<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6531 52-1616016
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION
OR ORGANIZATION)
</TABLE>
533 SOUTH FREMONT AVENUE
LOS ANGELES, CALIFORNIA 90071-1712
(213) 613-3123
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
WALTER V. STAFFORD
SENIOR EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
533 SOUTH FREMONT AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 613-3123
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
PETER V. LEPARULO, ESQ.
J. KEITH BIANCAMANO, ESQ.
PILLSBURY MADISON & SUTRO LLP
725 SOUTH FIGUEROA STREET, SUITE 1200
LOS ANGELES, CALIFORNIA 90017
(213) 488-7100
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined
by market conditions:
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Debt Securities.............. $200,000,000 100%(1) $200,000,000(1) $ 60,606.06
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Common Stock, $.01 par
value ...................... 4,000,000 shares(2) $37.25(2) $149,000,000(2) $ 45,151.52
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Total........................ $105,757.58
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) of the Securities Act of 1933, as amended (the "Securities
Act").
(2) Estimated solely for purposes of computing the registration fee pursuant
to Rule 457(c) of the Securities Act based on the average of the high and
low prices of the Common Stock on the New York Stock Exchange on March 26,
1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 30, 1998
PROSPECTUS
$200,000,000 DEBT SECURITIES
AND
4,000,000 SHARES OF COMMON STOCK
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
-----------
This Prospectus related to the offer and sale (the "Offering") from time to
time of (i) up to $200 million aggregate principal amount of debentures, notes
or other unsecured types of debt in one or more series ("Debt Securities") of
CB Commercial Real Estate Services Group, Inc. ("CBC" or the "Company") by the
Company (ii) up to 4,000,000 shares (the "Shares") of the Common Stock of the
Company $.01 par value, up to 2,000,000 of which may be offered and sold by
certain shareholders of the Company (the "Selling Shareholders") and up to
2,000,000 of which may offered and sold by the Company. Terms of the Debt
Securities will reflect market conditions at the time of sale. The Debt
Securities and the Shares are herein referred to as the "Securities." The
Company is registering the Securities, but the registration of such Securities
does not necessarily mean that any of such Securities will be offered or sold
by the Selling Shareholders or the Company. The Company will receive no part of
the proceeds of any sales of Shares by the Selling Shareholders.
Certain of the Shares will be issued to certain of the Selling Shareholders
by the Company in connection with the Company's acquisition of substantially
all of the outstanding shares of A, B and C ordinary stock of REI Limited
("REI"), a United Kingdom corporation. The acquisition of REI is scheduled to
close on April 15, 1998. See "The Company--Acquisitions." Such Shares will be
issued pursuant to exemptions from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") and are being
registered pursuant to the terms of an Offer Document dated February 7, 1998
issued pursuant to the United Kingdom's Financial Services Act of 1986 and the
acceptances received from the shareholders of REI Limited. Certain of the
Shares held by the Selling Shareholders were issued pursuant to an effective
registration statement in connection with the Company's acquisition of Koll
Real Estate Services. Such Shares are being registered pursuant to that certain
Registration Rights Agreement, dated as of May 14, 1997, by and among the
Company and certain of the former shareholders of Koll Real Estate Services.
The Shares may be offered by the Company and the Selling Shareholders from
time to time directly or through agents, underwriters or broker-dealers, on
terms to be determined at the time of the sale, in one or more transactions on
the New York Stock Exchange (the "NYSE") or any national securities exchange
where the Common Stock is listed or traded, in the over-the-counter market, in
negotiated transactions or otherwise. See "Plan of Distribution." The price at
which any of the Shares may be sold, and the commissions, if any, paid in
connection with any such sale, are unknown and may vary from transaction to
transaction. The Company will pay all expenses incident to the offering and
sale of the Shares to the public other than any commissions and discounts of
underwriters, dealers or agents and any transfer taxes with respect to Shares
sold by the Selling Shareholders. See "Selling Shareholders" and "Plan of
Distribution."
The Debt Securities offered by the Company may be sold through one or more
different methods, including offerings through underwriters as more fully
described under "Plan of Distribution" and in the related prospectus
supplement.
The Securities and Exchange Commission (the "SEC" or the "Commission") may
take the view that, under certain circumstances, the Selling Shareholders and
any broker-dealers or agents that participate with the Selling Shareholders in
the distribution of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act. Commissions, discounts or concessions received
by any such broker-dealer or agent may be deemed to be underwriting commissions
under the Securities Act. The Company and the Selling Shareholders have agreed
to certain indemnification arrangements. See "Plan of Distribution."
The Common Stock is listed on the New York Stock Exchange under the symbol
CBG. On March 26, 1998 the last sale price for the Common Stock, as reported on
the New York Stock Exchange, was $37 3/8 per share.
SEE "RISK FACTORS" COMMENCING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998.
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS AND ANY
APPLICABLE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY OR THEREBY IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
WHEN USED IN THIS PROSPECTUS, THE WORDS "EXPECTS," "ANTICIPATES,"
"ESTIMATES," "BELIEVES" AND WORDS OF SIMILAR IMPORT MAY CONSTITUTE "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF
1933, AS AMENDED. SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED. FOR A DISCUSSION OF SUCH RISKS, SEE "RISK FACTORS." READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS,
WHICH SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS.
AVAILABLE INFORMATION
CBC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange
Act, CBC files proxy statements, reports and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). This filed
material can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Regional Offices in Chicago, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601-2511, and
in New York, 7 World Trade Center, 13th Floor, New York, New York 10048 and
copies of such material can be obtained by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Common Stock of the Company is quoted on
the New York Stock Exchange, and certain of CBC's proxy statements, reports,
and other information concerning CBC may be available for inspection at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. In addition, the SEC maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission through the Electronic Data Gathering, Analysis and Retrieval
System.
CBC has filed with the SEC a Registration Statement on Form S-3 (together
with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Shares. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the SEC. Copies of the Registration
Statement are available from the SEC, upon payment of prescribed rates. For
further information, reference is made to the Registration Statement, which
may be obtained from the SEC as set forth above. Statements contained in this
Prospectus or in any document incorporated by reference herein or therein as
to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following CBC documents are incorporated herein by reference: (a) CBC's
Annual Report on Form 10-K for the year ended December 31, 1997 and (b) the
description of Common Stock contained in the Company's registration statement
on Form 8-A filed pursuant to Section 12(b) of the Exchange Act and all
amendments thereto and reports filed for the purpose of updating such
description.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT CHARGE TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROSPECTUS IS DELIVERED,
UPON ORAL OR WRITTEN REQUEST OF ANY SUCH PERSON AND BY FIRST CLASS MAIL, OR
OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY AFTER RECEIPT OF SUCH
REQUEST, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE
(EXCLUDING EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
THEREIN BY REFERENCE). WITH RESPECT TO DOCUMENTS OF CBC INCORPORATED HEREIN BY
REFERENCE, REQUESTS SHOULD BE DIRECTED TO CBC, INVESTOR RELATIONS, 533 SOUTH
FREMONT AVENUE, LOS ANGELES, CA 90071-1712, TELEPHONE (213) 613-3123.
All reports and definitive proxy or information statements filed by CBC
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the termination of the offering of
the Securities of the Company to which this Prospectus relates will be deemed
to be incorporated by reference into this Prospectus from the date of filing
of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference will be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein (as to documents incorporated or deemed to
be incorporated herein by reference) or in any other subsequently filed
document which also is or is deemed to be incorporated herein by reference
modifies or supersedes such statement. Any such statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
3
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following risk factors
in addition to the other information presented in this Prospectus, before
purchasing the Securities offered hereby.
ADVERSE CHANGES IN ECONOMIC CONDITIONS
Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate will adversely affect certain segments of
CBC's business. Such economic conditions could result in a general decline in
rents which in turn would adversely affect revenues from property management
fees and brokerage commissions derived from property sales and leases. Such
conditions could also lead to a decline in sale prices as well as a decline in
demand for funds invested in commercial real estate and related assets. An
economic downturn or increase in interest rates also may reduce the amount of
loan originations and related servicing by CBC's commercial mortgage banking
business. If CBC's brokerage and mortgage banking businesses are adversely
affected, it is quite likely that other segments of CBC's business will also
be adversely affected, due to the relationship among CBC's various business
segments.
The sharp downturn in the commercial real estate market beginning in the
late 1980's caused and in the future may again cause some property owners to
dispose of or lose their properties through foreclosures and has caused
certain real estate firms to undergo restructuring or changes in control. Such
changes in the ownership of properties may be accompanied by a change in
property and investment management firms and could cause the Company to lose
management agreements or make the agreements it retains less profitable.
Revenue from property management services is generally a percentage of
aggregate rent collections from properties, with many management agreements
providing for a specified minimum management fee. Accordingly, the success of
the Company will be dependent in part upon the performance of the properties
it manages. Such performance in turn will depend in part upon the Company's
ability to attract and retain creditworthy tenants, the magnitude of defaults
by tenants under their respective leases, the Company's ability to control
operating expenses, governmental regulations, local rent control or
stabilization ordinances which are or may be put into effect, various
uninsurable risks, financial conditions prevailing generally and in the areas
in which such properties are located, the nature and extent of competitive
properties and the real estate market generally.
GEOGRAPHIC CONCENTRATION
For the year ended December 31, 1997 approximately $193 million (34.7%) of
CBC's $556.2 million in total sale and lease revenue (including revenue from
investment property sales) was generated from transactions originated in the
State of California. As a result of the geographic concentration in
California, a material downturn in the California commercial real estate
markets or in the local economies in San Diego, Los Angeles, Orange County or
the San Francisco Bay Area could material adversely affect the Company's
results of operations. If REI had been acquired effective January 1, 1997 the
34.7% figure would have been reduced to approximately 29%.
COMPETITION
CBC competes in a variety of service disciplines within the commercial real
estate industry, including (i) brokerage (facilitating sales and leases on
behalf of investors), investment properties (acquisitions and sales),
corporate services, property management, and real estate market research and
(ii) mortgage banking (loan origination and servicing), investment management
and advisory services, and valuation and appraisal services. Each of these
business areas is highly competitive on a national as well as local level. CBC
faces competition not only from other real estate service providers, but also
from institutional lenders, insurance companies and investment advisory,
mortgage banking, accounting and appraisal firms. CBC will continue to compete
with providers of all of these services, some of which in certain of these
business areas are better established and have substantially more experience
than CBC. Moreover, although many of CBC's competitors are local or
4
<PAGE>
regional firms that are substantially smaller than CBC on an overall basis,
they may be substantially larger on a local or regional basis. Because of
these factors, these companies may be better able than CBC to obtain new
customers, pursue new business opportunities or to survive periods of industry
consolidation. In addition, CBC has faced increased competition in recent
years in the property management and investment advisory segment of its
business which has resulted in decreased property management fee rates and
margins and decreased investment advisory fees and margins. As a result of
these factors, CBC will continue to face intense competition in its existing
markets. In general, in each of CBC's businesses there can be no assurance
that CBC will be able to continue to compete effectively or that it will be
able to maintain current commission or fee levels or margins or that it will
not encounter increased competition which could limit CBC's ability to
maintain or increase its market share.
RISKS INHERENT IN ACQUISITION GROWTH STRATEGY
Risks With Respect to Potential Acquisitions
CBC is currently negotiating potential acquisitions in the United Kingdom,
Canada, Australia and New Zealand and smaller acquisitions in the United
States. No agreement has been reached with respect to the material terms of
any of these potential acquisitions and there is no assurance that any of
these potential acquisitions will be completed or if completed that they will
add value to the Company. Based on prices offered by CBC, these acquisitions
would involve a total purchase price of over $150 million and the addition of
approximately 1,500 employees in more than 25 offices around the world. The
purchase price for these potential acquisitions could be in the form of all
common stock, all cash or all debt or some mixture of stock, cash and debt. At
the present time the Company does not have adequate cash to pay cash for all
of these potential acquisitions.
Lack of Availability of Acquisition Candidates
A significant component of CBC's growth in 1995, 1996 and 1997 was, and part
of its principal strategy for continued growth is, through acquisitions.
Recent acquisitions have included Koll Real Estate Services ("Koll")
(property, facility and investment management and brokerage), L.J. Melody &
Company ("L.J. Melody") (mortgage banking services), North Coast Mortgage
Company (mortgage banking services), Cauble and Company of Carolina (mortgage
banking services), Westmark Realty Advisors LLC ("Westmark") (investment
management and advisory services) and Langdon Rieder Corporation (tenant
advisory services). In addition, the acquisition of REI Limited (international
real estate services) is pending. CBC expects to continue its acquisition
program. CBC's future growth through acquisitions will be partially dependent
upon the continued availability of suitable acquisition candidates at
favorable prices and upon favorable terms and conditions; however, there can
be no assurance that future acquisitions can be consummated at favorable
prices or upon favorable terms and conditions. In addition, acquisitions
entail risks that businesses acquired will not perform in accordance with
expectations and that business judgments with respect to the value, strengths
and weaknesses of businesses acquired or the consequences of any such
acquisition will prove incorrect.
CBC's acquisition strategy is in part a response to the consolidation within
the industry which has accelerated because of increased competition. CBC is
engaged in an ongoing evaluation of potential acquisitions. No assurance can
be given as to CBC's ability to successfully complete these or future
acquisitions, or as to the financial effect on CBC of any acquired business.
Future acquisitions by CBC may result in increased interest and amortization
expense or decreased operating income, which could have a negative impact on
CBC's financial results. In addition, acquisitions involve numerous risks,
including difficulties in assimilating the operations and products of the
acquired companies, diversion of management's attention from other business
concerns and the uncertainty of entering markets in which CBC has no or
limited prior experience.
Difficulty of Integration In Connection with Acquisition Growth Strategy
There can be no assurance that significant difficulties in integrating
operations acquired from other companies will not be encountered, including
difficulties arising from the diversion of management's attention
5
<PAGE>
from other business concerns and the potential loss of key employees of either
CBC or the acquired operations. CBC encountered a number of these difficulties
in each of its acquisitions. For example, in the Westmark acquisition serious
differences in corporate culture resulted in several key employees leaving, in
the L.J. Melody acquisition it took over a year to blend the loan servicing
operations of CBC and L.J. Melody and the integration of the Koll and CBC
property, facilities and corporate accounting systems is still not fully
completed. With respect to the pending REI acquisition, the integration issues
include the need to establish a global internal communications network and the
need to establish centralized finance and accounting functions. CBC believes
that most acquisitions will have an adverse impact on operating income and net
income during the first six months following the acquisition. There can be no
assurance that CBC's management will be able to effectively manage any
acquired business or that any acquisition will benefit CBC overall.
Lack of Available Financing
CBC will require additional financing to sustain its acquisition program.
CBC expects to finance future acquisitions and internal growth through a
combination of funds available under its revolving credit facility, cash flow
from operations, indebtedness incurred by CBC (including, in the case of
acquisitions, seller financing) and the sale or issuance of CBC's capital
stock. The covenants in CBC's current credit agreement may restrict CBC's
ability to raise additional capital in certain respects. There can be no
assurance that financing will be available to CBC or, if available, that it
will be sufficient to finance acquisitions.
SEASONALITY
A substantial component of CBC's revenues is transactional in nature and as
a result is subject to seasonality. Historically, CBC's revenues, operating
income and net income in the first two calendar quarters have been generally
lower than in the third and fourth calendar quarters due to seasonal
fluctuations, which is consistent with the industry generally. In the first
quarters of any calendar year, CBC has historically sustained a loss. CBC's
non-variable operating expenses, which are treated as expenses when incurred
during the year, are relatively constant in total dollars on a quarterly
basis. As a consequence of the seasonality of revenues and the relatively
constant level of quarterly expenses, a substantial majority of CBC's
operating income and net income has historically been realized in the third
and fourth calendar quarters. CBC believes that future operating results will
generally continue to follow these historical patterns, although revenues and
earnings are also likely to be affected by both broad economic fluctuations
and supply and demand cyclicality relating to commercial real estate. There
can be no assurance that CBC will be profitable on a quarterly or annual basis
in the future.
CBC'S LEVERAGE AND INTANGIBLE NATURE OF ITS ASSETS
CBC indebtedness as of December 31, 1997 was approximately $151.1 million.
For the 1998 calendar year the Company expects to have principal and interest
obligations on its indebtedness of approximately $20 million. Any material
downturn in CBC's revenue or increase in its costs and expenses could result
in CBC's being unable to meet its debt obligations. As of December 31, 1997
CBC had total assets of approximately $505.2 million, approximately $239.4
million of which was goodwill and other intangible assets which may not be
realizable at their carrying amounts in liquidation.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock of the Company could be subject to
significant fluctuations in response to quarter-to-quarter variations in
operating results of CBC or its competitors, conditions in the commercial real
estate industry, the commencement of, developments in or outcome of
litigation, changes in estimates of CBC's performance by securities analysts,
and other events or factors. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Company's Common Stock.
6
<PAGE>
POTENTIAL LACK OF SPACE TO LEASE
A significant portion of CBC's brokerage business involves facilitating the
lease of commercial property including retail, industrial, and office space.
Since the real estate depression of the early 1990s, the development of new
retail, industrial, and office space has been limited. As a consequence, in
certain areas of the country there is beginning to be inadequate office,
industrial and retail space to meet demand and there is a potential for a
decline in CBC's overall number of lease transactions, the effect of which
may, over time, be partially offset by increasing sales, including sales of
undeveloped land (which would benefit CBC's brokerage business). However,
during 1997, CBC's lease transactions increased, as did aggregate revenue from
lease transactions. There can be no assurance that these increases will
continue or that any such increase in the sale of undeveloped land will
coincide with any decline in the number of lease transactions.
ENVIRONMENTAL CONCERNS
Numerous laws and regulations have been enacted which regulate exposure to
potentially hazardous materials often found in and around buildings. Some of
these laws and regulations directly and indirectly impact the commercial real
estate market by imposing additional costs and liability on owners, operators
and sellers as well as lenders. Such laws and regulations tend to discourage
sales and leasing activities and mortgage lending with respect to some
properties, and may therefore adversely affect CBC. In addition, the failure
of CBC to disclose environmental issues may subject CBC to liability to a
buyer or lessee of property or to a purchaser of a mortgage loan.
7
<PAGE>
THE COMPANY
COMPANY OVERVIEW
CBC (formerly CB Commercial Holdings, Inc.) was organized to acquire
Coldwell Banker Commercial Group, Inc. and had no operations prior to the
acquisition on April 19, 1989 (the "Acquisition"). In November 1996, CBC
completed an initial public offering of 4,347,000 shares of common stock, par
value $.01 per share (the "Common Stock"). CBC is a holding company that
conducts its operations solely through CB Commercial Real Estate Group, Inc.
and its subsidiaries (collectively, the "Company").
The Company is the largest vertically-integrated commercial real estate
services company in the United States with aggregate 1997 revenue of $730.2
million, approximately 130 principal offices in the U. S. and over 200 offices
worldwide, including strategic alliance partner offices. The Company provides
a full range of services to commercial real estate tenants, owners and
investors including: (i) brokerage (facilitating sales and leases) ("Brokerage
Services"); (ii) transaction management, advisory services and facilities
management services to corporate real estate users ("Corporate Services");
(iii) property management ("Institutional Management Services"); and (iv)
capital market activities, including mortgage banking, brokerage and
servicing, investment management and advisory services, investment property
transactions (acquisitions and sales on behalf of investors), real estate
market research and valuation and appraisal services (collectively "Financial
Services").
INDUSTRY TRENDS
Over the last ten years, the commercial real estate industry has experienced
various structural changes, and over the last three or four years, the
industry has experienced 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.
.RECOVERED 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
essentially recovered 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. Relatively strong markets also are prevalent in a number of other
major U.S. real estate markets where the Company has operations, including
Arizona, Texas, the New England area and the Washington, D.C./Baltimore areas.
National office and industrial building occupancy levels have generally been
rising, rental rates have been increasing and, correspondingly, property
values have been rising.
. 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 Real Estate Investment Trusts ("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 or internationally-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 has been less than that of other institutional investors. The Company
believes that the REITs are a potential growth area if Wall Street puts a
premium on growth in funds from operations ("FFO") and because of this
influence, REITs elect to outsource various property management functions
which can be performed more efficiently by broadly based management
organizations like the Company.
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.ONGOING INDUSTRY CONSOLIDATION.
The Company believes that the combination of more intense institutional and
corporate real estate service needs and demands, together with the real estate
"depression" of the early 1990s, has made it imperative that real estate
service firms (i) provide comprehensive, high-quality services, (ii) make
significant investments in corporate infrastructure, including information
technology and professional education, and (iii) have access to sufficient
capital to support these service and investment needs. These factors have
fueled the current consolidating industry environment, which the Company
believes will motivate local and regional real estate service providers to
sell to, or form alliances with, major national and international companies.
.CONTINUING CORPORATE OUTSOURCING TREND.
Shareholder pressure for higher performance and return on equity within most
public corporations around the globe has 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. The Company's pending acquisition of REI Limited will provide
access to European, South American and Asian companies interested in
outsourcing and provides a global network of very high quality to provide
service to companies throughout the world in the outsourcing process.
Following the REI acquisition, which is scheduled to close on April 15, 1998,
the only major commercial real estate area in the world not directly served by
the Company with an owned, or at least partially owned group of businesses,
will be the United Kingdom.
.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 Commercial Mortgage-Backed
Securities ("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 one of the largest
suppliers of commercial mortgages to the CMBS market (over $1 billion in
aggregate originations in 1997 or 30% of the Company's $3.5 billion in new
originations). In addition, the Company expects to service a majority of the
mortgage loans that it originates and the profit margin potential for
servicing an increasing volume of mortgage loans may be significant 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. Following the
North Coast Mortgage Company and Cauble and Company of Carolina acquisitions
the Company services over $9 billion in loans. 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 and is currently involved in negotiating potential
acquisitions in a number of countries, although no agreement has been reached
on material terms in any of these negotiations and there can be no assurances
that any such agreement will be reached or if reached will prove beneficial to
the Company. Management believes that there are significant opportunities in
the fragmented and consolidating worldwide real estate services industry to
acquire additional companies to complement and expand the Company's existing
operations. Since 1995, the Company
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has completed six strategic acquisitions and has contractually agreed to a
seventh acquisition, REI Limited. In 1995, the Company acquired Westmark
Realty Advisors L.L.C. ("Westmark"), an investment management and advisory
business with approximately $4.5 billion of assets currently under management,
and Langdon Rieder Corporation ("Langdon Rieder"), a nationally-known tenant
representation firm. In 1996, the Company acquired L. J. Melody & Company ("L.
J. Melody"), a nationally-known mortgage banking firm. In August 1997, the
Company acquired Koll Real Estate Services ("Koll"), a real estate services
company primarily providing property management services, corporate and
facilities management services, and asset and portfolio management services.
The acquisition was accounted for as a purchase and resulted in the issuance
of Company equity valued at approximately $132.9 million and the assumption of
debt and minority interest of approximately $57.4 million at the time of the
transaction. In February 1998, the Company, through L. J. Melody, acquired
Cauble and Company of Carolina for approximately $2.2 million, and
substantially all of the assets of North Coast Mortgage Company for
approximately $3.3 million, both regional mortgage banking firms. In addition,
the Company has reached definitive agreements with the holders of
substantially all of the outstanding shares of REI Limited, the holding
company for all Richard Ellis operations outside of the United Kingdom to
purchase their shares. The purchase price for 100% of the shares of REI is
(Pounds)57.25 million (the price was subject to downward adjustment if EBITDA
and net debt thresholds were not attained but those thresholds were met). The
entire purchase price is payable in Common Stock of the Company but the REI
shareholders were permitted to elect to have up to 50% of the Purchase Price
paid in cash or notes. Initially, each REI shareholder was allowed to choose
at any time prior to March 20, 1998 between two methods (Method A and Method
B) in determining the number of shares of stock of the Company and the amount
of cash to which he or she was entitled:
Under Method A, the number of shares of Common Stock is calculated based
upon the average price of the stock and the average U.S. Dollar/Pound
Sterling exchange rate for the 10 trading days preceding December 9, 1997
(the date the REI transaction was announced). The average trading price was
$33.76 and the average exchange rate was $1.674:(Pounds)1. The actual value
that a shareholder receives under Method A will increase or decrease
depending upon the difference between the December 9, 1997 averages and the
averages when the transaction closes. However, in no event can the value of
the Common Stock to be issued to REI shareholders be less than (Pounds)50
million or more than (Pounds)65 million.
Under Method B, the number of shares of the Company's Common Stock to be
issued to REI shareholders is calculated based on the average closing price
of the stock and the average U.S. Dollar/Pound Sterling exchange rate for
the 10 days preceding the closing.
Under either method, a shareholder was permitted to elect to have up to 50% of
the value of the Company's Common Stock paid in cash or 52 month bank-
guaranteed notes. The notes bear interest at LIBOR less 150 basis points and
may be redeemed at the option of the holder on each December 31st and June
30th beginning December 31, 1998.
On April 2, 1998 the Company offered the REI Shareholders three additional
options:
Option 1: To receive stock and cash exactly as elected under Method A or
Method B but using the 10 days prior to April 15, 1998 for purposes of
calculating values under Method B and for purposes of determining the
amount of cash under Method A.
Option 2: To receive in cash 100% of the value of the shares of Company's
Common Stock which he or she would have received under his or her election
pursuant to Method A or Method B.
Option 3: To receive stock or cash as elected under Method A or Method B
but using the effective date of the Registration Statement for all purposes
of calculating value under Method A and for purposes of determining the
amount of cash under Method B. If the Registration Statement is not
effective by May 24, 1998, the entire value of the Common Stock which
otherwise would have been distributed will be paid in cash.
The Company expects to continue its acquisitions program over the next
several years and will focus on acquisitions in its mortgage banking business
and opportunistic acquisitions in its domestic brokerage and property
management businesses, as well as acquisitions which enhance its international
capabilities. The
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Company is currently negotiating potential acquisitions in a number of
countries, but no agreement has been reached in any of the negotiations and
there can be no assurances that any such agreement will be reached or if
reached will prove beneficial to the Company. Based upon what the Company has
offered, if all of these acquisitions were to close the cost to the Company
would exceed $150 million. The Company believes that the purchase price for
any of these potential acquisitions which do close will be paid mostly in
cash. Following the REI acquisition, the Company may not have adequate cash to
complete these acquisitions. Accordingly, the Company anticipates raising
additional capital, using one or more of the following alternatives:
. Increasing its current bank line.
. Raising public or private mid-term debt.
. Selling equity (Common Stock).
There can be no assurance that the Company will successfully conclude any of
the current negotiations or if it does so that it can raise any additional
capital through the above described alternatives or, if it can raise
additional capital, that such capital will be adequate.
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). Finally, acquisitions can present serious
integration problems both in terms of personality and cultural differences
(both of which caused material problems in integrating Westmark), and in terms
of stress on accounting personnel and other infrastructure systems (which
materially slowed the integration of Koll Real Estate Services). The Company
expects material infrastructure issues in integrating REI which has offices in
more than 25 countries and limited centralized accounting systems.
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).
THE COMPANY'S BUSINESSES
Brokerage Services
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
1997, the Company generated revenue from commercial real estate brokerage
services of approximately $423.5 million representing approximately 20,850
completed transactions. In 1997, brokerage facilitated over 3,000 sale
transactions with an aggregate estimated total consideration of over $3.75
billion and approximately 17,700 lease transactions involving aggregate rents,
under the terms of leases facilitated, of approximately $8.7 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, 1997, the Company employed approximately
1,750 brokerage professionals in 84 offices located in most of the largest
Metropolitan Statistical Areas ("MSAs") in the United States. The Company
maintains a decentralized approach to brokerage services (other than
investment properties
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which are a part of financial 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. While day-to-
day operations are decentralized, accounting and financial functions are fully
centralized.
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. Through December 31, 1997, the Company had
established fourteen such partnership-type arrangements in Des Moines, Iowa;
Louisville, Kentucky; Buffalo and Rochester, New York; Pittsburgh,
Pennsylvania; Charleston and Columbia, South Carolina; Memphis, Tennessee;
Madison and Milwaukee, Wisconsin; Toledo, Ohio; El Paso, Texas; South Bend and
Ft. Wayne, Indiana; and East Lansing and Grand Rapids, Michigan. 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. By the end of 1998 the Company
expects to have approximately 25 partnership-type arrangements and may not
materially expand the program beyond that number. In 1997, the Company
contributed its brokerage and property management business in the New England
area to a partnership and Whittier Partners, a prominent New England real
estate services firm, did likewise. The Company also contributed approximately
$4.78 million in cash because the assets it contributed were less valuable
than the assets contributed by Whittier Partners. The Company and Whittier
Partners each own 50% of the partnership which is managed by Whittier
Partners.
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 during the initial
lease term 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 have typically
received 50% of the Company's share of commissions before costs and expenses.
In 1999 the Company anticipates changing its commission plan so that sales
professionals who produce commissions below a specified level will have a 40%
commission, and sales professionals who produce commissions above a specified
level will achieve a 60% commission. Sales professionals who produce
commissions between these two levels will continue to receive 50% of the
commissions.
Corporate Services
The Company provides corporate services to major corporations around the
world. Corporate services include assisting corporations in developing and
executing multiple-market real estate strategies and facilities management
services. The Company's objective is to establish long-term relationships with
corporations that require continuity in the delivery of high-quality, multi-
market management services and strategic advisory services including
acquisition, disposition and consulting services. Global competition, the
focus on quality, "right-sizing" of corporate organizations and changes in
management philosophy have all contributed to an increased interest in and
reliance on outside third-party real estate service providers. Specifically,
through contractual relationships, the Company assists major, multi-market
companies in developing and executing real estate strategies as well as
addressing specific occupancy and facilities management objectives. Corporate
services coordinates the utilization of all the Company's various disciplines
to deliver an integrated service to its
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clients. Essentially, corporate services expands a client's real estate
department and supports most of the functions involved in a corporate real
estate department.
The Company's facilities management unit, specializes in the administration,
management and maintenance of properties that are owned and occupied by large
corporations and institutions, such as corporate headquarters, regional
offices, administrative offices and manufacturing and distribution facilities,
as well as tenant representation, capital asset disposition, strategic real
estate consulting and other ancillary services for corporate clients. As of
December 31, 1997, the Company had approximately 91 million square feet under
facilities management.
OPERATIONS. The Company's facilities management operations are 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 providing a full range of corporate
services in a contractual relationship, the facilities management 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.
Under a typical facilities management agreement, the Company is entitled to
receive management fees and reimbursement for its costs (such as costs of
wages of on-site employees, capital expenditures, field office rent, supplies
and utilities) incurred that are directly attributable to management of the
facility. Payments for reimbursed expenses are set against those expenses and
not included in revenue. In most instances, office space and furniture for the
on-site office are provided by the client. Under certain facilities management
agreements, the Company may also be entitled to an additional incentive fee
which is paid if the Company meets certain performance criteria established in
advance between the client and the Company. The management fee in most cases
is based upon a fixed annual amount per square foot of the facility managed.
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.
Institutional Management Services
The Company provides value-added property management services for income-
producing properties owned primarily by institutional investors and, as of
December 31, 1997, managed approximately 211 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 1,600 property management
professionals. 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
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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
either a certain amount per square foot managed or a specified percentage of
the monthly gross rental income collected from tenants occupying the property
under management. Where rent is used as the basis for the fee, the fee 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.
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.
Financial 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 originated approximately $3.5 billion of mortgages in 1997.
As part of these origination activities, the Company has special conduit
arrangements with affiliates of Merrill Lynch & Co., Citicorp, NationsBank,
Heller Financial and Deutche Morgan Grenfell which permit it to service the
mortgage loans which it originates. Under these arrangements, the Company
generally originates mortgages in its name, makes limited 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 may
originate mortgages into other conduit programs where it does not have
servicing rights. The Company originates and services loans for Federal Home
Loan Mortgage Corp. ("Freddie Mac") and is a major mortgage originator for
insurance companies having originated mortgages in the names of the insurance
companies valued at approximately $2 billion in 1997. The Company has
correspondent arrangements with various life insurance companies and pension
funds which entitle it to service the mortgage loans it originates. As of
December 31, 1997, the Company serviced mortgage loan portfolios of
approximately $7.6 billion and as a result of the North Coast and Cauble
acquisitions currently services portfolios in excess of $9 billion.
OPERATIONS. The Company employs approximately 55 mortgage banking
professionals in 20 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. The Company's mortgage loan servicing
primarily is handled by L. J. Melody in Houston, Texas. In February 1998, L.
J. Melody acquired Cauble and Company of Carolina for approximately $2.2
million, and substantially all of the assets of North Coast Mortgage Company
for approximately $3.3 million, both regional mortgage banking firms. These
acquisitions give the Company a stronger presence in the Northwest (Washington
and Oregon) and Southeast (North Carolina and South Carolina) regions of the
United States with respect to its mortgage banking services.
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 addition, the Company can earn special
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incentive fees from various conduit programs. In 1997 the Company received
approximately $1.3 million from such incentives. 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 correspondent 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. 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 approximately 50% of the Company's loan origination
fees.
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 1997, the Company completed approximately 1,240
investment property transactions with an aggregate value of over $9.4 billion,
generating total revenues of approximately $150 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. REI's Richard Ellis operations around the
globe had significant investment sales in 1997. The Company believes that the
combination of the two investment property programs will be highly attractive
to buyers and sellers of investment properties.
OPERATIONS. As of December 31, 1997, the Company employed approximately 300
investment properties professionals who exclusively handle acquisitions and
sales of investment properties and are located in 90 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.
Investment Management and Investment Products
The investment advisory and investment activities of the Company are divided
into two parts--Westmark and CBC Global Capital Markets. Westmark continues to
focus on providing advisory services to the pension
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fund community while CBC Global Capital Markets focuses on co-investment
opportunities and the development of products to serve non-pension fund
investors.
OPERATIONS. As of December 31, 1997, Westmark managed approximately $4.5
billion in tax-exempt capital invested in more than 252 office, industrial and
retail properties located in more than 46 major U.S. markets with an aggregate
of more than 48 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 employs approximately 135 professionals who
provide services, including market research and forecasting, acquisition
strategy and implementation, portfolio strategy and management, and
development and dispositions. 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.
Westmark has experienced significant growth in its separate accounts business
and its commingled debt business simultaneously with a decline in its
commingled equity business caused by adverse investor response to non-property
specific commingled funds. The Company believes that in the future investors
may react favorably to commingled equity funds which have liquidity and co-
investment characteristics.
CBC Global Capital Markets is focused on developing securitized investment
products for clients and creating other investment strategies based on its
market research. In 1996, CBC Global Capital Markets formed a relationship
with Alliance Capital Management to manage investments in REIT securities for
retail and institutional clients. This venture utilizes the Company's
proprietary research tools and currently manages approximately $800 million in
assets, of which $575 million was raised in 1997. CBC Global Capital Markets
is considering the development of investment programs for international real
estate securities, securitized commercial mortgage debt and other specialized
investment funds.
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.
CBC Global Capital Markets' fees for managing investments will vary
depending on product type. For the REIT investment business, CBC Global
Capital Markets shares the total fees with Alliance Capital Management with
the gross income to the Company ranging from 0.20% to 0.25% of assets under
management.
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, 1997, the Company's appraisal staff had more than 92
professionals with approximately 50% of the staff holding the MAI
16
<PAGE>
professional designation. The business is operated nationally through 25
regional offices and its clients are generally corporate and institutional
portfolio owners and lenders. In 1997, the Company performed more than 3,600
valuation and appraisal assignments.
Real Estate Market Research
Real estate market research services are provided by 13 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. The CB
Commercial National Real Estate Index also compiles proprietary market
research for nearly 60 major urban areas nationwide, reporting benchmark
market price and rent data for office, light industrial, retail, and apartment
properties, and tracking the property portfolios of 135 of the largest real
estate investment trusts.
TERMINATION OF INTERNATIONAL ALLIANCES
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 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 Ikoma
Corporation, a commercial real estate services firm in Japan, allowed the
Company to provide global corporate service capabilities and significantly
strengthen its client relationships in the United States. However, in 1997, as
part of its evaluation of the Koll acquisition, the Company concluded that it
could not deliver consistent, high quality services around the globe except
through a commonly owned and commonly managed structure. The Company
approached its alliance partners with a view to common ownership and
management but could not reach agreement with them and gave notice terminating
the alliance agreements effective April 15, 1998. The Company then began
discussions with REI Limited which were finalized in early 1998. The alliance
relationships were reciprocal referral arrangements whereby the Company's
clients who required services in a geographical region serviced by its
alliance partners had to be referred by the Company to its alliance partner
operating in that region. Revenues from the alliance agreements have
historically represented a small portion of total revenues.
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 100 professionals that operate the Company's data center,
develops custom programs, implements special systems software, and provides
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 wide area network for real-time access to
the Company's centralized databases, customized software applications and
electronic communications systems.
By special arrangement, some of the Company's clients have remote modem
access to selected client-customized software applications, and the CB
Commercial Web Site has also given clients direct access through
17
<PAGE>
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.
Year 2000 Computer Issues
The Company's accounting systems (both for the Company and for its property
and facilities management clients), information technology systems and
embedded (elevator, HVAC, etc.) systems are all subject to potential problems
relating to the inability of such systems to recognize the year 2000. The
Company believes that its accounting systems will be year 2000 compliant by
the end of 1998 but that its information technology and embedded systems may
not be year 2000 compliant until sometime in 1999. There is no assurance that
the Company can meet these schedules and if it does not, the result would be
material and adverse.
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, thereby
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, 1997, the Company had approximately 6,700 employees. 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.
PROPERTIES
The Company owns its headquarters building in downtown Los Angeles,
California. In addition to the Company's headquarters, the Company owns three
smaller office buildings in Phoenix, Arizona, San Diego and Carlsbad,
California. The Company occupies the San Diego and Carlsbad properties.
18
<PAGE>
The Company also leases office space on terms that vary depending on the
size and location of the office. The leases expire at various dates through
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, although the rental rates in some markets may adversely affect the
Company's profits in those markets.
LEGAL PROCEEDINGS
In August 1993, a former commissioned sales person 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. On November 20, 1996, a jury returned a verdict against the Company,
awarding $6.5 million in general and punitive damages to the plaintiff.
Subsequently, the trial court awarded the plaintiff $638,000 in attorneys'
fees and costs. Following denial by the trial court of the Company's motions
for new trial, reversal of the verdict and reduction of damages, the Company
filed an appeal of the verdict and requested a reduction of damages and an
appellate ruling is expected in late 1998 or early 1999. The Company has
established reserves for this case, and management believes the reserves are
adequate as of December 31, 1997. 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 6,700 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 175 to 200 legal proceedings and a plaintiff in 50 to 75 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.
CBC's executive offices are located at 533 South Fremont Avenue, Los
Angeles, California 90071-1712 and its telephone number is (213) 613-3123.
19
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
registered hereby which are sold by the Selling Shareholders. All proceeds
from the sale of such Shares will be for the accounts of the Selling
Shareholders. See "Selling Shareholders."
The Company intends to use the net proceeds from any sale of Securities by
it pursuant hereto to pay for acquisitions, to pay down indebtedness under its
revolving credit agreement and for general working capital purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............. 3.01x 1.84x 1.28x 1.40x (1)
</TABLE>
- --------
(1) The Company's earnings were not sufficient to cover its fixed charges
requirements by $37.0 million for December 31, 1993.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock by each Selling Shareholder as of the
closing date of the REI acquisition. To the Company's knowledge, no Selling
Shareholder holds any shares of the Company's Common Stock other than that
indicated below, all of which is being registered pursuant hereto. Thus,
assuming the sale of all the Shares offered pursuant hereto none of the
Selling Shareholders will hold any of the Company's Common Stock. The only
Selling Shareholder who has had a material relationship with the Company in
the past three years is AP KMS II, LLC ("AP"). AP was entitled to nominate one
director to the Board of Directors of the Company following the Koll
acquisition. Ricardo Koenigsberger, the director so nominated, was elected and
is entitled to hold office until the next election of the Board of Directors
of the Company (scheduled to take place at the 1998 Shareholders' Meeting).
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERED OFFERING
--------------- BY EACH SELLING --------------
NUMBER PERCENT SHAREHOLDER NUMBER PERCENT
------- ------- --------------- ------ -------
<S> <C> <C> <C> <C> <C>
AP KMS II, LLC.................. 216,864 1.15 216,864 0 0
AP KMS Partners, L.P............ 295,975 1.57 295,975 0 0
Miguel Alonso Echegaray......... * 0 0
Jeremy C. Alpe.................. * 0 0
Clive N. G. Arding.............. * 0 0
Gerard Aubert................... * 0 0
Eric Auterbe.................... * 0 0
Bacon & Woodrow Trust Company
(C.I.) Limited................. * 0 0
Michael J. Bamber............... * 0 0
Antyony M. N. Barron............ * 0 0
Tom Bartlett.................... * 0 0
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERED OFFERING
-------------- BY EACH SELLING --------------
NUMBER PERCENT SHAREHOLDER NUMBER PERCENT
------ ------- --------------- ------ -------
<S> <C> <C> <C> <C> <C>
Alejandro Bazet......... * 0 0
Glenn Bechtel........... * 0 0
Valeria Belinszki....... * 0 0
Anuradha Beri........... * 0 0
Donald H. Bodel......... * 0 0
John Bowerman........... * 0 0
Philippe Bresteau....... * 0 0
Feroze Bundhun.......... * 0 0
Richard Graves Butler... * 0 0
CN Limited.............. * 0 0
Patrick Callesen........ * 0 0
Walter Cardoso.......... * 0 0
Thomaz Valladao Catunda. * 0 0
Dinesh Chandiok......... * 0 0
Ram Chandnani........... * 0 0
Tom Cheung.............. * 0 0
Cicihold Pty Ltd........ * 0 0
Kim Jonathan Clarkson... * 0 0
A. John Corbett......... * 0 0
Brian W. Cox............ * 0 0
James A. D. Croft....... * 0 0
Marc Crowe.............. * 0 0
Paul Dale............... * 0 0
Angelique de Rouge...... * 0 0
Thom C. Dijksman........ * 0 0
Luis A. Donaldson....... * 0 0
Martin Donaldson........ * 0 0
Bruno Dupont............ * 0 0
Phil Duval.............. * 0 0
Stephen B. G. Ellis..... * 0 0
Andrew Evans............ * 0 0
Simon Fairfax........... * 0 0
John Falkiner........... * 0 0
Fernando M. G. de Faria. * 0 0
Eduardo Fernandez-
Cuesta................. * 0 0
Gerog Fichtinger........ * 0 0
N. H. Christopher
Fleetwood-Bird......... * 0 0
Jean-Pierre Forgeot..... * 0 0
Christopher J. Fossick.. * 0 0
Yukio Furuta............ * 0 0
Alfonso Galobart Maronc. * 0 0
Jaime Garcia del Rio.... * 0 0
Janet S. Goatly......... * 0 0
Pauline Goh............. * 0 0
John Gomez Hall......... * 0 0
Bruce M. Gray-Buchanan.. * 0 0
Michaela Grunstejdl..... * 0 0
D. Mike Hannan.......... * 0 0
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERED OFFERING
-------------- BY EACH SELLING --------------
NUMBER PERCENT SHAREHOLDER NUMBER PERCENT
------ ------- --------------- ------ -------
<S> <C> <C> <C> <C> <C>
Brian N. Harris.................. * 0 0
Brian N. Harris & Mrs. Rosalyn M.
Harris.......................... * 0 0
Brian N. Harris & Mrs. Rosalyn M.
Harris &
Mr. Peter R. Davies............. * 0 0
Marco S. C. Hekman............... * 0 0
Francoise Heraud................. * 0 0
Brian Hose....................... * 0 0
Andrew J.M. Huntley.............. * 0 0
Andrew John Mack Huntley and
Mrs. Juliet Vivian Huntley...... * 0 0
Andrew Jamson.................... * 0 0
Michael Janotta.................. * 0 0
Neville Jensen................... * 0 0
Kannalink Pty Limited............ * 0 0
Supreet Kaur..................... * 0 0
Yasuo Kawakami................... * 0 0
Martin Kaye...................... * 0 0
Christoipher Keenan.............. * 0 0
Klaus Keil....................... * 0 0
Davdi A. Kennedy................. * 0 0
Gregory Vincent Kernahan......... * 0 0
Arvind Khanna.................... * 0 0
Chan Fook Kheong................. * 0 0
Corrine Koh...................... * 0 0
Cora M. Kok...................... * 0 0
William Kreuger.................. * 0 0
Angela Kyster.................... * 0 0
Keremy N. Lake................... * 0 0
Alan Lee......................... * 0 0
K. W. Lee........................ * 0 0
Leitha Holdings Pty
Superannuation Fund............. * 0 0
Jose Antonio Leon Gondalez....... * 0 0
Dominic Leung.................... * 0 0
Hiaw Ho Li....................... * 0 0
Lay See Lim...................... * 0 0
Andrew Liu....................... * 0 0
Michael Loeckx................... * 0 0
See Hong Long.................... * 0 0
Roger D. Lucas................... * 0 0
Anshuman Magazine................ * 0 0
Dino Mancini..................... * 0 0
Rob J. C. Mans................... * 0 0
Gavin Page Martin................ * 0 0
Lester D. J. Martin.............. * 0 0
Luis Martinez.................... * 0 0
Enrique Martinez Laguna.......... * 0 0
Gaetan Mary...................... * 0 0
Charles A. Mataure............... * 0 0
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERED OFFERING
-------------- BY EACH SELLING --------------
NUMBER PERCENT SHAREHOLDER NUMBER PERCENT
------ ------- --------------- ------ -------
<S> <C> <C> <C> <C> <C>
Sean Maxell....................... * 0 0
Luis Gonzaga Soares Mayor......... * 0 0
Mayfair S.A.R.L................... * 0 0
Tom McCallum...................... * 0 0
Michelle McKellar................. * 0 0
Jan McNally....................... * 0 0
Dan McVay......................... * 0 0
Anthony P. McVeigh................ * 0 0
Herve Miliotis.................... * 0 0
Ian A. C. Mitchell................ * 0 0
Marcos L. B. Montandon............ * 0 0
Kishore Moorjani.................. * 0 0
H. Scott Morgan................... * 0 0
Douglas F. F. Munro............... * 0 0
Unthika Naiyaruxsaeree............ * 0 0
Andrew Ness....................... * 0 0
Tom Ng............................ * 0 0
Yumiko Nishio..................... * 0 0
Sergio Ricardo Paciullo........... * 0 0
Manuel Palencia Cortes............ * 0 0
Gines Palencia Cortes............. * 0 0
Elizabeth Parry................... * 0 0
Aliwassa Pathuadabutr............. * 0 0
D. N. Idris Pearce................ * 0 0
Alberto Rabalinho Senra Pecanha... * 0 0
Wilson A. Penman.................. * 0 0
Penticton Investments Inc......... * 0 0
Victor J. Perez Arias............. * 0 0
Dino Piccini...................... * 0 0
Franc Pigna....................... * 0 0
Pine Consulting Corporation....... * 0 0
Dominic G. Pirard................. * 0 0
David Pitcher..................... * 0 0
James Robert Pitchon.............. * 0 0
Francis J. Pons................... * 0 0
Javier Prades Rebato.............. * 0 0
Jose Puig de la Bellacasa......... * 0 0
Harald Rank....................... * 0 0
Richard G. Ray.................... * 0 0
William Rea....................... * 0 0
W. Rea Pty Ltd.................... * 0 0
David H. Read..................... * 0 0
PD Realty Pty Ltd................. * 0 0
Christopher Redman................ * 0 0
Michael Rhyddrech................. * 0 0
Andreas Ridder.................... * 0 0
Spencer G. Roberts................ * 0 0
Lionello Rosina................... * 0 0
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERED OFFERING
-------------- BY EACH SELLING --------------
NUMBER PERCENT SHAREHOLDER NUMBER PERCENT
------ ------- --------------- ------ -------
<S> <C> <C> <C> <C> <C>
Rod Routh........................ * 0 0
David A. Runciman................ * 0 0
Graeme Stuart Russell............ * 0 0
Gary E. Ryan..................... * 0 0
Patrick Sabban................... * 0 0
Moffatt Sanders.................. * 0 0
Annop Sangprasit................. * 0 0
Jerry T. Scott................... * 0 0
Pedro M. F. C. Seabra............ * 0 0
G. John Selman................... * 0 0
Willy Y. P. Shee................. * 0 0
Hwee Yan Sim..................... * 0 0
David C. Simister................ * 0 0
David A. Sizer................... * 0 0
David A. Sizer & Mrs. Janet M
Sizer........................... * 0 0
Wayne Richard Smith.............. * 0 0
Su Lin Soon...................... * 0 0
Sounds Excellent Limited......... * 0 0
Brian Spence, David A. Wright and
Massimo Papini.................. * 0 0
Christopher Steel................ * 0 0
Michael Steur.................... * 0 0
Superseven Limited............... * 0 0
Anthony P. Sutcliffe............. * 0 0
Jason Tam........................ * 0 0
Joseph Tan....................... * 0 0
Ayumi Tanaka..................... * 0 0
Sumalee Tavivaradilok............ * 0 0
It Tuan Tay...................... * 0 0
Threshold Pty Ltd................ * 0 0
Albert Tong...................... * 0 0
Pedro P. Toscano................. * 0 0
Roberto Trella................... * 0 0
William J. Tucker................ * 0 0
Mark Alfred Turnbull............. * 0 0
Edoardo Vigano................... * 0 0
Juan Carlos Vidosola............. * 0 0
Alan Anthony Vincent............. * 0 0
Vysden Pty Ltd................... * 0 0
Asharawan Wachananont............ * 0 0
Waterways Inc.................... * 0 0
Felix Wehrli..................... * 0 0
Michael D. G. Wheldon............ * 0 0
M. D. G. Wheldon, Mrs. C. G.
Wheldon, Ms. J. L. Wheldon
(Trustees of the Wheldon
Charitable Trust)............... * 0 0
M. D. G. Wheldon, Mrs. C. G.
Weldon, Ms. J. L. Wheldon
(Trustees for the Life Interest
Settlement)..................... * 0 0
Ian J. White..................... * 0 0
Brian R. White................... * 0 0
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERED OFFERING
-------------- BY EACH SELLING --------------
NUMBER PERCENT SHAREHOLDER NUMBER PERCENT
------ ------- --------------- ------ -------
<S> <C> <C> <C> <C> <C>
Barry D. White................... * 0 0
Robert J. F. Wildman............. * 0 0
R. J. F. Wildman, R. C. Wildman
and R. M. Peters
(As Trustees of the 1998 AJFW
Settlement)..................... * 0 0
R. J. F. Wildman, R. C. Wildman
and R. M. Peters
(As Trustees of the 1998 VJW
Settlement)..................... * 0 0
R. J. F. Wildman, R.C. Wildman
and R. M. Peters
(As Trustees of the 1998 MCW
Settlement)..................... * 0 0
L. Alan Wilson................... * 0 0
L. A. Wilson and Mrs. A. J.
Wilson (Trustees of the Wilson
Children's Trust)............... * 0 0
David A. Wright, John D. Wright
and Jeffrey Spinks.............. * 0 0
Corinne Yap Suchen............... * 0 0
Teresa Yeo....................... * 0 0
Siddharth Yog.................... * 0 0
Gerald R. Younce................. * 0 0
Ramon Zorilla.................... * 0 0
</TABLE>
- --------
* Less than 1%.
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable.
25
<PAGE>
DESCRIPTION OF THE DEBT SECURITIES
GENERAL
The Company may offer under this Prospectus Debt Securities. The Debt
Securities will represent unsecured general obligations of the Company, and
will be subordinate in right of payment to certain other debt obligations of
the Company. The Debt Securities may be issued under an indenture (the
"Indenture") substantially in the form filed as an exhibit to the Registration
Statement. The Indenture will not limit the amount of Debt Securities that may
be issued thereunder, and will provide that Debt Securities may be issued
thereunder up to an aggregate principal amount authorized from time to time by
the Company and may be payable in any currency or currency unit designated by
the Company. The following summary of certain provisions in the Indenture
pursuant to which Debt Securities are issued or in the Debt Security, as the
case may be, does not purport to be complete. Such summary makes use of
certain terms defined in the Indenture and is qualified in its entirety by
reference to the form of Indenture filed as an exhibit to the Registration
Statement.
Reference is made to the applicable Prospectus Supplement for any series of
Debt Securities for the following terms: (1) the designation of such series of
Debt Securities, (2) the aggregate principal amount of such series of Debt
Securities, (3) the stated maturity or maturities for payment of principal of
such series of Debt Securities and any sinking fund or analogous provisions,
(4) the rate or rates at which such series of Debt Securities shall bear
interest or the method of calculating such rate or rates of interest and the
interest payment dates for such series of Debt Securities, (5) the currencies
or currency units in which principal of and interest and any premium on such
series of Debt Securities shall be payable (if other than U.S. Dollars), (6)
the redemption date or dates, if any, and the redemption price or prices and
other applicable redemption provisions for such securities of Debt Securities,
(7) whether such series of Debt Securities shall be issued as one or more
global debt securities ("Global Debt Securities"), and, if so, the identity of
the Depositary (the "Debt Depositary") for such Global Debt Security or Debt
Securities, (8) if not issued as one or more Global Debt Securities, the
denominations in which such series of Debt Securities shall be issuable (if
other than denominations of $1,000 and any integral multiple thereof), (9) the
date from which interest on such series of Debt Securities shall accrue, (10)
the basis upon which interest on such series of Debt Securities shall be
computed (if other than on the basis of a 360-day year of twelve 30-day
months), (11) if other than the principal amount thereof, the portion of the
principal amount of such series of Debt Securities which shall be payable upon
declaration of acceleration of the maturity thereof pursuant to the Indenture,
(12) if other than the Trustee for the Debt Securities (the "Trustee"), the
person or persons who shall be registrar for such series of Debt Securities,
(13) the Record Date, (14) the identity of the Trustee, (15) any additional
Events of Default and any covenants of the Company with respect to a series of
Debt Securities, (16) whether the Debt Securities are convertible into or
exchangeable for securities of the Company or Third Party Securities (as
herein defined), and the terms of such conversion or exchange, (17) whether
the Debt Securities will be issued at an Original Issue Discount and a
description of such discount, and (18) any other term or provision relating to
such series of Debt Securities which is not inconsistent with the provisions
of the Indenture.
Except as described in this Prospectus or the accompanying Prospectus
Supplement, the Indenture does not contain any covenants specifically designed
to protect holders of the Debt Securities (the "Holders") against a reduction
in the creditworthiness of the Company in the event of a highly leveraged
transaction or to prohibit other transactions which may adversely affect
Holders of the Debt Securities.
EVENTS OF DEFAULT
The Indenture defines an "Event of Default" with respect to any particular
series of the Debt Securities as being any one of the following events: (1)
default in the payment of interest on any Debt Security of that series and the
continuance of such default for a period of 30 days; (2) default in the
payment of the principal of or any premium on any Debt Security of such series
when due whether at maturity, by proceedings for redemption, by declaration or
otherwise; (3) default in the satisfaction of any sinking fund payment
obligation relating to such series of Debt Securities, when due and payable;
(4) failure on the part of the Company to observe or perform in any material
respect any other agreements or comments contained in the Debt Securities of
such series, the
26
<PAGE>
Indenture, or any supplemental indenture relating thereto, specifically
contained for the benefit of the Holders of the Debt Securities of such series
and continuance of the default for a period of 90 days after notice has been
given to the Company by the Trustee, or to the Company and the Trustee by the
Holders of not less than 25% in principal amount of such series and all other
series so benefited (all series voting as one class) at the time outstanding
under the Indenture, or any resolution of the Board of Directors (or an
authorized committee thereof) of the Company under which the Debt Securities
may have been issued and continuance of the default for the period and after
the notice specified below; or (5) certain events of bankruptcy, insolvency or
reorganization involving the Company.
If an Event of Default occurs with respect to the Debt Securities of any one
or more particular series and is continuing, the Trustee by notice to the
Company, or the Holders of at least 25% in principal amount of all of the
outstanding Debt Securities of each such series by notice to the Company and
to the Trustee, may declare the principal amount (or, if the Debt Securities
of any such series are original issue discount Debt Securities, such portion
of the principal amount as may be specified in the terms of the such series)
of all the Debt Securities of that particular series, together with any
accrued interest, to be due and payable immediately.
The foregoing provisions, however, are subject to the condition that if, at
any time after the principal amount of the Debt Securities of any one or more
series (or of all the Debt Securities, as the case may be) shall have been so
declared due and payable, and before any judgment or decree for the payment of
moneys due shall have been obtained or entered as hereinafter provided, the
Company shall pay or shall deposit with the Trustee a sum sufficient to pay
any matured installments of interest upon all the Debt Securities of such
series (or upon all the Debt Securities, as the case may be) and the principal
of any and all Debt Securities of such series (or of any and all the Debt
Securities, as the case may be) which shall have become due otherwise than by
declaration (with interest on overdue installments of interest to the extent
permitted by law and on such principal at the rate or rates of interest borne
by, or prescribed therefor in, the Debt Securities of such series to the date
of such payment or deposit) and the amounts payable to the Trustee under the
Indenture and any and all defaults under the Indenture with respect to Debt
Securities of such series (or all Debt Securities, as the case may be), other
than the non-payment of principal of and any accrued interest on Debt
Securities of such series (or any Debt Securities, as the case may be) which
shall have become due by declaration shall have been cured, remedied or waived
as provided in the Indenture, then and in every such case the Holders of a
majority in principal amount of the Debt Securities of such series (or of all
the Debt Securities, as the case may be) then outstanding (such series or all
series voting as one class if more than one series are so entitled) by written
notice to the Company and to the Trustee, may rescind and annul such
declaration and its consequences; but no such rescission and annulment shall
extend to or shall affect any subsequent default, or shall impair any right
consequent thereon.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal or any premium or interest on the Debt Securities of the series to
which the default relates or to enforce the performance of any provision of
such series of Debt Securities or the Indenture.
The Holders of a majority in principal amount of the outstanding Debt
Securities of any series may waive any past Event of Default with respect to
such series and its consequences, except a continuing default in the payment
of the principal of or any redemption premium or interest on such Debt
Securities or in respect of a covenant or provision of the Indenture which
cannot be modified or amended without the consent of the Holder of each Debt
Security so affected.
MODIFICATIONS OF THE INDENTURE
The Indenture provides that the Company and the Trustee may enter into a
supplemental indenture to amend the Indenture or the Debt Securities without
the consent of any Holder of Debt Securities (1) to cure any ambiguity, defect
or inconsistency; (2) to permit a successor to assume the Company's
obligations under the Indenture as permitted by the Indenture; (3) to
eliminate or change any provision of the Indenture if such does not adversely
affect the rights of any Holder of outstanding Debt Securities; (4) to provide
for the issuance of
27
<PAGE>
and establish the terms and conditions of Debt Securities of any series; (5)
to add to the covenants of the Company further covenants, restrictions or
conditions for the protection of the Holders of all or any particular series
of Debt Securities and to make the occurrence or the occurrence and
continuance of a default in any such additional covenants, restrictions or
conditions an Event of Default permitting the enforcement of all or any of the
several remedies provided in the Indenture; or (6) to appoint, at the request
of the Trustee a successor Trustee for a particular series of Debt Securities
to act as such pursuant to the provisions of the Indenture.
The Indenture and the rights and obligations of the Company and of the
Holders of the Debt Securities may be modified or amended at any time with the
consent of the Holders of not less than a majority in aggregate principal
amount of the Debt Securities at the time outstanding under the Indenture and
affected by such modification or amendment (voting as one class); provided,
however, that, without the consent of the Holders of the Debt Securities
affected, no such modification or amendment shall, among other things, change
the fixed maturity or redemption date thereof, reduce the rate of interest
thereon or alter the method of determining such rate of interest, extend the
time of payment of interest, reduce the principal amount thereof, reduce any
premium payable upon the redemption thereof, or change the coin or currency in
which any Debt Securities or the interest thereon is payable or impair the
right to institute suit for the enforcement of any such payment, or reduce the
percentage of the Holders of such Debt Securities whose consent is required
for any such modification or amendment.
DEFEASANCE AND DISCHARGE
All liability of the Company in respect to any outstanding Debt Securities
shall cease, terminate and be completely discharged if the Company shall (a)
deposit with the Trustee, in trust, at or before maturity, lawful money or
direct obligations of the United States of America (or in the case of Debt
Securities denominated in a currency other than U.S. Dollars, of the
government that issued such currency), or obligations the principal of and
interest on which are guaranteed by the United States of America (or in the
case of Debt Securities denominated in a currency other than U.S. Dollars,
guaranteed by the government that issued such currency), in such amounts and
maturing at such times that the proceeds of such obligations to be received
upon the respective maturities and interest payment dates will provide funds
sufficient to pay the principal of and interest and any premium to maturity or
to the redemption date, as the case may be, with respect to such Debt
Securities, and (b) deliver to the Trustee an opinion of counsel to the effect
that the Holders of such Debt Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such discharge. All
obligations of the Company to comply with certain covenants applicable to any
outstanding Debt Securities shall cease if the Company shall deposit with the
Trustee, in trust, at or before maturity, lawful money or direct obligations
of the United States of America (or in the case of Debt Securities denominated
in a currency other than U.S. Dollars, of the government that issued such
currency), or obligations the principal of and interest on which are
guaranteed by the United States of America (or in the case of Debt Securities
denominated in a currency other than U.S. Dollars, by the government that
issued such currency), in such amounts and maturing at such times that the
proceeds of such obligations to be received upon the respective maturities and
interest payment dates will provide funds sufficient to pay the principal of
and interest and any premium to maturity or to the redemption date, as the
case may be, with respect to such Debt Securities.
