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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 3, 1996
CB COMMERCIAL HOLDINGS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-18525 52-1616016
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(STATE OR OTHER (COMMISSION FILE (IRS EMPLOYER
JURISDICTION OF NUMBER) IDENTIFICATION NO.)
INCORPORATION)
533 SOUTH FREMONT AVENUE - LOS ANGELES, CALIFORNIA 90071
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (213) 613-3123
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N/A
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 3, 1996, pursuant to a Stock Purchase Agreement dated as of June
27, 1996 among CB Commercial Real Estate Group, Inc., a wholly owned subsidiary
of the registrant ("CB Commercial"), and CB Commercial Mortgage Company, Inc., a
wholly owned subsidiary of CB Commercial ("CB Mortgage"), on the one hand, and
Lawrence J. Melody and John M. Bradley, on the other hand, and a Stock Purchase
Agreement dated as of June 27, 1996 among CB Commercial and CB Mortgage, on the
one hand, and Lawrence J. Melody, on the other hand, CB Mortgage acquired all of
the outstanding capital stock of L.J. Melody & Company, a Texas corporation
("LJMCo"), and L.J. Melody & Company of California, a Texas corporation
("LJMCal"). On July 9, 1996 CB Mortgage merged into LJMCo, with LJMCo surviving
the merger. As a result of the merger, LJMCal is a wholly owned subsidiary of
LJMCo, and it is intended that at the end of 1996 LJMCal will be merged into
LJMCo. LJMCo and LJMCal are commercial mortgage banking firms engaged in loan
origination and loan servicing. LJMCo is headquartered in Houston, Texas and
LJMCal is headquartered in Los Angeles, California.
The aggregate purchase price for LJMCo and LJMCal was $15 million, of which
$9 million was paid in cash and the remainder in notes. The notes consist of
Senior Promissory Notes with an aggregate principal amount of $3 million
maturing on July 1, 1998 and bearing interest of 10 percent per annum and
Contingent Promissory Notes with an aggregate principal amount of $3 million
maturing on July 1, 2001 and bearing interest of 10 percent per annum. The
purchase price was determined in arms' length negotiations. 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.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following are furnished as exhibits to this report:
10.1 Stock Purchase Agreement dated as of June 27, 1996 among CB
Commercial Real Estate Group, Inc. and CB Commercial Mortgage
Company, Inc., on the one hand, and Lawrence J. Melody and John
M. Bradley, on the other hand.
10.2 Stock Purchase Agreement dated as of June 27, 1996 among CB
Commercial Real Estate Group, Inc. and CB Commercial Mortgage
Company, Inc., on the one hand, and Lawrence J. Melody, on the
other hand.
23 Consent of Arthur Andersen LLP
99.1 Financial statements for L.J. Melody & Company for
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the year ended December 31, 1995, together with the report of
Arthur Andersen LLP with respect thereto.
99.2 Financial statements for L.J. Melody & Company of California for
the year ended December 31, 1995, together with the report of
Arthur Andersen LLP with respect thereto.
The financial statements for L.J. Melody & Company and L.J. Melody &
Company of California for the three months March 31, 1996 and the pro
forma financial information required to be filed as exhibits to this report
are not included and will be filed as soon as practicable but no later than
September 16, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
CB COMMERCIAL HOLDINGS, INC.
Date: July 17, 1996 By: /s/ James J. Didion
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James J. Didion
Chairman and Chief Executive
Officer
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EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
by and among
CB COMMERCIAL REAL ESTATE GROUP, INC.
and
CB COMMERCIAL MORTGAGE COMPANY, INC.
on the one hand,
and
LAWRENCE J. MELODY
and
JOHN M. BRADLEY,
on the other hand
June 27, 1996
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS........................................................... 1
1.1 Certain Definitions................................................. 1
1.2 Other Definitions................................................... 7
ARTICLE 2 PURCHASE AND SALE OF STOCK............................................ 8
ARTICLE 3 PURCHASE PRICE AND METHOD OF PAYMENT.................................. 8
ARTICLE 4 THE CLOSING........................................................... 8
4.1 Closing............................................................. 8
4.2 Closing Deliveries.................................................. 8
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.................... 9
5.1 Capitalization and Ownership........................................ 9
5.2 Organization........................................................ 10
5.3 Authority; Non-Contravention........................................ 10
5.4 No Consents......................................................... 11
5.5 Financial Statements................................................ 11
5.6 Absence of Undisclosed Liabilities.................................. 12
5.7 Adequate Capitalization............................................. 12
5.8 No Adverse Knowledge................................................ 12
5.9 Legal Compliance.................................................... 12
5.10 Title to Assets..................................................... 13
5.11 Contracts........................................................... 13
5.12 Real Property....................................................... 15
5.13 Tax Matters......................................................... 15
5.14 Intellectual Property............................................... 16
5.15 Accounts Receivable................................................. 17
5.16 Debt Instruments.................................................... 17
5.17 Litigation.......................................................... 18
5.18 Employee Agreements................................................. 18
5.19 Labor Matters....................................................... 18
5.20 Employee Benefit Plans.............................................. 19
5.21 Environmental, Health and Safety.................................... 20
5.22 Absence of Certain Changes.......................................... 21
5.23 Insurance........................................................... 22
5.24 Force Majeure....................................................... 22
5.25 Brokers............................................................. 23
5.26 Full Disclosure..................................................... 23
ARTICLE 6 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS......... 23
6.1 Authority........................................................... 23
6.2 Consent of Spouse................................................... 23
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ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF CBM AND CBC......................... 23
7.1 Organization........................................................ 23
7.2 Authority........................................................... 24
7.3 SEC Documents....................................................... 24
7.4 Financial Statements................................................ 24
7.5 Non-Contravention................................................... 25
7.6 No Adverse Knowledge................................................ 25
7.7 Legal Compliance.................................................... 26
7.8 Brokers............................................................. 26
7.9 Litigation.......................................................... 26
7.10 Absence of Certain Changes.......................................... 27
7.11 Absence of Undisclosed Liabilities Relating to CBC Mortgage
Origination Business................................................ 27
7.12 Full Disclosure..................................................... 27
ARTICLE 8 COVENANTS OF THE SHAREHOLDERS......................................... 27
8.1 Ordinary Course..................................................... 27
8.2 Dividends and Distributions; Changes in Ownership Interests......... 27
8.3 No Other Bids....................................................... 27
8.4 No Acquisitions..................................................... 28
8.5 No Dispositions..................................................... 28
8.6 Benefit Plans, Etc.................................................. 28
8.7 Access to Information............................................... 28
8.8 Communications...................................................... 28
8.9 Update to Disclosures............................................... 29
8.10 Good Faith.......................................................... 29
8.11 Conditions Regarding Customer Contact............................... 29
ARTICLE 9 COVENANTS OF THE CB COMPANIES......................................... 29
9.1 Ordinary Course..................................................... 29
9.2 No Other Bids....................................................... 30
9.3 Access to Information; Confidentiality.............................. 30
9.4 Communications...................................................... 30
9.5 Update to Disclosures............................................... 30
9.6 Good Faith.......................................................... 31
9.7 Conditions Regarding Customer Contact............................... 31
ARTICLE 10 ADDITIONAL AGREEMENTS................................................ 31
10.1 Conditions to the Transaction....................................... 31
10.2 State Statutes...................................................... 31
10.3 Pre-Closing Tax Liability; Tax Returns of LJMCo..................... 31
10.4 Allocation of Certain Accounts Receivable........................... 32
10.5 Integration of Mortgage Origination Business........................ 33
10.6 Employee Equity Equivalent Program.................................. 34
10.7 CBM's Business Operations........................................... 34
10.8 LJMCo Business Management........................................... 35
10.9 LJM Administrative Services......................................... 36
10.10 Key Person Life Insurance........................................... 36
10.11 Merger of LJMCo and CBM............................................. 36
10.12 Letters of Credit................................................... 36
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10.13 Termination of LJMCo 401(k) Plan.................................... 36
10.14 No Section 338(h)(10) Election; Post Closing Transfers.............. 37
10.15 CBC Holdings Stock Options.......................................... 37
10.16 Assignment of LJMCo Name; License................................... 37
10.17 Vacation............................................................ 38
ARTICLE 11 CONDITIONS PRECEDENT................................................. 38
11.1 Conditions to Obligations of All Parties............................ 38
(A) Government Approvals......................................... 38
(B) Legal Action................................................. 38
(C) Statutes..................................................... 38
(D) Federal Home Loan Mortgage Corporation Approval.............. 38
(E) LJMCal Stock Purchase Agreement.............................. 38
11.2 Conditions to Obligations of CBC and CBM............................ 39
(A) Representations and Warranties............................... 39
(B) Performance of Obligations of the Shareholders............... 39
(C) Opinion of Counsel to LJMCo and the Shareholders............. 39
(D) No Material Adverse Change................................... 39
(E) Employment Agreement......................................... 39
(F) Covenants Not to Compete..................................... 39
(G) Trademark Agreement.......................................... 39
(H) Sumitomo Consent............................................. 39
(I) Other Third-Party Approvals.................................. 40
(J) Resignations................................................. 40
(K) Intentionally Deleted........................................ 40
(L) Pre-Closing Transactions..................................... 40
(M) Absence of Liabilities....................................... 41
(N) Allocation, Assumption and Collection Agreement.............. 41
(O) LJMCal Stock Purchase Conditions............................. 41
(P) Certain Write-offs........................................... 41
(Q) General Release.............................................. 41
(R) Intentionally Deleted........................................ 41
(S) CBM Employment Agreements.................................... 41
(T) L.J. Melody Realty Advisors Name............................. 41
(U) Termination of Shareholders' Agreement....................... 42
11.3 Conditions to Obligations of the Shareholders....................... 42
(A) Representations and Warranties............................... 42
(B) Performance of Obligations of the CB Companies............... 42
(C) Opinion of Counsel to CBC and CBM............................ 42
(D) Letters of Credit and Guaranty............................... 42
(E) No Material Adverse Change................................... 42
(F) Employment Agreement......................................... 42
(G) Intentionally Deleted........................................ 42
(H) Intentionally Deleted........................................ 43
(I) LJMCal Stock Purchase Conditions............................. 43
(J) Intentionally Deleted........................................ 43
ARTICLE 12 SURVIVAL AND INDEMNIFICATION......................................... 43
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12.1 Survival........................................................... 43
12.2 Indemnification by the Shareholders................................ 43
12.3 Indemnification by CBC............................................. 44
12.4 CBC's Right of Set-Off............................................. 45
12.5 Notice and Defense of Third-Party Claims........................... 45
12.6 Limitation......................................................... 46
12.7 Exclusivity........................................................ 46
ARTICLE 13 TERMINATION......................................................... 46
13.1 Termination........................................................ 46
13.2 Effect of Termination.............................................. 48
ARTICLE 14 MISCELLANEOUS....................................................... 48
14.1 Entire Understanding............................................... 48
14.2 Waiver and Amendment............................................... 48
14.3 Headings........................................................... 49
14.4 Counterparts....................................................... 49
14.5 Intentionally Deleted.............................................. 49
14.6 Merger of Documents................................................ 49
14.7 Incorporation of Schedules......................................... 49
14.8 Interpretation..................................................... 49
14.9 Notices............................................................ 49
14.10 Successors and Assigns............................................. 50
14.11 Dispute Resolution................................................. 51
14.12 Attorneys' Fees.................................................... 52
14.13 Governing Law...................................................... 52
14.14 Joint and Several.................................................. 52
14.15 Construction....................................................... 52
14.16 Cooperation........................................................ 52
14.17 Expenses........................................................... 52
14.18 Representation by Counsel.......................................... 53
</TABLE>
Exhibits
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Exhibit A Form of Senior Notes
Exhibit B Form of Contingent Notes
Exhibit C Form of Opinion of Baker & Botts, L.L.P.
Exhibit D Form of Employment Agreement
Exhibit E Form of Covenants Not to Compete
Exhibit F Form of Trademark Agreement
Exhibit G Form of General Release
Exhibit H Form of Opinion of Pillsbury Madison & Sutro LLP
Exhibit I Form of Guaranty
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Schedules
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Schedule 5.1 Capitalization and Ownership
Schedule 5.2 Organization
Schedule 5.3 Non-Contravention
Schedule 5.4 No Consents
Schedule 5.5 Financial Statements
Schedule 5.6 Absence of Undisclosed Liabilities
Schedule 5.8 No Adverse Knowledge
Schedule 5.10 Title to Assets
Schedule 5.11 Contracts
Schedule 5.12 Real Property
Schedule 5.13 Tax Matters
Schedule 5.14 Intellectual Property
Schedule 5.16 Debt Instruments
Schedule 5.17 Litigation
Schedule 5.18 Employee Agreements
Schedule 5.19 Labor Matters
Schedule 5.20 Employee Benefit Plans
Schedule 5.22 Absence of Certain Changes
Schedule 5.23 Insurance
Schedule 7.5 Non-Contravention
Schedule 7.6 No Adverse Knowledge
Schedule 7.7 Legal Compliance
Schedule 7.11 Absence of Undisclosed Liabilities
Relating to CBC Mortgage Origination Business
Schedule 10.5 Integration of Mortgage Origination Business
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STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this 27th day of June, 1996 by and among CB COMMERCIAL REAL ESTATE GROUP,
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INC., a Delaware corporation ("CBC"), CB COMMERCIAL MORTGAGE COMPANY, INC., a
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California corporation and wholly owned subsidiary of CBC ("CBM"), and LAWRENCE
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J. MELODY ("LJM") and JOHN M. BRADLEY ("JMB" and, collectively with LJM, the
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"Shareholders").
W I T N E S S E T H:
WHEREAS, LJM and JMB own, beneficially and of record, all of the issued and
outstanding shares of capital stock (the "LJMCo Stock") of L. J. Melody &
Company, a Texas corporation ("LJMCo");
WHEREAS, LJMCo is engaged in the Business (as defined below); and
WHEREAS, CBM desires to purchase from LJM and JMB and each of LJM and JMB
desires to sell to CBM the LJMCo Stock, on the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the terms, conditions and other
provisions contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
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1.1 Certain Definitions. The terms defined in this Section 1.1 shall, for
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all purposes of this Agreement, have the meanings herein specified, unless the
context expressly or by necessary implication otherwise requires:
"Affiliate" means with respect to a specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with the Person specified.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a), or any similar group defined under any similar provision of
state, local or foreign law.
"Allocation Schedule" means a schedule of certain accounts receivable and
liabilities of LJMCo prepared jointly by CBC, CBM and the Shareholders pursuant
to Section 10.4 hereof.
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"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan occurrence, event, incident, action, failure
to act or transaction that forms or could form the basis for any specified
consequence.
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"Business" means the commercial mortgage banking business conducted by
LJMCo, including mortgage origination and loan servicing and the pension
advisory/asset management business in which LJMCo is currently engaged.
"Cash Equivalents" means all bank deposits, bank or money market accounts,
marketable securities (valued at the Market Price for such security) listed on a
national domestic securities exchange, mutual funds whose shares are either
traded on a national domestic securities exchange or which are obligated to
redeem their shares at net asset value (valued at the Market Price of such
mutual fund shares), securities issued by the U.S. government, and other similar
items.
"Cash Management Loans" means LJMCo's cash management lines of credit from
Texas Commerce Bank National Association and any other bank.
"CB Holdings" means CB Commercial Holdings, Inc., a Delaware corporation,
which owns all of the issued and outstanding capital stock of CBC.
"CBC Mortgage Origination Business" means the assets and liabilities of
CBC's mortgage origination and loan servicing business set forth on Schedule
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10.5.
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"CB Company" means CBC, CBM, CB Commercial Real Estate Group of Hawaii,
Inc., CB Commercial Realty Advisors, Inc., Sutter Fremont Property Services,
Inc. and Westmark Realty Advisors L.L.C.
"Code" means the Internal Revenue Code of 1986, as amended.
"Covenants Not to Compete" means the Covenants Not to Compete between CBC
and CBM and each of LJM and JMB to be entered into on the Closing Date,
substantially in the form of Exhibit E hereto.
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"Employee Benefit Plan" means (i) any Employee Pension Benefit Plan; (ii)
any Employee Welfare Benefit Plan; (iii) any bonus, deferred compensation,
incentive, restricted equity, equity purchase, equity option, equity
appreciation right, phantom equity, debenture, supplemental pension, profit-
sharing, royalty pool, commission, cafeteria or similar plan or arrangement;
(iv) any plan, program, agreement, policy, commitment or other arrangement
relating to severance or termination pay, whether or not published or generally
known; (v) any plan, program, agreement, policy, commitment or other arrangement
relating to the provision of any benefit described in Section 3(1) of ERISA to
former employees or directors or to their survivors or (vi) any other plan,
program, agreement, procedure, policy, commitment, understanding or other
arrangement relating to employee benefits, executive compensation, fringe
benefits, severance pay, collective bargaining or terms of employment.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1).
"Environmental, Health and Safety Law" means a Legal Rule pertaining to
land use (excluding Legal Rules regarding zoning and building code
restrictions), air, soil, surface water, groundwater (including the protection,
cleanup, removal, remediation or damage thereof), public or employee health or
safety or any other environmental matter, including, without limitation, the
following laws as the same have been amended from time to time: (i) Clean Air
Act (42 U.S.C.
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(S) 7401, et seq.); (ii) Clean Water Act (33 U.S.C. (S) 1251, et seq.); (iii)
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Resource Conservation and Recovery Act (42 U.S.C. (S) 6901, et seq.); (iv)
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Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
(42 U.S.C. (S) 9601, et seq.); (v) Safe Drinking Water Act (42 U.S.C. (S) 300f,
-------
et seq.); (vi) Toxic Substances Control Act (15 U.S.C. (S) 2601, et seq.); (vii)
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Rivers and Harbors Act (33 U.S.C. (S) 401, et seq.); (viii) Occupational Safety
-------
and Health Act (29 U.S.C. (S) 651, et seq.); together with all other Legal Rules
-------
relating to emissions, discharges, releases or threatened releases of any
Hazardous Substance into ambient air, land, surface water, groundwater, personal
property or structures, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, discharge or
handling of any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity that, together with LJMCo, is treated as
a single employer under section 414(b), 414(c), 414(m) or 414(o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Existing Liabilities" means all Shareholder Liabilities on the Effective
Date which (i) appear on the LJMCo Balance Sheet, (ii) are set forth in this
Agreement or the Schedules hereto or appear on the books and records of LJMCo or
(iii) are fixed as to time or amount. Existing Liabilities shall not include
Vacation Liability unless such amount is due and payable on the Effective Date.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" means any nation or government, any state, province
or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" means that certain Guaranty dated the Closing Date, executed and
delivered by CBC in favor of the Shareholders and guaranteeing the Notes, in
substantially the form of Exhibit I hereto.
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"Hazardous Substance" means any matter that is labeled or regulated as a
pollutant, contaminant, hazardous or toxic substance, material, constituent or
waste or pollutant under any Environmental Health and Safety Law or by any
Governmental Entity and includes, without limitation, asbestos and asbestos-
containing materials and any material or substance that is: (i) designated as a
"hazardous substance" pursuant to section 307 of the Federal Water Pollution
Control Act, 33 U.S.C. section 1251, et seq. (33 U.S.C. (S) 1317); (ii) defined
-------
as a "hazardous waste" pursuant to section 1004 of the Federal Solid Waste
Disposal Act, 42 U.S.C. section 6901, et seq. (42 U.S.C. (S) 6903); (iii)
-------
defined as a "hazardous substance" pursuant to section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. section 9601,
et seq. (42 U.S.C. (S) 9601); or (iv) so designated or defined under any other
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applicable Legal Rule.
"Intellectual Property" means (i) all patents, patent applications and
patent disclosures, together with all reissuances, continuations, continuations-
in-part, revisions, extensions and reexaminations thereof, (ii) all trademarks,
service marks, trade dress, logos, trade names and
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corporate names (including without limitation the LJMCo Name), together with all
translations, adaptations, derivations and combinations thereof and including
all goodwill associated therewith, and all applications, registrations and
renewals in connection therewith, (iii) all copyrights, and all applications,
registrations and renewals in connection therewith, (iv) all trade secrets and
confidential business information, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals, (v) all computer
software and information systems and programs, (including data and related
documentation), whether owned or leased, (vi) all other proprietary rights and
(vii) all copies and tangible embodiments of the items described in (i) through
(vi) (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Legal Rules" means the requirements of all laws, codes, statutes,
ordinances, orders, judgments, decrees, injunctions, franchises, determinations,
approvals, rules, regulations, permits, licenses, authorizations, certificates
and directions of all Governmental Entities with jurisdiction.
"Letters of Credit" means two Letters of Credit securing the Notes and
issued by The Sumitomo Bank, Limited for the account of CBC, together with any
renewals and replacements thereof (including replacements issued by another bank
or lending institution pursuant to Section 10.12 hereof), (i) one of which shall
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be in favor of LJM in the aggregate face amount of the lesser of (A)
$2,333,333.50 or (B) the aggregate principal amount outstanding under the LJM
Senior Note and the LJM Contingent Note and (ii) the other of which shall be in
favor of JMB in the aggregate face amount of the lesser of (A) $666,666.50 or
(B) the aggregate principal amount outstanding under the JMB Senior Note and the
JMB Contingent Note.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, whether secured or unsecured, and whether
due or to become due), including without limitation any indebtedness, any
guaranty of indebtedness or obligations of any other Person, any liability for
Taxes, any liability with respect to any Employee Pension Benefit Plan which is
subject to Section 412 of the Code and any withdrawal liability under Section
4201 of ERISA with respect to withdrawal from a Multiemployer Plan, as such
liability may be set forth in a notice of withdrawal liability under Section
4219 of ERISA (and as adjusted from time subsequent to the date of such notice).
"LJMCal" means L. J. Melody & Company of California, a Texas corporation.
"LJMCal Stock Purchase Agreement" means that certain Stock Purchase
Agreement dated concurrently herewith by and among CBC, CBM and LJM for the
purchase of all the issued and outstanding shares of LJMCal.
"LJMCo Cash" means the cash and Cash Equivalents of LJMCo, but excluding an
amount of cash and Cash Equivalents equal to the outstanding principal and
interest on LJMCo's cash management lines of credit from Texas Commerce Bank
National Association and any other banks or lending institutions.
"LJMCo Name" means the names "L. J. Melody & Company," "L.J. Melody Realty
Advisors, Inc." and any similar names and any derivations thereof and any
fictional business names, trading names, registered and unregistered trademarks,
service marks and applications relating thereto.
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"LJMCo Real Property" means all real property owned beneficially or of
record by LJMCo or any of its subsidiaries or leased or subleased by or to LJMCo
or any of its subsidiaries, that certain residential condominium unit located in
Four Leaf Towers, 510 San Felipe, Houston (which LJMCo sold more than five years
prior to the date hereof) and all real property described on Schedule 5.12.
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"LJM Employment Agreement" means the employment agreement to be entered
into by and between CBM and LJM on the Closing Date, substantially in the form
of Exhibit D hereto which agreement shall be binding upon and inure to the
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benefit of LJMCo following the merger of CBM into LJMCo as contemplated hereby.
"Liens" means all liens, mortgages, pledges, encumbrances, claims, charges,
options, purchase agreements, security agreements and interests, commission
arrangements, title retention agreements, covenants, restrictions and adverse
interests of any kind or nature whatsoever.
"Market Price" with respect to a marketable security means the average of
the daily market prices of such security on all the national domestic exchanges
on which such security is listed over a period of twenty (20) consecutive days
on which such exchange is open for trading prior to the day as of which "Market
Price" is being determined, less any commissions, fees and other payments in
connection with the sale of such securities. The market price for each such
business day shall be the average of the closing prices on such day of the
security on all national domestic exchanges on which the security is then
listed, or if there shall have been no sales on such exchange on such day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day. "Market Price" with respect to shares of a mutual fund means
the "net asset value" ("NAV") of such shares on the last business day prior to
the day as of which "Market Price" is being determined, less any commissions,
fees and other payments payable in connection with the sale of such shares. The
NAV shall be the NAV published in the "Mutual Fund Quotations" of the Wall
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Street Journal for such mutual fund on the date such value is being determined
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or, if no such quotation is published the NAV quoted by the organizer or sponsor
of such mutual fund for such date upon inquiry by CBC.
"Material Adverse Effect" and "Material Adverse Change," with respect to a
CB Company, on the one hand, or LJMCo and its Subsidiaries, on the other hand,
means (i) any effect on, or change in, the business of such CB Company or LJMCo
and its Subsidiaries taken as a whole, as the case may be, that is or that a
reasonable person would believe will be materially adverse to the business,
operations, properties, assets, condition (financial or otherwise) or prospects
of such CB Company or LJMCo and its Subsidiaries taken as a whole, as the case
may be; provided, however, that for the purposes of this Agreement, any such
-------- -------
effect(s) or change(s) to LJMCo and its Subsidiaries which, when combined with
all Material Adverse Effects and Material Adverse Changes with respect to LJMCal
under the LJMCal Stock Purchase Agreement, exceeds $100,000 (including legal
fees), individually or in the aggregate, shall be deemed to be a Material
Adverse Effect or a Material Adverse Change with respect to LJMCo and its
Subsidiaries, or (ii) an event or circumstance that has or would have a
significant likelihood of a material adverse effect on the ability of a CB
Company, on the one hand, and the Shareholders and LJMCo, on the other hand, as
the case may be, to perform their respective obligations under this Agreement,
the Notes, the LJMCal Stock Purchase Agreement and the transactions contemplated
hereby and thereby.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
-5-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation.
"Party" means any party to this Agreement.
"Person" means an individual, a sole proprietorship, a partnership, a
corporation, an association, an institution, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a Governmental Entity.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Security Interest" means any Lien other than (i) liens for Taxes not yet
due and payable and (ii) purchase money liens and liens securing rental payments
under capital lease arrangements.
"Shareholder Liabilities" means the Liabilities and obligations of LJMCo
allocated to LJM or JMB in the Allocation Schedule, together with all other
Liabilities of LJMCo (i) (A) existing on or prior to June 30, 1996, or arising
out of or relating to any act, event or transaction or fact effected or existing
on or prior to June 30, 1996, (including without limitation Liabilities for
asserted or unasserted claims based on events occurring on or prior to June 30,
1996) or (B) incurred after June 30, 1996 and on or prior to the Closing Date
other than in the Ordinary Course of Business of LJMCo and (ii) not specifically
---
allocated in the Allocation Schedule to CBM or CBC, in each case regardless of
whether such Liability is disclosed herein or in the Schedules hereto or whether
a representation or warranty relating to such Liability contains any limitations
or qualifications. Shareholder Liabilities shall include Vacation Liability,
producer commissions, production managers' overrides, general and administrative
overrides and LJM's overrides with respect to any fees which have been recorded
as revenue of LJMCo effective on or before June 30, 1996. The amount of any
obligation of LJMCo as of the Closing Date to pay a bank or similar lender in
connection with conduit loans with respect to which LJMCo has an offsetting
commitment pursuant to which the Federal Home Loan Mortgage Corporation has
agreed to purchase such obligation shall not be a Shareholder Liability.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any Governmental Entity income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Section 59A), customs,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated or
other tax of any kind whatsoever, including any interest, penalty, or addition
thereto.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Vacation Liability" means Liability of LJMCo as of the Effective Date for
any vacation entitlement or vacation pay entitlement.
-6-
<PAGE>
1.2 Other Definitions. In addition to the terms defined in Section 1.1,
----------------- -----------
certain other terms are defined elsewhere in this Agreement, and, whenever such
terms are used in this Agreement, they shall have their respective defined
meanings, unless the context expressly or by necessary implication otherwise
requires. The definitions of terms of general applicability are set forth in the
sections listed below (certain terms that are used only in the section in which
they are defined are not listed).
<TABLE>
<CAPTION>
TERM DEFINED IN ARTICLE
---- ------------------
OR SECTION
----------
<S> <C>
Agreement Preamble
CB Holdings SEC Documents 7.3
CB Permits 7.6
CBC Preamble
CBC's Indemnified Persons 12.2
CBM Preamble
Cash Payment 3.1
Closing 4.1
Closing Date 4.1
Contingent Notes 3.1(c)
Financial Statements 5.5
HSR Act 5.4
Indemnified Person 2.5
Indemnifying Person 2.5
JMB Preamble
License 5.14
Liquidated Damages 13.1(B)
LJM Preamble
LJMCo Recitals
LJMCo Stock Recitals
LJMCo Plans 5.20
LJMCo's Balance Sheet 5.5
Losses 12.2
Most Recent Financial Statements 5.5
Most Recent Fiscal Month End 5.5
Most Recent Fiscal Year End 5.5
Notes 3
Permits 5.9
Permitted Liens 5.10
Selected Employees 6.8
Senior Notes 3
Shareholders Preamble
Shareholders' Indemnified Persons 12.3
</TABLE>
-7-
<PAGE>
ARTICLE 2
PURCHASE AND SALE OF STOCK
--------------------------
On the basis of the representations and warranties herein, and subject to
the terms, conditions and other provisions contained herein, each of LJM and JMB
agrees to sell, transfer, convey, assign and deliver to CBM, and CBM agrees to
purchase and accept from LJM and JMB on the Closing Date, all right, title and
interest in and to, the LJMCo Stock. The purchase and sale of all the
outstanding shares of capital stock of LJMCo provided for herein shall be deemed
to be simultaneous with the redemption pursuant to Section 11.2(L) ("Pre-Closing
---------------
Transactions") as a single transaction.
ARTICLE 3
PURCHASE PRICE AND METHOD OF PAYMENT
------------------------------------
The purchase price (the "Purchase Price") shall be Ten Million Dollars
($10,000,000), to be paid as follows: At the Closing, CBM shall deliver (i) Two
Million Dollars ($2,000,000) to each of LJM and JMB, by wire transfer to
accounts specified by LJM and JMB, respectively; (ii) Promissory Notes duly
executed and delivered in the principal amounts of Two Million Three Hundred
Thirty Three Thousand Three Hundred Thirty Three Dollars and Fifty Cents
($2,333,333.50) to LJM (the "JMB Senior Note") and Six Hundred Sixty Six
Thousand Six Hundred Sixty Six Dollars and Fifty Cents ($666,666.50) to JMB (the
"LJM Senior Note"), in the form of Exhibit A hereto (collectively, the "Senior
---------
Notes"); and (iii) Promissory Notes duly executed and delivered in the principal
amounts of Two Million Three Hundred Thirty Three Thousand Three Hundred Thirty
Three Dollars and Fifty Cents ($2,333,333.50) to LJM (the "LJM Contingent Note")
and Six Hundred Sixty Six Thousand Six Hundred Sixty Six Dollars and Fifty Cents
($666,666.50) to JMB (the "JMB Contingent Note"), in the form of Exhibit B
---------
hereto (collectively, the "Contingent Notes" and, together with the Senior
Notes, the "Notes").
ARTICLE 4
THE CLOSING
-----------
4.1 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place on or as soon as practicable after
July 3, 1996 or such other date as is mutually agreed upon in writing by the
parties hereto and upon which all of the conditions to Closing have been
satisfied or waived (the "Closing Date"). The Closing shall take place at the
offices of Pillsbury Madison & Sutro LLP, 725 South Figueroa, Suite 1200, Los
Angeles, California. Upon consummation of the Closing, the transactions
contemplated hereby shall be deemed to have taken place as of June 30, 1996 (the
"Effective Date").
4.2 Closing Deliveries. At the Closing:
------------------
(A) Each Shareholder shall deliver to CBM and CBC (i) certificates
representing the LJMCo Stock, endorsed to CBM, which shall transfer to CBM
good title to the LJMCo Stock, free and clear of all Liens other than Liens
arising from the registration requirements of the Securities Act; (ii)
Covenants Not to Compete duly executed by each of the Shareholders in the
form of Exhibit E hereto (the "Covenants
---------
-8-
<PAGE>
Not to Compete"), the Trademark Agreement duly executed by each of the
Shareholders in the form of Exhibit F hereto (the "Trademark Agreement")
---------
and the General Release duly executed by each of the Shareholders in the
form of Exhibit G hereto (the "Release"); and (ii) such other documents
---------
including officers' certificates and opinions of counsel as may be required
by this Agreement or reasonably requested by CBC or CBM;
(B) CBM shall deliver to the Shareholders (i) the Purchase Price in
the manner set forth above and (ii) such other documents including
officers' certificates and opinions of counsel as may be required by this
Agreement or reasonably requested by the Shareholders;
(C) CBM shall deliver the LJM Employment Agreement to LJM, duly
executed by CBM;
(D) CBC shall deliver the Letters of Credit, the Trade Name Security
Agreement and Guaranty to the Shareholders; and
(E) LJM shall deliver the LJM Employment Agreement to CBM, duly
executed by LJM.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
Each of the Shareholders represents and warrants, to CBC and CBM, as of the
date hereof and as of the Closing Date, as follows (it being understood that
each of the representations and warranties shall be true, correct and complete
on the date hereof and on the Closing Date, but the representation and warranty
set forth in the third sentence of Section 5.10 (Title to Assets) shall not be
------------
deemed to be breached unless it is not true, correct and complete as of the
Closing Date):
5.1 Capitalization and Ownership.
----------------------------
(A) The authorized equity securities of LJMCo consist of one thousand
(1,000) shares of Preferred Stock, none of which is issued and outstanding,
and three thousand (3,000) shares of Common Stock, of which One Thousand
Three Hundred Fifty (1,350) shares are issued and outstanding. On the date
hereof, LJM owns 900 shares of the LJMCo Stock and JMB owns 450 shares of
the LJMCo Stock and each Shareholder has good and valid title to his shares
free and clear of all Liens. On the Closing Date following redemption of
the shares by LJMCo pursuant to Section 11.2(L), the authorized equity
securities of LJMCo will consist solely of one thousand (1,000) shares of
Preferred Stock, none of which will be issued and outstanding, and three
thousand (3,000) shares of Common Stock, of which One Thousand Forty Two
and Two Hundred Fifty Eight Thousandths (1,042 and 258/1,000) will be
issued and outstanding and will constitute the LJMCo Stock as of the
Closing Date. On the Closing Date, following the redemption of shares by
LJMCo pursuant to Section 11.2(L), LJM will own Six Hundred Ninety Four and
Eight Hundred Thirty Nine Thousandths (694 and 839/1,000) shares of LJMCo
Stock and JMB will own Three Hundred Forty Seven and Four Hundred Nineteen
Thousandths (347 and 419/1,000) shares of LJMCo Stock, and each Shareholder
will have good and valid title to such shares on the Closing
-9-
<PAGE>
Date, free and clear of all Liens. The issued and outstanding shares of
Common Stock set forth above on the date hereof and on the Closing Date, as
the case may be, are referred to herein as the "LJMCo Stock." On the
Closing Date, LJMCo will own all right, title and interest to the shares of
LJMCo Stock which have been redeemed pursuant to Section 11.2(L) hereof and
---------------
will have good and valid title to such shares, free and clear of all Liens.
All of the outstanding equity securities of LJMCo and its Subsidiaries were
issued in compliance with applicable federal and state securities laws. All
of the outstanding equity securities of LJMCo and its Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, LJMCo's Articles of Incorporation or
Bylaws or any agreement to which LJMCo, any Subsidiary of LJMCo or any
Shareholder is a party or is bound.
(B) Except as set forth in Section 5.1(A), on the date hereof there
are and on the Closing Date there will be, no equity securities of any
class of LJMCo or any of its Subsidiaries, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for
issuance or outstanding and there are no options, warrants, calls, rights,
commitments or agreements of any character to which LJMCo or any of its
Subsidiaries is a party or by which it is bound obligating LJMCo or any of
its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of LJMCo or any of
its Subsidiaries or obligating LJMCo or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement. Except for the Shareholders' Agreement dated as of August 19,
1992 by and among LJMCo, LJM, JMB, Gwendolyn G. Melody and Susan Bradley,
which shall be terminated by the parties thereto prior to the Closing,
there are no voting trusts, proxies or other agreements or understandings
with respect to the equity securities of LJMCo or any of its Subsidiaries.
5.2 Organization. Each of LJMCo and each of its Subsidiaries is a
------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, and has full corporate power and authority to own and/or
lease all of its properties and assets, and to carry on its Business as now
being conducted. Each of LJMCo and each of its Subsidiaries is duly qualified
to do business and is in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such
qualification, except for those jurisdictions where the failure to so qualify
would not have a Material Adverse Effect on LJMCo and its Subsidiaries taken as
a whole. Except as set forth on Schedule 5.2, LJMCo has no Subsidiaries and
------------
does not, directly or indirectly, control any other corporation or business
entity, own or control any shares of stock or other securities of, any
corporation or business entity, or have any investment in, or have any material
advance of cash or other extension of credit to, any Person. The copies of the
Articles of Incorporation and ByLaws, as amended, of LJMCo and each of its
Subsidiaries heretofore delivered to CBM are true, complete and correct and are
in full force and effect.
5.3 Authority; Non-Contravention. This Agreement and the other agreements
----------------------------
contemplated hereby to be executed by any Shareholder (including the Employment
Agreement, the Covenants Not to Compete, the Trademark Agreement and the General
Release) have been duly executed and delivered by such Shareholder or will be
duly executed and delivered by such Shareholder prior to or at the Closing Date,
and constitute or, when executed, will constitute valid and binding obligations
of the Shareholders enforceable in accordance with their respective terms,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors or by general
equitable principles. Each Shareholder has the absolute and unrestricted right,
power, authority and capacity to execute and deliver and to perform his
obligations under this Agreement and the other agreements provided for herein to
be executed by
-10-
<PAGE>
him. Except as set forth on Schedule 5.3, neither the execution and delivery of
------------
this Agreement by either Shareholder nor the consummation of the transactions
contemplated hereby does or would after the giving of notice or the lapse of
time or both, (i) conflict with, result in a breach of, constitute a default
under, or violate the Articles of Incorporation or the Bylaws of LJMCo or any of
its Subsidiaries, (ii) conflict with, result in a breach of, constitute a
default under, or violate any Legal Rule, except for conflicts, breaches,
defaults or violations which individually or in the aggregate would not have a
Material Adverse Effect on LJMCo and its Subsidiaries taken as a whole; (iii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, amend,
modify, cancel or refuse to perform under, or require any notice under any
agreement, contract, commitment, license, lease, instrument or other
arrangement, including any express or implied warranty, to which LJMCo, any of
its Subsidiaries or either of the Shareholders is a party or by which either of
them is bound or to which any of their assets is subject; or (iv) result in the
creation of, or give any party the right to create, any Lien or other rights or
adverse interests upon any right, property or asset of LJMCo or any of its
Subsidiaries.
