, 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.,
SUTTON & TOWNE N.J., INC., SUTTER
FREMONT, INC., and CB COMMERCIAL WAREHOUSE
PROPERTY CORP.
By:
---------------------------------
Name: David A. Davidson
Title: Vice President
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,451
<SECURITIES> 0
<RECEIVABLES> 33,747
<ALLOWANCES> 4,008
<INVENTORY> 0
<CURRENT-ASSETS> 65,018
<PP&E> 83,448
<DEPRECIATION> 40,476
<TOTAL-ASSETS> 189,763
<CURRENT-LIABILITIES> 77,066
<BONDS> 0
0
40
<COMMON> 95
<OTHER-SE> (151,142)
<TOTAL-LIABILITY-AND-EQUITY> 189,763
<SALES> 243,423
<TOTAL-REVENUES> 244,444
<CGS> 110,852
<TOTAL-COSTS> 230,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,547
<INCOME-PRETAX> 2,016
<INCOME-TAX> 390
<INCOME-CONTINUING> 1,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,626
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