CONCERNING THE TRUSTEE
The Trustee for the Debt Securities will be identified in the relevant
Prospectus Supplement. In certain instances, the Company or the Holders of a
majority of the then outstanding principal amount of the Debt Securities
issued under an Indenture may remove the Trustee and appoint a successor
Trustee. The Trustee may become the owner or pledgee of any of the Debt
Securities with the same rights it would have if it were not the Trustee. The
Trustee and any successor Trustee must be a corporation organized and doing
business as a commercial bank under the laws of the United States or of any
state thereof or of the District of Columbia, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $100,000,000 and subject to examination by federal or state or District
of Columbia authority. From time to time and subject to applicable law
relating to conflicts of interest, the Trustee may also serve as Trustee under
other indentures relating to Debt Securities issued by the Company or
affiliated companies and may engage in commercial transactions with the
Company and affiliated companies.
28
<PAGE>
PLAN OF DISTRIBUTION
Any or all of the Securities offered hereby by the Company or the Selling
Shareholders may be sold from time to time, in one or more transactions. Sales
of the Shares offered hereby by the Company or the Selling Shareholders may be
effected from time to time, in one or more transactions on the NYSE, on any
other exchange on which the Shares are listed or traded, in the over-the-
counter market or otherwise. Such sales may be made at prices and at terms
then prevailing or at prices related to the then current market price, or in
negotiated transactions. To the extent required, this Prospectus may be
amended or supplemented from time to time to describe a specific plan of
distribution.
Any or all of the Shares sold by the Selling Shareholders that qualify for
sale pursuant to Rule 144 or Regulation S might be sold under Rule 144 or
Regulation S rather than pursuant to this Prospectus. The Selling Shareholders
will act independently of the Company in making decisions with respect to the
timing, manner and size of each such sale.
In effecting sales, brokers, dealers or agents engaged may arrange for other
brokers or dealers to participate. Brokers, dealers or agents may receive
commissions, discounts or concessions in amounts to be negotiated prior to the
sale. Such brokers, dealers and any other participating brokers or dealers may
be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales, and any such commissions, discounts or concessions
may be deemed to be underwriting discounts or commissions under the Securities
Act. The Company will pay all expenses incident to the offering and sale of
the Shares to the public by the Selling Shareholders other than any
commissions and discounts of underwriters, dealers or agents and any transfer
taxes relating to Shares sold by the Selling Shareholders.
If Shares are sold in an underwritten offering, the Shares may be acquired
by the underwriters for their own account and may be further resold from time
to time in one or more transactions, including negotiated transactions, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices. The names
of the underwriters with respect to any such offering and the terms of the
transactions, including any underwriting discounts, concessions or commissions
and other items constituting compensation of the underwriters and broker-
dealers, if any, will be set forth in a supplement to this Prospectus relating
to such offering. Any public offering price and any discounts, concessions or
commissions allowed or reallowed or paid to broker-dealers may be changed from
time to time. Unless otherwise set forth in a supplement to this Prospectus,
the obligations of the underwriters to purchase the Securities will be subject
to certain conditions precedent and the underwriters will be obligated to
purchase all of the Securities specified in such supplement if any such
Securities are purchased.
In order to comply with the securities laws of certain states, if
applicable, the Securities must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The Company has advised the Selling Shareholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of Shares in
the market and to the activities of the Selling Shareholders and its
affiliates. In addition, the Company will make copies of this Prospectus
available to the Selling Shareholders and has informed it of the need for
delivery of copies of this Prospectus to purchasers at or prior to the time of
any sale of the Shares offered hereby. The Selling Shareholders may indemnify
any broker-dealer that participates in transactions involving the sale of the
Shares against certain liabilities, including liabilities arising under the
Securities Act.
At the time a particular offer of Securities is made, if required, a
Prospectus Supplement will be distributed that will set forth the amount of
Securities being offered and the terms of the offering, including the name of
any underwriter, dealer or agent, the purchase price paid by any underwriter,
any discount, commission and other item constituting compensation, any
discount, commission or concession allowed or reallowed or paid to any dealer,
and the proposed selling price to the public.
29
<PAGE>
There can be no assurance that the Selling Shareholders will sell all or any
of the Shares on their behalf or that the Company will issue any Securities
pursuant hereto.
The Company has agreed to indemnify the Selling Shareholders and any person
controlling the Selling Shareholders against certain liabilities, including
liabilities under the Securities Act. The Selling Shareholders have agreed to
indemnify the Company and certain related persons against certain liabilities,
including liabilities under the Securities Act.
The Company has agreed with certain of the Selling Shareholders to keep the
Registration Statement of which this Prospectus constitutes a part effective
for up to 24 months following its effective date (which period may be
shortened or extended under certain circumstances). The Company intends to de-
register any of the Shares not sold by the Selling Shareholders at the end of
such period.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Securities offered
hereby will be passed upon for the Company by Pillsbury Madison & Sutro LLP,
Los Angeles, California.
EXPERTS
The consolidated financial statements and related schedules of CBC and
subsidiaries as of December 31, 1997 and December 31, 1996 and for each of the
three years in the period ended December 31, 1997 included in CBC's Annual
Report on Form 10-K for the year ended December 31, 1997 and incorporated in
this Prospectus by reference have been audited by Arthur Andersen LLP,
independent public accountants as indicated in their reports with respect
thereto, and are included or incorporated by reference herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving
said reports.
30
<PAGE>
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- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 3
Risk Factors............................................................... 4
The Company................................................................ 8
Use of Proceeds............................................................ 20
Ratio of Earnings to Fixed Charges......................................... 20
Selling Shareholders....................................................... 20
Description of the Debt Securities......................................... 26
Plan of Distribution....................................................... 29
Legal Matters.............................................................. 30
Experts.................................................................... 30
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CB COMMERCIAL
REAL ESTATE
SERVICES GROUP, INC.
$200,000,000 DEBT SECURITIES
AND
4,000,000 SHARES OF
COMMON STOCK
----------------
PROSPECTUS
, 1998
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the New York Stock Exchange filing fee. The
Company will pay all of these expenses.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
-----------
<S> <C>
SEC registration fee............................................ $105,757.58
Blue Sky fees and expenses...................................... --
Accounting fees and expenses.................................... $ 20,000.00
Legal fees and expenses......................................... $ 35,000.00
Printing and engraving expenses................................. $ 30,000.00
Registrar and Transfer Agent's fees............................. --
Miscellaneous fees and expenses................................. $ 5,000.00
-----------
Total......................................................... $195,757.58
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise. The Registrant's Fourth
Amended and Restated Certificate of Incorporation provides for the
indemnification of the Registrant's directors and officers to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
Registrant has also entered into separate indemnification agreements with its
directors that could require the Registrant, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors and to advance their expenses incurred as a result of any
proceeding against them. The Registrant has obtained directors' and officers'
liability insurance that may cover, among other things, liabilities under the
federal securities laws.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2 Offer Document, dated February 7, 1998 from the Company to the
Shareholders of REI Limited.
4.1 Form of Indenture.
*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 Agreement by and between the Company and S.R.E.S.-Fifth Avenue, Inc.,
dated August 30, 1996, filed as Exhibit 4.4 to the Company's
Registration Statement on Form S-1, File No. 333-12757.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*4.4 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.
*4.5 Form of Warrant Agreement between the Company, FS Equity Partners III,
L.P., F.S. Equity Partners International L.P., AP KMS Partners, L.P.,
AP KMS II, LLC, Koll Holding Company and certain individuals, with
attached Form of Warrant Certificate, included as Annex 2 to the
Company's Joint Proxy Statement/Prospectus filed as part of the
Company's Registration Statement on Form S-4, File No. 333-28731.
5 Opinion of Pillsbury Madison & Sutro LLP.
12 Statement re Computation of Ratios.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in its opinion
filed as Exhibit 5 to this Registration Statement).
24 Power of Attorney (see Page II-4).
</TABLE>
- --------
* Incorporated by reference
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-
effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-2
<PAGE>
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Company's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference into this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Trustee to act under
Subsection (a) of Section 310 of the Trust Indenture Act (the "Indenture Act")
in accordance with the rules and regulations prescribed by the Commission
under Section 305 (b) (2) of the Indenture Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Los Angeles, State of
California, on the 30th day of March, 1998.
CB COMMERCIAL REAL ESTATE SERVICES
GROUP, INC.
/s/ James J. Didion
By: _________________________________
James J. Didion
Chairman of the Board and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JAMES J. DIDION, WALTER V. STAFFORD, and JOHN
C. HAECKEL, and each of them, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration
Statement, and any registration statement relating to the offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could to in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James J. Didion Chief Executive Officer March 30, 1998
____________________________________ (Principal Executive Officer)
James J. Didion and Director
/s/ John C. Haeckel Chief Financial Officer March 30, 1998
____________________________________
John C. Haeckel
/s/ Ronald J. Platisha Executive Vice President March 30, 1998
____________________________________ Principal Accounting Officer
Ronald J. Platisha
/s/ Stanton D. Anderson Director March 30, 1998
____________________________________
Stanton D. Anderson
/s/ Gary J. Beban Director March 30, 1998
____________________________________
Gary J. Beban
/s/ Richard C. Blum Director March 30, 1998
____________________________________
Richard C. Blum
/s/ Richard C. Clotfelter Director March 30, 1998
____________________________________
Richard C. Clotfelter
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Daniel A. D'Aniello Director March 30, 1998
____________________________________
Daniel A. D'Aniello
/s/ Hiroaki Hoshino Director March 30, 1998
____________________________________
Hiroaki Hoshino
/s/ George J. Kallis Director March 30, 1998
____________________________________
George J. Kallis
/s/ Takayuki Kohri Director March 30, 1998
____________________________________
Takayuki Kohri
/s/ Paul C. Leach Director March 30, 1998
____________________________________
Paul C. Leach
/s/ Frederic V. Malek Director March 30, 1998
____________________________________
Frederic V. Malek
/s/ Lawrence J. Melody Director March 30, 1998
____________________________________
Lawrence J. Melody
/s/ Ray Elizabeth Uttenhove Director March 30, 1998
____________________________________
Ray Elizabeth Uttenhove
/s/ Peter V. Ueberroth Director March 30, 1998
____________________________________
Peter V. Ueberroth
/s/ Gary L. Wilson Director March 30, 1998
____________________________________
Gary L. Wilson
/s/ Donald M. Koll Director March 30, 1998
____________________________________
Donald M. Koll
/s/ Raymond E. Wirta Director March 30, 1998
____________________________________
Raymond E. Wirta
/s/ Bradford M. Freeman Director March 30, 1998
____________________________________
Bradford M. Freeman
Director
____________________________________
Ricardo Koenigsberger
</TABLE>
II-5
<PAGE>
EXHIBIT 2
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt about these Offers, you should consult a person authorised under the
Financial Services Act 1986 who specialises in advising on the sale of shares
and debentures.
If you have sold or otherwise transferred all your REI Shares, please pass this
document and the accompanying Form of Proxy and Forms of Acceptance (and, if
relevant, Form of Election and/or Form of Instruction) to the purchaser or
transferee immediately.
CB Commercial intends to apply to list on the New York Stock Exchange the CBC
Shares which will be issued to Shareholders under the Offers.
In the case of Shareholders who are not US Persons, to ensure that each
Shareholder has the ability to resell his/her CBC Shares, CB Commercial will
cause a Registration Statement to become effective at the time Shareholders
receive such shares and will maintain the Registration Statement for a period of
24 months, or until such time as all Shareholders are otherwise able to sell
their CBC Shares within the United States or to a US Person, whichever is the
earlier. The Offers are conditional, inter alia, upon such registration becoming
effective. The issuance of CBC Shares to Shareholders has not been registered
under the Securities Act and such shares may not be offered or sold within the
United States or to US Persons unless the sale of such securities is registered
under the Securities Act (as it will be) or an exemption from the registration
requirements of the Securities Act is available.
In the case of US Persons, the CBC Shares being offered herein are not being
registered under the Securities Act in reliance upon the exemption from
registration for transactions by an issuer not involving any public offering.
These securities are being offered only to investors whom CB Commercial believes
have the qualifications necessary to permit the securities to be offered and
sold in reliance upon this exemption.
Such qualified offerees must (A) have such knowledge and experience in business
and financial matters as will enable them to evaluate the merits and risks of a
proposed investment in these securities and (B) be able to bear the economic
risk of this investment.
No securities commission or similar authority in Canada has in any way passed
upon the merits of the securities offered hereunder and any representation to
the contrary is an offence.
- --------------------------------------------------------------------------------
[CB COMMERCIAL LOGO]
Recommended Offers by
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
for the whole of the issued and to be issued share capital of
REI LIMITED
- --------------------------------------------------------------------------------
The Offers are recommended by all of the Directors of REI. A letter of
recommendation from Barry White, the Chief Executive of REI, appears in this
document.
Notice of an Extraordinary General Meeting of REI, to be held at The Westbury
Hotel, Conduit Street, London W1A 4UH on 6th March 1998 at 11:00 am, is set out
at the end of this document. The recommendation of the Board of REI for voting
at the EGM is set out in the letter from Barry White.
Completed Forms of Proxy should be returned (not by fax) as soon as possible
and, to be valid, must be received by the Company Secretary, Elizabeth Thetford,
c/o Jones, Day, Reavis Pogue, Bucklersbury House, 3 Queen Victoria Street,
London EC4N 8NA by no later than 11:00 am on 4th March 1998.
Completed Forms of Acceptance, Forms of Election and Forms of Instruction should
be returned (not by fax) as soon as possible and in any event so as to be
received by the Company Secretary, Elizabeth Thetford c/o Jones, Day, Reavis
Pogue, Bucklersbury House, 3 Queen Victoria Street, London EC4N 8NA no later
than: (i) 3:30pm on 20th March 1998 in the case of Forms of Acceptance and Forms
of Election; and (ii) close of business on 18th March 1998 in the case of Forms
of Instruction. The procedure for acceptance is set out in paragraph 14 of the
letter from James Didion set out in this document and in the accompanying Forms
of Acceptance (and, where relevant, the accompanying Form of Election and/or
Form of Instruction).
Coopers & Lybrand Corporate Finance, a division of Coopers & Lybrand which is
authorised to carry on investment business by the Institute of Chartered
Accountants in England and Wales, is acting for REI and for no one else in
connection with the matters described in this document and will not be
responsible to anyone other than REI for providing the protections afforded to
customers of Coopers & Lybrand or for giving advice in relation to the matters
described in this document.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter from Barry White.................................................... 3
Letter from James Didion................................................... 14
1. Introduction.......................................................... 14
2. The Offers............................................................ 14
3. Summary of Partial Cash Alternative................................... 16
4. Loan Note Alternative................................................. 17
5. REI Options........................................................... 18
6. The REI 1997 Employee Share Incentive Plan............................ 19
7. Resale of CBC Shares.................................................. 19
8. Information on CB Commercial.......................................... 20
9. Management and employees.............................................. 21
10. CB Commercial Options................................................. 23
11. Dividend statement.................................................... 23
12. Taxation.............................................................. 23
13. Recent Events......................................................... 23
14. Procedure for acceptance.............................................. 23
15. Settlement............................................................ 25
16. Further information................................................... 25
Appendices
I Adjusted EBITDA and Net Debt.......................................... 26
II Number of CBC Shares to be issued under the Offers.................... 29
III Conditions and further terms of the Offers............................ 32
IV Details of REI Share Plan and REI Share Option Schemes................ 38
V Details of CB Commercial Share Option Schemes and incentive schemes... 46
VI Information on Loan Notes............................................. 49
VII Copy letter from Coopers & Lybrand to the Directors of REI............ 53
VIII Financial information on CB Commercial................................ 57
IX Financial information on REI.......................................... 59
X Additional information................................................ 60
XI Additional CB Commercial information.................................. 71
XII Taxation.............................................................. 89
Definitions................................................................ 102
Notice of Extraordinary General Meeting.................................... 107
</TABLE>
EXPECTED TIMETABLE
Last time for receipt of Forms of Proxy 11:00 am on 4th March 1998
Extraordinary General Meeting 11:00 am on 6th March 1998
First Closing Date of the Offers (and last date
to elect for Method B and the Partial Cash and
Loan Note Alternatives) 3:30 pm on 20th March 1998
Registration Statement effective 9th April 1998
Offers wholly unconditional 9th April 1998
Payment Date (payment and issue of the
consideration by, and transfer of title
to REI Shares to, CB Commercial) 16th April 1998
Shareholders should note that the above timetable is subject to variation.
2
<PAGE>
LETTER FROM BARRY WHITE
[REI LIMITED LETTERHEAD]
7th February 1998
To the Shareholders, the holders of REI Options and participants in the REI
Share Plan whose REI Shares are held by the ESOP Trustee
Dear Colleague
Offers from CB Commercial Real Estate Services Group, Inc.
Extraordinary General Meeting of Shareholders
1. Introduction
On 9th December 1997 it was announced that your Directors had reached
agreement with CB Commercial on the terms of a merger of CB Commercial and
REI by means of recommended offers by CB Commercial for the entire issued
and to be issued share capital of REI. At the Announcement Date the Offers
valued REI at (pounds)57.25 million, subject to adjustment as described in
this document.
The consideration under the Offers is payable in CBC Shares, and, provided
acceptances are received within certain time limits described below, there
are also options to take some (or in certain circumstances all) of the
consideration in the form of cash or loan notes.
The Offers are subject to the conditions set out in Appendix III, including
the passing at the EGM of the Resolution set out in the Notice at the end
of this document.
This letter summarises the terms of the Offers and sets out the background
to the proposed merger. In addition, it sets out why your Directors, who
have been advised by Coopers & Lybrand, consider the terms of the Offers to
be fair and reasonable and unanimously recommend that you accept the
Offers.
Information on CB Commercial is set out in the letter in this document from
James Didion, Chairman and Chief Executive of CB Commercial, and in
Appendices V, VIII, X and XI to this document.
2. Background
At a special meeting held in Singapore in February 1997, the REI Board and
other senior people in the organisation considered the future strategy of
the REI Group, with particular regard to the development of a larger
business in the United States, the provision of capital for expansion and
the limited liquidity in the REI Shares.
As a result, a working party was established to investigate the options
available. A number of different alternatives were pursued and, at a
meeting in Hong Kong in November 1997, a recommendation was made to the
Board by the working party to merge with CB Commercial.
There are five key factors which, in the opinion of the Board of REI, make
a merger with CB Commercial attractive:
. it has extensive geographic coverage in the United States;
Registered in England No. 1833422 . Registered Office: Berkeley Square House,
London W1X 6AN
3
<PAGE>
. it is one of the market leaders in the United States in the real
estate services in which REI is principally interested;
. it is one of the leading commercial real estate brokerage firms in
the United States by number of transactions;
. on the corporate real estate side it provides a wide range of
strategic and transaction services, pursuant to ongoing contractual
relationships with multi-national corporate clients, which will be
enhanced by the facilities management service capabilities resulting
from its recent merger with Koll Real Estate Services; and
. it is a significant player in the provision of capital management and
investment advisory services.
The REI Board concluded that the potential synergies between the two
companies are outstanding. In addition, CB Commercial has the ability to
provide capital for the expansion of REI and the transaction itself will
provide liquidity to Shareholders as CBC Shares are listed on the New York
Stock Exchange.
The merger will create a fully integrated global real estate service firm
with nearly 8,000 employees in more than 200 principal offices in 30
countries, owning and controlling most of its business entities world-wide.
3. Summary of the Offers
The terms of the Offers by CB Commercial are set out in the letter from
James Didion in this document, in Appendices I, II and III and in the Forms
of Acceptance.
At the Announcement Date (9th December 1997) the Offers valued the fully
diluted share capital of REI at the Initial Price of (pounds)57.25 million
(subject to potential adjustment based on the 1997 financial performance of
REI). Under the Offers CB Commercial has offered to purchase each REI Share
at a value calculated by apportioning the Initial Price (as adjusted)
across the fully diluted share capital of REI, for a consideration to be
satisfied by the issue of CBC Shares with (subject as set out below)
partial cash and (save for Shareholders resident in Australia and Japan)
loan note alternatives.
The Initial Price may be adjusted (as described in Appendix II) as a result
of either one or both of the following:
(a) the Adjusted EBITDA of REI for the year ended 31st December 1997 being
less than (pounds)7.3 million; and/or
(b) the Net Debt of REI as at 31st December 1997 being more than
(pounds)6.5 million.
Descriptions of Adjusted EBITDA and of Net Debt are set out in Appendix I.
In no circumstances will the 1997 financial performance of REI cause the
Offers to value the fully diluted share capital of REI at less than
(pounds)50 million without the prior written consent of the holders of 75
per cent. of the REI Shares assented to the Offers.
Shareholders can choose, for each class of REI Shares, between one of two
methods ("Method A" and "Method B") of determining the value of the
consideration payable to them under the Offers.
Shareholders should note that under the terms of these Offers it will not
be possible to elect for Method B after 3:30 pm on 20th March 1998. If the
Offers become wholly unconditional while Method B is available,
Shareholders will be able, when accepting the Offers, to elect for Method B
until the later of the 14th day after the Offers become wholly
unconditional and 20th March 1998.
4
<PAGE>
Under Method A, the number of CBC Shares to be issued to Shareholders will
be calculated based on the CBC Share price and the US$:Pounds Sterling
exchange rate in the period prior to the Announcement Date. In consequence,
the Pounds Sterling value of the consideration (in CBC Shares, cash or Loan
Notes) may vary upwards or downwards (within certain limits) as a result of
market and exchange rate movements in the period between the Announcement
Date and the Unconditional Date (i.e. the date of the merger). Under the
terms of these Offers the Partial Cash and Loan Note Alternatives will only
be available up to 3:30 pm on 20th March 1998. If the Offers become wholly
unconditional while the Partial Cash Alternative or the Loan Note
Alternative is available, Shareholders will be able, when accepting the
Offers, to elect for the Partial Cash Alternative or the Loan Note
Alternative (respectively) until the later of the 14th day after the Offers
become wholly unconditional and 20th March 1998.
Under Method B, the number of CBC Shares to be issued to Shareholders will
be calculated based on the CBC Share price and the US$:Pounds Sterling
exchange rate in the period immediately prior to the Unconditional Date, so
that Shareholders will be able to choose neither to gain nor to lose
(whether in relation to CBC Shares, cash or Loan Notes) from market and
exchange rate movements in the period between the Announcement Date and the
Unconditional Date. There is one exception to this, where alternative
protection is available to Shareholders.
Method A
Under Method A, the value of the consideration you receive for your REI
Shares (whether in CBC Shares, cash or Loan Notes) is based on the average
closing price of a CBC Share on the New York Stock Exchange of US$33.76 and
the average US$:Pounds Sterling exchange rate of US$1.6740:(pounds)1, in
each case over the ten trading days prior to the Announcement Date. As
mentioned above, under Method A the value of the consideration you receive
may fluctuate upwards or downwards and therefore, in order to protect both
Shareholders and CB Commercial, the Offers have been structured so that in
no circumstances will any fluctuations resulting from any movements in the
CBC Share price or in the US$:Pounds Sterling exchange rate up to the
Unconditional Date cause the value of the Offers for the fully diluted
share capital of REI to exceed (pounds)65 million (the "Cap") or to be less
than (pounds) 50 million (the "Collar") (or such lesser sum to which it has
previously been reduced, as described in Appendix II, with the consent of
the holders of 75 per cent. of the REI Shares assented to the Offers).
On the basis of an unadjusted Initial Price of (pounds)57.25 million, an
anticipated fully diluted share capital of REI of 7,952,354 REI Shares and
assuming neither the Cap nor the Collar are triggered, Shareholders would
receive value (through CBC Shares, cash or Loan Notes, depending on their
election) equivalent to approximately 357 CBC Shares for every 1,000 REI
Shares assented under Method A.
If the Cap was triggered, Shareholders would receive value (through CBC
Shares, cash or Loan Notes, depending upon their election) equivalent to
approximately (pounds)8.17 for each REI Share assented under Method A.
If the Collar was triggered at (pounds)50 million, Shareholders would
receive value (through CBC Shares, cash or Loan Notes, depending upon their
election) equivalent to approximately (pounds)6.29 for each REI Share
assented under Method A.
Method B
Under Method B, to the extent that a Shareholder elects to receive CBC
Shares, the number of CBC Shares to be issued to him/her will be calculated
by reference to the average closing price of a CBC Share on the New York
Stock Exchange and the average US$:Pounds Sterling exchange rate, in each
case over the ten trading days prior to the Unconditional Date
(respectively, the "CBC Dollar Closing Price" and the "Closing Exchange
Rate").
If the CBC Dollar Closing Price is below US$26, the CBC Shares will be
treated as having a value of US$26, but in such a case, to the extent that
a Shareholder has chosen to receive CBC
5
<PAGE>
Shares he will have the option to switch to cash or (if not an Australian
resident) Loan Notes instead (in addition to any other cash election he/she
may already have made).
On the basis of an unadjusted Initial Price of (pounds)57.25 million, an
anticipated fully diluted share capital of REI of 7,952,354 REI Shares and
assuming a CBC Dollar Closing Price of US$26 or more, Shareholders would
receive value (through CBC Shares, cash or Loan Notes, depending upon their
election) equivalent to (pounds)7.20 for each REI Share assented under
Method B.
If the CBC Dollar Closing Price falls below US$26 then, unless Shareholders
elect to receive all their consideration in cash, the value they would
receive for each REI Share may be less than (pounds)6.29 (which is the
value Shareholders would receive under Method A if the Collar was triggered
at (pounds)50 million).
Set out below are illustrations of the value of the consideration due under
Method A and Method B assuming various prices of a CBC Share and varying
US$:Pounds Sterling exchange rates. These illustrations are based on:
(i) an Initial Price of (pounds)57.25 million (subject to adjustment based
on the 1997 financial performance of REI); and
(ii) an anticipated fully diluted share capital of REI of 7,952,354 REI
Shares.
Illustration of the value of the consideration due under Method A and
Method B
<TABLE>
<CAPTION>
Value of Value of
Offers per Offers per
Total value REI Share Total value REI Share
Price of a US$:(pounds) of Offers under of Offers under
CBC Share exchange rate under Method A Method A under Method B Method B
<S> <C> <C> <C> <C> <C> <C>
Announcement Date(i) US$33.76(i) US$1.6740: (pounds)1(i) (pounds)57.25m (pounds)7.20 (pounds)57.25m (pounds)7.20
Current Price(ii) US$31.50(ii) US$1.6528: (pounds)1(ii) (pounds)54.10m (pounds)6.80 (pounds)57.25m (pounds)7.20
Example 1 US$31.56 US$1.6287: (pounds)1 (pounds)55m (pounds)6.92 (pounds)57.25m (pounds)7.20
Example 2 US$34.43 US$1.6287: (pounds)1 (pounds)60m (pounds)7.55 (pounds)57.25m (pounds)7.20
Example 3 US$37.29 US$1.6287: (pounds)1 (pounds)64.99m (pounds)8.17 (pounds)57.25m (pounds)7.20
Example 4 US$40 US$1.6287: (pounds)1 (pounds)65m(iv) (pounds)8.17 (pounds)57.25m (pounds)7.20
Example 5 US$22 US$1.6287: (pounds)1 (pounds)50m(iii) (pounds)6.29 All cash: All cash:
(pounds)57.25m (pounds)7.20
All CBC All CBC
Shares: Shares:
(pounds)48.44m(v) (pounds)6.09(v)
</TABLE>
Notes:
(i) Average closing price and exchange rate over ten trading days prior to
the Announcement Date
(ii) As at 4th February 1998, being the latest practicable date prior to the
publication of this document
(iii) Method A Collar triggered
(iv) Method A Cap triggered
(v) Method B share price trigger activated and CBC Shares received at US$26
per share.
Fully diluted share capital of REI
There are currently 6,661,861 REI Shares in issue and a further allotted
but unissued 53,336 REI Shares outside of the REI Share Plan. In addition,
there are options in existence to subscribe for a further 347,500 REI
Shares. 1,495,029 REI Shares have been allotted under the REI Share Plan,
of which 752,372 have been issued and are included in the total number of
issued shares referred to above. A further 742,657 REI Shares will be
allotted and issued under the REI Share Plan. The Company has also agreed
to issue 147,000 REI Shares in relation to the acquisition of further
interests in the Wider REI Group. Therefore it is anticipated that the
fully diluted share capital of REI will be 7,952,354 REI Shares. In light
of the Offers and save as set out above, your Directors do not intend to
issue any further REI Shares before the Offers close or lapse unless they
receive
6
<PAGE>
written confirmation from CB Commercial that such further issues will not
affect the value for each REI Share under the Offers.
4. Summary of Partial Cash Alternative
Accepting Shareholders will be entitled to receive part (or, in certain
circumstances, all) of the consideration under the Offers in cash in Pounds
Sterling. It should be noted that this alternative does not apply to
unexercised REI Options or to unvested B Shares.
Under the terms of these Offers the Partial Cash Alternative will remain
open until 3:30 pm on 20th March 1998 and will not be open for acceptance
after that time. If the Offers become wholly unconditional while the
Partial Cash Alternative is open, the Partial Cash Alternative will be
extended until the later of the 14th day after the Offers become wholly
unconditional and 20th March 1998.
Partial Cash Alternative -- Method A
The aggregate value of the Partial Cash Alternative for all Shareholders
who elect for Method A will be based on the value of one-half of the number
of CBC Shares that would, in the absence of such alternative, be issued to
such Shareholders.
The value of the Partial Cash Alternative for each Shareholder who elects
for Method A will be determined by multiplying: (i) the difference between
the number of CBC Shares which that Shareholder would, without such
election, have received and the number of CBC Shares which that Shareholder
actually receives following such election; by (ii) the CBC Dollar Closing
Price, converted into Pounds Sterling at the Closing Exchange Rate.
Shareholders who elect for Method A will be entitled to receive cash as
consideration for at least 50 per cent. of their REI Shares, but will only
be entitled to receive cash as consideration for more than 50 per cent. of
their REI Shares to the extent that other Shareholders who elect for Method
A by 3:30 pm on 20th March 1998 (or by such other date to which the Partial
Cash Alternative is extended) do not elect for the Partial Cash Alternative
or do so in respect of less than 50 per cent. of their REI Shares. If the
aggregate amount of cash made available for the Partial Cash Alternative in
respect of Shareholders who elect for Method A is insufficient to satisfy
in full all elections for the Partial Cash Alternative by such
Shareholders, allocations of cash to such Shareholders who have elected to
receive cash as consideration for more than 50 per cent. of their REI
Shares will be scaled down pro rata to their elections.
Partial Cash Alternative -- Method B
The aggregate value of the Partial Cash Alternative for all Shareholders
who elect for Method B will be based on the value of one-half of such
proportion of the Initial Price (as adjusted) as is attributable to their
aggregate shareholdings.
The value of the Partial Cash Alternative for each Shareholder who elects
for Method B will be determined by multiplying: (i) such proportion of the
Initial Price (as adjusted) as is attributable to his/her shareholding; by
(ii) the percentage of his/her REI Shares in respect of which he/she elects
for the Partial Cash Alternative.
Shareholders who elect for Method B will be entitled to receive cash as
consideration for at least 50 per cent. of their REI Shares but will only
be entitled to receive cash as consideration for more than 50 per cent of
their REI Shares to the extent that other Shareholders who elect for Method
B do not elect for the Partial Cash Alternative or do so in respect of less
than 50 per cent. of their REI Shares (save where the CBC Dollar Closing
Price is less than US$26). If the aggregate amount of cash made available
for the Partial Cash Alternative in respect of Shareholders who elect for
Method B is insufficient to satisfy in full all elections for the Partial
Cash Alternative by such Shareholders, allocations of cash to such
Shareholders who have elected to receive cash as consideration for more
than 50 per cent. of their REI Shares will be scaled down pro rata to their
elections. An election for Method B after 3:30 pm on 20th March 1998 (or,
if later, the date to
7
<PAGE>
which the right to elect for Method B is extended) shall be invalid and
shall not qualify for the Partial Cash Alternative.
Mix and Match
To the extent that any part of the aggregate amount of cash available in
respect of the Partial Cash Alternative under Method A is unused it will be
added to the aggregate amount of cash available in respect of the Partial
Cash Alternative under Method B, and vice versa.
5. Summary of Loan Note Alternative
As an alternative to receiving cash, Shareholders (other than those
resident in Australia or Japan) who accept the Offers can elect to receive
all or part of the cash due to them (in multiples of (pounds)1), whether
under Method A or under Method B, in the form of Loan Notes. Further
details of the Loan Note Alternative are set out in paragraph 4 of the
letter from James Didion in this document and in Appendix VI of this
document.
Under the terms of these Offers the Loan Note Alternative will remain open
until 3:30 pm on 20th March 1998 and will not be open for acceptance after
that time. If the Offers become wholly unconditional while the Loan Note
Alternative is open, the Loan Note Alternative will be extended until the
later of the 14th day after the Offers become wholly unconditional and 20th
March 1998.
For so long as they hold Loan Notes, holders will receive interest paid
half-yearly in arrear on 30th June and 31st December in each year at the
rate per annum of six month LIBOR on the first day of the interest period
less 150 basis points. The first interest payment will be made on 30th June
1998 and will be in respect of the period from the date of issue of the
Loan Notes to 30th June 1998.
Elections for the Loan Note Alternative will not increase the cash
available for other Shareholders pursuant to the Partial Cash Alternative
6. Summary of irrevocable undertakings
The Directors of REI and a number of employees of the REI Group have
irrevocably undertaken to accept the Offers and to vote in favour of the
Resolution in respect of all their REI Shares. These undertakings are in
respect of 3,796,312 REI Shares representing 56.99 per cent. of the issued
share capital of REI.
These undertakings extend to REI Shares previously allotted but not issued
prior to the date of this document and REI Shares arising on the exercise
of REI Options. If all such allotted but unissued shares were issued and
all such options exercised these undertakings would relate to a total of
4,284,602 REI Shares, amounting to 53.88 per cent. of the fully diluted
share capital of REI.
Further details of these undertakings are set out in paragraph 8(ii)(a) of
Appendix X.
7. Management and employees
One of the most important assets of the real estate services businesses in
which both CB Commercial and REI are engaged are their employees and the
Board of REI believes that the motivation and retention of REI Group
employees is vital for the success of the merger. The REI Share Plan and
the REI Share Option Schemes were adopted in order to achieve this
objective. CB Commercial has given assurances to the Board of REI that it
will offer all REI Group employees continuing employment with their current
employer following the merger and that no changes are currently
contemplated in the terms and conditions of any employee's employment. In
addition, CB Commercial is taking the following steps:
. with respect to approximately 30 key management employees (including
a majority of the Directors) CB Commercial will, directly or through
subsidiaries, enter into employment
8
<PAGE>
agreements which range in duration from two to four years. Further
details of these arrangements are given in paragraph 8(ii)(b), (c)
and (d) of Appendix X to this document; and
. with respect to a somewhat larger group of key employees (including
some but not all of the key management employees) CB Commercial will
grant stock options to purchase an aggregate of 500,000 CBC Shares at
a price of US$33.76 per share. Such options will be granted under the
terms of CB Commercial's REI Acquisition Stock Option Plan, further
details of which are set out in Appendix V.
Francis Pons, David Runciman and I have been advised that we will be
invited to join the 22 person Global Operations Management Board of CB
Commercial with effect from the Offers becoming wholly unconditional and
that CB Commercial is considering adding several more REI people to such
Board.
Further information relevant to employees is set out in the letter from
James Didion in this document.
8. REI Options
On a change of control of REI (such as would occur if the Offers became
unconditional) Optionholders under the REI Share Option Schemes have
certain rights summarised in Appendix IV, including a right, prior to the
expiry of the option and at any time up to and within six months of CB
Commercial obtaining control of REI (with the agreement of CB Commercial
and subject to certain conditions), to roll over such options into options
over CBC Shares. However, in any event, options which are not exercised or
exchanged for CB Commercial Options, either in accordance with the terms of
the relevant REI Share Option Scheme or in accordance with the terms of the
Offers set out below, will lapse, in the case of the 1993 Scheme, on 30th
April 1998 and, in the case of the First 1988 Scheme and the Second 1988
Scheme, ten years from the date the option was granted under either such
scheme.
CB Commercial has made the Offers such that they will extend to any REI
Shares unconditionally allotted or issued on or prior to the Final Closing
Date (or such earlier date as CB Commercial may decide, being not earlier
than the Unconditional Date) on the exercise of REI Options.
Alternatively, holders of REI Options will be able to exchange their
unexercised REI Options for options over such number of CBC Shares as they
would have received under Method B, disregarding the provisions which apply
if the CBC Share price is below US$26, had they validly exercised such REI
Options, accepted the Offers in respect of the resulting REI Shares and not
elected for the Partial Cash or Loan Note Alternatives in respect thereof.
The exercise price per CBC Share over which CB Commercial Options will be
granted shall equal the aggregate exercise price (converted into US Dollars
at the Closing Exchange Rate) of the corresponding REI Options divided by
the number of CBC Shares under the CB Commercial Options. The terms of such
replacement CB Commercial Options will be based on those applicable to
existing REI Options.
Thus, for example, REI Options over 1,000 REI Shares exercisable at
(pounds)2.15 per REI Share (under the First 1988 Scheme) would be exchanged
for CB Commercial Options over 357 CBC Shares, exercisable at US$9.95 per
CBC Share (on the basis of an exchange rate of US$1.6528, as at the close
of business on 4th February 1998, the latest practical date prior to the
publication of this document). The Partial Cash and Loan Note Alternatives
will not be available in respect of unexercised REI Options. Elections to
exchange REI Options for CB Commercial Options will only be valid if
received in accordance with paragraph 15 below by 3:30 pm on 20th March
1998.
Optionholders who elect to exercise their REI Option(s) in the Form of
Election will irrevocably agree to do so whether or not the Offers become
unconditional. Optionholders who use the Form of Election to exercise part
only of their REI Options will be deemed to have elected to exchange their
remaining unexercised REI Options for CB Commercial Options.
9
<PAGE>
9. The REI 1997 Employee Share Incentive Plan
In accordance with the rules of the REI Share Plan, vesting rights for all
REI Shares held under such plan have been accelerated such that one-third
will vest on the Unconditional Date (or such earlier date as shall be
determined under the REI Share Plan), one-third shall vest on 1st January
1999 and one-third shall vest on 1st January 2000. The Offers extend to REI
Shares held under the REI Share Plan on the following basis.
B Shares allocated to Shareholders under the REI Share Plan are subject to
vesting requirements based on continuity of employment. The B Offer extends
to B Shares but will only entitle election for the Partial Cash or Loan
Note Alternatives in respect of the one third of the B Shares which will
vest on the Unconditional Date (or such earlier date as may be determined).
Any such election prior to the Unconditional Date should be made on the
blue B Form of Acceptance, and may be made at any time while these
Alternatives are open, notwithstanding that none of the Shareholder's B
Shares have vested.
The vesting requirements for CBC Shares which a Shareholder receives in
exchange for his/her B Shares held under the REI Share Plan will be similar
to those contained in the REI Share Plan (accelerated as set out above),
save that because one-third of such CBC Shares will have vested on the
Unconditional Date, the effect will be that an employee who ceases to be
connected with the REI Group (within the meaning of Articles 27.11.1(a) or
(b) of the Articles of Association) other than by reason of death,
disability or termination without just cause prior to 1st January 1999 will
forfeit all of the CBC Shares which he/she receives in exchange for B
Shares. Similarly, an employee who ceases to be connected with the REI
Group (within the meaning of Articles 27.11.1(a) or (b) of the Articles of
Association) other than by reason of death, disability or termination
without just cause prior to 1st January 2000 will forfeit one-half of the
CBC Shares he/she receives in exchange for B Shares.
Employees who elect for the REI Shares allocated to them under the REI
Share Plan to be held by the ESOP Trustee will be entitled to direct the
ESOP Trustee to accept the A Offer in respect of those shares. The
consideration (whether CBC Shares, cash or Loan Notes) due pursuant to the
A Offer in respect of such REI Shares will be held by the ESOP Trustee
under the terms of the Rules of the REI Share Plan, including the vesting
requirements referred to above.
10. Warranties
Accepting Shareholders and Optionholders are required to give certain
covenants, representations and warranties to CB Commercial as set out in
paragraph 3 of Part B of Appendix III.
11. Financial information on REI
For the year ended 31st December 1996 REI reported audited consolidated
profit before tax of (pounds)4.2 million on turnover of (pounds)73.7
million. As at 31st December 1996 REI's audited consolidated net assets
were (pounds)3.2 million. Further financial information on REI is set out
in Appendix IX to this document and in the 1996 Accounts enclosed herewith.
On the basis of the information currently available to them, the Directors
of REI consider that REI's 1997 trading performance was in line with their
expectations.
12. Articles of Association
The Articles of Association contain certain pre-emption requirements for
the transfer of REI Shares. No REI Share can be transferred other than in
accordance with these pre-emption requirements. These include the
requirement for a Shareholder who wishes to sell his or her REI Shares to
serve a transfer notice (except in certain limited circumstances). The
effect of a transfer notice is that the relevant REI Shares are offered to,
inter alia, the ESOP Trustee, the Company and the other Shareholders (other
than the holders of C Shares) at the Fair Value (as defined in the Articles
of Association).
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The Fair Value is determined pursuant to Article 27.10 of the Articles of
Association by the Company's merchant bankers appointed for this purpose
(the "Merchant Bankers"), as at 30th April and 31st October in each year.
The Fair Value is determined on an earnings basis disregarding any discount
for minority interests. If more than three months have passed since the
last valuation, the transferring Shareholder or the Board of REI can, and
in certain circumstances must, call for an updated valuation. The most
recent valuation was made by the Merchant Bankers as at 30th April 1997 and
valued each REI Share at (pounds)2.95 based on the issued share capital of
REI at that time of 5,616,013 REI Shares. In arriving at this valuation the
Merchant Bankers took various factors into account including an estimate of
REI's underlying pre tax profitability (after reduction for minority
interests) of (pounds)3.3 million, taxed at an assumed rate of
approximately 45 per cent., to which they applied a discount of 25 per
cent. to reflect the fact that REI Shares are unquoted and a P/E multiple
of 12, which was based on a survey of comparable UK quoted companies in the
sector and the market as a whole. It should be noted that the valuation was
carried out solely for the purposes of enabling REI Shares to be
transferred under the Articles of Association and was not a valuation for
the purposes of a sale or flotation of the Company. The Merchant Bankers
did not issue a valuation of the REI Shares as at 31stOctober 1997 which
ordinarily would have been issued in November, it being clear by that stage
that the Board of REI had reached agreement in principle with CB Commercial
for a recommended offer for the issued and to be issued share capital of
REI.
The Articles of Association provide that the pre-emption requirements do
not apply in any case where the Company determines otherwise by passing a
special resolution.
13. Extraordinary General Meeting
In order to enable the Offers to proceed and CB Commercial to acquire the
REI Shares in respect of which it receives acceptances of the Offers, the
EGM has been convened by your Directors to be held at The Westbury Hotel,
Conduit Street, London W1A 4UH on 6th March 1998 at 11:00am for the purpose
of passing a special resolution to allow the transfer of REI Shares under
the Offers or any transfer of REI Shares to CB Commercial following the
Offers becoming unconditional.
The Notice convening the EGM and containing the proposed Resolution is set
out at the end of this document. In addition to sanctioning the transfer of
REI Shares to CB Commercial under the Offers, the Resolution proposes
certain changes to the Articles of Association which your Directors have
agreed with CB Commercial will be appropriate if the Offers are accepted
and the Company is a subsidiary of CB Commercial. These changes would:
. remove the present restriction on the maximum number of Directors of
the Company;
. remove the current detailed requirements relating to the composition
of the Board of the Company;
. permit the Board to co-opt Directors;
. remove the requirement that a Director must be a Shareholder; and
. remove the restriction on the Directors' powers to cause the Company
to borrow money.
These amendments are conditional on the Offers becoming wholly
unconditional, and if the Offers do not become wholly unconditional no
change will be made to the Articles of Association.
The Offers are conditional, inter alia, on the passing of the Resolution.
The Resolution requires the support of not less than 75 per cent. of the
votes cast at the EGM. As noted above, the holders of 56.99 per cent. of
the issued share capital of REI (53.88 per cent. of the fully diluted share
capital of REI) have already irrevocably undertaken to vote in favour of
the Resolution. Your Directors consider that it is in the interests of the
Company and its employees that the acquisition
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by CB Commercial has the fullest possible support and therefore strongly
recommend that you cast your votes in favour of the Resolution.
14. Taxation
Certain considerations relating to taxation are set out in Appendix XII to
this document.
15. Action to be taken
EGM
Whether or not you intend to be present at the EGM, please complete and
return the signed original enclosed Form of Proxy, preferably by courier,
(not by fax) to the Company Secretary, Elizabeth Thetford c/o Jones, Day,
Reavis Pogue, Bucklersbury House, 3 Queen Victoria Street, London EC4N 8NA
as soon as possible, and in any event so as to arrive no later than 11:00
am on 4th March 1998. If your Form of Proxy arrives after that time, it
will not be valid. Please note that whether or not you complete and return
a Form of Proxy you will still be able to attend and vote at the EGM.
Forms of Proxy relating to REI Shares held by the ESOP Trustee will be
signed and completed by the ESOP Trustee who will appoint the relevent
beneficiary or, if he/she does not attend at the EGM, the Chairman, as
proxy for the ESOP Trustee in respect of the REI Shares held by it on
behalf of such beneficiary. The ESOP Trustee will forward the form of proxy
to the relevent beneficiary who should send such form to the Company
Secretary, Elizabeth Thetford, as set out above.
Acceptance of the Offers
Shareholders
There are three different Forms of Acceptance: the white A Form in respect
of the A Shares, the blue B Form in respect of the B Shares and the pink C
Form in respect of the C Shares.
If you decide to accept the Offers, please complete and sign the relevant
enclosed Form(s) of Acceptance in accordance with the instructions thereon
in respect of your holdings of AShares, B Shares and/or C Shares (as the
case may be). Please then return the signed original Form(s), preferably by
courier (not by fax), together with your share certificate(s), to the
Company Secretary, Elizabeth Thetford c/o Jones, Day, Reavis Pogue,
Bucklersbury House, 3 Queen Victoria Street, London EC4N 8NA as soon as
possible, and in any event so as to arrive no later than 3:30 pm on
20th March 1998.
If you have mislaid your share certificate(s) or if it/they is/are
temporarily unavailable or if it/they is/are held on your behalf by the
Company you should nevertheless return the duly completed Form(s) of
Acceptance and send your share certificate(s) as soon as possible. If your
share certificate(s) is/are lost you should apply for a new certificate
from the Company Secretary, Elizabeth Thetford at REI Limited, Berkeley
Square House, Berkeley Square, London W1X6AN. If your share certificate(s)
is/are held by the Company and you complete and return one or more Forms of
Acceptance your share certificate(s) will be attached to your Form(s) of
Acceptance on your behalf.
Please note that by signing and returning a Form of Acceptance you will not
place yourself under any obligation under the Articles of Association to
serve a transfer notice.
Optionholders
Enclosed is a yellow Form of Election on which Optionholders are entitled
to choose either:
(i) to exchange their unexercised REI Options for CB Commercial Options of
equivalent value; or
(ii) to exercise their unexercised options over REI Shares and accept the
Offers in respect of the resulting REI Shares.
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Forms of Election will be irrevocable.
To elect for either of these alternatives, an Optionholder's signed
original Form of Election, the relevant option certificates and (in the
case of option (ii) above) the appropriate remittance in Pounds Sterling
for the number of REI Shares over which REI Options are exercised must be
received by the Company Secretary, Elizabeth Thetford c/o Jones, Day,
Reavis Pogue, Bucklersbury House, 3 Queen Victoria Street, London EC4N 8NA
as soon as possible and in any event by no later than 3:30pm on 20th March
1998. Your remittance for the exercise price of the REI Shares over which
you exercise your REI Options should be made by UK building society cheque
or other cheque drawn on any branch of a clearing bank in the United
Kingdom, or may be made by electronic transfer in Pounds Sterling to
National Westminster Bank plc (Sort Code 60-00-01), 1 Princes Street,
London EC2R 8PA, for the account of REI Limited -- No 2 account (account
number 97680753). If you wish to elect for either of the above alternatives
but have mislaid your option certificate(s) or if it/they is/are
temporarily unavailable or if it/they is/are held on your behalf by the
Company, you should nevertheless return the duly completed Form of Election
and send your option certificate(s) as soon as possible. If your option
certificate(s) is/are lost you should apply for a new certificate from the
Company Secretary, Elizabeth Thetford at REI Limited, Berkeley Square
House, Berkeley Square, London W1X 6AN. If your option certificate(s)
is/are held by the Company and you complete and return a Form of Election
your option certificate(s) will be attached to your Form of Election on
your behalf.
Participants in the REI Share Plan who hold shares through the ESOP Trustee
Enclosed is a green Form of Instruction on which participants in the REI
Share Plan who hold shares through the ESOP are able to indicate their
instructions in respect of the Offers for the REI Shares held for them by
the ESOP Trustee. Forms of Instruction will be irrevocable. To enable the
ESOP Trustee to accept the Offers by 3:30 pm on 20th March 1998, please
ensure that your Form of Instruction is received by the Company Secretary,
Elizabeth Thetford c/o Jones, Day, Reavis Pogue, Bucklersbury House, 3
Queen Victoria Street, London EC4N 8NA as soon as possible and in any event
by no later than the close of business on 18th March 1998.
16. Recommendation and statement of Directors' intentions to accept the Offers
Your Directors, who have been so advised by Coopers & Lybrand Corporate
Finance, consider that the terms of the Offers are fair and reasonable and
in the best interests of the Company. In providing advice to the Directors
of REI, Coopers & Lybrand Corporate Finance has taken into account the
Directors' commercial assessments of the Offers. A copy of a letter from
Coopers & Lybrand Corporate Finance is set out in Appendix VII to this
document.
Your Directors unanimously recommend that you accept the Offers and vote in
favour of the Resolution, as they have irrevocably undertaken to do in
respect of their entire holdings, amounting to 2,031,002 REI Shares,
representing approximately 30.49 per cent. of the issued share capital of
REI.
Yours sincerely
Barry D. White
Chief Executive
REI Limited
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LETTER FROM JAMES DIDION
[CB COMMERCIAL LETTERHEAD]
7th February 1998
1. Introduction
On 9th December 1997 it was announced that CB Commercial and the Board of
REI had reached agreement on the terms of a merger of CB Commercial and REI
by means of recommended offers by CB Commercial for the entire issued and
to be issued share capital of REI.
I am writing to set out the terms of the formal Offers for your REI Shares
and to provide you with information about CB Commercial and the background
to our proposals.
Historically, CB Commercial's approach to international business has been
to form contractual alliances. Over time CB Commercial has come to realise
that in order to deliver consistent quality of service around the world and
to ensure that common goals are maintained, common ownership is essential.
CB Commercial's conclusion in this regard coincided with a strong
suggestion by the real estate director of Eastman Kodak -- a common client
of REI and CB Commercial -- that the two companies consider a merger, a
suggestion he also made to REI. Following a series of discussions between
senior management of CB Commercial and REI, in November 1997 a number of
senior executives of CB Commercial (including myself) travelled to Hong
Kong to make a presentation to the Board of Directors of REI for a merger
of REI and CB Commercial. After further discussions, our revised offer was
approved by the REI Board on 8th December 1997.
Our conclusion that REI was the right partner was driven primarily by three
factors:
. the quality and experience of REI's people;
. the scope of REI's corporate services; and
. the fact that REI is the only international real estate services
company with broad geographical distribution which owns and controls
most of its business operations world-wide.
After the Offers become wholly unconditional, CB Commercial intends to
change its corporate name to "CB Commercial/Richard Ellis, Inc."
Your attention is drawn to the letter from Barry D. White, Chief Executive
of REI, set out above, which states that the Directors of REI consider that
the terms of the Offers are fair and reasonable and indicates the reasons
why the Directors of REI unanimously recommend that all Shareholders accept
the Offers.
2. The Offers
CB Commercial hereby offers to acquire all of the REI Shares. The A Offer
is made for the A Shares, the B Offer is made for the B Shares and the C
Offer is made for the C Shares. Except as set out herein, the terms of
these Offers are identical. The Offers are made on the terms and subject to
the conditions set out in this document, in the Forms of Acceptance and
(where relevant) in the Form of Election and the Form of Instruction.
533 SOUTH FREMONT AVENUE, LOS ANGELES, CALIFORNIA 90071-1798
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At the Announcement Date (9th December 1997) the Offers valued the fully
diluted share capital of REI at the Initial Price of (pounds)57.25 million
(subject to potential adjustment based on the 1997 financial performance of
REI). CB Commercial is offering to purchase each REI Share at a value
calculated by apportioning the Initial Price (as adjusted) across the fully
diluted share capital of REI, for a consideration to be satisfied by the
issue of CBC Shares with partial cash and (provided acceptances are
received within certain time limits described below and save for
Shareholders resident in Australia and Japan) loan note alternatives.
The Initial Price may be adjusted (as described in Appendix II) as a result
of either one or both of the following:
(a) the Adjusted EBITDA of REI for the year ended 31st December 1997 being
less than (pounds)7.3million; and/or
(b) the Net Debt of REI as at 31st December 1997 being more than
(pounds)6.5 million.
Descriptions of Adjusted EBITDA and of Net Debt are set out in Appendix I.
In no circumstances will the 1997 financial performance of REI cause the
Offers to value the fully diluted share capital of REI at less than
(pounds)50 million without the prior written consent of the holders of 75
per cent. of the REI Shares who have assented to the Offers.
For each class of REI Shares they hold Shareholders can choose between one
of two methods ("Method A" and "Method B") of determining the value of the
consideration payable to them under the Offers.
. Under Method A, the number of CBC Shares to be issued to Shareholders
will be calculated based on the CBC Share price and the US$:Pounds
Sterling exchange rate in the period prior to the Announcement Date.
In consequence, the Pounds Sterling value of the consideration (in
CBC Shares, cash or Loan Notes) may vary upwards or downwards (within
certain limits) as a result of market and exchange rate movements in
the period between the Announcement Date and the Unconditional Date
(i.e. the date of the merger).
. Under Method B, the number of CBC Shares to be issued to Shareholders
will be calculated based on the CBC Share price and US$:Pounds
Sterling exchange rate in the period immediately prior to the
Unconditional Date, so that Shareholders will be able to choose
neither to gain nor to lose (whether in relation to CBC Shares, cash
or Loan Notes) from market and exchange rate movements in the period
between the Announcement Date and the Unconditional Date. There is
one exception to this, where alternative protection is available to
Shareholders.
Method A
Under Method A, the value of the consideration you receive for your REI
Shares (whether in CBC Shares, cash or Loan Notes) will be based on the
average closing price of a CBC Share on the New York Stock Exchange of
US$33.76 and the average US$:Pounds Sterling exchange rate of
US$1.6740:(pounds)1, in each case over the ten trading days prior to the
Announcement Date. As mentioned above, under Method A the value of the
consideration you receive may fluctuate upwards or downwards and therefore,
in order to protect both Shareholders and CB Commercial, the Offers have
been structured so that in no circumstances will any fluctuations resulting
from any movements in the CBC Share price or in the US$:Pounds Sterling
exchange rate up to the Unconditional Date cause the value of the Offers
for the fully diluted share capital of REI to exceed (pounds)65 million
(the "Cap") or to be less than (pounds)50 million (the "Collar") (or such
lesser sum to which it has previously been reduced, as described in
Appendix II, with the consent of the holders of 75 per cent. of the REI
Shares assented to the Offers).
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Method B
Under Method B, to the extent that a Shareholder elects to receive CBC
Shares, the number of CBC Shares to be issued to him/her will be calculated
by reference to the CBC Dollar Closing Price and the Closing Exchange Rate.
If the CBC Dollar Closing Price is below US$26, the CBC Shares will be
treated as having a value of US$26, but, in such a case, to the extent that
a Shareholder has chosen to receive CBC Shares he or she will have the
option to switch to cash or (if not an Australian or Japanese resident)
Loan Notes instead (in addition to any other cash election he/she may
already have made). A Shareholder will only be permitted to switch to cash
in this way if the Shareholder, when electing for Method B, sets out his or
her fax number in the relevant Form(s) of Acceptance in Box 5. If the
Shareholder has done so, and if the CBC Dollar Closing Price is less than
US$26, CB Commercial shall notify that Shareholder by fax of that price.
The Shareholder may, within seven days after receipt of the said notice
from CB Commercial, notify CB Commercial (marked for the attention of Walt
Stafford) by fax at 1-213-613-3015 (USA) that the Shareholder elects for
all or part of the CBC Shares which he or she would have received pursuant
to Method B to be replaced by cash (or Loan Notes) calculated by reference
to the Initial Price (adjusted if necessary under Part A of Appendix II) on
the basis that such cash (or Loan Notes) is in addition to any other cash
(or Loan Notes) that the Shareholder has already elected to receive under
the Offers.
Under the terms of these Offers it will not be possible to elect for Method
B after 3:30 pm on 20th March 1998. If the Offers become wholly
unconditional while Method B is available, Shareholders will be able, when
accepting the Offers, to elect for Method B until the later of the 14th day
after the Offers become wholly unconditional and 20th March 1998.
Fully diluted share capital of REI
There are currently 6,661,861 REI Shares in issue and a further allotted
but unissued 53,336 REI Shares outside of the REI Share Plan. In addition,
there are options in existence to subscribe for a further 347,500 REI
Shares. 1,495,029 REI Shares have been allotted under the REI Share Plan,
of which 752,372 have been issued and are included in the total number of
issued shares referred to above. A further 742,657 REI Shares will be
allotted and issued under the REI Share Plan. The Company has also agreed
to issue a further 147,000 REI Shares in relation to the acquisition of
further interests in the Wider REI Group. Therefore it is anticipated that
the fully diluted share capital of REI will be 7,952,354 REI Shares. In
light of the Offers and save as set out above, the Directors of REI have
stated that they do not intend to issue any further REI Shares before the
Offers close or lapse unless they receive written confirmation from CB
Commercial that such further issues will not affect the value for each REI
Share under the Offers.
3. Summary of Partial Cash Alternative
Accepting Shareholders will be entitled to elect to receive part (or in
certain circumstances all) of the consideration for their REI Shares in
cash in Pounds Sterling. It should be noted that this alternative does not
apply to unexercised REI Options or to unvested B Shares.
Under the terms of these Offers the Partial Cash Alternative will remain
open until 3:30 pm on 20th March 1998 and will not be open for acceptance
after that time. If the Offers become wholly unconditional while the
Partial Cash Alternative is open, the Partial Cash Alternative will be
extended until the later of the 14th day after the Offers become wholly
unconditional and 20th March 1998.
Partial Cash Alternative -- Method A
The aggregate value of the Partial Cash Alternative for all Shareholders
who elect for Method A will be based on the value of one-half of the number
of CBC Shares that would, in the absence of such alternative, be issued to
such Shareholders.
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The value of the Partial Cash Alternative for each Shareholder who elects
for Method A will be determined by multiplying: (i) the difference between
the number of CBC Shares which that Shareholder would, without such
election, have received and the number of CBC Shares which that Shareholder
actually receives following such election; by (ii) the CBC Dollar Closing
Price, converted into Pounds Sterling at the Closing Exchange Rate.
Shareholders who elect for Method A will be entitled to receive cash as
consideration for at least 50 per cent. of their REI Shares but will only
be entitled to receive cash as consideration for more than 50 per cent. of
their REI Shares to the extent that other Shareholders who elect for Method
A by 3:30 pm on 20th March 1998 (or by such later date to which the Partial
Cash Alternative is extended) do not elect for the Partial Cash Alternative
or do so in respect of less than 50 per cent. of their REI Shares. If the
aggregate amount of cash made available for the Partial Cash Alternative in
respect of Shareholders who elect for Method A is insufficient to satisfy
in full all elections for the Partial Cash Alternative by such
Shareholders, allocations of cash to such Shareholders who have elected to
receive cash as consideration for more than 50 per cent. of their REI
Shares will be scaled down pro rata to their elections.
Partial Cash Alternative -- Method B
The aggregate value of the Partial Cash Alternative for all Shareholders
who elect for Method B will be based on the value of one-half of such
proportion of the Initial Price (as adjusted) as is attributable to their
aggregate shareholdings.
The value of the Partial Cash Alternative for each Shareholder who elects
for Method B will be determined by multiplying: (i) such proportion of the
Initial Price (as adjusted) as is attributable to his/her shareholding; by
(ii) the percentage of his/her REI Shares in respect of which he/she elects
for the Partial Cash Alternative.
Shareholders who elect for Method B will be entitled to receive cash as
consideration for at least 50 per cent. of their REI Shares but will only
be entitled to receive cash as consideration for more than 50 per cent. of
their REI Shares to the extent that other Shareholders who elect for Method
B do not elect for the Partial Cash Alternative or do so in respect of less
than 50 per cent. of their REI Shares (save where the CBC Dollar Closing
Price is less than US$26). If the aggregate amount of cash made available
for the Partial Cash Alternative in respect of Shareholders who elect for
Method B is insufficient to satisfy in full all elections for the Partial
Cash Alternative by such Shareholders, allocations of cash to such
Shareholders who have elected to receive cash as consideration for more
than 50 per cent. of their REI Shares will be scaled down pro rata to their
elections. An election for Method B after 3:30 pm on 20th March 1998 (or,
if later, the date to which the right to elect for Method B is extended)
shall be invalid and shall not qualify for the Partial Cash Alternative.
Mix and Match
To the extent that any part of the aggregate amount of cash available in
respect of the Partial Cash Alternative under Method A is unused it will be
added to the aggregate amount of cash available in respect of the Partial
Cash Alternative under Method B and vice versa.