5.4 No Consents. Except as set forth on Schedule 5.4, no permit, consent,
----------- ------------
approval, novation, authorization or other order of or filing with any
Governmental Entity or any other Person is required in connection with the
execution, delivery and consummation of this Agreement and the other agreements
contemplated hereby to be executed by each of the Shareholders (including the
Employment Agreement, the Covenants Not to Compete, the Trademark Agreement and
the General Release) and the actions of each of the Shareholders and LJMCo
contemplated hereby, or to permit LJMCo to continue to conduct the business
activities of LJMCo and its Subsidiaries as they are currently conducted
following the purchase of the stock of LJMCo by CBM pursuant hereto and the
merger of CBM into LJMCo, except for the filing of a notification report under
the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act").
5.5 Financial Statements. Attached hereto as Schedule 5.5 are the
-------------------- ------------
following financial statements (collectively, the "LJMCo Financial Statements"):
(i) the audited consolidated balance sheets and the related audited consolidated
statements of income and changes in stockholders' equity and cash flow as of and
for each of the fiscal years ended December 31, 1993, December 31, 1994 and
December 31, 1995 (the "Most Recent Fiscal Year End") for LJMCo and its
Subsidiaries, (ii) the unaudited unconsolidated balance sheet and statement of
income and changes in stockholders' equity and cash flow for LJMCo and unaudited
unconsolidated balance sheet and statements of income and changes in
stockholders' equity and cash flow for each Subsidiary of LJMCo (collectively,
the "Most Recent Financial Statements"), in each case as of and for the four (4)
months ended April 30, 1996 (the "Most Recent Fiscal Month End"). The
Shareholders shall cause LJMCo to promptly provide its monthly unaudited
unconsolidated financial statements for LJMCo and its Subsidiaries to CBM for
each month after April, 1996 until the Closing Date. The LJMCo Financial
Statements (including the notes thereto) have been and will be prepared in
accordance with GAAP, applied on a consistent basis during the periods involved
(except as noted in the notes to the LJMCo Financial Statements), present fairly
the financial condition of LJMCo and its Subsidiaries on a consolidated or
unconsolidated basis, as the case may be, as of such dates and the results of
operations of LJMCo for such periods, are accurate and complete, and are
consistent with the books and records of LJMCo in all material respects (which
books and records are accurate and complete) except, with respect to the LJMCo
Financial Statements for the Most Recent Fiscal Month End, for normal recurring
year-end adjustments which are not material in the aggregate and the absence of
notes (which, if presented, would not differ from those included in the LJMCo
Financial Statements for the fiscal year ended and at (in the case of the
balance sheet) December 31, 1995). The audited consolidated balance sheet of
LJMCo at December 31, 1995 is hereinafter referred to as the "LJMCo Balance
Sheet."
-11-
<PAGE>
5.6 Absence of Undisclosed Liabilities. Neither LJMCo nor any of its
----------------------------------
Subsidiaries has any Liability that was not fully reflected or reserved against
in the LJMCo Balance Sheet or disclosed in the accompanying notes thereto except
for current Liabilities incurred in the Ordinary Course of Business since the
date of the LJMCo Balance Sheet and except for Liabilities set forth on Schedule
--------
5.6.
- ---
5.7 Adequate Capitalization. At March 31, 1996, LJMCo had sufficient
-----------------------
assets, as reflected on the LJMCo Balance Sheet, to operate its business as it
was then being conducted.
5.8 No Adverse Knowledge. Except as set forth on Schedule 5.8, to the
-------------------- ------------
Knowledge of the Shareholders and the Selected Employees, none of the following
entities is actively considering (i) disallowing competition for or
participation in, arranging or servicing mortgage loans for such entity by LJMCo
or any of its Subsidiaries or (ii) terminating such entity's relationship with
LJMCo or any of its Subsidiaries, in either case as a result of the transactions
contemplated by this Agreement or as a result of dissatisfaction with the
services of LJMCo:
(A) any entity which is a party to a mortgage loan correspondent
contract with LJMCo or any of its Subsidiaries and which has been a source
of loan funds for any financing arranged by LJMCo and which closed after
December 31, 1993;
(B) any entity on whose behalf a loan portfolio is serviced by LJMCo
or any of its Subsidiaries;
(C) any separate account, trust or other entity to whom LJMCo or any
of its Subsidiaries provides investment advice for a fee pursuant to a
mortgage loan correspondent contract or an investment advisor contract; or
(D) any borrower which has arranged and any lender which has funded
(in whole or in part) not less than five (5) mortgage loans through LJMCo
or any of its Subsidiaries since December 31, 1993.
For purposes of this Section 5.8, "Selected Employees" shall include Michael
-----------
Melody, Thomas Melody, Steven Hammer and Bill Frazer.
5.9 Legal Compliance. LJMCo and each of its Subsidiaries is, and at all
----------------
times during the five year period prior to the date hereof has been, in
compliance with all Legal Rules applicable to it, except for possible violations
which would not have a Material Adverse Effect on LJMCo and its Subsidiaries
taken as a whole, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed or commenced or is
pending, or to the Knowledge of either of the Shareholders, threatened against
LJMCo, any of its Subsidiaries or either Shareholder alleging any failure to so
comply. LJMCo and each of its Subsidiaries has all permits, certificates,
licenses, approvals and other authorizations required in connection with the
operation of the Business ("LJMCo Permits"), all of which are valid and
effective, except for those which, if not obtained and valid and effective,
would not have a Material Adverse Effect on LJMCo and its Subsidiaries taken as
a whole, and LJMCo and each of its Subsidiaries is not in violation of any LJMCo
Permit in any material respect. No notice has been issued and no investigation
or review is pending or, to the Knowledge of either of the Shareholders,
threatened by any Governmental Entity, with respect to (i) any alleged violation
of or non-compliance with any Legal Rule by LJMCo or any of its Subsidiaries, or
(ii) any alleged failure by LJMCo or any of its Subsidiaries to have all LJMCo
Permits.
-12-
<PAGE>
5.10 Title to Assets. Except as set forth on Schedule 5.10, as of the date
--------------- -------------
hereof, LJMCo and each of its Subsidiaries is the sole and exclusive legal and
equitable owner of all right, title and interest in, and has good and marketable
title to, or a valid leasehold interest in, all of the properties and assets
(real, personal and fixed, tangible and intangible) used by it, located on its
premises or shown on the Most Recent Financial Statements, free and clear of any
and all Liens other than Permitted Liens. As used herein, "Permitted Liens"
means (i) liens for taxes not yet due or delinquent or being contested in good
faith by appropriate proceedings for which adequate and actual reserves have
been established in accordance with GAAP (applied on a consistent basis and
consistent with prior practice) and are reflected on the Most Recent Financial
Statements, (ii) inchoate mechanics' liens with respect to which no default (or
event which, with notice or lapse of time or both, would constitute a default)
exists and (iii) liens arising in the Ordinary Course of Business after the Most
Recent Fiscal Month End with respect to which no default (or event which, with
notice or lapse of time or both, would constitute a default) exists, none of
which is substantial in amount, would have a Material Adverse Effect or would
materially detract from the value or utility of such assets. As of the Closing
Date, other than those assets assigned to LJM or JMB pursuant to Section 10.4
------------
(Allocation of Certain Accounts Receivable and Liabilities) and Section 11.2(N)
---------------
(Allocation, Assumption and Collection Agreement) hereof and except as set forth
on Schedule 5.10, each of LJMCo and each of its Subsidiaries will be the sole
-------------
and exclusive legal and equitable owner of all right, title and interest in, and
will have good and marketable title to, all of the properties and assets (real,
personal and fixed, tangible and intangible) used by it or located on its
premises, in either case as shown on the Most Recent Financial Statements, free
and clear of all Liens other than Permitted Liens. Each asset of LJMCo and its
Subsidiaries is in good repair and operating condition, subject to ordinary wear
and tear, and is either adequate for the purposes for which it presently is
being used or is contemplated to be replaced pursuant to LJMCo's 1996 budget now
in force.
5.11 Contracts. Schedule 5.11 hereto lists the following contracts and
--------- -------------
other agreements to which LJMCo or any of its Subsidiaries is currently a party
or under which LJMCo or any of its Subsidiaries has or may acquire rights or may
become subject to any Liability or obligation or by which LJMCo, any of its
Subsidiaries or any of their respective assets may become bound:
(A) each mortgage loan correspondent contract and other similar
agreement that: (i) has been a source of loan funds for any financing
arranged by LJMCo or any of its Subsidiaries and which closed after
December 31, 1993 or (ii) is with an entity which owns a loan portfolio
serviced by LJMCo or any of its Subsidiaries;
(B) each agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
(C) each agreement (or group of related agreements) for the purchase
of supplies, products, or other personal property, or for the furnishing or
receipt of services, the performance of which will extend over a period of
more than one year and either will result in a loss to LJMCo or any of its
Subsidiaries or involves consideration in excess of $25,000, individually
or in the aggregate;
(D) each agreement concerning a partnership or joint venture involving
a share of profits, losses, costs or liabilities by LJMCo or any of its
Subsidiaries with any other Person;
-13-
<PAGE>
(E) each agreement (or group of related agreements) under which LJMCo
or any of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation, or
under which it has granted a Security Interest in any of its assets,
tangible or intangible, in each case in excess of $25,000, individually or
in the aggregate;
(F) each agreement concerning confidentiality or non-competition;
(G) each agreement with any Shareholder or any of his Affiliates
(including LJMCal and any of its Subsidiaries) or any director, officer or
employee of LJMCo or LJMCal or their respective Subsidiaries;
(H) each profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other plan or arrangement
for the benefit of the current or former directors, officers, employees or
independent contractors of LJMCo or any of its Subsidiaries other than as
set forth on Schedule 5.20;
-------------
(I) each collective bargaining agreement;
(J) each agreement for the employment of any individual on a full
time, part time, consulting or other basis which cannot be terminated at
will without LJMCo or any of its Subsidiaries being subject to any
obligation or Liability (including severance benefits) and which provides
either annual compensation in excess of $50,000 or severance benefits;
(K) each agreement under which LJMCo or any of its Subsidiaries has
advanced or loaned any amount to any of the directors, officers, employees
or independent contractors of LJMCo or LJMCal or any of their respective
Subsidiaries; and
(L) each other agreement (or group of related agreements) which is not
terminable at will by LJMCo or a Subsidiary of LJMCo, as the case may be,
prior to or after the Closing without prior notice and without payment of
any amount or other penalty, pursuant to which LJMCo or any of its
Subsidiaries is or may become subject to any obligation or liability in
excess of $50,000, individually or in the aggregate, or the performance of
which involves consideration in excess of $50,000, individually or in the
aggregate.
The Shareholders have delivered to CBM a correct and complete copy of each
written agreement listed on Schedule 5.11 (as amended to date), and a written
-------------
summary setting forth the terms and conditions of each oral agreement referred
to on Schedule 5.11. Except as set forth on Schedule 5.11, with respect to each
------------- -------------
such agreement: (A) the agreement is valid, binding, enforceable and in full
force and effect, (B) the agreement will continue to be valid, binding,
enforceable and in full force and effect on identical terms following
consummation of the transactions contemplated hereby, (C) neither LJMCo nor any
of its Subsidiaries is in breach or default and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification or acceleration under the agreement and, to the
Knowledge of the Shareholders, no other party is in breach or default and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification or acceleration
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<PAGE>
under the agreement, and (D) neither LJMCo nor any of its Subsidiaries has and,
to the Knowledge of the Shareholders, no other party has repudiated any
provision of the agreement.
5.12 Real Property. Neither LJMCo nor any of its Subsidiaries owns, of
-------------
record or beneficially, any right, title or interest in any real property
(including without limitation any easement, license or right-of-way) or any
asset consisting of realty, including appurtenances, improvements or fixtures,
and neither LJMCo nor any of its Subsidiaries has previously owned, any right,
title or interest in any real property other than (i) leasehold interests
pursuant to those leases set forth on Schedule 5.12, (ii) in connection with
-------------
conduit loans with respect to which LJMCo has a commitment pursuant to which the
Federal Home Loan Mortgage Corporation has agreed to purchase such loans and
(iii) that certain residential unit located in Four Leaf Towers at 510 San
Felipe, Houston, Texas, which LJMCo sold more than five years prior to the date
hereof. Neither LJMCo nor any of its Subsidiaries is a fiduciary as to any real
property and no purchase of real property has been effected by or through LJMCo
or any of its Subsidiaries by any separate account or commingled fund. Schedule
--------
5.12 sets forth a list and description of all real property leased or subleased
- ----
to LJMCo or any of its Subsidiaries.
5.13 Tax Matters.
-----------
(A) Except as set forth on Schedule 5.13, (i) each of LJMCo and each
-------------
of its Subsidiaries has filed all Tax Returns that it was required to file,
which Tax Returns were correct and complete in all material respects, (ii)
all Taxes owed by LJMCo or any of its Subsidiaries (whether or not shown on
any Tax Return) have been paid, (iii) neither LJMCo nor any of its
Subsidiaries is currently the beneficiary of any extension of time within
which to file any Tax Return, and (iv) no claim has ever been made by an
authority in a jurisdiction where LJMCo does not file Tax Returns that
LJMCo or any of its Subsidiaries is or may be subject to taxation by that
jurisdiction. There are no Liens on any of the respective assets of LJMCo
or any of its Subsidiaries that arose in connection with any failure (or
alleged failure) to pay any Tax, and to the knowledge of the Shareholders
and the director and officers and employees of LJMCo with responsibility
for tax matters, no Basis exists for the imposition of any such Liens.
(B) Each of LJMCo and each of its Subsidiaries has withheld and paid
all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other Person.
(C) No Shareholder, director or officer (or employee responsible for
Tax matters) of LJMCo or any of its Subsidiaries expects any authority to
assess any additional Taxes with respect to LJMCo or such Subsidiary for
any period for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax Liability of LJMCo or any of its Subsidiaries
either (i) claimed or raised by any authority or (ii) as to which any of
the Shareholders or any of the directors and officers (and employees
responsible for Tax matters) of LJMCo or any of its Subsidiaries has
Knowledge based upon personal contact with any agent of such authority.
LJMCo has delivered to CBM true, correct and complete copies of all federal
income Tax Returns filed, examination reports and statements of
deficiencies assessed against or agreed to by LJMCo or any of its
Subsidiaries since 1989.
(D) Neither LJMCo nor any of its Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency. Neither LJMCo nor any of its
Subsidiaries has filed a consent
-15-
<PAGE>
under Section 341(f) of the Code concerning collapsible corporations, and
neither has made any payments, nor is obligated to make any payments, and
is not a party to any agreement that under circumstances could obligate it
to make any payments that will not be deductible under Section 280G of the
Code. Neither LJMCo nor any of its Subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section
897(c)(1)(A)(ii). Each of LJMCo and each of its Subsidiaries has disclosed
on their respective federal income Tax Returns all positions taken therein
that could give rise to an understatement of federal income Tax within the
meaning of Section 6662 of the Code. Neither LJMCo nor any of its
Subsidiaries (i) is a party to any Tax allocation or sharing agreement,
(ii) has been a member of an Affiliated Group filing a consolidated federal
income Tax Return or (iii) has any Liability for Taxes of any Person (other
than itself) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foregoing law), as a transferee or successor,
by contract or otherwise.
(E) At all times during the period from and including August 1, 1987
through and including the Closing Date, LJMCo has been and will be an S
corporation, as defined in Section 1361 of the Code. LJMCo filed a valid S
corporation election on December 30, 1986, applicable for its taxable year
beginning August 1, 1987. LJMCo's status as an S corporation has not been
revoked or terminated for federal income tax purposes and no Basis exists
for such revocation or termination. Each Shareholder is a qualified S
corporation shareholder. LJMCo has only a single class of stock
outstanding as required by Section 1361(b)(1)(D) of the Code. All of the
governing documents of LJMCo, including its Articles of Incorporation, By-
Laws and any shareholders' agreements, confer identical rights of
distribution and liquidation proceeds for each share of LJMCo's capital
stock outstanding.
(F) LJMCo and each of the Shareholders are each satisfied as to, and
have each relied solely upon their respective tax advisors with respect to,
the incidents of taxation which will or may result from the transactions
contemplated by this Agreement.
5.14 Intellectual Property.
---------------------
(A) Except for any license implied by the sale of a product and common
software programs with a value of less than $500 under which LJMCo is the
licensee, Schedule 5.14 lists all Intellectual Property used in connection
-------------
with or necessary for the operation of the Business and all agreements
relating to Intellectual Property to which LJMCo or any of its Subsidiaries
is a party. LJMCo is the owner of all right, title and interest free and
clear of all Liens or has the right to use pursuant to license, sublicense,
agreement or permission ("License") all such Intellectual Property. Each
item of Intellectual Property owned or used by LJMCo immediately prior to
the Closing hereunder will be owned or available for use by LJMCo,
following the purchase of all of its capital stock by CBM pursuant hereto
and the merger of CBM into LJMCo, on identical terms and conditions. LJMCo
has taken all necessary action to maintain and protect each item of
Intellectual Property that it or any of its Subsidiaries owns or uses and
has never granted any License or similar right to any third party (other
than its Affiliates and employees) with respect to such Intellectual
Property.
(B) With respect to the Intellectual Property listed on Schedule 5.14
-------------
and except as otherwise disclosed therein (i) all registrations with and
applications to Governmental Entities in respect of Intellectual Property
owned by LJMCo or any of its Subsidiaries are valid and in full force and
effect, and (ii) to the Knowledge of the Shareholders, neither
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<PAGE>
LJMCo nor any of its Subsidiaries is in default (and with the giving of
notice or lapse of time or both, will not be in default) in any material
respect under any License to use such Intellectual Property.
(C) Neither LJMCo nor any of its Subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of any party from whom LJMCo or any of its
Subsidiaries has obtained the right to use Intellectual Property pursuant
to license, sublease, agreement or permission or, to the best Knowledge of
the Shareholders, any other third party. None of the Shareholders and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of LJMCo or any of its Subsidiaries has ever received any
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation (including any claim that LJMCo
or any of its Subsidiaries must license or refrain from using any
Intellectual Property rights of any third party). No third party has
interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property rights of LJMCo or any of its
Subsidiaries.
(D) LJMCo is the owner of all right, title and interest in and to the
name "L.J. Melody & Company," free and clear of all Liens. On the Closing
Date, LJMCo will own all right, title and interest in and to the name "L.J.
Melody & Company" and the name "L.J. Melody Realty Advisors, Inc.," free
and clear of all Liens. There are no agreements, obligations or
undertakings (whether written or oral and whether express or implied)
relating to the LJMCo Name to which LJMCo, any of its Subsidiaries or any
Shareholder is a party or is bound and, to the best Knowledge of the
Shareholders no other party has granted rights of any kind to any third
party, expressly or impliedly, relating to the LJMCo Name. The
LJMCo Name has not been and is not currently involved in any opposition,
invalidation or cancellation proceeding and, to the Knowledge of the
Shareholders, no such action is threatened with respect to the LJMCo Name.
To the Knowledge of the Shareholders, there is no potentially interfering
trademark or trademark application of any third party. The LJMCo Name is
not infringed and, to the Knowledge of the Shareholders, has not been
challenged or disputed in any manner. The LJMCo Name does not infringe and
is not alleged to infringe any trade name, trademark or service mark of any
third party.
5.15 Accounts Receivable. All of the accounts receivable of LJMCo or any
-------------------
of its Subsidiaries shown on the LJMCo Balance Sheet or arising thereafter arose
in the Ordinary Course of its Business. The values at which accounts receivable
are carried reflect the accounts receivable valuation policy of LJMCo which is
consistent with past practice and in accordance with GAAP (applied on a
consistent basis throughout the period involved).
5.16 Debt Instruments. Except in connection with loans for which LJMCo
----------------
acts solely as a loan servicer, Schedule 5.16 hereto lists all debentures,
-------------
notes, mortgages, indentures, guarantees, capitalized leases or other
instruments under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed, in each case to which LJMCo or
any of its Subsidiaries is currently a party, has or may acquire rights or may
become subject to any Liability or obligation or by which it or any of its
properties or assets (real, personal or mixed, tangible or intangible) is bound.
Except as set forth on Schedule 5.16, neither LJMCo nor any of its Subsidiaries
-------------
is a guarantor or otherwise liable for any Liability of any other Person. LJMCo
has delivered to CBM true and complete copies of all instruments listed on
Schedule 5.16.
- -------------
-17-
<PAGE>
5.17 Litigation. Except as set forth on Schedule 5.17 hereto, (A) there is
---------- -------------
no suit, action, hearing, claim or litigation, or legal, administrative,
arbitration or other proceeding pending or, to the Knowledge of each of the
Shareholders, threatened, nor to the Knowledge of each of the Shareholders, any
investigation pending or threatened against or affecting, the Business, LJMCo,
any of its Subsidiaries or any of their respective property or assets, before
any Governmental Entity which would have a Material Adverse Effect on LJMCo and
its Subsidiaries taken as a whole and (B) there is no judgment, decree,
injunction, ruling, award, charge, order or writ of any Governmental Entity or
other Person outstanding against, binding upon or involving LJMCo or any of its
Subsidiaries, the Business or, the Shareholders or any directors or officers of
LJMCo or any of its Subsidiaries in their capacity as such. LJMCo or the
Subsidiary involved owns policies of casualty, liability or other forms of
insurance which provide coverages in amount and scope sufficient to cover every
claim, action, cause of action, suit, proceeding, litigation, arbitration or
investigation arising out of, related to, or in connection with those matters
listed on Schedule 5.17 hereto. Neither the Shareholders, LJMCo, any of its
-------------
Subsidiaries, nor any of LJMCo's directors, or any of its Subsidiaries' officers
or employees is currently charged with, or is currently under investigation with
respect to, any violation of any provision of any Legal Rule in respect of the
Business.
5.18 Employee Agreements. Schedule 5.18 sets forth a full and complete
------------------- -------------
list of all employees of LJMCo or any of its Subsidiaries as of the date hereof,
specifying their names and job designations, their dates of hire and (i) for the
period from January 1, 1995 through December 31, 1995, the total amount paid or
payable as wages, salaries or other forms of direct compensation whether fixed
or commission or a combination thereof, and a list of all benefits made
available to such employees, including any discretionary bonus and incentive
funds, plans or agreements adopted by LJMCo or any of its Subsidiaries (and not
otherwise disclosed on Schedule 5.20) or any bonuses or incentives promised to
-------------
any employee of LJMCo or any of its Subsidiaries and (ii) the basis for
calculating projected amounts of each of the items set forth in clause (i) for
the period from January 1, 1996 to December 31, 1996. Except as set forth on
Schedule 5.18, no contract, agreement, arrangement, commitment, understanding or
- -------------
promise obligates LJMCo or any of its Subsidiaries to hire or employ any Person,
whether as an employee, consultant, independent contractor or otherwise. Other
than pursuant to Section 10.2(F) (Covenants Not to Compete) and CBM's standard
---------------
employment agreement entered into pursuant to Section 11.2(R) (CBM Employment
---------------
Agreements), neither LJMCo nor any of its Subsidiaries, officers or employees
has entered into any contract, agreement, arrangement, commitment, understanding
or promise containing covenants limiting the right of LJMCo or any of its
Subsidiaries or officers to compete in any business or with any Person or
limiting the right of LJMCo's or any of its Subsidiaries' employees to compete
in the commercial mortgage banking business. Except as set forth on Schedule
--------
5.20, neither LJMCo nor any of its Subsidiaries has any policy providing for
- ----
severance payments to terminated employees. There are no policies or agreements
of LJMCo or any of its Subsidiaries with respect to payments upon any change in
control of LJMCo.
5.19 Labor Matters. Except as set forth on Schedule 5.19, each of LJMCo
------------- -------------
and each of its Subsidiaries is, and at all times during the five-year period
prior to the date hereof has been, in compliance in all material respects with
all Legal Rules related to employment. There are no controversies pending nor,
to the Knowledge of the Shareholders and the directors and officers (and
employees with responsibility for employment matters) of LJMCo any Basis for any
such controversies, between LJMCo or any of its Subsidiaries and any of their
respective employees, which controversies have had or may have a Material
Adverse Effect on LJMCo and its Subsidiaries taken as a whole. To the Knowledge
of each of the Shareholders and the directors and officers (and employees with
responsibility for employment matters) of LJMCo, no executive, key employee, or
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<PAGE>
group of employees has any plans to terminate employment with LJMCo or any of
its Subsidiaries. Neither LJMCo nor any of its Subsidiaries is bound by any
collective bargaining agreement, has experienced any strikes, grievances, claims
of unfair labor practices or other collective bargaining disputes or has
committed any unfair labor practice. None of the Shareholders or the directors
or officers (or employees with responsibility for employment matters) of LJMCo
has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of LJMCo
or any of its Subsidiaries.
5.20 Employee Benefit Plans.
----------------------
(A) Except as set forth in Schedule 5.20 (collectively, the "LJMCo
-------------
Plans"), neither LJMCo, any of its Subsidiaries nor any of their respective
ERISA Affiliates has, during the period from January 1, 1990 through the
Closing, sponsored, maintained, been a party to, contributed to, or been
obligated to contribute to any Employee Benefit Plan.
(B) Prior to and including the Closing, neither LJMCo, any of its
Subsidiaries nor any of their respective ERISA Affiliates has sponsored,
been a party to, been obligated to contribute to, terminated, suspended,
discontinued contributions to, or withdrawn from any Multiemployer Plan or
any Employee Pension Benefit Plan which is or was a defined benefit plan or
which is or was subject to Code Section 412 or Title IV of ERISA.
(C) The Shareholders have provided to CBM (i) complete and accurate
copies of all written instruments pursuant to which each LJMCo Plan has
been maintained during the three-year period ending on the Closing Date;
(ii) if no such written instrument exists, a description of such LJMCo
Plan; (iii) any agreements or contracts pursuant to which custody, funding
or administrative services have been provided to LJMCo Plans within the
three-year period ending on the Closing Date; (iv) all reports or
disclosures required to be filed with government agencies or distributed to
participants by Part 1 of Subtitle B of Title I of ERISA (pertaining to
reporting and disclosure) or by provisions of the Code applicable to an
LJMCo Plan (including fringe benefit plan reporting as required by Code
Section 6039D) within the three-year period ending on the Closing Date; (v)
with respect to each LJMCo Plan that is intended to qualify under section
401(a) of the Code, the most recent opinion or determination letter
concerning the plan's qualification under section 401(a) of the Code, as
issued by the Internal Revenue Service and any as yet unadopted amendments
which are required by such determination letter or opinion letter; and (vi)
any handbook, manual, policy statement, administrative committee minutes or
similar written guidelines pertaining to one or more of the LJMCo Plans.
(D) With respect to each LJMCo Plan (i) the applicable reporting,
disclosure and record retention requirements set forth in Part 1 of
Subtitle B of Title I of ERISA and any filing requirements under the Code,
including Section 6039D thereof, have been met on a timely basis in all
material respects, and (ii) there has been no material violation of Title
I, Subtitle B, Part 4 of ERISA (pertaining to fiduciary responsibility) nor
any material violation of Code Section 4975(c).
(E) Each LJMCo Plan that is intended to qualify under section 401(a)
of the Code meets in all material respects all requirements for
qualification under section 401(a) of the Code and the regulations
thereunder, except to the extent that such requirements may be satisfied by
adopting retroactive amendments under section 401(b) of the Code and the
regulations thereunder. Each such LJMCo Plan has been administered in all
material respects
-19-
<PAGE>
in accordance with its terms and the applicable provisions of ERISA and the
Code and the regulations thereunder. No application for determination with
the Internal Revenue Service is pending with respect to any LJMCo Plan
intended to qualify under Section 401(a) of the Code.
(F) Neither LJMCo, any of its Subsidiaries nor any of their
respective ERISA Affiliates has any liability to the PBGC, to any
Multiemployer Plan, to any trustee or to any plan participant under Title
IV of ERISA.
(G) All contributions, premiums or other payments due from LJMCo or
any of its Subsidiaries to (or under) any LJMCo Plan have been fully paid
or adequately accrued on the books of LJMCo as reflected by the Most Recent
Financial Statements. All accruals (including, where appropriate,
proportional accruals for partial periods) have been made in accordance
with GAAP (applied on a consistent basis throughout the period involved).
(H) Each LJMCo Plan complies in all material respects with all
applicable requirements of (i) the Age Discrimination in Employment Act of
1967, as amended, and the regulations thereunder, (ii) Title VII of the
Civil Rights Act of 1964, as amended, and the regulations thereunder, (iii)
the health care continuation provisions of COBRA and (iv) any other
applicable law.
(I) There is no pending or, to the knowledge of Shareholders,
threatened litigation relating to any LJMCo Plan.
5.21 Environmental, Health and Safety.
--------------------------------
(A) (i) To the Knowledge of the Shareholders, all LJMCo Real Property
and the present and former activities of LJMCo and its Subsidiaries thereon
complies in all material respects with all applicable Environmental, Health
and Safety Laws; (ii) none of the operations of LJMCo or any of its
Subsidiaries is subject to any judicial or administrative proceeding
alleging the violation of any Environmental, Health and Safety Law; (iii)
neither LJMCo nor any of its Subsidiaries is the subject of any federal,
state or local investigation concerning any use, release, discharge or
disposal of any Hazardous Substance, except for any such investigation
conducted entirely without notice to LJMCo without entry to any facility of
LJMCo or any of its Subsidiaries and of which the Shareholders have no
Knowledge; (iv) to the Knowledge of the Shareholders, no predecessor-in-
title to or former operator of the LJMCo Real Property has filed any notice
under any Legal Rule indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a spill or release of a
Hazardous Substance into the environment; (v) Neither LJMCo nor any of its
Subsidiaries has any Liability under or any Environmental, Health and
Safety Law, in connection with the transportation, release, discharge or
disposal by or at the direction of the Shareholders, LJMCo or any Affiliate
of any Hazardous Substance into the environment and no release by LJMCo or
any Affiliate which could require investigation or remediation has
occurred; (vi) none of LJMCo's or any of its Subsidiaries' operations on
the LJMCo Real Property involves the generation, transportation, treatment,
storage or disposal of Hazardous Substances other than in compliance with
all applicable Legal Rules; (vii) except in accordance with all Legal
Rules, neither LJMCo nor any of its Subsidiaries has disposed of any
Hazardous Substance in, on or about the LJMCo Real Property or any other
location; and (viii) no Lien in favor of any Governmental Entity for (A)
any Liability under any Environmental, Health and Safety Law, or (B)
damages arising from or costs incurred in
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<PAGE>
response to a release of any Hazardous Substance into the environment has
been filed or attached to any of LJMCo's or any of its Subsidiaries
interest in the LJMCo Real Property.
(B) The Shareholders have provided, and prior to Closing will provide,
CBM with complete and correct copies of (i) all studies, reports, surveys
or other materials in the Shareholder's, LJMCo's or any of its
Subsidiaries' possession relating to the presence or alleged presence of
Hazardous Substances at, on or affecting the LJMCo Real Property or any
other location, (ii) all notices or other materials in the Shareholder's,
LJMCo's or any of its Subsidiaries' possession that were received from any
Governmental Entity having the power to administer or enforce any
Environmental, Health and Safety Laws relating to current or past
ownership, use or operation of the LJMCo Real Property or activities at the
LJMCo Real Property or any other location by LJMCo or any of its Affiliates
and (iii) all materials in the Shareholder's, LJMCo's or any of its
Subsidiaries' possession relating to any claim, allegation or action by any
private third party under any Environmental, Health and Safety Law with
respect to the LJMCo Real Property and any transporter of Hazardous
Substances or third party disposal sites used by the transporters.
(C) To the Knowledge of the Shareholders, (i) no underground storage
tanks have been located on the LJMCo Real Property, (ii) no LJMCo Real
Property has been used at any time as a gasoline service station or any
other facility for storing, pumping, dispensing or producing gasoline or
any other petroleum products or wastes and (iii) no building or other
structure constituting part of the LJMCo Real Property contains or
contained asbestos. To the Knowledge of the Shareholders, there are and
were no incinerators, septic tanks or cesspools on the LJMCo Real Property
and all waste from or on the LJMCo Real Property was discharged into a
public sanitary sewer system.
5.22 Absence of Certain Changes. Except as set forth on Schedule 5.22
-------------------------- -------------
hereto, there has not been any Material Adverse Change with respect to LJMCo or
any of its Subsidiaries since the Most Recent Fiscal Year End. Without limiting
the generality of the foregoing, since the Most Recent Fiscal Year End, except
as otherwise contemplated by this Agreement or described on Schedule 5.22, each
-------------
of LJMCo and each of its Subsidiaries has conducted its operations in the
Ordinary Course of Business and:
(A) (i) Has not sold, leased, transferred or assigned any of its
assets, tangible or intangible, other than for fair consideration in the
Ordinary Course of Business, (ii) has not imposed or created any Liens
(other than Permitted Liens) upon any of its assets, tangible or
intangible, and (iii) has not entered into any agreement, contract, lease
or license (or series of related agreements, contracts, leases or licenses)
outside the Ordinary Course of Business which obligates LJMCo or such
Subsidiary for more than $25,000 for any single item;
(B) Neither LJMCo nor any of its Subsidiaries has terminated, modified
or canceled any agreement, contract, lease or license (or series of related
agreements, contracts, leases or licenses) involving, in any of the
foregoing cases, more than $25,000 other than pursuant to this Agreement;
(C) Neither LJMCo nor any of its Subsidiaries has (i) made any loan
to, or any acquisition of the securities or assets of, any other Person or
(ii) issued any note, bond or other debt security or created, incurred,
assumed or guaranteed any indebtedness for borrowed money or capitalized
lease obligation involving more than $25,000 in the aggregate;
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<PAGE>
(D) Neither LJMCo nor any of its Subsidiaries has experienced any
damage, destruction or loss (whether or not covered by insurance) of its
property, or any strike, work stoppage or slowdown or other similar labor
trouble;
(E) Neither LJMCo nor any of its Subsidiaries has granted any
increase in the compensation of any of the directors, officers or employees
of LJMCo other than as set forth on Schedules 5.11 and 5.18;
-------------- ----
(F) Neither LJMCo nor any of its Subsidiaries has adopted, amended,
modified or terminated any bonus, profit-sharing, incentive, severance or
other plan, contract or commitment for the benefit of any of the directors,
officers or employees of LJMCo or any of its Subsidiaries, or taken any
such action with respect to any other Employee Benefit Plan other than as
set forth on Schedules 5.11 (Contracts) and 5.18 (Employment Agreements);
-------------- ----
(G) Neither LJMCo nor any of its Subsidiaries has made any material
change in the employment terms of any of the directors, officers or
employees of LJMCo other than as set forth on Schedules 5.11 (Contracts)
--------------
and 5.18 (Employment Agreements); and
----
(H) There has not been any material occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving LJMCo or any of its Subsidiaries or any arrangement,
agreement or commitment by LJMCo or any of its Subsidiaries or any of the
Shareholders to do any of the foregoing items set forth in Subsections (A)
through (H) of this Section 5.22.
------------
5.23 Insurance. Schedule 5.23 sets forth a complete list of all policies
--------- -------------
of insurance to which LJMCo or any of its Subsidiaries currently is a party or a
beneficiary or named insured and (A) all claims which are pending and (B) all
claims which have been made to the insurers during the two-year period prior to
the date hereof. With respect to each insurance policy maintained by LJMCo or
any of its Subsidiaries: (A) the policy is legal, valid, binding, enforceable
and in full force and effect; (B) the policy will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms immediately
following the Closing, unless terminated by CBC; (C) neither LJMCo, any of its
Subsidiaries nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices) and
no event has occurred which, with notice or the lapse of time or both, would
constitute such a breach or default or permit termination, modification or
acceleration under the policy; and (D) no party to the policy has repudiated any
provision thereof. Each of LJMCo and each of its Subsidiaries has been covered
during the past ten (10) years through the Closing Date by insurance in type,
scope and amount which (i) meet the minimum requirements of any contract, lease
or agreement to which LJMCo or any of its Subsidiaries is a party and (ii) is
customary and reasonable for the business in which it has engaged during such
period. Neither LJMCo nor any of its Subsidiaries has failed to give any notice
or present any claim under any insurance policy in a due and timely fashion.
5.24 Force Majeure. The respective businesses, properties and assets of
-------------
each of LJMCo and each of its Subsidiaries have not been materially or adversely
affected in any way as a result of any fire, explosion, earthquake, flood,
windstorm, accident or any other casualty, labor trouble, condemnation,
requisition or taking of property by any government or any agency of any
government, embargo, riot, act of God or public enemy, or other similar or
dissimilar casualty or event, and there has been no material change in the
business or operations or the manner of conducting the Business of LJMCo or the
business of any of its Subsidiaries.
-22-
<PAGE>
5.25 Brokers. Neither LJMCo, any of its Subsidiaries nor any Shareholder
-------
has any Liability, directly or indirectly, to pay any fees, commissions or other
amounts (A) to any broker, finder or agent with respect to this Agreement or the
transactions contemplated hereby or in connection with any sale of all or
substantially all of the capital stock or assets of LJMCo, or (B) to any of
LJMCo's or any of its Subsidiaries' directors, officers or employees in
connection with this Agreement or the transactions contemplated hereby or in
connection with any sale of all or substantially all of the capital stock or
assets of LJMCo.
