CB COMMERCIAL REAL ESTATE SERVICES GROUP INC, 424B2, 1998-05-21

CB COMMERCIAL REAL ESTATE SERVICES GROUP INC
424B2, 1998-05-21
REAL ESTATE

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FILED PURSUANT TO RULES 424(b)(2) AND (3)
REGISTRATION NO. 333-48875

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 17, 1998)

$175,000,000

CB RICHARD ELLIS SERVICES, INC.

8 7/8% SENIOR SUBORDINATED NOTES DUE 2006

---------------

The 8 7/8% Senior Subordinated Notes due 2006 (the "Notes") are being
offered (the "Offering") by CB Richard Ellis Services, Inc., formerly known as
CB Commercial Real Estate Services Group, Inc. (the "Company"). Interest on
the Notes will be payable on June 1 and December 1 of each year, commencing
December 1, 1998. The Notes will mature on June 1, 2006, and will be
redeemable at the option of the Company, in whole or in part, at any time on
or after June 1, 2002, at the redemption prices set forth herein, together
with accrued and unpaid interest thereon, if any, to the date of redemption.
On or prior to June 1, 2001, the Company may redeem at any time or from time
to time up to 35% of the aggregate principal amount of the Notes originally
issued at a redemption price equal to 108 7/8% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption, with the net cash proceeds of one or more Public Equity Offerings
(as defined herein); provided, however, that at least $113.75 million in
aggregate principal amount of the Notes remains outstanding immediately after
giving effect to each such redemption. Upon the occurrence of a Change of
Control (as defined herein), the Company will be required to offer to
repurchase all or any portion of each holder's Notes at 101% of the aggregate
principal amount thereof, together with accrued and unpaid interest thereon,
if any, to the date of repurchase. See "Description of the Notes."

The Notes will constitute general unsecured senior subordinated obligations
of the Company and will be subordinated in right of payment to all existing
and future Senior Indebtedness (as defined herein) of the Company. The Notes
will rank equal in right of payment with all future senior subordinated
indebtedness of the Company and senior in right of payment to all future
subordinated indebtedness of the Company. The Notes will also be effectively
subordinated to all existing and future indebtedness and other liabilities of
the Company's subsidiaries. As of March 31, 1998, after giving pro forma
effect to the acquisition of REI (as defined herein), the Offering and the
application of the net proceeds therefrom, the Company and its subsidiaries
would have had approximately $337.1 million of total indebtedness outstanding,
$162.1 million of which would have been senior or structurally senior in right
of payment to the Notes.

The Company's common stock is listed on the New York Stock Exchange under
the symbol "CBG."

SEE "RISK FACTORS" COMMENCING ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT AND
PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN
THE NOTES.

---------------

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 SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................................ 98.736% 2.475% 96.261%
- --------------------------------------------------------------------------------
Total................................... $172,788,000 $4,331,250 $168,456,750
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from May 26, 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $500,000.

---------------

The Notes are offered by the Underwriters subject to prior sale, when, as
and if delivered to and accepted by them, subject to approval of certain legal
matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made only in book-entry form through the facilities of The Depository
Trust Company in New York, New York on or about May 26, 1998.

---------------

Joint Book-Running Managers

MERRILL LYNCH & CO. BANCAMERICA ROBERTSON STEPHENS

-----------

NATIONSBANC MONTGOMERY SECURITIES LLC

---------------

The date of this Prospectus Supplement is May 20, 1998.
<PAGE>

WORLDWIDE OFFICE LOCATIONS

[MAP APPEARS HERE]

<PAGE>

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO COVER
SYNDICATE SHORT POSITIONS. SUCH ACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

FORWARD-LOOKING STATEMENTS

Certain statements included or incorporated by reference herein and in the
accompanying Prospectus constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and are subject to a number of known and unknown
risks and uncertainties. Any such forward-looking statements contained or
incorporated by reference herein or in the accompanying Prospectus should not
be relied upon as predictions of future events. Certain such forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "are expected to," "will," "will allow," "will
continue," "will likely result," "should," "would be," "seeks,"
"approximately," "intends," "plans," "projects," "pro forma," "estimates" or
"anticipates" or similar expressions or the negative thereof or other
variations thereof or comparable terminology, or by discussions of strategy,
plans or intentions. In addition, all information included or incorporated by
reference herein or in the accompanying Prospectus with respect to projected
or future results of operations, financial condition, financial performance or
other financial or statistical matters constitute such forward-looking
statements. Such forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and that may
be incapable of being realized. Such statements are subject to risks,
uncertainties and other factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus Supplement, the accompanying
Prospectus and the documents incorporated or deemed to be incorporated by
reference herein or therein, that could cause actual results and other matters
to differ materially from those in such forward-looking statements. Factors
that could cause results to differ materially include, but are not limited to:
commercial real estate vacancy levels; property values; rental rates; any
general economic recession domestically or internationally; and not
successfully completing any capital expenditure or acquisition. As a result of
the foregoing, no assurance can be given as to future results of operations or
financial condition or as to any other matters covered by any such forward-
looking statements, and the Company wishes to caution prospective investors
not to rely on any such forward-looking statements. The Company does not
undertake, and specifically disclaims any obligation, to update any forward-
looking statements, which speak only as of the date made.

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PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes appearing
elsewhere in this Prospectus Supplement, the accompanying Prospectus and the
documents incorporated by reference herein and therein. Unless the context
requires otherwise, the term the "Company" means CB Richard Ellis Services,
Inc., formerly known as CB Commercial Real Estate Services Group, Inc., and
each of its consolidated subsidiaries. On April 17, 1998, the Company's largest
operating subsidiary, CB Commercial Real Estate Group, Inc., acquired REI
Limited ("REI"), an international commercial real estate services firm
operating under the name Richard Ellis in major commercial real estate markets
worldwide (excluding the United Kingdom). In April 1998, CB Commercial Real
Estate Group, Inc. changed its name to CB Richard Ellis, Inc. and, in May 1998,
CB Commercial Real Estate Services Group, Inc. changed its name to CB Richard
Ellis Services, Inc. Various dollar figures for REI assume a pound to dollar
conversion rate of 1:1.675. The Company intends to file historical and pro
forma financial statements in connection with its acquisition of REI with the
Securities and Exchange Commission on or before July 1, 1998.

THE COMPANY

Founded in 1906, the Company is the largest vertically-integrated commercial
real estate services company in the United States with over 130 principal
offices in the United States and approximately 200 offices worldwide, following
the acquisition of REI. The Company provides a full range of real estate
services to commercial real estate tenants, owners and investors, including:
(i) brokerage services whereby the Company facilitates the sale and lease of
properties ("Brokerage Services"); (ii) transaction management, advisory
services and facilities management services to corporate real estate users
("Corporate Services"); (iii) property management services ("Institutional
Management Services"); and (iv) capital market activities, including mortgage
banking, brokerage and servicing, investment management and advisory services,
investment property transactions (including acquisitions and sales on behalf of
investors), real estate market research and valuation and appraisal services
(collectively "Financial Services"). For the year ended December 31, 1997,
after giving effect to the acquisitions of REI and Koll Real Estate Services
("Koll") as if such transactions had occurred as of January 1, 1997, the
Company would have had pro forma revenues of $937.8 million and EBITDA (as
defined herein) of $104.5 million, excluding merger related and nonrecurring
charges of $32.7 million.

BROKERAGE SERVICES

The Company provides commercial real estate brokerage services, representing
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. Brokerage Services revenues totaled
approximately $423.5 million for the year ended December 31, 1997, representing
approximately 21,000 completed transactions, including over 3,000 sale
transactions with an aggregate total consideration of approximately
$3.8 billion and approximately 18,000 lease transactions involving aggregate
rents, during the terms of the leases facilitated, of approximately $10.0
billion. Brokerage Services provides a foundation for growing the Company's
other real estate services through access to opportunities and deal-flow based
market data. The Company believes that its leading position in the brokerage
services industry provides a competitive advantage for its other lines of
business by enabling them to leverage off Brokerage Services' (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 name recognition.

CORPORATE SERVICES

Corporate Services includes assisting major corporations worldwide with the
development and execution of multiple-market real estate strategies and
facilities management services. The Company strives to establish long-term
relationships with corporations that require continuity in the delivery of
high-quality, multi-market (including international) management services and
strategic advisory services, including acquisition, disposition

S-4
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and consulting services. Specifically, through contractual relationships, the
Company assists major, multi-market companies in developing and executing real
estate strategies as well as addressing specific occupancy and facilities
management objectives. Corporate Services coordinates the utilization of all
the Company's various disciplines to deliver an integrated service to its
clients thereby expanding and supporting the functions provided by a client's
real estate department. The Company had approximately 80 million square feet
under facilities management as of March 31, 1998.

INSTITUTIONAL MANAGEMENT SERVICES

The Company provides value-added property management services for income-
producing properties owned primarily by institutional investors. 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 and has
begun a program to provide various goods (copiers, supplies, etc.) and services
(human resources, telephones, etc.) to the approximately 30,000 tenants in the
buildings which it manages. The Company works closely with its clients to
implement their specific goals and objectives, focusing on the enhancement of
property values through maximization of cash flow. The Company markets its
services primarily to long-term institutional owners of large commercial real
estate assets. The Company currently manages approximately 204 million square
feet of commercial space.

FINANCIAL SERVICES

Mortgage Banking. The Company provides commercial mortgage origination and
mortgage loan servicing through its subsidiary L. J. Melody & Company ("L. J.
Melody"), which the Company acquired in July 1996. For the year ended December
31, 1997, the Company originated approximately $3.5 billion of commercial
mortgages, approximately 37.2% of which were originated through special conduit
arrangements with affiliates of Merrill Lynch, Citicorp, NationsBank, Heller
Financial and Deutsche Morgan Grenfell. Under these special arrangements, the
Company generally services the loans it originates. In addition, the Company
originates mortgages into other conduit programs where it does not retain the
right to service such loans. The Company originates and services loans for
Federal Home Loan Mortgage Corp. (Freddie Mac). The Company is also a major
mortgage originator for insurance companies, having originated approximately
$1.6 billion of mortgages in the names of these insurance companies 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. The Company currently services mortgage loan portfolios in excess
of $10.9 billion.

Investment Properties. Since 1992, the Company has provided sophisticated
strategic planning for, and execution of, acquisitions and sales of income-
producing properties for its clients, including approximately 1,240 investment
property transactions with an aggregate value of over $9.4 billion in 1997. The
Company strives to ensure that clients disposing of properties receive the
maximum value for investment properties 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
completed comparable transactions, real estate market trends, and pricing data,
(ii) assisting with valuation and buyer identification, and (iii) designing the
appropriate marketing strategy to target probable buyers or buyer categories.
Access to the same sources of information provides each prospective investor
with a competitive advantage by enabling the Company's professionals to
identify the geographic areas and specific properties which are most suitable
for the investor and to advise the investor in negotiations and due diligence.
Richard Ellis' international operations around the globe had investment
property transactions with an aggregate value of over $1.0 billion in 1997, and
the Company believes that the combination of the two investment property
platforms will create a significant global competitive advantage for its
professionals.

Investment Management and Products. The investment management and product
development activities of the Company are divided into two parts (i) Westmark
Realty Advisors L.L.C. ("Westmark") and (ii) CB

S-5
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Richard Ellis Global Capital Markets. Westmark, which the Company acquired in
1995, has approximately $3.9 billion of assets currently under management and
focuses on providing advisory services to the pension fund community. CB
Richard Ellis Global Capital Markets focuses on the development of investment
products to serve non-pension fund investors and co-investment opportunities,
although some of its products are also marketed to pension funds. In 1996, CB
Richard Ellis Global Capital Markets formed a relationship with Alliance
Capital Management to provide information and marketing assistance with respect
to real estate investment trust ("REIT") securities for retail and
institutional clients. The Alliance REIT fund, utilizing the Company's
proprietary research tools currently manages approximately $819.0 million in
assets.

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 approximately 90 professionals, approximately 50% of whom
hold the MAI professional designation. The business is operated in the United
States through 25 regional offices, servicing corporate and institutional
portfolio owners and lenders. In 1997, the Company completed more than 3,600
valuation and appraisal assignments.

Real Estate Market Research. Real estate market research services are
provided by a substantive, academically credible staff in Boston, Massachusetts
employed by CB Commercial/Torto Wheaton Research. Real estate market research
services are provided to the Company's other businesses and 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 Metropolitan Statistical Areas ("MSAs") in the
United States and are sold on a subscription basis to many of the largest
portfolio managers, insurance companies and pension funds in the United States.
CB Richard Ellis' National Real Estate Index also compiles proprietary market
research for nearly 50 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 approximately 140 of the
largest REITs.

COMPETITIVE STRENGTHS

Comprehensive Range of Services. The Company is a leading provider of multi-
discipline, integrated commercial real estate services. Through internal growth
and strategic acquisitions, the Company has developed a comprehensive worldwide
range of high quality, "one-stop shopping" services which enables it to
differentiate itself and attract business through the cross-selling of services
and the provision of business referrals to other operating parts of its
business. The Company's ability to cross market a comprehensive range of
services to customers has benefitted from the Company's strong brand name
recognition and has helped it to build relationships with customers, and remain
a market leader in its primary business segments.

Geographically Diverse Service Network. The Company operates over 130 offices
in the United States and 200 offices worldwide, following the acquisition of
REI. Through the "CB Commercial/Partners" program, the Company has successfully
extended its U.S. network through established relationships with leading local
brokerage firms in secondary U.S. markets in which it did not have a market
presence. The Company's broad presence in the United States enables it to
service nationwide real estate portfolios, a service which has become
increasingly important as the ownership of commercial real estate has become
more institutional. The Company believes its acquisition of REI will solidify
the Company's international presence in corporate services and major investment
property activities. The Company believes its U.S. and international businesses
should help to protect it from a softening in business fundamentals in any one
region or market.

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connected directly to the Company's wide area network, providing real-time
access to the Company's centralized databases, market research, software
applications, and electronic communications systems. The Company's local
professionals have the ability to receive up to the moment market information
as well as the ability to identify and cross market business opportunities. In
addition, the breadth of coverage of these systems makes the Company an
attractive partner to local firms who are looking to tap these resources for
their own needs, thereby increasing the Company's access to local market
information.

Strong Market Research. CB Commercial/Torto Wheaton Research and CB Richard
Ellis' National Real Estate Index provide comprehensive real estate market data
services to clients such as research and modeling as well as in-depth analysis
of markets and property types, detailed market forecasting, and commentary.
These value-added services enable the Company to develop a closer relationship
with its clients by aiding them in identifying and evaluating business and
market opportunities. In addition, the Company's access to market data from its
research unit helps it to identify and evaluate business and market
opportunities and conduct its real estate services business.

BUSINESS STRATEGIES

The Company's primary business objective is to continue to expand through
internal growth and acquisitions. The key business strategies by which the
Company plans to accomplish this objective include the following:

Leverage and Strengthen Comprehensive Range of Services and Brand Name
Recognition. The Company expects to continue to emphasize one-stop shopping
services through the cross-selling of its comprehensive range of services. To
be successful in this effort, the Company also expects to continue to
strengthen communication between operating segments to increase cross-business
referrals. In addition, the Company expects to continue to capitalize on its
strong brand name recognition to strengthen its client relationships. The
Company plans to continue to make selected acquisitions which complement or
increase its existing "menu" of services and strengthen its brand name
recognition.

Capitalize and Expand Upon Domestic Geographic Service Network. The Company
intends to capitalize on its domestic presence to service domestic commercial
real estate portfolios as the ownership of commercial real estate becomes
increasingly institutional. In addition, the Company expects to consider
acquisitions of leading real estate firms in domestic markets in which it is
not currently one of the top three firms or in which it has identified the need
to strengthen its competitive position. The Company believes that its
geographic diversity helps to protect it from softening business fundamentals
in any one region or market.

Capitalize on Cross-Border Activity and Increasing International
Presence. The Company provides a full range of commercial real estate services
worldwide (excluding the United Kingdom) under the name CB Richard Ellis. The
Richard Ellis name is one of the most widely recognized and respected names
internationally in the real estate services industry. The acquisition of REI
and renaming of the combined global operation (see "Recent Developments"
below), positions the Company to provide existing domestic clients with access
to a common "umbrella" of services and local expertise worldwide. The
acquisition also positions the Company to provide expanded domestic services to
REI's international clients. The Company plans to make selected acquisitions or
enter into strategic partnerships internationally in other operating segments
to further strengthen its cross-selling of services.

Take Advantage of the Corporate Outsourcing Trend. Large corporations seeking
to focus on core businesses and reduce operating costs are looking increasingly
to outsource their real estate needs to multi-discipline, integrated national
and international real estate service providers. By relying on a single
integrated provider for all their real estate-related needs, corporations are
able to reduce expenses while taking advantage of the Company's real estate
expertise. This outsourcing trend has accelerated in recent years, and the
Company

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believes that it will continue in the future. The Company intends to continue
to market its ability to be a cost-effective alternative provider of corporate
services to new clients and existing clients which use the Company's other
services. The Company is one of the major participants in this segment of the
real estate services industry and believes that only a small percentage of the
market has been penetrated. As a result, the Company believes this trend
provides the Company with attractive growth opportunities.

Leverage Market Research Capabilities. The Company will continue to leverage
its strong market research capabilities to strengthen relationships with
existing clients by helping them identify and evaluate business and market
opportunities. In addition, the Company will capitalize on its research
capabilities to identify and evaluate business prospects and opportunities for
each of its business segments. The Company believes that strengthening its
research capabilities will help to enhance the Company's brand name
recognition.

Increase Employee Productivity. The Company intends to remain focused on the
enhancement of revenues and profit margins through the delivery of services to
its clients efficiently and cost-effectively. To improve employee productivity,
the Company invests in information technology and in the professional education
of both its management and revenue-producing professionals through its local
training programs and through centralized programs at "CB University." Through
previously made and continuing investments in information technology and
professional education, the Company believes it is well positioned to increase
employee productivity.

RECENT DEVELOPMENTS

Acquisitions. On April 17, 1998, the Company purchased all of the outstanding
shares of REI, an international commercial real estate services firm operating
under the name Richard Ellis in major commercial real estate markets worldwide
(excluding the United Kingdom). The purchase price for REI was approximately
$103.0 million, of which approximately $52.7 million was paid in cash and notes
and approximately $50.3 million was paid in shares of the Company's Common
Stock. In addition, the Company assumed approximately $15.9 million of total
indebtedness. The Company also anticipates a one-time charge of up to
$5.0 million associated with the acquisition and integration of REI, which will
impact the Company's results of operations for the quarter ended June 30, 1998.
The Company is currently in discussions regarding the acquisition of those
interests in certain subsidiaries of REI which it does not currently own. For
the year ended December 31, 1997, REI had revenues and EBITDA of approximately
$118.0 million and $11.7 million, respectively. On a pro forma basis, after
giving effect to the acquisitions of REI and Koll as if such transactions had
occurred as of January 1, 1997, and after giving effect to the Offering and the
application of the net proceeds therefrom, (i) for the year ended December 31,
1997, the Company would have had revenues of $937.8 million, EBITDA of $104.5
million, excluding merger related and other non-recurring charges of $32.7
million, and a ratio of net debt to EBITDA of 2.9x, and (ii) as of March 31,
1998, the Company would have had total indebtedness of $337.1 million.

The Company, through L. J. Melody, acquired Cauble and Company of Carolina
("Cauble and Company") for approximately $2.2 million and substantially all of
the assets of North Coast Mortgage Company ("North Coast Mortgage") for
approximately $3.3 million, both in February 1998, and Shoptaw-James, Inc.
("Shoptaw-James") for approximately $9.0 million in May 1998. Cauble and
Company, North Coast Mortgage and Shoptaw-James are all regional mortgage
banking firms. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Recent Acquisitions."

S-8
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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. The Company expects
to fund the cash portion of these purchase prices with borrowings under the
Amended Revolving Credit Facility (as defined herein). As of May 5, 1998, the
Company had executed a nonbinding letter of intent with respect to one of such
acquisitions. Pursuant to such letter of intent, the Company and the other
parties thereto have agreed to negotiate exclusively the terms and conditions
of definitive acquisition agreements. There can be no assurance that the
Company will successfully complete all or any of such acquisitions, or what the
consequences of such acquisitions will be.

Other. The Company has received a commitment letter from Bank of America
NT&SA dated April 2, 1998 to increase the amount available under its existing
revolving credit facility (the "Revolving Credit Facility") from $300.0 million
to $400.0 million, subject to completion of the Offering (as amended, the
"Amended Revolving Credit Facility").

On May 19, 1998, the Company changed its name to CB Richard Ellis Services,
Inc.

Results for the Three Months Ended March 31, 1998. The Company reported
revenues for the three months ended March 31, 1998 of $175.1 million, an
increase of 30.6% from $134.1 million for the three months ended March 31,
1997. Revenues for each of the Company's four business segments, Brokerage
Services, Corporate Services, Institutional Management Services and Financial
Services increased 12.9%, 111.9%, 106.8% and 35.1%, respectively for the three
months ended March 31, 1998 compared to the comparable period in 1997. The
increase was primarily attributable to the contribution of Koll in 1998. EBITDA
increased 23.9% to $12.5 million in the three months ended March 31, 1998 from
$10.1 million in the three months ended March 31, 1997. EBITDA for Brokerage
Services, Institutional Management Services and Financial Services increased
8.3%, 158.3% and 52.8%, respectively, while EBITDA for Corporate Services
decreased to a loss of $0.7 million as the Company invested in infrastructure
to support new business expected as a result of the acquisition of REI.

During the three months ended March 31, 1998, the Company repurchased all of
the 4.0 million outstanding shares of its convertible preferred stock for $78.0
million. The Company financed the repurchase with borrowings under the
Revolving Credit Facility. In addition, the Company incurred approximately
$30.0 million in additional borrowings under the Revolving Credit Facility to
finance seasonal borrowing needs.

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THE OFFERING

All capitalized terms used but not defined herein have the meanings provided
in "Description of the Notes." For a more complete description of the term of
the Notes, see "Description of the Notes" herein and "Description of Debt
Securities" in the accompanying Prospectus.

Securities Offered........ $175,000,000 aggregate principal amount of 8 7/8%
Senior Subordinated Notes due 2006.

Maturity.................. June 1, 2006.

Interest Payment Dates.... June 1 and December 1 of each year commencing
December 1, 1998.

Optional Redemption....... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after June 1, 2002, at the redemption prices set
forth herein, together with accrued and unpaid
interest thereon, if any, to the date of
redemption. On or prior to June 1, 2001, the
Company may redeem, at any time or from time to
time, up to 35% of the aggregate principal amount
of the Notes originally issued at a redemption
price equal to 108 7/8% of the principal amount
thereof, plus accrued and unpaid interest thereon,
if any, to the date of redemption, with the net
cash proceeds of one or more Public Equity
Offerings, provided, however, that at least $113.75
million in aggregate principal amount of Notes
remains outstanding immediately after giving effect
to each such redemption. See "Description of the
Notes--Optional Redemption."

