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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 X
For the Fiscal Year Ended December 31, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _______________ to __________________
Commission File Number 0-18525
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 52-1616016
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
533 South Fremont Avenue
Los Angeles, California 90071-1798
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (213) 613-3123
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant on March 25, 1997 was 285,739,183.
Number of shares of Common Stock outstanding at March 25, 1997 was
13,347,303.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Founded in 1906, the Company is the largest vertically-integrated commercial
real estate services company in the United States with aggregate 1996 revenue of
$583 million and 230 business unit offices in 108 locations. In addition, the
Company has established exclusive alliances with international commercial real
estate services firms (DTZ in Europe, C.Y. Leung & Company in Hong Kong, China
and Singapore, and Ikoma Corporation in Japan) which have offices in an
additional 134 locations in 31 countries. These alliances have not generated
significant revenues to the Company to date. The Company provides a full range
of services to commercial real estate tenants, owners and investors including:
(i) brokerage (facilitating sales and leases), investment properties
(acquisitions and sales on behalf of investors), corporate services, property
management and real estate market research (collectively "Property and User
Services"), and (ii) mortgage banking (mortgage loan origination and servicing),
investment management and advisory services primarily for pension plans, and
valuation and appraisal services (collectively "Investor Services").
INDUSTRY TRENDS
Over the last ten years, the commercial real estate industry has experienced
various structural changes and more recently has been experiencing a broad
recovery from the real estate "depression" of the early 1990s. Management
believes these factors and the resulting trends, the most important of which are
discussed below, create an opportunity for the Company to leverage its
experience, multi-discipline integrated services, multi-market presence and
brand equity to its competitive advantage.
. RECOVERING COMMERCIAL REAL ESTATE MARKETS.
Coincident with the longer term structural shifts in the commercial real
estate industry, commercial real estate markets in the United States have been
recovering over the last several years, experiencing increased activity in many
product types and geographical market areas. This has been particularly true in
California, where the Company has a significant market presence. National
office and industrial building occupancy levels have generally been rising,
rental rates are beginning to increase and, correspondingly, property values are
increasing.
Geographically, recoveries are underway in a number of major U.S. real estate
markets where the Company has operations, including California, Arizona, Texas,
and the Washington, D.C./Baltimore areas.
. CHANGING COMPOSITION AND NEEDS OF INVESTORS IN AND OWNERS OF COMMERCIAL
REAL ESTATE ASSETS.
Investors in and owners of commercial real estate assets have become
increasingly institutional (including pension funds, life insurance companies,
banks and publicly-held REITs). Simultaneously, their investment and management
needs have become increasingly multi-market due to the fact that the commercial
real estate properties in their portfolios are typically located in numerous
geographic locations. With respect to institutions other than REITs, this
change in the ownership characteristics and management requirements of
institutional real estate investors and owners has fueled the demand for the
growth of multi-service, nationally-oriented real estate service providers. As
most REITs are internally managed and to date generally have outsourced only
their brokerage service needs, their demand for the Company's other real estate
services may be less than that of other institutional investors.
. ONGOING INDUSTRY CONSOLIDATION.
The Company believes that the combination of more intense institutional and
corporate real estate service needs and demands, together with the real estate
"depression" of the early 1990s, has made it imperative that real estate service
firms (i) provide comprehensive, high-quality services, (ii) make significant
investments in corporate infrastructure, including information technology and
professional education, and (iii) have access to sufficient capital
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to support these service and investment needs. These factors have fueled the
current consolidating industry environment, which the Company believes will
motivate local and regional real estate service providers to sell to, or form
alliances with, major national and international companies.
. CONTINUING CORPORATE OUTSOURCING TREND.
Shareholder pressure for higher performance and return on equity within most
American corporations in the 1980s heightened corporate management's awareness
that corporate real estate assets are a major component of corporate net worth.
Simultaneously, with competitive pressures encouraging greater focus on core
businesses, companies have emphasized leaner staffing in non-core activities
and, as a result, outsourced certain non-core activities to third parties. As a
consequence, the demand for multi-discipline, multi-market professional real
estate service firms that provide integrated services capable of supplementing a
corporate real estate department has increased significantly.
. EXPANDING CMBS MARKET.
Historically, the majority of third-party financing for commercial real estate
assets was provided by banks and insurance companies who generally held the
mortgage loans they originated to the maturity date of the mortgage loans. More
recently, Wall Street firms and financial institutions have been providing a
significant amount of third-party mortgage financing, and have been accessing
the public debt markets by issuing CMBS in order to securitize their portfolios
and avoid holding mortgage loans for the long term. The Company believes that
its overall market presence, extensive available market data and access to real
estate transaction deal flow positions its mortgage banking business to benefit
substantially from the expansion of the CMBS market. The Company's national
geographic coverage and mortgage origination capabilities through its L. J.
Melody & Company subsidiary have caused it to become the largest supplier of
commercial mortgages to the CMBS market (almost $1 billion in 1996). In
addition, the Company expects to service a majority of the mortgage loans that
it originated and the profit margin potential for servicing an increasing volume
of mortgage loans may be significant for the Company's mortgage banking
business. The acquisition and subsequent combination with L. J. Melody in July
1996 was a strategic step in substantially expanding the Company's capabilities
in this area. The Company does not currently securitize loans and has no
present intention of doing so.
ACQUISITIONS
As part of its growth strategy, the Company is continually assessing
acquisition opportunities. Management believes that there are significant
opportunities in the fragmented and consolidating real estate services industry
to acquire additional companies to complement and expand the Company's existing
operations. Since the beginning of 1995, the Company has completed three
strategic acquisitions. In July 1996, the Company acquired L. J. Melody &
Company and L. J. Melody & Company of California (collectively "L. J. Melody"),
a nationally-known mortgage banking firm, for $15.0 million. The L. J. Melody
acquisition provides the Company with leadership for its own mortgage banking
business, access to loan sources not previously available to the Company and an
enhanced ability to access the Company's deal flow in its investment properties
and brokerage businesses as a source of mortgage originations. In June 1995,
the Company acquired Westmark Realty Advisors L.L.C. ("Westmark"), an
investment management and advisory business with approximately $3.0 billion of
assets under management, for $37.5 million, plus a supplemental purchase price
component of up to $18.0 million based upon Westmark's adjusted operating
income. The Westmark acquisition increased the Company's presence in a business
area which the Company believes has the potential for significant growth. In
April 1995, the Company acquired Langdon Rieder Corporation ("Langdon Rieder"),
a nationally-known tenant representation firm, for $1.5 million in cash and a
deferred payment of $1.9 million payable over three years. The deferred payment
is subject to forfeiture under certain circumstances. The Langdon Rieder
acquisition strengthened the Company's ability to provide sophisticated tenant
representation services to its corporate clients.
The Company expects to continue its acquisitions program over the next several
years and will focus on acquisitions in its mortgage banking, property
management, and investment management and advisory businesses. The Company will
also consider opportunistic acquisitions for its brokerage and investment
properties businesses. Based upon its historical experience, the Company
believes that seller financing generally will provide 40% to 50%
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of the purchase price for an acquisition, with the balance financed from third-
party borrowings and internally generated cash flow.
Because of the substantial non-cash goodwill and intangible amortization
charges incurred by the Company in connection with acquisitions subject to
purchase accounting and because of interest expense associated with acquisition
financing, management anticipates that future acquisitions may adversely affect
net income. In addition, during the first six months following an acquisition,
the Company believes there are generally significant one-time costs relating to
integrating information technology, accounting and management services and
rationalizing personnel levels (which the Company intends to take as a single
charge at the time of the acquisition to the maximum extent possible).
Management's strategy is to pursue acquisitions that are expected to be
accretive to income before interest expense and provision for amortization of
goodwill and intangibles, if any, resulting from the acquisitions and to
operating cash flows (excluding the costs of integration).
On March 18, 1997, the Company announced that it had signed a non-binding
letter of intent to merge with Koll Real Estate Services, Inc. ("Koll") in a
tax-free reorganization to be accounted for as a purchase. The Company has
agreed to issue 0.85 shares of its common stock for each share of Koll common
stock, which will result in the issuance of approximately 6.0 million shares.
The merger is subject to execution of a definitive agreement and the approval of
stockholders of both companies as well as regulatory approval.
THE COMPANY'S BUSINESSES
Property and User Services
Brokerage
The Company has provided commercial real estate brokerage services since 1906
through the representation of buyers, sellers, landlords and tenants in
connection with the sale and lease of office space, industrial buildings, retail
properties, multi-family residential properties and unimproved land. In 1996,
the Company generated revenue from commercial real estate brokerage services of
approximately $335.4 million representing approximately 19,950 completed
transactions. In 1996, brokerage facilitated over 2,750 sale transactions with
an aggregate estimated total consideration of over $3.7 billion and
approximately 17,200 lease transactions involving aggregate rents, under the
terms of leases facilitated, of over $8.1 billion.
Brokerage services comprise the largest source of revenue for the Company and
provide a foundation for growing the Company's other disciplines which make up
its multi-discipline integrated commercial real estate services. The Company
believes that its position in the brokerage services industry provides a
competitive advantage for all of its lines of business by enabling them to
leverage off brokerage's (i) national network of relationships with owners and
users of commercial real estate, (ii) real-time knowledge of completed
transactions and real estate market trends, and (iii) brand recognition in the
brokerage area.
OPERATIONS. As of December 31, 1996, the Company employed approximately 1,630
brokerage professionals in 79 offices located in most of the largest MSAs in the
United States. The Company maintains a decentralized approach to brokerage
services, bringing significant local knowledge and expertise to each assignment.
Each local office draws upon the broad range of support services provided by the
Company's other business groups, including a national network of market
research, mortgage originations, client relationships and transaction referrals
which the Company believes provide it with significant economies of scale over
many local competitors.
In order to increase market share in its domestic brokerage business, the
Company has implemented a plan to establish "partnerships" with leading local
firms in order to institute geographic coverage in markets that currently are
not being served by the Company. To date, through the "CB Commercial/Partners"
program, the Company has identified approximately 70 markets on which it intends
to focus during the next three years. Through December 31, 1996, the Company
had established ten such partnership-type arrangements in Des Moines, Iowa;
Louisville, Kentucky; Buffalo and Rochester, New York; Pittsburgh, Pennsylvania;
Charleston and Columbia, South Carolina; Memphis, Tennessee; and Madison and
Milwaukee, Wisconsin. Revenue anticipated from this program will be a
combination of an initial fee, fixed annual fees and a percentage of revenue in
excess of a pre-agreed threshold, comparable to a classic franchise program.
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COMPENSATION. Under a typical brokerage services agreement, the Company is
entitled to receive sale or lease commissions. Sale commissions, which are
calculated as a percentage of sales price, are generally earned by the Company
at the close of escrow. Sale commissions typically range from approximately 1%
to 6% with the rate of commission declining as the price of the property
increases. Lease commissions, which are calculated as a percentage of the
minimum rent payable during the term of the lease, are generally earned by the
Company at the commencement of a lease and are not contingent upon the tenant
fulfilling the terms of the lease. In cases where a third-party brokerage firm
is not involved, lease commissions earned by the Company for a new lease
typically range between 2% and 6% of minimum rent payable under the lease
depending upon the value of the lease. For renewal of an existing lease, such
fees are generally 50% of a new lease commission. In sales and leases where a
third-party broker is involved, the Company must typically share 50% of the
commission it would have otherwise received with the third-party broker. The
Company's brokerage sales professionals typically receive 50% of the Company's
share of commissions before costs and expenses.
Investment Properties
Since 1992, investment properties has provided sophisticated strategic
planning for, and execution of, acquisitions and sales of income-producing
properties for its clients. In 1996, the Company completed approximately 1,200
investment property transactions with an aggregate value of over $7.0 billion,
generating total revenues of $130.2 million. On behalf of property owners
seeking to dispose of investment properties, the Company strives to ensure that
the owner achieves the maximum value in the minimum amount of time by providing
services which include (i) accessing the Company's proprietary databases and
other information sources to provide real-time knowledge of available
properties, completed comparable transactions, real estate market trends, and
active investors in the market, and to assist with valuation and buyer
identification, and (ii) designing the appropriate marketing strategy that
allows the owner to target probable buyers or buyer categories. On behalf of
prospective investors, access to the same sources of information provides the
Company's clients with a competitive advantage by enabling the Company's
professionals (i) to identify the geographical areas and specific properties
which are most suitable for the investor and (ii) to advise investors in
negotiations and due diligence.
OPERATIONS. As of December 31, 1996, the Company employed approximately 270
investment properties professionals who exclusively handle acquisitions and
sales of investment properties and are located in 37 offices in the United
States.
A team of professionals with expertise within a given market and property type
is assembled for each investment properties assignment to best accomplish the
client's objectives. As necessary, the team may also include professionals from
the Company's other disciplines. On larger and more complex assignments, the
Company's financial consulting professionals provide sophisticated financial and
analytical resources to the client, the marketing team and the investor. These
services provide the client with in-depth analyses of transaction specific data
as well as real estate market data.
COMPENSATION. Under the typical investment properties agreement, the Company
is entitled to receive sale commissions, which are calculated as a percentage of
sales price and are generally earned by the Company at the close of escrow. In
cases where another real estate broker is not involved, sale commissions earned
by the Company typically range from 1% to 6% of the sales price, with the rate
of commissions generally declining as the sales price increases. In cases where
another firm is involved in the transaction, the Company must typically share up
to 50% of the commission it would have otherwise received with the other firm.
The Company's investment properties professionals typically receive 50% of the
Company's commission before costs and expenses.
Corporate Services
Since 1992, the Company has provided corporate services through CBC/Madison
Advisory Group, assisting corporations in developing and executing multiple-
market real estate strategies. The Company's objective is to establish long-
term relationships with corporations that require continuity in the delivery of
high-quality, multi-market management services and strategic advisory services
including acquisition, disposition and consulting services. Global competition,
the focus on quality, "right-sizing" of corporate organizations and changes in
management philosophy have all contributed to an increased interest in and
reliance on outside third-party real estate
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service providers. Specifically, through contractual relationships, the Company
assists major, multi-market companies in developing and executing real estate
strategies as well as addressing specific occupancy and facilities management
objectives. Corporate services coordinates the utilization of all the Company's
various disciplines to deliver an integrated service to its clients.
Essentially, corporate services expands a client's real estate department and
supports most of the functions involved in a corporate real estate department.
OPERATIONS. CBC/Madison Advisory Group is organized into three geographic
regions in the Eastern, Western and Central areas of the United States, with
each geographic region comprised of consulting, corporate services and team
management professionals who provide corporate service clients with a broad
array of financial, real estate, technological and general business skills. In
addition to CBC/Madison Advisory Group's objective of providing a full range of
corporate services in a contractual relationship, the group will respond to
client requests generated by other Company business groups for significant,
single-assignment acquisition, disposition and consulting assignments that may
lead to long-term relationships.
COMPENSATION. A typical corporate services agreement gives the Company the
right to execute some or all of the client's future sales and leasing
transactions. The commission rate with respect to such transactions frequently
reflects a discount for the captive nature and large volume of the business.
TERM. A typical corporate services agreement includes a stated term of at
least one year and normally contains provisions for extension of the agreement.
Agreements typically include a provision for cancellation by either party, upon
notice, within a specified short time frame.
Property Management
The Company provides value-added property management services for income-
producing properties owned primarily by institutional investors and, as of
December 31, 1996, managed approximately 107 million square feet of commercial
space.
Property management services include maintenance, marketing and leasing
services for investor-owned properties, including office, industrial, retail and
multi-family residential properties. Additionally, the Company provides
construction management services, which relate primarily to tenant improvements.
The Company works closely with its clients to implement their specific goals and
objectives, focusing on the enhancement of property values through maximization
of cash flow. The Company markets its services primarily to long-term
institutional owners of large commercial real estate assets.
OPERATIONS. The Company employs approximately 190 property management
professionals in 31 offices. Most property management services are performed by
management teams located on-site or in the vicinity of the properties they
manage. This provides property owners and tenants with immediate and easily
accessible service, enhancing client awareness of manager accountability. All
personnel are extensively trained and are encouraged to continue their education
through both Company-sponsored and outside training. The Company provides each
local office with centralized corporate resources including investments in
computer software and hardware as described below under the caption "Information
Technology". Property management personnel utilize state-of-the-art computer
systems for accounting, marketing, and maintenance management.
COMPENSATION. Under a typical property management agreement, the Company will
be entitled to receive management fees and lease commissions. The management
fee in most cases is based upon a formula which gives the Company a specified
percentage of the monthly gross rental income collected from tenants occupying
the property under management and, as a result, will increase and decrease as
building rents and occupancies increase and decrease. Many of these property
management agreements also include a stated minimum management fee. The Company
also may be entitled to reimbursement for costs incurred that are directly
attributable to management of the property. Reimbursable costs, which are not
included in the Company's revenue, include the wages of on-site employees and
the cost of field office rent, furniture, computers, supplies and utilities.
The Company pays its property management professionals a combination of salary
and incentive-based bonuses. Lease commissions, which are paid in addition to
the management fee, are similar to those described for brokerage services.
Revenue from leasing services provided to the Company's property management
clients is reflected in brokerage rather than property management revenue since
brokerage professionals are normally engaged to accomplish the leasing.
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TERM. A typical property management agreement contains an evergreen provision
which provides that the agreement remains in effect for an indefinite period,
but enables the property owner to terminate the agreement upon 30 days prior
written notice, which the Company believes to be customary in the commercial
real estate industry.
Real Estate Market Research
Real estate market research services are provided by 15 professionals in
Boston, Massachusetts employed by CB Commercial/Torto Wheaton Research. Real
estate market research services are provided to the Company's other businesses
as well as sold to third-party clients and include (i) data collection and
interpretation, (ii) econometric forecasting, and (iii) evaluating marketing
opportunities and portfolio risk for institutional clients within and across
U.S. commercial real estate markets. The Company's publications and products
provide real estate data for more than 50 of the largest MSAs in the United
States and are sold on a subscription basis to many of the largest portfolio
managers, insurance companies and pension funds in the United States.
Investor Services
Mortgage Banking
The Company provides its mortgage origination and mortgage loan servicing
through L. J. Melody, which was acquired in July 1996 and is based in Houston,
Texas. The Company, on a combined basis with L. J. Melody, originated
approximately $3.25 billion, $2.3 billion and $2.0 billion of mortgages in 1996,
1995 and 1994, respectively. As part of these origination activities, the
Company has special conduit arrangements with affiliates of Merrill Lynch & Co.,
Citicorp, Lehman Brothers and NationsBank which permit it to service the
mortgage loans which it originates. Under these arrangements, the Company
generally originates mortgages in its name, makes certain representations and
warranties based upon representations made to it by the borrower or another
party and immediately sells them into a conduit program. The Company also
originates mortgages into other conduit programs where it does not have
servicing rights. In addition, the Company is a major mortgage originator for
insurance companies having originated, on a combined basis with L. J. Melody,
mortgages in the names of the insurance companies valued at approximately $1.7
billion in 1996. The Company has correspondency arrangements with various life
insurance companies which entitle it to service the mortgage loans it
originates. As of December 31, 1996, 1995 and 1994, the Company, on a combined
basis with L. J. Melody, serviced mortgage loan portfolios of approximately $7.0
billion, $7.3 billion and $7.1 billion, respectively.
OPERATIONS. The Company employs approximately 90 mortgage banking
professionals in 22 offices in the United States. The Company's mortgage loan
originations take place throughout the United States, with support from L. J.
Melody's headquarters in Houston, Texas. All of the Company's mortgage loan
servicing is handled by L. J. Melody in Houston, Texas.
COMPENSATION. The Company typically receives origination fees, ranging from
0.5% for large insurance company mortgage loans to 1.0% for most conduit
mortgage loans. In situations where the Company services the mortgage loans
which it originates, it also receives a servicing fee between .03% and .25%,
calculated as a percentage of the outstanding mortgage loan balance. These
agreements generally contain an evergreen provision with respect to servicing
which provides that the agreement remains in effect for an indefinite period,
but enables the lender to terminate the agreement upon 30 days prior written
notice, which the Company believes to be a customary industry termination
provision. A majority of the Company's 1996 mortgage loan origination revenue,
on a combined basis with L. J. Melody, was from agreements which entitled it to
both originate and service mortgage loans. The Company also originates mortgage
loans on behalf of conduits and insurance companies for whom it does not perform
servicing. The Company's client relationships have historically been long term.
The Company pays its mortgage banking professionals a combination of salary,
commissions and incentive-based bonuses which typically average between 46% and
50% of the Company's loan origination fees.
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Investment Management and Advisory
The Company provides its investment management and advisory services primarily
to tax-exempt corporate and public pension funds through Westmark. Since 1971,
the Company has provided its clients with investment management and advisory
services, including the creation of investment products, raising of investor
capital, identification and acquisition of specific properties and management
and disposition of the assets. As of December 31, 1996, the Company represented
more than 180 clients in 13 commingled funds and a variety of separate accounts.
OPERATIONS. Westmark operates as a separate and independent subsidiary of
the Company, providing advisory services and, as of December 31, 1996, managing
approximately $3.7 billion in tax-exempt capital invested in more than 215
office, industrial and retail properties located in more than 40 major U.S.
markets with an aggregate of more than 38 million square feet. Westmark's
headquarters are located in Los Angeles and it maintains regional offices in
Boston, Dallas, New York City and Washington, D.C. Westmark develops and
markets a variety of investment alternatives designed to meet its client's risk,
reward, and liquidity requirements. Westmark employs approximately 100
professionals who perform the following services for its investors -- market
research and forecasting, acquisition strategy and implementation, portfolio
strategy and management, specific asset management, and development and
dispositions. Westmark uses a state-of-the-art portfolio information system
that integrates property and fund-level accounting with specific asset
management data.
Westmark's investors invest through separate accounts, commingled funds and
real estate operating companies, including limited partnerships. Certain funds
and separate accounts are subject to ERISA regulations and, with respect to such
funds and accounts, Westmark is limited in its ability to employ any affiliated
company, including the Company. Because Westmark must conduct its operations in
compliance with ERISA, where applicable, Westmark maintains both internal and
external control mechanisms to assure compliance.
While Westmark has experienced significant growth in its separate accounts
business, it has been impacted by the industry's adverse investor response to
non-property specific commingled funds. The Company believes that this lack of
investor interest in non-property specific commingled funds has been replaced
with interest in new, more narrowly focused investment vehicles.
COMPENSATION. Westmark's fees are typically higher for managing commingled
and other funds than they are for separate accounts, but all of the fees are
within the ranges indicated below. Westmark receives an annual asset management
fee which is typically 0.5% to 1.2% of the lower of the cost of the assets
managed or their fair market value. When debt is managed, the asset management
fee is at the lower end of the range. Westmark also receives an acquisition fee
when it acquires property or places debt on behalf of a client that is typically
0.5% to 1.0% of funds invested or debt placed (the placement fee for debt is at
the low end of this range). In some, but not all cases, Westmark receives an
incentive fee when an asset or a fund is sold. Typically, the incentive fee
will only be payable after the client has achieved a specified real (adjusted
for inflation) rate of return of 8% to 12% and is a percentage of value in
excess of that return. In recent years, Westmark has experienced reduced rates
of asset management and acquisition fees.
TERM. The term of Westmark's advisory agreements vary by the form of
investment vehicle utilized. In the commingled funds, the term is generally 10
years with extension and early termination provisions based upon a vote of the
investors. Over the next several years several commingled funds formed in the
1980s will be liquidated. In the Company's separate account relationships, the
agreements are generally one to three years in term, with "at will" termination
provisions. In general, both the capital managed by Westmark and its client
relationships are long-term in nature.
Valuation and Appraisal Services
The Company's valuation and appraisal services business delivers sophisticated
commercial real estate valuations through a variety of products including market
value appraisals, portfolio valuation, discounted cash flow analyses, litigation
support, feasibility land use studies and fairness opinions. At December 31,
1996, the Company's appraisal staff had more than 80 professionals with
approximately 50% of the staff holding the MAI
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professional designation. The business is operated nationally through 23
regional offices and its clients are generally corporate and institutional
portfolio owners and lenders.
INTERNATIONAL ALLIANCES AND ACTIVITIES
In response to growing cross-border capital flows for investment in commercial
real estate, and the multi-national strategies of the Company's U.S. corporate
clients, the Company has developed exclusive alliances with leading firms in
various countries in Europe, the Far East and Southeast Asia, Australia and New
Zealand. The relationships with DTZ, a consortium of 20 real estate advisory
firms operating in 15 countries in Europe as well as in Australia, New Zealand
and elsewhere, C.Y. Leung & Company, a locally-owned firm operating in Hong
Kong, China, Singapore and Malaysia, and, commencing in February 1997, Ikoma
Corporation, a commercial real estate services firm in Japan, have allowed the
Company to provide global corporate service capabilities and significantly
strengthen its client relationships in the United States. These relationships
are reciprocal referral arrangements whereby the Company's clients who require
services in a geographical region serviced by its alliance partners must be
referred by the Company to its alliance partner operating in that region.
Conversely, the Company's alliance partners are obligated to refer their clients
with commercial real estate needs in the United States to the Company. Revenues
from the Company's international activities currently represent a small portion
of total revenues. In addition to cross-border corporate space acquisition and
disposition activity, Westmark is exploring the development of new cross-border
investment products with DTZ and C.Y. Leung.
INFORMATION TECHNOLOGY
In order to enhance the quality of its real estate services and improve the
productivity of its employees, the Company has invested in state-of-the-art
computer and telecommunication systems to provide real-time real estate
information and sophisticated presentation and analysis tools. The Company's
information technology group ("IT Group"), headquartered in Torrance,
California, employs 40 professionals that operate the Company's data center,
develop custom programs, implement special systems software, and provide support
for hardware and software utilized in the Company's national network of offices.
The Company has adopted computer hardware and software standards to maintain
the consistency and quality of its real estate services. Each office is
connected directly to the Company's IBM mainframe computer for real-time access
to the Company's centralized databases and customized software applications.
By special arrangement, some of the Company's clients have remote modern
access to selected client-customized software application, and the CB Commercial
Web Site has also given clients direct access through the CB Internet home page.
These systems allow clients to gain access to various levels of information,
maintain day-to-day contact with the Company's professionals, and track and
monitor property acquisition and disposition activities and property portfolios.
EMPLOYEE EDUCATION
In 1991, the Company founded its training program, known as CB Commercial
University ("CBCU"), to provide professional development and industry training
for its key professional employees. CBCU is distinguished in the industry for
its quality, intensity, scope and results. The courses offered at CBCU are
typically one week in length and are customized to meet both employees' and
clients' needs and skill levels. Courses focus on (i) employees' productivity
and quality consistency; (ii) management leadership and effectiveness in the
context of the latest industry knowledge and technology; and (iii) clients'
needs in the Company's various business lines and specialty practice areas.
Although CBCU was originally established to develop the skills of the Company's
employees, in 1995, in response to demand from its clients, the Company added
courses to the CBCU curriculum which involve its clients. In 1996,
approximately 320 employees and clients took courses at CBCU.
8
<PAGE>
COMPETITION
The market for commercial real estate brokerage and other real estate services
provided by the Company is both highly fragmented and highly competitive.
Thousands of local commercial real estate brokerage firms and hundreds of
regional commercial real estate brokerage firms have offices in the United
States. The Company believes that no more than two other major firms have the
ability to compete nationally with the Company's brokerage business and that the
Company's national brokerage network enables it to compete effectively with
these organizations. Most of the Company's competitors are local or regional
firms that are substantially smaller than the Company on an overall basis, but
in some cases may be larger locally.
L. J. Melody competes with a large number of mortgage banking firms and
institutional lenders as well as regional and national investment banking firms
and insurance companies in providing its mortgage banking services. Appraisal
services are provided by other national, local and regional appraisal firms and
national and regional accounting firms. Consulting services are provided by
numerous commercial real estate firms (national, regional and local), accounting
firms, appraisal firms and others.
The Company's property management business competes for the right to manage
properties controlled by third parties. The competitor may be the owner of the
property (who is trying to decide the efficiency of outsourcing) or another
property management company. Increasing competition in recent years has
resulted in having to provide additional services at lower rates through
eroding margins. In 1996, however, rates stabilized and, in some cases,
increased.
Westmark competes with a significant number of investment advisors, banks and
insurance companies in attracting investor money. Over the last several years,
Westmark experienced growth in its separate accounts and its commingled debt
funds, but not in its commingled equity funds.
In all of its business disciplines, the Company competes on the basis of the
skill and quality of its personnel, the variety of services offered, the breadth
of geographic coverage and the quality of its infrastructure, including
technology.
EMPLOYEES
As of December 31, 1996, the Company had approximately 4,100 employees,
approximately 66% of whom work in the areas of brokerage and investment
properties. All of the Company's sales professionals are parties to contracts
with the Company which subject them to the Company's rules and policies during
their employment and limit their post-employment activities in terms of
soliciting clients or employees of the Company. The Company believes that
relations with its employees are good.
ITEM 2. PROPERTIES
The Company owns its headquarters building in downtown Los Angeles,
California. In addition to the Company's headquarters, the Company owns and
occupies three smaller office buildings in Phoenix, Arizona, San Diego and
Carlsbad, California. These properties are mortgaged to secure loans to the
Company.
The Company also leases office space on terms that vary depending on the size
and location of the office. The leases expire at various date through 2007.
For those leases that are not renewable, the Company believes there is adequate
alternative office space available at acceptable rental rates to meet its needs.
ITEM 3. LEGAL PROCEEDINGS
In August 1993, a former commissioned salesperson of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergen County,
alleging gender discrimination and wrongful termination by the Company (the
"Mogull case"). On November 20, 1996, a jury returned a verdict against the
Company, awarding $6.5 million in general and punitive damages to the plaintiff.
The Company hired new counsel and in January 1997 filed motions for new trial,
reversal of the verdict and reduction of damages. On March 27, 1997 the trial
court denied the Company's motions and awarded the plaintiff $638,000 in
attorneys' fees and costs. The Company has been advised by appellate counsel
that it has a meritorious basis to pursue an appeal of the verdict, which the
9
<PAGE>
Company will do. Included in the Company's December 31, 1996 financial
statements is an accrual sufficient to reserve against any probable outcome in
the case. This accrual was initially established at $250,000 in 1994 and
increased to $800,000 in 1995 and represented the Company's estimate of its loss
exposure for this matter based on its assessment and analysis as of those dates.
Based on available cash and anticipated cash flows, the Company believes that
the ultimate outcome will not have an impact on the Company's ability to carry
on its operations.
In addition, as a result of the thousands of transactions in which the Company
participates and its employment of over 4,000 people, it is a party to a number
of pending or threatened lawsuits, arising out of or incident to the ordinary
course of its business. At any given time, the Company typically is a defendant
in 150 to 175 legal proceedings and a plaintiff in 50 to 100 legal proceedings.
Management believes that any liability to the Company, net of insurance
proceeds, that may result from proceedings to which it is currently a party will
not have a material adverse effect on the consolidated financial position or
results of operations of the Company.
As part of its process of minimizing, to the extent possible, potential
litigation, the Company requires its sales professionals to agree to contribute
each month toward a "Reserve Account" to be used whenever a claim of
professional liability is asserted. In addition, each sales professional
contractually agrees to be responsible for a portion of any amount paid to
defend or settle a claim against that professional or for any resulting
judgment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Special Meeting of Stockholders held on October 30, 1996.
(b) Not Applicable.
(c) The matter voted upon was the proposed recapitalization of the Company's
capital structure. The stockholders approved the proposed recapitalization
as follows:
by the affirmative vote of 4,000,000 shares of the Company's Series A-1 and
A-2 Preferred Stock (representing 100 percent of the outstanding shares of
such Series), by the affirmative vote of 1,000,000 shares of the Company's
Series A-3 Preferred Stock (representing 100 percent of the outstanding
shares of such Series), by the affirmative vote of 1,854,106 shares of the
Company's Class B-1 Common Stock (representing 100 percent of the
outstanding shares of such Class), by the affirmative vote of 5,334,467
shares of the Company's Class B-2 Common Stock, with 9,966 shares of Class
B-2 Common Stock voting in the negative and 9,385 shares of Class B-2
Common Stock abstaining, by the affirmative vote of 800,000 shares of the
Company's Class C-1 Common Stock (representing 100 percent of the
outstanding shares of such Class) and by the affirmative vote of 2 shares
of the Company's Class J Common Stock (representing 100 percent of the
outstanding shares of such Class).
(d) Not Applicable
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) On November 26, 1996, trading of the Company's Common Stock on the Nasdaq
National Market tier of The Nasdaq Stock Market under the symbol "CBCG"
commenced. Prior to that date, there was no established public trading market
for any of the Company's securities. The high and low sales prices for the
Company's Common Stock during the period from November 26, 1996 through December
31, 1996 as reported by The Nasdaq Stock Market were $20 and $18, respectively.
The last reported sales price of the Company's Common Stock on March 25, 1997 as
reported by The Nasdaq Stock Market was 26 1/8.
(b) As of March 25, 1997, the Company had 1,051 record holders of its Common
Stock.
(c) Since its incorporation in March 1989 the Company has not declared any
cash dividends on any of its classes of common stock. The Company's existing
credit agreements restrict its ability to pay dividends on common stock but
permit the payment of dividends on preferred stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
Item 7 of this report.
(d) Since January 1, 1996, the Company has sold 510,906 shares of Common Stock
to eight executive officers of the Company under the Company's 1996 Equity
Incentive Plan. These sales were made by private placement in reliance on the
exemption from registration provisions provided for in Section 4(2) of the
Securities Act of 1933. The recipients of such securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. All recipients had adequate access,
through employment, to information about the Company.
11
<PAGE>
Item 6. Selected Financial Data
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION:
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- ------------- --------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 583,068 $ 468,460 $ 428,988 $ 392,037 $ 360,223
Costs and Expenses:
Commissions, fees and other incentives.. 292,266 239,018 225,085 206,070 187,582
Operating, administrative and other..... 228,799 187,968 170,234 160,073 152,402
Depreciation and amortization........... 13,574 11,631 8,091 49,606 45,855
Non-recurring charges................... - - - - 4,500
----------- ----------- ----------- ----------- -----------
Operating income (loss).................... 48,429 29,843 25,578 (23,712) (30,116)
Interest income............................ 1,503 1,674 1,109 915 1,083
Interest expense........................... 24,123 23,267 17,362 14,240 15,516
----------- ----------- ----------- ----------- -----------
Income (loss) before provision (benefit)
for income tax............................ 25,809 8,250 9,325 (37,037) (44,549)
Provision for income tax................... 11,160 841 152 112 12
Reduction of valuation allowances (1)...... (55,900) - - - -
----------- ----------- ----------- ----------- -----------
Net provision (benefit) for income tax..... (44,740) 841 152 112 12
----------- ----------- ----------- ----------- -----------
Net income (loss).......................... $ 70,549 $ 7,409 $ 9,173 $ (37,149) $ (44,561)
=========== =========== =========== =========== ===========
Net income (loss) applicable to common
stockholders.............................. $ 69,549 $ 7,409 $ 9,173 $ (37,149) $ (44,561)
Primary earnings (loss) per share.......... $ 5.02 $ 0.55 $ 0.69 $ (3.23) $ (3.89)
Number of shares used in computing primary
earnings (loss) per share................. 13,845,325 13,540,541 13,305,118 11,504,644 11,445,377
Fully diluted earnings (loss) per share.... $ 4.97 $ 0.55 $ 0.69 $ (3.23) $ (3.89)
Number of shares used in computing fully
diluted earnings (loss) per share......... 14,184,296 13,540,541 13,305,118 11,504,644 11,445,377
OTHER DATA:
EBITDA (2)................................. $ 62,003 $ 41,474 $ 33,669 $ 25,894 $ 15,739
Net cash provided by operating activities.. $ 65,694 $ 30,632 $ 31,418 $ 19,609 $ 10,911
Net cash used in investing activities...... $ (10,906) $ (24,888) $ (3,865) $ (5,629) $ (4,821)
Net cash used in financing activities...... $ (28,505) $ (11,469) $ (4,923) $ (14,662) $ (2,157)
AS OF DECEMBER 31,
-------------------------------------------------------------------------------
BALANCE SHEET DATA: 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents.................. $ 49,328 $ 23,045 $ 28,770 $ 6,140 $ 6,822
Total assets............................... 278,944 190,954 150,100 128,914 173,274
Total long-term debt....................... 148,529 250,142 233,571 239,853 239,473
Total liabilities.......................... 280,459 345,642 314,648 303,774 311,630
Total stockholders' equity (deficit)....... (1,515) (154,688) (164,548) (174,860) (138,356)
</TABLE>
- -------------------
(1) See Note 9 of Notes to Consolidated Financial Statements.
(2) EBITDA effectively removes the impact of certain non-cash charges on
income such as depreciation and the amortization of intangible assets
relating to acquisitions and Federal income taxes (to the extent they are
offset by NOLs). Management believes that the presentation of EBITDA will
enhance a reader's understanding of the Company's operating performance and
ability to service debt as it provides a measure of cash generated that can
be used by the Company to service its debt and other required or
discretionary purposes. Net cash that will be available to the Company for
discretionary purposes represents remaining cash, after debt service and
other cash requirements, such as capital expenditures, are deducted from
EBITDA. EBITDA should not be considered as an alternative to (i) operating
income determined in accordance with GAAP or (ii) operating cash flow
determined in accordance with GAAP.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Company provides integrated real estate services which include (i)
Property and User Services, consisting of brokerage (facilitating sales and
leases), investment properties (acquisitions and sales on behalf of investors),
corporate services, property management, and real estate market research, and
(ii) Investor Services, consisting of mortgage banking (mortgage loan
origination and servicing) through L.J. Melody & Company ("L.J. Melody"),
investment management and advisory services through Westmark Realty Advisors,
L.L.C. ("Westmark"), and valuation and appraisal services.
On November 25, 1996, the Company completed an initial public offering (the
"Offering") of 4,347,000 shares of common stock, par value $.01 per share (the
"Common Stock"). The net proceeds from the Offering of approximately $79.5
million were used to repay a portion of the Company's senior secured and senior
subordinated indebtedness. Concurrently with the Offering, CB Commercial
Holdings, Inc. was renamed CB Commercial Real Estate Services Group, Inc.
During the third quarter of 1996, the Company projected, on a more likely
than not basis, that a portion of its net operating loss carryforwards ("NOL")
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
was allocated to the purchase price of L.J. Melody based on its estimated future
potential to generate taxable income, and the remaining $40.4 million was
recorded as a tax benefit (a reduction in income tax provision). During the
fourth quarter of 1996, the Company further reduced its deferred tax asset
valuation allowances by $15.5 million based on its ability to generate
additional taxable income in the future through interest savings resulting from
the paydown of part of its senior secured and senior subordinated debt with
proceeds from the Offering. This reduction has also been recorded as a tax
benefit resulting in a cumulative year-to-date tax benefit of $55.9 million.
With the recognition of deferred tax assets, the future period provisions for
income tax will be recorded at the full effective tax rate excluding the impact
of other adjustments, if any, to valuation allowances. For the year ended
December 31, 1996, a $11.2 million provision for income taxes has been recorded
without regard to the income tax benefit resulting from the reduction of the
valuation allowance. Net income for the year ended December 31, 1996 was $70.5
million ($5.02 per share of common stock), which includes the current year
provision of $11.2 million offset by the cumulative year-to-date tax benefit of
$55.9 million or a net benefit for income tax of $44.7 million. If the Company
had not recorded tax benefits related to projected future taxable income for the
year ended December 31, 1996, the Company's provision for income tax would have
consisted of current and deferred state tax provisions and provision for Federal
alternative minimum tax and net income for such period would have been $24.2
million ($1.75 per share of common stock). Provision for regular Federal taxes
would have been offset by reductions in valuation allowances to the extent of
such regular Federal taxes. The $55.9 million recognized tax benefit has a
material effect on the reported net income for the year ended December 31, 1996.
This $55.9 million tax benefit is a nonrecurring item and is unrelated to the
Company's performance and should not be used in evaluating the Company's
prospects or future performance. See "Net Operating Losses" below.
A significant portion of the Company's revenue is transactional in nature and
seasonal. Historically, this seasonality has caused the Company's revenue,
operating income and net income to be lower in the first two calendar quarters
and higher in the third and fourth calendar quarters of each year.
Revenue from Property and User Services, which constitutes a substantial
majority of the Company's revenue, is largely transactional in nature and
subject to economic cycles. However, the Company's significant size, geographic
coverage, number of transactions, diversity of services offered and large client
base tend to reduce the impact on annual revenue caused by economic cycles. Due
in part to acquisitions, revenue from Investor Services, a significant portion
of which is non-transactional in nature, has grown more rapidly than revenue
from Property and User Services. Approximately 54.0% of the costs and expenses
associated with Property and User Services are directly correlated to revenue
while approximately 23.0% of the costs and expenses of Investor Services are
directly correlated to revenue.
The Company has completed three strategic acquisitions since the beginning of
1995 and is continually assessing acquisition opportunities as part of its
growth strategy (see Item 1 "Business--Acquisitions"). Because of the
substantial non-cash goodwill and intangible amortization charges incurred by
the Company in connection with acquisitions subject to purchase accounting and
because of interest expense associated with acquisition financing, management
anticipates that future acquisitions may adversely affect net income. In
addition, during the first six months following an acquisition, the Company
believes there are generally significant one-time costs relating to integrating
information technology, accounting and management services and rationalizing
personnel levels (which the Company intends to take as a single charge at the
time of the acquisition to the maximum extent possible). Management's strategy
is to pursue acquisitions that are expected to be accretive to income before
interest expense and provision for amortization of goodwill and intangibles, if
any, resulting from the acquisitions, and to
13
<PAGE>
operating cash flows (excluding the costs of integration).
Since 1992, the Company's results have benefitted from its ability to take
advantage of a significant and ongoing recovery in U.S. commercial real estate
markets and the generally rising level of occupancy and rental levels, and, as a
result, property values. Since brokerage fees are typically based upon a
percentage of transaction value, and property management fees are typically
based upon a percentage of total rent collections, recent occupancy and rental
rate increases at the property level have generated an increase in brokerage and
property management fees to the Company.
The $0.25 per share quarterly dividend on the Company's Preferred Stock,
which accrues from October 1, 1996, will result, if and when paid, in a cost of
$1.0 million per quarter. Until the Company has completed its acquisition
program, it does not intend to pay dividends on the Preferred Stock. As a
consequence, such dividends will accumulate and bear interest, which will be
paid on a current basis.
The Company's revenues are impacted by numerous factors, including the
perception of trends in the general economy, interest rate levels and
anticipated and actual changes in the federal tax law.
RESULTS OF OPERATIONS
The following table sets forth items derived from the Company's Consolidated
Statements of Operations for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................................ $583,068 100.0% $468,460 100.0% $428,988 100.0%
Costs and Expenses:
Commissions, fees and other incentives............ 292,266 50.1 239,018 51.0 225,085 52.5
Operating, administrative and other............... 228,799 39.3 187,968 40.1 170,234 39.7
Depreciation and amortization..................... 13,574 2.3 11,631 2.5 8,091 1.9
-------- ----- -------- ----- -------- -----
Operating income................................... 48,429 8.3 29,843 6.4 25,578 5.9
Interest income.................................... 1,503 0.2 1,674 0.4 1,109 0.3
Interest expense................................... 24,123 4.1 23,267 5.0 17,362 4.0
-------- ----- -------- ----- -------- -----
Income before provision (benefit) for income tax... 25,809 4.4 8,250 1.8 9,325 2.2
Provision for income tax........................... 11,160 1.9 841 0.2 152 0.0
Reduction of valuation allowances.................. (55,900) (9.6) - - - -
-------- ----- -------- ----- -------- -----
Net provision (benefit) for income tax............. (44,740) (7.7) 841 0.2 152 0.0
-------- ----- -------- ----- -------- -----
Net income......................................... $ 70,549 12.1% $ 7,409 1.6% $ 9,173 2.2%
======== ===== ======== ===== ======== =====
</TABLE>
14
<PAGE>
The following tables summarize the revenue, cost and expenses, and operating
income by operating segment for the years ended December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 1995 1994
---------------- ---------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
PROPERTY AND USER SERVICES
Revenue:
Brokerage................................ $335,401 65.3% $294,290 69.6% $284,775 71.1%
Investment Properties.................... 130,202 25.4 87,576 20.7 81,394 20.4
Corporate Services....................... 25,550 5.0 21,723 5.1 15,631 3.9
Property Management (1).................. 20,540 4.0 18,332 4.4 17,692 4.4
Real Estate Market Research.............. 1,378 0.3 912 0.2 758 0.2
-------- ----- -------- ----- -------- -----
513,071 100.0 422,833 100.0 400,250 100.0
Costs and expenses:
Commissions, fees and other incentives... 276,120 53.8 227,387 53.8 215,506 53.8
Operating, administrative and other...... 187,707 36.6 160,415 37.9 152,141 38.0
Depreciation and amortization............ 9,142 1.8 8,889 2.1 7,485 1.9
-------- ----- -------- ----- -------- -----
Operating income........................... $ 40,102 7.8% $ 26,142 6.2% $ 25,118 6.3%
======== ===== ======== ===== ======== =====
INVESTOR SERVICES
Mortgage Banking
Revenue.................................... $ 20,185 100.0% $ 10,417 100.0% $ 9,488 100.0%
Costs and expenses:
Commissions, fees and other incentives... 8,007 39.7 4,209 40.4 3,914 41.3
Operating, administrative and other...... 9,489 47.0 6,338 60.8 5,538 58.4
Depreciation and amortization............ 703 3.5 268 2.6 195 2.1
-------- ----- -------- ----- -------- -----
Operating income (loss).................... $ 1,986 9.8% $ (398) (3.8)% $ (159) (1.8)%
======== ===== ======== ===== ======== =====
Investment Management and Advisory
Revenue.................................... $ 31,022 100.0% $ 18,610 100.0% $ 5,902 100.0%
Costs and expenses:
Operating, administrative and other...... 24,096 77.7 13,745 73.9 5,580 94.5
Depreciation and amortization............ 3,316 10.7 2,148 11.5 149 2.5
-------- ----- -------- ----- -------- -----
Operating income........................... $ 3,610 11.6% $ 2,717 14.6% $ 173 3.0%
======== ===== ======== ===== ======== =====
Valuation and Appraisal Services
Revenue.................................... $ 18,790 100.0% $ 16,600 100.0% $ 13,348 100.0%
Costs and expenses:
Commissions, fees and other incentives... 8,139 43.3 7,422 44.7 5,665 42.4
Operating, administrative and other...... 7,507 40.0 7,470 45.0 6,975 52.3
Depreciation and amortization............ 413 2.2 326 2.0 262 2.0
-------- ----- -------- ----- -------- -----
Operating income........................... $ 2,731 14.5% $ 1,382 8.3% $ 446 3.3%
======== ===== ======== ===== ======== =====
TOTAL INVESTOR SERVICES
Revenue.................................... $ 69,997 100.0% $ 45,627 100.0% $ 28,738 100.0%
Costs and expenses:
Commissions, fees and other incentives... 16,146 23.1 11,631 25.5 9,579 33.3
Operating, administrative and other...... 41,092 58.7 27,553 60.4 18,093 63.0
Depreciation and amortization............ 4,432 6.3 2,742 6.0 606 2.1
-------- ----- -------- ----- -------- -----
Operating income........................... $ 8,327 11.9% $ 3,701 8.1% $ 460 1.6%
======== ===== ======== ===== ======== =====
</TABLE>
- -------------------
(1) Does not include reimbursable costs associated with the wages of on-site
employees and the cost of field office rent, furniture, computers,
supplies and utilities. Revenues from leasing services provided to the
Company's property management clients are reflected in brokerage rather
than property management revenue.
15
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE on a consolidated basis in 1996 was $583.1 million, an increase of
$114.6 million or 24.5% from $468.5 million in 1995. The overall increase in
revenue, compared to 1995, reflected a continued improvement in the commercial
real estate markets in most areas of the United States. This improvement
reflected increasing investor confidence, increasing prices and a more liquid
market than in prior years resulting from declining vacancy levels and the
return of some bargaining power to landlords.
Property and User Services revenue was $513.1 million in 1996, an increase of
$90.3 million or 21.3% from $422.8 million in 1995. Brokerage revenue accounted
for $335.4 million, an increase of $41.1 million or 14.0% from $294.3 million
and investment properties revenue accounted for $130.2 million, an increase of
$42.6 million or 48.7% from $87.6 million. Corporate services revenue accounted
for $25.6 million, an increase of $3.9 million or 17.6% from $21.7 million.
Property management revenue accounted for $20.5 million, an increase of $2.2
million or 12.1% from $18.3 million. These increases resulted in part from an
increase in the total number and size of brokerage, investment properties and
corporate services sale transactions closed during 1996 and in part from an
increase in total size of brokerage lease transactions closed during 1996.
Although the number of lease transactions declined in 1996 from 1995 as
available quality space came into short supply, the average lease commission
amount increased by approximately 7.3%, resulting in an overall increase in
revenue from leasing.
Investor Services revenue was $70.0 million in 1996, an increase of $24.4
million or 53.4% from $45.6 million in 1995, largely due to an increase in
investment management and advisory revenue to $31.0 million in 1996 from $18.6
million in 1995, primarily resulting from the Westmark acquisition. Mortgage
banking revenue accounted for $20.2 million, an increase of $9.8 million or
93.8% from $10.4 million as a result of the L.J. Melody acquisition. Valuation
and appraisal services revenue accounted for $18.8 million, an increase of $2.2
million or 13.2% from $16.6 million.
COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis in 1996 were
$292.3 million, an increase of $53.3 million or 22.3% from $239.0 million in
1995. The increase in these costs is largely correlated to the increase in
revenue since most of the Company's sales professionals are compensated based on
revenue. As a percentage of revenue, commissions fees and other incentives
decreased from 51.0% in 1995 to 50.1% in 1996. The decrease in commissions,
fees and other incentives as a percentage of revenue is primarily due to the
significant revenue growth in investment management and advisory, which does not
incur this type of revenue-based expense. Excluding investment management and
advisory, commissions, fees and other incentives were relatively flat as a
percent of revenues decreasing to 52.9% for 1996 from 53.1% for 1995.
Property and User Services commissions, fees and other incentives were $276.1
million in 1996, an increase of $48.7 million or 21.4% from $227.4 million in
1995 and constant as a percentage of revenue at 53.8%.
Investor Services commissions, fees and other incentives were $16.1 million
in 1996, an increase of $4.5 million or 38.8% from $11.6 million in 1995 and a
decrease as a percentage of revenue from 25.5% to 23.1%.
OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis in 1996 was
$228.8 million, an increase of $40.8 million or 21.7% from $188.0 million in
1995, and a decrease as a percentage of revenue from 40.1% for 1995 to 39.3% for
1996.
Property and User Services operating, administrative and other was $187.7
million in 1996, an increase of $27.3 million or 17.0% from $160.4 million in
1995. This increase was caused, in part, by additions to staff in anticipation
of further increases in operating activities and resulted in higher levels of
administrative, technical and other support expenditures and related personnel
costs, as well as higher business promotion and other expenses.
Investor Services operating, administrative and other was $41.1 million in
1996, an increase of $13.5 million or 49.1% from $27.6 million in 1995,
primarily resulting from the Westmark acquisition.
DEPRECIATION AND AMORTIZATION on a consolidated basis in 1996 was $13.6
million, an increase of $1.9 million or 16.7% from $11.6 million in 1995 as a
result of the Westmark and L.J. Melody acquisitions and new capital leases for
computer equipment entered into in 1996.
Property and User Services depreciation and amortization was $9.1 million in
1996, an increase of $0.2 million or 2.9% from $8.9 million in 1995.
Investor Services depreciation and amortization was $4.4 million in 1996, an
increase of $1.7 million or 61.6% from $2.7 million in 1995, primarily as a
result of a full year of Westmark expense in 1996 as compared to six months in
1995
16
<PAGE>
and the L.J. Melody acquisition in July 1996.
OPERATING INCOME on a consolidated basis in 1996 was $48.4 million, an
increase of $18.6 million or 62.3% from $29.8 million in 1995. The increase in
operating income resulted from an increase in revenue of $114.6 million or 24.5%
partially offset by a related increase in commission expense of $53.3 million or
22.3%, a $40.8 million or 21.7% increase in operating expenses and a $1.9
million or 16.7% increase in depreciation and amortization as described above.
Property and User Services operating income was $40.1 million in 1996, an
increase of $14.0 million or 53.4% from $26.1 million in 1995. The increase in
Property and User Services operating income resulted from an increase in
Property and User Services revenue of $90.3 million or 21.3% partially offset by
a related increase in commission expense of $48.7 million or 21.4%, a $27.3
million or 17.0% increase in operating expenses and a $0.2 million or 2.9%
increase in depreciation and amortization as described above.
Investor Services operating income was $8.3 million in 1996, an increase of
$4.6 million or 125.0% from $3.7 million in 1995. The increase in Investor
Services operating income resulted from an increase in Investor Services revenue
of $24.4 million or 53.4% partially offset by a related increase in commission
expense of $4.5 million or 38.8%, a $13.5 million or 49.1% increase in operating
expenses and a $1.7 million or 61.6% increase in depreciation and amortization
primarily as a result of the Westmark acquisition as described above.
INTEREST INCOME on a consolidated basis in 1996 was $1.5 million, a decrease
of $0.2 million or 10.2% from $1.7 million in 1995.
INTEREST EXPENSE on a consolidated basis in 1996 was $24.1 million, an
increase of $0.8 million or 3.7% from $23.3 million in 1995 primarily resulting
from debt incurred with respect to the Westmark acquisition in June 1995 and the
L.J. Melody acquisition in July 1996, offset in part by reduced average
borrowing levels on other Company indebtedness.
NET PROVISION (BENEFIT) FOR INCOME TAX on a consolidated basis in 1996 was a
benefit of $(44.7) million, compared to a $0.8 million provision in 1995.
During the third quarter of 1996, the Company projected, on a more likely than
not basis, that a portion of its NOL would be realizable in future periods and,
accordingly, reduced its existing deferred tax asset valuation allowances by
$45.7 million of which $5.3 million was allocated to the purchase price of L.J.
Melody based on its estimated future potential to generate taxable income, and
the remaining $40.4 million was recorded as a tax benefit (a reduction in income
tax provision). During the fourth quarter of 1996, the Company further reduced
its deferred tax asset valuation allowances by $15.5 million based on its
ability to generate additional taxable income in the future through interest
savings resulting from the paydown of part of its senior secured and senior
subordinated debt with proceeds from the Offering. This reduction has also been
recorded as a tax benefit resulting in a cumulative year-to-date tax benefit of
$55.9 million. With the recognition of deferred tax assets, the future period
provisions for income tax will be recorded at the full effective tax rate
excluding the impact of other adjustments, if any, to valuation allowances. For
the year ended December 31, 1996, a $11.2 million provision for income taxes has
been recorded without regard to the income tax benefit resulting from the
reduction of the valuation allowance. Net income for the year ended December
31, 1996 was $70.5 million ($5.02 per share of common stock), which includes the
current year provision of $11.2 million offset by the cumulative year-to-date
tax benefit of $55.9 million or a net benefit for income tax of $44.7 million.
If the Company had not recorded tax benefits related to projected future taxable
income for the year ended December 31, 1996, the Company's net income for such
period would have been $24.2 million ($1.75 per share of common stock). The
provision for income tax would have consisted of current and deferred state tax
provisions and provision for Federal alternative minimum tax. Provision for
regular Federal taxes would have been offset by reductions in valuation
allowances to the extent of such regular Federal taxes. The $55.9 million
recognized tax benefit has a material effect on the reported net income for the
year ended December 31, 1996. This $55.9 million tax benefit is a non-recurring
item and is unrelated to the Company's performance and should not be used in
evaluating the Company's prospects or future performance.
NET INCOME on a consolidated basis in 1996 was $70.5 million ($5.02 per share
of common stock), after giving effect to the tax benefit resulting from the
reduction of valuation allowances of $55.9 million ($4.04 per share of common
stock) an improvement of $63.1 million from net income of $7.4 million ($0.55
per share of common stock) in 1995. The improvement also resulted from a
revenue increase of $114.6 million or 24.5% which was partially offset by a
related increase in commission expense of $53.3 million or 22.3%, a $40.8
million or 21.7% increase in operating expenses and a $1.9 million or 16.7%
increase in depreciation and amortization as described above.
17
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUE on a consolidated basis in 1995 was $468.5 million, an increase of
$39.5 million or 9.2% from $429.0 million in 1994. The overall increase in
revenue, compared to 1994, reflected a continued improvement in the commercial
real estate markets in most areas of the United States. This improvement
reflected increasing investor confidence, increasing prices and a more liquid
market than in prior years resulting from declining vacancy levels and the
return of some bargaining power to landlords.
Property and User Services revenue was $422.8 million in 1995, an increase of
$22.5 million or 5.6% from $400.3 million in 1994. Brokerage revenue accounted
for $294.3 million, an increase of $9.5 million or 3.3% from $284.8 million and
investment properties revenue accounted for $87.6 million, an increase of $6.2
million or 7.6% from $81.4 million. Corporate services revenue accounted for
$21.7 million, an increase of $6.1 million or 39.0% from $15.6 million.
Although the number of sale and lease transactions closed decreased in 1995 from
1994, the average dollar amount of both sale and lease transactions increased
approximately 9.0%, resulting in a net increase in brokerage and investment
properties revenue.
Investor Services revenue was $45.6 million in 1995, an increase of $16.9
million or 58.8% from $28.7 million in 1994, largely due to an increase in
investment management and advisory revenue to $18.6 million from $5.9 million,
primarily resulting from the Westmark acquisition. Valuation and appraisal
services revenue accounted for $16.6 million, an increase of $3.3 million or
24.4% from $13.3 million and mortgage banking revenue accounted for $10.4
million, an increase of $0.9 million or 9.8% from $9.5 million.
COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis in 1995 were
$239.0 million, an increase of $13.9 million or 6.2% from $225.1 million in
1994. The increase in these costs is directly correlated to the increase in
revenue since most of the Company's sales professionals are compensated based on
revenue. As a percentage of revenue, commissions fees and other incentives
decreased from 52.5% in 1994 to 51.0% in 1995. The decrease in commissions,
fees and other incentives as a percentage of revenue is primarily due to the
significant revenue growth of investment management and advisory, which does not
incur this type of revenue-based expense. Excluding investment management and
advisory, commissions, fees and other incentives on a consolidated basis
remained constant as a percent of revenues at 53.2% for 1995 and 1994.
Property and User Services commissions, fees and other incentives was $227.4
million in 1995, an increase of $11.9 million or 5.5% from $215.5 million in
1994 and a decrease as a percentage of revenue from 53.9% to 53.8%.
Investor Services commissions, fees and other incentives was $11.6 million in
1995, an increase of $2.0 million or 21.4% from $9.6 million in 1994 and a
decrease as a percentage of revenue from 33.4% to 25.6%.
OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis in 1995 was
$188.0 million, an increase of $17.8 million or 10.4% from $170.2 million in
1994, remaining relatively stable as a percentage of revenue for such periods at
40.0% and 39.7%, respectively.
Property and User Services operating, administrative and other was $160.4
million in 1995, an increase of $8.3 million or 5.4% from $152.1 million in
1994. This increase was caused, in part, by additions to staff in anticipation
of further increases in operating activities and resulted in higher levels of
administrative, technical and other support expenditures and related personnel
costs, as well as higher business promotion and other expenses.
Investor Services operating, administrative and other was $27.6 million in
1995, an increase of $9.5 million or 52.3% from $18.1 million in 1994, primarily
resulting from the Westmark acquisition.
DEPRECIATION AND AMORTIZATION on a consolidated basis in 1995 was $11.6
million, an increase of $3.5 million or 43.8% from $8.1 million in 1994 as a
result of the Westmark acquisition and new capital leases for computer equipment
entered into in 1995.
Property and User Services depreciation and amortization was $8.9 million in
1995, an increase of $1.4 million or 18.8% from $7.5 million in 1994.
Investor Services depreciation and amortization was $2.7 million in 1995, an
increase of $2.1 million or 352.5% from $0.6 million in 1994.
OPERATING INCOME on a consolidated basis in 1995 was $29.8 million, an
increase of $4.3 million or 16.7% from $25.6
18
<PAGE>
million in 1994. The increase in operating income resulted from an increase in
revenue of $39.5 million or 9.2% partially offset by a related increase in
commission expense of $13.9 million or 6.2%, a $17.8 million or 10.4% increase
in operating expenses and a $3.5 million or 43.8% increase in depreciation and
amortization as described above.
Property and User Services operating income was $26.1 million in 1995, an
increase of $0.9 million or 4.1% from $25.1 million in 1994. The increase in
Property and User Services operating income resulted from an increase in
Property and User Services revenue of $22.5 million or 5.6% partially offset by
a related increase in commission expense of $11.9 million or 5.5%, an $8.3
million or 5.4% increase in operating expenses and a $1.4 million or 18.8%
increase in depreciation and amortization as described above.
Investor Services operating income was $3.7 million in 1995, an increase of
$3.3 million or 704.6% from $0.4 million in 1994. The increase in Investor
Services operating income resulted from an increase in Investor Services revenue
of $16.9 million or 58.8% partially offset by a related increase in commission
expense of $2.0 million or 21.4%, a $9.5 million or 52.3% increase in operating
expenses and a $2.1 million or 352.5% increase in depreciation and amortization
primarily as a result of the Westmark acquisition as described above.
INTEREST INCOME on a consolidated basis in 1995 was $1.7 million, an increase
of $0.6 million or 50.1% from $1.1 million in 1994. This increase primarily
resulted from increased interest rates and improved cash management.
INTEREST EXPENSE on a consolidated basis in 1995 was $23.3 million, an
increase of $5.9 million or 34.0% from $17.4 million in 1994. This increase
resulted from a general increase in interest rates, the full year impact of the
higher interest rates on the senior secured and senior subordinated debt of
LIBOR plus 250 basis points and LIBOR plus 125 basis points, respectively, which
were effective June 30, 1994, and the addition of the debt incurred with respect
to the Westmark acquisition, offset in part by reduced average borrowing levels
on other Company indebtedness.
NET INCOME on a consolidated basis in 1995 was $7.4 million ($0.55 per share
of common stock), a decrease of $1.8 million or 19.2% from $9.2 million ($0.69
per share of common stock) in 1994. The decrease in net income resulted from an
increase in commission expense of $13.9 million or 6.2%, a $17.8 million or
10.4% increase in operating expenses, a $3.5 million or 43.8% increase in
depreciation and amortization and an increase in interest expense of $5.9
million or 34.0% partially offset by an increase in revenue of $39.5 million or
9.2% as described above.
LIQUIDITY AND CAPITAL RESOURCES -
The Company has historically financed its operations and non-acquisition
related capital expenditures primarily with internally generated funds and
borrowings under a revolving credit facility. In order to finance the
acquisition of CB Commercial Real Estate Group, Inc. and related expenses, in
April 1989 the Company incurred borrowings of $251.0 million, which included
$170.0 million under a senior secured credit agreement (the "Senior Secured
Credit Agreement") and $81.0 million under a senior subordinated credit
agreement (the "Senior Subordinated Credit Agreement"). As of December 31,
1996, the Company had outstanding $55.4 million, under the Senior Secured Credit
Agreement and no amounts outstanding under a revolving credit facility
("Revolving Credit Facility A"), no amounts outstanding under its second
revolving credit facility ("Revolving Credit Facility B" and together with
Revolving Credit Facility A, the "Revolving Credit Facilities") and $65.9
million (including $3.9 million of deferred interest) under the Senior
Subordinated Credit Agreement. In addition, as of December 31, 1996 the Company
had outstanding other long-term indebtedness, consisting primarily of
acquisition debt, totaling approximately $42.3 million.
In connection with the Offering, the senior secured lenders agreed to amend
the terms of the Senior Secured Credit Agreement. As amended, the Company is
required to make quarterly principal payments of $2.625 million commencing March
31, 1997 with a final payment of $5.5 million on December 31, 2001. As amended,
the senior indebtedness bears interest at the rate of LIBOR plus 2.5%, all of
which interest is payable currently. Revolving Credit Facility A permits maximum
borrowings of $20.0 million which must be paid off in full for at least 30
consecutive days in each year commencing with 1997. Revolving Credit Facility B
is a facility that can be used for acquisitions and will bear interest at LIBOR
plus 300 basis points. The Company has begun discussions to increase Revolving
Credit Facility B from $10.0 million to $20.0 million sometime in 1997, although
there can be no assurance that such discussions will be successful or if
successful that $20.0 million will be adequate to finance the Company's
acquisition program.
Also in connection with the Offering, the senior subordinated credit terms
were amended. As amended, interest will be payable on a current basis
commencing January 1, 1997 and the entire amount outstanding under the Senior
Subordinated
19
<PAGE>
Credit Agreement will be due on July 23, 2002. The senior subordinated
indebtedness bears interest at a rate of LIBOR plus 1.25% from January 1, 1997
through December 31, 1998 LIBOR plus 2.0% during 1999, LIBOR plus 3.0% during
2000 and LIBOR plus 4.0% during 2001 and subsequent periods. Interest in excess
of LIBOR plus 1.25% will be deferred and added to the principal balance of the
senior subordinated indebtedness until the final maturity of the senior
subordinated indebtedness. Interest payments on outstanding senior subordinated
debt had been deferred since June 1994 until the payment in full of the senior
secured debt.
As of December 31, 1996, principal payments on the senior secured debt,
senior subordinated debt and the Company's other indebtedness, including debt
incurred to finance the acquisitions of Westmark and L.J. Melody, are as follows
(in thousands):
<TABLE>
<S> <C>
1997......... $ 15,314
1998......... 19,163
1999......... 12,807
2000......... 34,198
2001......... 14,582
Thereafter... 67,779
--------
$163,843
========
</TABLE>
The Company expects to have capital expenditures of approximately $4.0
million in 1997 exclusive of acquisitions. In connection with the Westmark
acquisition, the sellers may be entitled to a supplemental purchase price
payment based on the operating results of Westmark payable over a period of six
years and subject to a maximum aggregate payment of $18.0 million. See "Note 1
of Notes to Consolidated Financial Statements." The Company expects to use net
cash provided by operating activities for the next several years primarily to
fund acquisitions, including earnout payments, and to make required principal
payments under the Company's outstanding indebtedness. The Company believes
that it can satisfy these obligations as well as working capital requirements
from internally generated cash flow, borrowings under the Revolving Credit
Facilities and, with respect to acquisitions, seller financing and third-party
borrowings.
Effective October 1996, a dividend on the Company's Preferred Stock has been
reinstated. The $0.25 per share quarterly dividend on the Company's Preferred
Stock has accrued from October 1, 1996, and will result, if and when paid, in a
cost of $1.0 million per quarter. The Company currently expects to pay
dividends on the Preferred Stock out of working capital generated from operating
cash flow after it has completed its acquisition program.
The Company anticipates that its existing sources of liquidity, including
cash flow from operations, will be sufficient to fund its operations.
The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") were $62.0 million, $41.5 million and $33.7 million for
the years ended December 31, 1996, 1995 and 1994, respectively. The improvement
in EBITDA reflects the overall period to period revenue growth discussed above.
EBITDA effectively removes the impact of certain non-cash charges on income
such as depreciation and the amortization of intangible assets relating to
acquisitions and Federal income taxes (to the extent they are offset by NOLs).
Management believes that the presentation of EBITDA will enhance a reader's
understanding of the Company's operating performance and ability to service debt
as it provides a measure of cash generated that can be used by the Company to
service its debt and other required or discretionary purposes. Net cash that
will be available to the Company for discretionary purposes represents remaining
cash, after debt service and other cash requirements, such as capital
expenditures, are deducted from EBITDA. EBITDA should not be considered as an
alternative to (i) operating income determined in accordance with GAAP or (ii)
operating cash flow determined in accordance with GAAP.
RECENT LITIGATION
In August 1993, a former commissioned salesperson of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bargain County,
alleging gender discrimination and wrongful termination by the Company. On
November 20, 1996 a jury returned a verdict against the Company, awarding $6.5
million in general and punitive damages to the plaintiff. The Company hired new
counsel and in January 1997 filed motions for new trial, reversal of the verdict
and reduction of damages. On March 27, 1997 the trial court denied the Company's
motions and awarded the plaintiff $638,000 in attorneys' fees and costs. The
Company has been advised by appellate counsel that it has a meritorious basis to
pursue an appeal of the verdict, which the Company will do. Included in the
Company's December 31, 1996 financial statements is an
20
<PAGE>
accrual sufficient to reserve against any probable outcome in the case. This
accrual was initially established at $250,000 in 1994 and increased to $800,000
in 1995 and represented the Company's estimate of its loss exposure for this
matter based on its assessment and analysis as of those dates. Based on
available cash and anticipated cash flows, the Company believes that the
ultimate outcome will not have an impact on the Company's ability to carry on
its operations.
CASH FLOWS
Net cash provided by operating activities was $65.7 million in 1996, an
increase of $35.1 million from $30.6 million in 1995. The increase resulted
primarily from an improvement in operating income, excluding the tax benefit
from the reduction of valuation allowances. See "Net Operating Losses" below.
Additionally, non-cash charges, consisting of depreciation, amortization and
deferred compensation and interest, included in net income in 1996, were $3.0
million higher than 1995. Net cash provided by operating activities was also
impacted by changes in components of other operating assets and liabilities
which provided a net increase to net cash provided by operating activities of
$16.0 million.
Net cash used in investing activities decreased to $10.9 million in 1996,
compared to $24.9 million in 1995 as a result of the Westmark acquisition in
June 1995 and the L.J. Melody acquisition in July 1996.
Net cash used in financing activities was $28.5 million in 1996, compared to
$11.5 million in 1995. The $17.0 million difference between periods resulted
primarily from $95.9 million repayment of amounts outstanding under the Senior
Secured Credit Agreement in 1996 as compared to $19.0 million repayment in 1995,
$6.0 million repayment of amounts outstanding under the Senior Subordinated
Credit Agreement as compared to no repayments in 1995, and a $10.0 million
decrease in proceeds from the Senior Subordinated Credit Agreement, partially
offset by $80.0 million proceeds from issuance of common stock in 1996.
Net cash provided by operating activities was $30.6 million in 1995 compared
to $31.4 million in 1994. The decrease primarily resulted from a reduction in
net income of $1.8 million in 1995 compared to 1994, offset in part by changes
in components of operating assets and liabilities.
Net cash used in investing activities was $24.9 million in 1995 compared to
$3.9 million in 1994. The increase was caused by the acquisitions of Westmark
and Langdon Rieder in 1995 for $22.4 million, partially offset by a $2.1 million
decrease in purchases of property and equipment.
Net cash used in financing activities was $11.5 million in 1995 compared to
$4.9 million in 1994. The increase in 1995 resulted from the $19.0 million
repayment of senior term loans and $2.2 million repayment of capital leases,
partially offset by proceeds from the senior subordinated loan of $10.0 million.
NET OPERATING LOSSES
The Company had NOLs of approximately $184.3 million as of December 31, 1996,
corresponding to $64.5 million of the Company's $77.8 million in net deferred
tax assets, of which $26.4 was reserved through valuation allowances. The
valuation allowances were based on management's conclusion regarding the
realizability of this deferred tax asset on a more likely than not basis, as
defined in SFAS No. 109. In reaching this conclusion, management considered the
Company's past operating results, the current year events and trends, including
the impact, if any, of the acquisitions that were concluded during the year and
other factors.
Management evaluates the appropriateness of all or part of these valuation
allowances on a periodic basis and if the Company concludes there is a change
with respect to realizability, any necessary adjustments are made at that time.
As of September 30, 1996, the Company had experienced continuing profitability
due to a variety of reasons, including the strength of the commercial real
estate markets. In addition, the Company had operated Westmark for one full
year since acquiring Westmark in June 1995, and as a result had concluded that
Westmark should make a positive contribution to the Company's consolidated
taxable income. Finally, the acquisition of L.J. Melody in July 1996 is
expected to make a positive contribution to the Company's consolidated taxable
income. As a result of these factors, during the third quarter of 1996, the
Company projected, on a more likely than not basis, that a portion of its NOL
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
was allocated to the purchase price of L.J. Melody based on its estimated future
potential to generate taxable income, and the remaining $40.4 million was
recorded as a tax benefit (a reduction in income tax provision). During the
fourth quarter of 1996, the Company further
21
<PAGE>
reduced its deferred tax asset valuation allowances by $15.5 million based on
its ability to generate additional taxable income in the future through interest
savings resulting from the paydown of part of its senior secured and senior
subordinated debt with proceeds from the Offering. This reduction has also been
recorded as a tax benefit resulting in a cumulative year-to-date tax benefit of
$55.9 million. With the recognition of deferred tax assets, the future period
provisions for income tax will be recorded at the full effective tax rate
excluding the impact of other adjustments, if any, to valuation allowances. For
the year ended December 31, 1996, an $11.2 million provision for income taxes
has been recorded without regard to the income tax benefit resulting from the
reduction of the valuation allowance. Net income for the year ended December 31,
1996 was $70.5 million ($5.02 per share of common stock), which includes the
current year provision of $11.2 million offset by the cumulative year-to-date
tax benefit of $55.9 million or a net benefit for income tax of $44.7 million.
If the Company had not recorded tax benefits related to projected future taxable
income for the year ended December 31, 1996, the Company's net income for such
period would have been $24.2 million ($1.75 per share of common stock). The
provision for income tax would have consisted of current and deferred state tax
provisions and provision for Federal alternative minimum tax. Provision for
regular Federal taxes would have been offset by reductions in valuation
allowances to the extent of such regular Federal taxes. The $55.9 million
recognized tax benefit has a material effect on the reported net income for the
year ended December 31, 1996. This $55.9 million tax benefit is a non-recurring
item and is unrelated to the Company's performance and should not be used in
evaluating the Company's prospects or future performance. The Company believes
that its future taxable income will be adequate to realize the deferred tax
assets on the December 31, 1996 balance sheet.
The ability of the Company to utilize NOLs may be limited in the future if an
"ownership change" within the meaning of Section 382 of the Internal Revenue
Code of 1986, as amended, were deemed to occur. Such an ownership change may be
deemed to occur if the Company engages in certain transactions involving the
issuance of shares of Common Stock, or by reason of a sale of capital stock by
an existing shareholder. If an ownership change were to occur, Section 382
would impose an annual limit on the amount of NOLs the Company could utilize.
The Company believes that the Offering and recapitalization of its capital
structure consummated in connection with the Offering will not result in an
ownership change. An ownership change may not be within the control of the
Company, however, and therefore there is no assurance that an ownership change
will not occur in the future. The availability of NOLs is, in any event,
subject to uncertainty since their validity is not reviewed by the Internal
Revenue Service until such time as they are utilized to offset taxable income.
INFLATION
The Company's operations are directly affected by various national and
economic conditions, including interest rates, the availability of credit to
finance commercial real estate transactions and the impact of tax laws. To
date, the Company does not believe that general inflation has had a material
impact upon its operations. Revenues, commissions and other variable costs
related to revenues are primarily affected by real estate market supply and
demand versus general inflation.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, SFAS No. 122,
Accounting for Mortgage Servicing Rights and SFAS No. 123, Accounting for Stock-
Based Compensation. These standards, including the proforma effect of SFAS No.
123, were not material to the Company's financial statements.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. This statement is required to be adopted by the Company in 1997
and only applies to the operations of L.J. Melody. Under SFAS No. 125, the
Company will be required to recognize, at fair value, financial and servicing
assets it has acquired control over and related liabilities it has incurred and
amortize them over the period of estimated net servicing income or loss. Write-
off of the asset is required when control is surrendered and of the liability
when extinguished. The Company does not currently recognize the value of
financial and servicing assets when loans are originated. The adoption of the
new statement will result in the recognition of amortization cost along with
income from servicing as services are performed and the recognition of gains or
losses at the time servicing rights are sold. Management of the Company
believes that the adoption of this standard will not have a material impact on
the Company's financial position or results of operations.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS AND OTHER FINANCIAL DATA
The following table sets forth certain unaudited consolidated statement of
operations data for each of the Company's last twelve quarters and the
percentage of the Company's revenues represented by each line item reflected in
each consolidated income statement. In the opinion of management, this
information has been presented on the same basis as the consolidated financial
statements included in Item 8, and includes all adjustments, consisting only of
normal recurring adjustments and accruals, that the Company considers necessary
for a fair presentation. The unaudited quarterly information should be read in
conjunction with the audited financial statements of the Company and the notes
thereto. The operating results for any quarter are not necessarily indicative
of the results for any future period.
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------- ------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
---------- ---------- ---------- ----------- ---------- ----------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue...................... $192,205 $147,168 $130,954 $112,741 $143,570 $116,603 $108,361 $ 99,926
Costs and Expenses:
Commissions, fees and
other incentives........... 96,801 74,196 66,262 55,007 71,449 57,804 57,370 52,395
Operating, administrative
and other.................. 69,603 56,042 53,594 49,560 53,129 47,803 44,206 42,830
Depreciation and
amortization............... 3,825 3,431 3,038 3,280 3,458 3,546 2,297 2,330
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)...... 21,976 13,499 8,060 4,894 15,534 7,450 4,488 2,371
Interest income.............. 468 286 354 395 446 345 393 490
Interest expense............. 6,240 6,196 5,759 5,928 6,323 6,428 5,313 5,203
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision (benefit) for
income tax.................. 16,204 7,589 2,655 (639) 9,657 1,367 (432) (2,342)
Provision (benefit) for
income tax.................. 6,550 4,220 438 (48) 603 138 26 74
Reduction of valuation
allowances.................. (15,500) (40,400) - - - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Net provision (benefit) for
income tax.................. (8,950) (36,180) 438 (48) 603 138 26 74
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)............ $ 25,154 $ 43,769 $ 2,217 $ (591) $ 9,054 $ 1,229 $ (458) $ (2,416)
======== ======== ======== ======== ======== ======== ======== ========
Other Financial Data:
EBITDA....................... $ 25,801 $ 16,930 $ 11,098 $ 8,174 $ 18,992 $ 10,996 $ 6,785 $ 4,701
Net cash provided by (used
in) operating activities.... $ 41,524 $ 22,150 $ 13,865 $(11,845) $ 30,082 $ 8,143 $ 6,890 $(14,483)
Net cash (used in) investing
activities.................. $ (1,389) $ (9,401) $ 1,768 $ (1,884) $ (2,928) $ (595) $(18,887) $ (2,478)
Net cash provided by (used
in) financing activities.... $(15,710) $(15,297) $ (4,306) $ 6,808 $(16,002) $ (8,098) $ 15,391 $ (2,760)
<CAPTION>
1994
-------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31
---------- ---------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Results of Operations:
Revenue...................... $128,905 $112,843 $103,730 $ 83,510
Costs and Expenses:
Commissions, fees and
other incentives........... 67,919 59,645 54,367 43,154
Operating, administrative
and other.................. 46,316 42,675 42,487 38,756
Depreciation and
amortization............... 2,562 1,797 1,783 1,949
-------- -------- -------- --------
Operating income (loss)...... 12,108 8,726 5,093 (349)
Interest income.............. 370 270 255 214
Interest expense............. 4,747 5,383 3,790 3,442
-------- -------- -------- --------
Income (loss) before
provision (benefit) for
income tax.................. 7,731 3,613 1,588 (3,577)
Provision (benefit) for
income tax.................. (73) 75 75 75
Reduction of valuation
allowances.................. - - - -
-------- -------- -------- --------
Net provision (benefit) for
income tax.................. (73) 75 75 75
-------- -------- -------- --------
Net income (loss)............ $ 7,804 $ 3,538 $ 1,483 $ (3,652)
======== ======== ======== ========
Other Financial Data:
EBITDA....................... $ 14,670 $ 10,523 $ 6,876 $ 1,600
Net cash provided by (used
in) operating activities.... $ 21,911 $ 13,817 $ 5,894 $(10,204)
Net cash (used in) investing
activities.................. $ (1,321) $ (1,006) $ (748) $ (790)
Net cash provided by (used
in) financing activities.... $ (4,369) $ (5,114) $ (5,407) $ 9,967
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
------------------------------------------------------------------------------------------
1996 1995
------------------------------------------- ---------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
--------- --------- --------- ---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Commissions, fees and
other incentives........... 50.4 50.4 50.6 48.8 49.8 49.6 52.9 52.4
Operating, administrative
and other.................. 36.2 38.1 40.9 44.0 37.0 41.0 40.8 42.9
Depreciation and
amortization............... 2.0 2.3 2.3 2.9 2.4 3.0 2.1 2.3
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)...... 11.4 9.2 6.2 4.3 10.8 6.4 4.2 2.4
Interest income.............. 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.5
Interest expense............. 3.2 4.2 4.4 5.2 4.4 5.5 4.9 5.2
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision (benefit) for
income tax.................. 8.4 5.2 2.1 (0.6) 6.7 1.2 (0.4) (2.3)
Provision for income tax..... 3.4 2.9 0.3 0.0 0.4 0.1 0.0 0.1
Reduction of valuation
allowances.................. (8.1) (27.5) - - - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Net provision (benefit) for
income tax.................. (4.7) (24.6) 0.3 0.0 0.4 0.1 0.0 0.1
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)............ 13.1% 29.7% 1.8% (0.6)% 6.3% 1.1% (0.4)% (2.4)%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
-------------------------------------------------
1994
-------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Results of Operations: 100.0% 100.0% 100.0% 100.0%
Revenue......................
Costs and expenses:
Commissions, fees and 52.7 52.9 52.4 51.7
other incentives...........
Operating, administrative 35.9 37.8 41.0 46.4
and other..................
Depreciation and 2.0 1.6 1.7 2.3
amortization............... -------- -------- -------- --------
9.4 7.7 4.9 (0.4)
Operating income (loss)...... 0.3 0.3 0.3 0.2
Interest income.............. 3.7 4.8 3.7 4.1
Interest expense............. -------- -------- -------- --------
Income (loss) before
provision (benefit) for 6.0 3.2 1.5 (4.3)
income tax.................. (0.1) 0.1 0.1 0.1
Provision for income tax.....
Reduction of valuation - - - -
allowances.................. -------- -------- -------- --------
Net provision (benefit) for (0.1) 0.1 0.1 0.1
income tax.................. -------- -------- -------- --------
6.1% 3.1% 1.4% (4.4)%
Net income (loss)............ ======== ======== ======== ========
</TABLE>
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants....................................... 25
Consolidated Balance Sheets as of December 31, 1996, and 1995.................. 26
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994................................................................. 27
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994................................................................. 28
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1995 and 1994........................................ 30
Notes to Consolidated Financial Statements..................................... 31
SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS
III-Condensed Financial Information of Registrant.............................. 49
VIII-Valuation and Qualifying Accounts......................................... 50
EXHIBIT SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS
XI-Computation of Per Share Earnings........................................... 51
</TABLE>
All other schedules and exhibits are not submitted because either they are
not applicable, not required or the information required is included in the
Consolidated Financial Statements, including the notes thereto.
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CB Commercial Real Estate Services Group, Inc.:
We have audited the accompanying consolidated balance sheets of CB Commercial
Real Estate Services Group, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996, and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CB Commercial Real Estate
Services Group, Inc. and subsidiaries as of December 31, 1996, and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
consolidated financial statements are presented for purposes of complying with
the Securities and Exchange Commissions rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 30, 1997
25
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................................... $ 49,328 $ 23,045
Receivables, less allowance of $4,423 and $4,400 for doubtful accounts
at December 31, 1996 and 1995, respectively....................................... 40,927 28,322
Deferred taxes..................................................................... 16,257 765
Prepaid expenses and other......................................................... 7,440 4,889
--------- ---------
Total current assets.............................................................. 113,952 57,021
Property and equipment, net......................................................... 40,835 44,500
Goodwill, net of accumulated amortization of $7,563 and $5,194 at
December 31, 1996 and 1995......................................................... 65,362 59,491
Other intangible assets, net of accumulated amortization of $253,061 and $249,726
at December 31, 1996 and 1995...................................................... 10,521 10,783
Inventoried property................................................................ 7,355 7,355
Deferred taxes...................................................................... 35,146 -
Other assets, net................................................................... 5,773 11,804
--------- ---------
Total assets...................................................................... $ 278,944 $ 190,954
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Compensation and employee benefits................................................. $ 38,747 $ 28,324
Accounts payable and accrued expenses.............................................. 28,020 19,245
Reserve for bonus and profit sharing............................................... 21,414 12,997
Current maturities of long-term debt............................................... 15,314 8,250
Current portion of capital lease obligations....................................... 2,510 2,592
--------- ---------
Total current liabilities......................................................... 106,005 71,408
--------- ---------
Long-term debt, less current maturities:
Senior term loans.................................................................. 65,528 160,394
Senior subordinated term loans..................................................... 72,872 78,963
Inventoried property loan.......................................................... 7,470 7,470
Other long-term debt............................................................... 2,659 3,315
--------- ---------
Total long-term debt.............................................................. 148,529 250,142
--------- ---------
Other long-term liabilities......................................................... 25,925 24,092
--------- ---------
Total liabilities................................................................. 280,459 345,642
--------- ---------
Commitments and contingencies
Stockholders' Equity (Deficit):
Preferred stock, $.01 par value.................................................... 40 40
Common stock, $.01 par value....................................................... 133 93
Additional paid-in capital......................................................... 198,026 110,326
Notes receivable from sale of stock................................................ (5,109) -
Accumulated deficit................................................................ (194,605) (265,147)
--------- ---------
Total stockholders' equity (deficit).............................................. (1,515) (154,688)
--------- ---------
Total liabilities and stockholders' equity (deficit).............................. $ 278,944 $ 190,954
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenue............................................ $ 583,068 $ 468,460 $ 428,988
Costs and Expenses:
Commissions, fees and other incentives.......... 292,266 239,018 225,085
Operating, administrative and other............. 228,799 187,968 170,234
Depreciation and amortization................... 13,574 11,631 8,091
----------- ----------- -----------
Operating income................................... 48,429 29,843 25,578
Interest income.................................... 1,503 1,674 1,109
Interest expense................................... 24,123 23,267 17,362
----------- ----------- -----------
Income before provision (benefit) for income tax... 25,809 8,250 9,325
Provision for income tax........................... 11,160 841 152
Reduction of valuation allowances.................. (55,900) - -
----------- ----------- -----------
Net provision (benefit) for income tax............. (44,740) 841 152
----------- ----------- -----------
Net income......................................... $ 70,549 $ 7,409 $ 9,173
=========== =========== ===========
Net income applicable to common stockholders....... $ 69,549 $ 7,409 $ 9,173
=========== =========== ===========
Primary earnings per share......................... $ 5.02 $ 0.55 $ 0.69
=========== =========== ===========
Weighted average shares outstanding for primary
earnings per share.............................. 13,845,325 13,540,541 13,305,118
=========== =========== ===========
Fully diluted earnings per share................... $ 4.97 $ 0.55 $ 0.69
=========== =========== ===========
Weighted average shares outstanding for fully
diluted earnings per share...................... 14,184,296 13,540,541 13,305,118
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 70,549 $ 7,409 $ 9,173
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization excluding deferred
financing costs........................................ 13,574 11,631 8,091
Amortization of deferred financing costs................. 2,840 1,392 1,551
Equity interest in (earnings) loss of unconsolidated
subsidiaries........................................... (145) 180 (44)
Provision for litigation, doubtful accounts and other.... 9,543 346 2,346
Deferred interest........................................ 6,927 7,738 2,338
Deferred compensation.................................... 2,159 1,762 877
Deferred taxes........................................... (46,128) - -
(Increase) decrease in receivables......................... (14,378) (1,778) 1,134
Decrease (increase) in prepaid expenses and other assets... 794 396 (885)
Increase in compensation and employee benefits payable..... 19,793 3,276 7,222
Increase (decrease) in other operating liabilities......... 166 (1,720) (385)
-------- -------- --------
Net cash provided by operating activities............. 65,694 30,632 31,418
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment........................ (3,002) (2,143) (4,250)
Proceeds from collections on notes receivable.............. 2,726 215 445
Acquisitions of businesses including net assets
acquired, intangibles and goodwill....................... (8,625) (22,376) -
Other investing activities, net............................ (2,005) (584) (60)
-------- -------- --------
Net cash used in investing activities................. (10,906) (24,888) (3,865)
-------- -------- --------
Cash flows from financing activities:
Proceeds from senior revolving credit line................. 21,000 14,000 11,000
Repayment of senior revolving credit line.................. (21,000) (14,000) (11,000)
Repayment of senior term loans............................. (95,865) (18,997) (4,100)
Repayment of capital leases................................ (2,945) (2,167) -
Proceeds from senior subordinated term loan................ - 10,000 -
Repayment of senior subordinated term loan................. (6,044) - -
Proceeds from issuance of common stock..................... 79,540 - -
Other financing activities, net............................ (3,191) (305) (823)
-------- -------- --------
Net cash used in financing activities................. (28,505) (11,469) (4,923)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents......... 26,283 (5,725) 22,630
Cash and cash equivalents, at beginning of period............ 23,045 28,770 6,140
-------- -------- --------
Cash and cash equivalents, at end of period.................. $ 49,328 $ 23,045 $ 28,770
======== ======== ========
</TABLE>
28
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest (none capitalized).................. $25,899 $14,410 $12,172
Federal and state income taxes............... $ 1,284 $ 497 $ 152
Non-cash investing and financing activities:
Portion of Westmark acquisition
financed by notes payable................. $ - $20,283 $ -
Portion of L.J. Melody acquisition
financed by notes payable................. $ 3,667 $ - $ -
Equipment acquired under capital leases...... $ 1,701 $ 3,347 $ 4,569
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
Common stock Additional Notes
Preferred Common options paid-in receivable from Accumulated
stock stock outstanding capital sale of stock deficit Total
--------- ------ ------------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993............ $40 $ 88 $294 $106,613 $ - $(281,895) $(174,860)
Net income.......................... - - - - - 9,173 9,173
Common stock issued for
deferred compensation,
bonuses and profit sharing........ - 1 - 1,095 - - 1,096
Foreign currency translation
adjustment........................ - - - - - 43 43
--------- ---- ------- -------- --------- --------- ---------
Balance, December 31, 1994............ 40 89 294 107,708 - (272,679) (164,548)
Net income.......................... - - - - - 7,409 7,409
Common stock issued for deferred
compensation...................... - 4 - 2,322 - - 2,326
Common stock options
exercised......................... - - (31) 33 - - 2
Foreign currency translation
adjustment........................ - - - - - 123 123
--------- ---- ------- -------- --------- --------- ---------
Balance, December 31, 1995............ 40 93 263 110,063 - (265,147) (154,688)
Net income.......................... - - - - - 70,549 70,549
Common stock issued for deferred
compensation and other
incentives........................ - 8 - 7,660 (5,109) - 2,559
Common stock options
exercised......................... - - (4) 104 - - 100
Preferred dividend accrual.......... - - - (1,000) - - (1,000)
Net proceeds from initial public
offering.......................... - 32 - 79,399 - - 79,431
Benefit of permanent deferred tax
asset............................. - - - 1,541 - - 1,541
Foreign currency translation
adjustment........................ - - - - - (7) (7)
--------- ---- ------- -------- --------- --------- ---------
Balance, December 31, 1996............ $40 $133 $259 $197,767 $(5,109) $(194,605) $ (1,515)
========= ==== ======= ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND ACQUISITIONS
ORGANIZATION. CB Commercial Real Estate Services Group, Inc. (formerly CB
Commercial Holdings, Inc.) ("CB Commercial") was organized to acquire Coldwell
Banker Commercial Group, Inc. and had no operations prior to the acquisition on
April 19, 1989 (the "Acquisition"). In 1991 Coldwell Banker Commercial Group,
Inc. was renamed CB Commercial Real Estate Group, Inc. On November 25, 1996, CB
Commercial completed an initial public offering (the "Offering") of 4,347,000
shares of common stock, par value $.01 per share (the "Common Stock"). The net
proceeds from the Offering of approximately $80.0 million were used to repay a
portion of the Company's senior secured indebtedness and senior subordinated
indebtedness. CB Commercial is a holding company that conducts its operations
solely through CB Commercial Real Estate Group, Inc. and its subsidiaries
(collectively the "Company").
NATURE OF OPERATIONS. The Company provides a full range of services to
commercial real estate tenants, owners, and investors including: (i) brokerage
(facilitating sales and leases), investment properties (acquisitions and sales
on behalf of investors), corporate services, property management, and real
estate market research (collectively, "Property and User Services"), and (ii)
mortgage banking (mortgage loan origination and servicing), investment
management and advisory services and valuation and appraisal services
(collectively, "Investor Services"). The Company's diverse client base includes
local, national and multinational corporations, financial institutions, pension
funds and other tax exempt entities, local, state and national governmental
entities, and individuals.
A significant portion of the Company's revenue is transactional in nature and
seasonal. Historically, this seasonality has caused the Company's revenue,
operating income and net income to be lower in the first two calendar quarters
and higher in the third and fourth calendar quarters of each year.
ACQUISITIONS. Effective July 1, 1996, CB Commercial Mortgage Company, Inc.
("CB Mortgage"), a wholly-owned subsidiary of the Company, acquired all of the
outstanding capital stock of L.J. Melody & Company, a Texas corporation, and
L.J. Melody & Company of California, a Texas corporation ("LJMCal"). On July 9,
1996, CB Mortgage merged into L.J. Melody & Company. As a result, LJMCal is a
wholly-owned subsidiary of L.J. Melody & Company. L.J. Melody & Company and
LJMCal (collectively "L.J. Melody") are commercial mortgage banking firms
engaged in mortgage loan origination and loan servicing. L.J. Melody is
headquartered in Houston, Texas. The purchase consideration for L.J. Melody was
$15.0 million, including a $2.3 million note to the principal seller bearing
10.0% interest with principal payments starting in 1998, $9.0 million in cash
and $3.7 million in additional notes to the sellers. The notes bear interest of
10.0% per annum, with maturities through July 2001. The $2.3 million note will
be accounted for as compensation over the term of the note as the payment of
this note is contingent upon the principal seller's continued employment with
the Company. (See Note 6)
The L.J. Melody acquisition was accounted for as a purchase. The Company
allocated approximately $3.7 million of the total purchase price to identifiable
intangible assets, consisting of loan servicing and asset management contracts,
trade name, a covenant not to compete and other intangibles. The remaining $9.0
million and a $1.5 million deferred tax liability resulting from the acquisition
were recorded to goodwill. The intangibles are being amortized over their
estimated useful lives or the lives of the underlying contracts, as applicable,
over periods ranging from three to 13 years. Goodwill is being amortized on a
straight line basis over 30 years.