4. Loan Note Alternative
As an alternative to receiving cash, Shareholders (other than those
resident in Australia or Japan) who accept the Offers can elect to receive
all or part of the cash consideration due to them (in multiples of
(pounds)1), whether under Method A or under either of the alternatives in
Method B, in the form of Loan Notes.
Under the terms of these Offers the Loan Note Alternative will remain open
until 3:30 pm on 20th March 1998 and will not be open for acceptance after
that time. If the Offers become wholly unconditional while the Loan Note
Alternative is open, the Loan Note Alternative will be extended until the
later of the 14th day after the Offers become wholly unconditional and 20th
March 1998.
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The Loan Notes, which will be guaranteed but unsecured, and will be issued,
credited as fully paid, in multiples of (pounds)1 nominal value; fractional
entitlements will not be issued. The Loan Notes will bear interest (from
the date of issue to the relevant holder of Loan Notes) at a rate per annum
of six month LIBOR on the first day of the interest period less 150 basis
points payable half-yearly in arrear on 30th June and 31st December in each
year (or, if not a business day, on the first business day thereafter). The
first interest payment will be made on 30th June 1998 and will be in
respect of the period from the date of issue to 30th June 1998.
The Loan Notes will be redeemable at the option of the holders, in whole or
in part, on 31stDecember 1998 and on each subsequent interest payment date
thereafter (or, if not a business day, on the first business day
thereafter). Payment of principal and interest under the Loan Notes will be
guaranteed by Bank of America. Unless previously redeemed or purchased, the
Loan Notes will be redeemed on the first business day of the 52nd month
following the Unconditional Date (or, if not a business day, on the first
business day thereafter). The Loan Notes will, subject to certain
conditions, be transferable but no application is intended to be made for
the Loan Notes to be listed or dealt in on any stock exchange.
The Loan Notes have not been, and will not be, registered under the
Securities Act and should not be offered, sold, resold, delivered or
distributed, directly or indirectly, in or into the United States except
pursuant to an applicable exemption. Loan Notes issued to Canadian
residents will be subject to certain resale restrictions.
Because the terms of the Loan Notes will not comply with Australian legal
requirements as to offers of debentures (for example, there will be no
trustee of the Loan Notes), and because elections for Loan Notes would
confer no tax benefits on Australian residents, the Loan Note Alternative
is not available to Australian residents and no election by an Australian
resident for the Loan Note Alternative will be valid. The Loan Note
Alternative is not available to residents of Japan and no election by a
Japanese resident for the Loan Note Alternative will be valid.
The Loan Note Alternative is conditional on the Offers becoming or being
declared unconditional in all respects. A summary of the principal terms of
the Loan Notes is contained in Appendix VI.
5. REI Options
The Offers will extend to any REI Shares unconditionally allotted or issued
on or prior to the Final Closing Date (or such earlier date as CB
Commercial may decide, being not earlier than the Unconditional Date) on
the exercise of REI Options.
Alternatively, holders of REI Options under the REI Share Option Schemes
will be able to exchange such unexercised REI Options for options over such
number of CBC Shares as they would have received under Method B,
disregarding the provisions which apply if the CBC Dollar Closing Price is
below US$26, had they validly exercised such REI Options, accepted the
Offers in respect of the resulting REI Shares and not elected for the
Partial Cash or Loan Note Alternatives in respect thereof. The exercise
price (converted into US Dollars at the Closing Exchange Rate) per CBC
Share over which CB Commercial Options will be granted shall equal the
aggregate exercise price of the REI Options divided by the number of shares
under the corresponding CB Commercial Options. The terms of such
replacement CB Commercial Options will be based on those applicable to
existing REI Options. The Partial Cash and Loan Note Alternatives will not
be available in respect of unexercised REI Options.
Elections to exchange REI Options for CB Commercial Options will only be
valid if received in accordance with paragraph 14 below by 3:30 pm on 20th
March 1998.
Optionholders who elect to exercise their REI Options in the Form of
Election will irrevocably agree to do so whether or not the Offers become
unconditional. Optionholders who use the Form of Election to exercise part
only of their REI Options will be deemed to have elected to exchange their
remaining unexercised REI Options for CB Commercial Options.
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6. The REI 1997 Employee Share Incentive Plan
In accordance with the rules of the REI Share Plan, vesting rights for all
REI Shares held under such plan have been accelerated such that one-third
will vest on the Unconditional Date (or such earlier date as may be
determined under the REI Share Plan), one-third shall vest on 1st January
1999 and one-third shall vest on 1st January 2000. The Offers extend to REI
Shares held under the REI Share Plan on the following basis.
B Shares allocated to Shareholders under the REI Share Plan are subject to
vesting requirements based on continuity of employment. The B Offer extends
to B Shares but will only entitle election for the Partial Cash or Loan
Note Alternatives in respect of the one third of the B Shares which will
vest on the Unconditional Date (or such earlier date as may be determined).
Any such election prior to the Unconditional Date should be made on the
blue B Form of Acceptance, and may be made at any time while these
Alternatives are open, notwithstanding that none of the Shareholder's B
Shares have vested.
The vesting requirements for CBC Shares which a Shareholder receives in
exchange for his/her B Shares held under the REI Share Plan will be similar
to those contained in the REI Share Plan (accelerated as set out above),
save that because one-third of such CBC Shares will have vested on the
Unconditional Date, the effect will be that an employee who ceases to be
connected with the REI Group (within the meaning of Articles 27.11.1(a) or
(b) of the Articles of Association) other than by reason of death,
disability or termination without just cause prior to 1st January 1999 will
forfeit all of the CBC Shares which he/she receives in exchange for B
Shares. Similarly, an employee who ceases to be connected with the REI
Group (within the meaning of Articles 27.11.1(a) or (b) of the Articles of
Association) other than by reason of death, disability or termination
without just cause prior to 1st January 2000 will forfeit one-half of the
CBC Shares he/she receives in exchange for B Shares.
Certificates for the CBC Shares to be issued in relation to the B Offer
will be held by CB Commercial until such CBC Shares vest. The certificates
will then be sent to Shareholders attheir registered addresses and at their
own risk.
Employees who elect for the REI Shares allocated to them under the REI
Share Plan to be held by the ESOP Trustee will be entitled to direct the
ESOP Trustee to accept the Offers in respect of those shares. The
consideration due pursuant to the A Offer in respect of such REI Shares
will be held by the ESOP Trustee under the terms of the Rules of the REI
Share Plan, including the vesting requirements referred to above.
Further details of the vesting arrangements under the REI Share Plan are
set out in Appendix IV.
7. Resale of CBC Shares
The ability of each REI Shareholder to resell his or her CBC Shares will
depend upon whether he or she is either a United States resident or an
affiliate of CB Commercial.
Non US residents who are not CB Commercial affiliates
If you are neither a US resident nor an affiliate of CB Commercial (and
only Messrs Barry White, Francis Pons and David Runciman are expected to be
affiliates) then your CBC Shares will be freely tradable at all relevant
times. During the first 40 days following the issuance of the CBC Shares
you will be able to sell those shares pursuant to the Registration
Statement which CB Commercial will have in effect at the time you receive
the CBC Shares. After the 40 day period anyone who is neither a US resident
nor an affiliate of CB Commercial may freely resell CBC Shares pursuant to
applicable regulations without regard to the Registration Statement.
US residents who are not affiliates
If you are a US resident but not an affiliate of CB Commercial then your
CBC Shares will be freely tradable at all relevant times with one possible
exception. During the first year following the issuance of the CBC Shares
you will be able to sell them pursuant to the Registration
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Statement which CB Commercial will have in effect at the time you receive
CBC Shares. After the one year period you may sell your CBC Shares pursuant
to Rule 144. Under Rule 144 the only limitations are that you must sell in
a "broker's transaction" and CB Commercial must be current in its required
Securities Exchange Commission filings. During the one year period in which
you must sell pursuant to the Registration Statement periods could occur in
which no sales are possible because material information about CB
Commercial (generally relating to acquisitions) is not public. During such
a period --which will not exceed 30 days -- you will not be able to sell
CBC Shares.
Affiliates
Any person who is an affiliate of CB Commercial, regardless of his or her
residence, may sell only pursuant to the Registration Statement for the
first two years following issuance of the CBC Shares. Each affiliate will
be provided with additional information in this regard.
Caveat: Notwithstanding the foregoing no person may sell CBC Shares when he
or she personally possesses material information about CB Commercial which
is not public.
New York Stock Exchange
In addition to including the CBC Shares to be issued in connection with the
Offers in a Registration Statement, CB Commercial will list them on the New
York Stock Exchange.
Methods of effecting a sale
There are a number of ways in which a Shareholder who receives CBC Shares
pursuant to the Offers can sell those shares. The three principal and
recommended ways are as follows:
(i) Standard brokerage transactions
Shareholders can use Merrill Lynch, Montgomery Securities or another
firm of their choice in a standard brokerage transaction. This is the
most appropriate way to sell fewer than 15,000 CBC Shares. Where
larger blocks are to be sold one of the other two alternatives
described below may be better suited. Prior to the Payment Date CB
Commercial will provide Shareholders with names and telephone numbers
of stock brokers who can assist in a sale of CBC Shares.
(ii) Block trading with institutional shareholders
CB Commercial currently has a number of institutional shareholders
who own more than 400,000 CBC Shares each (the largest of whom owns
almost 2,000,000 CBC Shares). A number of these institutional
shareholders have indicated a desire to acquire additional CBC
Shares, but only if they can buy in large blocks. CB Commercial's
management is generally aware of those institutional shareholders who
are interested in additional CBC Shares and you may contact either
John Haeckel (CB Commercial's Chief Financial Officer) at (213) 613-
3388 or Walter Stafford (its General Counsel) at (213) 613-3588) for
information on block trades.
(iii) Underwritten public offering
If a sufficient number of CBC Shares are to be sold at one time by a
group of Shareholders (or as part of a group which includes other
CB Commercial shareholders) it may be possible to arrange an
underwritten public offering. Generally speaking, an underwritten
offering will not be feasible unless at least 500,000 CBC Shares are
to be sold, and to obtain sufficiently qualified underwriters a
larger number would be preferable.
8. Information on CB Commercial
CB Commercial, whose predecessor was founded in 1906, provides integrated
real estate services. With the August 1997 acquisition and integration of
Koll Real Estate Services, CB Commercial has restructured into four global
business units to best serve clients, as well as
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better reflect market opportunities, and to encourage better investment
community understanding of CB Commercial's prospects. The four units are
Brokerage Services, Corporate Services, Property Management Services and
Financial Services. Brokerage Services consists of brokerage services
(facilitating leases and non-investment sales), Corporate Services consists
of corporate services (including facilities management and outsourcing),
Property Management Services is self explanatory and Financial Services
consists of investment property services (acquisitions and sales on behalf
of investors), mortgage banking (including mortgage loan services) through
L.J.Melody Company, asset management/pension advisory services through
Westmark Realty Advisors LLC, valuation and appraisal services and real
estate market research. A significant portion of CB Commercial's revenue is
transactional in nature and seasonal. Historically, this seasonality has
caused CB Commercial'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 Brokerage Services and the investment properties component of
Financial Services, which constitutes a substantial majority of CB
Commercial's revenue, is largely transactional in nature and subject to
economic cycles. However, CB Commercial's significant size, geographic
coverage, number of transactions and large client base tend to minimise the
impact of economic cycles on annual revenue. Approximately 50 per cent.
(mostly commissions) of the costs and expenses associated with Brokerage
Services and the investment properties component of Financial Services,
respectively, are directly correlated to revenue while approximately 25 per
cent. (mostly commissions) of the costs and expenses of Financial Services,
excluding investment properties, are directly correlated to revenue.
Exclusive of REI, CB Commercial has completed four strategic acquisitions
since the beginning of 1995 and is continually assessing acquisition
opportunities as part of its growth strategy. Because of the substantial
non-cash goodwill and intangible amortisation charges incurred by CB
Commercial in connection with acquisitions subject to purchase accounting
and because of interest expense associated with acquisition financing,
future acquisitions may adversely affect net income. In addition, during
the first six months following an acquisition, CB Commercial believes there
are generally significant one-time costs relating to integrating
information technology, accounting and management services and
rationalising personnel levels (which CB Commercial intends to reflect as a
statement of operations charge or as part of the purchase price at the time
of the acquisition to the extent possible). Management's strategy is to
pursue acquisitions like REI that are expected to be accretive to income
before interest expense and provision for amortisation of goodwill and
intangibles, if any, and to operating cash flows (excluding the costs of
integration). In the case of REI, the rationalisation of personnel levels
will be of no significant financial consequence, but there will be very
significant costs relating to integrating information technology and
accounting.
CB Commercial's results have benefited from its ability to take advantage
of a significant and ongoing recovery in US 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 have generated an increase in brokerage and property
management fees to CB Commercial.
CB Commercial's current financial and trading position are in line with
Directors' expectations.
9. Management and employees
We at CB Commercial share Barry White's view that one of the most important
assets in our respective businesses is our employees and that the retention
and motivation of REI employees is vital to the success of our merger.
CB Commercial will therefore offer all REI Group employees continuing
employment with their current employer following the merger and no change
is expected in the terms and conditions of any employee's employment.
Naturally, the employer retains whatever rights it may have --
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subject to whatever obligations it may have -- to make appropriate changes
in those terms and conditions, but no changes are currently contemplated.
CB Commercial believes that the respective clients of CB Commercial and REI
will enthusiastically accept the merger and that the merger will allow the
combined company to attract new clients. This in turn should enhance the
career opportunities for both REI Group and CB Commercial employees.
In the case of approximately 30 REI Group key management employees
(including a majority of the Directors) CB Commercial has offered new
employment agreements (or has already obtained commitments) which include
covenants not to compete in order to help ensure the continuing stability
and growth of REI. Virtually all of these key employees have agreed to
enter into employment agreements that become effective on the Payment Date.
In addition, with respect to a somewhat larger group of key employees
(including some but not all of the management employees) CB Commercial will
grant stock options to purchase an aggregate of 500,000 CBC Shares at a
price of US$ 33.76 per share. Such options will be granted under the terms
of CB Commercial's REI Acquisition Stock Option Plan, details of which are
set out in Appendix V.
Finally, it may be helpful to understand the tentative management structure
of the combined company:
[MANAGEMENT STRUCTURE CHART APPEARS HERE]
Everyone must recognise that the management structure for our combined
companies will be a dynamic and not a static undertaking. I am pleased to
advise Shareholders that I will invite at least Barry White, Francis Pons
and David Runciman from among existing REI Directors, and probably several
other REI people, to be a part of the Global Operations Management Board.
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10. CB Commercial Options
CB Commercial believes that a key employee's ability to participate in the
success of CB Commercial through stock ownership (including stock options)
has been a significant factor in its success. At 31st December 1997
officers, Directors and employees owned or controlled approximately 40 per
cent. of the 18,768,200 outstanding CBC Shares and held options to purchase
1,949,337 additional CBC Shares.
As indicated above, CB Commercial will grant options over 500,000 CBC
Shares to a somewhat larger group of key employees of REI. The stock option
grants are expected to range from as few as 500 CBC Shares to as many as
25,000 CBC Shares. All of these stock options are priced at US$33.72 per
share and all vest as follows:
. 33 1/3 per cent. after a key employee completes three years of
service with CB Commercial/REI following the Offers becoming
unconditional;
. 66 2/3 per cent. after a key employee completes four years of service
with CB Commercial/REI following the Offers becoming unconditional;
and
. 100 per cent. after a key employee completes five years of service
with CB Commercial/REI following the Offers becoming unconditional.
Any CBC Options which are not vested at the time a key employee's
employment terminates (regardless of the reason for the termination,
including disability, death or dismissal without just cause) will be
forfeited. Further details of CB Commercial's share option schemes are set
out in Appendix V to this document.
11. Dividend statement
During the period from 1992 through to September 1996 no dividends were
paid or accrued on either CBC Shares or CB Commercial preferred stock. No
dividends are likely to be declared or paid in the foreseeable future.
12. Taxation
Certain considerations relating to taxation are set out in Appendix XII to
this document.
Shareholders who are in any doubt as to their taxation position should
consult an appropriate professional adviser without delay.
13. Recent Events
On 27th January 1998 CB Commercial purchased all of its issued and
outstanding preferred stock for US$72 million in cash. The preferred stock
was convertible into 2,560,000 CBC Shares. The purchase has the effect of
eliminating a US$4 million a year dividend and 2,560,000 CBC Shares. Market
reaction to this purchase has been favourable.
14. Procedure for acceptance
There are three different Forms of Acceptance: a white Form in respect of
the A Shares, a blue Form in respect of the B Shares and a pink Form in
respect of the C Shares.
If you decide to accept the Offers, please complete and sign the relevant
enclosed Form(s) of Acceptance in accordance with the instructions thereon
in respect of your holdings of A Shares, B Shares and/or C Shares (as the
case may be). Please then return the signed original Form(s), preferably by
courier (not by fax), together with your share certificate(s), to the
Company Secretary, Elizabeth Thetford c/o Jones, Day, Reavis Pogue,
Bucklersbury House, 3 Queen Victoria Street, London EC4N 8NA as soon as
possible, and in any event so as to arrive no later than 3:30 pm on
20th March 1998.
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If you have mislaid your share certificate(s) or if it/they is/are
temporarily unavailable or if it/they is/are held on your behalf by the
Company you should nevertheless return the duly completed Form(s) of
Acceptance and send your share certificate(s) as soon as possible. If your
share certificate(s) is/are lost you should apply for a new certificate
from the Company Secretary, Elizabeth Thetford at REI Limited, Berkeley
Square House, Berkeley Square, London W1X 6AN. If your share certificate(s)
is/are held by the Company and you complete and return one or more Forms of
Acceptance your share certificate(s) will be attached to your Form(s) of
Acceptance on your behalf.
Please note that by signing and returning a Form of Acceptance you will not
place yourself under any obligation under the Articles of Association to
serve a transfer notice.
Optionholders
Enclosed is a yellow Form of Election on which Optionholders are entitled
to choose either:
(i) to accept the offer to exchange their unexercised REI Options for CB
Commercial Options of equivalent value; or
(ii) to exercise their unexercised options over REI Shares with effect from
the Unconditional Date and accept the Offers in respect of the
resulting REI Shares.
Forms of Election will be irrevocable.
To elect for either of these alternatives, an Optionholder's signed
original Form of Election, the relevant option certificate(s) and (in the
case of option (ii) above) the appropriate remittance in Pounds Sterling
for the number of REI Shares over which REI Options are exercised must be
received by the Company Secretary, Elizabeth Thetford c/o Jones, Day,
Reavis Pogue, Bucklersbury House, 3 Queen Victoria Street, London EC4N 8NA
as soon as possible and in any event by no later than 3:30 pm on 20th March
1998. Your remittance for the exercise price of the REI Shares over which
you exercise your REI Options should be made by UK building society cheque
or other cheque drawn on any branch of a clearing bank in the United
Kingdom, or may be made by electronic transfer in Pounds Sterling to
National Westminster Bank plc (Sort Code 60-00-01), 1 Princes Street,
London EC2R 8PA for the account of REI Limited -- No2 account (account
number 97680753). If you wish to elect for either of the above alternatives
but you have mislaid your option certificate(s) or if it/they is/are
temporarily unavailable or if it/they is/are held on your behalf by the
Company, you should nevertheless return the duly completed Form of Election
and send your option certificate(s) as soon as possible. If your option
certificate(s) is/are lost you should apply for a new certificate from the
Company Secretary, Elizabeth Thetford at REI Limited, Berkeley Square
House, Berkeley Square, London W1X 6AN. If your option certificate(s)
is/are held by the Company and you complete and return a Form of Election
your option certificate(s) will be attached to your Form of Election on
your behalf.
Participants in the REI Share Plan who hold shares through the ESOP Trustee
Enclosed is a green Form of Instruction on which participants in the REI
Share Plan who hold shares through the ESOP are able to indicate their
instructions in respect of REI Shares held for them by the ESOP Trustee.
Forms of instruction will be irrevocable. To enable the ESOP Trustee to
accept the Offers by 3:30 pm on 20th March 1998 please ensure that your
Form of Instruction is received by the Company Secretary, Elizabeth
Thetford c/o Jones, Day, Reavis Pogue, Bucklersbury House, 3 Queen Victoria
Street, London EC4N 8NA as soon as possible and in any event by no later
than the close of business on 18th March 1998.
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15. Settlement
REI Shares
Within five business days after the Unconditional Date CB Commercial will
dispatch the consideration to Shareholders who have accepted the Offers on
or before the Unconditional Date. Where a Shareholder accepts the Offers
after the Unconditional Date, but before the Final Closing Date, the
consideration will be dispatched within five business days of valid
acceptance. Consideration will be dispatched by first class post, except
that Shareholders who elect to receive the Partial Cash Alternative (or
other cash under Method B) will be entitled to receive the same by way of
wire transfer in such currency as the Shareholder shall have specified in
the Form of Acceptance (the Shareholder to bear any and all costs of
currency exchange, save where payment is made in US Dollars or Pounds
Sterling) and to such account as the accepting Shareholder shall designate
in the Form(s) of Acceptance.
Title to each Shareholder's REI Shares shall not pass to CB Commercial
until CB Commercial has dispatched the consideration to the Shareholder.
REI Options
Certificates in respect of new CB Commercial Options will be despatched
within five business days after Unconditional Date.
16. Further information
Your attention is drawn to the Appendices which form part of this document
and to the Forms of Acceptance and (where relevant) the Form of Election
and Form of Instruction.
Yours truly
James J Didion
Chairman and Chief Executive Officer
CB Commercial Real Estate Services Group, Inc.
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APPENDIX I
Adjusted EBITDA and Net Debt
A. Adjusted EBITDA
"Adjusted EBITDA" means the consolidated profits on ordinary activities
before taxation of REI ("Consolidated Profits") for the year ended 31st
December 1997 ("1997") exclusive of any gain or loss arising from inter-
company loans or balances arising on consolidation determined in accordance
with the existing accounting policies of REI consistently applied in
accordance with past practice ("Accounting Policies") after the addition to
the Consolidated Profits of the following items (after the elimination of
all inter-company items in accordance with the Accounting Policies):
1. all interest paid or payable by REI in respect of 1997 on a
consolidated basis;
2. all depreciation charged by REI in respect of 1997 on a consolidated
basis;
3. all amortisation charged by REI in respect of 1997 on a consolidated
basis;
4. the amount of any net losses recognized in 1997 in respect of the
discontinued operations of businesses in Chicago, USA and Geneva,
Switzerland conducted by two subsidiaries of REI on the basis that any
amounts included in such losses that have not been paid by 31st
December 1997 are added to Net Debt;
5. the portion of the profits on ordinary activities before taxation for
1997 (with the adjustments set forth above and below) of any subsidiary
of REI which was excluded in calculating the Consolidated Profits
because REI owned, directly or indirectly, less than 100 per cent. of
such subsidiary if, and only if, REI has an obligation to purchase the
share capital in such subsidiary which it does not own and the unpaid
cost (including the present value of any earnout) payable in
relationship to such obligation is included in the calculation of Net
Debt;
6. all of the profits on ordinary activities before taxation for 1997
(with the adjustments set forth above and below, substituting Richard
Ellis SA (a company incorporated in France) for REI) of Richard Ellis
SA subject to the fair value of REI's put/call obligation with respect
to such business being included in Net Debt;
7. the remaining 49 per cent. of the profits on ordinary activities before
taxation for 1997 (with the adjustments set forth above and below,
substituting Richard Ellis Residencial SA for REI) of Richard Ellis
Residencial SA so long as an agreement entered into by REI in 1997 to
acquire the outstanding 49 per cent. equity interest therein proceeds
to completion following Spanish Ministry of Commerce authorisation and
prior to the Unconditional Date;
8. any expenses incurred on or after 22nd October 1997 in relation to the
transactions contemplated by the Offers, the impact of which shall be
excluded from the calculation of Net Debt; and
B. Net Debt
"Net Debt" means the sum of all amounts owed by REI on 31st December 1997
less the amount of all cash balances as of that date together with the sum
of US$700,000 (net of any related tax obligation) received in January 1998
by Richard Ellis, Inc. from Richard Ellis LLC in respect of the period
commencing 1st July 1997, in each case on a consolidated basis determined
in accordance with the Accounting Policies in respect of:
1. borrowed money;
2. the unpaid purchase price of capital assets; and
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3. the fair value of any obligation (or, in the case of Richard Ellis SA
(a company incorporated in France), any right) to purchase an
additional interest in any business to the extent that Adjusted EBITDA
includes the portion of profits on ordinary activities before taxation
for 1997 attributable to such interest.
C. General
1. In calculating Adjusted EBITDA and Net Debt there shall be excluded the
portion, if any, of Adjusted EBITDA and Net Debt of any consolidated
entity attributable to the fact that, directly or indirectly, REI does
not own 100 per cent. of such entity.
2. The Board of REI will prepare the 1997 Accounts using the Accounting
Policies and shall request Coopers & Lybrand (a) to audit the 1997
Accounts and (b) to prepare a draft statement of Adjusted EBITDA and
Net Debt which shall be sent to Arthur Andersen for their review.
Before a final statement of Adjusted EBITDA and Net Debt is prepared,
Arthur Andersen shall be entitled to 10 business days to review the
1997 Accounts, the draft statement of Adjusted EBITDA and Net Debt and
all the documents on which the 1997 Accounts are based and which are
otherwise required for the purpose of calculating Adjusted EBITDA and
Net Debt (including, if and to the extent permitted by Coopers &
Lybrand, the working papers of Coopers & Lybrand) and to discuss with
Coopers & Lybrand any matters arising therefrom.
CB Commercial shall notify the Board of REI in writing within 10
business days of receipt in Los Angeles, California by Arthur Andersen
of the 1997, Accounts and the draft statement of Adjusted EBITDA and
Net Debt whether it accepts, for the purposes of this Appendix, that
the 1997 Accounts and the draft statement of Adjusted EBITDA and Net
Debt have been properly prepared in accordance with this Appendix and,
if it does not so accept the 1997 Accounts and the draft statement,
such notification shall be accompanied by a letter from Arthur Andersen
giving detailed reasoning in writing for any non-acceptance. In the
case of non-acceptance, the Boards of REI and CB Commercial (or a
committee thereof) shall (in conjunction with their respective
accountants) meet and discuss the objections of CB Commercial in order
to seek to reach agreement upon such adjustments (if any) to the 1997
Accounts and the statement of Adjusted EBITDA and Net Debt as are
necessary to bring them into compliance with this Appendix.
If CB Commercial does not so notify REI within the said 10 business
days, then CB Commercial shall be deemed to have accepted the 1997
Accounts and the statement of Adjusted EBITDA and Net Debt for the
purposes of the Offers.
If the Boards of REI and CB Commercial are unable to resolve all such
differences of views within 10 business days following the notification
of objection by CB Commercial, the matters in dispute shall be referred
for settlement on the written application of either CB Commercial or
the Board of REI to Nick Land of Ernst Young, London, or if he is
unwilling or unable to act, such other person as may be agreed between
CB Commercial and the Board of REI ("the Expert") who shall be
instructed to give a decision in 10 business days. In giving its
decision, the Expert shall select either the position asserted by REI
or that asserted by CB Commercial. Any such decision shall be final and
binding on all concerned and shall be given by the Expert as expert and
not as arbitrator. The Expert, in rendering its decision, shall take
into account only such evidence and information as CB Commercial and
the Board of REI (or their respective accountants) shall have put
forward in writing and no such evidence shall be put forward by either
REI or CB Commercial unless such evidence was made available to the
other party prior to the written application for settlement being made.
Except at the request of the Expert, REI and CB Commercial shall each
submit only one statement of their respective positions and that
statement shall be provided to the Expert, with a copy to the other
party, within 5 business days of the date of the written application
for settlement.
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The costs of Coopers & Lybrand pursuant to the provisions of this
paragraph shall be borne by REI but shall not be taken account of in
the calculation of Adjusted EBITDA. The costs of Arthur Andersen shall
be borne by CB Commercial. The costs of the Expert (if applicable)
shall be borne equally by CB Commercial and REI.
3. Notwithstanding that the 1997 Accounts may not have been audited, or
that the statement of Adjusted EBITDA and Net Debt may not have been
determined, CB Commercial may, by written notice to REI, declare itself
satisfied that the Initial Price should not be reduced by reference to
Adjusted EBITDA and Net Debt, and such declaration shall be binding on
CB Commercial, the Shareholders and Optionholders.
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APPENDIX II
NUMBER OF CBC SHARES TO BE ISSUED UNDER THE OFFERS
PART A
INITIAL PRICE
The Initial Price for the fully diluted share capital of REI is (pounds)57.25
million (subject as set out below), on the assumptions that:
. the Adjusted EBITDA (as defined in Appendix I) of REI for the year ended
31st December 1997 is (pounds)7.3 million or more; and
. the Net Debt (as defined in Appendix I) of REI as at 31st December 1997 is
(pounds)6.5 million or less.
If the Adjusted EBITDA is less than (pounds)7.3 million, or if the Net Debt is
more than (pounds)6.5 million, the Initial Price will be reduced as described
below. In no circumstances will the Initial Price be reduced to below (pounds)50
million without the written approval of the holders of 75 per cent. of the REI
Shares who have assented to the Offers.
(a) The Initial Price will be (pounds)57.25 million if for the 12 months ended
31st December 1997 REI's Adjusted EBITDA (calculated in accordance with
Appendix I) is (pounds)7.3 million or more and if at 31st December 1997 Net
Debt (calculated in accordance with Appendix I) is (pounds)6.5 million or
less.
(b) If for the 12 months ended 31st December 1997 Adjusted EBITDA is less than
(pounds)7.3 million then the (pounds)57.25 million figure will be reduced
by the same percentage by which the Adjusted EBITDA is less than
(pounds)7.3 million; provided, however, that in no event will the
adjustment computed pursuant to this paragraph (b) cause the Initial Price
to be less than (pounds)50 million.
(c) If at 31st December 1997 Net Debt exceeds (pounds)6.5 million then the
amount of such excess shall be subtracted from the (pounds)57.25 million
figure (or such other figure as may result after the application of
paragraph (b) above); provided, however, that in no event will the
adjustment computed pursuant to this paragraph cause the Initial Price to
be less than (pounds)50 million.
The calculations of Adjusted EBITDA and of Net Debt will be made on the basis
set out in Appendix I and, following any adjustments being agreed or settled in
accordance with Part C of Appendix I, CB Commercial will send a notice (a
"Calculation Notice") to Shareholders at their respective registered addresses
to inform them of Adjusted EBITDA, Net Debt and the resulting Initial Price
within five business days of the same being agreed or settled.
In the event that the adjustment provided for in paragraph (c) above would cause
the Initial Price to be reduced below (pounds)50 million but for the proviso
therein, then CB Commercial will have the right (subject as set out below) to
cause the Offers to lapse by written notice (a "Termination Notice") posted to
Shareholders not less than 30 nor more than 45 days after the Calculation
Notice.
If the holders of 75 per cent. of the REI Shares in respect of which the Offers
have been accepted deliver their written agreement to CB Commercial within 30
days of receipt of the Calculation Notice c/o Elizabeth Thetford, Company
Secretary of REI Limited c/o Jones, Day, Reavis & Pogue, Bucklersbury House, 3
Queen Victoria Street, London, EC4N 8NA, that the Initial Price shall be reduced
to the amount (the "Reduced Amount") it would have been but for such proviso,
then the Initial Price shall be reduced to the Reduced Amount and CB Commercial
shall not be entitled to serve a Termination Notice. In that event, all the
accepting Shareholders (whether or not they have specifically agreed to the
reduction) and CB Commercial shall be deemed to have agreed that the Initial
Price shall be reduced to the Reduced Amount.
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PART B
CALCULATION OF CONSIDERATION
Method A
The Initial Price of REI at the Announcement Date was (pounds)57.25 million,
subject to REI's financial performance to, and position at, 31st December 1997
(as set out above).
The terms under Method A were determined as at the Announcement Date with the
consequence that Shareholders would be able to benefit from any favourable, but
would suffer from any unfavourable, movements in the Pounds Sterling value of
CBC Shares.
In order to protect both Shareholders and CB Commercial from extreme movements
in the Pounds Sterling value of CBC Shares, the benefits or otherwise were
restricted to +/- approximately 13 per cent. of the unadjusted Initial Price at
the Announcement Date of (pounds)57.25 million.
For each REI Share assented under Method A accepting Shareholders will, subject
as set out below, be entitled to a fraction of a CBC Share on the following
basis:
IP
One REI Share for each -------------------- CBC Share
(pounds)20.17 x FDSC
where: IP = Initial Price (as determined pursuant to Part A of this
Appendix); and
FDSC = the fully diluted share capital of REI.
(pounds)20.17 is the Announcement Price in Pounds Sterling
Thus, on the assumption that the Initial Price is (pounds)57.25 million (i.e.
Adjusted EBITDA is not less than (pounds)7.3 million and Net Debt is (pounds)6.5
million or less), a Shareholder accepting under Method A would be entitled to
approximately 0.357 CBC Share for each REI Share assented under Method A.
Cap
However, if, on the assumption that the fully diluted share capital of REI had
been assented under Method A, the aggregate value (using the Sterling Closing
Price) of the CBC Shares (ignoring the Partial Cash and Loan Note Alternatives)
which would be issued would exceed (pounds)65 million, each Shareholder electing
for Method A would instead be entitled to a fraction of a CBC Share on the
following basis (so that such aggregate value does not exceed (pounds)65
million):
(pounds)65 million
One REI Share for each ------------------ CBC Share
SCP x FDSC
where: SCP = Sterling Closing Price.
Collar
Similarly, if, on the assumption that the fully diluted share capital of REI had
been assented under Method A, the aggregate value of the CBC Shares (ignoring
the Partial Cash and Loan Note Alternatives) (using the Sterling Closing Price)
which would be issued would be less than (pounds)50 million, each Shareholder
electing for Method A would instead be entitled to a fraction of a CBC Share on
the following basis (so that such aggregate value is not less than (pounds)50
million):
(pounds)50 million
One REI Share for each ------------------ CBC Share
SCP x FDSC
If the Initial Price has been reduced to the Reduced Amount, the sum of
(pounds)50 million in the immediately preceding formula shall be replaced by the
Reduced Amount.
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Method B
For each REI Share assented under Method B so as to receive CBC Shares (rather
than cash or Loan Notes), accepting Shareholders would be entitled to a fraction
of a CBC Share on the following basis:
IP
One REI Share for each --------------------- CBC Share
SCP x FDSC
If, however, the CBC Dollar Closing Price falls below US$26, accepting
Shareholders would be entitled (ignoring an election for all cash, the Partial
Cash Alternative or the Loan Note Alternative) to a fraction of a CBC Share for
each REI Share assented under Method B on the following basis:
IP x ER
One REI Share for each --------------------- CBC Share
FDSC x US$26
where: ER = Closing Exchange Rate.
Fractions
Fractions of CBC Shares will not be issued.
In calculating the consideration receivable by a Shareholder, REI Shares of one
class held by that Shareholder shall not be aggregated with REI Shares of
another class held by that Shareholder.
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APPENDIX III
CONDITIONS AND FURTHER TERMS OF THE OFFERS
A. Conditions of the Offers
The Offers are subject to the following conditions:
(a) valid acceptances being received (and not, where permitted, withdrawn)
by 3:30 pm on 20thMarch 1998 (or such later time(s) and/or date(s) as
CB Commercial may decide) in respect of not less than (i) 75 per cent.
(or such lesser percentage as CB Commercial may decide) in nominal
value of the aggregate of the issued A Shares and the B Shares to which
the Offers relate; and (ii) 75 per cent. (or such lesser percentage as
CB Commercial may decide) in nominal value of the aggregate of the
issued A Shares, B Shares and C Shares to which the Offers relate,
provided that this condition shall not be satisfied unless CB
Commercial has acquired, or agreed to acquire, pursuant to the Offers
or otherwise, REI Shares carrying more than 50 per cent. of the votes
which are currently exercisable at general meetings of REI;
(b) the passing by REI of the Resolution set out in the Notice or such
other resolutions as the Board of REI and CB Commercial agree to
substitute for such Resolution for the purpose of enabling REI Shares
to be transferred to CB Commercial pursuant to the Offers;
(c) at least 90 per cent. of the employees of the Wider REI Group who have
been requested by CB Commercial to enter into employment agreements
having executed such employment agreements in a form acceptable to CB
Commercial;
(d) a registration statement of CB Commercial filed under the Securities
Act having been declared effective by the Securities Exchange
Commission and not being subject to any stop order or similar
limitation imposed by such Commission which permits any Shareholder
other than a Shareholder who becomes an affiliate of CB Commercial free
marketability of any CBC Shares issued as consideration under the
Offers;
(e) notification being received from the Inland Revenue pursuant to an
application made under Section 138 of the Taxation of Chargeable Gains
Act 1992 that they are satisfied that the exchange of REI Shares for
CBC Shares will be effected for bona fide commercial reasons and will
not form part of any scheme or arrangements as are mentioned in Section
137(1) of the Taxation of Chargeable Gains Act 1992;
(f) notification being received from the Inland Revenue pursuant to an
application made pursuant to Section 707 of the Income and Corporation
Taxes Act 1988 that they are satisfied that the exchange of REI Shares
for CBC Shares is such that no notice under Section 703(3) of the
Income and Corporation Taxes Act 1988 ought to be given in respect of
them;
(g) no non-governmental person having decided to take or institute any
action, proceedings or suit which would or might result in a judicial
determination that the Offers or the acquisition by CB Commercial of
any REI Shares, or of control of REI are void, illegal or unenforceable
or otherwise in violation of contract;
(h) except as notified to CB Commercial in writing by REI prior to the
date hereof no member of the Wider REI Group having, since 31st
December 1997, incurred any indebtedness or contingent liability or
entered into any contract (without the consent of CB Commercial) which
in any such case is outside the ordinary course of business and is not
reflected in the consolidated balance sheet of REI at 31st December
1997 and would have a Material Adverse Effect on the REI Group taken as
a whole;
(i) CB not having discovered that any person who is not a member of the
Wider REI Group (or Richard Ellis Victoria (Pty) Limited as to
Australia only) has the right to use the
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trademark or service mark (registered or unregistered) "Richard Ellis"
in relation to real estate services in the form in which it is
currently used by any member of the Wider REI Group (or in a form
likely to be confused therewith) in any country (other than the UK)
where any member of the Wider REI Group has an office.
CB Commercial reserves the right to waive, in whole or in part, all or any
of conditions (c) and (g) to (i) inclusive. Conditions (d), (e) and (f)
above may only be waived by CB Commercial with the consent of the Board of
REI.
B. Terms of the Offers
The following further terms will, where the context permits, apply to each
of the Offers. Except where the context otherwise requires, references in
this Appendix and in the Forms of Acceptance (and, where relevant, in the
Form of Election and/or Form of Instruction) to the Offers shall include
any extension or revision thereof.
1. Acceptance Period
(a) Except insofar as they may be totally withdrawn and all persons
released from any obligations incurred under them, the Offers will
initially remain open for acceptance by every recipient until 3:30 pm
on 20thMarch 1998.
(b) Subject to sub-paragraph (d) below, CB Commercial may extend the Offers
from time to time by such period as it thinks fit by giving written
notice to the Company c/o Jones, Day, Reavis Pogue, Bucklersbury House,
3 Queen Victoria Street, London EC4N 8NA, such notice to be given
within seven days of the expiry of the Offers, and should it do so CB
Commercial shall send written notice of such extension to Shareholders
at their registered addresses or at any fax number supplied by
Shareholders in the Form of Acceptance.
(c) Although no revision is envisaged, if the Offers are revised they will
remain open for acceptance for a period of at least fourteen days from
the date of posting of written notification of the revision to
Shareholders.
(d) The Offers, whether revised or not, shall not be capable of becoming
unconditional after 3:30 pm on 24th May 1998 nor of being kept open
after that time unless they have previously become unconditional. The
Offers will lapse if they have not become unconditional by 3:30 pm on
24th May 1998.
(e) If the Offers become unconditional, they will remain open for
acceptance until further notice and at least 14 days' notice will be
given prior to the closing of the Offers.
2. Revised Offers
(a) Although no such revision is envisaged, if the Offers (in their
original or any previously revised form) are revised and such revision
does not represent on the date on which such revision is announced (on
such basis as the Board of REI may determine) a diminution in the value
of the Offers as so revised, the benefit of the revised Offers will be
made available to Shareholders who have accepted the Offers in their
original or any previously revised form(s) (hereinafter called
"previous acceptors"). The acceptance by or on behalf of a previous
acceptor of the Offers in their original or any previously revised
form(s) shall, subject as provided in this paragraph, shall be deemed
to be an acceptance of any such revised Offer.
(b) Any acceptance of all or any revised Offers, any revised consideration
and any other election pursuant to any of the foregoing shall be
irrevocable.
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3. Shareholder covenants
By submitting a Form of Acceptance and/or Form of Election each Acceptor
severally and not jointly represents, warrants and covenants as follows:
Warranties
(a) the Acceptor is or will on the Unconditional Date be the registered
holder of and/or the Optionholder in respect of the REI Shares and/or
REI Options set out in that Form of Acceptance and/or Form of Election
respectively, and if the Acceptor is not the beneficial owner, the
Acceptor has set out the name(s) of the beneficial owner(s) in the Form
of Acceptance;
(b) subject to the passing of the Resolution, the Acceptor has the
requisite power and authority to accept the Offers in respect of the
REI Shares set out in that Form of Acceptance and to transfer such
shares to CB Commercial under the Offers free from all charges,
options, liens or encumbrances whatsoever, subject to the Articles of
Association;
(c) the Acceptor has the requisite power and authority to accept the
proposals relating to REI Options as set out in that Form of Election;
(d) the Shareholder is neither the registered nor beneficial owner of any
REI Shares save for any REI Shares arising on the exercise of REI
Options, nor the holder of any REI Options, in either case other than
those set out in that Form of Acceptance and/or Form of Election
respectively;
(e) the Acceptor has not knowingly furnished to CB Commercial in connection
with the Offers, and shall not, prior to the Final Closing Date,
knowingly furnish to CB Commercial in connection with the Offers, any
information which is material in the context of the Offers which to the
Acceptor's knowledge (without any obligation of enquiry) contained or
will contain any untrue statement of a material fact;
A Shareholder's and/or Optionholder's liability for breach of the
Warranties shall be limited to the value of the consideration received by
that Shareholder and/or Optionholder under the Offers.
Exercise of voting rights
(f) when the Resolution is put to the vote at the EGM, he or she will (if
legally permitted to do so) cast, or procure the casting of, all the
votes attaching to the REI Shares set out in that Form of Acceptance in
favour of the Resolution and, if any other resolution is put to a
general meeting with respect to the Offers, shall (if legally permitted
to do so) cast or procure the casting of the votes attaching to such
REI Shares in such manner as is reasonably necessary to enable the
Offers to become wholly unconditional, provided that nothing herein
shall require the Acceptor to vote in favour of a reduction in the
Initial Price to below (pounds)50 million;
(g) unless and until the Offers lapse or are withdrawn, the Acceptor shall
(if legally permitted to do so and unless otherwise agreed by CB
Commercial in its absolute discretion, and other than pursuant hereto)
cast, or procure the casting of, the voting rights attaching to all REI
Shares registered in the Acceptor's name against any resolution which
may be proposed for the winding up of the Company and any resolution to
increase the authorised or issued share capital or reduce the share
capital of the Company or to authorise or empower the Directors of the
Company to allot or issue securities or otherwise to reorganise the
share capital of the Company or to amend the memorandum or articles of
association of the Company, or to waive any provision thereof or to
approve any sale of assets by the Company or to approve any acquisition
by the Company of its own shares or any resolution to approve any
compromise or arrangement under Section 425 of the Companies Act 1985.
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Relationship to the Company; Articles
(h) the Acceptor is not a person who "wishes to transfer" his or her REI
Shares for the purposes of Article 27 of the Articles of Association
and does not, by executing a Form of Acceptance, propose to transfer
any REI Shares other than by acceptance of the Offers in the event that
the Resolution is passed;
Not Frustrate the Offers
(i) unless and until the Offers lapse (or are withdrawn) the Acceptor
will not:
(i) sell or transfer (otherwise than pursuant to the Offers or as
required by the Articles of Association) or otherwise dispose
of or charge all or any of the REI Shares registered in the
Acceptor's name or beneficially owned by him or any interest in
all or any thereof;
(ii) accept any other offer in respect of all or any of such REI
Shares, whether conditionally or unconditionally (by whatever
means the same is to be implemented);
(iii) withdraw his or her acceptance of the Offers;
(iv) enter into any agreement or arrangement with any person,
whether conditionally or unconditionally, or solicit or
encourage any person, to do all or any of the acts referred to
in this paragraph (i); or
(v) provide to any person any confidential information concerning
the Wider REI Group other than in accordance with his or her
duties to a member of the Wider REI Group.
4. General
(a) All communications, notices, certificates, documents of title and
remittances to be delivered by or sent to or from Shareholders will be
delivered by or sent to or from them (or their designated agents) at
their risk.
(b) Acceptance of an Offer will be deemed to constitute a warranty by the
Acceptor that the REI Shares in respect of which the Offer is accepted
are sold by the Acceptor free from all liens, charges and encumbrances
(except as set out in the Articles of Association) and together with
all rights attaching thereto. References in this paragraph 4 to
acceptance shall include a reference to deemed acceptance in accordance
with the terms set out in this Appendix.
(c) The instructions and authorities contained in the Forms of Acceptance
and Form of Election constitute part of the terms of the Offers.
(d) The Offers and all acceptances thereof and elections therefor or
pursuant thereto shall be governed by and construed in accordance with
English Law.
(e) Any omission to despatch this document or the Form of Proxy, Forms of
Acceptance, Form of Election or Form of Instruction to, or any failure
to receive the same by, any person to whom an Offer is made or should
be made shall not invalidate the Offers or any of them in any way.
(f) If the Offers do not become unconditional in all respects, Forms of
Acceptance, Election and Instruction and share certificates, option
certificates and/or other documents of title will be returned by post
within 14 days of the Offers lapsing, save that if an Optionholder has
elected to exercise his/her REI Option(s), the relevant option
certificate(s) and payment will not be returned.
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(g) If acceptances are received in respect of 90 per cent. of any class of
REI Shares, CB Commercial intends to apply the provisions of Sections
428 to 430F of the Companies Act 1985 to acquire compulsorily any
outstanding REI Shares of that class.
(h) CB Commercial reserves the right to treat an acceptance of the Offers
as valid if received by or on its behalf at any place or places
determined by it and/or if such acceptance is not complete and valid in
all respects.
(i) The execution of the relevant Form of Acceptance and/or Form of
Election shall constitute, subject to the Offers becoming unconditional
in all respects, the irrevocable separate appointment of each of CB
Commercial and its directors as the accepting Shareholder's or
Optionholder's attorney and/or agent (the "attorney"), in relation to
the relevant REI Shares and an irrevocable instruction to the attorney
to complete and execute all or any form(s) of transfer and/or other
document(s) at the discretion of the attorney in relation to the
relevant REI Shares in favour of CB Commercial or such other person or
persons as CB Commercial may direct and to deliver such form(s) of
transfer and/or other document(s) at the discretion of the attorney
together with any share certificate(s) and/or other document(s) of
title relating to such REI Shares for registration within six months of
the Offers becoming unconditional in all respects and to do all such
other acts and things as may in the opinion of the attorney be
necessary or expedient for the purposes of, or in connection with, the
acceptance of the Offers and to vest in CB Commercial or its nominee(s)
the REI Shares as aforesaid.
(j) After the Offers become unconditional in all respects, CB Commercial
shall be entitled to exercise any votes attaching to any REI Shares in
respect of which an Offer has been accepted or deemed to be accepted
and any other rights and privileges attaching to REI Shares, including
the right to requisition a general meeting of REI, and, subject to the
Offers becoming unconditional, execution of a Form of Acceptance will
constitute an authority and request to REI from the relevant
Shareholder to send any notice which may be required to be sent to him
as a member of REI to CB Commercial at its registered office, and an
authority to CB Commercial to sign any consent to short notice of a
general meeting or separate class meeting on his/her behalf of him
and/or to execute a form of proxy in respect of such shares appointing
any person determined by CB Commercial to attend general meetings of
REI or its members or any of them and to exercise the votes attaching
to such shares on his behalf. Such Shareholder, by executing a Form of
Acceptance, irrevocably undertakes not to execute a proxy for any such
general meeting or to attend thereat, once the authority above has come
into effect. This appointment shall be irrevocable and applies only to
REI Shares assented to the Offers.
(k) References in this Appendix to persons in the singular shall include
the plural and vice versa and to the masculine shall include the
feminine and the neuter.
5. Overseas shareholders
(a) General
The making of the Offers in or to, and the availability of CBC Shares
and Loan Notes to persons resident in or citizens of, jurisdictions
outside the UK ("overseas shareholders") may be affected by the laws
of the relevant jurisdictions. Such overseas shareholders should
inform themselves about and observe any applicable legal requirements.
It is the responsibility of any overseas shareholder wishing to accept
the Offers to satisfy himself or herself as to the full observance of
the laws of the relevant jurisdiction in connection therewith,
including the obtaining of any governmental or exchange control or
other consents which may be required, the compliance with other
necessary formalities needing to be observed and the payment of any
issue, transfer or other taxes or duties payable by such Shareholder
in such jurisdiction.
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(b) Canada
The CBC Shares issued to Shareholders resident in British Columbia,
Canada pursuant to the Offers shall be subject to resale restrictions.
CB Commercial will apply to the British Columbia Securities Commission
for an order to remove such resale restrictions. It should be noted
that although it is likely that the application for an order to remove
the resale restrictions will be successful, the order is
discretionary.
The CBC Shares issued to residents of Ontario are subject to resale
restrictions but may be sold through a Canadian registered dealer on
the New York Stock Exchange. The CBC Shares issued to residents of
British Columbia are subject to resale restrictions. An application
will be made to the British Columbia Securities Commission for a
discretionary order to permit such CBC Shares to be freely traded on
the New York Stock Exchange. There can be no assurance that such order
will be forthcoming or on what conditions the order may be made
available.
(c) Australia
The Loan Note Alternative is not available to Shareholders resident in
Australia. The attention of Shareholders is drawn to paragraph 15 of
Appendix VI to this document which relates, inter alia, to offer and
resale of the Loan Notes in Australia.
(d) Japan
The Loan Note Atternative is not available to Shareholders resident in
Japan.
(e) Belgium
Notwithstanding what is said in this document, Shareholders resident
in Belgium may not pass this document or accompanying forms to any
person who may have acquired REI Shares from such Shareholders.
6. Date of Offers
The Offers are made on 7th February 1998 and are capable of acceptance from
and after that date until the Final Closing Date. The proposals regarding
REI Options are made at 7th February 1998 and are capable of acceptance from
and after that date until such date (being not earlier than 3:30pm on 20th
March 1998) as CB Commercial may decide.
7. Choice of Law, Jurisdiction and Service of Process
The Offers and all acceptances thereof shall be governed by and interpreted
in accordance with English law. Each Acceptor submits to the jurisdiction of
the High Court of Justice in England but the obligations of Acceptors may be
enforced in any court of competent jurisdiction. Each Acceptor who is not
resident in the United Kingdom irrevocably authorises and appoints Elizabeth
Thetford of REI Limited, Berkeley Square House, Berkeley Square, London
W1X6AN to accept service of all legal process arising out of or connected
with the Offers and service on such person shall be deemed to be service on
the Acceptor.
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APPENDIX IV
DETAILS OF REI SHARE PLAN AND REI SHARE OPTION SCHEMES
1. REI Share Plan
The principal features of the REI Share Plan, the terms of which are set
out in full in its rules, are as follows:
(a) The REI Share Plan is not approved by the Inland Revenue under the
provisions of the Income and Corporation Taxes Act 1988.
(b) The REI Share Plan is administered by a committee appointed by the
Directors of REI (the "Committee").
(c) The REI Share Plan is available to employees of the Company, any of its
subsidiaries and certain Minority Companies (as defined in the trust
deed establishing the ESOP). 1,500,000 REI Shares are available for
allocation, of which not more that 75,000 are available to employees of
REI and employees working in REI's corporate real estate group and the
remainder of which are available to employees at other offices of the
Wider REI Group or such Minority Companies nominated by the Committee
("Participating Offices"). Allocation is based on the aggregate of the
gross profit for the year ended 31st December 1996 and the anticipated
gross profit for the year ending 31st December 1997, as well as the
value of REI's interest in the relevant office, calculated by reference
to the anticipated net profit of that office for the year ending 31st
December 1997, subject to the absolute discretion of the Directors of
REI or the Committee. The Directors of REI or the Committee may, in
their absolute discretion, allocate REI Shares to Participating Offices
in order to take account of particular or unusual circumstances which
when applying the allocation criteria described above affects the
number of REI Shares allocated to a Participating Office. In addition
the Committee is entitled to allocate further REI Shares to
Participating Offices if it becomes aware of facts which would have
increased their original allocation. The Directors of REI or the
Committee shall determine which employees in each REI office may
participate in the 1997 Scheme and the Committee will determine the
terms of an award of REI Shares, subject to consistency with the aims
of the 1997 Scheme.
(d) An employee who is offered and accepts REI Shares under the REI Share
Plan (a "participant") must enter into an Award Agreement (as defined
in the REI Share Plan) which sets out the terms of the award of REI
Shares and the basis upon which the participant holds such REI Shares.
A participant may elect to have the REI Shares allocated to him held by
the ESOP Trustee on his behalf (Options B and C below) or by himself
directly (Option A below).
(i) Option A -- REI Shares are issued as B Shares to the participant
who must enter into an Article 6.7 Agreement (as defined in the
Articles of Association). The Article 6.7 Agreement provides that
if the participant ceases to be connected with the Group (within
the meaning of Articles 27.11.1(a) or (b) of the Articles of
Association) other than by reason of death, disability or dismissal
without just cause ("cessation of the participant's employment"),
his REI Shares shall be offered for sale at Fair Value (as defined
in the Articles of Association) modified as set out below:
(a) before the first anniversary of the participant's allocation of
REI Shares, Fair Value shall be reduced to nil;
(b) on or after the first anniversary, but before the second
anniversary, Fair Value shall be reduced to 33.33 per cent.
thereof; and
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(c) on or after the second anniversary, but before the third
anniversary, Fair Value shall be reduced to 66.66 per cent.
thereof.
In exceptional circumstances the Committee may amend the Article 6.7
Agreement and take such other action as is necessary so that the
participant is placed in the position he would have been in if his REI
Shares were held on his behalf by the ESOP Trustee.
(ii) Options B and C -- REI Shares are issued as A Shares and held by
the ESOP Trustee on behalf of the participant. Subject to cessation
of the participant's employment not having occurred, one-third of
such REI Shares will vest on each of the first three anniversaries
of the allocation. Save as set out below, in the event of cessation
of the participant's employment, REI Shares previously vested will
be distributed to him free of charge while the balance of the
allocation of REI Shares not previously vested will be forfeited;
provided that the ESOP Trustee may, with the consent of the
Committee, pay the participant the cash equivalent of the Fair
Value of the REI Shares instead of distributing such REI Shares. In
the event that the participant ceases to be employed by the REI
Group as a result of disability, death or dismissal without just
cause at any time all the REI Shares allocated to him (whether
vested or not) or, as indicated above, the Fair Value thereof will
be distributed to him. If the participant is dismissed by reason of
dishonesty as a result of being convicted of a criminal offence,
all of his rights under the 1997 Scheme will be forfeited,
including rights to REI Shares which are already vested but have
not been distributed.
Under Option C, but not Option B, the participant can require the
relevant number of REI Shares to be transferred to him on each of
the three anniversaries of the allocation.
In exceptional circumstances the ESOP Trustee may, with the consent
of the Committee, distribute REI Shares allocated to a participant
and may accelerate the vesting of such REI Shares.
Prior to a distribution of REI Shares comprised in an allocation,
the participant will be entitled to receive dividends and exercise
voting rights in respect of all allocated REI Shares (including
those which have not yet vested), as well as the right to accept or
reject any offer made to the ESOP Trustee in respect of such REI
Shares.
(e) By a resolution of the Committee adopted on 8th December 1997, the
Committee approved (and recommended that the ESOP Trustee agree), that
upon an offer being made by CB Commercial for REI Shares, the three
relevant dates upon which the modification of Fair Value (as set out in
Option A) or the vesting of REI Shares (as set out in Options B and C)
occurs would be accelerated to, respectively, the date the offer
becomes unconditional (or such earlier date as the Committee may
approve), 1st January 1999 and 1st January 2000.
(f) Each Award Agreement will set out whether the relevant REI Shares will
be subscribed for out of funds provided by the participant, REI or the
participant's employer and may not be assigned, transferred, pledged,
encumbered or otherwise disposed of by the participant.
(g) Subject to certain requirements, the Committee can establish, amend or
waive rules and regulations for its administration, supplement or amend
an Award Agreement and terminate, suspend, amend or alter the REI Share
Plan, but no action shall be taken which may impair or adversely affect
the rights of an employee or participant without the employee's or
participant's consent.
(h) In the event of a change of control (as defined in the REI Share Plan)
the ESOP Trustee shall (subject to a participant's right to instruct
the ESOP Trustee to accept or reject the Offers) take such action as it
sees fit after consulting the Committee and the participants.
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2. ESOP
The principal features of the ESOP, the terms of which are set out in full
in the deed of trust dated 10th April 1995 between (1) REI and (2) the ESOP
Trustee, are as follows:
(a) The ESOP is available to, inter alia, bona fide employees from time to
time of REI and any subsidiary and dependants of such employees ("A
Beneficiaries") and bona fide employees from time to time of certain
companies designated as "Minority Companies" by REI along with the
dependants of such employees and any other person who is a partner,
director, shareholder or employee of any member of the REI Group and who
is nominated by the Directors of REI ("B Beneficiaries") (together the
"Beneficiaries").
(b) The trust established by the ESOP is separated into two parts, the A
Fund held for the benefit of A Beneficiaries, and the B Fund held for
all the Beneficiaries. The ESOP shall expire 80 years from 10th April
1995 or such earlier date as the ESOP Trustee (with REI's consent)
elects.
(c) REI covenants with the ESOP Trustee to pay or procure the payment to the
ESOP Trustee of such amounts as are required to subscribe for or
purchase REI Shares, and the ESOP Trustee shall not subscribe for or
purchase REI Shares without the consent of REI. REI Shares acquired by
the ESOP Trustee shall, in the absolute discretion of the ESOP Trustee,
be applied in or towards the satisfaction of any options, awards or
other authorised transfers under any employee share schemes operated by
REI or other authorised transfers or arrangements providing for the
transfer or issue of REI Shares to the Beneficiaries.
(d) REI will pay any expenses incurred in respect of the A Fund and will
procure that the Minority Companies will pay any expenses incurred in
respect of the B Fund.
(e) REI has the power to appoint additional trustees and to remove existing
trustees. Any trustee which is a trust corporation or company may be
entitled to remuneration for its services in addition to reimbursement
of its proper expenses .
(f) Subject to certain limitations, the ESOP Trustee may at any time (with
the consent of REI) alter the terms of the trust deed.
3. THE REI UK SHARE OPTION SCHEME ("THE FIRST 1988 SCHEME")
The principal features of the First 1988 Scheme, the terms of which are set
out in full in its rules, are as follows:
(a) The First 1988 Scheme has been approved by the Inland Revenue under the
provisions of the Income and Corporation Taxes Act 1988.
(b) The First 1988 Scheme is administered by the Board of REI.
(c) The First 1988 Scheme is available to any employee of the Group (as
defined in the rules of First 1988 Scheme) ("Group") who is not
precluded from participating in the First 1988 Scheme by paragraph 8 of
Schedule 9 of the Income and Corporation Taxes Act 1988, and who is
required to devote to his duties substantially the whole of his working
time and not less than 20 (or in the case of an employee who is a
director of any such company, 25) hours per week.
(d) The Directors of REI may, in their discretion, invite qualifying
employees to apply for options provided that no employee shall be
entitled as of right to participate in the First 1988 Scheme.
Invitations shall be issued on such terms as the Directors of REI
determine provided that the subscription price shall be not less than
the greater of the nominal value and the market value, on the date of
grant, of an REI Share. Currently, invitations may only be issued once
in each calendar year and at each annual general meeting of REI the
Directors will announce their policy regarding the granting of options
for the ensuing year.
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No employee shall be invited to apply for an option if his normal
retirement date would occur within three years of the invitation.
(e) Each option is personal to the option holder and is not capable of
assignment. Any purported assignment, charge, disposal or dealing with
the rights and interests of the option holder under the First 1988
Scheme will render the option void.
(f) The First 1988 Scheme is subject to the following limits:
(i) No option may be granted which, at the date of grant, would result
in the aggregate number of REI Shares issued and remaining issuable
under the First 1988 Scheme exceeding 3 per cent. of the total
number of REI Shares in issue on the day preceding the date of
grant.
(ii) No option may be granted which, at the date of grant, would result
in the aggregate number of REI Shares issued and remaining issuable
in respect of all rights granted under the First 1988 Scheme and all
other schemes for employees of the Group, either at the date of
grant or within the previous 10 years, exceeding 10 per cent. of the
total number of REI Shares in issue on the date preceding the day of
grant.
(iii) No option may be granted under the First 1988 Scheme more than 10
years after its adoption by the Company.
(iv) The maximum number of REI Shares over which any one employee may be
granted options, when added to the aggregate subscription price of
REI Shares granted to him under the First 1993 Scheme or any other
share option scheme, shall not exceed the greater of (pounds)100,000
or four times that employee's remuneration (including commission or
bonus).