Ranking................... The Notes will constitute general unsecured senior
subordinated obligations of the Company and will be
subordinated in right of payment to all existing
and future Senior Indebtedness of the Company. The
Notes will rank equal in right of payment with all
future senior subordinated indebtedness of the
Company and senior in right of payment to all
future subordinated indebtedness of the Company.
The Notes will also be effectively subordinated to
all existing and future indebtedness and other
liabilities of the Company's subsidiaries. As of
March 31, 1998, after giving pro forma effect to
the acquisition of REI, the Offering and the
application of the net proceeds therefrom as
described under "Use of Proceeds," the Company and
its subsidiaries would have had approximately
$337.1 million of total indebtedness outstanding
(including borrowings under the Revolving Credit
Facility of approximately $110.0 million and total
undrawn commitments of approximately $181.4
million, $281.4 million upon amendment of the
Revolving Credit Facility, net of letters of credit
outstanding), $162.1 million of which would have
been senior or structurally senior in right of
payment to the Notes.

Use of Proceeds........... The net proceeds to the Company from the Offering
will be used to repay outstanding balances under
the Revolving Credit Facility. See "Use of
Proceeds."

Change of Control......... Upon the occurrence of a Change of Control, the
Company will be required to offer to repurchase all
or any portion of each holder's Notes

S-10
<PAGE>

at 101% of the aggregate principal amount thereof,
together with accrued and unpaid interest thereon,
if any, to the date of repurchase. See "Description
of the Notes--Change of Control."

Certain Covenants......... The Indenture relating to the Notes will contain
certain restrictive covenants, including (i)
limitation on the incurrence of indebtedness, (ii)
limitation on restricted payments, (iii) limitation
on transactions with affiliates, (iv) limitation on
liens, (v) limitation on the sale of assets, (vi)
limitation on dividends and other payment
restrictions affecting restricted subsidiaries, and
(vii) limitation on consolidation, merger or sale
of all or substantially all of the Company's
assets. These covenants are subject to important
exceptions and qualifications. See "Description of
the Notes--Certain Covenants."

Book-Entry Only Issuance.. The Notes will be represented by one or more
permanent global securities in fully registered
form deposited with the Depository Trust Company
("DTC") and registered in the name of DTC or its
nominee. The laws of some jurisdictions require
that certain purchasers of securities take physical
delivery of securities in definitive form. Such
laws may impair the ability to transfer beneficial
interests in a global Note. See "Description of the
Notes--Book-Entry Only Issuance--The Depository
Trust Company."

Absence of Market for the
Notes..................... The Notes will be a new issue of securities for
which there currently is no established market.
Although the Underwriters have informed the Company
that they currently intend to make a market in the
Notes, they are not obligated to do so, and any
such market making may be suspended or discontinued
at any time without notice. Accordingly, there can
be no assurance as to the development or liquidity
of any market for the Notes. The Company does not
intend to apply for listing of the Notes on any
securities exchange or automated quotation system.

Risk Factors.............. For a discussion of certain factors that should be
considered by prospective investors in evaluating
an investment in the Notes, see "Risk Factors"
beginning on page S-13 of this Prospectus
Supplement and page 4 of the accompanying
Prospectus.

S-11
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................... $468,460 $583,068 $730,224 $134,064 $175,144
Costs and Expenses:
Commissions, fees and other
incentives................. 239,018 292,266 365,705 67,607 83,714
Operating, administrative
and other.................. 187,968 228,799 274,447 56,390 78,958
Merger related and other
non-recurring charges...... -- -- 12,924 -- --
Depreciation and
amortization............... 11,631 13,574 18,060 3,121 5,322
-------- -------- -------- -------- --------
Operating income ............ 29,843 48,429 59,088 6,946 7,150
Interest income.............. 1,674 1,503 2,598 632 727
Interest expense............. 23,267 24,123 15,780 3,745 4,321
-------- -------- -------- -------- --------
Income before provisions for
income tax.................. 8,250 25,809 45,906 3,833 3,556
Provision for income tax..... 841 11,160 20,558 1,560 1,591
Reduction of valuation
allowance(a)................ -- (55,900) -- -- --
-------- -------- -------- -------- --------
Net provisions (benefit) for
income tax.................. 841 (44,740) 20,558 1,560 1,591
-------- -------- -------- -------- --------
Income before extraordinary
items....................... 7,409 70,549 25,348 2,273 1,965
Extraordinary items, net..... -- -- 951 -- --
-------- -------- -------- -------- --------
Net income................... $7,409 $70,549 $24,397 $2,273 $1,965
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents.... $23,045 $49,328 $47,181 $41,776 $19,550
Total assets................. 190,954 278,944 505,191 256,252 477,739
Total long-term debt......... 250,142 148,529 146,104 145,009 254,421
Total liabilities............ 345,642 280,364 339,748 253,697 377,185
Minority interest............ -- 95 7,672 113 4,655
Total stockholders' equity
(deficit)................... (154,688) (1,515) 157,771 2,442 95,899
OTHER FINANCIAL DATA:
EBITDA(b):
Brokerage Services.......... $32,721 $31,231 $52,127 $6,438 $6,975
Financial Services.......... 5,097 24,345 28,872 2,761 4,220
Institutional Management
Services................... 2,234 5,849 6,587 770 1,989
Corporate Services.......... 1,422 578 2,486 98 (712)
-------- -------- -------- -------- --------
Total EBITDA............... $41,474 $62,003 $90,072 $10,067 $12,472
======== ======== ======== ======== ========
EBITDA margin................ 8.9% 10.6% 12.3% 7.5% 7.1%
Depreciation and
amortization................ $11,631 $13,574 $18,060 $3,121 $5,322
Ratio of earnings to fixed
charges(c).................. 1.28x 1.84x 3.01x 1.72x 1.55x
Ratio of EBITDA to interest
expense..................... 1.78x 2.57x 5.71x 2.69x 2.89x
Ratio of total debt to
EBITDA...................... 6.23x 2.64x 1.68x -- --
</TABLE>
- --------
(a) See Note 9 of Notes to Consolidated Financial Statements.
(b) EBITDA represents earnings before interest expense, income tax,
depreciation and amortization, non-cash compensation under stock award
plans and certain other non-recurring items. EBITDA effectively removes the
impact of certain non-cash and non-recurring charges on income such as
depreciation and the amortization of intangible assets relating to
acquisitions, merger related and other non-recurring charges, extraordinary
items, and income taxes. Management believes that the presentation of
EBITDA will enhance a reader's understanding of the Company's operating
performance and ability to service debt as it provides a measure of cash
(subject to the payment of interest and income taxes) generated that can be
used by the Company to service its debt and other required or discretionary
purposes. Net cash that will be available to the Company for discretionary
purposes represents remaining cash, after debt service and other cash
requirements, such as capital expenditures, are deducted from EBITDA.
EBITDA should not be considered as an alternative to (i) operating income
determined in accordance with generally accepted accounting principles
("GAAP") or (ii) operating cash flow determined in accordance with GAAP.
(c) The ratio of earnings to fixed charges represents earnings before income
taxes and fixed charges divided by fixed charges. Fixed charges include
interest expense and one-third of rent expense relating to operating
leases.

S-12
<PAGE>

RISK FACTORS

Prospective investors should consider carefully the following risk factors
in addition to the other information presented in this Prospectus Supplement,
the accompanying Prospectus and the documents incorporated by reference herein
and therein, before purchasing the Notes offered hereby.

LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS

As of March 31, 1998, after giving pro forma effect to the acquisition of
REI, the Offering and the application of the net proceeds therefrom, the
Company would have had approximately $337.1 million of total indebtedness
outstanding, which would have represented approximately 69.7% of its total
capitalization. See "Capitalization." In addition, the Indenture and the
Company's other debt instruments will allow the Company to incur additional
indebtedness in the future, including Senior Indebtedness. As of March 31,
1998, after giving pro forma effect to the acquisition of REI, the Offering
and the application of the net proceeds therefrom, the Company would have had
an aggregate of $181.4 million available for borrowing under the Revolving
Credit Facility ($281.4 million upon amendment thereof), net of letters of
credit outstanding.

The ability of the Company to make payments on the Notes and to satisfy its
other debt obligations will depend on its future operating performance, which
will be affected by prevailing economic conditions and financial, competitive,
legislative, regulatory and other factors, certain of which are beyond the
Company's control. The Company believes, based on current circumstances, that
the Company's cash flow, together with available borrowings under the Amended
Revolving Credit Facility, will be sufficient to permit the Company to meet
its debt service and other obligations. There can be no assurance, however,
that the Company will be able to generate sufficient cash flow to fund its
debt service obligations or that cash flows, future borrowings or other
financing alternatives will be available for such obligations or for the
repayment or refinancing of the Company's indebtedness, including the Notes.
In such event, the Company may be forced to reduce or delay other
expenditures, sell assets, restructure or refinance its indebtedness or seek
additional equity capital. There can be no assurance that any of these
strategies would be available on terms satisfactory to the Company or at all.

The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii)
a portion of the Company's cash flows from operations may be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for its future operations; (iii) certain of the
Company's indebtedness contains financial and other restrictive covenants,
including those restricting the incurrence of additional indebtedness, the
creation of liens and the sale of assets; (iv) certain of the Company's
borrowings are and will continue to be at variable rates of interest, which
exposes the Company to the risk of greater interest rates; and (v) the Company
may be more leveraged than certain of its competitors, which may place the
Company at a relative competitive disadvantage and make the Company more
vulnerable to changing economic conditions. See "--Restrictive Financing
Covenants." As a result of the Company's current level of indebtedness, its
financial capacity to respond to market conditions, capital needs and other
factors may be limited, which could have a material adverse effect on the
business, financial condition or results of operations of the Company.

SUBORDINATION OF THE NOTES; UNSECURED STATUS OF NOTES

The payment of principal of, premium, if any, and interest on the Notes will
be subordinated to the prior payment in full of all existing and future Senior
Indebtedness of the Company, which will include all indebtedness under the
Amended Revolving Credit Facility. Therefore, in the event of a liquidation,
dissolution, insolvency, bankruptcy, reorganization or any similar proceeding
regarding the Company or any default of payment or acceleration of debt, the
assets of the Company will be available to pay obligations on the Notes only
after Senior Indebtedness has been paid in full. In such event, there may not
be sufficient assets to pay amounts due on all or any of the Notes. In
addition, under certain circumstances, the Company may not pay principal of,
premium, if any, interest on the Notes, make any deposit pursuant to
defeasance provisions or purchase, redeem or otherwise retire the Notes, if
any Senior Indebtedness is not paid when due. Moreover, under

S-13
<PAGE>

certain circumstances, if any non-payment default exists with respect to
Designated Senior Indebtedness (as defined herein), the Company may not make
any payments on the Notes for a specified time. See "Description of the
Notes--Subordination." As of March 31, 1998, after giving pro forma effect to
the acquisition of REI, the Offering and the application of the estimated net
proceeds therefrom, the Company would have had an aggregate of approximately
$162.1 million in aggregate principal amount of Senior Indebtedness
outstanding and the ability to borrow an additional $181.4 of Senior
Indebtedness under the Revolving Credit Facility ($281.4 million upon
amendment thereof), net of letters of credit outstanding. Under the terms of
the Indenture and the Company's other debt instruments, the Company may incur
additional indebtedness, including Senior Indebtedness or secured
indebtedness, in the future. See "Description of the Notes--Certain
Covenants."

The Notes are also effectively subordinated to the obligations of the
Company's subsidiaries with respect to any claim on such subsidiaries. The
Notes will not be guaranteed by any of the Company's subsidiaries. All of the
Company's material domestic subsidiaries will guarantee, and the stock of such
subsidiaries will be pledged to secure, all obligations outstanding under the
Amended Revolving Credit Facility. In the event of an insolvency, liquidation
or other reorganization of any of the subsidiaries of the Company, the
creditors of the Company (including holders of the Notes), will have no right
to proceed against the assets of such subsidiaries or to cause the liquidation
or bankruptcy of such subsidiaries under federal bankruptcy laws. Creditors of
such subsidiaries would be entitled to payment in full from such assets before
the Company would be entitled to receive any distribution therefrom. Except to
the extent that the Company may itself be a creditor with recognized claims
against such subsidiaries, claims of creditors of such subsidiaries will have
priority with respect to the assets and earnings of such subsidiaries over the
claims of creditors of the Company, including claims under the Notes.

The Notes will not be secured by any of the Company's assets. The Amended
Revolving Credit Facility will contain restrictive covenants and financial
maintenance tests, and the Company's ability to comply therewith may be
affected by events beyond its control. A breach of any of these covenants
could result in an event of default under the Amended Revolving Credit
Facility, allowing the lenders thereunder to elect to declare all outstanding
amounts thereunder to be immediately due and payable. See "Description of
Certain Other Indebtedness."

HOLDING COMPANY STRUCTURE

Substantially all of the Company's assets are held by, and all of the
Company's operations are conducted through its subsidiaries, CB Richard Ellis,
Inc., CB Commercial Limited (the United Kingdom holding company for the
various Richard Ellis companies), L.J. Melody and Westmark and, therefore, the
Company is dependent upon the cash flow from these subsidiaries to meet its
obligations, including its obligations under the Notes. The payment of
dividends and the making of loans and advances to the Company from
subsidiaries may be subject to statutory and contractual restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations. Dividends and other payments to the Company from
subsidiaries in certain jurisdictions are subject to legal restrictions and
may have adverse tax consequences to the Company or such subsidiaries. As of
March 31, 1998, the Company's subsidiaries had outstanding indebtedness,
including long term indebtedness, of approximately $30.5 million. See
"Description of Certain Other Indebtedness" and "Description of the Notes--
Subordination."

RESTRICTIVE FINANCING COVENANTS

The Amended Revolving Credit Facility and the Indenture will contain a
number of covenants that will limit the discretion of the Company's management
with respect to certain business matters. These covenants, among other things,
restrict the ability of the Company to incur additional indebtedness, pay
dividends and other distributions, prepay subordinated indebtedness, enter
into sale and leaseback transactions create liens, make capital expenditures,
and otherwise restrict corporate activities. In addition, under the Amended
Revolving Credit Facility, the Company will be required to satisfy specified
financial covenants, including (i) the ratio of consolidated EBITDA to cash
interest expense, (ii) the ratio of consolidated indebtedness to consolidated

S-14
<PAGE>

EBITDA, (iii) maintaining a minimum net worth and (iv) maintaining a minimum
EBITDA. The Company may incur additional indebtedness or amend its existing
facilities to provide for additional restrictive covenants. See "Description
of Certain Other Indebtedness" and "Description of the Notes--Certain
Covenants."

The Company's ability to comply with the covenants and restrictions
contained in the Amended Revolving Credit Facility and the Indenture may be
affected by events beyond its control, including prevailing economic,
financial and industry conditions. A failure to comply with the covenants and
restrictions contained in the Amended Revolving Credit Facility and the
Indenture or in any agreements with respect to any additional financing could
impair the Company's ability to pay principal and interest on the Notes,
whether at maturity or upon acceleration thereof.

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 the
Company's business. Such economic conditions could result in a general decline
in rents which in turn would adversely affect revenues from property
management fees and brokerage commissions derived from property sales and
leases. Such conditions could also lead to a decline in sale prices as well as
a decline in demand for funds invested in commercial real estate and related
assets. An economic downturn or increase in interest rates also may reduce the
amount of loan originations and related servicing by the Company's commercial
mortgage banking business. If the Company's brokerage and mortgage banking
businesses are adversely affected, it is likely that other segments of the
Company's business will also be adversely affected, due to the relationship
among the Company's various business segments.

The sharp downturn in the commercial real estate market beginning in the
late 1980's caused and downturns 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 $193.0 million (34.7%)
of the Company'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
29.0%.

COMPETITION

The Company competes in a variety of service disciplines within the
commercial real estate industry, including Brokerage Services, Corporate
Services, Institutional Management Services and Financial Services. Each of
these business areas is highly competitive on a national as well as local
level. The Company faces competition not only from other real estate service
providers, but also from institutional lenders, insurance

S-15
<PAGE>

companies and investment advisory, mortgage banking, accounting and appraisal
firms. The Company 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 the Company. Moreover,
although many of the Company's competitors are local or regional firms that
are substantially smaller than the Company on an overall basis, they may be
substantially larger on a local or regional basis. Because of these factors,
these companies may be better able than the Company to obtain new customers,
pursue new business opportunities or to survive periods of industry
consolidation. In addition, the Company has faced increased competition in
recent years in the property management and investment advisory segment of its
business which has resulted in decreased property management fee rates and
margins and decreased investment advisory fees and margins. As a result of
these factors, the Company will continue to face intense competition in its
existing markets. In general, in each of the Company's businesses there can be
no assurance that the Company will be able to continue to compete effectively
or that it will be able to maintain current fee levels or margins or that it
will not encounter increased competition which could limit the Company's
ability to maintain or increase its market share.

RISKS INHERENT IN ACQUISITION GROWTH STRATEGY

Risks With Respect to Potential Acquisitions

The Company is currently negotiating potential acquisitions in the United
Kingdom, Canada, Australia and New Zealand and smaller acquisitions in the
United States. As of May 5, 1998, the Company had executed one nonbinding
letter of intent with respect to one of such acquisitions. Pursuant to such
letter of intent, the Company and the other parties thereto have agreed to
negotiate exclusively the terms and conditions of definitive acquisition
agreements. 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 what the consequences of
such acquisitions will be. Based on prices proposed by the Company, these
acquisitions would involve a total purchase price of over $150.0 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. The Company expects to fund the cash portion of these purchase
prices with borrowings under its Amended Revolving Credit Facility.

The Company's acquisition strategy is in part a response to the
consolidation within the industry which has accelerated because of increased
competition. The Company is engaged in an ongoing evaluation of potential
acquisitions. No assurance can be given as to the Company's ability to
successfully complete these or future acquisitions, or as to the financial
effect on the Company of any acquired business. Future acquisitions by the
Company may result in increased interest and amortization expense or decreased
operating income, which could have a negative impact on the Company'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 the Company has no or limited
prior experience.

Lack of Availability of Acquisition Candidates

A significant component of the Company's growth in 1996 and 1997 was, and
part of its principal strategy for continued growth is, through acquisitions.
Recent strategic acquisitions have included REI (international real estate
services), Koll (property, facility and investment management services), L. J.
Melody (mortgage banking services) and Westmark (investment management and
advisory services). Recent tactical acquisitions have included Cauble and
Company (mortgage banking services), North Coast Mortgage (mortgage banking
services) and Shoptaw-James (mortgage banking services). The Company expects
to continue its acquisition program. Any future growth by the Company 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 will be no assurance that future acquisitions
will 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.

S-16
<PAGE>

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 from other
business concerns and the potential loss of key employees of either the
Company or the acquired operations. The Company encountered a number of these
difficulties in each of its acquisitions. For example, in the Westmark
acquisition serious differences in corporate culture resulted in several key
employees leaving, in the Melody acquisition it took over a year to blend the
loan servicing operations of the Company and L. J. Melody and the integration
of the Koll and the Company property, facilities and corporate accounting
systems is just being completed some eight months after the acquisition was
completed. With respect to the 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. The Company believes
that most acquisitions will have an adverse impact on operating income and net
income during the first six months following the acquisition. 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 reflect as a statement of
operations charge or as part of the purchase price at the time of the
acquisition as appropriate). There can be no assurance that the Company's
management will be able to effectively manage any acquired business or that
any acquisition will benefit the Company overall.

Lack of Available Financing

The Company will require additional financing to sustain its acquisition
program. The Company expects to finance future acquisitions and internal
growth through a combination of funds available under its revolving credit
facility, cash flow from operations, indebtedness incurred by the Company
(including, in the case of acquisitions, seller financing) and the sale or
issuance of the Company's capital stock. The covenants in the Company's
current credit agreement may restrict the Company's ability to raise
additional capital in certain respects. There can be no assurance that
financing will be available to the Company or, if available, that it will be
sufficient to finance acquisitions.

SEASONALITY

A substantial component of the Company's revenues is transactional in nature
and as a result is subject to seasonality. Historically, the Company's
revenues, EBITDA and particularly 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 quarter of any calendar year, the Company has
historically sustained a loss. The Company's non-variable operating expenses,
which are treated as expenses when incurred during the year, are relatively
constant in total dollars on a quarterly basis. As a consequence of the
seasonality of revenues and the relatively constant level of quarterly
expenses, a substantial majority of the Company's operating income and net
income has historically been realized in the third and fourth calendar
quarters. The Company believes that future operating results will 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 the Company will be profitable on a quarterly or annual basis
in the future.

POTENTIAL LACK OF SPACE TO LEASE

A significant portion of the Company's brokerage business involves
facilitating the lease of commercial property including retail, industrial,
and office space. Since the real estate depression of the early 1990s, the
development of new retail, industrial, and office space has been limited. As a
consequence, in certain areas of the country there is beginning to be
inadequate office, industrial and retail space to meet demand and there is a
potential for a decline in the Company's overall number of lease transactions,
the effect of which may, over time, be partially offset by increasing sales,
including sales of undeveloped land (which would benefit the Company's
brokerage business). However, during 1997, the Company's lease transactions
increased, as did

S-17
<PAGE>

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

Under various federal, state and local environmental laws and regulations
(collectively, "Environmental Laws") an owner or operator of real estate
interests may be liable for damages resulting from hazardous substances or
wastes. Certain Environmental Laws directly and indirectly impact the
commercial real estate market by imposing additional costs and liability on
owners, operators, sellers and, in some cases, lenders. Such Environmental
Laws can discourage sales and leasing activities and mortgage lending with
respect to some properties, and may therefore adversely affect the Company. In
addition, the failure of the Company to disclose environmental issues to a
buyer or lessee of property or to a purchaser of a mortgage loan pursuant to,
or as required by, certain Environmental Laws also could subject the Company
to liability.

LIMITATION ON REPURCHASE OF NOTES UPON A CHANGE OF CONTROL

Upon a Change of Control, each holder of the Notes will have certain rights,
at the holder's option, to require the Company to repurchase all or a portion
of such holder's Notes at a premium. If a Change of Control were to occur,
there can be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by the holders thereof. The terms of the Amended
Revolving Credit Facility will prohibit such a repurchase.