On June 30, 1995, CB Commercial Real Estate Group, Inc., through a general
partnership ("WREAP") in which it directly or indirectly owns all of the
partnership interests, acquired Westmark Realty Advisors L.L.C. ("Westmark").
Westmark is an investment management and advisory business headquartered in Los
Angeles. The purchase price consisted of an aggregate initial purchase price of
$37.5 million plus $2.9 million in net liabilities assumed and an additional
$1.0 million in costs related to the Westmark acquisition. Approximately $20.0
million ($19.8 million at December 31, 1996) of the $37.5 million is payable to
the sellers ("Westmark Senior Notes") over periods ranging from one to five
years. The sellers may also be entitled to a supplemental purchase price based
on the operating results of
31
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Westmark payable over a period of six years and subject to a maximum aggregate
payment of $18.0 million. The supplemental purchase price will be recorded as
additional goodwill, if and when earned. As of December 31, 1996, approximately
$2.8 million was earned, of which $1.9 million and $0.9 million was paid to the
sellers on March 31, 1997 and 1996, respectively. Approximately $17.5 million
of the purchase price was paid in cash using $7.5 million contributed to WREAP
by CB Commercial Real Estate Group, Inc. and $10.0 million of proceeds from a
senior subordinated loan ("Westmark Senior Subordinated Loan"). In November
1996, the terms of the Westmark Senior Subordinated Loan were amended to provide
for interest to be payable quarterly on a current basis at a rate of 11.0%,
effective June 30, 1995, and to provide for quarterly amortization payments by
CB Commercial Real Estate Group, Inc. of $500,000. As amended, interest has
accrued on the Westmark Senior Subordinated Loan at the original interest rate
of 20.0%. Interest in excess of 11.0% will be forgiven upon the payment of the
Westmark Senior Subordinated Loan in full. If CB Commercial Real Estate Group,
Inc. defaults on its payment obligations under the loan at any time, such excess
interest will not be forgiven and the Westmark Senior Subordinated Loan will
bear interest at the rate of 20.0% from June 30, 1995. (See Note 6)
The Westmark acquisition was accounted for as a purchase. The Company has
allocated approximately $6.9 million of the total purchase price of $41.4
million to identifiable intangible assets acquired, consisting of asset
management contracts, employment agreements, and trade name and the remaining
$34.5 million was recorded as goodwill. The intangibles will be amortized over
their estimated useful lives of 6, 5 and 10 years, respectively. Based on the
nature of the business, Westmark's market position, its workforce and other
factors, management estimates that the goodwill resulting from this acquisition
has a useful life of approximately 30 years and will be amortized on a straight
line basis over this period. Based upon future experience, this useful life
could be decreased. In that event, the charge for intangibles and goodwill
would be increased and earnings decreased.
On April 11, 1995, the Company acquired certain assets of Langdon Rieder
Corporation ("Langdon Rieder"), a tenant advisory business. The purchase price
consisted of a closing payment of $1.5 million in cash and a deferred payment of
$1.9 million payable over three years ($633,333 payable on each of January 2,
1997, 1998 and 1999), plus interest on the entire outstanding portion of the
deferred payment at an annual rate of 8.0%. The deferred payment is subject to
forfeiture under certain circumstances. The purchase price has largely been
allocated to intangibles and goodwill, which is being amortized on a straight-
line basis over their useful lives ranging from three to seven years.
The assets and liabilities of Westmark and Langdon Rieder, along with the
related goodwill, intangibles and indebtedness resulting from the acquisitions,
are reflected in the accompanying consolidated financial statements as of
December 31, 1996 and 1995. The respective financial information for L.J.
Melody is reflected in the accompanying consolidated financial statements as of
December 31, 1996. The results of operations of the acquired companies are
included in the consolidated results from the dates of acquisition, and were not
material to the Company's results for the year ended December 31, 1996 and 1995,
respectively. The pro forma results of operations of the Company for the years
ended December 31, 1996, 1995 and 1994, assuming the Westmark and Langdon Rieder
acquisitions had occurred on January 1, 1994 and the L.J. Melody acquisition had
occurred on January 1, 1995, would have been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
(Unaudited)
1996 1995 1994
-------- -------- -----------
(Dollars in thousands
except per share data)
<S> <C> <C> <C>
Revenues............................................ $586,485 $489,684 $452,284
Net income.......................................... 69,001 4,903 4,092
Net income per common and common equivalent share
outstanding...................................... 4.98 0.36 0.31
</TABLE>
32
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company. All significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
an original maturity of less than three months.
INTANGIBLE ASSETS AND GOODWILL
The Company obtained approximately $214.0 million of intangible assets (other
than goodwill) from the Acquisition, comprised of a covenant not to compete, a
trademark, deferred financing costs and other items. As of December 31, 1996,
substantially all of these intangibles have been fully amortized. The remaining
unamortized intangibles of approximately $10.5 million at December 31, 1996
consist of approximately $3.1 million relating to deferred financing costs and
$7.5 million are intangibles stemming from the L.J. Melody, Westmark and Langdon
Rieder acquisitions. (See Note 1)
Goodwill of $65.4 million and $59.5 million at December 31, 1996 and 1995,
respectively, consists of $21.0 million and $21.6 million, respectively, related
to the Acquisition and $44.3 million and $37.9 million, respectively, related to
the Westmark, L.J. Melody and other acquisitions. Goodwill related to the
Acquisition is being amortized over an estimated useful life of 40 years.
Goodwill related to Westmark, L.J. Melody and other acquisitions is being
amortized over an estimated useful life of 30 years.
The Company periodically evaluates the recoverability of the carrying amount
of goodwill and other intangible assets. In this assessment, the Company
considers macro market conditions and trends in the Company's relative market
position, its capital structure, lender relationships and the estimated
undiscounted future cash flows associated with these assets. If any of the
significant assumptions inherent in this assessment change in a material way due
to market, economic and/or other factors, the recoverability is assessed based
on the revised assumptions and resultant undiscounted cash flows. If such
analysis indicates impairment, it would be recorded in the period such changes
occur based on the fair value of the goodwill and other intangible assets.
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
Investments in unconsolidated subsidiaries in which the Company does not have
majority control are accounted for under the equity method. (See Note 4)
INCOME RECOGNITION
Real estate commissions on sales are recorded as income upon close of escrow
or upon transfer of title. Real estate commissions on leases are generally
recorded as income upon date of occupancy. Realty advisor incentive fees are
recognized when earned under the provisions of the related advisory agreements.
Other commissions and fees are recorded as income at the time the related
services have been performed unless significant future contingencies exist.
33
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities at the date of the
financial statements and the reported amounts of certain revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management believes that these estimates provide a reasonable basis for the fair
presentation of its financial condition and results of operations.
CERTAIN SIGNIFICANT ESTIMATES
DEFERRED TAXES. The Company has net deferred tax assets of approximately
$77.8 million at December 31, 1996, of which $26.4 has been reserved through a
valuation allowance. The valuation allowance is based on management's
conclusion regarding the realizability of this asset on a more likely than not
basis, as defined in SFAS No. 109. In reaching this conclusion management
considered the Company's past operating results, as well as the current year
events and trends, including the impact if any, of the acquisitions that were
concluded during the year as well as other factors. Management will continue to
evaluate the appropriateness of all or part of this valuation allowance on a
periodic basis and if its conclusions change with respect to realizability, any
necessary adjustments will be made at that time. The impact of these
adjustments, if any, could be material to the Company's financial statements.
(See Note 9)
PER SHARE INFORMATION
Primary earnings per share is calculated based on weighted average common
shares and common stock equivalents, which include preferred stock and dilutive
stock options outstanding. This calculation also includes all issuances of
stock and stock options made within twelve months prior to the Offering as
promotional shares for all periods presented. Fully diluted earnings per share
further assumes the conversion of preferred stock, if dilutive, for the period
after the Offering when the preferred stock was no longer considered to be a
common stock equivalent.
The Company recapitalized its various classes of stock in conjunction with
the Offering. (See Note 8) Weighted average common and common equivalent
shares outstanding are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Preferred stock:
Series A-1..................... 909,836 1,000,000 1,000,000
Series A-2..................... 1,819,672 2,000,000 2,000,000
Series A-3..................... 909,836 1,000,000 1,000,000
Common stock:
Common Stock (post-Offering)... 1,195,402 - -
Class B-1 (pre-Offering)....... 1,687,013 1,850,034 1,850,000
Class B-2 (pre-Offering)....... 5,618,323 5,678,262 5,442,839
Class C-1 (pre-Offering)....... 727,869 800,000 800,000
Class C-R (pre-Offering)....... 727,869 800,000 800,000
Promotional shares.................. 188,062 371,566 371,566
Stock options....................... 61,443 40,679 40,713
---------- ---------- ----------
13,845,325 13,540,541 13,305,118
========== ========== ==========
</TABLE>
34
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE:
Preferred stock:
Series A-1......................... 909,836 1,000,000 1,000,000
Series A-2......................... 1,819,672 2,000,000 2,000,000
Series A-3......................... 909,836 1,000,000 1,000,000
Common stock:
Common Stock (post-Offering)....... 1,195,402 - -
Class B-1 (pre-Offering)........... 1,687,013 1,850,034 1,850,000
Class B-2 (pre-Offering)........... 5,618,323 5,678,262 5,442,839
Class C-1 (pre-Offering)........... 727,869 800,000 800,000
Class C-R (pre-Offering)........... 727,869 800,000 800,000
Promotional shares...................... 188,062 371,566 371,566
Stock options........................... 119,103 40,679 40,713
Assumed conversion of preferred stock... 281,311 - -
---------- ---------- ----------
14,184,296 13,540,541 13,305,118
========== ========== ==========
</TABLE>
Actual shares of common stock outstanding at December 31, 1996 were
13,258,091.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, SFAS No. 122,
Accounting for Mortgage Servicing Rights and SFAS No. 123, Accounting for Stock-
Based Compensation. These standards, including the proforma effect of SFAS No.
123, were not material to the Company's financial statements.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. This statement is required to be adopted by the Company in 1997
and only applies to the operations of L.J. Melody. Under SFAS No. 125, the
Company will be required to recognize, at fair value, financial and servicing
assets it has acquired control over and related liabilities it has incurred and
amortize them over the period of estimated net servicing income or loss. Write-
off of the asset is required when control is surrendered and of the liability
when extinguished. The Company does not currently recognize the value of
financial and servicing assets when loans are originated. The adoption of the
new statement will result in the recognition of amortization cost along with
income from servicing as services are performed and the recognition of gains or
losses at the time servicing rights are sold. Management of the Company
believes that the adoption of this standard will not have a material impact on
the Company's financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications, which do not have an effect on net income, have
been made to the 1995 and 1994 financial statements to conform to the 1996
presentation.
35
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Land........................................ $ 11,946 $ 11,843
Buildings and improvements.................. 23,977 26,553
Furniture and equipment..................... 36,672 35,828
Equipment under capital leases.............. 9,617 7,916
-------- --------
82,212 82,140
Accumulated depreciation and amortization... (41,377) (37,640)
-------- --------
Property and equipment, net........... $ 40,835 $ 44,500
======== ========
</TABLE>
The Company capitalizes expenditures that materially increase the life of the
related assets and charges the cost of maintenance and repairs to expense. Upon
sale or retirement, the capitalized costs and related accumulated depreciation
or amortization are eliminated from the respective accounts, and the resulting
gain or loss is included in operating income.
Depreciation is computed primarily using the straight-line method over
estimated useful lives ranging from 3 to 45 years. Leasehold improvements are
amortized over the term of the respective leases, excluding options to renew.
Equipment under capital leases is depreciated over the related term of the
leases.
4. OTHER ASSETS
Included in other assets at December 31, 1996, and 1995 are $2.7 million and
$1.7 million, respectively, of investments in limited partnerships managed for a
fee for institutional investors. The Company has a 1.0% general partnership
interest in each of the limited partnerships which is accounted for under the
equity method. Although the Company is the general partner of each limited
partnership, it does not have majority control over investment decisions in any
of the limited partnerships. Management fee income from the partnerships was
approximately $7.6 million, $6.4 million and $4.8 million for the years ended
December 31, 1996, 1995, and 1994, respectively. The limited partnerships'
total assets were approximately $363.8 million and $405.9 million and total
liabilities were approximately $72.6 million and $74.1 million as of December
31, 1996, and 1995, respectively. The partnerships' net income (loss) for the
years ended December 31, 1996, 1995, and 1994 was approximately $11.7 million,
$24.2 million and $(18.3) million, respectively.
The general partner capital contributions for four of the partnerships are in
the form of unsecured notes payable totaling approximately $2.9 million and $3.2
million at December 31, 1996, and 1995, respectively. (See Note 6)
36
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Also included in other assets are investments in four unconsolidated
commercial real estate broker subsidiaries as of December 31, 1996 and 1995:
25.0% interest in CB Commercial Real Estate Group Canada Inc.; 5.0% interest as
of December 31, 1996 reduced from a 40.0% interest in CB Comercial de Mexico,
S.A. de C.V. as of December 31, 1995; 19.0% interest in DTZ Leung Pte Ltd.; and
50.0% interest in CB Commercial/Hampshire L.L.C. Investments in and advances to
(from) unconsolidated subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1996 1995
------ -------
<S> <C> <C>
CB Commercial Real Estate Group Canada Inc.... $1,743 $1,604
CB Comercial de Mexico, S.A. de C.V........... - (294)
DTZ Leung Pte Ltd............................. 210 210
CB Commercial/Hampshire L.L.C................. 22 22
</TABLE>
Equity interest in earnings (losses) of the unconsolidated subsidiaries of
$145,000, $180,000 and $(44,000) for the years ended December 31, 1996, 1995 and
1994, respectively, have been included in "Operating, administrative and other"
on the Consolidated Statements of Operations.
In addition, included in other assets were notes receivable aggregating $2.2
million and $5.0 million at December 31, 1996, and 1995, respectively. During
the second quarter of 1996, payment in full on a 9.0% note totaling $2.7 million
was received. The remaining 9.5% note has been reclassified to current and is
secured by a first mortgage lien on hotel properties. Unpaid principal is due
at maturity in July 1997.
5. EMPLOYEE BENEFIT PLANS
OPTION PLANS. One million shares of common stock have been reserved for
issuance under the CB Commercial Real Estate Services Group, Inc. 1990 Stock
Option Plan. Options for 1,000,000 shares, at an exercise price of $10 per
share, were granted pursuant to the plan and vest over one to four year periods,
expiring at various dates through September 2001. Recent options for 40,000
shares were granted at a $20.00 exercise price. Options for 960,000 shares were
outstanding as of December 31, 1996.
A total of 600,000 shares of Common Stock have been reserved for issuance
under the CB Commercial Real Estate Services Group, Inc. 1991 Service Providers
Stock Option Plan to enable the Company to pay certain service providers with
options to purchase shares of the Company's Common Stock instead of with cash.
In a prior year, below market options were granted to certain directors in
partial payment of director fees. All options vested at grant date and expire
at various dates through November 2006. During 1996 and 1995, options to
purchase 467 and 4,106 shares, respectively, of Common Stock were exercised. In
November 1996, options to purchase 30,000 shares were granted to certain
directors at $20.00 per share and vest over a three-year period. As of December
31, 1996 and 1995, options to purchase 66,140 and 36,607 shares of Common Stock
were outstanding at $258,750 and $262,500, respectively.
A total of 90,750 shares of Common Stock have been reserved for issuance
under the L.J. Melody Acquisition Stock Option Plan, which was adopted by the
Board of Directors in September 1996 as part of the July 1996 acquisition of
L.J. Melody. Options for all such shares have been issued at an exercise price
of $10.00 per share and vest over a period of five years at the rate of five
percent per quarter. Options for 90,750 shares of Common Stock were outstanding
as of December 31, 1996.
37
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
STOCK PURCHASE PLAN. The Company has a restricted stock purchase plan
covering certain key employees including senior management. A total of 550,000
shares of Common Stock have been reserved for issuance under the 1996 Equity
Incentive Plan of CB Commercial Real Estate Services Group, Inc. The shares may
be issued to senior executives for a purchase price equal to the greater of
$10.00 per share or fair market value. The purchase price for shares under this
plan must be paid either in cash or by delivery of a full recourse promissory
note. As of December 31, 1996, the Company has issued 510,906 shares of Common
Stock to certain key employees at $10.00 per share The related promissory notes
are also included in stockholders' equity (deficit).
BONUSES. The Company has bonus programs covering certain key employees,
including senior management. Awards are based on the position and performance of
the employee and the achievement of pre-established financial, operating and
strategic objectives. The amounts charged to expense for bonuses were $19.0
million, $10.2 million and $10.3 million for the years ended December 31, 1996,
1995, and 1994, respectively.
CAPITAL ACCUMULATION PLAN (THE "CAP PLAN"). The Cap Plan is a defined
contribution profit sharing plan under Section 401(k) of the Internal Revenue
Code and is the Company's only such plan. Under the Cap Plan, each
participating employee may elect to defer a portion of his or her earnings and
the Company may make additional contributions from the Company's current or
accumulated net profits to the Cap Plan in such amounts as determined by the
Board of Directors. The Company expensed, in connection with the Cap Plan, $1.9
million, $1.0 million and $1.0 million for the years ended December 31, 1996,
1995, and 1994, respectively. (See Note 8)
DEFERRED COMPENSATION PLAN (THE "DCP"). In 1994, the Company implemented the
DCP. Under the DCP, a select group of management and highly compensated
employees can defer the payment of all or a portion of their compensation
(including any bonus). The DCP permits participating employees to make an
irrevocable election at the beginning of each year to receive amounts deferred
at a future date either in cash, which accrues at a rate of interest determined
in accordance with the DCP and is an unsecured long term liability of the
Company, or in newly issued shares of Common Stock of the Company which
elections are recorded as additions to Stockholders' Equity. For the year ended
December 31, 1996, approximately $1.1 million (including interest) and $1.3
million has been deferred in cash and stock, respectively, all of which was
charged to expense in 1996. The accumulated deferrals as of December 31, 1996,
were approximately $2.0 million in cash (including interest) and $2.9 million in
stock for a total of $4.9 million, all of which was charged to expense in the
period of deferral.
38
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Senior Term Loans, with variable interest rates based on
LIBOR plus 2.5% (8.15625% and 7.0% weighted average
at December 31, 1996, and 1995, respectively)
Senior Term Loan due in quarterly installments of $2.625
million commencing March 31, 1997, with the
remaining balance due December 31, 2001...................................... $ 37,415 $130,021
Mortgage Term Loan due in full March 31, 1999................................... 18,000 18,340
Westmark Senior Notes, with interest at 12.0%, $0.283 million due
January 2, 1997, $5.482 million due June 30, 1998, with the
remaining balance due June 30, 2000............................................. 19,771 20,283
L.J. Melody Senior Notes, with interest at 10.0%, due in quarterly installments
of $0.375 million with final payment due July 1, 1998........................... 2,625 -
Senior Subordinated Term Loan, with variable interest rates based on
LIBOR plus 0.25% through December 31, 1996, LIBOR plus 1.25%
during 1997 and 1998, LIBOR plus 2.0% during 1999, LIBOR plus
3.0% during 2000 and LIBOR plus 4.0% during subsequent periods
(5.90625% and 6.0% at December 31, 1996, and 1995, respectively)
due in full on July 23, 2002.................................................... 65,872 67,896
Westmark Senior Subordinated Loan, with interest at 11.0%, due
in quarterly installments of $0.5 million with final payment due
July 31, 2001................................................................... 9,000 11,067
Inventoried Property Loan, secured by inventoried property,
with interest at short-term commercial paper borrowing rate
plus 3.5% (9.0% and 9.37% at December 31, 1996, and 1995,
respectively) due in full April 30, 2000........................................ 7,470 7,470
Equipment Loan, secured by computer equipment with interest at the
prime rate plus 0.5% (8.75% and 9.25% at December 31, 1996 and
1995, respectively), due in full December 1, 1998............................... 164 164
L.J. Melody Contingent Note, with interest at 10%, due in quarterly
installments of $0.056 million with final payment due July 1, 2001.............. 667 -
Unsecured Notes Payable, with fixed interest ranging from 6.0% to
13.0% and variable interest at the higher of the Applicable
Federal Rate or Consumer Price Index plus 6.0% (Note 4)......................... 2,859 3,151
-------- --------
Total...................................................................... 163,843 258,392
Less current maturities.................................................... 15,314 8,250
-------- --------
$148,529 $250,142
======== ========
</TABLE>
Annual aggregate maturities of long-term debt as of December 31, 1996 are as
follows (in thousands): 1997 -$15,314; 1998 - $19,163; 1999 - $12,807; 2000 -
$34,198; 2001 - $14,582; and $67,779 thereafter.
Of the net proceeds of the Offering, approximately $74.4 million was used to
repay a portion of the indebtedness under the Senior Secured Credit Agreement
and $5.0 million was used to pay accrued and unpaid interest on the indebtedness
outstanding under the Senior Subordinated Credit Agreement.
39
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
In connection with the Offering, the Company's senior secured lenders agreed
to amend the terms of the Senior Secured Credit Agreement. As amended, the
senior indebtedness bears interest at the rate of LIBOR plus 2.5%, all of which
interest is payable currently, has a final maturity date of December 31, 2001
and provides for quarterly principal repayments of $2.625 million with a final
payment of $5.5 million on December 31, 2001. (See Note 8)
Also in connection with the Offering, the senior subordinated credit terms
were amended. As amended, interest is payable on a current basis commencing
January 1, 1997. The senior subordinated indebtedness bears interest at a rate
of LIBOR plus 1.25% from January 1, 1997 through December 31, 1998, at LIBOR
plus 2.0% during 1999, LIBOR plus 3.0% during 2000 and LIBOR plus 4.0% during
2001 and subsequent periods. Interest in excess of LIBOR plus 1.25% would be
deferred and added to the principal balance of the senior subordinated
indebtedness until the final maturity of the senior subordinated indebtedness.
The senior subordinated indebtedness may be prepaid at any time without penalty
and is due in full on July 23, 2002.
The Company has two Senior Revolving Credit Lines of $20.0 million and $10.0
million expiring in December 2001. Commitment fees of 0.5% and 0.375%,
respectively, per annum are payable quarterly in arrears on the unused portion
of the lines. The $10.0 million Senior Revolving Credit Line can be used to
fund acquisitions and bears interest at a rate equal to, at the Company's
option, LIBOR plus 300 basis points or the prime rate plus 200 basis points
payable quarterly. Quarterly principal payments are required but may be
borrowed back in full until the line expires, at which time it must be repaid in
full. As of December 31, 1996, there were no amounts outstanding under the
lines. Up to $10.0 million of the Senior Revolving Credit Lines may be used to
secure letters of credit. As of December 31, 1996, $3.4 million of letters of
credit have been issued.
Borrowings under the Senior Secured Credit Agreement are secured by
substantially all of the personal and real property assets of the Company.
Collectively these loans are guaranteed by CB Commercial and all the common
stock of CB Commercial Real Estate Group, Inc. is pledged to secure the
guarantee. Borrowings under the Senior Subordinated Credit Agreement are
secured by a second priority lien on the common stock of CB Commercial Real
Estate Group, Inc.
The Senior Secured Credit Agreement contains numerous restrictive covenants
that, among other things, limit the Company's ability to incur or repay other
indebtedness, make advances or loans to subsidiaries and other entities, make
capital expenditures, incur liens, enter into mergers or effect other
fundamental corporate transactions, sell its assets, or declare dividends. In
addition, the Company is required to meet certain ratios relating to its
adjusted net worth, level of indebtedness, fixed charges and interest coverage.
The Company is in compliance with all covenants as of December 31, 1996.
See Note 1 for indebtedness regarding the Westmark, Langdon Reider and L.J.
Melody acquisitions.
7. COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of pending or threatened lawsuits arising
out of, or incident to, its ordinary course of business. In August 1993, a
former commissioned salesperson of the Company filed a lawsuit against the
Company in the Superior Court of New Jersey, Bargain County, alleging gender
discrimination and wrongful termination by the Company. On November 20, 1996 a
jury returned a verdict against the Company, awarding $6.5 million in general
and punitive damages to the plaintiff. The Company hired new counsel and in
January 1997 filed motions for new trial, reversal of the verdict and reduction
of damages. On March 27, 1997 the trial court denied the Company's motions and
awarded the plaintiff $638,000 in attorneys' fees and costs. The Company has
been advised by appellate counsel that it has a meritorious basis to pursue an
appeal of the verdict, which the Company will do. Included in the Company's
December 31, 1996 financial statements is an accrual sufficient to reserve
against any probable outcome in the case. This accrual was initially established
at $250,000 in 1994 and increased to $800,000 in 1995 and represented the
Company's estimate of its loss exposure for this matter based on its assessment
and analysis as of those dates. Based on available cash and anticipated cash
flows, the Company believes that the ultimate outcome
40
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
will not have an impact on the Company's ability to carry on its operations.
Management believes that any liability to the Company that may result from
disposition of these lawsuits will not have a material effect on the
consolidated financial position or results of operations of the Company.
Future minimum rental commitments for noncancelable operating leases at
December 31, 1996, are as follows (in thousands): 1997 - $21,320; 1998 -
$19,726; 1999 - $17,244; 2000 - $14,657; 2001 - $11,360; and $23,960 thereafter.
Future minimum lease commitments for noncancelable capital leases at December
31, 1996, are as follows (in thousands): 1997 - $2,809; 1998 - $1,145; 1999 -
$286; and $3 thereafter. The interest portion of these payments totals $472.
Capital lease payments due within one year are classified as current
liabilities.
Substantially all leases require the Company to pay maintenance costs,
insurance and property taxes, and generally may be renewed for five year
periods. Total rental expense under noncancelable operating leases was $18.1
million, $22.5 million and $21.3 million for the years ended December 31, 1996,
1995, and 1994, respectively.
8. STOCKHOLDERS' EQUITY
Stockholders' equity by class of stock at December 31, 1996, and 1995 is as
follows:
<TABLE>
<CAPTION>
Votes Shares Original Purchase
per Shares Issued and Price of Shares
Share Authorized Outstanding Outstanding
--------- ------------ ----------------- ---------------
<S> <C> <C> <C> <C>
December 31, 1996
- --------------------
Preferred stock:
Series A-1......... 2 1,000,000 1,000,000 $ 10,000,000
Series A-2......... 1 2,000,000 2,000,000 20,000,000
Series A-3......... - 1,000,000 1,000,000 10,000,000
------------ ----------- ------------
4,000,000 4,000,000 $ 40,000,000
============ =========== ============
Common Stock......... 1 100,000,000 13,258,091 $168,427,149
============ =========== ============
December 31, 1995
- --------------------
Preferred stock:
Series A-1.......... 2 2,000,000 1,000,000 $ 10,000,000
Series A-2.......... 1 4,000,000 2,000,000 20,000,000
Series A-3.......... - 2,000,000 1,000,000 10,000,000
------------ ----------- ------------
8,000,000 4,000,000 $ 40,000,000
============ =========== ============
Common stock:
Class B-1.......... 1 4,000,000 1,854,106 $ 18,532,892
Class B-2.......... 1 12,000,000 5,836,142 55,483,519
Class C-1.......... - 1,600,000 800,000 8,000
Class C-R.......... - 1,600,000 800,000 8,000
Class J............ - 2 2 -
------------ ----------- ------------
19,200,002 9,290,250 $ 74,032,411
============ =========== ============
</TABLE>
41
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
On November 25, 1996 the Company provided liquidity to its common
stockholders by publicly registering its common stock and raised additional
capital in the Offering. The Company issued 4,347,000 shares of common stock in
the Offering at $20.00 per share. The proceeds from the Offering totalled $79.5
million, net of a $6.1 million underwriters' discount and $1.4 million in
estimated offering expenses, all of which has been recorded to equity. The
proceeds were used to repay $74.4 million and $5.0 million of the Company's
senior secured and subordinated indebtedness, respectively. The Company
recapitalized its various classes of stock in conjunction with the Offering. The
following summarizes the terms of the recapitalization:
. Class B-1 and B-2 common stock of the Company was converted into Common
Stock on a one-for-one basis;
. Class C-1 common stock of the Company was converted into Common Stock at a
conversion ratio based on the greater of the Offering price per share and
$22.00, which resulted in the issuance of 436,362 shares of Common Stock;
. The Company acquired all issued and outstanding shares of the Class C-R and
Class J common stock at $.01 per share;
. The Preferred Stock became convertible into Common Stock at the holder's
option at a ratio based upon the per share market price of the Common Stock,
ranging from .60 shares of Common Stock per share of Preferred Stock at a
market price of $30.00 or more per share of Common Stock to .78 shares of
Common Stock per share of Preferred Stock at a market price of $10.00 to
$21.99 per share of Common Stock. No conversion of the Preferred Stock is
permitted when the market price of the Common Stock is below $10.00 per
share.
Effective October 1996, a $1.00 per share annual dividend on the Company's
Preferred Stock was reinstated. The $0.25 per share quarterly dividend on the
Company's Preferred Stock has accrued from October 1, 1996, and will result, if
and when paid, in a cash outlay of $1.0 million per quarter. The Company
currently expects to pay dividends on the Preferred Stock out of working capital
generated from operating cash flow after it has completed its acquisition
program. The Company has elected to defer payment of the accumulated dividend
and utilize available cash to finance future acquisitions. As a consequence,
such dividends will accumulate and bear interest which will be paid on a
quarterly basis and the Company will be prohibited from voluntarily repaying
long-term debt until such accumulated dividend has been paid in full. In the
event the preferred dividend is not declared and paid within one year after the
last day of the quarter to which it relates, it will bear annual interest
compounding at either (i) a fixed rate of 8% annually or (ii) an annual rate
equal to the six-month rate offered to The Sumitomo Bank, Limited in the London
interbank market, for amounts comparable to the amount of any unpaid dividend,
plus 2.5%. As of December 31, 1996, dividends payable were $1,000,000.
Extraordinary distributions to stockholders, if any, and any proceeds
available to stockholders from any sale of all or substantially all of the
Company's assets, or a merger or liquidation of the Company, will be applied
first to pay accumulated but unpaid preference dividends, should they exist, and
thereafter to the return of $10.00 per share to all stockholders on a pro rata
basis, regardless of class or series. After payment in full of $10.00 per
share, additional distributions, if any, will be made on a share-for-share
basis, but each share of preferred stock will be counted as 60.0% of a share of
Common Stock.
The Company's Class J common stock did not participate in any dividends or
liquidation proceeds and had no voting rights except for the nomination and
election of Class J Directors or as required by law.
The Class C-1 and C-R common shares were non-voting (other than as required
by law) and upon liquidation had the right to share in the return of the first
$10.00 of capital to stockholders only to the extent of their par value of $.01
per share but participated fully in proceeds in excess of $10.00 per share and
in all dividends declared on common stock.
42
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
In 1996, the Company issued 4,347,000 shares of Common Stock in the Offering,
510,906 shares to certain key employees in connection with the 1996 Equity
Incentive Plan, 125,389 shares with a stated value of approximately $1.0 million
to the Cap Plan for the year ended December 31, 1995, 8,501 shares to sales
professionals who elected to receive a portion of their annual premium on
earnings payments in stock rather than cash, 129,216 shares in connection with
the DCP (including bonuses deferred in stock) and 10,467 shares in connection
with stock option plans. Additionally, the Company repurchased 800,000 shares of
Class C-R common stock and 2 shares of Class J common stock and converted
800,000 shares of Class C-1 shares to 436,362 shares of Common Stock. In 1995,
the Company issued 159,432 shares of its Class B-2 common stock to the Cap Plan
in connection with the profit sharing contribution, 33,636 shares to sales
professionals who elected to receive a portion of their annual premium on
earnings payments in stock rather than cash and 162,839 shares in connection
with the DCP, for a total of 355,907 Class B-2 common shares issued in 1995.
(See Note 5)
9. INCOME TAXES
The regular federal tax return loss carryforward is $184.3 million as of
December 31, 1996, expiring in the years 2005 through 2008 as follows: $55.4
million--2005; $76.2 million--2006; $38.0 million--2007; and $14.7 million--
2008. The unexpired loss carryforward for federal alternative tax purposes is
$177.0 million as of December 31, 1996 primarily due to depreciation
differences. Use of the federal alternative tax loss carryforward is limited to
the lesser of 90.0% of the year's alternative minimum taxable income or the
remaining alternative minimum tax loss carryforward. The current federal tax
includes alternative minimum tax paid, for which credit carryforwards are
available, totaling $0.8 million as of December 31, 1996. Loss carryforwards
for state income tax purposes expire in various states beginning in 1996.
The tax provision for the years ended December 31, 1996, 1995 and 1994
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Federal:
Current............................. $ 730 $ 503 $ 47
Deferred tax........................ 9,522 1,231 (3,563)
Reduction of valuation allowances... (55,900) (1,231) 3,563
-------- ------- -------
(45,648) 503 47
State:
Current............................. 658 338 105
Deferred............................ 250 209 (773)
Reduction of valuation allowances... - (209) 773
-------- ------- -------
908 338 105
-------- ------- -------
$(44,740) $ 841 $ 152
======== ======= =======
</TABLE>
43
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The following is a reconciliation, stated as a percentage of pre-tax income,
of the U.S. statutory federal income tax rate to the Company's effective tax
rate on income from operations:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Federal statutory tax rate................... 35% 34% 35%
Permanent differences, including goodwill,
meals and entertainment.................... 5 14 9
State taxes, net of federal benefit.......... 4 3 6
Utilization of previously unrecognized net
operating losses........................... - (41) (48)
Reduction of valuation allowances............ (217) - -
----- ---- ----
Effective tax rate........................... (173)% 10% 2%
===== ==== ====
</TABLE>
Beginning in 1992, the Company implemented SFAS No. 109, the modified
liability method of accounting for income taxes. Until the third quarter of
1996, the resulting net deferred tax asset had been fully reserved except for
utilization against earnings as realized. Such asset was being recognized to
the extent of the tax effect of current taxable earnings. Cumulative tax
effects of temporary differences are shown below as of December 31, 1996, and
1995 (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995
------------ ----------
<S> <C> <C>
Asset (Liability)
----------------
Property and equipment......................................... $ 1,952 $ 1,289
Reserves for bad debts, building write down,
legal expenses............................................... 6,386 3,860
Intangible amortization........................................ 1,060 1,213
Bonus, unexercised restricted stock, deferred
compensation................................................. 2,907 1,901
Partnership income............................................. 584 608
Debt modification.............................................. 1,871 1,549
Net operating loss and alternative minimum tax carryforwards... 65,257 77,600
-------- --------
Total deferred tax assets.................................... 80,017 88,020
Unconsolidated affiliates...................................... (218) (218)
Acquisitions................................................... (1,435) -
All other, net................................................. (582) (273)
-------- --------
Total deferred tax liabilities............................... (2,235) (491)
-------- --------
Net deferred tax asset before valuation allowances............. 77,782 87,529
Valuation allowances........................................... (26,379) (87,529)
-------- --------
Net deferred tax asset....................................... $ 51,403 $ -
======== ========
</TABLE>
44
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Management evaluates the appropriateness of all or part of these valuation
allowances on a periodic basis and if the Company concludes there is a change
with respect to realizability, any necessary adjustments are made at that time.
As of September 30, 1996, the Company had experienced continuing profitability
due to a variety of reasons, including the strength of the commercial real
estate markets. In addition, the Company had operated Westmark for one full
year since acquiring Westmark in June 1995, and as a result had concluded that
Westmark should make a positive contribution to the Company's consolidated
taxable income. Finally, the acquisition of L.J. Melody in July 1996 is
expected to make a positive contribution to the Company's consolidated taxable
income. As a result of these factors, during the third quarter of 1996, the
Company projected, on a more likely than not basis, that a portion of its NOL
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
has been allocated to the purchase price of L.J. Melody based on its estimated
future potential to generate taxable income, and the remaining $40.4 million has
been recorded as a tax benefit (a reduction in income tax provision). During the
fourth quarter of 1996, the Company further reduced its deferred tax asset
valuation allowances by $15.5 million based on its ability to generate
additional taxable income in the future through interest savings resulting from
the paydown of part of its senior secured and senior subordinated debt with
proceeds from the Offering. This reduction has also been recorded as a tax
benefit resulting in a cumulative year-to-date tax benefit of $55.9 million.
With the recognition of deferred tax assets, the future period provisions for
income tax will be recorded at the full effective tax rate excluding the impact
of other adjustments, if any, to valuation allowances. For the year ended
December 31, 1996, an $11.2 million provision for income taxes has been recorded
without regard to the income tax benefit resulting from the reduction of the
valuation allowance. Net income for the year ended December 31, 1996 was $70.5
million, which includes the current year provision of $11.2 million offset by
the cumulative year-to-date tax benefit of $55.9 million or a net benefit for
income tax of $44.7 million.
The ability of the Company to utilize NOLs may also be limited in the future
if an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code of 1986, as amended, were deemed to occur. Such an ownership
change may be deemed to occur if the Company engages in certain transactions
involving the issuance of shares of Common Stock, including the issuance of
shares of Common Stock in connection with an acquisition or otherwise or by
reason of a sale of capital stock by an existing shareholder. If an ownership
change were to occur, Section 382 would impose an annual limit on the amount of
NOLs the Company could utilize. The Offering and Recapitalization did not
result in an ownership change. An ownership change may not be within the
control of the Company, however, and therefore there is no assurance that an
ownership change will not occur in the future. The availability of NOLs is, in
any event, subject to uncertainty since their validity is not reviewed by the
Internal Revenue Service until such time as they are utilized to offset income.
10. FIDUCIARY FUNDS
The consolidated balance sheets do not include the net assets of escrow,
agency and fiduciary funds, which amounted to $96.7 million and $28.4 million at
December 31, 1996, and 1995, respectively.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
NOTES RECEIVABLE. The Company has determined that it is not practicable to
estimate the fair value of the notes receivable due to the cost involved in
developing the information as such notes are not publicly traded.
LONG-TERM DEBT. The Senior Term Loans, the Senior Subordinated Term Loan,
the Senior Revolving Credit Lines, the Westmark and Melody Senior Notes, the
Westmark Senior Subordinated Loan, and the Melody Contingent Note, including
their respective maturities, are discussed in Note 6. Estimated fair values for
these liabilities are not presented because the Company believes that the unique
circumstances that include the Company's leverage, the terms of its loans, the
timing of the interest and principal payments, the relative priorities of the
senior and subordinated indebtedness and other terms and conditions associated
with these loans require the expertise of an investment banker
45
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
to determine the fair values. The Company does not consider it practicable to
incur the excessive costs to engage an investment banker to perform a fair value
analysis of these liabilities.
The effective interest rates associated with these loans at December 31, 1996
were not materially different from the stated value.
The fair value of the Inventoried Property Loan discussed in Note 6 is not
materially different from the carrying value of the debt.
The Unsecured Notes Payable discussed in Note 6, which represent the
Company's share of unfunded equity participation, are not considered financial
instruments.
46
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
12. INDUSTRY SEGMENTS
The Company operates in two business segments--Property and User Services and
Investor Services. Property and User Services including brokerage (facilitating
sales and leases), investment properties (acquisitions and sales on behalf of
investors), corporate services, property management and real estate market
research. Investor Services includes mortgage banking (loan origination and
servicing), investment management and advisory services, and valuation and
appraisal services.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Revenue
Property and User Services.............. $513,071 $422,833 $400,250
Investor Services....................... 69,997 45,627 28,738
-------- -------- --------
$583,068 $468,460 $428,988
======== ======== ========
Operating income
Property and User Services.............. $ 40,102 $ 26,142 $ 25,118
Investor Services....................... 8,327 3,701 460
-------- -------- --------
48,429 29,843 25,578
Interest income............................ 1,503 1,674 1,109
Interest expense........................... 24,123 23,267 17,362
-------- -------- --------
Income before provision for income taxes... $ 25,809 $ 8,250 $ 9,325
======== ======== ========
Depreciation and amortization
Property and User Services.............. $ 9,142 $ 8,889 $ 7,485
Investor Services....................... 4,432 2,742 606
-------- -------- --------
$ 13,574 $ 11,631 $ 8,091
======== ======== ========
Capital expenditures (purchases)
Property and User Services.............. $ 2,784 $ 1,987 $ 3,984
Investor Services....................... 218 156 266
-------- -------- --------
$ 3,002 $ 2,143 $ 4,250
======== ======== ========
As of December 31,
-------------------
1996 1995
-------- --------
Identifiable assets
Property and User Services.............. $ 88,116 $ 85,182
Investor Services....................... 73,971 58,800
Corporate............................... 116,857 46,972
-------- --------
$278,944 $190,954
======== ========
</TABLE>
Identifiable assets by industry segment are those assets used in the Company
operations in each segment. Corporate identified assets are principally made up
of cash and cash equivalents, inventoried property, general prepaids and
deferred taxes.
47
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
13. SUBSEQUENT EVENT
On March 18, 1997 the Company announced that it had signed a non-binding
letter of intent to merge with Koll Real Estate Services, Inc. ("Koll") in a
tax-free reorganization to be accounted for as a purchase. The Company has
agreed to issue 0.85 shares of its common stock for each share of Koll common
stock, which will result in the issuance of approximately 6.0 million shares.
The merger is subject to execution of a definitive agreement and the approval of
stockholders of both companies as well as regulatory approval.
48
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------
1996 1995
-------- ---------
<S> <C> <C>
BALANCE SHEET
- -------------
Advances to CB Commercial Real Estate Group, Inc............. $124,274 $ 42,918
Investment in CB Commercial Real Estate Group, Inc. and
subsidiaries................................................ 62,124 62,124
-------- --------
Total assets.............................................. $186,398 $105,042
======== ========
Dividends Payable............................................ $ 1,000 -
Stockholders' Equity......................................... 185,398 105,042
-------- --------
Total Liabilities and Stockholders' Equity................ $186,398 $105,042
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
INCOME STATEMENT
- ----------------
Expenses - other............................................. $ - $ 39 $ (45)
Provision for income tax..................................... 735 51 -
-------- --------- --------
Net income (loss)......................................... $ (735) $ (90) $ 45
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
-------- --------- -------------
<S> <C> <C> <C>
STATEMENT OF CASH FLOWS
- -----------------------
Net income (loss)............................................ $ (735) $ (90) $ 45
Adjustments to reconcile net income (loss) to
net cash used in operating activities..................... - - -
Advances to CB Commercial...................... 735 90 (45)
-------- --------- -------------
Net cash provided by operating activities............... - - -
Cash flows from investing activities......................... - - -
Cash flows from financing activities......................... - - -
Net change in cash and cash equivalents...................... - - -
Cash and cash equivalents, at beginning of period............ - - -
-------- --------- -------------
Cash and cash equivalents, at end of period.................. $ - $ - $ -
======== ========= =============
</TABLE>
NOTES TO CONDENSED FINANCIAL INFORMATION
- ----------------------------------------
Note 1 - In connection with the Acquisition, the Company, together with all
- ------
other CB Commercial subsidiaries, has guaranteed any and all
obligations of CB Commercial Real Estate Group, Inc.
49
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Reserve for Allowance
Employee for Bad Legal
Loans Debts Reserve
------------ ---------- --------
<S> <C> <C> <C>
Balance, December 31, 1993... $1,768 $ 4,538 $ 2,609
Charges to expense........ - 1,096 1,250
Write-offs................ (23) (1,090) (404)
------ ------- -------
Balance, December 31, 1994... 1,745 4,544 3,455
Charges to expense........ - 346 -
Write-offs................ (210) (490) -
------ ------- -------
Balance, December 31, 1995... $1,535 $ 4,400 $ 3,455
Charges to expense........ 600 1,257 7,686
Write-offs................ (425) (1,234) (1,820)
------ ------- -------
Balance, December 31, 1996... $1,710 $ 4,423 $ 9,321
====== ======= =======
</TABLE>
50
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
EXHIBIT XI - COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
- --------------------------
Applicable to common shares:
Net income................................................ $ 70,549 $ 7,409 $ 9,173
Preferred dividends..................................... (1,000) - -
----------- ----------- -----------
Net income applicable to common stock................... $ 69,549 $ 7,409 $ 9,173
=========== =========== ===========
Weighted average common stock outstanding at end of
period.................................................... 13,595,820 13,128,296 12,892,839
Weighted average common stock equivalents outstanding
at end of period.......................................... 61,443 40,679 40,713
Issuance of promotional shares............................. 188,062 371,566 371,566
Weighted average shares outstanding for primary earnings
per share................................................. 13,845,325 13,540,541 13,305,118
=========== =========== ===========
Primary earnings per share.............................. $5.02 $0.55 $ 0.69
=========== =========== ===========
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
Net income................................................. $ 70,549 $ 7,409 $ 9,173
=========== =========== ===========
Weighted average common stock outstanding at end
of period................................................. 13,595,820 13,128,296 12,892,839
Weighted average common stock equivalents outstanding
at end of period.......................................... 119,103 40,679 40,713
Issuance of promotional shares............................. 188,062 371,566 371,566
Effect of assumed conversions and exercises
Dilutive effect of assumed conversion of preferred
stock (a)............................................... 281,311 - -
----------- ----------- -----------
Weighted average shares outstanding for fully diluted
earnings per share........................................ 14,184,296 13,540,541 13,305,118
=========== =========== ===========
Fully diluted earnings per share........................ $4.97 $0.55 $ 0.69
=========== =========== ===========
</TABLE>
(a) Convertible securities are not considered in the calculations if the
effect of the conversion is anti-dilutive.
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following is a description of the positions with the Company presently
held by and the business experience for the past five years for each Director of
the Company.
Stanton D. Anderson, age 56. Mr. Anderson has been a Director of the Company
since 1989. In 1995, he became counsel to the law firm of McDermott, Will &
Emery. Prior to 1995, Mr. Anderson was founding partner in the law firm of
Anderson, Hibey & Blair. He is also a founder of Global USA, Inc., an
international consulting company, where he serves as Chairman. He served as
Deputy Director of the Republican Convention in 1980, 1984 and 1988, as counsel
to the Reagan-Bush Campaign in 1980 and as a Director of the 1980 Presidential
Transition. Mr. Anderson serves on the Board of Directors of International
Management & Development Group, Ltd. Mr. Anderson holds a B.A. degree from
Westmont College and a J.D. degree from Willamette University School of Law.
Gary J. Beban, age 50. Mr. Beban has been the President of the Company since
May 1995 and a Director since 1989. He joined the Company's Los Angeles office
in 1970 as an industrial and investment properties specialist and thereafter
served in several management positions in Chicago. Mr. Beban has also been the
President of CB Commercial Brokerage Services since 1987. He is a member of the
Industrial Development Research Council and the National Realty Committee. Mr.
Beban serves on the Board of Directors of The First American Financial
Corporation and its wholly-owned subsidiary, First American Title Insurance,
Inc. Mr. Beban holds a B.A. degree from the University of California, Los
Angeles.
Richard C. Blum, age 61. Mr. Blum has been a Director of the Company since
1993. He is the Chairman and President of Richard C. Blum & Associates, Inc., a
merchant banking firm he founded in 1975. Mr. Blum is a member of the Board of
Directors of National Education Corporation; Sumitomo Bank of California;
Northwest Airlines Corporation; and URS Corporation. Mr. Blum also serves as
Vice Chairman of URS Corporation. Mr. Blum holds a B.A. from the University of
California, Berkeley, a graduate degree from the University of Vienna and an
M.B.A. degree from the University of California, Berkeley.
Richard C. Clotfelter, age 59. Mr. Clotfelter was elected Chairman and
President, Westmark Realty Advisors, an indirect wholly-owned subsidiary of the
Company, in 1995, and has been a Director of the Company since 1993. Mr.
Clotfelter joined the Company in 1993 as President-Capital Markets, Asset
Valuation and Management Activities. From April 1977 through January 1993, he
was President of Prescott, Inc., a real estate development and management
company. Mr. Clotfelter is on the Board of Directors of The Commerce
Bancorporation. Mr. Clotfelter is also a member of the Urban Land Institute,
serving on its Urban Development/Mixed Used Council. Mr. Clotfelter holds a B.A.
degree from Stanford University.
Daniel A. D'Aniello, age 50. Mr. D'Aniello has been a Director of the Company
since 1989. He has served as Managing Director of The Carlyle Group, a merchant
banking firm, since May 1987. From August 1986 through April 1987, Mr.
D'Aniello was Vice President-Finance and Development of Marriott Inflite
Services, Inc., a subsidiary of Marriott Corp. Mr. D'Aniello is Chairman of the
Board of Directors of GTS Duratek, Inc. and also serves on the Board of
Directors of International Technology Corporation. Mr. D'Aniello holds a B.S.
degree from Syracuse University and an M.B.A. from the Harvard University
Graduate School of Business.
James J. Didion, age 57. Mr. Didion has been Chairman and Chief Executive
Officer of CB Commercial since January 1987 and a Director since the Company's
incorporation. Previously, he served as President of CB
52
<PAGE>
Commercial Real Estate Group, Inc. following a career of almost 24 years in
sales and management positions in the commercial brokerage operations of CB
Commercial Real Estate Group, Inc. Mr. Didion is a member and current trustee
of the Urban Land Institute. He is also a member of the National Realty
Committee and was Chairman of the National Realty Committee from 1993 through
1996. Mr. Didion holds an A.B. degree from the University of California,
Berkeley and serves on the University's Advisory Board for the Haas School of
Business.
Hiroaki Hoshino, age 55. Mr. Hoshino has been a Director of the Company since
1992. Previously, he served as Senior Vice President, Treasurer and Chief
Financial Officer of Kajima International, Inc. from April 1987 to March 1990
and as Senior Vice President and Chief Financial Officer of that company from
April 1990 to March 1991. From April 1991 to March 1993, he served as Executive
Vice President and Chief Financial Officer of Kajima International Inc. Since
April 1991, he has served as the Chief Financial Officer and since April 1993 he
has been Executive Vice President and Chief Financial Officer of Kajima U.S.A.,
Inc. From September 1992 to April 1996, he was Executive Vice President, Chief
Financial Officer and Director of Kajima Capital of America, Inc. Since April
1996 he has been President, Chief Executive Officer and Chief Financial Officer
of Kajima Capital of America, Inc. Mr. Hoshino holds a B.A. degree from
Gakushuin University.
George J. Kallis, age 54. Mr. Kallis has been the Company's Senior Executive
Vice President-Brokerage Western U.S. since 1992 and a Director of the Company
since 1995. Prior to that time, he served as Executive Vice President from 1991
to 1992 and as Senior Vice President and Regional Manager-Brokerage from 1988 to
1991. Mr. Kallis joined the Company in 1977. Mr. Kallis is a member of the
International Council of Shopping Centers and the Urban Land Institute and is on
the Board of Directors of the Los Angeles County Economic Development Council.
Mr. Kallis holds a B.S. degree in Business Administration from the University of
Maryland.
Takayuki Kohri, age 45. Mr. Kohri has been a Director of the Company since
1989. Previously, he was Assistant Manager of Sumitomo Real Estate Sales in
Japan from 1984 to August 1988. From August 1988 to July 1993, he was an
Executive Vice President of Sumitomo Real Estate Sales L.A., Inc. Since July
1993, he has been Deputy Manager of Sumitomo Real Estate Sales Japan, a real
estate sales and development firm. Mr. Kohri holds a B.A. degree in Economics
from Keio University.
Paul C. Leach, age 51. Mr. Leach has been a Director of the Company since
August 1996. Since its founding in 1991, Mr. Leach has served as president of
Paul Leach & Company, a private investment banking firm in San Francisco that
specializes in international and domestic acquisitions and investments. He has
been Managing Director of The Lone Cypress Company, the owner of Pebble Beach
Company, since 1992 and Managing Director of Rancho Cielo Company, a developer
in Rancho Santa Fe, California, since 1993. From 1988 through 1991, Mr. Leach
was a senior manager and partner in the international merger and acquisition
group at Deloitte & Touche. Prior to 1988, he held several positions in San
Francisco, including serving as a partner with both Osterweis Capital Management
and Centennial Petroleum Company and manager of corporate development for
Natomas Company. From 1975 through 1977, Mr. Leach served as associate director
of the Domestic Council Staff at the White House during the Ford Administration.
Mr. Leach holds an A.B. degree from Dartmouth College and M.B.A. and J.D.
degrees from Stanford Graduate School of Business and Stanford Law School,
respectively.
Frederic V. Malek, age 60. Mr. Malek has been a Director of the Company since
1989. He has served as Chairman of Thayer Capital Partners, a merchant banking
firm he founded, since 1993. He was President of Marriott Hotels and Resorts
from 1981 through 1988 and was Executive Vice President of Marriott Corp. from
1978 through 1988. He was Senior Advisor to The Carlyle Group, a merchant
banking firm, from November 1988 through December 1991. From September 1989
through June 1990, he was President of Northwest Airlines and from June 1990
until December 1991 he served as Vice Chairman of Northwest Airlines. From
December 1991 through November 1992, Mr. Malek served as Campaign Manager for
the 1992 Bush/Quayle presidential campaign. He also serves on the Board of
Directors of American Management Systems, Inc.; Automatic Data Processing Corp.;
Choice Hotels International, Inc.; FPL Group, Inc.; Manor Care, Inc.; National
Educational Corp.; Northwest Airlines Corporation; and Paine Webber Funds. Mr.
Malek holds a B.S. degree from the United States Military Academy at West Point
and an M.B.A. degree from the Harvard University Graduate School of Business.
Lawrence J. Melody, age 59. Mr. Melody has served as a Director since August
1996. He is also President of L.J. Melody & Company, an indirect wholly-owned
subsidiary of the Company since July 1996, which he founded in February 1978.
He is a member of the International Council of Shopping Centers, the Urban Land
Institute (a member of the Multifamily Council), the Pension Real Estate
Association, the National Association of
53
<PAGE>
Industrial and Office Parks, the National Multi Housing Council, as well as
other professional organizations. He is a member of the Board of Governors of
the Mortgage Bankers Association of America and past President and Director of
the Texas Mortgage Bankers Association, which awarded him their Distinguished
Service Award in 1995. Mr. Melody holds a B.A. degree from the University of
Notre Dame.
Jeffrey S. Morgan, age 42. Mr. Morgan has been a Senior Vice President of the
Company since 1991 and a Director of the Company since 1995. He joined the
Company in 1978 and is a specialist in industrial properties. He has been named
to the Company's Colbert Coldwell Circle (representing the top three percent of
the Company's sales force) for five of the last ten years. In 1994 he was
awarded the William H. McCarthy Award, the highest honor awarded producing
professionals within the Company. Mr. Morgan holds a B.S. degree in Marketing
from California State University (Northridge).
Peter V. Ueberroth, age 59. Mr. Ueberroth has been a Director of the Company
since 1989. Since 1989, he has been an investor and Managing Director of
Contrarian Group, Inc., a business management company. From 1984 through 1989,
he was the Commissioner of Major League Baseball in the United States. Mr.
Ueberroth is a member of the Board of Directors of The Coca Cola Company;
Ambassadors International, Inc.; Candlewood Hotel Company, Inc.; Doubletree
Hotels Corp; and Transamerica Corporation.
Gary L. Wilson, age 57. Mr. Wilson has been a Director of the Company since
1989. Since 1991, he has been Co-Chairman of Northwest Airlines, Inc.,
Northwest Airlines Corporation and NWA, Inc. From 1985 until January 1990, Mr.
Wilson was an Executive Vice President and Chief Financial Officer and Director
for The Walt Disney Company and remains a Director of The Walt Disney Company.
Mr. Wilson also serves on the Board of Directors of On Command Corporation and
Veritas Holdings GmbH. From 1974 until 1985, he was Executive Vice President
and Chief Financial Officer of Marriott Corporation. Mr. Wilson holds a B.A.
degree from Duke University and an M.B.A. from the Wharton Graduate School of
Business and Commerce at the University of Pennsylvania.
Frank C. Carlucci and Richard A. Pogue have resigned as directors of the
Company.
EXECUTIVE OFFICERS
The following persons are executive officers in addition to the executive
officers included above under "Directors." All executive officers hold their
office at the pleasure of the Board of Directors.
David A. Davidson, age 62. Mr. Davidson has been Senior Executive Vice
President, Chief Financial Officer and Treasurer of the Company since November
1992. Mr. Davidson has announced his plans to retire and will leave the Company
after a transition period following the employment of the Company's new chief
financial officer. From February 1991 to November 1992, he served as Executive
Vice President and from July 1990 to February 1991 was Senior Vice President.
Mr. Davidson joined the Company as Vice President, Treasurer and Assistant
Secretary in June 1989. During 1987 and 1988 he was Executive Vice President
and Chief Operating Officer of Nationwide Health Properties, a real estate
investment trust. Subsequently, he served as Executive Vice President of
Corporation Operations and Chief Financial Officer for Voluntary Hospitals of
America, an alliance of not-for-profit hospitals located in Dallas, Texas. From
1981 to 1987, Mr. Davidson was Vice President, Treasurer of Beverly Enterprises,
a provider of health care services. Mr. Davidson holds a B.S. degree and a
Masters of Accountancy degree from Brigham Young University.
Thaddeus W. Jones, age 54. Mr. Jones has been Senior Executive Vice President
of the Company and Senior Executive Director of CBC/Madison Advisory Group since
1994, after having served as Executive Director-CBC/Madison Advisory Group from
1992 to 1994. From 1986 to 1992, Mr. Jones was President of CB Commercial
Realty Advisors and from 1984 to 1986 he was a Senior Vice President, after
having served in various management positions in the Company's brokerage
business. Mr. Jones rejoined CB Commercial in 1982 after leaving in 1979. Mr.
Jones holds a B.S. degree from the University of California, Los Angeles.
Charles O. McBride, age 55. Mr. McBride has been Senior Executive Vice
President of the Company and Chief Operating Officer-Property Management
Services since April 1991. He joined the Company in 1989 as Executive Vice
President/Chief Operating Officer-Property Management Services. Mr. McBride was
a senior
54
<PAGE>
officer with PM Realty Corp, a national real estate management and services
company, from 1971 to 1989, serving as Executive Vice President from 1981 to
1989. Mr. McBride holds a B.A. degree from the University of Texas.
Ronald J. Platisha, age 50. Mr. Platisha has been the Company's Executive
Vice President and Principal Accounting Officer since 1992. Mr. Platisha was
promoted to Senior Vice President in 1991, after service as First Vice President
and Controller from 1982 to 1991. Mr. Platisha joined the Company in 1976. Mr.
Platisha holds a B.S. degree from California State University (Long Beach).
Kenneth D. Sandstad, age 50. Mr. Sandstad has been the Company's Senior
Executive Vice President-Brokerage Eastern U.S. since 1991. He has also held
the following positions with the Company: Institutional Services Manager from
1994 to 1996, Division Manager (Central Division) from 1990 to 1994 and Regional
Manager (South Central) from 1985 to 1990. Mr. Sandstad was also a Director of
the Company from 1992 to 1994. Mr. Sandstad joined the Company in 1974,
beginning at the Minneapolis office in the brokerage division. He holds a B.S.
degree from St. Olaf College and a J.D. degree from the University of Minnesota.
Walter V. Stafford, age 56. Mr. Stafford has served as Senior Executive Vice
President and General Counsel of the Company since 1995. Mr. Stafford was a
partner at the law firm Pillsbury Madison & Sutro LLP from 1988 to 1995 and from
1973 to 1982. From 1982 to 1988 he was Senior Vice President and General
Counsel at Diasonics, Inc., a medical device manufacturer, and from 1982 to 1994
he was a director of that company. Mr. Stafford holds a B.A. degree from the
University of California, Berkeley and an L.L.B. degree from Boalt Hall.
John L. Stanfill, age 55. Mr. Stanfill is President of CB Commercial
Investment Properties. Previously, he was Managing Director-Special
Investments, a position he was appointed to when he rejoined the Company in 1990
after founding a real estate investment banking firm in 1979. From 1976 to
1979, Mr. Stanfill served as Vice President of Investment Marketing of the
Company. He originally joined the Company in 1971. Mr. Stanfill holds a B.A.
in English Literature from the University of California, Los Angeles.
On April 1, 1997, John C. Haeckel, 38, will join the Company as Chief
Financial Officer and Senior Executive Vice President. Since 1996, Mr. Haeckel
has been President of Perdix Group, LLC, a management consulting firm that he
founded. From 1993 to 1995, he was Chief Financial Officer and from 1994 to
1995 he was Executive Vice President of Broadway Stores, Inc. From 1987 to 1994
he was a General Partner and from 1984 to 1986 he was an Associate with Chilmark
Partners, a merchant banking firm. Mr. Haeckel holds a B.A. degree and a
Masters of Business and Public Management degree from Rice University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and the regulations of
the Securities and Exchange Commission (the "Commission") thereunder require the
Company's executive officers and directors to file reports of ownership and
changes in ownership of the Company's securities with the Commission and to
furnish the Company with copies of all such reports they file. Based on its
review of such reports received by it and written representations from certain
reporting persons, the Company believes that during 1996 all filing requirements
applicable to its executive officers and directors were met except as follows.
A Statement of Changes in Beneficial Ownership on Form 4 reporting a transfer of
shares of the Company's Common Stock by Mr. Kallis to his former spouse was
inadvertently filed late.
55
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Company's chief executive officer and the Company's four most highly
compensated executive officers for the three years ended December 31, 1996.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------ -----------------------------------------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Stock Compen-
Name and Principal Position Year Salary Bonus(1) sation(2) Awards Options sation(3)
- ---------------------------------- ------------ --------- ----------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James J. Didion 1996 $400,000 $574,678 $ --- (4) --- $1,262
Chairman of the Board 1995 390,000 279,160 51,212 --- --- 1,520
and Chief Executive Officer 1994 390,000 300,000 82,005 --- --- 1,105
Gary J. Beban 1996 $325,000 $503,156 --- (4) --- 1,262
President 1995 300,000 190,527 --- --- --- 1,520
1994 300,000 236,118 --- --- 10,000 273
Walter V. Stafford 1996 $300,000 $359,798 --- (4) --- ---
Senior Executive Vice 1995(5) 114,646 116,998 --- 167,000(6) --- ---
President and General Counsel 1994 --- --- --- --- --- ---
Thaddeus W. Jones 1996 $210,000 $309,826 --- --- --- ---
Senior Executive Vice President 1995 210,000 173,079 --- --- --- ---
Senior Executive Director- 1994 210,000 177,259 --- --- 20,000 ---
CBC/Madison Advisory Group
George J. Kallis 1996 $200,000 $294,835 --- (4) --- 567
Senior Executive Vice 1995 200,000 153,538 8,770 --- --- ---
President--Brokerage 1994 200,000 177,944 10,129 32,500(6) --- 747
</TABLE>
________________________
(1) Bonus for each year is paid in the first quarter of the following year.
Pursuant to the Company's Deferred Compensation Plan, Mr. Didion elected to
defer his entire bonuses in 1994, 1995 and 1996, Mr. Stafford elected to defer a
substantial portion of his bonuses in 1995 and 1996, and Mr. Kallis elected to
defer all or a substantial portion of his bonuses in 1994, 1995 and 1996. A
substantial portion of such deferred amounts will be invested in shares of the
Company's Common Stock.
(2) With respect to bonuses payable for 1994 and 1995, under the Company's
Deferred Compensation Plan, an individual who elected to defer any of such bonus
for investment in shares of the Company's Common Stock was credited with such
shares based on the appraised value of the shares at the time the election to
defer was made. The amounts shown represent the difference between the aggregate
appraised value of such shares at the time the bonus was paid and the aggregate
appraised value of such shares at the time the election to defer was made. The
amounts shown relate to bonuses payable in the first quarter of the following
year.
(3) Consists of each individual's allocable share of profit sharing
contributions in the form of shares of Common Stock made by the Company to the
Company's Capital Accumulation Plan, based on the value of the stock at the time
of contribution based on the appraised value of the Company's Common Stock.
(4) Pursuant to the Company's Equity Incentive Plan, a restricted stock
purchase plan, in 1996 shares of Common Stock were purchased by such individual
for a purchase price of $10 per share (the appraised value of the Common Stock
at the time of such purchase), which was paid by delivery of a full recourse
promissory note. The aggregate number and value of such shares held by the
individuals named above as of December 31, 1996 (based on the last reported sale
price of the Common Stock on such date as reported by The Nasdaq Stock Market,
which was $20.00) and net of the purchase price of such shares was as follows:
Mr. Didion - 175,027 ($1,750,270); Mr. Beban - 53,910 ($539,100); Mr. Stafford -
70,750 ($707,500); and Mr. Kallis - 42,750 ($427,500). The shares vest at the
rate of 5 percent per quarter commencing December 31, 1995.
(5) Mr. Stafford's employment by the Company commenced in July 1995.
56
<PAGE>
(6) Represents the appraised value of restricted stock awards at the date of
grant. The aggregate number of shares and value of restricted stock (excluding
stock issued pursuant to the Company's Equity Incentive Plan and stock issued in
prior years and no longer subject to any specified vesting period) held by the
individuals named above as of December 31, 1996 (based on the last reported sale
price of the Common Stock on such date as reported by The Nasdaq Stock Market)
was as follows: Mr. Kallis - 5,000 ($100,000); and Mr. Stafford - 20,000
($400,000). The shares awarded to Mr. Stafford vest at the rate of 20 percent
per year. Shares of restricted stock issued in prior years that are no longer
subject to vesting are included in the table under "Principal Stockholders"
above. The holders of shares of restricted stock are entitled to receive
dividends on such shares to the extent dividends are paid on the Common Stock.
AGGREGATED OPTIONS TABLE. The following table sets forth information
concerning unexercised options held as of December 31, 1996 by the persons named
in the table under "Summary Compensation Table" above. No options have been
exercised by any of such persons.
<TABLE>
<CAPTION>
Value of
Number of Securities Underlying Unexercised In-The-Money
Unexercised Options at December 31, 1996 Options at December 31, 1996
---------------------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- --------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
James J. Didion 75,000 0 $750,000 ---
Gary J. Beban 65,000 5,000 650,000 $ 50,000
Walter V. Stafford 0 0 --- ---
Thaddeus W. Jones 30,000 10,000 300,000 100,000
George J. Kallis 40,000 0 400,000 ---
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The members of the Compensation Committee of the Board of Directors, who
are appointed by the Board of Directors, are Mr. Blum, Mr. Malek, Mr. Ueberroth
and Mr. Wilson. Prior to September 1996, Mr. Malek was Co-Chairman of the
Company.
DIRECTORS FEES
Each of the Directors of the Company who is not also an executive officer
is entitled to receive a fee of $2,500 for attendance at each meeting of the
Board of Directors, $2,500 for attendance at each meeting of a board committee
which does not coincide with a Board of Directors meeting and an annual retainer
of $15,000. No Director received compensation from the Company for services as
a Director in 1996 in excess of $27,500.
57
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's voting capital stock as of March 25, 1997 by: (i)
each person who is known by the Company to own beneficially more than five
percent of each class of the Company's voting stock; (ii) each of the Company's
directors and nominees for directors; (iii) each of the Company's executive
officers named under Item 11 - "Executive Compensation - Summary Compensation
Table;" and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT
TITLE OF CLASS NUMBER OF SHARES OF CLASS
-------------------- ----------------- ---------
<S> <C> <C> <C>
Kajima U.S.A., Inc. Series A-1 Preferred 1,000,000 (1) 100%
320 Park Avenue Common 6,586 (2)
26th Floor
New York, New York 10022
Fukoku Mutual Life Series A-2 Preferred 1,000,000 (1) 50%
Insurance Company 1,989 (3)
2-2, Uchisaiwaicho 2-chome
Chiyoda-ku, Tokyo 100 Japan
S.R.E.S. - Fifth Avenue, Inc. Series A-2 Preferred 1,000,000 (1) 50%
666 Fifth Avenue Common 4,106 (4)
New York, New York 10103
Kasen Development, Inc. Series A-3 Preferred 1,000,000 (1) 100%
3-2, Toyo 6-chome
Koto-Ku, Tokyo 135 Japan
Stanton D. Anderson (5) Common 27,351 *
Gary J. Beban (5) Common 194,029 1.46%
Richard C. Blum (5)(6) Common 439,167 3.30%
Richard C. Clotfelter (5)(8) Common 113,835 *
Daniel A. D'Aneillo (5)(7) Common 306,734 2.31%
James J. Didion (5)(8)(9) Common 403,137 3.00%
Hiroaki Hoshino (10) --- --- ---
Thaddeus W. Jones (5) Common 77,233 *
George J. Kallis (8) Common 114,934 *
Takayuki Kohri (11) --- --- ---
Paul C. Leach --- --- ---
Frederic V. Malek (5) Common 318,808 2.40%
Lawrence J. Melody (5) Common 6,092 *
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C> <C>
Jeffrey S. Morgan Common 5,437 *
Walter V. Stafford (5)(8) Common 90,750 *
Peter V. Ueberroth (8) Common 11,667 *
Gary L. Wilson (8) Common 1,667 ---
All directors and executive officers
as a group (22 persons)(12) Common 2,482,479 18.01%
</TABLE>
______________________
* Less than 1%.
(1) The Company's Series A-1 Preferred Stock, Series A-2 Preferred Stock and
Series A-3 Preferred Stock is convertible into Common Stock at the holder's
option at a ratio based upon the per share market price of the Common
Stock, ranging from .60 shares of Common Stock per share of Preferred Stock
at a market price of $30.00 or more per share of Common Stock to .78 shares
of Common Stock per share of Preferred Stock at a market price of $10.00 to
$21.99 per share of Common Stock. No conversion of the Preferred Stock is
permitted when the market price of the Common Stock is below $10.00 per
share. The holders of Series A-3 Preferred Stock are not entitled to vote
except as required by statute.
(2) Represents options to purchase 6,586 shares of Common Stock issued to
Kajima U.S.A., Inc. in respect of services rendered as a director by Mr.
Hoshino and by Kajima U.S.A., Inc.
(3) Represents options to purchase 1,989 shares of Common Stock issued to
Fukoku Mutual Life Insurance Company in respect of services rendered.
(4) Represents 4,106 shares of Common Stock issued upon exercise of options
issued to S.R.E.S. - Fifth Avenue, Inc. in respect of services rendered as
a director by Mr. Kohri.
(5) Represents number of shares of Common Stock which the named individual
beneficially owns as well as those which the individual has options to
acquire that are exercisable on or before May 31, 1997, which options have
not been exercised. The respective numbers shown in the table include the
following number of option shares for the following individuals: Anderson -
4,235; Beban - 65,000; Blum - 1,667; Clotfelter - 50,000; D'Aniello - 4,235
(options issued to the Carlyle Group, L.P.); Didion - 75,000; Jones -
30,000; Kallis -40,000; Malek - 5,934; Melody - 6,050; Ueberroth - 1,667;
and Wilson - 1,667. Such shares do not include options for 2,609 shares of
Common Stock issued to Kajima U.S.A., Inc. in respect of services rendered
as a director by Mr. Hoshino.
(6) Includes 437,500 shares owned by BK Capital Partners and BK Capital
Partners II, limited partnerships of which Richard C. Blum & Associates,
L.P. is the general partner. Mr. Blum holds the majority of the interests
in Richard C. Blum & Associates, L.P.
(7) Includes 4,235 shares of Common Stock subject to outstanding options issued
in the name of the Carlyle Group, L.P., which, by virtue of Mr. D'Aniello's
interest in the general partner of the Carlyle Group, L.P. and investment
control over such shares, may be deemed to be beneficially owned by Mr.
D'Aniello.
(8) Does not include shares of Common Stock issued in the name of the Company
in respect of Common Stock units credited to the following persons in the
following amounts under the Company's Deferred Compensation Plan but which
are not beneficially owned by such persons: Clotfelter - 1,895; Didion -
121,970; Kallis -10,991; Sandstad 1,506; and Stafford - 10,662. The
foregoing amounts do not include any Common Stock units credited in respect
of the deferred portion, if any, of bonuses payable for 1996.
(9) Includes 6,000 shares held by a trust for the benefit of three members of
Mr. Didion's immediate family.
(10) Mr. Hoshino is a Director of Kajima U.S.A., Inc., which together with an
affiliate owns 2,000,000 shares of the Company's Preferred Stock, 1,000,000
of which are voting securities, and 2,609 shares of Common Stock. Mr.
Hoshino disclaims beneficial ownership of such shares.
(11) Mr. Kohri is Deputy Manager of Sumitomo Real Estate Sales Japan, an
affiliate of S.R.E.S. - Fifth Avenue, Inc., which owns 1,000,000 shares of
the Company's Preferred Stock and 4,106 shares of the Company's Common
Stock. Mr. Kohri disclaims beneficial ownership of such shares.
(12) Includes 435,455 shares of Common Stock subject to outstanding options
exercisable on or before May 31, 1997.
59
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Clotfelter, a director of the Company and president of Westmark, owns 85%
of the stock of Prescott, Inc. ("Prescott"), a property management company based
in Seattle, Washington. In 1994, the Company completed the acquisition of
assets of Prescott consisting of property management agreements for an aggregate
purchase price of $175,000. In connection with the acquisition of assets from
Prescott, in 1994 Mr. Clotfelter incurred indebtedness to the Company in an
aggregate principal amount of $106,000. The indebtedness bore interest at nine
percent, which was determined under the Company's policies for employee loans
and the largest amount outstanding at any time (including principal and
interest) was $109,000. The loan was paid in full as of March 20, 1996.
In February 1995 the Company retained the law firm of McDermott, Will & Emery,
to which Mr. Anderson is counsel, to provide services to the Company consisting
of legal counsel in connection with the Company's activities with certain
Federal agencies.
Pursuant to the terms of his employment arrangements, in each of 1991, 1992
and 1993 the Company paid Mr. Stanfill $50,000 as an interest free advance
against future bonuses. Mr. Stanfill's maximum obligation pursuant to such
advances was $133,463.50. His obligation as of December 31, 1996 was
$33,363.50, which was repaid in March 1997.
In connection with the Company's acquisition of L.J. Melody the Company
entered into an Employment Agreement, dated as of July 1, 1996 (the "Melody
Employment Agreement"), pursuant to which the Company agreed to employ Mr.
Melody as President and Chief Executive Officer of L.J. Melody through June 30,
2001. Pursuant to the Melody Employment Agreement, Mr. Melody is entitled to
receive (a) a base salary of $26,000 per month and (b) certain "incentive
compensation," based on L.J. Melody's profits.
Under certain conditions, Mr. Melody is entitled to severance benefits from
L.J. Melody if the Melody Employment Agreement is terminated. If the
termination occurs prior to July 1, 1997, the severance benefit is $43,750 per
month multiplied by 36 less the number of months elapsed since June 30, 1996.
If the termination occurs on or after July 1, 1997, the severance benefit is
equal to approximately two years of salary and two years of incentive
compensation. In addition, in connection with the acquisition, the Company
granted Mr. Melody an option to purchase 30,250 shares of the Company's Common
Stock. See Item 12 - "Security Ownership of Certain Beneficial Owners and
Management."
Pursuant to the Company's Equity Incentive Plan, a restricted stock purchase
plan, in 1996 shares of Common Stock were purchased by the executive officers
and Directors named below for a purchase price of $10 per share (the appraised
value of the Common Stock at the time of such purchase), which was paid by
delivery of a full recourse promissory note. The notes bear interest at the
rate of 6.84% per annum which may be forgiven if the executive's performance
produces a high enough level of bonus (approximately $7,500 in interest is
forgiven for each $10,000 of bonus). The aggregate number of shares purchased
and the amount of the promissory note delivered by the following individuals
were: Mr. Beban - 53,910 ($539,100); Mr. Clotfelter - 33,750 ($337,500); Mr.
Didion - 175,027 ($1,750,270); Mr. Kallis - 42,750 ($427,500); Mr. Stafford -
70,750 ($707,500); and Mr. Stanfill - 54,383 ($543,830).
Richard C. Blum & Associates, Inc., of which Mr. Blum, a director of the
Company, is Chairman and President, and the Company have tentatively agreed to
form a joint venture to opportunistically acquire and develop property on behalf
of mutual clients. The specifics of any venture are still to be determined.
The Company and CB Commercial have entered into Indemnity Agreements with each
of their present directors, some of whom are also officers of the Company.
60
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. a. Financial Statements
See Index to Consolidated Financial Statements
b. Financial Statement Schedules
See Index to Consolidated Financial Statements
c. Exhibits
See Exhibit Index
2. Reports on Form 8-K
No reports on Form 8-K have been filed by Registrant during the quarter
ended December 31, 1996
3. See Exhibit Index
4. See Index to Consolidated Financial Statements
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
(Registrant)
By /s/ James J. Didion
---------------------------
James J. Didion
Chairman of the Board and Chief Executive Officer
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ James J. Didion Chief Executive Officer and Director March 28, 1997
- --------------------------
James J. Didion
/s/ David A. Davidson Senior Executive Vice President, Chief March 28, 1997
- -------------------------- Financial Officer and Treasurer
David A. Davidson
/s/ Ronald J. Platisha Executive Vice President March 28, 1997
- -------------------------- Principal Accounting Officer
Ronald J. Platisha
/s/ Stanton D. Anderson Director March 28, 1997
- --------------------------
Stanton D. Anderson
/s/ Gary J. Beban Director March 28, 1997
- --------------------------
Gary J. Beban
/s/ Richard C. Blum Director March 28, 1997
- --------------------------
Richard C. Blum
/s/ Richard C. Clotfelter Director March 28, 1997
- --------------------------
Richard C. Clotfelter
</TABLE>
62
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Daniel A. D'Aniello Director March 28, 1997
- --------------------------
Daniel A. D'Aniello
/s/ Hiroaki Hoshino Director March 28, 1997
- -------------------------
Hiroaki Hoshino
/s/ George J. Kallis Director March 28, 1997
- --------------------------
George J. Kallis
/s/ Takayuki Kohri Director March 28, 1997
- --------------------------
Takayuki Kohri
/s/ Paul C. Leach Director March 28, 1997
- ---------------------------
Paul C. Leach
/s/ Frederic V. Malek Director March 28, 1997
- ---------------------------
Frederic V. Malek
/s/ Lawrence J. Melody Director March 28, 1997
- ---------------------------
Lawrence J. Melody
/s/ Jeffrey S. Morgan Director March 28, 1997
- ---------------------------
Jeffrey S. Morgan
/s/ Peter V. Ueberroth Director March 28, 1997
- ---------------------------
Peter V. Ueberroth
/s/ Gary L. Wilson Director March 28, 1997
- ---------------------------
Gary L. Wilson
</TABLE>
63
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3.1 Fourth Restated Certificate of Incorporation of CB Commercial Real
Estate Services Group, Inc. (the "Company").
3.2 Third Amended and Restated Bylaws of the Company.
*4.1 Specimen Form of Common Stock Certificate, filed as Exhibit 4.1 to
the Company's Form S-1 Registration Statement (File No. 333-
12757).
*4.2 Form of the Company's Restricted Stock Agreement between the Company
and the Company's Officer or Employee, filed as Exhibit 4.8 to the
Company's Form S-1 Registration Statement (File No. 33-29410).
*4.3 First Amendment to the Company's Restricted Stock Agreement, filed
as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
*10.1(i) CB Commercial Real Estate Services Group, Inc. Omnibus Stock and
Incentive Plan, filed as Exhibit 10.13 to Post-Effective Amendment
No. 1 to the Company's Form S-1 Registration Statement (File No.
33-29410).
*10.1(ii) First Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1990.
*10.1(iii) Second Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.16(iii)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
*10.1(iv) Third Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.4(iv)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
*10.2(i) 1990 Stock Option Plan, filed as Exhibit 4(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990.
*10.2(ii) First Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.15(ii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
*10.2(iii) Second Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.8(iii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
*10.2(iv) Third Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.5(iv) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
*10.3 Form of Incentive Stock Option Agreement, filed as Exhibit 4(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1990.
*10.4 Form of Nonstatutory Stock Option Agreement, filed as Exhibit 4(c)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990.
64
<PAGE>
10.5 Third Amended and Restated Senior Secured Credit Agreement dated as
of November 25, 1996 between CB Commercial Real Estate Group,
Inc., the lenders from time to time party thereto and The Sumitomo
Bank, Limited, as agent.
10.6 Amended and Restated Senior Subordinated Credit Agreement dated as
of November 25, 1996 among CB Commercial Real Estate Group, Inc.,
the Company and certain subsidiaries of CB Commercial Real Estate
Group, Inc., as guarantors, and Sumitomo Finance (Dublin) Limited.
*10.7 CB Commercial Real Estate Services Group, Inc. 1991 Service
Providers Stock Option Plan, filed as Exhibit 10.27 to the
Company's Current Report on Form 8-K dated April 1, 1992.
10.8 CB Commercial Real Estate Services Group, Inc. Amended and Restated
Deferred Compensation Plan.
*10.9 1996 Equity Incentive Plan of CB Commercial Real Estate Services
Group, Inc., filed as Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
10.10 CB Commercial Real Estate Services Group, Inc. L.J. Melody
Acquisition Stock Option Plan.
*10.11 Form of Indemnification Agreement between the Company, CB Commercial
Real Estate Group, Inc. and directors and officers, filed as
Exhibit 10.29 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
*10.12 Purchase Agreement dated as of May 15, 1995 among CB Commercial Real
Estate Group, Inc., Westmark Real Estate Acquisition Partnership,
L.P., and certain individuals signatory thereto, filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated June 30,
1995.
*10.13 Employment Agreement between the Company and Lawrence J. Melody
dated July 1, 1996, filed as Exhibit 10.12 to the Company's Form
S-1 Registration Statement (File No. 333-12757).
*10.14 Registration Rights Agreement dated as of December 2, 1996 among the
Company and Kajima U.S.A., Inc., Fukoku Mutual Life Insurance
Company, Kasen Development, Inc. and S.R.E.S.-Fifth Avenue, Inc.,
filed as Exhibit 10.13 to the Company's Form S-1 Registration
Statement (File No. 333-12757).
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule
_________________________
* Incorporated by reference
65
<PAGE>
EXHIBIT 3.1
FOURTH RESTATED
CERTIFICATE OF INCORPORATION
OF
CB COMMERCIAL HOLDINGS, INC.
CB Commercial Holdings, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: The original name under which the Corporation was incorporated in the
State of Delaware is CB Acquisition Corp.
SECOND: The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on March 9, 1989; the Restated
Certificate of Incorporation was filed with the Secretary of State of Delaware
on March 15, 1989; the Second Restated Certificate of Incorporation was filed
with the Secretary of State of Delaware on April 17, 1989; and the Third
Restated Certificate of Incorporation was filed with the Secretary of State of
Delaware on September 18, 1989.
THIRD: The Fourth Restated Certificate of Incorporation of the Corporation in
the form attached hereto as Exhibit A has been duly adopted in accordance with
the provisions of Sections 245 and 242 of the General Corporation Law of the
State of Delaware by the directors and stockholders of the Corporation.
FOURTH: The Fourth Restated Certificate of Incorporation so adopted reads in
full as set forth in Exhibit A attached hereto and is hereby incorporated herein
by this reference.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by
the Chief Executive Officer and the Secretary this 2nd day of December, 1996.
CB COMMERCIAL HOLDINGS, INC.
By /s/ James J. Didion
---------------------------
Chief Executive Officer
ATTEST:
BY /s/ Karen A. Tallman
-----------------------
Secretary
<PAGE>
EXHIBIT A
FOURTH RESTATED
CERTIFICATE OF INCORPORATION
OF
CB COMMERCIAL HOLDINGS, INC.
FIRST: The name of the corporation is:
-----
CB Commercial Real Estate Services Group, Inc.
SECOND: The registered office of the corporation in the State of
------
Delaware is located at 1209 Orange Street, City of Wilmington, County of New
Castle. The name of the registered agent of the corporation at such address is
The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware as the same exists or may hereafter be amended.
FOURTH:
------
A. The total number of shares of all classes of capital stock that the
corporation is authorized to issue is 108,000,000, of which 8,000,000 shall be
Preferred Stock ("Preferred Stock") and 100,000,000 shall be Common Stock
("Common Stock"). Both the Preferred Stock and Common Stock shall have a par
value of $.01 per share.
B. The Common Stock may be issued from time to time as follows:
1. Prior to Recapitalization Date . Prior to the Recapitalization Date
-------------------------------
(as defined below), the Common Stock shall consist of three (3) classes: (a)
4,000,000 shares designated Class B-1 Common Stock ("B-1 Stock"), (b) 12,000,000
shares designated Class B-2 Common Stock ("B-2 Stock") and (c) 1,600,000 shares
designated as Class C-1 Common Stock ("C-1 Stock"). The "Recapitalization Date"
means the date, prior to March 31, 1997, of the closing of an IPO. An "IPO"
means a sale of Common Stock for not less than $18.75 per share in an
underwritten public offering registered under the Securities Act of 1933, as
amended, completed on or prior to March 31, 1996, which results in aggregate
proceeds to the corporation (prior to underwriters' discounts and expenses
relating to the issuance) of $75,000,000 or more and which results in the
approval for quotation of such Common Stock on the National Association of
Securities Dealers Automated Quotation System or the listing of such Common
Stock on the New York Stock Exchange.
Prior to the Recapitalization Date, all outstanding shares of Common Stock shall
be identical and shall entitle the holders thereof to the same rights and
privileges, except as provided below:
a. Voting Rights. The holders of shares of B-1 Stock and B-2 Stock shall
-------------
have the right to vote on all matters to be voted upon by the stockholders of
the corporation. The holder of shares of B-1 Stock and B-2 Stock shall be
entitled to one (1) vote per share, voting on each matter upon which such
holders are entitled to vote. The holders of shares of C-1 Stock shall have no
right to vote under any circumstances or for any purpose except as specifically
required by the Delaware General Corporation Law.
b. Dividend Rights. Subject to the payment of any dividends which the
---------------
holders of Preferred Stock are entitled to receive in preference to the holders
of Common Stock and subject to the provisions of the Certificates of
Designation, Preferences and Rights related to the Series A-1, Series A-2 and
Series A-3 Preferred Stock (the "Original Preferred Stock"), the holders of
shares of B-1 Stock, B-2 Stock and C-1 Stock
-2-
<PAGE>
shall be entitled to receive, as and when declared by the Board of Directors,
out of any assets legally available therefor, such dividends as may be declared
from time to time by the Board of Directors, allocated with respect to each
share of B-1 Stock, B-2 Stock and C-1 Stock on a share-for-share basis.
c. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
corporation, whether voluntary or involuntary, each holder of shares of Common
Stock shall be entitled to share (subject to the payment of any amounts which
holders of Preferred Stock are entitled to receive in preference to or pari
passu with the holders of Common Stock) in the remaining assets of the
corporation to be distributed among the holders of shares of the capital stock
of the corporation as follows:
i. First, each holder of shares of B-1 Stock and B-2 Stock shall be
entitled to receive an amount, reduced by any prior payments to such holder
pursuant to this Section B.1.c. of Article Fourth, equal to $10 per share (as
adjusted for any stock dividends, combinations or splits).
ii. Second, each holder of shares of C-1 Stock shall be entitled to
receive an amount, reduced by any prior payments to such holder pursuant to this
Section B.1.c. of Article Fourth, equal to the par value of each such share (as
adjusted for any stock dividends, combination or splits).
iii. Third, each holder of shares of B-1 Stock, B-2 Stock and C-1
Stock shall be entitled to share the remaining assets of the corporation to be
distributed among holders of shares of the corporation's capital stock on a
share-for-share basis.
2. On or After Recapitalization Date. From and after the Recapitalization
---------------------------------
Date, the Common Stock shall consist of a single class of 100,000,000 shares,
each of which shall be identical. From and after the Recapitalization Date,
there shall be no cumulative voting.
3. Automatic Conversion of Common Stock on Recapitalization Date.
--------------------------------------------------------------
Immediately upon the closing of an IPO on the Recapitalization Date, (a) each
share of B-1 Stock and B-2 Stock shall automatically be converted into one (1)
share of Common Stock and (b) each share of C-1 Stock shall automatically be
converted into shares of Common Stock at the C-1 Conversion Rate. The C-1
Conversion Rate is (a) the Conversion Price minus $10.00 per share, divided by
(b) the Conversion Price. The Conversion Price means the greater of the price
at which each share of Common Stock is offered by the Corporation to the public
in an IPO and $22.00. Such conversion shall be deemed to have been made
immediately upon the closing of an IPO.
C. The Preferred Stock may be issued from time to time as follows:
1. Prior to Conversion of Original Preferred Stock. Prior to the date
------------------------------------------------
all of the Original Preferred Stock shall have been converted into Common Stock
in accordance with the applicable Certificate of Designation, Preferences and
Rights, each holder of shares of the Original Preferred Stock shall be entitled
to the rights and privileges set forth in the applicable Certificates of
Designation, Preference and Rights.
2. Authority of Board of Directors to Establish Series of Preferred Stock.
----------------------------------------------------------------------
The Preferred Stock shall consist of a single class of 8,000,000 shares and may
be issued from time to time in one or more series. The Board of Directors of
the corporation (the "Board of Directors") is expressly authorized to provide
for the issue of all or any of the Preferred Stock in one or more series, to fix
the designation and number of shares thereof and to determine or alter for each
such series, such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of such stock and as may be permitted by
the General Corporation Law of the State of Delaware. The Board of Directors is
also expressly authorized to increase or decrease (but not below the number of
shares of such series then outstanding, plus the number of shares of such series
issuable upon exercise of outstanding rights, options or warrants or upon
-3-
<PAGE>
conversion of outstanding securities issued by the corporation) the number of
shares of any series. If the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status that
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
FIFTH: A director of the corporation shall not be liable to the
-----
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any repeal or
modification of the foregoing sentence shall not adversely affect any right or
protection of a director of the corporation existing hereunder with respect to
any act or omission occurring prior to such repeal or modification.
SIXTH:
-----
A. The corporation shall indemnify and hold harmless, to the fullest
extent permitted by applicable law as it presently exists or may hereafter be
amended, any person who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director or
officer of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans (an "Indemnitee"),
against all liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such person. The corporation shall not be required to
indemnify and hold harmless a person in connection with a Proceeding (or part
thereof) initiated by such person unless the Proceeding (or the part thereof
initiated by such person) was authorized by the Board of Directors.
B. The right to indemnification conferred by this Article SIXTH shall be
presumed to have been relied upon by the Indemnitee and shall be enforceable as
a contract right. The corporation may enter into contracts to provide
individual Indemnitees with specific rights of indemnification to the fullest
extent permitted by applicable law and may create trust funds, grant security
interests, obtain letters of credit or use other means to ensure the payment of
such amounts as may be necessary to effect the rights provided in this Article
SIXTH or in any such contract.
C. Except for any Proceeding described in the last sentence of Section A
of Article SIXTH, upon making a request for indemnification, the Indemnitee
shall be presumed to be entitled to indemnification under this Article SIXTH and
the corporation shall have the burden of proof to overcome that presumption in
reaching any contrary determination. Such indemnification shall include the
right to receive payment in advance of any reasonable expenses incurred by the
Indemnitee in connection with any Proceeding (other than a Proceeding described
in the last sentence of Section A of Article Sixth) consistent with the
provisions of applicable law.
D. Any repeal or modification of the foregoing provisions of this Article
SIXTH shall not adversely affect any right or protection of any Indemnitee
existing at the time of such repeal or modification.
SEVENTH: The Board of Directors is authorized to adopt, amend or repeal
-------
the by-laws of the corporation, without any action on the part of the
stockholders, solely by the affirmative vote of at least a majority of the
directors of the corporation then in office.
-4-
<PAGE>
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
OF
SERIES A-1 PREFERRED STOCK
OF
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
(formerly CB Commercial Holdings, Inc.)
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
CB Commercial Real Estate Services Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that pursuant to the authority conferred
upon the Board of Directors by Article FOURTH of the Certificate of
Incorporation of the Corporation, and in accordance with Section 151 of the
General Corporation Law of the State of Delaware, the said Board of Directors
has adopted the following resolution creating a series of Preferred Stock,
designated as Series A-1 Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Corporation's
Certificate of Incorporation, effective upon the closing of an IPO, a series of
Preferred Stock of the Corporation be and it hereby is created, and that the
designation and amount thereof and the powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Amount. The shares of such series shall be designated
----------------------
as "Series A-1 Preferred Stock," par value $.01 per share, and the number of
shares constituting such series shall be 1,000,000. Such number of shares may
be decreased (but may not be increased) by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A-1
Preferred Stock to a number less than that of the shares then outstanding plus
the number of shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Corporation.
2. Automatic Conversion of Existing Series A-1 Preferred Stock on
--------------------------------------------------------------
Recapitalization. Immediately upon the closing of an IPO on the
- ----------------
Recapitalization Date, each existing share of Series A-1 Preferred Stock of the
Corporation shall be converted automatically into one (1) share of Series A-1
Preferred Stock with the powers, preferences and relative, participating,
optional and other special rights of such shares of such series and the
qualifications, limitations or restrictions as set forth herein.
3. Dividends.
---------
(a) Preference Dividend
-------------------
(i) (A) The holders of the Series A-1 Preferred Stock shall be entitled
to receive dividends at the rate of $.25 per quarter on each share of Series
A-1 Preferred Stock, payable out of funds legally available therefor in cash
within one year after the last day of the quarter to which it relates (the
"Preference Dividend"). On the Recapitalization Date, the accrual of such
dividend shall be retroactive to October 1, 1996. Such dividends shall be
payable only when, as and if declared by the Board of Directors.