5.26 Full Disclosure. Any and all information furnished by or on behalf of
---------------
LJMCo, any of its Subsidiaries or either Shareholder to any CB Company in
writing pursuant to this Agreement and any information contained in the
Schedules referred to in this Agreement, at any time prior to the Closing Date,
does not and will not contain any untrue statement of a material fact and, to
the Knowledge of the Shareholders, does not and will not omit to state any
material fact necessary to make any statement, in light of the circumstances
under which such statement is made, not misleading.
ARTICLE 6
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
-------------------------------------------------------------
Each of the Shareholders severally but not jointly represents and
warrants, as of the date hereof and as of the Closing Date, as follows:
6.1 Authority. Such Shareholder has the full right, power, authority
---------
and capacity, without the consent of any other person, to execute and deliver
this Agreement and to carry out this Agreement and the transactions contemplated
hereby. This Agreement has been, and each of the documents to be delivered at
the Closing by such Shareholder will be, duly executed and delivered by such
Shareholder and constitutes (or will constitute) the valid and legally binding
obligation of such Shareholder enforceable against him in accordance with its
respective terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles.
6.2 Consent of Spouse. The person executing a Consent of Spouse
-----------------
attached to this Agreement is the spouse of LJM, and no other person has any
interest in the shares of LJMCo Stock owned by LJM as set forth in Section 5.1
-----------
through dissolution of marriage or otherwise. JMB does not currently have a
spouse and no person has any interest in the shares of LJMCo Stock owned by JMB
as set forth in Section 5.1 through dissolution of marriage or otherwise.
-----------
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF CBM AND CBC
---------------------------------------------
Except as contemplated by this Agreement, each of CBM and CBC jointly
and severally represents and warrants to the Shareholders as of the date hereof
and as of the Closing Date as follows:
7.1 Organization. CBC is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to own
-23-
<PAGE>
and/or lease all of its properties and assets, and to carry on its business as
now being conducted. CBM is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has full
corporate power and authority to own and/or lease all of its properties and
assets, and to carry on its business as now being conducted. Each of CBC and CBM
is duly qualified to do business and is in good standing in each jurisdiction in
which the ownership of its property or the conduct of its business requires such
qualification, except for those jurisdictions where the failure to so qualify
would not have a Material Adverse Effect on the CB Companies taken as a whole.
The copies of the Articles of Incorporation and ByLaws, as amended, of each CB
Company heretofore delivered to LJMCo are true, complete and correct, and such
instruments, as amended, are in full force and effect.
7.2 Authority. Subject to satisfaction of the conditions set forth
---------
herein (including the receipt of the consents listed on Schedule 7.5), (i) each
------------
of CBC and CBM now has and at the Closing will have the full right, power and
authority, without the consent of any other person, to execute and deliver this
Agreement and all other agreements contemplated hereby to be executed by it and
to carry out this Agreement and the transactions contemplated hereby and (ii)
the execution, delivery and performance of this Agreement and all other
agreements contemplated hereby or thereby and the consummation of the
transactions contemplated hereby and thereby have been, and each of the
documents to be delivered at Closing (including the Notes and the Guaranty) will
be, duly authorized by all requisite action, corporate and other, on the part of
each of CBC and CBM, as the case may be, and each of this Agreement and such
other documents has been duly executed and delivered by each of CBC and CBM, as
the case may be, and constitutes or at the Closing will constitute the valid and
legally binding obligation of each of CBC and CBM, enforceable against each of
them in accordance with its terms, except to the extent enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by general equitable principles. The
transactions contemplated by this Agreement have been authorized and approved by
the Acquisition/Investment Committee of the Board of Directors of CB Holdings.
7.3 SEC Documents. CBM has provided to the Shareholders a true and
-------------
complete copy of CB Holdings' Annual Report on Form 10-K (without exhibits) for
the years ended December 31, 1993, December 31, 1994 and December 31, 1995, and
Quarterly Report on Form 10-Q for the three (3) months ended March 31, 1996, and
its definitive 1996 proxy statement filed by CB Holdings with the SEC (the "CB
Holdings SEC Documents"). As of their respective filing dates, CB Holdings has
made all necessary filings with the Securities and Exchange Commission ("SEC")
required to be filed by it since December 31, 1993, the CB Holdings SEC
Documents comply or will comply in all material respects with the requirements
of the Exchange Act or the Securities Act, and none of the CB Holdings SEC
Documents contain or will contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, except to the extent material statements
in any of the foregoing are modified or superseded in accordance with applicable
rules and regulations of the SEC by a subsequently filed CB Holdings SEC
Document delivered to the Shareholders prior to the date of this Agreement.
7.4 Financial Statements. CBM has furnished to the Shareholders (i)
--------------------
the audited consolidated balance sheets and statements of income and changes in
stockholders' equity and cash flows of CB Holdings and its Subsidiaries for the
three (3) fiscal years ended December 31, 1993, December 31, 1994 and December
31, 1995 and (ii) the unaudited consolidated balance sheet, statements of and
changes in stockholders' equity and cash flow of CB Holdings and its
Subsidiaries as of and for the three (3) months ended March 31, 1996 (the "Most
Recent Fiscal Quarter")
-24-
<PAGE>
(collectively, the "CB Holdings Financial Statements"). The CB Holdings
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as noted in the notes to the CB Holdings Financial Statements), present
fairly the financial condition of CB Holdings and its Subsidiaries on a
consolidated basis as of such dates and the results of operations of CB Holdings
and its Subsidiaries on a consolidated basis for such periods, are accurate and
complete and consistent with the books and records of CB Holdings in all
material respects (which books and records are accurate and complete) except,
with respect to the CB Holdings Financial Statements for the Most Recent Fiscal
Quarter, for normal recurring year-end adjustments which are not material in the
aggregate and the absence of notes (which, if present would not differ
materially from those included in the CB Holdings Financial Statements for the
fiscal year ended and at (in the case of the balance sheet) December 31, 1995).
Other than certain intellectual property, the issued and outstanding capital
stock of CBC is the sole asset of CB Holdings, and the CB Companies are the only
direct or indirect Subsidiaries of CB Holdings with substantial assets or
employees, so that the CB Holdings Financial Statements substantially present
the financial condition of CBC and its Subsidiaries (except as otherwise noted
in the notes to the CB Holdings Financial Statements) as of such dates and for
such periods.
7.5 Non-Contravention. Except as set forth on Schedule 7.5, neither
----------------- ------------
the execution and delivery of this Agreement by CBC and CBM nor the consummation
of the transactions contemplated hereby (including without limitation the
assignments contemplated hereby) do or would after the giving of notice or the
lapse of time or both (i) conflict with, result in a breach of, constitute a
default under, or violate the Articles or Certificate of Incorporation or the
Bylaws of CBC or CBM; (ii) conflict with, result in a breach of, constitute a
default under, or violate any Legal Rule, except for conflicts, breaches,
defaults or violations which individually or in the aggregate would not have a
Material Adverse Effect on the CB Companies taken as a whole; (iii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, amend,
modify, cancel or refuse to perform under, or require any notice under, any
agreement, contract, commitment, license, lease, instrument or other
arrangement, including any express or implied warranty, to which any CB Company
is a party or by which any of them is bound or to which any of their assets are
subject; or (iv) result in the creation of, or give any party the right to
create, any Lien or other rights or adverse interests upon any right, property
or asset of any CB Company.
7.6 No Adverse Knowledge. Except as set forth on Schedule 7.6
-------------------- ------------
hereto, to the Knowledge of the Selected Employees of CBC, none of the following
entities is actively considering (i) disallowing competition for or
participation in arranging or servicing mortgage loans for such entity by any CB
Company or (ii) terminating such entity's relationship with any CB Company, in
either case as a result of the proposed acquisition or as a result of
dissatisfaction with the services of any CB Company:
(a) any entity which is a party to a mortgage loan correspondent
contract with any CB Company and which has been a source of loan funds for
any financing arranged by any CB Company and which closed after December
31, 1993;
(b) any entity which owns a loan portfolio serviced by any CB
Company;
-25-
<PAGE>
(c) any separate account, trust or other entity to whom any CB Company
provides investment advice for a fee pursuant to a mortgage loan
correspondent contract or an investment advisor contract; or
(d) any borrower which has arranged or any lender which has funded not
less than five (5) mortgage loans with any CB Company since December 31,
1993.
For purposes of this Section 7.6, "Selected Employees" shall mean James J.
-----------
Didion, Walter V. Stafford, Richard C. Clotfelter and David A. Davidson.
7.7 Legal Compliance. Each of CBC and CBM is, and at all times during the
----------------
five-year period prior to the date hereof has been, in compliance with all Legal
Rules applicable to it, except for possible violations which would not have a
Material Adverse Effect on the CB Companies taken as a whole, individually or in
the aggregate and, except as set forth on Schedule 7.7, no action, suit,
------------
proceeding, hearing, investigation, charge, complaint, claim, demand or notice
has been filed or commenced or is pending or, to the Knowledge of CBC and CBM,
threatened against any of them alleging any failure to so comply. Each of CBC
and CBM has all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of its business ("CB
Permits"), all of which are valid and effective, except for those which, if not
obtained and valid and effective, would not have a Material Adverse Effect on
the CB Companies taken as a whole, and neither CBC nor CBM is in violation of
any CB Permit in any material respect. No notice has been issued and no
investigation or review is pending or, to the Knowledge of each of CBC and CBM,
threatened by any Governmental Entity with respect to (i) any alleged violation
of or other non-compliance with any Legal Rule by such CB Company or (ii) any
alleged failure to have all CB Permits required in connection with the operation
of the business of such CB Company.
7.8 Brokers. No CB Company has any Liability, directly or indirectly, to
-------
pay any fees, commissions or other amounts (A) to any broker, finder or agent
with respect to this Agreement or the transactions contemplated hereby or in
connection with any purchase of all or substantially all of the capital stock or
assets of LJMCo or (B) to any of the directors, officers or employees of any CB
Company in connection with this Agreement, or the transactions contemplated
hereby or in connection with any purchase of all or substantially all of the
capital stock or assets of LJMCo.
7.9 Litigation. Except as set forth in the CB Holdings SEC Documents, (A)
----------
there is no suit, action, hearing, claim or litigation, or legal,
administrative, arbitration or other proceeding pending or, to the Knowledge of
each of the CB Companies, threatened, nor to the Knowledge of each of the CB
Companies, any investigation pending or threatened against or affecting a CB
Company, or any of their respective property or assets, before any Governmental
Entity, which would have a Material Adverse Effect on the CB Companies taken as
a whole and (B) there is no judgment, decree, injunction, ruling, award, charge,
order or writ of any Governmental Entity or other Person outstanding against,
binding upon or involving such CB Company or its respective business or any
directors or officers of such CB Company in their capacity as such which would
have a Material Adverse Effect on the CB Companies taken as a whole. The CB
Companies own policies of casualty, liability or other forms of insurance which
provide coverages in amount and scope sufficient to cover every claim, action,
cause of action, suit, proceeding, litigation, arbitration or investigation
arising out of, related to, or in connection with those matters listed in the CB
Holdings SEC Documents. No CB Company nor any of their respective directors,
officers or employees is currently charged with, or is currently under
investigation with respect to, any violation of any provision of any Legal Rule
in respect of the business of such CB Company.
-26-
<PAGE>
7.10 Absence of Certain Changes. Since December 31, 1995 there has been no
--------------------------
effect on, or change in, the business of any CB Company that has had a Material
Adverse Effect on the CB Companies taken as a whole.
7.11 Absence of Undisclosed Liabilities Relating to CBC Mortgage
-----------------------------------------------------------
Origination Business. Except as set forth on Schedule 7.11, since December 31,
- -------------------- -------------
1995 the CBC Mortgage Origination Business has not incurred any Liabilities of
the type required to be reflected or disclosed in a balance sheet (or the notes
thereto) prepared in accordance with GAAP other than Liabilities incurred in the
Ordinary Course of Business.
7.12 Full Disclosure. Any information furnished by or on behalf of CBC or
---------------
CBM to either Shareholder or LJMCo in writing pursuant to this Agreement at any
time prior to the Closing Date does not contain any untrue statement of a
material fact and, to the Knowledge of CBC and CBM, does not omit to state any
material fact necessary to make any statement, in light of the circumstances
under which such statement is made, not misleading.
ARTICLE 8
COVENANTS OF THE SHAREHOLDERS
-----------------------------
During the period from the date of this Agreement and continuing until
the Closing Date, the Shareholders agree (except as expressly contemplated by
this Agreement or to the extent that CBC shall otherwise consent in writing)
that:
8.1 Ordinary Course. Except as set forth in Section 10.4 (Allocation
--------------- ------------
of Certain Accounts Receivable and Liabilities) and 11.2(L) (Pre-Closing
-------
Transactions), the Shareholders shall (i) cause each of LJMCo and each of its
Subsidiaries to carry on the Business in the Ordinary Course of Business,
including the payment of all Taxes, in substantially the same manner as
heretofore conducted, (ii) to the extent consistent with such Businesses, use
all commercially reasonable efforts consistent with past practice and policies
to preserve intact LJMCo's and its Subsidiaries' present business organization,
and (iii) use their best efforts to keep available the services of LJMCo's and
its Subsidiaries' present officers and key employees and preserve its
relationships with present and potential customers, providers and others having
business dealings with it, in each case to the end that its goodwill and ongoing
business shall be unimpaired at the Closing.
8.2 Dividends and Distributions; Changes in Ownership Interests.
-----------------------------------------------------------
Except as set forth in Sections 10.4 (Allocation of Certain Accounts Receivable
-------------
and Liabilities) and 11.2(L) (Pre-Closing Transactions), the Shareholders shall
-------
not permit LJMCo or any of its Subsidiaries to or to agree or propose to (i)
split, combine or reclassify any of its equity interests or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for any existing equity interests, (ii) repurchase or otherwise
acquire any shares of its capital stock or (iii) declare or pay any dividends on
or make any distributions in respect of any of its equity interests after the
Effective Date.
8.3 No Other Bids. The Shareholders shall not and shall not permit
-------------
LJMCo or any of its Subsidiaries or any of their respective directors, officers
or agents to, directly or indirectly, solicit or initiate or encourage any
discussions or negotiations with, or participate in any negotiations with or
provide any information to or otherwise cooperate in any other way with any
Person (other than the CB Companies) concerning any merger, sale of substantial
assets, sale of shares of capital stock or
-27-
<PAGE>
any division or Subsidiary of LJMCo or control thereof. CBC shall be promptly
notified in writing by the Shareholders of any of the events referred to in this
Section 8.3, and of any unsolicited bids for any of the foregoing, including a
- -----------
summary of the material terms of any other bid.
8.4 No Acquisitions. The Shareholders shall not permit LJMCo or any
---------------
of its Subsidiaries to (a) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or (b) otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to LJMCo except in the Ordinary Course of Business.
8.5 No Dispositions. Except as set forth in Sections 10.4
--------------- -------------
(Allocation of Certain Accounts Receivable and Liabilities) and 11.2(L) (Pre-
-------
Closing Transactions), the Shareholders shall not permit LJMCo or any of its
Subsidiaries to lease or otherwise dispose of any of its assets, individually or
in the aggregate, except in the Ordinary Course of Business and in any event not
in excess of $5,000 in the aggregate (excluding write-offs requested by CBC).
8.6 Benefit Plans, Etc. The Shareholders shall not permit LJMCo or
-------------------
any of its Subsidiaries to adopt or amend in any material respect any agreement
with or for the benefit of employees, other than as provided in this Agreement
or as necessary with respect to the LJMCo Plans to comply with applicable law or
to maintain the LJMCo Plans in the Ordinary Course of Business.
8.7 Access to Information; Confidentiality. The Shareholders shall
--------------------------------------
and shall cause LJMCo and its Subsidiaries to afford to the CB Companies and
shall cause their and LJMCo's independent accountants to afford to the CB
Companies, and the respective accountants, counsel and other representatives of
each of the CB Companies, reasonable access during normal business hours during
the period prior to the Closing Date to the properties, books, contracts,
commitments, records and management of LJMCo and its Subsidiaries and, to the
independent accountants of the CB Companies, reasonable access to the audit work
papers and other records of LJMCo's accountants. During such period, each of
the Shareholders shall cause LJMCo and its Subsidiaries to use reasonable
efforts to furnish promptly to the CB Companies all information concerning the
business, properties and personnel of LJMCo and its Subsidiaries as any CB
Company may reasonably request. Each of the Shareholders shall and shall cause
LJMCo and its Subsidiaries and their respective directors, officers, employees,
agents and advisors to maintain in confidence, any information obtained from any
CB Company in connection with this Agreement or the transactions contemplated
hereby, unless (i) such information is already known to LJMCo or the
Shareholders or to others not bound by a duty of confidentiality or (ii) such
information becomes publicly available through no fault of LJMCo, any of its
Subsidiaries or the Shareholders, (iii) the use of such information is necessary
or appropriate in making any filing or obtaining any consent or approval
required for the consummation of the transactions contemplated hereby or (iv)
the furnishing or use of such information is required in connection with any
legal proceedings in which case the Shareholders shall give such CB Company as
much prior notice as practicable so that it may seek a protective order. If the
transactions contemplated by this Agreement are not consummated, each of the
Shareholders shall and shall cause each of LJMCo and each of its Subsidiaries to
return or destroy as much of such written information in their possession as may
be requested by any CB Company.
8.8 Communications. Between the date hereof and the Closing Date,
--------------
neither Shareholder will furnish any communication to the public generally if
the subject matter thereof relates to the other party or to the transactions
contemplated by this Agreement without the prior approval of CBC
-28-
<PAGE>
as to the content thereof, which approval shall not be unreasonably withheld,
and subject to each Party's compliance with applicable law.
8.9 Update to Disclosures. Without limiting CBC's and CBM's right to
---------------------
rely on the representations and warranties as of the date of this Agreement, the
Shareholders will notify CBM in writing (where appropriate, through updates to
the Schedules hereto) of, and contemporaneously will provide CBM with true and
complete copies of any and all information or documents relating to any event,
transaction or circumstance, as soon as practicable after it becomes known to
either Shareholder, occurring after the date of this Agreement that causes or
will cause any covenant or agreement of either Shareholder under this Agreement
to be breached or that renders or will render untrue any representation or
warranty of either Shareholder contained in this Agreement as if the same were
made on or as of the date of such event, transaction or circumstance. Such an
update to the disclosures of the Shareholders shall not be deemed to correct and
negate the effect of prior misstatements by either Shareholder unless CBM and
CBC elect to proceed with the Closing notwithstanding a given update. Without
limiting the generality of the foregoing, prior to the Closing the Shareholders
shall deliver to CBM true and complete copies of all instruments of a type
specified in the first sentence of Section 5.16 (Debt Instruments) which are
------------
executed after the date hereof.
8.10 Good Faith. Each of the Shareholders shall act in good faith
----------
and use all commercially reasonable efforts to cause to be satisfied all the
conditions precedent to his obligations and those of the other parties to this
Agreement over which he has control or influence, including obtaining any
consents or any governmental permits required to consummate the transactions
contemplated hereby, including without limitation those set forth on Schedule
--------
5.4 (No Consents). Neither Shareholder shall cause or permit LJMCo or any of
- ---
its Subsidiaries to take any action which would prevent the performance of this
Agreement or the consummation of the transactions contemplated hereby.
8.11 Conditions Regarding Customer Contact. The Shareholders shall
-------------------------------------
not permit LJMCo to take any action that is designed or intended to have the
effect of discouraging any customer, supplier or other business associate of
LJMCo from maintaining the same business relationships with any CB Company or
LJMCo after the Closing and the merger of CBM into LJMCo as it maintained with
LJMCo prior to the Closing.
ARTICLE 9
COVENANTS OF THE CB COMPANIES
-----------------------------
During the period from the date of this Agreement and continuing until
the Closing Date, each of CBC and CBM agrees (except as expressly contemplated
by this Agreement or to the extent that the Shareholders shall otherwise consent
in writing) that:
9.1 Ordinary Course. Each of CBC and CBM shall, and shall cause
---------------
their Subsidiaries and Affiliates to, carry on their respective businesses in
the Ordinary Course of Business, including the payment of all Taxes, in
substantially the same manner as heretofore conducted and, to the extent
consistent with such businesses, use all commercially reasonable efforts
consistent with past practice and policies to preserve intact their present
business organization, will use their best efforts to keep available the
services of their present officers and key employees and preserve their
relationships
-29-
<PAGE>
with present and potential customers, providers and others having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Closing.
9.2 No Other Bids. Neither the CB Companies nor any of the CB
-------------
Companies' respective directors, officers or agents, will, directly or
indirectly, solicit or initiate or encourage any discussions or negotiations
with, or participate in any negotiations with or provide any information to or
otherwise cooperate in any other way with any corporation, partnership, person
or other entity or group engaged in the mortgage banking or loan servicing
business concerning any merger, purchase of substantial assets or purchase of
shares of capital stock of any CB Company. The Shareholders shall be promptly
notified in writing by the CB Companies of any of the events referred to in this
Section 9.2 including a summary of the material terms of any other offer.
- -----------
9.3 Access to Information; Confidentiality. The CB Companies shall,
--------------------------------------
and shall cause their Subsidiaries and Affiliates to, afford to the Shareholders
and shall cause their independent accountants to afford to the Shareholders, and
their accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Closing Date to the
properties, books, contracts, commitments, records and management of the CB
Companies' mortgage banking and loan servicing operations and, to the
Shareholders' independent accountants, reasonable access to the audit work
papers and other records of the CB Companies' accountants relating to mortgage
banking and loan servicing operations. During such period, the CB Companies
shall use reasonable efforts to furnish promptly to the Shareholders all
information concerning the mortgage banking and loan servicing business,
properties and personnel of the CB Companies as the Shareholders may reasonably
request. Each CB Company will maintain in confidence, and cause its directors,
officers, employees, agents and advisors to maintain in confidence, any
information obtained from LJMCo or the Shareholders in connection with this
Agreement or the transactions contemplated hereby, unless (i) such information
is already known to such CB Company or to others not bound by a duty of
confidentiality, (ii) such information becomes publicly available through no
fault of the CB Companies, (iii) the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated hereby or (iv) the
furnishing or use of such information is required in connection with any legal
proceedings in which case such CB Company shall give LJMCo and the Shareholders
as much prior notice as practicable so they may seek a protective order. If the
transactions contemplated by this Agreement are not consummated, each CB Company
will return or destroy as much of such written information in its possession as
may be requested by LJMCo or the Shareholders.
9.4 Communications. Between the date hereof and the Closing Date,
--------------
the CB Companies will not furnish any communication to the public generally if
the subject matter thereof relates to the other party or to the transactions
contemplated by this Agreement without the prior approval of the other party as
to the content thereof, which approval shall not be unreasonably withheld, and
subject to each party's compliance with applicable law.
9.5 Update to Disclosures. Without limiting the Shareholders' right
---------------------
to rely on the representations and warranties as of the date of this Agreement,
CBC and CBM will notify the Shareholders in writing of, and contemporaneously
will provide the Shareholders with true and complete copies of any and all
information or documents relating to any event, transaction or circumstance, as
soon as practicable after it becomes known to CBC or CBM, occurring after the
date of this Agreement that causes or will cause any covenant or agreement of
CBC or CBM under this Agreement to be breached or that renders or will render
untrue any representation or warranty of CBC or CBM contained in this Agreement
as if the same were made on or as of the date of such
-30-
<PAGE>
event, transaction or circumstance. Such an update to the disclosures of CBC and
CBM shall not be deemed to correct and negate the effect of CBC's or CBM's prior
misstatements unless the Shareholders elect to proceed with the Closing
notwithstanding a given update.
9.6 Good Faith. CBC and CBM shall act in good faith and use all
----------
commercially reasonable efforts to cause to be satisfied all the conditions
precedent to their obligations and those of the other parties to this Agreement
over which they have control or influence. Neither CBC nor CBM nor any of their
Subsidiaries shall take any action which would prevent the performance of this
Agreement or the consummation of the transactions contemplated hereby.
9.7 Conditions Regarding Customer Contact. Neither CBC nor CBM will
-------------------------------------
take any action that is designed or intended to have the effect of discouraging
any customer, supplier or other business associate of the CB Companies from
maintaining the same business relationships with the CB Companies or LJMCo,
after the Closing and the merger of CBM into LJMCo, as it maintained with the CB
Companies prior to the Closing.
ARTICLE 10
ADDITIONAL AGREEMENTS
---------------------
10.1 Conditions to the Transaction. Each Party will take all
-----------------------------
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on such Party with respect to the transactions contemplated
hereby (including furnishing all information required under the HSR Act, if any)
and will promptly cooperate with and furnish information to each other Party in
connection with any such requirements imposed upon each other Party or any
Subsidiary or Affiliate of each other Party in connection with such
transactions. Each Party will take, and will cause its Subsidiaries or
Affiliates to take, all reasonable actions to obtain (and to cooperate with each
other Party and its Subsidiaries or Affiliates in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity, or other third party, required to be obtained or made by such Party or
its Subsidiaries or Affiliates in connection with the transactions or the taking
of any action contemplated thereby or by this Agreement.
10.2 State Statutes. If any state takeover law shall become
--------------
applicable to the transactions contemplated by this Agreement, CBC and CBM and
their respective Boards of Directors or LJMCo and its Board of Directors and the
Shareholders, as the case may be, shall use their reasonable best efforts to
obtain such approvals and take such actions as are necessary so that the
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effects of such state takeover law on the transactions contemplated
by this Agreement.
10.3 Pre-Closing Tax Liability; Tax Returns of LJMCo.
-----------------------------------------------
(A) Except as otherwise provided in Section 10.14 (No Section
338(h)(10) Election; Post Closing Transfers), the Shareholders shall be
liable for, and shall pay in a timely fashion, any and all Taxes of LJMCo,
its Subsidiaries and the Shareholders attributable to any taxable period
ending on or prior to June 30, 1996 and the applicable portion of any and
all Taxes of LJMCo, its subsidiaries and the Shareholders attributable to
any partial period (through and including June 30, 1996) of any taxable
period ending after June 30, 1996. The Taxes attributable to any partial
period shall be computed as if the
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<PAGE>
taxable period ended on June 30, 1996 except that any Taxes imposed on the
ownership of real, personal or intangible property shall be allocated, pro
rata on a daily basis, between the partial period ending on June 30, 1996
and the balance of the taxable period.
(B) The Shareholders shall cause the preparation and filing of all Tax
Returns of LJMCo and its Subsidiaries for taxable periods ending on or
before the Closing Date. The CB Companies shall cooperate with the
Shareholders to facilitate such filings and shall have the right to review
and approve (which approval shall not be unreasonably withheld) any such
return before it is filed. Each Shareholder shall have the responsibility
for and the right to control any audit (and the disposition thereof) of any
Tax Return of LJMCo and its Subsidiaries pertaining to taxable periods
ending on or before the Closing Date.
(C) CBM shall grant or cause LJMCo to grant to the Shareholders (or
their designees) access at all reasonable times to the information, books
and records relating to LJMCo within the possession of CBM or LJMCo
(including workpapers and correspondence with taxing authorities but
excluding any privileged material) and shall afford the Shareholders (or
their designees) the right (at the Shareholders' expense) to take extracts
therefrom and to make copies thereof, to the extent reasonably necessary to
permit the Shareholders (or their designees) to prepare Tax Returns or to
conduct negotiations with Tax authorities.
(D) CBM will preserve and retain all schedules, workpapers and other
documents relating to any Tax Returns of or with respect to LJMCo or to any
claims, audits or other proceedings affecting LJMCo until the expiration of
the statute of limitations (including any extensions thereof) applicable to
the taxable period to which such documents relate or until the final
determination of any controversy with respect to such taxable period, and
until the final determination of any payments that may be required with
respect to such taxable period under this Agreement.
10.4 Allocation of Certain Accounts Receivable and Liabilities. It is the
---------------------------------------------------------
intention of the Parties to allocate the combined accounts receivable and
pending transactions of LJMCo and LJMCal listed on the Allocation Schedule (the
"Receivables") in a manner which is intended to fairly treat the Shareholders
with respect to the fees for which substantial work has already been performed.
It is also the intention of the Parties with respect to all Liabilities of LJMCo
that either
(a) LJMCo shall, immediately after the Closing, have sufficient cash
and Cash Equivalents (excluding any cash or Cash Equivalents contributed by
CBC, CBM or any of their respective Affiliates) to fully pay and discharge
all such Liabilities or
(b) the Shareholders shall have assumed and agreed to discharge such
Liabilities or
(c) such Liabilities shall have been specifically allocated to CBM or
CBC in the Allocation Schedule.
Accordingly, each of the Parties agrees as follows:
(i) Prior to the Closing Date, CBC, CBM and the Shareholders
shall jointly prepare the Allocation Schedule, which shall be mutually
satisfactory to each of them and which shall also be part of an
Allocation, Assumption and Collection
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<PAGE>
Agreement to be executed as of the Closing Date by CBC, CBM, the
Shareholders and LJMCo. The Allocation Schedule shall identify (1) the
Receivables and their allocation among the parties and (2) the
Liabilities of LJMCo and the allocation thereof among LJMCo and LJMCal
and the Shareholders.
(ii) As of the Closing Date, CBM, the Shareholders and LJMCo
shall execute and deliver the Allocation, Assumption and Collection
Agreement, in form and substance satisfactory to each of them,
pursuant to which LJMCo shall pay to or on behalf of the Shareholders
proceeds collected from the Receivables assigned to the Shareholders
in accordance with the Allocation Schedule and shall assign to the
Shareholders the Shareholder Liabilities to be allocated to them
pursuant to the Allocation Schedule. It is expressly understood by
the Parties hereto that no servicing fees (other than asset management
fees which have not been billed but are due and payable and have been
accrued prior to the Closing) shall be allocated to the Shareholders.
Each of the Shareholders agrees to be responsible for any state,
federal or local income taxes attributable to such amount allocated to
him. Neither CBC, CBM, LJMCo nor LJMCal shall have any liability with
respect to the failure to collect Receivables.
(iii) Notwithstanding anything to the contrary set forth herein
and regardless of whether any Liability is disclosed herein or in the
Schedules attached hereto or whether the representations and
warranties set forth herein contain any limitations or qualifications,
each of the Shareholders agrees that, immediately following the
Closing (A) he shall cause LJMCo to have unrestricted cash or Cash
Equivalents at least equal to the sum of all Existing Liabilities of
LJMCo and (B) other than Existing Liabilities with respect to which
LJMCo has an amount of unrestricted Cash or Cash Equivalents at least
equal to such Existing Liabilities pursuant to the preceding clause
(A), LJMCo shall have no Liabilities other than Liabilities which have
been assumed by the Shareholders pursuant to the Allocation Schedule
and the Allocation, Assumption and Collection Agreement and
Liabilities which either CBC or CBM has specifically agreed to assume
pursuant to the Allocation Schedule and the Allocation, Assumption and
Collection Agreement.
10.5 Integration of Mortgage Origination Business. Simultaneously with the
--------------------------------------------
Closing or as soon as practicable thereafter, CBC shall transfer and assign to
CBM (or the surviving corporation of the merger effected pursuant to Section
-------
10.11 hereof), as a contribution to capital, and CBM (or such surviving
- -----
corporation) shall accept and assume, the assets of CBC's Mortgage Origination
Business and the Liabilities related thereto set forth on Schedule 10.5 hereto.
-------------
Schedule 10.5 does not list and CBC will not transfer to CBM potential fees from
- -------------
loans committed or under application on June 30, 1996 which close on or before
July 31, 1996, but CBM shall take, at its expense, all steps reasonably
necessary to cause such loans to close by July 31, 1996. As soon as practicable
after the Closing Date, CBC and CBM (or such surviving corporation) shall
jointly prepare a mutually satisfactory integration plan to integrate the CBC
Mortgage Origination Business with CBM (or such surviving corporation), and CBC
shall reimburse CBM (or such surviving corporation) for non-recurring, out of
pocket costs and expenses set forth in the integration plan (excluding legal,
accounting and other advisory fees and expenses).
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<PAGE>
10.6 Employee Equity Equivalent Program. On or before January 1, 1997, CBM
----------------------------------
shall adopt an Employee Equity Equivalent Program. The Employee Equity
Equivalent Program shall mean a long-term incentive program on terms and
conditions determined by CBC which (i) has a term of five years (which may
include overlapping five-year plans), (ii) provides that up to a maximum of ten
(10) key executive officers of CBM may share in excess value creation of the
combined LJMCo/CB Companies mortgage businesses, (iii) would permit
participating officers to share $3 - 5 million in the aggregate for the initial
five year term for the incremental future value of LJMCo in excess of the CB
Companies' required minimum 15% internal rate of return on the net capital
actually invested in LJMCo and (iv) causes a portion of the benefit to be
measured or limited by the success of CBC.
10.7 CBM's Business Operations. In conducting business after the Closing
-------------------------
Date and until the earlier of (i) payment in full or cancellation of all amounts
due and owing under the Notes, (ii) the date on which the aggregate face amounts
of the Letters of Credit, taken together, becomes equal to or greater than the
outstanding aggregate principal amount of the Notes or (iii) termination of the
Contingent Notes, CBC agrees as follows:
(A) CBC shall not, without the prior written consent of LJM, permit
CBM to: (i) incur any indebtedness for borrowed money, other than Cash
Management Loans, indebtedness incurred in the Ordinary Course of Business
of CBM (including without limitation obligations to pay the Reconstruction
Finance Corporation in connection with borrowed funds) and working capital
loans from CBC which shall be expressly subordinate to the Notes and which
shall expressly provide that no principal or interest in excess of the
London Interbank Rate plus 200 basis points may be paid on such working
capital loans while any balance is payable under the Notes, (ii) encumber
any of its assets with Liens other than in the Ordinary Course of Business,
(iii) incur any Liability for the acquisition of all or substantially all
of the assets or stock of another business, (iv) make distributions to its
shareholders without consideration other than in accordance with applicable
law or (v) convey, sell, transfer or otherwise dispose of all or
substantially all its assets; provided, however, that in the event CBC or
-------- -------
the Board of Directors of CBM proposes to take any of the actions set forth
in this Section 10.7 and LJM does not consent in writing, nothing set forth
------------
in this Agreement shall prohibit CBC or any Affiliate of CBC, other than
CBM, from taking any of the actions set forth in this subsection on behalf
of itself or such Affiliate;
(B) CBC shall not, without the prior written consent of LJM, sell,
pledge, assign or otherwise encumber CBM's stock other than as contemplated
by this Agreement and other than to The Sumitomo Bank Limited ("Sumitomo");
(C) CBC shall perform and observe its obligations under the Guaranty
and the Trademark Agreement;
(D) Subject to any decision to the contrary by the Board of Directors
of CBM or CBC after the Closing to cease doing business with the Federal
Home Loan Mortgage Corporation and subject to compliance with CBC's credit
agreements, CBC shall cause CBM to maintain levels of capital and net worth
(whether directly or by a guaranty by CBC) necessary (i) to satisfy the
Federal Home Loan Mortgage Corporation qualification standards for a
seller/servicer of loans and (ii) to permit
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<PAGE>
CBM to maintain daily operations and working capital reserves at reasonable
levels for LJMCo's Program Plus Seller-Servicer Contract;
(E) Subject to the sole and absolute discretion of its Board of
Directors, CBC shall take reasonable steps to arrange for or make available
such levels of capital or advances to CBM as are necessary to implement a
reasonable program approved by the Board of Directors of CBC of acquiring
additional mortgage banking business through acquisitions or expansion of
CBM's national operations;
(F) CBC (i) shall cause CBM to seek to operate nationally under the
LJMCo Name and trademarks until such time as the Board of Directors of CBC
or CBM elects to operate CBM otherwise and (ii) shall not permit any CB
Company to use the LJMCo Name with respect to any business as to which a
majority of the revenue is not derived from mortgage banking and loan
servicing;
(G) CBC, in its capacity as sole shareholder of CBM, shall appoint
LJM as a member of the board of directors of CBM (or LJMCo upon
consummation of the merger pursuant to Section 10.11 hereof) for so long as
-------------
he is the President and Chief Executive Officer of CBM; and
(H) CBC shall cause CBM to maintain policies of insurance comparable
to those maintained by the CB Companies, provided, however, that this
-------- -------
covenant is conditioned upon the delivery by the Shareholders to CBC prior
to Closing, of a certificate executed by the Shareholders in the form and
substance satisfactory to CBC and certifying that there have been no Losses
and there are no claims pending of a nature that would be covered by any
errors and omissions insurance policies.
10.8 LJMCo Business Management. After the Closing, CBC agrees to cause CBM
-------------------------
and Westmark Realty Advisors, L.L.C., a limited liability company organized
under the laws of Delaware and a wholly-owned affiliate of CBC ("Westmark"), to
cooperate and consult with each other and to develop a common marketing plan
which assures a complementary rather than competitive arrangement. Without
limiting the generality of the foregoing, after the Effective Time, (i) CBM
shall not accept any additional equity pension advisory clients, (ii) CBM shall
use its best efforts to have all potential equity pension advisory clients
engage Westmark as their pension advisor and (iii) CBC will cause Westmark to
agree that Westmark will refer to CBM mortgage origination services with respect
to commingled trust funds and clients for which Westmark has discretionary
authority; provided however, that if a potential pension plan client refuses to
-------- ------
engage Westmark as an advisor or CBM as the mortgage originator, CBC shall cause
Westmark and CBM to coordinate and consult with each other and to allocate the
provision of services to such client in a manner which is in the best interests
of CBC exclusively or in the manner conforming to the policies and directions
promulgated from time to time by CBC's Board of Directors or managing officers
and; provided further, that CBM may expand its relationship with and provide
-------- -------
additional services to the following current pension advisory clients of LJMCo
(which will become clients of CBM following the Closing): Teacher Retirement
System of Texas, New York State Teachers Retirement System, ABP and the State of
Wisconsin Investment Board. The parties agree that wherever appropriate, CBM
and Westmark will both cooperate with respect to and participate in all requests
for proposals from potential clients which arise after the Closing to act as
investment advisors with pension plan sponsors for debt or participating debt
instruments.