POSSIBLE VOLATILITY OF NOTE PRICE

Numerous factors, including announcements of fluctuations in the Company's
or its competitors' operating results and market conditions in the commercial
real estate industry generally, could have a significant impact on the future
price of the Notes. In addition, the securities market in recent years has
experienced significant price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
broad fluctuations may adversely affect the market price of the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

ABSENCE OF PUBLIC MARKET

The Notes are a new security for which there currently is no market. There
can be no assurance as to the liquidity of any market for the Notes that may
develop, the ability of holders of the Notes to sell the Notes, or the prices
at which holders of the Notes may be able to sell their Notes. If such market
were to exist, the Notes could trade at prices higher or lower than their
initial public offering price, depending on a variety of factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Although the Underwriters have informed the Company that
they currently intend to make a market in the Notes, they are not obligated to
do so, and any such market making may be suspended or discontinued at any time
without notice. Accordingly, there can be no assurance as to the development
or liquidity of any market for the Notes. The Company does not intend to apply
for listing of the Notes on any securities exchange or automated quotation
system.

S-18
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be
approximately $168.0 million. The Company intends to use the net proceeds to
repay amounts currently outstanding under the Revolving Credit Facility. All
of the borrowings repaid may be reborrowed under the Revolving Credit Facility
or the Amended Revolving Credit Facility. The borrowings under the Revolving
Credit Facility being repaid bear interest at variable rates (7.52% weighted
average at March 31, 1998), and all outstanding amounts under the Revolving
Credit Facility must be repaid no later than October 31, 2002. See
"Description of Certain Other Indebtedness--Revolving Credit Facility" and
"Underwriting."

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company and its consolidated subsidiaries as of March 31, 1998 (i) on an
actual basis and (ii) as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom as set forth under "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Company's Consolidated Financial Statements, including the related notes
thereto, all appearing elsewhere in this Prospectus Supplement.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................... $ 19,550 $ 19,550
======== ========
Long-term debt, including current maturities(a):
Revolving Credit Facility(b).......................... $228,000 $60,000
Westmark Senior Notes................................. 18,861 18,861
Other debt(c)......................................... 11,603 11,603
Notes offered hereby(d)............................... -- 175,000
-------- --------
Total long-term debt................................ 258,464 265,464
Total stockholders' equity(e)........................... 95,899 95,899
-------- --------
Total capitalization................................ $354,363 $361,363
======== ========
</TABLE>
- --------
(a) For information regarding the Company's long-term debt, see Note 6 of
Notes to Consolidated Financial Statements.

(b) Excludes $50.0 million of indebtedness borrowed in April 1998 to fund the
acquisition of REI and related expenses.

(c) Excludes $15.9 million of indebtedness assumed and $5.7 million of notes
issued in connection with the acquisition of REI.

(d) Does not reflect discount of approximately $2.8 million.

(e) Excludes 1.3 million shares of Common Stock issued in connection with the
acquisition of REI.

S-19
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

INTRODUCTION

The Company is the largest vertically-integrated commercial real estate
services firm in the United States and a global leader in real estate
services. Over the course of the last five years the Company, in recognition
of a rapidly changing structural and economic environment, has changed from
being almost exclusively a traditional real estate broker to being a highly
diversified real estate services firm. Its outsourcing, transaction
management, advisory services and facilities management business (referred to
as "Corporate Services"), property management business ("Institutional
Management Services") and its mortgage loan origination and servicing,
appraisal, investment property, realty advisory and capital markets businesses
(collectively referred to as "Financial Services") are either the largest or
one of the largest such businesses in the United States and in the aggregate
accounted for more than $306.7 million in 1997 revenue. The Company's core
brokerage business, commercial property sales and leasing ("Brokerage
Services") accounted for approximately $423.5 million in revenue and is the
largest or one of the largest such businesses in the country.

As part of its proactive adjustment to structural and economic changes in
the economy the Company has, since the beginning of 1995, completed an $87.0
million public offering of common stock, four strategic acquisitions and three
tactical acquisitions. The Company is continually assessing acquisition
opportunities as part of its growth strategy. 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, past acquisitions have
and 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 reflect as a statement of operations
charge or as part of the purchase price at the time of the acquisition as
appropriate). 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, and to operating cash flows
(excluding the costs of integration).

Revenue from Brokerage Services and the investment properties component of
Financial Services, which constitutes a substantial majority of the Company's
revenue, is largely transactional in nature and subject to economic cycles.
However, the Company's significant size, geographic coverage, number of
transactions and large continuing client base tend to minimize the impact of
economic cycles on annual revenue and create what the Company believes is
equivalent to a recurring stream of revenue. Between 55.0% and 60.0% of the
costs and expenses associated with Brokerage Services and the investment
properties component of Financial Services are directly correlated to revenue
while approximately 35.0% of the costs and expenses of Corporate Services,
Institutional Management Services and Financial Services, excluding investment
properties, are directly correlated to revenue.

A significant portion of the Company's revenue is seasonal. Historically,
this seasonality has caused the Company's revenue, operating income and net
income to be lower in the first two calendar quarters and higher in the third
and fourth calendar quarters of each year. In addition, the Company's
operations are directly affected by actual and perceived trends in various
national and economic conditions, including interest rates, the availability
of credit to finance commercial real estate transactions and the impact of tax
laws. To date, the Company does not believe that general inflation has had a
material impact upon its operations. Revenues, commissions and other variable
costs related to revenues are primarily affected by real estate market supply
and demand rather than general inflation.

S-20
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth items derived from the Company's Consolidated
Statements of Operations for the years ended December 31, 1995, 1996 and 1997,
presented in dollars and as a percentage of revenue.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
----------------------------------------------- ---------------------------------------
1995 1996 1997 1997 1998
-------------- --------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $468,460 100.0% $583,068 100.0% $730,224 100.0% $134,064 100.0% $175,144 100.0%
Costs and expenses
Commissions, fees and
other incentives...... 239,018 51.0 292,266 50.1 365,705 50.1 67,607 50.4 83,714 47.8
Operating,
administrative and
other................. 187,968 40.1 228,799 39.3 274,447 37.6 56,390 42.1 78,958 45.1
Merger related and
other non-recurring
charges............... -- -- -- -- 12,924 1.8 -- -- -- --
Depreciation and
amortization.......... 11,631 2.5 13,574 2.3 18,060 2.4 3.121 2.3 5,322 3.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income........ 29,843 6.4 48,429 8.3 59,088 8.1 6,946 5.2 7,150 4.1
Interest Income......... 1,674 0.4 1,503 0.2 2,598 0.3 632 0.5 727 0.4
Interest expense........ 23,267 5.0 24,123 4.1 15,780 2.2 3,745 2.8 4,321 2.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before provision
for income tax......... 8,250 1.8 25,809 4.4 45,906 6.2 3,833 2.9 3,556 2.0
Provision for income
tax.................... 841 0.2 11,160 1.9 20,558 2.8 1,560 1.2 1,591 0.9
Reduction of valuation
allowances............. -- -- (55,900) (9.6) -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net provision (benefit)
for income tax......... 841 0.2 (44,740) (7.7) 20,558 2.8 1,560 1.2 1,591 0.9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income (loss) before
extraordinary items.... 7,409 1.6 70,549 12.1 25,348 3.4 2,273 1.7 1,965 1.1
Extraordinary items,
net.................... -- -- -- -- 951 0.1 -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income.............. $7,409 1.6% $70,549 12.1% $24,397 3.3% $ 2,273 1.7% $ 1,965 1.1%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
EBITDA.................. $41,474 8.9% $62,003 10.6% $90,072 12.3% $ 10,067 7.5% $ 12,472 7.1%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>

Since 1992, the Company's results have benefitted from its ability to take
advantage of a significant and ongoing recovery in U.S. commercial real estate
markets and the generally rising occupancy and rental levels, and, as a
result, property values. Since brokerage fees are typically based upon a
percentage of transaction value, and property management fees are typically
based upon a percentage of total rent collections, recent occupancy and rental
rate increases at the property level have generated an increase in brokerage
and property management fees to the Company.

QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997

The Company reported consolidated net income of $2.0 million for the quarter
ended March 31, 1998, on revenues of $175.1 million. The net loss applicable
to common stockholders, including the deemed dividend resulting from the
accounting treatment of the preferred stock repurchase, was $(30.3) million,
or $1.60 diluted loss per share for the quarter ended March 31, 1998.
Excluding the deemed dividend, weighted average shares outstanding for diluted
earnings per share would have been 19,814,487 and diluted earnings would have
been $0.10 per share.

Revenues on a consolidated basis were $175.1 million, an increase of $41.1
million or 30.6% for the quarter ended March 31, 1998, compared to the quarter
ended March 31, 1997. The overall increase reflected a continued improvement
in the commercial real estate markets across the country and the full
contribution from Koll Real Estate Services ("Koll"). This improvement
reflected both the Company's position and increasing confidence in the
national economy and, in particular, real estate assets and improving real
estate market liquidity.

S-21
<PAGE>

Commissions, fees and other incentives on a consolidated basis were $83.7
million, an increase of $16.1 million or 23.8% for the quarter ended March 31,
1998, compared to the quarter ended March 31, 1997. The increase in these
costs is attributable to the increase in revenue since most of the Company's
sales professionals are compensated based on revenue. As a percentage of
revenue, commissions fees and other incentives were 47.8% for the quarter
ended March 31, 1998, compared to 50.4% for the quarter ended March 31, 1997.
The decrease in commissions, fees and other incentives as a percentage of
revenue is primarily due to the acquisition of Koll which had a higher
percentage of base management fee revenue which has no related commission
expense.

Operating, administrative and other on a consolidated basis was $79.0
million, an increase of $22.6 million or 40.0% for the quarter ended March 31,
1998, compared to the quarter ended March 31, 1997. The increase is primarily
due to increased operating activity and the integration of Koll operations
which have higher fixed operating expenses as compared to the Company's
historical operating expenses.

Consolidated interest income was $0.7 million, an increase of $0.1 million
or 15.0% for the quarter ended March 31, 1998, as compared to the quarter
ended March 31, 1997, which directly relates to increased invested cash
balances. Consolidated interest expense was $4.3 million, an increase of $0.6
million or 15.4% for the quarter ended March 31, 1998, as compared to the
quarter ended March 31, 1997. The increase resulted from increased revolving
credit facility borrowing which was used to repurchase the Company's preferred
stock, business acquisitions and pay downs on other indebtedness.

Net provision for income tax on a consolidated basis was $1.6 million for
the quarters ended March 31, 1998 and 1997. See Note 4 to the Company's
consolidated financial statements for discussion of the Company's deferred
taxes and related valuation allowances. In early 1998, the Company repurchased
its outstanding preferred stock and triggered a limitation on the annual
amount of NOL it can use to offset future taxable income. This limitation does
not affect the way taxes are reported for financial reporting purposes, but it
will affect the timing of the actual amount of taxes paid on an annual basis.

EBITDA was $12.5 million for the quarter ended March 31, 1998, as compared
to $10.1 million for the quarter ended March 31, 1997. EBITDA effectively
removes the impact of certain non-cash and non-recurring charges on income
such as depreciation and the amortization of intangible assets relating to
acquisitions, merger related and other non-recurring charges, extraordinary
items, and income taxes. Management believes that the presentation of EBITDA
will enhance a reader's understanding of the Company's operating performance
and ability to service debt as it provides a measure of cash (subject to the
payment of interest and income taxes) generated that can be used by the
Company to service its debt and other required or discretionary purposes. Net
cash that will be available to the Company for discretionary purposes
represents remaining cash, after debt service and other cash requirements,
such as capital expenditures, are deducted from EBITDA. EBITDA should not be
considered as an alternative to (i) operating income determined in accordance
with GAAP or (ii) operating cash flow determined in accordance with GAAP.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

The Company reported consolidated net income of $24.4 million ($1.28 diluted
earnings per share) in 1997, on revenues of $730.2 million. Reflected in the
consolidated net income are merger related and other non-recurring charges of
$12.9 million, $2.1 million in amortization related to the write-off of
Langdon Rieder acquisition goodwill and an extraordinary loss of $1.0 million
net of a tax benefit of $0.7 million resulting from debt extinguishment.
Excluding these charges and their related tax impact, the Company's
consolidated net income would have been $33.6 million (or 4.6% of revenue) and
diluted earnings would have been $1.83 per share.

Revenues on a consolidated basis were $730.2 million, an increase of $147.2
million or 25.2% for the year ended December 31, 1997, compared to the year
ended December 31, 1996. The overall increase reflected a continued
improvement in the commercial real estate markets across the country, the
acquisition of Koll at the

S-22
<PAGE>

end of August 1997 and a full year of revenue from L.J. Melody, which was
acquired in July of 1996. This improvement reflected both the Company's
position and increasing confidence in the national economy and, in particular,
real estate assets and improving real estate market liquidity.

Commissions, fees and other incentives on a consolidated basis were $365.7
million, an increase of $73.4 million or 25.1% for the year ended December 31,
1997, compared to the year ended December 31, 1996. The increase in these
costs is attributable both to the increase in revenue since most of the
Company's sales professionals are compensated based on revenue and to an
increasing number of sales personnel becoming entitled to commissions at a
rate above 50.0%. As a percentage of revenue, commissions fees and other
incentives were 50.1% in 1996 and 1997.

Operating, administrative and other on a consolidated basis was $274.4
million, an increase of $45.6 million or 20.0% for the year ended December 31,
1997, compared to the year ended December 31, 1996. This is consistent with
increased operating activity, and reflects a decrease in operating,
administrative and other as a percentage of revenue from 39.3% to 37.6%.

Merger related and other non-recurring charges were $12.9 million for the
year ended December 31, 1997. These charges represent $8.8 million of accrued
merger costs, $2.4 million of merger related incentive payments to certain
Westmark sellers and $1.7 million related to an accelerated contingent note
payment.

Consolidated interest income was $2.6 million, an increase of $1.1 million
or 72.9% for the year ended December 31, 1997, as compared to the year ended
December 31, 1996, which directly relates to increased cash balances.
Consolidated interest expense was $15.8 million, a decrease of $8.3 million or
34.6% for the year ended December 31, 1997, as compared to the year ended
December 31, 1996. The decrease is the result of the payment of a portion of
the senior debt with the net proceeds from the Company's initial public
offering in late 1996 (the "IPO"), a reduction in interest rates due to debt
refinancing in late August 1997, and other pay downs during 1997. Interest
expense for 1998 is expected to increase as a result of the repurchase in
January of 1998 of all of the Company's preferred stock and the debt expected
to be associated with acquisitions.

Net provision for income tax on a consolidated basis in 1997 was $20.6
million, compared to a $44.7 million benefit for 1996. The 1997 provision is
the result of positive pre-tax income and the use of the full effective tax
rate, whereas the benefit in 1996 resulted primarily from the recognition of a
portion of the Company's net operating loss ("NOL") carryforwards and other
deferred tax assets by reversing the related valuation allowance. See Note 9
to the Company's consolidated financial statements for discussion of the
Company's deferred taxes and related valuation allowances. In early 1998, the
Company repurchased its outstanding preferred stock and triggered a limitation
on the annual amount of NOL it can use to offset future taxable income. This
limitation does not affect the way taxes are reported for financial reporting
purposes, but it will affect the actual amount of taxes paid.

Extraordinary items of $1.0 million relate to the write-off of deferred loan
costs due to extinguishment of certain senior and senior subordinated debt.
The amount is net of a tax benefit of $0.7 million. There were no
corresponding charges incurred in 1996.

EBITDA was $90.1 million for the year ended December 31, 1997 as compared to
$62.0 million for the year ended December 31, 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Consolidated net income for the year ended December 31, 1996 was $70.5
million ($4.99 diluted earnings per share), which included the current year
tax provision of $11.2 million offset by the cumulative year-to-date tax
benefit resulting from reversal of valuation allowances of $55.9 million or a
net benefit for income tax of $44.7 million. If the Company had not recorded
tax benefits related to projected future taxable income for the year ended
December 31, 1996, the Company's net income for such period would have been
$24.2 million ($1.68 diluted earnings per share).

S-23
<PAGE>

Revenue on a consolidated basis in 1996 was $583.1 million, an increase of
$114.6 million or 24.5% from $468.5 million in 1995. The overall increase in
revenue, compared to 1995, reflected a continued improvement in the commercial
real estate markets in most areas of the United States. This improvement
reflected increasing investor confidence, increasing prices and a more liquid
market than in prior years resulting from declining vacancy levels and the
return of some bargaining power to landlords.

Commissions, fees and other incentives on a consolidated basis in 1996 were
$292.3 million, an increase of $53.3 million or 22.3% from $239.0 million in
1995. The increase in these costs is largely correlated to the increase in
revenue since most of the Company's sales professionals are compensated based
on revenue. As a percentage of revenue, commissions fees and other incentives
decreased from 51.0% in 1995 to 50.1% in 1996. The decrease in commissions,
fees and other incentives as a percentage of revenue is primarily due to the
significant revenue growth in investment management and advisory, which does
not incur this type of revenue- based expense. Excluding investment management
and advisory, commissions, fees and other incentives were relatively flat as a
percentage of revenues.

Operating, administrative and other on a consolidated basis in 1996 was
$228.8 million, an increase of $40.8 million or 21.7% from $188.0 million in
1995, and a decrease as a percentage of revenue from 40.1% for 1995 to 39.3%
for 1996.

Consolidated interest income in 1996 was $1.5 million, a decrease of $0.2
million or 10.2% from $1.7 million in 1995. Consolidated interest expense in
1996 was $24.1 million, an increase of $0.8 million or 3.7% from $23.3 million
in 1995 primarily resulting from debt incurred with respect to the Westmark
acquisition in June 1995 and the L.J. Melody acquisition in July 1996, offset
in part by reduced average borrowing levels on other Company indebtedness and
paydown of a portion of the senior debt with the net proceeds from the IPO.

Net provision (benefit) for income tax on a consolidated basis in 1996 was a
benefit of $(44.7) million, compared to a $0.8 million provision in 1995.
During the third quarter of 1996, the Company projected, on a more likely than
not basis, that a portion of its NOL would be realizable in future periods
and, accordingly, reduced its existing deferred tax asset valuation allowances
by $45.7 million of which $5.3 million was allocated to the purchase price of
L.J. Melody based on its estimated future potential to generate taxable
income, and the remaining $40.4 million was recorded as a tax benefit (a
reduction in income tax provision). During the fourth quarter of 1996, the
Company further reduced its deferred tax asset valuation allowances by $15.5
million based on its ability to generate additional taxable income in the
future through interest savings resulting from the paydown of part of its
senior secured and senior subordinated debt with proceeds from the IPO. This
reduction has also been recorded as a tax benefit resulting in a cumulative
year-to-date tax benefit of $55.9 million. With the recognition of deferred
tax assets, the future period provisions for income tax will be recorded at
the full effective tax rate excluding the impact of other adjustments, if any,
to valuation allowances. For the year ended December 31, 1996, a $11.2 million
provision for income taxes was recorded without regard to the income tax
benefit resulting from the reduction of the valuation allowance. Net income
for the year ended December 31, 1996 was $70.5 million ($4.99 diluted earnings
per share), which includes the current year provision of $11.2 million offset
by the cumulative year-to-date tax benefit of $55.9 million or a net benefit
for income tax of $44.7 million. If the Company had not recorded tax benefits
related to projected future taxable income for the year ended December 31,
1996, the Company's net income for such period would have been $24.2 million
($1.68 diluted earnings per share). The $55.9 million recognized tax benefit
has a material effect on the reported net income for the year ended December
31, 1996. This $55.9 million tax benefit is a non-recurring item and is
unrelated to the Company's performance and should not be used in evaluating
the Company's prospects or future performance.

EBITDA was $62.0 million for the year ended December 31, 1996 as compared to
$41.5 million for the year ended December 31, 1995.

S-24
<PAGE>

SEGMENT OPERATIONS

The Company provides integrated real estate services. With the acquisition
and integration of Koll, the Company restructured into four global business
units to best serve clients, as well as to better reflect market
opportunities, and to encourage better investment community understanding of
Company prospects. The four units are Brokerage Services, Corporate Services,
Institutional Management Services and Financial Services. The following table
summarizes the revenue, cost and expenses, and operating income by operating
segment for the years ended December 31, 1995, 1996 and 1997.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
----------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
-------------- -------------- --------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BROKERAGE SERVICES
Revenue................. $301,272 100.0% $345,906 100.0% $423,485 100.0% $82,339 100.0% $92,969 100.0 %
Costs and expenses:
Commissions, fees and
other incentives...... 168,049 55.8 191,830 55.5 237,697 56.1 45,713 55.5 51,933 55.9
Operating,
administrative and
other................. 100,502 33.4 122,845 35.5 133,661 31.6 30,188 36.7 34,061 36.6
Depreciation and
amortization.......... 7,484 2.4 7,092 2.0 8,200 1.9 1,493 1.8 1,502 1.6
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Operating income........ $ 25,237 8.4% $ 24,139 7.0% $ 43,927 10.4% $ 4,945 6.0% $ 5,473 5.9 %
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
EBITDA.................. $ 32,721 10.9% $ 31,231 9.0% $ 52,127 12.3% $ 6,438 7.8% $ 6,975 7.5 %
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
CORPORATE SERVICES
Revenue................. $ 21,750 100.0% $ 25,564 100.0% $ 37,608 100.0% $ 5,890 100.0% $12,480 100.0 %
Costs and expenses:
Commissions, fees and
other incentives...... 12,208 56.1 14,286 55.9 18,429 49.0 3,275 55.6 4,925 39.5
Operating,
administrative and
other................. 8,120 37.3 10,700 41.9 16,693 44.4 2,517 42.7 8,267 66.2
Depreciation and
amortization.......... 268 1.3 243 0.9 898 2.4 67 1.2 506 4.1
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Operating income (loss). $ 1,154 5.3% $ 335 1.3% $ 1,588 4.2% $ 31 0.5% $(1,218) (9.8)%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
EBITDA.................. $ 1,422 6.5% $ 578 2.3% $ 2,486 6.6% $ 98 1.7% $ (712) (5.7)%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
MANAGEMENT SERVICES
Revenue................. $ 41,067 100.0% $ 44,783 100.0% $ 67,442 100.0% $10,862 100.0% $22,461 100.0 %
Costs and expenses:
Commissions, fees and
other incentives...... 15,630 38.1 17,416 38.9 22,230 33.0 4,612 42.5 6,402 28.5
Operating,
administrative and
other................. 23,203 56.5 21,518 48.0 38,625 57.3 5,480 50.4 14,070 62.6
Depreciation and
amortization.......... 506 1.2 700 1.6 2,040 3.0 153 1.4 1,201 5.4
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Operating income (loss). $ 1,728 4.2% $ 5,149 11.5% $ 4,547 6.7% $ 617 5.7% $ 788 3.5 %
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
EBITDA.................. $ 2,234 5.4% $ 5,849 13.1% $ 6,587 9.8% $ 770 7.1% $ 1,989 8.9 %
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
FINANCIAL SERVICES
Revenue................. $104,371 100.0% $166,815 100.0% $201,689 100.0% $34,973 100.0% $47,234 100.0 %
Costs and expenses:
Commissions, fees and
other incentives...... 43,131 41.3 68,734 41.2 87,349 43.3 14,007 40.1 20,454 43.3
Operating,
administrative and
other................. 56,143 53.8 73,736 44.2 85,468 42.4 18,205 52.0 22,560 47.8
Depreciation and
amortization.......... 3,373 3.2 5,539 3.3 6,922 3.4 1,408 4.0 2,113 4.4
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Operating income........ $ 1,724 1.7% $ 18,806 11.3% $ 21,950 10.9% $ 1,353 3.9% $ 2,107 4.5 %
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
EBITDA.................. $ 5,097 4.9% $ 24,345 14.6% $ 28,872 14.3% $ 2,761 7.9% $ 4,220 8.9 %
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
Merger related and other
non-recurring charges.. $ -- $ -- $(12,924) $ -- $ --
======== ======== ======== ======= =======
TOTAL OPERATING INCOME.. $ 29,843 $ 48,429 $ 59,088 $ 6,946 $ 7,150
======== ======== ======== ======= =======
Total EBITDA............ $ 41,474 $ 62,003 $ 90,072 $10,067 $12,472
======== ======== ======== ======= =======
</TABLE>

S-25
<PAGE>

The following discussion of each of the Company's four operating segments
should be read in conjunction with Note 12 to the Consolidated Financial
Statements. Segment operating income excludes interest income, interest
expense, merger related and other non-recurring charges, provision for income
taxes and extraordinary items.

QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997

BROKERAGE SERVICES

Revenue increased by $10.6 million or 12.9% for the quarter ended March 31,
1998, compared to the quarter ended March 31, 1997, due to the continued
improvement of the real estate market. The strong market resulted in higher
property values, higher rental rates and increased activity, which translated
to increases in both the total number and size of brokerage sales and lease
transactions closed for the quarter ended March 31, 1998, as compared to the
quarter ended March 31, 1997. Commissions, fees and other incentives increased
by $6.2 million or 13.6% for the quarter ended March 31, 1998, compared to the
quarter ended March 31, 1997, primarily due to increased revenues, which
resulted in higher commission eligibility levels and, thus, higher
commissions. Operating, administrative, and other increased by $3.9 million or
12.8% for the quarter ended March 31, 1998, compared to the quarter ended
March 31, 1997. The increase in the amount is primarily a result of additional
personnel requirements and business promotional and office operations
expenses, which contributed to the increase in revenue, and incentive
compensation based on increased operating results. Depreciation and
amortization was $1.5 million for the quarters ended March 31, 1998 and 1997.

CORPORATE SERVICES

Revenue increased by $6.6 million or 111.9% for the quarter ended March 31,
1998, compared to the quarter ended March 31, 1997, primarily due to the
acquisition of Koll and an increase in the total number and size of corporate
services sales and lease transactions closed for the quarter ended March 31,
1998, compared to the quarter ended March 31, 1997. Commissions, fees and
other incentives increased by $1.7 million or 50.4% for the quarter ended
March 31, 1998 compared to the quarter ended March 31, 1997, but decreased as
a percentage of revenue from 55.6% to 39.5% primarily because the base
contract management fee revenues, which increased as a result of the
acquisition of Koll, do not have corresponding commission expenses. Operating,
administrative, and other increased $5.8 million or 228.4% for the quarter
ended March 31, 1998, compared to the quarter ended March 31, 1997, primarily
related to the acquisition of Koll, business promotion expenses and the
investment made in infrastructure to support anticipated new business.
Depreciation and amortization increased by $0.4 million or 655.2% for the
quarter ended March 31, 1998, as compared to the quarter ended March 31, 1997,
primarily related to the acquisition of Koll.

INSTITUTIONAL MANAGEMENT SERVICES

Revenue increased by $11.6 million or 106.8% for the quarter ended March 31,
1998, compared to the quarter ended March 31, 1997. Commissions, fees and
other incentives increased by $1.8 million or 38.8% for the quarter ended
March 31, 1998, compared to the quarter ended March 31, 1997. Operating,
administrative, and other increased $8.6 million or 156.8% for the quarter
ended March 31, 1998, compared to the quarter ended March 31, 1997.
Depreciation and amortization increased by $1.0 million or 685.0% for the
quarter ended March 31, 1998 compared to the quarter ended March 31, 1997.
Each of these increases in Institutional Management Services was primarily
related to the full contribution of Koll.

FINANCIAL SERVICES

Revenue increased by $12.3 million or 35.1% for the quarter ended March 31,
1998, compared to the quarter ended March 31, 1997. The increase in revenue is
primarily due to an increase in the total number and size of investment
properties and mortgage banking transactions closed for the quarter ended
March 31, 1998, compared to the quarter ended March 31, 1997 and an increase
in valuation and appraisal services revenue related to heightened real estate
market liquidity. Commissions, fees and other incentives increased by $6.4
million or

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46.0% for the quarter ended March 31, 1998, compared to the quarter ended
March 31, 1997. The increase is primarily a result of the revenue increase and
the resulting higher commission eligibility levels in investment properties,
mortgage banking and valuation and appraisal services. Operating,
administrative, and other increased by $4.4 million or 23.9% for the quarter
ended March 31, 1998, compared to the quarter ended March 31, 1997, primarily
as a result of business promotional expenses and additional personnel
requirements, which contributed to the increase in revenue, and the
acquisition of Koll. Depreciation and amortization increased by $0.7 million
or 50.1% for the quarter ended March 31, 1998, as compared to the quarter
ended March 31, 1997, primarily related to the acquisition of Koll.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

BROKERAGE SERVICES

Revenue increased by $77.6 million or 22.4% for the year ended December 31,
1997, compared to the year ended December 31, 1996, due to the continued
improvement of the real estate market. The strong market resulted in higher
property values, higher rental rates and increased activity, which translated
to increases in both the total number and size of brokerage sales and lease
transactions closed during 1997 as compared to 1996. Commissions, fees and
other incentives increased by $45.9 million or 23.9% for the year ended
December 31, 1997 compared to the year ended December 31, 1996, primarily due
to increased revenues, which resulted in higher commission eligibility levels
and, thus, higher commissions. The increase in commissions, fees and other
incentives was greater than the increase in revenues as a result of a tiered
commission program whereby after certain eligibility criteria is achieved,
producers receive an additional premium paid annually. Operating,
administrative, and other increased by $10.8 million or 8.8% for the year
ended December 31, 1997 compared to the year ended December 31, 1996, but
decreased as a percentage of revenue from 35.5% to 31.6%. The increase in the
amount is primarily a result of additional personnel requirements and business
promotional expenses, which contributed to the increase in revenue and
incentive compensation based on increased operating results. Depreciation and
amortization increased by $1.1 million or 15.6% for the year ended December
31, 1997, as compared to the year ended December 31, 1996, primarily due to
the write-off of Langdon Rieder acquisition goodwill of $2.1 million,
partially offset by reduced depreciation due to an increase in fully
depreciated assets.

CORPORATE SERVICES

Revenue increased by $12.0 million or 47.1% for the year ended December 31,
1997, compared to the year ended December 31, 1996, primarily due to the Koll
acquisition and an increase in the total number and size of corporate services
sales and lease transactions closed during 1997 compared to 1996. Commissions,
fees and other incentives increased by $4.1 million or 29.0% for the year
ended December 31, 1997 compared to the year ended December 31, 1996, but
decreased as a percentage of revenue from 55.9% to 49.0% primarily because the
base contract management fee revenues, which increased as a result of the Koll
acquisition, do not have corresponding commission expenses. Operating,
administrative, and other increased $6.0 million or 56.0% for the year ended
December 31, 1997, compared to the year ended December 31, 1996, primarily
related to the Koll acquisition and to additional personnel requirements and
business promotional expenses which contributed to the increase in revenue.
Depreciation and amortization increased by $0.7 million or 269.5% for the year
ended December 31, 1997, as compared to the year ended December 31, 1996,
primarily related to the Koll acquisition.

INSTITUTIONAL MANAGEMENT SERVICES

Revenue increased by $22.7 million or 50.6% for the year ended December 31,
1997, compared to the year ended December 31, 1996. Commissions, fees and
other incentives increased by $4.8 million or 27.6% for the year ended
December 31, 1997 compared to the year ended December 31, 1996. Operating,
administrative, and other increased $17.1 million or 79.5% for the year ended
December 31, 1997 compared to the year ended December 31, 1996. Depreciation
and amortization increased by $1.3 million or 191.4% for the year ended
December 31, 1997 compared to the year ended December 31, 1996. Each of these
increases in Institutional Management Services were primarily related to the
Koll acquisition.

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<PAGE>

FINANCIAL SERVICES

Revenue increased by $34.9 million or 20.9% for the year ended December 1997
compared to the year ended December 31, 1996. The increase in revenue is
primarily due to an increase in the total number and size of investment
properties and mortgage banking transactions closed during 1997 compared to
1996, a full year of mortgage banking revenue related to the L.J. Melody
acquisition compared to six months for the same period last year and an
increase in valuation and appraisal services revenue related to heightened
real estate market liquidity, partially offset by a decrease in investment
advisory services. Commissions, fees and other incentives increased by $18.6
million or 27.1% for the year ended December 31, 1997 compared to the year
ended December 31, 1996. The increase is primarily a result of the revenue
increase and the resulting higher commission eligibility levels in investment
properties, mortgage banking and valuation and appraisal services, increased
mortgage banking commissions related to the L.J. Melody acquisition which
includes a full year of activity compared to six months for same period last
year, and mortgage banking base salary costs. Operating, administrative, and
other increased by $11.7 million or 15.9% for the year ended December 31, 1997
compared to the year ended December 31, 1996, primarily as a result of
business promotional expenses and additional personnel requirements which
contributed to the increase in revenue, and the L.J. Melody and Koll
acquisitions. Depreciation and amortization increased by $1.4 million or 25.0%
for the year ended December 31, 1997 as compared to the year ended December
31, 1996, primarily related to the L.J. Melody and Koll acquisitions.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

BROKERAGE SERVICES

Revenue increased by $44.6 million or 14.8% for the year ended December 31,
1996, compared to the year ended December 31, 1995 due to an increase in the
total number and size of brokerage sales transactions closed during 1996,
compared to 1995, and, in part, from an increase in total size of brokerage
lease transactions closed during 1996. Commissions, fees and other incentives
increased by $23.8 million or 14.2% for the year ended December 31, 1996
compared to the year ended December 31, 1995, primarily due to increased
revenues, which resulted in higher commission eligibility levels and, thus,
higher commissions, but decreased as a percentage of revenues from 55.8% to
55.5%. Operating, administrative, and other increased by $22.3 million or
22.2% for the year ended December 31, 1996 compared to the year ended December
31, 1995. The increase is primarily a result of additional personnel
requirements and business promotional expenses, which contributed to the
increase in revenue and incentive compensation based on increased operating
results. Depreciation and amortization decreased by $0.4 million or 5.2% for
the year ended December 31, 1996, as compared to the year ended December 31,
1995, primarily due to fully depreciated assets.

CORPORATE SERVICES

Revenue increased by $3.8 million or 17.5% for the year ended December 31,
1996, compared to the year ended December 31, 1995, primarily due to an
increase in the total number and size of corporate services sales and lease
transactions closed during 1996, compared to 1995. Commissions, fees and other
incentives increased by $2.1 million or 17.0% for the year ended December 31,
1996 compared to the year ended December 31, 1995, primarily due to increased
revenues, which resulted in higher commission eligibility levels and, thus,
higher commissions. Operating, administrative, and other increased $2.6
million or 31.8% for the year ended December 31, 1996, compared to the year
ended December 31, 1995, primarily related to additional personnel
requirements and business promotional expenses which contributed to the
increase in revenue. Depreciation and amortization was $0.2 million for the
years ended December 31, 1996 and 1995.

INSTITUTIONAL MANAGEMENT SERVICES

Revenue increased by $3.7 million or 9.0% for the year ended December 31,
1996, compared to the year ended December 31, 1995. Commissions, fees and
other incentives increased by $1.8 million or 11.4% for the year ended
December 31, 1996 compared to the year ended December 31, 1995. Operating,
administrative, and other decreased $1.7 million or 7.3% for the year ended
December 31, 1996, compared to the year ended

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<PAGE>

December 31, 1995. Depreciation and amortization increased by $0.2 million or
38.3% for the year ended December 31, 1996 as compared to the year ended
December 31, 1995.

FINANCIAL SERVICES

Revenue increased by $62.4 million or 59.8% for the year ended December
1996, as compared to the year ended December 31, 1995. The increase in revenue
is primarily due to an increase in the total number and size of investment
properties sale transactions closed during 1996 compared to 1995, an increase
in mortgage banking revenue related to the L.J. Melody acquisition, an
increase in valuation and appraisal services revenue related to heightened
real estate market liquidity, and an increase in investment advisory services
as a result of the Westmark acquisition. Commissions, fees and other
incentives increased by $25.6 million or 59.4% for the year ended December 31,
1996, compared to the year ended December 31, 1995. The increase is primarily
a result of the revenue increase and the resulting higher commission
eligibility levels in investment properties and valuation and appraisal
services, increased mortgage banking commissions related to the L.J. Melody
acquisition, and mortgage banking base salary costs related to newly hired
producers. As newly hired producers start generating loan fees, commissions,
fees and other incentives as a percentage of revenue should decline.
Operating, administrative, and other increased by $17.6 million or 31.3% for
the year ended December 31, 1996, compared to the year ended December 31,
1995, primarily as a result of the Westmark and L.J. Melody acquisitions.
Depreciation and amortization increased by $2.2 million or 64.2% for the year
ended December 31, 1996, as compared to the year ended December 31, 1995,
primarily as a result of a full year of Westmark expense in 1996 and the L.J.
Melody acquisition in July 1996 as compared to the six months in 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations and non-acquisition
related capital expenditures primarily with internally generated funds and
borrowings under a revolving credit facility. The Company's EBITDA was $90.1
million and $62.0 million for the years ended December 31, 1997 and 1996,
respectively and $12.5 million and $10.1 million for the quarters ended March
31, 1998 and 1997, respectively. The improvements in EBITDA reflect the
overall period to period revenue growth discussed in Results of Operations.

EBITDA effectively removes the impact of certain non-cash and non-recurring
charges on income such as depreciation and the amortization of intangible
assets relating to acquisitions, merger related and other non-recurring
charges, extraordinary items and income taxes. Management believes that the
presentation of EBITDA will enhance a reader's understanding of the Company's
operating performance and ability to service debt as it provides a measure of
cash (subject to the payment of interest and income taxes) generated that can
be used by the Company to service its debt and other required or discretionary
purposes. Net cash that will be available to the Company for discretionary
purposes represents remaining cash, after debt service and other cash
requirements, such as capital expenditures, are deducted from EBITDA. EBITDA
should not be considered as an alternative to (i) operating income determined
in accordance with GAAP or (ii) operating cash flow determined in accordance
with GAAP.

Net cash used in operating activities was $35.7 million for the quarter
ended March 31, 1998, compared to $15.8 million for the quarter ended
March 31, 1997. The increase is due in part to higher incentive payments in
1998 resulting from improved operating performances in 1997 and in part to
changes in components of operating assets and liabilities. Net cash provided
by operating activities was $80.8 million in 1997 compared to $65.7 million in
1996. The increase primarily resulted from an increase in operating income
before non-cash charges and benefits and changes in components of operating
assets and liabilities. Net cash provided by operating activities was
$65.7 million in 1996, compared to $30.6 million in 1995. The increase
resulted primarily from an improvement in operating income, excluding the tax
benefit from the reduction of valuation allowances. See "Results of
Operations." Additionally, non-cash charges, consisting of depreciation,
amortization and deferred compensation and interest, included in net income in
1996, were $3.0 million higher than 1995. Net cash provided by operating
activities was also impacted by changes in components of other operating
assets and liabilities, which provided a net increase to net cash provided by
operating activities of $16.0 million.

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<PAGE>

Net cash used in investing activities was $22.4 million for the quarter
ended March 31, 1998, compared to $9.8 million for the quarter ended March 31,
1997. The increase primarily resulted from additional supplemental purchase
price payments to the Westmark sellers, an increase in purchases of property
and equipment, an investment in Whittier Partners, and the acquisitions of
Cauble & Company and North Coast Mortgage Company. Net cash used in investing
activities was $18.0 million in 1997 compared to $10.9 million in 1996 as a
result of additional supplemental purchase price payments to the Westmark and
L.J. Melody sellers, an increase in purchases of property and equipment and an
increase in short term investments (included in other current assets), offset
by cash acquired from the Koll acquisition net of related acquisition costs.
Net cash used in investing activities decreased to $10.9 million in 1996
compared to $24.9 million in 1995 as a result of the Westmark acquisition in
June 1995 which had a higher cash payment associated with it than the L.J.
Melody acquisition in July 1996.

Net cash provided by financing activities was $30.5 million for the quarter
ended March 31, 1998, compared to $11.7 million for the quarter ended March
31, 1997. The increase primarily resulted from an increase in borrowings from
the Revolving Credit Facility offset in part by the payment for the repurchase
of the Company's preferred stock. Net cash used in financing activities was
$65.0 million in 1997 compared to $28.5 million in 1996. The increase
primarily resulted from increases in repayments of the senior revolving credit
line, senior term loans, and the senior subordinated term loans, offset by
borrowings from the new revolving credit facility. Net cash used in financing
activities was $28.5 million in 1996 compared to $11.5 million in 1995. The
$17.0 million difference between periods resulted primarily from $95.9 million
repayment of amounts outstanding under the Senior Secured Credit Agreement in
1996 as compared to $19.0 million repayment in 1995, $6.0 million repayment of
amounts outstanding under the Senior Subordinated Credit Agreement as compared
to no repayments in 1995, and a $10.0 million decrease in proceeds from the
Senior Subordinated Credit Agreement, partially offset by $79.5 million
proceeds from issuance of common stock in 1996.

During the third quarter of 1997, the Company refinanced substantially all
of its outstanding debt through the Revolving Credit Facility, which is
included in senior term loans in the accompanying balance sheet. The Revolving
Credit Facility also provided for the refinancing of substantially all the
debt of Koll assumed pursuant to the merger and provides additional borrowing
capacity for the Company for general corporate purposes (including
acquisitions).

The Company has received a commitment letter from Bank of America NT&SA
dated April 2, 1998 to increase the amount available under the Revolving
Credit Facility from $300.0 million to $400.0 million, subject to completion
of the Offering. The Amended Revolving Credit Facility will be subject to
mandatory commitment reductions of $40.0 million, on December 31, 1999 and
$80.0 million on December 31, 2000 and 2001. In the event that on any date the
Company's loan obligations exceed the commitments in effect on such date after
giving effect to the mandatory reductions, the Company must, on such date,
make mandatory repayment of the loans in a principal amount equal to such
excess. Payment in full of all outstanding amounts under the credit facility
will be no later than June 30, 2003. The Amended Revolving Credit Facility
will bear interest at a rate based on the Company's election of either a LIBOR
based rate or the higher of the Bank of America's reference rate and the
Federal Funds rate plus .5%. The LIBOR based rate is equal to (a) LIBOR (7-
day, one, two, three or six-month rate, at the Company's option), divided by
1.00 minus the Eurodollar Reserve Percentage plus (b) a percentage based on
the Company's leverage ratio. At December 31, 1997, the effective interest
rate was 6.78%. The interest rate will be subject to change if the Company's
leverage increases or decreases.

As of March 31, 1998, the Company had $228.0 million outstanding under the
Revolving Credit Facility and $30.5 million outstanding of other long-term
indebtedness, consisting primarily of acquisition debt. As of December 31,
1997, the Company had $120.0 million outstanding under the Revolving Credit
Facility, and $31.1 million outstanding other long-term indebtedness,
consisting primarily of acquisition debt. At the end of January 1998, the
Company borrowed $78.0 million under the Revolving Credit Facility to
repurchase its preferred stock and in March 1998 borrowed an additional $30.0
million to fund operations. In April 1998, the Company borrowed approximately
$50.0 million to fund the acquisition of REI. As of March 31, 1998, after
giving pro forma effect to the acquisition of REI, the Offering and the
application of the net proceeds therefrom,

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<PAGE>

the Company would have had an aggregate of $181.4 million available for
borrowing under the Revolving Credit Facility ($281.4 million upon amendment
thereof), net of letters of credit outstanding.

In connection with the Westmark acquisition, the sellers were entitled to a
supplemental purchase price based on the operating results of Westmark payable
over a period of six years and subject to a maximum aggregate payment of $18.0
million. In August 1997, the Company agreed to buy out the Westmark
supplemental purchase price and a related incentive plan for $11.1 million and
$2.4 million, respectively. The Company paid $4.0 million of the supplemental
purchase price on August 15, 1997. The remaining payments were made on January
15, 1998 and February 14, 1998 for $5.0 million and $2.1 million,
respectively. The supplemental purchase price has been recorded as additional
goodwill and is being amortized over Westmark goodwill's remaining estimated
useful life, initially 30 years. The related incentive plan buyout was paid on
August 15, 1997 and is included in merger related and other non-recurring
charges in the accompanying statement of operations. In October 1997, the
Company paid the outstanding balance of the senior and contingent notes
related to the L.J. Melody acquisition for $1.1 million and $3.0 million,
respectively. Of this amount, $1.7 million was related to the acceleration of
the contingent note and is included in merger related and other non-recurring
charges in the accompanying statements of operations. Effective April 30,
1997, the Company amended the term of its inventoried property loan to extend
the settlement date to March 2, 1999. All other terms of the agreement remain
in effect.

In January 1998, the Company purchased all 4.0 million shares of its
preferred stock. The total cost to purchase the preferred shares was $77.4
million, including $5.0 million of previously accrued dividends. This
transaction reduced income available to common stockholders in the first
quarter of 1998 by $32.3 million, which represents the excess of the
redemption price over book value which is treated as a dividend to preferred
shareholders under generally accepted accounting principles.

The Company has assessed and continues to assess the impact of the Year 2000
on its computer systems and is in the process of modifying the affected
hardware and software. The Year 2000 issue exists because many computer
systems and applications currently use two-digit date fields to designate a
year, which may cause date sensitive systems to recognize the year 2000 as
1900 or not at all. Costs related to the maintenance or modification of these
systems will be expensed as incurred. No charges were incurred for the Year
2000 project in 1997 but are estimated to be $3.3 million and $0.8 million in
1998 and 1999, respectively.

The Company anticipates a possible write-down in the carrying value of two
owned buildings to fair market value, which will impact the Company's results
of operations for the quarter ended June 30, 1998.

The Company expects to have capital expenditures of approximately $12.0
million in 1998, exclusive of business acquisitions. The Company expects to
use net cash provided by operating activities for the next several years
primarily to fund capital expenditures for computer related purchases,
acquisitions, including earnout payments, and to make required principal
payments under the Company's outstanding indebtedness. The Company believes
that it can satisfy its non-acquisition obligations as well as working capital
requirements from internally generated cash flow, borrowings under the
revolving credit facility or any replacement credit facilities. Material
future acquisitions that require cash will require new sources of capital such
as an expansion of the existing credit line and raising money by issuing
additional debt or equity. The Company anticipates that its existing sources
of liquidity, including cash flow from operations, will be sufficient to meet
the Company's anticipated non-acquisition cash requirements for the
foreseeable future and in any event for at least the next twelve months.