-1-
<PAGE>
(B) In the event the Preference Dividend is not declared and paid
within one year after the last day of the quarter to which it relates, it
will bear compound interest at a fixed rate of 8% per annum; provided,
--------
however, that (i) if applicable law restricts or prohibits the declaration
-------
or payment of the Preference Dividend, no dividend shall be required to be
declared and paid and no interest shall accrue thereon or be paid to the
extent so restricted or prohibited, and (ii) in the event a contractual
restriction in a credit agreement with a third party to which the
Corporation or one of its direct or indirect subsidiaries is a party
restricts or prohibits the declaration or payment of the Preference
Dividend, no dividend shall be required to be declared or paid other than in
accordance with such contractual restriction, but the Preference Dividend
shall accumulate and accrue as set forth above, interest shall be paid on
the unpaid dividend to the extent permitted under applicable law and any
interest which remains unpaid shall accrue as set forth above.
(ii) Following the Recapitalization Date, until all accrued and unpaid
Preference Dividends (and all accrued and unpaid interest thereon) on the
Series A-1 Preferred Stock (subject to applicable law and contractual
restrictions as set forth in Paragraphs 3(a)(i)(A) and (B) above) shall have
been paid or declared and set apart during any fiscal year:
(A) no shares of Common Stock shall be redeemed by the Corporation,
other than shares of capital stock of the Corporation which were outstanding
prior to the Recapitalization Date and other than shares of capital stock
issued or issuable to officers, directors or employees of, or consultants
to, the Corporation pursuant to stock option, stock purchase or similar
plans and
(B) no dividends (including dividends payable in the Common Stock of
the Corporation, dividends payable in warrants to purchase Common Stock and
dividends payable in securities convertible or exchangeable into shares of
Common Stock of the Corporation) shall be paid or declared and set apart on
any series of Preferred Stock or Common Stock of the Corporation (and in the
case of Common Stock, no dividends shall accrue on such Common Stock) during
that fiscal year.
Nothing set forth in this Certificate shall limit the Corporation's ability
to effect a stock split or reverse stock split.
(iii) Preference Dividends paid on the Series A-1 Preferred Stock, Series
A-2 Preferred Stock and Series A-3 Preferred Stock in an amount less than
the total amount of such Preference Dividends at the time accrued and
payable on such shares and interest, if any, due on such Preference
Dividend, shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding.
(iv) Upon the conversion of any share of Series A-1 Preferred Stock into
the Corporation's Common Stock pursuant to Section 6 below, the holder of
such share of Series A-1 Preferred Stock shall be entitled to receive in
cash an amount equal to all accrued and unpaid Preference Dividends with
respect thereto and interest, if any, due thereon, subject to restrictions
of applicable law and contractual restrictions as set forth in Paragraph
3(a)(i)(B) above.
(b) Dividends in Excess of Preference Dividend. Whenever any dividend is
------------------------------------------
declared and paid with respect to Common Stock, the holders of the Series A-1
Preferred Stock shall be entitled to receive (in addition to any Preference
Dividend and interest thereon in accordance with Paragraphs 3(a)(i)(A) and (B)
above) out of any assets legally available therefore a dividend on each share of
Series A-1 Preferred Stock equal to sixty percent (60%) of the dividend declared
and paid on each share of Common Stock (as proportionately adjusted for any
stock dividends, combinations or splits with respect to such shares).
(c) Except as otherwise provided herein, no right shall accrue to holders
of shares of Series A-1 Preferred Stock by reason of the fact that dividends on
said shares are not declared in any prior year, nor shall any undeclared or
unpaid dividend bear or accrue any interest.
-2-
<PAGE>
4. Liquidation.
-----------
(a) Liquidation Preference. In the event of any liquidation, dissolution
----------------------
or winding up of the Corporation, whether voluntary or involuntary, the holders
of the Series A-1 Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, all accrued but unpaid dividends and interest (if any) thereon (subject
to applicable law and contractual restrictions as set forth in Paragraphs
3(a)(i)(A) and (B) above), then, to the extent any assets of the Corporation
remain available for distribution to the stockholders of the Corporation, the
holders of Preferred Stock and Common Stock shall be entitled to receive an
amount equal to $10.00 per share (as proportionately adjusted for any stock
dividends, combinations or splits with respect to such shares), reduced by any
prior payments to such holder (not including all accrued but unpaid dividends
and accrued interest thereon) in connection with any liquidation, dissolution or
winding up. The Series A-1 Preferred Stock shall rank on a parity with the
Corporation's Series A-2 and A-3 Preferred Stock as to the receipt of the
respective preferential amounts for each such series upon the occurrence of such
event.
(b) Distributions in Excess of Liquidation Preference. With respect to
-------------------------------------------------
the distribution of any remaining assets of the Corporation in connection with a
liquidation, dissolution or winding up, the holders of the Series A-1 Preferred
Stock shall be entitled (after distributions required by paragraph (a) above) to
receive with respect to each share of Preferred Stock sixty percent (60%) of any
distribution made with respect to a share of Common Stock (as proportionately
adjusted for any stock dividends, combinations or splits with respect to such
shares).
5. Voting Rights. The holders of Series A-1 Preferred Stock shall have
-------------
the following voting rights:
(a) Each share of Series A-1 Preferred Stock shall entitle the holder
thereof to two (2) votes on all matters submitted to a vote of the stockholders
of the Corporation.
(b) Except as otherwise expressly provided herein or required by law, the
holders of Series A-1 Preferred Stock, the holders of the Series A-2 Preferred
Stock and the holders of Common Stock entitled to vote shall vote together as
one class on all matters submitted to a vote of stockholders of the Corporation.
(c) Except as otherwise expressly provided herein, holders of Series A-1
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
6. Conversion. The Series A-1 Preferred Stock shall not be convertible
----------
at any time during which the Market Price for a share of Common Stock into which
each share of Preferred Stock is converted is less than $10.00 per share.
Except as otherwise set forth above, any holder of Series A-1 Preferred Stock
may elect from time to time to convert some or all of such holder's Preferred
Stock into shares of Common Stock as follows:
Market Price
of Common Stock Conversion Ratio
--------------- ----------------
$10.00 to $21.99 78.00% of a share of Common Stock for each share of
Preferred Stock
$22.00-$22.99 76.00% of a share of Common Stock for each share of
Preferred Stock
-3-
<PAGE>
$23.00-$23.99 74.00% of a share of Common Stock for each share of
Preferred Stock
$24.00-$24.99 72.00% of a share of Common Stock for each share of
Preferred Stock
$25.00-$25.99 70.00% of a share of Common Stock for each share of
Preferred Stock
$26.00-$26.99 68.00% of a share of Common Stock for each share of
Preferred Stock
$27.00-$27.99 66.00% of a share of Common Stock for each share of
Preferred Stock
$28.00-$28.99 64.00% of a share of Common Stock for each share of
Preferred Stock
$29.00-$29.99 62.00% of a share of Common Stock for each share of
Preferred Stock
$30.00 and above 60.00% of a share of Common Stock for each share of
Preferred Stock
The Market Price and the Conversion Ratio shall be adjusted as hereinafter
provided. Any such election shall be made by written notice to the
Corporation's Secretary and shall be effective on the first day on which the
Common Stock is traded after such election is received by the Corporation's
Secretary. Market Price for the conversion shall be determined by using as the
last day of the period for determining Market Price the effective date of the
election.
(a) Adjustments to Market Price and Conversion Ratio for Certain Dividends
----------------------------------------------------------------------
and for Combinations or Subdivisions of Common Stock. In the event that this
- ----------------------------------------------------
Corporation at any time or from time to time (i) shall declare or pay, without
consideration, any dividend on each outstanding share of the Common Stock
payable in Common Stock, (ii) shall issue Common Stock pursuant to the exercise
of a Warrant Dividend which was exercised at less than Market Price existing at
the time of the issuance of such Warrant Dividend, (iii) shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any warrant or right to acquire
Common Stock) or (iv) in the event the outstanding shares of Common Stock shall
be combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the Market Price and Conversion Ratio for
the Series A-1 Preferred Stock in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate, so as to protect the conversion privileges of the
Preferred Stock. In the event that this Corporation shall declare or pay,
without consideration, any dividend on the Common Stock payable in any warrant
or right to acquire Common Stock exercisable for no consideration, then the
Corporation shall be deemed to have made a dividend payable in Common Stock in
an amount of shares equal to the maximum number of shares issuable upon exercise
of such warrant or right to acquire Common Stock. A "Warrant Dividend" means a
dividend declared or paid by the Corporation without consideration on each
outstanding share of Common Stock and payable in a warrant or right to acquire
Common Stock. Notwithstanding the foregoing, no adjustment for any Warrant
Dividend shall be required until, and then only to the extent that, such Warrant
Dividend has been actually exercised at less than the Market Price of Common
Stock at the time of the issuance of such Warrant Dividend.
(b) Adjustments for Reclassification and Reorganization. If the Common
---------------------------------------------------
Stock issuable upon conversion of the Series A-1 Preferred Stock shall be
changed into the same or a different number of shares of
-4-
<PAGE>
any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in Section 6 above), the Market Price and Conversion Ratio then in
effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series A-1 Preferred
Stock shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been received by the holders in the event
of a conversion of the Series A-1 Preferred Stock immediately before that
change.
(c) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion provisions applicable to the
Series A-1 Preferred Stock against impairment; provided, however, that
notwithstanding any other provision hereof, the Corporation may at any time and
from time to time take any of the foregoing actions without any adjustment to
the Market Price or Conversion Ratio unless such adjustment is specifically and
expressly provided for herein.
(d) Certificates as to Adjustments. Upon the occurrence of each adjustment
------------------------------
or readjustment of any Market Price and Conversion Ratio pursuant to this
Section 6 (other than adjustments pursuant to Section 6a(ii) with respect to the
issuance of Common Stock pursuant to the exercise of a Warrant Dividend), the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A-1 Preferred Stock a certificate executed by the Corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. Upon the declaration and payment by the Corporation of a
Warrant Dividend, in lieu of the certificate described above, the Corporation at
its expense shall promptly prepare and furnish to each holder of Series A-1
Preferred Stock a certificate executed by the Corporation's President or Chief
Financial Officer stating that the Corporation has declared and paid a Warrant
Dividend and describing the terms thereof. The Corporation shall, upon the
written request at any time of any holder of Series A-1 Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Ratio for such series of
Preferred Stock at the time in effect, and (iii) the number of shares of Common
Stock which at the time would be received upon the conversion of the Series A-1
Preferred Stock.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A-1 Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A-1 Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
A-1 Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Certificate of
Incorporation.
(f) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Series A-1 Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A-1 Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
-5-
<PAGE>
7. Reacquired Shares. Any shares of Series A-1 Preferred Stock purchased
-----------------
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
8. Restrictions and Limitations. So long as any shares of Series A-1,
----------------------------
Series A-2 and Series A-3 Preferred Stock remain outstanding, the Corporation
shall not, (i) issue any other equity security (including any security
convertible into or exercisable for any equity security) senior to or on parity
with the Series A-1, Series A-2 or Series A-3 Preferred Stock as to dividend
rights or liquidation preferences or (ii) without the vote or written consent by
the holders of a majority of the then outstanding shares of Series A-1, Series
A-2 and Series A-3 Preferred Stock, voting together as a single class, amend its
Certificate of Incorporation if such amendment would change any of the rights,
preferences or privileges provided for herein for the benefit of any shares of
that series of Preferred Stock.
9. Definitions.
-----------
"IPO" means a sale of Common Stock for not less than $18.75 per share in an
underwritten offering registered under the Securities Act of 1933, as amended,
which is completed on or before March 31, 1997, which results in aggregate
proceeds to the Corporation (prior to underwriters' discounts and expenses
relating to the issuance) of $75,000,000 or more and which results in the
listing of such Common Stock on the New York Stock Exchange or the approval for
quotation of such Common Stock on the National Association of Securities Dealers
Automated Quotation System.
"Market Price" means (i) during the first 20 consecutive days in which the
Common Stock is traded after the closing of an IPO, the price at which the
common stock was offered to the public in the IPO and (ii) thereafter, the
average closing price for a share of Common Stock as reported by the Wall Street
---- ------
Journal (West Coast Edition) for a period of 20 consecutive trading days
- -------
immediately prior to the day as of which Market Price is being determined
(ignoring for purposes of consecutiveness days on which the market or stock
exchange on which such stock trades is not open).
"Recapitalization Date" means the date, prior to March 31, 1997, of the
closing of an IPO.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation, Preferences and Rights of Series A-1 Preferred Stock to be duly
executed by its Chief Executive Officer and attested to by its Secretary this
2nd day of December, 1996.
/s/ James J. Didion
--------------------
CHIEF EXECUTIVE OFFICER
ATTEST:
/s/ Karen A. Tallman
---------------------
SECRETARY
-6-
<PAGE>
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
OF
SERIES A-2 PREFERRED STOCK
OF
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
(formerly CB Commercial Holdings, Inc.)
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
CB Commercial Real Estate Services Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that pursuant to the authority conferred
upon the Board of Directors by Article FOURTH of the Certificate of
Incorporation of the Corporation, and in accordance with Section 151 of the
General Corporation Law of the State of Delaware, the said Board of Directors
has adopted the following resolution creating a series of Preferred Stock,
designated as Series A-2 Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Corporation's
Certificate of Incorporation, effective upon the closing of an IPO, a series of
Preferred Stock of the Corporation be and it hereby is created, and that the
designation and amount thereof and the powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Amount. The shares of such series shall be designated
----------------------
as "Series A-2 Preferred Stock," par value $.01 per share, and the number of
shares constituting such series shall be 2,000,000. Such number of shares may
be decreased (but may not be increased) by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A-2
Preferred Stock to a number less than that of the shares then outstanding plus
the number of shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Corporation.
2. Automatic Conversion of Existing Series A-2 Preferred Stock on
--------------------------------------------------------------
Recapitalization. Immediately upon the closing of an IPO on the
- ----------------
Recapitalization Date, each existing share of Series A-2 Preferred Stock of the
Corporation shall be converted automatically into one (1) share of Series A-2
Preferred Stock with the powers, preferences and relative, participating,
optional and other special rights of such shares of such series and the
qualifications, limitations or restrictions as set forth herein.
3. Dividends.
---------
(a) Preference Dividend
-------------------
(i) (A) The holders of the Series A-2 Preferred Stock shall be
entitled to receive dividends at the rate of $.25 per quarter on each share
of Series A-2 Preferred Stock, payable out of funds legally available
therefor in cash within one year after the last day of the quarter to which
it relates (the "Preference Dividend"). On the Recapitalization Date, the
accrual of such dividend shall be retroactive to October 1, 1996. Such
dividends shall be payable only when, as and if declared by the Board of
Directors.
-1-
<PAGE>
(B) In the event the Preference Dividend is not declared and paid
within one year after the last day of the quarter to which it relates, it
will bear compound interest at either (i) a fixed rate of 8% per annum or
(ii) the LIBOR Rate plus 2-1/2% per annum until paid, as irrevocably
designated by each holder of Preferred Stock pursuant to the Preferred
Stockholder Agreement; provided, however, that (i) if applicable law
-------- -------
restricts or prohibits the declaration or payment of the Preference
Dividend, no dividend shall be required to be declared and paid and no
interest shall accrue thereon or be paid to the extent so restricted or
prohibited, and (ii) in the event a contractual restriction in a credit
agreement with a third party to which the Corporation or one of its direct
or indirect subsidiaries is a party restricts or prohibits the declaration
or payment of the Preference Dividend, no dividend shall be required to be
declared or paid other than in accordance with such contractual
restriction, but the Preference Dividend shall accumulate and accrue as set
forth above, interest shall be paid on the unpaid dividend to the extent
permitted under applicable law and any interest which remains unpaid shall
accrue as set forth above.
(ii) Following the Recapitalization Date, until all accrued and unpaid
Preference Dividends (and all accrued and unpaid interest thereon) on the
Series A-2 Preferred Stock (subject to applicable law and contractual
restrictions as set forth in Paragraphs 3(a)(i)(A) and (B) above) shall
have been paid or declared and set apart during any fiscal year:
(A) no shares of Common Stock shall be redeemed by the
Corporation, other than shares of capital stock of the Corporation which
were outstanding prior to the Recapitalization Date and other than shares
of capital stock issued or issuable to officers, directors or employees of,
or consultants to, the Corporation pursuant to stock option, stock purchase
or similar plans and
(B) no dividends (including dividends payable in the Common Stock
of the Corporation, dividends payable in warrants to purchase Common Stock
and dividends payable in securities convertible or exchangeable into shares
of Common Stock of the Corporation) shall be paid or declared and set apart
on any series of Preferred Stock or Common Stock of the Corporation (and in
the case of Common Stock, no dividends shall accrue on such Common Stock)
during that fiscal year.
Nothing set forth in this Certificate shall limit the Corporation's ability
to effect a stock split or reverse stock split.
(iii) Preference Dividends paid on the Series A-1 Preferred Stock,
Series A-2 Preferred Stock and Series A-3 Preferred Stock in an amount less
than the total amount of such Preference Dividends at the time accrued and
payable on such shares and interest, if any, due on such Preference
Dividend, shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding.
(iv) Upon the conversion of any share of Series A-2 Preferred Stock
into the Corporation's Common Stock pursuant to Section 6 below, the holder
of such share of Series A-2 Preferred Stock shall be entitled to receive in
cash an amount equal to all accrued and unpaid Preference Dividends with
respect thereto and interest, if any, due thereon, subject to restrictions
of applicable law and contractual restrictions as set forth in Paragraph
3(a)(i)(B) above.
(b) Dividends in Excess of Preference Dividend. Whenever any dividend is
------------------------------------------
declared and paid with respect to Common Stock, the holders of the Series A-2
Preferred Stock shall be entitled to receive (in addition to any Preference
Dividend and interest thereon in accordance with Paragraphs 3(a)(i)(A) and (B)
above) out of any assets legally available therefore a dividend on each share of
Series A-2 Preferred Stock equal to sixty percent (60%) of the dividend declared
and paid on each share of Common Stock (as proportionately adjusted for any
stock dividends, combinations or splits with respect to such shares).
(c) Except as otherwise provided herein, no right shall accrue to holders
of shares of Series A-2 Preferred Stock by reason of the fact that dividends on
said shares are not declared in any prior year, nor shall any undeclared or
unpaid dividend bear or accrue any interest.
-2-
<PAGE>
4. Liquidation.
-----------
(a) Liquidation Preference. In the event of any liquidation, dissolution
----------------------
or winding up of the Corporation, whether voluntary or involuntary, the holders
of the Series A-2 Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, all accrued but unpaid dividends and interest (if any) thereon (subject
to applicable law and contractual restrictions as set forth in Paragraphs
3(a)(i)(A) and (B) above), then, to the extent any assets of the Corporation
remain available for distribution to the stockholders of the Corporation, the
holders of Preferred Stock and Common Stock shall be entitled to receive an
amount equal to $10.00 per share (as proportionately adjusted for any stock
dividends, combinations or splits with respect to such shares), reduced by any
prior payments to such holder (not including all accrued but unpaid dividends
and accrued interest thereon) in connection with any liquidation, dissolution or
winding up. The Series A-2 Preferred Stock shall rank on a parity with the
Corporation's Series A-1 and A-3 Preferred Stock as to the receipt of the
respective preferential amounts for each such series upon the occurrence of such
event.
(b) Distributions in Excess of Liquidation Preference. With respect to
-------------------------------------------------
the distribution of any remaining assets of the Corporation in connection with a
liquidation, dissolution or winding up, the holders of the Series A-2 Preferred
Stock shall be entitled (after distributions required by paragraph (a) above) to
receive with respect to each share of Preferred Stock sixty percent (60%) of any
distribution made with respect to a share of Common Stock (as proportionately
adjusted for any stock dividends, combinations or splits with respect to such
shares).
5. Voting Rights. The holders of Series A-2 Preferred Stock shall have
-------------
the following voting rights:
(a) Each share of Series A-2 Preferred Stock shall entitle the holder
thereof to one (1) vote on all matters submitted to a vote of the stockholders
of the Corporation.
(b) Except as otherwise expressly provided herein or required by law, the
holders of Series A-1 Preferred Stock, the holders of the Series A-2 Preferred
Stock and the holders of Common Stock entitled to vote shall vote together as
one class on all matters submitted to a vote of stockholders of the Corporation.
(c) Except as otherwise expressly provided herein, holders of Series A-2
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
6. Conversion. The Series A-2 Preferred Stock shall not be convertible
----------
at any time during which the Market Price for a share of Common Stock into which
each share of Preferred Stock is converted is less than $10.00 per share.
Except as otherwise set forth above, any holder of Series A-2 Preferred Stock
may elect from time to time to convert some or all of such holder's Preferred
Stock into shares of Common Stock as follows:
<TABLE>
<CAPTION>
Market Price
of Common Stock Conversion Ratio
--------------- ----------------
<S> <C>
$10.00 to $21.99 78.00% of a share of Common Stock for each share of
Preferred Stock
$22.00-$22.99 76.00% of a share of Common Stock for each share of
Preferred Stock
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
$23.00-$23.99 74.00% of a share of Common Stock for each share of
Preferred Stock
$24.00-$24.99 72.00% of a share of Common Stock for each share of
Preferred Stock
$25.00-$25.99 70.00% of a share of Common Stock for each share of
Preferred Stock
$26.00-$26.99 68.00% of a share of Common Stock for each share of
Preferred Stock
$27.00-$27.99 66.00% of a share of Common Stock for each share of
Preferred Stock
$28.00-$28.99 64.00% of a share of Common Stock for each share of
Preferred Stock
$29.00-$29.99 62.00% of a share of Common Stock for each share of
Preferred Stock
$30.00 and above 60.00% of a share of Common Stock for each share of
Preferred Stock
</TABLE>
The Market Price and Conversion Ratio shall be adjusted as hereinafter
provided. Any such election shall be made by written notice to the
Corporation's Secretary and shall be effective on the first day on which the
Common Stock is traded after such election is received by the Corporation's
Secretary. Market Price for the conversion shall be determined by using as the
last day of the period for determining Market Price the effective date of the
election.
(a) Adjustments to Market Price and Conversion Ratio for Certain Dividends
----------------------------------------------------------------------
and for Combinations or Subdivisions of Common Stock. In the event that this
- ----------------------------------------------------
Corporation at any time or from time to time (i) shall declare or pay, without
consideration, any dividend on each outstanding share of the Common Stock
payable in Common Stock, (ii) shall issue Common Stock pursuant to the exercise
of a Warrant Dividend which was exercised at less than Market Price existing at
the time of the issuance of such Warrant Dividend, (iii) shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any warrant or right to acquire
Common Stock) or (iv) in the event the outstanding shares of Common Stock shall
be combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the Market Price and Conversion Ratio for
the Series A-2 Preferred Stock in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate, so as to protect the conversion privileges of the
Preferred Stock. In the event that this Corporation shall declare or pay,
without consideration, any dividend on the Common Stock payable in any warrant
or right to acquire Common Stock exercisable for no consideration, then the
Corporation shall be deemed to have made a dividend payable in Common Stock in
an amount of shares equal to the maximum number of shares issuable upon exercise
of such warrant or right to acquire Common Stock. A "Warrant Dividend" means a
dividend declared or paid by the Corporation without consideration on each
outstanding share of Common Stock and payable in a warrant or right to acquire
Common Stock. Notwithstanding the foregoing, no adjustment for any Warrant
Dividend shall be required until, and then only to the extent that, such Warrant
Dividend has been actually exercised at less than the Market Price of Common
Stock at the time of the issuance of such Warrant Dividend.
(b) Adjustments for Reclassification and Reorganization. If the Common
---------------------------------------------------
Stock issuable upon conversion of the Series A-2 Preferred Stock shall be
changed into the same or a different number of shares of
-4-
<PAGE>
any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in Section 6 above), the Market Price and Conversion Ratio then in
effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series A-2 Preferred
Stock shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been received by the holders in the event
of a conversion of the Series A-2 Preferred Stock immediately before that
change.
(c) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion provisions applicable to the
Series A-2 Preferred Stock against impairment; provided, however, that
notwithstanding any other provision hereof, the Corporation may at any time and
from time to time take any of the foregoing actions without any adjustment to
the Market Price or Conversion Ratio unless such adjustment is specifically and
expressly provided for herein.
(d) Certificates as to Adjustments. Upon the occurrence of each adjustment
------------------------------
or readjustment of any Market Price and Conversion Ratio pursuant to this
Section 6 (other than adjustments pursuant to Section 6a(ii) with respect to the
issuance of Common Stock pursuant to the exercise of a Warrant Dividend), the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A-2 Preferred Stock a certificate executed by the Corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. Upon the declaration and payment by the Corporation of a
Warrant Dividend, in lieu of the certificate described above, the Corporation at
its expense shall promptly prepare and furnish to each holder of Series A-2
Preferred Stock a certificate executed by the Corporation's President or Chief
Financial Officer stating that the Corporation has declared and paid a Warrant
Dividend and describing the terms thereof. The Corporation shall, upon the
written request at any time of any holder of Series A-2 Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Ratio for such series of
Preferred Stock at the time in effect, and (iii) the number of shares of Common
Stock which at the time would be received upon the conversion of the Series A-2
Preferred Stock.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A-2 Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A-2 Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
A-2 Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Certificate of
Incorporation.
(f) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Series A-2 Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A-2 Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
-5-
<PAGE>
7. Reacquired Shares. Any shares of Series A-2 Preferred Stock purchased
-----------------
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
8. Restrictions and Limitations. So long as any shares of Series A-1,
----------------------------
Series A-2 and Series A-3 Preferred Stock remain outstanding, the Corporation
shall not, (i) issue any other equity security (including any security
convertible into or exercisable for any equity security) senior to or on parity
with the Series A-1, Series A-2 or Series A-3 Preferred Stock as to dividend
rights or liquidation preferences or (ii) without the vote or written consent by
the holders of a majority of the then outstanding shares of Series A-1, Series
A-2 and Series A-3 Preferred Stock, voting together as a single class, amend its
Certificate of Incorporation if such amendment would change any of the rights,
preferences or privileges provided for herein for the benefit of any shares of
that series of Preferred Stock.
9. Definitions.
-----------
"IPO" means a sale of Common Stock for not less than $18.75 per share in an
underwritten offering registered under the Securities Act of 1933, as amended,
which is completed on or before March 31, 1997, which results in aggregate
proceeds to the Corporation (prior to underwriters' discounts and expenses
relating to the issuance) of $75,000,000 or more and which results in the
listing of such Common Stock on the New York Stock Exchange or the approval for
quotation of such Common Stock on the National Association of Securities Dealers
Automated Quotation System.
"LIBOR Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York or Los Angeles, California are
authorized or required to close and any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
"LIBOR Rate" means the rate per annum (rounded upwards, if any, to the next
higher 1/16th of 1%) on the basis of the offered rate of deposits in U.S.
dollars to The Sumitomo Bank, Limited in the London interbank market in amounts
comparable to the aggregate amount of any dividend which was required to have
been declared and paid and for a period of six months as of approximately 11:00
a.m. (London time) on the day any dividend was required to have been declared
and paid or, if such day is not a LIBOR Business Day, the next succeeding LIBOR
Business Day.
"Market Price" means (i) during the first 20 consecutive days in which the
Common Stock is traded after the closing of an IPO, the price at which the
common stock was offered to the public in the IPO and (ii) thereafter, the
average closing price for a share of Common Stock as reported by the Wall Street
---- ------
Journal (West Coast Edition) for a period of 20 consecutive trading days
- -------
immediately prior to the day as of which Market Price is being determined
(ignoring for purposes of consecutiveness days on which the market or stock
exchange on which such stock trades is not open).
"Recapitalization Date" means the date, prior to March 31, 1997, of the
closing of an IPO.
-6-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation, Preferences and Rights of Series A-2 Preferred Stock to be duly
executed by its Chief Executive Officer and attested to by its Secretary this
2nd day of December, 1996.
/s/ James J. Didion
-------------------------------------
Chief Executive Officer
Attest:
/s/ Karen A. Tallman
-------------------------------------
Secretary
-7-
<PAGE>
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
OF
SERIES A-3 PREFERRED STOCK
OF
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
(formerly CB Commercial Holdings, Inc.)
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
CB Commercial Real Estate Services Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that pursuant to the authority conferred
upon the Board of Directors by Article FOURTH of the Certificate of
Incorporation of the Corporation, and in accordance with Section 151 of the
General Corporation Law of the State of Delaware, the said Board of Directors
has adopted the following resolution creating a series of Preferred Stock,
designated as Series A-3 Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Corporation's
Certificate of Incorporation, effective upon the closing of an IPO, a series of
Preferred Stock of the Corporation be and it hereby is created, and that the
designation and amount thereof and the powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Amount. The shares of such series shall be designated
----------------------
as "Series A-3 Preferred Stock," par value $.01 per share, and the number of
shares constituting such series shall be 1,000,000. Such number of shares may
be decreased (but may not be increased) by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A-3
Preferred Stock to a number less than that of the shares then outstanding plus
the number of shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Corporation.
2. Automatic Conversion of Existing Series A-3 Preferred Stock on
--------------------------------------------------------------
Recapitalization. Immediately upon the closing of an IPO on the
- ----------------
Recapitalization Date, each existing share of Series A-3 Preferred Stock of the
Corporation shall be converted automatically into one (1) share of Series A-3
Preferred Stock with the powers, preferences and relative, participating,
optional and other special rights of such shares of such series and the
qualifications, limitations or restrictions as set forth herein.
3. Dividends.
---------
(a) Preference Dividend
-------------------
(i) (A) The holders of the Series A-3 Preferred Stock shall be
entitled to receive dividends at the rate of $.25 per quarter on each share
of Series A-3 Preferred Stock, payable out of funds legally available
therefor in cash within one year after the last day of the quarter to which
it relates (the "Preference Dividend"). On the Recapitalization Date, the
accrual of such dividend shall be retroactive to October 1, 1996. Such
dividends shall be payable only when, as and if declared by the Board of
Directors.
<PAGE>
(B) In the event the Preference Dividend is not declared and paid
within one year after the last day of the quarter to which it relates, it
will bear compound interest at a fixed rate of 8% per annum; provided,
--------
however, that (i) if applicable law restricts or prohibits the declaration
-------
or payment of the Preference Dividend, no dividend shall be required to be
declared and paid and no interest shall accrue thereon or be paid to the
extent so restricted or prohibited, and (ii) in the event a contractual
restriction in a credit agreement with a third party to which the
Corporation or one of its direct or indirect subsidiaries is a party
restricts or prohibits the declaration or payment of the Preference
Dividend, no dividend shall be required to be declared or paid other than
in accordance with such contractual restriction, but the Preference
Dividend shall accumulate and accrue as set forth above, interest shall be
paid on the unpaid dividend to the extent permitted under applicable law
and any interest which remains unpaid shall accrue as set forth above.
(ii) Following the Recapitalization Date, until all accrued and unpaid
Preference Dividends (and all accrued and unpaid interest thereon) on the
Series A-3 Preferred Stock (subject to applicable law and contractual
restrictions as set forth in Paragraphs 3(a)(i)(A) and (B) above) shall
have been paid or declared and set apart during any fiscal year:
(A) no shares of Common Stock shall be redeemed by the
Corporation, other than shares of capital stock of the Corporation which
were outstanding prior to the Recapitalization Date and other than shares
of capital stock issued or issuable to officers, directors or employees of,
or consultants to, the Corporation pursuant to stock option, stock purchase
or similar plans and
(B) no dividends (including dividends payable in the Common Stock
of the Corporation, dividends payable in warrants to purchase Common Stock
and dividends payable in securities convertible or exchangeable into shares
of Common Stock of the Corporation) shall be paid or declared and set apart
on any series of Preferred Stock or Common Stock of the Corporation (and in
the case of Common Stock, no dividends shall accrue on such Common Stock)
during that fiscal year.
Nothing set forth in this Certificate shall limit the Corporation's ability
to effect a stock split or reverse stock split.
(iii) Preference Dividends paid on the Series A-1 Preferred Stock,
Series A-2 Preferred Stock and Series A-3 Preferred Stock in an amount less
than the total amount of such Preference Dividends at the time accrued and
payable on such shares and interest, if any, due on such Preference
Dividend, shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding.
(iv) Upon the conversion of any share of Series A-3 Preferred Stock
into the Corporation's Common Stock pursuant to Section 6 below, the holder
of such share of Series A-3 Preferred Stock shall be entitled to receive in
cash an amount equal to all accrued and unpaid Preference Dividends with
respect thereto and interest, if any, due thereon, subject to restrictions
of applicable law and contractual restrictions as set forth in Paragraph
3(a)(i)(B) above.
(b) Dividends in Excess of Preference Dividend. Whenever any dividend is
------------------------------------------
declared and paid with respect to Common Stock, the holders of the Series A-3
Preferred Stock shall be entitled to receive (in addition to any Preference
Dividend and interest thereon in accordance with Paragraphs 3(a)(i)(A) and (B)
above)) out of any assets legally available therefore a dividend on each share
of Series A-3 Preferred Stock equal to sixty percent (60%) of the dividend
declared and paid on each share of Common Stock (as proportionately adjusted for
any stock dividends, combinations or splits with respect to such shares).
(c) Except as otherwise provided herein, no right shall accrue to holders
of shares of Series A-3 Preferred Stock by reason of the fact that dividends on
said shares are not declared in any prior year, nor shall any undeclared or
unpaid dividend bear or accrue any interest.
-2-
<PAGE>
4. Liquidation.
-----------
(a) Liquidation Preference. In the event of any liquidation, dissolution
----------------------
or winding up of the Corporation, whether voluntary or involuntary, the holders
of the Series A-3 Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, all accrued but unpaid dividends and interest (if any) thereon (subject
to applicable law and contractual restrictions as set forth in Paragraphs
3(a)(i)(A) and (B) above), then, to the extent any assets of the Corporation
remain available for distribution to the stockholders of the Corporation, the
holders of Preferred Stock and Common Stock shall be entitled to receive an
amount equal to $10.00 per share (as proportionately adjusted for any stock
dividends, combinations or splits with respect to such shares), reduced by any
prior payments to such holder (not including all accrued but unpaid dividends
and accrued interest thereon) in connection with any liquidation, dissolution or
winding up. The Series A-3 Preferred Stock shall rank on a parity with the
Corporation's Series A-1 and A-2 Preferred Stock as to the receipt of the
respective preferential amounts for each such series upon the occurrence of such
event.
(b) Distributions in Excess of Liquidation Preference. With respect to
-------------------------------------------------
the distribution of any remaining assets of the Corporation in connection with a
liquidation, dissolution or winding up, the holders of the Series A-3 Preferred
Stock shall be entitled (after distributions required by paragraph (a) above) to
receive with respect to each share of Preferred Stock sixty percent (60%) of any
distribution made with respect to a share of Common Stock (as proportionately
adjusted for any stock dividends, combinations or splits with respect to such
shares).
5. Voting Rights. The holders of Series A-3 Preferred Stock shall have
-------------
no right to vote under any circumstances or for any purpose except as
specifically required by the Delaware General Corporations Law.
6. Conversion. The Series A-3 Preferred Stock shall not be convertible
----------
at any time during which the Market Price for a share of Common Stock into which
each share of Preferred Stock is converted is less than $10.00 per share.
Except as otherwise set forth above, any holder of Series A-3 Preferred Stock
may elect from time to time to convert some or all of such holder's Preferred
Stock into shares of Common Stock as follows:
<TABLE>
<CAPTION>
Market Price
of Common Stock Conversion Ratio
--------------- ----------------
<S> <C>
$10.00 to $21.99 78.00% of a share of Common Stock for each share of
Preferred Stock
$22.00-$22.99 76.00% of a share of Common Stock for each share of
Preferred Stock
$23.00-$23.99 74.00% of a share of Common Stock for each share of
Preferred Stock
$24.00-$24.99 72.00% of a share of Common Stock for each share of
Preferred Stock
$25.00-$25.99 70.00% of a share of Common Stock for each share of
Preferred Stock
$26.00-$26.99 68.00% of a share of Common Stock for each share of
Preferred Stock
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
$27.00-$27.99 66.00% of a share of Common Stock for each share of
Preferred Stock
$28.00-$28.99 64.00% of a share of Common Stock for each share of
Preferred Stock
$29.00-$29.99 62.00% of a share of Common Stock for each share of
Preferred Stock
$30.00 and above 60.00% of a share of Common Stock for each share of
Preferred Stock
</TABLE>
The Market Price and the Conversion Ratio shall be adjusted as hereinafter
provided. Any such election shall be made by written notice to the Corporation's
Secretary and shall be effective on the first day on which the Common Stock is
traded after such election is received by the Corporation's Secretary. Market
Price for the conversion shall be determined by using as the last day of the
period for determining Market Price the effective date of the election.
(a) Adjustments to Market Price and Conversion Ratio for Certain Dividends
----------------------------------------------------------------------
and for Combinations or Subdivisions of Common Stock. In the event that this
- ----------------------------------------------------
Corporation at any time or from time to time (i) shall declare or pay, without
consideration, any dividend on each outstanding share of the Common Stock
payable in Common Stock, (ii) shall issue Common Stock pursuant to the exercise
of a Warrant Dividend which was exercised at less than Market Price existing at
the time of the issuance of such Warrant Dividend, (iii) shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any warrant or right to acquire
Common Stock) or (iv) in the event the outstanding shares of Common Stock shall
be combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the Market Price and Conversion Ratio for
the Series A-3 Preferred Stock in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate, so as to protect the conversion privileges of the
Preferred Stock. In the event that this Corporation shall declare or pay,
without consideration, any dividend on the Common Stock payable in any warrant
or right to acquire Common Stock exercisable for no consideration, then the
Corporation shall be deemed to have made a dividend payable in Common Stock in
an amount of shares equal to the maximum number of shares issuable upon exercise
of such warrant or right to acquire Common Stock. A "Warrant Dividend" means a
dividend declared or paid by the Corporation without consideration on each
outstanding share of Common Stock and payable in a warrant or right to acquire
Common Stock. Notwithstanding the foregoing, no adjustment for any Warrant
Dividend shall be required until, and then only to the extent that, such Warrant
Dividend has been actually exercised at less than the Market Price of Common
Stock at the time of the issuance of such Warrant Dividend.
(b) Adjustments for Reclassification and Reorganization. If the Common
---------------------------------------------------
Stock issuable upon conversion of the Series A-3 Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 6 above), the Market Price and Conversion Ratio then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Series A-3 Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been received by the holders in the event of a
conversion of the Series A-3 Preferred Stock immediately before that change.
(c) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be
-4-
<PAGE>
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in order
to protect the conversion provisions applicable to the Series A-3 Preferred
Stock against impairment; provided, however, that notwithstanding any other
provision hereof, the Corporation may at any time and from time to time take any
of the foregoing actions without any adjustment to the Market Price or
Conversion Ratio unless such adjustment is specifically and expressly provided
for herein.
(d) Certificates as to Adjustments. Upon the occurrence of each adjustment
------------------------------
or readjustment of any Market Price and Conversion Ratio pursuant to this
Section 6 (other than adjustments pursuant to Section 6a(ii) with respect to the
issuance of Common Stock pursuant to the exercise of a Warrant Dividend), the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A-3 Preferred Stock a certificate executed by the Corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. Upon the declaration and payment by the Corporation of a
Warrant Dividend, in lieu of the certificate described above, the Corporation at
its expense shall promptly prepare and furnish to each holder of Series A-3
Preferred Stock a certificate executed by the Corporation's President or Chief
Financial Officer stating that the Corporation has declared and paid a Warrant
Dividend and describing the terms thereof. The Corporation shall, upon the
written request at any time of any holder of Series A-3 Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Ratio for such series of
Preferred Stock at the time in effect, and (iii) the number of shares of Common
Stock which at the time would be received upon the conversion of the Series A-3
Preferred Stock.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A-3 Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A-3 Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
A-3 Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Certificate of
Incorporation.
(f) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Series A-3 Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A-3 Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
7. Reacquired Shares. Any shares of Series A-3 Preferred Stock purchased
-----------------
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
8. Restrictions and Limitations. So long as any shares of Series A-1,
----------------------------
Series A-2 and Series A-3 Preferred Stock remain outstanding, the Corporation
shall not, (i) issue any other equity security (including any security
convertible into or exercisable for any equity security) senior to or on parity
with the Series A-1, Series A-2 or Series A-3 Preferred Stock as to dividend
rights or liquidation preferences or (ii) without the vote or written consent by
the holders of a majority of the then outstanding shares of Series A-1, Series
A-2
-5-
<PAGE>
and Series A-3 Preferred Stock, voting together as a single class, amend its
Certificate of Incorporation if such amendment would change any of the rights,
preferences or privileges provided for herein for the benefit of any shares of
that series of Preferred Stock.
9. Definitions.
-----------
"IPO" means a sale of Common Stock for not less than $18.75 per share in an
underwritten offering registered under the Securities Act of 1933, as amended,
which is completed on or before March 31, 1997, which results in aggregate
proceeds to the Corporation (prior to underwriters' discounts and expenses
relating to the issuance) of $75,000,000 or more and which results in the
listing of such Common Stock on the New York Stock Exchange or the approval for
quotation of such Common Stock on the National Association of Securities Dealers
Automated Quotation System.
"Market Price" means (i) during the first 20 consecutive days in which the
Common Stock is traded after the closing of an IPO, the price at which the
common stock was offered to the public in the IPO and (ii) thereafter, the
average closing price for a share of Common Stock as reported by the Wall Street
---- ------
Journal (West Coast Edition) for a period of 20 consecutive trading days
- -------
immediately prior to the day as of which Market Price is being determined
(ignoring for purposes of consecutiveness days on which the market or stock
exchange on which such stock trades is not open).
"Recapitalization Date" means the date, prior to March 31, 1997, of the
closing of an IPO.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation, Preferences and Rights of Series A-3 Preferred Stock to be duly
executed by its Chief Executive Officer and attested to by its Secretary this
2nd day of December, 1996.
/s/ James J. Didion
---------------------------------------
Chief Executive Officer
Attest:
/s/ Karen A. Tallman
---------------------------------------
Secretary
-6-
<PAGE>
EXHIBIT 3.2
THIRD AMENDED AND RESTATED
B Y - L A W S
OF
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
(FORMERLY CB COMMERCIAL HOLDINGS, INC.)
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 Offices....................................................... 1
1.1 Registered Office.............................................. 1
1.2 Additional Offices............................................. 1
ARTICLE 2 Meeting of Stockholders....................................... 1
2.1 Place of Meeting............................................... 1
2.2 Annual Meeting................................................. 1
2.3 Special Meetings............................................... 1
2.4 Notice of Meetings............................................. 1
2.5 Business Matter of a Special or Annual Meeting................. 2
2.6 List of Stockholders........................................... 2
2.7 Organization and Conduct of Business........................... 2
2.8 Quorum and Adjournments........................................ 2
2.9 Voting Rights.................................................. 2
2.10 Majority Vote................................................. 2
2.11 Proxies....................................................... 3
2.12 Inspectors of Election........................................ 3
ARTICLE 3 Directors..................................................... 3
3.1 Number; Qualifications......................................... 3
3.2 Resignation and Vacancies...................................... 3
3.3 Removal of Directors........................................... 3
3.4 Powers......................................................... 4
3.5 Place of Meetings.............................................. 4
3.6 Annual Meetings................................................ 4
3.7 Regular Meetings............................................... 4
3.8 Special Meetings............................................... 4
3.9 Quorum and Adjournments........................................ 4
3.10 Action Without Meeting........................................ 4
3.11 Telephone Meetings............................................ 4
3.12 Waiver of Notice.............................................. 4
3.13 Fees and Compensation of Directors............................ 4
3.14 Rights of Inspection.......................................... 5
ARTICLE 4 Committees of Directors....................................... 5
4.1 Selection...................................................... 5
4.2 Power.......................................................... 5
4.3 Executive Committee............................................ 5
4.4 Committee Minutes.............................................. 5
ARTICLE 5 Officers...................................................... 5
5.1 Officers Designated............................................ 5
5.2 Appointment of Officers........................................ 6
5.3 Subordinate Officers........................................... 6
5.4 Removal and Resignation of Officers............................ 6
5.5 Vacancies in Offices........................................... 6
5.6 Compensation................................................... 6
5.7 The Chairman of the Board...................................... 6
5.8 The Chief Executive Officer.................................... 6
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5.9 The President............................................... 6
5.10 The Vice President.......................................... 6
5.11 The Secretary............................................... 7
5.12 The Assistant Secretary..................................... 7
5.13 The Chief Financial Officer................................. 7
5.14 The Treasurer............................................... 7
5.15 The Assistant Treasurer..................................... 7
5.16 Powers and Duties........................................... 7
ARTICLE 6 Stock Certificates.......................................... 7
6.1 Certificates for Shares...................................... 7
6.2 Signatures on Certificates................................... 8
6.3 Transfer of Stock............................................ 8
6.4 Registered Stockholders...................................... 8
6.5 Record Date.................................................. 8
6.6 Lost, Stolen or Destroyed Certificates....................... 9
ARTICLE 7 Notices..................................................... 9
7.1 Notice....................................................... 9
7.2 Waiver....................................................... 9
ARTICLE 8 General Provisions.......................................... 9
8.1 Dividends.................................................... 9
8.2 Dividend Reserve............................................. 9
8.3 Corporate Seal............................................... 9
8.4 Execution of Corporate Contracts and Instruments............. 10
ARTICLE 9 Amendments.................................................. 10
</TABLE>
<PAGE>
THIRD AMENDED AND RESTATED
--------------------------
B Y - L A W S
-------------
OF
--
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
(FORMERLY CB COMMERCIAL HOLDINGS, INC.)
(A DELAWARE CORPORATION)
ARTICLE 1
---------
Offices
-------
1.1 Registered Office. The registered office of the Corporation shall be
-----------------
1209 Orange Street, City of Wilmington, County of New Castle, and the name of
the registered agent in charge thereof is The Corporation Trust Company.
1.2 Additional Offices. The Corporation may also have offices at such
------------------
other places, either within or without the State of Delaware, as the Board of
Directors (the "Board") may from time to time designate or the business of the
Corporation may require.
ARTICLE 2
---------
Meeting of Stockholders
-----------------------
2.1 Place of Meeting. All meetings of the stockholders for the election of
----------------
directors shall be held at the principal office of the Corporation, at such
place as may be fixed from time to time by the Board or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the Board and stated in the notice of the meeting. Meetings of
stockholders for any purpose may be held at such time and place within or
without the State of Delaware as the Board may fix from time to time and as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
2.2 Annual Meeting. Annual meetings of stockholders shall be held each
--------------
year at such date and time as shall be designated from time to time by the Board
and stated in the notice of the meeting. At such annual meet ings, the
stockholders shall elect a Board and transact such other business as may
properly be brought before the meetings.
2.3 Special Meetings. Special meetings of the stockholders may be called
----------------
for any purpose or purposes, unless otherwise prescribed by the statute or by
the Certificate of Incorporation, at the request of the Chairman of the Board,
the Chief Executive Officer or the Board or the holders of shares entitled to
cast not less than ten percent (10%) of the votes at that meeting. Such request
shall state the purpose or purposes of the proposed meeting.
2.4 Notice of Meetings. Written notice of stockholders' meetings, stating
------------------
the place, date and time of the meeting and the purpose or purposes for which
the meeting is called, shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days prior to the
meeting.
<PAGE>
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
2.5 Business Matter of a Special or Annual Meeting. Business transacted at
----------------------------------------------
any special meeting of stockholders shall be limited to the purposes stated in
the notice. Business transactions at an annual meeting shall not be limited to
the purposes stated in the notice.
2.6 List of Stockholders. The officer in charge of the stock ledger of the
--------------------
Corporation or the transfer agent shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, at a place
within the city where the meeting is to be held, which place, if other than the
place of the meeting or the principal executive offices of the Corporation,
shall be specified in the notice of the meeting. The list shall also be
produced and kept at the place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present in person thereat.
2.7 Organization and Conduct of Business. The Chairman of the Board or, in
------------------------------------
his absence, the Chief Executive Officer of the Corporation or, in his absence,
such person as the Board may have designated or, in the absence of such a
person, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the Secretary of the meeting shall be such
person as the chairman of the meeting appoints.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her in order.
2.8 Quorum and Adjournments. Except where otherwise provided by law or the
-----------------------
Certificate of Incorporation or these By-Laws, the holders of a majority of the
stock issued and outstanding and entitled to vote, present in person or
represented in proxy, shall constitute a quorum at all meetings of the
stockholders. The stockholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to have less than a quorum
if any action taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If, however,
a quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat who are present in person or
represented by proxy shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented.
2.9 Voting Rights. Unless otherwise provided in the Certificate of
-------------
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
2.10 Majority Vote. When a quorum is present at any meeting, the vote of
-------------
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of
-2-
<PAGE>
Incorporation or of these By-Laws a different vote is required in which case
such express provision shall govern and control the decision of such question.
2.11 Proxies. Every person entitled to vote for directors or on any other
-------
matter shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by such person or such person's attorney-
in-fact and filed with the Secretary of the Corporation. A validly executed
proxy which does not state that it is irrevocable shall continue in full force
and effect unless (i) revoked by the person executing it, before the vote
pursuant to that proxy, by a writing delivered to the Corporation stating that
the proxy is revoked or by a subsequent proxy executed by, or attendance at the
meeting and voting in person by, the person executing the proxy; or (ii) written
notice of the death or incapacity of the maker of that proxy is received by the
Corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven months from
the date of the proxy, unless otherwise provided in the proxy.
2.12 Inspectors of Election. Before any meeting of stockholders the Board
----------------------
may appoint any person other than nominees for office to act as inspectors of
election at the meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may, and on the request of any
stockholder or a stockholder's proxy shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either one (1) or three (3). If
inspectors are appointed at a meeting on the request of one or more stockholders
or proxies, the holders of a majority of shares or their proxies present at the
meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
ARTICLE 3
---------
Directors
---------
3.1 Number; Qualifications. The Board shall consist of one or more
----------------------
members, the number thereof to be determined from time to time by resolution of
the Board. The initial number of directors shall be seventeen (17). The
directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 3.2, and each director so elected shall hold office until
his successor is elected and qualified or until his earlier resignation or
removal. Directors need not be stockholders.
3.2 Resignation and Vacancies. Unless otherwise provided in the
-------------------------
Certificate of Incorporation, vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
the stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the Certificate
of Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of directors elected by such class
or classes or series thereof then in office, or by a sole remaining director so
elected. Each director so chosen shall hold office until his successor is
elected and qualified, or until his earlier death, resignation or removal. If
there are no directors in office, then an election of directors may be held in
accordance with General Corporation Law of the State of Delaware. Unless
otherwise provided in the Certificate of Incorporation, when one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective, and each director
so chosen shall hold office as provided in the filling of other vacancies.
3.3 Removal of Directors. Unless otherwise restricted by law, the
--------------------
Certificate of Incorporation or these By-Laws, any director or the entire Board
may be removed, with or without cause, by the holders of at least a majority of
the shares entitled to vote at an election of directors. Notwithstanding the
foregoing, if the Board of Directors is elected by cumulative voting and less
than the entire Board of Directors is to be removed, no director
-3-
<PAGE>
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
Board of Directors.
3.4 Powers. The business of the Corporation shall be managed by or under
------
the direction of the Board which may exercise all such powers of the Corporation
and do all such lawful acts and things which are not by statute or by the
Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
3.5 Place of Meetings. The Board may hold meetings, both regular and
-----------------
special, either within or without the State of Delaware.
3.6 Annual Meetings. The annual meeting of the Board shall be held
---------------
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the Board, provided a quorum shall be present.
Annual meetings shall be for the purposes of organization, and an election of
officers and the transaction of other business.
3.7 Regular Meetings. Regular meetings of the Board may be held without
----------------
notice at such time and place as may be determined from time to time by the
Board.
3.8 Special Meetings. Special meetings of the Board may be called by the
----------------
Chairman of the Board, the Chief Executive Officer or any five (5) directors
upon three (3) days' notice to each director, such notice to be delivered
personally or by telephone, voice messaging system, telegraph, facsimile,
electronic mail or other electronic means.
3.9 Quorum and Adjournments. At all meetings of the Board, a majority of
-----------------------
the directors then in office shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board, except as may otherwise
be specifically provided by law or the Certificate of Incorporation. If a
quorum is not present at any meeting of the Board, the directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting at which the adjournment is taken, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved of by at least a majority of the required quorum for that meeting.
3.10 Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
3.11 Telephone Meetings. Unless otherwise restricted by the Certificate of
------------------
Incorporation or these By-Laws, any member of the Board or any committee may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.12 Waiver of Notice. Notice of a meeting need not be given to any
----------------
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
3.13 Fees and Compensation of Directors. Unless otherwise restricted by
----------------------------------
the Certificate of Incorporation or these By-Laws, the Board shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board and may be paid a
fixed sum for attendance
-4-
<PAGE>
at each meeting of the Board or a stated salary as director. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
3.14 Rights of Inspection. Every director shall have the absolute right at
--------------------
any reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the Corporation and also of
its subsidiary corporations, domestic or foreign. Such inspection by a director
may be made in person or by agent or attorney and includes the right to copy and
obtain extracts.
ARTICLE 4
---------
Committees of Directors
-----------------------
4.1 Selection. The Board may, by resolution passed by a majority of the
---------
entire Board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member.
4.2 Power. Any such committee, to the extent provided in the resolution of
-----
the Board, shall have and may exercise all the powers and authority of the Board
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board as provided in Section 151(a)
of the General Corporation Law of Delaware, fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the Corporation), adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, removing or indemnifying directors or amending the
By-Laws of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock or to
adopt a certificate of ownership and merger. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board.
4.3 Executive Committee. The Executive Committee shall have and may
-------------------
exercise such powers and authority as the Board may from time to time determine
in accordance with these By-Laws.
4.4 Committee Minutes. Each committee shall keep regular minutes of its
-----------------
meetings and report the same to the Board when required.
ARTICLE 5
---------
Officers
--------
5.1 Officers Designated. The officers of the Corporation shall be a
-------------------
Chairman, a Chief Executive Officer, a President, a Secretary and a Chief
Financial Officer. The officers of the Corporation may also include one or
-5-
<PAGE>
more Vice Presidents, a Treasurer, one or more assistant Secretaries and
assistant Treasurers and such other officers as the Board of Directors may
determine. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these By-Laws otherwise provide.
5.2 Appointment of Officers. The Chairman, Chief Executive Officer,
-----------------------
President and Chief Financial Officer of the Corporation shall be appointed by
the Board, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
5.3 Subordinate Officers. The Chief Executive Officer shall appoint the
--------------------
Secretary, the Treasurer and such other officers and agents as the business of
the Corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the By-Laws or as
the Board may from time to time determine.
5.4 Removal and Resignation of Officers. Subject to the rights, if any, of
-----------------------------------
an officer under any contract of employment, any officer may be removed, either
with or without cause, in the case of an officer chosen by the Board, by an
affirmative vote of the majority of the Board, at any regular or special meeting
of the Board, or, in case of an officer chosen by the Chief Executive Officer,
by the Chief Executive Officer.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these By-Laws for regular appointment to that office.
5.6 Compensation. The salaries of the Chairman of the Board and the Chief
------------
Executive Officer shall be fixed from time to time by the Board. The salaries
of the President (if the President is neither the Chairman nor the Chief
Executive Officer) and the Chief Financial Officer shall be fixed from time to
time by the Board after taking account of the recommendation of the Chief
Executive Officer. The salaries of all other officers of the Corporation shall
be fixed from time to time by the Chief Executive Officer. No officer shall be
prevented from receiving a salary because he is also a director of the
Corporation.
5.7 The Chairman of the Board. The Chairman of the Board shall be any
-------------------------
director who is selected by a majority of the directors. The Chairman of the
Board shall preside, when present, at all meetings of the stockholders and the
Board. He shall counsel the Chief Executive Officer and other officers of the
corporation and shall exercise such powers and perform such duties as shall be
assigned to or required of them from time to time by the Board, or as provided
in these By-Laws (which duties shall not be changed without the approval of a
majority of the directors).
5.8 The Chief Executive Officer. Subject to such supervisory powers, if
---------------------------
any, as may be given by the Board to the Chairman of the Board, if there be such
an officer, the Chief Executive Officer shall preside, in the absence of the
Chairman of the Board, at all meetings of the stockholders and the Board, shall
have general and active management of the business of the Corporation and shall
see that all orders and resolutions of the Board are carried into effect.
5.9 The President. The President, in the absence of the Chief Executive
-------------
Officer or his disability or refusal to act, shall perform the duties of the
Chief Executive Officer and when so acting shall have the powers of and be
subject to all the restrictions upon the Chief Executive Officer. The President
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board, the Chief Executive Officer or the Chairman of
the Board.
-6-
<PAGE>
5.10 The Vice President. The Vice President (or in the event there be more
------------------
than one, the Vice Presidents in the order designated by the directors, or in
the absence of any designation, in the order of their election), shall, in the
absence of the President or in the event of his disability or refusal to act,
perform the duties of the President, and when so acting, shall have the powers
of and be subject to all the restrictions upon the President. The Vice
President(s) shall perform such other duties and have such other powers as may
from time to time be prescribed for them by the Board, the Chief Executive
Officer, the President, the Chairman of the Board or these By-Laws.
5.11 The Secretary. The Secretary shall attend all meetings of the Board
-------------
and the stockholders and record all votes and the proceedings of the meetings in
a book to be kept for that purpose and shall perform like duties for the
standing committees, when required. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the Board,
and shall perform such other duties as may from time to time be prescribed by
the Board, the Chairman of the Board or the President, under whose supervision
he or she shall act. The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it, and, when so affixed, the seal
may be attested by his or her signature or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing thereof by his or her
signature.
5.12 The Assistant Secretary. The Assistant Secretary or, if there be more
-----------------------
than one, the Assistant Secretaries in the order designated by the Board (or in
the absence of any designation, in the order of their election) shall, in the
absence of the Secretary or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board.
5.13 The Chief Financial Officer. The Chief Financial Officer shall have
---------------------------
the custody of the Corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board. The Chief Financial Officer shall disburse the funds of the
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the President and the Board, at its regular
meetings, or when the Board so requires, an account of all his or her
transactions as the Chief Financial Officer and of the financial condition of
the Corporation.
5.14 The Treasurer. The Treasurer shall, in the absence of the Chief
-------------
Financial Officer or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the Chief Financial Officer and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board.
5.15 The Assistant Treasurer. The Assistant Treasurer, or if there shall
-----------------------
be more than one, the Assistant Treasurers in the order designated by the Board
(or in the absence of any designation, in the order of their election) shall, in
the absence of the Treasurer or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board.
5.16 Powers and Duties. The officers of the Corporation shall have such
-----------------
powers and perform such duties incident to each of their respective offices and
such other duties as may from time to time be conferred upon or assigned to them
by the Board.
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<PAGE>
ARTICLE 6
---------
Stock Certificates
------------------
6.1 Certificates for Shares. The shares of the Corporation shall be
-----------------------
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the Corporation by, the Chairman of the Board,
or the Chief Executive Officer or the President or a Vice President and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required by the General Corporation Law of the
State of Delaware or a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
6.2 Signatures on Certificates. Any or all of the signatures on a
--------------------------
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
6.3 Transfer of Stock. Upon surrender to the Corporation or the transfer
-----------------
agent of the Corporation of a certificate of shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares shall be canceled and issuance
of new equiva lent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation.
6.4 Registered Stockholders. The Corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
6.5 Record Date. (a) In order that the Corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which record date shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting. If no record date
is fixed by the Board, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided that the Board may fix a new record date
--------
for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board. If no record date has been
fixed by the Board, the record date for determining stockholders entitled to
consent to corporate
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<PAGE>
action in writing without a meeting, when no prior action by the Board of
Directors is required by the General Corporation Law of the State of Delaware,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in Delaware, its principal place of business, or an
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
and prior action by the Board is required by law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall not be more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto.
6.6 Lost, Stolen or Destroyed Certificates. The Corporation may issue a
--------------------------------------
new certificate or certificates to replace any certificate or certificates
theretofore issued by it alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When issuing a new certificate or
certificates, the Corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of the lost, stolen or
destroyed certificate or certificates, or his or her legal representative, to
advertise the same in such manner as it shall require, and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
ARTICLE 7
---------
Notices
-------
7.1 Notice. Whenever, under the provisions of the statutes or of the
------
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his or her address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or telephone.
7.2 Waiver. Whenever any notice is required to be given under the
------
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE 8
---------
General Provisions
------------------
8.1 Dividends. Dividends upon the capital stock of the Corporation,
---------
subject to any restrictions contained in the General Corporation Laws of
Delaware or the provisions of the Certificate of Incorporation, if any, may be
declared by the Board at any regular or special meeting. Dividends may be paid
in cash, in property or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
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<PAGE>
8.2 Dividend Reserve. Before payment of any dividend, there may be set
----------------
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
8.3 Corporate Seal. The Board may provide a suitable seal, containing the
--------------
name of the Corporation, which seal shall be in the charge of the Secretary.
8.4 Execution of Corporate Contracts and Instruments. The Board, except as
------------------------------------------------
otherwise provided in these By-Laws, may authorize any officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board
or within the agency power of an officer, no officer, agent or employee (other
than the Chief Executive Officer) shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
ARTICLE 9
---------
Amendments
----------
These By-Laws may be altered, amended or repealed or new By-Laws may be
adopted as provided for in the Certificate of Incorporation.
-10-
<PAGE>
CERTIFICATE OF SECRETARY
------------------------
I, the undersigned, hereby certify:
1. That I am the duly elected, acting and qualified Secretary of CB
Commercial Real Estate Services Group, Inc., a Delaware corporation (the
"Corporation"); and
2. That the foregoing Third Amended and Restated By-Laws constitute the
Third Amended and Restated By-Laws of the Corporation as duly adopted by the
Board of Directors of the Corporation effective December 2, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of the Corporation as of this 2nd day of December, 1996.
_____________________________
Karen A. Tallman, Secretary
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<PAGE>
EXECUTION COPY
EXHIBIT 10.5
- --------------------------------------------------------------------------------
THIRD AMENDED AND RESTATED
SENIOR SECURED CREDIT AGREEMENT
Dated as of November 25, 1996
AMONG
CB COMMERCIAL REAL ESTATE GROUP, INC.,
THE LENDERS FROM TIME TO TIME PARTY HERETO
and
THE SUMITOMO BANK, LIMITED,
as Agent
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I. DEFINITIONS AND RELATED MATTERS......................................... 1
Section 1.01. Definitions.......................................................... 1
Section 1.02. Construction......................................................... 27
Section 1.03. Accounting Terms and Determinations.................................. 27
Section 1.04. Exhibits............................................................. 27
Section 1.05. Other Definitions.................................................... 27
ARTICLE II. AMOUNTS AND TERMS OF THE LOANS......................................... 28
Section 2.01. Facilities........................................................... 28
Section 2.02. Interest............................................................. 34
Section 2.03. Notes................................................................ 36
Section 2.04. Fees................................................................. 37
Section 2.05. Payments and Prepayments............................................. 38
Section 2.06. Manner of Payment.................................................... 42
Section 2.07. Mandatory Suspension and Conversion of Euro-Dollar Rate Loans........ 42
Section 2.08. Regulatory Changes................................................... 42
Section 2.09. Taxes................................................................ 43
Section 2.10. Lending Office....................................................... 44
Section 2.11. Compensation for Funding Losses...................................... 44
Section 2.12. Determinations....................................................... 44
ARTICLE III. CONDITIONS TO LOANS.................................................. 45
Section 3.01. Conditions Precedent to Effective Date............................... 45
Section 3.02. Conditions Precedent to all Revolving Loans and Letters of Credit.... 47
ARTICLE IV. REPRESENTATIONS AND WARRANTIES......................................... 49
Section 4.01. Organization, Powers and Good Standing............................... 49
</TABLE>
Third Amended and Restated
Senior Secured Credit Agreement
i
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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Section 4.02. Authorization, Binding Effect, No Conflict, Etc...................... 49
Section 4.03. Collateral Documents................................................. 51
Section 4.04. Financial Information................................................ 51
Section 4.05. No Material Adverse Changes.......................................... 52
Section 4.06. Litigation........................................................... 52
Section 4.07. Agreements; Applicable Law........................................... 52
Section 4.08. Taxes................................................................ 52
Section 4.09. Governmental Regulation.............................................. 52
Section 4.10. Margin Regulations................................................... 52
Section 4.11. Employee Benefit Plans............................................... 53
Section 4.12. Title to Property; Liens............................................. 53
Section 4.13. No Materially Adverse Agreements; No Defaults........................ 54
Section 4.14. Capitalization and Ownership......................................... 54
Section 4.15. Licenses, Trademarks, Etc............................................ 54
Section 4.16. Environmental Condition.............................................. 54
Section 4.17. Absence of Certain Restrictions...................................... 55
Section 4.18. Location of Assets and Chief Executive Offices....................... 55
Section 4.19. No Defaults.......................................................... 55
Section 4.20. Disclosure........................................................... 55
ARTICLE V. AFFIRMATIVE COVENANTS OF THE BORROWER.................................. 56
Section 5.01. Financial Statements and Other Reports............................... 56
Section 5.02. Records and Inspection............................................... 58
Section 5.03. Corporate Existence, Etc............................................. 58
Section 5.04. Payment of Taxes..................................................... 58
Section 5.05. Maintenance of Properties............................................ 59
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Section 5.06. Maintenance of Insurance............................................. 59
Section 5.07. Conduct of Business.................................................. 59
Section 5.08. Further Assurances................................................... 60
Section 5.09. Additional Collateral................................................ 60
Section 5.10. Future Information................................................... 61
Section 5.11. Proceeds of Asset Dispositions By Subsidiaries....................... 61
Section 5.12. Subordination of Intercompany Loans and Advances to the Borrower..... 61
Section 5.13. Deposit Accounts..................................................... 61
ARTICLE VI. NEGATIVE COVENANTS OF THE BORROWER..................................... 62
Section 6.01. Liens................................................................ 62
Section 6.02. Indebtedness......................................................... 63
Section 6.03. Restricted Payments.................................................. 64
Section 6.04. Investments.......................................................... 65
Section 6.05. Capital Expenditures................................................. 66
Section 6.06. Financial Covenants.................................................. 66
Section 6.07. Restriction on Fundamental Changes................................... 67
Section 6.08. Asset Dispositions................................................... 67
Section 6.09. Transactions with Affiliates......................................... 67
Section 6.10. Payments with Respect to Subordinated Debt........................... 68
Section 6.11. ERISA................................................................. 68
Section 6.12. Amendments of or Waivers Under Subordinated Debt Documents........... 69
Section 6.13. Issuance of Capital Stock............................................ 69
Section 6.14. Event of Illegality under the Senior Subordinated Credit Agreement... 69
ARTICLE VII. EVENTS OF DEFAULT..................................................... 70
Section 7.01. Events of Default.................................................... 70
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Section 7.02. Remedies............................................................. 73
ARTICLE VIII. THE AGENT AND THE LENDERS............................................ 74
Section 8.01. Authorization and Action............................................. 74
Section 8.02. Exculpation; Agent's Reliance, Etc................................... 75
Section 8.03. Agent and Affiliates................................................. 75
Section 8.04. Lender Credit Decision............................................... 75
Section 8.05. Indemnification...................................................... 76
Section 8.06. Successor Agent...................................................... 76
Section 8.07. Excess Payments...................................................... 76
Section 8.08. Lenders.............................................................. 76
Section 8.09. Collateral and Guaranty Matters...................................... 77
Section 8.10. Payments; Availability of Funds; Certain Notices..................... 77
Section 8.11. Obligations of Lender Parties Several; Enforcement by the Agent...... 78
ARTICLE IX. MISCELLANEOUS.......................................................... 79
Section 9.01. Expenses............................................................. 79
Section 9.02. Indemnity............................................................ 79
Section 9.03. Waivers; Modifications in Writing.................................... 80
Section 9.04. Failure or Delay..................................................... 81
Section 9.05. Notices, Etc......................................................... 81
Section 9.06. Successors and Assigns............................................... 81
Section 9.07. Confidentiality...................................................... 82
Section 9.08. Governing Law and Venue; Waiver of Trial By Jury..................... 83
Section 9.09. Severability of Provisions........................................... 83
Section 9.10. Independence of Covenants............................................ 83
Section 9.11. Set Off.............................................................. 83
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Section 9.12. Changes in Accounting Principles..................................... 83
Section 9.13. Publicity............................................................ 84
Section 9.14. Survival of Agreements, Representations and Warranties............... 84
Section 9.15. Headings............................................................. 84
Section 9.16. Execution in Counterparts............................................ 84
Section 9.17. Complete Agreement................................................... 84
Section 9.18. Knowledge of Borrower................................................ 84
Section 9.19. Waiver of Anti-Deficiency Protection................................. 84
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<PAGE>
THIRD AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT
----------------------------------------------------------
THIRD AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT dated as of
November 25, 1996 (as amended, supplemented or modified from time to time, the
"Agreement") among CB COMMERCIAL REAL ESTATE GROUP, INC., a Delaware corporation
(the "Borrower"), and THE SUMITOMO BANK, LIMITED, a banking corporation
organized under the laws of Japan (the "Lender", and, together with the
Revolving Credit Facility B Lender and any additional Lenders party to this
Agreement from time to time, the "Lenders", and, in its capacity as such, the
"Issuing Bank"), and THE SUMITOMO BANK, LIMITED, as agent for the Lenders (in
such capacity, together with any successor in such capacity, the "Agent").
R E C I T A L S
---------------
A. The Borrower and the Lender desire to amend and restate the terms
and provisions of the Second Amended and Restated Senior Secured Credit
Agreement dated as of June 30, 1994, as amended to the date hereof, between the
Borrower and the Lender upon the terms and subject to the conditions set forth
in this Agreement.
B. There are outstanding, as of the date hereof, a Senior Term Loan
in an aggregate principal amount of $106,565,623.20 and accrued and unpaid
interest thereon, a Mortgage Term Loan in an aggregate principal amount of
$18,000,000, and accrued and unpaid interest thereon (such outstanding Loans
being referred to herein as the "Outstanding Loans"). After the payment of a
portion of IPO Net Proceeds to the Agent required under Section 3.01 hereof and
application thereof to prepay in part the Senior Term Loan, on the Effective
Date, there will be outstanding a Senior Term Loan in an aggregate principal
amount of $37,414,724.63. There are no Revolving Credit Facility A Loans or
Revolving Credit Facility B Loans outstanding on the date hereof. There is
$3,377,270.00 in Letter of Credit Liability in respect of Revolving Credit
Facility A Letters of Credit outstanding on the date hereof. There is no Letter
of Credit Liability in respect of Revolving Credit Facility B Letters of Credit
on the date hereof. In addition, there are outstanding on the date hereof
certain deferred interest and fees payable by the Borrower to the Lender,
including without limitation, the Deferred Interest, the Deferred Amendment Fee
and the Deferred Letter of Credit Fee, all of which shall be paid in full on or
prior to the Effective Date.
AGREEMENT
ARTICLE I
DEFINITIONS AND RELATED MATTERS
-------------------------------
SECTION 1.01 DEFINITIONS. Terms used in this Agreement shall have
-----------
the meanings set forth in this Section 1.01, in the sections of this Agreement
or the other Loan Documents referred to in this Section 1.01 or as specified in
Section 1.05.
"Acquisition Advance" means any Revolving Credit Facility B Loan the
-------------------
proceeds of which are applied, in whole or in part, directly or indirectly, by
the Borrower or a Subsidiary to make any cash payment in respect of an
Investment that constitutes a Permitted Acquisition.
"Affiliate" means, with respect to a Person, any other Person that,
---------
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person other than, in
the case of the Borrower, a Wholly Owned Subsidiary. The term "control" means
the possession, directly or indirectly, of the power, whether or not exercised,
(i) to vote five percent (5%) or more of the securities having voting power for
the election of directors of such Person or (ii) to direct or cause the
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
direction of the management or policies of a Person, whether through the
ownership of voting securities or other equity interests, by contract or
otherwise, and the terms "controlled" and "common control" shall have
correlative meanings. Notwithstanding the foregoing provisions of this
definition, in no event shall any Lender or any Affiliate of any Lender be
deemed to be an Affiliate of Holdings, the Borrower or any Subsidiary of the
Borrower.
"Agent" shall have the meaning ascribed to it in the preamble hereto.
-----
"Agreement" shall have the meaning ascribed to it in the preamble
---------
hereto.
"Amended and Restated Security Agreement" means the Second Amended and
---------------------------------------
Restated Security Agreement dated as of November 25, 1996 between the Borrower
and the Agent, for the benefit of the Lenders, encumbering the Collateral
thereunder, together with the exhibits thereto and financing statements
delivered by the Borrower to the Agent in connection therewith, as the same may
from time to time be amended, supplemented or otherwise modified.
"Amended and Restated Senior Subordinated Credit Agreement" means the
---------------------------------------------------------
Amended and Restated Senior Subordinated Credit Agreement dated as of November
25, 1996 among the Borrower, Holdings and the other guarantors identified
therein and Sumitomo Finance (Dublin) Limited, as the same thereafter may be
amended, modified or supplemented in accordance with the terms hereof and
thereof.
"Amended and Restated Westmark Subordinated Credit Agreement" means
-----------------------------------------------------------
the Amended and Restated Senior Subordinated Credit Agreement dated as of
November 7, 1996 between WREAP and 399 Venture Partners, Inc.
"Applicable Law" means all applicable provisions of all (i)
--------------
constitutions, treaties, statutes, laws, rules, regulations, ordinances and
orders of any Governmental Authority, (ii) Governmental Approvals, and (iii)
orders, decisions, judgments, awards and decrees of any Governmental Authority.
"Applicable Margin" means (i) in respect of Loans other than Revolving
-----------------
Credit Facility B Loans, (a) 1.50% per annum in respect of Prime Rate Loans, and
(b) 2.50% per annum in respect of Euro-Dollar Rate Loans, and (ii) in respect of
Revolving Credit Facility B Loans, (x) 2.00% per annum in respect of Prime Rate
Loans and (y) 3.00% per annum in respect of Euro-Dollar Rate Loans.
"Assessment Rate" means, for any Interest Period, the annual
---------------
assessment rate (rounded upwards, if necessary, to the next higher 1/100 of 1%),
for determining the then current net annual assessment payable by the Lender to
the Federal Deposit Insurance Corporation (or any successor) for insuring Dollar
time deposits of the Lender in the United States.
"Asset Disposition" means any sale, assignment, transfer, lease or
-----------------
other disposition (including a Sale-Leaseback Transaction and any such sale or
other disposition effected by way of merger or consolidation (other than a
merger or consolidation permitted pursuant to Section 6.07 hereof), sale of
Capital Stock or otherwise) of any asset to any Person, except (i) the sale,
------
liquidation or disposition of any Permitted Investment, (ii) sales or other
dispositions of inventory held or purchased for sale to others, or other
property that has become obsolete or worn out, in each case in the ordinary
course of business, (iii) sales or other dispositions of assets by any
Subsidiary to the Borrower or a Wholly Owned Subsidiary (sales or other
dispositions described in clauses (i), (ii) and (iii) of this definition being
referred to herein collectively as "Excluded Dispositions"), (iv) any other
---------------------
sales or other dispositions of assets if the aggregate amount of Net Cash
Proceeds and the fair value of Non-Cash Proceeds of such sale or other
disposition, together with the Net Cash Proceeds and the fair value of Non-Cash
Proceeds of any other such sale or other disposition of assets of the Borrower
or any Subsidiary in a series of related transactions (other than such proceeds
derived from Excluded Dispositions), does not exceed $1,000,000 in the
aggregate, and if, after giving effect to such
Third Amended and Restated
Senior Secured Credit Agreement
2
<PAGE>
transaction, there shall not have been within the immediately preceding twelve
(12) month period sales or other dispositions of assets of the Borrower or any
Subsidiary (other than Excluded Dispositions) with an aggregate sales
consideration of more than $1,000,000 of Net Cash Proceeds and fair value of
Non-Cash Proceeds (provided, that, if such consideration in any such
--------
transaction or transactions exceeds such amount, the entire amount of such
consideration shall be subject to Section 2.05(b)(i) hereof, and provided
--------
further that to the extent that any sale or other disposition of an asset that
- -------
would not otherwise be an Asset Disposition for purposes hereof shall be
treated as an asset disposition giving rise to a requirement to make a payment
pursuant to the Senior Subordinated Credit Agreement or under any other
agreement or other document pursuant to which Indebtedness is outstanding
(other than Indebtedness described in Section 6.02(f) or (g) or (i) hereof),
such asset disposition shall, notwithstanding any other provision of this
Agreement, be an Asset Disposition hereunder for which a Mandatory Prepayment
shall be required to be made pursuant to Section 2.05(b) hereof) or (v) the
sale, assignment, transfer or other disposition of mortgage loans and the
related mortgages in connection with Mortgage Banking Activities (provided that
--------
this clause (v) shall not exclude from "Asset Disposition" any sale, assignment
or liquidation of (x) the Borrower's or any Subsidiary's interest, if any, in
any Person that has purchased or is to purchase mortgage loans from the
Borrower or a Mortgage Banking Subsidiary in connection with Mortgage Banking
Activities or (y) the Borrower's or any Subsidiary's servicing rights with
respect to mortgage loans originated in connection with Mortgage Banking
Activities).
"Bankruptcy Code" shall mean Title 11 of the United States Code (11
---------------
U.S.C. 101 et seq.), as amended from time to time, or any successor statute.
"Book Value" means, with respect to any assets of the Borrower or any
----------
Subsidiary, the value at which such assets are carried on its books for
financial accounting purposes, in accordance with GAAP.
"Borrower" shall have the meaning ascribed to it in the preamble
--------
hereto.
"Business Day" means any day which is not a Saturday, Sunday or other
------------
day on which banks in New York, New York or Los Angeles, California are
authorized or obligated to close.
"California Mortgages" means all of the deeds of trust, assignments of
--------------------
lease, environmental indemnities and any and all similar agreements entered into
between the Borrower or any of its Subsidiaries and the Agent (or for the
benefit of Agent) that from time to time encumber the interests of the Borrower
or any of its Subsidiaries in Real Property that is situated in the State of
California.
"Capital Expenditures" means, for any period, the aggregate of all
--------------------
expenditures (whether paid in cash or accrued as liabilities during that period
and including Capitalized Lease Obligations of the Borrower and its Subsidiaries
during such period) that, in conformity with GAAP, are required to be
capitalized and reflected in the property, plant and equipment or similar fixed
asset accounts in the consolidated balance sheet of the Borrower and its
Subsidiaries (including equipment which is purchased simultaneously with the
trade-in of existing equipment owned by the Borrower or its Subsidiaries to the
extent of (i) the gross amount of such purchase price less (ii) the Book Value
----
of the equipment being traded in at such time) or are otherwise required to be
capitalized in conformity with GAAP (other than capitalized interest); provided
--------
that, notwithstanding classification thereof in accordance with GAAP, "Capital
Expenditures" shall not include any expenditure designated by the Borrower in
writing to the Lender as an "Investment" or a "Permitted Acquisition" made in
conformity herewith at least ten days prior to consummation thereof.
"Capital Stock" of any Person means any and all (i) shares, interests,
-------------
participations, or other equivalents (however designated) of capital stock and
all other equity interests of such Person (including without limitation, with
respect to any limited liability company, any membership interest therein, and
with respect to any partnership, any general or limited partnership interest
therein) and (ii) any rights (other than
Third Amended and Restated
Senior Secured Credit Agreement
3
<PAGE>
debt securities convertible into capital stock), warrants or options to acquire
such capital stock or other equity interests.
"Capitalized Lease" means any lease (or other agreement conveying the
-----------------
right to use) of property (real, personal or mixed) by a Person as lessee or
guarantor which would, in conformity with GAAP, be required to be accounted for
as a capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" means all obligations under
-----------------------------
Capitalized Leases of a Person that would, in conformity with GAAP, appear on a
balance sheet of that Person.
"CBC Partners Program" means a program established and operated by the
--------------------
Borrower pursuant to which (i) the Borrower or a Subsidiary enters into
agreements with commercial real estate brokerage firms granting such firms (x)
the right to use the name "CB Commercial" and certain other service marks and
slogans in an agreed upon territory, (y) certain rights to access the Borrower's
technology, databases and educational programs, and (z) certain rights to
referrals from Borrower and other participants in the CBC Partners Program, and
(ii) the Borrower or a Subsidiary acquires an equity interest in such firms.
"CBCREG Capital Stock" means all outstanding Capital Stock of the
--------------------
Borrower and all dividends, securities and any other property distributed in
respect of or in exchange for such Capital Stock.
"CBCREG Pledge Agreement" means the Restated Stock Pledge Agreement
-----------------------
dated as of November 25, 1996 between the Borrower and the Agent, for the
benefit of the Lenders, as it may from time to time be amended, supplemented or
otherwise modified.
"Change of Control" shall be deemed to have occurred (a) with respect
-----------------
to Holdings, (i) at such time as any person (as defined in Section 13(d)(3) of
the Exchange Act ) (other than the Holdings Capital Accumulation Plan) at any
time shall directly or indirectly acquire more than twenty-five percent (25%) of
the total voting power of all classes of Capital Stock of Holdings (provided,
--------
however, that the acquisition of voting stock of Holdings by underwriters in the
- -------
Initial Public Offering named in the prospectus relating thereto shall not be
deemed to be a Change of Control pursuant to this clause (a)(i)), or (ii) at
such time as during any one year period, individuals who at the beginning of
such period constitute the Borrower's Board of Directors cease to be a majority
of the Board of Directors and (b) with respect to the Borrower, at such time as
Holdings ceases to own 100% of the issued and outstanding Capital Stock of the
Borrower.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, or any successor or superseding tax laws of the United States of
America, together with all regulations promulgated thereunder.
"Collateral" means the collateral under, and as defined in, each of
----------
the Collateral Documents.
"Collateral Documents" means the Security Agreements, the Pledge
--------------------
Agreements, the Mortgages and any and all other documents, agreements,
assignments, financing statements or instruments executed or delivered from time
to time in connection therewith or otherwise to secure the Borrower's or any
Guarantor's obligations under this Agreement or other Loan Documents as the same
may from time to time be amended, supplemented or otherwise modified.
"Commitments" means the Revolving Credit Facility A Commitment and the
-----------
Revolving Credit Facility B Commitment.
"Consolidated EBITDA" means, for any period, an amount equal to (i)
-------------------
Consolidated Net Income for such period, plus (ii) Consolidated Interest Expense
----
for such period, plus (iii) the amount of Taxes, based on or measured by income,
----
deducted in the determination of Consolidated Net Income for such period,
Third Amended and Restated
Senior Secured Credit Agreement
4
<PAGE>
plus (iv) the amount of depreciation and amortization expense deducted in the
- ----
determination of Consolidated Net Income for such period, minus (v)
-----
extraordinary gains and interest income for such period, all on a consolidated
basis for Borrower and its Subsidiaries determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, total interest
-----------------------------
expense of the Borrower and its Subsidiaries on a consolidated basis, determined
in accordance with GAAP, including Revolving Credit Facility A Commitment Fees
and Revolving Credit Facility B Commitment Fees, and the portion of any
Capitalized Lease Obligations allocable to interest expense, but excluding
amortization or write-off of debt discount and expense.
"Consolidated Net Income" means, for any period, the net earnings (or
-----------------------
loss) after taxes of the Borrower and its Subsidiaries on a consolidated basis
for such period taken as a single accounting period, determined in accordance
with GAAP, provided that there shall be excluded therefrom (i) the income (or
--------
loss) of any Person (other than a Subsidiary of the Borrower) in which any other
Person (other than the Borrower and its Subsidiaries) has an equity interest,
except to the extent of dividends or other distributions actually paid to the
Borrower or its Subsidiaries by such Person during such period, (ii) portions of
income properly attributable to minority interests, if any, in the stock and
surplus of such Subsidiaries held by anyone other than the Borrower or any of
its Subsidiaries, (iii) the income (or loss) of any Person accrued prior to the
date it becomes a Subsidiary of the Borrower or is merged with or into the
Borrower or any of its Subsidiaries or such Person's assets are acquired by the
Borrower or any of its Subsidiaries, and (iv) the undistributed earnings of any
Subsidiary of the Borrower (other than Westmark and its Subsidiaries) to the
extent that, and so long as, the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by the terms of
its charter or Contractual Obligations or Applicable Law binding on such
Subsidiary.
"Consolidated Net Worth" means, at any date, the consolidated
----------------------
stockholders' equity of the Borrower and its Subsidiaries, excluding any amounts
attributable to mandatorily redeemable preferred stock.
"Consolidated Rental Payments" means, for any period, payments made
----------------------------
with respect to Capitalized Lease Obligations (other than the portion of such
payments allocable to interest expense) plus the aggregate of all rents paid
----
during such period under Operating Leases that are not cancelable upon notice of
thirty (30) days or less by the lessee thereunder, determined on a consolidated
basis for the Borrower and its Subsidiaries in accordance with GAAP.
"Consolidated Total Debt" means, at any date, without duplication, all
-----------------------
Indebtedness and all Contingent Obligations of the Borrower and its Subsidiaries
then outstanding or existing.
"Contingent Obligation" means, as to any Person, and without
---------------------
duplication, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation any direct or indirect
guarantee of such Indebtedness, obligation or liability, endorsement (other than
for collection or deposit in the ordinary course of business) thereof or
discount or sale thereof by such Person with recourse to such Person, or any
other direct or indirect obligation, by agreement or otherwise, to purchase or
repurchase any such Indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge of any such
Indebtedness, obligation or liability (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise), (ii) to provide funds to
maintain working capital or equity capital of another Person (other than a
Wholly-Owned Subsidiary, to the extent that Investments therein are permitted
under Section 6.04(c)) or otherwise to maintain the net worth, solvency or
financial condition of the other Person, (iii) to make payment for any products,
property, securities or services regardless of non-delivery thereof, if the
purpose of any agreement so to do is to provide assurance that any Indebtedness,
obligation or liability of another Person (other than a Wholly-Owned Subsidiary,
to the extent that Investments therein are permitted under Section 6.04(c)) will
be paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of another Person's Indebtedness, obligation or
liability will be protected (in whole or in part) against
Third Amended and Restated
Senior Secured Credit Agreement
5
<PAGE>
loss in respect thereof, or (iv) otherwise to assure or hold harmless the
holders of Indebtedness or other obligation or liability or another Person
against loss in respect thereof; provided that indemnities given by Borrower or
--------
its Subsidiaries to employees or independent contractors in the ordinary course
of business and consistent with past practices shall not be considered
Contingent Obligations; provided, further that the provisions in the By-laws of
-------- -------
the Borrower, its Subsidiaries or Holdings holding harmless and indemnifying
their respective officers and directors shall not be considered Contingent
Obligations so long as such provisions are not materially different from such
provisions in the Borrower's By-laws in effect on the Effective Date; provided,
--------
further, that the term "Contingent Obligation" shall not include any obligation
- -------
of a Mortgage Banking Subsidiary relating to unfunded mortgage loans or under
any indemnity made by a Mortgage Banking Subsidiary in a purchase and sale
agreement with respect to any mortgage loan, which guaranty or indemnity is
made, and which obligations are incurred, in connection with Mortgage Banking
Activities. The amount of any Contingent Obligation shall be an amount equal to
the amount of the indebtedness, obligation or liability guaranteed or otherwise
supported thereby.
"Contractual Obligation" means, as applied to any Person, any
----------------------
provision of any security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement, or other written instrument to
which that Person is a party or by which it or any of its owned properties is
bound or to which it or any of its owned properties is subject.
"Controlled Group" means all domestic and foreign members of a
----------------
controlled group of corporations under Section 1563(a) of the Code (determined
without regard to Section 1563(b)(2)(C) of the Code) and all trades or
businesses (irrespective of whether incorporated) which are under common control
of Borrower or its Subsidiaries. With regard to all Plans and Multiemployer
Plans, "Controlled Group" shall also include all ERISA Affiliates.
"Customary Permitted Liens" shall mean (i) Liens (other than
-------------------------
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority or claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with the provisions of GAAP; (ii) statutory Liens of landlords and
Liens of carriers, warehousemen, mechanics, materialmen and other Liens (other
than any Lien imposed under ERISA) imposed by law and created in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with the
provisions of GAAP or in respect of which a payment or performance bond has been
obtained; (iii) Liens (other than any Lien imposed under ERISA) incurred or
deposits made in the ordinary course of business (including, without limitation,
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than the repayment of
Indebtedness), statutory obligations and other similar obligations or arising as
a result of progress payments under contracts; (iv) easements (including,
without limitation, reciprocal easement agreements and utility agreements),
rights-of-way, covenants, consents, reservations, encroachments, variations and
other restrictions, charges or encumbrances (whether or not recorded), which do
not interfere materially with the ordinary conduct of the business of the
Borrower or its Subsidiaries and which do not materially detract from the value
of the property to which they attach or materially impair the use thereof to the
Borrower or its Subsidiaries; and (v) building restrictions, zoning laws and
other statutes, laws, rules, regulations, ordinances and restrictions, and any
amendments thereto, now or at any time hereafter adopted by any Governmental
Authority having jurisdiction.
"Default" means any condition or event which, with the giving of
-------
notice or lapse of time or both, would, unless cured or waived, become an Event
of Default.
"Deferred Amendment Fee" shall have the meaning ascribed to it in the
----------------------
Second Amended and Restated Senior Secured Credit Agreement.
Third Amended and Restated
Senior Secured Credit Agreement
6
<PAGE>
"Deferred Interest" shall have the meaning ascribed to it in the
-----------------
Second Amended and Restated Senior Secured Credit Agreement.
"Deferred Letter of Credit Fee" shall have the meaning ascribed to it
-----------------------------
in the Second Amended and Restated Senior Secured Credit Agreement.
"Dollars and '$'" means lawful money of the United States of America.
---------------
"Domestic Lending Office" means the office, branch or affiliate of
-----------------------
each Lender identified on the signature page hereto as its Domestic Lending
Office or such other office, branch or affiliate as such Lender may hereafter
designate as its Domestic Lending Office by notice to the Borrower.
"Domestic Loans" means Prime Rate Loans.
--------------
"Domestic Mortgage Loan" means any portion of the Mortgage Term Loan
----------------------
that bears interest at a rate determined by reference to the Prime Rate.
"Domestic Mortgage Term Note" means the promissory note or notes of
---------------------------
the Borrower, in substantially the form of Exhibit A hereto, evidencing the
obligation of the Borrower to repay the Domestic Mortgage Loan, and shall
include any note issued in exchange or substitution therefor. The Domestic
Mortgage Term Note amends and restates the Domestic Mortgage Term Note dated
April 18, 1989 in the original principal amount of $18,000,000, as amended and
restated June 30, 1994, previously executed by the Borrower.
"Domestic Notes" means, collectively, the Domestic Senior Term Note,
--------------
the Domestic Mortgage Term Note, the Domestic Revolving Credit Facility A Note
and the Domestic Revolving Credit Facility B Note.
"Domestic Revolving Credit Facility A Loan" means any Revolving Credit
-----------------------------------------
Facility A Loan, or any portion thereof, that bears interest at a rate
determined by reference to the Prime Rate.
"Domestic Revolving Credit Facility A Note" means the promissory note
-----------------------------------------
or notes of the Borrower, in substantially the form of Exhibit B hereto,
evidencing the obligation of the Borrower to repay the Domestic Revolving
Facility A Loans, and shall include any Note issued in exchange or substitution
therefor. The Domestic Revolving Credit Facility A Note amends and restates the
Domestic Revolving Note dated April 18, 1989 in the original principal amount of
$20,000,000, as amended and restated June 30, 1994, previously executed by the
Borrower.
"Domestic Revolving Credit Facility B Loan" means any Revolving
-----------------------------------------
Facility B Loan, or any portion thereof, that bears interest at a rate
determined by reference to the Prime Rate.
"Domestic Revolving Credit Facility B Note" means the promissory note
-----------------------------------------
or notes of the Borrower, in substantially the form of Exhibit C hereto,
evidencing the obligation of the Borrower to repay the Domestic Revolving
Facility B Loans, and shall include any note issued in exchange or substitution
therefor. The Domestic Revolving Credit Facility B Note amends and restates the
Domestic Revolving Credit Facility B Note dated October 10, 1991 and amended and
restated June 30, 1994 in the original principal amount of $20,000,000.
"Domestic Senior Term Loan" means any portion of the Senior Term Loan
-------------------------
that bears interest at a rate determined by reference to the Prime Rate.
Third Amended and Restated
Senior Secured Credit Agreement
7
<PAGE>
"Domestic Senior Term Note" means the promissory note of the Borrower,
-------------------------
in substantially the form of Exhibit D hereto, evidencing the obligation of the
Borrower to repay the Domestic Senior Loans, and shall include any note issued
in exchange or substitution therefor. The Domestic Senior Term Note amends and
restates the Domestic Senior Term Note dated April 18, 1989 in the original
principal amount of $152,000,000, as amended and restated June 30, 1994,
previously executed by the Borrower.
"Earn-out Payment Obligations" means, with respect to any Permitted
----------------------------
Acquisition, the Westmark Acquisition and the Melody Acquisition, any and all
deferred payment obligations (other than Permitted Seller Indebtedness) of the
Borrower or any of its Subsidiaries incurred in connection therewith (including
non-competition payments).
"Effective Date" means the date on which all conditions precedent set
--------------
out in Section 3.01 are satisfied or waived in writing by the Agent.