(g) An option shall lapse, inter alia, on the earliest of 10 years from the
date of its grant; the making of an interim order under the Insolvency
Act 1986 or a bankruptcy order in respect of the option holder; the date
of commencement of the winding-up of REI other than for the purposes of
a reorganisation or reconstruction; following the expiry of the period
during which an acquiring company (see below) is bound or entitled to
acquire REI Shares under Sections 428 to 430 of the Companies Act 1985;
or in the event the option holder ceases to be an employee of any member
of the REI Group for any reason whatsoever (including death).
(h) Subject to certain exceptions, an option may be exercised, in whole or
in part, between the third anniversary and the day preceding the tenth
anniversary of the date the option was granted by the option holder
giving written notice to REI. Any partial exercise shall be for not less
than 50 REI Shares. REI Shares allotted on the exercise of an option
shall rank pari passu with other REI Shares, save that they will not
rank for any dividend or distribution made by reference to a record date
prior to the date of exercise.
(i) In the event of any reorganisation of REI's ordinary share capital, the
directors of REI may make such adjustment as they consider appropriate
to the number of REI Shares in respect of which options may be granted,
the number of REI Shares subject to an option and the subscription price
subject to, inter alia, the aggregate subscription price not being
materially altered and the auditors of REI confirming, in their opinion,
such adjustment is fair and reasonable.
(j) In the event (i) a person (the "acquiring company") obtains control of
REI as a result of making an offer to acquire the whole of the issued
share capital of REI; (ii) the courts sanction a compromise or
arrangement in respect of a scheme for the reconstruction of REI under
Section 425 of the Companies Act 1985; or (iii) an acquiring company is
bound or entitled to acquire REI Shares under Sections 428 to 430 of the
Companies Act 1986, REI shall notify the option holders in writing as
soon as reasonably practical and any subsisting
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options may be exercised, in the event of (i) or (ii), within six months
from the time the acquiring company obtains control of REI or the court
sanctions such compromise or arrangement or, in the event of (iii),
during the greater of six months and the period the acquiring company is
so entitled to acquire REI Shares. Alternatively, during such periods
the option holder may, with the consent of the acquiring company,
release to it his subsisting options in consideration of the grant to
him of new options over shares in the acquiring company subject to,
inter alia, such new option conferring a right to new shares of an equal
market value to the REI Shares the subject of his option and to such new
shares satisfying the conditions specified in paragraphs 10 to 14
(inclusive) of Schedule 9 of the Income and Corporation Taxes Act 1988.
In any event unexercised options shall lapse on the expiry of the
periods referred to above.
(k) No amendment may be made to the First 1988 Scheme which will alter, to
the disadvantage of an option holder, any rights already acquired by him
under the First 1988 Scheme except with his prior written consent.
Furthermore, no amendments shall be made without the prior consent of
the Inland Revenue. The First 1988 Scheme may be terminated at any time
by a resolution of the Directors of REI or by an ordinary resolution of
REI, save that no termination shall affect the outstanding rights of any
option holders.
(l) Additional rules apply in the event that REI Shares are admitted to the
Daily Official List of The London Stock Exchange Limited.
4. THE REI (NO.2) SHARE OPTION SCHEME ("THE SECOND 1988 SCHEME")
The principal features of the Second 1988 Scheme, the terms of which are
set out in full in its rules, are as follows:
(a) The Second 1988 Scheme is not approved by the Inland Revenue under the
provisions of the Income and Corporation Taxes Act 1988.
(b) The Second 1988 Scheme is administered by the Board of REI.
(c) The Second 1988 Scheme is available to any employee of a company,
partnership or trust within the Group who is required to devote to his
duties substantially the whole of his working time and not less than 20
(or, in the case of an employee who is a director of any such company,
25) hours per week.
(d) The Directors of REI may, in their discretion, invite qualifying
employees to apply for options provided that no employee shall be
entitled as of right to participate in the Second 1988 Scheme.
Invitations shall be issued on such terms as the Directors of REI
determine provided that the subscription price shall be not less than
the greater of the nominal value and the market value, on the date of
grant, of an REI Share. Currently, invitations may only be issued once
in each calendar year and at each annual general meeting of REI the
Directors will announce their policy regarding the granting of options
for the ensuing year. No employee shall be invited to apply for an
option if his normal retirement date would occur within three years of
the invitation.
(e) Each option is personal to the option holder and is not capable of
assignment. Any purported assignment, charge, disposal or dealing with
the rights and interests of the option holder under the Second 1988
Scheme will render the option void.
(f) The Second 1988 Scheme is subject to the following limits:
(i) No option may be granted which, at the date of grant, would result
in the aggregate number of REI Shares issued and remaining issuable
under the Second 1988 Scheme exceeding 7 per cent. of the total
number of REI Shares in issue on the day preceding the date of
grant.
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(ii) No option may be granted which, at the date of grant, would result
in the aggregate number of REI Shares issued and remaining issuable
in respect of all rights granted under the Second 1988 Scheme and
all other schemes for employees of the Group, either at the date of
grant or within the previous 10 years, exceeding 10 per cent. of
the total number of REI Shares in issue on the date preceding the
day of grant.
(iii) No option may be granted under the Second 1988 Scheme more than 10
years after its adoption by the Company.
(g) An option shall lapse, inter alia, on the earliest of 10 years from the
date of its grant; the making of an interim order under the Insolvency
Act 1986 or a bankruptcy order in respect of the option holder; the
date of commencement of the winding up of REI other than for the
purposes of a reorganisation or reconstruction; following the expiry of
the period during which an acquiring company (see below) is bound or
entitled to acquire REI Shares under Sections 428 to 430 of the
Companies Act 1985; or in the event the option holder ceases to be an
employee of any member of the REI Group for any reason whatsoever
(including death).
(h) Subject to certain exceptions, an option may be exercised, in whole or
in part, between the third anniversary and day preceding the tenth
anniversary of the date the option was granted by the option holder
giving written notice to REI. Any partial exercise shall be for not
less than 50 REI Shares. REI Shares allotted on the exercise of an
option shall rank pari passu with other REI Shares, save that they will
not rank for any dividend or distribution made by reference to a record
date prior to the date of exercise.
(i) In the event of any reorganisation of REI's ordinary share capital, the
Directors of REI may make such adjustment as they consider appropriate
to the number of REI Shares in respect of which options may be granted,
the number of REI Shares subject to an option and the subscription
price subject to, inter alia, the aggregate subscription price not
being materially altered and the auditors of REI confirming, in their
opinion, such adjustment is fair and reasonable.
(j) In the event (i) a person (the "acquiring company") obtains control of
REI as a result of making an offer to acquire the whole of the issued
share capital of REI; (ii) the courts sanction a compromise or
arrangement in respect of a scheme for the reconstruction of REI under
Section 425 of the Companies Act 1985; or (iii) an acquiring company is
bound or entitled to acquire REI Shares under Sections 428 to 430 of
the Companies Act 1986, REI shall notify the option holders in writing
as soon as reasonably practical and any subsisting options may be
exercised, in the event of (i) or (ii), within six months from the time
the acquiring company obtains control of REI or the court sanctions
such compromise or arrangement or, in the event of (iii), during the
greater of six months and the period the acquiring company is so
entitled to acquire REI Shares. Alternatively, during such periods the
option holder may, with the consent of the acquiring company, release
to it his subsisting options in consideration of the grant to him of
new options over shares in the acquiring company subject to, inter
alia, such new option conferring a right to new shares of an equal
market value to the REI Shares the subject of his option. In any event
unexercised options shall lapse on the expiry of the periods referred
to above.
(k) No amendment may be made to the Second 1988 Scheme which will alter to
the disadvantage of an option holder, any rights already acquired by
him under the Second 1988 Scheme except with his prior written consent.
The Second 1988 Scheme may be terminated at any time by a resolution of
the Directors of REI or by an ordinary resolution of REI, save that no
termination shall affect the outstanding rights of any option holders.
(l) Additional rules apply in the event that REI Shares are admitted to the
Daily Official List of The London Stock Exchange Limited.
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5. THE 1993 EXECUTIVE SHARE OPTION SCHEME ("1993 SCHEME")
The principal features of the 1993 Scheme, the terms of which are set out
in full in its rules, are as follows:
(a) The 1993 Scheme is not approved by the Inland Revenue under the
provisions of the Income and Corporation Taxes Act 1988.
(b) The 1993 Scheme shall be administered by the Directors of REI.
(c) The 1993 Scheme is available to any employee (including an executive
director) employed by any company, partnership or trust within the
group (as defined in the rules of the 1993 Scheme). The Directors of
REI may, in their absolute discretion, grant options free of charge to
such employees to acquire, at the greater of the nominal value and 90
per cent. of the market value of an REI Share on the date of grant,
such number of REI Shares as the Directors of REI determine.
Furthermore, the Directors of REI may make the exercise of an option
dependent on objective conditions based on the financial performance of
REI or some part of the group within which that participant worked in
respect of the 1993, 1994 and 1995 financial years of REI (a
"performance test").
(d) Options cannot be assigned by the option holder and any purported
assignment, transfer, charge, disposal or dealing with the right and
interests of the participant under the 1993 Scheme will cause the
option to lapse. Options may not be dealt with on any market.
(e) Options may normally be exercised within the two year period commencing
1st May 1996, subject to any performance test being satisfied and upon
the participant giving REI an appropriate exercise notice. All
subsisting options shall, inter alia, lapse on 30th April 1998 or if
the participant ceases to be employed within the group for any reason.
Any partial exercise shall be for not less than 500 REI Shares.
(f) Any option granted to a participant will be limited so that the total
market value of REI Shares comprised in that option, when added to the
aggregate of option prices in respect of all options granted within the
previous 10 years of the date of grant of that option (excluding
options surrendered with the prior written approval of the directors of
REI), shall not exceed four times his remuneration (including any
commission or bonus but excluding benefits in kind) at the date of
grant.
(g) The 1993 Scheme shall terminate 10 years after the date of its adoption
or on such earlier date as the Directors of REI determine.
(h) No options shall be granted under the 1993 Scheme which at the date of
grant would result in the number of REI Shares issued and remaining
issuable under the 1993 Scheme exceeding the aggregate of 380,000 REI
Shares and such number of REI Shares which cease to be issuable under
the First 1988 Scheme and the Second 1988 Scheme following the
surrender of options granted in September 1990 under such schemes.
(i) In the event (i) a person (the "acquiring company") obtains control of
REI as a result of making an offer to acquire the whole of the issued
share capital of REI; (ii) the courts sanction a compromise or
arrangement in respect of a scheme for the reconstruction of REI under
Section 425 of the Companies Act 1985; or (iii) an acquiring company is
bound or entitled to acquire REI Shares under Sections 428 to 430F of
the Companies Act 1985, REI shall notify the option holders in writing
as soon as reasonably practical and, if the Directors of REI consent
and, if appropriate, waive the performance test, any subsisting options
may be exercised, in the event of (i), within the lesser of six months
from the date the acquiring company obtains control of REI and the
period an acquiring company is bound or entitled to acquire REI Shares
under the aforementioned Sections 428 to 430F; in the event of (ii),
between the date the courts sanction such compromise or arrangement and
the record date in relation thereto or within six months of the courts
sanctioning such
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compromise or arrangement (if this period expires earlier); or, in the
event of (iii), during the period the acquiring company is so entitled
to acquire REI Shares. Alternatively, during such periods the option
holder may, by agreement with the acquiring company, release to it his
subsisting options in consideration of the grant to him of new options
over shares in the acquiring company, subject to, inter alia, such new
options conferring a right to new shares of an equal market value to
the REI Shares the subject of his option. In the event any options are
not exercised or released during the periods set out above they will
lapse at the expiry of such periods.
(j) In the event that the share capital of REI is varied, the number of REI
Shares subject to the option and/or the option price shall be adjusted
in such manner as the auditors of REI advise in writing to be in their
opinion, fair and reasonable provided that, inter alia, the aggregate
option price shall not be materially altered.
(k) Subject to certain conditions, the Directors of REI have the power to
make or vary regulations to the administration and operation of the
1993 Scheme and may, from time to time in their absolute discretion
waive or amend any of the rules; provided that certain alterations
require approval by special resolution of the shareholders of REI. Any
waiver, amendment or introduction of new rules which adversely affects
a participant requires his prior written consent.
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APPENDIX V
DETAILS OF CB COMMERCIAL SHARE OPTION SCHEMES AND INCENTIVE SCHEMES
REI Acquisition Stock Option Plan
At total of 500,000 CBC Shares have been reserved for issuance under the REI
Acquisition Stock Option Plan, which was adopted by the CB Commercial Board of
Directors in November 1997 in connection with its approval in principle of the
Offers. Options under the plan are granted by the Compensation Committee of CB
Commercial's Board of Directors. Options vest as to one third after three years,
two thirds after four years and completely after five years. If an
optionholder's employment terminates for any reason he/she will forfeit any
unvested shares.
Omnibus Stock and Incentive Plan
CB Commercial's omnibus stock and incentive plan (the "Omnibus Plan") is a
restricted stock plan which provides for the issuance of CBC Shares subject to
vesting provisions. No CBC Shares remain available for issuance under the
Omnibus Plan, but additional CBC Shares will become available if forfeited by
any of their current holders.
1990 Stock Option Plan
One million CBC Shares have been reserved for issuance pursuant to options
granted under CB Commercial's 1990 stock plan (the "Stock Option Plan"). These
options vest over one to five years. Options are granted with an exercise price
equal to fair market value on the date of grant. At 31stDecember 1997 no CBC
Shares remained available under this Plan. If options are forfeited, the
underlying CBC Shares again become available for grant under the Stock Option
Plan.
1991 Service Providers Stock Option Plan
A total of 600,000 CBC Shares have been reserved for issuance under CB
Commercial's 1991 service providers stock option plan (the "Service Providers
Plan"). The plan permits grants at the fair market value of the underlying CBC
Shares on the date of grant or at below fair market value where the optionee
gives up cash compensation equal to the difference between fair market value and
the reduced option price. In 1993, 5,922 below-market options were granted to
certain Directors of CB Commercial in partial payment of director fees. During
1996 and 1995 options to purchase 467 and 4,106 CBC Shares, respectively, were
exercised. During 1997, options to purchase 320,000 CBC Shares were granted. As
of 31st December 1997, options to purchase 383,853 CBC Shares were outstanding.
1997 Employee Stock Option Plan
In August 1997 the shareholders of CB Commercial approved a stock option plan
which provides for the issuance of 700,000 CBC Shares at fair market value.
Vesting under this plan is as determined by the Compensation Committee of the CB
Commercial Board of Directors. At 31st December 1997 options covering a total of
509,500 CBC Shares had been granted under this plan.
1997 Employee Stock Purchase Plan
In August 1997 the shareholders of CB Commercial approved a stock purchase plan
which allows all employees of CB Commercial to purchase CBC Shares through
payroll withholding. This plan will operate over one year periods commencing 1st
July 1998. Employees elect at the beginning of each period to have a percentage
of their compensation (not exceeding US$25,000) applied to purchase CBC Shares
at a price equal to the lesser of the fair market value of the stock on the
first day of the one year period and its fair market value on the last day of
such period. An employee is always fully vested under this plan. The maximum
number of CBC Shares which can be purchased under this plan in any year is
150,000.
1996 Equity Incentive Plan
In November 1995 the CB Commercial Board of Directors authorised, and in January
1996 the Compensation Committee of the Board adopted, a restricted stock
purchase plan (the "Equity Incentive
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Plan") for the purpose of retaining selected executives by offering them an
opportunity to acquire a proprietary interest, or to increase such interest, in
the success of CB Commercial by purchasing CBC Shares. A total of 550,000 CBC
Shares have been reserved for issuance under the Equity Incentive Plan. In
January 1996, the Compensation Committee awarded ten senior executives a total
of approximately 540,000 CBC Shares under the Equity Incentive Plan, subject to
the authority of the Chief Executive Officer to reduce any grants. After
reductions, a total of 510,906 CBC Shares were purchased. At 31st December 1997,
549,906 CBC Shares were outstanding under this plan. Under this plan CBC Shares
may be issued to senior executives for a purchase price equal to the greater of
US$10.00 per share or fair market value. The purchase price for CBC Shares under
this plan must be paid either in cash or by delivery of a full recourse
promissory note. Any CBC Shares purchased vest at the rate of 5 per cent. per
quarter.
Bonuses
CB Commercial has bonus programs covering certain employees, including senior
management. Awards are based on the position and performance of the employee and
the achievement of pre-established financial, operating and strategic
objectives. Although bonuses are generally paid in cash, CB Commercial retains
the discretion to pay any bonus in CBC Shares.
Capital Accumulation Plan
CB Commercial's capital accumulation plan (the "Cap Plan") is a defined
contribution profit sharing plan under Section 410(k) of the United States
Internal Revenue Code and is CB Commercial's only such plan. Under the Cap Plan,
each participating employee may elect to defer a portion of his or her earnings
and CB Commercial may make additional contributions from CB Commercial's current
or accumulated net profits to the Cap Plan in such amounts as determined by the
CB Commercial Board of Directors. During each year that the Cap Plan has been in
existence (except 1991), CB Commercial has made an additional contribution of
stock having a fair market value equal to 2 per cent. of CB Commercial's
operating income for the year for which such contribution was made. Each such
contribution has been allocated among the participating employees in proportion
to their respective contributions to the Cap Plan during the year for which such
contribution was made. At 31st December 1997, the Cap Plan held 2,271,438 CBC
Shares.
Deferred Compensation Plan
In 1993, CB Commercial's Board of Directors approved the adoption and
implementation of a deferred compensation plan (the "DCP") effective 1st January
1994. Under the DCP, a select group of management and highly-compensated
employees are permitted to defer the payment of all or a portion of their
compensation (including any bonus). The DCP permits participating employees to
make an irrevocable election at the beginning of each year to receive amounts
deferred at a future date either in cash, which accrues at a rate of interest
determined in accordance with the DCP, or in newly-issued CBC Shares. The
accumulated deferrals as of 31st December 1997 are approximately US$6,703,920
million in cash (including interest) and 423,913 million CBC Shares.
L.J. Melody Stock Option Acquisition Plan
A total of 90,750 Class B-2 CBC Shares have been reserved for issuance under the
L.J. Melody Acquisition Stock Option Plan, which was adopted by the CB
Commercial Board of Directors in September 1996. Options for all of such CBC
Shares have been issued at an exercise price of US$10.00 per share and vest over
a period of five years at the rate of 5 per cent. per quarter. Options for
90,750 were outstanding as at 31st December 1997.
Koll Stock Option Acquisition Plan
As part of its acquisition of Koll Real Estate Services in August 1997 CB
Commercial adopted and its shareholders approved a stock option plan covering
550,000 CBC Shares. Of these shares, 300,000 were granted at fair market value
(US$22.75 per share) on the date of grant and 250,000 were granted at 150 per
cent. of fair market value (US$36.75 per share) on the date of grant. The CBC
Shares granted at fair market value vest one-third after three years, two-thirds
after four years and 100 per cent. after
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five years. The CBC Shares granted at 150 per cent. of fair market value were
fully vested on the date of grant.
As part of the Koll acquisition, CB Commercial issued options to purchase
407,087 CBC Shares to replace existing Koll options.
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APPENDIX VI
INFORMATION ON LOAN NOTES
The Loan Notes will be constituted by the Loan Note Instrument, to be executed
as a deed by CB Commercial. The issue of Loan Notes is subject to the Offers
becoming or being declared unconditional in all respects. The Loan Note
Alternative will not be available to Shareholders resident in Australia. The
Loan Note Instrument will contain provisions, inter alia, to the effect set out
below.
FORM, STATUS AND GUARANTEE
1.1 The Loan Notes will be issued by CB Commercial in amounts and integral
multiples of (pounds)1 in nominal amount and will constitute unsecured
obligations of CB Commercial. The Loan Note Instrument will not contain any
restrictions on borrowing, disposals or charging of assets by CB
Commercial.
1.2 The payment of principal and interest under the Loan Notes will be
unconditionally guaranteed by Bank of America.
LOAN NOTE CURRENCY
2.1 If at any time the Bank of England (or other competent monetary authority
of the United Kingdom or competent organ of H.M. Government of the United
Kingdom) recognises a currency other than sterling as the lawful currency
of the United Kingdom for all or substantially all purposes CB Commercial
may (and, if sterling ceases to be recognised as the lawful currency of the
United Kingdom for all or substantially all purposes, shall) within 14 days
following such recognition, elect that all payment obligations arising
under the Loan Notes shall be denominated and/or constituted in that other
currency. If there is more than one lawful currency then CB Commercial may
select one or other of those currencies as the loan note currency. The
applicable currency from time to time is referred to as the "Loan Note
Currency" in this Appendix VI.
2.2 All amounts and obligations previously denominated and/or constituted in
sterling shall, if sterling is replaced as the Loan Note Currency, be
translated into the other relevant currency at the exchange rate applied or
recognised by the United Kingdom authority or organ granting recognition of
the other currency for the purpose of such translation on the date on which
it granted recognition of the other currency or, if later, on any date
selected by CB Commercial (being a date not later than that on which it
makes an election for a new Loan Note Currency).
2.3 If no rate for translation is available in accordance with paragraph 2.2
above, the rate to be applied shall be determined by CB Commercial on the
basis of the arithmetic mean (rounded down if necessary to 4 decimal
places) of quotations for such rate by at least three (or such lesser
number, being not less than two, as may be obtainable on the date for
determination of the rate) leading banks authorised to carry on banking
business in the United Kingdom.
2.4 If no rate for translation is obtainable as described in paragraphs 2.2 and
2.3 above, then the appropriate rate shall be determined by CB Commercial
after consultation with a leading US or European investment bank authorised
to carry on business in the United Kingdom.
2.5 With effect from the date of CB Commercial's election as described in
paragraph 2.1 above, all obligations in respect of the Loan Notes which are
denominated or constituted in sterling and each reference to a sterling
amount in any provision of the Loan Notes or in any of the conditions to
the Loan Note Instrument shall operate as a reference to the other Loan
Note Currency selected by CB Commercial.
INTEREST
3. Interest on the Loan Notes will be payable (subject to any requirement to
deduct tax therefrom) in arrear on 30th June and 31st December in each year
or, if such a day is not a business day, on
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the next following business day (each an "interest payment date") except
that the first payment of interest on the Loan Notes will be made on 30th
June 1998 in respect of the period from (and including) the date of issue up
to (and including) 30th June 1998. The period from (and including) the date
of issue up to (and including) the day immediately before 30th June 1998 and
the period from (and including) 30th June 1998 or any subsequent interest
payment date up to (and including) the day immediately before the next
following interest payment date is referred to as an "interest period".
4. (a) The rate of interest on the Loan Notes for each interest period will be
the rate per annum which is one hundred and fifty basis points (1.5 per
cent.) below the rate which appears on the display designated as the
British Bankers Association's Interest Settlement Rate as quoted on the
relevant page of the Bloomberg Financial Markets monitor on the first
day of that interest period, or if that day is not a business day, on
the preceding business day, as being the interest rate offered in the
London Inter-Bank Market as at 11:00 am (London time) or as soon as
practicable thereafter for six month deposits of sterling or of the
currency which is, at the time of the display, the Loan Note Currency.
(b) If the rate of interest on the Loan Notes cannot be established as
described in paragraph 4(a) above for any interest period then the rate
of interest for an interest period shall be the rate per annum which is
one hundred and fifty basis points (1.5 per cent.) below the arithmetic
mean (rounded down if necessary to 4 decimal places) of the respective
rates which are quoted as of 11:00 am (London time), or as soon as
practicable thereafter, on the first day of that interest period, or if
such a day is not a business day, on the preceding business day, on the
LIBP page on the Reuters Monitor Money Rates Service (or such other
page or service as may replace it for the purpose of displaying London
inter-bank offered rates of leading reference banks in respect of the
currency which is, at the time of the quote(s), the Loan Note Currency)
as being the interest rates offered in the London Inter-Bank Market for
six month deposits of sterling or of the currency which is, at the time
of the quote(s), the Loan Note Currency, but:
(i) if only two or three such offered quotations appear, the relevant
arithmetic mean (rounded as mentioned above) shall be determined on
the basis of those offered quotations; and
(ii) if no, or only one, such offered quotation appears, the relevant
arithmetic mean (rounded as mentioned above) shall be determined
instead on the basis of the respective rates (as quoted to CB
Commercial at its request) at which each of Midland Bank plc and
National Westminster Bank plc is offering six month deposits of
sterling or of the currency which, at the relevant time, is the
Loan Note Currency, to leading banks in the London Inter-Bank
Market at or as soon as reasonably practicable after 11:00 am
(London time) on the first day of the relevant interest period or,
if such day is not a business day, on the preceding business day.
(c) If a rate of interest cannot be established as described in this
paragraph 4 for any interest period, the rate of interest on the Loan
Notes for such interest period shall be determined by CB Commercial on
the basis of the arithmetic mean (rounded down if necessary to 4
decimal places) of at least three (or such lesser number as may be
obtainable on the first day of the relevant interest period) quotations
for six month deposits of sterling or of the currency which is, on the
first day of the relevant interest period, the Loan Note Currency on
such inter-bank market or (if on that day there is no available inter-
bank market) such other market as CB Commercial may select.
(d) Each instalment of interest shall be calculated on the basis of a 365
day year and the actual number of days elapsed in the relevant interest
period.
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<PAGE>
REPAYMENT AND REDEMPTION
5. A holder of Loan Notes (a "Noteholder") shall be entitled to require CB
Commercial to repay the whole (whatever the amount) or any part (being
(pounds)1,000 nominal or any integral multiple thereof) of the principal
amount of his/her holding of Loan Notes at par, together with accrued
interest thereon (subject to any requirement to deduct tax therefrom) up to
but excluding the date of repayment, on any interest payment date, from and
including 31st December 1998 and thereafter on any interest payment date
falling prior to 30th June 2002 by giving not less than 30days' prior notice
in writing to CB Commercial accompanied by certificate(s) for all the Loan
Notes to be repaid and a notice of redemption (duly completed) in the
prescribed form endorsed on the Loan Notes to be repaid.
6. Any Loan Notes not previously so repaid, redeemed or purchased will be
repaid in full at par on the first business day of the 52nd month after the
Unconditional Date together with accrued interest thereon (subject to any
requirement to deduct tax therefrom) up to (but excluding) that date.
7. Any Loan Notes repaid, purchased or redeemed will be cancelled.
8. Each Noteholder shall be entitled to require all of the Loan Notes held by
him/her to be repaid at par together with accrued interest (subject to any
requirement to deduct any tax therefrom) immediately if:
(a) any principal or interest on any of the Loan Notes held by that
Noteholder is not paid in full by CB Commercial by the due date for
payment in the manner described in paragraph11 of this Appendix VI; or
(b) an encumbrancer takes possession of, or a trustee, receiver,
administrator or similar officer is appointed or an administration order
is made in respect of CB Commercial or in respect of the whole or a
substantial part of the undertaking of CB Commercial or directly
analogous proceedings occur or arise in respect of CB Commercial or in
respect of the whole or a substantial part of the undertaking of CB
Commercial in any jurisdiction and such person has not been paid out or
discharged within 30 days; or
(c) an order is made or an effective resolution is passed for the winding up
or dissolution of CB Commercial or directly analogous proceedings occur
in any relevant jurisdiction (other than for the purposes of a
reconstruction or amalgamation or a members' voluntary winding up, in
each case on terms previously approved by Extraordinary Resolution).
9. CB Commercial will be entitled at any time after the period of 6 months
from the date of issue has elapsed to offer to purchase any Loan Notes by
tender (available to all Noteholders alike), private treaty or otherwise,
at any price agreed by the Noteholders.
10. Any amount payable to a Noteholder by CB Commercial under the Loan Notes in
respect of interest or principal shall be paid by cheque or warrant sent
through the post, at the risk of the Noteholder, to the registered address
of the Noteholder (or, in the case of joint Noteholders, the first named in
the Register) and payment upon presentation of such cheque or warrant shall
be a good discharge of CB Commercial in respect of the payments. If any
such cheque or warrant in respect of a payment required to be made by CB
Commercial is not so delivered by the due date for payment, CB Commercial
shall not be deemed to be in default of its obligations under the Loan
Notes but the Noteholder (or, in the case of joint Noteholders, the first
named in the Register) entitled to the payment may give notice of that fact
to CB Commercial requiring CB Commercial to deliver a cheque or warrant for
the relevant amount to the registered address of the Noteholder; if such
delivery is not made on or before the seventh day after receipt of such
notice by CB Commercial or, if following delivery of any cheque or warrant,
such cheque or warrant is not honoured upon proper presentation for
payment, the Noteholder may invoke the provisions described in paragraph
8(a) of this Appendix VI.
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MODIFICATION
11. The Noteholders will have power by Ordinary Resolution of the Noteholders
passed in accordance with the provisions of the Loan Note Instrument or by
resolution in writing signed by holders of a bare majority of the
outstanding Loan Notes by par value, inter alia, to sanction any
modification, abrogation or compromise of or arrangement in respect of
their rights against CB Commercial (but subject to the consent of CB
Commercial) and to assent to any amendment in respect of their rights
against CB Commercial and to assent to any amendment of the provisions of
the Loan Note Instrument, in each case, other than a modification reducing
the rate of interest or principal payable under the Loan Notes, which shall
require a resolution passed or signed by holders of 75 per cent. of the
outstanding Loan Notes (by par value) and the consent of CB Commercial.
FURTHER ISSUES
12. Each holder of Loan Notes shall have the right to acquire (by subscription
at a nominal value of an amount up to or equal to such a holder's holding
of Loan Notes, such amount to be payable in full on subscription)
additional Loan Notes to be issued by CB Commercial on terms and conditions
substantially the same as those applicable to the Loan Notes but so that
such additional Loan Notes shall not carry the right to acquire further
securities.
REGISTRATION, TRANSFER AND MARKETABILITY
13. The Loan Notes will be evidenced by certificates and will be registered and
transferable in minimum amounts of (pounds)1,000 or its equivalent in any
other Loan Note Currency (determined as described in paragraph 2 of this
Appendix VI) or multiples thereof (or the entire holding), provided that
transfers will not be registered during the 21 days immediately preceding
an interest payment date or a date on which principal or interest is to be
paid.
14. No application has been made or is intended to be made to any stock
exchange for the Loan Notes to be listed or otherwise traded.
15. The Loan Notes have not been and will not be registered under the
Securities Act or under the securities laws of any State of the United
States nor have any steps been taken, nor will any be taken, to enable the
Loan Notes to be offered in compliance with applicable securities laws of
Japan and no prospectus in relation to the Loan Notes has been, or will be,
lodged with the Australian Securities Commission. Loan Notes issued to
Canadian residents will be subject to certain resale restrictions.
Accordingly, CB Commercial may at its discretion require reasonable
evidence that a proposed transfer is exempt from or not subject to the
registration or other requirements of any relevant legislation in those
jurisdictions and in the absence of prior receipt of such evidence the Loan
Notes may not be offered, sold, resold, delivered or distributed (directly
or indirectly) in or into Australia or Japan nor to any person who is an
agent or fiduciary acting on a non-discretionary basis for a principal,
unless such agent or fiduciary is an authorised employee of such principal
and is, or such principal has given instructions with respect to such
transfer or sale from, outside Australia or Japan.
GOVERNING LAW
16. The Loan Notes and the Loan Note Instrument will be governed by and
construed in accordance with English law.
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APPENDIX VII
COPY LETTER FROM COOPERS & LYBRAND TO THE DIRECTORS OF REI
[LETTERHEAD OF COOPERS & LYBRAND]
The Directors
REI Limited
Berkeley Square House
Berkeley Square
London W1X 6AN 7th February 1998
Dear Sirs
RECOMMENDED OFFERS ("THE OFFERS") BY CB COMMERCIAL REAL ESTATE SERVICES GROUP,
INC. ("CB COMMERCIAL") FOR THE WHOLE OF THE ISSUED AND TO BE ISSUED SHARE
CAPITAL OF REI LIMITED ("REI")
INTRODUCTION
This letter is supplied in connection with the Offers solely for your own use in
your capacity as directors of REI and may not be relied upon by any other person
or for any other purpose.
In accordance with the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) (No 2) Order 1995 (SI 1995/1536) and as required by paragraph 12(b)
of Schedule 4 of that Order, we are writing to advise you of the financial
implications of the Offers and to set out our advice to the directors of REI in
relation to the Offers.
The terms and conditions of the Offers are set out in the offer document dated
7th February 1998 from CB Commercial to shareholders of REI ("the Offer
Document"). We understand that this letter will be included in the Offer
Document as Appendix VII. The terms used in this letter are as defined in the
Offer Document.
FINANCIAL IMPLICATIONS OF THE OFFERS
This section outlines the financial effects of acceptance of the Offers for a
Shareholder if the Offers become or are declared unconditional in all respects.
The Offers are for all the REI Shares (including any REI Shares issued prior to
the Unconditional Date upon the exercise of REI Options).
At the Announcement Date (9th December 1997) the Offers valued the fully diluted
share capital of REI at (pounds)57.25 million (referred to in the Offer Document
as the "Initial Price" and which is subject, inter alia, to potential adjustment
based on the financial performance of REI in the year to 31st December 1997). In
no circumstances will the financial performance of REI in the year to 31st
December 1997 cause the Offers to value the fully diluted share capital of REI
at less than (pounds)50 million without the prior written consent of the holders
of 75 per cent. of the REI Shares assented to the Offers.
Shareholders can choose, for each class of REI Shares, between one of two
methods (Methods A and B) for determining the value of the consideration payable
to them under the Offers. Under the terms of these Offers, it will not be
possible to elect for Method B, the Partial Cash Alternative or the Loan Note
Alternative after 3:30 pm on 20th March 1998. If the Offers become wholly
unconditional while Method B, the Partial Cash Alternative or the Loan Note
Alternative are available, Shareholders will be able, when accepting the Offers,
to elect for Method B, the Partial Cash Alternative or the Loan Note Alternative
until the later of the 14th day after the Offers become wholly unconditional and
20th March 1998.
. Under Method A, the number of CBC Shares to be issued to Shareholders will
be calculated based on the CBC Share price and the US$:Pounds Sterling
exchange rate in the period prior to the Announcement Date. As a result,
the Pounds Sterling value of the consideration (in CBC
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<PAGE>
Shares, cash or Loan Notes) may vary upwards or downwards (within certain
limits referred to as the Cap and Collar) as a result of market and
exchange rate movements in the period between the Announcement Date and
the Unconditional Date (i.e. the date of the merger).
. Under Method B, the number of CBC shares to be issued to Shareholders will
be calculated based on the CBC Share price and the US$:Pounds Sterling
exchange rate in the period prior to the Unconditional Date, so that
Shareholders will be able to choose neither to gain nor to lose (whether
in relation to CBC Shares, cash or Loan Notes) from market and exchange
rate movements in the period between the Announcement Date and the
Unconditional Date. There is one exception to this, where alternative
protection is available to Shareholders.
Until the date on which the Offers have become or been declared unconditional in
all respects (the "Unconditional Date"), it is not possible to determine the
final value of the Offers or the exact number of CBC Shares to be issued for
each REI Share or the implied Pounds Sterling value of each such share.
Assuming that the financial performance of REI for the year to 31st December
1997 was not such as would require adjustment to the Initial Price of
(pounds)57.25 million and that the anticipated fully diluted share capital of
REI were 7,952,354 REI Shares:
METHOD A
(a) Shareholders would receive consideration (through CBC Shares, cash or Loan
Notes, depending on their election) equivalent to approximately 357 CBC
Shares for every 1,000 REI Shares assented under Method A provided neither
the Cap nor the Collar were triggered;
(b) as at the close of business on 4th February 1998 (being the latest
practicable date prior to the posting of the Offer Document) the Offers
under Method A value the fully diluted share capital of REI at
(pounds)54.10 million, which equates to a consideration (through CBC
Shares, cash or Loan Notes, depending on a Shareholder's election) of
(pounds)6.80 for each REI Share;
(c) if the Cap were triggered, Shareholders would receive consideration
(through CBC Shares, cash or Loan Notes, depending on their election)
equivalent to approximately (pounds)8.17 for each REI Share assented under
Method A;
(d) if the Collar were triggered, Shareholders would receive consideration
(through CBC Shares, cash or Loan Notes, depending on their election)
equivalent to approximately (pounds)6.29 for each REI Share assented under
Method A;
METHOD B
(e) Shareholders would receive consideration (through CBC Shares, cash or Loan
Notes, depending on their election) equivalent to (pounds)7.20 for each REI
Share assented under Method B provided the price for each CBC Share were
greater than US$26. This would equate, as at close of business on 4th
February 1998 (being the latest practicable date prior to the posting of
the Offer Document) to Shareholders receiving approximately 378 CBC Shares
for every 1,000 REI Shares assented under Method B; and
(f) under Method B if the price of a CBC Share at the Unconditional Date is
less than US$26, the number of CBC Shares receivable under the Offers will
be calculated based on a price per CBC Share of US$26. Thus, unless
Shareholders receive all their consideration in cash (or Loan Notes) and if
the CBC Dollar Closing Price falls below US$26, Shareholders may receive
consideration (through CBC Shares, cash or Loan Notes, depending on their
election) of less than (pounds)6.29 for each REI Share.
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<PAGE>
We set out below, for illustrative purposes only, the financial effects of
acceptance for a Shareholder electing either Method A or Method B on the basis
of the accompanying detailed assumptions:
1. CAPITAL
Under Method A
per REI
Share
(pounds)
Implied value of the Offers (whether electing for CBC
Shares, cash or Loan Notes) 6.80
Latest available valuation by REI's merchant bankers (see below) 2.08
---------
4.72
=========
THIS REPRESENTS AN INCREASE OF 227 per cent.
Under Method B
per REI
Share
(pounds)
Implied value of the Offers (whether electing for CBC
Shares, cash or Loan Notes) 7.20
Latest available valuation by REI's merchant bankers (see below) 2.08
---------
5.12
=========
THIS REPRESENTS AN INCREASE OF 246 per cent.
Assumptions:
(i) no adjustment is made to the Initial Price of (pounds)57.25 million
(i.e. the Adjusted EBITDA of REI for the year ended 31st December 1997
is (pounds)7.3 million or more and the Net Debt of REI as at 31st
December 1997 is (pounds)6.5 million or less);
(ii) the CBC Dollar Closing Price is US$31.50 (being the closing price per
CBC Share on the New York Stock Exchange on 4th February 1998, the last
practicable date prior to the posting of the Offer Document);
(iii) the Closing Exchange Rate of US Dollars for Pounds Sterling is
US$1.6528 (being the closing mid-point exchange rate of US Dollars for
Pounds Sterling quoted by Barclays Bank PLC in London on 4th February
1998, the last practicable date prior to the posting of the Offer
Document);
(iv) the fully diluted share capital of REI is 7,952,354 REI Shares (which
includes all REI Shares that would arise on the exercise of all REI
Options); and
(v) no account has been taken of any potential liability to taxation.
The most recent valuation of REI Shares was made by REI's merchant bankers
for the purposes of determining "fair value" pursuant to the Articles of
Association of REI as at 30th April 1997, which valued each REI Share at
(pounds)2.95 based on an issued share capital of REI at the time of
5,616,013 REI Shares. This equated to a value for each REI Share of
(pounds)2.08 based on an issued share capital of 7,952,354. In arriving at
this valuation REI's merchant bankers took various factors into account
including an estimate of REI's underlying pre-tax profitability of
(pounds)3.3 million (after reduction for minority interests), taxed at an
assumed rate of approximately 45 per cent., to which they applied a
discount of 25 per cent. to reflect the fact that REI Shares are unquoted,
and a P/E multiple of 12, which was based on a survey of comparable UK
quoted companies in the sector and the market as a whole. IT SHOULD BE
NOTED THAT THE VALUATION WAS CARRIED OUT SOLELY FOR THE PURPOSES OF
ENABLING REI SHARES TO BE TRANSFERRED UNDER THE
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<PAGE>
Articles of Association and was not a valuation for the purposes of a sale
or flotation of the Company.
2. INCOME
No dividends were paid or accrued on REI Shares in respect of the years
ended 31st December 1996 and 31st December 1997. During the period from 1992
to September 1996 no dividends were paid or accrued on CBC Shares. CBC have
stated in the Offer Document that no dividends are likely to be declared or
paid on CBC Shares in the foreseeable future. Therefore, a Shareholder who
accepts the Offers is unlikely to receive any income in the foreseeable
future from the new CBC Shares he receives as either full or partial
consideration under the Offers.
A Shareholder who elects to receive cash (in accordance with the terms and
conditions within the Offer Document) and reinvests the proceeds will
receive an amount of income dependent on the reinvestment medium adopted.
A Shareholder who elects to receive the Loan Notes (in accordance with the
terms and conditions within the Offer Document) will receive gross interest
based on the rate of interest under the Loan Notes.
HOLDERS OF REI OPTIONS
Holders of REI Options who exchange their REI Options for CB Commercial Options
should note that the exercise price for each CB Commercial Option will be
denominated in US Dollars (determined at the Unconditional Date) and thus their
equivalent Pounds Sterling price upon any exercise at a later date will vary
with movements in the US Dollar:Pounds Sterling exchange rate.
TAXATION
The tax consequences of accepting the Offers will vary according to the
individual circumstances of Shareholders. Acceptance of the Offers (whether
accepting CBC Shares, cash or Loan Notes) may give rise to various tax
liabilities both now and in the future.
CONSULTING A PROFESSIONAL ADVISER
The calculation of the final value of REI, the consideration receivable for each
REI Share under the Offers (including CBC Shares, cash or Loan Notes) and the
tax consequences of accepting the Offers (whether accepting CBC Shares, cash or
Loan Notes) are complex. Accordingly, the directors should ensure that the Offer
Document advises Shareholders to consult their professional advisers if they are
in any doubt as to either the action they should take or as to their tax
position.
CONCLUSION
We consider that the Offers being made by CB Commercial are fair and reasonable
from a financial point of view so far as REI is concerned. In providing this
advice, we have taken into account your commercial assessment of the Offers.
In arriving at our advice, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all financial and other
information that was publicly available or furnished to us by REI or CB
Commercial.
Our advice is provided solely on the basis of and in accordance with practice
established in the United Kingdom and with the Financial Services Act 1986
(Investment Advertisements) (Exemptions) (No 2) Order 1995 (SI 1995/1536).
Accordingly, our advice should not be relied upon as if it had been provided in
accordance with practice, regulations or legislation in any country, including
the United States, other than the United Kingdom.
Yours faithfully
Coopers & Lybrand Corporate Finance
56
<PAGE>
APPENDIX VIII
FINANCIAL INFORMATION ON CB COMMERCIAL
PART A
The following is a summary of the audited consolidated profit and loss accounts
of CB Commercial drawn from each of the published audited financial statements
of CB Commercial (audited in accordance with US GAAP) for the five financial
periods ended 31st December 1996.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 360,223 392,037 428,988 468,460 583,068
======= ======= ======= ======= =======
<S> <C> <C> <C> <C> <C>
Profit/(loss) on ordinary
activities before tax (44,549) (37,037) 9,325 8,250 25,809
Tax 12 112 (152) (841) 44,740*
------- ------- ------- ------- ------
Profit/(loss) on ordinary
activities after tax (44,561) (37,149) 9,173 7,409 70,549
Extraordinary items --- --- --- --- ---
Tax on extraordinary items --- --- --- --- ---
Minority interests --- --- --- --- ---
------- ------- ------- ------- ------
Profit/(loss) for the
financial year (44,561) (37,149) 9,173 7,409 70,549
Preference dividends 1,000 --- --- --- ---
Dividends on CBC Shares --- --- --- --- ---
</TABLE>
* CB Commercial has had a net operating loss carry forward for US tax purposes
which has meant that CB Commercial has never paid Federal income tax. In 1996
CB Commercial recorded the realisable value of its net operating loss carry
forward as an asset on its balance sheet. Under US GAAP this meant that the
provision for taxes for 1996 became a negative number which artificially
inflated CB Commercial's profit for the year.
An extract from the audited consolidated balance sheet of CB Commercial as at
31stDecember 1996 is set out in Part H of Appendix XI.
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<PAGE>
PART B
On 4th November 1997 CB Commercial announced the following unaudited results for
the third quarter ended 30th September 1997:
<TABLE>
<CAPTION>
Three months ended Nine months ended
30th September 30th September
------------------ -----------------
1997 1996 1997 1996
US$'000 US$'000 US$'000 US$'000
<S> <C> <C> <C> <C>
Revenue 177,520 147,168 469,542 390,863
Costs and expenses 175,656 133,669 448,554 364,410
------- ------- ------- -------
Operating income 1,864 13,499 20,988 26,453
Interest income 740 286 1,959 1,035
Interest expense 4,158 6,196 12,007 17,883
------- ------- ------- -------
Income (loss) before provision
(benefit) for income tax and
extraordinary items (1,554) 7,589 10,940 9,605
------- ------- ------- -------
Provision (benefit) for income tax (569) 4,220 4,786 4,610
------- ------- ------- -------
Reduction of valuation allowances --- (40,400) --- (40,400)
Net provision (benefit) for
income tax (569) (36,180) 4,786 (35,790)
------- ------- ------- -------
Net income (loss) before
extraordinary items (985) 43,769 6,154 45,395
Extraordinary items, net 951 --- 951 ---
------- ------- ------- -------
Net income (loss) (1,936) 43,769 5,203 45,395
======= ======= ======= =======
</TABLE>
58
<PAGE>
APPENDIX IX
FINANCIAL INFORMATION ON REI
The following is a summary of the audited profit and loss accounts of REI
(together with certain information relating to dividends on REI Shares) drawn
from each of the audited consolidated financial statements of REI (audited in
accordance with UK GAAP) for each of the five financial periods ended 31st
December 1996.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
(pounds)'000 (pounds)'000 (pounds)'000 (pounds)'000 (pounds)'000
Turnover 36,047 48,881 55,852 55,816 73,664
=========== ============ ============ ============ ============
<S> <C> <C> <C> <C> <C>
Profit/(loss) on ordinary
activities before tax 1,809 4,358 5,764 (654) 4,211
Tax (875) (2,068) (2,139) (1,288) (2,382)
----------- ------------ ------------ ------------ ------------
Profit/(loss) on ordinary
activities after tax 934 2,290 3,625 (1,942) 1,829
Extraordinary items --- --- --- --- ---
Tax on extraordinary items --- --- --- --- ---
Minority interests (495) (444) (1,146) (559) (886)
----------- ------------ ------------ ------------ ------------
Profit/(loss) for the
financial year 439 1,846 2,479 (2,501) 943
Dividends --- (271) (678) --- ---
Retained profit/(loss) for the
financial year 439 1,575 1,801 (2,501) 943
=========== ============ ============ ============ ============
Dividends per share --- 5.0p 12.5p --- ---
Rate per cent. of dividends --- 500% 1,251% --- ---
</TABLE>
59
<PAGE>
APPENDIX X
ADDITIONAL INFORMATION
1. RESPONSIBILITY
The Directors of CB Commercial are the persons responsible for the
information contained in this document relating to CB Commercial and its
Directors. To the best of the knowledge and belief of the Directors of CB
Commercial (who have taken all reasonable care to ensure that such is the
case) such information is in accordance with the facts and no material fact
has been omitted.
The Directors of REI are the persons responsible for the information
contained in this document relating to REI and its Directors. To the best
of the knowledge and belief of the Directors of REI (who have taken all
reasonable care to ensure that such is the case) such information is in
accordance with the facts and no material fact has been omitted.
2. DIRECTORS
The Directors of CB Commercial are:
James J Didion
Gary J Beban
George J Kallis
Richard C Clotfelter
Bradford M Freeman
Donald M Koll
Ricardo Koenigsberger
Lawrence J Melody
Stanton D Anderson
Richard C Blum
Daniel A D'Aniello
Hiroaki Hoshino
Takayuki Kohri
Paul C Leach
Frederic V Malek
Ray Elizabeth Uttenhove
Peter V Ueberroth
Gary L Wilson
Raymond E Wirta
The Directors of REI are:
Barry Douglas White
James Anthony Deriaz Croft
David Anthony Sizer
Geert Jan Selman
Michael James Bamber
Francis Joseph Pons
Herbert Scott Morgan
David Andrew Runciman
Willy Ping Yah Shee
Lester Dudley John Martin
Gary Edward Ryan
3. BENEFITS TO DIRECTORS
The acquisition of the shares to which the Offers relate is not conditional
upon the recipients approving, or consenting to, any payment or other
benefit being made or given to any Director or
60
<PAGE>
former Director of REI in connection with, or as compensation or
consideration for, his ceasing to be a Director or to hold any office held
in conjunction with any directorship or, in the case of a former Director,
to hold any office which he held in conjunction with his former directorship
and continues to hold after ceasing to be a Director.
4. DIRECTORS' SERVICE CONTRACTS
The following are the existing contracts of service entered into for a
period of more than one year between (a) the REI Group and the Directors of
REI and (b) the CB Commercial Group and the Directors of CB Commercial:
REI
(i) Barry White has a service agreement with REI dated 22nd November 1995
appointing him as Chief Executive of REI. The agreement is for an
initial period of five years until 30thApril 2000 and thereafter unless
and until either party gives the other not less than 12months' written
notice. Barry White's current salary is (pounds)110,000 per annum and he
is entitled to an annual bonus equal to 2.5 per cent. of net profits for
the financial year in question. His entitlement to a bonus shall be
reviewed annually and is awarded at REI's discretion. In addition Barry
White receives private health insurance, life assurance, permanent
health insurance and a company car.
(ii) G J Selman has agreed to provide his services as consultant to Richard
Ellis B.V. for an initial term of three years, subject to the right of
either party to terminate at the end of each year, for an annual fee and
performance bonus.
CB Commercial
(i) In May 1997 CB Commercial Real Estate Group, Inc. and Mr James Didion
entered into a 43month employment agreement with a term which expires on
31st December 2000. Pursuant to such agreement Mr Didion receives a
salary of US$500,000 per annum and is entitled to an annual bonus of
between 0 and 200 per cent. of his salary depending on the extent to
which CB Commercial's EBITDA target for the year is met. If the Board of
CB Commercial terminates Mr Didion's employment without cause CB
Commercial must pay Mr Didion approximately two years salary and bonus
and fully vest him in all unvested stock option and equity incentive
plan shares. Special adjustments are made to these severance
arrangements if termination without cause occurs after a change of
control of CB Commercial.
(ii) In May 1997 CB Commercial Real Estate Group, Inc. entered into a one
year consulting agreement with Mr Donald M Koll to provide services for
a fee of US$12,500 per month. The agreement is terminable upon 30 days
prior notice by either party.
5. SHARE CAPITAL OF REI
The authorised and issued share capital of REI at the date of this document
are set out below. All of the issued share capital is fully paid.
Authorised share capital Issued and fully paid up share capital
(pounds)100,000 divided into: (pounds)66,619 divided into:
7,110,947 A Shares 5,226,129 A Shares
2,205,693 B Shares 752,372 B Shares
683,360 C Shares 683,360 C Shares
At the date of this document there are a further allotted but unissued
53,336 REI Shares outside of the REI Share Plan. In addition, there are
options in existence to subscribe for a further 347,500 REI Shares.
1,495,029 REI Shares have been allotted under the REI Share Plan, of which
752,372 have been issued. A further 742,657 REI Shares will be issued under
the REI Share Plan and REI has agreed to issue a further 147,000 REI Shares
in relation to the acquisition
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of interests in the Wider REI Group. Therefore, it is anticipated that the
fully diluted share capital of REI will be 7,952,354 REI Shares.
CB Commercial does not hold, and there are not held on its behalf, any REI
Shares or any debentures, certificates, options or warrants or other
instruments entitling CB Commercial to subscribe for REI Shares or
debentures or securities in respect of REI.
6. CBC SHARES
The new CBC Shares issued pursuant to the Offer will rank pari passu in all
respects (including in respect of dividend entitlement) with issued CBC
Shares. As at 4th February 1998 (the latest practicable date prior to the
printing of this document) there were 18,818,200 CBC Shares in issue. Each
CBC Share is entitled to one vote on all matters submitted to a vote of CB
Commercial shareholders. A majority of the CBC Shares voting at a duly
called meeting of the shareholders at which a quorum is present may elect
all of the Directors of CB Commercial. Holders of CBC Shares have no right
to dividends except as declared by the Board of Directors of CB Commercial.
The Board of Directors has never declared a dividend on CBC Shares and has
no intention of doing so in the foreseeable future. Upon a liquidation,
dissolution or winding-up of CB Commercial holders of CBC Shares are
entitled to share pro rata in the remaining assets of CB Commercial legally
available for distribution. Holders of CBC Shares have no pre-emptive or
conversion rights or other subscription rights and there are no redemption
or sinking funds provisions applicable to the CBC Shares.
7. MATERIAL CONTRACTS
REI
No contracts have been entered into by any member of the REI Group within
the two years preceding the date of this document (otherwise than in the
ordinary course of business) and which are or may be material other than:
(i) The agreement dated 15th February 1996 between (1) REI and (2) Jean-
Pierre Forgeot pursuant to which the parties agreed to a merger of
Richard Ellis SA and Achard and Associes with effect from 1st January
1996. On 25th July 1996 Forgeot SA and FSA entered into an agreement
with REI whereby they gave certain warranties in relation to their
businesses to REI. Two further agreements were entered into on 29th
January 1998 between Forgeot SA, FSA (a company, majority owned by Jean-
Pierre Forgeot, which merged with Achard and Associes) and REI pursuant
to which, respectively; Forgeot SA and FSA agreed to sell, on the
exercise of a call option by REI; and REI agreed to purchase, on the
exercise of a put option by Forgeot SA and FSA, 1,099 shares in Richard
Ellis SA owned collectively by Forgeot SA and FSA according to an agreed
price formula with a minimum guaranteed price (in certain circumstances)
of FF15 million. On the same date Mayfair, a company owned by Jean-
Pierre Forgeot, entered into a contract for the supply of services for a
fixed period to 31st December 1999 with Richard Ellis SA.
(ii) The asset purchase agreement dated 15th July 1996 between (1) Cumberland
Consulting Corporation ("Cumberland") and (2) Richard Ellis (Canada)
Inc. ("RECI") pursuant to which Cumberland agreed to sell to RECI all of
the property, assets and undertakings of Cumberland used in its real
estate appraisal, consulting and brokerage business in British Columbia
for Can$146,250 satisfied by the issue of 13,594 REI Shares
((pounds)3.35 per share) with the balance payable in cash. Additionally
an earn-out applies whereby Cumberland is paid 50 per cent. of the net
profits for the 24 month period commencing 15th July 1996, capped at
Can$78,750 (plus interest). As part of the asset purchase agreement,
RECI also entered into employment agreements with George Oikawa and Gary
Nekagawa.
(iii) The loan agreement dated 26th March 1997 between (1) REI and (2) the
ESOP Trustee pursuant to which REI agreed to advance to the ESOP
Trustee, by way of loan subject to repayment on demand, the amount of
any bank charges, fees and interest payable by the ESOP Trustee in
respect of a loan of (pounds)1 million (currently (pounds)750,000) made
by National
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Westminster Bank plc in favour of the ESOP Trustee. The repayment of
this loan is guaranteed by REI pursuant to a guarantee dated 23rd
November 1995.
(iv) The agreement dated 12th December 1997 between (1) REI, (2) Juan
Fernando Gomez Hall and (3) Ramon Zorrilla Zorrilla pursuant to which,
conditional upon administrative verification being obtained from the
Spanish Ministry of Commerce, REI allotted 72,500 REI Shares to each of
Juan Fernando Gomez Hall and Ramon Zorrilla Zorrilla in consideration
for the purchase of 2,450 shares of Richard Ellis Residencial, S.A. from
each of Juan Fernando Gomez Hall and Ramon Zorrilla Zorrilla.
(v) The settlement agreement dated 2nd January 1998 between (1) REI and (2)
Richard Ellis (Victoria) Pty Ltd ("REV") pursuant to which REI and REV
agreed to withdraw their respective opposition to the other's trademark
applications and, for a period of 12 months, not to challenge the
other's ownership or use of certain trade marks the subject of trade
mark applications.
(vi) The shareholders' agreement dated 29th March 1996 between (1) GE Capital
Services PTE Ltd. ("GECS"), (2) Relam Amsterdam Holdings B.V. and (3)
Richard Ellis Limited ("REL") (including its 19 schedules, which contain
copies of other related agreements entered into on that date) pursuant
to which GECS and RELAM formed a joint venture company, Pangaea Real
Estate Capital Services Private Limited ("Pangaea"), to provide
management/advisory services and to sponsor a fund established in
Bermuda, consisting of mixed investments in residential properties in
Asia (the "Fund"). The provision of these services depended upon the
Fund being successful in attracting at least US$150 million of
investment. This minimum investment commitment was not raised and the
directors of Pangaea advised the shareholders of Pangaea that it should
be placed into liquidation in accordance with clause 24.1 of the
shareholders' agreement.
At an extraordinary general meeting of Pangaea held on 29th August 1997,
the shareholders passed a special resolution that the company be wound-
up voluntarily. Once tax clearance is received (which is expected to be
during the first quarter of 1998) a final meeting of shareholders will
be held and the company will then be deregistered. On the date of
completion of the winding-up the shareholders' agreement shall
terminate.
The terms of the shareholders' agreement provide, inter alia, that the
division of REL known as REI Asia is to provide services in relation to
Asian real estate to General Electric Capital Corporation (including is
subsidiaries and affiliates) ("GECC") or Pangaea, such services (the "RE
Services") to be provided in accordance with two services agreements,
one with GECC, the other with Pangaea (the "RE Services Agreements").
The fees for the RE Services are set out in each of the RE Services
Agreements. 30 per cent. of these fees are required to be paid into a
separate account in the name of REI Asia (the "Account"). The money in
the Account is then used to fund a facility provided by REI Asia to
Pangaea to meet the expenses of setting up the Fund and Pangaea,
together with any working capital requirements (the "RE Facility"). The
terms of the RE Facility are set out in the RE Facility Agreement.
The RE Services Agreements will terminate on the winding-up of Pangaea.
However, REIAsia will still be prepared to make available the RE
Services to GECC after the winding-up of Pangaea on the basis that 30
per cent. of the fees derived therefrom will accrue to the benefit of
GECC or otherwise be shared with GECC until REI Asia's contribution to
such expenses and working capital requirements equals that made by GECC.
(vii) At a meeting of the Board of REI on 23rd April 1997 the allotments at
par of 170,000 REI Shares (the "par shares") was approved with such
allotment being divided as to 30,000 par shares to Willy Shee and 20,000
par shares to each of Dominic Leung, Pauline Goh, Scott
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Morgan, Douglas Munro, Walter Cardoso, Guy Cubitt and David Simister
(together the "Executives") on the basis that each Executive at the same
time acquired one additional REI Share for (pounds)2.50 each (the
"(pounds)2.50 shares") for each par share so issued to the Executive.
Subsequently, agreements were entered into whereby each Executive agreed
to acquire all such REI Shares in 3 equal instalments, consisting of
equal numbers of par shares and (pounds)2.50 shares, on 1st December
1997, 1st October 1998 and 1st July 1999 or earlier at each Executive's
discretion. At a meeting of the Board of REI held on 17thDecember 1997
approval was given to vary these arrangements in order to: (i) authorise
the ESOP Trustee to sell 60,000 REI Shares to Willy Shee, 40,000 REI
Shares to each of Scott Morgan and Douglas Munro and 13,332 REI Shares
to each of Pauline Goh and Walter Cardoso, in each case at a price of
(pounds)2.51 per REI Share; (ii) to allot to each of Pauline Goh and
Walter Cardoso 13,334 REI Shares at par and 13,334 REI Shares at a price
of (pounds)2.50 per share; (iii) to allot to each of Dominic Leung, C.N.
Limited and David Simister 20,000 REI Shares at par and 20,000 REI
Shares at (pounds)2.50 per share.
(viii) Under a settlement agreement dated 28th January 1998 between (1) Douglas
Cameron ("DHC"), James Abbey ("JGA") and Douglas H. Cameron, L.L.C.
("RE, LLC") and (2) REI and Richard Ellis, Inc ("RE, Inc") certain
agreements entered into between the parties referred to above in June
1995 were modified and payments were made by RE, LLC to RE, Inc of
US$716,400. In addition, it was acknowledged that each of DHC and JGA
had satisfied the performance conditions relating to certain options
granted in June 1995 with the effect that DHC had a fully vested option
to purchase 105,000 REI Shares and JGA had a fully vested option to
purchase 45,000 REI Shares, both such options exercisable at a price of
(pounds)2.75 per share at any time during the period commencing 28th
January 1998 and ending 31st December 1999.
(ix) On 17th November 1997 REI entered into a standstill agreement with CB
Commercial whereby REI agreed, inter alia, subject to certain exceptions
and until 15th December 1997, not to solicit, negotiate or furnish
information in respect of any merger involving REI or any member of the
REI Group, save with the prior written consent of CB Commercial, and CB
Commercial agreed, inter alia, subject to certain exceptions and until
15th December 1997, not to take any such action in respect of any merger
or acquisition of all or a substantial portion of the assets of any
entity more than half of whose business is conducted outside the US or
Canada. By a letter agreement dated 8th December 1997 the parties agreed
to extend the provisions of the standstill agreement from 15th December
1997 to 31st January 1998 provided that if CB Commercial made an offer
to REI Shareholders on or before 31st January 1998 such date would be
further extended to 31st May 1998. A further letter agreement dated
31st January 1998 and accepted by REI on 5th February 1998 extended the
standstill agreement until 15th February 1998 and, in the event an offer
to REI Shareholders has been made before such date, it will be further
extended to 31st May 1998.