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<PAGE>
10.9 LJM Administrative Services. After the Closing, CBM and LJMCo will
---------------------------
use CBC for such administrative services as are reasonable from an
administrative and cost standpoint, and CBC shall provide such services to CBM
in a timely and efficient manner. By way of example, such administrative
services include, among others, information technology, accounting and benefits
administration.
10.10 Key Person Life Insurance. Following the Closing, the CB Companies
-------------------------
may obtain, or may cause LJMCo to obtain, one or more term life insurance
policies on the life of LJM in an aggregate amount up to Ten Million Dollars
($10,000,000). Such policies shall name as loss payees such persons as the CB
Companies may designate and shall not be cancelable without the prior approval
of the Board of Directors of CBM. LJM shall cooperate with the CB Companies and
shall, upon request from CBM from time to time after the Closing, execute and
deliver, and use all reasonable efforts to cause other persons to execute and
deliver, to the CB Companies such documents and instruments, and will do or use
all reasonable efforts to cause to be done such other acts (including without
limitation having medical examinations performed), as CBM may reasonably request
in connection with the application and maintenance of such insurance.
10.11 Merger of LJMCo and CBM. As soon as practicable after the Closing,
-----------------------
CBC shall cause CBM to merge with and into LJMCo, and the surviving corporation
shall be LJMCo and shall be named "L. J. Melody & Company". References in this
Article 10 to CBM shall include any successor entity.
10.12 Letters of Credit. In the event that either of the Letters of
-----------------
Credit is due to expire at a time when any of the Notes secured thereby remain
outstanding, CBC shall deliver to the Shareholder whose Notes remain outstanding
a renewal or replacement thereof at least fifteen (15) days prior to such
expiration date. In the event that Moody's Investor Service assigns a bond
record financial strength rating to The Sumitomo Bank, Limited of below C-minus
at a time when any of the Notes is outstanding, upon the request of a
Shareholder whose Notes remain outstanding, CBC shall promptly deliver a
replacement Letter of Credit in the same face amount as that required by the
replaced Letter of Credit for such Shareholder. The replacement Letter of
Credit shall be capable of being drawn upon in the continental United States and
shall be issued by a bank or other lending institution (i) with a bond record
financial strength rating from Moody's Investor Service of C-minus or above or
(ii) mutually agreeable to such Shareholder and CBC. Upon delivery of the
replacement Letter of Credit, such Shareholder shall deliver to CBC the Letter
of Credit which was replaced, and the original Letter of Credit shall
automatically be cancelled.
10.13 Termination of LJMCo 401(k) Plan.
--------------------------------
(A) CBC agrees that, as soon as practicable after the Closing, the
participants of the LJMCo Plan who become employees of CBC or an Affiliate
of CBC as of the Closing Date shall commence participation in a defined
contribution plan (the "CBC 401(k) Plan") maintained by CBC or an Affiliate
of CBC that is intended to qualify under Sections 401(a) and 401(k) of the
Code.
(B) Prior to and after the Closing, the Shareholders shall use their
best efforts and shall cause LJMCo to use its best efforts to carry out the
directives of the Board of Directors of CBM in connection with obtaining
from participants the election of an available form of distribution upon
termination of the LJMCo 401(k) Plan (including a spousal consent for any
participant that may have elected an annuity option previously under the
Plan).
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<PAGE>
(C) Following the Closing, CBC shall use its best efforts to file
promptly an application with the Dallas Key District of the Internal
Revenue Service on Form 5310 for a determination letter that termination of
the LJMCo 401(k) Plan, followed by coverage of such Plan's participants in
the CBC 401(k) Plan, does not adversely affect its qualification. Such
application shall include disclosures pertaining to the facts surrounding
the termination of the LJMCo 401(k) Plan in the context of this Agreement.
Upon receipt of a favorable determination letter, distributions from the
LJMCo Plan shall be implemented. In the event no such favorable
determination letter or other form of assurance from the Internal Revenue
Service of equivalent weight (in the sole judgment of CBC) can be obtained,
the LJMCo 401(k) Plan shall be maintained by CBC or an affiliate as a
frozen plan with distributions to participants to occur at the earliest
dates permitted by law so as to achieve the complete liquidation of the
Plan at the earliest possible date. In the event the LJMCo 401(k) Plan is
maintained as a "frozen plan", CBC agrees that no expenses other than
investment expenses shall be paid by the Plan for so long as the Plan is in
existence. The participants in the Plan shall be third-party beneficiaries
with respect to these covenants and shall be entitled to enforce these
covenants under law and, if such participants prevail in any action to
enforce these covenants, CBC agrees to pay the reasonable costs and
expenses of participants of enforcing such covenants, including reasonable
attorneys' fees.
10.14 No Section 338(h)(10) Election; Post Closing Transfers. CBM and the
------------------------------------------------------
Shareholders agree that they shall not join in making an election under Section
338(h)(10) of the Code or a similar election under any applicable state income
tax law with respect to CBM's purchase of LJMCo Stock. CBM shall be liable for
and shall indemnify the Shareholders against, any and all liability for Taxes
arising from a liquidation, merger, sale or other disposition of assets of LJMCo
on or subsequent to the Closing or from a regular election pursuant to Section
338(g) of the Code with respect to LJMCo.
10.15 CBC Holdings Stock Options. Subject to the approval of the
--------------------------
Compensation Committee of the Board of Directors of CB Holdings, CBC shall cause
CB Holdings to grant to each of LJM, Thomas Melody and Michael Melody the option
to purchase 30,250 shares each of the Class B-2 common stock of CB Holdings at
an exercise price of ten dollars ($10) per share. The terms and conditions of
such options (including the vesting schedule relating thereto) shall be
determined by the Compensation Committee of the Board of Directors of CB
Holdings and shall be substantially the same for the shares offered to senior
executives pursuant to CB Commercial's 1996 Equity Incentive Plan.
10.16 Assignment of LJMCo Name; License. In the event any outstanding
---------------------------------
payment due and payable under the Notes shall not be made within ninety (90)
days after its due date, CBM shall promptly assign and transfer to LJM all
right, title and interest of CBM in and to the LJMCo Name acquired by CBM
pursuant hereto and shall thereafter cease use of the LJMCo Name acquired by CBM
pursuant hereto. CBM hereby grants to the Shareholders a royalty-free license
to use the name "L.J. Melody & Company"; provided, however, that this license
-------- -------
shall confer no rights unless and until an Event of Default (as defined in the
Notes) shall have occurred under the Notes; provided further, however, that this
---------------- -------
license shall only be to the extent of the right, title and interest in and to
the name "L.J. Melody & Company" acquired by CBM pursuant to this Agreement and
the Trademark Agreement and neither CBC nor CBM makes any representations or
warranties, express or implied, with respect to such name or the right to use
such name. The license set forth herein shall terminate and be of no further
force and effect upon payment in full of all outstanding amounts due under the
Notes.
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<PAGE>
10.17 Vacation. The Shareholders assume and agree to pay when due all
--------
obligations of LJMCo to employees for any Vacation Liability as it becomes due
and payable.
ARTICLE 11
CONDITIONS PRECEDENT
--------------------
11.1 Conditions to Obligations of All Parties. The obligations of each
----------------------------------------
Party to this Agreement to effect the transactions contemplated hereby shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions unless waived by both CBM and the Shareholders:
----
(A) Government Approvals. All authorizations, consents, orders or
--------------------
approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity necessary for the consummation
of the transactions contemplated by this Agreement including, but not
limited to, termination of the waiting period under the HSR Act and such
requirements under applicable federal or state securities laws shall have
been filed, occurred or been obtained.
(B) Legal Action. No temporary restraining order, preliminary
------------
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated hereby shall have been issued
by any federal or state court and remain in effect, and no litigation
seeking the issuance of such an order or injunction, shall be pending
which, in the good faith judgment of the Shareholders or CBC has a
reasonable probability of resulting in such order, injunction or damages.
In the event any such order or injunction shall have been issued, each
Party agrees to use all commercially reasonable efforts to have any such
injunction lifted.
(C) Statutes. No statute, rule or regulation shall have been enacted
--------
by the government of the United States or any state or agency thereof which
would (i) make the consummation of the transactions contemplated hereby or
by the LJMCal Stock Purchase Agreement illegal, (ii) prohibit CBC's or
CBM's ownership or operation of all or a material portion of the Business
or assets of LJMCo or LJMCal, or compel CBC or CBM to dispose of or hold
separate all or a material portion of the business or assets of LJMCo or
LJMCal, as a result of this Agreement or the LJMCal Stock Purchase
Agreement, or (iii) render the Parties hereto unable to consummate the
transactions contemplated hereby or by the LJMCo Stock Purchase Agreement,
except for any waiting period provisions.
(D) Federal Home Loan Mortgage Corporation Approval. The Federal Home
-----------------------------------------------
Loan Mortgage Corporation shall have determined that after the merger
pursuant to Section 10.11 hereof the surviving corporation may act as a
-------------
Federal Home Loan Mortgage Corporation seller/servicer.
(E) LJMCal Stock Purchase Agreement. The parties thereto shall have
-------------------------------
entered into the LJMCal Stock Purchase Agreement and the Closing under the
LJMCal Stock Purchase Agreement shall have occurred simultaneously with the
Closing under this Agreement.
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<PAGE>
11.2 Conditions to Obligations of CBC and CBM. The obligations of CBC and
----------------------------------------
CBM to effect the transactions contemplated hereby are subject to the
satisfaction on or prior to the Closing Date of the following conditions (except
for the conditions set forth in paragraph (A) of Section 11.2(L) ("Pre-Closing
---------------
Transactions"), which shall have been satisfied on or prior to the Effective
Date), unless waived by CBC:
(A) Representations and Warranties. The representations and
------------------------------
warranties of the Shareholders set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
as if made at and as of the Closing Date, except as otherwise contemplated
by this Agreement, and CBM shall have received a certificate or
certificates signed by the Shareholders to such effect.
(B) Performance of Obligations of the Shareholders. LJMCo and the
----------------------------------------------
Shareholders shall have performed in all material respects all obligations
required to be performed by each under this Agreement prior to the Closing
Date, and CBM shall have received a certificate signed by the Shareholders
to such effect.
(C) Opinion of Counsel to LJMCo and the Shareholders. CBC and CBM
------------------------------------------------
shall have received an opinion dated the Closing Date of Baker & Botts,
--------------
L.L.P., counsel to LJMCo and the Shareholders, in substantially the form of
------
Exhibit C hereto.
---------
(D) No Material Adverse Change. Since the date of this Agreement
--------------------------
there shall have been no changes in the condition (financial or otherwise),
business, prospects, employees, operations, obligations or liabilities of
LJMCo which, in the aggregate, have had or may be reasonably expected to
have a Material Adverse Effect on LJMCo and its Subsidiaries taken as a
whole.
(E) Employment Agreement. CBM and LJM shall have entered into the
--------------------
LJM Employment Agreement in the form of Exhibit D hereto.
---------
(F) Covenants Not to Compete. CBM and each of LJM and JMB shall have
------------------------
entered into a Covenant Not to Compete in the form of Exhibit E hereto.
---------
(G) Trademark Agreement. LJM and JMB shall have executed and
-------------------
delivered the Trademark Agreement in the form of Exhibit F hereto.
---------
(H) Sumitomo Consent. Sumitomo shall have (i) advised CBC in writing
----------------
either that (A) no consent or other approval by Sumitomo or any other
participant in the Amended and Restated Senior Secured Credit Agreement
dated July 1, 1994, as amended or the Senior Subordinated Credit Agreement
dated July 20, 1990, as amended, is required or (B) such consent or other
approval has been obtained and (ii) agreed, on terms and conditions
reasonably satisfactory to the Shareholders, that the Sumitomo Guaranties
are subordinate to the Notes. As used in this Section 11.2(H), "Sumitomo
---------------
Guaranties" means that certain guaranty of CBM in favor of Sumitomo in
connection with the Second Amended and Restated Senior Secured Credit
Agreement between CBC and Sumitomo and that certain guaranty of CBM in
favor of Sumitomo (Dublin) Limited in connection with the Senior
Subordinated Credit Agreement between CBC, et al., and Sumitomo (Dublin)
-- --
Limited.
-39-
<PAGE>
(I) Other Third-Party Approvals. Any and all other consents or
---------------------------
approvals required to consummate the transactions contemplated hereby shall
have been obtained, including (i) any consents or any governmental permits
identified on Schedule 5.4, (ii) approval of the Federal Home Loan Mortgage
------------
Corporation of CBM's qualification as a Federal Home Loan Mortgage
Corporation seller/servicer (and satisfaction by CBM of any conditions and
qualifications required by such approval), and (iii) any approvals from
third parties relating to the Business.
(J) Resignations. The Board of Directors and officers of LJMCo shall
------------
have resigned their positions effective as of the Closing.
(K) Intentionally Deleted.
---------------------
(L) Pre-Closing Transactions.
------------------------
(A) Prior to the Effective Date,
(i) LJMCo shall have distributed to one or both of the
Shareholders the art works of LJMCo and club memberships set
forth in the Allocation Schedule (the "Distributed Assets"), but
only to the extent that the distribution of the Distributed
Assets does not result in a write-off in excess of the value of
such Distributed Assets as reflected on the LJMCo Financial
Statements and
(ii) subject to the provisions of Section 10.4 (Allocation
------------
of Certain Accounts Receivable and Liabilities), all remaining
LJMCo Cash in such amounts as determined by LJM and JMB in their
sole discretion and those accounts receivable which have been
mutually agreed upon in writing by CBC, CBM and the Shareholders
shall have been applied to the redemption of then outstanding
stock of LJMCo, and such redemption shall have been consummated.
The remaining balance of LJMCo Cash will be distributed to the
Shareholders in an amount reflecting their respective ownership
of LJMCo, subject to the provisions of Section 10.4 hereof.
------------
(B) Prior to the Closing (i) the Shareholders, CBC and CBM shall
have agreed upon the Allocation Schedule and the Allocation,
Assumption and Collection Agreement, (ii) LJMCo shall have assigned to
each Shareholder the Receivables and the Shareholder Liabilities
allocated to him in the Allocation Schedule and (iii) each of the
Shareholders shall have jointly and severally assumed the Shareholder
Liabilities allocated to them in the Allocation Schedule.
The transactions set forth in this Section 10.2(L) are referred to as
---------------
the "Pre-Closing Transactions." Any accounts receivable of LJMCo applied
for the redemption set forth above (i) shall be accounts receivable that
are reflected on the LJMCo Balance Sheet or on the accounting records of
LJMCo as of the June 30, 1996 and represent valid obligations arising from
sales actually made or services actually performed in the Ordinary Course
of Business, (ii) will not increase the percentage that the reserves
represent of the accounts receivable of LJMCo as of the Closing Date or
that the reserves reflected in the LJMCo Balance Sheet represented of the
accounts receivable reflected therein and will not represent a material
adverse change in the composition of such accounts receivable in terms of
aging.
-40-
<PAGE>
Notwithstanding any other provision of this Agreement, the distributions
to the Shareholders pursuant to this Section 11.2(L) shall be in an amount
---------------
such that, after such distributions are made, on the Effective Date LJMCo
will have a remaining amount of Cash and Cash Equivalents equal to all then
Existing Liabilities. The redemption provided for herein shall be deemed to
be simultaneous with the purchase and sale of all the outstanding shares of
capital stock of LJMCo pursuant to Article 2 hereof as a single integrated
transaction and shall not be deemed to be equivalent to a dividend.
(M) Absence of Liabilities. Notwithstanding anything to the contrary
----------------------
set forth herein and regardless of whether any Liability is disclosed
herein or in the Schedules attached hereto or whether the representations
and warranties set forth herein contain any limitations or qualifications,
as of the Closing Date (and following the assumption by the Shareholders of
the Shareholder Liabilities) LJMCo will not have any Liabilities other than
(i) Liabilities which CBM has specifically agreed in writing to assume
pursuant to Sections 10.4 (Assignment of Certain Accounts Receivable and
-------------
Liabilities) and 11.2(N) (Allocation, Assumption and Collection Agreement)
-------
of this Agreement and (ii) Existing Liabilities as to which LJMCo has
immediately after the Closing (without giving effect to any obligation or
action by the CB Companies) unrestricted cash or Cash Equivalents equal to
the amount of such Existing Liabilities.
(N) Allocation, Assumption and Collection Agreement. Each of the
-----------------------------------------------
Shareholders shall have executed an Allocation, Assumption and Collection
Agreement, in form and substance satisfactory to CBM, pursuant to which the
Shareholders jointly and severally assume the Shareholder Liabilities as
set forth in the Allocation Schedule.
(O) LJMCal Stock Purchase Conditions. All conditions precedent to
--------------------------------
the obligations of any CB Company under the LJMCal Stock Purchase Agreement
shall have been satisfied or waived and the transactions contemplated by
the LJMCal Stock Purchase Agreement shall have been consummated.
(P) Certain Write-offs. LJMCo shall have written-off as a charge to
------------------
its earnings certain items set forth in writing by CBC and delivered to
LJMCO.
(Q) General Release. Each of LJM and JMB shall have executed and
---------------
delivered to CBC and CBM a General Release in the form of Exhibit G hereto.
---------
(R) Intentionally Deleted.
---------------------
(S) CBM Employment Agreements. Each incentively compensated employee
-------------------------
of LJMCo designated by CBC shall have executed and delivered to CBM an
employment agreement substantially in the form of CBM's standard employment
agreement.
(T) L.J. Melody Realty Advisors Name. L.J. Melody Realty Advisors,
--------------------------------
Inc., a Texas corporation ("LJMRA"), shall have assigned and transferred to
LJMCo, on terms and conditions satisfactory to CBC and CBM, all right,
title and interest in and to the name "L.J. Melody Realty Advisors,"
together with any similar names and any derivations thereof, including
without limitation (A) the right to sue or otherwise recover for any and
all past, present or future infringements thereof, (B) the right to all
income, royalties, damages and other payments now and hereafter due or
payable with respect thereto and (C) all rights corresponding thereto in
each location where such name has been used prior to the date
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<PAGE>
hereof and all rights of any kind whatsoever accruing thereunder or
pertaining thereto, together in each case with the goodwill of the business
represented and symbolized thereby. Prior to the Closing, LJMRA shall have
adopted and filed with the Secretary of State of Texas an amendment to its
Articles of Incorporation or other constitutive documents to change its
name to a name other than "L.J. Melody Realty Advisors" or any similar name
and shall have delivered to CBC and CBM a true and correct copy of such
amendment conformed by the Secretary of State of Texas.
(U) Termination of Shareholders' Agreement. The Shareholders'
--------------------------------------
Agreement dated as of August 19, 1992 by and among LJMCo, LJM, JMB,
Gwendolyn G. Melody and Susan Bradley shall have been terminated by the
parties thereto on terms and conditions satisfactory to CBC and CBM.
11.3 Conditions to Obligations of the Shareholders. The obligations of the
---------------------------------------------
Shareholders to effect the transactions contemplated hereby are subject to the
satisfaction on or prior to the Closing Date of the following additional
conditions unless waived by the Shareholders:
(A) Representations and Warranties. The representations and
------------------------------
warranties of CBC and CBM set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as if
made at and as of the Closing Date, except as otherwise contemplated by
this Agreement, and the Shareholders shall have received a certificate
signed by the Chief Executive Officer of each of CBC and CBM to such
effect.
(B) Performance of Obligations of the CB Companies. CBC and CBM
----------------------------------------------
shall have performed in all material respects all obligations required to
be performed by them under this Agreement prior to the Closing Date, and
the Shareholders shall have received a certificate signed by the Chief
Executive Officer of each of CBC and CBM to such effect.
(C) Opinion of Counsel to CBC and CBM. The Shareholders shall have
---------------------------------
received an opinion dated the Closing Date of Pillsbury Madison & Sutro
-------------------------
LLP, outside counsel to CBC and CBM, in substantially the form of Exhibit
-------
H.
-
(D) Letters of Credit and Guaranty. CBM shall have obtained and
------------------------------
delivered the Letters of Credit which Credit shall be in a form
satisfactory to the Parties hereto and CBC shall have executed and
delivered the Guaranty in substantially the form of Exhibit I.
---------
(E) No Material Adverse Change. Since December 31, 1995, there shall
--------------------------
have been no changes in the condition (financial or otherwise), business,
prospects, employees, operations, obligations or liabilities of the CB
Companies which, in the aggregate, have had or may be reasonably expected
to have a materially adverse effect on the financial condition, business or
results of operations of the CB Companies on a consolidated basis.
(F) Employment Agreement. CBM and LJM shall have entered into the
--------------------
LJM Employment Agreement in the form of Exhibit D hereto.
---------
(G) Intentionally Deleted.
---------------------
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<PAGE>
(H) Intentionally Deleted.
---------------------
(I) LJMCal Stock Purchase Conditions. All conditions precedent to
--------------------------------
the obligations of LJM under the LJMCal Stock Purchase Agreement shall have
been satisfied or waived and the transactions contemplated by the LJMCal
Stock Purchase Agreement shall have been consummated.
(J) Intentionally Deleted.
---------------------
ARTICLE 12
SURVIVAL AND INDEMNIFICATION
----------------------------
12.1 Survival. Each of the representations, warranties, covenants
--------
and agreements of each of the CB Companies and each of the Shareholders (but not
LJMCo which shall have no liability for any Losses resulting from a breach of
this Agreement after the Closing Date) contained in this Agreement (including
those made in the Exhibits and Schedules hereto), any updates to the Schedules
pursuant to Section 8.9 or 9.5 hereof, the certificates delivered pursuant to
----------- ---
Sections 11.2(A), 11.2(B), 11.3(A) and 11.3(B) hereof and any other document or
- ---------------- ------- ------- -------
certificate delivered pursuant to this Agreement or the LJMCal Stock Purchase
Agreement shall be deemed renewed by such Party at the Closing as if made at
such time and shall survive the Closing and shall continue in full force and
effect thereafter, even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing, unless, subject
to Sections 8.9 and 9.5 hereof, such misrepresentation or breach is disclosed in
------------ ---
an Exhibit or Schedule hereto or any updates to the Schedules pursuant to
Sections 8.9 and 9.5 hereof.
- ------------ ---
12.2 Indemnification by the Shareholders.
-----------------------------------
(A) Except as otherwise expressly provided in this Section 12.2, on
------------
and after the Closing Date, the Shareholders shall defend, indemnify and
hold harmless each CB Company, and each of their respective Affiliates,
officers, directors, employees, agents, successors and assigns
(collectively, "CBC's Indemnified Persons"), and shall reimburse CBC's
Indemnified Persons, for, from and against, each and every demand, claim,
loss (which shall include any diminution in value), liability, judgment,
and damage (and costs and expenses, including attorneys' fees, but only as
provided in Section 14.12) (collectively, "Losses") imposed on or incurred
-------------
by CBC's Indemnified Persons, directly or indirectly, relating to,
resulting from or arising out of (i) any inaccuracy in any representation
or warranty in any respect, whether or not CBC's Indemnified Persons relied
thereon or had knowledge thereof (unless such inaccuracy is disclosed in an
Exhibit or Schedule hereto), or any breach or nonfulfillment of any
covenant, agreement or other obligation of the Shareholders or LJMCo under
this Agreement, any Schedule or Exhibit hereto, or any certificate or other
document delivered or to be delivered pursuant hereto, (ii) any Existing
Liabilities to the extent LJMCo did not have an amount of unrestricted cash
or Cash Equivalents at least equal to all Existing Liabilities as of the
Effective Date, (iii) any Shareholder Liability which is not an Existing
Liability and (iv) the failure of the Shareholders to fully perform such
Shareholder Liabilities as they become due or any breach or nonfulfillment
of any covenant, agreement or obligation of the Shareholders pursuant to
the Allocation Schedule or the Allocation, Assumption and Collection
Agreement.
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<PAGE>
(B) The Shareholders shall have no liability under Section 12.2(A) in
---------------
the case of clause (i) of the first sentence of Section 12.2(A) and in the
---------------
case of Shareholder Liabilities (other than Vacation Liability) which are
not Existing Liabilities pursuant to clause (iii) of Section 12.2(A) unless
---------------
and until the aggregate of all Losses relating thereto, when combined with
Losses relating to clause (i) of the first sentence of Section 12.2(A) of
---------------
the LJMCal Stock Purchase Agreement and Losses relating to Shareholder
Liabilities (as defined in the LJMCal Stock Purchase Agreement) which are
not Vacation Liabilities (as defined in the LJMCal Stock Purchase
Agreement) and are also not Existing Liabilities (as defined in the LJMCal
Stock Purchase Agreement) pursuant to clause (iii) of Section 12.2(A) of
---------------
the LJMCal Stock Purchase Agreement, exceeds $100,000 (the "CBC Minimum
Amount"), in which event the Shareholders shall be liable for all Losses,
irrespective of the CBC Minimum Amount. Notwithstanding any other provision
of this Agreement, the CBC Minimum Amount shall not apply to clauses (ii)
or (iv) of the first sentence of Section 12.2 (A), to any Vacation
----------------
Liability or the obligation of the Shareholders to pay Vacation Liability
pursuant to Section 10.17 (Vacation) hereof or the Allocation Schedule or
-------------
to Shareholder Liabilities which are also Existing Liabilities, regardless
of whether any Losses relating thereto may also constitute a Loss arising
from any matter described in clause (i) of the first sentence of Section
-------
12.2(A).
-------
(C) Any Loss resulting from or arising out of a Shareholder Liability
which is not an Existing Liability will be net of any insurance proceeds
received by CBM from a third party carrier, but shall include (i) any
Losses covered by self-insurance arrangements by LJMCo, CBC or any
Affiliates thereof and any reserves established thereunder and (ii) any
costs incurred in connection with insurance and third party recoveries,
premium adjustments (retrospective and experience-based) and
indemnification obligations to third parties. Notwithstanding the
foregoing, however, the Shareholders shall have no obligation to defend,
indemnify and hold harmless CBC's Indemnified Persons, or to reimburse
CBC's Indemnified Persons, for, from and against, any Losses imposed on or
incurred by CBC's Indemnified Persons, directly or indirectly, relating to,
resulting from or arising out of any inaccuracy in any representation or
warranty by LJMCo under Section 10.13 of this Agreement.
-------------
12.3 Indemnification by CBC. Except as otherwise expressly provided in
----------------------
this Section 12.3, on or after the Closing Date, CBC shall defend, indemnify and
------------
hold harmless the Shareholders and each of their heirs and assigns (the
Shareholders and such other persons, collectively "Shareholders Indemnified
Persons") and shall reimburse the Shareholders Indemnified Persons for, from and
against all Losses imposed on or incurred by the Shareholders Indemnified
Persons, directly or indirectly, relating to, resulting from or arising out of
(i) any inaccuracy in any representation or warranty in any respect, whether or
not Shareholders Indemnified Persons relied thereon or had knowledge thereof
(unless such inaccuracy is disclosed in an Exhibit or Schedule hereto), or any
breach or nonfulfillment of any covenant, agreement or other obligation of CBC
or CBM under this Agreement, any Schedule or Exhibit hereto or any certificate
or other document delivered or to be delivered pursuant hereto (including under
the Allocation Schedule and the Allocation, Assumption and Collection Agreement)
and (ii) any Liability (other than a Shareholder Liability) specifically
allocated to CBC or CBM in the Allocation Schedule.
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<PAGE>
12.4 CBC's Right of Set-Off.
----------------------
(A) In the event a CBC Indemnified Person incurs a Loss or otherwise
becomes entitled to any amounts under this Article 12 (subject to the
----------
provisions set forth in Section 12.2 regarding CBC's Minimum Amount), CBC
------------
shall notify the Shareholders in writing of such Loss or other amount (a
"Claim Notice") specifying in reasonable detail the amount of such Loss or
other amount. The Shareholders shall thereafter have ten (10) business
days after receipt of such Claim Notice to pay to CBC the entire amount of
such Loss or other amount. In the event the Shareholders do not pay such
amount within that time, the CB Companies may set off such Loss or other
amount against amounts otherwise payable under the Notes or the Guaranty.
Any such set-off shall be exercised with respect to all the Notes pro rata
based on the then outstanding principal balance of the Notes. The exercise
of such right of set-off by the CB Companies, whether or not ultimately
determined to be justified, shall not constitute a breach of this Agreement
or an event of default by CBC or CBM under the Notes, the Guaranty or any
other instrument securing the Notes and shall not entitle the payee to
accelerate any amounts due under the Notes.
(B) Any amount set off against the Notes under subsection (A) above
shall be set off first, against the aggregate unpaid principal amount of
the Notes, which shall be reduced accordingly, and second, against any
accrued but unpaid interest. The quarterly principal payments due under
the Notes shall not be reduced as a result of any such principal reduction,
however, the quarterly interest payments due thereunder shall be calculated
based on such reduced principal amount.
(C) In the event the Contingent Notes are terminated or canceled
pursuant to Section 4 of the Contingent Notes, at CBC's option either (i)
---------
the Shareholders shall jointly and severally reimburse CBM for all Excess
Contingent Payments within ten (10) days of such cancellation or (ii) CBM
shall be entitled to set off the amount of all Excess Contingent Payments
against any remaining outstanding Notes, pro rata based on the principal
amount of each such Note. As used herein, an Excess Contingent Payment
means (i) any prior set-off against the Contingent Notes and (ii) any
amount paid pursuant to such Contingent Notes following the occurrence of
an event which with notice or the passage of time or both allowed
cancellation of such Contingent Notes pursuant to Section 4 thereof, plus
---------
interest from the date of such event calculated at the rate of 10% per
annum.
(D) Neither the exercise of nor the failure to exercise such right of
set-off shall constitute an election of remedies nor limit the CB Companies
in any manner in the enforcement of any other remedies that may be
available to them.
12.5 Notice and Defense of Third-Party Claims. If any action, claim or
----------------------------------------
proceeding shall be brought or asserted under this Section 12.5 against an
------------
indemnified party or any successor thereto (the "Indemnified Person") in respect
of which indemnity may be sought under this Article 12 from an indemnifying
----------
person or any successor thereto (the "Indemnifying Person"), the Indemnified
Person shall give prompt written notice of such action or claim to the
Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all expenses; except that any delay or failure to so notify the
Indemnifying Person shall relieve the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that it is prejudiced by reason of such
delay or failure. The Indemnified Person shall have the right to employ
separate counsel in any of the foregoing actions, claims or proceedings and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the
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<PAGE>
expense of the Indemnified Person unless both the Indemnified Person and the
Indemnifying Person are named as parties and the Indemnified Person shall in
good faith determine that the representation by the same counsel is
inappropriate. In the event that the Indemnifying Person, within ten days after
notice of any such action or claim, fails to assume the defense thereof, the
Indemnified Person shall have the right to undertake the defense, compromise or
settlement of such action, claim or proceeding for the account of the
Indemnifying Persons, subject to the right of the Indemnifying Person to assume,
at its expense, the defense of such action, claim or proceeding with counsel
satisfactory to the Indemnified Person at any time prior to the settlement,
compromise or final determination thereof. Anything in this Article 12 to the
----------
contrary notwithstanding, the Indemnifying Person shall not, without the
Indemnified Person's prior written consent, settle or compromise any action or
claim or consent to the entry of any judgment with respect to any action, claim
or proceeding for anything other than money damages paid by the Indemnifying
Person. The Indemnifying Person may, without the Indemnified Person's prior
written consent, settle or compromise any such action, claim or proceeding or
consent to entry of any judgment with respect to any such action or claim that
requires solely the payment of money damages by the Indemnifying Person and that
includes as an unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Person from all liability with respect to such
action, claim or proceeding.
12.6 Limitation. An Indemnifying Person shall have no liability under this
----------
Article 12 unless notice of a claim for indemnity, or notice of facts as to
- ----------
which an indemnifiable Loss is expected to be incurred, shall have been given
prior to ninety days after the expiration of the appropriate statute of
limitations with respect thereto, as the same may be extended from time to time
by the Indemnifying Person; provided however, that the CB Companies may give
-------- -------
notice of and may make a claim relating to the outstanding capital stock of
LJMCo or the ownership thereof at any time.
12.7 Exclusivity. Subject to the provisions of Section 12.4 (Right of Set-
----------- ------------
Off), after the Closing, the provisions of this Article 12 shall be the
----------
exclusive basis for the assertion of claims by or imposition of liability on the
parties hereto arising under or as a result of this Agreement, the Notes, the
Guaranty, the General Release and the transactions contemplated by each of the
foregoing; provided however, that nothing herein shall preclude any Party hereto
-------- -------
from asserting a claim for equitable remedies under Section 14.11 (Dispute
-------------
Resolution) hereof.
ARTICLE 13
TERMINATION
-----------
13.1 Termination. This Agreement may be terminated by written notice given
-----------
prior to or at the Closing:
(A) by mutual written consent of CBC, CBM and the Shareholders;
(B) by either CBC or CBM, on the one hand, or the Shareholders, on
the other hand, if there has been a material breach by the other Party or
its Affiliates of any representation or warranty contained herein or in the
LJMCal Stock Purchase Agreement or in the due and timely performance of any
covenant or agreement contained herein or in the LJMCal Stock Purchase
Agreement, and such breach has not been promptly waived;
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<PAGE>
(C) by either CBC or the Shareholders if the transactions
contemplated hereby and by the LJMCal Stock Purchase Agreement shall not
have been consummated, other than through failure of any such Party to
fulfill its obligations hereunder, on or before July 8, 1996 or such other
date as the parties may mutually agree upon;
(D) by either CBC or the Shareholders if (1) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated hereby or by the LJMCal Stock
Purchase Agreement or (2) any Governmental Entity takes any action or
enacts, promulgates or issues or deems applicable to the transactions
contemplated hereby or by the LJMCal Stock Purchase Agreement any statute,
rule, regulation or order which would make consummation of the transactions
contemplated hereby or by the LJMCal Stock Purchase Agreement illegal;
(E) by either CBC or the Shareholders if any Governmental Entity
takes any action or enacts, promulgates or issues or deems applicable to
the transactions contemplated hereby or by the LJMCal Stock Purchase
Agreement any statute which would (1) prohibit CBC's or CBM's ownership or
operation of all or a material portion of the business or assets of LJMCo,
LJMCal or any of their respective Subsidiaries taken as a whole, or compel
CBC, CBM, LJMCo or LJMCal to dispose of or hold separate all or a material
portion of the business or assets of CBM, LJMCo or LJMCal as a result of
the transactions contemplated hereby or by the LJMCal Stock Purchase
Agreement (2) render CBC, CBM or the Shareholders unable to consummate the
transactions contemplated hereby or by the LJMCal Stock Purchase Agreement,
except for any waiting period provisions;
(F) (i) by CBC if all the conditions set forth in Sections 11.1
-------------
(Conditions Precedent) and 11.2 (Conditions to the Obligations of CBC and
----
CBM) of this Agreement or Sections 11.1 (Conditions Precedent) and 11.2
------------- ----
(Conditions to the Obligations of CBC and CBM) of the LJMCal Stock Purchase
Agreement shall not have been satisfied on or before the Closing Date (or
the Effective Date in the case of conditions required to be satisfied on or
before the Effective Date), other than through failure of CBC or CBM to
fully comply with its obligations hereunder or thereunder, and shall not
have been waived by CBC or CBM on or before such date;
(ii) by the Shareholders, if all the conditions set forth in
Sections 11.1 (Conditions Precedent) and 11.3 (Conditions Precedent to the
------------- ----
Obligations of the Shareholders) of this Agreement or Sections 11.1
-------------
(Conditions Precedent) and 11.3 (Conditions Precedent to the Obligations of
----
LJM) of the LJMCo Stock Purchase Agreement shall not have been satisfied on
or before the Closing Date, other than through failure of either of the
Shareholders to fully comply with their obligations hereunder or
thereunder, and shall not have been waived by the Shareholders on or before
such date;
(G) by CBC if any supplement or update to the Schedules to this
Agreement or the LJMCal Stock Purchase Agreement contains disclosures of
any fact or condition which makes untrue, or shows, to have been untrue, in
any material respect, any representation or warranty or other statement of
LJMCo or the Shareholders contained in this Agreement or the LJMCal Stock
Purchase Agreement or in the Schedules hereto or thereto or shows a
covenant or agreement of LJMCo or the Shareholders contained herein or
therein to have been breached in any material respect;
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<PAGE>
(H) by the Shareholders if any supplement or update to the Schedules
to this Agreement or the LJMCal Stock Purchase Agreement contains
disclosures of any fact or condition which makes untrue or shows to have
been untrue, in any material respect, any representation or warranty or
other statement of any of the CB Companies contained in this Agreement or
the LJMCal Stock Purchase Agreement or in the Schedules hereto or thereto
or shows a covenant or agreement of any of the CB Companies contained
herein or therein to have been breached in any material respect; or
(I) By CBC, CBM or the Shareholders if any event has occurred under
Article 13 (Termination) of the LJMCal Stock Purchase Agreement which would
----------
allow such Party to terminate the LJMCal Stock Purchase Agreement and such
Party has terminated the LJMCal Stock Purchase Agreement.
13.2 Effect of Termination.
---------------------
(A) In the event of termination of this Agreement by either the
Shareholders or CBC as provided in Section 13.1, this Agreement shall
------------
forthwith become void and there shall be no liability or obligation on the
part of the parties hereto or their respective officers or directors except
(i) to the extent such termination results from a breach by any such Person
of its representations, warranties, covenants or agreements set forth in
this Agreement (ii) the last two sentences of Sections 8.7 and 9.3 (Access
------------ ---
to Information; Confidentiality), and (iii) the obligations set forth in
Sections 13.2(B), 14.11 (Dispute Resolution) and Article 14.7 (Expenses).