"Environmental Damages" means all claims, judgments, damages, losses,
---------------------
penalties, fines, liabilities (including strict liability), costs and expenses
of defense of any claim and of any settlement of claims, including without
limitation reasonable attorneys' fees and consultants' fees, which are incurred
at any time as a result of the existence of Hazardous Material upon, about, or
beneath the Real Property or migrating or threatening to migrate to or from the
Real Property, or arising in any manner whatsoever out of the violation of
Environmental Requirements pertaining to the Real Property and the activities
thereon, or the breach of any warranty or covenant or the inaccuracy of any
representation of Borrower contained in the Mortgages pertaining to
environmental matters, unless and to the extent such Environmental Damages were
caused solely by the Lender or its agents or employees, including, without
limitation:
(i) damages for personal injury, or injury to property or natural
resources occurring upon or off of the Real Property, foreseeable or
unforeseeable, including, without limitation, lost profits, consequential
damages, interest and penalties including but not limited to claims brought by
or on behalf of employees of the Borrower;
(ii) diminution in the value of the Real Property and damages for the
loss of or restriction on the use of or adverse impact on the marketing of
rentable or usable space or of any amenity of the Real Property; and
(iii) fees incurred for the services of attorneys, consultants,
contractors, experts, laboratories and all other costs and liabilities
(including liabilities to indemnity any Person for costs) incurred in connection
with the investigation or remediation of such Hazardous Materials or violation
of Environmental Requirements including, but not limited to, the preparation of
any feasibility studies or reports or the performance of any cleanup, remedial,
removal, containment, restoration or monitoring work required by any federal,
state or local governmental agency or political subdivision, or reasonably
necessary to make full economic use of the Real Property or any other property
or otherwise expended in connection with such conditions.
"Environmental Lien" shall mean a Lien in favor of any Governmental
------------------
Authority for (i) any liability under federal or state environmental laws or
regulations or (ii) damages arising from or costs incurred by such Governmental
Authority in response to a release or threatened release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment.
"Environmental Requirements" means all Applicable Laws relating to the
--------------------------
protection of human health or the environment, including, without limitation:
(i) all requirements pertaining to reporting, licensing, permitting,
investigation and remediation of emissions, discharges, releases or threatened
releases of Hazardous Materials into the air,
Third Amended and Restated
Senior Secured Credit Agreement
8
<PAGE>
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials; and
(ii) all requirements pertaining to the protection of the health and
safety of employees or the public.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
the same may from time to time be amended or supplemented, including any rules
or regulations issued in connection therewith.
"ERISA Affiliate" means any trade or business (irrespective of whether
---------------
incorporated) which is a member of a group of which the Borrower is a member
(determined immediately following the Initial Funding Date and thereafter)
treated as a single employer under subsection (b), (c), (m) or (o) of Section
414 of the Code or the regulations promulgated thereunder.
"Euro-Dollar Business Day" means any Business Day on which commercial
------------------------
banks are open for international business (including dealings in interbank
Dollar deposits) in London, England.
"Euro-Dollar Lending Office" means the office, branch or affiliate of
--------------------------
each Lender identified on the signature page hereto as its Euro-Dollar Lending
Office or such other office, branch or affiliate as such Lender may hereafter
designate as its Euro-Dollar Leading Office by notice to the Borrower.
"Euro-Dollar Mortgage Term Note" means the promissory note or notes of
------------------------------
the Borrower, in substantially the form of Exhibit E hereto, evidencing the
obligation of the Borrower to repay the Euro-Dollar Rate Mortgage Loans, and
shall include any note issued in exchange or substitution therefor. The Euro-
Dollar Mortgage Term Note amends and restates the Euro-Dollar Rate Mortgage Term
Note dated April 18, 1989 in the original principal amount of $18,000,000, as
amended and restated June 30, 1994, previously executed by the Borrower.
"Euro-Dollar Notes" means, collectively, the Euro-Dollar Senior Term
-----------------
Note, the Euro-Dollar Mortgage Term Note, the Euro-Dollar Revolving Credit
Facility A Note and the Euro-Dollar Revolving Credit Facility B Note.
"Euro-Dollar Rate" means, with respect to any Interest Period, a rate
----------------
per annum equal to the quotient obtained (rounded upwards, if necessary, to the
next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered
Rate by (ii) 1.00 minus the Reserve Requirement for Euro-Dollar Loans for such
period (expressed as a decimal). The Euro-Dollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve
Requirement for Euro-Dollar Loans.
"Euro-Dollar Rate Loans" means Euro-Dollar Rate Senior Loans, Euro-
----------------------
Dollar Rate Mortgage Loans, Euro-Dollar Rate Revolving Credit Facility A Loans
and Euro-Dollar Rate Revolving Credit Facility B Loan or any or all of such
Loans.
"Euro-Dollar Rate Mortgage Loan" means any portion of the Mortgage
------------------------------
Term Loan that bears interest at a rate determined by reference to a Euro-Dollar
Rate and as to which a single Interest Period is applicable.
"Euro-Dollar Rate Revolving Credit Facility A Loan" means any
-------------------------------------------------
Revolving Credit Facility A Loan, or any portion thereof, that bears interest at
a rate determined by reference to a Euro-Dollar Rate and as to which a single
Interest Period is applicable.
Third Amended and Restated
Senior Secured Credit Agreement
9
<PAGE>
"Euro-Dollar Rate Revolving Credit Facility B Loan" means any
-------------------------------------------------
Revolving Credit Facility B Loan, or any portion thereof, that bears interest at
a rate determined by reference to a Euro-Dollar Rate and as to which a single
Interest Period is applicable.
"Euro-Dollar Rate Senior Loan" means any portion of the Senior Term
----------------------------
Loan that bears interest at a rate determined by reference to a Euro-Dollar Rate
and as to which a single Interest Period is applicable.
"Euro-Dollar Revolving Credit Facility A Note" means the promissory
--------------------------------------------
note or notes of the Borrower, in substantially the form of Exhibit F hereto,
evidencing the obligation of the Borrower to repay the Euro-Dollar Rate
Revolving Credit Facility A Loans, and shall include any note issued in exchange
or substitution therefor. The Euro-Dollar Revolving Credit Facility A Note
amends and restates the Euro-Dollar Revolving Note dated April 18, 1989 in the
original principal amount of $20,000,000, as amended and restated June 30, 1994,
previously executed by the Borrower.
"Euro-Dollar Revolving Credit Facility B Note" means the promissory
--------------------------------------------
note of the Borrower, in substantially the form of Exhibit G hereto, evidencing
the obligation of the Borrower to repay the Euro-Dollar Rate Revolving Credit
Facility B Loans, and shall include any Note issued in exchange or substitution
therefor. The Euro-Dollar Revolving Credit Facility B Note amends and restates
the Euro-Dollar Revolving Credit Facility B Note dated October 10, 1991 in the
original principal amount of $20,000,000, as amended and restated June 30, 1994,
previously executed by the Borrower.
"Euro-Dollar Senior Term Note" means the promissory note or notes of
----------------------------
the Borrower, in substantially the form of Exhibit H hereto, evidencing the
obligation of the Borrower to repay the Euro-Dollar Rate Senior Loans, and shall
include any Note issued in exchange or substitution therefor. The Euro-Dollar
Senior Term Note amends and restates the Euro-Dollar Senior Term note dated
April 18, 1989 in the original principal amount of $152,000,000, as amended and
restated June 30, 1994, previously executed by the Borrower.
"Event of Default" means any of the events specified in Section 7.01
----------------
hereof.
"Event of Loss" means, with respect to any of the Collateral, the
-------------
actual or constructive loss thereof or of the use thereof due to theft,
destruction, damage beyond repair or damage to an extent which makes repair
uneconomical, or the condemnation, confiscation or seizure thereof, or
requisition of title to or to the use thereof by any Governmental Authority or
any other Person, whether or not acting under color of governmental
authorization, provided that no such event shall constitute an Event of Loss,
--------
unless the property which is the subject of such Event of Loss has a replacement
value of $250,000 or more.
"Excess Proceeds of Issuance of Stock" means net cash proceeds
------------------------------------
received by Holdings, the Borrower or any Subsidiary of the Borrower on account
of the issuance and sale of Capital Stock of such corporation, but excluding (x)
proceeds of shares of Capital Stock issued to, and of contributions to the
capital of the Borrower or any Subsidiary made by, Holdings or the Borrower or
any other Subsidiary (to the extent permitted by Section 6.04 of this
Agreement), (y) proceeds received by Holdings on account of the Initial Public
Offering, and (z) net cash proceeds received by Holdings from stock option,
stock purchase and similar plans that are part of an overall compensation
program for employees, officers, individuals employed by the Borrower or any
Subsidiary that elect "independent contractor" status under Section 3508(a) of
the Code, and directors. As used herein, "net" shall mean net of all
transaction costs, commissions and underwriters' discount.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time, and any successor statute, and the rules and regulations
thereunder.
Third Amended and Restated
Senior Secured Credit Agreement
10
<PAGE>
"Existing Indebtedness" means, with respect to the Borrower and its
---------------------
Subsidiaries, the Indebtedness set forth and described on Schedule 6.02 hereto.
"Existing Liens" means, with respect to the Borrower and its
--------------
Subsidiaries, (i) Liens on computers and related equipment, telecommunications
equipment and copy and facsimile equipment leased by the Borrower and its
Subsidiaries in the ordinary course of business and (ii) those Liens set forth
and described on Schedule 6.01 hereto.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if the day for which such rate is to be
--------
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Lender on such day as such transactions as determined by the
Lender.
"Federal Reserve Board" means the Board of Governors of the Federal
---------------------
Reserve System, or any successor thereto.
"Fee Letter" shall have the meaning ascribed to it in Section 2.04(c)
----------
hereof.
"Fees" means, collectively, the Senior Term Loan Fees, the Mortgage
----
Term Loan Fees, the Revolving Credit Fees, the Revolving Credit Facility A
Extension Fee, the Term Loan Extension Fee, the Deferred Amendment Fee, and the
Deferred Letter of Credit Fees.
"Fiscal Quarter" means the three month period ending on March 31, June
--------------
30, September 30 or December 31 in any year.
"Fiscal Year" means the fiscal year of the Borrower, which shall be
-----------
the twelve (12) month period ending on December 31 in each year.
"Fixed Charges" means, for any period, the sum of the amounts for such
-------------
period, without duplication, of (i) scheduled payments of principal of the Term
Loans and other Indebtedness permitted under Section 6.02 hereof to be incurred,
(ii) interest expense in respect of the Loans and such other Indebtedness during
such period, (iii) Consolidated Rental Payments during such period, (iv) income
tax payments paid in cash during such period, (v) Capital Expenditures paid in
cash during such period, (vi) dividends paid in cash by the Borrower to Holdings
to permit Holdings to pay in cash dividends on Holdings Preferred Stock that are
payable in such period and (vii) payments made pursuant to Earn-Out Payment
Obligations in such period.
"Fixed Charges Coverage Ratio" means, as of the last day of any Fiscal
----------------------------
Quarter of the Borrower, the ratio of (i) the sum of (a) Consolidated EBITDA for
the four (4) consecutive Fiscal Quarters ended on such day plus (b) Consolidated
----
Rental Payments for such period, to (ii) Fixed Charges for such period.
"Funding Date" means a date on which a Revolving Loan is made pursuant
------------
to Section 2.01 hereof, including the Effective Date.
"GAAP" means generally accepted accounting principles as in effect in
----
the United States of America (as such principles may change from time to time);
provided that for purposes of Section 6.06 of this
- --------
Third Amended and Restated
Senior Secured Credit Agreement
11
<PAGE>
Agreement, and the terms used therein which are defined "in accordance with
GAAP", "GAAP" means generally accepted accounting principles in the United
States of America as in effect on the Effective Date.
"Governmental Approval" means an authorization, consent, approval,
---------------------
permit, license or exemption of, registration or filing with, or report or
notice to, any Governmental Authority.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including without limitation any governmental authority, court,
agency, department, board, commission or instrumentality of the United States,
any State of the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction.
"Guaranties" means, collectively, the Holdings Guaranty, the
----------
Subsidiary Guaranty, and the Westmark Guaranty.
"Hazardous Materials" means any chemical substance:
-------------------
(i) the presence of which requires investigation or remediation under
any Applicable Law; or
(ii) which is or becomes defined as a "hazardous waste" or "hazardous
substance" under any Applicable Law, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
Section 9601 et seq.) or the Resource Conservation and Recovery Act (42 U.S.C.
-- ---
Section 6901 et seq.); or
-- ---
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes
regulated by any Governmental Authority; or
(iv) the presence of which on the Real Property causes or threatens to
cause a nuisance upon the Real Property or to adjacent properties or poses or
threatens to pose a hazard to Real Property or to the health or safety of
Persons on or about the Real Property; or
(v) without limitation which contains gasoline, diesel fuel or other
petroleum hydrocarbons; or
(vi) without limitation which contains polychlorinated biphenyls
(PCBs) or asbestos.
"Holdings" means CB Commercial Real Estate Services Group, Inc.
--------
(formerly CB Commercial Holdings, Inc.), a Delaware corporation.
"Holdings Capital Accumulation Plan" means the CB Commercial Holdings
----------------------------------
Inc. Capital Accumulation Plan, a plan intended to be qualified under Section
401(a) of the Code, as in effect on the Effective Date.
"Holdings Common Stock" means all series or classes of the common
---------------------
stock, par value $0.01 per share, of Holdings designated as "Common Stock" in
the Certificate of Incorporation of Holdings, and any other class of Capital
Stock of Holdings now or hereafter authorized having the right to participate in
distributions either of earnings or assets of Holdings upon liquidation,
dissolution or winding up of Holdings without limit as to amount or percentage
of par value, but has no preferential right to participate in distribution of
such earnings or assets.
Third Amended and Restated
Senior Secured Credit Agreement
12
<PAGE>
"Holdings Guaranty" means the Amended and Restated Guaranty dated as
-----------------
of November __, 1996, made by Holdings in favor of the Lenders, as it may from
time to time be amended, supplemented or otherwise modified.
"Holdings Pledge Agreement" means the Amended and Restated Stock
-------------------------
Pledge Agreement dated as of November 25, 1996, between Holdings and the Agent,
for the benefit of the Lenders, as it may from time to time be amended,
supplemented or otherwise modified.
"Holdings Preferred Stock" means all series or classes of Preferred
------------------------
Stock, par value $0.01 per share, of Holdings designated as "Preferred Stock"
in, and having the preferences and relative, participating, optional and other
special rights and the qualifications, limitations and restrictions of such
rights set out in, the Certificate of Incorporation of Holdings, as in effect on
the Effective Date.
"Holdings Security Agreement" means the Security Agreement dated as of
---------------------------
November 25, 1996 made by Holdings, in favor of the Agent, for the benefit of
the Lenders, as it may be from time to time amended, supplemented or otherwise
modified.
"Indebtedness" means, with respect to any Person, the aggregate amount
------------
of, without duplication: (i) all obligations for borrowed money; (ii) all
obligations evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations to pay the deferred purchase price of property or services
(including without limitation Earn-out Payment Obligations), except trade
accounts payable, accrued commissions and other similar accrued current
liabilities in respect of such obligations, in any case arising in the ordinary
course of business; (iv) all Capitalized Lease Obligations; (v) all obligations
or liabilities of others secured by a Lien on any asset owned by such Person or
Persons whether or not such obligation or liability is assumed by such Person;
(vi) all obligations of such Person, contingent or otherwise, in respect of any
letters of credit or bankers' acceptances, and (vii) all Contingent Obligations.
"Indemnitees" has the meaning ascribed to it in Section 9.02 hereof.
-----------
"Initial Funding Date" means April 19, 1989.
--------------------
"Initial Public Offering" shall have the meaning ascribed to it in
-----------------------
Section 3.01 hereof.
"Installment Payment Dates" means the last day of March, June,
-------------------------
September and December in each year, commencing March 31, 1997.
"Intercompany Indebtedness" means any Indebtedness of the Borrower or
-------------------------
any Subsidiary of the Borrower which, in the case of the Borrower, is owed to
any Wholly-Owned Subsidiary of the Borrower and which, in the case of any
Subsidiary, is owed to the Borrower or any other Wholly-Owned Subsidiary of the
Borrower.
"Intercreditor Agreement" means the Intercreditor Agreement dated as
-----------------------
of July 23, 1990, among Holdings, the Borrower, Sumitomo Finance (Dublin)
Limited and the Lenders, as it may from time to time be amended, supplemented or
otherwise modified.
"Interest Coverage Ratio" means, as of the last day of any Fiscal
-----------------------
Quarter of the Borrower, the ratio of (i) Consolidated EBITDA for the four (4)
consecutive Fiscal Quarters ended on such day to (ii) Consolidated Interest
Expense for such period.
"Interest Payment Date" means (i) in the case of Prime Rate Loans, the
---------------------
last day of March, June, September and December in each year, and (ii) in the
case of Euro-Dollar Rate Loans, the last day of each Interest Period applicable
thereto, provided that in the case of an Interest Period applicable to a Euro-
--------
Third Amended and Restated
Senior Secured Credit Agreement
13
<PAGE>
Dollar Rate Loan that is longer in duration than three (3) months, from the date
such Interest Period commenced, then the last day of such third month or, if
such date is not a Business Day, the next succeeding Business Day, also shall be
an Interest Payment Date.
"Interest Period" means, with respect to each Euro-Dollar Loan, the
---------------
period commencing on the date specified in the Notice of Borrowing delivered by
the Borrower pursuant to Section 2.01(e) hereof, or the Notice of
Conversion/Continuation with respect thereto delivered by the Borrower pursuant
to Section 2.02(g)(iii) hereof, and ending one (1), two (2), three (3) or six
(6) months thereafter, as the Borrower may elect in such Notice of
Conversion/Continuation, provided that (a) any such Interest Period that would
--------
otherwise end on a day that is not a Euro-Dollar Business Day shall be extended
to the next succeeding Euro-Dollar Business Day unless such succeeding Euro-
Dollar Business Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar Business Day and (b) any
Interest Period which begins on the last Euro-Dollar Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
Calendar month at the end of such Interest Period) shall end on the last Euro-
Dollar Business Day of a calendar month.
"Investment" means, as applied to any Person, (i) any direct or
----------
indirect purchase or other acquisition by that Person of (x) any interest in
Capital Stock of any other Person, including, without limitation, any record or
beneficial interest in stock or securities of, or any partnership interest
(whether general or limited) in, any other Person, or (y) all or any substantial
portion of the business or assets of any other Person or any business unit of
such other Person, (ii) any direct or indirect loan, advance or capital
contribution by that Person to any other Person, including all indebtedness and
accounts receivable or trade credits from that other Person which are not
current assets arising from transactions entered into in a manner that is
substantially consistent with past practices or did not arise from sales to that
other Person in the ordinary course of business (provided that interim draws
paid by the Borrower or its Subsidiaries to its brokers in the ordinary course
of business substantially consistent with past practices as an advance against
commissions payable or to become payable shall not constitute an Investment),
and (iii) any Contingent Obligation undertaken by that Person with respect to
Indebtedness of any other Person. "Investment" shall include any expenditure
made by the Borrower or any of its Subsidiaries in connection with any Permitted
Acquisition, including an expenditure that would be classified as a capital
expenditure in accordance with GAAP that is not a "Capital Expenditure" as a
result of designation by the Borrower in writing to the Agent at least ten days
prior to consummation thereof. The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto, without
any adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment, together with, in the case of a
Permitted Acquisition, any related Earn-out Payment Obligations (in an amount
equal to the maximum amount thereof, or if there is no prescribed maximum
amount, then the greater of (x) the Borrower's reasonable estimate of its future
liability with respect thereto (estimated on the basis of reasonable financial
projections at the time of consummation of such Permitted Acquisition) and (y)
the aggregate amount of payments actually made with respect thereto), but
excluding any amounts capitalized in accordance with GAAP to reflect probable
severance, office closing and similar payments and expenses.
"IPO Net Proceeds" shall mean the cash proceeds received by or for the
----------------
account of Holdings or any of its Subsidiaries attributable to the Initial
Public Offering, minus amounts expended in connection with the Initial Public
-----
Offering for (a) underwriters' discounts and commissions, (b) prospectus and
stock certificate printing and distribution fees, (c) fees and reimbursed
expenses of the Borrower's counsel and independent public accountants, (d) fees
and reimbursed expenses of the underwriters' counsel relating to compliance with
the blue sky laws of the various states, (e) fees and reimbursed expenses of
counsel to the Agent, (f) fees payable to the SEC, and minus the Revolving
-----
Credit Facility A Extension Fee, the Revolving Credit Facility B Extension Fee
and the Term Loan Extension Fee.
Third Amended and Restated
Senior Secured Credit Agreement
14
<PAGE>
"Issuing Bank" shall mean, with respect to a Revolving Credit Facility
------------
A Letter of Credit, The Sumitomo Bank, Limited, and with respect to a Revolving
Credit Facility B Letter of Credit, the Revolving Credit Facility B Lender.
"Lenders" shall have the meaning ascribed to it in the preamble to
-------
this Agreement.
"Lending Office" means the Lender's Domestic Lending Office or its
--------------
Euro-Dollar Lending Office, as the context may require.
"Letter of Credit Amount" means $10,000,000.
-----------------------
"Letter of Credit Application" shall have the meaning set forth in
----------------------------
Section 2.01(h)(ii) of this Agreement.
"Letter of Credit Fee" shall have the meaning set forth in Section
--------------------
2.01(h)(viii) of this Agreement.
"Letter of Credit Liability" means Revolving Credit Facility A Letter
--------------------------
of Credit Liability and Revolving Credit Facility B Letter of Credit Liability.
"Leverage Ratio" means, at any date of determination thereof, the
--------------
ratio of (i) Consolidated Total Debt existing as at such date to (ii)
Consolidated EBITDA for the period of four consecutive fiscal quarters ended on
the last day of the last quarter ended prior to such date.
"Lien" means any lien, mortgage, pledge, security interest, charge, or
----
encumbrance of any kind (including any conditional sale or other title retention
agreement or any lease in the nature thereof) and any agreement to give or
refrain from giving any lien, mortgage, pledge, security interest, charge, or
other encumbrance of any kind.
"Loan" means any portion of either of the Term Loans or any Revolving
----
Loan (i) as to which the rate at which interest accrues is determined by
reference to the Prime Rate, or (ii) as to which (a) the rate at which interest
accrues is determined by reference to a Euro-Dollar Rate and (b) a single
Interest Period is applicable thereto. The continuation of a Loan from Interest
Period to Interest Period or the conversion of a Loan in whole or in part from
one interest rate option to another shall not be deemed to be the making of a
Loan.
"Loan Documents" means, collectively, this Agreement, the Notes, the
--------------
Collateral Documents, the Guaranties, the Intercreditor Agreement, and any
supplemental agreement, instrument or other writing executed or delivered by
Holdings, the Borrower or any of its Subsidiaries in connection herewith, and
all amendments, modifications or supplements, and appendices, exhibits and
schedules to, any of the foregoing.
"London Interbank Offered Rate" means, with respect to any Interest
-----------------------------
Period, the rate per annum (rounded upwards, if any, to the next higher 1/16th
of 1%) at which deposits in Dollars are offered to the Agent in the London
interbank market in amounts comparable to the Euro-Dollar Loan to which such
Interest Period is to apply and for a period equal to such Interest Period, at
approximately 11:00 a.m. (London time) two (2) Euro-Dollar Business Days before
the first day of such Interest Period.
"Mandatory Prepayment" means each prepayment required pursuant to
--------------------
Section 2.05(b)(i).
"Margin Regulations" means Regulations G, T, U and X of the Board of
------------------
Governors of the Federal Reserve System, as in effect from time to time.
Third Amended and Restated
Senior Secured Credit Agreement
15
<PAGE>
"Margin Stock" means "margin stock" as defined in Regulation U.
------------
"Maturity Date" means December 31, 2001.
-------------
"Melody" shall mean L.J. Melody & Company, a Texas corporation and a
------
Wholly-Owned Subsidiary of the Borrower.
"Melody Acquisition" shall mean, collectively, (i) the purchase by CB
------------------
Commercial Mortgage Company, Inc., a California corporation that is a wholly-
owned Subsidiary of the Borrower ("CB Mortgage"), of (x) all of the issued and
outstanding capital stock of Melody pursuant to and in accordance with the terms
of the Melody Stock Purchase Agreement and (y) all of the issued and outstanding
capital stock of Melody California pursuant to and in accordance with the terms
of the Melody California Stock Purchase Agreement, and (ii) consummation of the
merger (the "Melody Merger") of CB Mortgage with and into Melody, a wholly-owned
Subsidiary of CB Mortgage, pursuant to and in accordance with the terms of the
Melody Merger Agreement and the subsequent merger of Melody California with and
into Melody.
"Melody California" shall mean L.J. Melody & Company of California, a
-----------------
Texas corporation and a Wholly-Owned Subsidiary of Melody.
"Melody California Stock Purchase Agreement" means the Stock Purchase
------------------------------------------
Agreement dated as of June 27, 1996 among the Borrower, CB Mortgage and the
Melody Stockholders party thereto, and all schedules and exhibits thereto, as in
effect on the Amendment Effective Date (as defined in the Limited Waiver,
Consent and Amendment No. 2 dated as of June 30, 1996 (the "Second Amendment")
to the Second Amended and Restated Senior Secured Credit Agreement).
"Melody Loan Arbitrage Facility" means a credit facility provided to
------------------------------
Melody by any depository bank in which Melody deposits payments made on mortgage
loans for which Melody is servicer prior to distribution of such payments to or
for the benefit of the holders of such loans, so long as (i) Melody applies all
proceeds of loans made under such credit facility to purchase Permitted
Investments, and (ii) all Permitted Investments purchased by Melody with the
proceeds of loans thereunder (and proceeds thereof and distributions thereon)
are pledged to the depository bank providing such credit facility, and such bank
has a first priority perfected security interest therein, to secure loans made
under such credit facility.
"Melody Merger Agreement" means the Agreement and Plan of Merger
-----------------------
between CB Mortgage and Melody providing for the merger of CB Mortgage with and
into Melody, and the articles or certificate of merger, if any, required to be
in the office of the secretary of state, or other public official, in any
jurisdiction in order to effect the Melody Merger.
"Melody Mortgage Warehousing Facility" means the credit facility
------------------------------------
provided by Residential Funding Corporation ("RFC") or any substantially similar
facility, pursuant to which RFC or another lender makes loans to Melody, the
proceeds of which loans are applied by Melody to fund commercial mortgage loans
originated and owned by Melody subject to an unconditional, irrevocable
commitment to purchase such mortgage loans by the Federal Home Loan Mortgage
Corporation, so long as loans made by RFC or such other lender to Melody
thereunder are secured by a pledge of commercial mortgage loans made by Melody
with the proceeds of such loans, and RFC or such other lender has a perfected
first priority security interest therein, to secure loans made under such credit
facility.
"Melody Permitted Indebtedness" shall mean Indebtedness of Melody
-----------------------------
under the Melody Loan Arbitrage Facility, the Melody Mortgage Warehousing
Facility and the Melody Working Capital Facility, and in respect of the Melody
Seller Senior Notes and the Melody Seller Contingent Notes.
Third Amended and Restated
Senior Secured Credit Agreement
16
<PAGE>
"Melody Pledge Agreement" means the Pledge Agreement dated as of
-----------------------
November 25, 1996 by and between Melody and the Agent, for the benefit of the
Lenders, as it may from time to time be amended, supplemented or otherwise
modified.
"Melody Seller Contingent Notes" means the Contingent Promissory Notes
------------------------------
due July 1, 2001 issued by CB Mortgage to the Melody Stockholders, in
substantially the form attached as Exhibit B to the Melody Stock Purchase
Agreement, in an aggregate principal amount not in excess, at any time, of
$3,000,000 less the aggregate amount of payments of principal thereof required
----
to be made in respect thereof at or prior to such time in accordance with the
terms thereof.
"Melody Seller Senior Notes" means the Senior Promissory Notes due
--------------------------
July 1, 1998 issued by CB Mortgage, to the Melody Stockholders, in substantially
the form attached as Exhibit A to the Melody Stock Purchase Agreement, in an
aggregate principal amount not in excess, at any time, of $3,000,000 less the
----
aggregate amount of payments of principal required to be made in respect thereof
at or prior to such time in accordance with the terms thereof.
"Melody Stock Purchase Agreement" means the Stock Purchase Agreement
-------------------------------
dated as of June 27, 1996 among the Borrower, CB Mortgage and the Melody
Stockholders party thereto, and all schedules and exhibits thereto, as in effect
on the Amendment Effective Date (as defined in the Second Amendment).
"Melody Stockholders" means, together, Lawrence J. Melody and John M.
-------------------
Bradley.
"Melody Working Capital Facility" means a credit facility provided by
-------------------------------
a financial institution to Melody, so long as (i) the proceeds of loans
thereunder are applied only to provide working capital to Melody, (ii) loans
under such credit facility are unsecured, and (iii) the aggregate principal
amount of loans outstanding under such credit facility at no time exceeds
$1,000,000.
"Mortgage Banking Activities" means the origination by a Mortgage
---------------------------
Banking Subsidiary of mortgage loans in respect of commercial and multi-family
residential real property, and the sale or assignment of such mortgage loans and
the related mortgages to another Person (other than the Borrower or another of
its Subsidiaries) within 60 days after the origination thereof; provided,
--------
however, that in each case prior to origination of any mortgage loan, the
- -------
Borrower or a Mortgage Banking Subsidiary, as the case may be, shall have
entered into a legally binding and enforceable purchase and sale agreement with
respect to such mortgage loan with a Person that purchases such loans in the
ordinary course of its business.
"Mortgage Banking Subsidiary" means Melody and its Subsidiaries that
---------------------------
are engaged in Mortgage Banking Activities.
"Mortgage Term Loan" means the Term Loan outstanding pursuant to
------------------
Section 2.01(b) of this Agreement.
"Mortgages" means the California Mortgages and the Other Mortgages.
---------
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 3(37) and Section 4001(a)(3)(A) of ERISA to which the Borrower or any of
its ERISA Affiliates is making or accruing an obligation to make contributions
or has within any of the preceding five plan years made or accrued an obligation
to make contributions.
"Multiple Employer Plan" shall mean "a single employer plan," as
----------------------
defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees
of the Borrower or an ERISA Affiliate and at least one Person other than the
Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of
Third Amended and Restated
Senior Secured Credit Agreement
17
<PAGE>
which the Borrower or an ERISA Affiliate could have liability under Section 4064
or 4069 of ERISA in the event such plan has been or were to be terminated.
"Net Cash Proceeds" means, with respect to any sale, assignment,
-----------------
lease, transfer or other disposition of assets (including, without limitation,
an Asset Disposition), the sum of:
(i) the cash and cash equivalent proceeds received by or for the
account of the Borrower or any of its Subsidiaries attributable to such sale or
other disposition;
(ii) the amount of cash and cash equivalents received by or for the
account of the Borrower or any of its Subsidiaries upon the sale, conversion,
collection or other liquidation of any Non-Cash Proceeds attributable to such
sale or other disposition; and
(iii) the amount of cash and cash equivalents in respect of any run-
off of receivables or in respect of dispositions of inventory, in each case
retained in connection with a sale or other disposition constituting a sale of
all or substantially all of the other assets or a line of business of the Person
making the disposition;
in each case net of any amount required to be paid to any Person (other than
Holdings, the Borrower or any Subsidiary) owning a beneficial interest in the
stock or other assets disposed of, any amount applied to the repayment of
Indebtedness (other than the Obligations) secured by a Lien permitted under
Section 6.01 hereof on the asset disposed of, any transfer taxes paid or payable
as a result of such sale or other disposition and professional fees and
expenses, broker's commissions and other out-of-pocket costs of sale actually
paid to any Person (other than Holdings, the Borrower or any Subsidiary)
attributable to such sale or other disposition up to the limit, if any, set
forth in a relevant Collateral Document.
"Non-Cash Proceeds" means any notes, debt securities, other rights to
-----------------
payment, equity securities and any other consideration received from any sale,
assignment, lease, transfer or other disposition of assets (including, without
limitation, an Asset Disposition), except consideration initially received as
Net Cash Proceeds.
"Notes" means, collectively, the Domestic Notes and the Euro-Dollar
-----
Notes.
"Notice of Borrowing" means an irrevocable notice, executed by a
-------------------
Responsible Officer of the Borrower, in substantially the form of Exhibit I
hereto.
"Notice of Conversion/Continuation" means a notice to convert or
---------------------------------
continue a Fixed Rate Loan as the same or to another type of Loan given by the
Borrower pursuant to Section 2.02(e)(iii) hereof, in substantially the form of
Exhibit J hereto.
"Obligated Party" shall have the meaning ascribed to it in Section
---------------
2.01(f) hereof.
"Obligations" means, collectively, the Senior Secured Obligations and
-----------
the Specified Mortgage Loan Obligations.
"Operating Lease" means, as applied to any Person, any lease of any
---------------
property (whether real, personal, or mixed) which is not a Capitalized Lease
other than any such lease under which that Person is the lessor.
"Other Mortgages" means all of the deeds of trust, assignments of
---------------
leases, environmental indemnities and any and all similar agreements with
respect to Real Property (other than California Mortgages) entered between the
Borrower or any of its Subsidiaries and the Agent, in form satisfactory to the
Third Amended and Restated
Senior Secured Credit Agreement
18
<PAGE>
Agent, encumbering the interests of the Borrower or such Subsidiary in and to
any Real Property, as amended, supplemented or modified from time to time.
"Outstanding Loans" shall have the meaning set forth in the recitals
-----------------
hereto.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
----
Title IV of ERISA, or any successor thereto.
"Permitted Acquisition" means the acquisition by the Borrower or any
---------------------
of its Subsidiaries after the Effective Date of assets constituting an entire
business or division of any Person that is not already a Subsidiary of the
Borrower or any of its Subsidiaries, or the acquisition by Borrower or any of
its Subsidiaries of one hundred percent (100%) of the capital stock (except for
directors' qualifying shares) of any such Person, including by any merger or
consolidation permitted under Section 6.07 hereof, so long as (i) such
acquisition and all transactions related thereto are consummated in accordance
with Applicable Law; (ii) such acquisition, in the case of a Permitted
Acquisition of capital stock, results in such domestic corporation becoming a
Wholly-Owned Subsidiary; (iii) the Borrower shall have delivered to the Agent a
certificate demonstrating in reasonable detail compliance with Sections 6.01,
6.02, 6.03, 6.04, 6.05 and 6.06 of this Agreement immediately after giving
effect to such acquisition and giving pro forma effect thereto as if such
---------
acquisition had been consummated, and any Indebtedness incurred in connection
therewith had been incurred, on the first day of the period of four consecutive
fiscal quarters most recently ended prior to the date on which such acquisition
is completed (provided, however, that with respect to any such acquisition
-------- -------
consummated by Borrower during the 1997 calendar year, such pro forma compliance
---------
with Section 6.06(a) shall be determined after giving effect to the prepayment
of the Term Loans from IPO Net Proceeds contemplated by Section 3.01(c)); (iv)
no capital stock or other assets acquired in connection with such acquisition
shall be subject to any Lien (other than Liens permitted by Section 6.01); and
(v) no Default or Event of Default shall have occurred and be continuing on the
date such acquisition is completed or shall result therefrom.
"Permitted Investments" means (i) marketable direct obligations issued
---------------------
by the United States Government and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and having, at the time of acquisition, the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (iii) commercial paper having, at the time of acquisition, the
highest rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (iv) certificates of deposit, other time deposits, and
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any bank operating under the laws of the United States of
America or any state thereof or the District of Columbia which has combined
capital and surplus of not less than $500,000,000, (v) institutional money
market funds organized under the laws of the United States of America or any
state thereof that invest solely in any of the Investments permitted under
clauses (i), (ii), (iii) and (iv) hereof, or (vi) repurchase agreements with
respect to Investments permitted under clause (i) or (ii) with counterparties
acceptable to the Lender.
"Permitted Seller Indebtedness" means Indebtedness of the Borrower, a
-----------------------------
Subsidiary of the Borrower, or a Subsidiary of the Borrower acquired in, or
formed in connection with, a Permitted Acquisition, owing to the Seller therein
and constituting a portion of the aggregate consideration paid with respect to
such Permitted Acquisition; provided, that (x) such Indebtedness shall not be
---------
guaranteed by any other Subsidiary of the Borrower, and (y) unless (i) such
Permitted Acquisition consists of an acquisition of a business or assets
directly by the Borrower, or (ii) the acquired Subsidiary (or, in the case of a
Permitted Acquisition involving the acquisition of assets, the acquiring
Subsidiary) has executed and delivered to the Agent the Subsidiary Guaranty and
the Subsidiary Security Agreement, any such Indebtedness shall constitute the
obligation only of the Subsidiary of the Borrower acquired or formed in
connection with the related Permitted Acquisition, and shall not be guaranteed
by the Borrower.
Third Amended and Restated
Senior Secured Credit Agreement
19
<PAGE>
"Permitted Liens" means, collectively, the Customary Permitted Liens
---------------
and the Existing Liens.
"Permitted Tax Payment" means, for any taxable year of the Borrower in
---------------------
which it joins in filing a consolidated federal income tax return with Holdings,
a payment by the Borrower to Holdings in an amount not in excess of the lesser
of (i) the separate return federal income tax liability (if any) of the
affiliated group (within the meaning of Section 1504 of the Code) of which the
Borrower would be the parent (the "Borrower Group") if it were not a member of
---------------
another affiliated group for that or any other taxable year, and (ii) the
portion of the actual tax liability (if any) of the affiliated group of which
the Borrower is actually a member (the "Holdings Group") for such year allocable
to the Borrower Group under the rules set forth in Section 1552(a)(1) of the
Code and the Department of the Treasury regulations promulgated thereunder;
provided that such payment can be made by the Borrower no earlier than the date
- --------
on which the Holdings Group is required to make federal income tax payments for
such year to the Internal Revenue Service, and provided, further, that for
-------- -------
purposes of clause (ii) above actual tax liability of the Holdings Group shall
be computed without regard to any income, gain, loss, deduction or credit
generated by a corporation other than Holdings, the Borrower or a Subsidiary of
the Borrower. In the event that Holdings and any member of the Borrower Group
join in filing any combined or consolidated (or similar) state or local income
or franchise tax returns, then "Permitted Tax Payment" shall include payments
with respect to such state or local income or franchise taxes determined in a
manner as similar as possible to that provided in the preceding sentence for
federal income taxes.
"Person" means an individual, a corporation, a partnership, a trust,
------
an unincorporated organization or any other entity or organization, including a
government or any agency or political subdivision thereof and, for the purpose
of the definition of "ERISA Affiliate," a trade or business.
"Plan" means any pension, retirement, disability, defined benefit,
----
defined contribution, profit sharing, deferred compensation, employee stock
ownership, employee stock purchase, or other employee benefit plan or
arrangement, other than a Multiemployer Plan, irrespective of whether any of the
foregoing is funded, including without limitation any employee benefit plan as
defined in Section 3(3) of ERISA which was (within six (6) years prior to the
date of this Agreement), is or will be sponsored or maintained by Borrower or
its ERISA Affiliates, in which any personnel of the Borrower or its ERISA
Affiliates participates or from which any such personnel may derive a benefit.
"Pledge Agreements" means the Holdings Pledge Agreement, the CBCREG
-----------------
Pledge Agreement and the Melody Pledge Agreement.
"Post-Default Rate" means, at any time, a rate per annum equal to the
-----------------
rate of interest otherwise in effect at such time pursuant to the terms hereof,
plus two percent (2%); provided that as to any amount not paid when due (whether
of principal, interest, Fees, expenses or otherwise) the Post-Default Rate shall
be the Prime Rate plus two percent (2%) per annum.
"Prime Rate" means, as of any date, a rate per annum equal to the
----------
greater of (i) the Federal Funds Rate as in effect at such time plus 0.5% or
(ii) the per annum rate of interest most recently announced by the Lender
publicly as its prime rate for domestic commercial loans. The prime rate is not
necessarily the lowest rate of interest charged by the Lender in connection with
extensions of credit. Each change in any interest rate provided for herein
based upon the Prime Rate resulting from a change in the Prime Rate (or any
component thereof) shall take effect at the time of such change in the Prime
Rate.
"Prime Rate Loan" means a Loan that bears interest by reference to the
---------------
Prime Rate.
"Pro Forma Fixed Charges Coverage Ratio" means, with respect to any
--------------------------------------
Indebtedness proposed to be incurred in connection with a Permitted Acquisition,
the ratio of (i) the sum of (a) Consolidated
Third Amended and Restated
Senior Secured Credit Agreement
20
<PAGE>
EBITDA for the four (4) consecutive Fiscal Quarters ended on the last day of the
last quarter ended prior to the date on which such Indebtedness is proposed to
be incurred plus (b) Consolidated Rental Payments for such period, to (ii) Fixed
Charges for such period determined giving pro forma effect to the incurrence of
such Indebtedness (and the incurrence of all other Indebtedness incurred, and
the repayment of all Indebtedness repaid (to the extent that no commitment
exists to permit re-incurrence of such Indebtedness) after the first day of such
four-quarter period) as though it had been incurred on the first day of such
four-quarter period.
"Prohibited Transaction" means a transaction which is prohibited under
----------------------
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA.
"Pro Rata Share" means (i) with respect to the Revolving Credit
--------------
Facility A Commitment, and with respect to any Lender, a number equal to the
percentage of such Lender's portion of the Revolving Credit Facility A
Commitment (as set forth on Schedule 1.01A hereto); and (ii) with respect to the
Term Loans, and with respect to any Lender, a number equal to the percentage of
such Lender's portion of the Term Loans (as set forth on Schedule 1.01B hereto).
"Real Property" means each of those parcels (or portions thereof) of
-------------
real property, improvements and fixtures thereon and appurtenances thereto now
or hereafter owned or leased by the Borrower or any of its Subsidiaries.
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System and any successor regulation, in each case as in effect
from time to time.
"Regulation U" means Regulation U of the Board of Governors of the
------------
Federal Reserve System or any successor regulation, in each case as in effect
from time to time.
"Regulatory Change" means (i) the adoption after the date hereof of
-----------------
any new, or any change in any existing, treaty or Federal, state, local or
foreign law, rule, regulation (including but not limited to Regulation D) or
guideline (whether or not having the force of law), (ii) the adoption or making
after the date hereof of, or compliance by any Lender with, any interpretation,
directive, request, order or decree (whether or not having the force of law)
applicable to any Lender by any court or Governmental Authority or central bank
or other monetary authority, or compliance after the date hereof by the Leader
with any such law, rule, regulation, guideline, interpretation, directive,
request, order or decree (whether adopted, made or issued before or after the
date hereof), or (iii) any change in the administration or enforcement of or
under any such law, rule, regulation or guideline by any court or Governmental
Authority or central bank or other monetary authority charged with the
interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section
----------------
4043(b) of ERISA or the regulations thereunder, except any such event as to
which the provision for thirty (30) days' notice to the PBGC is waived under
applicable regulations.
"Reporting Subsidiary" means any Subsidiary that has, on any date of
--------------------
determination, total assets in excess of $25,000 or total liabilities in excess
of $50,000, as determined in accordance with GAAP.
"Required Lenders" means (i) Lenders holding Pro Rata Shares equal to
----------------
or greater than 50% of the aggregate unpaid principal amount of the Term Loans,
(ii) Lenders having Pro Rata Shares equal to or greater than 50% of the
aggregate amount of the Revolving Credit Facility A Commitment, and (iii) the
Revolving Credit Facility B Lender.
"Reserve Requirement" means, with respect to any Euro-Dollar Loan for
-------------------
any Interest Period, the maximum rate for which reserves (including any
marginal, supplemental, special or emergency reserve) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal
Third Amended and Restated
Senior Secured Credit Agreement
21
<PAGE>
Reserve System in New York City with deposits comparable in amount to those of
the Lender against "Euro-Currency Liabilities," as that term is used in
Regulation D (or in respect of any other category of liabilities which includes
deposits by reference to which the interest rate on Euro-Dollar Loans is
determined or any category of extensions of credit or other assets which
includes loans by a non-United States office of the Lender to United States
residents).
"Responsible Officer" means the Chairman of the Board of Directors,
-------------------
the President, the Chief Executive Officer, the Chief Operating Officer, the
Chief Financial Officer, the Secretary, the Treasurer or any Vice President in
charge of a principal business unit or division.
"Restricted Payment" means (i) any dividend or other distribution,
------------------
direct or indirect, on account of any shares of CBCREG Capital Stock now or
hereafter outstanding, except a dividend payable solely in shares of a class of
CBCREG Capital Stock to the holders of that class of CBCREG Capital Stock, (ii)
any redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of CBCREG
Capital Stock now or hereafter outstanding or (iii) any payment made to redeem,
purchase, repurchase or retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of CBCREG
Capital Stock or any class of Capital Stock of its Subsidiaries now or hereafter
outstanding (other than the issuance to the extent permitted by this Agreement
of shares of the relevant CBCREG Capital Stock or of Capital Stock of any
Subsidiary upon the exercise of any warrants, options or rights to acquire such
stock).
"Revolving Credit Commitments" means, collectively, the Revolving
----------------------------
Credit Facility A Commitment and the Revolving Credit Facility B Commitment.
"Revolving Credit Facility A Commitment" means the Lender's
--------------------------------------
commitment, in accordance with the terms of this Agreement, to make Revolving
Credit Facility A Loans in an aggregate principal amount at any time outstanding
not to exceed $20,000,000 or such lesser amount to which such commitment may be
reduced pursuant to this Agreement.
"Revolving Credit Facility A Commitment Fee" has the meaning ascribed
------------------------------------------
to it in Section 2.04(a) hereof.
"Revolving Credit Facility A Extension Fee" shall have the meaning
-----------------------------------------
ascribed to it in Section 2.04(e) hereof.
"Revolving Credit Facility A Letter of Credit" means a Letter of
--------------------------------------------
Credit issued upon satisfaction of the conditions set forth in Section
2.01(h)(iii)(B) hereof.
"Revolving Credit Facility A Letter of Credit Liability" means all
------------------------------------------------------
liabilities of the Borrower to the Lenders in respect of Revolving Credit
Facility A Letters of Credit, whether or not such liability is contingent, and
shall consist of the sum of (i) the amount available to be drawn or which may
become available to be drawn under any and all outstanding Revolving Credit
Facility A Letters of Credit (regardless whether any conditions precedent to
such drawing have been satisfied), and (ii) all amounts which have been paid by
the Lenders thereunder, if and to the extent that the Lenders have not received
reimbursement therefor.
"Revolving Credit Facility A Loan" has the meaning ascribed to it in
--------------------------------
Section 2.01(c) hereof and shall include Outstanding Loans of that type.
"Revolving Credit Facility A Termination Date" has the meaning
--------------------------------------------
ascribed to it in Section 2.05(a)(ii) hereof.
Third Amended and Restated
Senior Secured Credit Agreement
22
<PAGE>
"Revolving Credit Facility B Borrowing Date" means each Business Day
------------------------------------------
on and after the Effective Date and prior to the Revolving Credit Facility B
Termination Date.
"Revolving Credit Facility B Commitment" means the Lender's
--------------------------------------
commitment, in accordance with the terms of this Agreement, to make Revolving
Credit Facility B Loans in an aggregate principal amount at any time outstanding
not to exceed $10,000,000 or such lesser amount to which such commitment may be
reduced pursuant to this Agreement.
"Revolving Credit Facility B Commitment Fee" has the meaning ascribed
------------------------------------------
to in Section 2.04(b) hereof.
"Revolving Credit Facility B Extension Fee" shall have the meaning
-----------------------------------------
ascribed to it in Section 2.04(e) hereof.
"Revolving Credit Facility B Lender" means The Sumitomo Bank, Limited
----------------------------------
and its successors and assigns in such capacity.
"Revolving Credit Facility B Letter of Credit" means a Letter of
--------------------------------------------
Credit issued upon satisfaction of the conditions set forth in Section
2.01(h)(iii)(C) hereof.
"Revolving Credit Facility B Letter of Credit Liability" shall mean
------------------------------------------------------
all liabilities of the Borrower to the Revolving Credit Facility B Lender in
respect of Revolving Credit Facility B Letters of Credit, whether or not such
liability is contingent, and shall consist of the sum of (i) the amount
available to be drawn or which may become available to be drawn under any and
all outstanding Revolving Credit Facility B Letters of Credit (regardless
whether any conditions precedent to such drawing have been satisfied), and (ii)
all amounts which have been paid by the Revolving Credit Facility B Lender
thereunder, if and to the extent that the Revolving Credit Facility B Lender has
not received reimbursement therefor.
"Revolving Credit Facility B Loan" has the meaning ascribed to it in
--------------------------------
Section 2.01(d) hereof.
"Revolving Credit Facility B Maturity Date" has the meaning ascribed
-----------------------------------------
to it in Section 2.05(a)(iii) hereof.
"Revolving Credit Facility B Termination Date" has the meaning
--------------------------------------------
ascribed to it in Section 2.05(a)(iii) hereof.
"Revolving Credit Fees" means, collectively, the Revolving Credit
---------------------
Facility A Commitment Fee and the Revolving Credit Facility B Commitment Fee.
"Revolving Loan" means, individually, each Revolving Credit Facility A
--------------
Loan and Revolving Credit Facility B Loan. "Revolving Loans" means,
---------------
collectively, all Revolving Credit Facility A Loans and Revolving Credit
Facility B Loans.
"Sale-Leaseback Transaction" means any arrangement with any Person
--------------------------
providing for the leasing by the Borrower or any Subsidiary of any real or
personal property that, or of any property similar to and used for substantially
the same purposes as any other property that, has been or is to be sold or
otherwise transferred by the Borrower or any of the Subsidiaries to such Person
with the intention of entering into such a lease, other than transactions with
respect to computer and related equipment entered into in the ordinary course of
business.
"SEC" means the United States Securities and Exchange Commission, and
---
any successor thereto.
Third Amended and Restated
Senior Secured Credit Agreement
23
<PAGE>
"Second Amended and Restated Senior Secured Credit Agreement" means
-----------------------------------------------------------
the Second Amended and Restated Senior Secured Credit Agreement dated as of June
30, 1994 between Borrower and Lender, as amended by Amendment No. 1 thereto
dated as of June 30, 1995 and Amendment No. 2 thereto dated as of June 30, 1996.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time, and any successor statute.
"Security Agreements" means the Amended and Restated Security
-------------------
Agreement, the Subsidiary Security Agreement and the Holdings Security
Agreement.
"Senior Loan Debt Service Coverage Ratio" means, at any date of
---------------------------------------
determination thereof, the ratio of (i) Consolidated EBITDA less all
----
contributions thereto of Subsidiaries except to the extent actually received as
dividends by the Borrower, for the period of four consecutive fiscal quarters
ended on the last day of the last quarter ended prior to such date, to (ii)
scheduled principal payments under the Term Loan Installment Payment Schedule
and projected interest expense (at the interest rate in effect at the date of
determination) on the Loans, for the period of four consecutive fiscal quarters
beginning on the last day of the last quarter ended prior to such date.
"Senior Secured Obligations" means all present and future obligations
--------------------------
and liabilities of the Borrower of every type and description arising under or
in connection with this Agreement (other than liability for payment of principal
of or interest on the Mortgage Term Loan and the Mortgage Term Loan Fees) or any
other Loan Document (other than the Domestic Mortgage Term Note and the Euro-
Dollar Mortgage Term Note and the California Mortgages), due or to become due to
the Lenders or any Person entitled to indemnification pursuant to Section 9.02
hereof, or any of their respective successors, transferees or assigns, and shall
include, without limitation, (i) all liability of the Borrower for payment of
principal of and interest on the Senior Term Loan and the Revolving Loans and
under the Domestic Senior Term Note, the Euro-Dollar Senior Term Note, the
Domestic Revolving Credit Facility A Note, the Euro-Dollar Revolving Credit
Facility A Note, the Domestic Revolving Credit Facility B Note and the Euro-
Dollar Revolving Credit Facility B Note, (ii) all liability of the Borrower
hereunder or under the Loan Documents (other than the Domestic Mortgage Term
Note and the Euro-Dollar Mortgage Term Note and the California Mortgages) for
any fees, expense reimbursements and indemnifications, and (iii) any and all
other debts, obligations and liabilities of the Borrower to the Lenders
heretofore, now or hereafter incurred or created (and all renewals, extensions,
modifications and rearrangements thereof), under, in connection with, in respect
of, or evidenced or created by this Agreement (other than liability for payment
of principal of or interest on the Mortgage Term Loan and the Mortgage Term Loan
Fees) or any or all of the other Loan Documents (other than the Domestic
Mortgage Term Note and the Euro-Dollar Mortgage Term Note and the California
Mortgages), whether voluntary or involuntary, however arising, and whether due
or not due, absolute or contingent, secured or unsecured, liquidated or
unliquidated, determined or undetermined, direct or indirect, and whether the
Borrower may be liable individually or jointly with others, provided, however,
-------- -------
that the term "Senior Secured Obligations" shall not in any event include any of
the Specified Mortgage Loan Obligations.
"Senior Term Loan" means the Term Loan made pursuant to Section
----------------
2.01(a) hereof.
"Single Employer Plan" means a Plan which is not a Multiemployer Plan.
--------------------
"Solvent" means, with respect to any Person, that:
-------
(i) the total present fair salable value of such Person's assets on a
going concern basis is in excess of the total amount of such Person's
liabilities;
(ii) such Person is able to pay its debts as they become due; and
Third Amended and Restated
Senior Secured Credit Agreement
24
<PAGE>
(iii) such Person does not have unreasonably small capital to carry on
such Person's business as theretofore operated and all businesses in which such
Person is about to engage.
"Specified Mortgage Loan Obligations" means (i) all liability of the
-----------------------------------
Borrower for payment of principal of and interest on the Mortgage Term Loan and
under the Domestic Mortgage Term Note and the Euro-Dollar Mortgage Term Note,
(ii) all liability of the Borrower for payment of the Mortgage Term Loan Fees
payable hereunder, and (iii) all present and future obligations and liabilities
of the Borrower of every type and description arising under or in connection
with any of the California Mortgages, including without limitation all liability
of the Borrower for any fees, expense reimbursements and indemnifications due or
to become due under Sections 1.04, 1.05, 1.07(a), 1.08(e), 1.11, 1.12, 1.17,
1.22, 1.25 and 6.07 of the California Mortgages or are otherwise payable
thereunder, in each case whether now or hereafter incurred or created (and all
renewals, extensions, modifications and rearrangements thereof, whether
voluntary or involuntary, however arising, and whether due or not due, absolute
or contingent, secured or unsecured, liquidated or unliquidated, determined or
undetermined, direct or indirect and whether the Company may be liable
individually or jointly with others.
"Stated Amount" means, with respect to a Letter of Credit, the maximum
-------------
amount available to be drawn thereunder, without regard to whether any
conditions to drawing could be met.
"Subordinated Debt" means Indebtedness outstanding under the Senior
-----------------
Subordinated Credit Agreement and any refinancing thereof permitted by Section
6.10 hereof, and any additional Indebtedness hereafter incurred by the Borrower
that is subordinated in right of payment to the Obligations on terms that are
satisfactory to the Agent.
"Subsidiary" means any corporation or other entity (i) of which more
----------
than fifty percent (50%) of the total voting power of the shares of capital
stock or other securities or other ownership interests entitled to vote in the
election of the Board of Directors or other persons performing similar functions
are at any time directly or indirectly owned by the Borrower or (ii) of which
more than fifty percent (50%) of the outstanding shares of stock of any class
(or of any other class of ownership interests), is owned, beneficially or of
record, directly or indirectly, by the Borrower or any of its Subsidiaries;
provided, however, that the term "Subsidiary" shall not include any of the
- -----------------
Persons set forth on Schedule 1.01(C).
"Subsidiary Guaranty" means the Amended and Restated Joint and Several
-------------------
General Continuing Guaranty dated as of November 25, 1996 made by certain
Subsidiaries of the Borrower, including the Westmark Guarantors (the "Subsidiary
Guarantors") in favor of the Agent, for the benefit of the Lenders, as it may be
from time to time amended, supplemented or otherwise modified.
"Subsidiary Security Agreement" means the Amended and Restated
-----------------------------
Subsidiary Security Agreement dated as of November 25, 1996 made by certain of
the Subsidiary Guarantors in favor of the Agent, for the benefit of the Lenders,
as it may be from time to time amended, supplemented or otherwise modified.
"Taxes" means any income, stamp and other taxes, charges, fees,
-----
levies, duties, imposts, withholdings or other assessments, together with any
interest and penalties, additions to tax and additional amounts imposed by any
federal, state, local or foreign taxing authority upon any Person, including
without limitation those assessed, levied or collected on or in respect of a
Loan solely as a result of the interest rate being determined by reference to
the Euro-Dollar Rate or the provisions of this Agreement relating to the Euro-
Dollar Rate, but excluding income taxes imposed on the Lender or its Euro-Dollar
Lending Office by the jurisdiction under the laws of which the Lender is
organized or the jurisdiction in which the Lender's Euro-Dollar Lending Office
is located.
"Term Loan Extension Fee" shall have the meaning ascribed to it in
-----------------------
Section 2.04(e) hereof.
Third Amended and Restated
Senior Secured Credit Agreement
25
<PAGE>
"Term Loan Installment Payment Schedule" shall have the meaning set
--------------------------------------
forth in Section 2.05(a).
"Term Loans" means, collectively, the Senior Term Loan and the
----------
Mortgage Term Loan made pursuant to Section 2.01 hereof.
"Termination Event" means: (a) a Reportable Event or an event
-----------------
described in Section 4068(f) of ERISA; (b) the withdrawal of Borrower or any of
its ERISA Affiliates from a Multiple Employer Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the
cessation of operations at a facility in the circumstances described in Section
4068(f) of ERISA; (c) the filing of a notice of intent to terminate a Plan
(including any such notice with respect to a Plan amendment referred to in
Section 4041(e) of ERISA) or the termination of a Plan excluding, for purposes
of this clause (c), any standard termination under Section 4041(b) of ERISA; (d)
the institution of proceedings to terminate a Plan by the PBGC; (e) the
appointment of a trustee to administer any Plan; or (f) any other event or
condition which might reasonably constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Trademarks" means trademarks, servicemarks and trade names, all
----------
registrations and applications to register such trademarks, servicemarks and
trade names and all renewals thereof, and the goodwill of the business
associated with or relating to such trademarks, servicemarks and trade names,
including without limitation any and all licenses and rights granted to use any
trademark, servicemark or trade name owned by any other person.
"Voting Stock" shall mean Capital Stock, the holders of which are
------------
entitled to vote on matters generally submitted for a vote of the stockholders
of a corporation.
"Westmark" shall mean, collectively, WREAP and Westmark Realty
--------
Advisors L.L.C., a Delaware limited liability company and a Wholly-Owned
Subsidiary of WREAP.
"Westmark Acquisition Agreement" shall mean the Purchase Agreement
------------------------------
dated as of May 15, 1995 among Westmark Acquisition Partnership, the Borrower,
and Vincent F. Martin, Jr., Stanton H. Zarrow, Bruce L. Ludwig, Sol L. Rabin,
Roger C. Schultz and certain other individuals (together, the "Westmark
Sellers"), and all schedules and exhibits thereto, as in effect on the Amendment
Effective Date (as defined in the Limited Waiver, Consent and Amendment No. 1
hereto dated as of June 30, 1995 (the "First Amendment")).
"Westmark Acquisition" shall mean the transactions contemplated by the
--------------------
Westmark Acquisition Documents.
"Westmark Acquisition Documents" means, collectively, the Agreement of
------------------------------
Limited Partnership of WREAP, dated as of May 15, 1995, the Westmark Acquisition
Agreement, the Realty Advisors Management Agreement, and each agreement
ancillary thereto, in each case together with all schedules and exhibits
thereto.
"Westmark Guaranty" shall mean the Continuing Guaranty dated as of
-----------------
November 25, 1996, made by Westmark Real Estate Acquisition Partnership, L.P., a
Delaware partnership, in favor of the Lenders, as it may from time to time be
amended, supplemented or otherwise modified.
"Westmark Guarantors" shall mean the entities set forth on Schedule
-------------------
1.01D.
"Westmark Sellers" has the meaning ascribed to it in the definition of
----------------
Westmark Acquisition.
Third Amended and Restated
Senior Secured Credit Agreement
26
<PAGE>
"Wholly Owned Subsidiary" means any Subsidiary all the shares of
-----------------------
Capital Stock or other ownership interests of which (except for directors'
qualifying shares) are at the time directly or indirectly owned by the Borrower.
"WREAP" means Westmark Real Estate Acquisition Partnership, L.P., a
-----
Delaware partnership, of which the Borrower and one or more Subsidiaries of the
Borrower are the only partners.
SECTION 1.02 CONSTRUCTION. Unless the context of this Agreement
------------
clearly requires otherwise, references herein to the plural include the
singular, the singular includes the plural, the part includes the whole, and the
word "including" is not limiting. References in this Agreement to any
"determination" by the Lender include good faith estimates by the Lender, as
applicable (in the case of quantitative determinations), and good faith beliefs
by the Lender, as applicable (in the case of qualitative determinations). The
words "hereof," "herein," '"hereby," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. Article, section, subsection, exhibit and schedule
references are to this Agreement unless otherwise specified.
SECTION 1.03 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP as
in effect from time to time, applied on a basis consistent (except for changes
concurred in by the Borrower's independent public accountants) with the audited
consolidated financial statements of the Borrower and its consolidated
Subsidiaries referred to in Section 4.04.
SECTION 1.04 EXHIBITS. All of the exhibits and schedules attached to
--------
this Agreement shall be deemed incorporated herein by reference.
SECTION 1.05 OTHER DEFINITIONS. Terms otherwise defined in the
-----------------
description of the parties, the Recitals, within another definition in Section
1.01 hereof and in any other provisions of this Agreement or any of the other
Loan Documents not defined or referenced in Section 1.01 hereof shall have their
respective defined meanings when used herein or therein.
Third Amended and Restated
Senior Secured Credit Agreement
27
<PAGE>
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
------------------------------
SECTION 2.01 FACILITIES
----------
(a) Senior Term Loan Commitment. The Lender made a term loan (the
---------------------------
"Senior Term Loan") to the Borrower in a single borrowing on the Initial Funding
Date, in the principal amount of $152,000,000, of which $106,565,623.20 in
principal is outstanding on the date hereof, and not more than $37,414,724.63
shall be outstanding on the Effective Date.
(b) Mortgage Term Loan Commitment. The Lender made a term loan (the
-----------------------------
"Mortgage Term Loan") to the Borrower in a single borrowing on the Initial
Funding Date, in the principal amount of $18,000,000, all of which is
outstanding on the date hereof.
(c) Revolving Credit Facility A Commitment.
--------------------------------------
(i) Each Lender agrees, upon the terms and subject to the conditions
set forth in this Agreement, to make to the Borrower, from time to time until
the Business Day next preceding the Revolving Credit Facility A Termination
Date, revolving loans (each individually, a "Revolving Credit Facility A Loan"
and collectively, the "Revolving Credit Facility A Loans"), in an amount which
shall not exceed, in the aggregate at any time outstanding, such Lender's Pro
Rata Share of the then Revolving Credit Facility A Commitment less such Lender's
----
Pro Rata Share of the amount of Revolving Credit Facility A Letter of Credit
Liability then existing.
(ii) Revolving Credit Facility A Loans may be voluntarily prepaid
pursuant to Section 2.05(c)(ii) and, subject to the provisions of this
Agreement, any amounts so prepaid, or prepaid pursuant to Section 2.05(b) if the
Revolving Credit Facility A Commitment is not reduced as a result thereof
pursuant hereto, may be re-borrowed, up to the amount available under this
Section 2.01(c) at the time of such re-borrowing.
(d) Revolving Credit Facility B Commitment.
--------------------------------------
(i) The Revolving Credit Facility B Lender agrees, upon the terms and
subject to the conditions set forth in this Agreement, to make to the Borrower,
on each Revolving Credit Facility B Borrowing Date occurring from time to time
on and after the date hereof until the Business Day next preceding the Revolving
Credit Facility B Termination Date, revolving loans (each individually, a
"Revolving Credit Facility B Loan" and collectively, the "Revolving Credit
Facility B Loans"), in an amount which shall not exceed, in the aggregate at any
time outstanding, the then Revolving Credit Facility B Commitment less the
----
amount of Revolving Credit Facility B Letter of Credit Liability then existing.
(ii) Revolving Credit Facility B Loans may be voluntarily prepaid
pursuant to Section 2.05(c) and, subject to the provisions of this Agreement,
any amounts so prepaid, or prepaid pursuant to Section 2.05(a) or Section
2.05(b) if the Revolving Credit Facility B Commitment is not reduced as a result
thereof pursuant hereto, may be re-borrowed, up to the amount available under
this Section 2.01(d) at the time of such re-borrowing.
(e) Notice of Borrowing
-------------------
(i) When the Borrower desires to borrow Revolving Credit Facility A
Loans, it shall deliver to the Agent a Notice of Borrowing no later than 10:00
a.m. (Los Angeles time) (A) at least two
Third Amended and Restated
Senior Secured Credit Agreement
28
<PAGE>
(2) Business Days in advance of the proposed Funding Date, in the case of a
borrowing of Prime Rate Loans, and (B) at least three (3) Euro-Dollar Business
Days in advance of the proposed Funding Date, in the case of a borrowing of
Euro-Dollar Rate Loans.
(ii) When the Borrower desires to borrow Revolving Credit Facility B
Loans, it shall deliver to the Agent a Notice of Borrowing no later than 10:00
a.m. (Los Angeles time) (A) on the Revolving Credit Facility B Borrowing Date,
in the case of a borrowing of Prime Rate Loans, and (B) at least three (3) Euro-
Dollar Business Days in advance of the proposed Revolving Credit Facility
Borrowing Date, in the case of a borrowing of Euro-Dollar Rate Loans.
(iii) A Notice of Borrowing delivered pursuant to Section 2.01(e)(i)
or (ii) shall specify (A) whether the proposed Revolving Loan is a Revolving
Credit Facility A Loan or a Revolving Credit Facility B Loan, (B) the Funding
Date (which shall be a Business Day and, in the case of a borrowing of Euro-
Dollar Rate Loans, a Euro-Dollar Business Day) in respect of the Revolving Loan,
(C) the amount of the proposed borrowing (which shall not in any event be less
than Five Hundred Thousand Dollars ($500,000), (D) whether the proposed
borrowing will be of Prime Rate Loans or Euro-Dollar Rate Loans, (E) in the case
of Euro-Dollar Rate Loans, the requested Interest Period; and (F) in the case of
a proposed borrowing of Revolving Credit Facility B Loans, whether the proposed
borrowing shall constitute an Acquisition Advance.
(iv) The Borrower shall notify the Agent in writing of the names of
its officers and employees authorized to request Revolving Loans on behalf of
the Borrower and shall provide the Agent with a specimen signature of each such
officer or employee. The Agent shall be entitled to rely conclusively on such
officer's or employee's authority to request a Revolving Loan on behalf of the
Borrower until the Agent receives written notice to the contrary. The Agent
shall not have any duty to verify the authenticity of the signature appearing on
any Notice of Borrowing.
(v) Any Notice of Borrowing delivered pursuant to this Section
2.01(e) shall be irrevocable.
(f) Funding of Revolving Loans.
--------------------------
(i) Upon receipt of a Notice of Borrowing delivered pursuant to
Section 2.01(e) that proposes a Revolving Loan that is a Revolving Credit
Facility A Loan, the Agent shall promptly notify each Lender with a Pro
Rata Share of the Revolving Credit Facility A Commitment of the contents
thereof and of such Lender's Pro Rata Share of such borrowing. Upon
receipt of a Notice of Borrowing delivered pursuant to Section 2.01(e) that
proposes a Revolving Loan that is a Revolving Credit Facility B Loan, the
Agent shall promptly notify the Revolving Credit Facility B Lender of the
contents thereof.
(ii) If a Notice of Borrowing delivered pursuant to Section
2.01(e) proposes a Revolving Loan that is a Revolving Credit Facility A
Loan, then not later than 12:00 noon (Los Angeles time) on the Funding Date
specified in such Notice of Borrowing delivered pursuant to Section
2.01(e), each Lender shall make available its Pro Rata Share of such
borrowing, in immediately available funds, to the Agent. If a Notice of
Borrowing delivered pursuant to Section 2.01(e) proposes a Revolving Loan
that is a Revolving Credit Facility B Loan, then not later than 12:00 noon
(Los Angeles time) on the Funding Date specified in such Notice of
Borrowing delivered pursuant to Section 2.01(e), the Revolving Credit
Facility B Lender shall make available the aggregate principal amount of
such borrowing, in immediately available funds, to the Agent.
(iii) If a Notice of Borrowing delivered pursuant to Section
2.01(e) proposes a Revolving Loan that is a Revolving Credit Facility A
Loan, then not later than 2:00 p.m. (Los Angeles time) on the Funding Date
specified in such Notice of Borrowing delivered pursuant to
Third Amended and Restated
Senior Secured Credit Agreement
29
<PAGE>
Section 2.01(e), and subject to and upon fulfillment of the applicable
conditions set forth in Article III hereof, the Agent shall make the
aggregate principal amount of such borrowing available to the Borrower in
Dollars in immediately available funds. If a Notice of Borrowing delivered
pursuant to Section 2.01(e) proposes a Revolving Loan that is a Revolving
Credit Facility B Loan, then not later than 2:00 p.m. (Los Angeles time) on
the Funding Date specified in such Notice of Borrowing delivered pursuant
to Section 2.01(e), and subject to and upon fulfillment of the applicable
conditions set forth in Article III hereof, the Agent shall make the
aggregate principal amount of such borrowing available to the Borrower in
Dollars in immediately available funds.
(iv) Unless (a) the Agent shall have been notified by a Lender
prior to the date upon which a Loan is to be made or (b) the Agent shall
have been notified by the Borrower prior to the date on which the Borrower
is required to make any payment hereunder that such Lender or the Borrower,
as the case may be (the "Obligated Party"), does not intend to make
available to the Agent the Obligated Party's portion of such Loan or such
payment, the Agent may assume that the Obligated Party will make such
amount available to the Agent on such date and the Agent may, in reliance
upon such assumption (but shall not be required to), make available to the
Borrower (in the case of a Loan) or the Lenders (in the case of a payment
by the Borrower) a corresponding amount. If such corresponding amount is
not in fact made available to the Agent by the Obligated Party, the Agent
shall be entitled to recover such amount on demand from the Obligated Party
(or, in the case of a Loan, if the Lender that is the Obligated Party fails
to pay such amount forthwith upon such demand, from the Borrower). Such
amount shall be payable together with interest thereon from the day on
which such corresponding amount was made available by the Agent to the
Lender or the Borrower, as applicable, to the date of payment by the
Obligated Party (or the Borrower, as applicable), at a rate of interest
equal to (i) in the case of any payment by any other Lender, the Federal
Funds Rate, and (ii) in the case of any payment by the Borrower, the
interest rate applicable to the Loan.
(g) Use of Proceeds of Revolving Loans.
----------------------------------
(i) The proceeds of Revolving Credit Facility A Loans may be used for
general corporate purposes of the Borrower; provided, that the proceeds of any
--------
Revolving Credit Facility A Loan made on the date of a drawing under a Revolving
Credit Facility A Letter of Credit and referred to in Section 2.01(h)(v)(B)
hereof shall be applied to satisfy the reimbursement obligation of the Borrower
to the Issuing Bank in respect of such drawing.
(ii) The proceeds of Revolving Credit Facility B Loans may be used for
general corporate purposes of the Borrower, including without limitation
Permitted Acquisitions; provided, that the proceeds of any Revolving Credit
--------
Facility B Loans made on the date of a drawing under a Revolving Credit Facility
B Letter of Credit and referred to in Section 2.01(h)(v)(B) hereof shall be
applied to satisfy the reimbursement obligation of the Borrower to the Revolving
Credit Facility B Lender in respect of such drawing.
(iii) No part of the proceeds of Revolving Loans shall be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock or maintaining or extending
credit to others for such purpose or for any other purpose which otherwise
violates the Margin Regulations.
(h) Letters of Credit.
-----------------
(i) Issuance. Letters of Credit outstanding on the Effective Date
--------
under the Second Amended and Restated Senior Secured Credit Agreement shall be
deemed to have been issued under this Agreement. Subject to the provisions of
this Section 2.01(h) and Sections 3.02 and 3.03 hereof, the Borrower may request
that the Issuing Bank issue for the account of the Borrower one or more Letters
of
Third Amended and Restated
Senior Secured Credit Agreement
30
<PAGE>
Credit as provided herein with expiry dates not later than 365 days from the
date of issuance and in any event, in the case of a Revolving Credit Facility A
Letter of Credit, not later than thirty (30) days prior to the Revolving Credit
Facility A Termination Date and in the case of a Revolving Credit Facility B
Letter of Credit, not later than thirty (30) days prior to the Revolving Credit
Facility B Maturity Date.
(ii) Procedure. The Borrower shall have delivered to the Issuing Bank
---------
and the Agent at least five (5) Business Days prior to the date on which the
Letter of Credit is requested to be issued a letter of credit application and a
letter of credit reimbursement agreement (collectively, a "Letter of Credit
Application") and such other documents and materials as may be required pursuant
to the terms thereof, and each of such documents shall be in form and substance
satisfactory to the Issuing Bank and the Agent. In the event of a conflict
between the terms of any Letter of Credit Application and this Agreement, the
terms of this Agreement shall govern. Upon receipt by the Agent of a Letter of
Credit Application, the Agent shall promptly notify each Lender of the consents
thereof and such Lender's Pro Rata Share of such Letter of Credit.
(iii) Additional Conditions Precedent to Issuance of Letters of
---------------------------------------------------------
Credit.
- ------
(A) In addition to the issuance of any Letter of Credit being
subject to the satisfaction of the conditions precedent set forth in
Sections 3.02 and 3.03 hereof, the Issuing Bank shall not be obligated to
issue any Letter of Credit hereunder if, as of the date of issuance of the
proposed Letter of Credit, any order, judgment or decree of any court,
arbitrator or Governmental Authority shall purport by its terms to enjoin
or restrain the Issuing Bank from issuing the Letter of Credit or any law,
rule or regulation applicable to the Issuing Bank or any request or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over the Issuing Bank shall prohibit or request
that the Issuing Bank refrain from the issuance of letters of credit
generally or such Letter of Credit or shall impose upon the Issuing Bank
with respect to that Letter of Credit any restriction or reserve
requirement not in effect on the date of this Agreement or any unreimbursed
cost or expense which was not applicable, in effect or known to the Issuing
Bank on or as of the date of this Agreement and which the Issuing Bank in
good faith deems materially adverse to it in respect of circumstances known
to it as of the date of this Agreement;
(B) In addition to the conditions precedent set forth in Section
2.01(h)(iii)(A) above and the conditions precedent set forth in Section
3.02 hereof, the Issuing Bank shall not be obligated to issue any Revolving
Credit Facility A Letter of Credit hereunder if the maximum amount
available for drawing under the proposed Revolving Credit Facility A Letter
of Credit, when added to the aggregate existing Letter of Credit Liability,
would exceed the lesser of (i) the Letter of Credit Amount, or (ii) the
then effective Revolving Credit Facility A Commitment less the aggregate
----
amount of Revolving Credit Facility A Loans then outstanding and Revolving
Credit Facility A Loans, if any, requested to be made simultaneously with
the issuance of such proposed Revolving Credit Facility A Letter of Credit;
(C) In addition to the conditions precedent set forth in Section
2.01(h)(iii)(A) above and the conditions precedent set forth in Sections
3.02 and 3.03 hereof, the Issuing Bank shall not be obligated to issue any
Revolving Credit Facility B Letter of Credit if the maximum amount
available for drawing under the proposed Revolving Credit Facility B Letter
of Credit, when added to the aggregate existing Revolving Credit Facility B
Letter of Credit Liability, would exceed the Revolving Credit Facility B
Commitment less the aggregate amount of Revolving Credit Facility B Loans
----
then outstanding and Revolving Credit Facility B Loans, if any, requested
to be made simultaneously with the issuance of such proposed Revolving
Credit Facility B Letter of Credit.
(D) The requirements of this Section 2.01(h) and the provisions
of Sections 3.02 and 3.03 shall also apply to any extension, renewal or
increase of a Letter of Credit.
Third Amended and Restated
Senior Secured Credit Agreement
31
<PAGE>
(iv) Participations in Revolving Credit Facility A Letters of Credit.
---------------------------------------------------------------
(A) Immediately upon the issuance of a Revolving Credit Facility
A Letter of Credit, each Lender with a Revolving Credit Facility A
Commitment shall be deemed to have irrevocably purchased from the relevant
Issuing Bank a participation in such Letter of Credit and any drawing
thereunder in an amount equal to such Lender's Pro Rata Share of the Stated
Amount of such Letter of Credit.
(B) If the Issuing Bank shall not be reimbursed for any drawing
under any Revolving Credit Facility A Letter of Credit issued by it as
provided in Section 2.01(h)(v), the Issuing Bank shall promptly notify the
Agent, and the Agent shall promptly notify each Lender of the unreimbursed
amount of such drawing and of such Lender's respective participation
therein. Each Lender shall make available to the Issuing Bank an amount
equal to its respective participation in immediately available funds, at
the office of such Issuing Bank specified in such notice, not later than
the Business Day after the date on which the Agent gives such notice. Each
Lender's obligations under this Section 2.01(h)(iv)(B): (a) shall not be
subject to any set-off, counterclaim or defense to payment that the Lender
may have against the Borrower or against the Issuing Bank and (b) shall be
absolute, unconditional and irrevocable, and as a primary obligor, not as a
surety, notwithstanding any circumstance or event whatsoever, including (i)
the occurrence of an Event of Default or Default, (ii) the failure of any
other Lender to fund its participation as required hereby, (iii) the
financial condition of the Borrower or any Lender or any set-off,
counterclaim or defense to payment that the Borrower may have, or (iv) the
termination or cancellation of the Revolving Credit Facility A Commitment.
If any Lender fails to make available to the Issuing Bank the amount of
such Lender's participation in the Letter of Credit as provided in this
Section 2.01(h)(iv)(B), such amount shall bear interest at the Federal
Funds Rate from the day on which the Agent's notice referred to above is
given until paid. The Issuing Bank shall pay to the Agent, and the Agent
shall distribute to each Lender that has paid all amounts payable by it
under this Section (iv)(B), such Lender's Pro Rata Share of all payments
received by the Issuing Bank from the Borrower in reimbursement of drawings
honored by the Issuing Bank under a Letter of Credit, as and when such
payments are received.
(v) Reimbursement Obligations. Notwithstanding any provisions to the
-------------------------
contrary in any Letter of Credit Application:
(A) Any reimbursement obligation owing with respect to a drawing
under any Letter of Credit shall be due and payable on the date of such
drawing. In the case of a Revolving Credit Facility A Letter of Credit,
such reimbursement obligation shall be first paid with the proceeds of a
Revolving Credit Facility A Loan which the Borrower shall be deemed to have
requested pursuant to Section 2.01(e) hereof, which Revolving Credit
Facility A Loan shall be made on the date of such drawing without regard to
satisfaction of conditions precedent to the making of Revolving Loans set
out in Section 3.02 hereof. In the case of a Revolving Credit Facility B
Letter of Credit, such reimbursement obligation shall be paid with the
proceeds of a Revolving Credit Facility B Loan which the Borrower shall be
deemed to have requested pursuant to Section 2.01(e) hereof, which
Revolving Credit Facility B Loan shall be made on the date of such drawing
without regard to the satisfaction of conditions precedent to the making of
Revolving Loans set out in Sections 3.02 and 3.03 hereof;
(B) All Letter of Credit Liability shall constitute part of the
Senior Secured Obligations and shall be secured by the Collateral securing
the Senior Secured Obligations. All payments and proceeds of such
Collateral at any time available for application to the payment of the
Obligations may be applied, at the sole discretion of the Agent, to pay any
past due Revolving Credit Facility B Letter of Credit Liability, to fund
any deposit to secure any Revolving Credit Facility B Letter of Credit
Liability, to pay any Revolving Credit Facility B Loans, to pay any past
due
Third Amended and Restated
Senior Secured Credit Agreement
32
<PAGE>
Revolving Credit Facility A Letter of Credit Liability or to fund any
deposit to secure any Revolving Credit Facility A Letter of Credit
Liability.
(vi) Indemnification; Nature of Issuing Bank's Duties. The Borrower
------------------------------------------------
hereby agrees to protect, indemnify and save any Issuing Bank harmless from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees) which the Issuing
Bank may incur or be subject to as a consequence, direct or indirect, of (A) the
issuance of any Letter of Credit, other than as a result of the willful
misconduct or gross negligence of the Issuing Bank, as determined by a court of
competent jurisdiction, or (B) the failure of the Issuing Bank to honor a
drawing under such Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
Governmental Authority having jurisdiction over the Issuing Bank. As between
the Borrower and the Issuing Bank, the Borrower assumes all risks of the acts
and omissions of, or misuse of such Letters of Credit by, the respective
beneficiaries of the Letters of Credit. In furtherance and not in limitation of
the foregoing, subject to the provisions of any of the Letter of Credit
Applications, the Issuing Bank shall not be responsible:
(I) For the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted to the Issuing Bank by any party in
connection with the application for and issuance of the Letters of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged;
(II) For the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole
or in part, which may prove to be invalid or ineffective for any reason;
(III) For failure of the beneficiary of a Letter of Credit to
comply fully with conditions required by the Letter of Credit in order to
draw upon such Letter of Credit;
(IV) For errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex
or otherwise;
(V) For errors in interpretation of technical terms;
(VI) For any loss or delay in the transmission of any document
required in order to make a drawing under any Letter of Credit or of the
Proceeds thereof;
(VII) For the misapplication by the beneficiary of a Letter of
Credit of the Proceeds of any drawing under such Letter of Credit; or
(VIII) For any consequences arising from causes beyond the
control of the Issuing Bank.
None of the above shall affect, impair, or prevent the vesting of any
of the Issuing Bank's rights or powers hereunder, or limit the liability of the
Issuing Bank in the event of willful misconduct by or gross negligence of the
Issuing Bank or its officers, directors, employees or agents. The indemnity
described in this Section 2.01(h)(vi) shall be subject to the procedures set out
in Section 9.02(b) hereof.
(vii) Increased Capital. If either (A) the introduction of or any
-----------------
change in the interpretation of any law or regulation or (B) compliance by the
Issuing Bank or any Lender with any guideline or request from any central bank
or other Governmental Authority (whether or not having the force of law) affects
or would affect the amount of capital required or expected to be maintained by
the Issuing Bank or any corporation controlling the Issuing Bank, or any Lender
or any corporation controlling any such
Third Amended and Restated
Senior Secured Credit Agreement
33
<PAGE>
Lender, and the Issuing Bank or the Lender reasonably determines that the amount
of such capital is increased by or based upon the existence of such Letter of
Credit (or participation therein) then, upon demand by the Issuing Bank or the
Lender, the Borrower shall pay to the Issuing Bank or the Lender, as the case
may be, from time to time such additional amounts as may be specified by the
Issuing Bank or the Lender as sufficient to compensate it in light of such
circumstances, to the extent that the Issuing Bank or the Lender, as the case
may be, reasonably determines such increase in capital to be allocable to the
issuance or maintenance of any Letter of Credit. A certificate as to such
amounts submitted to the Borrower by the Issuing Bank or the Lender shall, in
the absence of manifest error, be conclusive and binding for all purposes.
(viii) Letter of Credit Fees. The Borrower shall pay in advance on
---------------------
the date of issuance of any Letter of Credit and annually in advance thereafter
for so long as such Letter of Credit is outstanding, a fee (a "Letter of Credit
Fee") of two and one-half percent (2.50%) per annum, computed by applying the
annual rate, on the basis of the actual number of days elapsed in a 360-day
year, to the maximum amount available under such Letter of Credit as of the date
the fee is payable, for the number of days in the succeeding year or (if fewer
days) until the expiry date of the Letter of Credit. Such Letter of Credit Fee
shall be paid (A) to the Agent, for the account of the Lenders, in the case of
any Revolving Credit Facility A Letter of Credit, in accordance with their
respective Pro Rata Shares, and (B) to the Agent, for the account of the
Revolving Credit Facility B Lender, in the case of any Revolving Credit Facility
B Letter of Credit. A Letter of Credit Fee shall also be payable, on the same
basis, for any extension, increase or renewal of a Letter of Credit. A
certificate as to such amounts submitted to the Borrower by the Agent shall, in
the absence of manifest error, be conclusive and binding for all purposes.
SECTION 2.02 INTEREST. Each Term Loan and Revolving Loan shall bear,
--------
and the Borrower agrees to pay, interest on the outstanding principal amount
thereof at the applicable rates and at the times set forth below:
(a) Prime Rate Loans. Each Term Loan and Revolving Loan, or a portion
----------------
of any thereof, shall, for so long as it shall be a Prime Rate Loan, bear, and
the Borrower agrees to pay, interest on the outstanding principal amount thereof
until due (whether at maturity, by reason of prepayment or acceleration or
otherwise), or converted into a Loan of another type, at a rate per annum equal
to the Prime Rate as in effect from time to time plus the Applicable Margin.
----
(b) Euro-Dollar Rate Loans. Each Term Loan and Revolving Loan, or a
----------------------
portion of any thereof, shall, for so long as it shall be a Euro-Dollar Rate
Loan, bear, and the Borrower agrees to pay, interest on the outstanding
principal amount thereof until due (whether at maturity, by reason of prepayment
or acceleration or otherwise), or converted into a Loan of another type, at a
rate per annum equal to the Euro-Dollar Rate for each Interest Period applicable
thereto plus the Applicable Margin.
----
(c) Post-Default Rate. Notwithstanding Section 2.02(a) and (c)
-----------------
hereof, (i) if at any time an Event of Default shall occur, and for as long
thereafter as such Event of Default shall be continuing, without further notice
or demand, the outstanding principal amount of the Term Loans and Revolving
Loans (and overdue interest thereon, if any, to the extent permitted by
Applicable Law) and (ii) any amount due and payable hereunder or under any other
Loan Document not paid when due, shall bear interest at a rate per annum equal
to the applicable Post-Default Rate.
(d) Payment. Interest shall be payable in arrears on each Interest
-------
Payment Date. Interest also shall be payable, in respect of any Loan, when such
Loan becomes due (whether at maturity, by reason of prepayment or acceleration
or otherwise) or is converted, but only to the extent then accrued on the amount
then so due or converted. Interest accrued at the Post-Default Rate shall be
payable on demand.
(e) Conversion or Continuation.
--------------------------
Third Amended and Restated
Senior Secured Credit Agreement
34
<PAGE>
(i) Subject to the provisions of this Section 2.02(e) and Section 2.07
hereof, the Borrower shall have the option (A) to convert all or any part of its
outstanding Prime Rate Loans to Euro-Dollar Rate Loans at any time, (B) to
convert all or any part of its outstanding Euro-Dollar Rate Loans to a Prime
Rate Loan upon the expiration of the Interest Period applicable thereto, or (C)
to continue all or any part of any Euro-Dollar Rate Loan as a Loan of the same
type upon the expiration of the Interest Period applicable thereto, provided
--------
that, in the case of clause (A) or (C), there does not exist a Default or an
Event of Default at such time.
(ii) Each Euro-Dollar Rate Loan constituting all or a portion of
either of the Term Loans shall be in an amount equal to at least $1,000,000 and
integral multiples of $1,000,000 in excess thereof, and each Euro-Dollar Rate
Loan constituting all or a portion of the Revolving Loans shall be in an amount
equal to $500,000 or an integral multiple thereof. The Senior Term Loan shall
not at any time be divided into more than one (1) Prime Rate Loan and three (3)
Euro-Dollar Rate Loans; the Mortgage Term Loan shall not at any time be divided
into more than one (1) Prime Rate Loan and one (1) Euro-Dollar Rate Loan; the
Revolving Credit Facility A Loans shall not at any time be divided into more
than one (1) Prime Rate Loan and four (4) Euro-Dollar Rate Loans; and the
Revolving Credit Facility B Loans shall not at any time be divided into more
than one (1) Prime Rate Loan and one (1) Euro-Dollar Rate Loan.
(iii) If the Borrower elects or is required to convert or continue
a Loan under this Section 2.02(e), it shall deliver a Notice of
Conversion/Continuation to the Agent not later than 10:00 a.m. (Los Angeles
time) (A) at least three (3) Euro-Dollar Business Days in advance of the
proposed conversion or continuation date, if the Borrower proposes or is
required to convert into, or to continue, a Euro-Dollar Rate Loan, and (B)
otherwise not later than 10:00 a.m. (Los Angeles time) on the Business Day next
preceding the proposed conversion or continuation. A Notice of
Conversion/Continuation shall specify, if applicable, (I) the proposed
conversion or continuation date (which shall be a Business Day and, if the
Borrower proposes to convert into, or continue, a Euro-Dollar Rate Loan, a Euro-
Dollar Business Day), (II) the amount and type of the Loan to be converted or
continued, (III) the nature of the proposed conversion or continuation, and (IV)
in the case of a conversion to, or continuation of, a Euro-Dollar Rate Loan, the
Interest Period to be applicable to such Euro-Dollar Rate Loan. If a Notice of
Continuation of any Euro-Dollar Rate Loan is not made in accordance with this
Section 2.02(e) with respect to any Euro-Dollar Rate Loan, then, subject to
Section 2.02(e)(iv), such Euro-Dollar Rate Loan shall, without any action on the
part of the Borrower, be converted into a Prime Rate Loan with a one (1) month
Interest Period.
(iv) Notwithstanding anything in this Agreement to the contrary, if a
Default or an Event of Default shall have occurred and is then continuing, upon
the expiration of the Interest Period applicable to Euro-Dollar Rate Loan, such
Euro-Dollar Rate Loan shall then be converted into a Prime Rate Loan, provided
--------
that each Euro-Dollar Rate Loan shall be converted into a Prime Rate Loan
immediately upon the Term Loan (or either of them) and/or the Revolving Loans
becoming due and payable pursuant to Section 7.02(a) hereof or being declared to
be due and payable pursuant to Section 7.02(b) hereof.
(v) Any Notice of Conversion/Continuation for conversion into, or
continuation of, a Euro-Dollar Rate Loan shall be irrevocable and the Borrower
shall be bound to convert or continue in accordance therewith.
(vi) The Borrower may not select, with respect to any Loans
constituting all or a portion of the Senior Term Loan, any Interest Period that
ends after any Installment Payment Date for the Senior Term Loans unless, after
giving effect to such selection, the aggregate principal amount of Prime Rate
Loans and of Euro-Dollar Rate Loans constituting all or a portion of the Senior
Term Loans having Interest Periods which end prior to such Installment Payment
Date shall be greater than or equal to the amount of principal that is due and
payable on such Installment Payment Date. The Borrower may not select, with
respect to any Revolving Loans, any Interest Period that ends after the
Revolving Credit Facility A Termination Date, in the case of Revolving Credit
Facility A Loans, or the Revolving Credit Facility B
Third Amended and Restated
Senior Secured Credit Agreement
35
<PAGE>
Maturity Date, in the case of Revolving Credit Facility B Loans. The Borrower
may not select an Interest Period for any Loan that terminates later than the
Maturity Date.
(f) Computations. Interest on each Loan shall accrue from day to day
------------
from and including the date of the making of such Loan to and excluding the due
date or the date of any repayment thereof. Interest on each Loan shall be
computed on the basis of a 360-day year and paid for the actual number of days
elapsed. Any change in the interest rate on any Loan resulting from a change in
the rate applicable thereto in accordance with the terms hereof shall become
effective as of the opening of business on the day on which such change in the
applicable rate shall become effective. Each determination of an interest rate
by the Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower in the absence of manifest error.
(g) Maximum Lawful Rate of Interest. The rate of interest payable on
-------------------------------
any Loan shall in no event exceed the maximum rate permissible under Applicable
Law. If the rate of interest payable on any Loan is ever reduced as a result of
this subsection and at any time thereafter the maximum rate permitted by
Applicable Law shall exceed the rate of interest provided for in this Agreement,
then the rate provided for in this Agreement shall be increased to the maximum
rate provided by Applicable Law for such period as is required so that the total
amount of interest received by each Lender is that which would have been
received by such Lender but for the operation of the first sentence of this
subsection.
SECTION 2.03 NOTES.
-----
(a) Senior Term Loan Notes. The portion of the Senior Term Loan owing
----------------------
to each Lender that constitutes a Domestic Loan or Domestic Loans shall be
evidenced by a single Domestic Senior Term Note of the Borrower made payable to
the order of such Lender and representing the obligation of the Borrower to pay
the lesser of (i) the amount of such Lender's Senior Term Loan or (ii) the
aggregate unpaid principal amount of such Lender's Senior Term Loan that from
time to time constitutes a Domestic Loan, with interest thereon as prescribed by
Section 2.02 hereof. The portion of the Senior Term Loan owing to each Lender
that constitutes a Euro-Dollar Loan or Euro-Dollar Loans shall be evidenced by a
single Euro-Dollar Senior Term Note of the Borrower made payable to the order of
such Lender and representing the obligation of the Borrower to pay the lesser of
(i) the amount of such Lender's Senior Term Loan or (ii) the aggregate unpaid
principal amount of all such Euro-Dollar Loans outstanding, with interest
thereon as prescribed by Section 2.02 hereof. Each Senior Term Loan Note shall
be dated the date of this Agreement and stated to mature in accordance with the
Senior Term Loan Installment Payment Schedule.
(b) Mortgage Term Loan Notes. The portion of the Mortgage Term Loan
------------------------
owing to each Lender that constitutes a Domestic Loan or Domestic Loans shall be
evidenced by a single Domestic Mortgage Term Note of the Borrower made payable
to the order of such Lender and representing the obligation of the Borrower to
pay the lesser of (i) the amount of such Lender's Mortgage Term Loan or (ii) the
aggregate unpaid principal amount of such Lender's Mortgage Term Loan that from
time to time constitutes a Domestic Loan, with interest thereon as prescribed by
Section 2.02. The portion of the Mortgage Term Loan owing to each Lender that
constitutes a Euro-Dollar Loan or Euro-Dollar Loans shall be evidenced by a
single Euro-Dollar Mortgage Term Note of the Borrower made payable to the order
of such Lender and representing the obligation of the Borrower to pay the lesser
of (i) the amount of such Lender's Mortgage Term or (ii) the aggregate unpaid
principal amount of all such Euro-Dollar Loans outstanding, with interest
thereon as prescribed by Section 2.02 hereof. Each Mortgage Term Loan Note
shall be dated the date of this Agreement and stated to mature on the Maturity
Date.