RECENT ACQUISITIONS

On April 17, 1998, the Company purchased all of the outstanding shares of
REI, an international commercial real estate services firm operating under the
name Richard Ellis in major commercial real estate markets worldwide
(excluding the United Kingdom). The purchase price for REI was approximately
$103.0 million of which approximately $52.7 million was paid in cash and notes
and approximately $50.3 million

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<PAGE>

was paid in shares of the Company's Common Stock. In addition, the Company
assumed approximately $15.9 million of total indebtedness. The Company also
anticipates a one-time charge of up to $5.0 million associated with the
acquisition and integration of REI, which will impact the Company's results of
operations for the quarter ended June 30, 1998. The Company is currently in
discussions regarding the acquisition of those interests in certain
subsidiaries of REI, which it does not currently own. For the year ended
December 31, 1997, REI had revenues and EBITDA of approximately $118.0 million
and $11.7 million, respectively. On a pro forma basis, after giving effect to
the acquisitions of REI and Koll as if such transactions had occurred as of
January 1, 1997, the Company would have had revenues of $937.8 million and
EBITDA of $104.5 million, excluding merger related and other non-recurring
charges of $32.7 million. See "Prospectus Supplement Summary--Recent
Developments."

On August 28, 1997, the Company purchased Koll through a merger. Under the
terms of the merger agreement, the Company exchanged 5,187,737 shares of its
Common Stock and 407,087 stock options, as well as warrants to purchase an
additional 599,967 shares at $30.00 per share, subject to adjustment, for all
of the outstanding stock and stock options of Koll. The Koll acquisition was a
tax-free reorganization accounted for as a purchase and resulted in the
issuance of equity valued at approximately $132.9 million and the assumption
of debt and minority interest of approximately $57.4 million as of August 28,
1997.

The Company, through L.J. Melody, acquired Cauble and Company for
approximately $2.2 million and substantially all of the assets of North Coast
Mortgage for approximately $3.3 million, both in February 1998, and Shoptaw-
James for approximately $9.0 million in May 1998, all regional mortgage
banking firms.

RECENT LITIGATION

The Company is a party to a number of pending or threatened lawsuits arising
out of, or incident to, its ordinary course of business. In August 1993, a
former commissioned salesperson of the Company filed a lawsuit against the
Company in the Superior Court of New Jersey, Bergin County, alleging gender
discrimination and wrongful termination by the Company. On November 20, 1996 a
jury returned a verdict against the Company, awarding $6.5 million in general
and punitive damages to the plaintiff. The Company hired new counsel and in
January 1997, filed motions for a new trial, reversal of the verdict and
reduction of damages. On March 27, 1997, the trial court denied the Company's
motions and awarded the plaintiff $638,000 in attorneys' fees and costs. The
Company has been advised by appellate counsel that it has a meritorious basis
to pursue an appeal of the verdict, which the Company has done. The Company
recorded an initial accrual in connection with this matter of $250,000 in 1994
and increased the accrual to $800,000 in 1995, which represented the Company's
estimate of its loss exposure for this matter based on its assessment and
analysis as of those dates. In 1996, further adjustments were made to the
reserve to reflect the Company's estimate of ultimate loss, if any. The
Company believes its reserves for this case at December 31, 1997 are adequate.
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. Management believes that any liability to the Company that
may result from disposition of pending lawsuits will not have a material
effect on the consolidated financial position or results of operations of the
Company.

NET OPERATING LOSSES

The Company had federal income tax NOLs of approximately $133.6 million as
of December 31, 1997, corresponding to $46.8 million of the Company's $67.8
million in net deferred tax assets before valuation allowance, of which $29.9
million has been reserved through valuation allowances. The valuation
allowances were based on management's conclusion regarding the realizability
of this deferred tax asset on a more likely than not basis, as defined in SFAS
No. 109. In reaching this conclusion, management considered the Company's past
operating results, the current year events and trends, including the impact,
if any, of the acquisitions that were concluded during the year and other
factors. Management evaluates the appropriateness of all or part of these
valuation allowances on a periodic basis and if the Company concludes there is
a change with respect to realizability, any necessary adjustments are made at
that time.

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<PAGE>

The ability of the Company to utilize NOLs will be limited in 1998 and
subsequent years as a result of the Company's 1996 public offering, the 1997
Koll acquisition and the 1998 repurchase of preferred stock which cumulatively
caused a more than 50.0% change of ownership within a three-year period. As a
result of the limitation, the Company will only be able to use approximately
$26.0 million of its NOLs in 1998 and each subsequent year. The availability
of NOLs is, in any event, subject to uncertainty since their validity is not
reviewed by the Internal Revenue Service until such time as they are utilized
to offset taxable income.

NEW ACCOUNTING PRONOUNCEMENTS

The Company plans to adopt Statement of Financial Accounting Standards
("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related
Information during the quarter ended December 31, 1998. SFAS 131 requires the
use of the "management approach" for segment reporting, which is based on the
way the chief operating decision maker organizes segments within a company for
making operating decisions and assessing performance. The adoption of this
statement is not expected to have a material impact on the Company's financial
statements.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-up
Activities. SOP 98-5, which is effective for financial statements for fiscal
years beginning after December 15, 1998, requires costs of start-up activities
and organization costs to be expensed as incurred. Management has not yet
determined the impact of this statement on the Company's financial statements.

Effective January 1, 1997, the Company adopted SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
and SFAS No. 128, Earnings per Share. These standards did not have a material
impact on the Company's financial statements.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income and SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which are effective for annual
financial statements ending December 31, 1998. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. SFAS 131 requires the use of the
"management approach" for segment reporting, which is based on the way that
the chief operating decision maker organizes segments within a company for
making operating decisions and assessing performance. The adoption of these
statements is not expected to have a material impact on the Company's
financial statements.

REPORT OF MANAGEMENT

The Company's management is responsible for the integrity of the financial
data reported by the Company and its subsidiaries. Fulfilling this
responsibility requires the preparation and presentation of consolidated
financial statements in accordance with generally accepted accounting
principles. Management uses internal accounting controls, corporate-wide
policies and procedures and judgment so that such statements reflect fairly
the consolidated financial position, results of operations and cash flows of
the Company.

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<PAGE>

QUARTERLY RESULTS OF OPERATIONS AND OTHER FINANCIAL DATA

The following table sets forth certain unaudited consolidated statement of
operations data for each of the Company's last thirteen quarters and the
percentage of the Company's revenues represented by each line item reflected
in each consolidated income statement. In the opinion of management, this
information has been presented on the same basis as the consolidated financial
statements included herein, and includes all adjustments, consisting only of
normal recurring adjustments and accruals, that the Company considers
necessary for a fair presentation. The unaudited quarterly information should
be read in conjunction with the audited financial statements of the Company
and the notes thereto. The operating results for any quarter are not
necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
1995 1996 1997
--------------------------------------- ---------------------------------------- --------------------
DEC. 31 SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF
OPERATIONS:
Revenue.......... $143,570 $116,603 $108,361 $ 99,926 $192,205 $147,168 $130,954 $112,741 $260,682 $177,520
Costs and
expenses:
Commissions,
fees and other
incentives..... 71,449 57,804 57,370 52,395 96,801 74,196 66,262 55,007 127,752 87,825
Operating,
administrative
and other...... 53,129 47,803 44,206 42,830 69,603 56,042 53,594 49,560 89,042 68,809
Merger related
and other non-
recurring
charges........ -- -- -- -- -- -- -- -- -- 12,924
Depreciation and
amortization... 3,458 3,546 2,297 2,330 3,825 3,431 3,038 3,280 5,788 6,098
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating Income. 15,534 7,450 4,488 2,371 21,976 13,499 8,060 4,894 38,100 1,864
Interest income.. 446 345 393 490 468 286 354 395 639 740
Interest expense. 6,323 6,428 5,313 5,203 6,240 6,196 5,759 5,928 3,773 4,158
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before
provisions
(benefit) for
income tax...... 9,657 1,367 (432) (2,342) 16,204 7,589 2,655 (639) 34,966 (1,554)
Provision
(benefit) for
income tax...... 603 138 26 74 6,550 4,220 438 (48) 15,772 (569)
Reduction of
valuation
allowances...... -- -- -- -- (15,500) (40,400) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net provision
(benefit) for
income tax...... 603 138 26 74 (8,950) (36,180) 438 (48) 15,772 (569)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before
extraordinary
items........... 9,054 1,229 (458) (2,416) 25,154 43,769 2,217 (591) 19,194 (985)
Extraordinary
items, net...... -- -- -- -- -- -- -- -- -- 951
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... $ 9,054 $ 1,229 $ (458) $ (2416) $ 25,154 $ 43,769 $ 2,217 $ (591) $ 19,194 $ (1,936)
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL
DATA:
EBITDA........... $ 18,992 $ 10,996 $ 6,785 $ 4,701 $ 25,801 $ 16,930 $ 11,098 $ 8,174 $ 43,888 $ 20,886
Net cash provided
by (used in)
operating
activities...... $ 30,082 $ 8,143 $ 6,890 $(14,483) $ 41,524 $ 22,150 $ 13,865 $(11,845) $ 55,055 $ 22,328
Net cash provided
by (used in)
investing
activities...... $ (2,928) $ (595) $(18,887) $ (2,478) $ (1,389) $ (9,401) $ 1,768 $ (1,884) $ (7,702) $ 330
Net cash provided
by (used in)
financing
activities...... $(16,002) $ (8,098) $ 15,391 $ (2,760) $(15,710) $(15,297) $ (4,306) $ 6,808 $(43,795) $(29,314)
RESULTS OF
OPERATIONS:
Revenue.......... 100% 100% 100 % 100 % 100 % 100 % 100% 100 % 100% 100 %
Costs and
expenses:
Commissions,
fees and other
incentives..... 49.8 49.6 52.9 52.4 50.4 50.4 50.6 48.8 49.0 49.5
Operating,
administrative
and other...... 37.0 41.0 40.8 42.9 36.2 38.1 40.9 44.0 34.2 38.8
Merger related
and other non-
recurring
charges........ -- -- -- -- -- -- -- -- -- 7.3
Depreciation and
amortization... 2.4 3.0 2.1 2.3 2.0 2.3 2.3 2.9 2.2 3.4
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income. 10.8 6.4 4.2 2.4 11.4 9.2 6.2 4.3 14.6 1.0
Interest income.. 0.3 0.3 0.3 0.5 0.2 0.2 0.3 0.3 0.2 0.4
Interest expense. 4.4 5.5 4.9 5.2 3.2 4.2 4.4 5.2 1.4 2.3
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before provision
(benefit) for
income tax...... 6.7 1.2 (0.4) (2.3) 8.4 5.2 2.1 (0.6) 13.4 (0.9)
Provision for
income tax...... 0.4 0.1 0.0 0.1 3.4 2.9 0.3 0.0 6.1 (0.3)
Reduction of
valuation
allowances...... -- -- -- -- (8.1) (27.5) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net provision
(benefit) for
income tax...... 0.4 0.1 0.0 0.1 (4.7) (24.6) 0.3 0.0 6.1 (0.3)
Income (loss)
before
extraordinary
items........... 6.3 1.1 (0.4) (2.4) 13.1 29.7 1.8 (0.6) 7.4 (0.6)
Extraordinary
items, net...... -- -- -- -- -- -- -- -- -- 0.5
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... 6.3% 1.1% (0.4)% (2.4)% 13.1 % 29.7 % 1.8% (0.6)% 7.4% (1.1)%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
1998
---------
JUN. 30 MAR. 31 MAR. 31
--------- --------- ---------
<S> <C> <C> <C>
RESULTS OF
OPERATIONS:
Revenue.......... $157,958 $134,064 $175,144
Costs and
expenses:
Commissions,
fees and other
incentives..... 82,521 67,607 83,174
Operating,
administrative
and other...... 60,206 56,390 78,958
Merger related
and other non-
recurring
charges........ -- -- --
Depreciation and
amortization... 3,053 3,121 5,322
--------- --------- ---------
Operating Income. 12,178 6,946 7,150
Interest income.. 587 632 727
Interest expense. 4,104 3,745 4,321
--------- --------- ---------
Income (loss)
before
provisions
(benefit) for
income tax...... 8,661 3,833 3,556
Provision
(benefit) for
income tax...... 3,795 1,560 1,591
Reduction of
valuation
allowances...... -- -- --
--------- --------- ---------
Net provision
(benefit) for
income tax...... 3,795 1,560 1,591
--------- --------- ---------
Income (loss)
before
extraordinary
items........... 4,866 2,273 1,965
Extraordinary
items, net...... -- -- --
--------- --------- ---------
Net income
(loss).......... $ 4,866 $ 2,273 $ 1,965
========= ========= =========
OTHER FINANCIAL
DATA:
EBITDA........... $ 15,231 $ 10,067 $ 12,472
Net cash provided
by (used in)
operating
activities...... $ 19,218 $(15,766) $(35,723)
Net cash provided
by (used in)
investing
activities...... $ (803) $ (9,843) $(22,443)
Net cash provided
by (used in)
financing
activities...... $ (3,512) $ 11,657 $ 30,535
RESULTS OF
OPERATIONS:
Revenue.......... 100% 100% 100%
Costs and
expenses:
Commissions,
fees and other
incentives..... 52.2 50.4 47.8
Operating,
administrative
and other...... 38.1 42.1 45.1
Merger related
and other non-
recurring
charges........ -- -- --
Depreciation and
amortization... 1.9 2.3 3.0
--------- --------- ---------
Operating income. 7.8 5.2 4.1
Interest income.. 0.3 0.5 0.4
Interest expense. 2.6 2.8 2.5
--------- --------- ---------
Income (loss)
before provision
(benefit) for
income tax...... 5.5 2.9 2.0
Provision for
income tax...... 2.4 1.2 0.9
Reduction of
valuation
allowances...... -- -- --
--------- --------- ---------
Net provision
(benefit) for
income tax...... 2.4 1.2 0.9
Income (loss)
before
extraordinary
items........... 3.1 1.7 1.1
Extraordinary
items, net...... -- -- --
--------- --------- ---------
Net income
(loss).......... 3.1% 1.7% 1.1%
========= ========= =========
</TABLE>

S-34
<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk consists of fluctuations on interest
rates on debt obligations, changes in the value of certain investments and
foreign currency fluctuations related to certain foreign investments.
Following the REI acquisition, the Company will have currency exposure related
to its operations in approximately 30 countries. The Company currently manages
its interest rate risk by maintaining a large portion of its debt in floating
rate instruments. The market risk related to the Company's domestic
investments, which primarily consist of investments in investment fund limited
partnerships where the Company acts as the investment manager, is minimized
under the arrangements whereby the Company's capital funding obligations for
its investments are tied to the future operations of the funds. Although the
Company had certain foreign investments at December 31, 1997, these
investments and the related foreign currency risk, are not material to the
Company's consolidated financial statements. As a result of its overall market
risk exposure based on the current operations, as discussed above, the Company
does not engage in activities using derivative instruments that would be
considered material.

The majority of the Company's interest rates on debt obligations are
variable. Interest rates range between zero and 12.0% at December 31, 1997
which reflect fixed margins of 1.0% to 3.5% over LIBOR, short-term commercial
paper borrowing rate and other indices as applicable.

The table below represents annual aggregate maturities of long-term debt as
of December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
COMMERCIAL
YEAR OF FIXED LIBOR PAPER BORROWING GRAND
MATURITY RATE PLUS 1.0% RATE PLUS 3.5% TOTAL
-------- ------- --------- --------------- --------
<S> <C> <C> <C> <C>
1998............................ $ 4,949 $ -- $ -- $ 4,949
1999............................ 1,305 -- 7,470 8,775
2000............................ -- -- -- --
2001............................ -- -- -- --
2002............................ -- 120,000 -- 120,000
Thereafter...................... 17,329 -- -- 17,329
------- -------- ------ --------
Total......................... $23,583 $120,000 $7,470 $151,053
======= ======== ====== ========
Average Interest Rate........... 10.72% 6.78% 9.08% 7.51%
======= ======== ====== ========
</TABLE>

The Company will have additional maturities of long-term debt in 1999, 2000
and 2001 to the extent the outstanding balance at the time on the Amended
Revolving Credit Facility exceeds $360 million, $280 million and/or
$200 million, respectively. Estimated fair values for these liabilities are
not presented because the Company believes that they are not materially
different from book value, primarily because the majority of the Company's
debt is based on variable rates. Due to such immateriality, the Company does
not consider it practicable to incur the excessive costs to engage an
investment banker to perform a fair value analysis of these liabilities.

S-35
<PAGE>

BUSINESS

COMPANY OVERVIEW

The Company's business was founded under the name Tucker, Lynch & Coldwell
by Colbert Coldwell in San Francisco in 1906 as a commercial real estate
brokerage firm. The firm was renamed Coldwell, Cornwall & Banker in 1913,
became Coldwell, Banker & Company in 1940 and was acquired by Sears, Roebuck &
Co. ("Sears") in 1981. In March 1989, the Company was organized to acquire
Coldwell Banker Commercial Group, Inc. from Sears. The acquisition was
completed on April 19, 1989. In November 1996, the Company completed an
initial public offering of 4,347,000 shares of Common Stock. The Company is a
holding company that conducts its operations solely through its subsidiaries,
CB Richard Ellis, Inc., CB Commercial Limited (the United Kingdom holding
company for the various Richard Ellis companies), L.J. Melody and Westmark.

The Company is the largest vertically-integrated commercial real estate
services company in the United States with aggregate 1997 revenue of $730.2
million, over 130 principal offices in the United States and over 200 offices
worldwide, following the acquisition of REI. The Company provides a full range
of services to commercial real estate tenants, owners and investors, including
Brokerage Services, Corporate Services, Institutional Management Services and
Financial Services.

BUSINESS STRATEGIES

Capitalize and Expand Upon Domestic Geographic Service Network. The Company
intends to capitalize on its domestic presence to service domestic commercial
real estate portfolios as the ownership of commercial real estate becomes
increasingly institutional. In addition, the Company expects to consider
acquisitions of leading real estate firms in domestic markets in which it is
not currently one of the top three firms or in which it has identified the
need to strengthen its competitive position. The Company believes that its
geographic diversity helps to protect it from softening business fundamentals
in any one region or market.

Capitalize on Cross-Border Activity and Increasing International
Presence. The Company provides a full range of commercial real estate services
worldwide (excluding the United Kingdom) under the name CB Richard Ellis. The
Richard Ellis name is one of the most widely recognized and respected names
internationally in the real estate services industry. The acquisition of REI
and renaming of the combined global operation (see "Recent Developments"
below), positions the Company to provide existing domestic clients with access
to a common "umbrella" of services and local expertise worldwide. The
acquisition also positions the Company to provide expanded domestic services
to REI's international clients. The Company plans to make selected
acquisitions or enter into strategic partnerships internationally in other
operating segments to further strengthen its cross-selling of services.

Take Advantage of the Corporate Outsourcing Trend. Large corporations
seeking to focus on core businesses and reduce operating costs are looking
increasingly to outsource their real estate needs to multi-discipline,
integrated national and international real estate service providers. By
relying on a single integrated provider for all their real estate-related
needs, corporations are able to reduce expenses while taking advantage

S-36
<PAGE>

of the Company's real estate expertise. This outsourcing trend has accelerated
in recent years, and the Company believes that it will continue in the future.
The Company intends to continue to market its ability to be a cost-effective
alternative provider of corporate services to new clients and existing clients
which use the Company's other services. The Company is one of the major
participants in this segment of the real estate services industry and believes
that only a small percentage of the market has been penetrated. As a result,
the Company believes this trend provides the Company with attractive growth
opportunities.

Increase Employee Productivity. The Company intends to remain focused on the
enhancement of revenues and profit margins through the delivery of services to
its clients efficiently and cost-effectively. To improve employee
productivity, the Company invests in information technology and in the
professional education of both its management and revenue-producing
professionals through its local training programs and through centralized
programs at "CB University." Through previously made and continuing
investments in information technology and professional education, the Company
believes it is well positioned to increase employee productivity.

COMPETITIVE STRENGTHS

Comprehensive Range of Services. The Company is a leading provider of multi-
discipline, integrated commercial real estate services. Through internal
growth and strategic acquisitions, the Company has developed a comprehensive
worldwide range of high quality, "one-stop shopping" services which enables it
to differentiate itself and attract business through the cross-selling of
services and the provision of business referrals to other operating parts of
its business. The Company's ability to cross market a comprehensive range of
services to customers has benefitted from the Company's strong brand name
recognition and has helped it to build relationships with customers, and
remain a market leader in its primary business segments.

Geographically Diverse Service Network. The Company operates over 130
offices in the United States and 200 offices worldwide, following the
acquisition of REI. Through the "CB Commercial/Partners" program, the Company
has successfully extended its U.S. network through established relationships
with leading local brokerage firms in secondary U.S. markets in which it did
not have a market presence. The Company's broad presence in the United States
enables it to service nationwide real estate portfolios, a service which has
become increasingly important as the ownership of commercial real estate has
become more institutional. The Company believes its acquisition of REI will
solidify the Company's international presence in corporate services and major
investment property activities. The Company believes its U.S. and
international businesses should help to protect it from a softening in
business fundamentals in any one region or market.

Communications Systems. The Company has made, or is in the process of
making, significant investments in state-of-the-art computer and
telecommunication systems. Each of the Company's domestic offices is connected
directly to the Company's wide area network, providing real-time access to the
Company's centralized databases, market research, software applications, and
electronic communications systems. The Company's local professionals have the
ability to receive up to the moment market information as well as the ability
to identify and cross market business opportunities. In addition, the breadth
of coverage of these systems makes the Company an attractive partner to local
firms who are looking to tap these resources for their own needs, thereby
increasing the Company's access to local market information.

Strong Market Research. CB Commercial/Torto Wheaton Research and CB Richard
Ellis' National Real Estate Index provide comprehensive real estate market
data services to clients such as research and modeling as well as in-depth
analysis of markets and property types, detailed market forecasting, and
commentary. These value-added services enable the Company to develop a closer
relationship with its clients by aiding them in identifying and evaluating
business and market opportunities. In addition, the Company's access to market
data

S-37
<PAGE>

from its research unit helps it to identify and evaluate business and market
opportunities as well as conduct its real estate services business.

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 name recognition 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 a number of
major U.S. real estate markets where the Company has operations, including
Arizona, California, 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 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.

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
acquisition of REI provides access to European, South American and Asian
companies interested in outsourcing and provides a global network to service
companies throughout the world in the outsourcing process. With the completion
of the REI acquisition, the Company, through an owned or partially owned group
of businesses, serves all significant commercial real estate areas in the
world except the United Kingdom.