---------------- ----- ------------
(B) Notwithstanding anything to the contrary in this Section, to the
extent that such termination occurs pursuant to Section 13.1(B), the
---------------
terminating Party shall be entitled to recover from the defaulting Party
the sum of one hundred thousand dollars ($100,000) as liquidated damages
(the "Liquidated Damages") and not as a penalty, unless the terminating
Party is in material breach of this Agreement. The terminating Party
shall, upon receipt of the Liquidated Damages, be precluded from exercising
any other right or remedy available under this Agreement or applicable law.
ARTICLE 14
MISCELLANEOUS
-------------
14.1 Entire Understanding. This Agreement (including the Recitals,
--------------------
Schedules and Exhibits hereto) and the other agreements and instruments, the
execution and delivery of which are provided for herein, constitutes the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and terminates and supersedes any and all prior agreements,
arrangements and understandings, both oral and written, among the parties hereto
concerning the subject matter hereof.
14.2 Waiver and Amendment. No waiver, amendment, modification or change of
--------------------
any provision of this Agreement shall be effective unless and until made in
writing and signed by CBM (by a duly authorized officer other than LJM or JMB or
any member of LJM's or JMB's family), CBC and the Shareholders. No waiver,
forbearance or failure by any Party of its right to enforce any provision of
this Agreement shall constitute a waiver or estoppel of such Party's right to
enforce
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<PAGE>
any other provision of this Agreement or a continuing waiver by such Party of
compliance with any provision.
14.3 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
14.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be original, but all of which
together shall constitute one and the same instrument.
14.5 Intentionally Deleted.
---------------------
14.6 Merger of Documents. This Agreement and all agreements and documents
-------------------
contemplated hereby constitute one agreement and are interdependent upon each
other in all respects.
14.7 Incorporation of Schedules. All Exhibits and Schedules hereto are by
--------------------------
this reference incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
14.8 Interpretation. The provisions of this Agreement are intended to be
--------------
interpreted and construed in a manner so as to make such provisions valid,
binding and enforceable. In the event that any provision of this Agreement is
determined to be partially or wholly invalid, illegal or unenforceable, then
such provision shall be deemed to be modified or restricted to the extent
necessary to make such provision valid, binding and enforceable, or, if such
provision cannot be modified or restricted in a manner so as to make such
provision valid, binding and enforceable, then such provision shall be deemed to
be excised from this Agreement and the validity, binding effect and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any manner. Except pursuant to the Employment
Agreement, nothing in this Agreement shall be interpreted or construed as
creating, expressly or by implication, a partnership, joint venture, agency
relationship or employment relationship between the parties hereto or any of
their respective officers, directors, agents, employees or representatives.
14.9 Notices. All notices, requests, demands and other communications
-------
under this Agreement shall be in writing and shall be deemed to have been
delivered three business days after having been mailed in a general or branch
post office and enclosed in a registered or certified post-paid envelope; one
business day after having been sent by overnight courier, when delivered to a
telegraph company or when scanned graphically or otherwise by telegraphic
communications equipment of the sending party on a business day, or otherwise on
the next succeeding business day thereafter; and, in each case, addressed to the
respective parties at the addresses stated below or to such other changed
addresses the parties may have fixed by notice as provided herein:
If to LJM or any of the Shareholders:
Lawrence J. Melody
506 Ramblewood
Houston, Texas, 77079
Telephone: (713) 497-3986
Telecopier: (713) 497-4305
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<PAGE>
and:
John M. Bradley
311 Vanderpool
Houston, Texas 77024
Telephone: (713) 787-1915
Telecopier: (713) 787-1998
With a Copy to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002
Attention: Fred H. Dunlop
Telephone: (713) 229-1234
Telecopier: (713) 229-1522
If to the CB Companies:
CB Commercial Mortgage Company, Inc.
533 South Fremont Avenue
Los Angeles, CA 90071
Attention: James J. Didion
Telephone: (213) 613-3515
Telecopier: (213) 613-3015
With copies to:
CB Commercial Mortgage Company, Inc.
533 South Fremont Avenue
Los Angeles, CA 90071
Attention: Walter V. Stafford
Telephone: (213) 613-3588
Telecopier: (213) 613-3015
and:
Pillsbury Madison & Sutro LLP
725 S. Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attention: Peter V. Leparulo
Telephone: (213) 488-7100
Telecopier: (213) 629-1033
14.10 Successors and Assigns. This Agreement shall not be assigned or
----------------------
assignable by any Party without the prior written consent of each other Party.
Subject to the preceding sentence, each term and provision of this Agreement
shall be binding upon and enforceable against and inure to the benefit of any
successors or assigns of CBC and CBM and any heirs, representatives, successors
or assigns of the Shareholders. Nothing in this Agreement, expressed or
implied, is intended to confer on any Person other than the Parties and their
respective successors and assigns any rights or remedies under or by reason of
this Agreement. Without limiting the generality of the foregoing, at the
effective time of the merger or consolidation of CBM and LJMCal with and into
LJMCo
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<PAGE>
pursuant to this Agreement and the LJMCal Stock Purchase Agreement, this
Agreement shall be binding upon and inure to the benefit of LJMCo as the
surviving corporation.
14.11 Dispute Resolution. Any dispute arising out of or relating to this
------------------
Agreement, the LJMCal Stock Purchase Agreement (or any Exhibit or Schedule
hereto or thereto or any other or certificate delivered pursuant to this
Agreement, including without limitation the Notes, the Guaranty, the Covenants
Not To Compete, the Employment Agreement, the Trademark Agreement, the Letters
of Credit and the General Release) or the transactions contemplated hereby or
thereby or the breach, termination or validity hereof or thereof, including any
dispute based in whole or in part on tort or other non-contractual principles of
law, shall be resolved in the following manner:
(A) Any party may give written notice to the other parties of any
dispute which has arisen. Any other party may give notice within five (5)
business days of receipt of the first notice of any additional dispute(s),
all to the end that the parties may be reasonably aware of the matters in
dispute.
(B) The parties to such dispute shall use all reasonable efforts to
resolve the dispute through direct discussions within 30 days of the first
written notice that there is such a dispute.
(C) If no amicable settlement is reached as a result of the procedure
in subparagraph (B) hereof, the matter shall be fully and finally resolved
by arbitration conducted expeditiously by a single arbitrator in accordance
with the Rules for Non-Administered Arbitration of Business Disputes
promulgated by the CPR Institute for Dispute Resolution (formerly Center
for Public Resources). No arbitrator may serve who, during the three-year
period immediately preceding the date the arbitration notice is filed, has
had a material personal or financial relationship with any participant to
the dispute or any Affiliate of any such participant. The place of
arbitration shall be (i) Denver or Phoenix, as designated by the Party
commencing the arbitration, or (ii) any other city mutually agreed upon by
the Parties. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. (S)(S) 1-16 and judgment upon the award of the
arbitrator may be entered by any court having jurisdiction thereof. The
arbitrator is not empowered to act as amiable compositeur or to award
damages in excess of compensatory damages, and each Party hereto hereby
waives any claim it may otherwise have to money damages in excess of direct
compensatory damages. This Section 14.11 shall not apply to actions
-------------
seeking enforcement of this Agreement to arbitrate or to enforce Sections
--------
8.7 and 9.3 (Access to Information; Confidentiality) hereof as to
--- ---
confidentiality, Section X (Proprietary Information; Non-solicitation) of
---------
Exhibit D (Employment Agreement), Sections 3 (Non-Competition) or 4 (Trade
--------- ---------- -
Secrets; Non-solicitation) of Exhibit E (Covenants Not to Compete), the
---------
Trademark Agreement or with respect to any request for provisional or
interim relief brought prior to the appointment of an arbitrator, provided
that an arbitration notice has been promptly filed prior to such action
being brought.
(D) The dispute resolution proceedings contemplated by this provision
shall be as confidential and private as permitted by law. To that end, the
parties shall not disclose the existence, content or results of any claims
hereunder or proceedings conducted in accordance with this provision, and
materials submitted in connection with such proceedings shall not be
admissible in any other proceeding; provided, however, that this
-------- -------
confidentiality provision shall not prevent a petition to vacate or enforce
an arbitral award, and shall not bar disclosures required by law. The
parties agree that any decision or award resulting from
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<PAGE>
proceedings in accordance with this dispute resolution provision shall have
no preclusive effect in any other matter involving third parties.
14.12 Attorneys' Fees. If an arbitration or other legal proceeding is
---------------
brought to enforce or interpret the provisions of this Agreement or any other
agreement or instrument provided for herein or as to the rights or obligations
of any Party to this Agreement or such other agreement or instrument, the
prevailing Party in such action shall be entitled to recover as an element of
such Party's costs of suit, and not as damages, a reasonable attorney's fee to
be fixed by the court or the arbitrator. The prevailing Party shall be the
Party who is entitled to recover its costs of suit as ordered by the arbitrator,
the court or by applicable law or court rules. A Party not entitled to recover
its costs shall not recover attorney's fees.
14.13 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York, without regard to
principles of conflict of laws.
14.14 Joint and Several. Except as otherwise specified herein, the
-----------------
agreements, covenants, representations, warranties, undertakings, liabilities
and obligations herein of each of the Shareholders are joint and several.
14.15 Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed to refer also to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
Schedules to this Agreement shall not be deemed adequate to disclose an
exception to a representation or warranty made herein unless the Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in detail. Without limiting the generality of the foregoing, the
mere listing of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of a document or other
item itself). The Parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) which the Party has not breached shall not detract from nor
mitigate the fact that the Party is in breach of the first representation,
warranty or covenant.
14.16 Cooperation. Each Party hereto shall cooperate with the other Party
-----------
and shall take such further action and shall execute and deliver such further
documents as may be necessary or desirable in order to carry out the provisions
and purposes of this Agreement.
14.17 Expenses. Except as otherwise expressly provided herein, each of
--------
the CB Companies and the Shareholders will pay their own respective costs and
expenses in connection with the negotiation, preparation, execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby,
including, but not limited to, attorneys' fees, accountants' fees and other
professional fees and expenses. Notwithstanding the foregoing, CBC and CBM, on
the one hand, and the Shareholders, on the other hand, shall each pay one-half
of all filing fees under the HSR Act.
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<PAGE>
14.18 Representation by Counsel. Each Party hereto represents and agrees
-------------------------
with the other, that it has been represented by independent counsel of its own
choosing, that it has had the full right and opportunity to consult with such
counsel that it availed itself of this right and opportunity, that such Party or
its authorized officers have carefully read and fully understand this Agreement
in its entirety that each is fully aware of the contents thereof and its
meaning, intent and legal effect, and that such Party or its authorized officer
is competent to execute this Agreement and has executed this Agreement free from
coercion, duress or undue influence.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the Parties have each executed and delivered this Stock
Purchase Agreement as of the day and year first above written.
CB COMMERCIAL REAL ESTATE GROUP, INC.
By /s/ James J. Didion
------------------------------------------
Name James J. Didion
-----------------------------------------
Title Chief Executive Officer
----------------------------------------
CB COMMERCIAL MORTGAGE COMPANY, INC.
By /s/ James J. Didion
-------------------------------------------
Name James J. Didion
-----------------------------------------
Title Vice President
----------------------------------------
/s/ Lawrence J. Melody
---------------------------------------------
LAWRENCE J. MELODY
/s/ John M. Bradley
---------------------------------------------
JOHN M. BRADLEY
<PAGE>
CONSENT OF SPOUSE OF LAWRENCE J. MELODY
---------------------------------------
I, Gwendolyn G. Melody, am the spouse of Lawrence J. Melody, who is a
-------------------
party to the foregoing Stock Purchase Agreement by and among CB Commercial Real
Estate Group, Inc., CB Commercial Mortgage Company, Inc., Lawrence J. Melody, my
spouse, and John M. Bradley (the "Agreement"). I acknowledge that I have read,
know and understand the contents of the Agreement and the effects thereof. I
hereby consent to the execution and delivery of, approve of and agree to be
bound by the terms, conditions and other provisions of the Agreement, and all
other agreements which are contemplated by or attached as exhibits to the
Agreement to which my spouse is or will become a party, whether entered into
before or after the date of this Consent, to the same extent as if I were a
party thereto, and consent to the performance by the parties of their
obligations thereunder.
I agree that my interest, if any, in the assets and liabilities which
are subject to the Agreement (including any community property interest therein)
will be irrevocably bound by the Agreement.
I am aware that the legal, financial and related matters contained in
the Agreement are complex and that I have a right to seek with independent
professional guidance and independent legal counsel with respect to this
Consent. I have either sought such guidance or counsel or determined after
reviewing the Agreement carefully that I waive such right.
Dated: June 26, 1996
-------
/s/ Gwendolyn G. Melody
----------------------------------------
Print Name Gwendolyn G. Melody
------------------------------
<PAGE>
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
by and between
CB COMMERCIAL REAL ESTATE GROUP, INC.
and
CB COMMERCIAL MORTGAGE COMPANY, INC.,
on the one hand
and
LAWRENCE J. MELODY,
on the other hand
June 27, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ARTICLE 1 DEFINITIONS...................................................... 1
1.1 Certain Definitions......................................... 1
1.2 Other Definitions........................................... 6
ARTICLE 2 PURCHASE AND SALE OF STOCK....................................... 7
ARTICLE 3 PURCHASE PRICE AND METHOD OF PAYMENT............................. 8
ARTICLE 4 THE CLOSING...................................................... 8
4.1 Closing..................................................... 8
4.2 Closing Deliveries.......................................... 8
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF LJM............................ 8
5.1 Capitalization and Ownership................................ 9
5.2 Organization................................................ 9
5.3 Authority; Non-Contravention................................ 10
5.4 No Consents................................................. 10
5.5 Financial Statements........................................ 10
5.6 Absence of Undisclosed Liabilities.......................... 11
5.7 Adequate Capitalization..................................... 11
5.8 No Adverse Knowledge........................................ 11
5.9 Legal Compliance............................................ 11
5.10 Title to Assets............................................. 12
5.11 Contracts................................................... 12
5.12 Real Property............................................... 14
5.13 Tax Matters................................................. 14
5.14 Intellectual Property....................................... 15
5.15 Accounts Receivable......................................... 16
5.16 Debt Instruments............................................ 16
5.17 Litigation.................................................. 16
5.18 Employee Agreements......................................... 17
5.19 Labor Matters............................................... 17
5.20 Employee Benefit Plans...................................... 17
5.21 Environmental, Health and Safety............................ 19
5.22 Absence of Certain Changes.................................. 20
5.23 Insurance................................................... 20
5.24 Force Majeure............................................... 21
5.25 Brokers..................................................... 21
5.26 Full Disclosure............................................. 21
ARTICLE 6 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LJM................. 21
6.1 Authority................................................... 21
6.2 Consent of Spouse........................................... 22
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF CBM AND CBC.................... 22
7.1 Organization................................................ 22
7.2 Authority................................................... 22
7.3 SEC Documents............................................... 22
7.4 Financial Statements........................................ 23
</TABLE>
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<TABLE>
<S> <C>
7.5 Non-Contravention............................................. 23
7.6 No Adverse Knowledge.......................................... 23
7.7 Legal Compliance.............................................. 24
7.8 Brokers....................................................... 24
7.9 Litigation.................................................... 24
7.10 Absence of Certain Changes.................................... 25
7.11 Full Disclosure............................................... 25
ARTICLE 8 COVENANTS OF LJM................................................... 25
8.1 Ordinary Course............................................... 25
8.2 Dividends and Distributions; Changes in Ownership Interests... 25
8.3 No Other Bids................................................. 25
8.4 No Acquisitions............................................... 26
8.5 No Dispositions............................................... 26
8.6 Benefit Plans, Etc............................................ 26
8.7 Access to Information......................................... 26
8.8 Communications................................................ 26
8.9 Update to Disclosures......................................... 27
8.10 Good Faith.................................................... 27
8.11 Conditions Regarding Customer Contact......................... 27
ARTICLE 9 COVENANTS OF THE CB COMPANIES...................................... 27
9.1 Ordinary Course............................................... 27
9.2 No Other Bids................................................. 27
9.3 Access to Information; Confidentiality........................ 28
9.4 Communications................................................ 28
9.5 Update to Disclosures......................................... 28
9.6 Good Faith.................................................... 28
9.7 Conditions Regarding Customer Contact......................... 29
ARTICLE 10 ADDITIONAL AGREEMENTS............................................. 29
10.1 Conditions to the Transaction................................. 29
10.2 State Statutes................................................ 29
10.3 Pre-Closing Tax Liability; Tax Returns of LJMCal.............. 29
10.4 Allocation of Certain Accounts Receivable..................... 30
10.5 No Section 338(h)(10) Election; Post Closing Transfers........ 31
10.6 Assignment of LJMCal Name; License............................ 31
10.7 Vacation...................................................... 31
ARTICLE 11 CONDITIONS PRECEDENT.............................................. 32
11.1 Conditions to Obligations of All Parties...................... 32
(A) Government Approvals.................................... 32
(B) Legal Action............................................ 32
(C) Statutes................................................ 32
(D) Federal Home Loan Mortgage Corporation Approval......... 32
(E) LJMCo Stock Purchase Agreement.......................... 32
11.2 Conditions to Obligations of CBC and CBM...................... 33
(A) Representations and Warranties.......................... 33
(B) Performance of Obligations of LJM....................... 33
(C) Opinion of LJM's Counsel................................ 33
(D) No Material Adverse Change.............................. 33
(E) Employment Agreement.................................... 33
(F) Covenants Not to Compete................................ 33
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(G) Trademark Agreement..................................... 33
(H) Sumitomo Consent........................................ 33
(I) Other Third-Party Approvals............................. 34
(J) Resignations............................................ 34
(K) Intentionally Deleted................................... 34
(L) Pre-Closing Transactions................................ 34
(M) Absence of Liabilities.................................. 35
(N) Allocation, Assumption and Collection Agreement......... 35
(O) LJMCo Stock Purchase Agreement Conditions............... 35
(P) Certain Write-offs...................................... 35
(Q) General Release......................................... 35
(R) CBM Employment Agreements............................... 35
11.3 Conditions to Obligations of LJM.............................. 35
(A) Representations and Warranties.......................... 35
(B) Performance of Obligations of the CB Companies.......... 35
(C) Opinion of Counsel to CBC and CBM....................... 36
(D) No Material Adverse Change.............................. 36
(E) Employment Agreement.................................... 36
(F) Intentionally Deleted................................... 36
(G) Intentionally Deleted................................... 36
(H) LJMCo Stock Purchase Agreemet Conditions................ 36
(I) Intentionally Deleted................................... 36
ARTICLE 12 SURVIVAL AND INDEMNIFICATION...................................... 36
12.1 Survival...................................................... 36
12.2 Indemnification by LJM........................................ 37
12.3 Indemnification by CBC........................................ 37
12.4 CBC's Right of Set-Off........................................ 38
12.5 Notice and Defense of Third-Party Claims...................... 39
12.6 Limitation.................................................... 39
12.7 Exclusivity................................................... 39
ARTICLE 13 TERMINATION 40
13.1 Termination................................................... 40
13.2 Effect of Termination......................................... 41
ARTICLE 14 MISCELLANEOUS..................................................... 42
14.1 Entire Understanding.......................................... 42
14.2 Waiver and Amendment.......................................... 42
14.3 Headings...................................................... 42
14.4 Counterparts.................................................. 42
14.5 Intentionally Deleted......................................... 42
14.6 Merger of Documents........................................... 42
14.7 Incorporation of Schedules.................................... 42
14.8 Interpretation................................................ 42
14.9 Notices....................................................... 42
14.10 Successors and Assigns........................................ 44
14.11 Dispute Resolution............................................ 44
14.12 Attorneys' Fees............................................... 45
14.13 Governing Law................................................. 45
14.14 Construction.................................................. 45
14.15 Cooperation................................................... 46
14.16 Expenses...................................................... 46
</TABLE>
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<TABLE>
<S> <C>
14.17 Representation by Counsel................................... 46
</TABLE>
<TABLE>
<CAPTION>
Schedules
---------
<S> <C>
Schedule 5.1 Capitalization and Ownership
Schedule 5.2 Organization
Schedule 5.3 Non-Contravention
Schedule 5.4 No Consents
Schedule 5.5 Financial Statements
Schedule 5.6 Absence of Undisclosed Liabilities
Schedule 5.8 No Adverse Knowledge
Schedule 5.10 Title to Assets
Schedule 5.11 Contracts
Schedule 5.12 Real Property
Schedule 5.13 Tax Matters
Schedule 5.14 Intellectual Property
Schedule 5.16 Debt Instruments
Schedule 5.17 Litigation
Schedule 5.18 Employee Agreements
Schedule 5.19 Labor Matters
Schedule 5.20 Employee Benefit Plans
Schedule 5.22 Absence of Certain Changes
Schedule 5.23 Insurance
Schedule 7.5 Non-Contravention
Schedule 7.6 No Adverse Knowledge
Schedule 7.7 Legal Compliance
</TABLE>
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<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of this 27th day of June, 1996 by and among CB COMMERCIAL REAL ESTATE
-------------------------
GROUP, INC., a Delaware corporation ("CBC"), CB COMMERCIAL MORTGAGE COMPANY,
- ----------- -------------------------------
INC., a California corporation and wholly owned subsidiary of CBC ("CBM") and
- ----
LAWRENCE J. MELODY ("LJM").
- ------------------
W I T N E S S E T H:
WHEREAS, LJM owns, beneficially and of record all of the issued and
outstanding shares of capital stock (the "LJMCal Stock") of L. J. Melody &
Company of California, a Texas corporation ("LJMCal"); and
WHEREAS, LJMCal is engaged in the Business (as defined below); and
WHEREAS, CBM desires to purchase from LJM and LJM desires to sell to
CBM the LJMCal Stock, on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the terms, conditions and other
provisions contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Certain Definitions. The terms defined in this Section 1.1
------------------- -----------
shall, for all purposes of this Agreement, have the meanings herein specified,
unless the context expressly or by necessary implication otherwise requires:
"Affiliate" means with respect to a specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with, the Person specified.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a), or any similar group defined under any similar provision
of state, local or foreign law.
"Allocation Schedule" means a schedule of certain accounts receivable,
and liabilities of LJMCal prepared jointly by CBC, CBM and LJM pursuant to
Section 10.4 hereof.
- ------------
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan occurrence, event, incident, action,
failure to act or transaction that forms or could form the basis for any
specified consequence.
"Business" means the commercial banking business conducted by LJMCal,
including mortgage origination and loan servicing and the pension advisory/asset
management business in which LJMCal is currently engaged.
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<PAGE>
"Cash Equivalents" means all bank deposits, bank or money market
accounts, marketable securities (valued at the Market Price for such security)
listed on a national domestic securities exchange, mutual funds whose shares are
either traded on a national domestic securities exchange or which are obligated
to redeem their shares at net asset value (valued at the Market Price of such
mutual fund shares), securities issued by the U.S. government, and other similar
items.
"CB Holdings" means CB Commercial Holdings, Inc., a Delaware
corporation, which owns all of the issued and outstanding capital stock of CBC.
"CB Company" means CBC, CBM, CB Commercial Real Estate Group of
Hawaii, Inc., CB Commercial Realty Advisors, Inc., Sutter Fremont Property
Services, Inc. and Westmark Realty Advisors L.L.C.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contingent Notes" shall have the meaning ascribed to it in the LJMCo
Stock Purchase Agreement.
"Covenants Not to Compete" means the Covenants Not to Compete between
CBC and CBM and each of LJM and JMB to be entered into on the Closing Date,
substantially in the form of Exhibit E to the LJMCo Stock Purchase Agreement.
---------
"Employee Benefit Plan" means (i) any Employee Pension Benefit Plan;
(ii) any Employee Welfare Benefit Plan; (iii) any bonus, deferred compensation,
incentive, restricted equity, equity purchase, equity option, equity
appreciation right, phantom equity, debenture, supplemental pension, profit-
sharing, royalty pool, commission cafeteria or similar plan or arrangement; (iv)
any plan, program, agreement, policy, commitment or other arrangement relating
to severance or termination pay, whether or not published or generally known;
(v) any plan, program, agreement, policy, commitment or other arrangement
relating to the provision of any benefit described in Section 3(1) of ERISA to
former employees or directors or to their survivors or (vi) any other plan,
program, agreement, procedure, policy, commitment, understanding or other
arrangement relating to employee benefits, executive compensation, fringe
benefits, severance pay, collective bargaining or terms of employment.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health and Safety Law" means a Legal Rule pertaining
to land use (excluding Legal Rules regarding zoning and building code
restrictions), air, soil, surface water, groundwater (including the protection,
cleanup, removal, remediation or damage thereof), public or employee health or
safety or any other environmental matter, including, without limitation, the
following laws as the same have been amended from time to time: (i) Clean Air
Act (42 U.S.C. (S) 7401, et seq.); (ii) Clean Water Act (33 U.S.C. (S) 1251, et
------- --
seq.); (iii) Resource Conservation and Recovery Act (42 U.S.C. (S) 6901, et
- ---- --
seq.); (iv) Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") (42 U.S.C. (S) 9601, et seq.); (v) Safe Drinking Water Act (42 U.S.C.
-------
(S) 300f, et seq.); (vi) Toxic Substances Control Act (15 U.S.C. (S) 2601, et
------- --
seq.); (vii) Rivers and Harbors Act (33 U.S.C. (S) 401, et seq.); (viii)
- ---- -------
Occupational Safety and Health Act (29 U.S.C. (S) 651, et seq.); together with
-------
all other Legal Rules relating to emissions, discharges, releases or threatened
releases of any Hazardous Substance into ambient air, land, surface water,
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<PAGE>
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, discharge or handling of any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means any entity that, together with LJMCal, is
treated as a single employer under section 414(b), 414(c), 414(m) or 414(o) of
the Code.
"Existing Liabilities" means all Shareholder Liabilities on the
Effective Date which (i) appear on the LJMCal Balance Sheet, (ii) are set forth
in this Agreement or the Schedules hereto or appear on the books and records of
LJMCal or (iii) are fixed as to time or amount. Existing Liabilities shall not
include Vacation Liability of LJMCal unless such amount is due and payable on
the Effective Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"GAAP" means United States generally accepted accounting principles.
"General Release" means the General Release by and among CBC, CBM and
each of LJM and JMB, to be entered into on the Closing Date, in the form of
Exhibit G to the LJMCo Stock Purchase Agreement.
- ---------
"Governmental Entity" means any nation or government, any state,
province or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty" shall have the meaning ascribed thereto in the LJMCo Stock
Purchase Agreement.
"Hazardous Substance" means any matter that is labeled or regulated as
a pollutant, contaminant, hazardous or toxic substance, material, constituent or
waste or pollutant under any Environmental, Health and Safety Law or by any
Governmental Entity and includes, without limitation, asbestos and asbestos-
containing materials and any material or substance that is: (i) designated as a
"hazardous substance" pursuant to section 307 of the Federal Water Pollution
Control Act, 33 U.S.C. section 1251, et seq. (33 U.S.C. (S) 1317); (ii) defined
-------
as a "hazardous waste" pursuant to section 1004 of the Federal Solid Waste
Disposal Act, 42 U.S.C. section 6901, et seq. (42 U.S.C. (S) 6903); (iii)
-------
defined as a "hazardous substance" pursuant to section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. section 9601,
et seq. (42 U.S.C. (S) 9601); or (iv) so designated or defined under any other
- -------
applicable Legal Rule.
"Intellectual Property" means (i) all patents, patent applications and
patent disclosures, together with all reissuances, continuations, continuations-
in-part, revisions, extensions and reexaminations thereof, (ii) all trademarks,
service marks, trade dress, logos, trade names and corporate names (including
without limitation the LJMCal Name), together with all translations,
adaptations, derivations and combinations thereof and including all goodwill
associated therewith, and all applications, registrations and renewals in
connection therewith, (iii) all copyrights, and all
-3-
<PAGE>
applications, registrations and renewals in connection therewith, (iv) all trade
secrets and confidential business information, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals,
(v) all computer software and information systems and programs, (including data
and related documentation), whether owned or leased, (vi) all other proprietary
rights and (vii) all copies and tangible embodiments of the items described in
(i) through (vi) (in whatever form or medium).
"JMB" means John M. Bradley
"Knowledge" means actual knowledge after reasonable investigation.
"Legal Rules" means the requirements of all laws, codes, statutes,
ordinances, orders, judgments, decrees, injunctions, franchises, determinations,
approvals, rules, regulations, permits, licenses, authorizations, certificates
and directions, of all Governmental Entities with jurisdiction.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, whether secured or unsecured, and
whether due or to become due), including without limitation any indebtedness,
any guaranty of indebtedness or obligations of any other Person, any liability
for Taxes, any liability with respect to any Employee Pension Benefit Plan which
is subject to Section 412 of the Code and any withdrawal liability under Section
4201 of ERISA with respect to withdrawal from a Multiemployer Plan, as such
liability may be set forth in a notice of withdrawal liability under Section
4219 of ERISA (and as adjusted from time subsequent to the date of such notice).
"LJMCal Cash" means the cash and Cash Equivalents of LJMCal.
"LJMCal Name" means the name "L. J. Melody & Company of California,"
and any similar names and any derivations thereof and any fictional business
names, trading name, registered and unregistered trademarks, service marks and
applications relating thereto.
"LJMCal Real Property" means all real property owned beneficially or
of record by LJMCal or leased or subleased by or to LJMCo and all real property
described on Schedule 5.12.
-------------
"LJMCo" means L. J. Melody & Company, a Texas corporation.
"LJMCo Stock Purchase Agreement" means that certain Stock Purchase
Agreement dated concurrently herewith by and among CBC, CBM, LJM and JMB for the
purchase of all the issued and outstanding shares of LJMCo.
"LJM Employment Agreement" means the employment agreement to be
entered into between CBM and LJM on the Closing Date, substantially in the form
of Exhibit D to the LJMCo Stock Purchase Agreement which agreement shall be
---------
binding upon and inure to the benefit of LJMCo following the merger of CBM and
LJMCal into LJMCo as contemplated hereby and by the LJMCo Stock Purchase
Agreement.
"Liens" means all liens, mortgages, pledges, encumbrances, claims,
charges, options, purchase agreements, security agreements and interests,
commission arrangements, title retention agreements, covenants, restrictions and
adverse interests of any kind or nature whatsoever.
-4-
<PAGE>
"Market Price" with respect to a marketable security means the average
of the daily market prices of such security on all the national domestic
exchanges on which such security is listed over a period of twenty (20)
consecutive days on which such exchange is open for trading prior to the day as
of which "Market Price" is being determined, less any commissions, fees and
other payments in connection with the sale of such securities. The market price
for each such business day shall be the average of the closing prices on such
day of the security on all national domestic exchanges on which the security is
then listed, or if there shall have been no sales on such exchange on such day,
the average of the highest bid and lowest asked prices on all such exchanges at
the end of such day. "Market Price" with respect to shares of a mutual fund
means the "net asset value" ("NAV") of such shares on the last business day
prior to the day as of which "Market Price" is being determined, less any
commissions, fees and other payments payable in connection with the sale of such
shares. The NAV shall be the NAV published in the "Mutual Fund Quotations" of
the Wall Street Journal for such mutual fund on the date such value is being
-------------------
determined or, if no such quotation is published the NAV quoted by the organizer
or sponsor of such mutual fund for such date upon inquiry by CBC.
"Material Adverse Effect" and "Material Adverse Change," with respect
to a CB Company, on the one hand, or LJM and LJMCal on the other hand, means (i)
any effect on, or change in, the business of such CB Company or LJMCal, as the
case may be, that is or that a reasonable person would believe will be
materially adverse to the business, operations, properties, assets, condition
(financial or otherwise) or prospects of such CB Company or LJMCal, as the case
may be; provided, however, that for the purposes of this Agreement, any such
-------- -------
effect or change to LJMCal which, when combined with all Material Adverse
Effects and Material Adverse Changes with respect to LJMCo under the LJMCo Stock
Purchase Agreement, exceeds $100,000 (including legal fees), individually or in
the aggregate, shall be deemed to be a Material Adverse Effect or a Material
Adverse Change with respect to LJMCal, or (ii) an event or circumstance that has
or would have a significant likelihood of a material adverse effect on the
ability of a CB Company, on the one hand, and LJM and LJMCal, on the other hand,
as the case may be, to perform their respective obligations under this
Agreement, the Notes, the LJMCo Stock Purchase Agreement and the transactions
contemplated hereby and thereby.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Notes" shall have the meaning ascribed thereto in the LJMCo Stock
Purchase Agreement.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Party" means any party to this Agreement.
"Person" means an individual, a sole proprietorship, a partnership, a
corporation, an association, an institution, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a Governmental Entity.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
-5-
<PAGE>
"Security Interest" means any Lien other than (i) liens for Taxes not
yet due and payable and (ii) purchase money liens and liens securing rental
payments under capital lease arrangements.
"Senior Notes" shall have the meaning ascribed to it in the LJMCo
Stock Purchase Agreement.
"Shareholder Liabilities" means the Liabilities and obligations of
LJMCal allocated to LJM in the Allocation Schedule, together with all other
Liabilities of LJMCal (i) (A) existing on or prior to June 30, 1996 or arising
out of or relating to any act, event or transaction or fact effected or existing
prior to June 30, 1996 (including without limitation Liabilities for asserted or
unasserted claims based on events occurring prior to June 30, 1996) or (B)
incurred after June 30, 1996 and on or prior to the Closing Date other than in
the Ordinary Course of Business of LJMCal and (ii) not specifically allocated in
---
the Allocation Schedule to CBM or CBC, in each case regardless of whether such
Liability is disclosed herein or in the Schedules hereto or whether a
representation or warranty relating to such Liability contains any limitations
or qualifications. Shareholder Liabilities shall include Vacation Liability,
producer commissions, production managers' overrides, general and administrative
overrides and LJM's overrides with respect to any fees which have been recorded
as revenue of LJMCal effective on or before June 30, 1996. The amount of any
obligation of LJMCal as of the Closing Date to pay a bank or similar lender in
connection with conduit loans with respect to which LJMCal has an offsetting
commitment pursuant to which the Federal Home Loan Mortgage Corporation has
agreed to purchase such obligation shall not be a Shareholder Liability.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any Governmental Entity income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Section 59A), customs,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated or
other tax of any kind whatsoever, including any interest, penalty, or addition
thereto.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Trademark Agreement" means the Trademark Agreement by and among CBC,
CBM and each of LJM and JMB, to be entered into on the Closing Date, in the form
of Exhibit F to the LJMCo Stock Purchase Agreement.
---------
"Vacation Liability" means Liability of LJMCal as of the Effective
Date for any vacation entitlement or vacation pay entitlement.
1.2 Other Definitions. In addition to the terms defined in Section
----------------- -------
1.1, certain other terms are defined elsewhere in this Agreement, and, whenever
- ---
such terms are used in this Agreement, they shall have their respective defined
meanings, unless the context expressly or by necessary implication otherwise
requires. The definitions of terms of general applicability are set forth in the
sections listed below (certain terms that are used only in the section in which
they are defined are not listed).
-6-
<PAGE>
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
---- ------------------
<S> <C>
Agreement Preamble
CB Holdings SEC Documents 7.3
CB Permits 7.6
CBC Preamble
CBCs Indemnified Persons 12.2
CBM Preamble
Closing 4.1
Closing Date 4.1
HSR Act 5.4
Indemnified Person 12.5
Indemnifying Person 12.5
License 5.14
LJM Preamble
LJM Indemnified Persons 12.3
LJMCal Recitals
LJMCal Balance Sheet 5.5
LJMCal Financial Statements 5.5
LJMCal Plans 5.20
LJMCal Stock 5.1(A)
Losses 12.2
Most Recent Financial Statements 5.5
Most Recent Fiscal Month End 5.5
Most Recent Fiscal Year End 5.5
Permitted Liens 5.10
Purchase Price 3.1
</TABLE>
ARTICLE 2
PURCHASE AND SALE OF STOCK
--------------------------
On the basis of the representations and warranties herein, and subject
to the terms, conditions and other provisions contained herein, LJM agrees to
sell, transfer, convey, assign and deliver to CBM, and CBM agrees to purchase
and accept from LJM on the Closing Date, all right, title and interest in and
to, the LJMCal Stock. The purchase and sale of all the outstanding shares of
capital stock of LJMCal provided for herein shall be deemed to be simultaneous
with the redemption pursuant to Section 11.2(L) ("Pre-Closing Transactions") as
---------------
a single transaction.
-7-
<PAGE>
ARTICLE 3
PURCHASE PRICE AND METHOD OF PAYMENT
------------------------------------
The purchase price (the "Purchase Price") shall be Five Million
Dollars ($5,000,000). At the Closing, CBM shall deliver the aggregate amount of
Five Million Dollars ($5,000,000) to LJM, by wire transfer to an account
specified by LJM in lawful U.S. currency, in immediately available funds.
ARTICLE 4
THE CLOSING
-----------
4.1 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place on or as soon as practicable after
July 3, 1996 or such other date as is mutually agreed upon in writing by the
parties hereto and upon which all the conditions to Closing have been satisfied
or waived (the "Closing Date"). The Closing shall take place at the offices of
Pillsbury Madison & Sutro LLP, 725 South Figueroa, Suite 1200, Los Angeles,
California. Upon consummation of the Closing, the transactions contemplated
hereby shall be deemed to have taken place as of June 30, 1996 (the "Effective
Date").