CB Commercial
No contracts have been entered into by any member of the CB Commercial Group
within the two years preceding the date of the document (otherwise than in
the ordinary course of business) and which are or may be material other
than:
(i) Acquisition of Koll Real Estate Services ("Koll")
On 28th August 1997, pursuant to a merger agreement dated 14th May 1997,
CB Commercial purchased Koll for a consideration comprised of 5,187,737
CBC Shares and warrants to subscribe for an additional 599,967 CBC
Shares. In connection with the merger CB Commercial granted certain of
the Koll shareholders demands and "piggyback" registration rights to
enhance the saleability of large blocks of CBC Shares. Under the terms
of the merger agreement only representations and warranties relating to
title survived the closing.
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(ii) Acquisition of L.J. Melody & Company
On 1st July 1996 CB Commercial acquired all of the issued and
outstanding stock of L.J.Melody Company for US$15 million in cash and
notes. L.J. Melody Company is one of the largest commercial mortgage
originators and loan servicers in the United States.
(iii) Public offering of CBC Shares
On 26th November 1996 CB Commercial issued 4,347,000 CBC Shares at US$20
per share. In connection with this offering CB Commercial entered into
an underwriting agreement with Merrill Lynch and other underwriters and
each of CB Commercial's executive officers agreed that for a period of
six months he or she would not directly or indirectly sell any CBC
Shares. In order to obtain the consent of the holders of CB Commercial
preferred stock to this public offering CB Commercial agreed to
reinstate a dividend on the CB Commercial preferred stock effective in
the fourth quarter of 1996 and to grant the holders of CB Commercial
preferred stock the right, upon conversion of their preferred stock into
CBC Shares, to have the CBC Shares included in certain underwriters'
registration statements filed by CB Commercial. These registration
rights enhanced the marketability of such CBC Shares.
(iv) Purchase of preferred shares
On 27th January 1998 CB Commercial purchased all of its outstanding
preferred shares for US$72 million (US$28.125 per equivalent CBC Share)
plus US$5 for accrued but unpaid dividends.
(v) Standstill agreement
On 17th November 1997 CB Commercial entered into a standstill agreement
with REI. See paragraph 7(ix) above for details.
8. GENERAL INFORMATION
(i) No proposal exists in connection with the Offers that any payment or
other benefit be made or given to any Director or former Director of REI
in connection with or as compensation or consideration for his ceasing
to be a Director or to hold any office held in conjunction with the
directorship or, in the case of a former Director, to hold any office
which he held in conjunction with his former directorship and which he
continued to hold after ceasing to be a Director.
(ii) There are no agreements or arrangements between CB Commercial or any
person with whom CB Commercial has an agreement of the kind described in
Section 204 of the Companies Act 1985 and any Director or shareholder of
REI or any person who has been such a Director or shareholder at any
time during the period twelve months immediately preceding the date of
the Offers, being an agreement or arrangement which is connected with or
dependent on the Offers other than:
(a) Irrevocable undertakings
Irrevocable undertakings have been entered into by the Directors of
REI and various key REI employees who hold REI Shares. These
irrevocable undertakings take four different forms. The basic terms
of each are that the signatory undertakes to CB Commercial to,
inter alia, accept the Offers and vote in favour of the Resolution
in respect of his REI Shares and any REI Shares which he becomes
the registered holder or beneficial owner of after execution of his
irrevocable undertaking. Save for the covenant to vote in favour of
the Resolution, each irrevocable undertaking is conditional upon
the passing of the Resolution. In addition, each Irrevocable
Undertaking is, inter alia, conditional on the Offer Document being
posted by 31st January 1998 or such later date (being not later
than 15th February 1998) as the
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<PAGE>
Board of REI may agree. On 1st February 1998 the Board of REI
resolved, inter alia, to extend: (i) the date for posting the Offer
Document to 15th February 1998: and (ii) the requirement in the
irrevocable undertakings that all conditions of an offer made by CB
Commercial (other than those relating to the Registration
Statement) be fulfilled or waived by 31st March 1998 to 15th April
1998. The four forms of the irrevocable undertakings are as
follows:
. Form A includes a non-compete covenant with effect from the
Payment Date for, in the case of signatories who hold between
20,000 and 25,000 REI Shares, two years; in the case of
signatories who hold between 25,001 and 85,000 REI Shares,
for three years; and in the case of signatories holding more
than 85,000 REI Shares, for four years. The following have
executed this form of irrevocable undertaking: Barry White,
Ian White, Michael Bamber, Gerard Aubert, Thom Dijksman,
Victor Perez, Javier Prades, Eduardo Fernandez Cuesta, Pedro
Seabra, Roberto Trella, David Runciman, Michael Hollington,
Albert Tong, Willy Shee, Pauline Goh, Chris Fossick, LiHiaw
Ho, David Simister, Dinesh Chandiok, Francis Pons, Walter
Cardoso, Luis Donaldson, Lester Martin, Gary Ryan, GJ Selman,
Marco Hekman and Robert Mans.
. Form B applies to REI employees who did not hold REI Shares
at the date they entered into the irrevocable undertaking but
who are participants under the REI Share Plan or are option
holders under any of the REI Share Option Schemes. Form B
includes the same non-compete covenant as Form A and has been
executed by Andreas Ridder, Fernando Faria, Luis Gonzaga
Mayor and Marcos Montandon.
. Form C is similar to Form A save that the non-compete
covenant shall not prevent the signatory from providing his
services to, or holding an investment in, Richard Ellis Group
Limited or any member of its group from time to time
including following any acquisition of Richard Ellis Group
Limited. It has been executed by James Croft and David Sizer
(both on his own behalf and on behalf of his family trust).
. Form D does not include a non-compete covenant and has been
executed by Scott Morgan, Edoardo Vigano, JP Forgeot, J Alpe,
Brian White, CN Limited, Dominic Leung, Dino Piccini, Jerry
Younce and Waterways Inc.
(b) Letters from CB Commercial concerning service agreements.
All of the Directors of REI and key REI employees referred to above
(other than Scott Morgan, GJ Selman, Edoardo Vigano, James Croft,
David Sizer, Jean-Pierre Forgeot, JAlpe, Brian White, Dino Piccini
and Jerry Younce) have agreed with CB Commercial Real Estate Group,
Inc. whereby CB Commercial Real Estate Group, Inc., the signatory
and REI have agreed that REI, or an appropriate subsidiary or
affiliate, will enter into a service agreement of between two and
four years (save in the case of Thom Dijksman) from the
Unconditional Date under which the signatory's existing salary and
benefits will apply and which includes a non-compete covenant. Guy
Cubitt has entered into a similar agreement with CB Commerical Real
Estate Group, Inc. and has given a non-compete covenant to CB
Commerical.
(c) Dino Piccini and Jerry Younce have each entered into agreements with
CB Commercial Real Estate Group, Inc. whereby they will be employed
by CB Commercial Real Estate Group, Inc. with effect from the
Unconditional Date for a three year period, including a pre-
determined bonus and are subject to a 24 month covenant not to
compete.
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<PAGE>
(d) Chris Thrift has entered into an employment agreement with REI for a
two year period commencing 30th April 1998.
(iii) As of the date of this document, CB Commercial has no reason to believe
that there has been any material change in the financial position or
prospects of REI since 31st December 1996.
(iv) There are no agreements or arrangements whereby any REI Shares acquired
by CB Commercial in pursuance of the Offers will or may be transferred
to any other person save that CB Commercial reserves the right to
transfer any REI Shares to any other member of the CB Commercial Group.
(v) There were no dealings in shares in or debentures of REI or CB
Commercial during the period of twelve months immediately preceding the
date of the Offers by any person who was a Director of either of them at
any time during that period other than:
<TABLE>
<CAPTION>
Dealings in REI Shares and REI Options by REI Directors
Name of Director Nature of Transaction Date Number of Shares
---------------- --------------------- ---- ----------------
<S> <C> <C> <C>
H S Morgan Acquisition 01.12.97 5,020
H S Morgan Disposal 19.12.97 5,020
H S Morgan Acquisition from the
ESOP Trustee 28.01.98 40,000
H S Morgan Issue under the REI
Share Plan 22.01.98 60,000
H S Morgan Exercise of options
under the Second 1988
Scheme 12.01.98 4,000
W P Y Shee Acquisition 17.03.97 3,000
W P Y Shee Acquisition from the
ESOP Trustee 28.01.98 60,000
W P Y Shee Exercise of options
under the Second 1988
Scheme 12.01.98 5,000
W P Y Shee Exercise of options
under the 1993 Scheme 12.01.98 12,500
W P Y Shee Issue under the REI
Share Plan 22.01.98 31,858
F J Pons Allotment under the
REI Share Plan 05.01.98 20,000
L D J Martin Allotment under the
REI Share Plan 05.01.98 53,643
G E Ryan Allotment under the
REI Share Plan 05.01.98 5,935
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Dealings in CBC Shares and CB Commercial Options by CB Commercial Directors
Name of Director Nature of Transaction Date Number of Shares
---------------- --------------------- ---- ----------------
<S> <C> <C> <C>
Gary Beban Disposal 11.06.97 2,077
Gary Beban Disposal 13.06.97 3,961
Gary Beban Grant of options 23.09.97 60,000
Gary Beban Acquisition 24.03.97 70
Richard Blum* Acquisition 03.06.97 23,500
Daniel D'Aniello
(The Carlyle
Group, L.P.) Disposal 08.09.97 25,000
Daniel D'Aniello
(The Carlyle
Group, L.P.) Disposal 18.09.97 10,000
Daniel D'Aniello
(The Carlyle
Group, L.P.) Disposal 18.09.97 10,000
Daniel D'Aniello
(The Carlyle
Group, L.P.) Disposal 20.08.97 25,000
Daniel D'Aniello
(The Carlyle
Group, L.P.) Disposal 27.08.97 10,000
Daniel D'Aniello
(The Carlyle
Group, L.P.) Disposal 27.08.97 85,000
George Kallis Acquisition 24.03.97 70
Lawrence Melody Acquisition 24.03.97 31
Lawrence Melody Acquisition 28.02.97 1,053
Ray Uttenhove Acquisition 24.03.97 70
Donald Koll Grant of options 28.08.97 58,213
Donald Koll Grant of options 28.08.97 250,000
Donald Koll Exchange** 28.08.97 734,290**
Raymond Wirta Grant of options 28.08.97 100,000
Bradford Freeman Exchange*** 28.08.97 3,402,463***
Ricardo Koenigsberger Exchange**** 28.08.97 856,839****
James Didion Gift 26.08.97 500
James Didion Grant of options 22.05.97 200,000
James Didion Acquisition 24.03.97 70
Frederic Malek
(Malek Family
Charitable Trust) Disposal 12.08.97 2,000
</TABLE>
* Beneficial ownership disclaimed by Mr Blum. A total of 461,000 CBC Shares
are held by various limited partnerships of which Richard C Blum Assoc. LP
is a general partner.
** The Koll Holding Company exchanged shares of Koll Real Estate Services for
CBC Shares in the merger of CB Commercial and Koll Real Estate Services.
Includes warrants to purchase 78,748 CBC Shares. Also includes 521,589 CBC
Shares, which Mr Wirta has an option to purchase at US$5.84 per share. Mr
Koll is trustee andco-beneficiary of The Koll Company Stock Trust, which
own 100 per cent. of The Koll Company, which in turn owns 100 per cent. of
The Koll Holding Company.
*** All of these shares are held by investment funds managed by one or more
entities controlled by Mr Freeman and others or as to which Mr Freeman is
an officer, director or partner.
**** All of these shares are held by investment funds managed by one or more
entities as to which Mr Koenigsberger is an officer, director or partner.
(vi) Coopers & Lybrand Corporate Finance has given and not withdrawn its
consent to the inclusion in this document of its letter and the
references thereto and to its name in the form and context in which
they appear.
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<PAGE>
(vii) The Directors of REI confirm that:
(a) There has not been any material change in the financial position
or prospects of REI since 31st December 1996 other than as
described below.
It is usual for REI to show slow trading for the first three
quarters of the year and a significant increase in activity in the
fourth quarter during which a significant proportion of the profit
for the year is generated. 1997 was no different in this respect
from earlier years although there was a slower build up in
activity in the final quarter than had been anticipated.
Preliminary analysis for 1997 indicates that trading performance
continued to improve, particularly in Europe, but the losses from
certain operations in Chicago and Geneva, now discontinued,
turmoil in Asia Pacific markets and the continuing strength of
sterling affected the REI Group's results.
The uncertainty in the Asia Pacific region is expected to impact
on future trading but despite this the Directors of REI consider
the REI Group's prospects to be reasonable given the geographical
spread of operations.
(b) None of the Directors of REI have any material interest in any
contract entered into by CB Commercial or any other member of the
CB Commercial Group other than as set out in paragraph 8(ii)
above.
(viii) As at 4th February 1998 (being the latest practicable date prior to
the publication of this document) the Directors of REI have the
following interests in REI Shares:
<TABLE>
<CAPTION>
Percentage of fully
Name of Director Percentage of issued diluted share
share capital of REI capital of REI
---------------- -------------------- -------------------
<S> <C> <C>
B D White 3.47 2.91
J A D Croft 3.35 2.80
D A Sizer* 3.24 2.71
G J Selman 3.31 2.77
M J Bamber 3.46 2.90
F J Pons 3.19 2.92
H S Morgan 2.46 2.06
D A Runciman 3.62 3.03
W P Y Shee 2.17 1.82
L D J Martin 1.13 1.62
G E Ryan 1.09 0.99
</TABLE>
*Includes shares held by D Sizer's family trust.
(ix) The Directors of CB Commercial confirm that the information contained
in this document concerning CB Commercial, its common stock and the
Loan Notes is correct.
(x) CB Commercial is incorporated in the State of Delaware, USA.
9. NATURE OF FINANCIAL INFORMATION
The financial information contained in Appendix IX does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act
1985 (the "Act") but constitutes non-statutory accounts within the meaning
of that Section and has been derived from each of the full audited
consolidated accounts of REI for the five financial periods ended 31st
December 1996. Copies of these accounts have been delivered to the Registrar
of Companies in England and Wales. Coopers & Lybrand have made reports under
Section 235 of the Act in respect of each such set of statutory consolidated
accounts and each such report was an unqualified report and did not contain
a statement under Sections 237(2) or (3) of the Act.
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<PAGE>
10. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection free of
charge at Herbert Smith, Exchange House, Primrose Street, London EC2A 2HS
during business hours any weekday (Saturdays and public holidays excepted)
whilst the Offers remain open for acceptance:
(i) the Memorandum and Articles of Association of REI;
(ii) the Certificate of Incorporation and Bylaws of CB Commercial;
(iii) the audited consolidated accounts of REI for the five financial
years ended 31st December 1996;
(iv) the audited consolidated accounts of CB Commercial for the five
financial years ended 31stDecember 1996;
(v) copies of the irrevocable undertakings described in paragraph 8(ii)(a)
of this Appendix;
(vi) the letter of Coopers & Lybrand dated 7th February 1998 to the
Directors of REI referred to in the letter from Barry White set out in
this document;
(vii) the letter of consent from Coopers & Lybrand referred to in
paragraph 8(vi) of this Appendix;
(viii) copies of the Rules of the REI Share Option Schemes;
(ix) copies of the Rules of the REI Share Plan and the deed of trust dated
10th April 1995 between (1) REI and (2) the ESOP Trustee;
(x) copies of the CB Commercial Share Option Schemes;
(xi) copies of the service contracts and the consultancy agreement referred
to in paragraph 4 of this Appendix;
(xii) copies of the material contracts of REI referred to in paragraph 7
of this Appendix;
(xiii) copies of the material contracts of CB Commercial referred to in
paragraph 7 of this Appendix; and
(xiv) a draft (subject to modification) of the Loan Note Instrument.
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APPENDIX XI
ADDITIONAL CB COMMERCIAL INFORMATION
PART A
SUMMARY OF PRINCIPAL DIFFERENCES BETWEEN UK GAAP AND US GAAP
REI prepares its consolidated accounts in accordance with UK GAAP, which differs
in certain significant respects from US GAAP, pursuant to which CB Commercial
prepares its consolidated accounts. The following items describe material
variations in accounting principles between UK GAAP and US GAAP which are
relevant to REI and CB Commercial. This is not an exhaustive listing of all the
measurements and disclosure differences between the two bases of accounting.
(a) GOODWILL
Under US GAAP, purchase consideration in respect of subsidiaries or
businesses acquired is allocated on the basis of fair values to the various
net assets of the subsidiaries or businesses at the date of acquisition,
and the excess purchase price over the fair market value of identified
assets acquired is recorded as goodwill. Goodwill capitalised is then
amortised by charges to profit over the period benefited. Under UK GAAP,
the REI Group has fully written off goodwill directly against reserves.
Under UK GAAP purchase consideration includes certain restructuring costs
which under US GAAP are expensed or capitalised as tangible assets when
incurred.
(b) DEFERRED TAXATION
UK GAAP requires provision for deferred taxation on timing differences only
where it is reasonable to assume that the allowances that give rise to
these differences will reverse within the foreseeable future. US GAAP would
provide deferred taxation on all temporary differences. The REI Group has
made full provision for deferred taxation, therefore no adjustment arises.
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PART B
SUMMARY OF CB COMMERCIAL CONSTITUTIONAL DOCUMENTS
The pertinent provisions of the Certificate of Incorporation and By-Laws of CB
Commercial are as follows:
1. AUTHORISED SHARES
Common 100,000,000 par value US$0.01
Preferred 8,000,000 par value US$0.01
2. VOTING RIGHTS
Common One vote per share
Preferred As set by the Board of Directors at issue
3. INDEMNITY
All officers and Directors of CB Commercial are entitled to be indemnified
for their acts and omissions relating to their positions and Directors are
specifically not liable for breaches of fiduciary duty except to the extent
such exemption from liability is not permitted under Delaware law.
4. STOCKHOLDER MEETINGS
An annual meeting of stockholders is required. Special stockholders'
meetings may be called only by the Chairman of the Board, a majority of the
Board, the Chief Executive Officer or the holders of 10 per cent. of the
outstanding shares.
Notice of stockholders' meetings must be given at least 10 days in advance
but not more than 60 days in advance. Any business may be transacted at an
annual meeting but only business specified in the meeting notice may be
transacted at a special meeting.
A stockholders list need be made available to stockholders only during the
10 days preceding a stockholders' meeting.
At any stockholders' meeting each CBC Share is entitled to one vote and a
majority of the shares present by person or proxy controls all matters so
long as a quorum is present. A quorum is present if the holders of more than
50 per cent. of the CBC Shares are present in person or by proxy.
5. DIRECTORS
The business of CB Commercial is managed by or under the direction of the
Board of Directors. The Board is entitled to establish its own size except
that it must consist of two or more persons. There are no qualification
requirements for Directors. Directors may be removed with or without cause
by the holders of a majority of the shares entitled to vote at an election
of Directors. The Board may fill vacancies by a majority vote.
The Board may hold regular (pre-established) meetings without notice and may
hold special meetings upon three days notice at the request of the Chairman
of the Board, the Chief Executive Officer or any five Directors. A quorum is
present at a meeting if a majority of the Directors is present. The Board
may act either by a majority of its members present at a meeting with a
quorum present or by unanimous written consent. Telephone meetings are
permitted.
The Board may establish one or more committees who may be given
substantially all of the powers of the Board other than the power to declare
dividends or amend the By-Laws or Certificate of Incorporation.
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6. OFFICERS
The Chairman, Chief Executive Officer and Chief Financial Officer are
appointed by the Board. All other officers are appointed by the Chief
Executive Officer. The salaries of the Chairman, the Chief Executive
Officer, the President (if any) and the Chief Financial Officer are set by
the Board. The salaries of all other officers are set by the Chief Executive
Officer. The Chief Executive Officer controls the general and active
management of the business.
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PART C
COMPARISON OF RIGHTS OF SHAREHOLDERS OF CB COMMERCIAL AND REI
The rights of CB Commercial shareholders are governed by CB Commercial's
Certificate of Incorporation (the "CBC Certificate"), its Bylaws (the "CBC
Bylaws") and the Delaware General Corporation Law (the "DGCL"). The rights of
REI Shareholders are governed by REI's Memorandum and Articles of Association
(the "REI Mem and Arts") and the laws of England and Wales. Following
consummation of the merger, the rights of REI Shareholders who become holders of
CBC Shares will be governed by the CBC Certificate, the CBC Bylaws and the DGCL.
The following is a summary of the material differences between the rights of
holders of CBC Shares and the rights of REI Shareholders under the
constitutional documents of each company. This comparison is qualified in its
entirety by reference to the CBC Certificate, the CBC Bylaws and REI's Mem and
Arts.
TRANSFER OF SHARES
REI. REI Shares are subject to the restrictions on transfer set out in the
Articles of Association. With certain limited exceptions, these restrictions
require all transfers of REI Shares to be made on a pre-emptive basis at a price
fixed by independent merchant bankers. There is no public market in REI Shares.
CB Commercial. CBC Shares are freely tradeable and are listed on the New York
Stock Exchange.
BOARD OF DIRECTORS
REI. The REI Mem and Arts provide that the number of directors shall be not less
than 3 nor more than 12 and that all directors must also be Shareholders. The
current number of directors is 11. The Board of REI must include at least two
directors who devote the greater part of their duties to an international office
in the Far East (excluding Australia), two directors who devote the greater part
of their duties to the offices of REI in Australia, two directors who devote the
greater part of their duties to international offices in Continental Europe or
South America, one director who is a partner in the English partnership of
Richard Ellis and one director who devotes the greater part of his duties to an
office in the United States operating under the "Richard Ellis" name.
CB Commercial. The CBC Bylaws provide that the number of directors shall be one
or more, as determined from time to time by resolution of the CB Commercial
Board. The current authorised and actual number of directors is 19. There is no
shareholding qualification for a director and there are no requirements
comparable to those relating to REI directors as described above.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
REI. The REI Mem and Arts provide that a vacancy on the REI Board created by a
director retiring by rotation at a General Meeting may be filled by a resolution
at that meeting passed by over a majority of all Shareholders entitled to vote
thereon. In addition, REI Shareholders may appoint new directors by way of
approval by a 75 per cent. majority of all REI Shareholders entitled to vote
thereon.
CB Commercial. The CBC Bylaws provide that a vacancy on the CB Commercial Board
relating to a director who is to be elected by all shareholders entitled to vote
may be filled by the affirmative vote of a majority of the remaining directors
then in office, even though such majority is less than a quorum. Whenever the
holders of any class or classes of stock or series thereof are entitled to elect
one or more directors, vacancies and newly created directorships of such class
or classes or series thereof may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
AMENDMENT OF CONSTITUTIONAL DOCUMENTS
REI. Under the laws of England and Wales, an amendment to the REI Mem and Arts
generally requires the approval of a 75 per cent. majority of all REI
Shareholders entitled to vote thereon.
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CB Commercial. Under the DGCL, an amendment to the Certificate of Incorporation
generally requires the recommendation of the Board of directors, the approval of
a majority of all Shares entitled to vote thereon, voting together as a single
class and the approval of a majority of the outstanding stock of each class
entitled to vote thereon.
VOTING RIGHTS
REI. REI Shareholders are entitled to one vote per share on all matters
submitted to a vote of shareholders.
CB Commercial. Holders of CBC Shares vote as a single class with respect to all
matters submitted to a vote of shareholders.
DIVIDENDS
REI. Subject to the Companies Act 1985 and any other Act for the time being in
force concerning companies and affecting REI, REI Shareholders are entitled to
profits available for dividend and resolved to be distributed, but no dividends
shall be payable in excess of the amount recommended by the Directors of REI.
CB Commercial. Holders of CBC Shares receive dividends when, as and if declared
by the CB Commercial Board, subject to Section 170 of the DGCL.
LIQUIDATION
REI. On a winding up of REI (whether the liquidation is altogether voluntary,
under supervision or by the Court) the liquidator may with the authority of an
extraordinary resolution divide among REI Shareholders in specie or in kind the
whole or part of the assets of REI and may determine how such division shall be
carried out as between REI Shareholders or different classes of REI
Shareholders.
CB Commercial. Upon a liquidation, dissolution or winding up of CB Commercial,
after the payment of claims in accordance with the DGCL, any remaining assets
shall be distributed pro rata to the holders of CBC Shares.
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PART D
OFFICER AND DIRECTOR PROFILES
<TABLE>
<CAPTION>
The following table sets forth certain information concerning each of CB
Commercial's Directors and executive officers:
<S> <C> <C>
Name Age Position
James J Didion 58 Chairman of the Board and Chief Executive Officer
Gary J Beban 50 President/Director
John C Haeckel 39 Chief Financial Officer and Senior Executive Vice President
Thaddeus W Jones 54 Senior Executive Vice President
George J Kallis 54 Senior Executive Vice President -- Director
Ronald J Platisha 50 Executive Vice President and Principal Accounting Officer
Kenneth D Sandstad 50 Senior Executive Vice President
Walter V Stafford 57 Senior Executive Vice President, General Counsel and Secretary
Richard C Clotfelter 59 Chairman and President -- Westmark Realty Advisors LLC/Director
Lawrence J Melody 60 President -- L.J. Melody and Company/Director
Ray Elizabeth Uttenhove 49 First Vice President/Director
Stanton D Anderson 56 Director
Richard C Blum 61 Director
Daniel A D'Aniello 50 Director
Bradford M Freeman 55 Director
Hiroaki Hoshino 55 Director
Ricardo Koenigsberger 31 Director
Takayuki Kohri 45 Director
Donald M Koll 64 Director
Raymond Wirta 53 President -- Financial Services/Director
Paul C Leach 51 Director
Frederic V Malek 60 Director
Peter V Ueberroth 59 Director
Gary L Wilson 57 Director
</TABLE>
James J Didion. Mr Didion has been Chairman and Chief Executive Officer of CB
Commercial since January 1987 and a Director since CB Commercial's
incorporation. Previously, he served as President of CB Commercial following a
career of almost 24 years in sales and management positions in the commercial
brokerage operations of CB Commercial. Mr Didion is a member and current trustee
of the Urban Land Institute. He is also a member of the National Realty
Committee and was Chairman of the National Realty Committee from 1993 through
June 1996. Mr Didion holds an AB degree from the University of California,
Berkeley and serves on the University's Advisory Board for the Haas School of
Business.
Gary J Beban. Mr Beban has been the President of CB Commercial since May 1995
and a Director since 1989. He joined CB Commercial'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 Corporation and its wholly-owned
subsidiary, First American Title Insurance, Inc. Mr Beban hold a BA degree from
the University of California, Los Angeles.
John C Haeckel. On 1st April 1997, Mr Haeckel, 39, joined CB Commercial 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
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merchant banking firm. Mr Haeckel holds a BA degree and a Masters of Business
and Public Management degree from Rice University.
Thaddeus W Jones. Mr Jones has been Senior Executive Vice President of CB
Commercial 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 CB Commercial's brokerage
business. Mr Jones rejoined CB Commercial in 1982 after leaving in 1979. Mr
Jones holds a BS degree from the University of California, Los Angeles.
George J Kallis. Mr Kallis has been CB Commercial's Senior Executive Vice
President since 1992 and a Director of CB Commercial 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
CB Commercial 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 BS
degree in Business Administration from University of Maryland.
Ronald J Platisha. Mr Platisha has been CB Commercial's Senior Executive Vice
President and Principal Accounting Officer since 1992. Mr Platisha was promoted
to Senior Vice President in 1991, after serving as First Vice President and
Controller from 1982 to 1991. Mr Platisha joined CB Commercial in 1976. Mr
Platisha holds a BS degree from California State University (Long Beach).
Kenneth D Sandstad. Mr Sandstad has been CB Commercial's Senior Executive Vice
President -- Brokerage Eastern US since 1991. He has also held the following
positions with CB Commercial: 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 CB
Commercial from 1992 to 1994. Mr Sandstad joined CB Commercial in 1974,
beginning at the Minneapolis office in the brokerage division. He holds a BA
degree from St. Olaf College and a JD degree from the University of Minnesota.
Walter V Stafford. Mr Stafford has served as Senior Executive Vice President and
General Counsel of CB Commercial since 1995 and Secretary since March 1997. Mr
Stafford was a partner at the law firm Pillsbury, Madison Sutro LLP from 1973
to 1982 and from 1988 to 1995. 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 BA from the
University of California, Berkeley and an LLB degree from Boalt Hall.
Richard C Clotfelter. Mr Clotfelter was elected Chairman and President, Westmark
Realty Advisors, an indirect wholly-owned subsidiary of CB Commercial in 1995,
and has been a Director of CB Commercial since 1993. Mr Clotfelter joined CB
Commercial in 1993 as President -- Capital Markets, Asset Valuation and
Management Activities. From April 1977 through 1992, he was President of
Prescott, Inc, a real estate development and management company. Mr Clotfelter
is on the board of Directors of The Commerce Bancorporation. Mr Clotfelter is
also a member of the Urban Land Institute, serving on its Urban
Development/Mixed Use Council. Mr Clotfelter holds a BA degree from Stanford
University.
Lawrence J Melody. Mr Melody has served as a Director since August 1996. He is
also President of L.J. Melody Company which he founded in February 1978. He is
a member of the International Council of Shopping Centers, the Urban Land
Institute (a member of the Multifamily Council), the Pension Real Estate
Association, the National Association of Industrial and Office Parks, the
National Multi Housing Council, as well as other professional organisations. He
is a member of Board of Trustees of the Mortgage Bankers Association of America
and past President and Director of the Texas Mortgage Bankers Association, who
awarded him their Distinguished Service Award in 1995. Mr Melody holds a BA
degree from the University of Notre Dame.
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Ray Elizabeth Uttenhove. Ms Uttenhove has been First Vice President of Retail
Tenant Services of CB Commercial since August 1995. Ms Uttenhove joined CB
Commercial in March 1981. She has been named to CB Commercial's Colbert Coldwell
Circle (representing the top three per cent. of CB Commercial's sales force) for
1995 and 1996. In 1995 she was awarded the William H McCarthy Award, the highest
honour awarded to producing professionals within CB Commercial. Ms Uttenhove
holds a BA degree from Mary Baldwin College and MA and MEd degrees from Georgia
State University.
Stanton D Anderson. Mr Anderson has been a Director of CB Commercial since 1989.
In 1995 he became counsel to the law firm of McDermott, Will Emery. Prior to
1995, Mr Anderson was a founding partner in the law firm of Anderson, Hibey
Blair. He is also a founder of Global USA, Inc., an international consulting
company, where he serves as Chairman and President. He served as Deputy Director
of the Republican Convention in 1980, 1984 and 1988, as counsel to the Reagan-
Bush Campaign in 1980 and as Director of the 1980 Presidential Transition. Mr
Anderson serves on the Board of Directors of International Management
Development Group, Ltd. Mr Anderson holds a BA degree from Westmont College and
a JD degree from Willamette University School of Law.
Richard C Blum. Mr Blum has been a Director of CB Commercial 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 the National Education Corporation, Sumitomo Bank of California, Triad
Systems Corporation, Northwest Airlines Corporation, and URS Corporation. Mr
Blum also serves as Vice Chairman of URS Corporation. Mr Blum holds a BA from
the University of California, Berkeley, a graduate degree from the University of
Vienna and an MBA degree from the University of California, Berkeley.
Daniel A D'Aniello. Mr D'Aniello has been a Director of CB Commercial since
1989. He has served as Managing Director of The Carlyle Group, a merchant
banking firm, since May 1987. From August 1986 through April 1987, Mr D'Aniello
was Vice President -- Finance and Development of Marriott Inflite Services Inc.,
a subsidiary of Marriott Corp. Mr D'Aniello is Chairman of the Board of
Directors of GTS Duratek Inc. Mr D'Aniello holds a BS degree from Syracuse
University and an MBA from the Harvard University Graduate School of Business.
Bradford M Freeman. Mr Freeman has served as a director of Koll Real Estate
Services and Koll Management Services since November 1994. Mr Freeman is a
founding partner of FSCo., which was founded in 1983. Mr Freeman is also a
member of the Board of Directors of RDO Equipment Company, an agricultural and
industrial equipment distributor. Mr Freeman holds a Bachelor of Arts Degree
from Stanford University and a Master of Business Administration Degree from
Harvard University.
Hiroaki Hoshino. Mr Hoshino has been a Director of CB Commercial 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
1981, he has served as the Chief Financial Officer and since April 1993 he has
been Executive Vice President and Chief Financial Officer of Kajima USA, Inc.
From September 1992 to April 1996, he was Executive Vice President, Chief
Financial Officer and Director of Kajima Capital of America, Inc. From April
1996 to May 1997 he was President, Chief Executive Officer, Chief Financial
Officer and Director of Kajima Capital of America, Inc. Since June 1997 he has
been Chief Operating Officer and Executive Vice President of Kajima U.S.A., Inc.
and President and Chief Executive Officer of Kajima International, Inc. Mr
Hoshino holds a BA degree from Gakushuin University.
Ricardo Koenigsberger. Mr Koenigsberger has been a partner of Apollo Real Estate
Advisors II, L.P. since 1996, and has been associated since 1995 with Apollo
Real Estate Advisors, L.P., which, together with affiliates, acts as managing
general partner of the Apollo Real Estate Investment Funds, private real estate
investment funds which invest in direct and indirect real property interests,
including real estate related public and private debt and equity securities.
From prior to 1992 Mr Koenigsberger has been associated with Apollo Advisors,
L.P. which acts as managing general partner of Apollo Investment Fund, L.P. and
AIF II, L.P., private securities investments funds. Mr Koenigsberger is a
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director of Meadowbrook Golf, Inc., Atlantic Gulf Communities Corporation and
Western Pacific Housing, Inc.
Takayuki Kohri. Mr Kohri has been a Director of CB Commercial 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 LA., 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 BA degree in Economics from Keio University.
Donald M Koll. Mr Koll has served as a director of Koll Real Estate Services
since November 1994 and as Chairman since August 1996. He has served as Chairman
of the Board and as a director of Koll Management Services since June 1988, and
also served as the Chief Executive Officer of Koll Management Services from June
1988 to May 1991. Mr Koll founded The Koll Company in 1962 and has served as
Chairman of the Board and Chief Executive Officer of The Koll Company since that
time. Since June 1992, Mr Koll has been a member of the Board of Directors and
has served as an executive officer of Koll Real Estate Group, Inc., which filed
for Chapter 11 bankruptcy protection on 14th July 1997 with a reorganisation
plan preapproved by its bondholders. Mr Koll is also a member of the Board of
Directors of Koll Real Estate Group, Inc., a real estate services company, the
Irvine Company and Fidelity National Financial, Inc., a title company. He holds
a Bachelor of Arts Degree from Stanford University.
Raymond E Wirta. Mr Wirta has served as the Chief Executive Offer of Koll Real
Estate Services since November 1994 and as Chief Executive Officer of Koll
Management Services since May 1991. He has been a director of Koll Real Estate
Services since November 1994 and of Koll Management Services since June 1988.
Prior to that time, Mr Wirta held various management positions with Koll
Management Services since 1981. Mr Wirta is a member of the Board of Directors
(and served as an executive officer from June 1992 to November 1996) of Koll
Real Estate Group, Inc., which filed for Chapter 11 bankruptcy protection on
14th July 1997 with a reorganisation plan preapproved by bondholders. Mr Wirta
is a Certified Property Manager and holds a Bachelor of Arts Degree from Long
Beach State University and a Master of Business Administration Degree in
International Management from Golden Gate University.
Paul C Leach. Mr Leach has been a Director of CB Commercial since August 1996.
Since its founding in 1991, Mr Leach has served as president of Paul Leach
Company, a private investment banking firm in San Francisco which specialises in
international domestic acquisitions and investments. He is also Managing
Director of The Lone Cypress Company, the owner of Pebble Beach Company and
Managing Director of Rancho Cielo Company, a developer in Rancho Santa Fe,
California. From 1988 through 1991, Mr Leach was a senior manager and partner in
the international merger and acquisition group at Deloitte Touche. Prior to
1988, he held several positions in San Francisco, including serving as a partner
with both Osterweis Capital Management and Centennial Petroleum Company and
manager of corporate development for Natomas Company. From 1975 through 1977, Mr
Leach served as associate director of the Domestic Council Staff at the White
House during the Ford Administration. Mr Leach holds an AB degree from Dartmouth
College and MBA and ID degrees from Stanford Graduate School of Business and
Stanford Law School, respectively.
Frederic V Malek. Mr Malek has been a Director of CB Commercial 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 Education Corp.,
Northwest Airlines
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Corporation and Paine Webber Funds. Mr Malek holds a BS degree from the United
States Military Academy at West Point and an MBA degree from the Harvard
University Graduate School of Business.
Peter V Ueberroth. Mr Ueberroth has been a Director of CB Commercial since 1989.
Since 1989 he has been an investor and Managing Director of Contrarian Group,
Inc., a business management company. From 1984 through 1989, he was the
Commissioner of Major League Baseball in the United States. Mr Ueberroth is a
member of the Board of Directors of The Coca Cola Company, Ambassadors
International, Inc., Doubletree Hotels Corp and Transamerica Corporation.
Gary L Wilson. Mr Wilson has been a Director of CB Commercial since 1989. From
1991 until 1996 he was Co-Chairman of Northwest Airlines, Inc., Northwest
Airlines Corporation and NWA, Inc and he is currently Chairman of those
organisations. From 1985 until January 1990, Mr Wilson was an Executive Vice
President and Chief Financial Officer and Director for 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 BA degree
from Duke University and an MBA from the Wharton Graduate School of Business and
Commerce at the University of Pennsylvania.
All Directors of CB Commercial are elected to hold office until the next annual
meeting of shareholders of CB Commercial and until after their successors have
been elected. Officers serve at the discretion of the Board of Directors. There
are no family relationships among any of the Directors or executive officers of
CB Commercial.
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PART E
SHARE PRICE MOVEMENTS AND TRADING HISTORY
The following graph illustrates movements in the price of CBC Shares from 26th
November 1996, the date on which dealings in CBC Shares commenced on NASDAQ,
until 4th February 1998, the latest practicable date prior to the publication of
this document.
[GRAPH APPEARS HERE]
Note: Closing price per CBC Share derived from the National Association
of Securities Dealers (to mid-November 1997) and the New York
Stock Exchange (from mid November 1997 onwards).
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PART F
DIRECTORS' INTERESTS
The following table sets forth certain information regarding beneficial
ownership by CB Commercial Directors of CB Commercial's voting capital stock as
of 31st December 1997.
Number of
Class shares
Stanton D Anderson(1) Common 27,351
Gary J Beban(1) Common 190,491
Richard C Blum(1)(2) Common 465,167
Richard C Clotfelter(1)(4) Common 118,835
Daniel A D'Aniello(1)(3) Common 186,734
James J Didion(1)(4)(5) Common 480,056
Bradford M Freeman(6) Common 3,402,463
Hiroaki Hoshino Common 0
George J Kallis(1)(4) Common 114,434
Takayuki Kohri Common 0
Donald M Koll(7) Common 1,042,503
Ricardo Koenigsberger(8) Common 856,839
Paul Leach Common 0
Frederic V Malek(1) Common 318,808
Lawrence J Melody(1) Common 10,796
Peter V Ueberroth(1) Common 14,167
Ray Elizabeth Uttenhove Common 3,559
Gary L Wilson(1) Common 4,167
Raymond Wirta Common 526,589
All Directors and executive officers as a
group (27 persons) Common 3,323,408
(1) Represents the number of CBC Shares which the named individual beneficially
owns, as well as those which the individual has options to acquire that are
exercisable on or before 31st May 1998. The respective numbers shown in the
table include the following number of options for the following
individuals: Anderson-4,235; Beban-62,500; Blum-4,167; Clotfelter-5,000;
D'Aniello-4,235 (options issued to the Carlyle Group, L.P.); Didion-
152,419; Kallis-40,000; Malek-5,934; Melody-10,796; Ueberroth-4,167; and
Wilson-4,167.
(2) Includes 460,500 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 interest in Richard C
Blum Associates, L.P.
(3) Includes 4,235 shares subject to options issued in the name of The Carlyle
Group, L.P. in which Mr D'Aniello is a general partner.
(4) Does not include common stock units in the CB Commercial Deferred
Compensation Plan.
(5) Includes 6,000 shares held by a trust for the benefit of three members of
Mr Didion's immediate family.
(6) Includes 3,278,448 shares of common stock and 351,585 warrants held by FS
Equity Partners II, L.P. of which FS Capital Partners, L.P. is the sole
general partner. Mr Freeman is one of six stockholders of FS Holdings,
Limited, the sole general partner of FS Capital Partners, L.P. Also
includes 124,015 shares and 13,299 warrants held by FS Equity Partners
International, L.P. of which FS Co International, L.P is the sole general
partner. Mr Freeman is one of six stockholders of FS International Holdings
Limited, the sole general partner of FS Co International, L.P. Mr Freeman
disclaims beneficial ownership of the shares and warrants except to the
extent of his pecuniary interest therein.
(7) Common stock and warrants held by The Koll Holding Co. which is 100 per
cent. owned by The Koll Company which is 100 per cent. owned by The Koll
Company Stock Trust, of which Mr Koll is the trustee and a co-beneficiary.
Ray Wirta and another officer hold options to purchase 599,827 of these
shares.
(8) Includes 91,887 warrants. Shares and warrants are owned by AP KMS Partners,
L.P. and AP KMS II, LLC. Mr Koenigsberger is a partner of Appollo Real
Estate Advisors II, L.P. which is a member of AP KMS II, L.L.C.
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PART G
RISK FACTORS
In addition to the other information regarding CB Commercial, REI and the Offers
contained in this document, the following factors should be considered carefully
by Shareholders.
EFFECTS AND CONDITIONS OF THE MERGER
Although the Boards of CB Commercial and REI believe that the Offers are fair
and in the best interests of their respective shareholders, there can be no
assurance that the combined companies will realise the anticipated benefits of
the merger. The Offers are subject to certain significant conditions, including
(inter alia) the passing at the EGM of the Resolution. In addition, the Board of
CB Commercial believes that consummation of the merger will result in costs to
the combined companies that are tentatively estimated to exceed US$5 million, as
well as additional restructuring and related charges associated with combining
the operations of the two companies. CB Commercial intends to expense a portion
of these costs that relate to restructuring-type costs associated with CB
Commercial's operations which are not accounted for as part of the purchase
price for REI in the quarter in which the merger is consummated, which is
anticipated to be the second quarter of 1998.
The Board of CB Commercial believes that the integration of the REI and CB
Commercial accounting, personnel, administrative and legal functions will
involve a significant risk that key employees in those operations and functions
will leave even when offered continuing employment. Certain employees could not
be easily replaced and their departure could seriously undermine the integration
process, thereby causing a loss of customers. Even if all key employees remain
there is a risk that customers of either REI or CB Commercial may elect to
terminate their agreements or that the integration process will create a
temporary inability to provide adequate service to customers causing them to
terminate their relationship with REI or CB Commercial. The integration approach
adopted by CB Commercial with respect to REI requires the devotion of a
significant amount of time by senior executives, which may detract from business
operations and development of the combined companies.
GENERAL ECONOMIC CONDITIONS
Periods of economic slowdown or recession, rising interest rates or declining
demand for real estate will adversely affect certain segments of CB Commercial's
business. Such economic conditions could result in a general decline in rents
which in turn would adversely affect revenues from property management fees and
brokerage commissions derived from property sales and leases. Such conditions
could also lead to a decline in sale prices as well as a decline in demand for
funds invested in commercial real estate and related assets. An economic
downturn or increase in interest rates also may reduce the amount of loan
originations and related servicing by CB Commercial's commercial mortgage
banking business. If CB Commercial's brokerage and mortgage banking businesses
are adversely affected, it is quite likely that other segments of CB
Commercial's business will also be adversely affected, due to the relationship
among CB Commercial's various business segments.
The sharp downturn in the commercial real estate market beginning in the late
1980s has caused and may continue to cause some property owners to dispose of or
lose their properties through foreclosures and has caused certain real estate
firms to undergo restructuring or changes in control. Such changes in the
ownership of properties may be accompanied by a change in property and
investment management firms and could cause the combined company to lose
management agreements or make the agreements it retains less profitable. Revenue
from property management services is generally a percentage of aggregate rent
collections from properties, with many management agreements providing for a
specified minimum management fee. Accordingly, the success of the combined
company will be dependent in part upon the performance of the properties it
manages. Such performance in turn will depend in part upon the combined
company's ability to attract and retain creditworthy tenants, the magnitude of
defaults by tenants under their respective leases, its ability to control
operating expenses, governmental regulations, local rent control or
stabilisation ordinances which are or may be put into effect, various
uninsurable risks, financial conditions prevailing generally and in the areas in
which
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such properties are located, the nature and extent of competitive properties and
the real estate market generally.
GEOGRAPHIC CONCENTRATION
For the year ended 31st December 1996 approximately US$177.3 million or 38.5 per
cent. of CB Commercial's total sale and lease revenue of US$461.1 million was
generated from transactions originated in the state of California. A similar
although somewhat reduced concentration is expected in 1997. As a result of CB
Commercial's geographic concentration in California, any negative performance of
the commercial real estate markets and the local economies in various areas
within California could materially adversely affect the combined company's
results of operations.
RIGHTS OF SHAREHOLDERS FOLLOWING THE MERGER
Following the merger, holders of REI Shares who accept the Offers will become
holders of CBC Shares. Certain differences exist between the rights of REI
Shareholders and the rights of CB Commercial shareholders. See Part C of this
Appendix XI for further details.
COMPETITION
CB Commercial competes in a variety of service disciplines within the commercial
real estate industry, including (i) brokerage (facilitating sales and leases on
behalf of investors), investment properties (acquisitions and sales), corporate
services, property management and real estate market research; and (ii) mortgage
banking (loan origination and servicing), investment management and advisory
services and valuation and appraisal services. Each of these business areas is
highly competitive on a national as well as local level. CB Commercial faces
competition not only from other real estate service providers, but also from
institutional lenders, insurance companies and investment advisory, mortgage
banking, accounting and appraisal firms. After the merger, CB Commercial will
continue to compete with providers of all of these services, some of which, in
certain of these business areas, are better established and have substantially
more experience than CB Commercial. Moreover, although many of CB Commercial's
competitors are local or regional firms that are substantially smaller than CB
Commercial on an overall basis, they may be substantially larger on a local or
regional basis. Because of these factors, these companies may be better able
than CB Commercial to obtain new customers, pursue new business opportunities or
to survive periods of industry consolidation. In addition, CB Commercial has
faced increased competition in recent years in the property management and
investment advisory segment of its business which has resulted in decreased
property management fee rates and margins and decreased investment advisory fees
and margins. Although CB Commercial and REI believe that the combined operations
of CB Commercial and REI will enable CB Commercial to better meet the needs of
these customers, as a result of these factors, CB Commercial will continue to
face intense competition in its existing markets and in markets where REI has
operated. In general, in each of CB Commercial's businesses there can be no
assurance that CB Commercial will be able to continue to compete effectively or
that it will be able to maintain current commission or fee levels or margins or
that it will not encounter increased competition which could limit CB
Commercial's ability to maintain or increase its market share.
RISKS INHERENT IN ACQUISITION GROWTH STRATEGY
Lack of availability of acquisition candidates
A significant component of CB Commercial's growth in 1996 and 1997 was, and part
of its principal strategy for continued growth is, through acquisitions. Recent
acquisitions have included Koll Real Estate Services, L.J. Melody Company
(mortgage banking services), Westmark Realty Advisers, LLC (investment
management and advisory services) and Langdon Rieder Corporation (tenant
advisory services). CB Commercial expects to continue its acquisition programme
both by consummating the merger described herein and by pursuing additional
acquisition opportunities. CB Commercial's future growth through acquisitions
will be partially dependent upon the continued availability of suitable
acquisition candidates at favourable prices and upon favourable terms and
conditions; however, there can be no assurance that future acquisitions can be
consummated at favourable prices or upon favourable terms and conditions. In
addition, acquisitions entail risks that
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businesses acquired will not perform in accordance with expectations and that
business judgments with respect to the value, strengths and weaknesses of
businesses acquired or the consequences of any such acquisitions will prove
incorrect.
CB Commercial's acquisition strategy is in part a response to the consolidation
within the industry which has accelerated because of increased competition. CB
Commercial is engaged in an ongoing evaluation of potential acquisitions. No
assurance can be given as to CB Commercial's ability to successfully complete
these or future acquisitions, or as to the financial effect on CB Commercial of
any acquired business. Future acquisitions by CB Commercial may result in
increased interest and amortisation expense or decreased operating income, which
could have a negative impact on CB Commercial's financial results. In addition,
acquisitions, including the proposed merger, involve numerous risks, including
difficulties in assimilating the operations and products of the acquired
companies, diversion of management's attention from other business concerns and
the uncertainty of entering markets in which CB Commercial has no or limited
prior experience.
SEASONALITY
A substantial component of CB Commercial's revenues is transactional in nature
and as a result is subject to seasonality. Historically, CB Commercial's
revenues, operating income and net income in the first two calendar quarters
have been generally lower than in the third and fourth calendar quarters due to
seasonal fluctuations, which is consistent with the industry generally. In the
first quarters of any calendar year CB Commercial has historically sustained a
loss. CB Commercial's non-variable operating expenses, which are treated as
expenses when incurred during the year, are relatively constant in total dollars
on a quarterly basis. As a consequence of the seasonality of revenues and the
relatively constant level of quarterly expenses, a substantial majority of CB
Commercial's operating income and net income has historically been realised in
the third and fourth calendar quarters. CB Commercial believes that future
operating results will continue to follow these historical patterns, although
revenues are also likely to be affected by both broad economic fluctuations and
supply and demand cyclicality relating to commercial real estate. There can be
no assurance that CB Commercial will be profitable on a quarterly or annual
basis in the future.
CB COMMERCIAL'S LEVERAGE AND THE INTANGIBLE NATURE OF ITS ASSETS
CB Commercial will have indebtedness under its principal credit agreement
following the merger of approximately US$248.5 million, as to which it will have
principal and interest obligations of approximately US$20 million.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of CBC Shares could be subject to significant fluctuations in
response to quarter-to-quarter variations in operating results of CB Commercial
or its competitors, conditions in the commercial real estate industry, the
commencement of, developments in or outcome of litigation, changes in estimates
of CB Commercial's performance by securities analysts, and other events or
factors. In addition, the stock market in recent years has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of companies. These fluctuations, as well as
general economic and market conditions, may adversely affect the market price of
CBC Shares.
RETAINED RISKS OF MORTGAGE LOANS SOLD
In connection with CB Commercial's origination and sale of certain mortgage
loans in its mortgage banking business, CB Commercial must make certain
representations and warranties concerning mortgages originated by CB Commercial
and sold to "conduit" purchasers or to the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). These representations and warranties cover such
matters as title to the mortgaged property, lien priority, environmental reviews
and certain other matters. CB Commercial's representations and warranties rely
in part on similar representations and warranties made by the borrower or
others. CB Commercial would have a claim against the borrower or another party
in the event of a breach of any of these representations or warranties; however,
CB Commercial's ability to recover on any such claim would be dependent upon the
financial condition of the party
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against which such claim is asserted. There can be no assurance that CB
Commercial will not experience a material loss as a result of representations
and warranties it makes.
POTENTIAL LACK OF SPACE TO LEASE
A significant portion of CB Commercial's brokerage business involves
facilitating the lease of commercial property including retail, industrial and
office space. Since the real estate depression of the early 1990s, the
development of new retail, industrial and office space has been limited. As a
consequence, in certain areas of the country there is beginning to be inadequate
office, industrial and retail space to meet demand and there is a potential for
a decline in CB Commercial's overall number of lease transactions, the effect of
which may, over time, be partially offset by increasing sales, including sales
of undeveloped land (which would benefit CB Commercial's brokerage business).
During 1997, CB Commercial's lease transactions increased nominally although
aggregate revenue has increased because of higher rents. There can be no
assurance that any such increase in the sale of undeveloped land will coincide
with any decline in the number of lease transactions.
ENVIRONMENTAL CONCERNS
Numerous laws and regulations have been enacted which regulate exposure to
potentially hazardous materials often found in and around buildings. Some of
these laws and regulations directly and indirectly impact the commercial real
estate market by imposing additional costs and liability on owners, operators
and sellers as well as lenders. Such laws and regulations tend to discourage
sales and leasing activities and mortgage lending with respect to some
properties, and may therefore adversely affect CB Commercial. In addition, the
failure of CB Commercial to disclose environmental issues may subject CB
Commercial to liability to a buyer or lessee of property or to a purchaser of a
mortgage loan.
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PART H
PRO FORMA FINANCIAL INFORMATION
The following tables have been prepared by CB Commercial for illustration only
using publicly available financial information relating to REI
CB Commercial and subsidiaries and REI and subsidiaries combined pro forma
income statement for the year ended 31st December 1996 (amounts in thousands)
<TABLE>
<CAPTION>
REI consolidated
CB Commercial CB Commercial for the year
consolidated for consolidated for ended 31st
the year ended the year ended December 1996
31st December 31st December (in Pounds Pro forma Total combined
1996 (audited) 1996 average 1996 (in Pounds Sterling) adjustments (in (in Pounds
(in US$) exchange rate Sterling) (audited) Pounds Sterling) Sterling)
<S> <C> <C> <C> <C> <C> <C>
Revenues 583,068 0.6373 371,589 73,664 445,253
Other operating
income 918 918
Commissions, fees
and other incentives 292,266 0.6373 186,261 186,261
Operating,
administrative
and other 228,799 0.6373 145,814 68,234 1,904(a) 215,952
Depreciation and
amortization 13,574 0.6373 8,651 1,932 10,583
---------- ---------- ------ ------- ----------
Operating income (loss) 48,429 0.6373 30,863 4,416 (1,904)(a) 33,375
Interest income 1,503 0.6373 958 391 1,349
Interest expense 24,123 0.6373 15,374 909 1,859(d) 18,142
Minority interest 0.6373 886 886
---------- ---------- ------ ------- ----------
Income (loss) before
provision (benefit)
for income tax entries
and provision for
income taxes 25,809 0.6373 16,447 3,012 (3,763)(a) 15,696
Equity income (loss) 0.6373 313 313
---------- ---------- ------ ------- ----------
Income (loss) before
provision for income
taxes 25,809 0.6373 16,447 3,325 (3,763)(a) 16,009
Provision (benefit)
for income tax 11,160 0.6373 7,112 2,382 (1,505)(b) 7,989
Reduction of
valuation
allowances (55,900) 0.6373 (35,625) (35,625)
---------- ---------- ------ ------- ----------
Net provision
(benefit) for
income tax (44,740) 0.6373 (28,513) 2,382 (1,505) (27,636)
Net income (loss) 70,549 0.6373 44,960 943 (2,258) 43,645
---------- ---------- ------ ------- ----------
Net income (loss)
applicable to
common shareholders 69,549 0.6373 44,324 943 (2,258) 43,009
---------- ---------- ------ ------- ----------
Per Share Data
Primary earnings (loss)
per share
---------- ---------- ----------
5.02 3.20 2.78
---------- ---------- ----------
Weighted average
common and common
equivalent shares
outstanding 13,845,325 13,845,325 15,466,325(c)
========== ========== ==========
Fully diluted
earnings (loss)
per share 4.97 3.17 2.76
---------- ---------- ----------
Weighted average
common and common
equivalent shares
outstanding 14,184,296 14,184,296 15,805,296
========== ========== ==========
</TABLE>
Notes:
(a) Represents amortization expense for total goodwill resulting from the
acquisition using a 30 year estimated useful life.
(b) Represents tax benefit on goodwill amortization using a 40 per cent. tax
rate.
(c) Weighted average shares includes incremental shares from the purchase.
(d) Represents interest on the borrowings for the purchase using a 6.6 per
cent. interest rate.
(e) No adjustments have been made to align the accounting policies of CB
Commercial with those of REI.
(f) It is assumed that, on the basis of an unadjusted Initial Price, a CBC
Share price of US$30 and an exchange rate of US$1.657:(pounds)1, the
consideration issued under the Offers is approximately 1.6 million CBC
Shares and cash or Loan Notes amounting to approximately (pounds)28.6
million.
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CB Commercial and subsidiaries and REI and subsidiaries combined
pro forma balance sheet as of 31st December 1996
(amounts in thousands)
<TABLE>
<CAPTION>
CB Commercial CB Commercial REI consolidated
consolidated consolidated as of 31/12/96 Pro forma Total
as of 31.12.96 as of 31/12/96 (in Pounds adjustments combined
(audited) (in Exchange rate (in Pounds Sterling) (in Pounds (in Pounds
US$) as of 31.12.96 Sterling) (audited) Sterling) Sterling)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 49,328 0.5886 29,034 7,201 36,235
Receivables 40,927 0.5886 24,090 19,492 43,582
Deferred taxes 16,257 0.5886 9,569 9,569
Prepaid and other 7,440 0.5886 4,379 4,379
-------- -------- -------- ---------- --------
TOTAL CURRENT ASSETS 113,952 67,072 26,693 93,765
Property plant and equipment 40,835 0.5886 24,035 5,130 29,165
Goodwill 65,362 0.5886 38,472 55,330(a) 95,568
1,766(b)
Investments and advances 0.5886 981 981
Other tangible assets 10,521 0.5886 6,193 6,193
Inventoried property 7,355 0.5886 4,329 4,329
Deferred taxes 35,146 0.5886 20,687 20,687
Other assets 5,773 0.5886 3,398 841 4,239
-------- -------- -------- -------- --------
TOTAL ASSETS 278,944 164,186 33,645 57,096 254,927
======== ========== ======== ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities
Compensation and 38,747 0.5886 22,806 22,806
employee benefits
Accounts payable and
accrued liabilities 28,020 0.5886 16,493 23,023 1,766(b) 41,282
Reserves for bonus and
profit sharing 21,414 0.5886 12,604 12,604
Current maturities of 15,314 0.5886 9,014 9,014
long-term debt
Current portion of capital
lease obligations 2,510 0.5886 1,477 1,477
-------- -------- -------- ---------- --------
TOTAL CURRENT LIABILITIES 106,005 62,394 23,023 1,766 87,183
Senior term loans 65,528 0.5886 38,570 38,570
Senior subordinated
term loans 72,872 0.5886 42,892 42,892
Notes payable 0.5886 7,423 28,597(a) 36,020
Inventoried property loan 7,470 0.5886 4,397 4,397
Deferred income taxes 0.5886
Other long-term debt 2,659 0.5886 1,565 1,565
Other long-term liabilities 25,925 0.5886 15,259 15,259
-------- -------- -------- ---------- --------
TOTAL LIABILITIES 280,459 165,077 30,446 30,363 225,886
Minority interest 1,303 1,303
Shareholders' equity: (deficit)
Preferred stock 40 0.5886 24 24
Common stock 133 0.5886 78 56 (56)(a) 94
16(a)
Additional paid-in capital 198,026 0.5886 116,558 4,998 (4,998)(a) 145,171
28,613(a)
Notes receivable from
sale of stock (5,109) 0.5886 (3,007) (3,007)
Retained earnings/subnotes/
accumulated deficit (265,147) 0.5886 (156,065) 12,226 (12,226)(a) (111,105)
Current year earnings 70,549 0.6373 44,960
-------- --------
TOTAL RETAINED EARNINGS (194,598) (111,105)
Goodwill reserve (15,384) 15,384(a)
Foreign currency
translation loss (7) 0.5886 (4) (3,439)
(3,435)
-------- -------- -------- ---------- --------
TOTAL STOCKHOLDERS
EQUITY (DEFICIT) (1,515) (891) 1,896 26,733(a) 27,738
-------- -------- -------- ---------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
(DEFICIT) 278,944 164,186 33,645 57,096(a) 254,927
======== ========== ========= ======= =======
</TABLE>
Notes:
(a) Represents purchase price and elimination of REI's equity as a result of
the acquisition.
(b) Represents transaction costs associated with the acquisition.
(c) It is assumed that, on the basis of an unadjusted Initial Price, a CBC
Share price of US$30 and an exchange rate of US$1.657:(pounds)1, the
consideration issued under the Offers is approximately 1.6 million CBC
Shares and cash or Loan Notes amounting to approximately (pounds)28.6
million.
(d) No adjustments have been made to align the accounting policies of CB
Commercial with those of REI.
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APPENDIX XII
TAXATION
INTRODUCTION
The following paragraphs are intended as a general guide to the potential UK and
US tax consequences of transactions undertaken or courses of action pursued by
Shareholders in connection with or as a result of the Offers. They are not
exhaustive. Accordingly, if you are in any doubt as to the exact tax treatment
of any transaction or course of action you may be contemplating in connection
with the Offers, you should consult an appropriate professional advisor. The
discussion of the potential tax consequences arising as a result of the Offers
is divided into four sections:
. Section A describes the UK tax treatment of Shareholders who are UK
residents;
. Section B addresses the UK tax treatment of Shareholders who are not UK
residents;
. Section C discusses the US tax treatment of Shareholders who are non-US
persons (defined for individuals as neither citizens nor residents of the
United States); and
. Section D reviews the US tax treatment of Shareholders who are US persons
(defined for individuals as citizens or residents of the United States).
Thus, if you are a UK resident, you should review sections A and C; if you are a
US person, you should review sections B and D; and if you are neither a UK
resident nor a US person, you should review sections B and C.
If you are unclear about your possible status as a UK resident or US person for
tax purposes (including the possible overlap between these two terms), you
should consult an appropriate professional advisor. The term "US person" for
United States federal income tax purposes differs from, and should not be
confused with, the defined term "US Person" as defined in this document.
A. UK TAX TREATMENT OF UK RESIDENTS
The following paragraphs, which are intended as a general guide only and are
based on current legislation and Inland Revenue practice, summarise the position
of non-corporate Shareholders who (unless the position of non-UK resident
Shareholders is expressly referred to) are resident or ordinarily resident in
the United Kingdom for tax purposes and who hold shares as an investment
otherwise than under a personal equity plan.