S-38
<PAGE>

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. 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 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. The Company
currently services mortgage loan portfolios in excess of $10.9 billion.

ACQUISITIONS

As part of its growth strategy, the Company is continually assessing
acquisition opportunities. Currently, the Company expects to focus its
acquisition program on mortgage banking, domestic brokerage and property
management businesses, as well as on acquisitions that enhance the Company's
international capabilities. The Company is currently involved in negotiating
potential acquisitions in a number of countries, but no agreement has been
reached on material terms in any of these acquisitions. Based upon what the
Company has offered, if all of these acquisitions were to close, the cost to
the Company would exceed $150.0 million. The Company expects to fund the cash
portion of these purchase prices with borrowings under its Amended Revolving
Credit Facility. As of May 5, 1998, the Company had executed one nonbinding
letter of intent with respect to one of such acquisitions. Pursuant to such
letter of intent, the Company and the other parties thereto have agreed to
negotiate exclusively the terms and conditions of definitive acquisition
agreements. There can be no assurance the Company will successfully complete
all or any of such acquisitions, or what the consequences of such acquisitions
will be.

Since 1995, the Company has completed four strategic acquisitions and three
tactical acquisitions. In 1995, the Company acquired Westmark, an investment
management and advisory business with approximately $3.9 billion of assets
currently under management. In 1996, the Company acquired L. J. Melody, a
nationally-known mortgage banking firm. In August 1997, the Company acquired
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. The Company, through L. J.
Melody, acquired Cauble and Company for approximately $2.2 million and
substantially all of the assets of North Coast Mortgage Company for
approximately $3.3 million, both in February 1998, and Shoptaw-James for
approximately $9.0 million in May, 1998, all regional mortgage banking firms.

On April 17, 1998, the Company purchased all of the outstanding shares of
REI, an international commercial real estate services firm operating under the
name Richard Ellis in major commercial real estate markets worldwide
(excluding the United Kingdom.) The purchase price for REI was $103.0 million,
of which approximately $52.7 million was paid in cash and notes and
approximately $50.3 million was paid in shares of the Company's Common Stock.

S-39
<PAGE>

THE COMPANY'S BUSINESSES

Brokerage Services

The Company provides commercial real estate brokerage services, representing
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. Brokerage Services revenue totaled
approximately $423.5 million for the year ended December 31, 1997,
representing approximately 21,000 completed transactions, including over 3,000
sale transactions with an aggregate total consideration of approximately
$3.8 billion and approximately 18,000 lease transactions involving aggregate
rents, during the terms of the leases facilitated, of approximately $10.0
billion. Brokerage Services provides a foundation for growing the Company's
other real estate services through access to opportunities and deal-flow based
market data. The Company believes that its leading position in the brokerage
services industry provides a competitive advantage for its other lines of
business by enabling them to leverage off Brokerage Services' (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 name recognition.

Operations. As of March 31, 1998, the Company employed approximately 1,700
brokerage professionals in offices located in most of the largest MSAs in the
United States. The Company maintains a decentralized approach to brokerage
services, bringing significant local knowledge and expertise to each
assignment. Each local office draws upon the broad range of support services
provided by the Company's other business groups, including a national network
of market research, mortgage originations, client relationships and
transaction referrals which the Company believes provide it with significant
economies of scale over many local competitors. While day-to-day operations
are decentralized, accounting and financial functions are fully centralized.

In order to increase market share in secondary U.S. markets, the Company has
implemented a plan to establish "partnerships" with leading local firms in
those markets 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 20 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 and approximately $4.8 million in cash to a
partnership and Whittier Partners, a prominent New England real estate
services firm, did likewise. The Company and Whittier Partners each owns 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.

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<PAGE>

Corporate Services

The Company provides Corporate Services to major corporations around the
world. Corporate Services includes assisting major corporations worldwide with
the development and execution of multiple-market real estate strategies and
facilities management services. The Company strives to establish long-term
relationships with corporations that require continuity in the delivery of
high-quality, multi-market (including international) management services and
strategic advisory services including acquisition, disposition and consulting
services. Global competition, the focus on quality, "right-sizing" of
corporate organizations and changes in management philosophy have all
contributed to an increased interest in and reliance on outside third-party
real estate service providers. Specifically, through contractual
relationships, the Company assists major, multi-market companies in developing
and executing real estate strategies as well as addressing specific occupancy
and facilities management objectives. Corporate Services coordinates the
utilization of all the Company's various disciplines to deliver an integrated
service to its clients, thereby expanding and supporting the functions
provided by a client's 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. The
Company had approximately 80 million square feet under facilities management
as of March 31, 1998.

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 employees providing direct services for the property (whether or not
the employee is on site), 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

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<PAGE>

improvements and has begun a program to provide various goods (copiers,
supplies, etc.) and services (human resources, telephones, etc.) to the
approximately 30,000 tenants in the buildings which it manages. The Company
works closely with its clients to implement their specific goals and
objectives, focusing on the enhancement of property values through
maximization of cash flow. The Company markets its services primarily to long-
term institutional owners of large commercial real estate assets. The Company
currently manages approximately 204 million square feet of commercial space.

Operations. As of March 31, 1998 the Company had approximately 1,600
institutional management services employees. 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 property management professionals are extensively trained
and are encouraged to continue their education through both Company-sponsored
and outside training. The Company provides each local office with centralized
corporate resources including investments in computer software and hardware as
described below under the caption "Information Technology." Property
management personnel utilize state-of-the-art computer systems for accounting,
marketing, and maintenance management.

Compensation. Under a typical property management agreement, the Company
will be entitled to receive management fees and lease commissions. The
management fee in most cases is based upon a formula which gives the Company
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 commercial mortgage origination and mortgage loan
servicing through L. J. Melody, which was acquired in July 1996 and is based
in Houston, Texas. For the year ended December 31, 1997, the Company
originated approximately $3.5 billion of commercial mortgages, approximately
37.2% of which were originated through special conduit arrangements with
affiliates of Merrill Lynch, Citicorp, NationsBank, Heller Financial and
Deutsche Morgan Grenfell. 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. Pursuant to these special
arrangements, the Company generally services the loans it originates. In
addition, the Company originates mortgages into other conduit programs where
it does not retain the right to service such loans. The Company originates and
services loans for Federal Home Loan Mortgage Corp. (Freddie Mac). The Company
is also a major mortgage originator for insurance companies, having originated
approximately $1.6 billion of mortgages in the names of insurance companies in
1997. The Company has correspondent

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<PAGE>

arrangements with various life insurance companies and pension funds which
entitle it to service the mortgage loans it originates. The Company currently
services mortgage loan portfolios in excess of $10.9 billion. The Company is
continually assessing new business opportunities, including the possible
sponsorship of a mortgage REIT. If formed, the Company expects that any
indebtedness incurred by such REIT would be non-recourse to the Company, but
that the Company could be required to make a substantial equity investment in
the REIT.

Operations. As of March 31, 1998 the Company employed approximately 55
mortgage banking professionals in approximately 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 February 1998, L. J. Melody acquired Cauble and Company for
approximately $2.2 million and substantially all of the assets of North Coast
Mortgage for approximately $3.3 million, and in May 1998, L.J. Melody acquired
Shoptaw-James for approximately $9.0 million, all regional mortgage banking
firms. These acquisitions give the Company a stronger presence in the
Southeast (North Carolina and South Carolina), Northwest (Washington and
Oregon) and Southern (Georgia, Florida, North Carolina and Tennessee) 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 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, the Company has provided sophisticated strategic planning for,
and execution of, acquisitions and sales of income-producing properties for
its clients, including approximately 1,240 investment property transactions
with an aggregate value of over $9.4 billion in 1997. The Company strives to
ensure that clients disposing of properties receive the maximum value for such
properties 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 completed comparable transactions,
real estate market trends, and pricing data, (ii) assisting with valuation and
buyer identification, and (iii) designing the appropriate marketing strategy
to target probable buyers or buyer categories. Access to the same sources of
information provides each prospective investor with a competitive advantage by
enabling the Company's professionals to identify the geographic areas and
specific properties which are most suitable for the investor and to advise the
investor in negotiations and due diligence. REI's operations around the globe
had investment property transactions with an aggregate value of over $1.0
billion in 1997 and the Company believes that the combination of the two
investment property platforms will create a significant global competitive
advantage for its professionals.

Operations. As of March 31, 1998, the Company employed approximately 300
investment properties professionals who exclusively handle acquisitions and
sales of investment properties and are located in approximately 37 offices in
the United States.

A team of professionals with expertise within a given market and property
type is assembled for each investment properties assignment to best accomplish
the client's objectives. As necessary, the team may also include professionals
from the Company's other disciplines. On larger and more complex assignments,
the Company's financial consulting professionals provide sophisticated
financial and analytical resources to the

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<PAGE>

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 Products

The investment management and product development activities of the Company
are divided into two parts (i) Westmark and (ii) CB Richard Ellis Global
Capital Markets. Westmark continues to focus on providing advisory services to
the pension fund community while CB Richard Ellis Global Capital Markets
focuses on the development of investment products to serve non-pension fund
investors and co-investment opportunities, although some of its products are
also marketed to pension funds.

Operations. Westmark manages approximately $3.9 billion in tax-exempt
capital invested in more than 243 office, industrial and retail properties
located in more than 40 major U.S. markets with an aggregate of more than 40
million square feet. Westmark's headquarters are located in Los Angeles and it
maintains regional offices in Boston, Dallas, New York City and Washington,
D.C. Westmark 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 opportunities.

CB Richard Ellis Global Capital Markets is focused on developing investment
products to serve non-pension fund investors and co-investment opportunities.
In 1996, CB Richard Ellis Global Capital Markets formed a relationship with
Alliance Capital Management to provide information and marketing assistance
with respect to REIT securities for retail and institutional clients. The
Alliance REIT fund, utilizing the Company's proprietary research tools,
currently manages approximately $819.0 million in assets. CB Richard Ellis
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.

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CB Richard Ellis Global Capital Markets' fees for managing investments will
vary depending on product type. For the REIT investment business, CB Richard
Ellis 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
approximately 90 professionals, approximately 50% of whom hold the
MAI professional designation. The business is operated in the United States
through 25 regional offices, servicing 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 a substantive,
academically credible staff in Boston, Massachusetts employed by CB
Commercial/Torto Wheaton Research. Real estate market research services are
provided to the Company's other businesses and 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. CB Richard Ellis' National Real Estate Index also compiles
proprietary market research for nearly 50 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
approximately 140 of the largest REITs.

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. In 1997, after terminating
discussions with its alliance partners, the Company began discussions with REI
and closed the purchase of REI effective April 17, 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.

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<PAGE>

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 approximately 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 Richard
Ellis Web Site has also given clients direct access through the CB Richard
Ellis 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 appropriately interpret the
upcoming calendar year "2000" and beyond. In addition, the ability of third
parties with whom the Company transacts business ("Third Parties") to address
their "Year 2000" issues adequately is outside of the Company's control. 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. The Company, like many
other companies, is expected to incur expenditures over this time to address
this issue, and costs related to Year 2000 compliance will be expensed as
incurred. Total costs are not expected to have a material impact on
operations. No assurance can be given, however, that the Company can meet
these schedules, that all of the Company's or Third Parties' systems will be
Year 2000 compliant or that compliance costs or the impact of the Company's or
Third Parties' failure to achieve substantial Year 2000 compliance will not
have a material adverse effect on the Company's future liquidity or results of
operations.

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.

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<PAGE>

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 March 31, 1998, the Company had approximately 6,800 employees. All of
the Company's U.S. and key international 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.

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 March 31, 1998. 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 approximately 6,800 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 what is called a "Reserve Account" to be used
whenever a claim of professional liability is asserted. A portion of the
reserve account is an unfunded liability of the Company and a portion is fully
funded through a captive insurance company. In addition, each sales
professional contractually agrees to be responsible for a portion of any
amount paid to defend or settle a claim against that professional or for any
resulting judgment.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James J. Didion(3)(4)............ 58 Chairman of the Board and Chief Executive
Officer
Gary J. Beban(4)................. 51 President--Corporate Services/Director
John C. Haeckel(5)............... 39 Chief Financial Officer and Senior
Executive Vice President
Thaddeus W. Jones................ 55 Senior Executive Vice President
George J. Kallis................. 54 Senior Executive Vice President--Brokerage
Northern California/Director
Lawrence J. Melody............... 59 President--L.J. Melody & Company/Director
Ronald J. Platisha............... 51 Executive Vice President and Principal
Accounting Officer
William S. Rothe................. 52 Senior Executive Vice President
Walter V. Stafford(5)............ 57 Senior Executive Vice President and
General Counsel
Jana L. Turner................... 42 President--Institutional Management
Services
Ray Elizabeth Uttenhove.......... 50 Senior Vice President/Director
W. Brett White(5)................ 38 President--Brokerage Services
Raymond E. Wirta(4).............. 54 Chief Operating Officer and President--
Financial Services/Director
Stanton D. Anderson(2)(6)........ 57 Director
Richard C. Blum(1)(2)(3)......... 62 Director
Daniel A. D'Aniello(2)........... 50 Director
Bradford M. Freeman(1)(3)........ 56 Director
Donald M. Koll(1)................ 64 Director
Hiroaki Hoshino.................. 55 Director
Takayuki Kohri................... 45 Director
Ricardo Koenigsberger............ 31 Director
Paul C. Leach(2)(6).............. 52 Director
Frederic V. Malek(1)(3)(6)....... 61 Director
Peter V. Ueberroth(1)(3)......... 60 Director
Gary L. Wilson(1)(3)............. 58 Director
</TABLE>
- --------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
(3) Member of Acquisition/Investment Committee of the Board of Directors
(4) Member of the Executive Committee
(5) Non-Voting Member of the Executive Committee
(6) Member of Corporate Governance Committee of the Board of Directors

James J. Didion. Mr. Didion has been Chairman and Chief Executive Officer of
the Company since January 1987 and a Director since the Company's
incorporation. Previously, he served as President of the Company following a
career of almost 24 years in sales and management positions in the commercial
brokerage operations of the Company. Mr. Didion is a member and current
trustee of the Urban Land Institute. He is also a member of the National
Realty Committee and was Chairman of the National Realty Committee from 1993
through June 1996. Mr. Didion holds an A.B. degree from the University of
California, Berkeley and serves on the University's Advisory Board for the
Haas School of Business.

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<PAGE>

Gary J. Beban. Mr. Beban has been President--Corporate Services since 1997
and a Director since 1989. He joined the Company's Los Angeles office in 1970
as an industrial and investment properties specialist and thereafter served in
several management positions in Chicago. Mr. Beban was President of CB
Commercial Brokerage Services from 1987 until August 1997. He is a member of
the Industrial Development Research Council and the National Realty Committee.
Mr. Beban serves on the Board of Directors of The First American Financial
Corporation and its wholly-owned subsidiary, First American Title Insurance,
Inc. Mr. Beban holds a B.A. degree from the University of California, Los
Angeles.

John C. Haeckel. On April 1, 1997, Mr. Haeckel, joined the Company as Chief
Financial Officer and Senior Executive Vice President. From January 1996 to
March 1997, Mr. Haeckel was President of Perdix Group, LLC, a management
consulting firm that he founded. From October 1993 to November 1995, he was
Chief Financial Officer and from April 1994 to November 1995 he was Executive
Vice President of Broadway Stores, Inc. From 1987 to 1994 he was a General
Partner and from 1984 to 1986 he was an Associate with Chilmark Partners, a
merchant banking firm. Mr. Haeckel holds a B.A. degree and a Masters of
Business and Public Management degree from Rice University.

Thaddeus W. Jones. Mr. Jones has been Senior Executive Vice President of the
Company since 1994. Mr. Jones served as Senior Executive Director--CBC/Madison
Advisory Group from April 1994 to April 1997, after having served as Executive
Director of CBC/Madison-Advisory Group from 1992 to April 1994. From 1986 to
1992 Mr. Jones was President of CB Commercial Realty Advisors and from 1984 to
1986 he was a Senior Vice President, after having served in various management
positions in the Company's brokerage business. Mr. Jones rejoined CB
Commercial in 1982 after leaving in 1979. Mr. Jones holds a B.S. degree from
the University of California, Los Angeles.

George J. Kallis. Mr. Kallis has been the Company's Senior Executive Vice
President--Brokerage Northern California since 1997 and a Director of the
Company since 1995. Prior to that time, he served as Senior Executive Vice
President--Brokerage Western U.S. from 1992 to 1997, as Executive Vice
President from 1991 to 1992 and as Senior Vice President and Regional
Manager--Brokerage from 1988 to 1991. Mr. Kallis joined the Company in 1977.
Mr. Kallis is a member of the International Council of Shopping Centers and
the Urban Land Institute and is on the Board of Directors of the Los Angeles
County Economic Development Council. Mr. Kallis holds a B.S. degree in
Business Administration from the University of Maryland.

Lawrence J. Melody. Mr. Melody has served as a Director since August 1996.
He is also President of L.J. Melody & Company which he founded in February
1978. He is a member of the International Council of Shopping Centers, the
Urban Land Institute (a member of the Multifamily Council), the Pension Real
Estate Association, the National Association of Industrial and Office Parks,
the National Multi Housing Council, as well as other professional
organizations. He is a member of Board of Trustees of the Mortgage Bankers
Association of America and past President and Director of the Texas Mortgage
Bankers Association, who awarded him their Distinguished Service Award in
1995. Mr. Melody holds a B.A. degree from the University of Notre Dame.

Ronald J. Platisha. Mr. Platisha has been the Company's Executive Vice
President and Principal Accounting Officer since 1992. Mr. Platisha was
promoted to Senior Vice President in 1991, after serving as First Vice
President and Controller from 1982 to 1991. Mr. Platisha joined the Company in
1976. Mr. Platisha holds a B.S. degree from California State University, Long
Beach.

William S. Rothe. Mr. Rothe has been Senior Executive Vice President of the
Company since August 1997. Mr. Rothe was President of Koll Real Estate
Services from November 1994 to August 1997. He also served as Chief Operating
Officer of Koll Management Services, Inc. from May 1991 to August 1997, as
President of Koll Management Services, Inc. from May 1991 to November 1995, as
Chief Financial Officer of Koll Management Services, Inc. from December 1993
to April 1995 and as a director of Koll Management Services, Inc. from May
1991 to November 1994. From 1985 to 1991, Mr. Rothe held various management
positions with Koll Real Estate Services. Mr. Rothe is a Certified Property
Manager and holds a Bachelor of Arts Degree from Hanover College, a Master's
Degree in Business Economics from The Claremont Graduate School and a law
degree from the University of San Francisco.

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<PAGE>

Walter V. Stafford. Mr. Stafford has served as Senior Executive Vice
President and General Counsel of the Company since 1995. Mr. Stafford was a
partner at the law firm Pillsbury Madison & Sutro LLP from 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 B.A. from the
University of California, Berkeley and an L.L.B. degree from Boalt Hall.

Jana L. Turner. Ms. Turner has been the Company's President--Institutional
Management Services since February 1998, after service as Executive Vice
President and Manager of the Western Division of CB Commercial from August
1997 to February 1998. Prior to joining the Company in August 1997, Ms. Turner
was President--Pacific Southwest Region of Koll Real Estate Services and,
prior to joining Koll Real Estate Services in 1990, Ms. Turner was a Senior
Vice President of Leasing of IDM Corp. Ms. Turner is a Certified Property
Manager and a Certified Commercial Investment Member candidate and holds a
B.A. degree from Northern Arizona University.

Ray Elizabeth Uttenhove. Ms. Uttenhove has been a Director of the Company
since August 1997 and Senior Vice President of the Company since September
1997. Ms. Uttenhove also served as First Vice President of Retail Tenant
Services of the Company from August 1995 to September 1997. Ms. Uttenhove
joined the Company in March 1981. She has been named to the Company's Colbert
Coldwell Circle (representing the top three percent of the Company's sales
force) for 1995 and 1996. In 1995 she was awarded the William H. McCarthy
Award, the highest honor awarded producing professionals within the Company.
Ms. Uttenhove holds a B.A. degree from Mary Baldwin College and M.A. and M.
Ed. degrees from Georgia State University.

W. Brett White. Mr. White has been President-Brokerage Services since August
1997. Previously, he was Executive Vice President of CB Commercial from March
1994 to July 1997, and Managing Officer of the CB Commercial Newport Beach,
California office from 1992 to March 1994. Mr. White holds a B.A. degree from
the University of California, Santa Barbara.

Raymond E. Wirta. Mr. Wirta has been a Director and President--Financial
Services of the Company since August 1997 and Chief Operating Officer of the
Company since April 1998. Mr. Wirta was Chief Executive Officer of Koll Real
Estate Services from November 1994 to August 1997, and Chief Executive Officer
of Koll Management Services, Inc. from May 1991 to August 1997. He was also a
Director of Koll Real Estate Services from November 1994 to August 1997 and of
Koll Management Services, Inc. from June 1988 to August 1997. Prior to that
time, Mr. Wirta held various management positions with Koll Management
Services, Inc. since 1981. Mr. Wirta is a member of the Board of Directors and
served as Chief Executive Officer from June 1992 to November 1996 to Koll Real
Estate Group, Inc., which filed for Chapter 11 bankruptcy protection on July
14, 1997 with a reorganization plan preapproved by its bondholders. Mr. Wirta
is a Certified Property Manager and holds a B.A. degree from California State
University, Long Beach and an M.B.A. degree in International Management from
Golden Gate University.

Stanton D. Anderson. Mr. Anderson has been a Director of the Company since
1989. In 1995, he became counsel to the law firm of McDermott, Will & Emery
and became Partner of the firm in 1998. Prior to 1995, Mr. Anderson was a
founding partner in the law firm of Anderson, Hibey & Blair. He is also a
founder of Global USA, Inc. an international consulting company, where he
serves as Chairman and President. He served as Deputy Director of the
Republican Convention in 1980, 1984 and 1988, as counsel to the Reagan-Bush
Campaign in 1980 and as a Director of the 1980 Presidential Transition. Mr.
Anderson serves on the Board of Directors of International Management &
Development Group, Ltd. Mr. Anderson holds a B.A. degree from Westmont College
and a J.D. degree from Willamette University School of Law.

Richard C. Blum. Mr. Blum has been a Director of the Company since 1993. He
is the Chairman and President of Richard C. Blum & Associates, Inc., a
merchant banking firm he founded in 1975. Mr. Blum is a member of the Board of
Directors of Northwest Airlines Corporation; Glenborough Realty and URS
Corporation. Mr. Blum also serves as Vice Chairman of URS Corporation. Mr.
Blum holds a B.A. from the University of California, Berkeley, a graduate
degree from the University of Vienna and an M.B.A. degree from the University
of California, Berkeley.