4.2 Closing Deliveries. At the Closing:
------------------
(A) LJM shall deliver to CBM and CBC (i) certificates
representing the LJMCal Stock, endorsed to CBM, which shall transfer
to CBM good title to the LJMCal Stock, free and clear of all Liens
other than Liens arising from the registration requirements of the
Securities Act; (ii) Covenants Not to Compete duly executed by each of
LJM and JMB in the form of Exhibit E to the LJMCal Stock Purchase
---------
Agreement, the Trademark Agreement duly-executed by each of LJM and
JMB in the form of Exhibit F to the LJMCo Stock Purchase Agreement,
---------
the General Release duly executed by each of LJM and JMB in the form
of Exhibit G to the LJMCo Stock Purchase Agreement and the Employment
---------
Agreement, duly executed by LJM and (iii) such other documents
including officers' certificates and opinions of counsel as may be
required by this Agreement or reasonably requested by CBC or CBM;
(B) CBM shall deliver to LJM (i) the Purchase Price in the manner
set forth above, (ii) the LJM Employment Agreement, duly executed by
CBM and (iii) such other documents including officers' certificates
and opinions of counsel as may be required by this Agreement or
reasonably requested by LJM.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LJM
-------------------------------------
LJM represents and warrants to CBC and CBM, as of the date hereof and as of
the Closing Date, as follows (it being understood that each of the
representations and warranties shall be true, correct and complete on the date
hereof and on the Closing Date, but the representation and warranty
-8-
<PAGE>
set forth in the third sentence of Section 5.10 (Title to Assets) shall
------------
not be deemed to be breached unless it is not true, correct and complete as of
the Closing Date):
5.1 Capitalization and Ownership.
----------------------------
(A) The authorized equity securities of LJMCal consist of four
thousand (4,000) shares of Common Stock, of which (i) three thousand
(3,000) shares are designated "Voting Common Stock", of which one thousand
(1,000) shares are issued and outstanding, and (ii) one thousand (1,000)
shares are designated "Nonvoting Common Stock", none of which are issued
and outstanding, all as set forth on Schedule 5.1. On the date hereof, LJM
------------
owns all of the shares of LJMCal Stock except for the one percent (1%)
interest in LJMCal owned by Steven Hammer, and on the Closing Date LJM will
own all of the shares of the LJMCal Stock. LJM has good and valid title to
all such shares free and clear of all Liens. On the Closing Date following
redemption of the shares by LJMCal pursuant to Section 11.2(L), the
authorized equity securities of LJMCal will consist solely of four thousand
(4,000) shares of Common Stock, of which (i) three thousand (3,000) shares
are designated "Voting Common Stock", of which Nine Hundred Ninety One and
Four Hundred Twenty Five Thousandths (991 and 425/1,000) will be issued and
outstanding and will constitute the LJMCal Stock as of the Closing Date and
(ii) one thousand (1,000) shares will be designated "Nonvoting Common
Stock", none of which will be issued and outstanding. On the Closing Date,
following the redemption of shares by LJMCal pursuant to Section 11.2(L),
LJM will own Nine Hundred Ninety One and Four Hundred Twenty Five
Thousandths (991 and 425/1,000) shares of LJMCo Stock, constituting all of
the issued and outstanding capital stock of LJMCal, and LJM will have good
and valid title to such shares on the Closing Date free and clear of all
Liens. The issued and outstanding shares of Voting Common Stock and Non-
voting Common Stock set forth above on the date hereof and on the Closing
Date, as the case may be, are referred to herein as the "LJMCal Stock". On
the Closing Date, LJMCal will own all right, title and interest to the
shares of LJMCal Stock which have been redeemed pursuant to Section 11.2(L)
hereof ("Pre-Closing Transactions") and will have good and valid title to
such shares, free and clear of all Liens. All of the outstanding equity
securities of LJMCal were issued in compliance with applicable federal and
state securities laws. All of the outstanding equity securities of LJMCal
are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, LJMCal's Articles of
Incorporation or Bylaws or any agreement to which LJMCal or LJM is a party
or is bound.
(B) Except as set forth in Section 5.1(A), on the date hereof
there are, and on the Closing Date there will be, no equity securities of
any class of LJMCal, or any security exchangeable into or exercisable for
such equity securities, issued, reserved for issuance or outstanding and
there are no options, warrants, calls, rights, commitments or agreements of
any character to which LJMCal is a party or by which it is bound obligating
LJMCal to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock of LJMCal or obligating LJMCal to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement. There are no voting trusts, proxies or other agreements or
understandings with respect to the equity securities of LJMCal.
5.2 Organization. LJMCal is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Texas, and has full
corporate power and authority to own and/or lease all of its properties and
assets, and to carry on its Business as now being conducted. LJMCal is duly
qualified to do business and is in good standing in each jurisdiction in which
the
-9-
<PAGE>
ownership of its property or the conduct of its business requires such
qualification, except for those jurisdictions where the failure to so qualify
would not have a Material Adverse Effect on LJMCal. LJMCal has no Subsidiaries
and does not, directly or indirectly, control any other corporation or business
entity, own or control any shares of stock or other securities of, any
corporation or business entity, or have any investment in, or have any material
advance of cash or other extension of credit to, any Person. The copies of the
Articles of Incorporation and ByLaws, as amended, of LJMCal heretofore delivered
to CBM are true, complete and correct and are in full force and effect.
5.3 Authority; Non-Contravention. This Agreement and the other
----------------------------
agreements hereby to be executed by LJM (including the Employment Agreement, the
Covenant Not to Compete, the Trademark Agreement and the General Release) have
been duly executed and delivered by LJM or will be duly executed and delivered
by LJM prior to or at the Closing Date, and constitute or, when executed, will
constitute valid and binding obligations of LJM enforceable in accordance with
their respective terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors or by general equitable principles. LJM has the absolute and
unrestricted right, power, authority and capacity to execute and deliver and to
perform his obligations under this Agreement and the other agreements
contemplated hereby to be executed by him. Except as set forth on Schedule 5.3,
------------
neither the execution and delivery of this Agreement by LJM nor the consummation
of the transactions contemplated hereby do or would after the giving of notice
or the lapse of time or both, (i) conflict with, result in a breach of,
constitute a default under, or violate the Articles of Incorporation or the
Bylaws of LJMCal, (ii) conflict with, result in a breach of, constitute a
default under, or violate any Legal Rule, except for conflicts, breaches,
defaults or violations which individually or in the aggregate would not have a
Material Adverse Effect on LJMCal; (iii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, amend, modify, cancel or refuse to perform
under, or require any notice under, any agreement, contract, commitment,
license, lease, instrument or other arrangement, including any express or
implied warranty, to which LJMCal or LJM is a party or by which either of them
is bound or to which any of their assets is subject; or (iv) result in the
creation of, or give any party the right to create, any Lien or other rights or
adverse interests upon any right, property or asset of LJMCal.
5.4 No Consents. Except as set forth on Schedule 5.4, no permit,
----------- ------------
consent, approval, novation, authorization or other order of or filing with any
Governmental Entity or any other Person is required in connection with the
execution, delivery and consummation of this Agreement and the other agreements
contemplated hereby to be executed by LJM (including the Employment Agreement,
the Covenant Not to Compete, the Trademark Agreement and the General Release)
and the actions of each of LJM contemplated hereby, or to permit LJMCo to
conduct the business activities of LJMCal as they are currently conducted
following the purchase of the stock of LJMCal by CBM pursuant hereto and the
merger of CBM and LJMCal into LJMCo, except for the filing of a notification
report under the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act").
5.5 Financial Statements. Attached hereto as Schedule 5.5 are the
-------------------- ------------
following financial statements (collectively, the "LJMCal Financial
Statements"): (i) the audited balance sheets and the related audited statements
of income and changes in stockholders' equity and cash flow as of and for each
of the fiscal years ended December 31, 1993, December 31, 1994 and December 31,
1995 (the "Most Recent Fiscal Year End") for LJMCal and (ii) the unaudited
balance sheet and statement of income and changes in stockholders' equity and
cash flow for LJMCal (collectively, the "Most Recent Financial Statements"), in
each case as of and for the four (4) months ended April 30, 1996 (the "Most
Recent Fiscal Month End"). LJM shall cause LJMCal to promptly provide its
monthly unaudited financial statements to CBM for each month after April, 1996
until the Closing Date. The
-10-
<PAGE>
LJMCal Financial Statements (including the notes thereto) have been and will be
prepared in accordance with GAAP, applied on a consistent basis during the
periods involved (except as noted in the notes to the LJMCal Financial
Statements), present fairly the financial condition of LJMCal as of such dates
and the results of operations of LJMCal for such periods, are accurate and
complete, and are consistent with the books and records of LJMCal in all
material respects (which books and records are accurate and complete) except,
with respect to the LJMCal Financial Statements for the Most Recent Fiscal Month
End, for normal recurring year-end adjustments which are not material in the
aggregate and the absence of notes (which, if presented, would not differ from
those included in the LJMCal Financial Statements for the fiscal year ended and
at (in the case of the balance sheet) December 31, 1995). The audited
consolidated balance sheet of LJMCal at December 31, 1995 is hereinafter
referred to as the "LJMCal Balance Sheet."
5.6 Absence of Undisclosed Liabilities. LJMCal has no Liability that
----------------------------------
was fully reflected or reserved against in the LJMCal Balance Sheet or disclosed
in the accompanying notes thereto except for current Liabilities incurred in the
Ordinary Course of Business since the date of the LJMCal Balance Sheet and
except for Liabilities set forth on Schedule 5.6.
------------
5.7 Adequate Capitalization. At March 31, 1996, LJMCal had
-----------------------
sufficient assets, as reflected on the LJMCal Balance Sheet, to operate its
business as it was then being conducted.
5.8 No Adverse Knowledge. Except as set forth on Schedule 5.8, to
-------------------- ------------
the Knowledge of LJM and the Selected Employees, none of the following entities
is actively considering (i) disallowing competition for or participation in,
arranging or servicing mortgage loans for such entity by LJMCal or (ii)
terminating such entity's relationship with LJMCal, in either case as a result
of the transactions contemplated by this Agreement or as a result of
dissatisfaction with the services of LJMCal:
(A) any entity which is a party to a mortgage loan
correspondent contract with LJMCal and which has been a source of loan
funds for any financing arranged by LJMCal and which closed after December
31, 1993;
(B) any entity on whose behalf a loan portfolio is serviced by
LJMCal;
(C) any separate account, trust or other entity to whom LJMCal
provides investment advice for a fee pursuant to a mortgage loan
correspondent contract or an investment advisor contract; or
(D) any borrower which has arranged and any lender which has
funded (in whole or in part) not less than five (5) mortgage loans through
LJMCal since December 31, 1993.
For purposes of this Section 5.8, "Selected Employees" shall include Michael
Melody, Thomas Melody, Steven Hammer and Bill Frazer.
5.9 Legal Compliance. LJMCal is and at all times during the five
----------------
year period prior to the date hereof has been, in compliance with all Legal
Rules applicable to it, except for possible violations which would not have a
Material Adverse Effect on LJMCal, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been filed or
commenced or is pending, or to the Knowledge of LJM, threatened against either
of them alleging any failure to so comply. LJMCal has all permits, certificates,
licenses, approvals and other
-11-
<PAGE>
authorizations required in connection with the operation of the Business
("LJMCal Permits"), all of which are valid and effective, except for those
which, if not obtained and valid and effective, would not have a Material
Adverse Effect on LJMCal, and LJMCal is not in violation of any LJMCal Permit in
any material respect. No notice has been issued and no investigation or review
is pending or to the Knowledge of LJM threatened by any Governmental Entity,
with respect to (i) any alleged violation of or non-compliance with any Legal
Rule by LJMCal, or (ii) any alleged failure by LJMCal to have all LJMCal
Permits.
5.10 Title to Assets. Except as set forth on Schedule 5.10, as of the
--------------- -------------
date hereof, LJMCal is the sole and exclusive legal and equitable owner of all
right, title and interest in, and has good and marketable title to, or a valid
leasehold interest in, all of the properties and assets (real, personal and
fixed, tangible and intangible) used by it, located on its premises or shown on
the Most Recent Financial Statements, free and clear of any and all Liens other
than Permitted Liens. As used herein, "Permitted Liens" means (i) liens for
taxes not yet due or delinquent or being contested in good faith by appropriate
proceedings for which adequate and actual reserves have been established in
accordance with GAAP (applied on a consistent basis and consistent with prior
practice) and are reflected on the Most Recent Financial Statements, (ii)
inchoate mechanics' liens with respect to which no default (or event which, with
notice or lapse of time or both, would constitute a default) exists and (iii)
liens arising in the Ordinary Course of Business after the Most Recent Fiscal
Month End with respect to which no default (or event which, with notice or lapse
of time or both, would constitute a default) exists, none of which is
substantial in amount, would have a Material Adverse Effect or would materially
detract from the value or utility of such assets. As of the Closing Date, other
than those assets assigned to LJM pursuant to Section 10.4 hereof (Allocation of
------------
Certain Accounts Receivable and Liabilities) and Section 11.2(N) (Allocation,
--------------
Assumption and Collection Agreement) and except as set forth on Schedule 5.10,
-------------
LJMCal will be the sole and exclusive legal and equitable owner of all right,
title and interest in, and will have good and marketable title to all of the
properties and assets (real, personal and fixed, tangible and intangible) used
by it or located on its premises, in either case as shown on the Most Recent
Financial Statements, free and clear of all Liens other than Permitted Liens.
Each asset of LJMCal is in good repair and operating condition, subject to
ordinary wear and tear, and is either adequate for the purposes for which it
presently is being used or is contemplated to be replaced pursuant to LJMCal's
1996 budget now in force.
5.11 Contracts. Schedule 5.11 hereto lists the following contracts
--------- -------------
and other agreements to which LJMCal is currently a party or under which LJMCal
has or may acquire rights or may become subject to any Liability or obligation
or by which LJMCal or any of its assets may become bound:
(A) each mortgage loan correspondent contract and other similar
agreement that: (i) has been a source of loan funds for any financing
arranged by LJMCal and which closed after December 31, 1993 or (ii) is with
an entity which owns a loan portfolio serviced by LJMCal;
(B) each agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $25,000 per annum;
(C) each agreement (or group of related agreements) for the
purchase of supplies, products, or other personal property, or for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year and either will result in a loss to
LJMCal or involves consideration in excess of $25,000, individually or in
the aggregate;
-12-
<PAGE>
(D) each agreement concerning a partnership or joint venture
involving a share of profits, losses, costs or liabilities by LJMCal with
any other Person;
(E) each agreement (or group of related agreements) under which
LJMCal has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, under which it has
granted a Security Interest in any of its assets, tangible or intangible,
in each case in excess of $25,000, individually or in the aggregate;
(F) each agreement concerning confidentiality or non-
competition;
(G) each agreement with LJM or any of his Affiliates (including
LJMCo and any of its Subsidiaries) or any director, officer or employee of
LJMCal or LJMCo;
(H) each profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other plan or arrangement
for the benefit of the current or former directors, officers, employees or
independent contractors of LJMCal or its Subsidiaries other than as set
forth on Schedule 5.20;
-------------
(I) each collective bargaining agreement;
(J) each agreement for the employment of any individual on a
full time, part time, consulting or other basis which cannot be terminated
at will without LJMCal being subject to any obligation or Liability
(including severance benefits) and which provides either annual
compensation in excess of $50,000 or severance benefits;
(K) each agreement under which LJMCal has advanced or loaned
any amount to any of the directors, officers, employees or independent
contractors of LJMCal or LJMCo or either of their respective Subsidiaries;
and
(L) each other agreement (or group of related agreements) which
is not terminable at will by LJMCal prior to or after the Closing without
prior notice and without payment of any amount or other penalty, pursuant
to which LJMCal is or may become subject to any obligation or liability in
excess of $50,000, individually or in the aggregate, or the performance of
which involves consideration in excess of $50,000, individually or in the
aggregate.
LJM has delivered to CBM a correct and complete copy of each written agreement
listed on Schedule 5.11 (as amended to date), and a written summary setting
-------------
forth the terms and conditions of each oral agreement referred to on Schedule
--------
5.11. Except as set forth on Schedule 5.11, with respect to each such agreement:
- ---- -------------
(A) the agreement is valid, binding, enforceable and in full force and effect,
(B) the agreement will continue to be valid, binding, enforceable and in full
force and effect on identical terms following consummation of the transactions
contemplated hereby, (C) LJMCal is not in breach or default and no event has
occurred which, with notice or lapse of time, would constitute a breach or
default, or permit termination, modification or acceleration under the agreement
and, to the Knowledge of LJM, no other party is in breach or default and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default, or permit termination, modification or acceleration under the
agreement, and (D) LJMCal has not and, to the Knowledge of LJM no other party
has, repudiated any provision of the agreement.
-13-
<PAGE>
5.12 Real Property. LJMCal does not own, of record or beneficially,
-------------
any right, title or interest in any real property (including without limitation
any easement, license or right-of-way) or any asset consisting of realty
including appurtenances, improvements or fixtures and LJMCal has not previously
owned, any right, title or interest in any real property other than (i)
leasehold interests pursuant to those leases set forth on Schedule 5.12 and (ii)
-------------
in connection with conduit loans with respect to which LJMCo has a commitment
pursuant to which the Federal Home Loan Mortgage Corporation has agreed to
purchase such loans. LJMCal is not a fiduciary as to any real property and no
purchase of real property has been effected by or through LJMCal by any separate
account or commingled fund. Schedule 5.12 sets forth a list and description of
-------------
all real leased or subleased to LJMCal.
5.13 Tax Matters.
-----------
(A) Except as set forth on Schedule 5.13, (i) LJMCal has filed
-------------
all Tax Returns that it was required to file, which Tax Returns were
correct and complete in all material respects, (ii) all Taxes owed by
LJMCal (whether or not shown on any Tax Return) have been paid, (iii)
LJMCal is not currently the beneficiary of any extension of time
within which to file any Tax Return, and (iv) no claim has ever been
made by an authority in a jurisdiction where LJMCal does not file Tax
Returns that LJMCal is or may be subject to taxation by that
jurisdiction. There are no Liens on any of the assets of LJMCal that
arose in connection with any failure (or alleged failure) to pay any
Tax, and to the knowledge of LJM and the director and officers and
employees of LJMCal with responsibility for tax matters, no Basis
exists for the imposition of any such Liens.
(B) LJMCal has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other
Person.
(C) Neither LJM nor any director or officer (or employee
responsible for Tax matters) of LJMCal expects any authority to assess
any additional Taxes with respect to LJMCal for any period for which
Tax Returns have been filed. There is no dispute or claim concerning
any Tax Liability of LJMCal either (i) claimed or raised by any
authority or (ii) as to which LJM or any of the directors and officers
(and employees responsible for Tax matters) of LJMCal has Knowledge
based upon personal contact with any agent of such authority. LJMCal
has delivered to CBM true, correct and complete copies of all federal
income Tax Returns filed, examination reports and statements of
deficiencies assessed against or agreed to by LJMCal since 1989.
(D) LJMCal has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency. LJMCal has not filed a consent under Section
341(f) of the Code concerning collapsible corporations, and has not
made any payments, nor is obligated to make any payments, and is not a
party to any agreement that under circumstances could obligate it to
make any payments that will not be deductible under Section 280G of
the Code. LJMCal has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii). LJMCal
has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to an understatement of federal income
Tax within the meaning of Section 6662 of the Code. LJMCal (i) is not
a party to any Tax allocation or sharing agreement, (ii) has not been
a member of an Affiliated Group filing a consolidated federal income
Tax Return and (iii) does not have any Liability
-14-
<PAGE>
for Taxes of any Person (other than itself) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or
foregoing law), as a transferee or successor, by contract or
otherwise.
(E) At all times during the period from and including August 1,
1987 through and including the Closing Date, LJMCal has been and will
be an S corporation, as defined in Section 1361 of the Code. LJMCal
filed a valid S corporation election on December 30, 1986, applicable
for its taxable year beginning August 1, 1987. LJMCal's status as an S
corporation has not been revoked or terminated for federal income tax
purposes and no Basis exists for such revocation or termination. LJM
is a qualified S corporation shareholder. LJMCal has only a single
class of stock outstanding as required by Section 1361(b)(1)(D) of the
Code. All of the governing documents of LJMCal, including its Articles
of Incorporation, By-Laws and any shareholders' agreements, confer
identical rights of distribution and liquidation proceeds for each
share of LJMCal's capital stock outstanding .
(F) LJMCal and LJM are each satisfied as to, and have each
relied solely upon their respective tax advisors with respect to, the
incidents of taxation which will or may result from the transactions
contemplated by this Agreement.
5.14 Intellectual Property.
---------------------
(A) Except for any license implied by the sale of a product and
common software programs with a value of less than $500 under which LJMCal
is the licensee, Schedule 5.14 lists all Intellectual Property used in
-------------
connection with or necessary for the operation of the Business and all
agreements relating to Intellectual Property to which LJMCo is a party.
LJMCo is the owner of all right, title and interest free and clear of all
Liens or has the right to use pursuant to license, sublicense, agreement or
permission ("License") all such Intellectual Property. Each item of
Intellectual Property owned or used by LJMCal immediately prior to the
Closing hereunder will be owned or available for use by LJMCo, following
the purchase by CBM of the stock of LJMCal pursuant hereto and the merger
of LJMCal and CBM into LJMCo, on identical terms and conditions immediately
subsequent to the Closing. LJMCal has taken all necessary action to
maintain and protect each item of Intellectual Property that it owns or
uses and has never granted any License or similar right to any third party
(other than its Affiliates and employees) with respect to such Intellectual
Property.
(B) With respect to the Intellectual Property listed on
Schedule 5.14 and except as otherwise disclosed therein (i) all
-------------
registrations with and applications to Governmental Entities in respect of
Intellectual Property owned by LJMCal are valid and in full force and
effect, (ii) there are no material restrictions on the direct or indirect
transfer of any License or any interest therein, held by LJMCal in respect
of such Intellectual Property and (iii) to the Knowledge of LJM, LJMCal is
not in default (and with the giving of notice or lapse of time or both,
will not be in default) in any material respect under any License to use
such Intellectual Property.
(C) LJMCal has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of any of its Affiliates and any party from whom LJMCal has
obtained the right to use Intellectual Property pursuant to license,
sublease, agreement or permission or, to the Knowledge of LJM, any other
third party. Neither LJM nor any of the directors and officers (and
employees with responsibility
-15-
<PAGE>
for Intellectual Property matters) of LJMCal has ever received any charge,
complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation (including any claim that
LJMCal must license or refrain from using any Intellectual Property rights
of any third party). No third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property rights of LJMCal.
(D) LJMCal is the owner of all right, title and interest in and
to the name "L.J. Melody & Company of California" free and clear of all
Liens. There are no agreements, obligations or undertakings (whether
written or oral and whether express or implied) relating to the LJMCal Name
to which LJMCal or LJM is a party or is bound and, to the Knowledge of LJM
no other party has granted rights of any kind to any third party, expressly
or impliedly, relating to the LJMCal Name. The LJMCal Name has not been and
is not currently involved in any opposition, invalidation or cancellation
proceeding and, to the Knowledge of LJM, no such action is threatened with
respect to the LJMCal Name. To the Knowledge of LJM, there is no
potentially interfering trademark or trademark application of any third
party. The LJMCal Name is not infringed and, to the Knowledge of LJM, has
not been challenged or disputed in any manner. The LJMCal Name does not
infringe and is not alleged to infringe any trade name, trademark or
service mark of any third party.
5.15 Accounts Receivable. All of the accounts receivable of LJMCal shown
-------------------
on the LJMCal Balance Sheet or arising thereafter arose in the Ordinary Course
of its Business. The values at which accounts receivable are carried reflect the
accounts receivable valuation policy of LJMCal which is consistent with past
practice and in accordance with GAAP (applied on a consistent basis throughout
the period involved).
5.16 Debt Instruments. Except in connection with loans for which LJMCal
----------------
acts solely as a loan servicer, Schedule 5.16 hereto lists all debentures,
-------------
notes, mortgages, indentures, guarantees, capitalized leases or other
instruments under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed, in each case to which LJMCal is
currently a party, has or may acquire rights or may become subject to any
Liability or obligation or by which it or any of its properties or assets (real,
personal or mixed, tangible or intangible) is bound. Except as set forth on
Schedule 5.16, LJMCal is not a guarantor or otherwise liable for any Liability
- -------------
of any other Person. LJMCal has delivered to CBM true and complete copies of
all instruments listed on Schedule 5.16.
-------------
5.17 Litigation. Except as set forth on Schedule 5.17 hereto, (A) there
---------- -------------
is no suit, action, hearing, claim or litigation, or legal, administrative,
arbitration or other proceeding pending or, to the Knowledge of LJM, threatened,
nor to the knowledge of LJM, any investigation pending or threatened against or
affecting LJMCal, the Business or any of LJMCal's property or assets, before any
Governmental Entity which would have a Material Adverse Effect on LJMCal and (B)
there is no judgment, decree, injunction, ruling, award, charge, order or writ
of any Governmental Entity or other Person outstanding against, binding upon or
involving LJMCal, the Business, LJM or any directors or officers of LJMCal in
their capacity as such. LJMCal owns policies of casualty, liability or other
forms of insurance which provide coverages in amount and scope sufficient to
cover every claim, action, cause of action, suit, proceeding, litigation,
arbitration or investigation arising out of, related to, or in connection with
those matters listed on Schedule 5.17 hereto. Neither LJM nor LJMCal nor any of
-------------
LJMCal's directors, officers or employees is currently charged with, or is
currently under investigation with respect to, any violation of any provision of
any Legal Rule in respect of the Business.
-16-
<PAGE>
5.18 Employee Agreements. Schedule 5.18 sets forth a full and complete
------------------- -------------
list of all employees of LJMCal as of the date hereof, specifying their names
and job designations, their dates of hire and (i) for the period from January 1,
1995 through December 31, 1995, the total amount paid or payable as wages,
salaries or other forms of direct compensation whether fixed or commission or a
combination thereof, and a list of all benefits made available to such
employees, including any discretionary bonus and incentive funds, plans or
agreements adopted by LJMCal (and not otherwise disclosed on Schedule 5.20) or
-------------
any bonuses or incentives promised to any employee of LJMCal and (ii) the basis
for calculating projected amounts of each of the items set forth in clause (i)
for the period from January 1, 1996 to December 31, 1996. Except as set forth
on Schedule 5.18, no contract, agreement, arrangement, commitment, understanding
-------------
or promise obligates LJMCal to hire or employ any Person, whether as an
employee, consultant, independent contractor or otherwise. Other than pursuant
to Section 11.2(F) (Covenants Not to Compete) and CBM's standard employment
---------------
agreement entered into pursuant to Section 11.2(R) (CBM Employment Agreements),
---------------
neither LJMCal nor any of its Subsidiaries, officers or employees has entered
into any contract, agreement, arrangement, commitment, understanding or promise
containing covenants limiting the right of LJMCo or any of its Subsidiaries or
officers to compete in any business or with any Person or limiting the right of
LJMCal's employees to compete in the commercial mortgage banking business.
Except as set forth on Schedule 5.20, LJMCal has no policy providing for
-------------
severance payments to terminated employees. There are no policies or agreements
of LJMCal with respect to payments upon any change in control of LJMCal.
5.19 Labor Matters. Except as set forth on Schedule 5.19, LJMCal is and at
------------- -------------
all times during the five-year period prior to the date hereof has been, in
compliance in all material respects with all Legal Rules related to employment.
There are no controversies pending nor, to the Knowledge of LJM and the
directors and officers (and employees with responsibility for employment
matters) of LJMCal any Basis for any such controversies, between LJMCal and any
of its employees, which controversies have had or may have a Material Adverse
Effect on LJMCal. To the Knowledge of LJM and the directors and officers (and
employees with responsibility for employment matters) of LJMCal, no executive,
key employee, or group of employees has any plans to terminate employment with
LJMCal. LJMCal is not bound by any collective bargaining agreement, has not
experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes or committed any unfair labor practice. Neither
LJM nor any of the directors or officers (or employees with responsibility for
employment matters) of LJMCal has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of LJMCal.
5.20 Employee Benefit Plans.
----------------------
(A) Except as set forth in Schedule 5.20 (collectively, the "LJMCal
-------------
Plans"), neither LJMCal nor any ERISA Affiliate has, during the period from
January 1, 1990 through to the Closing, sponsored, maintained, been a party
to, contributed to, or been obligated to contribute to, any Employee
Benefit Plan.
(B) Prior to and including the Closing, neither of LJMCal nor any
ERISA Affiliate has sponsored, been a party to, been obligated to
contribute to, terminated, suspended, discontinued contributions to, or
withdrawn from, any Multiemployer Plan or any Employee Pension Benefit Plan
which is or was a defined benefit plan or which is or was subject to Code
Section 412 or Title IV of ERISA.
-17-
<PAGE>
(C) LJM has provided to CBM (i) complete and accurate copies of all
written instruments pursuant to which each LJMCal Plan has been maintained
during the three-year period ending on the Closing Date; (ii) if no such
written instrument exists, a description of such LJMCal Plan; (iii) any
agreements or contracts pursuant to which custody, funding or
administrative services have been provided to LJMCal Plans within the
three-year period ending on the Closing Date; (iv) all reports or
disclosures required to be filed with government agencies or distributed to
participants by Part 1 of Subtitle B of Title I of ERISA (pertaining to
reporting and disclosure) or by provisions of the Code applicable to an
LJMCal Plan (including fringe benefit plan reporting as required by Code
Section 6039D) within the three-year period ending on the Closing Date; (v)
with respect to each LJMCal Plan that is intended to qualify under section
401(a) of the Code, the most recent opinion or determination letter
concerning the plan's qualification under section 401(a) of the Code, as
issued by the Internal Revenue Service and any as yet unadopted amendments
which are required by such determination letter or opinion letter; and (vi)
any handbook, manual, policy statement, administrative committee minutes or
similar written guidelines pertaining to one or more of the LJMCal Plans.
(D) With respect to each LJMCal Plan, (i) the applicable reporting,
disclosure and record retention requirements set forth in Part 1 of
Subtitle B of Title I of ERISA and any filing requirements under the Code,
including Section 6039D thereof, have been met in all material respects on
a timely basis, and (ii) there has been no material violation of Title I,
Subtitle B, Part 4 of ERISA (pertaining to fiduciary responsibility) nor
any violation of Code Section 4975(c).
(E) Each LJMCal Plan that is intended to qualify under section
401(a) of the Code meets in all material respects all requirements for
qualification under section 401(a) of the Code and the regulations
thereunder, except to the extent that such requirements may be satisfied by
adopting retroactive amendments under section 401(b) of the Code and the
regulations thereunder. Each such LJMCal Plan has been administered in all
material respects in accordance with its terms and the applicable
provisions of ERISA and the Code and the regulations thereunder. No
application for determination with the Internal Revenue Service is pending
with respect to any LJMCal Plan intended to qualify under Section 401(a) of
the Code.
(F) Neither LJMCal nor any ERISA Affiliate has any liability to the
PBGC, to any Multiemployer Plan, to any trustee or to any plan participant
under Title IV of ERISA.
(G) All contributions, premiums or other payments due from LJMCal or
any ERISA Affiliate to (or under) any LJMCal Plan have been fully paid or
adequately accrued on the books of LJM as reflected by the Most Recent
Financial Statements. All accruals (including, where appropriate,
proportional accruals for partial periods) have been made in accordance
with GAAP (applied on a consistent basis throughout the period involved).
(H) Each LJMCal Plan complies in all material respects with all
applicable requirements of (i) the Age Discrimination in Employment Act of
1967, as amended, and the regulations thereunder, (ii) Title VII of the
Civil Rights Act of 1964, as amended, and the regulations thereunder, (iii)
the health care continuation provisions of COBRA and (iv) any other
applicable law.
-18-
<PAGE>
(I) There is no pending, to the Knowledge of LJM, or threatened
litigation relating to any LJMCal Plan.
5.21 Environmental, Health and Safety.
--------------------------------
(A) (i) To the Knowledge of LJM, all LJMCal Real Property and the
present and former activities of LJMCal thereon complies in all material
respects with all applicable Environmental, Health and Safety Laws; (ii)
none of the operations of LJMCal is subject to any judicial or
administrative proceeding alleging the violation of any Environmental,
Health and Safety Law; (iii) LJMCal is not the subject of any federal,
state or local investigation concerning any use, release, discharge or
disposal of any Hazardous Substance, except for any such investigation
conducted entirely without notice to LJMCal without entry to any facility
of LJMCal and of which LJM has no Knowledge; (iv) to the Knowledge of LJM,
no predecessor-in-title to or former operator of the LJMCal Real Property
has filed any notice under any Legal Rule indicating past or present
treatment, storage or disposal of a hazardous waste or reporting a spill or
release of a Hazardous Substance into the environment; (v) LJMCal has no
Liability under any Environmental, Health and Safety Law, in connection
with the transportation, release, discharge or disposal by or at the
direction of LJM, LJMCal or any Affiliate of any Hazardous Substance into
the environment and no release by LJMCal or any Affiliate which could
require investigation or remediation has occurred; (vi) none of LJMCal's
operations on the LJMCal Real Property involves the generation,
transportation, treatment, storage or disposal of Hazardous Substances
other than in compliance with all applicable Legal Rules; (vii) except in
accordance with all Legal Rules, LJMCal has not disposed of any Hazardous
Substance in, on or about the LJMCal Real Property or any other location;
and (viii) no Lien in favor of any Governmental Entity for (A) any
Liability under any Environmental, Health and Safety Laws, or (B) damages
arising from or costs incurred in response to a release of any Hazardous
Substance into the environment has been filed or attached to any of
LJMCal's interest in the LJMCal Real Property.
(B) LJM has provided, and prior to Closing will provide, CBM with
complete and correct copies of (i) all studies, reports, surveys or other
materials in LJM's or LJMCal's possession relating to the presence or
alleged presence of Hazardous Substances at, on or affecting the LJMCal
Real Property or any other location, (ii) all notices or other materials in
LJM's or LJMCal's possession that were received from any Governmental
Entity having the power to administer or enforce any Environmental, Health
and Safety Laws relating to current or past ownership, use or operation of
the LJMCal Real Property or activities at the LJMCal Real Property or any
other location by LJMCal or any of its Affiliates and (iii) all materials
in LJM's or LJMCal's possession relating to any claim, allegation or action
by any private third party under any Environmental, Health and Safety Law
with respect to the LJMCal Real Property and any transporter of Hazardous
Substances or third party disposal sites used by the transporters.
(C) To the Knowledge of LJM, (i) no underground storage tanks have
been located on the LJMCal Real Property, (ii) no LJMCal Real Property has
been used at any time as a gasoline service station or any other facility
for storing, pumping, dispensing or producing gasoline or any other
petroleum products or wastes and (iii) no building or other structure
constituting part of the Real Property contains or contained asbestos. To
the Knowledge of LJM, there are and were no incinerators, septic tanks or
cesspools on the LJMCal Real Property and all waste from or on the LJMCal
Real Property was discharged into a public sanitary sewer system.
-19-
<PAGE>
5.22 Absence of Certain Changes. Except as set forth on Schedule 5.22
-------------------------- -------------
hereto, there has not been any Material Adverse Change with respect to LJMCal
since the Most Recent Fiscal Year End. Without limiting the generality of the
foregoing, since the Most Recent Fiscal Year End, except as otherwise
contemplated by this Agreement or described on Schedule 5.22, LJMCal has
-------------
conducted its operations in the Ordinary Course of Business and:
(A) (i) Has not sold, leased, transferred or assigned any of its
assets, tangible or intangible, other than for fair consideration in the
Ordinary Course of Business, (ii) has not imposed or created any Liens
(other than Permitted Liens) upon any of its assets, tangible or
intangible, and (iii) has not entered into any agreement, contract, lease
or license (or series of related agreements, contracts, leases or licenses)
outside the Ordinary Course of Business which obligates LJMCal for more
than $25,000 for any single item;
(B) LJMCal has not terminated, modified or canceled any agreement,
contract, lease or license (or series of related agreements, contracts,
leases or licenses) involving, in any of the foregoing cases, more than
$25,000 other than pursuant to this Agreement;
(C) LJMCal has not (i) made any loan to, or any acquisition of the
securities or assets of, any other Person or (ii) issued any note, bond or
other debt security or created, incurred, assumed or guaranteed any
indebtedness for borrowed money or capitalized lease obligation involving
more than $25,000 in the aggregate;
(D) LJMCal has not experienced any damage, destruction or loss
(whether or not covered by insurance) of its property, or any strike, work
stoppage or slowdown or other similar labor trouble;
(E) LJMCal has not granted any increase in the compensation of any
of the directors, officers or employees of LJMCal other than as set forth
on Schedules 5.11 (Contracts) and 5.18 (Employment Agreements);
-------------- ----
(F) LJMCal has not adopted, amended, modified or terminated any
bonus, profit-sharing, incentive, severance or other plan, contract or
commitment for the benefit of any of the directors, officers or employees
of LJMCal, or taken any such action with respect to any other Employee
Benefit Plan other than as set forth on Schedules 5.11 (Contracts) and 5.18
-------------- ----
(Employment Agreements);
(G) LJMCal has not made any material change in the employment terms of
any of the directors, officers or employees of LJMCal other than as set
forth on Schedules 5.11 (Contracts) and 5.18 (Employment Agreements); and
-------------- ----
(H) There has not been any material occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving LJMCal or any arrangement, agreement or commitment by
LJMCal or LJM to do any of the foregoing items set forth in Subsections (A)
through (H) of this Section 5.22.
------------
5.23 Insurance. Schedule 5.23 sets forth a complete list of all policies
--------- -------------
of insurance to which LJMCal currently is a party or a beneficiary or named
insured and (A) all claims which are pending and (B) all claims which have been
made to the insurers during the two-year period prior to the date hereof. With
respect to each insurance policy maintained by LJMCal: (A) the policy is legal,
valid, binding, enforceable and in full force and effect; (B) the policy will
continue to be legal,
-20-
<PAGE>
valid, binding, enforceable and in full force and effect on identical terms
following the Closing, unless terminated by CBC; (C) neither LJMCal nor any
other party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices) and no event has occurred which,
with notice or the lapse of time or both, would constitute such a breach or
default or permit termination, modification or acceleration under the policy;
and (D) no party to the policy has repudiated any provision thereof. LJMCal has
been covered during the past ten (10) years through the Closing Date by
insurance in type, scope and amount which (i) meet the minimum requirements of
any contract, lease or agreement to which LJMCal is a party and (ii) is
customary and reasonable for the business in which it has engaged during such
period. LJMCal has not failed to give any notice or present any claim under any
insurance policy in a due and timely fashion.