(c) Revolving Credit Facility A Loan Notes. The portion of the
--------------------------------------
Revolving Credit Facility A Loans owing to each Lender that constitutes a
Domestic Loan or Domestic Loans shall be evidenced by a single Domestic
Revolving Credit Facility A Note of the Borrower payable to the order of such
Lender and representing the obligation of the Borrower to pay the lesser of (i)
the amount of the such Lender's Pro
Third Amended and Restated
Senior Secured Credit Agreement
36
<PAGE>
Rata Share of the Revolving Credit Facility A Commitment or (ii) the aggregate
unpaid principal amount of such Lender's Revolving Credit Facility A Loans, with
interest thereon as prescribed by Section 2.02 hereof. The portion of the
Revolving Credit Facility A Loans that constitutes a Euro-Dollar Loan or Euro-
Dollar Loan owing to each Lender shall be evidenced by a single Euro-Dollar
Revolving Credit Facility A Note of the Borrower payable to the order of such
Lender and representing the obligation of the Borrower to pay the lesser of (i)
the amount of the Revolving Credit Facility A Commitment or (ii) the aggregate
unpaid principal amount of all such Euro-Dollar Revolving Credit Facility A
Loans outstanding, with interest thereon as prescribed by Section 2.02 hereof.
Each Revolving Credit Facility A Note shall be dated the date of this Agreement
and stated to mature on the Maturity Date.
(d) Revolving Credit Facility B Loan Notes. The portion of the
--------------------------------------
Revolving Credit Facility B Loans that constitutes a Domestic Loan shall be
evidenced by a single Domestic Revolving Credit Facility B Note of the Borrower
made payable to the order of the Revolving Credit Facility B Lender and
representing the obligation of the Borrower to pay the lesser of (i) the amount
of the Revolving Credit Facility B Commitment or (ii) the aggregate unpaid
principal amount of all such Revolving Credit Facility B Loans, with interest
thereon as prescribed by Section 2.02 hereof. The portion of the Revolving
Credit Facility B Loans that constitutes a Euro-Dollar Loan or Euro-Dollar Loans
shall be evidenced by a single Euro-Dollar Revolving Credit Facility B Note of
the Borrower made payable to the order of the Revolving Credit Facility B Lender
and representing the obligation of the Borrower to pay the lesser of (i) the
amount of the Revolving Credit Facility B Commitment or (ii) the aggregate
unpaid principal amount of all such Euro-Dollar Revolving Credit Facility B
Loans outstanding, with interest thereon as prescribed by Section 2.02 hereof.
Each Revolving Credit Facility B Note shall be dated the date of this Agreement
and stated to mature on the Revolving Credit Facility B Maturity Date.
(f) Substitution of Notes; Notation of Amounts and Maturities. Each
---------------------------------------------------------
Lender is hereby irrevocably authorized to record on each Note the date, type
and amount of each Loan outstanding hereunder, the Interest Period and interest
rate applicable thereto in the case of Loans bearing interest at a Fixed Rate,
and the date and amount of each borrowing, in the case only of the Domestic
Revolving Note and the Euro-Dollar Revolving Note, and each payment or
prepayment of principal thereof on the schedules forming a part thereof and to
attach to and make a part of any Note a continuation of any such schedule as and
when required. The failure to record, or any error in recording, any such Loan
or repayment on such schedule (or continuation thereof) or similar records shall
not, however, affect the obligations of the Borrower hereunder or under any Note
to repay the principal amount of the Loans together with all interest accrued
thereon. All such notations shall constitute conclusive evidence of the
accuracy of the information so recorded, in the absence of manifest error.
SECTION 2.04 FEES.
----
(a) Revolving Credit Facility A Commitment Fees. The Borrower shall
-------------------------------------------
pay to the Agent, for the account of the Lenders in accordance with their
respective Pro Rata Shares of the Revolving Credit Facility A Commitment, a
commitment fee (a "Revolving Credit Facility A Commitment Fee") accruing at the
rate of one-half of one percent (0.50%) per annum from and after the date of
this Agreement until the Revolving Credit Facility A Termination Date, upon the
excess from time to time, if any, of the Lender's Revolving Credit Facility A
Commitment over the sum of (i) the aggregate principal amount of Revolving
Credit Facility A Loans outstanding and (ii) the existing Revolving Credit
Facility A Letter of Credit Liability. The Revolving Credit Facility A
Commitment Fee shall be payable quarterly in arrears on the first Business Day
of the immediately succeeding calendar quarter. All Revolving Credit Facility A
Commitment Fees shall be calculated on the basis of the actual number of days
elapsed in a 360-day year. The Borrower shall pay to the Agent, for the account
of the Lenders in accordance with their respective Pro Rata Shares of the
Revolving Credit Facility A Commitment, the amount of any accrued but unpaid
Revolving Credit Facility A Commitment fee under the Second Amended and Restated
Senior Secured Credit Agreement in full on the Effective Date.
Third Amended and Restated
Senior Secured Credit Agreement
37
<PAGE>
(b) Revolving Credit Facility B Commitment Fees. The Borrower shall
-------------------------------------------
pay to the Agent, for the account of the Revolving Credit Facility B Lender, a
commitment fee (a "Revolving Credit Facility B Commitment Fee") accruing at the
rate of one-half of one percent (0.50%) per annum from and after the date of
this Agreement until the Revolving Credit Facility B Termination Date, upon the
excess from time to time, if any, of the Lender's Revolving Credit Facility B
Commitment over the sum of (i) the aggregate principal amount of Revolving
Credit Facility B Loans outstanding and (ii) the existing Revolving Credit
Facility B Letter of Credit Liability. The Revolving Credit Facility B
Commitment Fee that accrues in any calendar quarter from and after the date of
this Agreement shall be payable quarterly in arrears on the first Business Day
of the immediately succeeding calendar quarter. All Revolving Credit Facility B
Commitment Fees shall be calculated on the basis of the actual number of days
elapsed in a 360-day year. The Borrower shall pay to the Agent, for the account
of the Revolving Credit Facility B Lender, the amount of any accrued but unpaid
Revolving Credit Facility B Commitment fee under the Second Amended and Restated
Senior Secured Credit Agreement in full on the Effective Date.
(c) Agent Fee. On or before the Effective Date, the Borrower shall
---------
pay to the Agent, for its own account, the agent's fee set forth in that certain
letter agreement dated November __, 1996 between Borrower and the Agent (the
"Fee Letter"). In addition, the Borrower shall pay to the Agent an annual
Agent's fee in accordance with, and in an amount set out in, the Fee Letter.
(d) Accrued Fees. On or before the Effective Date, the Borrower shall
------------
pay to the Agent, for the account of the Lenders, all accrued and unpaid
Revolving Credit Facility A Commitment Fees under the Second Amended and
Restated Senior Secured Credit Agreement and all accrued and unpaid Letter of
Credit Fees relating to any Revolving Credit Facility A Letter of Credit under
the Second Amended and Restated Senior Secured Credit Agreement. On or before
the Effective Date, the Borrower shall pay to the Agent, for the Account of the
Revolving Credit Facility B Lender, all accrued and unpaid Revolving Credit
Facility B Commitment Fees under the Second Amended and Restated Senior Secured
Credit Agreement and all accrued and unpaid Letter of Credit Fees relating to
any Revolving Credit Facility B Letter of Credit under the Second Amended and
Restated Senior Secured Credit Agreement.
(e) Extension Fees. On or before the Effective Date, the Borrower
---------------
shall pay an extension fee in the amount of $100,000 (the "Revolving Credit
Facility A Extension Fee") to the Agent, for the account of the Lenders, ratably
in accordance with each such Lender's Pro Rata Share of the Revolving Credit
Facility A Commitment. On or before the Effective Date, the Borrower shall pay
an extension fee in the amount of $100,000 (the "Revolving Credit Facility B
Extension Fee") to the Agent for the account of the Revolving Credit Facility B
Lender. On or before the Effective Date, the Borrower shall pay an extension
fee in the total amount of $315,000 (the "Term Loan Extension Fee") to the
Agent, for the account of the Lenders, ratably in accordance with each such
Lender's Pro Rata Share of the Term Loans.
(f) Deferred Amendment Fee. On or before the Effective Date, the
----------------------
Borrower shall pay to the Agent, for the account of the Lenders, the Deferred
Amendment Fee.
(g) Deferred Letter of Credit Fee. On the Maturity Date, the Borrower
-----------------------------
shall pay to the Agent, for the account of the Lenders, ratably in accordance
with their respective Pro Rata Shares of the Revolving Credit Facility A
Commitment, the Deferred Letter of Credit Fee.
SECTION 2.05 PAYMENTS AND PREPAYMENTS.
------------------------
(a) Repayment; Termination of Revolving Credit Commitments.
------------------------------------------------------
(i) (A) The Borrower shall repay to the Agent, for the account of the
Lenders, ratably in accordance with their respective Pro Rata Shares of the
outstanding Term Loans, the Term Loans in installments each equal to $2,625,000,
commencing on March 31, 1997 and continuing on each Installment
Third Amended and Restated
Senior Secured Credit Agreement
38
<PAGE>
Payment Date thereafter to and including September 30, 2001, and the remaining
principal amount thereof on the Maturity Date (such schedule of mandatory
installment payments of the Term Loans being referred to herein as the "Term
Loan Installment Payment Schedule"). Each such payment shall be applied first to
the Senior Term Loans until the Senior Term Loans are paid in full, and then to
the Mortgage Term Loans. Each Term Loan shall be paid in full on or prior to the
Maturity Date. The principal amount of the Term Loans prepaid or repaid by the
Borrower may not be re-borrowed. The Borrower shall, at all times during the
period that any of the Term Loans remain outstanding, maintain Prime Rate Loans
or Euro-Dollar Rate Loans with Interest Periods expiring on or before the next
scheduled Installment Payment Date in an aggregate amount at least equal to the
next scheduled principal repayment thereof.
(B) The Borrower shall prepay to the Agent, for the account of the
Revolving Credit Facility B Lender, each Revolving Credit Facility B Loan that
constitutes an Acquisition Advance in installments each equal to 5% of the
original principal amount of such Acquisition Advance, commencing on the second
Installment Payment Date to occur after the Funding Date of such Acquisition
Advance and continuing on each Installment Payment Date thereafter to and
including September 30, 1999, and the remaining principal amount thereof on the
Revolving Credit Facility B Termination Date. Any amount prepaid pursuant to
this Section 2.05(a)(i)(B) can, subject to the conditions and upon the terms
hereof, be re-borrowed at any time up to and including the Business Day next
preceding the Revolving Credit Facility B Termination Date.
(ii) The Revolving Credit Facility A Commitment shall expire without
further action on the part of the Lenders on the earlier of (A) December 31,
2001 and (B) the date of termination of the Revolving Credit Facility A
Commitment pursuant to Section 2.05(b)(v) or 2.05(c)(iii) or Section 7.02(a) or
7.02(b) hereof (such earlier date being referred to herein as the "Revolving
Credit Facility A Termination Date"). All outstanding Revolving Credit Facility
A Loans shall be paid in full on the Revolving Credit Facility A Termination
Date.
(iii) The Revolving Credit Facility B Commitment shall expire without
further action on the part of the Revolving Credit Facility B Lender on the
earlier of (A) December 31, 1999 (the "Revolving Credit Facility B Maturity
Date"), and (B) the date of termination of the Revolving Credit Facility B
Commitment pursuant to Section 2.05(b)(v) or 2.05(c)(iv) or Section 7.02(a) or
7.02(b) hereof, or (C) such later date to which the Revolving Credit Facility B
Lender may, in its sole and absolute discretion, extend such termination date
(the earlier of the Revolving Credit Facility B Maturity Date or any such
earlier or later date of termination being referred to herein as the "Revolving
Credit Facility B Termination Date"); provided, however, that any extension of
-------- -------
the Revolving Credit Facility B Termination Date to a date after December 31,
1999 shall not affect the maturity date of any other Loan or any installment
payment of principal due thereon. All outstanding Revolving Credit Facility B
Loans shall be paid on the Revolving Credit Facility B Termination Date.
(b) Mandatory Prepayments.
---------------------
(i)(A) Upon receipt (x) subject to the limitation set forth in
Section 2.05(b)(ii)(B), by or for the account of the Borrower or any of its
Subsidiaries of any Net Cash Proceeds derived from any Asset Disposition or
(y) by or for the account of Holdings, the Borrower or any of its
Subsidiaries of any Excess Proceeds of Issuance of Stock, the Borrower
shall make a prepayment, without premium or penalty, of the Term Loans and
Revolving Loans (and deliver cash collateral to the Agent in respect of,
and to the extent of, any existing Letter of Credit Liability) in an amount
equal to one hundred percent (100%) of such Net Cash Proceeds or twenty-
five percent (25%) of such Excess Proceeds of Issuance of Stock so
received.
(B) The Borrower shall give the Agent not less than three (3)
Business Days' prior written notice of the date on which each Mandatory
Prepayment will be made
Third Amended and Restated
Senior Secured Credit Agreement
39
<PAGE>
(which date shall be no later than the date on which such Mandatory
Prepayment becomes due and payable pursuant to this Section 2.05(b)(i)).
(ii) Mandatory Prepayments shall be applied as follows:
(A) Each Mandatory Prepayment based upon Net Cash Proceeds
derived from an Asset Disposition relating to assets other than Real
Property subject to a California Mortgage shall be applied first, to prepay
installments of principal of the Senior Term Loan in the inverse order of
maturity thereof until the Senior Term Loan is paid in full, second, to
prepay the principal of the Revolving Loans then outstanding and to provide
cash collateral in respect of Letter of Credit Liability then existing,
provided that such prepayment and provision of cash collateral shall be
--------
made pro rata as between Revolving Credit Facility A Loans and Letters of
--- ----
Credit, on one hand, and Revolving Credit Facility B Loans and Letters of
Credit, on the other hand, on the basis of the respective aggregate amounts
of principal of such Loans then outstanding and Letter of Credit Liability
then existing with respect to such Letters of Credit, and then to prepay
the installments of principal of the Mortgage Term Loan in the inverse
order of maturity thereof until the Mortgage Term Loan is paid in full;
(B) Each Mandatory Prepayment based upon Net Cash Proceeds
derived from an Asset Disposition relating to Real Property subject to a
California Mortgage shall be applied first, to prepay the installments of
principal of the Mortgage Term Loan in the inverse order of maturity
thereof until the Mortgage Term Loan is paid in full, second, to prepay the
installments of principal of the Senior Term Loan in the inverse order of
maturity thereof until the Senior Term Loan is paid in full, and then, to
prepay the principal of Revolving Loans then outstanding and to provide
cash collateral in respect of Letter of Credit Liability then existing,
provided that such prepayment and provision of cash collateral shall be
--------
made pro rata as between Revolving Credit Facility A Loans and Letters of
--- ----
Credit, on one hand, and Revolving Credit Facility B Loans and Letters of
Credit, on the other hand, on the basis of the respective aggregate amounts
of principal of such Loans then outstanding and Letter of Credit Liability
then existing with respect to such Letters of Credit (provided, however,
--------
that notwithstanding any other provision of this Agreement or any
California Mortgage, the application of any such Net Cash Proceeds to any
Indebtedness other than the Mortgage Term Loan secured by such California
Mortgage shall not be a condition to the release of such California
Mortgage); and
(C) Each Mandatory Prepayment based upon Excess Proceeds of
Issuance of Stock shall be applied first, to prepay the installments of
principal of the Senior Term Loan in the inverse order of maturity thereof
until the Senior Term Loan is paid in full, second, to prepay the principal
of Revolving Loans then outstanding and to provide cash collateral in
respect of Letter of Credit Liability then existing, provided that such
--------
prepayment and provision of cash collateral shall be made pro rata as
--- ----
between Revolving Credit Facility A Loans and Letters of Credit, on one
hand, and Revolving Credit Facility B Loans and Letters of Credit, on the
other hand, on the basis of the respective aggregate amounts of principal
of such Loans then outstanding and Letter of Credit Liability then existing
with respect to such Letters of Credit, and then to prepay the installments
of principal of the Mortgage Term Loan in the inverse order of maturity
thereof until the Mortgage Term Loan is paid in full.
(iii) If at any time the aggregate principal amount of Revolving
Credit Facility A Loans then outstanding plus the Revolving Credit Facility A
----
Letter of Credit Liability then existing exceeds the Revolving Credit Facility A
Commitment, the Borrower shall make a prepayment to the extent of such excess,
without premium or penalty, of the Revolving Credit Facility A Loans, and then,
to the extent of any remaining excess, provide cash collateral in respect of
Revolving Credit Facility A Letter of Credit Liability. If at any time the
aggregate principal amount of the Revolving Credit Facility B Loans then
outstanding plus
----
Third Amended and Restated
Senior Secured Credit Agreement
40
<PAGE>
the Revolving Credit Facility B Letter of Credit Liability then existing exceeds
the Revolving Credit Facility B Commitment, the Borrower shall make a prepayment
to the extent of such excess, without premium or penalty, of the Revolving
Credit Facility B Loans, and then, to the extent of any remaining excess,
provide cash collateral in respect of Revolving Credit Facility B Letter of
Credit Liability.
(iv) Each prepayment of the Term Loans and the Revolving Loans shall
be made together with payment of accrued interest on the amount prepaid to the
date of prepayment and any amounts payable in respect of such prepayment
pursuant to Section 2.11 hereof.
(v) Each Mandatory Prepayment applied to prepay the outstanding
Revolving Loans pursuant to Section 2.05(b)(ii)(A) or Section 2.05(b)(ii)(B)
shall permanently reduce, on the date on which such prepayment is made and by
the amount so applied, the Revolving Credit Facility A Commitment and the
Revolving Credit Facility B Commitment. Any Mandatory Prepayment applied to
prepay the outstanding Revolving Loans pursuant to Section 2.05(b)(ii)(C), and
any prepayment pursuant to Section 2.05(b)(iii) applied to prepay the
outstanding Revolving Loan, shall not result in a reduction of the Revolving
Credit Facility A Commitment or the Revolving Credit Facility B Commitment, as
the case may be.
(vi) Each Mandatory Prepayment shall be deemed applied first to reduce
the Prime Rate Loan constituting a portion of the respective Term Loans or the
Revolving Loans, as the case may be, and then to the Euro-Dollar Rate Loans
constituting a portion of any thereof, in each case in inverse order of
termination of Interest Periods applicable thereto.
(c) Optional Prepayments.
--------------------
(i) The Borrower may, at its option, at any time or from time to time,
prepay the Term Loans in whole or in part, without premium or penalty, upon not
less than ten (10) Business Days' notice, except that (A) any prepayment shall
be in an aggregate principal amount of at least $500,000, and in integral
multiples of $100,000 in excess thereof (or, alternatively, the whole amount of
either of the Term Loans then outstanding), and (B) any prepayment of a Euro-
Dollar Rate Loan shall (unless the Borrower pays concurrently therewith any
amounts coming due pursuant to Section 2.11 hereof in respect of such
prepayment) be made only on the last day of the Interest Period applicable
thereto. Any notice of optional prepayment shall be irrevocable, and the
payment amount specified in such notice shall be due and payable on the date
specified in such notice, together with interest accrued thereon to such date.
Each such optional prepayment of the Term Loans shall be applied first to the
installments of principal of the Senior Term Loan in the inverse order of
maturity thereof until the Senior Term Loan is paid in full, and then to the
installments of principal of the Mortgage Term Loan in the inverse order of
maturity thereof until the Mortgage Term Loan is paid in full.
(ii) The Borrower may, at its option, prepay any outstanding Revolving
Loans in whole or in part at any time, without premium or penalty, except that
(A) any prepayment shall be in an aggregate principal amount of at least
$100,000 and in integral multiples thereof (or, alternatively, the whole amount
of all of the Revolving Loans then outstanding), and (B) any prepayment of a
Euro-Dollar Rate Loan shall be made only on the last day of the Interest Period
applicable thereto. Any amount prepaid pursuant to this Section 2.05(c)(ii)
can, subject to the conditions and upon the terms hereof, be re-borrowed at any
time up to and including the Business Day next preceding the Revolving Credit
Facility A Termination Date, in the case of re-borrowings of Revolving Credit
Facility A Loans, or the Business Day next preceding the Revolving Credit
Facility B Termination Date, in the case of re-borrowings of Revolving Credit
Facility B Loans.
(iii) The Borrower shall have the right, at any time or from time to
time after the date hereof, to terminate in whole or permanently reduce in part,
without premium or penalty, the Revolving Credit Facility A Commitment in an
amount up to the difference between the then Revolving Credit Facility A
Commitment and the aggregate principal amount of Revolving Credit Facility A
Loans outstanding.
Third Amended and Restated
Senior Secured Credit Agreement
41
<PAGE>
The Borrower shall give the Agent not less than three (3) Business Days' prior
written notice of such termination or reduction and the amount of any partial
reduction. Such termination or partial reduction of the Revolving Credit
Facility A Credit Commitment shall be effective on the date specified in the
Borrower's notice. Any such partial reduction of the Revolving Credit Facility A
Commitment shall be in a minimum amount of $1,000,000 and an integral multiple
thereof.
(iv) The Borrower may, with the prior written consent of the Agent and
the Revolving Credit Facility B Lender, at any time or from time to time after
the date hereof, terminate in whole or permanently reduce in part, without
premium or penalty, the Revolving Credit Facility B Commitment in an amount up
to the difference between the then Revolving Credit Facility B Commitment and
the aggregate principal amount of Revolving Credit Facility B Loans outstanding.
Any such partial reduction of the Revolving Credit Facility B Commitment shall
be in a minimum amount of $1,000,000 and an integral multiple thereof.
(d) Mandatory Zero Balance Period. The Borrower shall prepay in full
-----------------------------
the principal amount of all Revolving Credit Facility A Loans and maintain a
zero balance for a minimum of 30 consecutive days during each twelve month
period, beginning with the twelve month period commencing on the Effective Date.
SECTION 2.06 MANNER OF PAYMENT. All payments due to the Lenders
-----------------
hereunder shall be made to the Agent not later than 12:00 noon local time on the
due date thereof, in Dollars in immediately available funds, without any
deduction whatsoever, including but not limited to any deduction for any set-
off, recoupment, counterclaim or Taxes.
SECTION 2.07 MANDATORY SUSPENSION AND CONVERSION OF EURO-DOLLAR RATE
-------------------------------------------------------
LOANS. Each Lender's obligation to make or continue, or convert Prime Rate
- -----
Loans into, Euro-Dollar Rate Loans shall be suspended, all outstanding Euro-
Dollar Loans shall be converted on the last day of the respective Interest
Periods applicable thereto (or, if earlier, in the case of clause (ii) below, on
the last day that the Lender can lawfully continue to maintain Loans of that
type) into Prime Rate Loans and all pending requests for the making of,
conversion into, or continuation of, Euro-Dollar Loans shall be disregarded, if:
(i) on or prior to the determination of an interest rate for a Euro-
Dollar Rate Loan for any Interest Period, the Agent determines that for any
reason appropriate quotations are not available to it in the London interbank
market for purposes of determining the Euro-Dollar Rate or that such rate would
not accurately reflect the cost to the Lenders of continuing, or converting a
Prime Rate Loan into, a Euro-Dollar Rate Loan for such Interest Period; or
(ii) at any time a Lender determines that any Regulatory Change makes
it unlawful or impossible for such Lender or its Lending Office to make or
maintain any Euro-Dollar Rate Loan, or to comply with its obligations hereunder
in respect thereof.
SECTION 2.08 REGULATORY CHANGES.
------------------
(a) Increased Costs. If any Regulatory Change:
---------------
(i) shall subject any Lender (or its Lending Office) to any Tax or
change the basis of taxation of payments to such Lender of principal, interest,
Fees or any other amount payable hereunder (except for changes in the rate of
Tax on the overall net income of the Lender); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit, compulsory loan, insurance or similar requirement (other than any such
requirement with respect to any Fixed Rate Loan to the extent included in the
applicable Reserve Requirement or Assessment Rate), against, or any
Third Amended and Restated
Senior Secured Credit Agreement
42
<PAGE>
fees or charges in respect of, assets held by, deposits with or other
liabilities for the account of, commitments of, advances or loans by or other
credit extended by, any Lender (or its Lending Office) or shall impose on such
Lender (or such Lending Office) or on the relevant interbank market any other
condition affecting the Euro-Dollar Rate Loans, the Euro-Dollar Notes or such
Lender's obligation to make Euro-Dollar Rate Loans, and the effect of the
foregoing is to increase the cost to such Leader (or its Lending Office) of
making, renewing or maintaining any Euro-Dollar Rate Loan or the Commitments, to
reduce the amount of any sum received or receivable by such Lender (or such
Lending Office) under this Agreement or under the Euro-Dollar Notes, or to
require such Lender to make any payment on or calculated by reference to the
gross amount of any amount received by it hereunder or under any Euro-Dollar
Notes;
then the Borrower shall from time to time pay to the Agent, for the account of
such Lender, upon demand by such Lender, such additional amounts as may be
specified by such Lender as sufficient to compensate such Lender for such
increased cost, reduction or requirement. A certificate as to the amount of
such increased cost, reduction or requirement, submitted to the Borrower by such
Lender, shall be final and conclusive and binding upon the Borrower for all
purposes, absent manifest error.
(b) Capital Costs. The Borrower shall from time to time pay to each
-------------
Lender, upon demand by such Lender, such additional amounts as may be specified
by such Lender as sufficient to compensate such Lender for any costs which such
Lender determines are attributable to the maintenance by it (or its Lending
Office), pursuant to any Regulatory Change that affects or would affect the
amount of capital required or expected to be maintained by such Lender (or its
Lending Office) or any corporation controlling such Lender, of capital in
respect of its Loans and Commitments hereunder (such compensation to include,
without limitation, an amount equal to any reduction of the rate of return on
the capital of such Lender (or its Lending Office) to a level below that which
such Lender (or its Lending Office) could have achieved but for such Regulatory
Change). A certificate as to such amounts, submitted to the Borrower by such
Lender, shall be conclusive and binding for all purposes, absent manifest error.
SECTION 2.09 TAXES. The Borrower agrees (a) to pay all amounts
-----
payable by it under this Agreement or any Note free and clear of and without
liability for, and, subject to the provisions of this Section 2.09, without
deduction or withholding for, any and all Taxes; and (b) to pay when due, and
reimburse each Lender upon demand for any payment made by such Lender of, and
indemnify and hold such Lender harmless against any liability for, (i) any and
all Taxes in any way related to this Agreement, the Term Loans or the Revolving
Loans or any Loan or the Revolving Credit Commitment, other than income and
franchise taxes imposed upon such Lender by the jurisdictions (or any political
subdivision thereof) in which such Lender's principal executive office or a
Lending Office is located, and (ii) all interest and penalties resulting from or
related to any delay in paying any such Taxes; provided that such Lender shall
--------
deliver to the Borrower upon request by the Borrower a duly executed certificate
to the effect that, as of the date of such certificate, such Lender is entitled
to receive all payments made hereunder without deduction or withholding of
United States federal income tax (A) pursuant to the terms of an applicable tax
treaty in effect with the United States of America (in which case such
certificate shall be accompanied by two executed copies of Internal Revenue
Service Form 1001), (B) under Code Section 1441(c) (in which case such
certificates shall be accompanied by two executed copies of Form 4224 of the
Internal Revenue Service), or (C) pursuant to an exemption certificate received
from the Internal Revenue Service (in which case such certificates shall be
accompanied by a copy of said exemption certificate). Promptly after the date
on which payment of any Taxes are due pursuant to applicable law, the Borrower
will furnish to the Agent evidence, in form and substance satisfactory to the
Agent, that the Borrower has satisfied its obligations under this Section 2.09.
If the Borrower is required by Applicable Law to make any deduction or
withholding in respect of any Taxes from any amount payable under this Agreement
or any Note, the Borrower agrees to pay to each Lender, on the date such amount
is payable, such additional amounts as each Lender determines may be necessary
so that the net amounts received by the Lenders, in the aggregate, after all
applicable deductions or withholdings, shall equal the amount that the Lenders
would have been entitled to receive if no deductions or withholdings were made.
Third Amended and Restated
Senior Secured Credit Agreement
43
<PAGE>
SECTION 2.10 LENDING OFFICE. Each Lender may make, carry or transfer
--------------
Euro-Dollar Rate Loans at, to, or for the account of an Affiliate of the Lender,
provided, however, the Lender shall not be entitled to receive any greater
- -------- -------
amount under Section 2.08 or 2.09 hereof as a result of the transfer of any such
Loan than the Lender would be entitled to immediately prior thereto unless (a)
such transfer occurred at a time when circumstances giving rise to the claim for
such greater amount did not exist and (b) such claim would have arisen even if
such transfer had not occurred.
SECTION 2.11 COMPENSATION FOR FUNDING LOSSES. In addition to the
-------------------------------
amounts required to be paid by the Borrower pursuant to Sections 2.07, 2.08 and
2.09 hereof, the Borrower shall pay to the Agent, for the account of each
Lender, upon demand by such Lender, such amount or amounts as such Lender
determines is or are necessary to compensate it for any loss, cost, expense or
liabilities incurred (including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or redeployment of deposits) by it as a
result of (a) any payment, prepayment or conversion of a Euro-Dollar Rate Loan
for any reason (including, without limitation, upon a Mandatory Prepayment
pursuant to Section 2.05(b), by reason of an acceleration pursuant to Section
7.02 hereof or pursuant to Section 2.07 hereof) on a date other than the last
day of an Interest Period applicable to such Euro-Dollar Rate Loan, or (b) a
Euro-Dollar Rate Loan for any reason not being made, converted or continued, or
any payment of principal of or interest thereon not being made, on the date
therefor determined in accordance with the applicable provisions of this
Agreement.
SECTION 2.12 DETERMINATIONS. Any determination contemplated by
--------------
Section 2.07, 2.08, 2.09, 2.10 or 2.11 that is made by the Agent, the Required
Lenders, or the Lenders, as the case may be, shall be final, conclusive and
binding upon the Borrower, in the absence of manifest error in computation, and
shall be communicated in sufficient detail to permit the Borrower to understand
such determination.
Third Amended and Restated
Senior Secured Credit Agreement
44
<PAGE>
ARTICLE III
CONDITIONS TO LOANS
-------------------
SECTION 3.01 CONDITIONS PRECEDENT TO EFFECTIVE DATE. The occurrence
--------------------------------------
of the Effective Date shall be subject to satisfaction of all of the following
conditions precedent:
(a) Effective Date. The Effective Date shall have occurred on or
--------------
before March 31, 1997.
(b) Public Offering. Holdings shall have completed a public offering
---------------
of shares of its Capital Stock (the "Initial Public Offering"), and the IPO Net
Proceeds shall be at least $65,000,000.
(c) Distribution of IPO Net Proceeds.
--------------------------------
(i) The total amount of IPO Net Proceeds up to $69,350,000 shall
have been paid to the Agent, for the account of the Lenders in accordance
with their Pro Rata Shares, and applied first, to Deferred Interest, and
second, to prepay principal of the Senior Term Loan.
(ii) The amount of IPO Net Proceeds, if any, in excess of
$69,350,000 shall have been paid as follows: (x) 50% of the amount of IPO
Net Proceeds, if any, in excess of $69,350,000 shall have been paid to the
Agent, for the account of the Lenders in accordance with their respective
Pro Rata Shares, and applied first, to prepay principal of the Senior Term
Loan until the Senior Term Loan is paid in full, and second, to prepay
principal of the Mortgage Term Loan, and (y) 50% of such amount of IPO Net
Proceeds in excess of $69,350,000 shall be retained by Borrower to use for
general corporate purposes that are not prohibited by the terms of this
Agreement; provided, that the Borrower may use the amount retained by it
--------
pursuant to clause (y) above to pay in cash unpaid interest accrued under
the Senior Subordinated Credit Agreement from June 30, 1994 to the
Effective Date, at the interest rate from time to time in effect during
that period.
(d) Certain Loan Documents. The Agent shall have received all of the
----------------------
following, all of which shall be in form and substance satisfactory to the
Lenders:
(i) This Agreement, executed by the Borrower, together with all
required Schedules hereto, which are in each case complete and correct in
all material respects as of the Effective Date;
(ii) Each Note, executed by the Borrower and payable to the order
of each Lender;
(iii) Guaranties executed by each of Holdings and the Subsidiary
Guarantors; and
(iv) the Amended and Restated Senior Subordinated Credit
Agreement, executed by the Borrower, Holdings and the other guarantors
identified therein and Sumitomo Finance (Dublin) Limited.
(e) Certain Corporate Documentation. The Agent shall have received
-------------------------------
all of the following, all of which shall be in form and substance satisfactory
to the Lenders:
Third Amended and Restated
Senior Secured Credit Agreement
45
<PAGE>
(i) a copy of the Borrower's Certificate of Incorporation, as
amended, modified or supplemented as of a date not more than five days
prior to the Effective Date, certified to be true, correct and complete by
the Secretary of State of Delaware as of a recent date prior to such date,
together with a long-form good standing certificate from the Secretary of
State of Delaware and a good standing certificate from the Secretary of
State of each State in which Holdings is qualified to do business, each to
be dated a recent date prior to such date; and
(ii) a copy of Holdings' Certificate of Incorporation, as
amended, modified or supplemented as of a date not more than five days
prior to the Effective Date, certified to be true, correct and complete by
the Secretary of State of Delaware as of a recent date prior to such date,
together with a long-form good standing certificate from the Secretary of
State of Delaware and a good standing certificate from the Secretary of
State of each State in which Holdings is qualified to do business, each to
be dated a recent date prior to such date.
(f) Legal Opinion. The Lender shall have received a favorable legal
-------------
opinion dated the Effective Date addressed to the Lender from Pillsbury Madison
& Sutro LLP, counsel to the Borrower, Holdings and the Subsidiaries, in
substantially the form of Exhibit K hereto.
(g) Certain Collateral Documents. The Agent shall have received all
----------------------------
other notices, consents, waivers, estoppel certificates and other documents
relating to the Collateral or the Collateral Documents that the Agent may
request.
(h) Certain Other Documents. The Agent shall have received copies of
-----------------------
the financial information described in Section 4.04 hereof, certified as
specified therein.
(i) Certain Corporate Officers' Certificates. The Agent shall have
----------------------------------------
received:
(i) A certificate, in substantially the form of Exhibit L-1
hereto, signed by the Chairman of the Board or President and by the Chief
Financial Officer or Treasurer of the Borrower, dated the Effective Date,
certifying, after due inquiry, (A) that the representations and warranties
herein contained as to the Borrower and its Subsidiaries are true and
correct in all material respects, as if made on and as of the Effective
Date, (B) that no Default or Event of Default has occurred and is
continuing and (C) that all of the conditions precedent set forth in this
Section 3.01 and in Section 3.02 hereof have been satisfied;
(ii) A certificate or certificates of the Secretary of the
Borrower dated the Effective Date certifying (A) the names and true
signatures of the officers of the Borrower authorized to sign the Loan
Documents executed by the Borrower, (B) the By-laws of the Borrower as in
effect on the date of such certification, (C) the resolutions of the
Borrower's Board of Directors approving and authorizing the transactions
contemplated by the Loan Documents, (D) that such resolutions have not been
modified or rescinded and remain in full force and effect, and (E) that
there have been no changes in the Certificate of Incorporation of the
Borrower since the date of the certification thereof by the Secretary of
State of Delaware;
(iii) A certificate signed by the Chairman of the Board or
President of Borrower in substantially the form of Exhibit L-2 hereto,
dated the Effective Date, certifying the Amended Certificate of
Incorporation of Borrower to be filed with the Secretary of State of
Delaware on the Effective Date; and
(iv) A certificate signed by the Chairman of the Board or
President of Holdings in substantially the form of Exhibit L-3 hereto,
dated the Effective Date, certifying the Amended
Third Amended and Restated
Senior Secured Credit Agreement
46
<PAGE>
Certificate of Incorporation of Holdings to be filed with the Secretary of
State of Delaware on the Effective Date.
(j) Corporate Proceedings. All corporate proceedings taken or to be
---------------------
taken by Holdings, the Borrower and the Borrower's Subsidiaries in connection
herewith shall be satisfactory to the Agent in its sole discretion, and it shall
have received original or certified copies of such documents as it may request.
(k) Interest, Fees and Expenses Paid. The Borrower shall have paid to
--------------------------------
the Agent, for the account of the Lenders, all of the accrued Deferred Interest
and all Fees (including, without limitation, all Deferred Letter of Credit Fees
and the Deferred Amendment Fee) and other fees and expenses that are due and
payable on or before the Effective Date. The Borrower shall have paid to the
Agent, for the account of the Lenders, all accrued and unpaid interest due on
the Loans under the Second Amended and Restated Senior Secured Credit Agreement
as of the Effective Date.
(l) Approvals and Consents. All Government Approvals and material
----------------------
third party consents required to effect the transactions contemplated hereby, or
by any other Loan Document, shall have been obtained and be in full force and
effect, without imposition of onerous conditions upon any such transaction.
(m) No Material Adverse Change. No material adverse change shall have
--------------------------
occurred since June 1, 1996 in the business, assets, prospects, results of
operations or financial condition of the Borrower or the Borrower and its
Subsidiaries, taken as a whole.
(n) Filing of Amended Certificates of Incorporation for Borrower and
----------------------------------------------------------------
Holdings. Within five (5) Business Days after the Effective Date, Holdings
- --------
shall have filed an Amended Certificate of Incorporation of Holdings with the
Secretary of State of Delaware in the form certified to the Agent and the
Lenders on the Effective Date pursuant to Section 3.01(i)(iv) hereof. Within
five (5) Business Days after the Effective Date, Borrower shall have filed an
Amended Certificate of Incorporation of Borrower with the Secretary of State of
Delaware in the form certified to the Agent and the Lenders on the Effective
Date pursuant to Section 3.01(i)(iii) hereof.
(o) General. All other documents and legal matters in connection with
-------
the transactions contemplated by this Agreement shall have been delivered or
executed or recorded in form and substance satisfactory to the Lender in its
sole discretion, and Lender shall have received all such counterpart originals
or certified copies thereof as Lender may request.
SECTION 3.02 CONDITIONS PRECEDENT TO ALL REVOLVING LOANS AND LETTERS
-------------------------------------------------------
OF CREDIT. The obligation of the Lenders to make Revolving Loans and to issue
- ---------
Letters of Credit on any Funding Date, including, without limitation, the
Effective Date, shall be subject to satisfaction of all of the following
conditions precedent:
(a) Notice of Borrowing; Letter of Credit Application. The Borrower
-------------------------------------------------
shall have delivered to the Agent a Notice of Borrowing in accordance with
Section 2.01(e) hereof, in the case of a Revolving Loan, or to the Issuing Bank
a Letter of Credit Application in accordance with Section 2.01(h) hereof, in the
case of a Letter of Credit. Each submission by the Borrower to the Agent of a
Notice of Borrowing with respect to a Revolving Loan or to an Issuing Bank of a
Letter of Credit Application with respect to a Letter of Credit and the
acceptance by the Borrower of the proceeds of each such Revolving Loan made
hereunder or the issuance of a Letter of Credit for the account of the Borrower,
shall constitute a representation and warranty by the Borrower as of the Funding
Date in respect of such Revolving Loan, or the date of issuance of such Letter
of Credit, as the case may be, that all of the conditions contained in this
Section 3.02 have been satisfied.
Third Amended and Restated
Senior Secured Credit Agreement
47
<PAGE>
(b) Representations and Warranties. All of the representations and
------------------------------
warranties of the Borrower contained in Article IV hereof and in any other Loan
Documents shall be true and correct in all material respects on and as of the
Funding Date as though made on and as of that date (except to the extent that
such representations and warranties expressly were made only as of a specific
date).
(c) No Default. No Default or Event of Default shall have occurred
----------
and be continuing or would result from the making of the Revolving Loan or the
issuance of the Letter of Credit.
(d) No Prohibition or Adverse Litigation. No Applicable Law shall
------------------------------------
prohibit, and no litigation shall be pending or threatened which in the judgment
of the Lender could, if adversely determined, prevent or make unlawful, or
impose any material adverse condition upon, the Revolving Loans or any other
Loan Document, or Holdings' or the Borrower's or any of its Subsidiaries'
ability to perform their respective obligations hereunder or thereunder (except,
in the case of any Subsidiary, if such condition upon such Subsidiary's ability
to perform would not have a material adverse effect upon the business, assets,
prospects, results of operation or financial condition of the Borrower or the
Borrower and its Subsidiaries, taken as a whole).
Third Amended and Restated
Senior Secured Credit Agreement
48
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants as follows:
Section 4.01 ORGANIZATION, POWERS AND GOOD STANDING.
--------------------------------------
(a) Organization and Powers. The Borrower and each of its
-----------------------
Subsidiaries is a corporation or other business entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite power and authority and the legal right to
own and operate its properties and to carry on its business as heretofore
conducted. The Borrower has all requisite corporate power and authority to
enter into this Agreement, the other Loan Documents to which it is a party, to
issue the Notes and to carry out the transactions contemplated hereby and
thereby. Each Subsidiary has all requisite power and authority to enter into
each Loan Document to which it is a party and to carry out the transactions
contemplated thereby. The Borrower and each of its Subsidiaries possesses all
Governmental Approvals, in full force and effect, free from burdensome
restrictions, that are necessary for the ownership, maintenance and operation of
its properties and conduct of its business as now conducted and is not in
violation thereof, except where the failure to so possess such Governmental
Approvals or a violation of any such Governmental Approval would not have a
material adverse effect upon the business, assets, prospects, results of
operation or financial condition of the Borrower or the Borrower and its
Subsidiaries, taken as a whole.
(b) Good Standing. The Borrower and each of its Subsidiaries is duly
-------------
qualified and in good standing as a foreign corporation or other business entity
and authorized to do business in each state where the nature of its business
activities conducted or properties owned or leased requires it to be so
qualified and where the failure to be so qualified could have a material adverse
effect upon the business, assets, prospects, results of operation or financial
condition of the Borrower or the Borrower and its Subsidiaries, taken as a
whole.
(c) Subsidiaries. On the date hereof, the Borrower has no
------------
Subsidiaries other than those identified in Schedule 4.01 hereto. Except as set
forth on Schedule 4.01 hereto, on the date hereof neither the Borrower nor any
of its Subsidiaries owns or holds, directly or indirectly, any Capital Stock or
equity security of, or any equity interest in, any corporation or business other
than the Borrower's Subsidiaries.
(d) Capital Stock of Subsidiaries. The authorized Capital Stock of
-----------------------------
each of the Borrower's Subsidiaries on the date hereof, and the number of shares
of Capital Stock of each such Subsidiary outstanding on the date hereof, is set
out in Schedule 4.01. Except as disclosed in Schedule 4.01, on the date hereof
the Borrower is the sole legal and beneficial owner of all shares of outstanding
Capital Stock of each of its Subsidiaries, free and clear of any Lien, except
(when effective in accordance with its terms) as provided by the CBCREG Pledge
Agreement. All of the outstanding shares of Capital Stock of each of the
Borrower's Subsidiaries have been duly authorized and validly issued and are
fully paid and nonassessable. There are not outstanding any securities
convertible into or exchangeable for shares or other units of Capital Stock of
any of the Borrower's Subsidiaries, or any options, warrants or rights to
purchase any such Capital Stock or any commitments of any kind for the issuance
of additional shares or other units of such Capital Stock or any such
convertible or exchangeable securities or options, warrants or rights to
purchase such Capital Stock.
SECTION 4.02 AUTHORIZATION, BINDING EFFECT, NO CONFLICT, ETC.
------------------------------------------------
(a) Authorization by the Borrower and its Subsidiaries. The
--------------------------------------------------
execution, delivery and performance by the Borrower and each of its Subsidiaries
of each Loan Document to which it is or will be a
Third Amended and Restated
Senior Secured Credit Agreement
49
<PAGE>
party has been duly authorized by all necessary corporate or partnership action
on the part of the Borrower and its Subsidiaries.
(b) Execution and Delivery by the Borrower and its Subsidiaries. Each
-----------------------------------------------------------
Loan Document to which it is party has been duly executed and delivered by the
Borrower and each of its Subsidiaries.
(c) Binding Obligations of the Borrower and its Subsidiaries. Each
--------------------------------------------------------
Loan Document to which it is party is the legal, valid and binding obligation of
the Borrower and each of its Subsidiaries, enforceable against each of them in
accordance with their respective terms, except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors' rights generally.
(d) No Conflict. The execution, delivery and performance by the
-----------
Borrower and each of its Subsidiaries of each Loan Document, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (i) violate any provision of the charter or bylaws of the Borrower or
any of its Subsidiaries or any provision of Applicable Law binding on the
Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of,
or constitute (or, with the giving of notice or lapse of time or both, would
constitute) a default under, or require the approval or consent of any Person
pursuant to (which consents have been obtained and are in full force and effect,
except as disclosed in Schedule 4.02 hereto), any Contractual Obligation of the
Borrower or any of its Subsidiaries except as would not have a material adverse
effect upon the business, assets, prospects, results of operation or financial
condition of the Borrower and its Subsidiaries taken as a whole, or (iii) result
in the creation or imposition of any Lien upon any asset of the Borrower or any
Subsidiary, except for Liens in favor of the Lender.
(e) Government Approvals. Except for filings and recordings in
--------------------
connection with the perfection of Liens created by the Collateral Documents or
which are described on Schedule 4.02, which in each case have been made and are
in full force and effect, no Governmental Approval is or will be required in
connection with the execution, delivery and performance by the Borrower or any
of its Subsidiaries of each Loan Document to which it is party or the
transactions contemplated hereby or thereby or to ensure the legality, validity
or enforceability hereof or thereof.
(f) Authorization by Holdings. The execution, delivery and
-------------------------
performance by Holdings of the Holdings Guaranty and the Holdings Pledge
Agreement has been duly authorized by all necessary corporate action on the part
of Holdings.
(g) Execution and Delivery by Holdings. Each of the Holdings Guaranty
----------------------------------
and the Holdings Pledge Agreement have been duly executed and delivered by
Holdings.
(h) Binding Obligation of Holdings. The Holdings Guaranty and the
------------------------------
Holdings Pledge Agreement are the legal, valid and binding obligations of
Holdings, enforceable against it in accordance with their respective terms,
except as enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally.
(i) No Conflict -- Holdings. The execution, delivery and performance
-----------------------
by Holdings of the Holdings Guaranty and the Holdings Pledge Agreement do not
and will not (i) violate any provision of the certificate of incorporation or
bylaws of Holdings or any provision of Applicable Law binding on Holdings, (ii)
conflict with, result in a breach of or constitute (or, with the giving of
notice or lapse of time or both, would constitute) a default under, or require
the approval or consent of any Person pursuant to, any Contractual Obligation of
Holdings, or (ii) result in the creation or imposition of any Lien upon any
asset of Holdings, except for a first priority Lien in the CBCREG Capital Stock
securing the Senior Secured Obligations and a second priority Lien in the CBCREG
Capital Stock securing the Subordinated Debt.
Third Amended and Restated
Senior Secured Credit Agreement
50
<PAGE>
(j) Governmental Approvals -- Holdings. No Governmental Approval is
----------------------------------
or will be required in connection with the execution, delivery and performance
by Holdings of the Holdings Guaranty, the Holdings Pledge Agreement or the
transactions contemplated hereby or thereby, or to ensure the legality, validity
or enforceability hereof or thereof.
SECTION 4.03 COLLATERAL DOCUMENTS.
--------------------
(a) The provisions of the Security Agreements are effective to create
in favor of the Agent, on behalf of the Lenders, a legal, valid and enforceable
security interest in all right, title and interest of the Borrower and its
Subsidiaries in the Collateral (as defined therein); and the security interest
of the Agent, on behalf of the Lenders, in such Collateral constitutes a valid,
perfected first priority security interest, to the extent the filing of
financing statements under the applicable Uniform Commercial Code in the
appropriate jurisdictions, or the delivery of instruments, is a permissible
method of perfection of such security interests in the Collateral described
therein, subject to no prior Liens, except for Permitted Liens.
(b) The provisions of each Mortgage to which the Borrower or any of
its Subsidiaries is a party are effective to grant to the Agent, on behalf of
the Lenders, a legal, valid and enforceable mortgage Lien on all of its right,
title and interest in the mortgaged Real Property thereunder. When each
Mortgage is duly recorded in the office(s) listed on Schedule 4.03 hereto and
the mortgage recording fees and taxes in respect thereof are paid and compliance
is otherwise had with the formal requirements of state law applicable to the
recording of real estate mortgages generally, each Mortgage shall constitute a
fully perfected lien on and security interest in such mortgaged property,
subject only to Permitted Liens.
(c) The provisions of the Pledge Agreements are effective to create in
favor of the Agent, on behalf of the Lenders, a legal, valid and enforceable
security interest in the Collateral (as defined therein). The security interest
of the Agent, on behalf of the Lenders, in such Pledged Stock constitutes a
valid, perfected security interest, subject to no prior Liens.
SECTION 4.04 FINANCIAL INFORMATION.
---------------------
(a) The consolidated balance sheets of the Borrower and its
Subsidiaries as at December 31, 1995 and the consolidated statements of income,
retained earnings and cash flow of the Borrower and its Subsidiaries for the
fiscal year then ended, certified by the Borrower's independent certified public
accountants, copies of which have been delivered to the Agent, were prepared in
accordance with GAAP consistently applied and fairly present the consolidated
financial position of the Borrower and its Subsidiaries as at the respective
dates thereof and the results of operations and cash flows of the Borrower and
its Subsidiaries for the periods then ended. Neither the Borrower nor any of
its Subsidiaries had on such dates any material Contingent Obligations,
liabilities for Taxes or long-term leases, unusual forward or long-term
commitments or unrealized or unanticipated losses from any unfavorable
commitments which are not reflected or reserved against in the foregoing
statements or in the notes thereto.
(b) The Borrower's unaudited consolidated balance sheet as at June 30,
1996 and related statements of income, retained earnings and cash flow for the
period then ended certified by the Chief Financial Officer of the Borrower, a
copy of which has been delivered to the Lender, were prepared in accordance with
GAAP consistently applied (except to the extent noted therein) and fairly
present the financial position of the Borrower and its Subsidiaries as of such
date and the results of operations and cash flows for the period covered
thereby, subject to normal year-end audit adjustments. Neither the Borrower nor
any of its Subsidiaries had on such date any material Contingent Obligations,
liabilities for Taxes or long-term leases, unusual forward or long-term
commitments or unrealized or unanticipated losses from any unfavorable
commitments which are not reflected or reserved against in the foregoing
statements or in the notes thereto.
Third Amended and Restated
Senior Secured Credit Agreement
51
<PAGE>
SECTION 4.05 NO MATERIAL ADVERSE CHANGES. There has been no material
---------------------------
adverse change in the business, assets, prospects, results of operation or
financial condition of the Borrower or the Borrower and its Subsidiaries, taken
as a whole, since either (a) June 30, 1995 or (b) the date of any financial
statements delivered after the date hereof by the Borrower to the Agent pursuant
to Section 5.01 hereof.
SECTION 4.06 LITIGATION. Except as disclosed in Schedule 4.06
----------
hereto, on the date hereof there are no material actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any Subsidiary or any of its or their respective properties
before any Governmental Authority and, in the opinion of the Borrower as of the
date hereof, there are no actions, suits or proceedings pending, (a) in which
there is a reasonable possibility of an adverse determination that could have a
material adverse effect on the business or financial condition of the Borrower
and its Subsidiaries taken as a whole, or (b) which in any manner draws into
question the validity or the enforceability of this Agreement or any other Loan
Document or could materially impair the ability of the Borrower to fulfill its
obligations under this Agreement or any other Loan Document. For purposes of
this representation, "material actions, suits or proceedings" shall mean any
litigation which the Borrower has determined could result in a judgment in
excess of $1,000,000.
SECTION 4.07 AGREEMENTS; APPLICABLE LAW. Neither the Borrower nor
--------------------------
any Subsidiary is in violation of any Applicable Law, or in default under any
Contractual Obligations to which it is a party or by which its property is
bound, where such default could have a material adverse effect on the business,
assets, prospects, results of operation or financial condition of the Borrower
and its Subsidiaries taken as a whole.
SECTION 4.08 TAXES. Holdings has filed all United States federal
-----
income tax returns and all other tax returns required to be filed in respect of
the consolidated group of which the Borrower and its Subsidiaries are a part,
and each of Holdings and each other member of such group has paid all Taxes
shown to be due on the returns so filed as well as all other assessments,
governmental charges and other Taxes which are due. The Borrower does not know
of any proposed, asserted or assessed tax deficiency against the Borrower or any
of its Subsidiaries that would be material to the financial condition of the
Borrower or the Borrower and its Subsidiaries, taken as a whole. Neither the
Borrower nor any of its Subsidiaries is a party to or obligated under any tax
sharing or similar agreement.
SECTION 4.09 GOVERNMENTAL REGULATION.
-----------------------
(a) Neither the Borrower nor any Subsidiary is (i) an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, or a company controlled by such a company or (ii)
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act or to any Federal or state
statute or regulation limiting its ability to incur Debt for money borrowed.
(b) Neither the making of the Loans hereunder nor the use of the
proceeds thereof as contemplated hereby will violate the Foreign Assets Control
Regulations, the Foreign Funds Control Regulations, the Transaction Control
Regulations, the Cuban Assets Control Regulations, the Iranian Assets Control
Regulations, the Nicaraguan Trade Control Regulations, the Libyan Sanctions
Regulations or the South African Transactions Regulations of the United States
Treasury Department (as defined in 31 C.F.R., Subtitle B, Chapter V, as
amended).
SECTION 4.10 MARGIN REGULATIONS.
------------------
(a) Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purposes of purchasing or carrying Margin Stock.
Third Amended and Restated
Senior Secured Credit Agreement
52
<PAGE>
(b) The Borrower does not own any Margin Stock.
SECTION 4.11 EMPLOYEE BENEFIT PLANS.
----------------------
(a) The Borrower and each of its ERISA Affiliates is as of the date of
this Agreement in compliance in all material respects with any applicable
provisions of ERISA and the regulations and published interpretations thereunder
with respect to all Plans and Multiemployer Plans. There has been no prohibited
transaction within the meaning of Section 406 of ERISA and Section 4975 of the
Code, with respect to any Plan or Multiemployer Plan, which could result in any
material liability of the Borrower or any of its respective ERISA Affiliates.
The Borrower and its ERISA Affiliates have made any and all payments required to
be made under any agreement relating to a Multiemployer Plan or any law
pertaining thereto.
(b) Except as set forth on Schedule 4.11 hereto, neither the Borrower
nor any ERISA Affiliate of the Borrower has during the last six (6) years
sponsored, maintained, or contributed to:
(i) Any multiemployer plan as defined in Sections 3(37) and
4001(a)(3)(A) of ERISA;
(ii) Any employee benefit plan (as defined in Section 3(3) of
ERISA) subject to Title IV of ERISA or the minimum funding
standards of Section 412 of the Code;
(iii) Any "employee welfare benefit plan" as defined in Section
3(1) of ERISA which covers retirees (except to the extent that
such coverage is limited to coverage required by Title 1, Part 6
of ERISA); or
(iv) Any employee benefit plan (as defined in Section 3(3) of
ERISA) or other fringe benefit plan maintained in connection with
any trust described in Section 501(c)(9) of the Code.
(c) Neither the Borrower nor any of its ERISA Affiliates has incurred
or (based on the information set forth on Schedule 4.11) reasonably expects to
incur any withdrawal liability under ERISA to any Multiemployer Plan. Neither
the Borrower nor any ERISA Affiliate has been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan
is reasonably expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA.
(d) To the extent that any Plan (which is a "welfare plan" under
Section 3(1) of ERISA) is insured, and except as otherwise disclosed on Schedule
4.11, the Borrower, its Subsidiaries and their respective ERISA Affiliates have
paid all premiums required to be paid for all periods through and including the
most recent full month prior to the Closing Date. To the extent that any Plan
(which is a "welfare plan" as defined above) is funded (other than with
insurance), the Borrower, its Subsidiaries and their respective ERISA Affiliates
have made all contributions required to be paid for all periods through and
including the most recent full month period to the Closing Date and such Plans,
to the extent that their funding is based on actuarial principles, are
actuarially sound at the Closing Date.
SECTION 4.12 TITLE TO PROPERTY; LIENS. Except as disclosed in
------------------------
Schedule 4.12 hereto, the Borrower and its Subsidiaries have good and marketable
title to, or valid and subsisting leasehold interests in, all of their
respective Real Property, and good title to or valid and subsisting leasehold
interests in all of their respective other property reflected in their books and
records as being owned by them, and none of such property is subject to any
Lien, except for Permitted Liens and Liens securing the Obligations and other
Liens permitted under Section 6.01 hereof.
SECTION 4.13 NO MATERIALLY ADVERSE AGREEMENTS; NO DEFAULTS.
---------------------------------------------
Third Amended and Restated
Senior Secured Credit Agreement
53
<PAGE>
(a) Neither the Borrower nor any of its Subsidiaries is a party to or
bound by any unduly burdensome Contractual Obligation which materially and
adversely affects the business, assets, prospects, results of operations or
financial condition of the Borrower and its Subsidiaries taken as a whole.
(b) Neither the Borrower nor any of its Subsidiaries is in default in
the performance or observance of any of the covenants or conditions contained in
any of its Contractual Obligations, except where such default or defaults, if
any, would not have a material adverse effect on the business, assets,
prospects, results of operation or financial condition of the Borrower and its
Subsidiaries taken as a whole.
SECTION 4.14 CAPITALIZATION AND OWNERSHIP.
----------------------------
(a) The authorized Capital Stock of the Borrower on the date hereof
consists of one thousand (1,000) shares of common stock, par value $0.01 per
share, of which one hundred (100) shares are issued and outstanding. All such
outstanding shares of such common stock were duly authorized and validly issued
and are fully paid and nonassessable and are owned beneficially and of record by
Holdings, free and clear of all Liens and encumbrances whatsoever, except for
the first priority Lien securing the Obligations and a second priority Lien
securing the Subordinated Debt.
(b) There are no outstanding subscriptions, options, warrants, calls,
rights (including preemptive rights) or other agreements or commitments of any
nature relating to any Capital Stock of the Borrower or any of its Subsidiaries.
(c) The Borrower is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
Capital Stock.
SECTION 4.15 LICENSES, TRADEMARKS, ETC. The Borrower and its
-------------------------
Subsidiaries own or hold valid licenses in all necessary Trademarks, copyrights,
patents, patent rights and licenses to conduct their respective businesses as
heretofore operated and as proposed to be conducted. All of the Borrower's and
its Subsidiaries' registered Trademarks, copyrights, patents, patent rights,
licenses (excluding unregistered licenses of computer software owned by the
Borrower or any Subsidiary) or other similar rights owned or used by the
Borrower or any Subsidiary are listed in Schedule 4.15 hereto, showing for each
item the owner thereof, and the date (except with respect to trade names) and
place of registration thereof. Neither the Borrower nor any of its Subsidiaries
has been charged or, to the knowledge of the Borrower, threatened to be charged
with any infringement of, nor has any of them infringed on, any unexpired
Trademark, patent, patent registration, copyright, copyright registration or
other proprietary right of any Person.
SECTION 4.16 ENVIRONMENTAL CONDITION. Except as set forth on
-----------------------
Schedule 4.16
hereto:
(a) To the Borrower's knowledge, all Real Property that the Borrower
or any of its Subsidiaries owns or possesses is free from contamination from any
Hazardous Materials. Neither the Borrower nor any of its Subsidiaries has
caused or suffered, nor to the knowledge of the Borrower, has any other party
previously involved in operations at any Real Property owned or possessed by the
Borrower or any of its Subsidiaries caused or suffered any Environmental Damages
that would have a material adverse effect on the business or financial condition
of the Borrower and its Subsidiaries taken as a whole.
(b) Neither the Borrower nor any Subsidiary or, to the Borrower's
knowledge, any prior owner or occupant, of the Real Property owned by the
Borrower or any of its Subsidiaries has received notice of any alleged violation
of Environmental Requirements of the type set forth in clause (i) in the
definition thereof or, to Borrower's knowledge, of the type set forth in clause
(ii) in the definition thereof, or notice of any alleged liability for
Environmental Damages in connection with the Real Property, and there exists no
writ, injunction, decree, order or judgment outstanding, nor any claim, suit,
proceeding, citation, directive,
Third Amended and Restated
Senior Secured Credit Agreement
54
<PAGE>
summons or investigation, pending or threatened, relating to the ownership, use,
maintenance or operation of the Real Property by any Person, or from alleged
violation of Environmental Requirements, or from the suspected presence of
Hazardous Materials thereon, nor, to the knowledge of the Borrower, does there
exist any basis for such claim, suit, proceeding, citation, directive, summons
or investigation being instituted or filed.
(c) To the Borrower's knowledge, there is not constructed, placed,
deposited, stored, disposed of nor located on the Real Property any
polychlorinated biphenyls (PCBs) nor transformers, capacitors, ballasts, or
other equipment which contains dielectric fluid containing PCBs, or any
asbestos.
SECTION 4.17 ABSENCE OF CERTAIN RESTRICTIONS. Neither the Borrower
-------------------------------
nor any Subsidiary is subject to any Contractual Obligation (other than the Loan
Documents and the Subordinated Debt Documents) which restricts or limits the
ability of any Subsidiary to (a) pay dividends or make any distributions on its
Capital Stock, (b) pay Indebtedness owed the Borrower or any Subsidiary, (c)
make any loans or advances to the Borrower or (d) transfer any of its property
to the Borrower, except as set forth on Schedule 4.17 hereto.
SECTION 4.18 LOCATION OF ASSETS AND CHIEF EXECUTIVE OFFICES. As of
----------------------------------------------
the date hereof, the chief executive office of the Borrower is located in Los
Angeles, California, and the Real Property and no tangible personal property of
the Borrower having a fair value, in the aggregate, in excess of $50,000 is
located at any location or locations other than those identified on Schedule
4.18.
SECTION 4.19 NO DEFAULTS. No Default or Event of Default has
-----------
occurred and is continuing. Neither the Borrower nor any Subsidiary is in
violation of or in default under any Applicable Law binding on the Borrower or
any Subsidiary or any Contractual Obligation binding upon or affecting it or any
of its properties that could have a material adverse effect on the business,
assets, prospects, results of operation or financial condition of the Borrower
and its Subsidiaries taken as a whole.
SECTION 4.20 DISCLOSURE. No representation or warranty of Holdings,
----------
the Borrower or any Subsidiary contained in this Agreement or any other Loan
Document or any information in any other document, certificate or written
statement furnished to the Lender by or on behalf of Holdings, the Borrower or
any Subsidiary with respect to the business, assets, prospects, results of
operation or financial condition of Holdings or the Borrower or any Subsidiary
of the Borrower for use in connection with the transactions contemplated by this
Agreement, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to the Borrower (other than
matters of a general economic nature) which materially and adversely affects the
business, assets, prospects, results of operations or financial condition of the
Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower
to perform its obligations under this Agreement, which has not been disclosed
herein or in such other documents, certificates, and statements furnished to the
Lender for use in connection with the transactions contemplated hereby.
Third Amended and Restated
Senior Secured Credit Agreement
55
<PAGE>
ARTICLE V
AFFIRMATIVE COVENANTS OF THE BORROWER
-------------------------------------
The Borrower covenants and agrees that, so long as any portion of the
Commitments shall be in effect and until all Obligations of the Borrower are
paid in full, the Borrower shall perform each and all of the following:
SECTION 5.01 FINANCIAL STATEMENTS AND OTHER REPORTS. The Borrower
--------------------------------------
will deliver to the Agent:
(a) as soon as practicable and in any event within ninety (90) days
after the end of each Fiscal Year of Holdings, consolidated and consolidating
balance sheets of Holdings and its Subsidiaries as of the end of such year and
the related consolidated (and, except as to statements of stockholders' equity,
consolidating) statements of income, stockholders' equity and cash flow of the
Borrower and its Subsidiaries for such fiscal year, setting forth in each case
in comparative form the consolidated figures for the previous fiscal year, all
in reasonable detail and (i) in the case of such consolidated financial
statements, accompanied by an unqualified report thereon of Arthur Andersen LLP
or other independent certified public accountants of recognized national
standing selected by the Borrower and satisfactory to the Lender, which report
shall state that such consolidated financial statements fairly present the
financial position of Holdings and its Subsidiaries as at the date indicated and
the results of their operations and cash flow for the periods indicated in
conformity with GAAP (except as otherwise stated therein) and that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards, and (ii) in the case of such consolidating financial statements,
certified by the Chief Financial Officer or Chief Accounting Officer of Holdings
as being fairly stated in all material respects when considered in relation to
the audited consolidated financial statements of the Holdings, provided that the
--------
Borrower shall be required to deliver such consolidating balance sheets and
statements of income and cash flow as to Holdings and its Reporting
Subsidiaries;
(b) as soon as practicable and in any event within thirty (30) days
after the end of each Fiscal Quarter, a consolidated balance sheet of Holdings
and its Reporting Subsidiaries as at the end of such quarter and the related
consolidated statement of income of Holdings and its Subsidiaries for such
quarter and the portion of Holdings' fiscal year ended at the end of such
quarter, setting forth in each case in comparative form the consolidated figures
for the corresponding periods of the prior fiscal year, all in reasonable detail
and certified by Holdings' Chief Financial Officer or Chief Accounting Officer
as fairly presenting the financial condition of Holdings and its Subsidiaries as
at the dates indicated and the results of their operations and cash flows for
the periods indicated, subject to normal year-end adjustment;
(c) together with each delivery of financial statements of Holdings
and its Subsidiaries pursuant to subsections (a) and (b) above, a certificate of
the Chief Financial Officer and the Secretary of Holdings (i) stating that such
officers have reviewed the terms of the Loan Documents and have made, or have
caused to be made under their supervision, a review in reasonable detail of the
transactions and condition of the Borrower and its Subsidiaries during the
accounting period covered by such financial statements and that such review has
not disclosed the existence of any Default or Event of Default during or at the
end of such accounting period and that such officers do not have knowledge of
the existence, as at the date of such certificate, of any Default or Event of
Default, or, if they do have knowledge that a Default or an Event of Default
existed or exists, specifying the nature and period of existence thereof and
what action the Borrower has taken, is taking, or proposes to take with respect
thereto, and (ii) setting forth the calculations required to establish whether
the Borrower was in compliance with Section 6.06, on the date of such financial
statements;
Third Amended and Restated
Senior Secured Credit Agreement
56
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(d) together with each delivery of consolidated financial statements
of Holdings and its Subsidiaries pursuant to subsection (a) above, and so long
as and to the extent not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, a written statement by the
independent certified public accountants giving the report thereon (i) stating
that their audit examination has included a review of the terms of this
Agreement and the Notes as they relate to accounting matters, (ii) stating
whether in connection with their audit examination, any Default or Event of
Default has come to their attention and, if so, specifying the nature and period
of existence thereof, and (iii) confirming the calculations set forth in the
officer's certificate delivered simultaneously therewith pursuant to subsection
(c) above;
(e) immediately upon any Responsible Officer becoming aware thereof,
notice of any Default or Event of Default, setting forth the details thereof and
the action which the Borrower is taking or proposes to take with respect
thereto;
(f) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available by
Holdings or the Borrower to its security holders, all registration statements
(other than the exhibits thereto) and annual, quarterly or monthly reports, if
any, filed by Holdings with the SEC;
(g) promptly upon becoming aware of the occurrence of (i) any
Reportable Event, (ii) any "prohibited transaction," as such term is defined in
Section 4975 of the Code (which prohibited transaction could subject any member
of the Controlled Group (including ERISA Affiliates) to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code
in connection with any Plan (or any trust created thereunder)), (iii) any
assertion of withdrawal liability of any Multiemployer Plan, (iv) any partial or
complete withdrawal (by the Borrower or an ERISA Affiliate) under Title IV of
ERISA (or assertion thereof), (v) any cessation of operations (by the Borrower
or an ERISA Affiliate) at a facility in the circumstances described in Section
4068(f) of ERISA, (vi) the withdrawal by the Borrower or an ERISA Affiliate from
a Multi-Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA, (vii) the failure by the
Borrower or any ERISA Affiliate to make a payment to a Plan required under
Section 302(f)(1) of ERISA, which section imposes a lien for failure to make
required payments, or (viii) the adoption of an amendment to a Plan requiring
the provision of security to such Plan pursuant to Section 307 of ERISA;
(h) promptly, copies of (i) all notices received by any member of the
Controlled Group of the PBGC's intent to terminate any Plan administered or
maintained by the Borrower or its ERISA Affiliates or to have a trustee
appointed to administer any such Plan and (ii) at the request of the Agent each
annual report (IRS Form 5500 Series) and all accompanying schedules, the most
recent actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrower or its
ERISA Affiliates, and schedules showing the amounts contributed to each such
Plan by or on behalf of the Borrower or its Subsidiaries in which any of their
personnel participate or from which such personnel may derive a benefit, and
each Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by any member of the Controlled Group with the IRS with respect to each
such Plan;
(i) promptly after the Borrower obtains knowledge thereof, notice of
all litigation or proceedings commenced or threatened affecting the Borrower in
which there is a reasonable possibility of an adverse decision and (i) which
involves alleged liability in excess of $1,000,000, (ii) in which injunctive or
similar relief is sought which if obtained could have a material adverse effect
on the business, assets, prospects, results of operation or financial condition
of the Borrower and its Subsidiaries taken as a whole or (iii) which questions
the validity or enforceability of any Loan Document or Acquisition Document;
(j) promptly upon receipt thereof, copies of all final reports or
letters submitted to the Borrower by its independent certified public
accountants in connection with each annual, interim or special audit of the
financial statements of the Borrower or its Subsidiaries made by such
accountants, including,
Third Amended and Restated
Senior Secured Credit Agreement
57
<PAGE>
without limitation, any management report, and the Borrower agrees to obtain
such a report in connection with each of its annual audits;
(k) upon request by the Agent, an appraisal of all Real Property of
the Borrower and its Subsidiaries (including both fee and leasehold interests),
performed by an appraiser of recognized national standing selected by the
Borrower and satisfactory to the Required Lenders, which appraisal shall set
forth the fair market value and orderly liquidation value of the Real Property
and equipment and shall otherwise be in form and substance satisfactory to the
Required Lenders;
(l) promptly upon receipt or availability thereof, a copy of any
notices or reports received or sent to any Person in connection with
Subordinated Debt and a copy of any amendment or supplement to, or material
extension, renewal or waiver with respect to, any of the documents or
instruments governing Subordinated Debt;
(m) promptly after the availability thereof, copies of all amendments
to the certificate of incorporation or bylaws of the Borrower and any of its
Subsidiaries;
(n) promptly after the receipt thereof, a copy of any notice, summons,
citation, letter or other communication concerning any actual, alleged,
suspected or threatened violation of Environmental Requirements, or liability of
the Borrower or any of its Subsidiaries for Environmental Damages in connection
with its Real Property or past or present activities of any Person thereon;
(o) as soon as practicable and in any event within forty-five (45)
days after the end of each Fiscal Quarter, or more frequently if requested by
the Lender, a report of all Investments made in such Fiscal Quarter pursuant to
Section 6.04, the amount of such Investments and a summary, in reasonable
detail, of the Borrower's good faith estimate of the fair value of all
Investments made to the end of such Fiscal Quarter; and
(p) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Lender may request.
SECTION 5.02 RECORDS AND INSPECTION. The Borrower shall, and shall
----------------------
cause each Subsidiary to, maintain adequate books, records and accounts as may
be required or necessary to permit the preparation of consolidated financial
statements in accordance with sound business practices and GAAP. The Borrower
shall, and shall cause each Subsidiary to, permit such persons as the Agent or
any Lender may designate, at reasonable times and as often as may be requested,
to (a) visit and inspect any properties of the Borrower and its Subsidiaries,
(b) inspect and copy their books and records, and (c) discuss with their
officers and employees and their independent accountants, their respective
businesses, assets, liabilities, prospects, results of operation and financial
condition. The Agent and each Lender will use reasonable efforts, consistent
with its normal business practices, to maintain the confidentiality of any
information so received.
SECTION 5.03 CORPORATE EXISTENCE, ETC. The Borrower will, and will
------------------------
cause each Subsidiary to, at all times preserve and keep in full force and
effect its corporate existence and any rights and franchises material to its
business, provided, however, that the corporate existence of any Subsidiary may
-------- -------
be terminated if such termination is not disadvantageous in any material respect
to the Lenders.
SECTION 5.04 PAYMENT OF TAXES. The Borrower shall, and shall cause
----------------
each Subsidiary to, pay and discharge all Taxes imposed upon it or any of its
properties or in respect of any of its franchises, business, income or property
before any material penalty shall be incurred with respect to such Taxes,
provided, however, that, unless and until foreclosure, distraint, levy, sale or
- -------- -------
similar proceedings shall have commenced, the Borrower and its Subsidiaries need
not pay or discharge any such Tax so long as the validity
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Senior Secured Credit Agreement
58
<PAGE>
or amount thereof is contested in good faith and by appropriate proceedings and
so long as any reserves or other appropriate provisions as may be required by
GAAP shall have been made therefor.
SECTION 5.05 MAINTENANCE OF PROPERTIES. The Borrower shall maintain
-------------------------
or cause to be maintained in good repair, working order and condition (ordinary
wear and tear excepted), all of those properties useful or necessary to its
business, and from time to time the Borrower will make or cause to be made all
appropriate repairs, renewals and replacements thereto.
SECTION 5.06 MAINTENANCE OF INSURANCE.
------------------------
(a) The Borrower shall, and shall cause each Subsidiary to, maintain,
with financially sound and reputable insurance companies satisfactory to the
Lender, insurance in at least such amounts, of such character and against at
least such risks as is maintained by the Borrower and its Subsidiaries on the
date of this Agreement and described on Schedule 5.06 hereto, or, if such
insurance is not available on a commercially reasonable basis, with the Agent's
prior written consent, such insurance, in at least such amounts, of such
character and as against at least such risks as are usually insured against in
the same general area by companies of established repute engaged in the same or
a similar business. The Borrower shall furnish to the Agent, upon written
request, full information as to the insurance in effect at any time.
(b) As soon as practicable after the Effective Date, the Borrower
shall cause (i) all liability insurance policies to name the Agent as an
additional insured, (ii) all property loss or damage insurance policies with
respect to any assets of the Borrower to contain a loss payable clause in favor
of the Agent as provided in the respective Collateral Documents, (iii) all
insurance policies to provide that no cancellation, reduction in amount or
material adverse change in coverage thereof shall be effective until at least
thirty (30) days after receipt by the Agent of written notice thereof, (iv) all
insurance policies to insure the interests of the Agent regardless of any breach
of or violation by the Borrower or any other Person of any warranties,
declarations or conditions contained therein, (v) all insurance policies to
provide that the Agent shall have no obligation or liability for premiums,
commissions, assessments or calls in connection with such insurance or in
connection with any representation or warranty made by the Borrower in
connection with obtaining such insurance, (vi) all business interruption
insurance to name the Agent as a loss payee, and (vii) all applicable insurance
policies to contain such other provisions as are set forth in the relevant
Collateral Documents.
(c) Any payments received by the Agent or any Lender from any insurer
with respect to loss or damage to any buildings, equipment and facilities
constituting a portion of the Collateral shall, if an Event of Default shall
have occurred and be continuing or under other circumstances as may be provided
in the respective Collateral Document, be treated as Net Cash Proceeds of an
Asset Disposition and applied as a mandatory repayment of the Term Loans as set
forth in Section 2.05(b).
(d) As soon as practicable, and in any event no later than the
expiration date of each policy maintained hereunder, the Borrower shall either
(i) deliver to the Agent copies of the renewals of the insurance policies (in
each case, with a certified true and correct copy of such policy by the insurer
named therein if available, or in any event, not later than fifteen (15) days
after the expiration date of the prior policy) maintained by the Borrower as
required by this Section 5.06 or (ii) notify the Agent of the policies which
have not been renewed.
SECTION 5.07 CONDUCT OF BUSINESS. The Borrower will not, and will
-------------------
not permit any of its Subsidiaries to, engage in any business other than the
businesses in which the Borrower and its Subsidiaries are engaged as of the date
hereof or any businesses or activities substantially similar or related thereto,
except for other businesses which constitute an insubstantial part of the
business of the Borrower and its Subsidiaries taken as a whole. The Borrower
shall, and shall cause each Subsidiary to, conduct its business in compliance in
all material respects with Applicable Law and all material Contractual
Obligations.
Third Amended and Restated
Senior Secured Credit Agreement
59
<PAGE>
SECTION 5.08 FURTHER ASSURANCES.
------------------
(a) At any time or from time to time upon the request of the Agent,
the Borrower shall execute and deliver, and shall cause its Subsidiaries to
execute and deliver, such further documents and do such other acts and things as
the Agent may reasonably request in order to effect fully the purpose of this
Agreement, the Collateral Documents, the other Loan Documents and any other
agreement contemplated hereby and to provide for payment with respect to the
Term Loans in accordance with the terms of this Agreement and the other Loan
Documents.
(b) Within ten (10) days after the earlier of (i) payment in full or
defeasance (including without limitation by delivery of one or more letters of
credit) of the obligations of WREAP to the Westmark Sellers or (ii) at such time
as such a guaranty no longer is prohibited by the Westmark Acquisition
Agreement, Borrower shall cause Westmark Realty Advisors L.L.C. to execute and
deliver to the Agent for the benefit of the Lenders the Subsidiary Guaranty.
Within ten (10) days after the earlier of (i) payment in full or defeasance
(including without limitation by delivery of one or more letters of credit) of
the obligations of WREAP to the Westmark Sellers or (ii) at such time as such a
security interest or lien no longer is prohibited by the Westmark Acquisition
Documents, Borrower shall, or shall cause a Subsidiary to, grant to the Agent,
for the benefit of the Lenders, a security interest in or lien on the Capital
Stock of each Westmark Guarantor and Westmark Realty Advisors L.L.C., and shall
cause each Westmark Guarantor and Westmark Realty Advisors L.L.C. to grant a
lien in substantially all of its assets to the Agent, for the benefit of the
Lenders.
SECTION 5.09 ADDITIONAL COLLATERAL.
---------------------
(a) With respect to any Real Property of the Borrower or any
Subsidiary, whether now owned or acquired after the date hereof, the Borrower or
such Subsidiary shall, promptly upon request therefor by the Agent, grant or
cause to be granted to the Agent, for the benefit of the Lenders, a Mortgage
Lien on any or all such Real Property, upon terms substantially the same as
those set forth in the Mortgages, and such other terms as may be reasonably
requested by the Agent with respect to the particular collateral, and subject
only to those types of Liens permitted by Section 6.01; provided, however, that
-------- -------
neither Borrower nor any Subsidiary shall be required to grant a Mortgage Lien
on any such Real Property if the granting of such Mortgage Lien would conflict
with or constitute a default under any document or instrument creating a Lien
permitted by Section 6.01(d). The Borrower, at its own expense, shall execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
and thereafter cause to be registered, filed or recorded, in each appropriate
governmental office, any document or instrument deemed by the Lender to be
necessary or desirable for the creation and perfection of the foregoing Liens
and shall pay all taxes and fees related to such registration, filing or
recording.
(b) Upon the creation or acquisition of any direct or indirect
Subsidiary of the Borrower after the date hereof, the Borrower shall immediately
(i) pledge to the Agent for the benefit of the Lenders all of the issued and
outstanding Capital Stock of such Subsidiary pursuant to a pledge agreement in
form and substance satisfactory to the Agent, and (ii) cause each such
Subsidiary to execute and deliver to the Agent for the benefit of the Lenders
the Subsidiary Guaranty, the Subsidiary Security Agreement and such other
Collateral Documents as the Agent may request; provided, however, that the Agent
-------- -------
hereby agrees to subordinate such Subsidiary's obligations under the Subsidiary
Guaranty to such Subsidiary's obligations with respect to any Permitted Seller
Indebtedness incurred in connection with the acquisition of such Subsidiary on
customary terms reasonably satisfactory to the Agent.
(c) Subject to Section 5.09(a) and (b), upon consummation of any
Investment in excess of $100,000, the Borrower shall pledge such Investment to
the Agent for the benefit of the Lenders as additional Collateral, and shall
take any and all action necessary to perfect and protect the lien or security
interest created thereby.
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Senior Secured Credit Agreement
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<PAGE>
(d) Notwithstanding the foregoing provisions of this Section 5.09 or
any other provision hereof, unless the Agent shall specifically waive this
Section 5.09(d) in writing, all additional collateral consisting of Real
Property in California shall secure only the Specified Mortgage Loan Obligations
and all other additional collateral shall secure the Senior Secured Obligations.
SECTION 5.10 FUTURE INFORMATION. All data, certificates, reports,
------------------
statements, documents and other information furnished to the Agent or the
Lenders in connection with this Agreement or any amendment or modification of,
or waiver under, this Agreement shall, at the time the information is so
furnished, (i) be complete and correct in all material respects to the extent
necessary to give the Agent and the Lenders sufficient and accurate knowledge of
the subject matter thereof, (ii) not contain any untrue statement of a material
fact and (iii) not omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which such information is furnished.
SECTION 5.11 PROCEEDS OF ASSET DISPOSITIONS BY SUBSIDIARIES.
----------------------------------------------
(a) The Borrower will cause each Subsidiary to pay to or transfer to
the Borrower, as dividends or distributions on Capital Stock, the Borrower's
ratable interest, in accordance with its percentage ownership, direct or
indirect, of such Subsidiary, in Net Cash Proceeds of Asset Dispositions and
Excess Proceeds of the Sale of Stock received by or for the account of such
Subsidiary, except to the extent that, at the time such payment or transfer is
required by this Section 5.11 to be made, such payment or transfer as a dividend
or distribution on Capital Stock is not permitted under Applicable Law or by the
terms of a written agreement binding on such Subsidiary; provided, that no such
--------
legal or contractual prohibition shall affect the Borrower's obligations under
Section 2.05(b)(i) hereof.
(b) Concurrently with the receipt by or for the account of the
Borrower or any Subsidiary of Non-Cash Proceeds of any Asset Disposition, the
Borrower shall, or shall cause the relevant Subsidiary to, promptly perform all
actions necessary or deemed necessary or advisable by the Lender to grant,
create, perfect and maintain perfected a security interest therein in favor of
the Lender.
SECTION 5.12 SUBORDINATION OF INTERCOMPANY LOANS AND ADVANCES TO THE
-------------------------------------------------------
BORROWER. The Borrower shall cause any Indebtedness owed by the Borrower to any
- --------
Subsidiary to be subordinated to the Obligations on terms of subordination
satisfactory to the Agent and no less favorable to the Lenders than the terms of
subordination set forth in the Senior Subordinated Credit Agreement as in effect
on the date hereof.
SECTION 5.13 DEPOSIT ACCOUNTS. The Borrower will maintain and will
----------------
cause its Subsidiaries to maintain all deposit accounts in accordance with the
terms of the Security Agreements and the exhibits thereto.
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
ARTICLE VI
NEGATIVE COVENANTS OF THE BORROWER
----------------------------------
The Borrower covenants and agrees that, so long as any portion of the
Commitments shall be in effect and until all Obligations of the Borrower are
paid in full, the Borrower shall perform each and all of the following:
SECTION 6.01 LIENS. The Borrower shall not, and shall not permit any
-----
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any Lien on or with respect to any property or asset of the Borrower or
any Subsidiary, whether now owned or hereafter acquired, or any income or
profits therefrom or rights in respect thereof, except:
(a) Liens securing the Obligations;
(b) Permitted Liens;
(c) Any attachment or judgment Lien (i) execution of which has been
stayed, (ii) payment of which is covered in full by insurance, or (iii) in
respect of which the Borrower or its Subsidiary shall in good faith be
prosecuting an appeal or proceedings for review and shall have set aside on its
books such reserves as may be required by GAAP with respect to such judgment or
award;
(d) Liens existing on property or assets of any Person at the time
such Person becomes a Subsidiary of the Borrower, but only, in any such case,
(i) if such Lien was not created in contemplation of such Person becoming a
Subsidiary of the Borrower, (ii) so long as the obligation secured by such Lien
is not in default at the time such Person becomes a Subsidiary of the Borrower,
and (iii) so long as such Lien does not encumber any assets other than the
property subject to such Lien immediately prior to the time such Person becomes
a Subsidiary of the Borrower; and Liens existing on assets acquired by Borrower
or a Subsidiary of the Borrower, but only, in any such case, (x) if such Lien
was not created in contemplation of such assets being acquired by Borrower or
the Subsidiary, (y) so long as the obligation secured by such Lien is not in
default at the time such assets are acquired by Borrower or the Subsidiary, and
(z) so long as such Lien does not encumber any assets other than the assets
subject to such Lien immediately prior to the time such assets are acquired by
Borrower or the Subsidiary;
(e) Liens on assets securing Indebtedness permitted to be incurred or
assumed pursuant to Section 6.02 (f) hereof, including any interest or title of
a lessor under any Capitalized Lease, provided that any such Lien does not
--------
encumber any property other than assets constructed or acquired with the
proceeds of such Indebtedness;
(f) leases or subleases granted to others not interfering with the
ordinary and usual course of business of, and consistent with past practices of,
the Borrower or any of its Subsidiaries;
(g) any Lien constituting a renewal, extension or replacement of any
Existing Lien or any Lien permitted by clause (d) or (e) of this Section 6.01,
but only, in the case of each such renewal, extension or replacement Lien, to
the extent that (i) the principal amount of Indebtedness secured thereby does
not exceed the principal amount of such Indebtedness secured by such Existing
Lien or Lien permitted by clause (d) or (e), and (ii) such Lien is limited to
all or a part of the property subject to the Lien extended, renewed or replaced;
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
(h) Liens on Permitted Investments owned by Melody, to secure
Indebtedness under the Melody Loan Arbitrage Facility, if such Permitted
Investments were acquired by Melody with the proceeds of incurrence of such
Indebtedness;
(i) Liens on commercial mortgage loans originated and owned by Melody
subject to an irrevocable, unconditional commitment to purchase such commercial
mortgage loans, to secure Indebtedness of Melody under the Melody Warehousing
Facility; and
(j) Liens on the assets of any direct or indirect Subsidiary of the
Borrower created or acquired in connection with a Permitted Acquisition and
Liens on assets acquired by the Borrower or a Subsidiary in a Permitted
Acquisition, which Liens secure Permitted Seller Indebtedness permitted by
Section 6.02(e) in connection with such Permitted Acquisition (but not including
any refinancing thereof pursuant to Section 6.02(i));
provided that if, notwithstanding this Section 6.01, any Lien which this Section
- --------
6.01 prohibits shall be created or arise without the prior written consent of
Lender (including with respect to this proviso), the specified Mortgage Loan
Obligations (if such Lien is on Real Property in California) or the Senior
Secured Obligations (if such Lien is on other property) shall be secured by such
Lien equally and ratably with the other Indebtedness secured thereby, the
Borrower will take or cause to be taken all such action as may be requested by
the Agent to confirm and protect such Lien in favor of the Lender and the holder
of such other Indebtedness, by accepting such Lien, shall be deemed to have
agreed thereto and to share ratably with the Lender on that basis, the proceeds
of such Lien, whether or not the Lender's security interest shall be perfected;
provided further, however, that notwithstanding such equal and ratable securing
and sharing, the existence of such Lien shall constitute a default by the
Borrower in the performance or observance of this Section 6.01.
SECTION 6.02 INDEBTEDNESS. The Borrower shall not, and shall not
------------
permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume, guarantee, or otherwise become or remain liable with respect to any
Indebtedness, except:
(a) the Obligations;
(b) any Indebtedness of Subsidiaries under the Loan Documents;
(c) Subordinated Debt under the Senior Subordinated Credit Agreement
and guaranties thereof by Subsidiaries which are subordinated, on terms
satisfactory to the Agent, to the Subsidiary Guaranty;
(d) Existing Indebtedness, but not any extension, refunding or
refinancing thereof (except with respect to Existing Mortgage Debt (as defined
in Schedule 6.02), which the Borrower may refinance so long as any such
refinancing Indebtedness is non-recourse to the Borrower and its Subsidiaries
and bears interest at a rate not in excess of prevailing rates with respect to
similar mortgage loans at the time such Indebtedness is refinanced);
(e) Indebtedness incurred in connection with Permitted Acquisitions
(including, without limitation, (x) existing Indebtedness of any Person that
becomes a Subsidiary and (y) Indebtedness assumed by the Borrower or any
Subsidiary or that is secured by any asset acquired by the Borrower or any
Subsidiary, in each case upon consummation of such Permitted Acquisition), in an
aggregate amount not to exceed $50,000,000 at any time outstanding, provided
--------
that (i) at the time of incurrence of any such Indebtedness, the Pro Forma Fixed
Charges Coverage Ratio shall be not less than 1.0:1.0; (ii) no Default or Event
of Default shall have occurred and be continuing or shall result from the
Permitted Acquisition (including by reason of any Indebtedness incurred in
connection with such Permitted Acquisition), and (iii)
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
not more than $15,000,000 of such Indebtedness at any time outstanding shall be
Indebtedness that is not Permitted Seller Indebtedness.
(f) purchase money Indebtedness, including Capitalized Lease
Obligations; provided that (i) such Indebtedness is incurred in connection with
--------
a Capital Expenditure permitted by Section 6.05 hereof, (ii) is secured only by
Liens permitted by Section 6.01(e), (iii) does not exceed the cost to the
Borrower or its Subsidiary of the assets constructed or acquired with the
proceeds of such Indebtedness and (iv) is incurred within twelve (12) months
following the date of the completion or acquisition of the asset so constructed
or acquired;
(g) Intercompany Indebtedness of a Subsidiary to the Borrower or a
Wholly Owned Subsidiary, to the extent permitted by Sections 6.04(c) and (d)
hereof;
(h) other unsecured Indebtedness not in excess of $5,000,000 at any
time outstanding;
(i) Indebtedness incurred to refinance Indebtedness described in
clauses (e) and (f), provided, that (i) the unpaid balance is not increased,
--------
(ii) such refinancing Indebtedness is Subordinated Debt if (x) the Indebtedness
being refinanced is Subordinated Debt or (y) the Indebtedness being refinanced
is Permitted Seller Indebtedness, and (iii) if the Indebtedness being refinanced
is Subordinated Debt, (a) no mandatory payments of principal thereof are
required prior to the date that is one year after the Maturity Date, (b) the
final maturity thereof is not before the later of (I) one year after the
Maturity Date or (II) the final maturity date of the Subordinated Debt being
refinanced, (c) the terms thereof are not in any respect more restrictive than
the terms of the Subordinated Debt being refinanced and the subordination
provisions applicable thereto are at least as favorable to the Lenders as such
provisions applicable to the Subordinated Debt being refinanced and (d) cash
interest payments payable with respect thereto are payable at an interest rate
not materially higher than the interest rate applicable to the Indebtedness
being refinanced;
(j) Indebtedness of the Borrower or a Mortgage Banking Subsidiary
comprised of its obligation to repurchase mortgage loans pursuant to mortgage
loan purchase and sale agreements entered into in connection with Mortgage
Banking Activities;
(k) Melody Permitted Indebtedness; and
(l) Indebtedness of the Borrower comprised of a guaranty by Borrower
of (i) the Melody Seller Senior Notes and the Melody Seller Contingent Notes and
(ii) the obligations of WREAP under the Amended and Restated Westmark
Subordinated Credit Agreement, provided that in respect of clause (ii) such
guaranty is subordinated to prior payment in full of the Obligations on terms
satisfactory to the Agent and the Lenders, and such guaranty shall constitute
"Subordinated Debt" for all purposes hereof.
SECTION 6.03 RESTRICTED PAYMENTS. The Borrower shall not, and shall
-------------------
not permit any of its Subsidiaries to, declare, pay or make, or agree to
declare, pay or make, any Restricted Payment, except (a) dividends,
distributions or payments by any Subsidiary to the Borrower or a Wholly Owned
Subsidiary of the Borrower, (b) so long as no Default or Event of Default has
occurred and is continuing, dividends or distributions by any Subsidiary to the
Borrower and any other Person that is a stockholder or owner of another equity
interest in such Subsidiary, so long as, in the case of each such dividend and
distribution, the amounts thereof paid to the Borrower and such other Person are
in the same proportion as the respective contributions to the capital of such
Subsidiary made by the Borrower and such other Person, and (c) if no Default or
Event of Default shall exist, or as a result of the proposed declaration,
payment or other event would exist:
(i) the Borrower may declare and pay dividends on the CBCREG Capital
Stock to the extent necessary to enable Holdings to pay expenses of its
operations in the ordinary course of business, in an amount not to exceed
$50,000 in any year;
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
(ii) the Borrower may declare and pay dividends on the CBCREG Capital
Stock as follows:
(A) prior to December 31, 1999, the Borrower may declare and pay
dividends on the CBCREG Capital Stock to the extent necessary to permit
Holdings to pay dividends accrued on its Series A-1, Series A-2 and Series
A-3 Preferred Stock in the period from October 1, 1996 through the Fiscal
Quarter last ended prior to the date of such payment by the Borrower (and
not dividends accrued on such Preferred Stock in any period prior to
October 1, 1996), or interest with respect to accrued but unpaid dividends,
all in accordance with the certificates of designation with respect thereto
in effect on the Effective Date; and
(B) after December 31, 1999, the Borrower may declare and pay
dividends on the CBCREG Capital Stock to the extent necessary to permit
Holdings to pay any dividends accrued on its outstanding Series A-1, Series
A-2 and Series A-3 Preferred Stock in the period of four Fiscal Quarters
ended immediately prior to the date of such payment by the Borrower (and
not dividends accrued on such Preferred Stock in any prior period) that may
be declared by the Board of Directors of Holdings, or interest with respect
to accrued but unpaid dividends, all in accordance with the certificates of
designation with respect thereto in effect on the Effective Date;
provided, however, that the total amount of dividend and interest payments made
- -------- -------
by Borrower pursuant to clauses (ii)(A) and (ii)(B) does not exceed 50% of
Consolidated Net Income for the period commencing on the first day of the Fiscal
Quarter within which the Effective Date occurs and ending on the last day of the
last Fiscal Quarter ending prior to the date of declaration, taken as a single
accounting period; and
(iii) the Borrower may make Permitted Tax Payments to Holdings.