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Daniel A. D'Aniello. Mr. D'Aniello has been a Director of the Company since
1989. He has served as Managing Director of The Carlyle Group, a merchant
banking firm since May 1987. From August 1986 through April 1987, Mr.
D'Aniello was Vice President--Finance and Development of Marriott Inflite
Services, Inc., a subsidiary of Marriott Corp. Mr. D'Aniello is a member of
the Board of Directors of GTS Duratek, Inc., International Technology
Corporation and Carlyle Investment Management, Inc. Mr. D'Aniello holds a B.S.
degree from Syracuse University and an M.B.A. from the Harvard University
Graduate School of Business.

Bradford M. Freeman. Mr. Freeman has been a Director of the Company since
August 1997. Mr. Freeman was a director of Koll Real Estate Services and Koll
Management Services, Inc. from November 1994 to August 1997. Mr. Freeman is a
founding partner of Freeman Spogli & Co. Incorporated, a private investment
company, and its affiliated investment partnerships or companies, 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 B.A. degree from Stanford University and an M.B.A. degree from Harvard
University.

Donald M. Koll. Mr. Koll has been a Director of the Company since August
1997. Mr. Koll was a director of Koll Real Estate Services from November 1994
to August 1997 and Chairman from August 1996 to August 1997. He also served as
Chairman and as a director of Koll Management Services, Inc. from June 1988 to
August 1997, and served as the Chief Executive Officer of Koll Management
Services, Inc. from June 1988 to May 1991. Mr. Koll founded The Koll Company
in 1962 and has served as Chairman and Chief Executive Officer of The Koll
Company since that time. Since June 1992, Mr. Koll has been a director and has
served as an executive officer of Koll Real Estate Group, Inc., a real estate
services company, which filed for Chapter 11 bankruptcy protection on July 14,
1997 with a reorganization plan preapproved by its bondholders. Mr. Koll is
also a director of The Irvine Company and Fidelity National Financial, Inc., a
title company. He holds a B.A. degree from Stanford University.

Hiroaki Hoshino. Mr. Hoshino has been a Director of the Company since 1992.
He has served as President, Chief Executive Officer and Chief Financial
Officer of Kajima Capital of America, Inc. since April 1996, President and
Chief Executive Officer of Kajima International, Inc. since June 1997, and as
Chief Operating Officer and Executive Vice President of Kajima U.S.A., Inc.
from June 1997. From September 1992 to April 1996, he was Executive Vice
President, Chief Financial Officer and Director of Kajima Capital of America,
Inc. 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 1991 to March 1990. From April 1991 to March 1993, he served as
Executive Vice President and Chief Financial Officer of Kajima International
Inc. From April 1991 to March 1993 he has served as the Chief Financial
Officer and from April 1993 to May 1997 he served as Executive Vice President
and Chief Financial Officer of Kajima U.S.A., Inc. Mr. Hoshino holds a B.A.
degree from Gakushuin University.

Takayuki Kohri. Mr. Kohri has been a Director of the Company since 1989. Mr.
Kohri has been the Deputy Manager of Sumitomo Real Estate Sales, Japan, a real
estate sales and development firm, since July 1993. Previously, he was
Executive Vice President of Sumitomo Real Estate Sales L.A., Inc. from August
1988 to July 1993. Mr. Kohri holds a B.A. degree in Economics from Keio
University.

Ricardo Koenigsberger. Mr. Koenigsberger has been a Director of the Company
since August 1997. He 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 1990, 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 investment funds. Mr. Koenigsberger is a director
of Meadowbrook Golf, Inc., Atlantic Gulf Communities Corporation and Western
Pacific Housing, Inc.

Paul C. Leach. Mr. Leach has been a Director of the Company since August
1996. Since its founding in 1991, Mr. Leach has served as president of Paul
Leach & Company, a private investment banking firm in San

S-51
<PAGE>

Francisco which specializes in international and domestic acquisitions and
investments. He has also been Managing Director of The Lone Cypress Company,
the owner of Pebble Beach Company, since 1992. From 1988 through 1991, Mr.
Leach was a senior manager and partner in the international merger and
acquisition group at Deloitte & Touche. Prior to 1988, he held several
positions in San Francisco, including serving as a partner with both Osterweis
Capital Management and Centennial Petroleum Company and manager of corporate
development for Natomas Company. From 1975 through 1977, Mr. Leach served as
associate director of the Domestic Council Staff at the White House during the
Ford Administration. Mr. Leach holds an A.B. degree from Dartmouth College and
M.B.A. and J.D. degrees from Stanford Graduate School of Business and Stanford
Law School, respectively.

Frederic V. Malek. Mr. Malek has been a Director of the Company since 1989.
He has served as Chairman of Thayer Capital Partners, a merchant banking firm
he founded since 1993. He was President of Marriott Hotels and Resorts from
1981 through 1988 and was Executive Vice President of Marriott Corp. from 1978
through 1988. He was Senior Advisor to The Carlyle Group, a merchant banking
firm, from November 1988 through December 1991. From September 1989 through
June 1990, he was President of Northwest Airlines and from June 1990 until
December 1991 he served as Vice Chairman of Northwest Airlines. From December
1991 through November 1992, Mr. Malek served as Campaign Manager for the 1992
Bush/Quayle presidential 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.; Northwest
Airlines Corporation; Paine Webber Funds, and Sunburst Hospitality Corp. Mr.
Malek holds a B.S. degree from the United States Military Academy at West
Point and an M.B.A. degree from the Harvard University Graduate School of
Business.

Peter V. Ueberroth. Mr. Ueberroth has been a Director of the Company since
1989. Since 1989, he has been an investor and Managing Director of Contrarian
Group, Inc., a business management company. From 1984 through 1989, he was the
Commissioner of Major League Baseball in the United States. Mr. Ueberroth is a
member of the Board of Directors of The Coca Cola Company; Ambassadors
International, Inc.; Promus Hotel Corporation; and Transamerica Corporation.

Gary L. Wilson. Mr. Wilson has been a Director of the Company since 1989.
Since April 1997 Mr. Wilson has been Chairman of Northwest Airlines
Corporation for which he served as Co-Chairman from January 1991 to April
1997. From 1985 until January 1990, Mr. Wilson was an Executive Vice President
and Chief Financial Officer and Director for The Walt Disney Company and
remains a Director of The Walt Disney Company. Mr. Wilson also serves on the
Board of Directors of On Command Corporation and Veritas Holdings GmbH. From
1974 until 1985, he was Executive Vice President and Chief Financial Officer
of Marriott Corporation. Mr. Wilson holds a B.A. degree from Duke University
and an M.B.A. from the Wharton Graduate School of Business and Commerce at the
University of Pennsylvania.

The terms as directors for Messrs. D'Aniello, Kallis, Koenigsberger,
Hoshiro, Kohri and Melody will expire at the next annual meeting of
stockholders, which is scheduled to be held on May 19, 1998.

All directors are elected to hold office until the next annual meeting of
stockholders of the Company and until their successors have been elected.
Officers serve at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive officers of the
Company.

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<PAGE>

DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS

REVOLVING CREDIT FACILITY

The Company has received a commitment letter from Bank of America NT&SA
dated April 2, 1998 to increase the amount available under the Revolving
Credit Facility from $300.0 million to $400.0 million, subject to completion
of the Offering. The Revolving Credit Facility is included in senior term
loans in the accompanying balance sheet. The Amended Revolving Credit Facility
will be subject to mandatory commitment reductions of $40 million, $80 million
and $80 million on December 31 of the years 1999, 2000 and 2001, respectively.
In the event that on any date the Company's loan commitment obligations exceed
the combined commitments in effect on such date after giving effect to the
mandatory reductions, the Company must, on such date, make mandatory repayment
of the loans in a principal amount equal to such excess. Payment in full of
all outstanding amounts under the credit facility must be no later than June
30, 2003. As of March 31, 1998, after giving pro forma effect to the
acquisition of REI, the Offering and the application of the net proceeds
therefrom, the outstanding balance pursuant to various borrowings under the
Amended Revolving Credit Facility is expected to be approximately $110.0
million. The Amended Revolving Credit Facility will bear interest at a rate
based on the Company's election of either a LIBOR based rate or the higher of
the Bank of America's reference rate and the Federal Funds rate plus .5%. The
LIBOR based rate is equal to (a) LIBOR (7-day, one, two, three or six-month
rate, at the Company's option), divided by 1.00 minus the Eurodollar Reserve
Percentage plus (b) a percentage based on the Company's leverage ratio.

The Amended Revolving Credit Facility will contain numerous restrictive
covenants that, among other things, limit the Company's ability to incur or
repay other indebtedness, make advances or loans to subsidiaries and other
entities, make capital expenditures, incur liens, enter into mergers or effect
other fundamental corporate transactions, sell its assets, or declare
dividends. In addition, the Company is required to meet certain ratios
relating to its adjusted net worth, level of indebtedness, fixed charges and
interest coverage.

S-53
<PAGE>

DESCRIPTION OF THE NOTES

The Notes will be issued as a separate series of Debt Securities under an
Indenture to be dated as of May 26, 1998 (the "Original Indenture"), by and
between the Company and State Street Bank and Trust Company, as trustee (the
"Trustee") and a First Supplemental Indenture thereto to be dated as of May
26, 1998 (the "Supplemental Indenture") by and between the Company and the
Trustee (together with the Original Indenture, the "Indenture"). For purposes
of this section, references to the "Company" mean only CB Commercial Real
Estate Services Group, Inc. and not any of its subsidiaries. The terms of the
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and holders
of the Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the material provisions of the
Notes and the Indenture does not purport to be complete and is subject to, and
qualified by, reference to the provisions of the Indenture, including those
terms made part of the Indenture by reference to the Trust Indenture Act, as
in effect on the date of the Indenture. A copy of the form of Indenture has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Capitalized terms used but not defined herein shall have
the meanings given to them in the Prospectus, the Notes or the Indenture, as
the case may be, and certain terms used in the following summary are defined
below under "--Certain Definitions." The term "Indenture Debt Securities" as
used in this Prospectus Supplement refers to all Debt Securities, including
the Notes, issued and issuable from time to time under the Original Indenture,
as amended, supplemented or modified from time to time. The following
description of the particular terms of the Notes offered hereby supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of the Debt Securities set forth in the
Prospectus, to which description reference is hereby made.

GENERAL

The Notes will be general unsecured senior subordinated obligations of the
Company limited to $175,000,000 aggregate principal amount. The Notes will be
issued only in fully registered form without coupons, in denominations of
$1,000 and integral multiples thereof. Principal of, premium, if any, and
interest on the Notes are payable, and the Notes are exchangeable and
transferable, at the office or agency of the Company in The City of New York
maintained for such purposes (which initially will be the corporate trust
office of the Trustee); provided, however, that payment of interest may be
made at the option of the Company by check mailed to the Person entitled
thereto as shown on the security register. No service charge will be made for
any registration of transfer, exchange or redemption of the Notes, except in
certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith.

The Indenture provides that Indenture Debt Securities may be issued from
time to time in one or more series, without the consent of the holders of the
Notes. As of the date hereof, no Debt Securities were outstanding under the
Indenture.

MATURITY, INTEREST AND PRINCIPAL

The Notes will mature on June 1, 2006. Interest on the Notes will accrue at
the rate of 8 7/8% per annum and will be payable semi-annually on each June 1
and December 1, commencing December 1, 1998, to the holders of record of Notes
at the close of business on the May 15 and November 15, respectively,
immediately preceding such interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.

The amount of interest payable for any period shorter than a full semi-
annual period for which interest is computed will be computed on the basis of
the actual number of days elapsed per 30-day month. In the event that any date
on which principal, premium, if any, or interest is payable on the Notes is
not a Business Day, then payment of the principal, premium, if any, or
interest payable on such date will be made on the next succeeding day that is
a Business Day (and without any interest or other payment in respect of any
such delay).

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<PAGE>

OPTIONAL REDEMPTION

Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the date of
redemption, if redeemed during the 12-month period beginning on June 1 of the
years indicated below:

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002........................................................ 104.438%
2003........................................................ 102.958
2004........................................................ 101.479
2005 and thereafter......................................... 100.000%
</TABLE>

Optional Redemption upon Public Equity Offering. On or prior to June 1,
2001, the Company may, at its option, use the net proceeds of a Public Equity
Offering to redeem up to 35% of the originally issued aggregate principal
amount of the Notes, at a redemption price in cash equal to 108 7/8% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided, however, that at least $113.75 million in
aggregate principal amount of Notes is outstanding following such redemption.
Notice of any such redemption must be given not later than 30 days after the
consummation of the Public Equity Offering.

As used in the preceding paragraph, a "Public Equity Offering" means any
underwritten public offering of Capital Stock (other than Redeemable Capital
Stock) of the Company made on a primary basis by the Company pursuant to a
registration statement filed with and declared effective by the Commission in
accordance with the Securities Act.

Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of Notes for redemption shall be made by the
Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes
are not listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee will deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part. Notice of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder
of Notes to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note will
state the portion of the principal amount thereof to be redeemed. A new Note
in a principal amount equal to the unredeemed portion thereof will be issued
in the name of the holder thereof upon cancellation of the original Note. On
and after the redemption date, interest will cease to accrue on Notes or
portions thereof called for redemption so long as the Company has deposited
with the paying agent for the Notes funds in satisfaction of the applicable
redemption price pursuant to the Indenture.

CHANGE OF CONTROL

The Indenture will provide that, following the occurrence of a Change of
Control (the date of such occurrence being the "Change of Control Date"), the
Company will be obligated, within 20 business days after the Change of Control
Date, to make an offer to purchase (a "Change of Control Offer") all of the
then outstanding Notes at a purchase price (the "Change of Control Purchase
Price") in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the purchase date. The Company will be
required to purchase all Notes properly tendered into the Change of Control
Offer and not withdrawn.

In order to effect such Change of Control Offer, the Company will, not later
than the 20th business day after the Change of Control Date, be obligated to
mail to each holder of Notes notice of the Change of Control Offer, which
notice will govern the terms of the Change of Control Offer and will state,
among other things, the procedures that holders must follow to accept the
Change of Control Offer. The Change of Control Offer will be required to be
kept open for a period of at least 20 business days.

A Change of Control under the Indenture will constitute a "change of
control" and an "event of default" under the Amended Revolving Credit
Facility. If a Change of Control occurs there can be no assurance that the

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<PAGE>

Company would have available funds sufficient to repay amounts outstanding
under the Amended Revolving Credit Facility and pay the purchase price for all
of the Notes that might be tendered by holders of Notes seeking to accept the
Change of Control Offer. If the Company fails to repurchase all of the Notes
tendered for purchase, such failure will constitute an Event of Default under
the Indenture. See "--Subordination" and "--Events of Default" below.

The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other applicable securities laws or
regulations and any applicable requirements of any securities exchange on
which the Notes are listed, in connection with the repurchase of Notes
pursuant to a Change of Control Offer, and any violation of the provisions of
the Indenture relating to such Change of Control Offer occurring as a result
of such compliance shall not be deemed a Default.

SUBORDINATION

The Subordinated Obligations will be expressly subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Indebtedness of the Company, whether
outstanding at the Issue Date or incurred thereafter. The Indenture will
permit the Company and its Restricted Subsidiaries to incur additional
Indebtedness, including Senior Indebtedness. See "--Certain Covenants--
Limitation on Indebtedness."

The Indenture will provide that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company,
or any liquidation, dissolution or other winding-up of the Company, whether
voluntary or involuntary, or any assignment for the benefit of creditors or
other marshalling of assets or liabilities of the Company, all Senior
Indebtedness of the Company must be paid in full in cash or Cash Equivalents
before any payment, distribution, repurchase or redemption (excluding any
payment or distribution of, or repurchase or redemption in exchange for,
certain permitted equity or subordinated securities) is made on account of the
principal of, premium, if any, or interest on the Notes.

During the continuance of any default in the payment of any Senior
Indebtedness beyond any applicable grace period pursuant to which the maturity
thereof may immediately be accelerated, no payment or distribution of any
assets of the Company of any kind or character (excluding any payment or
distribution of certain permitted equity or subordinated securities) shall be
made on account of the Subordinated Obligations, or the purchase, redemption
or other acquisition of, the Notes unless and until such default has been
cured or waived or has ceased to exist or such Senior Indebtedness shall have
been discharged or paid in full.

During the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (a "Non-payment Default") and (x) after the receipt by the Trustee
from the representatives of such Designated Senior Indebtedness of a written
notice of such Non-payment Default or (y) if the Non-payment Default results
from the acceleration of the Notes, from the date of such acceleration, no
payment or distribution of any assets of the Company of any kind or character
(excluding any payment or distribution of certain permitted equity or
subordinated securities) shall be made by the Company on account of the
Subordinated Obligations, or the purchase, redemption or other acquisition of,
the Notes for the period specified below (the "Payment Blockage Period").

The Payment Blockage Period will commence upon (x) the receipt of notice of
a Non-payment Default by the Trustee from the representatives of holders of
Designated Senior Indebtedness or (y) if the Non-payment Default results from
the acceleration of the Notes, upon such acceleration, and will end on the
earliest to occur of the following events: (i) 179 days shall have elapsed (A)
since the receipt of such notice of Non-payment Default or (B) if the Non-
payment Default results from the acceleration of the Notes, since such
acceleration (in each case, provided that such Designated Senior Indebtedness
shall not theretofore have been accelerated and the Company has not defaulted
with respect to the payment of such Designated Senior Indebtedness), (ii) such
default is cured or waived or ceases to exist or such Designated Senior
Indebtedness is discharged or (iii) such

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<PAGE>

Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from the representatives of Designated Senior
Indebtedness initiating such Payment Blockage Period. After the end of any
Payment Blockage Period the Company shall promptly resume making any and all
required payments in respect of the Notes, including any missed payments.
Notwithstanding anything in the subordination provisions of the Indenture or
the Notes to the contrary, (x) in no event shall a Payment Blockage Period
extend beyond 179 days from the date such Payment Blockage Period was
commenced, and (y) there shall be a period of at least 186 consecutive days in
each 365-day period when no Payment Blockage period is in effect. A Non-
payment Default with respect to Designated Senior Indebtedness that existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period cannot be made the basis for the commencement of a second
Payment Blockage Period, whether or not within a period of 365 consecutive
days, unless such default has been cured or waived for a period of not less
than 90 consecutive days and subsequently recurs.

If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Notes to
accelerate the maturity thereof. See "--Events of Default."

By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes and funds which would be
otherwise payable to the holders of the Notes will be paid to the holders of
Senior Indebtedness to the extent necessary to pay the Senior Indebtedness in
full in cash or Cash Equivalents, and the Company may be unable to meet its
obligations fully with respect to the Notes.

The Company conducts all of its operations through its subsidiaries.
Accordingly, the Company's ability to meet its cash obligations may in part
depend upon the ability of such subsidiaries and any future subsidiaries to
make cash distributions to the Company. Furthermore, any right of the Company
to receive the assets of any such subsidiary upon such subsidiary's
liquidation or reorganization (and the consequent right of the Holders of the
Notes to participate in the distribution of the proceeds of those assets)
effectively will be subordinated by operation of law to the claims of such
subsidiary's creditors (including trade creditors) and holders of its
preferred stock, except to the extent that the Company is itself recognized as
a creditor or preferred stockholder of such subsidiary, in which case the
claims of the Company would still be subordinate to any indebtedness or
preferred stock of such subsidiary senior in right of payment to that held by
the Company. The Company's existing subsidiaries will not, and future
subsidiaries are not expected to, guarantee the Notes. As of March 31, 1998 on
a pro forma basis after giving effect to the acquisition of REI, the sale of
the Notes and the application of the proceeds therefrom, the Company and its
subsidiaries would have had outstanding an aggregate of $337.1 million of
Indebtedness (without duplication as to any obligation of any such party which
is a guarantor of Indebtedness (including Indebtedness under the Revolving
Credit Facility) owed primarily by another such party).

As of March 31, 1998 on a pro forma basis after giving effect to the
acquisition of REI, the sale of the Notes and the application of the net
proceeds therefrom, the Company would have had outstanding an aggregate of
$162.1 million of indebtedness outstanding which would have been senior or
structurally senior to in right of payments to the Notes. The Indenture
limits, but does not prohibit, the incurrence by the Company of additional
Indebtedness which is senior to the Notes, but prohibits the incurrence of any
Indebtedness contractually subordinated in right of payment to any other
Indebtedness of the Company and senior in right of payment to the Notes. See
"Risk Factors--Subordination of the Notes; Unsecured Status of Notes."

CERTAIN COVENANTS

The Indenture will provide that the covenants set forth herein will be
applicable to the Company and the Restricted Subsidiaries; provided, however,
that if no Default or Event of Default has occurred and is continuing, after
the ratings assigned to the Notes by both Rating Agencies are equal to or
higher than BBB- and Baa3, or

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the equivalents thereof, respectively (the "Investment Grade Ratings"), and
notwithstanding that the Notes may later cease to have an Investment Grade
Rating, the Company and the Restricted Subsidiaries will not be subject to the
provisions of the Indenture described under "Limitation on Sale of Assets,"
"Limitation on Preferred Stock of Restricted Subsidiaries," "Limitations on
Transactions with Affiliates," "Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries" and clause (iii) of the first
paragraph of "Consolidation, Merger, Sale of Assets, Etc."

Limitation on Indebtedness. The Company will not, and will not permit any of
the Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
issue, guarantee or in any manner become liable for or with respect to,
contingently or otherwise (in each case, to "incur"), the payment of any
Indebtedness (including any Acquired Indebtedness but excluding any Permitted
Indebtedness (as defined below), provided however, that the Company and each
Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness)
if immediately after giving pro forma effect thereto, the Consolidated Fixed
Charge Coverage Ratio of the Company is at least equal to 2:1.