5.24 Force Majeure. The business, properties and assets of LJMCal have
-------------
not been materially or adversely affected in any way as a result of any fire,
explosion, earthquake, flood, windstorm, accident or any other casualty, labor
trouble, condemnation, requisition or taking of property by any government or
any agency of any government, embargo, riot, act of God or public enemy, or
other similar or dissimilar casualty or event, and there has been no material
change in the business or operations or the manner of conducting the Business of
LJMCal.
5.25 Brokers. Neither LJMCal nor LJM has any Liability, directly or
-------
indirectly, to pay any fees, commissions or other amounts (A) to any broker,
finder or agent with respect to this Agreement or the transactions contemplated
hereby or in connection with any sale of all or substantially all of the capital
stock or assets of LJMCal, or (B) to any of LJMCal's directors, officers or
employees in connection with this Agreement or the transactions contemplated
hereby or in connection with any sale of all or substantially all of the capital
stock or assets of LJMCal.
5.26 Full Disclosure. Any and all information furnished by or on
---------------
behalf of LJMCal or LJM to any CB Company in writing pursuant to this Agreement
and any information contained in the Schedules referred to in this Agreement, at
any time prior to the Closing Date, does not and will not contain any untrue
statement of a material fact and, to the Knowledge of LJM, does not and will not
omit to state any material fact necessary to make any statement, in light of the
circumstances under which such statement is made, not misleading.
ARTICLE 6
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LJM
------------------------------------------------
LJM represents and warrants, as of the date hereof and as of the Closing Date,
as follows:
6.1 Authority. LJM has the full right, power, authority and
---------
capacity, without the consent of any other person, to execute and deliver this
Agreement and to carry out this Agreement and the transactions contemplated
hereby. This Agreement has been, and each of the documents to be delivered at
the Closing by LJM will be duly executed and delivered by LJM and constitutes
(or will constitute) the valid and legally binding obligation of LJM enforceable
against him in accordance with its respective terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, moratorium or similar
laws affecting creditors' rights generally or by general equitable principles.
-21-
<PAGE>
6.2 Consent of Spouse. The person executing a Consent of Spouse
-----------------
attached to this Agreement is the spouse of LJM, and no other person has any
interest in the shares of capital stock set forth opposite LJM's name on
Schedule 5.1 hereto through dissolution of marriage or otherwise.
- ------------
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF CBM AND CBC
---------------------------------------------
Except as contemplated by this Agreement, each of CBM and CBC
represents and warrants to LJM as of the date hereof and as of the Closing Date
as follows:
7.1 Organization. CBC is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to own and/or lease all of its properties and
assets, and to carry on its business as now being conducted. CBM is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and has full corporate power and authority to own
and/or lease all of its properties and assets, and to carry on its business as
now being conducted. Each of CBC and CBM is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its property
or the conduct of its business requires such qualification, except for those
jurisdictions where the failure to so qualify would not have a Material Adverse
Effect on the CB Companies taken as a whole. The copies of the Articles of
Incorporation and ByLaws, as amended, of each CB Company heretofore delivered to
LJM are true, complete and correct, and such instruments, as amended, are in
full force and effect.
7.2 Authority. Subject to satisfaction of the conditions set forth
---------
herein (including the receipt of the consents listed on Schedule 7.5), (i) each
------------
of CBC and CBM now has and at the Closing will have the full right, power and
authority, without the consent of any other person, to execute and deliver this
Agreement and all other agreements contemplated hereby to be executed by it and
to carry out this Agreement and the transactions contemplated hereby and (ii)
the execution, delivery and performance of this Agreement and all other
agreements contemplated hereby or thereby and the consummation of the
transactions contemplated hereby and thereby have been, and each of the
documents to be delivered at Closing (including the Notes and the Guaranty) will
be, duly authorized by all requisite action, corporate and other, on the part of
each of CBC and CBM, as the case may be, and each of this Agreement and such
other documents has been duly executed and delivered by each of CBC and CBM, as
the case may be, and constitutes or at the Closing will constitute the valid and
legally binding obligation of each of CBC and CBM, as the case may be,
enforceable against each of them in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by general
equitable principles. The transactions contemplated by this Agreement have been
authorized and approved by the Acquisition/Investment Committee of the Board of
Directors of CB Holdings.
7.3 SEC Documents. CBM has provided to LJM a true and complete copy
-------------
of CB Holdings' Annual Report on Form 10-K (without exhibits) for the years
ended December 31, 1993, December 31, 1994 and December 31, 1995 and Quarterly
Report on Form 10-Q for the three (3) months ended March 31, 1996 and its
definitive 1996 proxy statement filed by CB Holdings with the SEC (the "CB
Holdings SEC Documents"). As of their respective filing dates, CB Holdings has
made all necessary filings with the Securities and Exchange Commission ("SEC")
required to be filed by it since December 31, 1993, the CB Holdings SEC
Documents comply or will comply in all
-22-
<PAGE>
material respects with the requirements of the Exchange Act or the Securities
Act, and none of the CB Holdings SEC Documents contain or will contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, except to
the extent material statements in any of the foregoing are modified or
superseded in accordance with applicable rules and regulations of the SEC by a
subsequently filed CB Holdings SEC Document delivered to LJM prior to the date
of this Agreement.
7.4 Financial Statements. CBM has furnished to LJM (i) the audited
--------------------
consolidated balance sheets and statements of income and changes in
stockholders' equity and cash flows of CB Holdings and its Subsidiaries for the
three (3) fiscal years ended December 31, 1993, December 31, 1994 and December
31, 1995 and (ii) the unaudited consolidated balance sheet, statements of and
changes in stockholders' equity and cash flow of CB Holdings and its
Subsidiaries as of and for the three (3) months ended March 31, 1996 (the "Most
Recent Fiscal Quarter") (collectively, the "CB Holdings Financial Statements").
The CB Holdings Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as noted in the notes to the CB Holdings Financial
Statements), present fairly the financial condition of CB Holdings and its
Subsidiaries on a consolidated basis as of such dates and the results of
operations of CB Holdings and its Subsidiaries on a consolidated basis for such
periods, are accurate and complete, and are consistent with the books and
records of CB Holdings in all material respects (which books and records are
accurate and complete) except, with respect to the CB Holdings Financial
Statements for the Most Recent Fiscal Quarter, for normal recurring year-end
adjustments which are not material in the aggregate and the absence of notes
(which, if present would not differ materially from those included in the CB
Holdings Financial Statements for the fiscal year ended and at (in the case of
the balance sheet) December 31, 1995). Other than certain Intellectual
Property, the issued and outstanding capital stock of CBC is the sole asset of
CB Holdings, and the CB Companies are the only direct or indirect Subsidiaries
of CB Holdings with substantial assets or employees, so that the CB Holdings
Financial Statements substantially present the financial condition of CBC and
its Subsidiaries (except as otherwise noted in the notes to the CB Holdings
Financial Statements).
7.5 Non-Contravention. Except as set forth on Schedule 7.5, neither
----------------- ------------
the execution and delivery of this Agreement by CBC and CBM nor the consummation
of the transactions contemplated hereby (including without limitation the
assignments contemplated hereby), do or would after the giving of notice or the
lapse of time or both, (i) conflict with, result in a breach of, constitute a
default under, or violate the Articles or Certificate of Incorporation or the
Bylaws of CBC or CBM, (ii) conflict with, result in a breach of, constitute a
default under, or violate any Legal Rule, except for conflicts, breaches,
defaults or violations which individually or in the aggregate would not have a
Material Adverse Effect on the CB Companies taken as a whole; (iii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, amend,
modify, cancel or refuse to perform under, or require any notice under, any
agreement, contract, commitment, license, lease, instrument or other
arrangement, including any express or implied warranty, to which any CB Company
is a party or by which any of them is bound or to which any of their assets are
subject; or (iv) result in the creation of, or give any party the right to
create, any Lien or other rights or adverse interests upon any right, property
or asset of any CB Company.
7.6 No Adverse Knowledge. Except as set forth on Schedule 7.6
-------------------- ------------
hereto, to the Knowledge of the Selected Employees of CBC, none of the following
entities is actively considering (i) disallowing competition for or
participation in arranging or servicing mortgage loans for such
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<PAGE>
entity by any CB Company or (ii) terminating such entity's relationship with any
CB Company, in either case as a result of the proposed acquisition or as a
result of dissatisfaction with the services of any CB Company:
(a) any entity which is a party to a mortgage loan correspondent
contract with any CB Company and which has been a source of loan funds for
any financing arranged by any CB Company and which closed after December
31, 1993;
(b) any entity which owns a loan portfolio serviced by any CB Company;
(c) any separate account, trust or other entity to whom any CB Company
provides investment advice for a fee pursuant to a mortgage loan
correspondent contract or an investment advisor contract; or
(d) any borrower which has arranged or any lender which has funded not
less than five (5) mortgage loans with any CB Company since December 31,
1993.
For purposes of this Section 7.6, "Selected Employees" shall mean James J.
-----------
Didion, Walter V. Stafford, Richard C. Clotfelter and David A. Davidson.
7.7 Legal Compliance. Each of CBC and CBM is and at all times during the
----------------
five-year period prior to the date hereof has been, in compliance with all Legal
Rules applicable to it, except for possible violations which would not have a
Material Adverse Effect on the CB Companies taken as a whole, individually or in
the aggregate and, except as set forth on Schedule 7.7, no action, suit,
------------
proceeding, hearing, investigation, charge, complaint, claim, demand or notice
has been filed or commenced or is pending or, to the Knowledge of CBC and CBM,
threatened against any of them alleging any failure to so comply. Each of CBC
and CBM has all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of its business ("CB
Permits"), all of which are valid and effective, except for those which, if not
obtained and valid and effective, would not have a Material Adverse Effect on
the CB Companies taken as a whole, and neither CBC nor CBM is in violation of
any CB Permit in any material respect. No notice has been issued and no
investigation or review is pending or to the Knowledge of each of CBC and CBM,
threatened by any Governmental Entity with respect to (i) any alleged violation
of or other non-compliance with any Legal Rule by such CB Company or (ii) any
alleged failure to have all CB Permits required in connection with the operation
of the business of such CB Company.
7.8 Brokers. No CB Company has any Liability, directly or indirectly, to
-------
pay any fees, commissions or other amounts (A) to any broker, finder or agent
with respect to this Agreement or the transactions contemplated hereby or in
connection with any purchase of all or substantially all of the capital stock
or assets of LJMCal or (B) to any of the directors, officers or employees of any
CB Company in connection with this Agreement, or the transactions contemplated
hereby or in connection with any purchase of all or substantially all of the
capital stock or assets of LJMCal.
7.9 Litigation. Except as set forth in the CB Holdings SEC Documents, (A)
----------
there is no suit, action, hearing, claim or litigation, or legal,
administrative, arbitration or other proceeding pending or, to the Knowledge of
each of the CB Companies, threatened, nor to the Knowledge of each of the CB
Companies, any investigation pending or threatened against or affecting a CB
Company, or any of their respective property or assets, before any Governmental
Entity, which would have a Material Adverse Effect on the CB Companies taken as
a whole and (B) there is no
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<PAGE>
judgment, decree, injunction, ruling, award, charge, order or writ of any
Governmental Entity or other Person outstanding against, binding upon or
involving such CB Company or its respective business or any directors or
officers of such CB Company in their capacity as such which would have a
Material Adverse Effect on the CB Companies taken as a whole. The CB Companies
own policies of casualty, liability or other forms of insurance which provide
coverages in amount and scope sufficient to cover every claim, action, cause of
action, suit, proceeding, litigation, arbitration or investigation arising out
of, related to, or in connection with those matters listed in the CB Holdings
SEC Documents. No CB Company nor any of their respective directors, officers or
employees is currently charged with, or is currently under investigation with
respect to, any violation of any provision of any Legal Rule in respect of the
business of such CB Company.
7.10 Absence of Certain Changes. Since December 31, 1995 there has been no
--------------------------
effect on, or change in, the business of any CB Company that has had a Material
Adverse Effect on the CB Companies taken as a whole.
7.11 Full Disclosure. Any information furnished by or on behalf of CBC or
---------------
CBM to LJM or LJMCal in writing pursuant to this Agreement at any time prior to
the Closing Date does not contain any untrue statement of a material fact and,
to the Knowledge of CBC and CBM, does not omit to state any material fact
necessary to make any statement, in light of the circumstances under which such
statement is made, not misleading.
ARTICLE 8
COVENANTS OF LJM
----------------
During the period from the date of this Agreement and continuing until the
Closing Date, LJM agrees (except as expressly contemplated by this Agreement or
to the extent that CBM and CBC shall otherwise consent in writing) that:
8.1 Ordinary Course. Except as set forth in Section 10.4 (Allocation of
--------------- ------------
Certain Accounts Receivable and Liabilities) and 11.2(L) (Pre-Closing
-------
Transactions), LJM shall (i) cause LJMCal to carry on the Business in the
Ordinary Course of Business, including the payment of all Taxes, in
substantially the same manner as heretofore conducted, (ii) to the extent
consistent with such Businesses, use all commercially reasonable efforts
consistent with past practice and policies to preserve intact LJMCal's present
business organization and (iii) use his best efforts to keep available the
services of LJMCal's present officers and key employees and preserve its
relationships with present and potential customers, providers and others having
business dealings with it, in each case to the end that its goodwill and ongoing
business shall be unimpaired at the Closing.
8.2 Dividends and Distributions; Changes in Ownership Interests. Except
-----------------------------------------------------------
as set forth in Sections 10.4 (Allocation of Certain Accounts Receivable and
-------------
Liabilities) and 11.2(L) (Pre-Closing Transactions), LJM shall not permit LJMCal
to or to agree or propose to (i) split, combine or reclassify any of its equity
interests or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any existing equity interests, (ii)
repurchase or otherwise acquire any shares of its capital stock or (iii) declare
or pay and dividends on or make any distributions in respect of any of its
equity securities after the Effective Date.
8.3 No Other Bids. LJM shall not and shall not permit LJMCal or any of
-------------
LJMCal's directors, officers or agents, to, directly or indirectly, solicit or
initiate or encourage any discussions
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<PAGE>
or negotiations with, or participate in any negotiations with or provide any
information to or otherwise cooperate in any other way with any Person (other
than the CB Companies) concerning any merger, sale of substantial assets, sale
of shares of capital stock or any division or Subsidiary of LJMCal or control
thereof. CBC shall be promptly notified in writing by LJM of any of the events
referred to in this Section 8.3, and of any unsolicited bids for any of the
-----------
foregoing, including a summary of the material terms of any other bid.
8.4 No Acquisitions. LJM shall not permit LJMCal to (a) acquire or agree
---------------
to acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof or (b) otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to LJMCal except in the Ordinary
Course of Business.
8.5 No Dispositions. Except as set forth in Sections 10.4 (Allocation of
--------------- -------------
Certain Accounts Receivable and Liabilities) and 11.2(L) (Pre-Closing
------
Transactions), LJM shall not permit LJMCal to lease or otherwise dispose of any
of its assets, individually or in the aggregate, except in the Ordinary Course
of Business and in any event not in excess of $5,000 in the aggregate (excluding
write-offs requested by CBC).
8.6 Benefit Plans, Etc. LJM shall not permit LJMCal to adopt or amend in
-------------------
any material respect any agreement with or for the benefit of employees, other
than as provided in this Agreement or as necessary with respect to the LJMCal
Plans to comply with applicable law or to maintain the LJMCal Plans in the
Ordinary Course of Business.
8.7 Access to Information; Confidentiality. LJM shall and shall cause
--------------------------------------
LJMCal to afford to the CB Companies and shall cause his and LJMCal's
independent accountants to afford to the CB Companies, and the respective
accountants, counsel and other representatives of each of the CB Companies,
reasonable access during normal business hours during the period prior to the
Closing Date to the properties, books, contracts, commitments, records and
management of LJMCal and, to the independent accountants of the CB Companies,
reasonable access to the audit work papers and other records of LJMCal's
accountants. During such period, LJM shall cause LJMCal to use reasonable
efforts to furnish promptly to the CB Companies all information concerning the
business, properties and personnel of LJMCal as any CB Company may reasonably
request. LJM shall and shall cause LJMCal and LJMCal's directors, officers,
employees, agents and advisors to maintain in confidence, any information
obtained from any CB Company in connection with this Agreement or the
transactions contemplated hereby, unless (i) such information is already known
to LJMCal or LJM or to others not bound by a duty of confidentiality or (ii)
such information becomes publicly available through no fault of LJMCal or LJM,
(iii) the use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation of the
transactions contemplated hereby or (iv) the furnishing or use of such
information is required in connection with any legal proceedings in which case
LJM shall give such CB Company as much prior notice as practicable so that it
may seek a protective order. If the transactions contemplated by this Agreement
are not consummated, LJM shall and shall cause LJMCal to return or destroy as
much of such written information in their possession as may be requested by any
CB Company.
8.8 Communications. Between the date hereof and the Closing Date, LJM
--------------
will not furnish any communication to the public generally if the subject matter
thereof relates to the other party or to the transactions contemplated by this
Agreement without the prior approval of CBC as to the content thereof, which
approval shall not be unreasonably withheld, and subject to each Party's
compliance with applicable law.
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<PAGE>
8.9 Update to Disclosures. Without limiting CBC's and CBM's right to rely
---------------------
on the representations and warranties as of the date of this Agreement, LJM will
notify CBM in writing (where appropriate, through updates to the Schedules
hereto) of, and contemporaneously will provide CBM with true and complete copies
of any and all information or documents relating to, any event, transaction or
circumstance, as soon as practicable after it becomes known to LJM, occurring
after the date of this Agreement that causes or will cause any covenant or
agreement of LJM under this Agreement to be breached or that renders or will
render untrue any representation or warranty of LJM contained in this Agreement
as if the same were made on or as of the date of such event, transaction or
circumstance. Such an update to the disclosures of LJM shall not be deemed to
correct and negate the effect of prior misstatements by LJM unless CBC and CBM
elect to proceed with the Closing notwithstanding a given update. Without
limiting the generality of the foregoing, prior to the Closing LJM shall deliver
to CBM true and complete copies of all instruments of a type specified in the
first sentence of Section 5.16 (Debt Instruments) which are executed after the
------------ ----------------
date hereof.
8.10 Good Faith. LJM shall act in good faith and use all commercially
----------
reasonable efforts to cause to be satisfied all the conditions precedent to his
obligations and those of the other parties to this Agreement over which he has
control or influence, including obtaining any consents or any governmental
permits required to consummate the transactions contemplated hereby, including
without limitation those set forth on Schedule 5.4 (No Consents). LJM shall not
------------ -----------
cause or permit LJMCal to take any action which would prevent the performance of
this Agreement or the consummation of the transactions contemplated hereby.
8.11 Conditions Regarding Customer Contact. LJM shall not permit LJMCal to
-------------------------------------
take any action that is designed or intended to have the effect of discouraging
any customer, supplier or other business associate of LJMCal from maintaining
the same business relationships with any CB Company and LJMCo after the Closing
and the merger of LJMCal and CBM into LJMCo as it maintained with LJMCal prior
to the Closing.
ARTICLE 9
COVENANTS OF THE CB COMPANIES
-----------------------------
During the period from the date of this Agreement and continuing until the
Closing Date, each of CBC and CBM agrees (except as expressly contemplated by
this Agreement or to the extent that LJM shall otherwise consent in writing)
that:
9.1 Ordinary Course. Each of CBC and CBM shall, and shall cause their
---------------
Subsidiaries and Affiliates to, carry on their respective businesses in the
Ordinary Course of Business, including the payment of all Taxes, in
substantially the same manner as heretofore conducted and, to the extent
consistent with such businesses, use all commercially reasonable efforts
consistent with past practice and policies to preserve intact their present
business organization, will use their best efforts to keep available the
services of their present officers and key employees and preserve their
relationships with present and potential customers, providers and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Closing.
9.2 No Other Bids. Neither the CB Companies nor any of the CB Companies'
-------------
respective directors, officers or agents, will, directly or indirectly, solicit
or initiate or encourage any discussions or negotiations with, or participate in
any negotiations with or provide any information to or
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<PAGE>
otherwise cooperate in any other way with any corporation, partnership, person
or other entity or group engaged in the mortgage banking or loan servicing
business concerning any merger, purchase of substantial assets or purchase of
shares of capital stock of any CB Company. LJM shall be promptly notified in
writing by the CB Companies of any of the events referred to in this Section 9.2
including a summary of the material terms of any other offer.
9.3 Access to Information; Confidentiality. The CB Companies shall, and
--------------------------------------
shall cause their Subsidiaries and Affiliates to, afford to LJM and shall cause
their independent accountants to afford to LJM, and his accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Closing Date to the properties, books, contracts,
commitments, records and management of the CB Companies' mortgage banking and
loan servicing operations and, to LJM's independent accountants, reasonable
access to the audit work papers and other records of the CB Companies'
accountants relating to mortgage banking and loan servicing operations. During
such period, the CB Companies shall use reasonable efforts to furnish promptly
to LJM all information concerning the mortgage banking and loan servicing
business, properties and personnel of the CB Companies as LJM may reasonably
request. Each CB Company will maintain in confidence, and cause its directors,
officers, employees, agents and advisors to maintain in confidence, any
information obtained from LJMCal or LJM in connection with this Agreement or the
transactions contemplated hereby, unless (i) such information is already known
to such CB Company or to others not bound by a duty of confidentiality, (ii)
such information becomes publicly available through no fault of the CB
Companies, (iii) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the transactions contemplated hereby or (iv) the furnishing or
use of such information is required in connection with any legal proceedings in
which case such CB Company shall give LJMCal and LJM as much prior notice as
practicable so they may seek a protective order. If the transactions
contemplated by this Agreement are not consummated, each CB Company will return
or destroy as much of such written information in its possession as may be
requested by LJMCal or LJM.
9.4 Communications. Between the date hereof and the Closing Date, the CB
--------------
Companies will not furnish any communication to the public generally if the
subject matter thereof relates to the other party or to the transactions
contemplated by this Agreement without the prior approval of the other party as
to the content thereof, which approval shall not be unreasonably withheld, and
subject to each party's compliance with applicable law.
9.5 Update to Disclosures. Without limiting LJM's right to rely on the
---------------------
representations and warranties as of the date of this Agreement, CBC and CBM
will notify LJM in writing of, and contemporaneously will provide LJM with true
and complete copies of any and all information or documents relating to any
event, transaction or circumstance, as soon as practicable after it becomes
known to CBC or CBM, occurring after the date of this Agreement that causes or
will cause any covenant or agreement of CBC or CBM under this Agreement to be
breached or that renders or will render untrue any representation or warranty of
CBC or CBM contained in this Agreement as if the same were made on or as of the
date of such event, transaction or circumstance. Such an update to the
disclosures of CBC and CBM shall not be deemed to correct and negate the effect
of CBC's or CBM's prior misstatements unless LJM elects to proceed with the
Closing notwithstanding a given update.
9.6 Good Faith. CBC and CBM shall act in good faith and use all
----------
commercially reasonable efforts to cause to be satisfied all the conditions
precedent to their obligations and those of the other parties to this Agreement
over which they have control or influence. Neither CBC nor
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<PAGE>
CBM nor any of their Subsidiaries shall take any action which would prevent the
performance of this Agreement or the consummation of the transactions
contemplated hereby.
9.7 Conditions Regarding Customer Contact. Neither CBC nor CBM will
-------------------------------------
take any action that is designed or intended to have the effect of discouraging
any customer, supplier or other business associate of the CB Companies from
maintaining the same business relationships with the CB Companies and LJMCo
after the Closing and the merger of LJMCal and CBM into LJMCo, as it maintained
with the CB Companies prior to the Closing.
ARTICLE 10
ADDITIONAL AGREEMENTS
---------------------
10.1 Conditions to the Transaction. Each Party will take all reasonable
-----------------------------
actions necessary to comply promptly with all legal requirements which may be
imposed on such Party with respect to the transactions contemplated hereby
(including furnishing all information required under the HSR Act, if any) and
will promptly cooperate with and furnish information to each other Party in
connection with any such requirements imposed upon each other Party or any
Subsidiary or Affiliate of each other Party in connection with such
transactions. Each Party will take, and will cause its Subsidiaries or
Affiliates to take, all reasonable actions to obtain (and to cooperate with each
other Party and its Subsidiaries or Affiliates in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity, or other third party, required to be obtained or made by such Party or
its Subsidiaries or Affiliates in connection with the transactions or the taking
of any action contemplated thereby or by this Agreement.
10.2 State Statutes. If any state takeover law shall become
--------------
applicable to the transactions contemplated by this Agreement, CBC and CBM and
their respective Boards of Directors or LJMCal and its Board of Directors and
LJM, as the case may be, shall use their reasonable best efforts to obtain such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize the effects
of such state takeover law on the transactions contemplated by this Agreement.
10.3 Pre-Closing Tax Liability; Tax Returns of LJMCal.
------------------------------------------------
(A) Except as otherwise provided in Section 10.5 (No Section
338(h)(10) Election; Post Closing Transfers), the Shareholders shall be
liable for, and shall pay in a timely fashion, any and all Taxes of LJMCal,
its Subsidiaries and LJM or Steven Hammer attributable to any taxable
period ending on or prior to June 30, 1996 and the applicable portion of
any and all Taxes of LJMCal, its subsidiaries and LJM and Steven Hammer
attributable to any partial period (through and including June 30, 1996) of
any taxable period ending after June 30, 1996. The Taxes attributable to
any partial period shall be computed as if the taxable period ended on June
30, 1996 except that any Taxes imposed on the ownership of real, personal
or intangible property shall be allocated, pro rata on a daily basis,
between the partial period ending on June 30, 1996 and the balance of the
taxable period.
(B) LJM shall cause the preparation and filing of all Tax Returns of
LJMCal for taxable periods ending on or before the Closing Date. The CB
Companies shall cooperate with LJM to facilitate such filings and shall
have the right to review and approve (which
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<PAGE>
approval shall not be unreasonably withheld) any such return before it is
filed. LJM shall have the responsibility for, and the right to control any,
audit (and the disposition thereof) of any Tax Return of LJMCal pertaining
to taxable periods ending on or before the Closing Date.
(C) CBM shall grant or cause LJMCal to grant to LJM (or his
designee) access at all reasonable times to the information, books and
records relating to LJMCal within the possession of CBM or LJMCal
(including workpapers and correspondence with taxing authorities but
excluding any privileged material) and shall afford LJM (or his designee)
the right (at LJM's expense) to take extracts therefrom and to make copies
thereof, to the extent reasonably necessary to permit LJM (or his designee)
to prepare Tax Returns or to conduct negotiations with Tax authorities.
(D) CBM will preserve and retain all schedules, workpapers and other
documents relating to any Tax Returns of or with respect to LJMCal or to
any claims, audits or other proceedings affecting LJMCal until the
expiration of the statute of limitations (including any extensions thereof)
applicable to the taxable period to which such documents relate or until
the final determination of any controversy with respect to such taxable
period, and until the final determination of any payments that may be
required with respect to such taxable period under this Agreement.
10.4 Allocation of Certain Accounts Receivable and Liabilities. It is
---------------------------------------------------------
the intention of the Parties to allocate the combined accounts receivable and
pending transactions of LJMCal and LJMCo listed on the Allocation Schedule (the
"Receivables") in a manner which is intended to fairly treat LJM with respect to
the fees for which substantial work has already been performed. It is also the
intention of the Parties with respect to all Liabilities of LJMCal that either
(a) LJMCal shall, immediately after the Closing, have sufficient cash
and Cash Equivalents (excluding any cash or Cash Equivalents contributed by
CBC, CBM or any of their respective Affiliates) to fully pay and discharge
all such Liabilities or
(b) LJM shall have assumed and agreed to discharge such Liabilities
or
(c) such Liabilities shall have been specifically allocated to CBM or
CBC in the Allocation Schedule.
Accordingly, each of the Parties agrees as follows:
(i) Prior to the Closing Date, CBC, CBM and LJM shall jointly
prepare the Allocation Schedule, which shall be mutually satisfactory
to each of them and which shall also be part of an Allocation,
Assumption and Collection Agreement to be executed as of the Closing
Date by CBC, CBM, LJM and LJMCal. The Allocation Schedule shall
identify (1) the Receivables and their allocation among the parties
and (2) the Liabilities of LJMCal and the allocation thereof among
LJMCo, LJMCal and the Shareholders.
(ii) As of the Closing Date, CBM, LJM and LJMCal shall execute
and deliver the Allocation, Assumption and Collection Agreement, in
form and substance satisfactory to each of them, pursuant to which
LJMCal shall pay to or on behalf LJM all proceeds collected from the
Receivables assigned to LJM in accordance with
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<PAGE>
the Allocation Schedule and shall assign to LJM the Shareholder
Liabilities to be allocated to LJM pursuant to the Allocation
Schedule. It is expressly understood by the Parties hereto that no
servicing fees (other than asset management fees which have not been
billed but are due and payable and have been accrued prior to the
Closing) shall be allocated to LJM. LJM agrees to be responsible for
any state, federal or local income taxes attributable to such amount
allocated to him. Neither CBC, CBM, LJMCal nor LJMCo shall have any
liability with respect to the failure to collect Receivables.
(iii) Notwithstanding anything to the contrary set forth herein
and regardless of whether any Liability is disclosed herein or in the
Schedules attached hereto or whether the representations and
warranties set forth herein contain any limitations or qualifications,
LJM agrees that, immediately following the Closing (A) he shall cause
LJMCal to have unrestricted cash or Cash Equivalents at least equal to
the sum of all Existing Liabilities and (B) other than Existing
Liabilities with respect to which LJMCal has at least an equal amount
of unrestricted Cash or Cash Equivalents pursuant to the preceding
clause (A), LJMCal shall have no Liabilities other than Shareholder
Liabilities which have been assumed by LJM pursuant to the Allocation
Schedule and the Allocation, Assumption and Collection Agreement and
Liabilities which either CBC or CBM has specifically agreed to assume
pursuant to the Allocation Schedule and the Allocation, Assumption and
Collection Agreement.
10.5 No Section 338(h)(10) Election; Post Closing Transfers. CBM and
------------------------------------------------------
LJM agree that they shall not join in making an election under Section
338(h)(10) of the Code or a similar election under any applicable state income
tax law with respect to CBM's purchase of LJMCal Stock. CBM shall be liable for
and shall indemnify LJM against, any and all liability for Taxes on or
subsequent to the Closing from a liquidation, merger, sale or other disposition
of assets of LJMCal or from a regular election pursuant to Section 338(g) of the
Code with respect to LJMCal.
10.6 Assignment of LJMCal Name; License. In the event any outstanding
----------------------------------
payment due and payable under the Notes shall not be made within ninety (90)
days after its due date, CBM shall promptly assign and transfer to LJM all
right, title and interest of CBM in and to the LJMCal Name acquired by CBM
pursuant hereto and shall thereafter cease using the LJMCo Name acquired by CBM
pursuant hereto. CBM hereby grants to LJM a royalty-free license to use the name
L.J. Melody & Company of California"; provided, however, that this license
-------- -------
shall confer no rights unless and until an Event of Default (as defined in the
Notes) shall have occurred under the Notes; provided further, however, that this
---------------- -------
license shall only be to the extent of the right, title and interest in and to
the name "L.J. Melody & Company of California" acquired by CBM pursuant to this
Agreement and the Trademark Agreement and neither CBC nor CBM makes any
representations or warranties, express or implied, with respect to such name or
the right to use such name. The license set forth herein shall terminate and be
of no further force and effect upon payment in full of all outstanding amounts
due under the Notes.
10.7 Vacation. LJM assumes and agrees to pay all obligations of LJMCal to
--------
employees for any Vacation Liability as it becomes due and payable.
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<PAGE>
ARTICLE 11
CONDITIONS PRECEDENT
--------------------
11.1 Conditions to Obligations of All Parties. The obligations of each
----------------------------------------
Party to this Agreement to effect the transactions contemplated hereby shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions unless waived by both CBM and LJM:
----
(A) Government Approvals. All authorizations, consents, orders or
--------------------
approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity necessary for the consummation
of the transactions contemplated by this Agreement including, but not
limited to, termination of the waiting period under the HSR Act and such
requirements under applicable federal or state securities laws shall have
been filed, occurred or been obtained.
(B) Legal Action. No temporary restraining order, preliminary
------------
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated hereby shall have been issued
by any federal or state court and remain in effect, and no litigation
seeking the issuance of such an order or injunction, shall be pending
which, in the good faith judgment of LJM or CBC has a reasonable
probability of resulting in such order, injunction or damages. In the
event any such order or injunction shall have been issued, each Party
agrees to use all commercially reasonable efforts to have any such
injunction lifted.
(C) Statutes. No statute, rule or regulation shall have been enacted
--------
by the government of the United States or any state or agency thereof which
would (i) make the consummation of the transactions contemplated hereby or
by the LJMCo Stock Purchase Agreement illegal, (ii) prohibit CBC's or CBM's
ownership or operation of all or a material portion of the Business or
assets of LJMCal, or compel CBC or CBM to dispose of or hold separate all
or a material portion of the business or assets of LJMCo or LJMCal, as a
result of this Agreement or the LJMCal Stock Purchase Agreement, or (iii)
render the Parties hereto unable to consummate the transactions
contemplated hereby or by the LJMCo Stock Purchase Agreement, except for
any waiting period provisions.
(D) Federal Home Loan Mortgage Corporation Approval. The Federal Home
-----------------------------------------------
Loan Mortgage Corporation shall have determined that after the merger of
LJMCal and CBM into LJMCo, the surviving corporation may act as a Federal
Home Loan Mortgage Corporation seller/servicer.
(E) LJMCo Stock Purchase Agreement. The parties thereto shall have
------------------------------
entered into the LJMCo Stock Purchase Agreement and the closing under the
LJMCo Stock Purchase Agreement shall have occurred simultaneously with the
Closing under this Agreement.
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<PAGE>
11.2 Conditions to Obligations of CBC and CBM. The obligations of CBC and
----------------------------------------
CBM to effect the transactions contemplated hereby are subject to the
satisfaction on or prior to the Closing Date of the following conditions (except
for the conditions set forth in paragraph (A) of Section 11.2(L) ("Pre-Closing
---------------
Transactions"), which shall have been satisfied on or prior to the Effective
Date), unless waived by CBC and CBM:
(A) Representations and Warranties. The representations and
------------------------------
warranties of LJM set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as if made at
and as of the Closing Date, except as otherwise contemplated by this
Agreement, and CBC and CBM shall have received a certificate or
certificates signed by LJM to such effect.
(B) Performance of Obligations of LJM. LJM shall have performed in
---------------------------------
all material respects all obligations required to be performed by him under
this Agreement prior to the Closing Date, and CBC and CBM shall have
received a certificate signed by LJM to such effect.
(C) Opinion of LJM's Counsel. CBC and CBM shall have received an
------------------------
opinion dated the Closing Date of Baker & Botts, L.L.P., counsel to LJM, in
---------------------
substantially the form of Exhibit C to the LJMCo Stock Purchase Agreement.
---------
(D) No Material Adverse Change. Since the date of this Agreement
--------------------------
there shall have been no changes in the condition (financial or otherwise),
business, prospects, employees, operations, obligations or liabilities of
LJMCal which, in the aggregate, have had or may be reasonably expected to
have a Material Adverse Effect on the Business.
(E) Employment Agreement. CBM and LJM shall have entered into the LJM
--------------------
Employment Agreement in the form of Exhibit D to the LJMCo Stock Purchase
---------
Agreement.
(F) Covenants Not to Compete. CBM and each of LJM and JMB shall have
------------------------
entered into a Covenant Not to Compete in the form of Exhibit E to the
---------
LJMCo Stock Purchase Agreement.
(G) Trademark Agreement. LJM and JMB shall have executed and delivered
-------------------
the Trademark Agreement in the Form of Exhibit F to the LJMCo Stock
---------
Purchase Agreement.
(H) Sumitomo Consent. The Sumitomo Bank, Limited ("Sumitomo") shall
----------------
have (i) advised CBC in writing either that (A) no consent or other
approval by Sumitomo or any other participant in the Amended and Restated
Senior Secured Credit Agreement dated July 1, 1994, as amended or the
Senior Subordinated Credit Agreement dated July 20, 1990, as amended, is
required or (B) such consent or other approval has been obtained and (ii)
agreed, on terms and conditions reasonably satisfactory to LJM, that the
Sumitomo Guaranties are subordinate to the Notes. As used in this Section
-------
11.2(H), "Sumitomo Guaranties" means that certain guaranty of CBM in favor
-------
of Sumitomo in connection with the Second Amended and Restated Senior
Secured Credit Agreement between CBC and Sumitomo and that certain guaranty
of CBM in favor of Sumitomo (Dublin) Limited in connection with the Senior
Subordinated Credit Agreement between CBC, et al., and Sumitomo (Dublin)
-- --
Limited.
-33-
<PAGE>
(I) Other Third-Party Approvals. Any and all other consents or
---------------------------
approvals required to consummate the transactions contemplated hereby shall
have been obtained, including (i) any consents or any governmental permits
identified on Schedule 5.4, (ii) approval of the Federal Home Loan Mortgage
------------
Corporation of CBM's qualification as a Federal Home Loan Mortgage
Corporation seller/servicer (and satisfaction by CBM of any conditions and
qualifications required by such approval), and (iii) any approvals from
third parties relating to the Business.
(J) Resignations. The Board of Directors and officers of LJMCal shall
------------
have resigned their positions effective as of the Closing.
(K) Intentionally Deleted.
---------------------
(L) Pre-Closing Transactions.