1. EXCHANGE OF REI SHARES NOT HELD UNDER THE REI SHARE PLAN FOR CBC SHARES,
CASH OR LOAN NOTES
It was announced in the Pre-Budget Report of 25th November 1997 that changes
will be made to the regime for taxing chargeable gains in the Budget on 17th
March 1998. This may lead to the tax position of Shareholders being
different from that set out below.
Liability to United Kingdom taxation of chargeable gains will depend on a
Shareholder's circumstances and on the form of consideration received.
(a) Cash
Subject to the following paragraph, to the extent that a Shareholder
receives cash under the Offers, this will constitute a disposal of his
REI Shares for the purposes of United Kingdom taxation of chargeable
gains. Such a disposal may give rise to a liability to United Kingdom
tax on chargeable gains, depending on the Shareholder's circumstances
(including the availability of exemptions or allowable losses).
Where a Shareholder opts for a mixture of cash and CBC Shares or Loan
Notes and the amount of cash received is "small" as compared with the
value of his REI Shares, the receipt of the cash will not trigger a
disposal at that time. The cash received will be
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apportioned between the CBC Shares and/or Loan Notes and deducted from
his/her chargeable gains acquisition cost in the CBC Shares/Loan Notes
with the result that the Shareholder may have to pay more tax on a
disposal of the CBC Shares/Loan Notes than would otherwise have been
the case.
Current Inland Revenue practice is to regard a sum as "small" for these
purposes if either (i) it is 5 per cent. or less of the value of the
REI Shares held by the particular Shareholder; or (ii) it is
(pounds)3,000 or less, regardless of whether it satisfies the 5 per
cent. test.
Under current Inland Revenue practice, a Shareholder who receives Loan
Notes and a "small" sum of cash may elect that the receipt of the
"small" sum of cash triggers a disposal. The advisability of such an
election will depend upon a Shareholder's individual circumstances, in
particular the availability to a Shareholder of any reliefs or
exemptions from tax on chargeable gains in the tax year in which the
cash is received.
(b) CBC Shares or Loan Notes
To the extent that a Shareholder receives Loan Notes and/or CBC Shares
under the Offers, he/she should be treated as not having made a
disposal of his REI Shares. Instead, any gain or loss which would
otherwise have arisen on a disposal of his/her REI Shares should be
"rolled-over" into the Loan Notes and/or CBC Shares so that the Loan
Notes and/or CBC Shares will be treated as the same asset as the REI
Shares, acquired at the same time as the REI Shares and for the same
acquisition cost.
In certain circumstances the above rules regarding the roll-over of any
gain or loss will not apply to a Shareholder who, together with persons
connected with him/her, holds more than 5 per cent. of any class of
shares or debentures of REI. Such persons are advised that an
application for clearance has been made to the Inland Revenue under
section 138 of the Taxation of Chargeable Gains Act 1992 in respect of
the Offers and clearance has been given so that the benefit of the
above rules regarding the roll-over of any gain or loss should be
given.
(c) Stamp duty
No stamp duty or stamp duty reserve tax will be payable by Shareholders
by reason of their acceptance of the Offers.
2. TAX CONSEQUENCES OF HOLDING CBC SHARES OR LOAN NOTES
(a) CBC Shares
UK tax may be payable by a UK resident shareholder receiving dividends
on CBC Shares, depending on that shareholder's individual
circumstances. The UK tax liability will be calculated on the gross
amount of the dividend received (i.e. the sum of the amount of the net
dividend received and the amount of any US withholding tax). In
calculating a shareholder's liability to UK tax, credit is allowed for
US withholding tax suffered on the dividend.
(b) Loan Notes
The interest on the Loan Notes will form part of the recipient's income
for the purposes of United Kingdom tax. A disposal of Loan Notes may
give rise to a tax liability for the holder on an amount representing
interest accrued on the Loan Notes at the date of disposal.
3. DISPOSITION OF CBC SHARES AND LOAN NOTES
A subsequent disposal (including redemption) of Loan Notes and/or CBC Shares
may give rise to a liability to United Kingdom taxation of chargeable gains.
To the extent a chargeable gain arises the indexation allowance should
continue to be available in respect of the acquisition cost in the REI
Shares.
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4. REI SHARE OPTION SCHEMES AND THE REI SHARE PLAN
In view of the small number of UK resident holders of REI Options and
participants in the REI Share Plan, this section does not address tax issues
relevant to such persons. Such persons are advised to consult an appropriate
professional adviser in relation to the UK tax consequences of the Offers in
respect of REI Options and REI Shares held under the REI Share Option
Schemes and the REI Share Plan. Special tax provisions may apply to REI
Shareholders who have acquired or acquire their REI Shares by exercising
options under the REI Share Option Schemes, including provisions imposing a
charge to UK income tax when such options are exercised.
B. UK TAX TREATMENT OF NON-UK RESIDENTS AND NON-UK DOMICILIARIES
References in this Section B to the "residence" or "ordinary residence" of a
person in the UK mean the residence or ordinary residence of that person in
the UK for UK tax purposes for the relevant tax year. A tax year (for UK tax
purposes) for individuals starts on 6th April in any year and ends on 5th
April in the following year. Residence and ordinary residence are complex
areas and professional advice should be sought.
1. EXCHANGE OF REI SHARES NOT HELD UNDER THE REI SHARE PLAN FOR CBC SHARES,
CASH OR LOAN NOTES
Shareholders who are neither resident nor ordinarily resident in the UK for
the tax year in which they dispose of their REI Shares will not be liable to
UK tax on chargeable gains unless they are carrying on a trade, profession
or vocation in the UK through a branch or agency and the REI Shares are used
for the purposes of that trade, profession or vocation or the branch or
agency before the disposal. Furthermore, to the extent that REI Shares are
exchanged for CBC Shares and/or Loan Notes, the relevant Shareholder should
not be treated as making a disposal at that time (see paragraph 1 of Section
A above).
Shareholders who are resident or ordinarily resident in the UK (but not
domiciled in the UK) for the tax year in which they dispose of their REI
Shares will be liable to UK tax on chargeable gains arising on such a
disposal to the extent that either the REI Shares disposed of were situated
in the UK or were situated outside the UK but the proceeds of the disposal
were received in the UK. For these purposes registered shares and securities
are situated where they are registered. This will normally be where the
issuing company is incorporated.
2. TAX CONSEQUENCES OF HOLDING CBC SHARES OR LOAN NOTES
(a) CBC Shares
For so long as CB Commercial is not resident in the UK, a shareholder
who is not resident in the UK and is not carrying on a trade,
profession or vocation within the UK to which the dividends relate will
not be liable to UK income tax on dividends on CBC Shares. A
shareholder who is resident in the UK but not domiciled in the UK may
claim to be taxed on a remittance basis in respect of dividends so that
the dividends are taxed in the UK only to the extent they are received
in the UK.
(b) Loan Notes
A holder of Loan Notes who is not resident in the UK and is not
carrying on a trade, profession or vocation within the UK to which the
interest relates will not be liable to UK income tax on US source
interest on the Loan Notes. A holder of Loan Notes who is resident in
the UK but not domiciled in the UK may claim to be taxed on a
remittance basis in respect of interest so that the interest is taxed
in the UK only to the extent it is received in the UK.
3. DISPOSITION OF CBC SHARES AND LOAN NOTES
Shareholders who are neither resident nor ordinarily resident in the UK for
the tax year in which they dispose of their Loan Notes and/or CBC Shares
will not be liable to UK tax on chargeable gains on such a disposal unless
they are carrying on a trade, profession or vocation in the UK
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through a branch or agency and the Loan Notes and/or CBC Shares are used for
the purposes of that trade, profession or vocation or the branch or agency
before the disposal.
Shareholders who are resident or ordinarily resident in the UK (but not
domiciled in the UK) for the tax year in which they dispose of Loan Notes
and/or CBC Shares will be liable to UK tax on chargeable gains arising on
such a disposal to the extent that either the relevant asset disposed of was
situated in the UK or the relevant asset disposed of was situated outside
the UK but the proceeds of the disposal were received in the UK. For these
purposes registered shares and securities are situated where they are
registered. This will normally be where the issuing company is incorporated.
4. REI SHARE OPTION SCHEMES
Optionholders who are not and have not been resident or ordinarily resident
in the UK for any tax year up to and including the tax year in which their
REI Options are exercised and have not performed duties in the UK will not
be charged to UK income tax or UK tax on chargeable gains on any gain
realised on the exercise of REI Options.
Optionholders who, under the Offers, "roll" their REI Options into CB
Commercial Options will not be charged to UK income tax or UK taxation on
chargeable gains by reason of a release of their REI Options. The CB
Commercial Options will not be regarded for the purposes of UK taxation of
chargeable gains as consideration for the release of REI Options and the
amount or value of the consideration given by that Optionholder for the CB
Commercial Options shall be taken for UK tax purposes to be the amount or
value of the consideration given by him for the REI Options.
Optionholders who "roll" their REI Options into CB Commercial Options and
have not been resident or ordinarily resident in the UK for any tax year up
to and including the tax year in which the option is exercised and have not
performed duties in the UK will not be charged to UK income tax or UK tax on
chargeable gains on any gain realised on the exercise of CB Commercial
Options. UK tax on chargeable gains may be payable on a subsequent disposal
of CBC Shares, depending on the factors set out in paragraph 3 above.
5. REI SHARE PLAN
Any gain in relation to REI Shares held under the REI Share Plan will not be
subject to UK income tax if the gain is realised by an employee who, for all
tax years up to and including the tax year in which the gain is made, is not
and has not been resident or ordinarily resident in the UK for tax purposes
and has not performed duties in the UK.
The exchange of REI Shares vested under the REI Share Plan for CBC Shares,
cash or Loan Notes will not result in a charge to UK taxation on chargeable
gains for Shareholders who are neither resident nor ordinarily resident in
the UK for the tax year in which the exchange occurs, subject to the
comments set out in paragraph 1 above.
C. US TAX TREATMENT OF NON-US PERSONS
Statements regarding United States taxation are based upon United States federal
tax laws now in effect and as currently interpreted and do not discuss the tax
laws of any state or local taxing jurisdiction of the United States.
1. EXCHANGE OF A AND C SHARES FOR CBC SHARES, CASH OR LOAN NOTES
An individual who is not a US person and who holds A or C Shares as capital
assets (which include all assets other than certain items held in connection
with a person's trade or business and other specifically enumerated types of
property) would generally not be subject to United States federal income tax
on gains recognised on a sale or exchange of A or C Shares unless:
(a) the gain was effectively connected with the conduct of a trade or
business within the United States by such individual; or
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(b) the sale or exchange was attributable to an office or other fixed place
of business of such individual within the United States, such individual
was present in the United States for 183 days or more during the taxable
year of disposition and certain other conditions were met.
If neither of these criteria were met, the exchange of A or C Shares for CBC
Shares, cash or Loan Notes by a non-US person would not be subject to United
States federal income tax. If you have business contacts with the United
States or visit the United States extensively such that either of the
foregoing criteria might be met, you should consult an appropriate
professional advisor as to the application of these rules to your particular
situation.
2. TAX CONSEQUENCES OF HOLDING CBC SHARES OR LOAN NOTES
(a) CBC Shares
As noted in paragraph 11 of the letter from James Didion, no dividends
were paid or accrued on CBC Shares or CB Commercial preferred stock
from 1992 through September 1996 and no dividends are likely to be
declared or paid in the foreseeable future. In the unlikely event that
any dividends are declared, CB Commercial would be required under
United States domestic law to withhold United States federal income tax
at 30 per cent. upon any dividends paid to CB Commercial shareholders
who are not US persons. Under the extensive network of tax treaties to
which the United States is a party, however, this withholding on
dividends typically is significantly reduced. For example, under the
US-UK Income Tax Treaty (the "Treaty") the rate of withholding is
halved to 15 per cent. in the case of UK residents who are eligible for
the benefits of the Treaty and who properly provide the corporation in
which they hold shares with an IRS Form 1001 to demonstrate their
entitlement to the reduced rate. In this regard, CB Commercial would
generally be required to report to the IRS the amount of any dividends
paid on CBC Shares in each calendar year and the amount of tax withheld
on those dividends. Payments to CB Commercial shareholders of any
dividends that are subject to withholding, including withholding
imposed at a reduced rate under an applicable tax treaty, typically
would not be subject to the 31 per cent. US backup withholding tax.
Thus, depending upon the availability of treaty benefits and compliance
with the IRS Form 1001 filing requirements, CB Commercial shareholders
who are non-US persons may be able to receive any dividends that CB
Commercial might declare subject to withholding at a rate that is
significantly less than the standard 30 per cent. imposed under United
States domestic law.
Credits against domestic taxes may also be available under the tax laws
of non-US persons' home countries for foreign taxes, such as US
withholding tax, paid on dividends. See, for example paragraph 2 of
Section A above. Appropriate local professional advice should be sought
in this regard.
(b) Loan Notes
Interest paid or original issue discount ("OID"), if any, accrued on
Loan Notes held by an individual other than a US person would generally
be exempt from US income and withholding taxation as "portfolio
interest" provided:
(i) such interest was not effectively connected with the conduct of a
trade or business within the United States by such holder;
(ii) such holder did not actually or constructively own 10 per cent. or
more of the total combined voting power of all classes of stock of
CB Commercial entitled to vote; and
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(iii) such holder certified under penalties of perjury to CB Commercial
that he or she was not a US person and provided his or her name and
address, generally on IRS Form W-8.
Even if interest paid or OID, if any, accrued on the Loan Notes did not
constitute portfolio interest, such interest or OID could be subject to
reduced withholding or even exempt from United States federal income and
withholding tax if paid to or accrued by a non-US person entitled to the
benefits of an income tax treaty to which the United States is a party.
Treaty benefits would not be available, however, if the interest paid or
OID, if any, accrued was attributable to a permanent establishment of the
Loan Note holder or fixed base from which the holder performed
independent personal services within the United States.
In order to obtain a reduction or exemption from withholding under an
applicable treaty, the Loan Note holder would have to file IRS Form 1001
with CB Commercial. CB Commercial would, where required, report to the
holders of Loan Notes and the IRS the amount of interest paid and OID, if
any, accrued on the Loan Notes in each calendar year and the amount of
tax withheld, if any, with respect to the same. In general, payments of
interest and OID, if any, on the Loan Notes would not be subject to the
31 per cent. US backup withholding tax.
In no event would CB Commercial gross up payments of interest on Loan
Notes if it were required to withhold United States federal income tax
with respect to those interest payments.
(c) United States federal estate tax
For any non-US person for whom the interest on Loan Notes qualifies as
portfolio interest, the Loan Notes would not be includible in that
person's estate for United States federal estate tax purposes. However,
CBC Shares would be includible in the person's estate for such purposes.
The United States tax consequences of this may be complex and should be
the subject of appropriate professional advice, which may include
details of potential relief under an applicable estate tax treaty to
which the United States is a party.
3. DISPOSITION OF CBC SHARES AND LOAN NOTES
An individual who is not a US person and who holds CBC Shares or Loan Notes
as capital assets would generally not be subject to United States federal
income tax on gains recognised on a sale or other disposition of CBC Shares
or Loan Notes (including upon redemption or retirement of Loan Notes)
unless:
(a) the gain was effectively connected with the conduct of a trade or
business within the United States by such individual; or
(b) the sale or exchange was attributable to an office or other fixed place
of business of such individual within the United States, such individual
was present in the United States for 183 days or more during the taxable
year of disposition and certain other conditions were met.
Under temporary US Treasury regulations, information reporting and backup
withholding requirements would apply, however, to the gross proceeds paid to
a holder who is not a US person on the disposition of CBC Shares or Loan
Notes by or through a United States office of a United States or foreign
broker, unless the holder certified to the broker under penalties of perjury
as to his or her name, address and status as a foreign person or the holder
otherwise established an exemption. Information reporting requirements, but
not backup withholding, would also apply to a payment of the proceeds of a
disposition of CBC Shares or Loan Notes by or through a foreign office of a
United States broker or a foreign broker with certain types of relationships
to the United States unless such broker possessed documentary evidence in
its file that the holder of the CBC Shares or Loan Notes was not a US person
and such broker had no
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actual knowledge to the contrary, or the holder established an exception.
Neither information reporting nor backup withholding generally would apply
to a payment of the proceeds of a disposition of CBC Shares or Loan Notes by
or through a foreign office of a foreign broker not subject to the preceding
rules.
If none of the foregoing criteria were met, or if any applicable information
reporting requirements were satisfied, the disposition of CBC Shares or Loan
Notes by a non-US person would not be subject to United States federal
income tax, including backup withholding. If you have business contacts with
the United States or visit the United States extensively, or if you have any
doubt as to potential information reporting obligations that may apply to
you upon the disposition of CBC Shares or Loan Notes, you should consult an
appropriate professional advisor.
4. REI SHARE OPTION SCHEMES
(a) Exercise of REI Options by non-US persons under the REI Share Option
Schemes prior to the Unconditional Date and subsequent exchange of A
Shares for CBC Shares, cash or Loan Notes
(i) Exercise
An Optionholder who is a non-US person and exercises REI Options
under the REI Share Option Schemes prior to the Unconditional Date
would be treated for United States federal income tax purposes as
receiving compensation income equal to the difference between the
fair market value of the A Shares on the exercise date and the
price paid for those A Shares. Whether and to what extent any such
compensation income would be subject to United States federal
income tax would depend, among other things, upon whether and to
what extent the exercising Optionholder has performed services
within the United States for REI or its affiliates. If you have
performed services within the United States for REI or its
affiliates and propose to exercise REI Options prior to the
Unconditional Date, you should consult an appropriate professional
advisor as to the application of the relevant US rules to your
particular situation. If you have not performed services within the
United States for REI or its affiliates, you would not be subject
to United States federal income tax upon the exercise of REI
Options under the REI Share Option Schemes.
(ii) Exchange
As described in paragraph 1 above, provided certain criteria are
met, the sale or exchange of A Shares for CBC Shares, cash or Loan
Notes by a non-US person would not be subject to United States
federal income taxation.
(b) Roll-over of REI Options by non-US persons under the REI Share Option
Schemes into CB Commercial Options
The rights of Optionholders to roll over their REI Options upon a change
of control of REI (subject to the consent of CB Commercial) exist under
the REI Share Option Schemes, rather than under the Offers. Accordingly,
the tax consequences to non-US persons of rolling over REI Options into
CB Commercial Options are not analysed here. If you propose to elect to
roll over REI Options into CB Commercial Options, rather than exchanging
unexercised REI Options for options over CB Commercial Options pursuant
to the Offers and in the manner described in paragraph 4(c) immediately
below, you should consult an appropriate professional advisor regarding
the potential US tax consequences.
(c) Exchange of unexercised REI Options for CB Commercial Options and
subsequent exercise of those CB Commercial Options
There would typically be no United States federal income tax
consequences to a holder of unexercised REI Options who is not a US
person upon the exchange of REI Options for CB Commercial Options. Upon
the subsequent exercise of CB Commercial Options,
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however, United States federal income tax law would treat the exercising
optionholder as receiving compensation income equal to the difference
between the fair market value at that time of the newly acquired CBC
Shares and the price paid for those CBC Shares. Whether and to what
extent any such compensation income would be subject to United States
federal income tax would depend, among other things, upon whether and to
what extent the exercising optionholder has performed services within
the United States for CB Commercial or its affiliates. To the extent
that you perform services within the United States for CB Commercial or
its affiliates and subsequently propose to exercise options to acquire
CBC Shares, you should consult an appropriate professional advisor. If
you do not perform services within the United States for CB Commercial
or its affiliates, you would not be subject to United States federal
income tax upon the exercise of CB Commercial Options.
5. REI OPTIONS THAT ARE NOT COVERED BY THE REI SHARE OPTION SCHEMES
The US tax consequences that relate to any transaction undertaken or course
of action pursued by non-US persons with respect to REI Options other than
those existing under the REI Share Option Schemes are not analysed here. Any
non-US person who has an REI Option other than one existing under any of the
REI Share Option Schemes should consult an appropriate professional advisor
in this respect.
6. REI SHARE PLAN -- OPTION A
(a) One-third of the B Shares which vest on an accelerated basis on or
prior to the Unconditional Date
(i) Conversion of B Shares into A Shares on or prior to the
Unconditional Date
For United States federal income tax purposes, any Shareholder whose
B Shares are converted into A Shares on or prior to the
Unconditional Date would be treated as receiving compensation income
equal to the difference between the fair market value on the
conversion date of the A Shares and the price previously paid for
the converted B Shares. Whether and to what extent any such
compensation income would be subject to United States federal income
tax would depend, among other things, upon whether and to what
extent the Shareholder has performed services within the United
States for REI or its affiliates. If you have performed services
within the United States for REI or its affiliates and hold B Shares
under the REI Share Plan, you should consult an appropriate
professional advisor as to the application of the relevant US rules
to your particular situation. If you have not performed services
within the United States for REI or its affiliates, you would not be
subject to United States federal income tax upon the conversion of B
Shares into A Shares on or prior to the Unconditional Date.
(ii) Subsequent exchange of A Shares for CBC Shares, cash or Loan Notes
As described in paragraph 1 above, provided certain criteria are
met, the sale or exchange of A Shares for CBC Shares, cash or Loan
Notes by a non-US person would not be subject to United States
federal income taxation.
(b) Two-thirds of the B Shares which vest equally on an accelerated basis
on 1st January 1999 and 2000
(i) Exchange of B Shares for CBC Shares that are subject to vesting
requirements similar to those set forth in the REI Share Plan
No United States federal income tax consequences would arise for an
individual upon the exchange of unvested B Shares for unvested CBC
Shares so long as no "Section 83(b) Election" has been made by the
individual with regard to those unvested B Shares.
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(ii) Subsequent vesting of CBC Shares
Upon the vesting of the CBC Shares in question, the newly vested CB
Commercial shareholder would be treated for United States federal
income tax purposes as receiving compensation income equal to the
difference between the fair market value at that time of the vested
CBC Shares and the price originally paid for the BShares exchanged
for those CBC Shares pursuant to the Offers. Whether and to what
extent any such compensation income would be subject to United
States federal income tax would depend, among other things, upon
whether and to what extent a newly vested CB Commercial shareholder
has performed services within the United States for CB Commercial or
its affiliates. To the extent that you perform services within the
United States for CB Commercial or its affiliates and exchange
unvested B Shares for CBC Shares that are subject to vesting
requirements similar to those set forth in the REI Share Plan, you
should consult an appropriate professional advisor. If you do not
perform services within the United States for CB Commercial or its
affiliates, you would not be subject to United States federal income
tax upon the vesting of CBC Shares.
7. REI SHARE PLAN -- OPTIONS B AND C
For United States federal income tax purposes, non-US persons who are
participants under Options B and C of the REI Share Plan would be treated as
having received REI Shares as and when they vested, even if the REI Shares
continued to be held by the ESOP Trustee. Thus, non-US persons electing to
receive REI Shares under Option B or C would be treated for United States
federal income tax purposes as if they held directly the REI Shares that are
held on their behalf by the ESOP Trustee. The consequences of such treatment
would be as follows:
(a) as to the one-third of the REI Shares which vest on an accelerated basis
on or prior to the Unconditional Date, as described in paragraph 6(a)(i)
above;
(b) upon the exchange by the ESOP Trustee of vested REI Shares for CBC
Shares, cash or Loan Notes as described in paragraph 6(a)(ii) above;
(c) upon the exchange by the ESOP Trustee of unvested REI Shares for
unvested CBC Shares or unvested rights to cash or Loan Notes, as
generally described in paragraph 6(b)(i) above; and
(d) upon the subsequent vesting of those CBC Shares or rights to cash or
Loan Notes, non-US persons would be treated as receiving compensation
income, as generally described in paragraph 6(b)(ii) above.
No United States federal income tax would be imposed upon the ESOP Trustee
as a result of any of the foregoing events.
D. US TAX TREATMENT OF US PERSONS
Statements regarding United States taxation are based upon United States federal
tax laws now in effect and as currently interpreted and do not discuss the tax
laws of any state or local taxing jurisdiction of the United States.
1. Exchange of A and C Shares for CBC Shares, cash or Loan Notes
The sale or exchange of A or C Shares pursuant to the Offers in exchange for
CBC Shares, cash or Loan Notes would constitute a taxable event for any
Shareholder who is a US person. Such a holder would realise gain or loss
equal to the difference between: (i) the fair market value of the CBC Shares
and/or any Loan Notes and the amount of any cash received (all as converted
to US dollars on the date of receipt); and (ii) his or her federal income
tax basis in the relinquished A or C Shares. Any gain would generally be
taxable in the year of disposition, with the exception that Shareholders
receiving Loan Notes and not electing otherwise would report the gain
attributable to Loan Notes on an instalment basis.
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Under the instalment method, any US person exchanging A or C Shares for Loan
Notes would recognise gain from the disposition of those A or C Shares
attributable to the Loan Notes proportionately upon receipt of payments of
principal on the Loan Notes. If the Loan Notes are issued with OID, these
computations would be based on the Loan Notes' "adjusted issue price" in
lieu of principal. If you are a US person and intend to exchange A or C
Shares for Loan Notes, you should consult an appropriate professional
advisor with respect to potential application of the OID rules to the Loan
Notes and the instalment sales rules, particularly in connection with
additional taxes which may become payable if you hold more than US$5 million
in instalment obligations.
2. TAX CONSEQUENCES OF HOLDING CBC SHARES OR LOAN NOTES
(a) CBC Shares
Any distributions with respect to CBC Shares would be treated as
dividends for United States federal income tax purposes and would be
taxed in the hands of a US person as ordinary income to the extent of
CB Commercial's earnings and profits (either accumulated or current)
for tax purposes. Distributions in excess of earnings and profits would
first reduce the recipient's tax basis (but not below zero) in the CBC
Shares and would thereafter be treated as gain from disposition of
those shares.
A US person holding CBC Shares could also be subject to US backup
withholding at 31 per cent. with respect to any dividends that may be
paid on CBC Shares if he or she failed: (i) to provide (generally on
IRS Form W-9) a correct taxpayer identification number (i.e., social
security number); (ii) to report dividend income in full; or (iii) to
certify (also generally on IRS Form W-9) that he or she has provided a
correct taxpayer identification number and is not subject to backup
withholding. Thus, in order to ensure that backup withholding is not
imposed with respect to any dividends that may be paid on CBC Shares,
the foregoing information reporting and certification requirements
should be satisfied.
(b) Loan Notes
Interest on the Loan Notes would be taxable as ordinary income when
paid or accrued in accordance with the holder's method of accounting
for United States federal income tax purposes. If the Loan Notes are
issued with OID, such OID would be taken into account as ordinary
income over the term of the Loan Notes utilising a constant yield to
maturity method, irrespective of the holder's method of accounting and
even though cash attributable to such OID would not be received until
retirement or redemption of the Loan Notes.
If you are a US person and contemplate holding Loan Notes, you should
consult an appropriate professional advisor with regard to the
possibility that the Loan Notes will be issued with OID and the special
United States federal income tax rules applicable to the receipt of
interest and principal in Pounds Sterling (i.e. in a currency other
than US dollars).
A US person holding Loan Notes could also be subject to US backup
withholding at 31 per cent. with respect to interest and OID, if any,
paid and accrued on Loan Notes if he or she failed: (i) to provide
(generally on IRS Form W-9) a correct taxpayer identification number
(i.e., social security number); (ii) to report interest income in full;
or (iii) to certify (also generally on IRS Form W-9) that he or she has
provided a correct taxpayer identification number and is not subject to
backup withholding. Thus, in order to ensure that backup withholding is
not imposed with respect to any interest and OID, if any, paid and
accrued on Loan Notes, the foregoing information reporting and
certification requirements should be satisfied.
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3. Disposition of CBC Shares and Loan Notes
The sale or other disposition of CBC Shares or Loan Notes (including upon
redemption or retirement of Loan Notes) would constitute a taxable event for
any US person. The gain or loss recognised would equal the difference
between: (i) the fair market value of property and the amount of cash
received; and (ii) the US person's federal income tax basis of the
relinquished CBC Shares or Loan Notes.
A US person disposing of CBC Shares or Loan Notes could also be subject to
US backup withholding at 31 per cent. with respect to the gross proceeds of
that disposition if he or she failed: (i) to provide (generally on IRS Form
W-9) a correct taxpayer identification number (i.e. social security number);
(ii) to report the amount realised on the disposition; or (iii) to certify
(also generally on IRS Form W-9) that he or she provided a correct taxpayer
identification number and is not subject to backup withholding. Thus, in
order to ensure that backup withholding is not imposed with respect to any
amount realised on the sale or other disposition of CBC Shares or Loan
Notes, the foregoing information reporting and certification requirements
should be satisfied.
4. REI SHARE OPTION SCHEMES
(a) Exercise of Options by US persons under the REI Share Option Schemes
prior to the Unconditional Date and subsequent exchange of A Shares for
CBC Shares, cash or Loan Notes
(i) Exercise
An Optionholder who is a US person and exercises REI Options under
the REI Share Option Schemes prior to the Unconditional Date would
be treated for United States federal income tax purposes as
receiving compensation income equal to the difference between the
fair market value of the newly acquired shares on the exercise date
and the price paid for those A Shares.
(ii) Exchange
As described in paragraph 1 above, the sale or exchange of A Shares
for CBC Shares, cash or Loan Notes would constitute a taxable event
for any Shareholder who is a US person.
(b) Roll-over of REI Options by US persons under the REI Share Option
Schemes into CB Commercial Options
The rights of Optionholders to roll over their REI Options upon a change
of control of REI (subject to the consent of CB Commercial) exist under
the REI Share Option Schemes, rather than under the Offers. Accordingly,
the tax consequences to US persons of rolling over REI Options into
CB Commercial Options are not analysed here. If you propose to elect to
roll over REI Options into CB Commercial Options, rather than exchanging
unexercised REI Options for CB Commercial Options pursuant to the Offers
and in the manner described in paragraph 4(c) immediately below, you
should consult an appropriate professional advisor regarding the
potential US tax consequences.
(c) Exchange of unexercised REI Options for CB Commercial Options and
subsequent exercise of those CB Commercial Options
There would typically be no United States federal income tax
consequences to a holder of unexercised REI Options who is a US person
upon the exchange of REI Options for CB Commercial Options. Upon the
subsequent exercise of CB Commercial Options, however, United States
federal income tax law would treat the exercising optionholder as
receiving compensation income equal to the difference between the fair
market value at that time of the newly acquired CBC Shares and the price
paid for those CBC Shares.
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5. REI Options that are not covered by the REI Share Option Schemes
The US tax consequences that relate to any transaction undertaken or course
of action pursued by US persons with respect to REI Options other than those
existing under the REI Share Option Schemes are not analysed here. Any US
person who has an REI Option other than one existing under any of the REI
Share Option Schemes should consult an appropriate professional advisor in
this respect.
6. REI SHARE PLAN -- OPTION A
(a) One-third of the B Shares which vest on an accelerated basis on or
prior to the Unconditional Date
(i) Conversion of B Shares into A Shares on or prior to the
Unconditional Date
For United States federal income tax purposes, any Shareholder whose
B Shares are converted into A Shares on or prior to the
Unconditional Date would be treated as receiving compensation income
equal to the difference between the fair market value on the
conversion date of the A Shares and the price previously paid for
the converted B Shares.
(ii) Subsequent exchange of A Shares for CBC Shares, cash or Loan Notes
As described in paragraph 1 above, the sale or exchange of A Shares
for CBC Shares, cash or Loan Notes would constitute a taxable event
for any Shareholder who is a US person.
(b) Two-thirds of the B Shares which vest equally on an accelerated basis
on 1st January 1999 and 2000
(i) Exchange of B Shares for CBC Shares that are subject to vesting
requirements similar to those set forth in the REI Share Plan
Except as described in the next sentence, no United States federal
income tax consequences would arise for an individual upon the
exchange of unvested B Shares for unvested CBC Shares. Holders of
unvested B Shares who are US persons and who have made valid
"Section 83(b) Elections" with respect to the receipt of unvested B
Shares, however, would likely recognise gain or loss on their
unvested BShares upon the receipt of unvested CBC Shares in exchange
for those unvested B Shares. If you are a US person who holds B
Shares under the REI Share Plan, you should consult an appropriate
professional advisor concerning the potential recognition of gain or
loss on the exchange of unvested B Shares for unvested CBC Shares,
as well as the advisability of making protective "Section 83(b)
Elections" with respect to the receipt of unvested CBC Shares.
(ii) Subsequent vesting of CBC Shares
Except where the protective "Section 83(b) Election" described in
paragraph 6(b)(i) above is available and has been made, upon the
vesting of the CBC Shares in question, the newly vested CB
Commercial shareholder would be treated for United States federal
income tax purposes as receiving compensation income equal to the
difference between the fair market value at that time of the vested
CBC Shares and the price originally paid for the B Shares exchanged
for those CBC Shares pursuant to the Offers.
7. REI SHARE PLAN -- OPTIONS B AND C
For United States federal income tax purposes, US persons who are
participants under Options B and C of the REI Share Plan would be treated as
having received REI Shares as and when they vested, even if the REI Shares
continued to be held by the ESOP Trustee. Thus, US persons electing to
receive REI Shares under Option B or C would be treated for United States
federal
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income tax purposes as if they held directly the REI Shares that are
held on their behalf by the ESOP Trustee. The consequences of such treatment
would be as follows:
(a) as to the one-third of the REI Shares which vest on an accelerated basis
on or prior to the Unconditional Date, as described in paragraph 6(a)(i)
above;
(b) upon the exchange by the ESOP Trustee of vested REI Shares for vested
CBC Shares, cash or Loan Notes, as described in paragraph 6(a)(ii)
above;
(c) upon the exchange by the ESOP Trustee of unvested REI Shares for
unvested CBC Shares or unvested rights to cash or Loan Notes, as
generally described in paragraph 6(b)(i) above; and
(d) upon the subsequent vesting of those CBC Shares or rights to cash or
Loan Notes, US persons would be treated as receiving compensation
income, as generally described in paragraph 6(b)(ii) above.
Participants who have made Section 83(b) Elections with respect to the award
to them under the REI Share Plan of REI Shares held by the ESOP Trustee
should consult an appropriate professional advisor as to the issues
discussed in paragraph 6(b)(i) above regarding such elections.
No United States federal income tax would be imposed upon the ESOP Trustee
as a result of any of the foregoing events.
THE ABOVE PARAGRAPHS ARE GENERAL IN CHARACTER AND NOT EXHAUSTIVE. IF YOU ARE IN
ANY DOUBT AS TO YOUR TAXATION POSITION YOU SHOULD CONSULT AN APPROPRIATE
PROFESSIONAL ADVISOR WITHOUT DELAY.
101
<PAGE>
<TABLE>
<CAPTION>
DEFINITIONS
<S> <C>
"1996 Accounts" the audited consolidated accounts of REI for the 12 months ended on 31st December 1996
"1997 Accounts" the audited consolidated accounts of REI for the 12 months ended on 31st December 1997
"A Offer" the offer set out in this document for the A Shares
"A Shares" A Ordinary Shares of 1p each in REI
"Acceptor" a person who accepts any of the Offers or any of the proposals to Option holders referred to in this
document
"Adjusted EBITDA" has the meaning set out in Appendix I
"Announcement Date" 9th December 1997
"Announcement Price" (pounds)20.17, being the average closing price of a CBC Share on the New York Stock Exchange of
US$33.76 for the ten (10) trading days immediately prior to the Announcement Date converted into
Pounds Sterling at the average Closing Mid-Point exchange rate of 1.6740 US Dollars to one Pound
Sterling for the ten (10) trading days immediately prior to the Announcement Date
"Articles of Association" the Articles of Association of the Company
"B Offer" the offer set out in this document for the B Shares
"B Shares" B Ordinary Shares of 1p each in REI
"Board" the board of Directors of REI or CB Commercial, as the case may be
"C Offer" the offer set out in this document for the C Shares
"C Shares" C Ordinary Shares of 1p each in REI
"Calculation Notice" a written notice to Shareholders from CB Commercial
setting out the calculation of:
. Adjusted EBITDA
. Net Debt
. Initial Price (as adjusted)
"Cap" (pounds)65 million
"CB Commercial Group" CB Commercial and its majority-owned subsidiaries
"CB Commercial Options" options to purchase new CBC Shares
"CB Commercial",
or the "Offeror" CB Commercial Real Estate Services Group, Inc.
"CBC Dollar Closing Price" the average closing price of a CBC Share on the New
York Stock Exchange for the 10 trading days ending on
the day prior to the Unconditional Date
</TABLE>
102
<PAGE>
<TABLE>
<S> <C>
"CBC Share Option Schemes" the Omnibus Plan, the 1990 Stock Option Plan, the
1991 Service Providers Plan, the 1997 Employee Stock
Option Plan, the 1997 Employee Stock Purchase Plan,
the 1996 Equity Incentive Plan, the Cap Plan, the
DCP, the L.J. Melody Acquisition Stock Option Plan,
the Koll Acquisition Stock Option Plan and the REI
Acquisition Stock Option Plan
"CBC Shares" shares of common stock, par value $0.01, of CB Commercial
"Closing Exchange Rate" the average Closing Mid-Point exchange rate of US
Dollars for Pounds Sterling for the ten (10) London business
days ending on the day prior to the Unconditional Date
"Closing Mid-Point" the average of the rate for the purchase of US Dollars for
Pounds Sterling and the sale of US Dollars for Pounds
Sterling quoted by Barclays Bank PLC at the close of each
business day
"Collar" (pounds)50 million or, if relevant, the Reduced Amount
"Directors" the directors of REI or CB Commercial, as the case may be
"EGM" the Extraordinary General Meeting of REI convened by the Notice of
Extraordinary General Meeting forming part of this document
"ESOP Trustee" Bacon Woodrow Trust Company (C.I.) Limited or such other person
or persons who is or are from time to time the trustee of the ESOP
"ESOP" REI's Employee Share Ownership Plan
"Final Closing Date" the time and date specified by CB Commercial after which
the Offers may not be accepted
"First Closing Date" 3:30 pm on 20th March 1998
"Forms of Acceptance" the forms of acceptance accompanying this document
"Form of Election" the form of election accompanying this document enabling
Optionholders to elect either:
(i) to exchange their unexercised REI Options for CB Commercial Options; or
(ii) to exercise their unexercised REI Options with effect from the
Unconditional Date and accept the Offers in respect of the
resulting REI Shares
"Form of Instruction" the form of instruction accompanying this document
enabling participants in the REI Share Plan who hold shares through
the ESOP to indicate their instructions to the ESOP Trustees
in respect of the Offers
"Form of Proxy" the form of proxy for use in connection with the EGM
"fully diluted share
capital of REI" the existing issued or allotted REI Shares, all REI Shares which would
arise on the exercise of REI Options, all REI Shares issued or allotted
prior to the Unconditional Date and all REI Shares which at the
Unconditional Date REI is conditionally or unconditionally required
to issue or allot on or after the Unconditional Date
</TABLE>
103
<PAGE>
<TABLE>
<S> <C>
"Initial Price" the Initial Price for all the issued and to be issued share capital of
REI, being (pounds)57.25 million, on the basis of the assumptions and
subject to the adjustments set out in this document
"Irrevocable Undertaking" an irrevocable undertaking, inter alia to accept the Offers, given
to CB Commercial
"LIBOR" the rate which appears on the display designated as the British Bankers
Association's Interest Settlement Rate as quoted on the relevant page of the
Bloomberg Financial Markets monitor on the first day of an interest period, or
if that day is not a business day, on the preceding business day, as being the
interest rate offered in the London Inter-Bank Market as at 11:00 am (London
time) or as soon as practicable thereafter for six month deposits of sterling or
of the currency which is, at the time of the display, the Loan Note Currency (as
defined in Appendix VI of this document)
"Loan Note Alternative" the alternative whereby Shareholders (other than those resident in Australia)
who accept an Offer may elect to receive Loan Notes instead of cash under
the Partial Cash Alternative
"Loan Note Instrument" the instrument constituting the Loan Notes
"Loan Notes" floating rate subordinated guaranteed unsecured loan notes 2002 to
be issued by CB Commercial pursuant to the Loan Note Alternative
"Material Adverse Effect" means that there exists any event, matter or
liability which is reasonably likely to have an adverse impact on the REI Group
as a whole of more than (pounds)2.5 million or has the potential to adversely
affect the REI Group as a whole by more than (pounds)4million and which was not
disclosed to CB Commercial prior to the date hereof. No change in EBITDA (other
than a negative EBITDA for the year ended 31st December 1997 as a whole) shall
be considered a Material Adverse Effect.
"Net Debt" the meaning set out in Appendix I
"New York Stock Exchange" New York Stock Exchange, Inc.
"Notice" the Notice convening the EGM set out at the end of this document
"Offer Document" this document
"Offers" the A Offer, the B Offer and the C Offer
"Optionholder" a person entitled to exercise an REI Option
"Partial Cash Alternative" the partial cash alternative as described in this document
"Payment Date" the date of the issue of the CBC Shares and the Loan Notes and
the payment of the cash consideration under the Offers to persons who have
accepted the Offers at the Unconditional Date
</TABLE>
104
<PAGE>
<TABLE>
<S> <C>
"Reduced Amount" the amount to which the Initial Price is reduced below (pounds)50 million
with the written approval of the holders of 75 per cent. of the REI Shares
assented to the Offers
"Registration Statement" the Form S-3 registration statement under the Securities Act to be filed
by CB Commercial in connection with the registration for resale of the CBC
Shares to be issued pursuant to the Offers
"REI Directors" the Directors of REI
"REI Group" REI and its subsidiaries from time to time
"REI Options" options to subscribe for REI Shares
"REI Share Option Schemes" the First 1988 Scheme, the Second 1988 Scheme and the 1993 Scheme (as such
terms are defined in Appendix IV)
"REI Share Plan" The REI 1997 Employee Share Incentive Plan
"REI Shares" the existing unconditionally allotted or issued and fully paid
A Shares, B Shares and C Shares and any other such shares which are issued or
unconditionally allotted at or prior to the Final Closing Date or such earlier
time and/or date (not being earlier than the Unconditional Date) as CB
Commercial may decide
"REI" or the "Company" REI Limited
"Resolution" the proposed special resolution of REI set out in the Notice
"Securities Act" the United States Securities Act of 1933, as amended, and the rules thereunder
"Shareholders" holders of REI Shares
"Sterling Closing Price" the average closing price of a CBC Share on the New York Stock Exchange
for the ten (10) trading days immediately prior to the Unconditional Date
converted into Pounds Sterling at the average Closing Exchange Rate
"UK" or "United Kingdom" the United Kingdom of Great Britain and Northern Ireland
"US" or "United States" the United States of America, its territories and possessions, any State
of the United States and the District of Columbia
"UK GAAP" accounting principles generally accepted in the UK
"US GAAP" accounting principles generally accepted in the US
"Unconditional Date" the date on which all conditions of the Offers have been fulfilled or waived
"US Person" a "US Person" as defined in Regulation S promulgated under the Securities Act
</TABLE>
105
<PAGE>
<TABLE>
<S> <C>
"Wider REI Group" REI, its subsidiaries and subsidiary undertakings, any associated company
and any company of which 20 per cent. or more of the voting capital is
held by the REI Group or any partnership, joint venture, firm or company in
which any member of the REI Group has an equity interest of 20 per cent.,
or more but not any direct or indirect shareholder in REI
</TABLE>
106
<PAGE>
REI LIMITED
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the Company will
be held at The Westbury Hotel, Conduit Street, London W1A 4VH on 6th March 1998
at 11:00 am for the purpose of considering and, if thought fit, passing the
following resolution as a special resolution of the Company:
SPECIAL RESOLUTION
THAT:
(1) the provisions of Article 27 of the Company's Articles of Association (the
"Articles") shall not apply to or restrict any acceptance of the offers (the
"Offers") by CB Commercial Real Estate Services Group, Inc. ("CB Commercial")
contained in a circular dated 7th February 1998 or to any transfer of shares in
the Company pursuant to any such acceptance, or any transfer of shares in the
Company to CB Commercial following the Offers becoming wholly unconditional.
(2) conditionally on and with effect from the Offers becoming wholly
unconditional, the Articles be amended as follows:
(a) in Article 74.1, by the deletion of the words "the number of Directors
shall be not less than three nor more than twelve" and their
replacement by the words "the number of Directors shall be not less
than three";
(b) by the deletion of Article 74.2;
(c) by the deletion of Article 74.3 and its replacement by the following:
"74.3 the Company may in general meeting appoint any person to be a
Director. The Board may from time to time appoint any person to be a
Director, whether to fill a casual vacancy or otherwise";
(d) by the deletion of Article 75;
(e) by the deletion of Article 90.2.
By order of the Board
Elizabeth Thetford
Secretary
Registered Office: Berkeley Square House
London W1X 6AN
7th February 1998
Note:
(i) A person entitled to attend and vote at the meeting is entitled to appoint
one or more persons (who need not be members of the Company) to attend and
vote (on a poll) in his/her place.
(ii) A proxy may demand or join in the demand for a poll, but may not otherwise
(unless a member) speak at the meeting.
(iii) The appointment of a proxy does not preclude the member from attending
and voting in place of the proxy.
(iv) To be valid, the instrument appointing a proxy (and the power of attorney
or other authority, if any, under which it is signed, or a notarially
certified copy thereof) shall be deposited at or posted to the Company
Secretary, REI Limited, c/o Jones, Day, Reavis Pogue, Bucklersbury House,
3 Queen Victoria Street, London EC4N 8NA to be received not less than 48
hours before the time appointed for holding the meeting.
107
<PAGE>
EXHIBIT 4.1
===============================================================================
INDENTURE
Between
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
and
____________________, AS TRUSTEE
Dated as of __________ __, 1998
===============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE ONE
DEFINITIONS
Section 1.01 Certain Terms Defined..........................1
Board of Directors.............................
Business Day...................................
Certified Resolution...........................
Commission.....................................
Corporation....................................
Depository.....................................
Event of Default...............................
Global Security................................
Indenture......................................
Interest Payment Date..........................
Officer's Certificate..........................
Opinion of Counsel.............................
Original Issue Discount Security...............
Outstanding....................................
Paying Agent...................................
Periodic Offering..............................
Person.........................................
Principal Office of the Trustee................
Principal Property.............................
Record Date....................................
Redemption Date................................
Redemption Price...............................
Register.......................................
Responsible Officer............................
Restricted Subsidiary..........................
Security or Securities.........................
Securityholder; Holder.........................
Stated Maturity................................
Subsidiary.....................................
Supplemental Indenture.........................
Trustee........................................
Trust Indenture Act of 1939....................
i
<PAGE>
ARTICLE TWO
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION,
TRANSFER AND EXCHANGE OF SECURITIES
Section 2.01 Amount, Series, Execution, Authentication
and Delivery of Securities...................................
Section 2.02 Form of Securities and Trustee's
Certificate of Authentication................................
Section 2.03 Denominations; Payment of Interest
on Securities................................................
Section 2.04 Execution of Securities........................................
Section 2.05 Registration, Transfer and Exchange
of Securities...............................................
Section 2.06 Temporary Securities..........................................
Section 2.07 Mutilated, Destroyed, Lost or Stolen
Securities..................................................
Section 2.08 Cancellation and Destruction of
Surrendered Securities......................................
Section 2.09 Securities in Global Form;
Depositories................................................
ARTICLE THREE
REDEMPTION OF SECURITIES
Section 3.01 Redemption of Securities......................................
Section 3.02 Notice of Redemption..........................................
Section 3.03 Selection of Securities for Redemption........................
Section 3.04 Partial Redemption of Registered
Security....................................................
Section 3.05 Effect of Redemption..........................................
ARTICLE FOUR
ii
<PAGE>
PARTICULAR COVENANTS OF THE CORPORATION
Section 4.01 Payment of Principal of and Interest
on Securities................................................
Section 4.02 Corporate Existence of the Corporation;
Consolidation, Merger, Sale or
Transfer.....................................................
Section 4.03 Maintenance of Offices or Agencies for
Transfer, Registration, Exchange and
Payment of Securities........................................
Section 4.04 Appointment to Fill a Vacancy in the
Office of Trustee............................................
Section 4.05 Duties of Paying Agent.........................................
Section 4.06 Notice of Default..............................................
ARTICLE FIVE
SECURITYHOLDERS' LISTS AND REPORTS
BY THE CORPORATION AND THE TRUSTEE
Section 5.01 Corporation to Furnish Trustee
Information as to the Names and
Addresses of Securityholders.................................
Section 5.02 Preservation of Information;
Communication to Securityholders.............................
Section 5.03 Reports by Corporation.........................................
Section 5.04 Reports by Trustee.............................................
ARTICLE SIX
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
Section 6.01 Events of Default; Acceleration, Waiver
of Default and Restoration of
Position and Rights..........................................
iii
<PAGE>
Section 6.02 Covenant of Corporation to Pay to Trustee
Whole Amount Due on Securities on
Default in Payment of Interest or
Principal...................................................
Section 6.03 Trustee May File Proofs of Claim..............................
Section 6.04 Trustee May Enforce Claims Without
Possession of Securities....................................
Section 6.05 Application of Moneys Collected by
Trustee.....................................................
Section 6.06 Limitation on Suits By Holders of
Securities..................................................
Section 6.07 Rights and Remedies Cumulative................................
Section 6.08 Delay or Omission Not Waiver..................................
Section 6.09 Control By Holders; Waiver of Past
Defaults....................................................
Section 6.10 Trustee to Give Notice of Defaults
Known to It, But May Withhold in
Certain Circumstances.......................................
Section 6.11 Requirement of an Undertaking to Pay
Costs in Certain Suits Under the
Indenture or Against the Trustee............................
ARTICLE SEVEN
CONCERNING THE TRUSTEE
Section 7.01 Certain Duties and Responsibilities
of Trustee..................................................
Section 7.02 Certain Rights of Trustee.....................................
Section 7.03 Trustee Not Responsible for Recitals
or Application of Proceeds..................................
Section 7.04 Trustee May Own Securities....................................
Section 7.05 Moneys Received by Trustee to be Held
in Trust....................................................
iv
<PAGE>
Section 7.06 Trustee Entitled to Compensation,
Reimbursement and Indemnity..................................
Section 7.07 Right of Trustee to Rely on Officer's
Certificate Where No Other Evidence
Specifically Prescribed......................................
Section 7.08 Disqualification; Conflicting Interest.........................
Section 7.09 Requirements for Eligibility of
Trustee......................................................
Section 7.10 Resignation and Removal of Trustee;
Appointment of Successor.....................................
Section 7.11 Acceptance of Appointment by
Successor Trustee............................................
Section 7.12 Successor to Trustee by Merger,
Consolidation or Succession
to Business..................................................
Section 7.13 Preferential Collection of Claims
Against the Corporation......................................
ARTICLE EIGHT
CONCERNING THE SECURITYHOLDERS
Section 8.01 Evidence of Action by Securityholders..........................
Section 8.02 Proof of Execution of Instruments and
of Holding of Securities.....................................
Section 8.03 Who May be Deemed Owners of
Securities...................................................
Section 8.04 Securities Owned by the Corporation or
Controlled or Controlling Persons
Disregarded for Certain Purposes.............................
Section 8.05 Instruments Executed by Securityholders
Bind Future Holders..........................................
v
<PAGE>
ARTICLE NINE
SECURITYHOLDERS' MEETINGS
Section 9.01 Purposes for Which Meetings May be
Called......................................................
Section 9.02 Manner of Calling Meetings....................................
Section 9.03 Call of Meeting by the Corporation or
Securityholders.............................................
Section 9.04 Who May Attend and Vote at Meetings...........................
Section 9.05 Regulations May be Made by Trustee;
Conduct of the Meeting; Voting
Rights - Adjournment........................................
Section 9.06 Manner of Voting at Meetings and
Record to be Kept...........................................
Section 9.07 Exercise of Rights of Trustee and
Securityholders Not to be Hindered
or Delayed..................................................
ARTICLE TEN
SUPPLEMENTAL INDENTURES
Section 10.01 Purposes for Which Supplemental
Indentures May be Entered Into
Without Consent of Securityholders..........................
Section 10.02 Modification of Indenture with Consent
of Holders of Securities....................................
Section 10.03 Effect of Supplemental Indentures.............................
Section 10.04 Securities May Bear Notation of Changes
by Supplemental Indentures..................................
vi
<PAGE>
ARTICLE ELEVEN
DISCHARGE; DEFEASANCE
Section 11.01 Discharge of Indenture.........................................
Section 11.02 Discharge of Liability on Securities...........................
Section 11.03 Discharge of Certain Covenants and Other
Obligations..................................................
Section 11.04 Discharge of Certain Obligations Upon
Deposit of Money or Securities with
Trustee......................................................
Section 11.05 Unclaimed Moneys...............................................
ARTICLE TWELVE
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
Section 12.01 Incorporators, Stockholders, Officers
and Directors of Corporation Exempt
From Individual Liability....................................
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
Section 13.01 Successors and Assigns of the Corporation
Bound by Indenture...........................................
Section 13.02 Notices; Effectiveness.........................................
Section 13.03 Compliance Certificates and Opinions...........................
Section 13.04 Days on Which Payment to be Made,
Notice Given or Other Action
Taken........................................................
Section 13.05 Provisions Required by Trust Indenture
Act of 1939 to Control.......................................
Section 13.06 Governing Law..................................................
vii
<PAGE>
Section 13.07 Provisions of the Indenture and
Securities for the Sole Benefit of
the Parties and the Securityholders.........................
Section 13.08 Indenture May be Executed in
Counterparts................................................
viii
<PAGE>
TABLE SHOWING REFLECTION IN THIS INDENTURE OF
CERTAIN PROVISIONS OF THE TRUST INDENTURE ACT OF 1939
<TABLE>
<CAPTION>
Section Section
of Act of Indenture
- ------------ ------------
<S> <C>
310(a)(1)................................................7.09
310(a)(2)................................................7.09
310(a)(3)................................................Inapplicable
310(a)(4)................................................Inapplicable
310(a)(5)................................................7.09
310(b)...................................................7.08, 7.10
310(c)...................................................Inapplicable
311(a)...................................................7.13(a), 7.13(c)
311(b)...................................................7.13(b), 7.13(c)
311(c)...................................................Inapplicable
312(a)...................................................5.01, 5.02(a)
312(b)...................................................5.02(b)
312(c)...................................................5.02(c)
313(a)...................................................5.04(a)
313(b)(1)................................................Inapplicable
313(b)(2)................................................5.04(b)
313(c)...................................................5.04(c)
313(d)...................................................5.04(d)
314(a)(1)................................................5.03(a)
314(a)(2)................................................5.03(b)
314(a)(3)................................................5.03(c)
314(a)(4)................................................5.03(d)
314(b)...................................................Inapplicable
314(c)...................................................13.03
314(d)...................................................Inapplicable
314(e)...................................................13.03
314(f)...................................................Omitted
315(a)...................................................7.01
315(b)...................................................6.10
315(c)...................................................7.01
315(d)...................................................7.01
315(e)...................................................6.11
316(a)(1)................................................6.09
316(a)(2)................................................Omitted
316(b)...................................................6.06
316(c)...................................................6.09
317(a)...................................................6.02, 6.03
317(b)...................................................4.08
318(a)...................................................13.05
</TABLE>
- ---------------------
/1/ This Table is not part of the Indenture.
ix
<PAGE>
INDENTURE
THIS INDENTURE, dated as of __________ __, 1998, between CB COMMERCIAL REAL
ESTATE SERVICES GROUP, INC., a Delaware corporation (the "Corporation"), and
____________________, a ____________________ organized and existing under the
laws of ______________ (the "Trustee").
WITNESSETH:
WHEREAS, the Corporation has duly authorized the issuance, sale, execution
and delivery, from time to time, of its unsecured evidences of indebtedness
(hereinafter referred to as the "Securities"), without limit as to principal
amount, issuable in one or more Series, the amount and terms of each such Series
to be determined as hereinafter provided; and, to provide the terms and
conditions upon which the Securities are to be issued, authenticated and
delivered, the Corporation has duly authorized the execution of this Indenture;
and
WHEREAS, all acts and things necessary to make the Securities, when
executed by the Corporation and authenticated and delivered by the Trustee as in
this Indenture provided, the valid, binding and legal obligations of the
Corporation, and to constitute this Indenture a valid indenture and agreement
according to its terms, have been done and performed, and the execution of this
Indenture and the issuance hereunder of the Securities have in all respects been
duly authorized;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Securities
are to be issued, authenticated and delivered, and in consideration of the
premises and of the purchase and acceptance of the Securities by the Holders
thereof, the Corporation covenants and agrees with the Trustee, for the equal
and proportionate benefit of the respective Holders from time to time of the
Securities or of any Series thereof, as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.01. CERTAIN TERMS DEFINED. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article One have the meanings assigned
to them in this Article One, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act of 1939, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein shall have the
meanings assigned to them and all computations herein provided for shall be
made, in accordance with generally accepted accounting principles, and
-1-
<PAGE>
the term "generally accepted accounting principles" shall mean such
principles as they exist at the date of applicability thereof; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
BOARD OF DIRECTORS
The term "Board of Directors" shall mean the Board of Directors of the
Corporation, or any duly authorized committee of such Board of Directors.
BUSINESS DAY
The term "Business Day" shall mean any day which is not a Saturday or
Sunday or which in the City of Los Angeles or in The City of New York is neither
a legal holiday nor a day on which banking institutions are authorized by law or
regulation to close.
CERTIFIED RESOLUTION
The term "Certified Resolution" shall mean a resolution of the Board of
Directors of the Corporation certified by the Secretary or by an Assistant
Secretary of the Corporation to have been duly adopted by the Board of Directors
of the Corporation and to be in full force and effect on the date of such
certification.
COMMISSION
The term "Commission" shall mean the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, as amended, or if at any time after the execution of this Indenture such
Commission is not existing and performing the duties theretofore assigned to it
under the Trust Indenture Act of 1939, then the body performing such duties at
such time.
CORPORATION
The term "Corporation" shall mean CB Commercial Real Estate Services Group,
Inc., a Delaware corporation, until a successor entity shall have become such
pursuant to the applicable provisions hereof, and thereafter "Corporation" shall
mean such successor entity.
DEPOSITORY
The term "Depository" shall mean, with respect to the Securities of
any Series issuable or issued in whole or in part in the form of one or more
Global Securities, the Person designated as Depository by the Corporation
pursuant to Section 2.01 of this Indenture until a successor Depository shall
have become such pursuant to the applicable provisions of this Indenture, and
thereafter the term "Depository" shall mean or include each Person who is then a
Depository hereunder, and if at any time there is more than one such Person,
"Depository" as used with respect to the Securities of any such Series shall
mean the Depository with respect to the Securities of that Series.
EVENT OF DEFAULT
The term "Event of Default" with respect to Securities of any Series shall
mean any event specified as such in Section 6.01 and any other event as may be
established with respect to the securities of such Series as permitted by
Section 2.01. An Event of Default shall "exist" if an Event of Default shall
have occurred and be continuing.
-2-
<PAGE>
GLOBAL SECURITY
The term "Global Security" shall mean a Security evidencing all or a
portion of a Series of Securities, issued under the Indenture and delivered to
the Depository for such Series in accordance with Section 2.09 of this
Indenture, and bearing the legend prescribed in such Section 2.09.
INDENTURE
The term "Indenture" shall mean this instrument as originally executed, or
as it may from time to time be supplemented, modified or amended, as provided
herein, and shall include the form and terms of particular Series of Securities
established in accordance with the provisions of Sections 2.01 and 2.02.
INTEREST PAYMENT DATE
The term "Interest Payment Date" when used with respect to any Security
means the Stated Maturity of an installment of interest on such Security.
OFFICER'S CERTIFICATE
The term "Officer's Certificate" shall mean a certificate signed by the
Chairman of the Board, any Vice-Chairman of the Board or any Vice-President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
the Corporation. Each such certificate shall include the statements provided
for in Section 13.03, if and to the extent required by the provisions of such
Section.
OPINION OF COUNSEL
The term "Opinion of Counsel" shall mean a written opinion of counsel who
may be counsel to the Corporation. Each such opinion shall include the
statements provided for in Section 13.03, if and to the extent required by the
provisions of such Section.
ORIGINAL ISSUE DISCOUNT SECURITY
The term "Original Issue Discount Security" shall mean (a) any Security
which provides for an amount less than the principal amount thereof to be due
and payable upon declaration of acceleration of the maturity thereof pursuant to
Section 6.01 or (b) any other Security which for United States Federal income
tax purposes would be considered an original issue discount security.
OUTSTANDING
The term "Outstanding" when used with reference to Securities shall,
subject to the provisions of Section 8.04, mean, as of the date of
determination, all Securities theretofore authenticated and delivered under this
Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Securities, for whose payment or redemption moneys in the
necessary amount have been theretofore deposited with the Trustee or with
any Paying Agent in trust for the Holders of such Securities, provided that
if such Securities are to be redeemed, notice of such redemption has been
duly given as provided in Article Three hereof, or provision therefor
satisfactory to the Trustee has been made;
(c) Securities in exchange for or in lieu of which other Securities
shall have been authenticated and delivered under this Indenture; and
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(d) Securities alleged to have been destroyed, lost or stolen which
have been paid as provided in Section 2.07 hereof.
In determining whether the Holders of the requisite principal amount of
Outstanding Securities have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, the principal amount of an Original Issue
Discount Security that shall be deemed to be Outstanding for such purposes shall
be the amount of the principal thereof that would be due and payable as of the
date of such determination as if a declaration of acceleration of the maturity
thereof pursuant to Section 6.01 had been made.
PAYING AGENT
The term "Paying Agent" means any Person authorized by the Corporation to
pay the principal of and any interest and premium on any Securities on behalf of
the Corporation.