SECTION 6.04 INVESTMENTS. The Borrower shall not, and shall not
-----------
permit any of its Subsidiaries to, make or own any Investment in any Person,
except:
(a) Permitted Investments;
(b) Investments existing on the Effective Date and listed on Schedule
6.04;
(c) Investments by any Subsidiary in the Borrower, or by the Borrower
or any Subsidiary in any Wholly Owned Subsidiary that (i) has executed and
delivered to the Agent the Subsidiary Guaranty and the Subsidiary Security
Agreement, and (ii) is not subject to any Contractual Obligation that restricts
or limits the ability of such Subsidiary to pay dividends or make distributions
on its Capital Stock or otherwise transfer property to the Borrower or another
Subsidiary or to make loans or advances to the Borrower or repay Indebtedness
owing to the Borrower;
(d) the Borrower may make loans or advances for working capital
purposes to any of its Subsidiaries so long as (i) the aggregate amount of the
Indebtedness of such Subsidiary to the Borrower is less than the net worth of
such Subsidiary, (ii) such Indebtedness is incurred in the ordinary course of
business of the Borrower and such Subsidiary, (iii) such Indebtedness is
evidenced by a note or other instrument that is subject to a valid, perfected
first priority Lien in favor of the Lender, and (iv) the aggregate amount of
such Debt owing to the Borrower by all Subsidiaries of the Borrower is less than
$5,000,000;
(e) trade credit extended on usual and customary terms in the ordinary
course of business;
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
(f) so long as no Default or Event of Default shall have occurred and
be continuing at the time such Investment is made, Investments constituting
Permitted Acquisitions, up to an aggregate amount of such Investments not in
excess of $100,000,000;
(g) loans and advances to employees of the Borrower or its
Subsidiaries for travel, entertainment and relocation expenses, and advances of
commissions payable to employees, in each case in the ordinary course of
business in an aggregate amount for the Borrower and its Subsidiaries not to
exceed $50,000 at any one time outstanding;
(h) Investments by Mortgage Banking Subsidiaries comprised of (i)
commitments to make mortgage loans in connection with Mortgage Banking
Activities, (ii) mortgage loans made in connection with Mortgage Banking
Activities, and (iii) advances of payments of principal and interest on mortgage
loans originated in connection with Mortgage Banking Activities, made on terms
customary in the mortgage banking industry by the Borrower or a Mortgage Banking
Subsidiary in its capacity as servicer of such mortgage loans;
(i) Investments in Capital Stock of a Person, where such Investments
are conditioned upon the payment by such Person to the Borrower of a fee in
connection with the CBC Partners Program and the amount of such Investment does
not exceed the amount of such fee; and
(j) other Investments in an aggregate amount not to exceed $2,500,000.
SECTION 6.05 CAPITAL EXPENDITURES. The Borrower shall not, and shall
--------------------
not permit any of its Subsidiaries to, make or incur any Capital Expenditures in
any Fiscal Year, if, after giving effect thereto, the aggregate amount of all
Capital Expenditures made by Borrower and its Subsidiaries in such Fiscal Year
would exceed $10,000,000.
SECTION 6.06 FINANCIAL COVENANTS.
-------------------
(a) Leverage Ratio. The Borrower shall not permit, at any time, the
--------------
Leverage Ratio to be greater than 4.0 : 1.0.
(b) Interest Coverage Ratio. The Borrower shall not permit, on the
-----------------------
last day of any Fiscal Quarter, the Interest Coverage Ratio to be less than the
amount shown below opposite such Fiscal Quarter, or opposite the period in which
such Fiscal Quarter occurs:
<TABLE>
<CAPTION>
Period Interest Coverage Ratio
------ -----------------------
<S> <C>
October 1, 1996 to December 31, 1998 2.5:1.0
January 1, 1999 to December 31, 2001 3.0:1.0
</TABLE>
(c) Fixed Charges Coverage Ratio. The Borrower shall not permit, on
----------------------------
the last day of any Fiscal Quarter, the Fixed Charges Coverage Ratio to be less
than 1.0:1.0.
(d) Senior Loan Debt Service Coverage Ratio. The Borrower shall not
---------------------------------------
permit, at any time, the Senior Loan Debt Service Coverage Ratio to be less than
2.25:1.
SECTION 6.07 RESTRICTION ON FUNDAMENTAL CHANGES. The Borrower will
----------------------------------
not, and will not permit any of its Subsidiaries to, enter into any merger,
consolidation, reorganization or recapitalization, reclassify its Capital Stock,
liquidate, wind up or dissolve or sell, lease, transfer or otherwise dispose of,
in one
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
transaction or a series of transactions, all or substantially all of its
or their business or assets, whether now owned or hereafter acquired, except
that, as long as no Default or Event of Default shall exist after giving effect
to such transaction, any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower or any other Wholly Owned Subsidiary or
be liquidated, wound up or dissolved, or all or substantially all of its
business or assets may be sold, leased, transferred, or otherwise disposed of,
in one transaction or a series of transactions in accordance with Section 6.08,
if (a) Consolidated Net Worth after giving effect to such transaction shall not
be less than Consolidated Net Worth after giving effect to such transaction, (b)
in the case of a merger or consolidation, such transaction occurs in connection
with a Permitted Acquisition, and (c) in the case of a merger or consolidation,
the surviving corporation shall be the Borrower or a Wholly Owned Subsidiary of
the Borrower.
SECTION 6.08 ASSET DISPOSITIONS.
------------------
(a) The Borrower will not, and will not permit any of its Subsidiaries
to, make or agree to make any Asset Disposition, including, without limitation,
any Sale-Leaseback Transaction, unless (i) the Borrower applies any Net Cash
Proceeds thereof to repay obligations under this Agreement as and to the extent
provided in Section 2.05(b) and pledges any Non-Cash Proceeds thereof to secure
obligations under this Agreement as provided in Section 5.11(b) and (ii) in the
case of an Asset Disposition involving any Collateral, such transaction
satisfies the conditions for release of such Collateral under the respective
Collateral Documents (which may, among other possible conditions, require the
prior written consent of the Agent) or the terms of such transaction shall have
been approved in advance by the Required Lenders; provided that the Borrower
--------
will not sell or otherwise dispose of Real Property subject to a California
Mortgage unless, in addition to satisfaction of the requirement of clauses (i)
through (ii) above, the Lenders shall have been furnished with an appraisal, in
form and substance satisfactory to the Required Lenders and from an independent
appraiser satisfactory to the Required Lenders, of the fair value of Collateral
for the Mortgage Term Loan remaining after giving effect to such sale or other
disposition indicating that such fair value is at least equal to one hundred
twenty-five percent (125%) of the principal amount of the Mortgage Term Loan
remaining unpaid after giving effect to application of the proceeds of such sale
or other disposition pursuant to Section 2.05(b)(iii) hereof.
(b) The Borrower in any event will not, and will not permit any of its
Subsidiaries to, directly or indirectly, sell with recourse, discount (except in
the ordinary course of business consistent with past practice to compromise
disputes with customers), or otherwise sell for less than the face value thereof
or for consideration other than cash, any of their respective accounts
receivable.
(c) As promptly as practicable in connection with any Asset
Disposition, the Borrower shall deliver to the Agent a certificate, duly
executed by the Responsible Officer of the Borrower, setting forth in detail a
description of such Asset Disposition or other sale or disposition, copies of
any related agreements, the date or scheduled date of such Asset Disposition or
other sale or disposition, the determination of the Net Cash Proceeds of such
Asset Disposition or other sale or disposition, the description of any Non-Cash
Proceeds thereof and the Collateral arrangements with respect thereto and such
other documents and information as is necessary to demonstrate compliance with
this Section 6.08.
SECTION 6.09 TRANSACTIONS WITH AFFILIATES. The Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into any transaction (including the purchase, sale, lease, or exchange of any
property or the rendering of any service) with any Affiliate of the Borrower,
unless (a) such transaction is not otherwise prohibited by this Agreement, (b)
such transaction is in the ordinary course of business and (c) such transaction
is on fair and reasonable terms no less favorable to the Borrower or its
Subsidiary, as the case may be, than those terms which might be obtained at the
time in a comparable arm's length transaction with a Person who is not an
Affiliate or, if such transaction is not one which by its nature could be
obtained from such other Person, is on fair and reasonable terms and was
negotiated in good faith on an arm's length basis; provided that this Section
6.09 shall not restrict (x) dividends, distributions and other
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
payments and transfers on account of any shares of Capital Stock of the Borrower
or any Subsidiary of the Borrower, (y) payments pursuant to the terms of any
Contractual Obligations in effect on the date hereof listed on Schedule 6.09
hereto, and (z) the grant of capital stock of Holdings or options or rights to
purchase such stock, the sale of such stock and the payment of reasonable
compensation to employees, directors and independent contractors pursuant to an
overall compensation program.
SECTION 6.10 PAYMENTS WITH RESPECT TO SUBORDINATED DEBT. The
Borrower will not, and will not permit any Subsidiary to, voluntarily purchase,
acquire, redeem or retire, make any payment or distribution on account of
principal of or, if an Event of Default has occurred and is continuing, interest
on any Subordinated Debt; provided, however, that the Borrower shall not pay
interest in cash at a rate in excess of the Applicable LIBOR Based Rate (as
defined in the Amended and Restated Senior Subordinated Credit Agreement);
provided, further, that if no Event of Default has occurred or is continuing,
this Section 6.10 shall not prohibit repayments in connection with refinancings
of Subordinated Debt permitted under Section 6.02(i).
SECTION 6.11 ERISA. The Borrower will not, and will not permit any
-----
member of the Controlled Group to:
(a) engage in any transaction which it knows or has reason to know
could subject any member of the Controlled Group to either a civil penalty in
excess of $100,000 assessed pursuant to Section 502(i) of ERISA or a tax imposed
by Section 4975 of the Internal Revenue Code;
(b) permit the present value of all benefits on a termination basis
(whether or not vested) under all Plans subject to Title IV of ERISA to exceed
the current value of the assets of such Plans allocable to such benefits by an
amount in excess of $100,000;
(c) fail to make any payments aggregating in excess of $100,000 to any
Multiemployer Plan that the Borrower or any of its ERISA Affiliates may be
required to make under any agreement relating to such Multiemployer Plan, or any
law pertaining thereto;
(d) voluntarily terminate any one or more of their Plans, if such
termination would result in the imposition of Liens on the Borrower or any
member of the Controlled Group under Section 4068 of ERISA securing a liability
exceeding $100,000;
(e) fail to make required contributions to any Plan subject to Section
412(n) of the code that with the passage of time reasonably could result in
imposition of a Lien upon the assets of the Borrower or any member of its
Controlled Group securing a liability in excess of $100,000;
(f) create or suffer to exist any liability with respect to Plans that
are welfare plans within the meaning of Section 3(1) of ERISA if, after
immediately giving effect to such liability, the aggregate annualized cost with
respect to such Plans for post retirement benefits for any fiscal year would
exceed $100,000;
(g) adopt an amendment to any Plan with respect to which security in
an amount in excess of $100,000 is required under Section 307 of ERISA; or
(h) enter into any arrangement or agreement pursuant to which the
Borrower or any ERISA Affiliate is treated as a member of an affiliated service
group (as defined in Code Section 414(m)) of which any shareholder of Holdings
is a member.
For purposes of this Section 6.11, the term "Controlled Group" shall
include any ERISA Affiliates of the Borrower.
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
SECTION 6.12 AMENDMENTS OF OR WAIVERS UNDER SUBORDINATED DEBT
------------------------------------------------
DOCUMENTS. The Borrower will not, and will not permit any Subsidiary to, amend
- ---------
or supplement the Senior Subordinated Credit Agreement, or waive or otherwise
relinquish any of its rights or causes of action under or arising out of the
Senior Subordinated Credit Agreement, with respect to terms and provisions
regarding interest rates, principal or interest payment amounts, principal or
interest payment dates, subordination, representations by or covenants of the
Borrower, or events of default, or other material provisions, without in each
case obtaining the prior written consent of the Required Lenders.
SECTION 6.13 ISSUANCE OF CAPITAL STOCK. No Subsidiary shall issue
-------------------------
any of its Capital Stock to any Person other than the Borrower or a Wholly Owned
Subsidiary.
SECTION 6.14 EVENT OF ILLEGALITY UNDER THE SENIOR SUBORDINATED CREDIT
--------------------------------------------------------
AGREEMENT. The Borrower shall give the Lender immediate notice of the
- ---------
occurrence of an Event of Illegality (as such term is defined in the Senior
Subordinated Credit Agreement) and shall not make any payments on Subordinated
Debt upon the occurrence of an Event of Illegality without the prior written
consent of the Lender.
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
ARTICLE VII
EVENTS OF DEFAULT
-----------------
SECTION 7.01 EVENTS OF DEFAULT. The occurrence of any one or more of
-----------------
the following events, acts or occurrences shall constitute an event of default
(an "Event of Default") hereunder:
(a) Failure to Make Payments. The Borrower shall fail to pay when due
------------------------
any principal (whether at stated maturity, upon acceleration, by notice of or
other requirement of prepayment, by operation of Section 2.05 or otherwise) of
or interest on either of the Term Loans or any Revolving Loan, or shall fail to
pay within three (3) Business Days after the Lender notifies the Borrower that
such amount has become due any fees, costs, expenses or other amounts payable
hereunder or under the Notes or any other Loan Documents;
(b) Default in Other Agreements. The Borrower or any of its
---------------------------
Subsidiaries (i) shall default in the payment (whether at scheduled maturity,
required prepayment, upon demand or otherwise), beyond any period of grace
provided therefor, of any principal of or interest on (A) the Obligations (as
therein defined) under the Senior Subordinated Credit Agreement or (B) any other
Indebtedness in a principal amount in excess of $500,000, or (ii) shall commit
any breach of or default under any other term of any agreement or indenture or
instrument governing or evidencing Subordinated Debt or any agreement or
indenture or instrument relating to any such other Indebtedness, if the effect
of such breach or default is to cause, or to permit the holder or holders of the
Subordinated Debt or other Indebtedness or a trustee on behalf of such holder or
holders) to cause, the Subordinated Debt or any such other Indebtedness to
become or be declared due and payable prior to its stated maturity;
(c) Breach of Certain Covenants. The Borrower shall fail duly and
---------------------------
punctually to perform, comply with or observe any agreement, covenant,
obligation to be performed, observed or complied with by it pursuant to Section
2.01(g), Section 5.01(e), Section 5.03 (insofar as such Section requires the
preservation of the corporate existence of the Borrower), Section 5.11, or 5.13,
or any Section of Article VI hereof;
(d) Breach of Warranty. Any representation or warranty or
------------------
certification made or furnished (before, on or after the Effective Date) by the
Borrower under this Agreement (before or after giving effect to the amendment
and restatement effected hereby), the Collateral Documents, the other Loan
Documents, the Acquisition Documents or any agreement, instrument or document
contemplated hereby and thereby shall, at any time, prove to have been false or
incorrect in any material respect when made;
(e) Other Defaults Under Agreement and Other Loan Documents. The
-------------------------------------------------------
Borrower or any Subsidiary shall fail duly and punctually to perform, comply
with or observe any covenant or obligation to be performed, observed or complied
with by it under this Agreement (other than those provisions referred to in
subsections (a) and (c) above) or under the Collateral Documents or the other
Loan Documents and such failure shall not have been remedied or waived within
thirty (30) days after receipt of notice thereof from the Lender;
(f) Involuntary Bankruptcy; Appointment of Receiver, Etc. There shall
-----------------------------------------------------
be commenced against the Borrower or any of its Subsidiaries an involuntary case
seeking the liquidation or reorganization of the Borrower or any of its
Subsidiaries under Chapter 7 or Chapter 11, respectively, of the federal
Bankruptcy Code or any similar proceeding under any other Applicable Law or an
involuntary case or proceeding seeking the appointment of a receiver,
liquidator, sequestrator, custodian, trustee or other officer having similar
powers of the Borrower or any of its Subsidiaries to take possession of all or a
substantial portion of the property or to operate all or a substantial portion
of the business of the Borrower or any of its Subsidiaries, and
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
any of the following events occur: (i) the Borrower or any of its Subsidiaries
consents to the institution of the involuntary case or proceeding; (ii) the
petition commencing the involuntary case or proceeding is not timely
controverted; (iii) the petition commencing the involuntary case or proceeding
remains undismissed and unstayed for a period of sixty (60) days (provided,
--------
however, that, during the pendency of such period, the Lender shall be relieved
- -------
of its Commitments); or (iv) an order for relief shall have been issued or
entered therein; or
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower
---------------------------------------------------
or any of its Subsidiaries shall institute a voluntary case seeking liquidation
or reorganization under Chapter 7 or Chapter 11, respectively, of the federal
Bankruptcy Code; or the Borrower or any of its Subsidiaries shall file a
petition, answer, or complaint or shall otherwise institute any similar
proceeding under any other Applicable Law, or shall consent thereto; or the
Borrower or any of its Subsidiaries shall consent to the conversion of an
involuntary case to a voluntary case; or the Borrower or any of its Subsidiaries
shall file a petition, answer a complaint or otherwise institute any proceeding
seeking, or shall consent or acquiesce to the appointment of, a receiver,
liquidator, sequestrator, custodian, trustee or other officer with similar
powers to take possession of all or a substantial portion of the property or to
operate all or a substantial portion of the business of the Borrower or any of
its Subsidiaries; or the Borrower or any of its Subsidiaries shall make a
general assignment for the benefit of creditors; or the Borrower or any of its
Subsidiaries shall generally not pay its debts as they become due; or the Board
of Directors of Borrower or any of its Subsidiaries (or any committee thereof)
adopts any resolution or otherwise authorizes action to approve any of the
foregoing;
(h) Judgments and Attachments. The Borrower or any of its
-------------------------
Subsidiaries shall suffer any money judgments, writs, or warrants of attachment,
or similar processes which individually or in the aggregate involve an amount in
excess of $100,000 at any time unpaid and shall not discharge, vacate, bond, or
stay the same within a period of thirty (30) days or, in any event, within ten
(10) days of the date of any proposed sale thereunder; or a judgment creditor
shall obtain possession of any material portion of the assets of the Borrower or
any of its Subsidiaries by any means, including, without limitation, levy,
distraint, replevin or self-help;
(i) Change of Control. A Change of Control shall occur at any time;
-----------------
(j) ERISA Liabilities.
-----------------
(i) Any Termination Event occurs which, when taken together with all
other Termination Events that have occurred, can reasonably be expected to
result in a liability of the Borrower or any of its ERISA Affiliates in excess
of $100,000; or
(ii) The Borrower or any ERISA Affiliate shall have committed a
failure described in Section 302(f)(1) of ERISA and the amount determined under
Section 302(f)(3) of ERISA is at least $100,000; or
(iii) Failure to make full payment (including all required
installments) when due of all amounts which, under the provisions of any Plan or
Multiemployer Plan or applicable law, the Borrower or any member of its
Controlled Group is required to pay as contributions thereto, which failure
would result in a liability to the Borrower or its Subsidiaries exceeding
$100,000; or
(iv) The Borrower or any ERISA Affiliate shall have incurred any
accumulated funding deficiency in excess of $100,000, whether or not waived,
with respect to any Plan; or
(v) The Borrower or any of its ERISA Affiliates as an employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from such
Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have
notified such withdrawing employer that such employer
Third Amended and Restated
Senior Secured Credit Agreement
71
<PAGE>
has incurred a withdrawal liability in an annual amount exceeding $100,000 or
the aggregate amount of such withdrawal liabilities for which the Borrower and
its Subsidiaries together shall have received such notices exceeds $100,000; or
(vi) The Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan that such plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans which are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Plan for the respective plan
years which include the Closing Date by an amount exceeding $100,000; or
(vii) Any Lien on the assets of the Borrower or any of its ERISA
Affiliates under the Pension Protection Act securing a liability exceeding
$100,000; or
(viii) Borrower or any ERISA Affiliate becomes, or is reasonably
expected to become, subject to any liability with respect to the Sears Plans (as
defined below) not covered by the indemnification set forth in Section 11.1(a)
of the Stock Purchase Agreement which liability (together with the liability
described in (x) below) is in excess of $100,000; or
(ix) Borrower or any ERISA Affiliate becomes subject to any liability
with respect to the Sears Plans (as defined below) covered by the
indemnification set forth in Section 11.1(a) of the Stock Purchase Agreement,
which liability (together with the liability described in (ix) above) is in
excess of $100,000 and Borrower has been unable to collect on the
indemnification within one hundred twenty (120) days after it first becomes
subject to such liability; or
(x) Any one of the events described in (i) through (ix) above occurs
(without application of any required level of liability), which taken together
with all other such events that have occurred can reasonably be expected to
result in a liability of Borrower or any of its ERISA Affiliates in excess of
$500,000.
For purposes of clauses (ix) and (x) above, the term "Sears Plan"
shall mean any employee benefit plan (as defined in Section 3(3) of ERISA)
sponsored or maintained by, or to which contributions have ever been made by,
any organization other than the Borrower which was, prior to the Closing Date
(as defined in the Stock Purchase Agreement), a member of a group described in
Code Sections 414(b), (c), (m) or (o), of which the Borrower was a member prior
to the Closing Date (as defined in the Stock Purchase Agreement);
(k) Failure of Subordination. Any agreement to subordinate other
------------------------
Indebtedness in right of payment to the Obligations, at any time and for any
reason other than satisfaction in full of all of the Obligations or satisfaction
in full of the subordinated Indebtedness upon the stated maturity thereof,
whether incorporated in the Intercreditor Agreement or in the indenture or
agreement governing, or instrument evidencing, such subordinated Indebtedness,
ceases to be in full force and effect or is declared to be null and void; or any
holder of subordinated Indebtedness repudiates or disavows such subordination or
denies that it has any further liability or obligation under such subordination
agreement or gives notice to such effect;
(1) Termination of Collateral Documents or Loan Documents, Etc. Any
----------------------------------------------------------
of the Collateral Documents or the Guaranties or any other Loan Document, or
any material provision in any of them, shall cease to be in full force and
effect for any reason other than (a) a release or termination thereof upon the
full payment and satisfaction of the Indebtedness due hereunder and under the
Notes to the Lenders or (b) upon the written consent of the Required Lenders, or
any of Holdings, the Borrower or any of its Subsidiaries shall contest or
purport to repudiate or disavow any of the Collateral Documents or Guaranties to
which it is a party;
Third Amended and Restated
Senior Secured Credit Agreement
72
<PAGE>
(m) Material Adverse Change. There shall occur after the Effective
-----------------------
Date a material adverse change in the business, assets, prospects, results of
operation or financial condition of the Borrower or the Borrower and its
Subsidiaries taken as a whole.
SECTION 7.02 REMEDIES. Upon the occurrence of an Event of Default:
--------
(a) If an Event of Default occurs under Section 7.01(f) or (g), then
the Revolving Credit Facility A Commitment and the Revolving Credit Facility B
Commitment shall automatically and immediately terminate, and the obligation of
the Lenders to make any Revolving Loan or issue any Letter of Credit hereunder
thereupon shall cease, and the unpaid principal amount of, and accrued interest
on, both of the Term Loans and all of the Revolving Loans shall automatically
become immediately due and payable, without presentment, demand, protest, notice
or other requirements of any kind, all of which are hereby expressly waived by
the Borrower, and the Borrower shall be unconditionally obligated to deposit
with the Agent cash collateral in an amount equal to any and all existing Letter
of Credit Liability.
(b) If an Event of Default occurs under Section 7.01 hereof, other
than under Section 7.01(f) or (g), the Agent may or upon written request of the
Required Lenders shall, by written notice to the Borrower, declare that the
Revolving Credit Facility A Commitment and the Revolving Credit Facility B
Commitment are terminated, whereupon the obligation of any Lender to make any
Revolving Loan or issue any Letter of Credit hereunder shall cease, and/or
declare the unpaid principal amount of the Term Loans and all of the Revolving
Loans, or any of them individually, to be, and the same shall thereupon become,
due and payable together with any and all accrued interest thereon, without
presentment, demand, protest, any additional notice whatsoever or other
requirements of any kind, all of which are hereby expressly waived by the
Borrower, except as otherwise provided in this Agreement or by Applicable Law,
and the Borrower shall be unconditionally obligated to deposit with the Agent
cash collateral in an amount equal to any and all existing Letter of Credit
Liability.
Third Amended and Restated
Senior Secured Credit Agreement
73
<PAGE>
ARTICLE VIII
THE AGENT AND THE LENDERS
-------------------------
SECTION 8.01 AUTHORIZATION AND ACTION.
------------------------
(a) Each Lender and each Issuing Bank hereby irrevocably appoints and
authorizes the Agent to act as its agent hereunder and under the other Loan
Documents to execute and deliver or accept, on its behalf, the other Loan
Documents and any other documents, instruments and agreements related thereto or
hereto to take such action on its behalf under the provisions hereof and thereof
and to exercise such rights, remedies, powers and privileges hereunder and
thereunder as are delegated to the Agent by the terms hereof and thereof,
together with such rights, remedies, powers and privileges as are reasonably
incidental thereto.
(b) Except for any matters expressly subject to the consent or
approval of the Agent under the Loan Documents, the Agent shall not, without the
prior approval of the Required Lenders (or, as provided in Section 9.03, all of
the Lenders), consent to any departure by the Borrower from the terms of, waive
any default or otherwise amend this Agreement or any other Loan Documents. The
Agent will, to the extent practicable under the circumstances, consult with the
other Lenders prior to taking action on their behalf under the Loan Documents
and in acting as their Agent thereunder. The Agent will not take any action
contrary to the written direction of Required Lenders, will take any lawful
action not contrary to the provisions of the Loan Documents prescribed in
written instructions of the Required Lenders (or, as provided in Section 9.03,
all the Lenders) and, as to any matters not expressly provided for by the Loan
Documents (including enforcement or collection), may decline to take any action,
except upon the written instructions of the Required Lenders (or, as provided in
Section 9.03, all the Lenders). If such instructions are requested reasonably
promptly, the Agent shall be absolutely entitled to refrain from taking any
action and shall not have any liability to the Borrower, any Affiliate of the
Borrower, any Subsidiary of the Borrower, or any Lender for refraining from
taking any action until it shall have received such instructions; provided,
--------
however, that the Agent shall in no event be required to take or refrain from
- -------
taking any action that would, in the Agent's opinion, be inconsistent with the
Agent's practice in similar situations when acting solely for its own account or
be contrary to the provisions of any Loan Document or Applicable Law.
(c) The Agent shall not have any duties or responsibilities except
those expressly set forth in the Loan Documents. No duty to act, or refrain
from acting, and no other obligation whatsoever, shall be implied on the basis
of any right, power or authority granted to the Agent or shall become effective
in the event of any temporary or partial exercise of such rights, power or
authority. The Agent shall not be required to exercise any right, power, remedy
or privilege granted to it in any Loan Document, to ascertain or inquire whether
any Default or Event of Default has occurred and is continuing, or to inspect
the property (including the books and records) of the Borrower or any Affiliate
of the Borrower, or any Subsidiary of the Borrower, or to take any other
affirmative action, except as provided in Section 7.01, or unless requested or
directed to do so in accordance with the provisions of Section 8.01(b).
(d) The duties of the Agent shall be mechanical and administrative in
nature. The Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any other Lender. Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower, any
Affiliate or the Borrower, or any Subsidiary of the Borrower that may come into
the possession of the Agent or any of its Affiliates.
SECTION 8.02 EXCULPATION; AGENT'S RELIANCE; ETC. Neither the Agent
----------------------------------
nor any of its directors, officers, agents, attorneys or employees shall be
liable to the Borrower, any Affiliate of the
Third Amended and Restated
Senior Secured Credit Agreement
74
<PAGE>
Borrower, any Subsidiary of the Borrower, or any other Lender Party for any
action taken or omitted to be taken by it or them under or in connection with
any Loan Document (a) with the consent or at the request of the Required Lenders
(or, as provided in Section 9.03, all the Lenders), or (b) in any other
circumstances, except for its or their own gross negligence or wilful misconduct
as determined by a final judgment of a court of competent jurisdiction. The
Agent makes no warranty or representation to any other Lender and shall not be
responsible to any other Lender for any recitals, statements, warranties or
representations made in, or in connection with, any Loan Document or for the
execution, effectiveness, genuineness, validity, enforceability, collectibility,
or sufficiency of any Loan Document or any financial information, opinions of
counsel or other documents executed and delivered pursuant thereto, or for the
financial condition of the Borrower, any Affiliate of the Borrower, or any
Subsidiary of the Borrower. The Agent shall not be responsible to any Lender for
the satisfaction of any condition specified in Article III. The Agent may treat
the payee of any Note as the holder thereof until the Agent receives the related
assignment and acceptance documentation signed by such holder and the assignee
and in form satisfactory to the Agent. The Agent shall be entitled to rely upon
any notice, certificate or other writing believed by the Agent to be genuine and
correct and to have been signed or sent by the proper Person or Persons. The
Agent shall be entitled to consult with legal counsel, independent public
accountants and other experts selected by the Agent and to act in reliance upon
the advice of such counsel and other experts concerning its actions and duties
hereunder.
SECTION 8.03 AGENT AND AFFILIATES. The Agent shall in its capacity
--------------------
as a Lender have the same rights, powers and obligations under this Agreement
and the other Loan Documents as any other Lender and may exercise or refrain
from exercising the same as though it were not the Agent, including the right to
give or deny consent to any action requiring consent or direction of the
Required Lenders or all the Lenders. The Agent and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower, any Affiliate of the
Borrower, and any Subsidiary of the Borrower, all as if the Agent were not the
Agent and without any duty to account therefor to the Lenders. The Agent shall
be entitled to receive from the Borrower its fees or portions thereof in
connection with this transaction without any liability to account therefor to
any other Lender, except as the Agent and such Lender may have expressly agreed.
SECTION 8.04 LENDER CREDIT DECISION. Each Lender acknowledges that
----------------------
it has, independently and without reliance upon the Agent or any other Lender
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents.
Third Amended and Restated
Senior Secured Credit Agreement
75
<PAGE>
SECTION 8.05 INDEMNIFICATION.
----------------
The Agent shall in no event be required to take any action under the
Loan Documents or in relation thereto unless it shall first be indemnified to
its satisfaction by the other Lenders against any and all liability and expense
that it may incur by reason of taking any such action. Each Lender agrees to
indemnify and hold the Agent harmless (to the extent not promptly paid or
reimbursed by the Borrower, ratably according to their respective Commitments,
from and against any and all (a) costs, expenses and other amounts incurred by
the Agent otherwise payable by the Borrower pursuant to Section 9.01 and (b)
Indemnified Liabilities that may be imposed on, incurred by, or asserted against
the Agent, except to the extent they are finally adjudged by a court of
competent jurisdiction to have directly resulted from the gross negligence or
willful misconduct of the Agent.
SECTION 8.06 SUCCESSOR AGENT. The Agent may resign at any time as
---------------
Agent under the Loan Documents by giving written notice thereof to the Lenders
and the Borrower and the Agent may be removed at any time with or without cause
by written action of all Lenders (other than the Agent) delivered to the Agent.
Upon any such resignation or removal, the Required Lenders shall have the right
to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's notice of resignation or the
removal of the Agent, then the retiring or removed Agent may, on behalf of the
other Lender Parties, appoint a successor Agent, which shall be a financial
institution having a combined capital and surplus of at least $100,000,000, or a
branch or agency of such a financial institution, organized or licensed to do
business under the laws of the United States of America or any State thereof.
Upon the acceptance of any appointment as the Agent by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged of its duties and obligations under the Loan
Documents. In making such appointment the Agent shall consult with the
Borrower; provided, however, that the Agent shall not be required to obtain any
-------- -------
consent by the Borrower with respect to such successor Agent. Upon the
acceptance of any appointment as the Agent by a successor Agent, such successor
Agent shall give notice to the Borrower of its appointment as Agent. Upon any
retiring Agent's resignation or removal, the provisions of this Article VIII (as
well as other expense reimbursement, indemnification and exculpatory provisions
in the other Loan Documents) shall continue in effect for its benefit as to any
actions taken or omitted by it while it was Agent.
SECTION 8.07 EXCESS PAYMENTS. If any Lender shall obtain any payment
---------------
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Obligations in excess of its pro rata share of
payments and other recoveries on account of such Obligations obtained by all
Lenders, such Lender shall purchase from the other Lenders such participations
in such Obligations held by them as shall be necessary to cause such purchasing
Lender to share the excess payment or other recovery ratably with each of the
other Lenders; provided, however, that if all or any portion of the excess
-------- -------
payment or other recovery is thereafter recovered from such purchasing Lender,
the purchase shall be rescinded and the purchase price restored to such Lender
to the extent of such recovery, but without interest. The Borrower agrees that
any Lender so purchasing a participation from another Lender pursuant to this
Section 8.07 may, to the fullest extent permitted by Applicable Law and by
Section 9.11 hereto, exercise all of its rights of payment (including setoff)
with respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
SECTION 8.08 LENDERS.
-------
The provisions of this Article VIII are solely for the benefit of the
Agent and the other Lenders and the Borrower shall not have any rights to rely
on or enforce any of the provisions hereof. In performing its functions and
duties under the Loan Documents, the Agent shall act solely as agent of the
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for the Borrower.
Third Amended and Restated
Senior Secured Credit Agreement
76
<PAGE>
SECTION 8.09 COLLATERAL AND GUARANTY MATTERS.
-------------------------------
(a) Except as specifically otherwise provided in any of the Collateral
Documents, the Agent is hereby authorized on behalf of all of the Lenders,
without assumption of any duty or obligation in respect of and without the
necessity of any notice to or further consent from any other Lender, to take any
action with respect to any Collateral or Collateral Documents that may be
necessary to perfect and maintain perfected the Agent's Liens upon the
Collateral.
(b) The Lenders hereby irrevocably authorize the Agent, in its
discretion, to release any Lien held by the Agent upon any Collateral (i) from
and after the day of termination of any Collateral Document pursuant to the
terms thereof; (ii) constituting property being sold or disposed of if the
Borrower certifies to the Agent that the sale or disposition is permitted under
the relevant Collateral Document and this Agreement (and the Agent may rely
conclusively on any such certificate, without further inquiry, unless notified
to the contrary by the Required Lenders); or (iii) approved, authorized or
ratified in writing by all Lender Parties; provided, however, that (x) the Agent
-------- -------
shall not be required to execute any such documents on terms that create any
obligation or entail any consequence other than the release of such Liens
without recourse or warranty, and (y) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of
the Borrower in respect of) all assets retained by the Borrower/Borrowers,
including the proceeds of any Asset Disposition, all of which shall continue to
constitute part of the Collateral. Upon request by the Agent at any time, the
other Lender Parties will confirm in writing the Agent's authority to release
particular types or items of Collateral pursuant to this Section 8.09(b).
(c) The Agent shall have no obligation whatsoever to any other Lender
or other Person to assure that the Collateral exists or is owned by the Borrower
or (except as otherwise expressly required by the Collateral Documents) is cared
for, protected or insured, or that the Liens of the Agent thereunder have been
properly created, perfected, protected or enforced or are entitled to any
particular priority.
(d) Except as otherwise provided in the Loan Documents, the Agent may
act in any manner it may deem appropriate in respect of the Collateral, in its
discretion, given the Agent's own interest in the Collateral as a Lender, and
the Agent shall have no duty or liability whatsoever with respect thereto to any
other Lender.
(e) Each Lender hereby approves the form of the other Loan Documents
attached as exhibits to this Agreement and hereby authorizes the Agent on its
behalf to accept from Holdings, the Borrower and the Subsidiary Guarantors and
execute and deliver as Agent, the other Loan Documents in substantially the form
of such exhibits, with such changes, additions or deletions as the Agent, in its
discretion, may approve as necessary or appropriate, such approval to be
conclusively evidenced by the Agent's acceptance or execution thereof. Each
Lender also authorizes the Agent to accept, or execute and deliver, such
additional documents (including financing statements, opinions, certificates and
other documents in form and substance satisfactory to the Agent, in its
discretion) in connection with the closing pursuant to Section 3.01, or any
subsequent closing for the pledge of any other Collateral, or any additional
Guaranties as the Agent, in its discretion, may approve, such approval to be
conclusively evidenced by the Agent's acceptance or execution thereof.
SECTION 8.10 PAYMENTS; AVAILABILITY OF FUNDS; CERTAIN NOTICES. If
------------------------------------------------
the Agent shall fail to deliver to any other Lender its share of any payment
received from the Borrower as and when required under Article II hereof, the
Agent shall pay to such Lender its share of such payment together with interest
on such amount at the Federal Funds rate, for each day from the date such amount
was required to be paid to such Lender until the date the Agent pays such amount
to such Lender.
Third Amended and Restated
Senior Secured Credit Agreement
77
<PAGE>
SECTION 8.11 OBLIGATIONS OF LENDER PARTIES SEVERAL; ENFORCEMENT BY
-----------------------------------------------------
THE AGENT.
- ---------
(a) Each Lender's obligations hereunder are several, and not joint or
joint and several. The failure of any Lender to make any Loan or otherwise to
perform its obligations hereunder will not increase the obligations of any other
Lender. Notwithstanding the foregoing, any Lender may assume, but shall have no
obligation to any Person to assume, any non-performing Lender's obligation to
make a Loan. Nothing contained in this Agreement and no action taken by the
Agent or any other Lender pursuant to this Agreement shall be deemed to
constitute the Agent and any other Lender to be a partnership, an association, a
joint venture or any other kind of entity.
(b) Each Lender agrees that, except with the prior written consent of
the Agent or as provided in Section 9.11, no Lender shall have any right
individually to realize upon the Collateral or otherwise enforce any Loan
Document or any provision thereof, or make demand thereunder, it being agreed
that such rights and remedies may only be exercised by the Agent for the ratable
benefit of the Lenders upon the terms of this Agreement.
Third Amended and Restated
Senior Secured Credit Agreement
78
<PAGE>
ARTICLE IX
MISCELLANEOUS
-------------
SECTION 9.01 EXPENSES. The Borrower agrees to pay on demand:
--------
(a) the reasonable fees, expenses and disbursements of counsel to the
Agent in connection with the negotiation, preparation, execution and delivery
and administration of this Agreement and all other Loan Documents and any
amendments, modifications and waivers hereof or thereto;
(b) all other actual and reasonable out-of-pocket expenses incurred by
the Agent in connection with the negotiation, preparation, execution, delivery
and administration of this Agreement and all other Loan Documents and any
amendments, modifications and waivers hereto or thereto, and the making of the
Loans hereunder; and
(c) all costs and expenses (including reasonable attorneys' fees and
disbursements and costs of settlement) incurred by the Agent in any workout,
restructuring or similar arrangements or after an Event of Default in connection
with the protection, preservation, exercise or enforcement of any of the terms
hereof or of its rights hereunder or under the Notes, the Collateral Documents
and all other Loan Documents and instruments contemplated hereby and thereby;
provided, however, that, without impairing or otherwise affecting provisions in
- -------- -------
the California Mortgages, this Section 9.01 shall not in any event extend to or
include any costs and expenses incurred by the Agent that are included in the
Specified Mortgage Loan Obligations.
SECTION 9.02 INDEMNITY.
---------
(a) In addition to the payment of expenses pursuant to Section 9.01
hereof, the Borrower agrees to indemnify, defend and hold harmless the Agent and
each Lender and any holder of any interest in the Notes and the officers,
directors, employees and agents of the Agent and each Lender and such holders
(the "Indemnitees") from and against (i) any and all transfer taxes, documentary
taxes, assessments or charges made by any Governmental Authority by reason of
the execution and delivery of this Agreement and the other Loan Documents or the
making of the Term Loans or the Revolving Loans, and (ii) any and all
liabilities, losses, damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection with any
investigative, administrative or judicial proceeding, whether or not such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against such Indemnitee, in any manner relating to or
arising out of or in connection with the making of the Senior Term Loan or the
Revolving Loans, this Agreement and all other Loan Documents (other than the
California Mortgages) or the use or intended use of the proceeds of the Senior
Term Loan and the Revolving Loans (the "Indemnified Liabilities"), provided,
--------
however, that the Borrower shall have no obligation hereunder with respect to
- -------
any of the Indemnified Liabilities arising from the gross negligence or willful
misconduct of any lndemnitee.
(b) Each Indemnitee will promptly notify the Borrower of each event of
which it has knowledge which may give rise to a claim under the indemnification
provisions of this Section 9.02, provided that the failure to so notify the
--------
Borrower shall in no way impair the Borrower's obligations under this Section
9.02. If any investigative, judicial or administrative proceeding arising from
any of the foregoing is brought against any Indemnitee indemnified or intended
to be indemnified pursuant to this Section 9.02, the Borrower, to the extent and
in the manner directed by the Indemnitee, will resist and defend such action,
suit, or proceeding or cause the same to be resisted and defended by counsel
designated by the Borrower (which counsel shall be satisfactory to the
Indemnitee), provided that if Borrower shall provide the Indemnitee with
--------
Third Amended and Restated
Senior Secured Credit Agreement
79
<PAGE>
adequate security for its indemnity obligations in form reasonably satisfactory
to Indemnitee the Borrower may direct the manner in which such action, suit or
proceeding is resisted or defended. Each Indemnitee will use its best efforts
to cooperate in the defense of any such action, writ, or proceeding. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in the
preceding provisions may be unenforceable because it is violative of any law or
public policy, the Borrower shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under Applicable Law.
(c) The obligations of the Borrower under this Section 9.02 shall
survive the termination of this Agreement and the discharge of the Borrower's
other obligations hereunder.
(d) Notwithstanding the foregoing (but without impairing or otherwise
affecting provisions in the California Mortgages), this Section 9.02 shall not
in any event extend to or include any liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
that are included in the Specified Mortgage Loan Obligations.
SECTION 9.03 WAIVERS; MODIFICATIONS IN WRITING.
---------------------------------
(a) The rights and remedies provided for under this Agreement and in
the other Loan Documents are cumulative and are not exclusive of any rights and
remedies that may be available to the Lender at law, in equity, or otherwise.
No amendment, modification, supplement, termination, consent, or waiver of this
Agreement or any other Loan Documents shall in any event be effective unless the
same shall be in writing and signed by the Agent and the Required Lenders.
Notwithstanding the foregoing,
(i) no amendment that has the effect of (A) reducing the rate or
amount, or extending the stated maturity or due date, of any amount payable
by the Borrower to any Lender under the Loan Documents, (B) increasing the
amount, or extending the stated termination or reduction date, of any
Lender's Pro Rate Share of the Revolving Credit Facility A Commitment or
subjecting any Lender to any additional obligation to extend credit, (C)
altering the rights and obligations of the Borrower to prepay the Loans,
(D) permitting the creation of any Lien ranking prior to or on a parity
with the Lien of any Collateral Document, releasing any part of the
Collateral (except as permitted under the Loan Documents) or depriving any
Lender of the security afforded by the Lien of any Collateral Document, (E)
releasing any party under any of the Guaranties (except as permitted under
the Loan Documents), or (F) changing this Section 9.03 or the definition of
the term "Required Lenders," shall be effective unless the same shall be
signed by or on behalf of all of the Lenders;.
(ii) no amendment that has the effect of (A) increasing the
duties or obligations of the Agent, (B) increasing the standard of care or
performance required on the part of the Agent, or (C) reducing or
eliminating the indemnities or immunities to which the Agent is entitled
(including any amendment of this Section 9.03), shall be effective unless
the same shall be signed by or on behalf of the Agent; and
(iii) no amendment that has the effect of (A) increasing the
duties or obligations of any Issuing Bank; (B) increasing the standard of
care or performance required on the part of any Issuing Bank; or (C)
reducing or eliminating the indemnities or immunities to which any Issuing
Bank is entitled (including any amendment of this Section 9.03(a)(iii))
shall be effective unless the same shall be signed by or on behalf of each
Issuing Bank.
(b) Any waiver of any provision of this Agreement or the other Loan
Documents shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances. Any amendment, modification, termination, waiver or
consent effected in accordance
Third Amended and Restated
Senior Secured Credit Agreement
80
<PAGE>
with this Section 9.03 shall be binding upon each holder of any Note, each
future holder of any Note, and the Borrower.
(c) Notwithstanding anything contained in this Section 9.03, the
Revolving Credit Facility B Commitment and the Revolving Credit Facility B
Termination Date may each be changed by agreement among the Borrower, the Agent
and the Revolving Credit Facility B Lender without notice to or consent of any
of the other Lenders.
SECTION 9.04 FAILURE OR DELAY. No failure or delay on the part of
----------------
the Agent or any Lender or any holder of any Note in the exercise of any power,
right or remedy under this Agreement or the other Loan Documents shall impair
such power, right or remedy or shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy preclude other or
further exercise of any other power, right or remedy.
SECTION 9.05 NOTICES, ETC. All notices, demands, instructions and
------------
other communications required or permitted to be given to or made upon any party
hereto shall be in writing and (except for financial statements, other related
informational documents and routine communications to be furnished pursuant
hereto, which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by courier, by overnight mail, by registered mail
or certified mail, postage prepaid, or by prepaid telex, telecopy or telegram
(with messenger delivery specified) and shall be deemed to be given for purposes
of this Agreement on the day that such writing is received by the intended
recipient thereof. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this Section 9.05, notices, demands,
instructions and other communications in writing shall be given to or made upon
the respective parties hereto at their respective addresses (or to their
respective telex or telecopier numbers) indicated on Schedule 9.05 attached
hereto.
SECTION 9.06 SUCCESSORS AND ASSIGNS.
----------------------
(a) This Agreement and any amendments hereto shall be binding upon and
inure to the benefit of and be enforceable by the Borrower and the Lenders and
their respective successors and assigns. The Borrower may not assign or
transfer any interest hereunder without the prior written consent of the
Lenders.
(b) The Lender shall have the right at any time to do either or both
of the following: (i) subject to the provisions of Section 9.07, furnish one or
more purchasers or potential purchasers of all or any portion of the Term Loans,
the Revolving Loans or the Notes or of a participation interest therein, with
any and all information concerning Holdings, Borrower or its Subsidiaries which
has been supplied by Holdings or the Borrower to the Lender; or (ii) sell,
assign, syndicate, transfer or negotiate all or any portion of the Lender's
interests in the Term Loans, the Revolving Loans or the Notes, so long as the
Lender at all times acts as agent for itself and/or its transferees (unless and
until the Lender is removed and a successor agent is appointed) or sell, assign,
transfer, or grant participations in all or any portion of the Lender's
interests in the Term Loans, the Revolving Loans or the Notes. In this regard,
the Borrower specifically acknowledges that The Sumitomo Bank, Limited will be
the only Lender party to this Agreement on the date of this Agreement. To the
extent that after the date of this Agreement any other financial institution
becomes a Lender hereunder, the Borrower and the Lender agree to execute such
amendments or new documentation as may be necessary to reflect and join any such
financial institutions as parties hereto and to reflect properly their pro rata
benefits and obligations hereunder. At such time the Agreement shall be
modified to reflect the pro rata share of the Term Loans and or the Revolving
Loans of such new Lender and of the existing Lenders and new Notes will be
issued to such new Lender and to the assigning Lender in conformity with the
requirements of Article II to the extent needed to reflect each Lender's revised
pro rata share of the Term Loans and/or the Revolving Loans.
Third Amended and Restated
Senior Secured Credit Agreement
81
<PAGE>
(c) Notwithstanding Section 2.09, in the event that a Foreign Bank
becomes a signatory to this Agreement, the Borrower shall withhold tax with
respect to payments to such Foreign Bank in accordance with the United States
federal income tax laws then in effect and shall have no obligation to make
payments to such Foreign Bank that are free and clear of such properly withheld
amounts, unless such Foreign Bank shall have delivered to the Agent, in its
capacity as agent for the Lenders, and the Agent shall have delivered to the
Borrower, a duly executed certificate in form reasonably satisfactory to the
Borrower to the effect that as of that date such Foreign Bank is entitled to
receive all payments made hereunder without deduction or withholding of United
States federal income tax (x) pursuant to the terms of an applicable tax treaty
in effect with the United States of America (in which case such certificates
shall be accompanied by two executed copies of Form 1001 of the Internal Revenue
Service), (y) under Code Section 1441(c) (in which case such certificates shall
be accompanied by two executed copies of Form 4224 of the lnternal Revenue
Service), or (z) pursuant to an exemption certificate received from the Internal
Revenue Service (in which case such certificate shall be accompanied by a copy
of such exemption certificate). Each Foreign Bank, upon becoming aware of the
occurrence of any event requiring a change in its prior Certificate, shall
promptly deliver to the Lender, in its capacity as agent for the Lenders, for
delivery to the Borrower duly executed certificates to the effect that (as the
case may be):
(i) such Foreign Bank is not capable of receiving future payments
hereunder without deduction or withholding of United States federal income tax,
in which case such Foreign Bank shall be entitled to the benefits of Section
2.09 hereof; or
(ii) such Foreign Bank is capable of receiving all payments hereunder
without deduction or withholding of United States federal income tax, pursuant
to a tax treaty of the United States, pursuant to Code Section 1441(c), or
pursuant to an exemption certificate received from the Internal Revenue Service,
a copy of which shall be attached to such certificate.
(d) "Foreign Bank" shall, for purposes of subsection (c) above, mean
and refer to any bank, financial institution or other entity other than a bank,
financial institution or other entity organized and existing under the laws of
the United States of America or any political subdivision thereof or therein.
SECTION 9.07 CONFIDENTIALITY. Each Lender agrees to maintain any
---------------
confidential information that it may receive from the Borrower or one of its
Subsidiaries pursuant to this Agreement confidential and shall not disclose such
information to third parties without the prior consent of the Borrower, except
for disclosure: (a) to legal counsel, accountants and other professional
advisors to the Lenders; (b) to regulatory officials having jurisdiction over
such Lender; (c) as required by law or legal process or in connection with any
legal proceeding to which the Lender is a party or is otherwise subject; (d) to
another financial institution in connection with a disposition or proposed
disposition of all or part of a Lender's interests hereunder, whether by
participation, assignment or other transfer, which financial institution shall
have agreed in writing to be subject to the confidentiality provisions of this
Section 9.07; and (e) to prospective purchasers of Collateral in connection with
any disposition thereof after an Event of Default. Each Lender shall undertake
to return, upon request by the Borrower made within a reasonable time after all
obligations of the Borrower under this Agreement, the Notes and the other Loan
Documents have been paid in full and the Agreement has been terminated, any
confidential material which Borrower clearly and conspicuously marked
"Confidential and Subject to Return" prior to or in connection with furnishing
or making available the same to the Lender, provided that the return of such
--------
material is not inconsistent with standard banking practice or, in the judgment
of the Lender, otherwise disadvantageous to the Lender.
SECTION 9.08 GOVERNING LAW AND VENUE; WAIVER OF TRIAL BY JURY. The
------------------------------------------------
validity of this Agreement and each Note, the construction, interpretation and
enforcement thereof and the rights of the parties thereto shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California. The parties agree that all actions or proceedings arising
in connection with this Agreement and the Notes shall be tried and litigated in
State and Federal Courts located in the County of Los
Third Amended and Restated
Senior Secured Credit Agreement
82
<PAGE>
Angeles, State of California, unless such actions or proceedings are required to
be brought in another court to obtain subject matter jurisdiction over the
matter in controversy. THE BORROWER AND EACH LENDER WAIVE THE RIGHT TO A TRIAL
BY JURY AND ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
---------
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
- ----------
ACCORDANCE WITH THIS SECTION 9.08. SERVICE OF PROCESS, SUFFICIENT FOR PERSONAL
JURISDICTION IN ANY ACTION AGAINST THE BORROWER, MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS INDICATED IN SCHEDULE
8.05 HERETO.
SECTION 9.09 SEVERABILITY OF PROVISIONS. Any provision of this
--------------------------
Agreement which is illegal, invalid, prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity, prohibition or unenforceability without
invalidating or impairing the remaining provisions hereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 9.10 INDEPENDENCE OF COVENANTS. All covenants under this
-------------------------
Agreement shall each be given independent effect so that if a particular action
or condition is not permitted by any such covenant, the fact that it would be
permitted by another covenant, by an exception thereto, or be otherwise within
the limitations thereof, shall not avoid the occurrence of a Default or an Event
of Default if such action is taken or condition exists.
SECTION 9.11 SET OFF. In addition to any rights now or hereafter
-------
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence of any Event of Default, each Lender and each holder or
transferee of any Note or any Person with any interest in any Note is hereby
authorized by the Borrower at any time or from time to time, without notice to
the Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits (general
or special, including, but not limited to, indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other indebtedness at any time held or owing by the Lender or
that subsequent holder to or for the credit or the account of the Borrower or
against and on account of the Debt of the Borrower to the Lender or that
subsequent holder under this Agreement and the Notes, including, but not limited
to, all claims of any nature or description arising out of or connected with
this Agreement or the Notes, irrespective of whether or not that Lender or that
subsequent holder shall have made any demand under this Agreement.
SECTION 9.12 CHANGES IN ACCOUNTING PRINCIPLES. If any changes in
--------------------------------
generally accepted accounting principles from those used in the preparation of
the financial statements referred to in this Agreement are hereafter occasioned
by the promulgation of rules, regulations, pronouncements, or opinions of or
required by the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants (or successors thereto or agencies with similar
functions), or there shall occur any change in the Borrower's fiscal or tax
years and, as a result of any such changes, there shall result a change in the
method of calculating any of the financial covenants, negative covenants,
standards, or other terms or conditions found in this Agreement, then the
parties hereto agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired result that
the criteria for evaluating the Borrower's financial condition shall be the same
after such changes as if such changes had not been made.
SECTION 9.13 PUBLICITY. Any publicity release, advertisement,
---------
filing, public statement or announcement made by or at the request of the
Borrower or any Subsidiary regarding this Agreement or the financing provided
under this Agreement which makes reference to the Lender, or describes the
financing provided by the Lenders, shall be first reviewed by and must be
satisfactory to the Lender.
SECTION 9.14 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
------------------------------------------------------
All agreements, representations, and warranties made herein shall survive the
execution and delivery of this
Third Amended and Restated
Senior Secured Credit Agreement
83
<PAGE>
Agreement, the making of the Term Loans hereunder and the execution and delivery
of the Notes and shall continue until one (1) year after repayment of the Notes
and the Obligations, and any investigation at any time made by or on behalf of
the Lender shall not diminish the Lender's right to rely thereon.
SECTION 9.15 HEADINGS. Article and section headings used in this
--------
Agreement are for convenience of reference only and shall not constitute a part
of this Agreement for any other purpose or affect the construction of this
Agreement.
SECTION 9.16 EXECUTION IN COUNTERPARTS. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement. This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.
SECTION 9.17 COMPLETE AGREEMENT. This Agreement, together with the
------------------
exhibits and schedules to this Agreement, the Notes and the other Loan
Documents, is intended by the parties as a final expression of their agreement
and is intended as a complete statement of the terms and conditions of their
agreement.
SECTION 9.18 KNOWLEDGE OF BORROWER. Whenever reference is made to a
---------------------
fact or the occurrence of an event as being known to or within the knowledge of
the Borrower, the Borrower shall be deemed to have such knowledge immediately
after the appropriate employee or the agent of the Borrower to whose attention
such fact or event would be brought in the ordinary course of the affairs of the
Borrower, knows or should have known of such fact or event in the performance of
his duties in the ordinary course of the affairs of the Borrower.
SECTION 9.19 WAIVER OF ANTI-DEFICIENCY PROTECTION. FURTHER, WITHOUT
--------------------------------------------------
LIMITATION TO THE FOREGOING, THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
DISCLAIMS AND RENOUNCES ANY RIGHT AND HEREBY IRREVOCABLY WAIVES ANY DEFENSE,
PROTECTION OR RIGHT UNDER: (A) CALIFORNIA CODE OF CIVIL PROCEDURE ("CCP")
SECTION 580D CONCERNING THE BAR AGAINST RENDITION OF A DEFICIENCY JUDGMENT AFTER
FORECLOSURE UNDER A POWER OF SALE; (B) CCP SECTION 580A PURPORTING TO LIMIT THE
AMOUNT OF A DEFICIENCY JUDGMENT WHICH MAY BE OBTAINED FOLLOWING EXERCISE OF A
POWER OF SALE UNDER A DEED OF TRUST; (C) CCP SECTION 726 CONCERNING EXHAUSTION
OF COLLATERAL, THE FORM OF FORECLOSURE PROCEEDINGS WITH RESPECT TO REAL PROPERTY
SECURITY LOCATED IN CALIFORNIA AND OTHERWISE LIMITING THE AMOUNT OF A DEFICIENCY
JUDGMENT WHICH MAY BE RECOVERED FOLLOWING COMPLETION OF JUDICIAL FORECLOSURE BY
REFERENCE TO THE "FAIR VALUE" OF THE FORECLOSURE COLLATERAL; (D) ANY DUTY ON THE
PART OF THE LENDER TO CONDUCT A COMMERCIALLY REASONABLE SALE UNDER UCC SECTION
9504(3) TO THE EXTENT ANY PORTION OF THE COLLATERAL FOR THE OBLIGATIONS OF THE
BORROWER TO THE LENDER CONSISTS OF PERSONAL PROPERTY OR FIXTURES, INCLUDING,
WITHOUT LIMITATION, THE MAKING OF ANY ELECTION UNDER UCC SECTION 9501(4) IN
RESPECT OF ANY SUCH PERSONAL PROPERTY OR FIXTURES, IT BEING EXPRESSLY AGREED BY
EACH BORROWER THAT THE BORROWER HAS HERETOFORE DEFAULTED AND IS PRESENTLY IN
DEFAULT UPON ITS OBLIGATIONS TO THE LENDER; AND (E) ANY RIGHT TO OBJECT TO THE
COMMENCEMENT BY THE LENDER OF ANY ADDITIONAL OR FURTHER ACTION TO JUDICIALLY
FORECLOSE THE LIEN OF ANY MORTGAGE OR DEED OF TRUST OR ANY OTHER LIEN OR
SECURITY INTEREST GRANTED BY THE BORROWER UPON ANY ITEM OF COLLATERAL OR THE
FILING BY LENDER OF ANY PLEADINGS IN THE ACTION INTENDED TO CONSOLIDATE THE
SUBJECT MATTER OF THE ACTION WITH
Third Amended and Restated
Senior Secured Credit Agreement
84
<PAGE>
ANY CAUSE OF ACTION TO FORECLOSE ANY MORTGAGE OR DEED OF TRUST OR REALIZE UPON
ALL OR ANY PART OF THE COLLATERAL.
Third Amended and Restated
Senior Secured Credit Agreement
85
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first set forth above.
CB COMMERCIAL REAL ESTATE GROUP, INC., a
Delaware corporation
By:
------------------------------------
David A. Davidson,
Senior Executive Vice President
LENDERS:
-------
THE SUMITOMO BANK, LIMITED, a banking
corporation organized under the laws of Japan
By:
------------------------------------
Title:
---------------------------------
The Euro-Dollar Lending Office of
THE SUMITOMO BANK, LIMITED is
The Sumitomo Bank--
Los Angeles Branch
----------------------------------------
The Domestic Lending Office of
THE SUMITOMO BANK, LIMITED is
The Sumitomo Bank--
Los Angeles Branch
----------------------------------------
THE SUMITOMO BANK--
777 South Figueroa Street, Suite 2600
Los Angeles, California 90017
ISSUING BANK:
------------
THE SUMITOMO BANK, LIMITED, a banking
corporation organized under the laws of Japan
By:
------------------------------------
Title:
---------------------------------
AGENT:
-----
THE SUMITOMO BANK, LIMITED, a banking
corporation organized under the laws of Japan
By:
------------------------------------
Title:
---------------------------------
Third Amended and Restated
Senior Secured Credit Agreement
86
<PAGE>
EXECUTION COPY
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.01A - Revolving Credit Facility A Lender Pro Rata Shares
Schedule 1.01B - Term Loan Lender Pro Rata Share
Schedule 1.01C - Excluded Subsidiaries
Schedule 1.01D - Westmark Guarantors
Schedule 4.01 - Subsidiaries and Joint Ventures
Schedule 4.02 - Consents and Approvals
Schedule 4.03 - Recordation of Mortgages
Schedule 4.06 - Litigation
Schedule 4.08 - Taxes
Schedule 4.11 - Employee Benefit Plans
Schedule 4.12 - Title to Property
Schedule 4.15 - Licenses, Trademarks
Schedule 4.16 - Environmental Condition
Schedule 4.17 - Certain Restrictions
Schedule 4.18 - Location of Assets
Schedule 5.06 - Required Insurance
Schedule 6.01 - Existing Liens
Schedule 6.02 - Existing Indebtedness
Schedule 6.04(c) - Existing Investments
Schedule 6.09 - Certain Contractual Obligations
Schedule 9.05 - Notices
EXHIBITS
Exhibit A - Domestic Mortgage Term Note
Exhibit B - Domestic Revolving Credit Facility A Note
Exhibit C - Domestic Revolving Credit Facility B Note
Exhibit D - Domestic Senior Term Note
Exhibit E - Euro-Dollar Mortgage Term Note
Exhibit F - Euro-Dollar Revolving Credit Facility A Note
Exhibit G - Euro-Dollar Revolving Credit Facility B Note
Exhibit H - Euro-Dollar Senior Term Note
Exhibit I - Notice of Borrowing
Exhibit J - Notice of Conversion/Continuation
Exhibit K - Form of Legal Opinion of Pillsbury, Madison
& Sutro
Exhibit L-1 - Officer's Certificate of Borrower
Exhibit L-2 - Officer's Certificate of Borrower re:
Amended Certificate of Incorporation
Exhibit L-3 - Officer's Certificate of Holdings re:
Amended Certificate of Incorporation
</TABLE>
Third Amended and Restated
Senior Secured Credit Agreement
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED
SENIOR SUBORDINATED CREDIT AGREEMENT
AMONG
CB COMMERCIAL REAL ESTATE GROUP, INC.
and
CB COMMERCIAL HOLDINGS, INC.,
CB COMMERCIAL REAL ESTATE GROUP OF IOWA, INC.,
CB COMMERCIAL PARTNERS, INC.
CB COMMERCIAL REALTY ADVISORS, INC.,
CB COMMERCIAL BROKERAGE, INC.,
SUTTER FREMONT PROPERTY SERVICES, INC.,
CB COMMERCIAL REAL ESTATE GROUP OF HAWAII, INC.
CB COMMERCIAL REAL ESTATE FUND MANAGEMENT, INC.,
CB COMMERCIAL REAL ESTATE MANAGEMENT SERVICES, INC.,
CB COMMERCIAL SUTTON & TOWNE, INC.,
SUTTER FREMONT REAL ESTATE MERCHANT CAPITAL CORPORATION,
SUTTON & TOWNE N.J., INC.,
SUTTER FREMONT, INC.,
CB COMMERCIAL WAREHOUSE PROPERTY CORP.,
L.J. MELODY INVESTMENTS, INC.
L.J. MELODY & COMPANY, and
L.J. MELODY & COMPANY OF CALIFORNIA
as Guarantors
and
SUMITOMO FINANCE (DUBLIN) LIMITED
Dated as of November 25, 1996
================================================================================
<PAGE>
AMENDED AND RESTATED
SENIOR SUBORDINATED CREDIT AGREEMENT
This Amended and Restated Senior Subordinated Credit Agreement is
dated as of November 25, 1996 (this "Agreement"), and entered into by and among
CB Commercial Real Estate Group, Inc. (formerly known as "Coldwell Banker
Commercial Group, Inc."), a Delaware corporation ("Company"), CB Commercial
Holdings, Inc., a Delaware corporation ("CB Holdings"), and the other parties
listed on the signature pages hereto (collectively with CB Holdings, the
"Guarantors"), and Sumitomo Finance (Dublin) Limited, a limited liability
company organized and existing under the laws of the Republic of Ireland (the
"Lender").
RECITALS
WHEREAS, the Company and the Lender desire to amend and restate the
terms and provisions of the Senior Subordinated Credit Agreement dated as of
July 20, 1990, as amended to the date hereof, between the Company and the Lender
upon the terms and conditions set forth in this Agreement; and
WHEREAS, as of the date hereof, there are outstanding $62,000,000
representing original principal amount and $ 8,916,216.37 representing Deferred
Interest (as hereinafter defined); and
WHEREAS, the Guarantors have agreed to guarantee the Obligations (as
hereinafter defined) pursuant to the Guarantee set forth in Article X hereof;
and
WHEREAS, CB Holdings pledged the Collateral (as hereinafter defined)
to secure its Guarantee.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Company and the Lender agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions
-----------
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section 1.1 shall, for all purposes of this
Agreement, have the meanings herein specified, the following definitions to be
equally applicable to both the singular and plural forms of any of the terms
herein defined:
1
<PAGE>
"ADJUSTED CONSOLIDATED NET WORTH" means, at any date, Consolidated Net
Worth at such date, plus $236,000,000.
"AFFILIATE", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly,
indirectly or beneficially, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities or by contract or otherwise. Notwithstanding the foregoing, in no
event shall the Lender or any of its Affiliates be deemed to be an Affiliate of
CB Holdings, the Company or any subsidiary of the Company.
"AGENT" means any agent appointed by the Lender to administer the Loan
pursuant to Section 9.20 of this Agreement.
"AGENCY AGREEMENT" has the meaning ascribed to such term in Section
9.20 of this Agreement.
"AGREEMENT" means this Amended and Restated Senior Subordinated Credit
Agreement dated as of November 25, 1996, as it may be amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"APPLICABLE LIBOR BASED RATE" means (i) during the period from the
date hereof to and including December 31, 1996, (a) LIBOR plus (b) one-quarter
----
of a percentage point (0.25%) and (ii) during the period from and including
January 1, 1997 and thereafter, (x) LIBOR plus (y) one and one-quarter
----
percentage points (1.25%).
"APPLICABLE LIBOR MARGIN" means (i) during the period from June 30,
1994 to and including December 31, 1996, one-quarter of a percentage point
(0.25%); (ii) during the period from and including January 1, 1997 to and
including December 31, 1998, one and one-quarter percentage points (1.25%);
(iii) during the period from and including January 1, 1999 to and including
December 31, 1999, two percentage points (2.00%); (iv) during the period from
and including January 1, 2000 to and including December 31, 2000, three
percentage points (3.00%); and (v) during the period from and including January
1, 2001 and thereafter, four percentage points (4.00%).
"ASSET SALE" means the sale, transfer or other disposition by the
Company or any of its Subsidiaries to any Person other than the Company or any
of its Subsidiaries of (i) any of the stock of any of the Company's
Subsidiaries, (ii) substantially all of the assets of any geographic or other
division or line of business of the Company or any of its Subsidiaries, or (iii)
any other assets (including, without limitation, any assets which do not
constitute substantially all of the assets of any geographic or other division
or line of business but excluding any assets purchased for sale to others (other
than Warehoused Real Property) in the ordinary course of business consistent
with the past practices of the Company and its Subsidiaries), in the case of
each of clauses (i), (ii) and (iii), having a value in excess of
2
<PAGE>
$250,000; provided that any asset sale described in clause (i), (ii) or (iii)
--------
shall be deemed not to be an "Asset Sale" until the aggregate amount of all such
sales by the Company and its Subsidiaries occurring in any fiscal year equals or
exceeds $1,000,000; provided, further, that an Asset Sale shall not include (A)
-------- -------
inventory sales in the ordinary course of business; (B) sales or other
dispositions of obsolete equipment or other operating assets which are either no
longer needed for the ordinary course of business of the Company or its
Subsidiaries or are being replaced by equipment or other operating assets of at
least comparable value and utility; and (C) sales, transfers and other
dispositions of assets between the Company and its Subsidiaries and between the
Company's Subsidiaries; and provided, further, that the sale, assignment,
-------- -------
transfer, lease or other disposition of Warehoused Real Property to an
investment partnership or another pooled investment entity sponsored or managed
by the Company or a wholly-owned Subsidiary of the Company or to a third party
for consideration in excess of the sum of (A) the Company's or such wholly-owned
Subsidiary's Investment therein, (B) the outstanding amount of any Non-Recourse
Debt secured thereby, to the extent that such amount is repaid in connection
with such sale or otherwise is not assumed by the transferee of such Warehoused
Real Property, and (C) the Company's or its Subsidiary's Carrying Cost with
respect thereto, shall be deemed to be an Asset Sale only to the extent of such
excess.
"BAILEE" means The Sumitomo Bank, Limited, acting as agent for the
Lender, and any successor thereto as provided in the Intercreditor Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy," as now and hereafter in effect, or any successor statute.
"BOARD OF DIRECTORS" means the Board of Directors of CB Holdings, the
Company or a Subsidiary of the Company, as applicable, or any duly authorized
committee of that Board.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
which is a day on which banking institutions located in Dublin, London, New York
or California are authorized or required by law or other government action to
close.
"CAPITAL EXPENDITURE" means any expenditure (other than capitalized
interest) by any Person which would be capitalized in accordance with GAAP,
except that the acquisition of Warehoused Real Property by the Company or any
Subsidiary shall not constitute a Capital Expenditure until the date that is
eight months after the date of the acquisition thereof if such Warehoused Real
Property has not been sold, assigned, transferred or otherwise disposed of by
such date and in any such event shall, notwithstanding GAAP, be treated as a
Capital Expenditure incurred on the date that such eight-month period expires to
the extent of the Company's or such Subsidiary's Investment in such Warehoused
Real Property.
"CAPITAL LEASE," as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person; provided, however, that leases of computer and related equipment
of the type treated by the Company as Operating
3
<PAGE>
Leases for its fiscal year 1993 and prior periods shall be treated, after
September 30, 1994, as Operating Leases and not Capital Leases, notwithstanding
the classification thereof under GAAP.
"CAPITAL STOCK" of any person means any and all shares, interests,
participations, or other equivalents (however designated) of capital stock and
any rights (other than debt securities convertible into capital stock), warrants
or options to acquire such capital stock or other equity interests.
"CARRYING COST" means, as to any Warehoused Real Property, the sum of
(without duplication) (i) the amount of any payment of principal of Non-Recourse
Debt secured thereby actually made by CB Holdings, the Company or any of their
respective Subsidiaries, (ii) interest on such Non-Recourse Debt accrued and
actually paid by CB Holdings, the Company or any of their respective
Subsidiaries (net of rental and other income actually received by CB Holdings,
the Company or any such Subsidiary in respect of such Warehoused Real Property
from the date of direct or indirect acquisition thereof by CB Holdings, the
Company or such Subsidiary in respect of such Warehoused Real Property from the
date of acquisition thereof by CB Holdings, the Company or such Subsidiary to
the date of sale or other disposition), and (iii) any and all fees, costs,
expenses and transfer taxes incurred by CB Holdings, the Company or any of their
respective Subsidiaries in connection with the purchase or other acquisition of
such Warehoused Real Property (including, without limitation, any fees, costs
and expenses incurred in connection with financing such purchase or other
acquisition) and the holding and the subsequent sale or other disposition
thereof.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from Standard & Poor's Corporation, Moody's Investors Service, Inc.
or other nationally recognized rating agency; (iii) commercial paper maturing no
more than one year from the date of creation thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from Standard &
Poor's Corporation, Moody's Investors Service, Inc. or other nationally
recognized rating agency; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by the
Lender or any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia having combined capital
and surplus of not less than $250,000,000; (v) Eurodollar time deposits having a
maturity of less than one year purchased from the Lender or other financial
institutions approved by the Lender; and (vi) repurchase agreements and reverse
repurchase agreements with the Lender or other financial institutions approved
by the Lender relating to marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof;
provided that the terms of such agreements comply with the guidelines set forth
- --------
in the Federal Financial Institutions Examination
4
<PAGE>
Council Supervisory Policy--Repurchase Agreements of Depository Institutions
With Securities Dealers and Others, as adopted by the Comptroller of the
Currency on October 31, 1985.
"CASH PROCEEDS" means, with respect to any Asset Sale, cash payments
received from such Asset Sale (including any cash received by way of deferred
payment pursuant to a note receivable or otherwise, but only as and when so
received, other than the portion of such deferred payment constituting interest,
which shall be deemed not to constitute Cash Proceeds).
"CB HOLDINGS" means CB Commercial Holdings, Inc., a Delaware
corporation.
"CB CANADA" means Coldwell Banker Canada, Inc., a corporation
organized under the laws of the Province of Ontario, Canada.
"CERTIFICATE OF INCORPORATION" means CB Holdings's Restated
Certificate of Incorporation as in effect on the Effective Date.
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any treaty, law, regulation
or ruling relating to any Tax (or in the application or interpretation of any
treaty, law, regulation or ruling relating to any Tax) that occurs on or after
the Effective Date.
"CHANGE OF CONTROL" shall be deemed to have occurred (a) with respect
to CB Holdings, (i) at such time as any person (as defined in Section 13(d)(3)
of the Exchange Act) (other than the Holdings Capital Accumulation Plan) at any
time shall directly or indirectly acquire more than twenty-five percent (25%) of
the total voting power of all classes of Capital Stock of CB Holdings (provided,
--------
however, that the acquisition of voting stock of CB Holdings by underwriters in
- -------
the IPO named in the prospectus relating thereto shall not be deemed to be a
Change of Control pursuant to this clause (a)(i)), or (ii) at such time as
during any one year period, individuals who at the beginning of such period
constitute the Company's Board of Directors cease to be a majority of the Board
of Directors and (b) with respect to the Company, at such time as CB Holdings
ceases to own 100% of the issued and outstanding Capital Stock of the Company.
"CHIEF FINANCIAL OFFICER" means the highest ranking officer of any
company then in charge of the financial matters of such company.
"COLLATERAL" means the capital stock of the Company.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of CB Holdings, par value $.01
per share.
"COMPANY" means CB Commercial Real Estate Group, Inc., formerly known
as Coldwell Banker Commercial Group, Inc.
5
<PAGE>
"COMPANY SECURITIES" means, collectively, any senior subordinated or
subordinated indebtedness and any Capital Stock of the Company or any Capital
Stock of CB Holdings.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
annexed hereto as Exhibit II delivered to the Lender by the Company pursuant to
subsection 5.1(c) of this Agreement.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" means, for any
period, the sum of the amounts for such period of (i) Consolidated Net Operating
Income, (ii) Consolidated Interest Expense (less that portion allocable to
Capital Leases), (iii) provisions for taxes based on income, (iv) depreciation
expense, (v) amortization expense, (vi) Consolidated Rental Payments and (vii)
all other non-cash items (other than working capital) reducing Consolidated Net
Operating Income, minus all non-cash items (other than working capital)
increasing Consolidated Net Operating Income, all as determined on a
consolidated basis for any Person and its Subsidiaries in conformity with GAAP.
"CONSOLIDATED FIXED CHARGE RATIO" means the ratio, on a pro forma
--- -----
basis, giving effect to any Indebtedness to be incurred as if it had been
incurred on the first day of the four-fiscal-quarter period referred to in
clause (i), of (i) the aggregate amount of Consolidated Cash Flow Available for
Fixed Charges of any Person for the four fiscal quarters for which financial
information in respect thereof is available immediately prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Ratio (the "Transaction Date") to (ii) the aggregate Consolidated Fixed Charges
of such Person during such four fiscal quarters; provided that in making such
computation, Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being incurred) computed on a pro forma basis
--- -----
and bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire period.
"CONSOLIDATED FIXED CHARGES" of any Person means, for any period, the
sum of the amounts for such period of (i) Consolidated Interest Expense (less
that portion allocable to Capital Leases) and (ii) Consolidated Rental Payments,
all as determined on a consolidated basis for such Person and its Subsidiaries
in conformity with GAAP.
"CONSOLIDATED INTEREST EXPENSE" of any Person means, for any period,
the aggregate Interest Expense of such Person and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period taken as one
accounting period, the net income (or loss) of any Person and its Subsidiaries
on a consolidated basis for such period determined in conformity with GAAP;
provided that there shall be excluded (i) the income (or loss) of any Person
- --------
(other than a Subsidiary of such Person) in which any other Person (other than
such Person or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to such
Person or any of its Subsidiaries by such other Person during such period, (ii)
except to the extent includable pursuant to the foregoing clause (i), the income
(or loss) of any Person accrued prior to the date
6
<PAGE>
it becomes a Subsidiary of such Person or is merged into or consolidated with
such Person or any of its Subsidiaries or that Person's assets are acquired by
such Person or any of its Subsidiaries, (iii) the income of any Subsidiary
(other than Westmark and its Subsidiaries) to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary and (iv) any gains or losses
attributable to Asset Sales. In determining the Consolidated Net Income of the
Company, provision for tax payments by the Company shall be assumed to be made
at the then effective corporate statutory tax rate.
"CONSOLIDATED NET OPERATING INCOME" of any Person means, for any
period taken as one accounting period, the aggregate Consolidated Net Income of
such Person and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP, adjusted by excluding (to the extent not otherwise
excluded in calculating Consolidated Net Income) any net extraordinary gains and
losses during such period except that no adjustment shall be made for
extraordinary items consisting of income tax effects associated with net
operating loss carry forwards incurred by such Person after the Funding Date.
"CONSOLIDATED NET WORTH" means, as at any date of determination, the
sum of the Capital Stock (excluding any mandatorily redeemable preferred stock)
and additional paid-in capital plus retained earnings (or minus accumulated
deficit) of the Company and its Subsidiaries on a consolidated basis calculated
in conformity with GAAP.
"CONSOLIDATED RENTAL PAYMENTS" means, for any period, the aggregate
amount of the interest component of all rents paid under all Capital Leases and
the interest component of all rents paid under all Operating Leases of the
Company and its Subsidiaries as lessee (net of sublease income) that are not
cancelable upon 30 days' or less notice by the lessee thereunder, all as
determined on a consolidated basis in conformity with GAAP.
"CONTESTED CLAIM" means any Tax, Indebtedness, Contingent Liability or
other claim or liability, (i) the validity or amount of which is being contested
in good faith by appropriate proceedings, (ii) which has been bonded or for
which adequate reserves, as required by GAAP, have been established and (iii)
with respect to which any right to execute upon or sell any assets of the
Company or its Subsidiaries has not matured or has been and continues to be
effectively enjoined, superseded or stayed.
"CONTINGENT LIABILITIES" means, as applied to any Person, any
guaranties, endorsements, agreements to purchase or provide funds for the
payment of obligations of others, or other liabilities which would be classified
as contingent in accordance with GAAP.
"CONTINGENT OBLIGATION" means, as to any Person, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) with respect to
any Indebtedness or other obligation or liability of another Person, including
without limitation any direct or indirect guarantee of such Indebtedness,
obligation or liability, endorsement (other than for collection or deposit in
the ordinary course of business) thereof or discount or sale thereof by such
Person with recourse to such Person, or any other direct or indirect obligation,
by agreement or
7
<PAGE>
otherwise, to purchase or repurchase any such Indebtedness, obligation or
liability or any security therefor, or to provide funds for the payment or
discharge of any such Indebtedness, obligation or liability (whether in the form
of loans, advances, stock purchases, capital contributions or otherwise), (ii)
to provide funds to maintain working capital or equity capital of another Person
or otherwise to maintain the net worth, solvency or financial condition of the
other Person, (iii) to make payment for any products, property, securities or
services regardless of non-delivery thereof, if the purpose of any agreement so
to do is to provide assurance that another Person's Indebtedness, obligation or
liability will be paid or discharged, or that any agreements relating thereto
will be complied with, or that the holders of another Person's Indebtedness,
obligation or liability will be protected (in whole or in part) against loss in
respect thereof, or (iv) otherwise to assure or hold harmless the holders of
Indebtedness or other obligation or liability or another Person against loss in
respect thereof; provided, that indemnities given by the Company or its
--------
Subsidiaries to employees or independent contractors in the ordinary course of
business and consistent with past practices shall not be considered Contingent
Obligations; provided, further, that the provisions in the By-laws of the
-------- -------
Company, its Subsidiaries or CB Holdings holding harmless and indemnifying their
respective officers and directors shall not be considered Contingent Obligations
so long as such provisions are not materially different from such provisions in
the Company's By-laws in effect on the Effective Date; and provided, further,
-------- -------
that the term "Contingent Obligation" shall not include any obligation of the
Company under any guaranty made by it with respect to obligations of a Mortgage
Banking Subsidiary (as defined below) relating to unfunded mortgage loans, or
any obligation of the Company or a Mortgage Banking Subsidiary under any
indemnity made by the Company or a Mortgage Banking Subsidiary in a purchase and
sale agreement with respect to any mortgage loan, which guaranty or indemnity is
made, and which obligations are incurred, in connection with Mortgage Banking
Activities (as defined below). The amount of any Contingent Obligation shall be
an amount equal to the amount of the indebtedness, obligation or liability
guaranteed or otherwise supported thereby. For purposes hereof, (x) "MORTGAGE
BANKING ACTIVITIES" means the origination by the Company or a Mortgage Banking
Subsidiary of mortgage loans in respect of commercial and multi-family
residential real property, and the sale or assignment of such mortgage loans and
the related mortgages to another Person (other than the Company or another of
its Subsidiaries) within 60 days after the origination thereof, provided,
--------
however, that in each case prior to origination of any mortgage loan, the
- -------
Company or a Mortgage Banking Subsidiary, as the case may be, shall have entered
into a legally binding and enforceable purchase and sale agreement, with respect
to such mortgage loan with a Person that purchases such loans in the ordinary
course of its business; and (y) "MORTGAGE BANKING SUBSIDIARY" means any Wholly-
owned Subsidiary of the Company that is engaged in Mortgage Banking Activities.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any
provision of any security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement, or other written instrument to
which that Person is a party or by which it or any of its owned properties is
bound or to which it or any of its owned properties is subject.
8
<PAGE>
"DEFERRED INTEREST" means all accrued and deferred interest under this
Agreement and the Notes, of which $8,916,216.37 remains outstanding as of the
date hereof, and any and all interest which shall hereafter accrue and be
deferred under this Agreement and the Notes.
"DOLLARS" or the sign "$" means the lawful money of the United States
of America.
"EARN-OUT PAYMENT OBLIGATIONS" means, with respect to any Permitted
Acquisition, the Westmark Acquisition and the Melody Acquisition, any and all
deferred payment obligations (other than Permitted Seller Indebtedness) of the
Company or any of its Subsidiaries incurred in connection therewith (including
non-competition payments).
"EFFECTIVE DATE" shall have the meaning set forth in Section 9.21.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA AFFILIATE" means any trade or business (whether or not
unincorporated) which is a member of a group of which the Company is a member
and which is under common control within the meaning of Section 414 of the
Internal Revenue Code and the regulations thereunder.
"ESTIMATED NET CASH PROCEEDS" means with respect to any Asset Sale, an
amount equal to 90% of the amount estimated in good faith by the Company to be
Net Cash Proceeds of Sale of such Asset Sale.
"EVENT OF DEFAULT" means each of the events set forth in Section 7.1
of this Agreement.
"EVENT OF ILLEGALITY" means that due to the adoption of, or any
changes in, any applicable treaty, law, rule or regulation after the Effective
Date or due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of any
applicable treaty, law, rule or regulation after the Effective Date, it becomes
unlawful for the Lender to receive a payment in respect of this Agreement or any
Note or to maintain the Loan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXCLUDED JOINT VENTURE" means any Joint Venture in which the Company
and its Subsidiaries, together, own 1% or less of the equity interests and any
Joint Venture designated as an "Excluded Joint Venture" by the Company (which
designation shall be made by written notice to the Lender at least 30 days prior
to the proposed effective date of such designation) with the written consent of
the Lender, which consent may be given or withheld in the sole discretion of the
Lender.
9
<PAGE>
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries listed on Schedule B annexed hereto.
"FULLY DILUTED BASIS" means the aggregate number of outstanding shares
of Common Stock (assuming, for this purpose, exercise or conversion, or both, of
all outstanding securities of CB Holdings that are exercisable or convertible
into shares of Common Stock).
"FUNDING DATE" means July 23, 1990.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after the
date hereof so as to properly reflect the financial conditions, and the results
of operations and cash flows, of the Company and its Subsidiaries, except that
any accounting principle or practice required to be changed by the Accounting
Principles Board or Financial Accounting Standards Board (or other appropriate
board or committee of such boards) in order to continue as a generally accepted
accounting principle or practice may so be changed.
"GUARANTEE" means the guarantee by the Guarantors of the Obligations
pursuant to Article X of this Agreement.
"GUARANTORS" means CB Commercial Holdings, Inc., CB Commercial Real
Estate Group of Iowa, Inc., CB Commercial Partners, Inc., CB Commercial Realty
Advisors, Inc., CB Commercial Brokerage, Inc., Sutter Fremont Property Services,
Inc., CB Commercial Real Estate Group of Hawaii, Inc., CB Commercial Real Estate
Fund Management, Inc., CB Commercial Real Estate Management Services, Inc., CB
Commercial Sutton & Towne, Inc., Sutter Fremont Real Estate Merchant Capital
Corporation, Sutton & Towne N.J., Inc., Sutter Fremont, Inc., CB Commercial
Warehouse Property Corp., L.J. Melody Investments, Inc., L.J. Melody & Company,
and L.J. Melody & Company of California.
"GUARANTY" means, with respect to any Person, any contract, agreement
or understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including without limitation:
(a) agreements to purchase such Indebtedness or any property
constituting security therefor;
(b) agreements to advance or supply funds (i) for the purchase or
payment of such Indebtedness, or (ii) to maintain working
capital, equity capital or other balance sheet conditions;
(c) agreements to purchase property, securities or services primarily
for the purpose of assuring the holder of such Indebtedness of
the ability of the primary obligor to make payment of the
Indebtedness;
10
<PAGE>
(d) letters or agreements commonly known as "comfort" or "keepwell"
letters or agreements; or
(e) any other agreements to assure the holder of the Indebtedness of
the primary obligor against loss in respect thereof;
except that "guaranty" shall not include (i) the endorsement by a Person in the
ordinary course of business of negotiable instruments or documents for deposit
or collection or (ii) indemnities given by the Company or its Subsidiaries in
brokerage, management and other agreements in the ordinary course of business
substantially consistent with past practices.
"HOLDINGS CAPITAL ACCUMULATION PLAN" means the CB Commercial Holdings,
Inc. Capital Accumulation Plan, a plan intended to be qualified under Section
401(a) of the Internal Revenue Code, as in effect on the Effective Date.
"INDEBTEDNESS" means, with respect to any Person, the aggregate amount
of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services, except Trade Payables, accrued commissions and other
similar accrued current liabilities in respect of such
obligations, in any case, not overdue, arising in the ordinary
course of business;
(d) all Capital Lease obligations;
(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons whether or not such
obligation or liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers'
acceptances; and
(g) all guaranties and other Contingent Obligations.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means (i) any insolvency or
bankruptcy case or proceeding (including any case under the Bankruptcy Code), or
any receivership, liquidation, reorganization or other similar case or
proceeding, relative to CB Holdings, the Company or any Guarantor or to their
respective creditors, as such, or to their respective assets, or (ii) any
liquidation, dissolution, reorganization or winding up of CB Holdings, the
Company or any Guarantor, whether voluntary or involuntary and whether or not
involving insolvency or
11
<PAGE>
bankruptcy, or (iii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of CB Holdings, the Company or any
Guarantor.
"INTERCOMPANY INDEBTEDNESS" means any Indebtedness of the Company or
any Subsidiary of the Company which, in the case of the Company, is owing to any
Subsidiary of the Company and which, in the case of any such Subsidiary, is
owing to the Company or any other Subsidiary of the Company.
"INTERCREDITOR AGREEMENT" means the Amended and Restated Intercreditor
Agreement dated as of November 25, 1996 among the Lender, The Sumitomo Bank,
Limited, as agent, CB Holdings and the Company as such agreement may hereafter
may be amended, restated, supplemented or otherwise modified from time to time.
"INTEREST EXPENSE" means, for any period, the consolidated interest
charges paid or accrued by the Company or any of its Subsidiaries during such
period (including imputed interest on Capital Lease obligations, but excluding
amortization or write-off of debt discount and expense) on Indebtedness of the
Company or any of its Subsidiaries.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time hereafter, and any successor code or statute.
"INVESTMENT" means, with respect to any Person, any direct, indirect
or beneficial investment (other than Cash Equivalents), whether by means of
share purchase, loan, advance, extension of credit (other than accounts
receivable and trade credits arising in the ordinary course of business),
capital contribution or otherwise, in or to such Person, the guaranty of any
Indebtedness of such Person or the subordination of any claim against such
Person to other Indebtedness of such Person or any direct or indirect purchase
or other acquisition by that Person of Warehoused Real Property, through
purchase or exchange for cash, securities or other property (including, without
limitation, any distribution, upon liquidation or otherwise, of Warehoused Real
Property to such Person by any partnership or other investment entity). The
amount of any Investment shall be the original cost of such Investment plus the
cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment together with, in the case of a Permitted Acquisition, any related
Earn-out Payment Obligations (in an amount equal to the maximum amount thereof,
or if there is no prescribed maximum amount, then the greater of (x) the
Company's reasonable estimate of its future liability with respect thereto
(estimated on the basis of reasonable financial projections at the time of
consummation of such Permitted Acquisition) and (y) the aggregate amount of
payments actually made with respect thereto), but excluding any amounts
capitalized in accordance with GAAP to reflect probable severance, office
closing and similar payments and expenses, less in the case of the Warehoused
----
Real Property, the amount of any Non-Recourse Debt incurred by such Person in
connection therewith and (to the extent included in the cost thereof) Non-
Recourse Debt to which such Warehoused Real Property is subject at the time of
the acquisition thereof. Notwithstanding the foregoing, any promissory note
issued by the Company or any of its Subsidiaries to fund the general partner's
capital contribution in an investment partnership or other pooled investment
vehicle of which the Company or any of its Subsidiaries is the general partner
and which
12
<PAGE>
partnership or other investment vehicle is engaged solely in the business of
acquiring, holding and disposing of Real Property shall not be deemed to be an
Investment unless and until the aggregate amount of principal and interest
payments made under such promissory note by such general partner exceeds the
aggregate amount of such general partner's partnership distributions and
management fees received as of the date of determination. In such event, the
entire principal amount of such promissory note shall be deemed an Investment
for purposes of Section 6.11 and shall remain an Investment until the aggregate
amount of partnership distributions and management fees received by such general
partner exceeds the aggregate amount of principal and interest paid by such
general partner on such promissory note for 18 consecutive months; provided,
--------
that an Event of Default shall not be deemed to have resulted from a violation
of Section 6.11 solely from the operation of the immediately preceding sentence.
The term "Investment" shall not include (i) customary loans or advances
(including draw payments) to employees of the Company or its Subsidiaries, (ii)
notes for deferred sales or leasing commissions received by the Company or its
Subsidiaries in the ordinary course of business and substantially consistent
with past practices or (iii) any investment by the Company in or with respect to
C.B. Commercial Acquisition Associates, Inc. in an aggregate amount not in
excess of $187,000.
"IPO" means the initial public offering of Common Stock of CB Holdings
underwritten by Merrill Lynch & Co. and Montgomery Securities and as further
described in the prospectus of CB Holdings dated as of November 25, 1996.
"IPO NET PROCEEDS" shall mean the cash proceeds received by or for the
account of the CB Holdings or any of its Subsidiaries attributable to the IPO
minus amounts expended in connection with the IPO for (a) underwriters'
discounts and commissions, (b) prospectus and stock certificate printing and
distribution fees, (c) fees and reimbursed expenses of the Company's counsel and
independent public accountants, (d) fees and reimbursed expenses of the
underwriters' counsel relating to compliance with the blue sky laws of the
various states, (e) fees and reimbursed expenses of counsel to the Senior Agent,
(f) fees payable to the Commission, and minus the Revolving Credit Facility A
-----
Extension Fee, the Revolving Credit Facility B Extension Fee and the Term Loan
Extension Fee (such terms as defined in the Senior Credit Agreement).
"JOINT VENTURE" means a joint venture partnership or other similar
arrangement between or among the Company or any of its Subsidiaries on one hand,
and another Person or Persons that is or are not Affiliates with the Company or
any of its Subsidiaries, on the other hand, whether in corporate, partnership or
other legal form; provided that, as to any such arrangement in corporate form,
--------
such corporation shall not, as to any Person of which such corporation is a
Subsidiary, be considered to be a Joint Venture to which such Person is a party.
"LAWS" means all applicable statutes, laws, ordinances, regulations,
orders, judgments, writs, injunctions or decrees of any state, commonwealth,
nation, territory, possession, province, county, parish, town, township,
village, municipality or Tribunal, and "Law" means each of the foregoing.
13
<PAGE>
"LENDER" means Sumitomo Finance (Dublin) Limited, a limited liability
company organized and existing under the Laws of the Republic of Ireland or its
successors and assigns pursuant to the provisions of this Agreement.
"LETTER AGREEMENT" has the meaning ascribed to such term in Section
2.4 of this Agreement.
"LIBOR" means, for any LIBOR Interest Period, the rate at which
deposits in Dollars are offered by the Reference Bank at approximately 11:00
A.M., London Time, on the day which is two London Banking Days preceding the
first day of such LIBOR Interest Period to prime banks in the London interbank
market for a period equal to such LIBOR Interest Period and in the same or
approximately the same amount as the Loan. For the purposes of this definition,
the term "London Banking Day" shall mean any day on which dealings in deposits
in Dollars are transacted in the London interbank market.