------------------------
(A) Prior to the Effective Date,
(i) LJM shall have acquired or LJMCal shall have redeemed
the one percent (1%) interest in LJMCal owned by Steven Hammer
for a redemption price determined by LJM in his sole discretion,
and
(ii) subject to the provisions of Section 10.4 (Allocation
------------
of Certain Accounts Receivable and Liabilities), all remaining
LJMCal Cash in such amounts as determined by LJM in his sole
discretion and those accounts receivable which have been mutually
agreed upon in writing by CBC, CBM and LJM shall have been
applied to the redemption of then outstanding stock of LJMCal,
and such redemption shall have been consummated. The remaining
balance of LJMCo Cash will be distributed to LJM, subject to the
provisions of Section 10.4 hereof.
------------
(B) Prior to the Closing (i) LJM, CBC and CBM shall have agreed
upon the Allocation Schedule and the Allocation, Assumption and
Collection Agreement and (ii) LJMCal shall have assigned to LJM the
Receivables and the Shareholder Liabilities allocated to him in the
Allocation Schedule and (iii) LJM shall have assumed the Shareholder
Liabilities allocated to him in the Allocation Schedule.
The transactions set forth in this Section 11.2(L) are referred to as
---------------
the "Pre-Closing Transactions." Any accounts receivable of LJMCal applied
for the redemption set forth above (i) shall be accounts receivable that
are reflected on the LJMCal Balance Sheet or on the accounting records of
LJMCal as of June 30, 1996 and represent valid obligations arising from
sales actually made or services actually performed in the Ordinary Course
of Business, (ii) will not increase the percentage that the reserves
represent of the accounts receivable of LJMCal as of the Closing Date or
that the reserves reflected in the LJMCal Balance Sheet represented of the
accounts receivable reflected therein and will not represent a material
adverse change in the composition of such accounts receivable in terms of
aging. Notwithstanding any other provision of this Agreement, the
distributions to LJM pursuant to this Section 11.2(L) shall be in an amount
---------------
such that, after such distributions are made, on the Closing Date LJMCal
will have a remaining amount of Cash and Cash Equivalents equal to all then
Existing Liabilities. The redemption provided for herein shall be deemed
to be simultaneous with the purchase and sale of all the outstanding shares
of capital stock of
-34-
<PAGE>
LJMCal pursuant to Article 2 hereof as a single integrated transaction and
shall not be deemed to be equivalent to a dividend.
(M) Absence of Liabilities. Notwithstanding anything to the contrary
----------------------
set forth herein and regardless of whether any Liability is disclosed
herein or in the Schedules attached hereto or whether the representations
and warranties set forth herein contain any limitations or qualifications,
as of the Closing Date (and following the assumption by LJM of the
Shareholder Liabilities), LJMCal will not have any Liabilities other than
(i) Liabilities which CBM has specifically agreed in writing to assume
pursuant to Sections 10.4 (Assignment of Certain Accounts Receivable and
-------------
Liabilities) and 11.2(N) (Allocation, Assumption and Collection Agreement)
-------
of this Agreement and (ii) Existing Liabilities determined in accordance
with GAAP as to which LJMCal has immediately after the Closing (without
giving effect to any obligation or action by the CB Companies) unrestricted
cash or Cash Equivalents equal to the amount of such Existing Liabilities.
(N) Allocation, Assumption and Collection Agreement. LJM shall have
-----------------------------------------------
entered into an Allocation, Assumption and Collection Agreement, in form
and substance satisfactory to CBC and CBM, pursuant to which LJM will
assume all of the Shareholder Liabilities.
(O) LJMCo Stock Purchase Agreement Conditions. All conditions
-----------------------------------------
precedent to the obligations of any CB Company under the LJMCo Stock
Purchase Agreement shall have been satisfied or waived and the transactions
contemplated by the LJMCo Stock Purchase Agreement shall have been
consummated.
(P) Certain Write-offs. LJMCal shall have written-off as a charge to
------------------
its earnings certain items set forth in writing by CBC and delivered to
LJMCal.
(Q) General Release. Each of LJM and JMB shall have executed and
---------------
delivered to CBC and CBM a General Release in the form of Exhibit G to the
---------
LJMCo Stock Purchase Agreement.
(R) CBM Employment Agreements. Each incentively compensated employee
-------------------------
of LJMCal designated by CBC shall have executed and delivered to CBM an
employment agreement substantially in the form of CBM's standard employment
agreement.
11.3 Conditions to Obligations of LJM. The obligations of LJM to effect
--------------------------------
the transactions contemplated hereby are subject to the satisfaction on or prior
to the Closing Date of the following additional conditions unless waived by LJM:
(A) Representations and Warranties. The representations and
------------------------------
warranties of CBC and CBM set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as if
made at and as of the Closing Date, except as otherwise contemplated by
this Agreement, and LJM shall have received a certificate signed by the
Chief Executive Officer of each of CBC and CBM to such effect.
(B) Performance of Obligations of the CB Companies. CBC and CBM shall
----------------------------------------------
have performed in all material respects all obligations required to be
performed by them under this Agreement prior to the Closing Date, and LJM
shall have
-35-
<PAGE>
received a certificate signed by the Chief Executive Officer of each of CBC
and CBM to such effect.
(C) Opinion of Counsel to CBC and CBM. LJM shall have received an
---------------------------------
opinion dated the Closing Date of Pillsbury Madison & Sutro LLP, outside
-----------------------------
counsel to CBC and CBM, in substantially the form of Exhibit H to the LJMCo
---------
Stock Purchase Agreement.
(D) No Material Adverse Change. Since December 31, 1995, there shall
--------------------------
have been no changes in the condition (financial or otherwise), business,
prospects, employees, operations, obligations or liabilities of the CB
Companies which, in the aggregate, have had or may be reasonably expected
to have a materially adverse effect on the financial condition, business or
results of operations of the CB Companies on a consolidated basis.
(E) Employment Agreement. CBM and LJM shall have entered into the LJM
--------------------
Employment Agreement in the form of Exhibit D to the LJMCo Stock Purchase
---------
Agreement.
(F) Intentionally Deleted.
---------------------
(G) Intentionally Deleted.
---------------------
(H) LJMCo Stock Purchase Agreement Conditions. All conditions
-----------------------------------------
precedent to the obligations of LJM under the LJMCo Stock Purchase
Agreement shall have been satisfied or waived and the transactions
contemplated by the LJMCo Stock Purchase Agreement shall have been
consummated.
(I) Intentionally Deleted.
---------------------
ARTICLE 12
SURVIVAL AND INDEMNIFICATION
----------------------------
12.1 Survival. Each of the representations, warranties, covenants and
--------
agreements of each of the CB Companies and LJM (but not LJMCal which shall have
no liability for any Losses resulting from a breach of this Agreement after the
Closing Date) contained in this Agreement (including those made in the Exhibits
and Schedules hereto), any updates to the Schedules pursuant to Sections 8.9 or
------------
9.5 hereof, the certificates delivered pursuant to Sections 11.2(A), 11.2(B),
- --- -------- ------- -------
11.3(A) and 11.3(B) hereof and any other document or certificate delivered
- ------- -------
pursuant to this Agreement or the LJMCo Stock Purchase Agreement shall be deemed
renewed by such Party at the Closing as if made at such time and shall survive
the Closing and shall continue in full force and effect thereafter, even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty at the time of the Closing, unless, subject to Sections 8.9 and 9.5
------------ ---
hereof, such misrepresentation or breach is disclosed in an Exhibit or Schedule
hereto or any updates to the Schedules pursuant to Sections 8.9 and 9.5 hereof.
------------ ---
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<PAGE>
12.2 Indemnification by LJM.
----------------------
(A) Except as otherwise expressly provided in this Section 12.2, on and
------------
after the Closing Date, LJM shall defend, indemnify and hold harmless each CB
Company, and each of their respective Affiliates, officers, directors,
employees, agents, successors and assigns (collectively, "CBC's Indemnified
Persons"), and shall reimburse CBC's Indemnified Persons, for, from and against,
each and every demand, claim, loss (which shall include any diminution in
value), liability, judgment, and damage (and costs and expenses, including
attorneys' fees, but only as provided in Section 14.12) (collectively, "Losses")
-------------
imposed on or incurred by CBC's Indemnified Persons, directly or indirectly,
relating to, resulting from or arising out of (i) any inaccuracy in any
representation or warranty in any respect, whether or not CBC's Indemnified
Persons relied thereon or had knowledge thereof (unless such inaccuracy is
disclosed in an Exhibit or Schedule hereto), or any breach or nonfulfillment of
any covenant, agreement or other obligation of LJM or LJMCal under this
Agreement, any Schedule or Exhibit hereto, or any certificate or other document
delivered or to be delivered pursuant hereto (ii) any Existing Liabilities to
the extent LJMCal did not have an amount of unrestricted cash or Cash
Equivalents at least equal to all Existing Liabilities, (iii) any Shareholder
Liability which is not an Existing Liability and (iv) the failure of LJM to
fully perform such Shareholder Liabilities as they become due or any breach or
nonfulfillment of any covenant, agreement or obligation of the Shareholders
pursuant to the Allocation Schedule or the Allocation, Assumption and Collection
Agreement.
(B) LJM shall have no liability under Section 12.2(A) in the case of
---------------
clause (i) of the first sentence of Section 12.2(A) and in the case of
---------------
Shareholder Liabilities (other than Vacation Liability) which are not Existing
Liabilities pursuant to clause (iii) of Section 12.2(A) unless and until the
---------------
aggregate of all Losses relating thereto, when combined with Losses relating to
clause (i) of the first sentence of Section 12.2(A) of the LJMCo Stock Purchase
---------------
Agreement and Losses relating to Shareholder Liabilities (as defined in the
LJMCo Stock Purchase Agreement) which are not Vacation Liabilities (as defined
in the LJMCo Stock Purchase Agreement) and which are not Existing Liabilities
---
(as defined in the LJMCo Stock Purchase Agreement) pursuant to clause (iii) of
Section 12.2(A) of the LJMCo Stock Purchase Agreement, exceeds $100,000 (the
- ---------------
"CBC Minimum Amount"), in which event LJM shall be liable for all Losses,
irrespective of the CBC Minimum Amount. Notwithstanding any other provision of
this Agreement, the CBC Minimum Amount shall not apply to clauses (ii) or (iv)
of the first sentence of Section 12.2(A), to any Vacation Liability or
---------------
the obligation of LJM to pay Vacation Liability pursuant to Section 12.17
-------------
(Vacation) hereof or the Allocation Schedule or to Shareholder Liabilities which
are also Existing Liabilities, regardless of whether any Losses relating thereto
may also constitute a Loss arising from any matter described in clause (i) of
the first sentence of Section 12.2(A).
---------------
(C) Any Loss resulting from or arising out of a Shareholder Liability
which is not an Existing Liability will be net of any insurance proceeds
received by CBM from a third party carrier, but shall include (i) any Losses
covered by self-insurance arrangements by LJMCal, CBC or any Affiliates thereof
and any reserves established thereunder and (ii) any costs incurred in
connection with insurance and third party recoveries, premium adjustments
(retrospective and experience-based) and indemnification obligations to third
parties.
12.3 Indemnification by CBC. Except as otherwise expressly provided in
----------------------
this Section 12.3, on or after the Closing Date, CBC shall defend, indemnify
------------
and hold harmless LJM and each of his successors, heirs and assigns (LJM and
such other persons, collectively "Shareholders Indemnified Persons") and shall
reimburse LJM Indemnified Persons for, from and against all Losses imposed on or
incurred by LJM Indemnified Persons, directly or indirectly, relating to,
resulting from
-37-
<PAGE>
or arising out of (A) any inaccuracy in any representation or warranty in any
respect, whether or not Shareholders Indemnified Persons relied thereon or had
knowledge thereof (unless such inaccuracy is disclosed in an Exhibit or Schedule
hereto), or any breach or nonfulfillment of any covenant, agreement or other
obligation of CBC or CBM under this Agreement, any Schedule or Exhibit hereto or
any certificate or other document delivered or to be delivered pursuant hereto
(including under the Allocation Schedule and the Allocation, Assumption and
Collection Agreement) and (B) any Liability (other than a Shareholder Liability)
specifically allocated to CBC or CBM in the Allocation Schedule.
12.4 CBC's Right of Set-Off.
----------------------
(A) In the event a CBC Indemnified Person incurs a Loss or otherwise
becomes entitled to any amounts under this Article 12 (subject to the
----------
provisions set forth in Section 12.2 regarding CBC's Minimum Amount), CBC
------------
shall notify LJM in writing of such Loss or other amount (a "Claim Notice")
specifying in reasonable detail the amount of such Loss or other amount.
LJM shall thereafter have ten (10) business days after receipt of such
Claim Notice to pay to CBC the entire amount of such Loss or other amount.
In the event LJM does not pay such amount within that time, the CB
Companies may set off such Loss or other amount against amounts otherwise
payable under the Notes or the Guaranty. Any such set-off shall be
exercised with respect to all the Notes pro rata based on the then
outstanding principal balance of the Notes. The exercise of such right of
set-off by the CB Companies, whether or not ultimately determined to be
justified, shall not constitute a breach of this Agreement or an event of
default by CBC or CBM under the Notes, the Guaranty or any other instrument
securing the Notes and shall not entitle the payee to accelerate any
amounts due under the Notes.
(B) Any amount set off against the Notes under subsection (A) above,
shall be set off first, against the aggregate unpaid principal amount of
the Notes, which shall be reduced accordingly, and second, against any
accrued but unpaid interest. The quarterly principal payments due under the
Notes shall not be reduced as a result of such principal reduction,
however, the quarterly interest payments due thereunder shall be calculated
based on such reduced principal amount.
(C) In the event the Contingent Notes are terminated or canceled
pursuant to Section 4 of the Contingent Notes, at CBC's option either
---------
(i) LJM and JMB shall jointly and severally reimburse CBM for all Excess
Contingent Payments within ten (10) days of such cancellation or (ii) CBM
shall be entitled to set off the amount of all Excess Contingent Payments
against any remaining outstanding Notes, pro rata based on the principal
amount of each such Note. As used herein, an Excess Contingent Payment
means (i) any prior set-off against the Contingent Notes and (ii) any
amount paid pursuant to such Contingent Notes following the occurrence of
an event which with notice or the passage of time or both allowed
cancellation of such Contingent Notes pursuant to Section 4 thereof, plus
---------
from the date of such event calculated at a rate of 10% per annum.
(D) Neither the exercise of nor the failure to exercise such right of
set off shall constitute an election of remedies nor limit the CB Companies
in any manner in the enforcement of any other remedies that may be
available to them.
-38-
<PAGE>
12.5 Notice and Defense of Third-Party Claims. If any action, claim or
----------------------------------------
proceeding shall be brought or asserted under this Section 12.5 against an
------------
indemnified party or any successor thereto (the "Indemnified Person") in respect
of which indemnity may be sought under this Article 12 from an indemnifying
----------
person or any successor thereto (the "Indemnifying Person"), the Indemnified
Person shall give prompt written notice of such action or claim to the
Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all expenses; except that any delay or failure to so notify the
Indemnifying Person shall relieve the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that it is prejudiced by reason of such
delay or failure. The Indemnified Person shall have the right to employ separate
counsel in any of the foregoing actions, claims or proceedings and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Person unless both the Indemnified
Person and the Indemnifying Person are named as parties and the Indemnified
Person shall in good faith determine that the representation by the same counsel
is inappropriate. In the event that the Indemnifying Person, within ten days
after notice of any such action or claim, fails to assume the defense thereof,
the Indemnified Person shall have the right to undertake the defense, compromise
or settlement of such action, claim or proceeding for the account of the
Indemnifying Persons, subject to the right of the Indemnifying Person to assume,
at its expense, the defense of such action, claim or proceeding with counsel
satisfactory to the Indemnified Person at any time prior to the settlement,
compromise or final determination thereof. Anything in this Article 12 to the
----------
contrary notwithstanding, the Indemnifying Person shall not, without the
Indemnified Person's prior written consent, settle or compromise any action or
claim or consent to the entry of any judgment with respect to any action, claim
or proceeding for anything other than money damages paid by the Indemnifying
Person. The Indemnifying Person may, without the Indemnified Person's prior
written consent, settle or compromise any such action, claim or proceeding or
consent to entry of any judgment with respect to any such action or claim that
requires solely the payment of money damages by the Indemnifying Person and that
includes as an unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Person from all liability with respect to such
action, claim or proceeding.
12.6 Limitation. An Indemnifying Person shall have no liability under this
----------
Article 12 unless notice of a claim for indemnity, or notice of facts as to
- ----------
which an indemnifiable Loss is expected to be incurred, shall have been given
prior to ninety days after the expiration of the appropriate statute of
limitations with respect thereto, as the same may be extended from time to time
by the Indemnifying Person; provided however, that the CB Companies may give
-------- -------
notice of and may make a claim relating to the outstanding capital stock of
LJMCal or the ownership thereof at any time.
12.7 Exclusivity. Subject to the provisions of Section 12.4 (CBC's Right
----------- ------------
of Set-Off), after the Closing, the provisions of this Article 12 shall be the
----------
exclusive basis for the assertion of claims by or imposition of liability on the
parties hereto arising under or as a result of this Agreement, the Notes, the
Guaranty, the General Release and the transactions contemplated by each of the
foregoing; provided however, that nothing herein shall preclude any Party hereto
-------- -------
from asserting a claim for equitable remedies under Section 14.11 (Dispute
-------------
Resolution) hereof.
-39-
<PAGE>
ARTICLE 13
TERMINATION
-----------
13.1 Termination. This Agreement may be terminated by written notice given
-----------
prior to or at the Closing Date:
(A) At any time prior to the Closing Date, by mutual written consent
of CBC, CBM and LJM;
(B) by either CBC or CBM, on the one hand, or LJM, on the other hand,
if there has been a material breach by the other Party or its Affiliates of
any representation or warranty contained herein or in the LJMCo Stock
Purchase Agreement or in the due and timely performance of any covenant or
agreement contained herein or in the LJMCo Stock Purchase Agreement, and
such breach has not been promptly waived;
(C) by either CBC, CBM or LJM if the transactions contemplated hereby
and by the LJMCo Stock Purchase Agreement shall not have been consummated,
other than through failure of any such Party to fulfill its obligations
hereunder or thereunder, on or before July 8, 1996 or such other date upon
which the parties may mutually agree;
(D) by either CBC, CBM or LJM if (1) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated hereby or by the LJMCo Stock
Purchase Agreement or (2) any Governmental Entity takes any action or
enacts, promulgates or issues or deems applicable to the transactions
contemplated hereby or by the LJMCo Stock Purchase Agreement any statute,
rule, regulation or order which would make consummation of the
transactions contemplated hereby or by the LJMCo Stock Purchase Agreement
illegal;
(E) by either CBC, CBM or LJM if any Governmental Entity takes any
action or enacts, promulgates or issues or deems applicable to the
transactions contemplated hereby or by the LJMCo Stock Purchase Agreement,
any statute, rule, regulation or order which would (1) prohibit CBC's or
CBM's ownership or operation of all or a material portion of the business
or assets of LJMCo, LJMCal or any of their respective Subsidiaries taken as
a whole, or compel CBC, CBM, LJMCo or LJMCal to dispose of or hold separate
all or a material portion of the business or assets of CBC, CBM, LJMCo or
LJMCal, as a result of the transactions contemplated hereby or by the LJMCo
Stock Purchase Agreement or (2) render CBC, CBM, LJM or JMB unable to
consummate the transactions contemplated hereby or by the LJMCo Stock
Purchase Agreement, except for any waiting period provisions;
(F) (i) by CBC or CBM if all the conditions set forth in Sections 11.1
-------------
(Conditions Precedent) and 11.2 (Conditions to the Obligations of CBC and
----
CBM) of this Agreement or Sections 11.1 (Conditions Precedent) or 11.2
------------- ----
(Conditions to the Obligations of CBC and CBM) of the LJMCo Stock Purchase
Agreement shall not have been satisfied on or before the Closing Date (or
the Effective Date in the case of conditions required to be satisfied on or
before the Effective Date), other than through failure of CBC or CBM to
fully comply with their obligations hereunder or thereunder, and shall not
have been waived by CBC or CBM on or before such date;
-40-
<PAGE>
(ii) by LJM, if all the conditions set forth in Sections 11.1
-------------
(Conditions Precedent) and 11.3 (Conditions to the Obligations of LJM) of
----
this Agreement or Sections 11.1 (Conditions Precedent) or 11.3 (Conditions
------------- ----
to the Obligations of LJM) of the LJMCo Stock Purchase Agreement shall not
have been satisfied on or before the Closing Date, other than through
failure of LJM or JMB to fully comply with their obligations hereunder or
thereunder, and shall not have been waived by LJM or JMB on or before such
date;
(G) by CBC if any supplement or update to the Schedules to this
Agreement or the LJMCo Stock Purchase Agreement contains disclosures of any
fact or condition which makes untrue, or shows to have been untrue, in any
material respect, any representation or warranty or other statement of
LJMCal or LJM contained in this Agreement or the LJMCo Stock Purchase
Agreement or in the Schedules hereto or thereto or shows a covenant or
agreement of LJMCal or LJM contained herein or a covenant or agreement of
LJMCo or the Shareholders contained therein to have been breached in any
material respect;
(H) by LJM if any supplement or update to the Schedules to this
Agreement or the LJMCo Stock Purchase Agreement contains disclosures of
any fact or condition which makes untrue or shows to have been untrue, in
any material respect, any representation or warranty or other statement of
any of the CB Companies contained in this Agreement or the LJMCo Stock
Purchase Agreement or in the Schedules hereto or thereto or shows a
covenant or agreement of any of the CB Companies contained herein or
therein to have been breached in any material respect; or
(I) By CBC, CBM or LJM if any event has occurred under Article 13
----------
(Termination) of the LJMCo Stock Purchase Agreement which would allow such
Party to terminate the LJMCo Stock Purchase Agreement and such Party has
terminated the LJMCo Stock Purchase Agreement.
13.2 Effect of Termination.
---------------------
(A) In the event of termination of this Agreement by either LJM or CBC
or CBM as provided in Section 13.1, this Agreement shall forthwith become
------------
void and there shall be no liability or obligation on the part of the
parties hereto or their respective officers or directors except (i) to the
extent such termination results from a breach by any such Person of its
representations, warranties, covenants or agreements set forth in this
Agreement (ii) the last two sentences of Sections 8.7 and 9.3 (Access to
------------ ---
Information; Confidentiality), and (iii) the obligations set forth in
Sections 13.2(B), 14.11 (Dispute Resolution) and Article 14.7 (Expenses).
---------------- ----- ------------
(B) Notwithstanding anything to the contrary in this Section, to the
extent that such termination occurs pursuant to Section 13.1(B), the
---------------
terminating Party shall be entitled to recover from the defaulting Party
the sum of one hundred thousand dollars ($100,000) as liquidated damages
(the "Liquidated Damages") and not as a penalty, unless the terminating
Party is in material breach of this Agreement. The terminating Party
shall, upon receipt of the Liquidated Damages, be precluded from exercising
any other right or remedy available under this Agreement or applicable law.
-41-
<PAGE>
ARTICLE 14
MISCELLANEOUS
-------------
14.1 Entire Understanding. This Agreement (including the Recitals,
--------------------
Schedules and Exhibits hereto) and the other agreements and instruments, the
execution and delivery of which are provided for herein, constitutes the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and terminates and supersedes any and all prior agreements,
arrangements and understandings, both oral and written, among the parties hereto
concerning the subject matter hereof .
14.2 Waiver and Amendment. No waiver, amendment, modification or change of
--------------------
any provision of this Agreement shall be effective unless and until made in
writing and signed by CBC, CBM (by a duly authorized officer other than LJM or
JMB or any member of LJM's or JMB's family) and LJM. No waiver, forbearance or
failure by any Party of its right to enforce any provision of this Agreement
shall constitute a waiver or estoppel of such Party's right to enforce any other
provision of this Agreement or a continuing waiver by such Party of compliance
with any provision.
14.3 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
14.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be original, but all of which
together shall constitute one and the same instrument.
14.5 Intentionally Deleted.
---------------------
14.6 Merger of Documents. This Agreement and all agreements and documents
-------------------
contemplated hereby constitute one agreement and are interdependent upon each
other in all respects.
14.7 Incorporation of Schedules. All Exhibits and Schedules hereto are by
--------------------------
this reference incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
14.8 Interpretation. The provisions of this Agreement are intended to be
--------------
interpreted and construed in a manner so as to make such provisions valid,
binding and enforceable. In the event that any provision of this Agreement is
determined to be partially or wholly invalid, illegal or unenforceable, then
such provision shall be deemed to be modified or restricted to the extent
necessary to make such provision valid, binding and enforceable, or, if such
provision cannot be modified or restricted in a manner so as to make such
provision valid, binding and enforceable, then such provision shall be deemed to
be excised from this Agreement and the validity, binding effect and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any manner. Except pursuant to the Employment Agreement,
nothing in this Agreement shall be interpreted or construed as creating,
expressly or by implication, a partnership, joint venture, agency relationship
or employment relationship between the parties hereto or any of their respective
officers, directors, agents, employees or representatives.
14.9 Notices. All notices, requests, demands and other communications
-------
under this Agreement shall be in writing and shall be deemed to have been
delivered three business days after having been mailed in a general or branch
post office and enclosed in a registered or certified
-42-
<PAGE>
post-paid envelope; one business day after having been sent by overnight
courier; when delivered to a telegraph company or when scanned graphically or
otherwise by telegraphic communications equipment of the sending party on a
business day, or otherwise on the next succeeding business day thereafter; and,
in each case, addressed to the respective parties at the addresses stated below
or to such other changed addresses the parties may have fixed by notice as
provided herein:
If to LJM:
Lawrence J. Melody
506 Ramblewood
Houston, Texas, 77079
Telephone: (713) 497-3986
Telecopier: (713) 497-4305
and: John M. Bradley
311 Vanderpool
Houston, TX 77024
Telephone: (713) 787-1915
Telecopier: (713) 787-1998
With a copy to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002
Attention: Fred H. Dunlop
Telephone: (713) 229-1234
Telecopier: (713) 229-1522
If to the CB Companies:
CB Commercial Mortgage Company, Inc.
533 South Fremont Avenue
Los Angeles, CA 90071
Attention: James J. Didion
Telephone: (213) 613-3515
Telecopier: (213) 613-3015
-43-
<PAGE>
With copies to:
CB Commercial Mortgage Company, Inc.
533 South Fremont Avenue
Los Angeles, CA 90071
Attention: Walter V. Stafford
Telephone: (213) 613-3588
Telecopier: (213) 613-3015
and
Pillsbury Madison & Sutro LLP
725 S. Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attention: Peter V. Leparulo
Telephone: (213) 488-7100
Telecopier: (213) 629-1033
14.10 Successors and Assigns. This Agreement shall not be assigned or
----------------------
assignable by any Party without the prior written consent of each other Party.
Subject to the preceding sentence, each term and provision of this Agreement
shall be binding upon and enforceable against and inure to the benefit of any
successors or assigns of CBC and CBM and any heirs, representatives, successors
or assigns of LJM. Nothing in this Agreement, expressed or implied, is intended
to confer on any Person other than the Parties and their respective successors
and assigns any rights or remedies under or by reason of this Agreement.
Without limiting the generality of the foregoing, at the effective time of the
merger or consolidation of CBM and LJMCal with and into LJMCo pursuant to this
Agreement and the LJMCo Stock Purchase Agreement, this Agreement shall be
binding upon and inure to the benefit of LJMCo as the surviving corporation.
14.11 Dispute Resolution. Any dispute arising out of or relating to this
------------------
Agreement, the LJMCo Stock Purchase Agreement (or any Exhibit or Schedule hereto
or thereto or any other certificate delivered pursuant to this Agreement,
including without limitation the Notes, the Guaranty, the Covenants Not to
Compete, the Employment Agreement, the Trademark Agreement and the General
Release) or the transactions contemplated hereby or thereby or the breach,
termination or validity hereof or thereof, shall, including any dispute based in
whole or in part on tort or other non-contractual principles of law, shall be
resolved in the following manner:
(A) Any party may give written notice to the other parties of any
dispute which has arisen. Any other party may give notice within five (5)
business days of receipt of the first notice of any additional dispute(s),
all to the end that the parties may be reasonably aware of the matters in
dispute.
(B) The parties to such dispute shall use all reasonable efforts to
resolve the dispute through direct discussions within 30 days of the first
written notice that there is such a dispute.
(C) If no amicable settlement is reached as a result of the
procedure in subparagraph (B) hereof, the matter shall be fully and finally
resolved by arbitration conducted expeditiously by a single arbitrator in
accordance with the Rules for Non-Administered Arbitration of Business
Disputes promulgated by the CPR Institute for Dispute Resolution (formerly
Center for Public Resources). No arbitrator may serve who, during the
three-year period immediately preceding the date the arbitration notice is
filed, has had a
-44-
<PAGE>
material personal or financial relationship with any participant to the
dispute or any Affiliate of any such participant. The place of arbitration
shall be (i) Denver or Phoenix, as designated by the Party commencing the
arbitration, or (ii) any other city mutually agreed upon by the Parties.
The arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. (S)(S) 1-16 and judgment upon the award of the arbitrator may be
entered by any court having jurisdiction thereof. The arbitrator is not
empowered to act as amiable compositeur or to award damages in excess of
compensatory damages, and each Party hereto hereby waives any claim it may
otherwise have to money damages in excess of direct compensatory damages.
This Section 14.11 shall not apply to actions seeking enforcement of this
-------------
Agreement to arbitrate or to enforce Sections 8.7 and 9.3 (Access to
------------ ---
Information; Confidentiality) hereof as to confidentiality, Section X
---------
(Proprietary Information; Non-Solicitation) of the Employment Agreement,
Sections 3 (Non-Competition) or 4 (Trade Secrets; Non-Solicitation) of the
---------- -
Covenants Not to Compete or the Trademark Agreement, with respect to any
request for provisional or interim relief brought prior to the appointment
of an arbitrator, provided that an arbitration notice has been filed prior
to such action being brought.
(D) The dispute resolution proceedings contemplated by this provision
shall be as confidential and private as permitted by law. To that end, the
parties shall not disclose the existence, content or results of any claims
hereunder or proceedings conducted in accordance with this provision, and
materials submitted in connection with such proceedings shall not be
admissible in any other proceeding, provided, however, that this
confidentiality provision shall not prevent a petition to vacate or enforce
an arbitral award, and shall not bar disclosures required by law. The
parties agree that any decision or award resulting from proceedings in
accordance with this dispute resolution provision shall have no preclusive
effect in any other matter involving third parties.
14.12 Attorneys' Fees. If an arbitration or other legal proceeding is
---------------
brought to enforce or interpret the provisions of this Agreement or any other
agreement or instrument provided for herein or as to the rights or obligations
of any Party to this Agreement or such other agreement or instrument, the
prevailing Party in such action shall be entitled to recover as an element of
such Party's costs of suit, and not as damages, a reasonable attorney's fee to
be fixed by the court or the arbitrator. The prevailing Party shall be the
Party who is entitled to recover its costs of suit as ordered by the arbitrator,
the court or by applicable law or court rules. A Party not entitled to recover
its costs shall not recover attorney's fees.
14.13 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York, without regard to
principles of conflict of laws.
14.14 Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed to refer also to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
Schedules to this Agreement shall not be deemed adequate to disclose an
exception to a representation or warranty made herein unless the Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in detail. Without limiting the generality of the foregoing, the
mere listing of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
-45-
<PAGE>
representation or warranty has to do with the existence of a document or other
item itself). The Parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) which the Party has not breached shall not detract from nor
mitigate the fact that the Party is in breach of the first representation,
warranty or covenant.
14.15 Cooperation. Each Party hereto shall cooperate with the other Party
-----------
and shall take such further action and shall execute and deliver such further
documents as may be necessary or desirable in order to carry out the provisions
and purposes of this Agreement.
14.16 Expenses. Except as otherwise expressly provided herein, each of
--------
the CB Companies and LJM will pay their own respective costs and expenses in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including, but not limited to, attorneys' fees, accountants' fees and other
professional fees and expenses. Any filing fees under the HSR Act shall be paid
in accordance with Section 13.18 of the LJMCo Stock Purchase Agreement.
-------------
14.17 Representation by Counsel. Each Party hereto represents and agrees
-------------------------
with the other, that it has been represented by independent counsel of its own
choosing, that it has had the full right and opportunity to consult with such
counsel, that it availed itself of this right and opportunity, that such Party
or its authorized officers have carefully read and fully understand this
Agreement in its entirety, that each is fully aware of the contents thereof and
its meaning, intent and legal effect, and that such Party or its authorized
officer is competent to execute this Agreement and has executed this Agreement
free from coercion, duress or undue influence.
[Signature Page Follows]
-46-
<PAGE>
IN WITNESS WHEREOF, the Parties have each executed and delivered this Stock
Purchase Agreement as of the day and year first above written.
CB COMMERCIAL REAL ESTATE GROUP, INC.
By /s/ James J. Didion
-----------------------------------
Name James J. Didion
---------------------------------
Title Chief Executive Officer
--------------------------------
CB COMMERCIAL MORTGAGE COMPANY, INC.
By /s/ James J. Didion
-----------------------------------
Name James J. Didion
--------------------------------
Title Vice President
--------------------------------
/s/ Lawrence J. Melody
-------------------------------------
LAWRENCE J. MELODY
<PAGE>
CONSENT OF SPOUSE OF LAWRENCE J. MELODY
---------------------------------------
I, Gwendolyn G. Melody, am the spouse of Lawrence J. Melody, who is a
-------------------
party to the foregoing Stock Purchase Agreement by and among CB Commercial Real
Estate Group, Inc., CB Commercial Mortgage Company, Inc. and Lawrence J. Melody,
my spouse (the "Agreement"). I acknowledge that I have read, know and
understand the contents of the Agreement and the effects thereof. I hereby
consent to the execution and delivery of, approve of and agree to be bound by
the terms, conditions and other provisions of the Agreement, and all other
agreements which are contemplated by or attached as exhibits to the Agreement to
which my spouse is or will become a party, whether entered into before or after
the date of this Consent, to the same extent as if I were a party thereto, and
consent to the performance by the parties of their obligations thereunder.
I agree that my interest, if any, in the assets and liabilities which
are subject to the Agreement (including any community property interest therein)
will be irrevocably bound by the Agreement.
I am aware that the legal, financial and related matters contained in
the Agreement are complex and that I have a right to seek with independent
professional guidance and independent legal counsel with respect to this
Consent. I have either sought such guidance or counsel or determined after
reviewing the Agreement carefully that I waive such right.
Dated: June 26, 1996
/s/ Gwendolyn G. Melody
-------------------------------------
Print Name Gwendolyn G. Melody
---------------------------
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated March 18, 1996, covering the consolidated financial statements of
L. J. Melody & Company and the financial statements of L. J. Melody & Company of
California as of December 31, 1995, included in the Form 8-K and incorporated by
reference in the registration statement on Form S-8 (file numbers 33-39436,
33-40953, 33-44346, 33-73236 and 33-90014) of CB Commercial Holdings, Inc. It
should be noted that we have not audited any financial statements of either
company subsequent to December 31, 1995, or performed any audit procedures
subsequent to March 18, 1996, the date of our report, except with respect to the
matter discussed in the notes labeled "Subsequent Event", as to which the date
is July 12, 1996.
ARTHUR ANDERSEN LLP
July 12, 1996
<PAGE>
EXHIBIT 99.1
L. J. MELODY & COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
TOGETHER WITH AUDITORS' REPORT
<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
March 18, 1996 (except with
respect to the matter discussed
in Note 9, as to which the date
is July 12, 1996)
<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 7)
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.
<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.
<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.
<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 SEC-
registered 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 investors. In addition,
approximately 11 percent of loan placement and brokerage fees and 44 percent of
loan servicing and asset management fees were earned from two separate
investors. 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 Standard Regarding Impairment
- --------------------------------------------
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.
New Accounting Standard Regarding
Accounting for Mortgage Servicing Rights
- ----------------------------------------
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 fiscal 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.
<PAGE>
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of cash and money market mutual funds, the
fair value of which approximates cost.
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.
<PAGE>
2. 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.
3. 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.
4. 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.
5. 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.
<PAGE>
6. 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.
7. LEASES:
-------
Future minimum lease payments for noncancelable operating leases for office
space and equipment approximate $304,000, $49,000, $48,000, $19,000 and $- 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.
8. 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.
9. SUBSEQUENT EVENT:
-----------------
Effective July 1, 1996, CB Commercial Mortgage Company, Inc. (CB Mortgage), a
wholly owned subsidiary of CB Commercial Real Estate Group, Inc. (CB
Commercial), acquired all of the outstanding capital stock of the Company and of
LJMCal. The aggregate purchase price for the Company and LJMCal was $15 million,
of which $9 million was paid in cash and the remainder in senior and contingent
promissory notes. 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.
<PAGE>
EXHIBIT 99.2
L. J. MELODY & COMPANY OF CALIFORNIA
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
TOGETHER WITH AUDITORS' REPORT
<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
respect to the matter discussed
in Note 5, as to which the date
is July 12, 1996)
<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 3)
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.
<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.
<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 BEHALF 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.
<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.
<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 Standard Regarding Impairment
- --------------------------------------------
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.
New Accounting Standard Regarding
Accounting for Mortgage Servicing Rights
- ----------------------------------------
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 fiscal 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. Cash
equivalents are carried at cost, which approximates fair value.
<PAGE>
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.
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. 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.
<PAGE>
3. 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.
4. 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.
5. SUBSEQUENT EVENT:
-----------------
Effective July 1, 1996, CB Commercial Mortgage Company, Inc. (CB Mortgage), a
wholly owned subsidiary of CB Commercial Real Estate Group, Inc. (CB
Commercial), acquired all of the oustanding capital stock of the Company and of
L. J. Melody & Company (LJMCo), an affiliate of the Company that is owned 67
percent by the majority shareholder of the Company. The aggregate purchase price
for the Company and LJMCo was $15 million, of which $9 million was paid in cash
and the remainder in senior and contingent promissory notes. 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.