PERIODIC OFFERING
The term "Periodic Offering" means an offering of Securities of a Series,
from time to time the specific terms of which (including without limitation, the
rate or rates of interest, if any, thereon or any methods of calculating such,
the maturity date or dates thereof and any redemption provisions with respect
thereto) are to be determined by the Corporation or its agents upon the issuance
of such Series of Securities.
PERSON
The term "Person" shall mean an individual, a corporation, a partnership, a
joint venture, an association, a joint stock company, a trust, an unincorporated
organization, or a government or any agency, authority or political subdivision
thereof.
PRINCIPAL OFFICE OF THE TRUSTEE
The term "Principal Office of the Trustee" shall mean the principal office
of the Trustee in ______________________ at which at any particular time its
corporate trust business shall be administered, except that with respect to
presentation of Securities for payment such term shall mean the office or agency
of the Trustee at which at any particular time its corporate agency business
shall be conducted. The present address of the principal office at which the
corporate trust business of the Trustee is administered is
_________________________________________________.
RECORD DATE
The term "Record Date" for the interest payable on any Interest Payment
Date on any Series of Securities shall mean the date specified as such in the
Securities of such Series.
REDEMPTION DATE
The term "Redemption Date" when used with respect to any Security to be
redeemed means the date fixed for such redemption pursuant to this Indenture.
REDEMPTION PRICE
The term "Redemption Price" when used with respect to any Security to be
redeemed means the price at which it is to be redeemed pursuant to this
Indenture. It includes any applicable premium but does not include installments
of interest whose Stated Maturity is on or before the Redemption Date.
REGISTER
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The term "Register" shall mean the books for the registration and transfer
of Securities which books are kept by the Trustee pursuant to Section 2.05.
RESPONSIBLE OFFICER
The term "Responsible Officer" when used with respect to the Trustee shall
mean the chairman and vice-chairman of the board of directors, the chairman and
vice-chairman of the executive committee of said board, the president, any vice-
president or second vice-president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
corporate trust officer, the controller, any assistant controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer of the Trustee to whom
such matter is referred because of such Person's knowledge of and familiarity
with the particular subject.
SECURITY OR SECURITIES
The terms "Security" or "Securities" shall mean any security or securities
of the Corporation without regard to Series, authenticated and delivered under
this Indenture.
SECURITYHOLDER; HOLDER
The terms "Securityholder" or "Holder", whenever employed herein with
respect to a Security, shall mean the Person in whose name such Security shall
be registered on the Register.
SERIES
The term "Series" shall mean an issue of Securities under this Indenture.
STATED MATURITY
The term "Stated Maturity" when used with respect to any Security or any
installment of interest thereon means the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable.
SUPPLEMENTAL INDENTURE
The term "Supplemental Indenture" shall mean an indenture supplemental
hereto as such Supplemental Indenture may be originally executed, or as it may
from time to time be supplemented, modified or amended, as provided herein and
therein.
TRUSTEE
The term "Trustee" shall mean ________________ until a successor Trustee
shall have become such pursuant to the applicable provisions of this Indenture,
and thereafter "Trustee" shall mean such successor Trustee.
TRUST INDENTURE ACT OF 1939
The term "Trust Indenture Act of 1939" shall mean the Trust Indenture Act
of 1939, as amended as of the date of this Indenture.
UNITED STATES DOLLARS
The term "United States Dollars" shall mean the lawful currency of the
United States of America.
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ARTICLE TWO
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION,
TRANSFER AND EXCHANGE OF SECURITIES
SECTION 2.01. AMOUNT, SERIES, EXECUTION, AUTHENTICATION AND DELIVERY OF
SECURITIES. The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is not limited. The Securities
may be issued in one or more Series.
(A) The following terms and provisions of each Series of Securities shall
be established by a resolution of the Board of Directors and set forth in either
a Certified Resolution or a Supplemental Indenture:
(1) the designation of the Series of Securities (which shall
distinguish the Securities of such Series from all other Series
of Securities),
(2) any limit upon the aggregate principal amount of the particular
Series of Securities which may be executed, authenticated and
delivered under this Indenture; provided, however, that nothing
contained in this Section 2.01 or elsewhere in this Indenture or
in the Securities or in such Certified Resolution or in a
Supplemental Indenture is intended to or shall limit execution by
the Corporation or authentication and delivery by the Trustee of
Securities under the circumstances contemplated by Sections 2.05,
2.06, 2.07, 3.04 and 10.04,
(3) the currency or currencies or composite currency in which
principal of and interest and any premium on such Series of
Securities shall be payable (if other than in United States
Dollars),
(4) the Stated Maturity for payment of principal of such Series of
Securities and any sinking fund or analogous provisions,
(5) the rate or rates at which such Series of Securities shall bear
interest or the method of calculating such rate or rates of
interest and the Interest Payment Dates for such Series of
Securities,
(6) the place or places where such Series of Securities may be
presented for payment and for the other purposes provided in
Section 4.06,
(7) any Redemption Price or Prices, the Redemption Date or Dates and
other applicable redemption or repurchase provisions for such
Series of Securities,
(8) whether such Series of Securities shall be issuable as one or
more Global Securities and the form of such Series of Securities,
(9) if the Securities of such Series shall be issued in whole or in
part as one or more Global Securities, the Depository for such
Global Security or Securities and any additional terms and
conditions relating to such Global Securities not set forth in
this Indenture,
(10) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which such Series of Securities
shall be issuable,
(11) the date from which interest on such Securities shall accrue,
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(12) the basis upon which interest on such Series of Securities shall
be computed (if other than on the basis of a 360-day year of
twelve 30-day months),
(13) if other than the principal amount thereof, the portion of the
principal amount of such Series of Securities which shall be
payable upon declaration of acceleration of the maturity thereof
pursuant to Section 6.01,
(14) the Person or Persons who shall be registrar for such Series of
Securities, and the place or places where the Register of such
Series of Securities shall be kept,
(15) any additional events of default with respect to the Securities
of a particular Series not set forth herein,
(16) any additional covenants of the Corporation with respect to the
Securities of a particular Series not set forth herein,
(17) the terms and conditions, if any, upon which any Securities of
such Series may or shall be converted into other instruments or
other forms of property and
(18) any other terms of such Series of Securities (which terms shall
not be inconsistent with the provisions of this Indenture).
All Securities of any one Series shall be substantially identical except
that any Series may have serial maturities and different interest rates for
different maturities and except as to denomination and the differences herein
specified between Global Securities and Securities issued in definitive form and
except as may otherwise be provided in or pursuant to the Certified Resolution
or Supplemental Indenture relating to such Series of Securities. All Securities
of any one Series need not be issued at the same time, and, unless otherwise
provided in the Certified Resolution or Supplemental Indenture relating to such
Series, a Series may be reopened for issuances of additional Securities of such
Series.
(B) At any time and from time to time after the execution and delivery of
this Indenture, the Corporation may deliver any Series of Securities executed by
the Corporation to the Trustee for authentication by it, and the Trustee shall
thereupon authenticate and deliver said Securities (or if only a single Global
Security, such Global Security) to or upon the written order of the Corporation,
signed by an officer of the Corporation, without any further corporate action.
In authenticating such Securities and accepting the additional responsibilities
under this Indenture in relation to such Securities and except as hereinafter
provided with respect to a Series of Securities subject to a Periodic Offering,
the Trustee shall be entitled to receive, and (subject to Section 7.01) shall be
fully protected in relying upon:
(1) each Certified Resolution relating to such Series of Securities,
(2) an executed Supplemental Indenture, if any, relating to such
Series of Securities,
(3) an Opinion of Counsel to the effect that:
(a) the terms and form of such Securities have been established
as permitted by Sections 2.01 and 2.02 in conformity with
the provisions of this Indenture,
(b) such Securities, when executed and issued by the Corporation
and authenticated and delivered by the Trustee in accordance
with the provisions of this Indenture and subject to any
conditions specified in such Opinion of Counsel, will
constitute valid and binding obligations of the Corporation,
except as any rights thereunder may be limited by the effect
of bankruptcy, insolvency, reorganization, receivership,
conservatorship,
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arrangement, moratorium or other laws affecting or relating
to the rights of creditors generally; the rules governing
the availability of specific performance, injunctive relief
or other equitable remedies and general principles of
equity, regardless of whether considered in a proceeding in
equity or at law; the effect of applicable court decisions
invoking statutes or principles of equity, which have held
that certain covenants and provisions of agreements are
unenforceable where the breach of such covenants or
provisions imposes restrictions or burdens upon a borrower,
and it cannot be demonstrated that the enforcement of such
restrictions or burdens is necessary for the protection of
the creditor, or which have held that the creditor's
enforcement of such covenants or provisions under the
circumstances would have violated the creditor's covenants
of good faith and fair dealing implied under California law;
and the effect of California statutes and rules of law which
cannot be waived prospectively by a borrower, and
(c) the Corporation has complied with all applicable Federal
laws and requirements in respect of the execution and
delivery of such Securities.
With respect to a Series of Securities subject to a Periodic Offering, the
Trustee shall be entitled to receive, and, subject to Section 7.01, shall be
fully protected in relying upon the documents described in the foregoing
subsections (1), (2) and (3) of this Section 2.01; provided that (i) the
Certified Resolution may be delivered to the Trustee prior to the delivery to
the Trustee of such Securities for authentication and delivery, (ii) the Trustee
shall authenticate and deliver Securities of such Series for original issue from
time to time, in an aggregate principal amount not exceeding the aggregate
principal amount, if any, established for such Series, pursuant to such
Certified Resolution or pursuant to such procedures as may be specified from
time to time by a Certified Resolution, (iii) the maturity date or dates,
original issue date or dates, interest rate or rates or the method or methods of
calculating such and any other terms of the Securities of such Series shall be
determined by the Certified Resolution or pursuant to such procedures, (iv) if
provided for in such procedures, such Certified Resolution may authorize
authentication and delivery pursuant to oral or electronic instructions from the
Corporation or its duly authorized agent or agents, which oral instructions
shall be promptly confirmed in writing and (v) the Trustee shall be entitled to
receive an Opinion of Counsel only once at or prior to the time of the first
authentication of Securities of such Series and that the opinions described in
the foregoing subsections (3)(a) and (3)(b) of this Section 2.01 may be to the
effect that:
(x) the form of the Securities of such Series has been duly authorized
by the Corporation and has been established in conformity with the
provisions of this Indenture and that, when the terms of such Securities
shall have been established pursuant to a Certified Resolution or pursuant
to such procedures as maybe specified from time to time by a Certified
Resolution, such terms will have been duly authorized by the Corporation
and will have been established in conformity with the provisions of this
Indenture and
(y) Securities of such Series, when executed and issued by the
Corporation and completed, authenticated and delivered by the Trustee in
accordance with the provisions of this Indenture and subject to any
conditions specified in such Opinion of Counsel and when paid for, all as
contemplated by and in accordance with the Certified Resolution or
specified procedures, as the case may be, will constitute valid and binding
obligations of the Corporation, except as any rights thereunder may be
limited by the effect of bankruptcy, insolvency, reorganization,
receivership, conservatorship, arrangement, moratorium or other laws
affecting or relating to the rights of creditors generally; the rules
governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, regardless of
whether considered in a proceeding in equity or at law; the effect of
applicable court decisions invoking statutes or principles of equity, which
have held that certain covenants and provisions of agreements are
unenforceable where the breach of such covenants or provisions imposes
restrictions or burdens upon a borrower, and it cannot be demonstrated that
the enforcement of such restrictions or burdens is necessary for the
protection of the creditor, or which have held that the creditor's
enforcement of such covenants or provisions under the circumstances would
have violated the creditor's covenants of good faith and fair dealing
implied
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under California law; and the effect of California statutes and rules of
law which cannot be waived prospectively by a borrower.
With respect to Securities of a Series offered in a Periodic Offering, the
Trustee may rely, as to the authorization by the Corporation of any such
Securities, the form and terms thereof and the valid and binding effect thereof,
upon the Opinion of Counsel and other documents delivered pursuant to this
Section 2.01 in connection with the first authentication of Securities of such
Series unless and until such Opinion of Counsel or other documents shall have
been superseded or revoked. In connection with the authentication and delivery
of Securities of a Series subject to a Periodic Offering, the Trustee shall be
entitled to assume that the instructions of the Corporation to authenticate and
deliver such Securities do not violate any rules, regulations or orders of any
governmental agency having jurisdiction over the Corporation.
Each fully registered Security shall be dated the date of its
authentication.
SECTION 2.02. FORM OF SECURITIES AND TRUSTEE'S CERTIFICATE OF
AUTHENTICATION. The Securities of each Series shall be substantially of the
tenor and purport as shall be authorized by the related Certified Resolution or
Supplemental Indenture, in each case with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification or designation and such legends or endorsements thereon as the
Board of Directors may deem appropriate and as are not inconsistent with the
provisions of this Indenture, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Securities of such Series may be listed, or
to conform to usage.
The definitive Securities and each Global Security may be printed,
lithographed or fully or partly engraved or produced in any other manner, all as
determined by the officers executing such Securities, as evidenced by their
execution thereof.
The Trustee's certificate of authentication shall be in substantially the
following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities, of the Series designated herein,
referred to in the within-mentioned Indenture.
____________________, as Trustee
By _________________________________________
Authorized Officer
SECTION 2.03. DENOMINATIONS; PAYMENT OF INTEREST ON FULLY REGISTERED
SECURITIES. The Securities of each Series may be issued as fully registered
Securities in denominations all as shall be specified as contemplated by Section
2.10. In the absence of such provisions with respect to the Securities of any
Series, the Securities of such Series (other than any Global Securities) shall
be issued in denominations of $1,000 and any integral multiple thereof.
If the Securities of any Series shall bear interest, each Security of such
Series shall bear interest from the applicable date at the rate per annum
specified in the Certified Resolution or Supplemental Indenture with respect to
such Series of Securities. Unless otherwise specified in the Certified
Resolution or Supplemental Indenture with respect to the Securities of any
Series, interest on the Securities of such Series shall be computed on the basis
of a 360-day year of twelve 30-day months. Such interest shall be payable on
the Interest Payment Dates specified in the Certified Resolution or Supplemental
Indenture with respect to such Series of Securities. The Person in whose name
any Security is registered at the close of business on the applicable Record
Date for the Series of which such Security is a part shall be entitled to
receive the interest payable thereon on such Interest Payment Date
notwithstanding the cancellation of such Security upon any transfer or exchange
thereof subsequent to such Record Date and prior to such Interest Payment Date
unless such Security shall have been called for redemption on a Redemption Date
which is subsequent to such Record Date and prior to such Interest
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Payment Date or unless the Corporation shall default in the payment of interest
due on such Interest Payment Date on any Security of such Series.
Any interest on any Security of any Series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Record Date solely by virtue of such Holder
having been such Holder; and such Defaulted Interest may be paid by the
Corporation, at its election in each case, as provided in subsection A or B
below:
A. The Corporation may elect to make payment of any Defaulted
Interest on the Securities of any Series to the Persons in whose names such
Securities are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Corporation shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment (which date shall be such as will enable
the Trustee to comply with the next sentence hereof), and at the same time
the Corporation shall deposit with the Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this subsection provided. Thereupon the
Trustee shall fix a special record date (the "Special Record Date") for the
payment of such Defaulted Interest which shall be not more than 15 nor less
than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Corporation of such Special
Record Date and, in the name and at the expense of the Corporation, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid, to
each Holder of a Security of such Series at such Holder's address as it
appears in the Security Register not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names the Securities of such Series are registered on such Special Record
Date and shall no longer be payable pursuant to the following subsection B.
B. The Corporation may make payment of any Defaulted Interest on the
Securities of any Series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may be
listed and upon such notice as may be required by such exchange, if, after
notice given by the Corporation to the Trustee of the proposed payment
pursuant to this subsection, such payment shall be deemed practicable by
the Trustee.
Subject to the foregoing provisions of this Section 2.03, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry all the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Security and each such Security
shall bear interest from such date, such that neither gain nor loss in interest
shall result from such transfer, exchange or substitution.
SECTION 2.04. EXECUTION OF SECURITIES. The Securities shall be executed
manually or in facsimile, by an officer and the Secretary or an Assistant
Secretary of the Corporation under its corporate seal, which may be affixed
thereto or printed, engraved or otherwise reproduced thereon, by facsimile or
otherwise. Only such Securities as shall bear thereon a certificate of
authentication substan tially in the form recited herein, executed by the
Trustee manually by an authorized officer, shall be entitled to the benefits of
this Indenture or be valid or obligatory for any purpose. Such certificate of
authentication of the Trustee upon any Security executed by the Corporation
shall be conclusive evidence that the Security so authenticated has been duly
authenticated and delivered hereunder and that the Holder is entitled to the
benefits of this Indenture. Typographical or other errors or defects in the
seal or facsimile signature on any Security or in the text thereof shall not
affect the validity or enforceability of such Security if it has been duly
authenticated and delivered by the Trustee.
In case any officer of the Corporation who shall have signed any of the
Securities (manually or in facsimile) shall cease to be such officer before the
Securities so signed shall have been authenticated and delivered by the Trustee,
or disposed of by the Corporation,
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such Securities nevertheless may be authenticated and delivered or disposed of
as though the Person who signed such Securities had not ceased to be such
officer of the Corporation. Also, any Security may be signed on behalf of the
Corporation by such Persons as on the actual date of execution of such Security
shall be the proper officers of the Corporation, although at the date of the
execution of this Indenture or on the nominal date of such Security any such
Person was not such officer.
SECTION 2.05. REGISTRATION, TRANSFER AND EXCHANGE OF SECURITIES. Except
as specifically otherwise provided herein with respect to Global Securities,
Securities of any Series may be exchanged for a like aggregate principal amount
of Securities of the same Series of other authorized denominations. Securities
to be exchanged shall be surrendered at the offices or agencies to be maintained
in accordance with the provisions of Section 4.06 and the Corporation shall
execute the Security or Securities, and the Trustee shall authenticate and
deliver in exchange therefor the Security or Securities which the Securityholder
making the exchange shall be entitled to receive.
The Corporation shall keep or cause to be kept, at one or more of the
offices or agencies to be maintained by the Corporation in accordance with the
provisions of Section 4.06 with respect to the Securities of each Series, the
Register in which, subject to such reasonable regulations as it may prescribe,
the Corporation shall provide for the registration of the Securities of such
Series and the transfer of Securities of such Series as in this Article
provided. The Register shall be in written form or in any other form capable of
being converted into written form within a reasonable time. At all reasonable
times the Register shall be open for inspection by the Trustee and any registrar
of the Securities of such Series other than the Trustee. Upon due presentment
for transfer of any Security of any Series at the offices or agencies of the
Corporation to be maintained in accordance with Section 4.06 with respect to the
Securities of such Series, the Corporation shall execute a new Security and the
Trustee shall authenticate and deliver in the name of the transferee or
transferees a new Security or Securities of the same Series for a like aggregate
principal amount of authorized denominations.
Notwithstanding any other provisions of this Section 2.05, unless and until
it is exchanged in whole or in part for Securities in definitive form, a Global
Security representing all or a portion of the Securities of a Series may not be
transferred except as a whole by the Depository for such Series to a nominee of
such Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by such Depository or any such nominee to a
successor Depository for such Series or a nominee of such successor Depository.
All Securities of any Series presented or surrendered for exchange,
transfer, redemption, conversion or payment shall, if so required by the
Corporation or any registrar of the Securities of such Series, be accompanied by
a written instrument or instruments of transfer, in form satisfactory to the
Corporation and such registrar, duly executed by the registered Holder or by
such Person's attorney duly authorized in writing.
No service charge shall be made for any exchange or registration of
transfer of Securities, but the Corporation may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
The Corporation shall not be required to exchange or transfer (a) any
Securities of any Series during a period beginning at the opening of business 15
days before the day of the first publication or the mailing (if there is no
publication) of a notice of redemption of Securities of such Series and ending
at the close of business on the day of such publication or mailing, (b) any
Securities called or selected for redemption in whole or in part, except, in the
case of Securities called for redemption in part, the portion thereof not so
called for redemption in whole or in part or during a period beginning at the
opening of business on any Record Date for such Series and ending at the close
of business on the relevant Interest Payment Date therefor.
SECTION 2.06. TEMPORARY SECURITIES. Pending the preparation of definitive
Securities of any Series, the Corporation may execute and the Trustee shall
authenticate and deliver temporary Securities of such Series which are printed,
lithographed, typewritten or otherwise produced, in any denomination
substantially of the tenor of the definitive Securities in lieu of which they
are issued, in registered form and with such appropriate omissions, insertions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities. Every such
temporary Security shall be authenticated by the Trustee upon the same
conditions and in substantially the same manner, and with the same effect, as
the definitive Securities. If temporary Securities are issued, the Corporation
will cause definitive Securities to be prepared without unreasonable delay.
After the preparation of definitive
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Securities, the temporary Securities of such Series shall be exchangeable for
definitive Securities upon surrender of the temporary Securities without charge
to the Holder at the offices or agencies to be maintained by the Corporation as
provided in Section 4.06 with respect to the Securities of such Series. Upon
surrender for cancellation of any one or more temporary Securities the
Corporation shall execute and the Trustee shall authenticate and deliver in
exchange for such temporary Securities an equal aggregate principal amount of
definitive Securities of such Series. Until so exchanged, the temporary
Securities of any Series shall in all respects be entitled to the benefits of
this Indenture and interest thereon, when and as payable, shall be paid to the
registered owners thereof.
SECTION 2.07. MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES. If (i) any
mutilated Security is surrendered to the Trustee, or the Corporation and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Security, and (ii) there is delivered to the Corporation and the Trustee
such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Corporation or the Trustee that
such Security has been acquired by a bona fide purchaser, the Corporation shall
execute and upon its request the Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Security, a new Security of the same Series and of like tenor and principal
amount, bearing a number not contemporaneously Outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Corporation in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section 2.07, the
Corporation may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
Every new Security issued pursuant to this Section 2.07 in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Corporation, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the security and benefits of this Indenture equally and ratably
with all other Outstanding Securities of such Series.
The provisions of this Section 2.07 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.08. CANCELLATION AND DESTRUCTION OF SURRENDERED SECURITIES. All
Securities surrendered for payment, redemption, transfer, conversion or exchange
shall, if surrendered to the Corporation, the Trustee or any agent of the
Corporation or of the Trustee, be delivered to the Trustee, and the same,
together with Securities surrendered to the Trustee for cancellation, shall be
canceled by it and thereafter disposed of by it as directed by the Corporation,
and no Securities shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Indenture. The Trustee shall destroy canceled
Securities and deliver a certificate of destruction thereof to the Corporation
unless by an Officer's Certificate of the Corporation, the Corporation shall
direct that canceled Securities be returned to it. If the Corporation shall
purchase or otherwise acquire any of the Securities, however, such purchase or
acquisition shall not operate as a payment, redemption or satisfaction of the
indebtedness represented by such Securities unless and until the Corporation, at
its option shall deliver or surrender the same to the Trustee for cancellation.
SECTION 2.09. SECURITIES IN GLOBAL FORM; DEPOSITORIES. (a) Each Global
Security shall: (i) represent and be denominated in an aggregate amount equal
to the aggregate principal amount of the Securities of the Series to be
represented by such Global Security, (ii) be registered in the name of either
the Depository for such Global Security or the nominee of such Depository, (iii)
be delivered by the Trustee to such Depository or pursuant to such Depository's
written instruction and (iv) bear a legend substantially to the following
effect: "Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Global Security may not be transferred except as a whole
by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any nominee to a successor Depository or a nominee of any
successor Depository." The notation of the record owner's interest in such
Global Security upon the original issuance thereof shall be deemed to be
delivery in connection with the original issuance of each beneficial owner's
interest in such Global Security. Without limiting the foregoing, the
Corporation and the Trustee shall have no responsibility, obligation or
liability with respect to: (x) the maintenance, review or accuracy of the
records of the Depository or of any of its participating organizations with
respect to any ownership interest in or payments with respect to such Global
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Security, (y) any communication with or delivery of any notice (including
notices of redemption) with respect to the Series of Securities represented by
the Global Security to any Person having any ownership interest in such Global
Security or to any of the Depository's participating organizations or (z) any
payment made on account of any beneficial ownership interest in such Global
Security.
(b) If any Security of a Series is issuable in the form of a Global
Security or Securities, each such Global Security may provide that it shall
represent the aggregate amount of Outstanding Securities of such Series from
time to time endorsed thereon and may also provide that the aggregate amount of
Outstanding Securities of such Series represented thereby may from time to time
be reduced to reflect exchanges. Any endorsement of a Global Security to
reflect the amount of Outstanding Securities of a Series represented thereby
shall be made by the Trustee and in such manner as shall be specified on such
Global Security. Any instructions by the Corporation with respect to a Global
Security, after its initial issuance, shall be in writing but need not comply
with Section 13.03 of this Indenture.
(c) Each Depository designated pursuant to the provisions of Section 2.01
of this Indenture for a Global Security must, at the time of its designation and
at all times while it serves as a depositary, be a clearing agency registered
under the Securities Exchange Act of 1934, as amended, and any other applicable
statute or regulation. If at any time the Depository for the Securities of a
Series notifies the Corporation that it is unwilling or unable to continue as
Depository for the Securities of such Series or if at any time the Depository
for the Securities of such Series shall no longer be eligible under this Section
2.09, the Corporation shall appoint a successor Depository with respect to the
Securities of such Series. If a successor Depository for the Securities of such
Series is not appointed by the Corporation within 90 days after the Corporation
receives such notice or learns of such ineligibility, the Corporation shall
execute and the Corporation shall direct the Trustee to authenticate and deliver
definitive Securities of such Series in authorized denominations in exchange for
the Global Security or Securities. Upon receipt of such direction, the Trustee
shall thereupon authenticate and deliver the definitive Securities of such
Series in the same aggregate principal amount as the Global Security or
Securities representing such Series in exchange for such Global Security or
Securities, in accordance with the provisions of subsection (e) of this Section
2.09, without any further corporate action by the Corporation.
(d) The Corporation may at any time and in its sole discretion determine
that the Securities of any Series issued in the form of one or more Global
Securities shall no longer be represented by such Global Security or Securities.
In such event, the Corporation will execute and upon receipt of a written order
from the Corporation, the Trustee shall thereupon authenticate and deliver
Securities of such Series in definitive form and in authorized denominations in
an aggregate principal amount equal to the principal amount of the Global
Security or Securities representing such Series in exchange for such Global
Security or Securities, in accordance with the provisions of subsection (e) of
this Section 2.09 without any further corporate action by the Corporation.
(e) Upon any exchange hereunder of the Global Security or Securities for
Securities in definitive form, such Global Security or Securities shall be
canceled by the Trustee. Securities issued hereunder in exchange for the Global
Security or Securities shall be registered in such names and in such authorized
denominations as the Depository for such Global Security, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such definitive Securities in
exchange for the Global Security or Securities to the persons in whose name such
definitive Securities have been registered in accordance with the directions of
the Depository.
ARTICLE THREE
REDEMPTION OF SECURITIES
SECTION 3.01. REDEMPTION OF SECURITIES. Securities of any Series may be
made subject to redemption prior to their Stated Maturity, as a whole or in
part, at such time or times, upon payment of the principal amount thereof plus
such premium or premiums, if any, as shall be set forth in the resolution of the
Board of Directors or the Supplemental Indenture relating to such Series.
SECTION 3.02. NOTICE OF REDEMPTION. In all cases other than redemption at
the option of the Holders of Securities, notice of redemption shall be mailed,
not less than 30 nor more than 60 days prior to the Redemption Date, to each
Person in whose name any Security called for redemption is registered on the
Register as of the date of such notice, but neither a failure to give notice by
mail nor
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any defect in any notice so mailed shall affect the validity of the proceedings
for such redemption. Each notice of redemption shall state the Redemption Date,
the Redemption Price, the place of redemption, the principal amount and, if less
than all, the distinctive numbers of the Securities to be redeemed and shall
also state that the interest on the Securities in such notice designated for
redemption shall cease to accrue from and after such Redemption Date.
Notice of redemption of Securities may be given by the Corporation or, at
the option of the Corporation, by the Trustee on behalf of the Corporation.
Upon receipt of any direction to give notice, the Trustee shall immediately give
such notice. The Trustee may rely upon such direction that all conditions
precedent to the giving of such direction have been complied with or done.
SECTION 3.03. SELECTION OF SECURITIES FOR REDEMPTION. Whenever provision
is made for the redemption of any Series of Securities or portion thereof and
less than all of the Securities of such Series or portion thereof are called for
redemption, the Trustee shall select the Securities to be redeemed, from the
Outstanding Securities of such Series or portion thereof not previously called
for redemption, in any manner which the Trustee deems fair and appropriate. For
the purpose of any such selection, the Trustee shall assign a separate number
for each $1,000 principal amount of each Security of a denomination of more than
$1,000 except that if the Securities of any Series are denominated in a currency
other than U.S. dollars, the Trustee shall assign a separate number for each
principal amount equal to the minimum denomination of each Security of such
Series of a denomination greater than such minimum denomination.
SECTION 3.04. PARTIAL REDEMPTION OF REGISTERED SECURITY. Upon surrender
of any registered Security (including any Global Security) to be redeemed in
part only, the Corporation shall execute and the Trustee shall authenticate and
deliver to the registered owner thereof, without service charge, a new Security
or Securities (or in the case of a Global Security, a new Global Security) of
the same Series and maturity and of authorized denomination or denominations as
requested by such registered owners, in aggregate principal amount equal to and
in exchange for the unredeemed portion of the principal of the Security so
surrendered.
SECTION 3.05. EFFECT OF REDEMPTION. If notice of redemption shall have
been duly given as provided in Section 3.02, the Securities or portions of
Securities specified in such notice shall become due and payable on the
Redemption Date and at the place or places stated in such notice at the
Redemption Price specified in such notice, and on and after such Redemption Date
(unless the Corporation shall default in the payment of such Securities at the
applicable Redemption Price) such Securities or portions of Securities shall
cease to bear interest, and such Securities shall cease from and after the
Redemption Date to be entitled to any benefit or security under this Indenture,
and the Holders thereof shall have no right in respect of such Securities except
the right to receive the Redemption Price thereof and any unpaid interest
accrued to the Redemption Date. Upon presentation and surrender of such
Securities at said place of payment in said notice specified, the said
Securities or portions thereof shall be paid and redeemed by the Corporation at
the applicable Redemption Price, together with any interest accrued to the
Redemption Date; provided, however, that any regular payment of interest
becoming due on any Securities on the Redemption Date shall be payable to the
registered owners of such Securities as of the Relevant Record Date as provided
in Article Two hereof. Upon presentation of any Security which is redeemed in
part only, the Corporation shall execute a new Security and the Trustee shall
authenticate and deliver at the expense of the Corporation a new Security of the
same Series of authorized denomination in principal amount equal to the
unredeemed portion of the Security so presented.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal thereof shall, to the extent permitted by
law, bear interest from the date fixed for redemption at the rate borne by the
Security, or, in the case of a Security which does not bear interest, at the
rate of interest set forth therefor in the Security in either case, until paid.
ARTICLE FOUR
PARTICULAR COVENANTS OF THE CORPORATION
SECTION 4.01. PAYMENT OF PRINCIPAL OF AND INTEREST ON SECURITIES. The
Corporation covenants that it will duly and punctually pay or cause to be paid
the principal of and any interest and premium on each of the Securities in
accordance with the terms of the Securities and this Indenture. Except with
respect to any Global Securities, if the Securities of any Series bear interest,
each installment of interest on the Securities of such Series may, at the option
of the Corporation, be paid by mailing a check or checks for such interest
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payable to the Person entitled thereto pursuant to Section 2.03 to the address
of such Person as it appears on the Register of the Securities of such Series on
the applicable Record Date for such interest payment.
SECTION 4.02. CORPORATE EXISTENCE OF THE CORPORATION; CONSOLIDATION,
MERGER, SALE OR TRANSFER. The Corporation covenants that so long as any of the
Securities are Outstanding, it will maintain its existence, will not dissolve,
sell or otherwise dispose of all or substantially all of its assets and will not
consolidate with or merge into another entity or permit one or more other
entities to consolidate with or merge into it; provided that the Corporation
may, without violating the covenants in this Section 4.02 contained, consolidate
with or merge into another entity or permit one or more other entities to
consolidate with or merge into it, or sell or otherwise transfer to another
entity all or substantially all of its assets as an entirety and thereafter
dissolve, if the surviving, resulting or transferee entity, as the case may be,
(i) shall be organized and existing under the laws of one of the States of the
United States of America, (ii) assumes, if such entity is not the Corporation,
all of the obligations of the Corporation hereunder and (iii) is not, after such
transaction, otherwise in default under any provisions hereof.
SECTION 4.03. MAINTENANCE OF OFFICES OR AGENCIES FOR TRANSFER,
REGISTRATION, EXCHANGE AND PAYMENT OF SECURITIES. So long as any of the
Securities shall remain Outstanding, the Corporation covenants that it will
maintain an office or agency in either The City of New York, State of New York,
or the City and County of Los Angeles, State of California, where the Securities
may be presented for registration, exchange and transfer as in this Indenture
provided, and where notices and demands to or upon the Corporation in respect of
the Securities or of this Indenture may be served, and where the Securities may
be presented for payment. In case the Corporation shall designate and maintain
some office or agency other than a previously designated office or agency, it
shall give the Trustee notice thereof. In case the Corporation shall fail to
maintain any such office or agency or shall fail to give such notice of the
location or of any change in the location thereof to the Trustee, presentations
and demands may be made and notices may be served at the principal office of the
Trustee.
In addition to such office or agency, the Corporation may from time to time
constitute and appoint one or more other offices or agencies for such purposes
with respect to Securities of any Series, and one or more paying agents for the
payment of Securities of any Series, in such cities or in one or more other
cities, and may from time to time rescind such appointments, as the Corporation
may deem desirable or expedient, and as to which the Corporation has notified
the Trustee.
SECTION 4.04. APPOINTMENT TO FILL A VACANCY IN THE OFFICE OF TRUSTEE. The
Corporation, whenever necessary to avoid or fill a vacancy in the office of
Trustee, covenants that it will appoint, in the manner provided in Section 7.10,
a Trustee, so that there shall at all times be a Trustee with respect to the
Outstanding Securities.
SECTION 4.08. DUTIES OF PAYING AGENT. (a) If the Corporation shall
appoint a Paying Agent other than the Trustee with respect to Securities of any
Series, it will cause such Paying Agent to execute and deliver to the Trustee an
instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section 4.04 and Section 11.05,
(1) that it will hold all sums held by it as such agent for the
payment of the principal of or interest, if any, on the Securities of such
Series (whether such sums have been paid to it by the Corporation or by any
other obligor on the Securities of such Series) in trust for the benefit of
the Holders of the Securities entitled to such principal or interest and
will notify the Trustee of the receipt of sums to be so held,
(2) that it will give the Trustee notice of any failure by the
Corporation (or by any other obligor on the Securities of such Series) to
make any payment of the principal of or interest on the Securities of such
Series when the same shall be due and payable, and
(3) that it will at any time during the continuance of any Event of
Default, upon the written request of the Trustee, deliver to the Trustee
all sums so held in trust by it.
(b) Whenever the Corporation shall have one or more Paying Agents with
respect to the Securities of any Series, it will, prior to each due date of the
principal of or any interest on the Securities of such Series, deposit with a
Paying Agent of such Series a sum
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sufficient to pay the principal or interest so becoming due, such sum to be held
in trust for the benefit of the Holders of Securities entitled to such principal
or interest, and (unless such Paying Agent is the Trustee) the Corporation will
promptly notify the Trustee of its action or failure so to act.
(c) If the Corporation shall act as its own Paying Agent with respect to
the Securities of any Series, it will, on or before each Stated Maturity of the
principal of or any interest on the Securities of such Series, set aside,
segregate and hold in trust for the benefit of the Holders of the Securities of
such Series, a sum sufficient to pay such principal and any interest so becoming
due and will notify the Trustee of such action, or any failure by it or any
other obligor on the Securities of such Series to take such action and will at
any time during the continuance of any Event of Default, upon the written
request of the Trustee, deliver to the Trustee all sums so held in trust by it.
(d) Anything in this Section 4.04 to the contrary notwithstanding, the
Corporation may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture with respect to one or more or all Series of
Securities hereunder, or for any other reason, pay or cause to be paid to the
Trustee all sums held in trust for such Series by it, or any Paying Agent
hereunder, as required by this Section 4.04, and such sums are to be held by the
Trustee upon the trust herein contained.
SECTION 4.05. NOTICE OF DEFAULT. The Corporation covenants that, as soon
as is practicable, the Corporation will furnish the Trustee notice of any event
which is an Event of Default or which with the giving of notice or the passage
of time or both would constitute an Event of Default which has occurred and is
continuing on the date of such notice, which notice shall set forth the nature
of such event and the action which the Corporation proposes to take with respect
thereto.
ARTICLE FIVE
SECURITYHOLDERS' LISTS AND REPORTS
BY THE CORPORATION AND THE TRUSTEE
SECTION 5.01. CORPORATION TO FURNISH TRUSTEE INFORMATION AS TO THE NAMES
AND ADDRESSES OF SECURITYHOLDERS. The Corporation will furnish or cause to be
furnished to the Trustee, not less than 45 days nor more than 60 days after each
date (month and day) specified as an Interest Payment Date for the Securities of
the first Series issued under this Indenture (whether or not any Securities of
that Series are then Outstanding), but in no event less frequently than
semiannually, and at such other times as the Trustee may request in writing,
within 30 days after receipt by the Corporation of any such request, a list in
such form as the Trustee may reasonably require containing all the information
in the possession or control of the Corporation, or any of its Paying Agents
other than the Trustee, as to the names and addresses of the Holders of
Securities, obtained since the date as of which the next previous list, if any,
was furnished, excluding from any such list the names and addresses received by
the Trustee in its capacity as registrar (if so acting). Any such list may be
dated as of a date not more than 15 days prior to the time such information is
furnished and need not include information received after such date.
SECTION 5.02. PRESERVATION OF INFORMATION; COMMUNICATION TO
SECURITYHOLDERS. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Securities of
each Series (1) contained in the most recent list furnished to it as provided in
Section 5.01, (2) received by the Trustee in the capacity of Paying Agent or
registrar (if so acting) and (3) filed with the Trustee within the two preceding
years as provided for in Section 5.04(c). The Trustee may destroy any list
furnished to it as provided in Section 5.01 upon receipt of a new list so
furnished.
(b) If three or more Holders of Securities (hereinafter referred to as
"applicants") apply in writing to the Trustee, and furnish to the Trustee
reasonable proof that each such applicant has owned a Security for a period of
at least six months preceding the date of such application, and such application
states that the applicants desire to communicate with other Holders of
Securities of any Series or with Holders of all Securities with respect to their
rights under this Indenture or under such Securities, and is accompanied by a
copy of the form of proxy or other communication which such applicants propose
to transmit, then the Trustee shall, within five Business Days after the receipt
of such application, at its election, either:
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(1) afford such applicants access to the information preserved at the
time by the Trustee in accordance with the provisions of subsection (a) of
this Section 5.02 or
(2) inform such applicants as to the approximate number of Holders of
Securities of such Series or all Securities, as the case may be, whose
names and addresses appear in the information preserved at the time by the
Trustee in accordance with the provisions of subsection (a) of this Section
5.02, and as to the approximate cost of mailing to such Securityholders the
form of proxy or other communications, if any, specified in such
application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each of the Holders of Securities of such Series, or all Securities, as
the case may be, whose name and address appear in the information preserved at
the time by the Trustee in accordance with the provisions of subsection (a) of
this Section 5.02, a copy of the form of proxy or other communication which is
specified in such request, with reasonable promptness after a tender to the
Trustee of the material to be mailed and of payment, or provision for the
payment, of the reasonable expenses of mailing, unless within five days after
such tender, the Trustee shall mail to such applicants and file with the
Commission, together with a copy of the material to be mailed, a written
statement to the effect that, in the opinion of the Trustee, such mailing would
be contrary to the best interests of the Holders of Securities of such Series or
all Securities, as the case may be, or would be in violation of applicable law.
Such written statement shall specify the basis of such opinion. If the
Commission, after opportunity for a hearing upon the objections specified in the
written statement so filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for hearing,
that all the objections so sustained have been met and shall enter an order so
declaring, the Trustee shall mail copies of such material to all such
Securityholders with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.
(c) Each and every Holder of the Securities, by receiving and holding the
same, agrees with the Corporation and the Trustee that neither the Corporation
nor the Trustee nor any Paying Agent nor any registrar shall be held accountable
by reason of the disclosure of any such information as to the names and
addresses of the Holders of Securities in accordance with the provisions of
subsection (b) of this Section 5.02, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under said subsection
(b).
SECTION 5.03. REPORTS BY CORPORATION. (a) The Corporation covenants and
agrees to file with the Trustee within 15 days after the Corporation is required
to file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Corporation may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934;
or, if the Corporation is not required to file information, documents or reports
pursuant to either of such sections, then to file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Securities Exchange Act of 1934 in respect of a security listed and registered
on a national securities exchange as may be prescribed from time to time in such
rules and regulations.
(b) The Corporation covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Corporation with the conditions and covenants
provided for in this Indenture as may be required from time to time by such
rules and regulations.
(c) The Corporation covenants and agrees to transmit to the Holders of
Securities within 30 days after the filing thereof with the Trustee, in the
manner and to the extent provided in subsection (c) of Section 5.04 with respect
to reports pursuant to subsection (a) of said Section 5.04, such summaries of
any information, documents and reports required to be filed by the Corporation
pursuant to subsections (a) and (b) of this Section 5.03 as may be required by
rules and regulations prescribed from time to time by the Commission.
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(d) The Corporation and any other obligor on the Securities each covenant
and agree to furnish to the Trustee, not less than annually, a brief certificate
from the principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of the Corporation's compliance
with all conditions and covenants of this Indenture (which compliance shall be
determined without regard to any period of grace or requirement of notice as
provided in this Indenture). Such certificates need not comply with Section
13.03 of this Indenture.
SECTION 5.04. REPORTS BY TRUSTEE. (a) On or before the first September
15th following the date of execution of this Indenture, and on or before
September 15 in every year thereafter, if and so long as any Securities are
Outstanding hereunder, the Trustee shall transmit to the Securityholders as
hereinafter in this Section 5.04 provided, a brief report dated as of the
preceding August 15 with respect to any of the following events which may have
occurred within the previous 12 months (but if no such event has occurred within
such period no report need be transmitted):
(1) any change to its eligibility under Section 7.09, and its
qualifications under Section 7.08;
(2) the creation of or any material change to a relationship specified
in paragraph (1) through (10) of Section 7.08(d);
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made
by the Trustee (as such) which remain unpaid on the date of such report,
and for the reimbursement of which it claims or may claim a lien or charge,
prior to that of the Securities of any Series, on any property or funds
held or collected by it as Trustee, except that the Trustee shall not be
required (but may elect) to state such advances if such advances so
remaining unpaid aggregate not more than one-half of one percent of the
principal amount of the Securities of such Series Outstanding on the date
of such report;
(4) the amount, interest rate and maturity date of all other
indebtedness owing by the Corporation (or by any other obligor on the
Securities) to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except indebtedness based upon a creditor relationship
arising in any manner described in paragraph (2), (3), (4) or (6) of
subsection (b) of Section 7.13;
(5) any change to the property and funds, if any, physically in the
possession of the Trustee (as such) on the date of such report;
(6) any additional issue of Securities which the Trustee has not
previously reported; and
(7) any action taken by the Trustee in the performance of its duties
under this Indenture which it has not previously reported and which in its
opinion materially affects the Securities, except action in respect of a
default, notice of which has been or is to be withheld by it in accordance
with the provisions of Section 6.10.
(b) The Trustee shall transmit to the Securityholders, as hereinafter
provided, a brief report with respect to the character and amount of any
advances (and if the Trustee elects so to state, the circumstances surrounding
the making thereof) made by the Trustee (as such) since the date of the last
report transmitted pursuant to the provisions of subsection (a) of this Section
5.04 (or if no such report has yet been so transmitted, since the date of
execution of this Indenture), for the reimbursement of which it claims or may
claim a lien or charge prior to that of the Securities of any Series on property
or funds held or collected by it as Trustee, and which it has not previously
reported pursuant to this subsection, except that the Trustee shall not be
required (but may elect) to report such advances if such advances remaining
unpaid at any time aggregate ten percent or less of the principal amount of
Securities of such Series Outstanding at such time, such report to be
transmitted within 90 days after such time.
(c) Reports pursuant to this Section 5.04 shall be transmitted by mail (i)
to all Holders of Securities of any Series, as the names and addresses of such
Holders shall appear upon the Register of the Securities of such Series, (ii) to
such Holders of Securities as have, within the two years preceding such
transmission, filed their names and addresses with the Trustee for that purpose
and (iii)
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except in the case of reports pursuant to subsection (b) of this Section 5.04 to
each Holder whose name and address are preserved at the time by the Trustee as
provided in Section 5.02(a) hereof.
(d) A copy of each such report shall, at the time of such transmission to
Securityholders, be filed by the Trustee with each stock exchange upon which the
Securities of any Series are listed and also with the Commission. The
Corporation will notify the Trustee when and as the Securities of any Series
become listed on any stock exchange.
ARTICLE SIX
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT; ACCELERATION, WAIVER OF DEFAULT AND
RESTORATION OF POSITION AND RIGHTS. The term "Event of Default" whenever used
herein with respect to any particular Series of Securities shall mean any one of
the following events:
(a) default in the payment of any installment of interest on any
Security of such Series as and when the same shall become due and payable,
and continuance of such default for a period of 30 days, or
(b) default in the payment of all or any part of the principal of or
any premium on any Security of such Series as and when the same shall
become due and payable whether at maturity, by proceedings for redemption,
by declaration or otherwise, or
(c) default in the satisfaction of any sinking fund payment obligation
relating to such Series of Securities, when and as such obligation shall
become due and payable, or
(d) failure on the part of the Corporation to observe or perform in
any material respect any other of the covenants or agreements on its part
in the Securities or in this Indenture (including any Supplemental
Indenture or pursuant to any Certified Resolution, as contemplated by
Section 2.01) specifically contained for the benefit of the Holders of the
Securities of such Series, for a period of 90 days after there has been
given, by registered or certified mail, to the Corporation by the Trustee,
or to the Corporation and the Trustee by the Holders of not less than 25%
in principal amount of the Securities of such Series and all other Series
so benefitted (all Series voting as one class) at the time Outstanding
under this Indenture a written notice specifying such failure and stating
that such is a "Notice of Default" hereunder, or
(e) the entry by a court having jurisdiction in the premises of a
decree or order for relief in respect of the Corporation in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Corporation
or for any substantial part of its property, or ordering the winding up or
liquidation of its affairs, if such decree or order shall remain unstayed
and in effect for a period of 60 consecutive days, or
(f) the commencement by the Corporation of a voluntary case under any
applicable bankruptcy, insol vency or other similar law now or hereafter in
effect, or the Corporation's consent to the entry of an order for relief in
any involuntary case under any such law, or its consent to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) of the Corporation or for any
substantial part of its property, or the making by the Corporation of any
general assignment for the benefit of creditors, or its failure generally
to pay its debts as they become due or the taking by the Corporation of any
corporate action in furtherance of any of the foregoing.
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If an Event of Default shall have occurred and be continuing with respect
to any one or more Series of Outstanding Securities, then and in each and every
such case, unless the principal amount of all the Securities of each Series as
to which there is an Event of Default shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in principal amount of
the Securities of such Series then Outstanding hereunder (each such Series
voting as a separate class) by notice in writing to the Corporation (and to the
Trustee if given by Securityholders) may declare the principal amount (or, if
the Securities of any such Series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of such Series)
of all the Securities of such Series, together with any accrued interest, to be
due and payable immediately, and upon any such declaration the same shall be
immediately due and payable, anything in this Indenture or in the Securities of
such Series contained to the contrary notwithstanding. The foregoing
provisions, however, are subject to the condition that if, at any time after the
principal amount of the Securities of any one or more Series (or of all the
Securities, as the case may be) shall have been so declared due and payable, and
before any judgment or decree for the payment of moneys due shall have been
obtained or entered as hereinafter provided, the Corporation shall pay or shall
deposit with the Trustee a sum sufficient to pay all matured installments of
interest upon all the Securities of such Series (or upon all the Securities, as
the case may be) and the principal of any and all Securities of such Series (or
of any and all the Securities, as the case may be) which shall have become due
otherwise than by declaration (with interest on overdue installments of interest
to the extent permitted by law and on such principal at the rate or rates of
interest borne by, or prescribed therefor in the Securities of such Series to
the date of such payment or deposit) and the amounts payable to the Trustee
under Section 7.06 and any and all defaults under the Indenture with respect to
Securities of such Series (or all Securities, as the case may be), other than
the non-payment of principal of and any accrued interest on Securities of such
Series (or any Securities, as the case may be) which shall have become due by
declaration shall have been cured, remedied or waived as provided in Section
6.09 -- then and in every such case the Holders of a majority in principal
amount of the Securities of such Series (or of all the Securities, as the case
may be) then Outstanding (such Series or all Series voting as one class if more
than one Series are so entitled) by written notice to the Corporation and to the
Trustee, may rescind and annul such declaration and its consequences; but no
such rescission and annulment shall extend to or shall affect any subsequent
default, or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned because
of such rescission or annulment or for any other reason or shall have been
determined adversely to the Trustee, then and in every such case the
Corporation, the Trustee and the Holders of the Securities of such Series (or of
all the Securities, as the case may be) shall be restored respectively to their
former positions and rights hereunder, and all rights, remedies and powers of
the Corporation and the Trustee and the Holders of the Securities of such Series
(or of all the Securities, as the case may be) shall continue as though no such
proceedings had been taken.
SECTION 6.02. COVENANT OF CORPORATION TO PAY TO TRUSTEE WHOLE AMOUNT DUE
ON SECURITIES ON DEFAULT IN PAYMENT OF INTEREST OR PRINCIPAL. The Corporation
covenants that:
(1) in case default shall be made in the payment of any installment of
interest on any of the Securities of any Series as and when the same shall
become due and payable, and such default shall have continued for a period
of 30 days or
(2) in case default shall be made in the payment of all or any part of
the principal of any of the Securities of any Series when the same shall
have become due and payable, whether at the Stated Maturity of such Series
or by any call for redemption or by declaration of acceleration or
otherwise or
(3) in case default shall be made in the satisfaction of any sinking
fund obligation when and as such obligation becomes due and payable,
upon demand of the Trustee, the Corporation will pay to the Trustee, for the
benefit of the Holders of the Securities of such Series, the whole amount that
then shall have become due and payable on all such Securities of such Series for
principal (and any premium) and interest and for any overdue sinking fund
payment together with interest upon the overdue principal and installments of
interest (to the extent permitted by law) at the rate or rates of interest borne
by, or prescribed therefor in, the Securities of such Series; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expense of collection, including a reasonable compensation to
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the Trustee, its agents and counsel, and any expenses or liabilities incurred,
and all advances made, by the Trustee hereunder other than through its
negligence or bad faith.
In case the Corporation shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as Trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against the Corporation or any other obligor upon such
Securities, and collect in the manner provided by law out of the property of the
Corporation or any other obligor upon such Securities wherever situated the
moneys adjudged or decreed to be payable.
If an Event of Default with respect to Securities of any Series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such Series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 6.03. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other similar judicial proceeding
relative to the Corporation or any other obligor upon the Securities or the
property of the Corporation or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Securities of any Series
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Corporation for the payment of overdue principal or interest) shall be
entitled and empowered, to the fullest extent permitted by law, by intervention
in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
(or, if the Securities are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of such
Securities) and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.06.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.04. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities may be
prosecuted and enforced by the Trustee to the fullest extent permitted by law
without the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which such judgment has been recovered.
SECTION 6.05. APPLICATION OF MONEYS COLLECTED BY TRUSTEE. Any moneys
collected by the Trustee pursuant to Section 6.02 shall be applied in the order
following, at the date or dates fixed by the Trustee for the distribution of
such moneys, upon presentation of
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the several Securities in respect of which moneys have been collected, and
stamping thereon the payment, if only partially paid, and upon surrender thereof
if fully paid:
FIRST: To the payment of all amounts due to the Trustee under Section
7.06;
SECOND: In case the principal of the Outstanding Securities in
respect of which moneys have been collected shall not have become due and
be unpaid, to the payment of any interest on such Securities, in the order
of the maturity of the installments of such interest, with interest upon
the overdue installments of interest (so far as permitted by law and to the
extent that such interest has been collected by the Trustee at the rate or
rates of interest borne by such Securities or prescribed therefor therein)
such payments to be made ratably to the Persons entitled thereto, without
discrimination or preference;
THIRD: In case the principal of the Outstanding Securities in respect
of which such moneys have been collected shall have become due, by
declaration or otherwise, to the payment of the whole amount then owing and
unpaid upon such Securities for principal and interest, if any, with
interest on the overdue principal and any installments of interest (so far
as permitted by law and to the extent that such interest has been collected
by the Trustee) at the rate or rates of interest borne by, or prescribed
therefor in, such Securities; and in case such moneys shall be insufficient
to pay in full the whole amount so due and unpaid upon such Securities,
then to the payment of such principal and interest, without preference or
priority of principal over interest, or of interest over principal, or of
any installment of interest over any other installment of interest, or of
any Security over any other Security, ratably to the aggregate of such
principal and accrued and unpaid interest; and
FOURTH: To the payment of the remainder, with appropriate interest to
the Corporation or its successors or assigns, or to whomsoever may be
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct.
SECTION 6.06. LIMITATION ON SUITS BY HOLDERS OF SECURITIES. No Holder of
any Security of any Series shall have any right by virtue or by availing of any
provision of this Indenture to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Indenture or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
such Holder previously shall have given to the Trustee written notice of a
continuing Event of Default, as hereinbefore provided, and unless also the
Holders of not less than 25% in principal amount of the Securities of such
Series then Outstanding shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby (including the reasonable fees of counsel for the Trustee), and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding and no direction inconsistent with such written request shall have
been given to the Trustee pursuant to this Section 6.06; it being understood and
intended, and being expressly covenanted by the taker and Holder of every
Security with every other taker and Holder and the Trustee, that no one or more
Holders of Securities shall have any right in any manner whatever by virtue or
by availing of any provision of this Indenture to affect, disturb or prejudice
the rights of the Holders of any other of such Securities, or to obtain or seek
to obtain priority over or preference to any other such Holder, or to enforce
any right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all Holders of Securities. For the
protection and enforcement of the provisions of this Section 6.06, each and
every Holder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
Notwithstanding any other provisions in this Indenture, the right of any
Holder of any Security to receive payment of the principal of and interest on
such Security on or after the respective due dates expressed in such Security
(or, in the case of redemption, on or after the date fixed for redemption), or
to institute suit for the enforcement of any such payment on or after such
respective dates shall not be impaired or affected without the consent of such
Holder.
SECTION 6.07. RIGHTS AND REMEDIES CUMULATIVE. All powers and remedies
given by this Article Six to the Trustee or to the Holders shall, to the extent
permitted by law, be deemed cumulative and not exclusive of any thereof or of
any other powers and remedies
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available to the Trustee or the Holders, by judicial proceedings or otherwise,
to enforce the performance or observance of the covenants and agreements
contained in this Indenture, and no delay or omission of the Trustee or of any
Holder of any of the Securities to exercise any right or power accruing upon any
default occurring and continuing as aforesaid shall impair any such right or
power, or shall be construed to be a waiver of any such default or an
acquiescence therein; and, subject to the provisions of Section 6.06, every
power and remedy given by this Article Six or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Holders. The assertion or employment of any
right or remedy hereunder or otherwise shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.08. DELAY OR OMISSION NOT WAIVER. No delay or omission of the
Trustee or of any Holder of any Securities to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Subject to the provisions of Section 6.06, every right and remedy given by this
Article Six or by law to the Trustee or to the Holders may be exercised from
time to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
SECTION 6.09. CONTROL BY HOLDERS; WAIVER OF PAST DEFAULTS. The Holders of
a majority in principal amount of the Securities of all Series (voting as one
class) at the time Outstanding (determined as provided in Section 8.04) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee; provided, however, that, subject to Section 7.01 the
Trustee shall have the right to decline to follow any such direction if the
Trustee in reliance upon an Opinion of Counsel determines that the action so
directed may not lawfully be taken, or if the Trustee in good faith shall, by a
Responsible Officer or Officers of the Trustee, determine that the proceedings
so directed would be illegal or involve it in personal liability or be unduly
prejudicial to the rights of Holders not parties to such direction, and provided
further that nothing in this Indenture shall impair the right of the Trustee to
take any action deemed proper by the Trustee and which is not inconsistent with
such direction by the Holders.
The Corporation may set a special record date for purposes of determining
the identity of the Holders of Securities entitled to vote or consent to any
action by vote or consent authorized or permitted by this Section 6.09. Such
record date shall be the later of 15 days prior to the first solicitation of
such consent or the date of the most recent list of Holders furnished to the
Trustee pursuant to Section 5.01 of this Indenture prior to such solicitation.
The Holders of not less than a majority in principal amount of the
Securities of any Series at the time Outstanding (determined as provided in
Section 8.04) may on behalf of the Holders of all the Securities of such Series
waive any past Event of Default with respect to such Series and its consequences
(subject to Section 6.02), except a continuing Event of Default specified in
Section 6.01(a), (b) or (c), or in respect of a covenant or provision of this
Indenture which under Article Ten cannot be modified or amended without the
consent of the Holder of each Security so affected. Upon any such waiver, the
Corporation, the Trustee and the Holders of the Securities of such Series shall
be restored to their former positions and rights hereunder, respectively, and
such Event of Default shall be deemed to have been cured and not continuing for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereon.
SECTION 6.10. TRUSTEE TO GIVE NOTICE OF DEFAULTS KNOWN TO IT, BUT MAY
WITHHOLD IN CERTAIN CIRCUMSTANCES. The Trustee shall, within 90 days after the
occurrence of any default hereunder with respect to the Securities of any
Series, give to the Holders of the Securities of such Series in the manner and
to the extent provided in subsection (c) of Section 5.04 with respect to reports
pursuant to subsection (a) of said Section 5.04, notice of such default known to
the Trustee unless such default shall have been cured, remedied or waived before
the giving of such notice (the term "default" for the purposes of this Section
6.10 being hereby defined to be the events specified in Section 6.01 and any
additional events specified in the terms of any Series of Securities pursuant to
Section 2.01 not including any periods of grace provided for therein, and
irrespective of the giving of written notice specified in clause (d) of Section
6.01 and in any such terms); provided, that except in the case of default in the
payment of the principal of or interest on any of the Securities of such Series,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders of the Securities
of such Series.
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SECTION 6.11. REQUIREMENT OF AN UNDERTAKING TO PAY COSTS IN CERTAIN SUITS
UNDER THE INDENTURE OR AGAINST THE TRUSTEE. All parties to this Indenture
agree, and each Holder of any Security by such Holder's acceptance thereof shall
be deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 6.11 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any Holder of
Securities of any Series, or group of such Holders, holding in the aggregate
more than ten percent in principal amount of the Securities of such Series
Outstanding, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of or any interest or premium on any Security, on or
after the due date expressed in such Security for such interest (or in the case
of any redemption, on or after the Redemption Date).
ARTICLE SEVEN
CONCERNING THE TRUSTEE
SECTION 7.01. CERTAIN DUTIES AND RESPONSIBILITIES OF TRUSTEE. The
Trustee, prior to the occurrence of an Event of Default and after the curing,
remedying or waiving of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred (which has
not been cured, remedied or waived), the Trustee shall exercise such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his or her own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct, provided, however, that:
(a) prior to the occurrence of an Event of Default and after the
curing, remedying or waving of all Events of Default which may have
occurred:
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture and the
Trustee shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Indenture, and
no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming to
the requirements of this Indenture; but in the case of any such
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of Securities pursuant to Section 6.09 relating to the time,
method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture.
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None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
SECTION 7.02. CERTAIN RIGHTS OF TRUSTEE. Except as otherwise provided in
Section 7.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond, debenture, note or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties,
(b) Any request, direction, order or demand of the Corporation
mentioned herein shall be sufficiently evidenced by an Officer's
Certificate (unless other evidence in respect thereof shall be herein
specifically prescribed); and any resolution of the Board of may be
evidenced to the Trustee by a Certified Resolution,
(c) The Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such written
advice or Opinion of Counsel,
(d) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby,
(e) The Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture,
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond, debenture, note or other paper or document, unless requested in
writing so to do by the Holders of Securities pursuant to Section 6.09;
provided, however, that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it
in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the
terms of this Indenture, the Trustee may require reasonable indemnity
against such costs, expenses or liabilities as a condition to such
proceeding; and provided further, that nothing in this subsection (f) shall
require the Trustee to give the Securityholders any notice other than that
required by Section 6.10. The reasonable expense of every such examination
shall be paid by the Corporation or, if paid by the Trustee, shall be
reimbursed by the Corporation upon demand,
(g) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder and
(h) The Trustee shall be under no responsibility for the approval by
it in good faith of any expert for any of the purposes expressed in this
Indenture.
SECTION 7.03. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR APPLICATION OF
PROCEEDS. The recitals contained herein and in the Securities (other than the
certificate of authentication on the Securities) shall be taken as the
statements of the Corporation, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the
validity or sufficiency of this
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Indenture or of the Securities. The Trustee shall not be accountable for the
use or application by the Corporation of any of the Securities or of the
proceeds thereof.
SECTION 7.04. TRUSTEE MAY OWN SECURITIES. The Trustee, any Paying Agent,
registrar or any agent of the Corporation or of the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Securities with the
same rights it would have if it were not Trustee, Paying Agent, registrar or
such other agent.