"LIBOR INTEREST PERIOD" means the period commencing as of June 30,
1994 and having a duration of three months, and, thereafter, each subsequent
period commencing on the last day of the then current LIBOR Interest Period and
having a duration of three months, except that (i) each LIBOR Interest Period
------
which would otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day or, if such next succeeding Business Day would fall
in a succeeding calendar month, the next preceding Business Day, (ii) if any
LIBOR Interest Period commences on the last day of a calendar month and there is
no corresponding day in the month in which such LIBOR Interest Period would
otherwise end, such LIBOR Interest Period shall end on the last day of such
succeeding calendar month and (iii) if any LIBOR Interest Period would otherwise
end after the date on which the principal of the Loan is to be repaid pursuant
to Section 2.2 of this Agreement, such LIBOR Interest Period shall end on such
principal repayment date. Notwithstanding the foregoing, the duration of LIBOR
Interest Periods for purposes of determining the Post-Default Rate for the Loan
or interest thereon shall be selected by the Lender at the commencement of each
such LIBOR Interest Period.
"LIEN" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest).
"LITIGATION" means any proceeding, claim, lawsuit and/or investigation
conducted or overtly threatened by or before any Tribunal.
"LOAN" shall have the meaning ascribed to such term in Section 2.1 of
this Agreement.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letter
Agreement, the Stock Pledge Agreement and all schedules and exhibits hereto and
thereto.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from time
to time.
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<PAGE>
"MATERIAL ADVERSE EFFECT" means any circumstance or event which (i)
could have any material adverse effect whatsoever upon the validity, performance
by the Company, perfection or enforceability of any Loan Document, (ii) is
material and adverse to the financial condition or business operations of the
Company and its Subsidiaries, taken as a whole, or (iii) could materially impair
the ability of the Company to fulfill its obligations under the Loan Documents.
"MATERIAL SUBSIDIARY" means each Subsidiary of the Company now
existing or hereafter acquired or formed by the Company which (x) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company, or (y) as at the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of the Company.
"MELODY" means L.J. Melody & Company, a Texas corporation that is a
Wholly-owned Subsidiary of the Company.
"MELODY ACQUISITION" means, collectively, (i) the purchase by CB
Commercial Mortgage Company, Inc., a California corporation that is a Wholly-
owned Subsidiary of the Company ("CB Mortgage"), of (x) all of the issued and
outstanding capital stock of Melody pursuant to and in accordance with the terms
of the Melody Stock Purchase Agreement and (y) all of the issued and outstanding
capital stock of Melody California pursuant to and in accordance with the terms
of the Melody California Stock Purchase Agreement, and (ii) consummation of the
merger (the "Melody Merger") of CB Mortgage with and into Melody, pursuant to
and in accordance with the terms of the Melody Merger Agreement and the
subsequent merger of Melody California with and into Melody.
"MELODY ACQUISITION DOCUMENTS" means, collectively, the Melody Stock
Purchase Agreement, the Melody California Stock Purchase Agreement, the Melody
Merger Agreement and each agreement, document and instrument ancillary thereto
entered into in connection therewith, in each case together with all schedules
and exhibits thereto.
"MELODY CALIFORNIA" means L.J. Melody & Company of California, a Texas
corporation that is a wholly-owned subsidiary of Melody.
"MELODY CALIFORNIA STOCK PURCHASE AGREEMENT" means the Stock Purchase
Agreement dated as of June 27, 1996, among the Company, CB Mortgage and the
Melody Stockholders party thereto, and all schedules and exhibits thereto, as in
effect on the Amendment Effective Date (as defined in Amendment No. 4 to Senior
Subordinated Credit Agreement dated as of June 30, 1996 (the "FOURTH
AMENDMENT")).
"MELODY LOAN ARBITRAGE FACILITY" means a credit facility provided to
Melody by any depository bank in which Melody deposits payments made on mortgage
loans for which Melody is servicer prior to distribution of such payments to or
for the benefit of the holders of such loans, so long as (i) Melody applies all
proceeds of loans made under such credit facility to purchase Permitted
Investments, and (ii) all Permitted Investments purchased by Melody with the
proceeds of loans thereunder (and proceeds thereof and distribution thereon) are
pledged to
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<PAGE>
the depository bank providing such credit facility, and such bank has a first
priority perfected security interest therein, to secure loans made under such
credit facility.
"MELODY MERGER AGREEMENT" means the Agreement and Plan of Merger
between CB Mortgage and Melody providing for the merger of CB Mortgage with and
into Melody, and the articles or certificate of merger, if any, required to be
in the office of the secretary of state, or other public official, in any
jurisdiction in order to effect the Melody Merger.
"MELODY MORTGAGE WAREHOUSING FACILITY" means the credit facility
provided by Residential Funding Corporation ("RFC") or any substantially similar
facility, pursuant to which RFC or another lender makes loans to Melody, the
proceeds of which loans are applied by Melody to fund commercial mortgage loans
originated and owned by Melody subject to an unconditional, irrevocable
commitment to purchase such mortgage loans by the Federal Home Loan Mortgage
Corporation so long as loans made by RFC or such other Lender to Melody
thereunder are secured by a pledge of commercial mortgage loans made by Melody
with the proceeds of such loans, and RFC or such other lender has a perfected
first priority security interest therein, to secure loans made under such credit
facility.
"MELODY PERMITTED INDEBTEDNESS" means Indebtedness of Melody under the
Melody Loan Arbitrage Facility, the Melody Mortgage Warehousing Facility and the
Melody Working Capital Facility, and in respect of the Melody Seller Senior
Notes and the Melody Seller Contingent Notes.
"MELODY SELLER CONTINGENT NOTES" means the Contingent Promissory Notes
due July 1, 2001 issued by CB Mortgage to the Melody Stockholders, in
substantially the form attached as Exhibit B to the Melody Stock Purchase
Agreement, in an aggregate principal amount not in excess, at any time, of
$3,000,000 less the aggregate amount of payments of principal thereof required
----
to be made in respect thereof at or prior to such time in accordance with the
terms thereof.
"MELODY SELLER SENIOR NOTES" means the Senior Promissory Notes due
July 1, 1998 issued by CB Mortgage to the Melody Stockholders, in substantially
the form attached as Exhibit A to the Melody Stock Purchase Agreement, in an
aggregate principal amount not in excess, at any time, of $3,000,00 less the
----
aggregate amount of payments of principal required to be made in respect thereof
at or prior to such time in accordance with the terms thereof.
"MELODY STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement
dated as of June 27, 1996 among the Company, CB Mortgage and the Melody
Stockholders party thereto, and all schedules and exhibits thereto, as in effect
on the Amendment Effective Date (as defined in the Fourth Amendment).
"MELODY STOCKHOLDERS" means, together, Lawrence J. Melody and John M.
Bradley.
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"MELODY WORKING CAPITAL FACILITY" means a credit facility provided by
a financial institution to Melody, so long as (i) the proceeds of loans
thereunder are applied only to provide working capital to Melody, (ii) loans
under such credit facility are unsecured, and (iii) the aggregate principal
amount of loans outstanding under such credit facility at no time exceeds
$1,000,000.
"MULTI-EMPLOYER PLAN" means a Pension Plan which is a "multi-employer
plan" as defined in Section 4001(a)(3) of ERISA.
"NET CASH PROCEEDS OF SALE" means cash payments (including Cash
Equivalents and any cash received by way of deferred payment pursuant to a note
receivable or otherwise (other than the portion of such deferred payment
constituting interest, which shall be deemed not to constitute Net Cash Proceeds
of Sale), but only as and when so received) received from an Asset Sale, net of
costs of sale (including payment of the outstanding principal amount of, premium
or penalty, if any, and interest on any Indebtedness other than the Loan
required to be repaid under the terms thereof as a result of such Asset Sale),
taxes to be paid as a result thereof and any amount required to be paid to any
Person (other than the Company or any of its Subsidiaries) owning a beneficial
interest in the assets disposed of in such Asset Sale.
"NON-RECOURSE DEBT" means Indebtedness which is incurred in connection
with the acquisition of Warehoused Real Property as to which, subject to
customary exceptions, (i) the creditor's sole recourse is to the land,
improvements, fixtures and any personal property attached to or used in
connection with such land, improvements and fixtures which secure such
Indebtedness and not to any other assets owned by CB Holdings, the Company or
its Subsidiaries and (ii) the failure to pay or acceleration thereof would not
give rise to the right of cross-default or cross-acceleration on the part of
holders of other Indebtedness in an amount in excess of $2,500,000 created on or
after April 18, 1989; provided, however, Non-Recourse Debt within this
-------- -------
definition shall not cease to be Non-Recourse Debt if the amount of such other
Indebtedness is in excess of $2,500,000, so long as such Indebtedness, at least
to the extent of such excess, is paid or otherwise discharged or the agreement
or instrument evidencing such Indebtedness is amended to eliminate such right of
cross-default or cross-acceleration within 30 days after the incurrence of such
Indebtedness.
"NOTES" means the promissory notes of the Company evidencing the Loan
(including any Deferred Interest).
"OBLIGATIONS" means all obligations of every nature of the Company
from time to time owed to the Lender under the Loan Documents.
"OFFERING CLOSING DATE" the date on which the IPO is consummated and
the IPO raises at least $65,000,000 of IPO Net Proceeds.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer) or its President or one of its Vice Presidents and by its Chief
Financial Officer or its Treasurer; provided that every Officers' Certificate
--------
with respect to the compliance with the conditions
17
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precedent or the terms hereunder shall include (i) a statement that the officer
or officers making or giving such Officers' Certificate have read such condition
and any definitions or other provisions contained in this Agreement relating
thereto, (ii) a statement that, in the opinion of the signers, they have made or
have caused to be made such examination or investigation as is necessary to
enable them to express an informed opinion as to whether or not such condition
has been complied with, and (iii) a statement as to whether, in the opinion of
the signers, such condition has been complied with.
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the Lessee at
any time) of any property (whether real, personal or mixed) which is not a
Capital Lease other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"PENSION PLAN" means an employee pension benefit plan as defined in
Section 3(2) of ERISA maintained or contributed to by one or more of the Company
or its Subsidiaries for employees of one or more of the Company or its
Subsidiaries or ERISA Affiliates, and which is subject to the provisions of
Title IV of ERISA.
"PERMITTED ACQUISITIONS" means the acquisition by the Company or any
of its Subsidiaries after the Effective Date of assets constituting an entire
business or division of any Person that is not already a Subsidiary of the
Company or any of its Subsidiaries, or the acquisition by Company or any of its
Subsidiaries of 100% of the Capital Stock (except for directors' qualifying
shares) of any such Person, including by any merger or consolidation permitted
under Section 6.6 of this Agreement, so long as (i) such acquisition and all
transactions related thereto are consummated in accordance with applicable law;
(ii) such acquisition, in the case of a Permitted Acquisition of capital stock,
results in such domestic corporation becoming a Wholly-Owned Subsidiary; (iii)
if required by the Senior Agent, the Company shall have delivered to the Senior
Agent (and a copy to the Lender) a certificate demonstrating in reasonable
detail compliance with Sections 6.01, 6.02, 6.03, 6.04, 6.05 and 6.06 of the
Senior Credit Agreement (and if no loan under the Senior Credit Agreement is
outstanding, then the Company shall have delivered a certificate to Lender
demonstrating in reasonable detail compliance with Article 6 hereof) that
immediately after giving effect to such acquisition and giving pro forma effect
thereto as if such acquisition had been consummated, and any Indebtedness
incurred in connection therewith had been incurred, on the first day of the
period of four consecutive fiscal quarters most recently ended prior to the date
on which such acquisition is completed (iv) no Capital Stock or other assets
acquired in connection with such acquisition shall be subject to any lien (other
than liens permitted by Section 6.5 of this Agreement); and (v) no Default or
Event of Default shall have occurred and be continuing on the date such
acquisition is completed or shall result therefrom.
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"PERMITTED ENCUMBRANCES" means the following types of Liens:
(i) Liens granted to the lender or lenders, or an agent on their
behalf, securing any Senior Credit Agreement Obligations, (ii) Liens granted
pursuant to the Stock Pledge Agreement, (iii) Liens in existence on the date
hereof described on Schedule C annexed hereto and renewals and extensions
thereof so long as the Indebtedness secured thereby and the interest rate
payable thereon is not increased or the maturity shortened (except to the extent
set forth on such Schedule C), (iv) Liens imposed by mandatory provisions of Law
such as carrier's, materialmen's, mechanics', warehousemen's, landlord's and
other like Liens arising in the ordinary course of business, securing
Indebtedness not yet due or which arise out of or in connection with a Contested
Claim or Liens or exceptions which arise under any real property leases, (v)
Liens for Taxes, if the same are not yet due and payable or qualify as a
Contested Claim, (vi) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance, pensions and other types of social
security, or to secure the performance of statutory obligations, surety and
appeal bonds, bids, the payment of taxes, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of Indebtedness), (vii) title exceptions consisting of zoning restrictions,
easements or other restrictions on the use of real property, provided that such
items do not materially impair the use of such property for the purposes
intended, and none of which are materially violated by existing or proposed
structures or land use, (viii) title exceptions which would customarily be shown
on an ALTA/ACSM land title "as-built" survey, (ix) Permitted Purchase Money
Liens, (x) Liens and exceptions on mortgage title policies, (xi) Liens securing
Senior Debt, including Liens granted to qualify Indebtedness as Senior Debt,
(xii) non-consensual Liens not otherwise permitted hereby that are removed,
bonded or stayed within 60 days after attachment thereof, (xiii) other Liens
permitted under Section 6.01 of the Senior Credit Agreement as in effect on the
date hereof, and (xiv) in addition to Liens permitted by clauses (i) through
(xiii), Liens in an aggregate amount not to exceed $100,000 at any time
outstanding.
"PERMITTED INVESTMENTS" means (i) marketable direct obligations issued
by the United States Government and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and having, at the time of acquisition, the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (iii) commercial paper having, at the time of acquisition, the
highest rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (iv) certificates of deposit, other time deposits, and
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any bank operating under the laws of the United States of
America or any state thereof or the District of Columbia which has combined
capital and surplus of not less than $500,000,000, (v) institutional money
market funds organized under the laws of the United States of America or any
state thereof that invest solely in any of the Investments permitted under
clauses (i), (ii), (iii) and (iv) hereof, or (vi) repurchase agreements with
respect to Investments permitted under clause (i) or (ii) with counterparties
acceptable to the Lender.
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"PERMITTED PURCHASE MONEY INDEBTEDNESS" means (i) purchase money
Indebtedness (other than Indebtedness pursuant to Permitted Acquisitions)
created after the date hereof secured by a Permitted Purchase Money Lien and
Capital Leases, not to exceed $3,000,000 in the aggregate for the Company and
all its Subsidiaries at any time outstanding, and (ii) purchase money
Indebtedness existing on the date hereof described on Schedule B annexed hereto.
"PERMITTED PURCHASE MONEY LIEN" means any purchase money Lien on real
estate, motor vehicles, equipment and other assets acquired or built by the
Company or any of its Subsidiaries (a "Purchase Money Lien"); provided, however,
-------- -------
that: (i) the transaction in which any Purchase Money Lien is proposed to be
created is not then prohibited by this Agreement; (ii) any Purchase Money Lien
shall attach only to the asset acquired or built in such transaction and shall
not extend to or cover any other assets of the Company or any of its
Subsidiaries; (iii) the Indebtedness secured or covered by any Purchase Money
Lien shall not exceed the cost to the Company or any of its Subsidiaries of the
asset acquired or built; (iv) the aggregate outstanding principal amount of all
Indebtedness created after the date hereof secured by Purchase Money Liens
(other than pursuant to Permitted Acquisitions) shall not at any time exceed
$3,000,000; and (v) such Indebtedness is either (x) incurred within 12 months
following the date of the acquisition or completion of the property or asset so
acquired or (y) incurred for the purpose of refinancing or refunding any
Indebtedness secured by a Permitted Purchase Money Lien provided the unpaid
balance is not increased.
"PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness of the Company
all the proceeds of which are used to repay or prepay the Senior Credit
Agreement Obligations and other Indebtedness (which other Indebtedness shall not
exceed $20,000,000 in the aggregate at any time outstanding) then permitted
under Section 6.1(xvi). In addition to the foregoing, Permitted Refinancing
Indebtedness shall also include Indebtedness in an amount equal to the amount
then available under the Revolving Credit Commitment (as such term is defined in
the Senior Credit Agreement) whether under the Senior Credit Agreement or any
other agreement which replaces such agreement at the time such Indebtedness is
incurred and any amount then available under Section 6.1(ii) of this Agreement.
"PERMITTED SELLER INDEBTEDNESS" means Indebtedness of the Company or
a Subsidiary of the Company incurred to finance, a Permitted Acquisition, owing
to the Seller therein and constituting a portion of the aggregate consideration
paid with respect to such Permitted Acquisition; provided, that (x) such
Indebtedness shall not be guaranteed by any other Subsidiary of the Company, and
(y) unless (i) such Permitted Acquisition consists of an acquisition of a
business or assets directly by the Company, or (ii) the acquired Subsidiary (or,
in the case of a Permitted Acquisition involving the acquisition of assets, the
acquiring Subsidiary) has executed and delivered to the Lender the Guarantee,
any such Indebtedness shall constitute the obligation only of the Subsidiary of
the Company acquired or formed in connection with the related Permitted
Acquisition, and shall not be guaranteed by the Company.
"PERMITTED TAX PAYMENT" means for any taxable year of the Company in
which it joins in filing a consolidated federal income tax return with CB
Holdings, a payment by the Company to CB Holdings in an amount not in excess of
the lesser of (i) the separate return
20
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federal income tax liability (if any) of the affiliated group (within the
meaning of Section 1504 of the Code) of which the Company would be the parent
(the "Company Group") if it were not a member of another affiliated group for
that or any other taxable year, and (ii) the portion of the actual tax liability
(if any) of the affiliated group of which the Company is actually a member (the
"CB Holdings Group") for such year allocable to the Company Group under the
rules set forth in Section 1552(a)(1) of the Code and the Treasury Regulations
promulgated thereunder; provided that such payment can be made by the Company no
--------
earlier than the date on which the CB Holdings Group is required to make federal
income tax payments for such year to the Internal Revenue Service; and provided,
--------
further, that for purposes of clause (ii) above, actual tax liability of the CB
- -------
Holdings Group shall be computed without regard to any income, gain, loss,
deduction or credit generated by a corporation other than CB Holdings, the
Company or a Subsidiary of the Company. In the event that CB Holdings and any
member of the Company Group join in filing any combined or consolidated (or
similar) state or local income or franchise tax returns, then "Permitted Tax
Payment" shall include payments with respect to such state or local income or
franchise taxes determined in a manner as similar as possible to that provided
in the preceding sentence for federal income taxes.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"PLAN" means an employee benefit plan as defined in Section 3(3) of
ERISA maintained or contributed to by the Company or any of its Subsidiaries for
employees of the Company or any of its Subsidiaries.
"POST DEFAULT RATE" means in respect of any amount payable hereunder
or under the Notes not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum for each day during the period (the
"Default Period") commencing on the due date of such amount until such amount
shall be paid in full equal to two percentage points (2%) above the Applicable
LIBOR Margin plus LIBOR for such LIBOR Interest Periods during the Default
Period of up to three months' duration as the Lender shall select for the Loan
(the interest rate to be recalculated as aforesaid and adjusted at the end of
each such LIBOR Interest Period for the next succeeding such LIBOR Interest
Period selected by the Lender).
"POTENTIAL EVENT OF DEFAULT" means a condition or event which, after
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable grace or cure
period.
"PREFERRED STOCK" means the preferred stock of CB Holdings.
"REAL PROPERTY" means, with respect to any Person, each of those
parcels (or portions thereof) of real property, improvements and fixtures
thereon and appurtenances thereto now or hereafter owned or leased by such
Person.
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"REFERENCE BANK" means the principal London branch of The Sumitomo
Bank, Limited, or such other leading bank as shall be designated from time to
time by the Lender and which shall be reasonably satisfactory to the Company.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as in effect on the date hereof.
"REGULATORY CHANGE" shall have the meaning ascribed to it in Section
2.12 of this Agreement.
"REPORTABLE EVENT" has the meaning set forth in Section 4043 of ERISA,
but excluding any event for which the 30-day notice requirement has been waived
by applicable regulations of the PBGC.
"REPORTING SUBSIDIARY" means any Subsidiary of the Company that has,
on any date of determination, total assets in excess of $25,000 or total
liabilities in excess of $50,000, as determined in accordance with GAAP.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of Capital Stock of
the Company now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the holders of that class, (ii) loans or
advances by the Company to the holders of its Capital Stock, (iii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any Capital Stock of
the Company now or hereafter outstanding, and (iv) any prepayment of principal,
optional redemption, purchase, retirement prior to stated maturity, defeasance,
or similar optional payment with respect to, any Subordinated Indebtedness.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"SENIOR AGENT" means The Sumitomo Bank, Limited, as agent or lender
under the Senior Credit Agreement, or any successor agent thereunder or under
any agreement governing Permitted Refinancing Indebtedness or, in the absence of
such agent, the lender holding all or the greatest portion of the Indebtedness
thereunder.
"SENIOR CREDIT AGREEMENT" means the Third Amended and Restated Senior
Secured Credit Agreement dated as of November 25, 1996, and originally entered
into as of April 18, 1989, as amended and restated in its entirety as of October
10, 1991, as further amended and restated in its entirety as of June 30, 1994,
between the Company and The Sumitomo Bank, Limited, as lender, and the Loan
Documents (as defined therein), and as such agreement may hereafter be amended,
restated, supplemented or otherwise modified from time to time.
"SENIOR CREDIT AGREEMENT NOTES" means the Company's promissory notes
issued pursuant to the Senior Credit Agreement.
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"SENIOR CREDIT AGREEMENT OBLIGATIONS" means the "Obligations" as
defined in the Senior Credit Agreement and all Permitted Refinancing
Indebtedness.
"SENIOR DEBT" or "SENIOR INDEBTEDNESS" means collectively, Senior Debt
of the Company and Senior Debt of the Guarantors. All interest accrued on any
Senior Indebtedness, in accordance with and at the contract rate specified in
the agreement or instrument creating, evidencing or governing such Senior
Indebtedness, shall constitute Senior Indebtedness for periods both before and
after the commencement of any Insolvency or Liquidation Proceeding, even if the
claim for such interest is not allowed pursuant to applicable law. To the
extent any payment of Senior Indebtedness (whether by or on behalf of the
Company or the Guarantors, as proceeds of security or enforcement of any right
of setoff or otherwise) is declared to be fraudulent or preferential, set aside
or required to be paid to a trustee, receiver or other similar party under any
bankruptcy, insolvency, receivership or similar law, then if such payment is
recovered by, or paid over to, such trustee, receiver or other similar party,
the Senior Indebtedness or part thereof originally intended to be satisfied
shall be deemed to be reinstated and outstanding as if such payment had not
occurred.
"SENIOR DEBT OF THE COMPANY" means all Indebtedness and other
obligations specified below payable directly or indirectly by the Company from
time to time outstanding, whether now existing or hereafter arising, fixed or
contingent, due or not due, liquidated or not liquidated, determined or
undetermined:
(1) the principal of and interest on all loans and other extensions of
credit under the Senior Credit Agreement and any other agreement or
instrument providing for, evidencing or securing any Permitted Refinancing
Indebtedness or any other loans or extensions of credit by the lender or
lenders thereunder which are permitted to be incurred under Section 6.1
(including in each case any amendment, renewal, supplement, extension,
refinancing, restructuring, refunding or other modification thereof) and
all premiums, expenses, fees, reimbursements, indemnities and other amounts
owing by the Company pursuant to the Senior Credit Agreement and any such
other agreement or instrument;
(2) any other Indebtedness of the Company permitted to be incurred
under Section 6.1 (except to the extent excluded below); provided, however,
-------- -------
that the Indebtedness under this clause (2) shall constitute Senior Debt of
the Company only to the extent such Indebtedness is fully and adequately
secured; provided, further, however, that such Indebtedness shall not cease
-------- ------- -------
to be fully and adequately secured merely because of the occurrence of an
unanticipated diminution in value of the collateral; and provided, further,
-------- -------
that such collateral shall be deemed fully and adequately secured if the
Company delivers an Officers' Certificate certifying that such Indebtedness
is fully and adequately secured. "Senior Debt of the Company" shall not
include (a) any Indebtedness of the Company to a Subsidiary of the Company
or to any other Affiliate (which shall not include The Sumitomo Bank,
Limited or any other financial institution that may be a lender under the
Senior Credit Agreement or under any agreement or instrument governing,
evidencing or securing any Permitted Refinancing Indebtedness) of the
Company or any of its Subsidiaries (or an Affiliate of any Affiliate of the
Company or
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any of its Subsidiaries); (b) any Trade Payable, even if overdue; (c) any
Indebtedness of the Company that by its terms or by the terms of the
instrument creating, governing or evidencing such Indebtedness expressly
provides that such Indebtedness is pari passu or subordinated in right of
---- -----
payment to the Notes or any Indebtedness which by its terms is subordinated
to any other Indebtedness of the Company; (d) any obligation of the Company
arising from redeemable Capital Stock of the Company; (e) any amounts or
other obligations under or relating to any Operating Lease; (f) any
liability for federal, state, local or other taxes, or other governmental
charges or claims of whatever nature, owed or owing by the Company; (g) any
Indebtedness or other obligations (x) owing, directly or indirectly, to any
Person under or in respect of any employee benefit plan, whether pursuant
to ERISA, or otherwise, or (y) owing, directly or indirectly, to employees;
(h) any amounts owing under any promissory note issued by the Company or
any of its Subsidiaries to fund the general partner's capital contribution
in an investment partnership or other pooled investment vehicle of which
the Company or any such Subsidiary is the general partner and which
partnership or other investment vehicle is engaged solely in the business
of acquiring, holding and disposing of Real Property; and (i) any
Indebtedness with respect to which recourse to the Company or its assets is
limited in any manner; provided, however, that in no event shall any
-------- -------
Indebtedness or obligations described in clause (1) be excluded from Senior
Indebtedness pursuant to this sentence; and
(3) to the extent not subject to (2) above, Indebtedness to finance
Permitted Acquisitions under Section 6.1(xv); provided that the aggregate
principal amount of such Indebtedness to finance Permitted Acquisitions
under clause (2) and this clause (3) shall not exceed $50,000,000 at any
time outstanding.
"SENIOR DEBT OF THE GUARANTORS" means all Indebtedness and other
monetary obligations under a guarantee, security agreement, mortgage, deed of
trust or other agreement or instrument executed by a Guarantor (or any other
Subsidiary or Affiliate of the Company) from time to time outstanding in respect
of the payment or performance of Indebtedness or other obligations included in
Senior Debt of the Company, whether now existing or hereafter arising, fixed or
contingent, due or not due, liquidated or not liquidated, determined or
undetermined, including in each case any amendment, renewal, supplement,
extension, refinancing, restructuring, refunding or modification thereof.
"STOCK PLEDGE AGREEMENT" means the Amended and Restated Stock Pledge
Agreement dated as of November 25, 1996 between CB Holdings and the Lender, in
the form of Exhibit V hereto, as such agreement may hereafter be amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company which is
subordinated in right of payment to the Loan and the Notes at least to the same
extent as the Loan and the Notes are subordinated to Senior Debt.
"SUBSIDIARY" means any corporation or other entity (i) of which more
than fifty percent (50%) of the total voting power of the shares of capital
stock or other securities or other
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ownership interests entitled to vote in the election of the Board of Directors
or other persons performing similar functions are at any time directly or
indirectly owned by the Company or (ii) of which more than fifty percent (50%)
of the outstanding shares of stock of any class (or of any other class of
ownership interests), is owned, beneficially or of record, directly or
indirectly, by the Company or any of its Subsidiaries; provided, however, that
-------- -------
the term "Subsidiary" shall not include any of the Persons set forth on Schedule
1.01(c) to the Senior Credit Agreement (as in effect on the date hereof).
"TAXES" means all taxes, assessments, fees, levies, imposts, duties,
penalties, deductions, withholdings or other charges of any nature whatsoever
from time to time or at any time imposed by any Law or any Tribunal.
"TRADEMARKS" means trademarks, servicemarks and trade names, all
registrations and applications to register such trademarks, servicemarks and
trade names and all renewals thereof, and the goodwill of the business
associated with or relating to such trademarks, servicemarks and trade names,
including, without limitation, any and all licenses and rights granted to use
any trademark, servicemark or trade name owned by any other person.
"TRADE PAYABLES" of any Person means accounts payable and other
similar accrued current liabilities in respect of such obligations or any other
indebtedness or monetary obligations to trade creditors created, assumed or
guaranteed by such Person or any of its Subsidiaries in the ordinary course of
business in connection with the obtaining of materials or services.
"TRIBUNAL" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any other jurisdiction or any
state, province, commonwealth, nation, territory, possession, county, parish,
town, township, village or municipality, whether now or hereafter constituted
and/or existing or political subdivision thereof.
"UNITED STATES" means the United States of America and its territories
and possessions.
"UNITED STATES PERSON" means any citizen or resident of the United
States, any corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof, and any estate or
trust which is subject to United States Federal income taxation regardless of
the source of its income.
"WAREHOUSED REAL PROPERTY" means Real Property acquired by the Company
or any of its Wholly-owned Subsidiaries with the intention of selling or
transferring such Real Property to any Person, including, but not limited to, a
partnership of which the Company or one of its Wholly-owned Subsidiaries is a
general or limited partner or other investment entity in which the Company or
any of its Subsidiaries has an interest or which is managed by the Company or
any of its Subsidiaries. Warehoused Real Property shall also include the Real
Property identified in Schedule A hereto.
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"WESTMARK" means Westmark Realty Advisors L.L.C., a Delaware limited
liability company.
"WESTMARK ACQUISITION AGREEMENT" means the Purchase Agreement dated as
of May 15, 1995 among Westmark Acquisition Partnership, the Company, and Vincent
F. Martin, Jr., Stanton H. Zarrow, Bruce L. Ludwig, Sol L. Rabin, Roger C.
Schultz and certain other individuals (together the "WESTMARK SELLERS"), and all
schedules and exhibits thereto, as in effect on the Amendment Effective Date
(as defined in the Limited Waiver, Consent and Amendment No. 3 hereto dated as
of June 30, 1995 (the "THIRD AMENDMENT")).
"WESTMARK ACQUISITION DOCUMENTS" means, collectively, the Westmark
Acquisition Partnership Agreement, the Westmark Acquisition Agreement, the
Realty Advisors Management Agreement, and the Westmark Subordinated Credit
Agreement and each agreement ancillary thereto entered into in connection with
the Closing (as defined in the Westmark Acquisition Agreement), in each case
together with all schedules and exhibits thereto.
"WESTMARK ACQUISITION PARTNERSHIP" means Westmark Real Estate
Acquisition Partnership, L.P., a Delaware limited partnership formed pursuant
to the Agreement of Limited Partnership of Westmark Real Estate Acquisition
Partnership, L.P. dated as of May 15, 1995 (the "WESTMARK ACQUISITION
PARTNERSHIP AGREEMENT") between the Company, as sole general partner, and the
Citicorp Affiliate, as limited partner.
"WESTMARK EARN-OUT PAYMENTS" means payments of the Supplemental
Purchase Price (as defined in the Westmark Acquisition Agreement) made or
required to be made by Westmark Acquisition Partnership pursuant to the Westmark
Acquisition Agreement and payments under the Incentive Compensation Plan
established pursuant to Section 9.17 of the Westmark Acquisition Agreement and
as in effect on the Closing Date (as defined in the Westmark Acquisition
Agreement).
"WESTMARK SELLER FINANCING" means the aggregate portion of the Initial
Purchase Price deferred by the Westmark Sellers pursuant to Sections 2.6(a) and
2.7(a) of the Westmark Acquisition Agreement.
"WESTMARK SUBORDINATED DEBT" means Indebtedness of Westmark
Acquisition Partnership to the Citicorp Affiliate in an amount not in excess of
$10,000,000 in aggregate principal amount, together with accrued and unpaid
interest thereon (including any such interest that is capitalized or paid-in-
kind by issuance of additional promissory notes), incurred by Westmark
Acquisition Partnership pursuant to the Senior Subordinated Credit Agreement
dated as of June 30, 1995 (the "WESTMARK SUBORDINATED CREDIT AGREEMENT") between
Westmark Acquisition Partnership and the Citicorp Affiliate, as in effect on the
Amendment Effective Date (as defined in the Third Amendment).
"WHOLLY-OWNED SUBSIDIARY" means any corporation, association or other
business entity of which 100% of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof
26
<PAGE>
is at the time owned or controlled, directly or indirectly, by any Person or one
or more of the other Subsidiaries of that Person or a combination thereof.
Section 1.2 Accounting Terms
----------------
For the purposes of this Agreement, all accounting terms not otherwise
defined herein shall have the meanings assigned to them in conformity with GAAP.
Section 1.3 Other Definitional Provisions; Anniversaries
--------------------------------------------
Reference to "Sections" and "Subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. For purposes of this Agreement, a monthly anniversary of the Funding
Date shall occur on the same day of the applicable month as the day of the month
on which the Funding Date occurred; provided that if the applicable month has no
--------
such day (i.e., 29, 30 or 31), the monthly anniversary shall be deemed to occur
----
on the last day of the applicable month.
ARTICLE II
LOAN AND NOTES
Section 2.1 Loan and Notes.
--------------
The Lender made a loan to the Company on the Funding Date in the
original principal amount of $62,000,000, the entire principal amount of which
remains outstanding as of the date hereof, and the Company has Deferred Interest
on such principal amount owing to the Lender in the aggregate amount of
$8,916,216.37, which remains outstanding as of the date hereof (together with
any Deferred Interest hereafter arising hereunder, collectively, the "Loan").
The Loan shall be evidenced by a promissory note of the Company such
note to be substantially in the form of Exhibit I-A hereto (the "Term Note"),
dated as of the Effective Date, payable to the order of the Lender and in the
principal amount of $62,000,000 and by a note of the Company such note to be
substantially in form of Exhibit I-B hereto (the "Payment-in-Kind Note") dated
as of the Effective Date. Such notes shall be payable to the order of the
Lender, duly completed, executed and delivered by the Company, as borrower.
27
<PAGE>
Section 2.2 Payment of Loan.
---------------
The Loan and all other amounts owed hereunder with respect to the Loan
shall be paid in full by July 23, 2002, unless earlier paid in accordance with
the terms of this Agreement.
In addition to the prepayment or repayment of the obligations under
the Payment-In-Kind Note required as a condition precedent under Article III
hereof, all remaining obligations of the Company represented by the Payment-In-
Kind Note (including any interest accrued to date thereon) shall be paid in cash
on the earlier of (i) the 91st day after the Senior Loan Repayment Date (as
defined below) and (ii) any day on which any principal on the Loan is payable
hereunder (whether at stated maturity, by acceleration, prepayment or offer to
purchase or otherwise, any such day being a "Principal Paying Day").
Section 2.3 Interest on the Loan
--------------------
(a) The Company hereby promises to pay to the Lender interest on the
unpaid principal amount of the Loan, as provided in clauses (i), (ii) and (iii)
below, until all principal (including compounded interest pursuant to clause
(ii) below) shall have been paid in full, at a rate equal to LIBOR for the
relevant LIBOR Interest Period plus the Applicable LIBOR Margin for such period.
(i) All interest on the Loan (including interest on any
Deferred Interest) which becomes due and payable (i.e. on the last day
----
of each LIBOR Interest Period) on or after the earlier of (x) the
Offering Closing Date and (y) January 1, 1997, shall be paid in cash
at the Applicable LIBOR Based Rate on the last day of each LIBOR
Interest Period.
(ii) All interest on the Loan (including interest on any
Deferred Interest) accrued and payable in excess of the interest
computed at the Applicable LIBOR Based Rate shall (x) until the Senior
Loan Repayment Date (as defined below), not be paid in cash and shall
be compounded quarterly on the last day of each LIBOR Interest Period,
and all such accrued and deferred interest (including any Deferred
Interest thereon) shall be paid in cash on the 91st day after the
Senior Loan Repayment Date and on any Principal Paying Day; and (y)
for periods from and after the Senior Loan Repayment Date, be fully
paid in cash on the last day of each LIBOR Interest Period and on any
Principal Paying Day. As used herein, "Senior Loan Repayment Date"
means the date of repayment in full in cash of all amounts of
principal and interest under the Loans (as defined in the Senior
Credit Agreement) under the Senior Credit Agreement (whether at stated
maturity, by acceleration, prepayment or offer to purchase or
otherwise).
(iii) Notwithstanding the foregoing, to the fullest extent
permitted by law, interest shall be payable at the Post-Default Rate
on the amounts payable under this Agreement which shall not be paid in
full when due (whether at stated maturity, by acceleration, prepayment
or offer to purchase or otherwise) for the period commencing on the
due date thereof until the same is
28
<PAGE>
paid in full, and such interest at the Post-Default Rate shall be paid
in cash, on and after the 91st day after the Senior Loan Repayment
Date and on any Principal Paying Day, from time to time on demand of
the Lender.
Interest on the Loan shall be computed on the basis of a 360-day year and the
actual days elapsed in the period during which it accrues. In computing
interest on the Loan, interest shall accrue from and including the first day of
a LIBOR Interest Period to but excluding the last day of such LIBOR Interest
Period.
The obligation of the Company to pay interest in kind and/or cash
interest accrued but not paid currently under clause (ii) above shall be
additionally evidenced by an additional promissory note in the form attached
hereto as Exhibit I-C (the "Second Payment-In-Kind Note"). The Second Payment-
In-Kind Note shall be in addition to the Term Note and the Payment-In-Kind Note.
(b) If on or before the commencement of any LIBOR Interest Period, the
Lender shall have determined either (i) adequate and reasonable means do not
exist for ascertaining LIBOR as herein provided or (ii) U.S. Dollar deposits in
an amount comparable to the outstanding principal amount of the Loan are not
generally available at such time in the London Interbank Eurodollar market for
such LIBOR Interest Period, the Lender shall so notify the Company and both
shall attempt to reach a mutually satisfactory alternative rate. If no such
mutually satisfactory alternative rate has been agreed upon by the Lender and
the Company before the date which is two Business Days prior to the commencement
of the next succeeding LIBOR Interest Period, the rate for such LIBOR Interest
Period shall be equal to a rate which fairly reflects the cost to the Lender
(and, if applicable, any participant holding a funded participation in the Loan)
of obtaining funds in an amount equal to the outstanding principal of the Loan
plus the Applicable LIBOR Margin. The Lender shall use reasonable efforts to
acquire funds from an interbank dollar market other than the London Interbank
Eurodollar market with respect to any LIBOR Interest Period affected by the
circumstances described in this subsection (b) if the use of such other market
will avoid such circumstances without prejudicing the interests of the Lender.
Section 2.4 Loan Extension and Amendment Fees.
---------------------------------
The Company agrees to pay to the Lender certain fees and costs as
separately set forth in a letter agreement dated as of the date hereof between
the Company and the Lender (the "Letter Agreement"). Such fees and costs shall
be paid within three Business Days of the Offering Closing Date or as otherwise
set forth in the Letter Agreement. Such fees and costs shall for all purposes
be deemed amounts payable hereunder.
Section 2.5 Voluntary Prepayments.
---------------------
The Company may, at any time and from time to time, prepay the Loan,
without premium, in whole or in part; provided, that (i) so long as any Senior
--------
Credit Agreement Obligation is outstanding, such prepayment shall only be
accepted by the Lender if accompanied by a certificate of the Senior Agent
stating that such prepayment is not a violation of the Senior
29
<PAGE>
Credit Agreement or the agreement governing Permitted Refinancing Indebtedness,
(ii) the Company shall give the Lender at least five Business Days' prior notice
of each prepayment in accordance with the provisions of Section 9.9 hereof
specifying the principal amount to be prepaid and the date of prepayment (which
shall be a Business Day), (iii) each partial prepayment of the Loan shall be in
an aggregate principal amount of at least equal to $100,000 and in a multiple of
$100,000, (iv) interest on the principal prepaid, accrued to the prepayment
date, shall be paid on the prepayment date and (v) amounts prepaid may not be
reborrowed. Notice of prepayment once given shall be irrevocable and, in
connection with any prepayments, the Company shall comply with the provisions of
Section 2.13 of this Agreement. Voluntary prepayments shall be credited against
the outstanding principal amount of the Loan.
If the Offering Closing Date shall occur on or after December 28, 1996
but before March 31, 1997 and if the Company is required to pay $10,000,000 out
of IPO Net Proceeds to Lender in accordance with Article III hereof, the Company
shall repay any then outstanding Deferred Interest, up to $15,664, within three
Business Days of the Offering Closing Date
Section 2.6 Mandatory Prepayments from Asset Sales.
--------------------------------------
In the event of any Asset Sale not permitted by Section 6.7(a) to the
extent not (1) required by the Senior Credit Agreement or any agreement
governing Permitted Refinancing Indebtedness to prepay Senior Credit Agreement
Obligations, (2) voluntarily used by the Company to prepay or repay the Senior
Credit Agreement Obligations and in the case of a repayment of a revolving loan,
a permanent reduction in the commitment in an amount equal to such payment, (3)
prohibited by the Senior Credit Agreement or any agreement governing Permitted
Refinancing Indebtedness or (4) used by the Company to make Capital
Expenditures, in each case within 60 days after receipt by the Company or any
Subsidiary of the Company of Cash Proceeds of any Asset Sales occurring after
the Funding Date, the Company shall (i) prepay the Loan in an amount equal to
the Estimated Net Cash Proceeds of such Asset Sale, but only to the extent that
the Company has actually received Net Cash Proceeds of such Asset Sale (and
subject to the provisions of the next sentence) or (ii) if applicable, within 60
days after any Asset Sale, the Company shall deliver to the Lender an Officers'
Certificate evidencing the extent to which the Cash Proceeds of such Asset Sale
were used or will be used for Capital Expenditures. On the 90th day after
receipt of Cash Proceeds of an Asset Sale in respect of which a prepayment based
on Estimated Net Cash Proceeds has been made, the Company shall make an
additional prepayment of the Loan in an amount equal to the excess ("Proceeds
Adjustment"), if any, of (1) Net Cash Proceeds of such Asset Sale over (2)
Estimated Net Cash Proceeds of such Asset Sale, provided that if either
--------
Estimated Net Cash Proceeds or the Proceeds Adjustments from an Asset Sale is
less than $1,000,000, such amount shall not be applied to the prepayment of the
Loan until the sum of such amounts and all other Estimated Net Cash Proceeds or
Proceeds Adjustments payable by the Company but not previously paid is equal to
or greater than $1,000,000. Concurrently with the making of any prepayment
pursuant to this Section 2.6, the Company shall deliver to the Lender an
Officers' Certificate demonstrating the derivation of Net Cash Proceeds of Sale
from the gross sales price of any correlative Asset Sale.
30
<PAGE>
All mandatory prepayments shall include payment of accrued interest on
the principal amount so prepaid and shall be applied to payment of interest
before application to principal and shall be subject to the provisions of
Section 2.13 of this Agreement.
Section 2.7 Lender's Optional Right of Prepayment.
-------------------------------------
Upon the occurrence of a Change of Control, the Lender shall have the
right to require the prepayment of the Loan provided that prior to any exercise
-------------
by the Lender of such prepayment rights, the Company shall have (i) repaid in
full all Indebtedness under the Senior Credit Agreement and any agreement
governing Permitted Refinancing Indebtedness or (ii) offered to repay in full
all such Indebtedness and repaid the Indebtedness of each lender under the
Senior Credit Agreement or such other agreement who has accepted such offer or
(iii) obtained the requisite consent under the Senior Credit Agreement or such
other agreement to permit the prepayment of the Loan as provided for in this
Section 2.7. The conditions set forth in the foregoing (i)-(iii) shall have
been satisfied before the Company shall be required to prepay the Loan pursuant
to this Section 2.7.
Section 2.8 Manner and Time of Payment.
--------------------------
All payments of principal and interest and loan fees hereunder and
under the Notes by the Company shall be made without defense, set off or
counterclaim and in same day funds and delivered to the Lender not later than
2:00 P.M., New York Time on the date due at its current account number 283 883
at The Sumitomo Bank, Limited New York Branch, 277 Park Avenue, New York, New
York 10172 (or such other account as the Lender shall give the Company at least
5 Business Days notice given in accordance with the provisions of Section 9.9
hereof). Funds received by the Lender after that time shall be deemed to have
been paid by the Company on the next succeeding Business Day.
Any payments made to the Lender shall be applied in the following
order of priority: (a) first, against costs, expenses and indemnities due
hereunder, (b) second, against default interest, if any, (c) third, against
interest due on the Loan and (d) thereafter against the principal of the Loan.
The Lender shall open and maintain on its books a loan account in the Company's
name. Such loan account shall show the Loan, all repayments, the computation,
compounding, accrual and payments of interest and other amounts due and sums
paid hereunder. Such loan account shall be available for inspection by the
Company at reasonable times. The notations in such loan account shall be
conclusive and binding upon the Company as to the amount at any time due from
the Company, absent manifest error.
Whenever any payment to be made hereunder or under the Notes shall be
stated to be due on a day which is not a Business Day, the payment shall be made
on the next succeeding Business Day and such extension of time shall be included
in the computation of the payment of interest hereunder or under the Notes;
provided, that if any extension would result in such payment being made in a
- --------
succeeding calendar month, the payment shall instead be made on the immediately
preceding Business Day.
31
<PAGE>
Section 2.9 Notation of Payment.
-------------------
The Lender agrees that it will make a notation on each Note of all
principal and interest payments made thereon and will notify the Company of the
name and address of the transferee of each Note; provided that the failure to
--------
make (or any error in the making of) a notation of any such payments on any Note
or to notify the Company of the name and address of such transferee shall not
limit or otherwise affect the obligation of the Company hereunder or under such
Note.
Section 2.10 Notice to Senior Credit Agreement Senior Agent.
----------------------------------------------
If the Lender receives any payment or prepayment other than its
payment of accrued interest, the Lender will send notice in writing to the
Senior Agent and if, within five Business Days after notice shall have been
given, the Senior Agent notifies the Lender that such payment or prepayment
constitutes an event of default under the Senior Credit Agreement or any
agreement governing Permitted Refinancing Indebtedness or any payment is due and
owing on any Senior Credit Agreement Obligations, the Lender shall immediately
remit any such payment or prepayment to the Senior Agent for application to the
Senior Credit Agreement Obligations.
Section 2.11 Use of Proceeds.
---------------
No portion of the proceeds of the Loan shall be used by the Company in
any manner which might cause the borrowing or the application of such proceeds
to violate Regulation G, Regulation U, Regulation T or Regulation X of the Board
of Governors of the Federal Reserve System or any other regulation of the Board
or to violate the Exchange Act, in each case as in effect on the date or dates
of such borrowing and such use of proceeds.
Section 2.12 Increased Costs.
---------------
(a) Except in respect of an event subject to subsection (c) of this
Section 2.12, which event shall be governed by the provisions of that section,
if, after the Effective Date, the adoption of, or any change in, any law, rule
or regulation (including Regulation D), or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Lender with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency (a "Regulatory
Change") shall impose, modify or deem applicable any reserve (including, without
limitation any reserve imposed by the Board of Governors of the Federal Reserve
System), special deposit or similar requirement against assets of, deposits with
or for the account of credit extended by the Lender or shall impose on the
Lender or the London interbank market any other conditions affecting the Loan,
and the result of any of the foregoing is to increase the cost to the Lender of
maintaining the Loan, or to reduce the amount of any sum received or receivable
by the Lender under this Agreement, then, within 15 days after written request
by the Lender, the Company shall pay to the Lender such additional amount or
amounts as may be necessary to compensate it for such increased cost. As soon
as practicable, the Lender will notify the Company of any event of which it has
knowledge, occurring after the Effective Date, which will entitle it to
compensation
32
<PAGE>
pursuant to this Section 2.12 and will use reasonable efforts to take such
action as will avoid the need for, or reduce the amount of, such compensation
and will not, in the reasonable opinion of the Lender, be otherwise
disadvantageous to it.
(b) Without limiting the effect of the foregoing, the Company will pay
to the Lender if it requests compensation under this subsection (b) by written
notice to the Company, on the last day of each LIBOR Interest Period and on any
other day on which interest is payable hereunder, so long as the Lender shall be
required to maintain reserves against "Eurocurrency liabilities" under
Regulation D (or, so long as it may be required, by reason of any Regulatory
Change, to maintain reserves against any other category of liabilities which
includes deposits by reference to which the interest rate on the Loan is
determined as provided in this Agreement) an additional amount (determined by
the Lender and communicated in writing to the Company) equal to the product of
the following for each day for which the Lender may be required to maintain any
such reserves during such LIBOR Interest Period: (i) the principal amount of
the Loan which is outstanding on such day; and (ii) the amount by which (x) a
fraction the numerator of which is the rate (expressed as a decimal) at which
interest accrues on the Loan for such LIBOR Interest Period as provided in this
Agreement (less the Applicable LIBOR Margin) and the denominator of which is one
minus the rate (expressed as a decimal) at which such reserve requirements are
imposed on the Lender against such "Eurocurrency liabilities" or such other
category of liabilities on such date exceeds (y) such numerator; and (iii)
1/360. A certificate of the Lender claiming compensation under this Section
2.12 and setting forth the additional amount or amounts to be paid to it
hereunder and setting forth in reasonable detail the calculations thereof shall
be conclusive in the absence of manifest error.
(c) If the Lender shall reasonably determine that subsequent to the
Effective Date, there shall have occurred the adoption of or any change in any
law, rule or regulation concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, other than a change subsequent to the Effective Date
implementing the capital adequacy proposals of the Bank for International
Settlements - Committee on Banking Regulations and Supervisory Practices
published in July 1988 under the title "International Convergency of Capital
Measurement and Capital Standards", which has the effect of increasing, by an
amount deemed material by the Lender, the amount of capital required to be
maintained by the Lender as a result of the existence of the Loan compared to
the amount of capital which would otherwise be required to be maintained by the
Lender in the absence of the Loan and the Lender desires to obtain compensation
therefor from the Company, the Lender will promptly notify the Company thereof.
Thereafter, subject to the later provisions of this subsection (c), the Company
will pay to the Lender upon written demand such amounts as shall be necessary to
compensate for the increased cost incurred or any resulting reduction in return
on capital suffered by the Lender as a result of an actual increase in the
Lenders' capital due to an event described in the first sentence of this
subsection (c) for the period from the date of any previous payment to the
Lender in relation thereto to the date of receipt of such demand by the Company.
In determining such amount, the Lender will act reasonably and in good faith.
Any demand by the Lender for any payment under this subsection (c) shall be
accompanied by a statement setting forth in reasonable detail the basis for
calculation of such increased costs. As soon as practicable after becoming
aware of the same, the Lender shall notify the Company of any event occurring
after the Effective Date which
33
<PAGE>
will entitle it to compensation pursuant to this subsection (c) and will use
reasonable efforts (determined in its absolute discretion exercised in good
faith) to take such action which in its reasonable opinion will avoid the need
for, or reduce the amount of, such compensation and will not, in the reasonable
opinion of the Lender be otherwise disadvantageous to it.
Section 2.13 Funding Losses.
--------------
The Company shall pay to the Lender, upon its written request (which
request shall set forth in reasonable detail the basis for requesting such
amounts), such amount or amounts as shall compensate the Lender for any loss,
cost or expense incurred by it as a result of:
(a) any prepayment of the Loan or a portion thereof on a date
other than the last day of the LIBOR Interest Period or
(b) any failure by the Company to prepay the Loan or any portion
thereof on the date specified in a notice of prepayment given pursuant to
Section 2.5 of this Agreement or
(c) any Event of Default relating to nonpayment of the Loan
whether at maturity or upon acceleration.
For purposes of this Section 2.13, the costs and losses of the Lender shall
include any funding or carrying costs and/or losses in connection with the
acquisition or liquidation of deposits acquired by the Lender to make or
maintain the Loan and any funding or carrying costs and/or losses in connection
with the re-employment of funds during the remainder of the then current LIBOR
Interest Period, including any loss arising from the re-employment of funds at
rates lower than the cost to the Lender of such funds and any related costs.
The Lender shall certify such costs and losses (including a reasonably detailed
description thereof) to the Company. The Lender shall act in good faith to
minimize its costs and losses otherwise payable by the Company hereunder.
Section 2.14 Deduction or Withholding for Taxes.
----------------------------------
(a) All sums payable by the Company or any Guarantor hereunder,
whether of principal, interest, fees, expenses or otherwise, shall be paid in
full, without set-off or counterclaim for any reason whatsoever, and free of any
deductions or withholdings for any and all taxes, levies, imposts, deductions,
charges, withholdings and all liabilities with respect thereto excluding taxes
on net income, net worth or shareholders' capital imposed by the jurisdiction of
the Lender's incorporation or the jurisdiction of its lending office (and in
each case any political subdivision or taxing authority thereof or therein). In
the event that the Company or any Guarantor is prohibited by law from making
payments hereunder free of such deductions or withholdings, then the Company or
such Guarantor shall pay such additional amounts to the Lender as may be
necessary in order that the actual amount received after such deduction or
withholding (and after deduction of an amount equal to any additional taxes or
other charges payable as a consequence of the payment of such additional amount)
shall equal the
34
<PAGE>
amount that would have been received if such deduction or withholding were not
required; provided, that, if the Lender fails to comply with the provisions of
--------
paragraph (d) of this Section 2.14, then all such payments to the Lender shall
be net of any amount the Company or such Guarantor is required to withhold under
applicable law.
(b) The Company shall pay directly to the appropriate taxing
authorities any and all present and future taxes, levies, imposts, stamp and
other duties, and other fees or charges and all liabilities with respect thereto
imposed on or with regard to any aspect of the transactions contemplated by this
Agreement or the execution and delivery of this Agreement or the other Loan
Documents. The Company shall hold the Lender harmless from any liability with
respect to the delay or failure by the Company to pay any such taxes or charges,
and shall reimburse the Lender upon demand for any such taxes paid by the Lender
in connection herewith whether or not such taxes shall be correctly or legally
asserted or otherwise contested or contestable together with any interest,
penalties and expenses in connection therewith, provided, if such taxes result
--------
from the failure of the Lender to comply with subsection (d) of this Section
2.14, the Company shall not have any obligation to reimburse the Lender under
this subsection (b).
(c) If the Company or any Guarantor shall pay any tax or charge as
provided herein or shall make any deductions or withholdings from amounts paid
hereunder, the Company or such Guarantor shall forthwith forward to the Lender
copies of official receipts or other evidence acceptable to the Lender to
establish any tax credit to which the Lender may be entitled.
(d) The Lender agrees promptly to deliver, to the extent that it may
lawfully do so, to the Company on the Funding Date and each year thereafter that
the Loan remains outstanding, such forms (including Internal Revenue Service
Form 1001), duly completed and executed by the Lender, sufficient to establish
that all payments under this Agreement by the Company may be paid without
deduction or withholding for or on account of any taxes, levies, imposts,
duties, fees, assessments or other charges of any nature imposed by any
government or any political subdivision or taxing authority thereof. Upon
request of the Lender, the Company shall provide the Lender with the appropriate
forms in order to enable it to comply with this provision.
(e) The Lender agrees to use reasonable efforts to take such action to
avoid the imposition of withholding liability hereunder or reduce the amount
thereof which in the reasonable opinion of the Lender would not otherwise be
disadvantageous to it.
Section 2.15 Event of Illegality.
-------------------
Upon the occurrence of an Event of Illegality, then the Lender shall
promptly notify the Company and the Senior Agent thereof and, unless such
prepayment is a violation of the Senior Credit Agreement or any agreement
governing Permitted Refinancing Indebtedness, the Company shall prepay the
outstanding Loan together with interest accrued to the date of prepayment within
30 days after such notice and consent shall have been received by the Company.
Such notice shall include evidence certified by the Lender as to such Event of
35
<PAGE>
Illegality. As soon as practicable, the Lender will notify the Company and the
Senior Agent of any event of which it has knowledge, occurring after the Funding
Date which will or is likely to become an Event of Illegality. The Lender will
take such reasonable action as will avoid such Event of Illegality.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent to Effective Date.
--------------------------------------
The occurrence of the Effective Date shall be subject to satisfaction
of all of the following conditions precedent all in form and substance
satisfactory to the Lender:
A. Effective Date. The Effective Date shall have occurred on or
--------------
before March 31, 1997.
B. Public Offering. The IPO shall have been completed and such
---------------
completion shall have occurred on or before March 31, 1997, and the IPO Net
Proceeds shall be at least $65,000,000.
C. Distribution of IPO Net Proceeds.
--------------------------------
(1) The total amount of IPO Net Proceeds up to $69,350,000 shall
have been paid to the Senior Agent, for the account of the lenders
under the Senior Credit Agreement.
(2) The amount of IPO Net Proceeds, if any, in excess of
$69,350,000 shall have been paid as follows: (x) 50% of the amount of
IPO Net Proceeds, if any, in excess of $69,350,000 shall have been
paid to the Senior Agent and (y) 50% of such amount of IPO Net
Proceeds in excess of $69,350,000 shall be paid to Lender, up to the
amount of all accrued and deferred interest or $10,000,000, whichever
is less, as payment of Deferred Interest.
D. On or before the Effective Date, the Lender shall have received
the following, each of which, unless otherwise noted, shall be dated the
Effective Date:
(1) a certified copy of the charter of each of the Guarantors and
the Company, certified by the Secretary or one of the Assistant
Secretaries of each of the Guarantors and the Company, respectively,
together with a good standing certificate from the Secretary of State
of the state of incorporation of each of the Guarantors and the
Company, each to be dated a recent date on or prior to the Effective
Date;
36
<PAGE>
(2) a copy of the By-laws of each of the Guarantors and the
Company, certified as of the Effective Date, in each case, by the
Secretary or one of the Assistant Secretaries of each of the
Guarantors and the Company, respectively;
(3) (a) Resolutions of the Company's Board of Directors
approving and authorizing the execution, delivery and performance of
this Agreement and any other documents, instruments and certificates
required to be executed by the Company in connection herewith and
approving and authorizing the execution, delivery and payment of the
Notes, each certified as of the Effective Date by the Company's
Secretary or one of its Assistant Secretaries as being in full force
and effect without modification or amendment;
(b) Resolutions of CB Holdings's Board of Directors
approving and authorizing the execution, delivery and performance of
this Agreement and certified as of the Effective Date by CB Holdings's
Secretary or one of its Assistant Secretaries as being in full force
and effect without modification; and
(c) Resolutions of the Board of Directors of each Guarantor
approving and authorizing the execution, delivery and performance of
the Guarantee, certified as of the Effective Date by each of the
Guarantors' Secretaries or one of its Assistant Secretaries as being
in full force and effect without modification.
(4) (i) Signature and incumbency certificates of the Company's
and the Guarantors' officers executing this Agreement, and the
Company's officers executing the Notes;
(5) Fully executed copies of this Agreement, the Third Amended
and Restated Senior Credit Agreement, the Letter Agreement, the Notes
and the schedules and exhibits hereto and thereto; and
(6) Such other documents as the Lender may reasonably request.
E. On or before the Effective Date, the Company shall have paid all
fees and expenses that are due and payable on or before the Effective Date.
F. On or before the Effective Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Lender, shall be reasonably satisfactory in form and substance
to the Lender, and the Lender shall have received all such counterpart originals
or certified copies of such documents as the Lender may reasonably request.
G. The Lender shall have received originally executed copies of
opinions of Pillsbury, Madison & Sutro LLP, counsel for CB Holdings, the
Subsidiaries and the Company and of general counsel of the Company, in
substantially the forms of Exhibits III and IV annexed hereto, respectively,
dated as of the Effective Date.
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H. The Company and CB Holdings shall have performed in all material
respects all agreements which this Agreement provides shall be performed on or
before the Effective Date except as otherwise disclosed to and agreed to in
writing by the Lender.
I. No event shall have occurred and be continuing or would result
from the consummation of the transactions contemplated hereunder or under the
Senior Credit Agreement or IPO Documents which would constitute an Event of
Default or Potential Event of Default.
J. No order, judgment or decree of any court, arbitrator or
governmental authority shall enjoin or restrain the Lender from entering into
this Agreement or consummating the transactions contemplated hereby.
K. There shall not be existing, or to the knowledge of the Company
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting the Company or any of its Subsidiaries or any
property of the Company or any of its Subsidiaries, which has not been disclosed
by the Company in writing pursuant to Section 4.11 of this Agreement, and there
shall have occurred no development not so disclosed in any such action, suit,
proceeding, governmental investigation or arbitration so disclosed, which, in
the opinion of the Lender, could reasonably be expected to materially and
adversely affect the business, operations, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
or to impair the ability or obligation of the Company to perform or of the
Lender to enforce the Obligations. No injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of this
Agreement.
L. The use of proceeds of the Loan by the Company shall not violate
Regulation U of the Federal Reserve Board.
M. No material adverse change shall have occurred since December 31,
1995 in the business, assets, prospects, results of operations or financial
condition (i) of the Company or the Company and its Subsidiaries, taken as a
whole or (ii) CB Holdings and its consolidated subsidiaries, taken as a whole.
N. On or before the Effective Date, all required approvals, consents
and waivers under the Senior Credit Agreement to this Agreement and the
transactions contemplated hereby shall have been obtained.
O. On the Offering Closing Date and the Effective Date the Company
shall provide the Lender with an Officer's Certificate (A) that all of the
Company's representations set forth in this Agreement are true and correct on
such date as if made on and as of such date, and (B) that no Default or Event of
Default has occurred and is existing under this Agreement and (C) that the Third
Amended and Restated Senior Credit Agreement will concurrently be in full force
and effect as of the Effective Date.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 General.
-------
In order to induce the Lender to enter into this Agreement and to
extend the maturity of the Loan, each of CB Holdings and the Company, as the
case may be, represents and warrants to the Lender that, at the time of the
Offering Closing Date and the Effective Date and after consummation of the
transactions contemplated hereby and by the Senior Credit Agreement, the
statements set forth in this Article IV are true, correct and complete.
Section 4.2 Organization and Good Standing.
------------------------------
Each of CB Holdings, the Company and its United States Subsidiaries is
a corporation or other business entity, duly organized and existing in good
standing under the laws of its jurisdiction of incorporation or formation. Each
of CB Holdings, the Company and its United States Subsidiaries has the
corporate power and authority to own its properties and assets and to transact
the business in which it is engaged and is duly qualified as a foreign
corporation and in good standing in all states in which it is doing business,
except where failure to be so qualified will not have a Material Adverse Effect.
Section 4.3 Authorization and Power.
-----------------------
Each of CB Holdings, the Company and its Subsidiaries has the
corporate power and requisite authority, and has taken all action necessary, to
execute, deliver and perform the Loan Documents, the Senior Credit Agreement and
the Senior Credit Agreement Notes executed or to be executed by it and to issue
the Notes and the Senior Credit Agreement Notes and to grant the security
interest in the Collateral pursuant to the Stock Pledge Agreement.
Section 4.4 No Conflicts or Consents.
------------------------
Except as disclosed in Schedule F, to the knowledge of CB Holdings and
the Company, the execution and delivery of the Loan Documents, the Senior Credit
Agreement, the Senior Credit Agreement Notes, the consummation of any of the
transactions herein or therein contemplated, and compliance with the terms and
provisions hereof or thereof, the issuance, delivery and performance of the
Notes, the Senior Credit Agreement Notes and the grant of the security interest
in the Collateral pursuant to the Stock Pledge Agreement, will not contravene or
materially conflict with any provision of Law to which CB Holdings, the Company
or any of its Subsidiaries is subject or any material judgment, license, order
or permit applicable to CB Holdings, the Company or any of its Subsidiaries, or
any material contract, lease, indenture, loan agreement, mortgage, deed of trust
or other agreement or instrument to which CB Holdings, the Company or any of its
Subsidiaries is a party or by which CB Holdings, the Company or any of its
Subsidiaries may be bound, or to which CB Holdings, the Company or any of its
Subsidiaries may be subject, or violate any provision of the charters or bylaws
of CB
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Holdings, the Company or any of its Subsidiaries, which would in any case have a
Material Adverse Effect. Except as disclosed in Schedule 4.02 to the Senior
Credit Agreement, no consent, approval, authorization or order of any Tribunal
or other Person is required in connection with the execution and delivery by CB
Holdings, the Company or any of its Subsidiaries of the Loan Documents, the
Senior Credit Agreement, the Senior Credit Agreement Notes, the grant of the
security interest in the Collateral pursuant to the Stock Pledge Agreement or
the consummation of the transactions contemplated hereby or thereby, all of
which required consents, approvals and authorizations have been obtained by the
Company or waived in writing by the Lender, except with respect to which the
failure to obtain would not have a Material Adverse Effect.
Section 4.5 Enforceable Obligations.
-----------------------
The Loan Documents, the Senior Credit Agreement, the Senior Credit
Agreement Notes have been duly executed and delivered by CB Holdings, the
Company and each of its Subsidiaries party thereto and are, or will be, the
legal and binding obligations of CB Holdings, the Company and each such
Subsidiary, enforceable in accordance with their respective terms, except to the
extent that their enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 4.6 Title to Properties; Liens.
--------------------------
Except for Permitted Encumbrances and except as disclosed in Schedule
C, all of the material assets owned or leased by CB Holdings and the Company and
its Subsidiaries are free and clear of all Liens and other adverse claims of any
nature, each of CB Holdings, the Company and its Subsidiaries has good and
indefeasible title to, or valid and subsisting interests in, all Real Property
included in such assets and good and marketable title to, or valid and
subsisting interests in, all personal property included in such assets, and, to
the knowledge of CB Holdings and the Company and its Subsidiaries, except for
financing statements with respect to Permitted Encumbrances, there are no
presently effective financing statements of record in any jurisdiction covering
any material tangible or intangible assets of CB Holdings, the Company or its
Subsidiaries.
Section 4.7 Financial Condition.
-------------------
(a) The consolidated balance sheet of CB Holdings and its consolidated
subsidiaries at December 31, 1995, and the consolidated statements of income,
retained earnings and cash flows of CB Holdings and its consolidated
subsidiaries for the fiscal year then ended, copies of which have been
delivered to the Lender, were prepared in accordance with GAAP consistently
applied and fairly present the consolidated financial position of CB Holdings
and its consolidated subsidiaries, as at the date thereof and the results of
operations and cash flows of CB Holdings and its consolidated subsidiaries for
the periods then ended. Neither CB Holdings nor the Company or any of its
Subsidiaries, as the case may be, had on such dates any material Contingent
Liabilities, liabilities for Taxes or long-term leases, unusual forward or long-
term
40
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commitments or unrealized or unanticipated losses from any unfavorable
commitments which are not reflected or reserved against in the foregoing
statements or in the notes thereto. Other than changes disclosed to the Lender
in writing prior to the Effective Date, no changes having a Material Adverse
Effect have occurred since the date of such financial information.
(b) CB Holding's unaudited consolidated balance sheets as at September
30, 1996, and related statements of income and retained earnings for the periods
then ended certified by the Chief Financial Officer, copies of which have been
delivered to the Lender, were prepared in accordance with GAAP consistently
applied (except to the extent noted therein) and fairly present the financial
position of CB Holdings and its consolidated subsidiaries as of such dates and
the results of operations for the periods covered thereby, subject to normal
year-end audit adjustments. CB Holdings, the Company or any of its Subsidiaries
did not have on such date any material Contingent Liability, liabilities for
Taxes or long-term leases, unusual forward or long-term commitment or unrealized
or unanticipated losses from any commitment or unrealized or unanticipated
losses from any unfavorable commitments which are not reflected or reserved
against in the foregoing statements or in the notes thereto.
(c) Solvency. Upon giving effect to the consummation of the
--------
transactions contemplated hereby and by the Senior Credit Agreement, the
following are true and correct to the best knowledge of the Company, after
reasonable investigation:
(i) The fair salable value of the Company and each of its
Subsidiaries exceeds the amount that will be required to be paid on or
in respect of the existing debts and other liabilities (including
Contingent Liabilities) of the Company or its Subsidiaries, as they
mature.
(ii) The assets of the Company and its Subsidiaries do not
constitute unreasonably small capital for each such company to carry
out its business as now conducted and as proposed to be conducted,
including the capital needs of each such company, taking into account
the particular capital requirements of the business conducted by such
company, and the projected capital requirements and capital
availability thereof.
(iii) The Company does not intend to, and will not permit
any of its Subsidiaries to, incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts or
cash to be payable on or in respect of debt of each of the Company and
it Subsidiaries). The cash flow of the Company and each of its
Subsidiaries, after taking into account all anticipated uses of the
cash of each such company, will at all times be sufficient to pay all
amounts on or in respect of debt of each such company when such
amounts are required to be paid.
(iv) The Company does not believe that final judgments
against any of the Company or its Subsidiaries in currently pending
actions for money damages will be rendered at a time when, or in an
amount such that, any such company will be unable to satisfy any such
judgments promptly in accordance
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with their terms (taking into account the maximum reasonable amount of
such judgments in any such actions and the earliest reasonable time at
which such judgments might be rendered). The cash flow of the Company
and each of its Subsidiaries, after taking into account all other
anticipated uses of the cash of the Company and each of its
Subsidiaries (including the payments on or in respect of debt referred
to in paragraph (iii) of this Section 4.7(c)), will at all times be
sufficient to pay all such judgments promptly in accordance with their
terms.
Section 4.8 Accurate Information.
--------------------
All information previously furnished or delivered to Lender in
connection with this Agreement or the transactions contemplated hereunder or
under the Senior Credit Agreement is true and complete in all material respects.
Section 4.9 No Default.
----------
No event has occurred and is continuing which constitutes a Potential
Event of Default or an Event of Default.
Section 4.10 Material Agreements.
-------------------
(a) Neither the Company nor any of its Subsidiaries, is in default
under any Contractual Obligations to which it is a party or by which its
property is bound, where such default could have a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries, is a party to or
bound by any unusual or unduly burdensome Contractual Obligation (excluding the
Senior Credit Agreement) which materially and adversely affects the business,
assets, prospects, results of operations or financial condition of the Company
and its Subsidiaries taken as a whole.
Section 4.11 No Litigation.
-------------
Except for the Litigation described in Schedule D hereto, there is no
material Litigation existing, or to the knowledge of CB Holdings or the Company
threatened, by or against CB Holdings, the Company or any of its Subsidiaries,
and in the opinion of the Company as of the date hereof and as of the date on
which such representation is deemed to have been made, no existing or threatened
Litigation will have a Material Adverse Effect. There are no outstanding
injunctions or restraining orders prohibiting consummation of any of the
transactions contemplated by the Loan Documents. For purposes of this
representation "material Litigation" shall mean any litigation which the Company
has determined could result in a judgment in excess of $1,000,000.
Section 4.12 Use of Proceeds; Margin Stock.
-----------------------------
The proceeds of the Loan will be used solely for the purposes
specified herein. None of such proceeds will be used for the purpose of
Regulation G, T, U or X, or for the
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purpose of reducing or retiring any Indebtedness which was originally incurred
to purchase or carry a Margin Stock or for any other purpose which might
constitute a "purpose credit" within the meaning of Regulation G, T, U or X.
Neither the Company nor any of its Subsidiaries has taken or will take any
action which might cause any of the Loan Documents to violate Regulation G, T, U
or X, or any other regulations of the Board of Governors of the Federal Reserve
System or to violate Section 8 of the Exchange Act or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in
effect.
Section 4.13 No Financing of Regulated Corporate Takeovers.
---------------------------------------------
No proceeds of the Loan will be used to acquire any security in any
transaction which is subject to Section 13 or 14 of the Exchange Act, including
particularly (but without limitation) Sections 13(d) and 14(d) thereof.
Section 4.14 Taxes.
-----
All tax returns required to be filed by CB Holdings have been filed,
and all Taxes upon CB Holdings or upon any of its properties, income, franchises
or Plans have been paid prior to the time that such Taxes could give rise to a
Lien thereon, except for Contested Claims. There is no material proposed Tax
assessment against CB Holdings and, to CB Holdings's knowledge, there is no
basis for such assessment.
Section 4.15 ERISA.
-----
Except as disclosed in Schedule E hereto, (i) neither the Company nor
any ERISA Affiliate has sponsored, maintained or contributed to any
Multiemployer Plan or any Pension Plan during the past six years; (ii) no
material liability has been incurred by the Company or any of its Subsidiaries
which remains unsatisfied for any taxes or penalties (A) with respect to any
Plan that is not a Multiemployer Plan and (B) to the best of the Company's
knowledge and belief, with respect to any Multiemployer Plan; (iii) except as
described in Schedule D, no material Litigation is existing or, to the Company's
best knowledge, threatened concerning or involving any Plan; (iv) except as
shown in Schedule E with respect to the date and using the assumptions described
therein, and to the best of the Company's knowledge and belief, no unfunded or
unreserved liability exists for benefits under any Pension Plan; (v) except as
set forth in Schedule E and to the best of the Company's knowledge and belief,
neither the Company nor any of its Subsidiaries contributes to or, within the
prior six-year period contributed to any Multiemployer Plan; (vi) with respect
to each Multiemployer Plan set forth in Schedule E, neither the Company nor any
of its Subsidiaries has suffered or caused to occur a "complete withdrawal" or
"partial withdrawal" (as such terms are respectively defined in Sections 4203
and 4205 of ERISA); and in each of the cases described in any of clauses (i)
through (vi) preceding, an event described therein involving a Multiemployer
Plan shall be disregarded unless the aggregate of all such events and any
liabilities otherwise incurred with respect to a Multiemployer Plan have a
Material Adverse Effect.
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Section 4.16 Compliance with Law.
-------------------
To the knowledge of CB Holdings and the Company, CB Holdings, the
Company and each of its Subsidiaries is in compliance with all Laws, except
where failure to comply will not have a Material Adverse Effect.
Section 4.17 Government Regulation.
---------------------
Neither CB Holdings, the Company, nor any of its Subsidiaries is
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Investment Company Act of 1940 (as any of the preceding
acts have been amended) or other Law which regulates the incurring by the
Company or any of its Subsidiaries of Indebtedness, including, but not limited
to, Laws relating to common contract carriers or the sale of electricity, gas,
steam, water or other public utility services.
Section 4.18 Capital Structure and Subsidiaries.
----------------------------------
(a) As of the Effective Date, CB Holdings owns 100% of all classes of
stock of the Company. The authorized Capital Stock of the Company consists of
1,000 shares of common stock, par value $.01 per share, of which 100 shares are
issued and outstanding. All such outstanding shares of such common stock were
duly authorized and validly issued and, as of such time, are fully paid and
nonassessable and are owned beneficially and of record by CB Holdings free and
clear of all liens and encumbrances whatsoever, except for a first priority Lien
securing CB Holdings's obligations under its guaranty pursuant to the Senior
Credit Agreement and the second priority Lien securing CB Holdings's Guarantee.
(b) There are no outstanding subscriptions, options, warrants, calls,
rights (including preemptive rights) or other agreements or commitments of any
nature relating to any Capital Stock of the Company or any of its Subsidiaries.
(c) The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
Capital Stock.
Section 4.19 Licenses, Trademarks, etc.
-------------------------
The Company and its Subsidiaries own or hold valid licenses in all
necessary Trademarks, copyrights, patents, patent rights and licenses to conduct
their respective businesses as heretofore operated and as proposed to be
conducted. All of the Company's and its Subsidiaries' Trademarks, copyrights,
patents, patent rights, licenses or other similar rights owned or used by the
Company or any of its Subsidiaries are listed in Schedule 4.15 to the Senior
Credit Agreement, showing for each item the owner thereof, and the date (except
with respect to tradenames) and place of registration thereof. Neither the
Company nor any of its Subsidiaries has been charged or, to the knowledge of CB
Holdings and the Company, threatened to be charged with any infringement of,
nor, to their knowledge, has any of them infringed on, any unexpired Trademark,
patent, patent registration, copyright, copyright registration or other
proprietary right of any Person.
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Section 4.20 Permits and Licenses.
--------------------
All material permits, licenses and other governmental authorizations
("Permits") needed by the Company or any of its Subsidiaries to carry on its
business have been obtained and are in full force and effect and have not been
modified or amended. Neither the Company nor any of its Subsidiaries is in
material breach of any such Permits except for breaches which, considered singly
or in the aggregate, would not have a Material Adverse Effect.
Section 4.21 Survival of Representations and Warranties.
------------------------------------------
Subject to Section 9.10, all representations and warranties in the
Loan Documents shall survive the delivery of the Notes, the making of the Loan
and the Effective Date hereof and shall continue until one year after repayment
of the Notes and the Obligations, and any investigation at any time made by or
on behalf of the Lender shall not diminish the Lender's right to rely thereon.
Section 4.22 Environmental Condition.
-----------------------
(a) To CB Holdings's and the Company's knowledge, all Real Property
that the Company or any of its Subsidiaries owns is free from contamination from
any Hazardous Materials (as such term is defined in the Senior Credit
Agreement). Neither the Company nor any of its Subsidiaries has caused or
suffered any Environmental Damage (as such term is defined in the Senior Credit
Agreement) that would have a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries or, to CB
Holdings's and the Company's knowledge, any prior owner or occupant of the Real
Property owned by the Company or any of its Subsidiaries has received notice of
any alleged violation of Environmental Requirements (as defined in the Senior
Credit Agreement) of the type set forth in clause (i) of such definition or, to
the Company's knowledge, of the type set forth in clause (ii) of such
definition, or notice of any alleged liability for Environmental Damages in
connection with the Real Property, and there exists no writ, injunction, decree,
order or judgment outstanding, nor, to the knowledge of CB Holdings and the
Company, any claim, suit, proceeding, citation, directive, summons or
investigation, pending or threatened, relating to the ownership, use,
maintenance or operation of the Real Property by any Person, or from alleged
violation of Environmental Requirements, or from the suspected presence of
Hazardous Material thereon, nor, to the knowledge of CB Holdings and the
Company, does there exist any basis for such claim, suit, proceeding, citation,
directive, summons or investigation being instituted or filed.
(c) To CB Holdings's and the Company's knowledge, there is not
constructed, placed, deposited, stored, disposed of nor located on the Real
Property owned by the Company any polychlorinated biphenyls (PCBs) nor
transformers, capacitors, ballasts, or other equipment which contains dielectric
fluid containing PCBs, or any asbestos that would have a Material Adverse
Effect.
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Section 4.23 Subsidiaries
------------
On the date hereof, the Company has no Subsidiaries other than those
identified in Schedule 4.01 to the Senior Credit Agreement. Except as set forth
on such schedule, on the date hereof neither the Company nor any of its
Subsidiaries owns or holds, directly or indirectly, any Capital Stock or equity
security of, or any equity interest in, any corporation or business other than
the Company's Subsidiaries.
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1 Financial Statements and Other Reports.
--------------------------------------
The Company will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of consolidated financial
statements in conformity with GAAP. The Company will deliver to the Lender:
(a) as soon as practicable and in any event within ninety (90) days
after the end of each fiscal year of the Company, the consolidated balance sheet
of the CB Holdings and its Subsidiaries as of the end of such year and the
related consolidated statements of income, stockholders' equity and cash flow
of CB Holdings and its Subsidiaries for such fiscal year, setting forth in each
case in comparative form the consolidated figures for the previous fiscal year,
all in reasonable detail, accompanied by an unqualified report thereon of Arthur
Andersen LLP or other independent certified public accountants of recognized
national standing selected by CB Holdings and satisfactory to the Lender, which
report shall state that such consolidated financial statements fairly present
the financial position of CB Holdings and its Subsidiaries as at the date
indicated and the results of their operations and cash flow for the periods
indicated in conformity with GAAP (except as otherwise stated therein) and that
the examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards.
(b) as soon as practicable and in any event within forty five (45)
days after the end of each fiscal quarter a consolidated balance sheet of CB
Holdings and its Subsidiaries as at the end of such quarter and the related
consolidated statement of income of CB Holdings and its Subsidiaries for such
quarter and the portion of CB Holdings' fiscal year ended at the end of such
quarter, setting forth in each case in comparative form the consolidated figures
for the corresponding periods of the prior fiscal year, all in reasonable detail
and certified by the Company's Chief Financial Officer as fairly presenting the
financial condition of CB Holdings and its Subsidiaries as at the date indicated
and the results of their operations and cash flows for the periods indicated,
subject to normal year-end adjustment;
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<PAGE>
(c) together with each delivery of financial statements of CB Holdings
and its Subsidiaries pursuant to clauses (a) and (b) above, a Compliance
Certificate of the Company (i) stating that the signers have reviewed the terms
of the Agreement and the Notes and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions and condition of
the Company and its Subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed the existence during
or at the end of such accounting period, and that the signers do not have
knowledge of the existence as at the date of the Compliance Certificate, of any
condition or event which constitutes an Event of Default or Potential Event of
Default, or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action the Company has taken, is
taking and proposes to take with respect thereto and (ii) demonstrating in
reasonable detail compliance (as determined in accordance with GAAP) during and
at the end of such accounting periods with the restrictions contained in Section
6.3;
(d) together with each delivery of consolidated financial statements
pursuant to clause (a) above, and so long as and to the extent not contrary to
the then current recommendations of the American Institute of Certified Public
Accountants, a written statement by the independent certified public accountants
giving the report thereon (i) stating that their audit examination has included
a review of the terms of this Agreement and the Notes as they relate to
accounting matters, (ii) stating whether in connection with their audit
examination, any Event of Default or Potential Event of Default has come to
their attention and if so, specifying the nature and period of existence
thereof, and (iii) confirming the calculations set forth in the Compliance
Certificate delivered simultaneously therewith pursuant to clause (c) above;
(e) promptly after the occurrence of any Event of Default or Potential
Event of Default, an Officers' Certificate of the Company setting forth the
details thereof and the action which the Company is taking or proposes to take
with respect thereto;
(f) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available by CB
Holdings to its security holders, all registration statements (other than the
exhibits thereto) and annual, quarterly or monthly reports, if any, filed by CB
Holdings with the Commission;
(g) promptly, to the extent delivered under the Senior Credit
Agreement or any agreement governing Permitted Refinancing Indebtedness, upon
becoming aware of the occurrence of (i) any Reportable Event involving any
Pension Plan, (ii) any "prohibited transaction," as such term is defined in
Section 4975 of the Internal Revenue Code (which prohibited transaction could
subject any ERISA Affiliate) to a civil penalty assessed pursuant to Section
502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in
connection with any Plan (or any trust created thereunder), (iii) any assertion
of withdrawal liability of any Multiemployer Plan, (iv) any partial or complete
withdrawal (by the Company or an ERISA Affiliate) from any Multiemployer Plan
under Title IV of ERISA (or assertion thereof), (v) any cessation of operations
(by the Company or an ERISA Affiliate) at a facility in the circumstances
described in Section 4068(f) of ERISA, (vi) the withdrawal by the Company or an
ERISA Affiliate from a Pension Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA, (vii) the
failure by the Company or any
47
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ERISA Affiliate to make a payment to a Plan required under Section 302(f)(1) of
ERISA, which Section imposes a lien for failure to make required payments,
(viii) the adoption of an amendment to a Plan requiring the provision of
security to such Plan pursuant to Section 307 of ERISA;
(h) promptly, to the extent delivered under the Senior Credit
Agreement or any agreement governing Permitted Refinancing Indebtedness, copies
of (i) all notices received by any ERISA Affiliate of the PBGC's intent to
terminate any Pension Plan administered or maintained by the Company or its
ERISA Affiliates or to have a trustee appointed to administer any such Pension
Plan; (ii) at the request of the Lender each annual report (IRS Form 5500
Series) and all accompanying schedules, the most recent actuarial reports, the
most recent financial information concerning the financial status of each Plan
administered or maintained by the Company or its ERISA Affiliates, and schedules
showing the amounts contributed to each such Plan by or on behalf of the Company
or its Subsidiaries in which any of their personnel participate or from which
such personnel may derive a benefit, and each Schedule B (Actuarial Information)
to the annual report (Form 5500 Series) filed by any ERISA Affiliate with the
Revenue Service with respect to each such Plan;
(i) promptly after the Company obtains knowledge thereof, notice of
all litigation or proceedings commenced or threatened affecting the Company in
which there is a reasonable possibility of an adverse decision and (i) which
involves alleged liability in excess of $1,000,000 (in the aggregate), (ii) in
which injunctive or similar relief is sought which if obtained could have a
material adverse effect on the business, assets, prospects, results of operation
or financial condition of the Company and its Subsidiaries taken as a whole or
(iii) which questions the validity or enforceability of any Loan Document;
(j) promptly upon receipt thereof, copies of all final reports or
letters submitted to the Company by its independent certified public accountants
in connection with each annual, interim or special audit of the financial
statements of the Company or its Subsidiaries made by such accountants,
including, without limitation, any management report, and the Company agrees to
obtain such a report in connection with each of its annual audits to the extent
required under the Senior Credit Agreement or any agreement governing Permitted
Refinancing Indebtedness;
(k) promptly after the availability thereof, copies of all material
amendments to the certificate of incorporation or By-laws of the Company and any
of its Subsidiaries;
(l) promptly after the receipt thereof, a copy of any notice, summons,
citation, letter or other communication concerning any actual, alleged,
suspected or threatened violation of Environmental Requirements (as defined in
the Senior Credit Agreement), or liability of the Company or any of its
Subsidiaries for Environmental Damages (as defined in the Senior Credit
Agreement) in connection with its real property or past or present activities of
any Person thereon;
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(m) with reasonable promptness, such other information and data with
respect to the Company or any of its Subsidiaries as from time to time may be
reasonably requested by the Lender;
(n) prior written notice of the amount, recipient and time of each
payment or allocation (or other reservation or segregation of funds) of "Excess
Proceeds of Issuance of Stock" (as defined in the Senior Credit Agreement) for
the benefit of the lender under the Senior Credit Agreement or the Company; and
(o) promptly after the Lender's request, such other information
pertaining to the Senior Credit Agreement, collateral therefor or payments or
performance thereunder as the Lender may from time to time request.
Section 5.2 Corporate Existence, etc.
------------------------
The Company will at all times preserve and keep in full force and
effect its corporate existence and rights and franchises to its business and,
those of each of its Subsidiaries, except when failure to so preserve or keep
will not have a material adverse effect on the financial condition, properties
or business operations of the Company and its Subsidiaries, taken as a whole.
The Company and any permitted successor thereto shall at all times be a
"qualified person" within the meaning of the Finance Act of the Republic of
Ireland.
Section 5.3 Payment of Taxes; Tax Consolidation.
-----------------------------------
A. CB Holdings and the Company will, and will cause each of its
Subsidiaries to, pay all Taxes imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income or property
prior to the time when any material penalty or fine shall be incurred with
respect thereto; provided that no such Tax need be paid if being contested in
--------
good faith by appropriate proceedings and if such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor.
B. The Company will not, nor will it permit any of its Subsidiaries
to, file or consent to the filing of any consolidated income tax return with any
Person other than CB Holdings, the Company or any of the Company's Subsidiaries
or such other Person as may be reasonably acceptable to the Lender.
Section 5.4 Maintenance of Properties; Insurance.
------------------------------------
The Company will maintain or cause to be maintained in good repair,
working order and condition all material properties used or useful in the
business of the Company and its Subsidiaries and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof.
The Company will maintain or cause to be maintained, with financially sound and
reputable insurers, insurance with respect to its properties and business and
the properties and business of its Subsidiaries against loss or damage of the
kinds customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such types
and in such amounts as are customarily
49
<PAGE>
carried under similar circumstances by such other corporations and which is
available at a cost which the Company considers to be reasonable and may self-
insure to the extent, and only to the extent, reasonably prudent and in cases in
which the cost of insurance is considered by the Company to be unreasonable.
Section 5.5 Inspection.
----------
The Company shall permit any authorized representatives designated by
the Lender to visit and inspect any of the properties of the Company or any of
its Subsidiaries, including its and their financial and accounting records, and
to make copies and take extracts therefrom, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants, all upon reasonable notice and at such reasonable times
during normal business hours and as often as may be reasonably requested.
Section 5.6 Equal Security for Loan and Notes; No Further Negative
------------------------------------------------------
Pledges.
- -------
A. If the Company or any of its Subsidiaries shall create or assume
any Lien upon any of its property or assets, whether now owned or hereafter
acquired, other than Liens permitted by the provisions of Section 6.5 (unless
prior written consent to the creation or assumption thereof shall have been
obtained from the Lender), it shall, at the request of the Lender, make or cause
to be made effective provision whereby the Obligations will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured as
long as any such Indebtedness shall be secured; provided that this covenant
--------
shall not be construed as consent by the Lender to any violation by the Company
of the provisions of Section 6.5; and provided, further, that the Company shall
-------- -------
under no circumstances be required to make or cause to be made effective
provision whereby the Obligations will be secured, directly or indirectly, by
Margin Stock; and provided, further, that any such Lien granted to the Lender
-------- -------
pursuant to this Section 5.6A shall be subject to the provisions of the
Intercreditor Agreement.
B. Except (i) as otherwise permitted by this Agreement, the Senior
Credit Agreement or any other agreement governing Senior Debt of the Company,
(ii) with respect to specific property encumbered to secure payment of
particular Indebtedness and (iii) with respect to Margin Stock, neither the
Company nor any of its Subsidiaries shall enter into any agreement prohibiting
the creation or assumption of any Lien upon its properties or assets, whether
now owned or hereafter acquired.
Section 5.7 Compliance with Laws, etc.
-------------------------
The Company and each of its Subsidiaries shall exercise all due
diligence in order to comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, noncompliance with
which might have a Material Adverse Effect.
Section 5.8 Maintenance of Accurate Records, etc.
------------------------------------
The Company shall keep, and will cause each of its Subsidiaries to
keep, true books and records and accounts in which full and correct entries will
be made of all its
50
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respective business transactions, and will reflect, and cause each of its
Subsidiaries to reflect, in its respective financial statements adequate
accruals and appropriations to reserves.
Section 5.9 Lender Meeting.
--------------
The Company will participate in a meeting with the Lender once during
each fiscal year to be held at a location and a time selected by the Company.
Section 5.10 ERISA Compliance.
----------------
The Company and each of its Subsidiaries and ERISA Affiliates will
make prompt payment of all contributions which it is obligated to make under all
Pension Plans and which are required to meet the minimum funding standard set
forth in ERISA with respect to each of the Pension Plans.
Section 5.11 Ownership of the Company; No Merger.
-----------------------------------
CB Holdings shall at all times own 100% of the total voting power
entitled to vote in the election of directors of the Company. CB Holdings shall
not merge with or into the Company.
Section 5.12 Subsidiaries of the Company.
---------------------------
The Company shall cause any of its Subsidiaries which guarantee Senior
Debt at any time in the future to also guarantee the Obligations on
substantially similar terms as the Guarantee.
Section 5.13 General.
-------
The Company covenants and agrees that, until payment in full of the
Loan and Notes and all other amounts due under this Agreement have been made
indefeasibly paid in full unless the Lender shall otherwise give prior written
consent, the Company shall perform all covenants in this Article V.
ARTICLE VI
NEGATIVE COVENANTS
Section 6.1 Indebtedness.
------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly create, incur, assume, extend the maturity of, or
otherwise become directly or indirectly liable with respect to, any
Indebtedness; provided the Company may become liable for Indebtedness if after
--------
giving effect to the incurrence of such Indebtedness and all other
51
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Indebtedness incurred subsequent to the four fiscal quarters referred to herein,
the Consolidated Fixed Charge Ratio of the Company for the four fiscal quarters
(taken as a whole) for which financial statements of the Company are available
(provided that the immediately preceding fiscal quarter shall be included in any
- ---------
such determination pursuant to this Section 6.1 made more than 45 days after the
end of such fiscal quarter) immediately preceding the fiscal quarter in which
such Indebtedness is to be created, incurred, issued, assumed, guaranteed or for
which the Company is otherwise to become liable, determined on a pro forma basis
--- -----
as if such Indebtedness has been created, incurred, issued, assumed, guaranteed
or for which the Company had otherwise become liable at the beginning of such
four fiscal quarter period (and, in the event the proceeds of such Indebtedness
are applied to the acquisition or to refinance the acquisition of a business
(within the meaning of Rule 11-01(d) of Regulation S-X (17 C.F.R. 210, 11-01(d))
of the Commission as in effect on the date hereof), after giving effect to the
earnings from continuing operations of such business during such four fiscal
quarters (determined in good faith by the Company in accordance with the rules
and regulations of the Commission, including Rule 11-02 of Regulation S-X (17
C.F.R. 210, 11-02) of the Commission as in effect on the date hereof) would be
greater than 2 to 1.