SECTION 7.05. MONEYS RECEIVED BY TRUSTEE TO BE HELD IN TRUST. Moneys held
by the Trustee in trust need not be segregated from other funds except to the
extent required by law. The Trustee shall be under no liability for interest on
any money received by it hereunder except as otherwise agreed with the
Corporation.
SECTION 7.06. TRUSTEE ENTITLED TO COMPENSATION, REIMBURSEMENT AND
INDEMNITY. The Corporation agrees to pay to the Trustee from time to time
reasonable compensation (which shall not be limited by any provision of law in
regard to the compensation of a trustee of any express trust), and the
Corporation will pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in connection with the acceptance or administration of its trust under this
Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all Persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Corporation also agrees to indemnify the Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on the part of the Trustee and arising out of or
in connection with the acceptance or administration of this trust, including the
reasonable costs and expenses of defending itself against any claim of liability
in the premises. The obligations of the Corporation under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional indebtedness shall be secured
by a lien prior to that of the Securities upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the payment of
principal of or interest or redemption premium on particular Securities.
SECTION 7.07. RIGHT OF TRUSTEE TO RELY ON OFFICER'S CERTIFICATE WHERE NO
OTHER EVIDENCE SPECIFICALLY PRESCRIBED. Except as otherwise provided in Section
7.01, whenever in the administration of the provisions of this Indenture the
Trustee shall deem it necessary or desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith on the part of the
Trustee, be deemed to be conclusively proved and established by an Officer's
Certificate of the Corporation delivered to the Trustee, and such Officer's
Certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken, suffered or
omitted by it under the provisions of this Indenture upon the faith thereof.
SECTION 7.08. DISQUALIFICATION; CONFLICTING INTEREST. (a) If the Trustee
has or shall acquire any conflicting interest, as defined in this Section 7.08,
it shall, within 90 days after ascertaining that it has such conflicting
interest, and if the Event of Default to which such conflicting interest relates
has not been cured or duly waived or otherwise eliminated before the end of such
90-day period, the Trustee shall either eliminate such conflicting interest or,
except as otherwise provided in this Section 7.08, resign in the manner and with
the effect specified in Section 7.10, such resignation to become effective upon
the appointment of a successor trustee and such successor's acceptance of such
appointment, and the Corporation shall take prompt steps to appoint a successor
in accordance with Section 7.10.
(b) In the event that the Trustee shall fail to comply with the provisions
of subsection (a) of this Section 7.08, the Trustee shall, within ten days after
the expiration of such 90-day period, transmit notice of such failure to the
Securityholders in the manner and to the extent provided in subsection (c) of
Section 5.04 with respect to reports pursuant to subsection (a) of said Section
5.04.
(c) Subject to the provisions of Section 6.11 of this Indenture, unless
the Trustee's duty to resign is stayed as provided in subsection (f) of this
Section 7.08, any Holder who has been a bona fide Holder of Securities for at
least six months may, on such Holder's behalf and on behalf of all other Holders
similarly situated, petition any court of competent jurisdiction for the removal
of such Trustee and the appointment of a successor, if such Trustee fails after
written request thereof by such Holder to comply with the provisions of
subsection (a) of this Section 7.08.
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(d) For the purposes of this Section 7.08 the Trustee shall be deemed to
have a conflicting interest with respect to the Securities of any Series if an
Event of Default (exclusive of any period of grace or requirement of notice) has
occurred with respect to Securities of such Series and:
(1) the Trustee is trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the Corporation or any other obligor on the Securities are
outstanding or is trustee for more than one outstanding series of
securities, as hereinafter defined, under a single indenture of the
Corporation or any other obligor on the Securities, unless such other
indenture is a collateral trust indenture under which the only collateral
consists of Securities issued under this Indenture, provided that there
shall be excluded from the operation of this paragraph, this Indenture with
respect to the Securities of any other Series Outstanding, and any other
indenture or indentures under which other securities, or certificates of
interest or participation in other securities, of the Corporation or any
other obligor on the Securities are outstanding, if (A) this Indenture is
and such other indenture or indentures (and all series of securities issued
thereunder) are wholly unsecured and rank equally, and such other indenture
or indentures (and such series) are hereafter qualified under the Trust
Indenture Act of 1939, unless the Commission shall have found and declared
by order pursuant to subsection (b) of Section 305 or subsection (c) of
Section 307 of the Trust Indenture Act of 1939, that differences exist
between the provisions of this Indenture with respect to Securities of such
Series and one or more other Series, or the provisions of this Indenture
and the provisions of such other indenture or indentures (or such series),
which are so likely to involve a material conflict of interest as to make
it necessary in the public interest or for the protection of investors to
disqualify the Trustee from acting as such under this Indenture with
respect to Securities of such Series and such other Series, or under this
Indenture and such other indenture or indentures, or (B) the Corporation
shall have sustained the burden of proving, on application to the
Commission and after opportunity for hearing thereon, that the trusteeship
under this Indenture with respect to Securities of such Series and such
other Series, or under this Indenture and such other indenture, is not so
likely to involve a material conflict of interest as to make it necessary
in the public interest or for the protection of investors to disqualify the
Trustee from acting as such under this Indenture with respect to Securities
of such Series and such other Series, or under this Indenture and one of
such indentures,
(2) the Trustee or any of its directors or executive officers is an
underwriter for the Corporation or any other obligor on the Securities,
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control with
an underwriter for the Corporation or any other obligor on the Securities,
(4) the Trustee or any of its directors or executive officers is a
director, officer, partner, employee, appointee or representative of the
Corporation or any other obligor on the Securities, or of an underwriter
(other than the Trustee itself) for the Corporation or any other obligor on
the Securities who is currently engaged in the business of underwriting,
except that (A) one individual may be a director and/or an executive
officer of the Trustee and a director and/or an executive officer of the
Corporation or any other obligor on the Securities, but may not be at the
same time an executive officer of both the Trustee and the Corporation or
any other obligor on the Securities; (B) if and so long as the number of
directors of the Trustee in office is more than nine, one additional
individual may be a director and/or an executive officer of the Trustee and
a director of the Corporation or any other obligor on the Securities; and
(C) the Trustee may be designated by the Corporation or any other obligor
on the Securities or by an underwriter for the Corporation or any other
obligor on the Securities to act in the capacity of transfer agent,
registrar, custodian, paying agent, fiscal agent, escrow agent or
depositary, or in any other similar capacity, or, subject to the provisions
of paragraph (1) of this subsection (d), to act as trustee whether under an
indenture or otherwise,
(5) ten percent or more of the voting securities of the Trustee is
beneficially owned either by the Corporation or any other obligor on the
Securities or by any director, partner or executive officer thereof, or 20%
or more of such voting securities is beneficially owned, collectively, by
any two or more of such Persons; or ten percent or more of the voting
securities of the Trustee is beneficially owned either by an underwriter
for the Corporation or any
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other obligor on the Securities or by any director, partner or executive
officer thereof or is beneficially owned, collectively, by any two or more
such Persons,
(6) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default, as hereinafter defined, (A)
five percent or more of the voting securities, or ten percent or more of
any other class of security, of the Corporation or any other obligor on the
Securities, not including the Securities issued under this Indenture and
securities issued under any other indenture under which the Trustee is also
trustee, or (B) ten percent or more of any class of security of an
underwriter for the Corporation or any other obligor on the Securities,
(7) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default, as hereinafter defined,
five percent or more of the voting securities of any Person who, to the
knowledge of the Trustee, owns ten percent or more of the voting securities
of, or controls directly or indirectly or is under direct or indirect
common control with the Corporation or any other obligor on the Securities,
(8) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default, as hereinafter defined, ten
percent or more of any class of security of any Person who, to the
knowledge of the Trustee, owns 50% or more of the voting securities of the
Corporation or any other obligor on the Securities or
(9) the Trustee owns on the date of the occurrence of such Event of
Default (exclusive of any period of grace or requirement of notice) or any
anniversary thereof while such Event of Default remains outstanding, in the
capacity of executor, administrator, testamentary or inter vivos trustee,
guardian, committee or conservator, or in any other similar capacity an
aggregate of 25% or more of the voting securities or of any class of
security, of any Person, the beneficial ownership of a specified percentage
of which would have constituted a conflicting interest under paragraph (6),
(7) or (8) of this subsection (d). As to any such securities of which the
Trustee acquired ownership through becoming executor, administrator or
testamentary trustee of an estate which included them, the provisions of
the preceding sentence shall not apply, for a period of two years from the
date of such acquisition, to the extent that such securities included in
such estate do not exceed 25% of such voting securities or 25% of any such
class of security. Promptly after the date of the occurrence of any such
Event of Default and annually in each succeeding year that the Securities
or any Series thereof remain in default, the Trustee shall make a check of
its holdings of such securities in any of the above-mentioned capacities as
of such date. If the Corporation or any other obligor on the Securities
fails to make payment in full of principal of or interest on any of the
Securities when and as the same become due and payable and such failure
continues for 30 days thereafter, the Trustee shall make a prompt check of
its holdings of such securities in any of the above-mentioned capacities as
of the date of the expiration of such 30-day period, and after such date,
notwithstanding the foregoing provisions of this paragraph (9), all such
securities so held by the Trustee, with sole or joint control over such
securities vested in it, shall, but only so long as such failure shall
continue, be considered as though beneficially owned by the Trustee for the
purposes of paragraphs (6), (7) and (8) of this subsection (d), or
(10) except under the circumstances described in paragraphs (1), (3),
(4), (5) or (6) of Section 7.13(b), the Trustee shall be or become a
creditor of the Corporation or any other obligor on the Securities.
The specifications of percentages in paragraphs (5) to (9), inclusive, of
this subsection (d) shall not be construed as indicating that the ownership of
such percentages of the securities of a Person is or is not necessary or
sufficient to constitute direct or indirect control for the purposes of
paragraph (3) or (7) of this subsection (d).
For the purposes of paragraphs (6), (7), (8) and (9) of this subsection (d)
only, (A) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not include
any note or other evidence of indebtedness issued to evidence an obligation to
repay moneys lent to a Person by one or more banks, trust companies or banking
firms, or any certificate of interest or participation in any such note or
evidence of indebtedness; (B) an obligation shall be deemed to be in default
when a default in payment of principal shall have continued for 30 days or more
and shall not have been cured; and (C) the Trustee shall not
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be deemed to be the owner or Holder of (i) any security which it holds as
collateral security (as trustee or otherwise) for an obligation which is not in
default as defined in clause (B) above, or (ii) any security which it holds as
collateral security under this Indenture, irrespective of any default hereunder,
or (iii) any security which it holds as agent for collection, or as custodian,
escrow agent or depositary, or in any similar representative capacity.
(e) For the purposes of this Section 7.08:
(1) The term "underwriter" when used with reference to the
Corporation or any other obligor on the Securities shall mean every Person
who, within one year prior to the time as of which the determination is
made, has purchased from the Corporation or any other obligor on the
Securities with a view to, or has offered or sold for the Corporation or
any other obligor on the Securities in connection with, the distribution of
any security of the Corporation or any other obligor on the Securities
outstanding at such time, or has participated or has had a direct or
indirect participation in any such undertaking, or has participated or has
had a participation in the direct or indirect underwriting of any such
undertaking, but such term shall not include a Person whose interest was
limited to a commission from an underwriter or dealer not in excess of the
usual and customary distributors' or sellers' commission.
(2) The term "director" shall mean any director of a corporation or
any individual performing similar functions with respect to any
organization whether incorporated or unincorporated.
(3) The term "trust" shall include only a trust where the interest or
interests of the beneficiary or beneficiaries are evidenced by a security.
(4) The term "voting security" shall mean any security presently
entitling the owner or Holder thereof to vote in the direction or
management of the affairs of a Person, or any security issued under or
pursuant to any trust, agreement or arrangement whereby a trustee or
trustees or agent or agents for the owner or Holder of such security are
presently entitled to vote in the direction or management of the affairs of
a Person.
(5) The term "executive officer" shall mean the president, every
vice-president, every trust officer, the cashier, the secretary and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization whether incorporated or
unincorporated, but shall not include the chairman of the board of
directors.
(6) Except for purposes of paragraphs (6), (7), (8) and (9) of
subsection (d) of this Section 7.08, the term "security" or "securities"
shall mean any note, stock, treasury stock, bond, debenture, evidence of
indebtedness, certificate of interest or participation in any profit-
sharing agreement, collateral-trust certificate, pre-organization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas or other mineral rights, or, in general, any
interest or instrument commonly known as a "security" or any certificate of
interest or participation in, temporary or interim certificate for, receipt
for, guarantee of, or warrant or right to subscribe to or purchase, any of
the foregoing.
(7) For the purpose of subsection (d)(1) of this Section 7.08, the
term "series of securities" or "series" means a series, class or group of
securities issuable under an indenture pursuant to whose terms Holders of
one such series may vote to direct the indenture trustee, or otherwise take
action pursuant to a vote of such holders, separately from holders of
another such series; provided, that "series of securities" or "series"
shall not include any series of securities issuable under an indenture if
all such series rank equally and are wholly unsecured.
The percentages of voting securities and other securities specified in this
Section shall be calculated in accordance with the following provisions:
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(A) A specified percentage of the voting securities of the Trustee,
the Corporation or any other Person referred to in this Section 7.08 (each
of whom is referred to as a "Person" in this paragraph) means such amount
of the outstanding voting securities of such Person as entitles the Holder
or Holders thereof to cast such specified percentage of the aggregate votes
which the Holders of all the outstanding voting securities of such Person
are entitled to cast in the direction or management of the affairs of such
Person.
(B) A specified percentage of a class of securities of a Person means
such percentage of the aggregate amount of securities of the class
outstanding.
(C) The term "amount", when used in regard to securities, means the
principal amount if relating to evidences of indebtedness, the number of
shares if relating to capital shares, and the number of units if relating
to any other kind of security.
(D) The term "outstanding" means issued and not held by or for the
account of the issuer. The following securities shall not be deemed
outstanding within the meaning of this definition:
(i) Securities of an issuer held in a sinking fund relating to
securities of the issuer of the same class;
(ii) Securities of an issuer held in a sinking fund relating to
another class of securities of the issuer, if the obligation evidenced
by such other class of securities is not in default as to principal or
interest or otherwise;
(iii) Securities pledged by the issuer thereof as security for
an obligation of the issuer not in default as to principal or interest
or otherwise; and
(iv) Securities held in escrow if placed in escrow by the
issuer thereof;
provided, however, that any voting securities of an issuer shall be deemed
outstanding if any Person other than the issuer is entitled to exercise the
voting rights thereof.
(E) A security shall be deemed to be of the same class as another
security if both securities confer upon the Holder or Holders thereof
substantially the same rights and privileges, provided, however, that, in
the case of secured evidences of indebtedness, all of which are issued
under a single indenture, differences in the interest rates or maturity
dates of various series thereof shall not be deemed sufficient to
constitute such series different classes, and provided further that, in the
case of unsecured evidences of indebtedness, differences in the interest
rate or maturity dates thereof shall not be deemed sufficient to constitute
them securities of different classes, whether or not they are issued under
a single indenture.
(f) Except in the case of a default in the payment of the principal of or
interest on any Securities, or in the payment of any sinking or purchase fund
installment, the Trustee shall not be required to resign as provided by this
Section 7.08 if the Trustee shall have sustained the burden of proving, on
application to the Commission and after opportunity for hearing thereon, that
(i) the default under this Indenture may be cured or waived during a reasonable
period and under the procedures described in such application, and (ii) a stay
of the Trustee's duty to resign will not be inconsistent with the interests of
Holders of such Series of Securities. The filing of such an application shall
automatically stay the performance of the duty to resign until the Commission
orders otherwise. Any resignation of the Trustee shall become effective only
upon the appointment of a successor trustee and such successor's acceptance of
such appointment.
SECTION 7.09. REQUIREMENTS FOR ELIGIBILITY OF TRUSTEE. There shall always
be at least one Trustee hereunder. The Trustee hereunder shall at all times be
a corporation organized and doing business as a commercial bank under the laws
of the United States of America or any state thereof or of the District of
Columbia or a corporation or other Person permitted to act as a trustee by the
Commission
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and, in each case, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $100,000,000, and
subject to supervision or examination by Federal, State or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. No
obligor on the Securities or Person directly or indirectly controlling,
controlled by or under common control with such obligor shall serve as Trustee.
In case at any time the Trustee shall cease to be eligible in accordance with
the provisions of this Section 7.09, the Trustee shall resign immediately in the
manner and with the effect specified in this Article Seven.
SECTION 7.10. RESIGNATION AND REMOVAL OF TRUSTEE; APPOINTMENT OF
SUCCESSOR. (a) The Trustee, or any trustee or trustees hereafter appointed,
may at any time resign with respect to one or more or all Series of Securities
by giving written notice of such resignation to the Corporation and by giving to
the Holders of Securities notice thereof in the manner and to the extent
provided in subsec tion (c) of Section 5.04 with respect to reports pursuant to
subsection (a) of Section 5.04. Upon receiving such notice of resignation and
if the Corporation shall deem it appropriate, evidence satisfactory to it of
such mailing to the Holders, the Corporation shall promptly appoint a successor
trustee with respect to all Series of Securities or, if appropriate, the
applicable Series by written instrument executed by an authorized officer of the
Corporation, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee. If no successor trustee shall
have been so appointed and have accepted appointment within 30 days after the
mailing of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee, or
any Holder who has been a bona fide Holder of a Security or Securities for at
least six months may, subject to the provisions of Section 6.11, on such
Holder's behalf and on behalf of all others similarly situated, petition any
such court for the appointment of a successor trustee. Such court may thereupon
after such notice, if any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with the provisions of
subsection (a) of Section 7.08 after written request therefor by the
Corporation or by any Securityholder who has been a bona fide Holder of a
Security or Securities of the applicable Series for at least six months, or
(2) the Trustee shall cease to be eligible in accordance with the
provisions of Section 7.09 and shall fail to resign after written request
therefor by the Corporation or by any such Securityholder, or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, or
(4) the Corporation shall determine that the Trustee has failed to
perform its obligations under this Indenture in any material respect,
then, in any such case, the Corporation may remove the Trustee and appoint a
successor trustee by written instrument executed by an authorized officer of the
Corporation, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee, or, subject to the provisions of
Section 6.11, any Securityholder who has been a bona fide Holder of a Security
or Securities of the affected Series for at least six months may, on such
Person's behalf and on behalf of all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee with respect to such Series. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor trustee.
(c) The Holders of a majority in principal amount of the Securities
Outstanding (determined as provided in Section 8.04) may at any time remove the
Trustee and appoint a successor trustee by written instrument or instruments
signed by such Holders or their attorneys-in-fact duly authorized, or by the
affidavits of the permanent chairman and secretary of a meeting of the
Securityholders
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evidencing the vote upon a resolution or resolutions submitted thereto with
respect to such removal and appointment (as provided in Article Nine), and by
delivery thereof to the Trustee so removed, to the successor trustee and to the
Corporation.
(d) Any resignation or removal of the Trustee and any appointment of a
successor trustee pursuant to any of the provisions of this Section 7.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 7.11.
SECTION 7.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE. Any
successor trustee appointed as provided in Section 7.10 shall execute,
acknowledge and deliver to the Corporation and to its predecessor trustee an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations with respect to such Series of
its predecessor hereunder, with like effect as if originally named as trustee
herein; but, nevertheless, on the written request of the Corporation or of the
successor trustee, the trustee ceasing to act shall, upon payment of any amounts
then due it pursuant to the provisions of Section 7.06, execute and deliver an
instrument transferring to such successor trustee all the rights and powers with
respect to the trustee so ceasing to act. Upon written request of any such
successor trustee, the Corporation shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property or funds held or collected by such
trustee to secure any amounts then due it pursuant to the provisions of Section
7.06.
No successor trustee shall accept appointment as provided in this Section
7.11 unless at the time of such acceptance such successor trustee shall be
qualified under the provisions of Section 7.08 and eligible under the provisions
of Section 7.09.
Upon acceptance of appointment by a successor trustee as provided in this
Section 7.11, the successor trustee shall at the expense of the Corporation
transmit notice of the succession of such trustee hereunder to the Holders of
Securities in the manner and to the extent provided in subsection (c) of Section
5.04 with respect to reports pursuant to subsection (a) of said Section 5.04.
SECTION 7.12. SUCCESSOR TO TRUSTEE BY MERGER, CONSOLIDATION OR SUCCESSION
TO BUSINESS. Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be qualified under the provisions of Section
7.08 and eligible under the provisions of Section 7.09, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee, and deliver such
Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have; provided, however, that the
right to adopt the certificate of authentication of any predecessor Trustee or
to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
SECTION 7.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST CORPORATION. (a)
Subject to the provisions of subsection (b) of this Section 7.13, if the Trustee
shall be or shall become a creditor, directly or indirectly, secured or
unsecured, of the Corporation or any other obligor on the Securities within
three months prior to a default, as defined in subsection (c) of this Section
7.13, or subsequent to such a default, then, unless and until such default shall
be cured, the Trustee shall set apart and hold in a special account for the
benefit of the Trustee individually, the Holders of the Securities for which it
is acting as Trustee, and the holders of other indenture securities (as defined
in subsection (c) of this Section 7.13):
(1) an amount equal to any and all reductions in the amount due and
owing upon any claim as such creditor in respect of principal or interest,
effected after the beginning of such three months' period, and valid as
against
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the Corporation or such other obligor on the Securities and its other
creditors, except any such reduction resulting from the receipt or
disposition of any property described in paragraph (2) of this subsection,
or from the exercise of any right of set-off which the Trustee could have
exercised if a petition in bankruptcy had been filed by or against the
Corporation or such other obligor on the Securities upon the date of such
default; and
(2) all property received by the Trustee in respect of any claims as
such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such three
months' period, or an amount equal to the proceeds of any such property if
disposed of, subject, however, to the rights, if any, of the Corporation or
such other obligor on the Securities and their respective other creditors
in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on account of any
such claim by any Person (other than the Corporation or such other obligor
on the Securities) who is liable thereon, and (ii) the proceeds of the bona
fide sale of any such claim by the Trustee to a third Person, and (iii)
distributions made in cash, securities or other property in respect of
claims filed against the Corporation or such other obligor on the
Securities in bankruptcy or receivership or in proceedings for
reorganization pursuant to Title 11 of the United States Code or applicable
State laws;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the
beginning of such three months' period;
(C) to realize, for its own account, but only to the extent of the
claim hereinafter mentioned, upon any property held by it as security for
any such claim, if such claim was created after the beginning of such three
months' period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so received, the
Trustee had no reasonable cause to believe that a default, as defined in
subsection (c) of this Section 7.13, would occur within three months; or
(D) to receive payment on any claim referred to in paragraph (B) or
(C), against the release of any property held as security for such claim as
provided in such paragraph (B) or (C), as the case may be, to the extent of
the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after
the beginning of such three months' period for property held as security at the
time of such substitution shall, to the extent of the fair value of the property
released, have the same status as the property released, and to the extent that
any claim referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any preexisting
claim of the Trustee as such creditor, such claim shall have the same status as
such preexisting claim.
If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds thereof shall be apportioned among the
Trustee, the Holders of Securities for which it is acting as Trustee, and the
holders of other indenture securities in such manner that the Trustee, such
Securityholders and the holders of other indenture securities realize, as a
result of payments from such special account and payments of dividends on claims
filed against the Corporation or such other obligor on the Securities in
bankruptcy or receivership or in proceedings for reorganization pursuant to
Title 11 of the United States Code or applicable State law, the same percentage
of their respective claims, figured before crediting to the claim of the Trustee
anything on account of the receipt by it from the Corporation or such other
obligor on the Securities of the funds and property in such special account and
before crediting to the respective claims of the Trustee, such Securityholders,
and the holders of other indenture securities dividends on claims filed against
the Corporation or such other obligor on the Securities in bankruptcy or
receivership or in proceedings for reorganization pursuant to Title 11 of the
United States Code or applicable State law, but after crediting thereon receipts
on account of the indebtedness represented by their respective claims from all
sources other than from such dividends and from the funds and property so held
in such special account. As
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used in this paragraph, with respect to any claim, the term "dividends" shall
include any distribution with respect to such claim in bankruptcy or
receivership or in proceedings for reorganization pursuant to Title 11 of the
United States Code or applicable State law, whether such distribution is made in
cash, securities or other property, but shall not include any such distribution
with respect to the secured portion, if any, of such claim. The court in which
such bankruptcy, receivership or proceeding for reorganization is pending shall
have jurisdiction (i) to apportion among the Trustee, such Securityholders, and
the holders of other indenture securities, in accordance with the provisions of
this paragraph, the funds and property held in such special account and the
proceeds thereof, or (ii) in lieu of such apportionment in whole or in part, to
give to the provisions of this paragraph due consideration in determining the
fairness of the distributions to be made to the Trustee, such Securityholders
and the holders of other indenture securities with respect to their respective
claims, in which event it shall not be necessary to liquidate or to appraise the
value of any securities or other property held in such special account or as
security for any such claim, or to make a specific allocation of such
distributions as between the secured and unsecured portions of such claim, or
otherwise to apply the provisions of this paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the beginning of such
three months' period shall be subject to the provisions of this subsection (a)
as though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such three months' period, it
shall be subject to the provisions of this subsection (a) if and only if the
following conditions exist:
(i) the receipt of property or reduction of claim which would have
given rise to the obligation to account, if such Trustee had continued, as
trustee, occurred after the beginning of such three months' period; and
(ii) such receipt of property or reduction of claim occurred within
three months after such resignation or removal.
In every case commenced under the Bankruptcy Act of 1898, or any amendment
thereto enacted prior to November 6, 1978, all references to periods of three
months shall be deemed to be references to periods of four months.
(b) There shall be excluded from the operation of subsection (a) of this
Section 7.13 a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of preserving
any property which shall at any time be subject to the lien of this
Indenture or of discharging tax liens or other prior liens or encumbrances
thereon, if notice of such advance and of the circumstances surrounding the
making thereof is given to the Securityholders at the time and in the
manner provided in Section 5.04(c) with respect to reports pursuant to
subsections (a) and (b) thereof, respectively;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;
(4) an indebtedness created as a result of services rendered or
premises rented, or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in subsection (c) of this
Section 7.13;
(5) the ownership of stock or of other securities of a corporation
organized under the provisions of Section 25(a) of the Federal Reserve Act,
as amended, which is directly or indirectly a creditor of the Corporation
or any other obligor on the Securities; and
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within the
classification of self-liquidating paper as defined in subsection (c) of
this Section 7.13.
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(c) As used in this Section 7.13 the following terms shall be accorded the
following definitions:
(1) the term "default" shall mean any failure to make payment in full
of the principal of or interest on any of the Securities or on the other
indenture securities when and as such principal or interest becomes due and
payable.
(2) the term "other indenture securities" shall mean securities upon
which the Corporation or any other obligor on the Securities is an
"obligor" (as defined in the Trust Indenture Act of 1939) outstanding under
any other indenture (A) under which the Trustee is also trustee, (B) which
contains provisions substantially similar to the provisions of subsection
(a) of this Section 7.13, and (C) under which a default exists at the time
of the apportionment of the funds and property held in said special
account.
(3) the term "cash transaction" shall mean any transaction in which
full payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other
orders drawn upon banks or bankers and payable upon demand.
(4) the term "self-liquidating paper" shall mean any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Corporation or any other obligor on the Securities for the
purpose of financing the purchase, processing, manufacture, shipment,
storage or sale of goods, wares or merchandise and which is secured by
documents evidencing title to, possession of, or a lien upon, the goods,
wares or merchandise or the receivables or proceeds arising from the sale
of the goods, wares or merchandise previously constituting the security,
provided the security is received by the Trustee simultaneously with the
creation of the creditor relationship with the Corporation or any other
obligor on the Securities arising from the making, drawing, negotiating or
incurring of the draft, bill of exchange, acceptance or obligation.
ARTICLE EIGHT
CONCERNING THE SECURITYHOLDERS
SECTION 8.01. EVIDENCE OF ACTION BY SECURITYHOLDERS. Whenever in this
Indenture it is provided that the Holders of a specified percentage in principal
amount of the Securities of any or all Series may take any action (including the
making of any demand or request, the giving of any notice, consent or waiver or
the taking of any other action), the fact that at the time of taking any such
action the Holders of such specified percentage have joined therein may be
evidenced (a) by any instrument or any number of instruments of similar tenor
executed by such Securityholders in Person or by agent or proxy appointed in
writing, or (b) by the record of such Holders of Securities voting in favor
thereof at any meeting of such Securityholders duly called and held in
accordance with the provisions of Article Nine, or (c) by a combination of such
instrument or instruments and any such record of such a meeting of such
Securityholders.
SECTION 8.02. PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF
SECURITIES. Subject to the provisions of Sections 7.01, 7.02 and 9.05, proof of
the execution of any instrument by a Securityholder or such Holder's agent or
proxy and proof of the holding by any Person of any of the Securities shall be
sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the
Trustee.
(b) The ownership of Securities of any Series (including Global
Securities) shall be proved by the Register of such Securities of such
Series, or by certificates of the Security registrar or registrars thereof.
(c) The amount of bearer Securities held by any Person, the numbers
of such Securities and the date of such Person's holding the same may be
proved by the production of such Securities or by a certificate in form
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satisfactory to the Trustee, executed by any trust company, bank, banker or
member of a national securities exchange, as depositary.
The Trustee shall not be bound to recognize any Person as a Securityholder
unless and until such Person's title to the Securities held by it is proved in
the manner in this Article Eight provided.
The record of any Securityholders' meeting shall be proved in the manner
provided in Section 9.06.
The Trustee may accept such other proof or require such additional proof of
any matter referred to in this Section 8.02 as it shall deem reasonable.
SECTION 8.03. WHO MAY BE DEEMED OWNERS OF SECURITIES. Prior to due
presentment for transfer of any Security, the Corporation, the Trustee and any
agent of the Corporation or the Trustee may deem and treat the Person in whose
name such Security shall be registered upon the Register of Securities of the
Series of which such Security is a part as the absolute owner of such Security
(whether or not such Security shall be overdue and notwithstanding any notation
of ownership or other writing thereon) for the purpose of receiving payment of
or on account of the principal of and interest, subject to Section 2.03, on such
Security and for all other purposes; and neither the Corporation nor the Trustee
nor any agent of the Corporation or the Trustee shall be affected by any notice
to the contrary. All such payments so made to any such Holder for the time
being, or upon such Holder's order, shall be valid, and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability of moneys
payable upon any such Security. Ownership of bearer Securities shall be proved
as provided in Section 8.02(c).
If the Securities of any Series are issued in the form of one or more
Global Securities, the Depository therefor may grant proxies to Persons having a
beneficial ownership in such Global Security or Securities for purposes of
voting or otherwise responding to any request for consent, waiver or other
action which the Holder of such Security is entitled to grant or take under this
Indenture and the Trustee shall accept such proxies for the purposes granted;
provided that neither the Trustee nor the Corporation shall have any obligation
with respect to the grant of or solicitation by the Depository of such proxies.
SECTION 8.04. SECURITIES OWNED BY THE CORPORATION OR CONTROLLED OR
CONTROLLING PERSONS DISREGARDED FOR CERTAIN PURPOSES. In determining whether
the Holders of the requisite principal amount of Securities have concurred in
any demand, direction, request, notice, vote, consent, waiver or other action
under this Indenture, Securities which are owned by the Corporation or any other
obligor on the Securities or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Corporation or
any other obligor on the Securities shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, provided that for the
purposes of determining whether the Trustee shall be protected in relying on any
such demand, direction, request, notice, vote, consent, waiver or other action,
only Securities which a Responsible Officer of the Trustee assigned to its
principal office knows are so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding for
the purposes of this Section 8.04, if the pledgee shall establish to the
satisfaction of the Trustee the pledgee's right to vote such Securities and that
the pledgee is not a Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Corporation or any such
other obligor.
Upon request of the Trustee, the Corporation shall furnish to the Trustee
promptly an Officer's Certificate listing and identifying all Securities, if
any, known by the Corporation to be owned or held by or for the account of the
Corporation or any other obligor on the Securities or by any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Corporation or any other obligor on the Securities; and,
subject to the provisions of Section 7.01, the Trustee shall be entitled to
accept such Officer's Certificate as conclusive evidence of the facts therein
set forth and of the fact that all Securities not listed therein are Outstanding
for the purpose of any such determination.
SECTION 8.05. INSTRUMENTS EXECUTED BY SECURITYHOLDERS BIND FUTURE HOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as provided
in Section 8.01, of the taking of any action by the Holders of the percentage in
principal amount of the Securities specified in this Indenture in connection
with such action, any Holder of a Security which is shown by the evidence to be
included in the Securities the Holders of which have consented to such action
may, by filing written notice with the Trustee at its principal
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office and upon proof of holding as provided in Section 8.02, revoke such action
so far as concerns such Security. Except as aforesaid any such action taken by
the Holder of any Security and any direction, demand, request, notice, waiver,
consent, vote or other action of the Holder of any Security which by any
provisions of this Indenture is required or permitted to be given shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of such Security, and of any Security issued in lieu thereof, irrespective of
whether any notation in regard thereto is made upon such Security. Any action
taken by the Holders of the percentage in principal amount of the Securities of
any or all Series specified in this Indenture in connection with such action
shall be conclusively binding upon the Corporation, the Trustee and the Holders
of all of the Securities of such Series subject, however, to the provisions of
Section 7.01.
ARTICLE NINE
SECURITYHOLDERS' MEETINGS
SECTION 9.01. PURPOSES FOR WHICH MEETINGS MAY BE CALLED. A meeting of
Holders of Securities of any or all Series may be called at any time and from
time to time pursuant to the provisions of this Article for any of the following
purposes:
(1) to give any notice to the Corporation or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Holders of Securities of any or all Series, as
the case may be, pursuant to any of the provisions of Article Six;
(2) to remove the Trustee and appoint a successor trustee pursuant to
the provisions of Article Seven;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 10.02; or
(4) to take any other action authorized to be taken by or on behalf
of the Holders of any specified principal amount of the Securities of any
or all Series, as the case may be, under any other provision of this
Indenture or under applicable law.
SECTION 9.02. MANNER OF CALLING MEETINGS. The Trustee may at any time
call a meeting of Securityholders to take any action specified in Section 9.01,
to be held at such time and at such place in the City of _________________ or
Los Angeles, California, as the Trustee shall determine. Notice of every
meeting of Securityholders, setting forth the time and place of such meeting and
in general terms the action proposed to be taken at such meeting, shall be
mailed not less than 20 nor more than 60 days prior to the date fixed for the
meeting.
SECTION 9.03. CALL OF MEETING BY THE CORPORATION OR SECURITYHOLDERS. In
case at any time the Corporation pursuant to a resolution of its Board of
Directors, or the Holders of not less than ten percent in principal amount of
the Securities of any or all Series, as the case may be, then Outstanding, shall
have requested the Trustee to call a meeting of Holders of Securities of any or
all Series, as the case may be, to take any action authorized in Section 9.01 by
written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed notice of such
meeting within 20 days after receipt of such request, then the Corporation or
such Holders of Securities in the amount above specified may determine the time
and place in either the City of Los Angeles, California or The City of New York,
New York for such meeting and may call such meeting to take any action
authorized in Section 9.01, by mailing (and publishing, if required) notice
thereof as provided in Section 9.02.
SECTION 9.04. WHO MAY ATTEND AND VOTE AT MEETINGS. To be entitled to vote
at any meeting of Securityholders a Person shall (a) be a Holder of one or more
Securities with respect to which the meeting is being held; or (b) be a Person
appointed by an instrument in writing as proxy by such Holder of one or more
Securities. The only Persons who shall be entitled to be present or to speak at
any meeting of Securityholders shall be the Persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its counsel
and any representatives of the Corporation and its counsel.
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SECTION 9.05. REGULATIONS MAY BE MADE BY TRUSTEE; CONDUCT OF THE MEETING;
VOTING RIGHTS - ADJOURNMENT. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Securityholders, in regard to proof of the holding
of Securities and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall think fit. Except as
otherwise permitted or required by any such regulations, the holding of
Securities shall be proved in the manner specified in Section 8.02. and the
appointment of any proxy shall be proved in the manner specified in said Section
8.02; provided, however, that such regulations may provide that written
instruments appointing proxies regular on their face, may be presumed valid and
genuine without the proof herein above or in said Section 8.02 specified.
The Trustee shall by an instrument in writing, appoint a temporary chairman
of the meeting, unless the meeting shall have been called by the Corporation or
by Securityholders as provided in Section 9.03, in which case the Corporation or
the Securityholders calling the meeting, as the case may be, shall in like
manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by majority vote of the meeting.
Subject to the provisions of Section 8.04, at any meeting each
Securityholder or proxy shall be entitled to one vote for each $1,000 principal
amount (in the case of Original Issue Discount Securities, such principal amount
shall be equal to such portion of the principal amount as may be specified in
the terms of such Series) of Securities held or represented by such Holder;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Security challenged as not Outstanding and ruled by the chairman
of the meeting to be not Outstanding. The chairman of the meeting shall have no
right to vote other than by virtue of Securities held by such Person or
instruments in writing as aforesaid duly designating such Person as the Person
to vote on behalf of other Securityholders. Any meeting of Securityholders duly
called pursuant to the provisions of Section 9.02 or 9.03 may be adjourned from
time to time, and the meeting may be held so adjourned without further notice.
At any meeting of Securityholders, the presence of Persons holding or
representing Securities in principal amount sufficient to take action on the
business for the transaction of which such meeting was called shall constitute a
quorum, but, if less than a quorum is present, the Persons holding or
representing a majority in principal amount of the Securities represented at the
meeting may adjourn such meeting with the same effect for all intents and
purposes, as though a quorum had been present.
SECTION 9.06. MANNER OF VOTING AT MEETINGS AND RECORD TO BE KEPT. The
vote upon any resolution submitted to any meeting of Securityholders shall be by
written ballots on which shall be subscribed the signatures of the Holders of
Securities or of their representatives by proxy and the principal amount or
principal amounts of the Securities held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more Persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was mailed as
provided in Section 9.02. The record shall show the principal amount or
principal amounts of the Securities voting in favor of or against any
resolution. The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one copy thereof shall be
delivered to the Corporation and the other to the Trustee to be preserved by the
Trustee.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
SECTION 9.07. EXERCISE OF RIGHTS OF TRUSTEE AND SECURITYHOLDERS NOT TO BE
HINDERED OR DELAYED. Nothing in this Article Nine contained shall be deemed or
construed to authorize or permit, by reason of any call of a meeting of
Securityholders or any rights expressly or impliedly conferred hereunder to make
such call, any hindrances or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Securityholders under any of
the provisions of this Indenture or of the Securities.
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ARTICLE TEN
SUPPLEMENTAL INDENTURES
SECTION 10.01. PURPOSES FOR WHICH SUPPLEMENTAL INDENTURES MAY BE ENTERED
INTO WITHOUT CONSENT OF SECURITYHOLDERS. Without the consent of the Holders of
any Securities, the Corporation and the Trustee may from time to time and at any
time enter into an indenture or indentures supplemental hereto (which shall
comply with the provisions of the Trust Indenture Act of 1939 as then in effect)
for one or more of the following purposes:
(a) if deemed appropriate by the Corporation or required by law, to
evidence the succession of another corporation to the Corporation or
successive successions and the assumption by the successor corporation of
the covenants, agreements and obligations of the Corporation pursuant to
Article Four hereof,
(b) to add to the covenants of the Corporation such further
covenants, restrictions or conditions as its Board of Directors and the
Trustee shall consider to be for the protection of the Holders of all or
any Series of Securities (and if such covenants, restrictions or conditions
are to be for the benefit of less than all Series of Securities, stating
that such covenants, restrictions or conditions are expressly being
included solely for the benefit of such Series), and to make the
occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions or conditions an Event of Default
permitting the enforcement of all or any of the several remedies provided
in this Indenture as herein set forth; provided, however, that in respect
to any such additional covenant, restriction or condition such Supplemental
Indenture may provide for a particular period of grace after default (which
period may be shorter or longer than that allowed in the case of other
defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Trustee upon such default,
(c) to add or change any of the provisions of this Indenture to such
extent as shall be necessary to facilitate the issuance of Securities in
(i) global form or (ii) bearer form, registerable or not registerable as to
principal or principal and interest, and with or without coupons,
(d) to change or eliminate any of the provisions of this Indenture;
provided, however, that any such change or elimination shall become
effective only when there is no Security of any Series Outstanding created
prior to the execution of such Supplemental Indenture which is entitled to
the benefit of such provision,
(e) to establish the form or terms of Securities of any Series as
permitted by Sections 2.01 and 2.02,
(f) to appoint, at the request of the Trustee, a successor Trustee
for a particular Series of Securities to act as such pursuant to the
provisions of this Indenture and to add to or change the provisions of this
Indenture to such extent as shall be necessary to facilitate the
performance of the duties of such trustee and
(g) to cure any ambiguity or to correct or supplement any provisions
contained herein or in any Supplemental Indenture which may be defective or
inconsistent with any other provision contained herein or in any
Supplemental Indenture, or to make such other provisions in regard to
matters or questions arising under this Indenture or any Supplemental
Indenture which shall not adversely affect the interests of the Holders of
the Securities.
SECTION 10.02. MODIFICATION OF INDENTURE WITH CONSENT OF HOLDERS OF
SECURITIES. With the consent (evidenced as provided in Section 8.01) of the
Holders of not less than a majority in principal amount of the Securities of all
Series at the time Outstanding (determined as provided in Section 8.04) affected
by such Supplemental Indenture (voting as one class), the Corporation and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall comply with the provisions of the
Trust Indenture Act of 1939 as then in effect) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of any Supplemental Indenture or of modifying in any manner
the rights of the Holders of the
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Securities of each such Series; provided, however, that no such Supplemental
Indenture shall, without the consent of the Holders of each Outstanding Security
affect thereby:
(a) Change the fixed maturity or Redemption Date of any Security or
reduce the rate of interest thereon or the method of determining such rate
of interest or extend the time of payment of interest or reduce the
principal amount (including the amount of principal of an Original Issue
Discount Security that would be due upon declaration of acceleration of the
maturity thereof pursuant to Section 6.01 hereof) thereof or reduce any
premium payable upon the redemption thereof, or change the coin or currency
in which any Security or the interest thereon is payable or impair the
right to institute suit for the enforcement of any such payment on or after
the maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or
(b) Reduce the percentage in principal amount of the Outstanding
Securities the consent of the Holders of which is required for any such
Supplemental Indenture, or the consent of the Holders of which is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture or
(c) Change the time of payment or reduce the amount of any minimum
sinking account or fund payment or
(d) Modify any of the provisions of this Section 10.02, except to
increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the
Holder of each Security affected thereby.
A Supplemental Indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular Series of Securities, or which modifies the
rights of Holders of Securities of such Series with respect to such covenant or
other provision, shall be deemed not to affect the rights under this Indenture
of the Holders of Securities of any other Series.
It shall not be necessary for the consent of the Securityholders under this
Section 10.02 to approve the particular form of any proposed Supplemental
Indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Promptly after the execution by the Corporation and the Trustee of any
Supplemental Indenture pursuant to the provisions of this Section 10.02, the
Corporation shall mail a notice to the Holders of Registered Securities of each
Series so affected, setting forth in general terms the substance of such
Supplemental Indenture. Any failure of the Corporation to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the validity
of any such Supplemental Indenture.
SECTION 10.03. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of
any Supplemental Indenture pursuant to the provisions of this Article Ten, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Corporation and the
Holders of Securities shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and all
the terms and conditions of any such Supplemental Indenture shall be and be
deemed to be part of the terms and conditions of this Indenture for any and all
purposes.
The Trustee shall be entitled to receive, and subject to the provisions of
Section 7.01 shall be entitled to rely upon, an Opinion of Counsel as conclusive
evidence that any such Supplemental Indenture complies with the provisions of
this Article Ten and that the Securities affected by the Supplemental Indenture,
when such Securities are authenticated and delivered by the Trustee and executed
and issued by the Corporation in the manner and subject to any conditions
specified in such Opinion of Counsel, will be valid and binding obligations of
the Corporation, except as any rights thereunder may be limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally and by general equity principles.
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SECTION 10.04. SECURITIES MAY BEAR NOTATION OF CHANGES BY SUPPLEMENTAL
INDENTURES. Securities authenticated and delivered after the execution of any
Supplemental Indenture pursuant to the provisions of this Article Ten, or after
any action taken at a Securityholders' meeting pursuant to Article Nine, may
bear a notation in form approved by the Trustee as to any matter provided for in
such Supplemental Indenture or as to any action taken at any such meeting. If
the Corporation or the Trustee shall so determine, new Securities so modified as
to conform, in the opinion of the Trustee and the Corporation, to any
modification of this Indenture contained in any such Supplemental Indenture may
be prepared by the Corporation, authenticated by the Trustee and delivered in
exchange for the Securities then Outstanding.
ARTICLE ELEVEN
DISCHARGE; DEFEASANCE
SECTION 11.01. DISCHARGE OF INDENTURE. If the Corporation shall pay and
discharge or cause to be paid or discharged the entire indebtedness on all
Outstanding Securities by paying or causing to be paid the principal of
(including redemption premium, if any) and interest on the Outstanding
Securities, as and when the same become due and payable or by delivering to the
Trustee, for cancellation by it, all Outstanding Securities, and if the
Corporation shall also pay or cause to be paid all other sums payable hereunder
by it, thereupon, upon written request of the Corporation and upon receipt by
the Trustee of such certificates, if any, as the Trustee shall reasonably
require, to the effect that all conditions precedent to the satisfaction and
discharge of the Corporation's obligations under this Indenture have been
complied with, this Indenture shall be discharged and terminated and the Trustee
shall forthwith execute proper instruments acknowledging satisfaction of and
discharging and terminating this Indenture with respect to the Corporation's
obligations hereunder and any such other interests.
The Corporation may at any time surrender to the Trustee for cancellation
by it any Securities previously authenticated and delivered which the
Corporation may have acquired in any manner whatsoever, and such Securities,
upon such surrender and cancellation, shall be deemed to be paid and retired.
SECTION 11.02. DISCHARGE OF LIABILITY ON SECURITIES. Upon the deposit
with the Trustee, in trust, at or before maturity, of money or securities of the
kind and in the necessary amount (as provided in Section 11.04 of this
Indenture) to pay or redeem Outstanding Securities (whether upon or prior to
their maturity or the Redemption Date of such Securities, provided that, if such
Securities are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as in Article Three hereof provided or
provision satisfactory to the Trustee shall have been made for the giving of
such notice), the obligation of the Corporation duly and punctually to pay or
cause to be paid the principal of and any interest and premium in respect of
such Securities and all liability of the Corporation in respect of such payment
shall cease, terminate and be completely discharged and the Holders thereof
shall thereafter be entitled only to payment out of the money or securities
deposited with the Trustee as aforesaid for their payment; provided, however,
that this discharge of the Corporation's obligation so to pay and of the
liability of the Corporation in respect of such payment shall not occur unless
the Corporation shall have delivered to the Trustee an Opinion of Counsel to the
effect that Holders of the Securities of such Series will not recognize income,
gain or loss for Federal income tax purposes as a result of such discharge.
SECTION 11.03. DISCHARGE OF CERTAIN COVENANTS AND OTHER OBLIGATIONS. Upon
the deposit with the Trustee, in trust, prior to maturity of money or securities
of the kind and in the necessary amount (as provided in Section 11.04 of this
Indenture) to pay or redeem Outstanding Securities of one or more Series
(whether upon or prior to their maturity or the Redemption Date of such
Securities, provided that, if such Securities are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been given as in Article
Three hereof provided or provision satisfactory to the Trustee shall have been
made for the giving of such notice), all of the obligations, covenants and
agreements of the Corporation with respect to such Securities under Sections
4.02, 4.03, 4.04 and 4.05 hereof shall cease, terminate and be completely
discharged.
SECTION 11.04. DISCHARGE OF CERTAIN OBLIGATIONS UPON DEPOSIT OF MONEY OR
SECURITIES WITH TRUSTEE. The conditions for deposit of money or securities
contained in Sections 11.02 and 11.03 shall have been satisfied whenever with
respect to any Securities
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denominated in United States Dollars, the Corporation shall have deposited or
caused to be deposited irrevocably in trust with the Trustee dedicated solely to
the benefit of the Holders of such Securities:
(a) Lawful money of the United States of America in an amount equal
to the principal amount of such Securities and all unpaid interest thereon
to maturity, except that, in the case of Securities which are to be
redeemed prior to maturity, the amount so to be deposited or held shall be
the principal amount of such Securities and interest thereon to the
Redemption Date, together with the redemption premium, if any; or
(b) Direct obligations of the United States of America or obligations
the principal of and interest on which are guaranteed by the United States
of America (which obligations are not subject to redemption prior to
maturity at the option of the issuer), in such amounts and maturing at such
times that the proceeds of said obligations to be received upon their
respective maturities and interest payment dates will provide funds
sufficient to pay the principal, premium, if any, and interest to maturity,
or to the Redemption Date, as the case may be, with respect to all of the
Securities to be paid or redeemed, as such principal, premium and interest
become due, provided that the Trustee shall have been irrevocably
instructed to apply the proceeds of said obligations to the payment of said
principal, premium, if any, and interest with respect to said Securities.
The conditions for deposit of money or securities contained in Sections 11.02
and 11.03 shall have been satisfied whenever with respect to any Securities
denominated in one or more currencies or composite currency other than United
States Dollars, the Corporation shall have deposited or caused to be deposited
irrevocably in trust with the Trustee dedicated solely to the benefit of the
Holders of such Securities:
(i) Lawful money in such currency, currencies or composite currency
in which such Securities are payable and in an amount equal to the
principal amount of such Securities and all unpaid interest thereon to
maturity, except than, in the case of Securities which are to be redeemed
prior to maturity, the amount so to be deposited or held shall be the
principal amount of such Securities and interest thereon to the Redemption
Date, together with the redemption premium, if any; or
(ii) Either (1) direct obligations of the government that issued or
caused to be issued the currency in which such Securities are payable, for
which obligations the full faith and credit of the government is pledged
(which obligations are not subject to redemption prior to maturity at the
option of the issuer) or (2) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of such government
the timely payment of which is unconditionally guaranteed as a full faith
and credit obligation by such government (which obligations are not subject
to redemption prior to maturity at the option of the issuer), in either
case, in such amounts and maturing at such times that the proceeds of said
obligations to be received upon their respective maturities and interest
payment dates will provide funds sufficient to pay the principal, premium,
if any, and interest to maturity, or to the Redemption Date, as the case
may be, with respect to all of the Securities to be paid or redeemed, as
such principal, premium and interest become due, provided that the Trustee
shall have been irrevocably instructed to apply the proceeds of said
obligations to the payment of said principal, premium, if any, and interest
with respect to said Securities.
SECTION 11.05. UNCLAIMED MONEYS. Any moneys deposited with or paid to the
Trustee or any Paying Agent for the payment of the principal of and any premium
and interest on any Security and not so applied but remaining unclaimed under
applicable law shall be transferred by the Trustee to the appropriate Persons in
accordance with applicable laws, and the Holder of such Security shall
thereafter look only to such Persons for any payment which such Holder may be
entitled to collect and all liability of the Trustee and such Paying Agent with
respect to such moneys shall thereupon cease.
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<PAGE>
ARTICLE TWELVE
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
SECTION 12.01. INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS OF
CORPORATION EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or upon any
obligation, covenant or agreement of this Indenture, or of any Security, or for
any claim based thereon or otherwise in respect thereof, shall be had against
any incorporator, stockholder, officer or director, as such past, present or
future, of the Corporation, either directly or through the Corporation, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate obligations,
and that no personal liability whatever shall attach to, or is or shall be
incurred by, the incorporators, stockholders, officers or directors, as such, of
the Corporation because of the creation of the indebtedness hereby authorized,
or under or by reason of the obligations, covenants or agreements contained in
this Indenture or in any of the Securities or implied therefrom; and that any
and all such personal liability of every name and nature, either at common law
or in equity or by constitution or statute, of, and any and all such rights and
claims against, every such incorporator, stockholder, officer or director, as
such, because of the creation of the indebtedness hereby authorized, or under or
by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Securities or implied therefrom are hereby expressly
waived and released as a condition of, and as a consideration for, the execution
of this Indenture and the issue of such Securities.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
SECTION 13.01. SUCCESSORS AND ASSIGNS OF THE CORPORATION BOUND BY
INDENTURE. All the covenants, stipulations, promises and agreements in this
Indenture contained by or in behalf of the Corporation shall bind its successors
and assigns, whether so expressed or not.
SECTION 13.02. NOTICES; EFFECTIVENESS. Any notice or demand which by any
provision of this Indenture is required or permitted to be given or served by
the Trustee or by the Holders of Securities to or on the Corporation, or by the
Corporation or by the Holders of Securities to the Trustee or upon the
Depository by the Corporation or the Trustee may be electronically communicated
or hand delivered or sent by overnight courier, addressed to the relevant party
as provided in this Section 13.02.
All communications intended for the Corporation shall be sent to:
Attention: Chief Financial Officer
Fax Number: ( )
All communications intended for the Trustee shall be sent to:
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<PAGE>
Attention: Corporate Trust Department
Fax Number: ( )
or at any other address of which any of the foregoing shall have notified the
others in any manner prescribed in this Section 13.02.
For all purposes of this Indenture, a notice or communication will be
deemed effective:
(a) if delivered by hand or sent by overnight courier, on the day it
is delivered unless (i) that day is not a Business Day 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, in which case on the
next succeeding Local Business Day,
(c) if sent by facsimile transmission, on the date transmitted,
provided that oral or written confirmation of receipt is obtained by the
sender unless the date of transmission and confirmation is not a Local
Business Day, in which case, on the next succeeding Local Business Day.
Any notice, direction, requires, demand, consent or waiver by the Corporation,
any Securityholder to or upon the Trustee shall be deemed to have been
sufficiently given, made or filed, for all purposes, if given, made or filed in
writing at the Principal Office of the Trustee in accordance with the provisions
of this Section 13.02.
Any notice, request, consent or waiver by the Corporation or the Trustee upon
the Depository shall have been sufficiently given, made or filed, for all
purposes, if give or made in accordance with the provisions of this Section
13.02 at the address shown for such Depository in the Register or at such other
address as the Depository shall have provided for purposes of notice.
SECTION 13.03. COMPLIANCE CERTIFICATES AND OPINIONS. Upon on any request
or application by the Corporation to the Trustee to take any action under any of
the provisions of this Indenture, the Corporation shall furnish to the Trustee
an Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent have been complied with, except that in the case of any
such application or demand as to which the furnishing of such document is
specifically required by any provision of this Indenture relating to such
particular application or demand, no additional certificate or opinion need be
furnished.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture (other than a certificate provided pursuant to Section 5.03(d)
shall include (1) a statement that the Person making such certificate or opinion
has read such covenant or condition; (2) a brief statement as to the nature and
scope of the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; (3) a statement that, in the
opinion of such Person, he or she has made such examination or investigation as
is necessary to enable such Person to express an informed opinion as to whether
or not such covenant or condition has been complied with; and (4) a statement as
to whether or not, in the opinion of such Person, such condition or covenant has
been complied with.
Any certificate, statement or opinion of an officer of the Corporation may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the certificate
or opinion or representations with respect to the matters upon which such
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous. Any
certificate, statement or Opinion of Counsel may be based, insofar as it relates
to factual matters, upon the certificate, statement or opinion of or
representations by an officer or officers of the Corporation stating that the
information with respect to such factual matters is in the possession of the
Corporation, unless such counsel knows that the certifi-
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<PAGE>
cate, statement or opinion or representations with respect to the matters upon
which such Person's certificate, statement or opinion may be based as aforesaid
are erroneous, or in the exercise of reasonable care should know that the same
are erroneous.
Any certificate, statement or opinion of an officer of the Corporation or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants, unless such officer or counsel, as the case may be, knows that the
certificate or opinion or representations with respect to the accounting matters
upon which his or her certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous. Any certificate or opinion of any firm of independent
public accountants filed with the Trustee shall contain a statement that such
firm is independent.
SECTION 13.04. DAYS ON WHICH PAYMENT TO BE MADE, NOTICE GIVEN OR OTHER
ACTION TAKEN. If any date on which a payment is to be made, notice given or
other action taken hereunder is a Saturday, Sunday or legal holiday in the state
in which the payment, notice or other action is to be made, given or taken, then
such payment, notice or other action shall be made, given or taken on the next
succeeding Business Day in such state, and in the case of any payment, no
interest shall accrue for the delay.
SECTION 13.05. PROVISIONS REQUIRED BY TRUST INDENTURE ACT OF 1939 TO
CONTROL. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in this Indenture which
is required to be included in this Indenture by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939 such required provision shall
control.
SECTION 13.06. GOVERNING LAW. THIS INDENTURE AND EACH SECURITY SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR
ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
SECTION 13.07. PROVISIONS OF THE INDENTURE AND SECURITIES FOR THE SOLE
BENEFIT OF THE PARTIES AND THE SECURITYHOLDERS. Nothing in this Indenture or in
the Securities, expressed or implied, shall give or be construed to give any
Person, firm or corporation, other than the parties hereto and the Holders of
the Securities, any legal or equitable right, remedy or claim under or in
respect of this Indenture, or under any covenant, condition and provision herein
contained; all its covenants, conditions and provisions being for the sole
benefit of the parties hereto and of the Holders of the Securities.
SECTION 13.08. INDENTURE MAY BE EXECUTED IN COUNTERPARTS. This Indenture
may be executed in any number of counterparts, each of which shall be an
original; but such counterparts shall together constitute but one and the same
instrument.
____________________ hereby accepts the trusts in this Indenture declared
and provided, upon the terms and conditions herein above set forth.
IN WITNESS WHEREOF, CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. has
caused this Indenture to be signed by its Chairman of the Board or any Vice-
Chairmen of the Board or one of its Vice-Presidents and ____________________ has
caused this Indenture to be signed and acknowledged by one of its
_______________ and to be signed and acknowledged by one of its Assistant
Secretaries, all as of the day and year first written above.
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
By____________________________________________
____________________, as Trustee
By____________________________________________
By____________________________________________
Assistant Secretary
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<PAGE>
EXHIBIT 5
(213) 488-7100
March 30, 1998
CB Commercial Real Estate Services Group, Inc.
533 S. Fremont Avenue
Los Angeles, CA 90071
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We are acting as counsel for CB Commercial Real Estate Services Group, Inc.
(the "Company"), which is filing this date with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, a Registration
Statement relating to the proposed sale from time to time (i) by the Company
of up to $200,000,000 in aggregate principal amount of its Debt Securities to
be issued under an indenture to be entered into among the Company and a
trustee (the "Trustee") to be selected, in substantially the form filed as
Exhibit 4.1 to the Registration Statement (the "Indenture") and (ii) by the
Company and certain Selling Shareholders of the Company of up to 4,000,000
shares of common stock par value $.01 per share of the Company.
Please be advised that in our opinion:
(i) the Debt Securities, when duly authorized and executed by the Company
and authenticated by the Trustee, all in accordance with the Indenture, and
when delivered to and paid for by the purchasers thereof, will be legally
issued and binding obligations of the Company;
(ii) the up to 2,000,000 shares of common stock of the Company to be
offered and sold by the Company have been duly authorized and when issued
and sold by the Company in the manner described in Registration Statement
and in accordance with the resolutions adopted by the Board of Directors of
the Company, will be legally issued, fully paid and nonassessable; and
(iii) the up to 2,000,000 shares to be offered or sold by certain Selling
Shareholders, as described in the Registration Statement, have been duly
authorized and validly issued and are fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission in connection with the filing of the Registration
Statement referred to above. We also consent to the use of our name in the
related Prospectus under the heading "Legal Matters."
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED DIVIDENDS
FOR THE FIVE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Pre-Tax income (loss) from continuing
operations.......................... $45,906 $25,809 $ 8,250 $ 9,325 $(37,037)
Fixed charges........................ 22,884 30,629 29,172 23,283 20,570
------- ------- ------- ------- --------
Total earnings (loss) before fixed
charges............................. $68,790 $56,438 $37,422 $32,608 $(16,467)
======= ======= ======= ======= ========
Fixed charges
Portion of rent expense
representative of the
interest factor(1)................ $ 7,104 $ 6,506 $ 5,905 $ 5,921 $ 6,330
Interest expense................... 15,780 24,123 23,267 17,362 14,240
Preferred stock dividends(2)....... 6,557 1,639 -- -- --
------- ------- ------- ------- --------
Total fixed charges and preferred
dividends........................... $29,441 $32,268 $29,172 $23,283 $ 20,570
======= ======= ======= ======= ========
Ratio of earnings to fixed
charges(3).......................... 3.01 1.84 1.28 1.40 --
======= ======= ======= ======= ========
Ratio of earnings to fixed charges
and preferred
dividends(3)........................ 2.34 1.75 1.28 1.40 --
======= ======= ======= ======= ========
</TABLE>
- --------
(1) Represents one-third of operating lease costs which approximates the
portion that relates to the interest portion.
(2) Preferred stock dividend requirements have been reflected at their pre-tax
amounts.
(3) The Company's earnings were not sufficient to cover its fixed charges
requirements by $37.0 million for December 31, 1993.
In computing the ratio of earnings to fixed charges; (a) earnings have been
based on income from continuing operations before income taxes, extraordinary
items and fixed charges (exclusive of interest capitalized) and (b) fixed
charges consist of interest and amortization of debt discount and expense
(including amounts capitalized) and the estimated interest portion of rents.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 14, 1998
included in CB Commercial Real Estate Services Group, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1997 and to all references to our
Firm included in this Registration Statement.
Arthur Andersen LLP
Los Angeles, California
March 27, 1998