Notwithstanding the foregoing, the Company may, and may permit any of
its Subsidiaries to, become directly or indirectly liable for the following:
(i) the Company and its Subsidiaries may become liable with
respect to the Obligations and the Guarantee;
(ii) the Company may become and remain liable with respect
to the Indebtedness pursuant to the Senior Credit Agreement and its
Subsidiaries may become and remain liable with respect to their
guarantees of such Indebtedness; provided that the aggregate principal
--------
amount of borrowings outstanding under the Senior Credit Agreement
shall not exceed $210,000,000 less the sum of (a) the aggregate amount
of scheduled amortization payments of the principal amount of Senior
Credit Agreement Obligations to the extent actually made, (b) the
aggregate amount of mandatory prepayments of the principal amount of
Senior Credit Agreement Obligations actually made (including any
amounts paid in accordance with Section 3.01 of the Third Amended and
Restated Senior Secured Credit Agreement to the lenders thereunder)
and (c) each permanent reduction of commitments to extend credit under
the Senior Credit Agreement not otherwise caused pursuant to clause
(a) or (b);
(iii) the Company and its Subsidiaries may remain and may
become and remain liable with respect to Intercompany Indebtedness;
(iv) the Company and its Subsidiaries may remain liable with
respect to, and may refinance, the Indebtedness which is described on
Schedule B annexed hereto;
52
<PAGE>
(v) current liabilities for taxes and assessments incurred
in the ordinary course of business;
(vi) Indebtedness incurred by the Company under an interest
rate swap, cap or similar arrangement entered into in respect of any
Indebtedness permitted hereunder;
(vii) Permitted Purchase Money Indebtedness and
refinancings thereof;
(viii) Indebtedness with respect to letters of credit not
to exceed in the aggregate at any time the sum of $1,000,000;
(ix) Permitted Refinancing Indebtedness;
(x) Non-Recourse Debt incurred in connection with the
acquisition (directly or indirectly) of the Warehoused Real Property
and secured by Liens permitted by Section 6.5(ii) and refinancings
thereof which remain Non-Recourse Debt;
(xi) any promissory note issued by the Company or any of its
Wholly-owned Subsidiaries to fund the general partner's capital
contribution in an investment partnership or other pooled investment
vehicle of which the Company or any of its Subsidiaries is the general
partner and which partnership or other investment vehicle is engaged
solely in the business of acquiring, holding and disposing of Real
Property;
(xii) the Company and any Mortgage Banking Subsidiary may
become and remain liable with respect to Indebtedness of the Company
or such Mortgage Banking Subsidiary comprised of such entity's
obligation to repurchase mortgage loans pursuant to mortgage loan
purchase and sale agreements entered into in connection with Mortgage
Banking Activities;
(xiii) Melody Permitted Indebtedness and refinancings
thereof;
(xiv) Indebtedness of the Company comprised of a guarantee
by Company of the Melody Seller Senior Notes and the Melody Seller
Contingent Notes;
(xv) Indebtedness incurred in connection with Permitted
Acquisitions (including without limitation, (x) existing Indebtedness
of any Person that becomes a Subsidiary and (y) Indebtedness assumed
by the Company or any Subsidiary or that is secured by any asset
acquired by the
53
<PAGE>
Company or any Subsidiary, in each case upon consummation of such
Permitted Acquisition) and refinancings thereof, in an aggregate
amount not to exceed $50,000,000 at any time outstanding, provided
--------
that (i) at the time of incurrence of any such Indebtedness, the Pro
Forma Fixed Charges Coverage Ratio (as defined in the Senior Credit
Agreement) shall not be less than 1.0:1.0, (ii) no Default or Event of
Default shall have occurred and be continuing or shall result from the
Permitted Acquisition (including by reason of any Indebtedness
incurred in connection with such Permitted Acquisition), and (iii) not
more than $25,000,000 of such Indebtedness at any time outstanding
shall be Indebtedness that is not Permitted Seller Indebtedness; and
(xvi) in addition to the Indebtedness permitted by clauses
(i)-(xv), the Company and its Subsidiaries may become and remain
liable with respect to Indebtedness other than indebtedness for
borrowed money (the proceeds of which are not used to buy assets or
make Capital Expenditures) not exceeding $20,000,000 in the aggregate
at any time outstanding.
Section 6.2 Transactions with Shareholders and Affiliates.
---------------------------------------------
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder of 5% or more of any
class of equity securities of the Company (including, but not limited to, CB
Holdings) or with any Affiliate of the Company or of any such holder, on terms
that are less favorable to the Company or that Subsidiary, as the case may be,
than those which might be obtained at the time from Persons who are not such a
holder or Affiliate; provided, that the foregoing restriction shall not apply to
--------
(i) any transaction between the Company and any of its Wholly-owned Subsidiaries
or between any of its Wholly-owned Subsidiaries, (ii) customary fees paid to
members of the Board of Directors of the Company and its Subsidiaries, (iii) any
transaction between the Company or any of its Subsidiaries and any employee of
the Company or any of its Subsidiaries that is approved by the Company's Board
of Directors (provided, that such approval shall not be required with respect to
--------
normal compensation arrangements involving any such employee), (iv) transactions
pursuant to written agreements in effect prior to the Effective Date which have
previously been consented to by the Lender in writing, and (v) the sale,
assignment, transfer, lease or other disposition of Warehoused Real Property to
a partnership in which the Company or a Wholly-owned Subsidiary of the Company
is a general or limited partner or another pooled investment vehicle in which
the Company or any of its Subsidiaries has an interest or which is managed by
the Company or any of its Subsidiaries; and provided, further, that the
-------- -------
transactions referred to in clauses (i) through (v) above are otherwise
permitted by this Agreement.
54
<PAGE>
Section 6.3 Maintenance of Adjusted Consolidated Net Worth.
----------------------------------------------
If the Company's Adjusted Consolidated Net Worth at the end of any two
consecutive fiscal quarters on or after the Senior Loan Repayment Date is less
than $30,000,000, the Company shall make an offer to purchase (an "Offer") on
the last Business Day of the then current LIBOR Interest Period (or, if there is
less than 60 days remaining in the current LIBOR Interest Period, on the last
day of the next following LIBOR Interest Period) (the "Purchase Date") 10% of
the aggregate principal amount of the Loan then outstanding at a purchase price
of 100% of the principal amount plus interest accrued and unpaid to the Purchase
Date. In no event shall the failure to meet the minimum Adjusted Consolidated
Net Worth requirement stated above at the end of any fiscal quarter be counted
toward the making of more than one Offer hereunder.
Notice of an Offer shall be mailed by the Company not less than 25
days before the Purchase Date to the Lender. The Offer shall remain open from
the time of mailing until the fifth Business Day preceding the Purchase Date.
If less than 60 days remain in the current LIBOR Interest Period, the Company
shall select a one month LIBOR Interest Period as the next LIBOR Interest
Period, and the Purchase Date shall be the last day of such one-month period.
The notice shall contain all instructions and materials necessary to
enable the Lender to accept the Offer. If the Lender elects to accept the
Offer, it will notify the Company at the address specified in the notice five
Business Days prior to the Purchase Date. If the Lender makes timely acceptance
of an Offer then the Company shall pay, as the purchase price, an amount equal
to 10% of the aggregate principal amount of the Loan then outstanding on the
Purchase Date, together with interest accrued on the amount so paid through the
Purchase Date.
Section 6.4 Restricted Junior Payments.
--------------------------
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any Restricted
Junior Payment, except (i) dividends, distributions or payments by any
------
Subsidiary to the Company or a Wholly Owned Subsidiary of the Company, (ii) so
long as no Default or Event of Default has occurred and is continuing, dividends
or distributions by any Subsidiary to the Company and any other Person that is a
stockholder or owner of another equity interest in such Subsidiary, so long as,
in the case of each such dividend and distribution, the amounts thereof paid to
the Company and such other Person are in the same proportion as the respective
contributions to the capital of such Subsidiary made by the Company and such
other Person, and (iii) if no Default or Event of Default shall exist, or as a
result of the proposed declaration, payment or other event would exist:
A. the Company may declare and pay dividends on its Capital Stock to
the extent necessary to enable Holdings to pay expenses of its operations in the
ordinary course of business, in an amount not to exceed $50,000 in any year;
55
<PAGE>
B. the Company may declare and pay dividends on its Capital Stock as
follows:
(1) prior to December 31, 1999, the Company may declare and
pay dividends on its Capital Stock to the extent necessary to permit
CB Holdings to pay dividends accrued on its outstanding Series A-1,
Series A-2 and Series A-3 Preferred Stock in the period from October
1, 1996 through the fiscal quarter last ended prior to the date of
such payment by the Company (and not dividends accrued on such
Preferred Stock in any period prior to October 1, 1996), or interest
with respect to such accrued but unpaid dividends all in accordance
with the certificates of designation with respect thereto in effect on
the Effective Date; and
(2) after December 31, 1999, the Company may declare and pay
dividends on its Capital Stock to the extent necessary to permit CB
Holdings to pay dividends accrued on its outstanding Series A-1,
Series A-2 and Series A-3 Preferred Stock in the period of four fiscal
quarters ended immediately prior to the date of such payment by the
Company (and not dividends accrued on such Preferred Stock in any
prior period) that may be declared by the Board of Directors of
Holdings, or interest with respect to such accrued but unpaid
dividends, all in accordance with the certificates of designation with
respect thereto in effect on the Effective Date;
provided, however, that the total amount of dividend and interest
-------- -------
payments made by Company pursuant to clauses B.(1) and B.(2) does not exceed 50%
of Consolidated Net Income (as defined in the Senior Credit Agreement) for the
period commencing on the first day of the fiscal quarter within which the
Effective Date occurs and ending on the last day of the last fiscal quarter
ending prior to the date of declaration, taken as a single accounting period.
Section 6.5 Liens.
-----
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, create, incur, assume or permit to exist any Lien upon or with
respect to any of the property or assets of the Company or any of its
Subsidiaries whether now owned or hereafter acquired, or on any income or
profits therefrom, or assign or otherwise convey any right to receive income to
secure any Indebtedness which is pari passu or junior in right of payment to the
---- -----
Loan, unless, contemporaneously therewith, effective provision shall be made
whereby the Loan is secured equally and ratably with such other Indebtedness
which is pari passu or junior in right of payment to the Loan and secured by a
---- -----
Lien, pursuant to documentation providing that the Lender shall be entitled to
vote as its interests appear in connection with the release of or enforcement
against any property or assets subject to such Lien; provided that the
--------
restrictions of this Section 6.5 shall not prohibit the creation or incurrence
of (i) Permitted Encumbrances, (ii) Liens on assets securing Non-Recourse Debt
incurred in connection with the acquisition of Warehoused Real Property so long
as any such Lien does not encumber any property other than assets constructed or
acquired with the proceeds of such Indebtedness, (iii) Liens on Permitted
Investments owned by Melody, to secure Indebtedness under the Melody Loan
Arbitrage
56
<PAGE>
Facility, if such Permitted Investments were acquired by Melody with the
proceeds of incurrence of such Indebtedness, and (iv) Liens on commercial
mortgage loans originated and owned by Melody subject to an irrevocable,
unconditional commitment to purchase such commercial mortgage loans made by the
Federal Home Loan Mortgage Corporation, to secure Indebtedness of Melody under
the Melody Warehousing Facility; provided further that any Liens granted
--------
pursuant to this Section 6.5 shall be subject to the provisions of the
Intercreditor Agreement.
Section 6.6 Mergers.
-------
A. The Company shall not consolidate or merge with, or sell, assign,
transfer or lease all or substantially all of its assets in a single transaction
or a series of related transactions to, any person unless:
(i) the person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale,
assignment, transfer or lease or conveyance shall have been made, is a
corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia;
(ii) the corporation formed by or surviving any such
consolidation or merger (if other than the Company), or to which such
sale or conveyance shall have been made, assumes by written agreement
all the obligations of the Company under the Loan and this Agreement;
(iii) immediately after giving effect to such transaction
no Event of Default or Potential Event of Default exists and
immediately after such transaction, the Company (or the corporation
formed by or surviving such consolidation or merger if other than the
Company) could incur $1.00 of Indebtedness under the first paragraph
of Section 6.1;
(iv) the Company or any corporation formed by or surviving
any such consolidation or merger, or to which such sale or conveyance
shall have been made shall have Consolidated Net Worth at least equal
to the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(v) the Company has delivered to the Lender an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (iv)) and an Opinion of Counsel, each stating
that such consolidation, merger or transfer complies with this
subsection 6.6A and that all conditions precedent set forth in this
subsection 6.6A relating to such transactions have been complied with
provided that with respect to factual information included in the
foregoing (including, without limitation, matters contained in
subparagraphs (iii) and (iv)),
57
<PAGE>
counsel may rely upon a certificate of an officer of the Company as to
such matters.
B. Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with subsection
6.6A, the successor person formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, and shall perform
every obligation of the Company under this Agreement with the same effect as if
such successor person had been named as the Company herein, and all the
obligations of the Company hereunder and under the Notes shall terminate.
Section 6.7 Limitation on Sale of Less Than Substantially All Assets.
--------------------------------------------------------
Neither the Company nor any of its Subsidiaries will make any Asset
Sale, unless (a) at the time thereof and after giving pro forma effect thereto
--- -----
(after application of proceeds), the Company's Consolidated Fixed Charge Ratio
for the four fiscal quarters (taken as a whole) for which financial statements
of the Company are available (provided, that the immediately preceding fiscal
--------
quarter shall be included in any such determination pursuant to this Section 6.7
made more than 45 days after the end of such fiscal quarter) immediately
preceding the fiscal quarter in which such Asset Sale is to occur, determined on
a pro forma basis as if such Asset Sale had occurred at the beginning of such
--- -----
four-fiscal quarter period, is greater than 2.5 to 1 or (b)(i) the Company or
its Subsidiary receives consideration at the time of and for such Asset Sale at
least equal to the fair value (which, if greater than $2,500,000, shall be as
determined in good faith by the Board of Directors, including valuation of all
non-cash consideration) of the assets disposed of in such Asset Sale as of the
date of such Asset Sale and (ii) the Company complies with Section 2.6;
provided, however, that so long as any loans under the Senior Credit Agreement
- -------- -------
remain outstanding, this Section 6.7 shall not prohibit any Asset Sale which
would be permitted under Section 6.08 of the Senior Credit Agreement.
Notwithstanding the foregoing, nothing contained herein shall prevent the
Company from selling all or any part of its ownership interest in CB Canada.
Section 6.8 Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Subsidiaries.
- ----------------------
The Company will not, and will not permit any Subsidiary of the
Company to, directly or indirectly, create or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction on the ability of
any Subsidiary of the Company to (a) pay dividends or make any other
distributions on its Capital Stock or any other interest or participation in, or
measured by, its profits owned by, or pay any Indebtedness owed to, the Company
or a Subsidiary of the Company, (b) make loans or advances to the Company or a
Subsidiary of the Company or (c) transfer any of its properties or assets to the
Company or to any Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reasons of (i) any restrictions existing under
or contemplated by agreements in effect on the date hereof, (ii) any
restrictions existing under or contemplated by the Senior Credit Agreement;
(iii) any restrictions, with respect to a Subsidiary of the Company that is not
a Subsidiary of the Company on the date hereof, in existence at the time such
Person becomes a Subsidiary of the
58
<PAGE>
Company and (iv) any restrictions existing under any agreement that refinances
or replaces the agreements containing the restrictions in clauses (i) and (ii);
provided that the terms and conditions of any such restrictions are not
- --------
materially less favorable to the Lender than those under or pursuant to the
agreement evidencing the Indebtedness refinanced. Nothing contained in this
Section 6.8 shall prevent the Company or any of its Subsidiaries from entering
into any agreement (i) imposing any such restrictions or limitations upon
Westmark, Westmark Acquisition Partnership, or any Subsidiary pursuant to any
Permitted Acquisition, (ii) permitting or providing for the incurrence of Liens
otherwise permitted by Section 6.5 or (iii) restricting the sale or other
disposition of property securing Indebtedness.
Section 6.9 Certain Tax Payments.
--------------------
If the Company Group (as such term is defined in the definition of
"Permitted Tax Payment" in Section 1.1 of this Agreement) would, assuming it has
filed a separate federal consolidated income tax return for each taxable year
ending after April 18, 1989, be entitled to a refund of federal income tax,
together with interest thereon, for a taxable year (whether resulting from a tax
attribute carryback or otherwise) (a "Refund"), then CB Holdings shall pay (at
the time a Refund is received by CB Holdings from the Internal Revenue Service
or a final determination is otherwise made with respect to items resulting in a
Refund) an amount equal to the Refund to the Company; provided that the amount
--------
of such payment shall not exceed the amount paid by the Company as a Permitted
Tax Payment for such taxable year plus interest on such amount at the rate
specified in Section 6621 of the Code for overpayments of tax. In the event
that CB Holdings and any member of the Company Group join in filing any combined
or consolidated (or similar) state or local income or franchise tax returns for
a taxable year and a member of the Company Group is entitled to a refund of
state or local income or franchise taxes with respect to such taxable year, then
CB Holdings shall pay (at the time it receives such refund from such taxing
authority) an amount to the Company determined in a manner as similar as
possible to that provided in the preceding sentence for federal income taxes.
Any refund (together with interest actually received thereon) of taxes
paid by a member of the Company Group for a taxable year ending prior to such
member's becoming a member of the CB Holdings Group (whether such refund arises
from a tax attribute carryback from the CB Holdings Group or otherwise) shall be
the property of such member.
Section 6.10 Limitation on Creation of Senior Debt.
-------------------------------------
The Company will not incur or agree or attempt to incur any Senior
Debt (including Permitted Refinancing Indebtedness) which is not fully and
adequately secured, and the Company will not affirmatively cause any Senior Debt
to become other than fully and adequately secured; provided, however, that this
-------- -------
covenant shall be deemed satisfied if the Company delivers an Officers'
Certificate certifying that such Senior Debt is fully and adequately secured;
and provided, further, that no such Officers' Certificate shall be required and
-------- -------
this Section 6.10 shall be satisfied to the extent that Permitted Refinancing
Indebtedness is secured by the same collateral that secures the Senior Credit
Agreement Obligations at the time of any such refinancing thereof.
59
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Section 6.11 Restrictions on Investments in Warehoused Real Property.
-------------------------------------------------------
The Company or any of its Subsidiaries may make Investments in
Warehoused Real Property so long as at the time any such Investment is made (A)
the aggregate amount of all such Investments then outstanding in connection with
the purchase or other acquisition of all Warehoused Real Property does not
exceed twenty percent (20%) of the Company's Adjusted Consolidated Net Worth as
of the most recent quarter (less the amount by which aggregate losses exceed
aggregate gains realized from all Investments made pursuant to this Section
6.11) and (B) the amount of any such single Investment made by the Company or
any of its Subsidiaries does not exceed ten percent (10%) of the Company's
Adjusted Consolidated Net Worth as of the most recent fiscal quarter.
Section 6.12 General.
-------
The Company covenants and agrees that until payment in full of the
Loan and the Notes and all amounts due under this Agreement at the time of such
termination or payment have been indefeasibly paid in full, unless the Lender
shall otherwise give prior written consent, the Company will perform all
covenants in this Article VI.
Section 6.13 Certain Financial Covenants in Senior Credit Agreement.
------------------------------------------------------
On and after the Senior Loan Repayment Date, each of the covenants and
agreements of the Company set forth in Section 6.05 and 6.06 of the Third
Amended and Restated Senior Secured Credit Agreement dated as of November 25,
1996 (the "Surviving Financial Covenants") shall be deemed to be included and
-----------------------------
incorporated by reference in this Article VI, mutatis mutandis, for the benefit
of the Lender, without regard to the continuing effectiveness or, or any
amendments of, such Senior Secured Credit Agreement; and the Company covenants
and agrees to perform each and all of the Surviving Financial Covenants as if
expressly contained herein and made in favor of the Lender hereunder; provided,
however, that each requirement established by such Surviving Financial Covenants
shall continue to apply until all amounts owing to the Lender in connection with
the Loan or otherwise hereunder are paid in full; and provided, further, that
for purposes of the calculation of "Consolidated Interest Expense" as used in
the Surviving Financial Covenants shall include all interest payable in kind or
in cash accrued hereunder.
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ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 Events of Default.
-----------------
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
A. Failure to Make Payments When Due.
---------------------------------
Failure to pay any installment of principal of the Loan when due,
whether at stated maturity, by acceleration, by notice of prepayment, by
operation of Section 2.5 or otherwise; or failure to pay any interest on the
Loan within 15 days after the date due (in each case whether or not such payment
is prohibited by Article VIII); or
B. Default in Other Agreements.
---------------------------
Failure of the Company or any of its Subsidiaries to pay principal of
Indebtedness (other than Indebtedness referred to in subsection A of this
Section 7.1 and Non-Recourse Debt) in an aggregate amount of $2,500,000 or more
at its stated maturity, or breach or default of the Company or any of its
Subsidiaries with respect to any other material term of (x) any evidence of
Indebtedness with an aggregate principal amount of $2,500,000 or more or (y) any
loan agreement, mortgage, indenture or other agreement relating thereto, if the
effect of such failure, default or breach is to cause the holder or holders of
that Indebtedness (or a trustee on behalf of such holder or holders) of the
Company or any of its Subsidiaries then to cause that Indebtedness to be
declared due prior to its stated maturity; or
C. Breach of Certain Covenants.
---------------------------
Failure of the Company to perform or comply with any term or condition
contained in Sections 2.11, 5.2 (in so far as it requires preservation of the
corporate existence of the Company), 5.11 or Article VI; or
D. Breach of Warranty.
------------------
Any representation or warranty made by the Company in any Loan
Document or in any statement or certificate at any time given by the Company in
writing pursuant hereto or thereto or in connection herewith or therewith shall
be false in any material respect on the date as of which made; or
E. Other Defaults Under Agreement or Loan Documents.
------------------------------------------------
(a) The Company shall default in the performance of or compliance with
any material term contained in this Agreement or the other Loan Documents, other
than
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those referred to above in Subsection A, C or D of this Section 7.1 (b) CB
Holdings shall default in the performance of or compliance with any material
covenant contained in the Stock Pledge Agreement or (c) the Guarantors shall
default in the performance of or compliance with any material covenant contained
in the Guarantee, and, in each case, such default shall not have been remedied
or waived within 30 days after receipt of written notice from the Lender of such
default; or
F. Involuntary Bankruptcy; Appointment of Receiver, Etc.
-----------------------------------------------------
(1) A court having jurisdiction in the premises shall enter a decree
or order for relief in respect of CB Holdings, the Company or any Material
Subsidiary in an involuntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, which
decree or order is not stayed; or any other similar relief shall be granted
under any applicable federal or state law; or (2) an involuntary case is
commenced against CB Holdings, the Company or any Material Subsidiary under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over CB Holdings, the Company, or any
Material Subsidiary, or over all or a substantial part of any of their
respective properties, shall have been entered; or an interim receiver, trustee
or other custodian of CB Holdings, the Company or any Material Subsidiary for
all or a substantial part of the property of CB Holdings, the Company or any
Material Subsidiary is involuntarily appointed; or a warrant of attachment,
execution or similar process is issued against any substantial part of the
property of CB Holdings, the Company or any Material Subsidiary, and the
continuance of any such events in subpart (2) for 60 days unless dismissed,
bonded or discharged; or
G. Voluntary Bankruptcy; Appointment of Receiver, Etc.
--------------------------------------------------
CB Holdings, the Company or any Material Subsidiary shall have an
order for relief entered with respect to it or commence a voluntary case under
the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or shall consent to the entry of an order for
relief in an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; the making by CB Holdings, the Company, or any
Material Subsidiary of any assignment for the benefit of creditors; the
admission by CB Holdings, the Company or any of Material Subsidiaries in writing
of its inability to pay its debts as such debts become due; or the Board of
Directors of CB Holdings, the Company or any Material Subsidiary (or any
committee thereof) adopts any resolution or otherwise authorizes action to
approve any of the foregoing; or
H. Judgments and Attachments.
-------------------------
Any money judgment, writ or warrant of attachment, or similar process
involving in any individual case or in the aggregate at any time an amount in
excess of $2,500,000 shall be entered or filed against CB Holdings, the Company,
or any Material Subsidiary or any of
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their respective assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of 30 days or in any event later than ten days prior to
the date of any proposed sale thereunder; or
I. Dissolution.
-----------
Any order, judgment or decree shall be entered against CB Holdings,
the Company or any Material Subsidiary decreeing the dissolution or split up of
CB Holdings, the Company or any Material Subsidiary and such order shall remain
undischarged or unstayed for a period in excess of 30 days; or
J. Foreclosure Under Senior Credit Agreement.
-----------------------------------------
The lenders party to the Senior Credit Agreement or Permitted
Refinancing Indebtedness acting together, directly or indirectly, after any
event of default under, and as defined in, the Senior Credit Agreement or other
documents has occurred shall commence judicial proceedings to foreclose upon any
material portion of the collateral subject to the security documents delivered
in connection with the Senior Credit Agreement or shall have exercised any right
under law or such security documents to take ownership of any such material
portion in lieu of foreclosure.
THEN (i) upon the occurrence of any Event of Default described in the
foregoing subsections F or G of Section 7.1 the unpaid principal amount of and
accrued interest on the Loan shall automatically become immediately due and
payable, without presentment, demand, protest or other requirements of any kind,
all of which are hereby expressly waived by the Company, and the obligation of
the Lender hereunder shall thereupon terminate, and (ii) upon the occurrence of
any other Event of Default, the Lender may, by written notice to the Company and
the Senior Agent, if applicable declare the Loan to be, and the same shall
forthwith become, due and payable, together with accrued interest thereon and
the obligations of the Lender hereunder shall thereupon terminate; provided,
--------
however, that if any declaration of acceleration under this Agreement occurs
- -------
because an Event of Default set forth in subsection B of this Section 7.1 has
occurred and is continuing, such declaration of acceleration shall be
automatically annulled if the holders of the Indebtedness which is the subject
of such Event of Default have rescinded their acceleration in respect of such
Indebtedness within 30 days thereof and no other Event of Default has occurred
during such 30-day period which has not been cured or waived. Nevertheless, if
any time within 60 days after acceleration of the maturity of the Loan, the
Company shall pay all arrears of interest and all payments on account of the
principal which shall have become due otherwise than by acceleration (with
interest on principal and, to the extent permitted by law, on overdue interest,
at the rates specified in this Agreement or the Notes) and all Events of Default
and Potential Events of Default (other than non-payment of principal of and
accrued interest on the Loan due and payable solely by virtue of acceleration)
shall be remedied or waived pursuant to Section 9.6, then the Lender by written
notice to the Company may rescind and annul the acceleration and its
consequences; but such action shall not affect any subsequent Event of Default
or Potential Event of Default or impair any right consequent thereon.
Notwithstanding anything in this Section 7.1 to the contrary, the Lender shall
not accept any payment or prepayment from the Company until five Business Days
after
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notice shall have been given to the Senior Agent, if applicable, and the Lender
will be entitled to receive payment or prepayment only to the extent permissible
under the provisions of Article VIII of this Agreement.
ARTICLE VIII
SUBORDINATION
Section 8.1 Obligations Subordinated to Senior Debt.
---------------------------------------
The Company and the Guarantors covenant and agree, and the Lender
likewise covenants and agrees, that:
(a) to the extent and in the manner hereinafter set forth in this
Article VIII, the Obligations are hereby expressly made subordinate and subject
in right of payment to the prior payment in full in cash of all Senior
Indebtedness;
(b) the subordination is for the benefit of the lender under the
Senior Credit Agreement and other holders of Senior Indebtedness; and
(c) each holder of Senior Indebtedness whether now outstanding or
hereafter created, incurred, assumed or guaranteed shall be deemed to have
extended or acquired such Senior Indebtedness in reliance upon the covenants and
provisions contained in this Agreement.
Section 8.2 Subordination Upon Insolvency or Liquidation Proceedings.
--------------------------------------------------------
In the event of any Insolvency or Liquidation Proceeding:
(a) Upon any payment or distribution of assets or securities of any
kind or character, whether in cash, securities or other property, all Senior
Indebtedness shall first be paid in full in cash or in a manner satisfactory to
the holders of Senior Indebtedness before the Lender is entitled to receive any
payment or distribution of any cash, securities or other property on account of
principal of or interest on or other amounts constituting Obligations.
(b) The holders of Senior Indebtedness shall be entitled to receive
directly (pro rata on the basis of the respective amounts of Senior Indebtedness
--- ----
held by them), for application to the payment thereof (to the extent necessary
to pay all such Senior Indebtedness in full after giving effect to any
substantially concurrent payment to the holders of such Senior Indebtedness),
any payment or distribution of any kind or character, whether in cash,
securities or other property (including any payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Company or the Guarantors being subordinated to the payment of the Obligations)
which may be payable or deliverable in respect of the Obligations in any such
Insolvency or Liquidation Proceeding.
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(c) In the event that, notwithstanding the foregoing provisions of
this Section 8.2, the Lender shall have received any payment from or
distribution of assets or securities of the Company or the Guarantors or the
estate created by the commencement of any such Insolvency or Liquidation
Proceeding, of any kind or character in respect of the Obligations, whether in
cash, securities or other property (including any payment or distribution which
may be payable or deliverable by reason of the payment of any other Indebtedness
of the Company or the Guarantors being subordinated to the payment of the
Obligations) before all Senior Indebtedness is paid in full, then and in such
event such payment or distribution shall be received and held in trust for and
shall be paid over or delivered to the holders of the Senior Indebtedness
remaining unpaid (pro rata on the basis of the respective amounts of such Senior
--------
Indebtedness held by them), to the extent necessary to pay all such Senior
Indebtedness in full after giving effect to any substantially concurrent payment
to the holders of such Senior Indebtedness, for application to the payment in
full of such Senior Indebtedness.
Section 8.3 No Payment on Obligations in Certain Circumstances.
--------------------------------------------------
(a) Upon the maturity of any Senior Indebtedness, by lapse of time,
acceleration or otherwise (including the time of due payment (including any
mandatory prepayment) of any principal or interest), all principal thereof and
interest thereon and other amounts constituting Senior Indebtedness shall first
be paid in full in cash or in a manner satisfactory to the holders of Senior
Indebtedness before any payment or distribution is made by or on behalf of the
Company or the Guarantors on account of principal of or interest on or other
amounts constituting Obligations.
(b) Upon the happening and continuing of any default in respect of the
payment of any Senior Indebtedness (a "Payment Default"), no direct or indirect
payment or distribution shall be made by the Company or the Guarantors on
account of the principal of or interest on or other amounts constituting
Obligations, unless and until (i) such Payment Default shall have been cured or
waived by the holders of the respective Senior Indebtedness or shall have ceased
to exist or (ii) the holder or holders of the respective Senior Indebtedness
shall have waived in writing the application of this Section 8.3(b) to such
Payment Default.
(c) Without limiting the effect of Section 8.3(b), upon the happening
and continuing of any default or event of default (other than a Payment Default)
with respect to any Senior Indebtedness, as such default or event of default is
defined in the Senior Credit Agreement or in any instrument, agreement or other
document under which such Senior Indebtedness is outstanding (a "Non-Payment
Default"), then upon written notice thereof given to the Company by the Senior
Agent, by holders of a majority in principal amount of the Indebtedness under
the Senior Credit Agreement or the agreement governing Permitted Refinancing
Indebtedness, or by the holders of a majority in principal amount of all Senior
Indebtedness ("Payment Blockage Notice"), no direct or indirect payment or
distribution shall be made by the Company or the Guarantors on account of the
principal of or interest on or other amounts constituting Obligations unless and
until (i) such Non-Payment Default shall have been cured or waived by the holder
or holders of the respective Senior Indebtedness or shall have ceased to exist
or (ii) the holder or holders of the respective Senior Indebtedness shall have
waived in writing the application of this Section 8.3(c) to such Non-Payment
Default; provided,
--------
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however, that (A) this Section 8.3(c) shall not prevent the making of any
- -------
payment for more than 179 days after a Payment Blockage Notice shall have been
given or deemed to have been given ("Payment Blockage Period") unless the Senior
Indebtedness in respect of which such default or event of default exists has
been declared due and payable in its entirety, in which case no payment or
distribution may be made until such acceleration has been rescinded or annulled
and (B) not more than one effective Payment Blockage Notice shall be given
within a period of 360 consecutive days and there shall be a period of at least
181 consecutive days in each 360-day period when no Payment Blockage Period is
in effect.
(d) In the event that, notwithstanding the foregoing provisions of
Section 8.3(a), (b) or (c), the Lender shall have received any payment or
distribution at a time when such payment was prohibited by the provisions of
Section 8.3(a), (b) or (c) then and in such event such payment or distribution
shall be received and held in trust for and shall be paid over to the holders of
Senior Indebtedness (pro rata, on the basis of the respective amounts of such
--- ----
Senior Indebtedness held by them), to the extent necessary to pay all such
Senior Indebtedness in full after giving effect to any substantially concurrent
payment to the holders of such Senior Indebtedness, for application to the
payment in full of Senior Indebtedness.
(e) The provisions of this Section 8.3 shall not modify or limit
in any way the application of Section 8.2.
Section 8.4 Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
After all amounts payable under or in respect of Senior Indebtedness
are paid in full, the Lender shall be subrogated to the extent of the payments
or distributions made to the holders of, or otherwise applied to payment of,
such Senior Indebtedness pursuant to the provisions of this Article VIII, to the
rights of the holders of such Senior Indebtedness to receive payments and
distributions of cash, securities and other property applicable to the Senior
Indebtedness until the principal of and interest on the Obligations shall be
paid in full. For purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, securities or other property
to which the Lender would be entitled except for the provisions of this Article
VIII, and no payments over pursuant to the provisions of this Article VIII to
the holders of the Senior Indebtedness by the Lender shall be deemed to be a
payment or distribution by the Company or the Guarantors to or on account of the
Senior Indebtedness, it being understood that the provisions of this Article
VIII are solely for the purpose of defining the relative rights of the Lender,
on the one hand, and the holders of Senior Indebtedness on the other hand. A
release of any claim by any holder of Senior Debt shall not, as between the
Company, the Guarantors and the Lender, limit the Lender's rights of subrogation
under this Section 8.4.
Section 8.5 Rights of Holders Not to be Impaired.
------------------------------------
Nothing contained in this Article VIII is intended to or shall:
(a) impair, as among the Company or the Guarantors, their respective
creditors other than holders of Senior Indebtedness and the Lender, the
obligation of the
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Company or the Guarantors, which is absolute and unconditional, to pay to the
Lender the principal of and interest on the Obligations as and when the same
shall become due and payable in accordance with its terms; or
(b) affect the relative rights against the Company or the Guarantors
of the Lender and creditors of the Company or the Guarantors other than the
Senior Indebtedness; or
(c) prevent the Lender from exercising all remedies otherwise
permitted by applicable law upon default under this Agreement, subject to the
rights, if any, under this Agreement of the holders of Senior Indebtedness to
receive payments or distributions otherwise payable or deliverable to, or
received by, such holder upon the exercise of any such remedy and subject to the
restrictions with respect to Liens set forth in Article III of the Intercreditor
Agreement.
Section 8.6 Effectuation of Subordination.
-----------------------------
In the event of any Insolvency or Liquidation Proceeding, the Senior
Agent is irrevocably authorized and empowered, in its discretion, to make and
present for and on behalf of the Lender such proofs of claims against the
Company or the Guarantors on account of the Obligations or other motions or
pleadings as the Senior Agent may deem expedient or proper; provided, however,
-------- -------
the Senior Agent may make and present such proofs of claims only if the Lender
has not filed such proofs of claims by the thirtieth day prior to the date on
which such claims are required to be filed. After such thirty-day period, if
the Lender has not filed such proofs of claims, the Lender irrevocably
authorizes and empowers the Senior Agent to file claims and take such other
actions (other than vote such proof of claims in such proceedings), in the name
of the Senior Agent or the Lender or otherwise, as the Senior Agent may deem
necessary or advisable for the enforcement of this Agreement. In such event,
the Lender will execute and deliver to the Senior Agent such powers of attorney,
assignments and other instruments or documents as may be requested by the Senior
Agent in order to enable such Senior Agent to enforce any and all claims upon or
with respect to the Obligations.
Section 8.7 No Waiver of Subordination Provisions.
-------------------------------------
No right of the Senior Agent under the Senior Credit Agreement or any
other holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or the Guarantors or by any act or
failure to act by the Senior Agent under the Senior Credit Agreement or any such
holder or by any noncompliance by the Company or the Guarantors with the terms,
provisions and covenants of this Agreement or the Senior Credit Agreement
regardless of any knowledge thereof which the Senior Agent or such other holder
thereof may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the Senior Agent under the Senior Credit Agreement and any other holders of
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to the Lender, without
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incurring responsibility to the Lender and without impairing or releasing the
subordination and other benefits provided in this Agreement or the obligations
hereunder of the Lender to the holders of Senior Indebtedness, do any one or
more of the following even if any right to reimbursement or subrogation or other
right or remedy of the Lender is affected, impaired or extinguished thereby:
(a) change the manner, place or terms of payment or change or extend
the time of payment of, or renew, exchange, amend or alter, the terms of any
Senior Indebtedness, any security therefor or guaranty thereof or any liability
of the Company, the Guarantors or any other guarantor to such holder, or any
liability incurred directly or indirectly in respect thereof, or otherwise
amend, renew, exchange, modify or supplement in any manner Senior Indebtedness
or any instrument evidencing or guaranteeing or securing the same or any
agreement under which Senior Indebtedness is outstanding;
(b) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and any order any property pledged, mortgaged
or otherwise securing Senior Indebtedness or any liability of the Company or the
Guarantors or any other guarantor to such holder, or any liability incurred
directly or indirectly in respect thereof;
(c) settle or compromise any Senior Indebtedness or any other
liability of the Company or the Guarantors or any other guarantor of the Senior
Indebtedness to such holder or any security therefor or any liability incurred
directly or indirectly in respect thereof and apply any sums by whomsoever paid
and however realized to any liability (including, without limitation, Senior
Indebtedness) in any manner or order; and
(d) fail to take or to record or otherwise perfect, for any reason or
for no reason, any Lien securing Senior Indebtedness by whomsoever granted,
exercise or delay in or refrain from exercising any right or remedy against the
Company or the Guarantors or any security or any other guarantor or any other
Person, elect any remedy and otherwise deal freely with the Company or the
Guarantors and security and any other guarantor of the Senior Indebtedness or
any liability of the Company or the Guarantors or any other guarantor to such
holder or any liability incurred directly or indirectly in respect thereof.
The Lender by purchasing or accepting the Note waives any and all
notice of the creation, modification, renewal, extension or accrual of any
Senior Indebtedness and notice of or proof of reliance by any holder of Senior
Indebtedness upon this Agreement and the Senior Indebtedness shall conclusively
be deemed to have been created, contracted or incurred in reliance upon this
Agreement, and all dealings between the Company or the Guarantors and the
holders of Senior Indebtedness shall be deemed to have been consummated in
reliance upon this Agreement.
Section 8.8 Reliance on Court Orders; Evidence of Status.
--------------------------------------------
Upon any payment or distribution of assets of the Company or the
Guarantors referred to in Section 8.2, the Lender shall be entitled to rely upon
a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other Person making such payment or
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distribution delivered to the Lender for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness and other indebtedness of the Company or the Guarantors, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or this Article VIII.
Section 8.9 Payment.
-------
A payment with respect to principal of or interest on the Obligations
shall include, without limitation, payment of principal of and interest on the
Loan, any depositing of funds for the defeasance of the Obligations, any sinking
fund and any payment on account of mandatory prepayment or optional redemption
provisions.
Section 8.10 Section Not to Prevent Events of Default.
----------------------------------------
The failure to make a payment on account of principal of or interest
on or other amounts constituting Obligations by reason of any provision of this
Article VIII shall not be construed as preventing the occurrence of an Event of
Default under Article VII.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Representation of the Lender.
----------------------------
The Lender hereby represents that it is a limited liability company
engaged in finance.
Section 9.2 Assignment.
----------
(a) This Agreement shall be binding upon and shall be enforceable by
the Company, the Lender and their respective successors and assigns, provided
--------
that, except as provided in Section 6.6 the Company shall have no right to
- ----
assign or otherwise transfer its rights or obligations hereunder without the
prior written consent of the Lender. The Lender may assign, grant
participations in or otherwise transfer all or any portion of its rights and
obligations hereunder, and any such assignment, participation or other transfer
shall be effective and binding upon the Company as of the date of such
assignment, participation or other transfer subject to the Lender and the
Company having complied with the requirements of subsection (b) of this Section
9.2 hereof. Upon any such assignment or transfer by the Lender, the assignee or
transferee shall be (i) entitled, to the extent of the interest transferred, to
the benefit of the indemnities, the covenants and the yield protection
provisions pursuant to the provisions of this Agreement (including without
limitation the provisions of Section 2.3, 2.12, 2.13, 2.14, 2.15 and 9.4) as
fully as if a party hereto and (ii) subject to all of the obligations of the
Lender hereunder (including without limitation the provisions of Section 2.14
and this Section 9.2) as
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fully as if a party hereto. Upon any such participation by the Lender, the
participant shall be (i) entitled, to the extent of the interest transferred, to
the benefit of the indemnities, the covenants and the yield protection
provisions pursuant to the provisions of this Agreement (including without
limitation the provisions of Section 2.3, 2.12, 2.15, 2.14, 2.15 and 9.4) as
fully as if a party hereto and (ii) subject to all of the obligations of the
Lender under the provisions of Section 2.14 and this Section 9.2 as fully as if
a party hereto.
(b) The Company shall, during the term of this Agreement, maintain on
its books a record of the beneficial interests held in this Agreement based upon
the information which the Lender is required to provide pursuant to this Section
9.2. Upon any assignment, participation or other transfer by the Lender of any
of its interests hereunder, the Lender shall provide, or cause to be provided,
to the Company, a statement or certificate signed under penalty of perjury by
each person which is a participant, assignee or transferee setting forth such
person's name and address and, with respect to any person which is not a United
States Person, certifying that (i) such person is not a United States Person,
(ii) such person is not licensed to conduct a banking business or to accept
deposits from members of the public and, in fact, does not accept such deposits,
(iii) such person is not a 10% shareholder of the Company or any Guarantor
within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code of 1986,
as amended and (iv) such person undertakes with the Lender for the benefit of
the Lender and the Company, to provide to the Lender and the Company such tax
forms as may reasonably be requested from time to time by the Lender or the
Company to ensure the availability to the Company of an exemption from United
States withholding tax on interest pursuant to Sections 871(h) and 881(c) of the
Internal Revenue Code of 1986, as amended. Such statements or certificates
given by a person that is not a United States Person shall be accompanied by a
copy of a Certificate of Foreign Status (Internal Revenue Code Form W-8) duly
executed by each person named in such statements or certificates. The Lender
shall also provide or cause to be provided to the Company from time to time any
other documentation or information required by Temporary Treasury Regulation
Section 35a.9999-5(b) or any successor provision, or by any other provision of
law, with respect to any such applicable exemption from United States
withholding tax on interest with respect to payments to be made hereunder. The
Company shall promptly record the beneficial interest of each such assignee,
participant or transferee upon the Lender's compliance with the requirements of
subsection (a) hereof and this subsection (b), and the Company shall, upon the
request of the Lender or any such assignee, participant or transferee, provide a
certification of the beneficial interest of such assignee, participant or
transferee (which certification shall be provided at no cost to the Lender or
such assignee, participant or transferee). The Company shall have no liability
to the Lender or any such assignee, participant or transferee for any error in
the recordation of such information on its books other than an error arising
from the Company's gross negligence or willful misconduct.
(c) In connection with any sales, assignments or transfers referred to
in subsection (a) of this Section 9.2, the Lender shall obtain agreements from
the purchasers, assignees and transferees, as the case may be, reasonably
satisfactory to the Company, that all information given to such parties will be
held in strict confidence subject to customary exceptions.
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Section 9.3 Expenses.
--------
Whether or not the Effective Date occurs or the transactions
contemplated hereby shall be consummated, the Company agrees to promptly pay to
Lender (i) all the actual and reasonable costs and expenses of preparation of
the Loan Documents (including, without limitation, any opinions requested by the
Lender as to any legal matters arising hereunder) and of the Company's
performance of and compliance with all agreements and conditions contained
herein on its part to be performed or complied with; (ii) the reasonable fees,
expenses and disbursements of counsel (including allocated costs of internal
counsel) and other professional advisors (including financial advisors) in
connection with the negotiation, preparation, execution, performance and
administration of the Loan Documents, and the Loan hereunder, and any amendments
and waivers hereto or thereto; and (iii) after the occurrence of an Event of
Default, all costs and expenses (including reasonable attorneys' fees, including
allocated costs of internal counsel, fees of other professional advisors
including financial advisors and costs of settlement) incurred by the Lender in
enforcing any Obligations of or in collecting any payments due from the Company
hereunder or under the Notes issued hereunder by reason of such Event of Default
or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or of
any insolvency or bankruptcy proceedings. The Lender agrees to deliver to the
Company, as soon as reasonably practicable, a certificate setting forth in
reasonable detail a computation of amounts owing under this Section 9.3;
provided, however, the delivery of such certificate is not a condition of
- -------- -------
payment under this Section 9.3.
Section 9.4 Indemnity.
---------
In addition to the payment of expenses pursuant to Section 9.3,
whether or not the Effective Date occurs or the transactions contemplated hereby
shall be consummated, the Company agrees to indemnify, pay and hold the Lender
and any holder of the Notes, and the officers, directors, employees, agents, and
affiliates of the Lender and such holders (collectively called the
"Indemnitees") harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of one counsel for
such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against that Indemnitee, in any manner relating to or arising out of
this Agreement, the other Loan Documents, the Lender's agreement to extend the
maturity of the Loan or the use or intended use of the proceeds of any of the
Loan hereunder (the "indemnified liabilities"); provided that the Company shall
--------
have no obligation to an Indemnitee hereunder with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of that
Indemnitee. The Company will not be liable to any Indemnitee for any settlement
of any claim pursuant to this Section 9.4 that is effected without the Company's
prior written consent. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, the Company shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law,
to the
71
<PAGE>
payment and satisfaction of all indemnified liabilities incurred by the
Indemnitees or any of them.
Section 9.5 Set-Off.
-------
Subject to the provisions of Section 2.10, the last sentence of
Section 7.1 and of Article VIII of this Agreement and to any waivers of set-off
that may be required in the exhibits to the Security Agreements (as defined in
the Senior Credit Agreement), in addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Lender and each subsequent holder of any
Notes is hereby authorized by the Company at any time or from time to time,
without notice to the Company, or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured but not
including trust accounts) and any other Indebtedness at any time held or owing
by the Lender or that subsequent holder to or for the credit or the account of
the Company against and on account of the obligations and liabilities of the
Company to the Lender or that subsequent holder under this Agreement and the
Notes, including, but not limited to, all claims of any nature or description
arising out of or connected with this Agreement or the Notes, irrespective of
whether or not (a) the Lender or that subsequent holder shall have made any
demand hereunder or (b) the Lender or that subsequent holder shall have declared
the principal or the interest on the Loan and Notes, and other amounts due
hereunder to be due and payable as permitted by Article VII hereof and although
said obligations and liabilities, or any of them, may be contingent or
unmatured.
Section 9.6 Amendments and Waivers.
----------------------
No amendment, modification, termination or waiver of any provision of
this Agreement or of the Notes, or consent to any departure by the Company
therefrom, shall in any event be effective without the written concurrence of
the Lender and the Company and an opinion of counsel of the Company to the
effect that such amendment, modification, termination, or waiver does not
violate the Senior Credit Agreement or any agreements or documents evidencing
any Senior Indebtedness. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. No
notice to or demand on the Company in any case shall entitle the Company to any
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
Section 9.6 shall be binding upon each holder of the Notes, each future holder
of the Notes, and, if signed by the Company, on the Company.
Section 9.7 Independence of Covenants.
-------------------------
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitation of, another covenant shall not avoid the occurrence of an Event of
Default or Potential Event of Default if such action is taken or condition
exists.
72
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Section 9.8 Change in Federal Tax Laws.
--------------------------
If there is a material change in federal tax laws which materially
affects the Company's ability to comply with the financial covenants, standards
or terms found in Articles I, V or VI, the parties hereto agree to enter into
negotiations in order to amend such provisions so as to equitably reflect such
changes with the desired result that the criteria for evaluating the Company's
financial condition shall be the same after such changes as if such changes had
not been made.
Section 9.9 Notices.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing electronically communicated or hand delivered or
delivered by courier, addressed to the party hereto as provided in this Section
9.9.
All communications intended for the Company shall be sent to:.
CB Commercial Real Estate Group, Inc.
533 South Fremont Avenue
Los Angeles, California 90071-1798
Attention: Treasurer
Fax Numbers: (213) 613-3228
(213) 613-3015
All communications intended for CB Holdings shall be sent to:
CB Commercial Holdings, Inc.
533 South Fremont Avenue
Los Angeles, California 90071-1798
Attention: Treasurer
Fax Numbers: (213) 613-3228 or
(213) 613-3015
All communications intended for the Lender shall be sent to:
Sumitomo Finance (Dublin) Limited.
La Touche House
I.F.S.C.
Custom House Docks
Dublin 1, Ireland
Telex Number: 91909
Fax Number: 353-1-67 003 53
All notices shall be sent as aforesaid or at any other address of
which any of the foregoing shall have notified the others in any manner
prescribed in this Section 9.9.
73
<PAGE>
For all purposes of this Agreement, a notice or communication will be
deemed effective:
(a) if delivered by hand or sent by courier, on the day it is
delivered unless (i) that day is not a day upon which commercial banks are open
for business in the city specified (a "Local Business Day") in the address for
notice provided by the recipient or (ii) if delivered after the close of
business on a Local Business Day, then on the next succeeding Local Business
Day,
(b) if sent by telex, on the day the recipient's answerback is
received unless that day is not a Local Business Day or the answerback is
received after the close of business on such day, in which case on the next
succeeding Local Business Day,
(c) if sent by facsimile transmission, on the date transmitted,
provided oral or written confirmation of receipt is obtained by the sender,
unless the transmission and confirmation date is not a Local Business Day, in
which case on the next succeeding Local Business Day.
provided, that notices to the Lender shall only be effective upon receipt
- --------
thereof by the Lender.
Section 9.10 Survival of Warranties and Certain Agreements.
----------------------------------------------
(a) All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the Effective Date
hereunder and the execution and delivery of the Notes.
(b) Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements of the Company set forth in Sections 2.12, 2.13,
2.14, 9.3 and 9.4, shall survive the payment of the Loan and the Notes and the
termination of this Agreement.
Section 9.11 Failure or Indulgence Not Waiver; Remedies Cumulative.
-----------------------------------------------------
No failure or delay on the part of the Lender or any holder of any
Notes in the exercise of any power, right or privilege hereunder or under the
Notes shall impair such power, right or privilege or be construed to be a waiver
of any default or acquiescence therein, nor shall any single or partial exercise
of any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privilege. All rights and remedies existing
under this Agreement or the Notes are cumulative to and not exclusive of, any
rights or remedies otherwise available.
Section 9.12 Severability; Partial Invalidity.
--------------------------------
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
74
<PAGE>
Section 9.13 Article and Section Headings.
----------------------------
The headings or titles of the several Articles and Sections in this
Agreement and any table of contents appended to copies hereof shall be solely
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
Section 9.14 Applicable Law.
--------------
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 9.15 Successors and Assigns; Subsequent Holders of the Notes.
-------------------------------------------------------
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Lender. The terms and provisions
of this Agreement and all other certificates and opinions delivered pursuant to
Section 3.1 shall inure to the benefit of any assignee, participant or
transferee of the Notes pursuant to Section 9.2, and in the event of such
transfer, participation or assignment, the rights and privileges herein
conferred upon the Lender shall automatically extend to and be vested in such
participant, transferee or assignee, all subject to the terms and conditions
hereof. The Company's rights or any interest therein hereunder may not be
assigned without the written consent of the Lender.
Section 9.16 Consent to Jurisdiction and Service of Process.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY OR ANY GUARANTOR
WITH RESPECT TO THIS AGREEMENT OR THE NOTES MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT THE COMPANY AND EACH GUARANTOR ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST
THE COMPANY OR ANY GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. THE
COMPANY AND EACH GUARANTOR RESPECTIVELY IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID.
Section 9.17 Counterparts; Effectiveness.
---------------------------
This Agreement and any amendments, waivers, consents or supplements
may be executed in any number of counterparts and by different parties hereto in
separate counterparts,
75
<PAGE>
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
This Agreement shall be deemed executed and delivered upon the execution of a
counterpart hereof by each of the parties hereto, and written or telephonic
notification of such execution and authorization of delivery thereof has been
received by the Company and the Lender.
Section 9.18 Highest Lawful Rate.
-------------------
The rate of interest payable on the Loan shall in no event exceed the
maximum rate permissible under applicable law. If the rate of interest payable
on the Loan is ever reduced as a result of this Section 9.18 and at any time
thereafter the maximum rate permitted by applicable law shall exceed the rate of
interest provided for in this Agreement, then the rate of interest provided for
in this Agreement shall be increased to the maximum rate provided by applicable
law for such period as is required so that the total amount of interest received
by the Lender is that which would have been received by the Lender but for the
operation of the first sentence of this Section 9.18.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Company from paying all or any portion
of the principal or interest on the Loan or the Notes wherever enacted, or at
any time hereafter in force. The Company (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede, by resort to any such law,
the execution of any power herein granted to the Lender, but will suffer and
permit the execution of every such power as though no such law had been enacted.
Section 9.19 Entire Agreement.
----------------
The Loan Documents embody the entire agreement among the parties and
supersede all prior agreements, oral statements and understandings, if any,
relating to the subject matter hereof and thereof.
Section 9.20 Relationship of the Lender to Participants; Appointment
-------------------------------------------------------
of an Agent.
- -----------
The Company and each of the Guarantors acknowledge and agree that the
Lender may sell interests in the Loan and the Notes to various institutions (the
"Participants") pursuant to participation agreements. The Lender shall have no
liability for any action taken or omitted to be taken pursuant to the
instructions of Participants having direct or indirect interests in the Loan
(including by way of "risk" participations) in excess of fifty percent (50%).
Further, should any such participation be converted to an assignment of the
Lender's interest, the Lender shall have no further rights or obligations with
respect to the Loan or the Company to the extent of the interest transferred
provided, that the indemnities in favor of the Lender, including without
- --------
limitation those contained in Sections 2.12, 2.13 and 2.14, shall continue to
enure to the benefit of the Lender.
76
<PAGE>
The Lender may, at any time, appoint an Agent to act as agent under
this Agreement pursuant to agency provisions substantially in the form of
Exhibit VI (the "Agency Agreement") provided that no such appointment shall
--------
subject the Company to any increased liability or costs under Section 2.12 or
2.14 of this Agreement. Any Agent so appointed shall be a bank or financial
institution having capital and surplus in excess of $500,000,000. The parties
agree to execute the Agency Agreement and such other documentation and
amendments hereto as may be necessary to appoint the Agent. Upon such
appointment all notices hereunder to be given to the Lender shall be given to
the Agent and all actions or consents to be taken or given by the Lender shall
be thereafter taken or given by the Agent acting pursuant to the directions of
the appropriate instructing group under the terms of the Agency Agreement.
Section 9.21 Effective Date.
--------------
This Agreement shall be effective (the "Effective Date") as of the
Offering Closing Date, provided that all conditions precedent set forth in
Section 3.1 are satisfied to the satisfaction of Lender or waived in writing by
the Lender as notified by the Lender and provided that the Offering Closing Date
shall have occurred by not later than March 31, 1997.
ARTICLE X
GUARANTEES
Section 10.1 Guarantees.
----------
Each Guarantor hereby unconditionally guarantees, on a joint and
several basis, to the Lender the due and the punctual payment of the principal
of and interest on the Loan and the Notes, when and as the same shall become due
and payable, whether at stated maturity, by acceleration, by notice of
prepayment or otherwise, the due and punctual payment of interest on the overdue
principal of and interest, if any, on the Loan and the Notes, to the extent
lawful, and the due and punctual performance of all other Obligations of the
Company to the Lender all in accordance with the terms of this Agreement. The
obligations of the Guarantors hereunder constitute a guarantee of payment and
not merely of collection. The Guarantors hereby agree that their respective
obligations under the Guarantees shall be absolute and unconditional and shall
remain in full force and effect until the entire Obligations shall have been
paid and such Guarantee obligations shall not be affected, modified or impaired
upon the happening from time to time of any event, including without limitation
any of the following, whether or not with notice to, or the consent of, any of
the Guarantors:
(a) the waiver, surrender, compromise, settlement, release or
termination of any or all of the obligations, covenants or agreements of the
Company under this Agreement or the Notes;
(b) the failure to give notice to any Guarantor of the occurrence
of an Event of Default under this Agreement;
77
<PAGE>
(c) the waiver, compromise or release of the payment, performance or
observance by the Company or by any Guarantor, respectively, of any or all of
the obligations, covenants or agreements contained in this Agreement;
(d) the extension of the time for payment of any Obligation or of the
time for performance of any other obligations, covenants or agreements under or
arising out of this Agreement;
(e) the modification or amendment (whether material or otherwise) of
any obligation, covenant or agreement set forth in this Agreement;
(f) the taking or the omission of any of the actions referred to in
this Agreement including any acceleration of sums owing hereunder;
(g) any failure, omission, delay or lack on the part of the Lender to
enforce, assert or exercise any right, power or remedy conferred on the Lender
in this Agreement;
(h) the voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all the assets, marshalling of assets
and liabilities, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings affecting any Guarantor or the
Company or any of the respective assets of either of them, or any allegation or
contest of the validity of this Guarantee in any such proceeding;
(i) any defense based upon any legal disability of the Company or any
other party or, to the extent permitted by law, any release, discharge,
reduction or limitation of or with respect to any sums owing the Company or any
other liability of the Company to the Lender;
(j) to the extent permitted by law, the release or discharge by
operation of law of any Guarantor from the performance or observance of any
obligation, covenant or agreement contained in this Guarantee;
(k) the default or failure of any Guarantor fully to perform any of
its obligations set forth in this Guarantee; or
(l) the invalidity of this Agreement or any part hereof or any defense
which the Company may have against the Lender or any other circumstances which
might constitute a legal or equitable discharge or defense of a surety or
guarantor.
If any payment by the Company to the Lender is rescinded or must be
returned by the Lender, the obligations of the Guarantors hereunder shall be
reinstated with respect to such payment.
78
<PAGE>
Each Guarantor waives demand for payment, protest and notice of
nonpayment and all other notices and demands whatsoever relating to the
Obligations.
No set-off, counterclaim, reduction, or diminution of any obligation,
or any defense of any kind or nature which any Guarantor has or may have against
the Lender shall be available hereunder against the Lender to reduce the
payments to the Lender under the Guarantee.
Each Guarantor assumes responsibility for being and remaining informed
of the financial condition of the Company and of all other circumstances bearing
upon the risk of nonpayment of amounts owing under this Agreement which diligent
inquiry would reveal and agrees that the Lender shall have no duty to advise
such Guarantor of information known to it regarding such condition or any such
circumstances.
In the event of a default in the payment of any Obligation when and as
the same shall become due, the Lender shall have the right to proceed first and
directly against any Guarantor without proceeding against the Company or
exhausting any other remedies which it may have. The obligations of each
Guarantor under this Agreement shall be joint and several and are subject to
Article VIII.
The Guarantors shall have no right of subrogation, and hereby waive
and release any right of subrogation (or other right as a creditor) which they
might otherwise have now or in the future vis-a-vis the Company. The Guarantors
waive any and all right to enforce any remedy and to participate in any security
which any Guarantor may now or hereafter have against the Company, any other
Guarantor or any other party.
Demands against any Guarantor hereunder shall be conclusive as to the
amount due from such Guarantor (absent manifest error), and each Guarantor
agrees to pay any amount so demanded on the date of demand to the account
specified in Section 2.8 of this Agreement.
Section 10.2 Contribution.
------------
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors (other than CB Holdings), shall promptly enter into a
contribution agreement providing that such Guarantors agree, inter se, that in
--------
the event any payment or distribution is made by such Guarantor (a "Funding
Guarantor") under this Guarantee, that Funding Guarantor shall be entitled to a
contribution from all other Guarantors for all payments, damages and expenses
incurred by that Funding Guarantor in discharging the Company's Obligations or
any other Guarantor's obligations with respect to the Loan as set forth in such
contribution agreement.
79
<PAGE>
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
CB COMMERCIAL REAL ESTATE GROUP, INC.
By
----------------------------------
Name: David A. Davidson
Title: Senior Executive Vice President
GUARANTORS:
CB COMMERCIAL HOLDINGS, INC.
By
----------------------------------
Name: David A. Davidson
Title: Senior Executive Vice President
CB COMMERCIAL HOLDINGS, INC., CB COMMERCIAL
REAL ESTATE GROUP OF IOWA, INC., CB COMMERCIAL
PARTNERS, INC., CB COMMERCIAL REALTY ADVISORS,
INC., CB COMMERCIAL BROKERAGE, INC., SUTTER
FREMONT PROPERTY SERVICES, INC., CB COMMERCIAL
REAL ESTATE GROUP OF HAWAII, INC., CB
COMMERCIAL REAL ESTATE FUND MANAGEMENT, INC.,
CB COMMERCIAL REAL ESTATE MANAGEMENT SERVICES,
INC., CB COMMERCIAL SUTTON & TOWNE, INC.,
SUTTER FREMONT REAL ESTATE MERCHANT CAPITAL
CORPORATION, SUTTON & TOWNE N.J., INC., SUTTER
FREMONT, INC., CB COMMERCIAL WAREHOUSE
PROPERTY CORP., L.J. MELODY INVESTMENTS, INC.
L.J. MELODY & COMPANY, and L.J. MELODY &
COMPANY OF CALIFORNIA
By:
----------------------------------
Name: David A. Davidson
Title: Senior Executive Vice President/
Treasurer
By:
----------------------------------
Name: Karen A. Tallman
Title: Secretary/Assistant Secretary
SUMITOMO FINANCE (DUBLIN) LIMITED
By:
----------------------------------
Shinchi Nishikiori
Managing Director
S-1
<PAGE>
EXHIBIT 10.8
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
DEFERRED COMPENSATION PLAN
--------------------------
(AS AMENDED AND RESTATED)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
1. PURPOSE............................................................... 1
-------
2. DEFINITIONS........................................................... 1
-----------
3. ELECTION TO DEFER..................................................... 3
-----------------
4. DEFERRED COMPENSATION ACCOUNTS........................................ 4
------------------------------
5. INVESTMENT OPTIONS.................................................... 5
------------------
6. VESTING OF ACCOUNTS................................................... 6
-------------------
7. PAYMENT OF ACCOUNTS................................................... 6
-------------------
8. PLAN ADMINISTRATION................................................... 8
-------------------
9. NO FUNDING OBLIGATION................................................. 8
---------------------
10. NONALIENATION OF BENEFITS............................................. 9
--------------------------------
11. NO LIMITATION OF EMPLOYER RIGHTS...................................... 9
--------------------------------
12. APPLICABLE LAW........................................................ 9
--------------------------------
</TABLE>
EXHIBIT A PARTICIPATING EMPLOYERS
-i-
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
DEFERRED COMPENSATION PLAN
--------------------------
(AS AMENDED AND RESTATED)
1. PURPOSE
-------
The purpose of the CB Commercial Real Estate Services Group, Inc.
Deferred Compensation Plan (the "Plan") is to allow a select group of management
or highly compensated employees of CB Commercial Real Estate Services Group,
Inc. and its affiliates that adopt this Plan to defer receipt of Compensation.
The Plan is intended to be an unfunded plan maintained primarily for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees, as described in section 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
2. DEFINITIONS
-----------
Whenever referred to in this Plan, the following terms shall have the
meanings set forth below except where the context indicates otherwise.
Capitalized terms used in this Plan that are not defined in this Section 2 are
defined elsewhere in the Plan.
2.1 "Account" means a Participant's Deferred Compensation Account.
-------
2.2 "Beneficiary" means the person or persons who are the
-----------
Participant's beneficiaries pursuant to the Employer's group term life insurance
programs unless otherwise designated by the Participant on a form prescribed by
the Committee.
2.3 "CAP Plan" means the CB Commercial Real Estate Services Group,
--------
Inc. Capital Accumulation Plan, as amended from time to time.
2.4 "CBC Stock Fund Unit" shall have the meaning set forth in Section
--------- ---- ----
5.2.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
----
2.6 "Committee" means the Chief Executive Officer of CB Commercial
---------
Real Estate Services Group, Inc., or a committee consisting of two or more
employees of the Employer selected by the Chief Executive Officer.
2.7 "Compensation" has the same meaning as it has under the CAP Plan
------------
without regard to deferrals under this
-1-
<PAGE>
Plan, the limitations of Code section 401(a)(17), income earned from the
exercise of stock options, stock appreciation or other rights, car allowances,
reimbursements for moving or other expenses or the imputed value of life
insurance.
2.8 "Deferral Date" means January 1 of the year in or for which
-------------
deferrals are to commence.
2.9 "Employee" means a salaried employee of an Employer whose
--------
Compensation for the Plan Year preceding any Deferral Date equals or exceeds
$100,000, any commissioned employee of an Employer or a key management employee
selected by the Committee. For purposes of this section, car allowances and
stock option income paid to any Employee shall be included in Compensation
solely for purposes of determining whether the Employee's Compensation equals
$100,000.
2.10 "Employer" means CB Commercial Real Estate Services Group, Inc.
--------
("CB Commercial") and any entity affiliated with CB Commercial Real Estate
Services Group, Inc. that, with the consent of the Committee, adopts this Plan.
A list of participating Employers is attached as Exhibit A.
2.11 "Participant" means any Employee who has made an election to
-----------
defer Compensation under Section 3.1 or for whom the Plan maintains an Account.
2.12 "Payment Year" means the year selected by the Employee under
------------
Section 3.4.
2.13 "Plan Year" means the calendar year.
---------
2.14 "Stock" means the Common Stock, par value $0.01 per share, of CB
-----
Commercial Real Estate Services Group, Inc. In the event of any change in the
outstanding shares of Stock that occurs by reason of a stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar corporate change, the aggregate number of shares of Stock (or CBC
Stock Fund Units) credited to any Participant's Account shall be adjusted
appropriately by the Committee, whose determination shall be final and
conclusive; provided, however, that fractional shares shall be rounded to the
nearest whole share.
2.15 "Termination of Employment" means any voluntary or involuntary
-------------------------
termination of employment, except on account of death or Total and Permanent
Disability, but does not include a transfer among the entities which make up the
Employer, a transfer to an entity affiliated with CB Commercial Real Estate
Services Group, Inc. unless such transfer is otherwise determined to be a
Termination of Employment by the Committee in its sole discretion or a change of
status from employee to independent contractor.
-2-
<PAGE>
2.16 "Total and Permanent Disability" has the same meaning given to
------------------------------
such term or comparable term under the Company's long term disability plan as in
effect from time to time.
2.17 "Valuation Date" means the last day of each year, or such other
--------------
dates as may be selected by the Committee.
3. ELECTION TO DEFER
-----------------
3.1 An Employee may elect to defer receipt of his or her Compensation
for any Plan Year by completing the deferral election form prescribed by the
Committee, specifying a percentage or percentages of Compensation to be
deferred, which shall not exceed one hundred percent, and, at the Employee's
option, the maximum dollar amount of any deferral. The deferral election form
must be filed with the Committee by no later than fifteen days before the
Deferral Date for the applicable Plan Year (December 31, 1996 in the case of the
1997 Plan Year). Unless otherwise determined in writing by the Committee, an
Employee who has an outstanding loan from an Employer or is a commissioned
salesperson on transitional draw shall not be eligible to make a deferral
election or his then current election will become ineffective upon achievement
of either status.
3.2 An election to defer shall be effective on the date the Employee
delivers a completed deferral election form to the Committee; provided, however,
that if an Employee subsequently delivers a properly completed deferral election
form to the Committee no later than fifteen days before the Deferral Date (or
December 31, 1996 in the case of the 1997 Plan Year), the latest dated deferral
election form shall take effect. The election of any Employee who is a
commissioned salesperson of an Employer shall not become effective for any Plan
Year until such Employee's Compensation for the Plan Year (including for this
purpose only car allowances and stock option income) exceeds $100,000 and shall
only be effective with respect to that portion of the Employee's Compensation
earned thereafter. After the fifteenth day before the Deferral Date for the
applicable Plan Year (or December 31 in the case of the 1997 Plan Year), the
elections made on the deferral election form for that Plan Year shall be
irrevocable; provided, however, that a Participant may elect, with fifteen days'
written notice, to revoke completely his or her deferrals for the remainder of
the Plan Year as of the first day of any succeeding calendar month. Any
Participant who so revokes his or her election to defer shall not be eligible to
make an election pursuant to Section 3.1 for the Plan Year succeeding the Plan
Year during which the Participant revoked his or her election but may resume
deferrals in the next successive Plan Year.
-3-
<PAGE>
3.3 A separate election to defer must be made for each successive
Plan Year no later than fifteen days prior to the Deferral Date for that Plan
Year.
3.4 The Employee shall elect, when completing the deferral election
form, to defer receipt of all of the Compensation deferred for that Plan Year
and all prior Plan Years until one of the following "Payment Years":
(a) The calendar year specified by the Employee, which shall be
at least the third year after the year in which the election
is made; or
(b) The calendar year following the Employee's Termination of
Employment.
The Employee shall elect, when completing his or her deferral election form, to
receive his or her Account in a single lump sum payment or in a specified number
of annual installment payments not to exceed ten. If the Employee fails to
elect a form of distribution, his or her Account will be distributed in five
annual installments following Termination of Employment.
3.5 A Participant may, so long as such Participant is employed by the
Employer, elect to change the Payment Year selected under Section 3.4 subject to
the following: (i) if the Participant specifies a calendar year, the year
selected must be at least the third year after the year in which the Committee
receives the Participant's election under this Section 3.5; (ii) if the
Participant changes the Payment Year to the calendar year following Termination
of Employment, the Participant's election under this Section 3.5 must be
received by the Committee by the end of the calendar year before the year in
which the Participant's Termination of Employment occurs; and (iii)
notwithstanding any elections that the Participant may make, the Committee shall
have the absolute right in its sole and absolute discretion to have the CBC
Stock Fund Units or dollar amounts credited to a Participant's Account paid in
not more than five annual installments commencing one year after the Payment
Year selected by the Participant.
3.6 A Participant may, so long as such Participant remains employed
by the Employer, change his or her election from a single lump sum payment to
annual installments over a period not to exceed ten years or from annual
installments to a single lump sum payment.
4. DEFERRED COMPENSATION ACCOUNTS
------------------------------
4.1 Compensation deferred pursuant to Section 3 shall be credited to
an Account in the name of the Participant
-4-
<PAGE>
established for this purpose on the Employer's books or the books of the
Employer who has assumed the obligation to make payments hereunder to the
Participant in accordance with Section 9. Compensation shall be credited to the
Account as of the first day of the month after the month in which it otherwise
would have been paid, except that amounts that would have been payable in
December shall be credited to the Account as of December 31.
4.2 The balance credited to each Participant's Account shall be
allocated to one or both of the following investment option(s) offered under the
Plan:
(a) CBC Stock Fund; and
(b) Interest Index Fund.
The measure of the investment return for any Participant's Account shall be
equal to the proportionate gain (or loss) of the two investment options as
described in Section 5.
5. INVESTMENT OPTIONS
------------------
5.1 Each Participant may direct the Committee on the investment mix
for the balance credited to his or her Account. Such direction shall be writing
and shall be made on the form prescribed by the Committee no later than 15 days
prior to the last day of any calendar year (December 31 in the case of an
election in 1996). Any portion of the Participant's Account allocated to the
CBC Stock Fund may not be subsequently allocated to the Interest Index Fund.
5.2 If any portion of a Participant's Account is allocated to the CBC
Stock Fund during the Plan Year, the Participant's Account shall be credited
with units ("CBC Stock Fund Units") equal to the number of shares of Stock which
could be purchased based on the average closing price of the Stock for the last
five trading days of the month in which the deferred amount would otherwise have
been paid to Participant; provided that in the case of a deferral of
Compensation consisting of a bonus payable in the first 90 days of a year,
shares of Stock shall be credited based on the average closing price of the
Stock for the last five trading days of February of such year. In the event
dividends are paid or payable during the Plan Year on Stock underlying CBC Stock
Fund Units credited to a Participant's Account, the Participant's Account shall
be credited with the number of whole shares equal to the number of shares which
could be purchased with such dividends based on the average closing price of the
Stock for the five trading days preceding the date the dividend is paid.
5.3 Any portion of a Participant's Account allocated to the Interest
Index Fund shall be accumulated and credited with interest at the rate payable
by CB Commercial
-5-
<PAGE>
Real Estate Services Group, Inc. on its senior secured debt, determined as of
the first day of any calendar quarter and compounded monthly on the last day of
each month based on the Participant's balance in the Interest Index Fund as of
the first day of that month.
5.4 So long as a Participant remains employed by the Employer, such
Participant may elect to have all or any portion of the value of the Interest
Index Fund credited to such Participant's Account transferred to the CBC Stock
Fund. Such election shall be effective on January 1 of the year following the
year in which the Participant makes such election under this Section 5.4. To be
effective, such election must be received by the Committee by December 16 of
such year (December 31 in the case of an election in 1996). A Participant who
elects to transfer all or any portion of the Interest Index Fund credited to
such Participant's Account to the CBC Stock Fund shall be credited with the
number of CBC Stock Fund Units determined by dividing the dollar amount being
transferred by the average closing price of the Stock for the last five trading
days of the year in which the election is made.
6. VESTING OF ACCOUNTS
-------------------
6.1 Amounts credited to a Participant's Account shall be vested and
nonforfeitable (except to the extent of investment losses) at all times.
7. PAYMENT OF ACCOUNTS
-------------------
7.1 Amounts credited to a Participant's Account shall be distributed
as described in Sections 3.4 and 3.5, subject to the terms and conditions of
this Section 7.
7.2 If a Participant has elected to receive his or her Account in a
single lump sum payment, such Account shall be valued as of the last day of the
Plan Year immediately preceding the Payment Year and a single lump sum payment
of cash and/or whole shares of Stock (determined in accordance with Section 7.4)
shall be made during the first quarter of the Payment Year. The Account shall
not be credited with any additional investment return under Sections 5.2 and 5.3
after the last day of the Plan Year preceding the Payment Year except that any
CBC Stock Fund Units shall reflect appreciation or depreciation in the Stock.
7.3 If a Participant has elected to receive his or her Account in
installments, the installments of such Account shall be distributed during the
first quarter of the Payment Year and each subsequent year in which installments
are payable. Each installment payment shall be calculated based on the value of
the Interest Index Fund credited, and the number of CBC Stock Fund Units
allocated, to the Account on
-6-
<PAGE>
the last day of the Plan Year immediately preceding the year in which such
installment is payable and distributed in cash and/or in whole shares of Stock.
When a Participant's Account is payable in installments, it will continue to be
credited with dividends, in the case of the CBC Stock Fund, or interest, in the
case of the Interest Index Fund until the applicable Payment Year with respect
to any installment payment. The amount of the installment payment to be
distributed in any year shall be determined by multiplying the value of the
Account on the last day of the preceding year by a fraction, the numerator of
which is one and the denominator of which is the total number of installments
remaining to be paid (including the installment for which the calculation is
being made).
7.4 The portion of a Participant's Account consisting of CBC Stock
Fund Units shall be distributed in whole shares of Stock equal to the number of
CBC Stock Fund Units credited to the Participant's Account. The Interest Index
Fund credited to a Participant's Account shall be distributed in cash.
7.5 If a Participant dies before all of the amounts credited to his
or her Account have been distributed, the Participant's Beneficiary shall
receive the amounts in the Participant's Account in accordance with such
Participant's election then in effect; provided, however, that the Committee
may, in its sole discretion, distribute the balance credited to the
Participant's Account to the Participant's Beneficiary in such other manner as
the Committee shall determine.
7.6 If a Participant suffers Total and Permanent Disability before
all of the amounts credited to his or her Account have been distributed, the
Participant shall receive the amounts in his or her Account in accordance with
such Participant's election then in effect; provided, however, that the
Committee may, in its sole discretion, distribute the balance credited to the
Participant's Account to the Participant in such other manner as the Committee
shall determine.
7.7 Prior to the date on which payments are distributable under the
Plan, distributions of amounts credited to the Participant's Account shall be
permitted only on account of an unforeseeable emergency, and only if the
distribution is necessary in light of immediate and heavy financial needs of the
Participant. The amount of any hardship distribution shall not exceed the
amount required to meet the need as determined by the Committee. The
Participant shall submit a written request to the Committee which shall have
sole discretion to establish rules and standards for making hardship
distributions, to determine whether to make a hardship distribution from a
Participant's Account and to determine the amount of such distribution, if any.
The
-7-
<PAGE>
Committee's decision shall be final and binding on all interested parties.
8. PLAN ADMINISTRATION
-------------------
8.1 This Plan shall be adopted by each Employer and shall be
administered by the Committee.
8.2 This Plan may be amended in any way or may be terminated, in
whole or in part, at any time, in the discretion of the Committee or the Board
of Directors of CB Commercial Real Estate Services Group, Inc. Upon termination
of the Plan, the Committee or the Board of Directors may, in its sole
discretion, elect to distribute all Accounts immediately or in accordance with
each Participant's deferral election(s) and the provisions of the Plan as they
existed at the time of the Plan's termination.
8.3 The Committee shall have the sole authority, in its discretion,
to adopt, amend and rescind such rules and regulations as it deems advisable for
the administration of the Plan, to construe and interpret the Plan, the rules
and regulations, and deferral election forms, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Committee shall be
binding on all persons. The Committee may delegate its responsibilities as it
sees fit.
9. NO FUNDING OBLIGATION
---------------------
No Employer is under any obligation to secure any amount credited to a
Participant's Account by any specific assets of any Employer or any other assets
in which any Employer has an interest. Neither the Participant nor his or her
estate shall have any rights against any Employer with respect to any portion of
the Account except as a general unsecured creditor. No Participant has an
interest in his or her Account except to the extent the Participant actually
receives a distribution of cash or Stock.
The obligation to make payments to any Participant hereunder shall be
that of the Employer that employed such Participant during the period or periods
that such Participant deferred receipt of Compensation unless any other Employer
agrees to assume such obligation and such Participant was informed of such
assumption at the time of his or her election to defer, in which case only the
Employer that agreed to assume such obligation shall have such obligation.
10. NONALIENATION OF BENEFITS
-------------------------
No benefit under this Plan may be sold, assigned, transferred,
conveyed, hypothecated, encumbered, anticipated,
-8-
<PAGE>
or otherwise disposed of, and any attempt to do so shall be void. No such
benefit, prior to receipt thereof by a Participant, shall be in any manner
subject to the debts, contracts, liabilities, engagements, or torts of such
Participant.
11. NO LIMITATION OF EMPLOYER RIGHTS
--------------------------------
Nothing in this Plan shall be construed to limit in any way the right
of any Employer to terminate an Employee's employment at any time for any
reason; nor shall it be evidence of any agreement or understanding, express or
implied, that any Employer (a) will employ an Employee in any particular
position, (b) will ensure participation in any incentive programs, or (c) will
grant any awards under such programs.
12. APPLICABLE LAW
--------------
This Plan shall be construed and its provisions enforced and
administered in accordance with ERISA and, to the extent not preempted, the laws
of the State of Delaware.
IN WITNESS WHEREOF, CB Commercial Real Estate Services Group, Inc. has
------------------
caused this Deferred Compensation Plan (as amended and restated) to be duly
executed by the undersigned this _____ day of December, 1996.
CB COMMERCIAL REAL ESTATE
SERVICES GROUP, INC.
By _________________________
James J. Didion
Chief Executive Officer
-9-
<PAGE>
EXHIBIT A
---------
Participating Employers in the
CB Commercial Real Estate Services Group, Inc.
Deferred Compensation Plan
--------------------------
CB Commercial Real Estate Services Group, Inc.
CB Commercial Real Estate Group, Inc.
Westmark Realty Advisors L.L.C.
L.J. Melody & Company
CB Commercial Real Estate Group of Hawaii, Inc.
<PAGE>
EXHIBIT 10.10
CB COMMERCIAL HOLDINGS, INC.
L. J. MELODY ACQUISITION STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN
1.1 Establishment. CB COMMERCIAL HOLDINGS, INC., a Delaware corporation
--------------
(the "Company"), hereby establishes the L. J. MELODY ACQUISITION STOCK
OPTION PLAN (the "Plan").
1.2 Purpose. The L. J. Melody Acquisition Stock Option Plan was
--------
established in connection with the acquisition of the outstanding capital stock
of L. J. Melody & Company and L. J. Melody & Company of California for the
purpose of granting options thereunder to certain key employees of such firms as
an inducement to enter into or remain in the service of the Company and its
subsidiaries and as an incentive for extraordinary efforts during such service.
1.3 Effective Date. The Plan shall become effective immediately upon
---------------
its adoption by the Board of Directors of the Company.
SECTION 2. DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have
------------
their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Compensation Committee of the Board.
(d) "Disability" means the inability to engage in any Substantial
Gainful Activity by reason of any medically determinable physical
or mental impairment which, in the sole and final judgment of the
Committee, can be expected to result in death or which has
lasted, or can be expected to last, for a continuous period of
not less than twelve months.
(e) "Employee" means a regular employee (including officers and
directors who are also employees) or independent contractor
(including any independent contractor operating in the form of a
corporation, partnership, limited liability company or otherwise)
of L. J. Melody & Company or any of its subsidiaries, or any
branch or division thereof.
1
<PAGE>
(f) "Fair Market Value" of the Stock on any date means, in the event
that the Stock is listed on an established national or regional
stock exchange, is admitted to quotation on The Nasdaq Stock
Market, or is publicly traded in an established securities
market, the closing price of the Stock on such exchange or in
such market (the highest such closing price if there is more than
one such exchange or market) on such date, or, if there is no
such closing price, the mean between the highest bid and lowest
asked prices or between the high and low prices on such date or,
if no sale of the Stock has been made on such day, on the next
preceding day on which any such sale shall have been made; or the
value determined by using such other method as the Committee may
determine.
(g) "Option" means the right to purchase Stock at a stated price for
a specified period of time.
(h) "Participant" means any Employee granted an option under the
Plan.
(i) "Stock" means the Class B-2 Common Stock of the Company, par
value $.01 per share.
(j) "Substantial Gainful Activity" means the performance of
significant duties over a reasonable period of time in work for
remuneration or profit (or in work or a type generally performed
for remuneration or profit).
2.2 Gender and Number. Except when otherwise indicated by the context,
------------------
words in the masculine gender when used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
SECTION 3. ELIGIBILITY AND PARTICIPATION
Options may be granted under the Plan to any Employee.
SECTION 4. ADMINISTRATION
4.1 Compensation Committee. The Committee shall be responsible for the
-----------------------
administration of the Plan. The Committee, by majority action thereof, is
authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to provide for conditions and assurances
deemed necessary or advisable to protect the interest of the Company, and to
make all other determinations necessary or advisable for the administration of
the Plan, all in the Committee's sole and absolute discretion, but only to the
extent not contrary to the express provisions of the Plan. Determinations,
interpretations or other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final and binding and conclusive for all
purposes and upon all persons whomsoever.
2
<PAGE>
4.2 No Liability. No member of the Committee shall be liable for and
-------------
the Company shall indemnify and hold each such member harmless with respect to
any action or determination made in good faith with respect to the Plan or any
Option granted or Option Agreement entered into hereunder.
SECTION 5. STOCK SUBJECT TO PLAN
5.1 Number. The total number of shares subject to Options may not
-------
exceed 90,750 shares. The number of shares of Stock subject to Options under
the Plan and the Option prices are subject to adjustment upon occurrence of any
of the events indicated in Section 5.3. The shares to be delivered under the
Plan may consist, in whole or in part, of authorized but unissued Stock or
treasury Stock not reserved for any other purpose.
5.2 Lapsed Options. To the extent any Option granted under the Plan
---------------
terminates, expires or lapses for any reason, any shares subject to such Option
again shall be available for the grant of an Option.
5.3 Adjustment in Capitalization. In the event of any change in the
-----------------------------
outstanding shares of Stock that occurs by reason of a stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar corporate change, the aggregate number of shares of Stock subject
to each outstanding Option, and its stated Option price, shall be adjusted
appropriately by the Committee, whose determination shall be final and
conclusive; provided, however that fractional shares shall be rounded to the
nearest whole share. In such event, the Committee also shall have complete
discretion to make adjustments in the number and type of shares subject to Stock
grants then outstanding under the Plan pursuant to the terms of such grants or
otherwise as it deems appropriate.
SECTION 6. DURATION OF PLAN
6.1 Duration of Plan. The Plan shall remain in effect, subject to the
-----------------
Board's right to earlier terminate the Plan pursuant to Section 11 hereof, until
all Stock subject to it shall have been purchased, acquired or lapsed pursuant
to the provisions hereof. Notwithstanding the foregoing, no Option may be
granted under the Plan on or after the tenth (10th) anniversary of the Plan's
effective date.
SECTION 7. STOCK OPTIONS
7.1 Grant of Options. Options may be granted to Participants at any time
-----------------
and from time to time as shall be determined by the Committee or the Board. The
Committee or the Board, as applicable, shall have complete discretion in
determining the number, type and price of Options granted to each Participant;
provided, however, the aggregate Fair Market Value (determined at the time the
Option is granted) of the Stock with respect to which an incentive stock option
under Section 422A of the Code becomes exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000, nor shall any
incentive stock option under Section 422A of the Code be granted to any person
who owns, directly or
3
<PAGE>
indirectly, Stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company. Nothing in this Section 7
of the Plan shall be deemed to prevent the grant of nonstatutory stock options
in amounts which exceed the maximum established by Section 422A of the Code with
respect to incentive stock options.
7.2 Option Agreement. Each Option shall be evidenced by an Option
-----------------
Agreement that shall specify the type of Option granted, the Option price, the
duration of the Option, the number of shares of Stock to which the Option
pertains, and such other provisions as the Chief Executive Officer or Committee
shall determine.
7.3 Option Price. No Option granted pursuant to the Plan which is
-------------
intended to be an incentive stock option under Section 422A of the Code shall
have an Option price that is less than the Fair Market Value of the Stock on the
date the Option is granted.
7.4 Duration of Options. Each Option shall expire at such time as the
--------------------
Committee shall determine at the time it is granted, provided, however, that no
Option shall be exercisable later than ten years from the date of its grant.
7.5 Exercise of Options. Options granted under the Plan shall be
--------------------
exercisable at such time and be subject to such restrictions and conditions as
the Committee or the Board, as applicable, shall in each instance approve, which
need not be the same for all Participants. Each Option which is intended to
qualify as an incentive stock option pursuant to Section 422A of the Code shall
comply with the applicable provisions of the Code pertaining to such Options.
7.6 Payment. The purchase price of Stock upon exercise of any Option
--------
shall be paid in full either (i) in cash or (ii) with the consent of the
Committee, through the tender to the Company of shares of Stock valued at Fair
Market Value on the date of exercise, or (iii) by a combination of (i) and (ii).
If shares of Stock are surrendered by an officer of the Company who is subject
to Section 16(b) of the Securities Exchange Act of 1934 as payment of the Option
Price and the Stock surrendered was acquired pursuant to an option to acquire
Stock and such acquisition was not an exempt transaction under Section 16 of the
Securities Exchange Act of 1934, then six (6) months must have elapsed since the
date of grant of such option. The payment in full of the Option price shall be
deemed to have been made with the written notice of exercise provided the notice
of exercise directs that the stock certificate or certificates for the shares of
Stock for which the Option is exercised be delivered to a licensed broker
acceptable to the Company as the agent for the individual exercising the Option
and, at the time such stock certificate or certificates are delivered, the
broker tenders to the Company cash (or cash equivalents acceptable to the
Company) equal to the Option price for the shares of Stock purchased plus the
amount (if any) of Federal and/or other taxes which the Company, in its
discretion, requires to be withheld with respect to the exercise of the Option.
An attempt to exercise any Option granted hereunder other than as set forth
above shall be invalid and of no force and effect. Promptly after the exercise
of an Option and the payment or deemed payment in full of the Option price
therefor and any applicable withholding taxes, the individual exercising the
Option shall be entitled to the issuance of a stock certificate or certificates
evidencing his or her ownership of such shares. A separate stock certificate or
certificates shall
4
<PAGE>
be issued for any shares purchased pursuant to the exercise of an Option which
is an incentive stock option, which certificate or certificates shall not
include any shares which were purchased pursuant to the exercise of an Option
which is not an incentive stock option. An individual holding or exercising an
Option shall have none of the rights of a stockholder until the shares of Stock
covered thereby are fully paid and issued, and except as provided in Section 5.3
above, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.
7.7 Restriction on Stock Transferability. The Committee shall impose
-------------------------------------
such restrictions on any shares of Stock acquired pursuant to the exercise of an
Option under the Plan as it may deem advisable including, without limitation,
restrictions under applicable Federal securities laws, under the requirements of
any stock exchange upon which such shares of Stock are then listed, under any
blue sky or state securities laws applicable to such shares, and under any
Stockholders' Agreement then in effect.
7.8 Termination Due to Death or Disability. In the event a Participant
---------------------------------------
ceases to be an Employee by reason of death or Disability, any outstanding
Options then exercisable may be exercised at any time prior to the expiration
date of the Options or within twelve (12) months after such date of termination
of employment, whichever period is the shorter.
7.9 Termination other then for Death or Disability. If a Participant
-----------------------------------------------
ceases to be an Employee for any reason other than death or Disability, the
rights which he or she may have under any then outstanding Option granted
pursuant to the Plan shall terminate in accordance with the terms of the Option
agreement. Except with respect to grants of incentive stock options, a
Participant who is a common law employee of the Company shall not cease to be an
Employee if he or she becomes an independent contractor with respect to the
Company and an independent contractor with respect to the Company shall not
cease to be an Employee if he or she immediately becomes a common law employee
of the Company.
7.10 Nontransferability of Options. No Option granted under the Plan may
------------------------------
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated
otherwise than by will or by the laws of descent and distribution. Further, all
Options granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant or by such Participant's conservator of the
estate or the equivalent.
SECTION 8. RIGHTS OF EMPLOYEES
8.1 Termination. Nothing in the Plan shall interfere with or limit in
------------
any way the right of the Company or its subsidiaries to terminate any
Participant's employment as a common law employee or engagement as an
independent contractor at any time, with or without cause, nor confer upon any
Participant any right to continue in the employ of the Company or its
subsidiaries.
8.2 Participation. No employee shall have a right to be selected as a
--------------
Participant or, having been so selected, to be selected again as a Participant.
5
<PAGE>
SECTION 9. AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
9.1 Amendment, Modification and Termination of Plan. Unless sooner
------------------------------------------------
terminated as provided herein, the Plan will automatically terminate on
September 24, 2006. The Board at any time may terminate, and from time to time
may amend or modify, the Plan. No amendment, modification, or termination of
the Plan shall in any manner adversely affect any Option theretofore granted
under the Plan, without the consent of the Participant.
SECTION 10. TAX WITHHOLDING
The Company shall have the right to withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy Federal, state, and local
withholding tax requirements on any Option under the Plan and, notwithstanding
any other provision to the contrary, no Option shall be subject to exercise
until withholding satisfactory to the Company has been made.
SECTION 11. MISCELLANEOUS
11.1 Requirements of Law. The granting of Options and the issuance of
--------------------
shares of Stock upon exercise of an Option shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required.
11.2 Use of Proceeds. The proceeds received by the Company from the sale
----------------
of Stock pursuant to Options granted under the Plan shall constitute general
funds of the Company.
11.3 Gender and Number. Except as otherwise indicated by the context,
------------------
words in the masculine gender when used in this Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
11.4 Headings. The headings herein are for convenience only and shall
---------
not be used in interpreting the Plan.
11.5 Governing Law. The validity, interpretation and effect of this
--------------
Plan, and all agreements hereunder, shall be governed by and construed in
accordance with and governed by the laws of the State of Delaware, other than
the choice of law rules thereof.
6
<PAGE>
IN WITNESS WHEREOF, CB Commercial Holdings, Inc. has caused this Plan to be
adopted this 24th day of September, 1997.
CB COMMERCIAL HOLDINGS, INC.
By:
_________________________
JAMES J. DIDION
CHIEF EXECUTIVE OFFICER
7
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
---------------
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION/FORMATION
---- -----------------------
<S> <C>
CB Commercial Brokerage, Inc. Arizona
CB Commercial Partners, Inc. Delaware
CB Commercial Real Estate Fund Management, Inc. California
CB Commercial Real Estate Group, Inc. Delaware
CB Commercial Real Estate Group of Colorado, Inc. Delaware
CB Commercial Real Estate Group of Hawaii, Inc. Delaware
CB Commercial Real Estate Group of Iowa, Inc. Iowa
CB Commercial Real Estate Management Services, Inc. California
CB Commercial Realty Advisors, Inc. California
CB Commercial Sutton & Towne, Inc. New York
CB Commercial Warehouse Property Corp. Delaware
Global Professional Assurance Company Vermont
L.J. Melody & Company Texas
L.J. Melody Investments, Inc. Texas
Sutter Fremont, Inc. California
Sutter Fremont Property Services, Inc. Washington
Sutter Fremont Real Estate Merchant Capital Corporation California
Sutton & Towne N.J., Inc. New Jersey
Westmark Real Estate Acquisition Partnership, L.P. Delaware
Westmark Realty Advisors L.L.C. Delaware
HoldPar A Delaware
HoldPar B Delaware
Sol L. Rabin, Inc. California
Roger C. Schultz, Inc. California
Bruce L. Ludwig, Inc. California
Vincent F. Martin, Jr., Inc. California
Stanton H. Zarrow, Inc. California
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statements: Form S-8 (File No. 33-39436), Form S-8 (File No.
33-40953), Form S-8 (File No. 33-44346), Form S-8 (File No. 33-273236), Form S-8
(File No. 33-90014), Form S-8 (File No. 333-21597) and Form S-8 (File No.
333-21599).
ARTHUR ANDERSON LLP
Los Angeles, California
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 49,328
<SECURITIES> 0
<RECEIVABLES> 45,350
<ALLOWANCES> 4,423
<INVENTORY> 0
<CURRENT-ASSETS> 113,952
<PP&E> 82,213
<DEPRECIATION> 41,365
<TOTAL-ASSETS> 278,944
<CURRENT-LIABILITIES> 106,005
<BONDS> 0
0
40
<COMMON> 133
<OTHER-SE> (1,688)
<TOTAL-LIABILITY-AND-EQUITY> 278,944
<SALES> 583,068
<TOTAL-REVENUES> 583,068
<CGS> 0
<TOTAL-COSTS> 534,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,123
<INCOME-PRETAX> 25,809
<INCOME-TAX> (44,740)
<INCOME-CONTINUING> 70,549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,549
<EPS-PRIMARY> 5.02
<EPS-DILUTED> 4.97
</TABLE>