Notwithstanding the foregoing, the Company and the Restricted Subsidiaries
may incur each and all of the following (collectively, "Permitted
Indebtedness"):

(i) Indebtedness of the Company, or any Restricted Subsidiary which
guarantees the Company's obligations, (without duplication) under any Bank
Credit Facility;

(ii) Indebtedness of the Company pursuant to the Notes and Indebtedness
of any Restricted Subsidiary pursuant to its guarantee of the Notes;

(iii) Indebtedness (other than Indebtedness under any Bank Credit
Facility and the Notes) of the Company or any Restricted Subsidiary
outstanding on the date of the Indenture;

(iv) Indebtedness of the Company owing to a Restricted Subsidiary;
provided that any Indebtedness for borrowed money of the Company owing to a
Restricted Subsidiary is made pursuant to an intercompany note or loan or
credit agreement and is subordinated in accordance with provisions set
forth in the Indenture; provided, further, that any disposition, pledge or
transfer of any such Indebtedness to a Person (other than a disposition,
pledge or transfer to a Restricted Subsidiary) shall be deemed to be an
incurrence of such Indebtedness by the Company not permitted by this clause
(iv);

(v) Indebtedness of a Restricted Subsidiary owing to and held by the
Company or a Wholly-Owned Restricted Subsidiary; provided that any such
Indebtedness for borrowed money is made pursuant to an intercompany note or
loan or credit agreement; provided, further, that (a) any disposition,
pledge or transfer of any such Indebtedness to a Person (other than the
Company or a Wholly-Owned Restricted Subsidiary) shall be deemed to be an
incurrence of such Indebtedness by the obligor not permitted by this clause
(v);

(vi) Indebtedness of the Company or any Restricted Subsidiary under
Interest Rate Agreements covering Indebtedness of the Company or such
Restricted Subsidiary (which Indebtedness (a) bears interest at fluctuating
interest rates and (b) is otherwise permitted to be incurred under this
covenant) to the extent the notional principal amount of the obligations
under such Interest Rate Agreements does not exceed the principal amount of
the Indebtedness to which such obligations relate;

(vii) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements relating to (a) Indebtedness of the Company or such
Restricted Subsidiary and/or (b) obligations to purchase or sell assets or
properties or to reduce foreign currency fluctuation risk, in each case,
incurred in the ordinary course of business of the Company and not for
purposes of speculation; provided, however, that such Currency Agreements
do not increase the Indebtedness or other obligations of the Company
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder;

(viii) reimbursement obligations under letters of credit and letters of
credit, in each case, to support (A) workers compensation obligations and
(B) performance bonds, surety bonds, performance guarantees and supplier
obligations not to exceed $20.0 million in the aggregate at any time
outstanding, in the case of

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each of such clause (A) and (B) of the Company, in the ordinary course of
business consistent with past practice.

(ix) guarantees by the Company of Indebtedness of any Restricted
Subsidiary or by any Restricted Subsidiary of Indebtedness of the Company;
provided that such Indebtedness of such Restricted Subsidiary or the
Company, as the case may be, is permitted by the terms of the Indenture;

(x) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness described
in clauses (ii) and (iii) of this definition of "Permitted Indebtedness,"
including any successive refinancings so long as the aggregate principal
amount of Indebtedness represented thereby is not increased by such
refinancing plus the lesser of (I) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (II) the
amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the
Company or a Restricted Subsidiary incurred in connection with such
refinancing and (A) in the case of any refinancing of Indebtedness that is
Subordinated Indebtedness, such new Indebtedness is subordinated to the
Notes at least to the same extent as the Indebtedness being refinanced, (B)
such refinancing does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Indebtedness and (C) the primary obligor of such
refinancing Indebtedness is the same Person as the primary obligor on the
Indebtedness being refinanced unless the new primary obligor is the
Company;

(xi) Permitted Melody Indebtedness; and

(xii) Indebtedness of the Company or any Restricted Subsidiary in
addition to that described in clauses (i) through (xi) above, and any
renewals, extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such
Indebtedness shall not exceed $30.0 million outstanding at any one time.

Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:

(i) declare or pay any dividend or make any other distribution or payment
on or in respect of its Capital Stock or any payment to the direct or
indirect holders (in their capacities as such) of its Capital Stock (other
than dividends or distributions payable solely in shares of Qualified
Capital Stock and dividends or distributions payable to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary seeking to
declare or pay such dividend or distribution is not a Wholly-Owned
Restricted Subsidiary, to its other shareholders on a pro rata basis or on
a basis that results in the receipt by the Company or its Wholly-Owned
Restricted Subsidiaries of dividends or distributions of greater value than
they would receive on a pro rata basis)); or

(ii) purchase, redeem, defease or otherwise acquire or retire for value,
directly or indirectly, any Capital Stock of the Company (other than any
such Capital Stock owned by any Wholly-Owned Restricted Subsidiary) or
options, warrants or other rights to acquire such Capital Stock; or

(iii) make any principal payment on, or purchase, repurchase, redeem,
defease, retire or otherwise acquire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any Subordinated
Indebtedness owed to and held by the Company); or

(iv) make any Investment (other than any Permitted Investment) in any
Person (other than in the Company, any Wholly-Owned Restricted Subsidiary
or a Person that becomes a Wholly-Owned Restricted Subsidiary, or is merged
with or into or consolidated with the Company or a Wholly-Owned Restricted
Subsidiary (provided the Company or a Wholly-Owned Restricted Subsidiary is
the survivor), as a result of or in connection with such Investment);

(any of the foregoing actions described in clauses (i) through (iv),
other than any such action that is a Permitted Payment (as defined below),
collectively, "Restricted Payments") (the amount of any such Restricted
Payment, if other than cash, shall be the Fair Market Value of the asset(s)
proposed to be

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transferred by the Company or such Restricted Subsidiary, as the case may
be, in each case, as determined in good faith by the board of directors of
the Company, whose determination shall be conclusive and evidenced by a
board resolution), unless (1) immediately after giving effect to such
Restricted Payment on a pro forma basis, no Default or Event of Default
shall have occurred and be continuing; (2) immediately after giving effect
to such Restricted Payment on a pro forma basis, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
the provisions described under "--Limitation on Indebtedness," and (3)
after giving effect to the proposed Restricted Payment, the aggregate
amount of all such Restricted Payments declared or made after the Issue
Date, does not exceed $35.0 million plus the sum of:

(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company during the period (treated as one accounting period) beginning
on the first day of the fiscal quarter beginning after the Issue Date
and ending on the last day of the Company's last fiscal quarter ending
prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a deficit, minus 100% of
such deficit);

(B) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from the issuance or sale (other than to any of the
Restricted Subsidiaries) of Qualified Capital Stock of the Company or
from the exercise of any options, warrants or rights to purchase such
Qualified Capital Stock of the Company (except, in each case, to the
extent such proceeds are used to purchase, redeem or otherwise retire
Capital Stock or Subordinated Indebtedness as set forth in clause (ii)
or (iii) of paragraph (b) below and excluding the net cash proceeds
from any issuance and sale of Qualified Capital Stock or from any such
exercises, in each case, financed, directly or indirectly, using funds
borrowed from the Company or any Restricted Subsidiary until and to the
extent such borrowing is repaid);

(C) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from the conversion or exchange, if any, of debt securities
or Redeemable Capital Stock of the Company or its Subsidiaries into or
for Qualified Capital Stock of the Company plus, without duplication,
the aggregate of Net Cash Proceeds from their original issuance, less
any principal and sinking fund payments made thereon;

(D) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date, an amount
(to the extent not included in Consolidated Net Income) equal to the
lesser of the return of capital with respect to such Investment and the
initial amount of such Investment which was treated as a Restricted
Payment, in either case, less the cost of disposition of such
Investment and net of taxes; and

(E) so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after
the Issue Date in accordance with "--Limitations on Unrestricted
Subsidiaries" below, the Fair Market Value of the interest of the
Company and the Restricted Subsidiaries in such Subsidiary, provided
that such amount shall not in any case exceed the Designation Amount
with respect to such Restricted Subsidiary upon its Designation.

(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(vi) below, so long as no Default or Event of Default shall have occurred and
be continuing or would arise therefrom, the foregoing provisions shall not
prohibit the following actions (each of clauses (i) through (iv) being
referred to as a "Permitted Payment"):

(i) the payment of any dividend within 60 days after the date of
declaration thereof, if (A) at such date of declaration such payment was
permitted by the provisions of the Indenture and (B) such payment shall
have been deemed to have been paid on such date of declaration and shall
have been deemed a "Restricted Payment" for purposes of the calculation
required by paragraph (a) of this Section;

(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a

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conversion right or privilege in connection with which cash is paid in lieu
of the issuance of fractional shares or scrip), or out of the Net Cash
Proceeds of a substantially concurrent issue and sale for cash to any
Person (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock of the Company: provided that the Net Cash Proceeds from the
issuance of such shares of Qualified Capital Stock are excluded from clause
(B) of paragraph (a) of this Section;

(iii) the repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness in
exchange for, or out of the Net Cash Proceeds of a substantially concurrent
issuance and sale for cash to any Person (other than to any Restricted
Subsidiary of the Company) of, any Qualified Capital Stock of the Company;
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (B) of paragraph (a) of
this Section;

(iv) the repurchase, redemption, defeasance, retirement, acquisition for
value or payment of principal of any Subordinated Indebtedness (other than
Redeemable Capital Stock) in exchange for, or out of the Net Cash Proceeds
of a substantially concurrent issuance and sale for cash to any Person
(other than to a Restricted Subsidiary) of, new Subordinated Indebtedness;
provided that any new Subordinated Indebtedness (1) shall be in a principal
amount that does not exceed the principal amount so repurchased, redeemed,
defeased, retired, acquired or paid (or, if such Subordinated Indebtedness
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, then such lesser amount
as of the date of determination), plus the lesser of (I) the stated amount
of any premium or other payment required to be paid in connection with such
repurchase, redemption, defeasance, retirement, acquisition or payment
pursuant to the terms of the Indebtedness being repurchased, redeemed,
defeased, retired, acquired or paid or (II) the amount of premium or other
payment actually paid at such time to repurchase, redeem, defease, retire,
acquire or pay the Indebtedness, plus, in either case, the amount of
expenses of the Company incurred in connection with such repurchase,
redemption, defeasance, retirement, acquisition or payment; (2) has an
Average Life to Stated Maturity equal to or greater than the Average Life
to Stated Maturity of the Subordinated Indebtedness being repurchased,
redeemed, defeased, retired, acquired or paid; (3) has a Stated Maturity no
earlier than the Stated Maturity of the Subordinated Indebtedness being
refinanced, redeemed, defeased, retired or acquired for value and (4) is
expressly subordinated in right of payment to the Notes at least to the
same extent as the Subordinated Indebtedness to be repurchased, redeemed,
defeased, retired, acquired or paid;

(v) the purchase of stock or stock options from employees of the Company
and its Subsidiaries which stock was purchased by the employee pursuant to
an employee benefit plan approved by the Company's board of directors (or
any committee thereof), in an aggregate amount not to exceed $3.0 million
in any fiscal year; and

(vi) co-investments by Westmark Realty Advisors L.L.C. with funds and
separate accounts that are subject to ERISA regulations, in an aggregate
amount not to exceed $10.0 million in any twelve-month period.

(c) In computing the amount of Restricted Payments previously made for
purposes of clause (3) of paragraph (a) of this Section, Restricted Payments
under clauses (i) (as described in subclause (B) of such clause), (v) and (vi)
of paragraph (b) of this Section shall be included.

Limitation on Transactions with Affiliates. The Company will not, and will
not cause or permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into or suffer to exist any contract, agreement,
arrangement or transaction with, or for the benefit of, any Affiliate of the
Company or of a Restricted Subsidiary (an "Affiliate Transaction") or any
series of related Affiliate Transactions (in either case, other than Exempted
Affiliate Transactions) (i) unless it is determined that the terms of such
Affiliate Transaction are fair and reasonable to the Company or such
Restricted Subsidiary, as applicable, and no less favorable to the Company or
such Restricted Subsidiary, as applicable, or to the Company and its
Restricted Subsidiaries as a whole, than could have been obtained in an arm's-
length transaction with a non-Affiliate and (ii) if involving

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consideration to either party in excess of $5.0 million, unless such Affiliate
Transaction has been approved by a majority of the members of the Board of
Directors that are disinterested in such transaction and (iii) if involving
consideration to either party in excess of $25.0 million, unless in addition
to the foregoing, the Company, prior to the consummation thereof, obtains a
written favorable opinion as to the fairness of such transaction to the
Company, or such Restricted Subsidiary, as applicable, from a financial point
of view from an independent investment banking firm of national reputation
(or, if nationally recognized investment banking firms do not customarily
render opinions with respect to transactions of such type, by a nationally
recognized expert with experience in evaluating the terms and conditions of
transactions of such type).

Limitation on Liens. The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume,
suffer to exist or affirm any Lien of any kind securing any (a) Pari Passu
Indebtedness or Subordinated Indebtedness (including any assumption, guarantee
or other liability with respect thereto by any Restricted Subsidiary) upon any
of its property or assets (including any intercompany notes), whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds, income or
profits therefrom, or assign or convey any right to receive proceeds, income
or profits therefrom, unless the Notes are directly secured equally and
ratably with (or, in the case of Subordinated Indebtedness, prior or senior
thereto, with the same relative priority as the Notes shall have with respect
to such Subordinated Indebtedness) the obligation or liability secured by such
Lien, except for Liens (A) securing any Indebtedness which became Indebtedness
pursuant to a transaction permitted under "--Consolidation, Merger, Sale of
Assets, Etc." or securing Acquired Indebtedness which, in each case, were
created prior to (and not created in connection with, or in contemplation of)
the incurrence of such Pari Passu Indebtedness or Subordinated Indebtedness
(including any assumption, guarantee or other liability with respect thereto
by any Restricted Subsidiary) and which Indebtedness is permitted under the
provisions of the covenant described under "--Limitation on Indebtedness" or
(B) securing any Indebtedness incurred in connection with any refinancing,
renewal, substitution or replacement of any such Indebtedness incurred in
connection with any Indebtedness described in clause (A) so long as the
aggregate principal amount of Indebtedness represented thereby is not
increased by such refinancing by an amount greater than the lesser of (i) the
stated amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the Indebtedness
being refinanced or (ii) the amount of premium or other payment actually paid
at such time to refinance the Indebtedness, plus, in either case, the amount
of expenses of the Company incurred in connection with such refinancing;
provided, however, that in the case of clauses (A) and (B) any such Lien only
extends (x) to the assets that were subject to such Lien securing such
Indebtedness prior to the related acquisition by the Company or the Restricted
Subsidiary or (y) in the case of assets constituting receivables, extend to
additional receivables of a similar nature and not materially greater in value
than the receivables securing such Indebtedness prior to the related
acquisition by the Company or the Restricted Subsidiary, or (b) Senior
Indebtedness which is incurred in violation of the terms of the Indenture.

Limitation on Incurrence of Senior Subordinated Indebtedness. The Company
will not, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise in any manner become directly or indirectly liable for or with
respect to or otherwise permit to exist any Indebtedness that is subordinate
or junior in right of payment to any Indebtedness of the Company unless such
Indebtedness is also (i) pari passu with the Notes or subordinate or junior,
in right of payment to the Notes and (ii) does not have a Stated Maturity
shorter than the final Stated Maturity of the Notes.

Limitation on Sale of Assets. The Company will not, and will not cause or
permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale unless (i) at least 80% of the consideration from such Asset Sale
is received in cash or Cash Equivalents or Eligible Securities and (ii) the
Company or such Subsidiary receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the shares or assets subject
to such Asset Sale.

If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Cash Proceeds to the permanent repayment of the Senior
Indebtedness which is required

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to be prepaid, or if no such Senior Indebtedness is then outstanding, the
Company or such Restricted Subsidiary may within 365 days of such Asset Sale,
invest the Net Cash Proceeds in capital expenditures, properties and other
assets that (as determined by the board of directors of the Company) replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the businesses of the Company or
its Subsidiaries existing on the Issue Date or in businesses reasonably
related thereto.

To the extent (i) the Company or a Restricted Subsidiary, as the case may
be, received more than 20% of the consideration from an Asset Sale in the form
of Eligible Securities (the fair market value (on the date of such Asset Sale)
of such amount in excess of 20% of the consideration is referred to herein as
the "Eligible Securities Proceeds") or (ii) all or part of the Net Cash
Proceeds of any Asset Sale are not applied, or the Company determines not to
so apply such Net Cash Proceeds, within 365 days of such Asset Sale as
described in the immediately preceding paragraph (such Net Cash Proceeds, the
"Unutilized Net Cash Proceeds," and together with the Eligible Securities
Proceeds, the "Excess Proceeds"), the Company shall, within 20 days after such
365th day or at any earlier time after such Asset Sale, make an offer to
purchase (the "Asset Sale Offer") all outstanding Notes and any Pari Passu
Indebtedness the terms of which require such an offer to be made up to a
maximum principal amount (expressed as a multiple of $1,000) of Notes and such
Pari Passu Indebtedness equal to such Excess Proceeds, at a purchase price in
cash equal to 100% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date; provided, however, that the
Asset Sale Offer may be deferred until there are aggregate Excess Proceeds,
equal to or in excess of $20.0 million, at which time the entire amount of
such Excess Proceeds and not just the amount in excess of $20.0 million, shall
be applied as required pursuant to this paragraph. An Asset Sale Offer will be
required to be kept open for a period of at least 20 business days.

With respect to any Asset Sale Offer effected pursuant to this covenant,
among the Notes and such Pari Passu Indebtedness, to the extent the aggregate
principal amount of Notes and such Pari Passu Indebtedness tendered pursuant
to such Asset Sale Offer exceeds the Excess Proceeds to be applied to the
repurchase thereof, such Notes and such Pari Passu Indebtedness shall be
purchased pro rata based on the aggregate principal amount of such Notes and
such Pari Passu Indebtedness tendered. To the extent the Excess Proceeds
exceed the aggregate amount of Notes and such Pari Passu Indebtedness tendered
pursuant to such Asset Sale Offer, the Company may retain and utilize any
portion of the Excess Proceeds not applied to repurchase the Notes and such
Pari Passu Indebtedness for any purpose consistent with the other terms of the
Indenture and such excess amount of Excess Proceeds shall not be included in
any future determination of Excess Proceeds.

In the event that the Company makes an Asset Sale Offer, the Company shall
comply, to the extent applicable, with the requirements of Section 14(e) of
the Exchange Act, and any other applicable securities laws or regulations and
any applicable requirements of any securities exchange on which the Notes are
listed, and any violation of the provisions of the Indenture relating to such
Asset Sale Offer occurring as a result of such compliance shall not be deemed
a Default.

Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not (a) sell and will not cause or permit any Restricted Subsidiary of the
Company to issue, sell or transfer any Preferred Stock of any Restricted
Subsidiary (other than to the Company or to a Wholly-Owned Restricted
Subsidiary) or otherwise (b) permit any Person (other than the Company or a
Wholly-Owned Restricted Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary, in each case, except for (i) Preferred Stock issued or
sold to, held by or transferred to the Company or a Wholly-Owned Restricted
Subsidiary, and (ii) Preferred Stock issued by a Person prior to the time (A)
such Person becomes a Restricted Subsidiary or (B) such Person merges with or
into a Restricted Subsidiary, provided that such Preferred Stock was not
issued or incurred by such Person in anticipation of the type of transaction
contemplated by subclause (A) or (B).

Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or enter into any agreement with any Person that would cause
to become effective, any consensual encumbrance or restriction of any kind, on
the ability of any Restricted Subsidiary to (i) pay

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dividends, in cash or otherwise, or make any other distribution on or in
respect of its Capital Stock or any other interest or participation in, or
measured by, its profits to the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make any Investment in the Company or any other Restricted
Subsidiary or (iv) transfer any of its properties or assets to the Company or
any other Restricted Subsidiary, except for: (a) any encumbrance or
restriction existing under any agreement in effect on the Issue Date; (b) any
encumbrance or restriction, with respect to a Person that is not a Restricted
Subsidiary of the Company on the Issue Date, in existence at the time such
Person becomes a Restricted Subsidiary of the Company and not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary; provided, however, that such encumbrances and restrictions are not
applicable to the Company or any other Restricted Subsidiary, or the
properties or assets of the Company or any other Restricted Subsidiary; (c)
customary provisions restricting the subletting or assignment of any lease or
the assignment of any other contract to which the Company or any Restricted
Subsidiary is a party, which lease or contract is entered into in the ordinary
course of business consistent with past practice; (d) any encumbrance or
restriction contained in contracts for (i) sales of assets or stock permitted
by the covenant described under "--Limitation on Sale of Assets" or (ii) the
purchase of assets or stock which arises out of an earn-out or similar
arrangement; provided that, in each case, such encumbrance or restriction
relates only to assets being purchased or sold pursuant to the contract
containing such encumbrances or restriction; (e) any encumbrance or
restriction customarily contained in any security agreement or mortgage which
security agreement or mortgage creates a Lien permitted under this Indenture;
provided that such encumbrance or restriction relates only to assets subject
to such Lien; and (f) any encumbrance or restriction existing under any
agreement that extends, renews, refinances or replaces the agreements
containing the encumbrances or restrictions in the foregoing clauses (a), (b),
(c) and (e), or in this clause (f), provided that the terms and conditions of
any such encumbrances or restrictions are not more restrictive in any material
respect than those under or pursuant to the agreement so extended, renewed,
refinanced or replaced.

Limitations on Unrestricted Subsidiaries. The Company may designate after
the Issue Date any Subsidiary as an "Unrestricted Subsidiary" under the
Indenture (a "Designation") only if:

(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;

(ii) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the provision described
under paragraph (a) of "--Limitation on Restricted Payments" above in an
amount (the "Designation Amount") equal to the Fair Market Value of the
Company's interest in such Subsidiary on such date; and

(iii) the Company would be permitted under the Indenture to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "--Limitation on Indebtedness" at the time of
such Designation (assuming the effectiveness of such Designation).

In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount.

The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, at any time (x) provide credit support for or subject any of
its property or assets (other than the Capital Stock of any Unrestricted
Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness) or (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary, except any non-recourse guarantee given solely to
support the pledge by the Company or any Restricted Subsidiary of the Capital
Stock of an Unrestricted Subsidiary. All Subsidiaries of Unrestricted
Subsidiaries shall automatically be deemed to be Unrestricted Subsidiaries.

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The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:

(i) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation;

(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture; and

(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted by the covenant described
under "--Limitation on Transactions with Affiliates" above as if such
transaction (or series of related transactions) had occurred at the time of
such Revocation.

All Designations and Revocations must be evidenced by resolutions of the
board of directors of the Company delivered to the Trustee certifying
compliance with the foregoing provisions.

Provision of Financial Statements. The Indenture provides that for so long
as the Notes are outstanding, whether or not the Company is subject to Section
13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the
Company will, to the extent permitted by Commission practice and applicable
law and regulations, file with the Commission the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to such Section 13(a) or 15(d), or any successor
provision thereto, if the Company were so subject, such documents to be filed
with the Commission on or prior to the date (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (x) within 15 days
of each Required Filing Date, whether or not permitted or required to be filed
with the Commission, (i) transmit or cause to be transmitted by mail to all
holders and (ii) file with the Trustee, copies of the annual reports,
quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, if the Company were subject
to either of such Sections and (y) if filing such documents by the Company
with the Commission is not permitted under the Exchange Act, promptly upon
written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective holder at the
Company's cost. In addition, for so long as any Notes remain outstanding, the
Company will furnish to the holders of Notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Notes, if not obtainable from the Commission, information
of the type that would be filed with the Commission pursuant to the foregoing
provisions, upon the request of any such holder. If any Subsidiaries'
financial statements would be required to be included in the financial
statements filed or delivered pursuant hereto if the Company were subject to
Section 13(a) or 15(d) of the Exchange Act, the Company shall include such
Subsidiaries' financial statements in any filing or delivery pursuant hereto.

CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.

The Indenture will provide that the Company shall not, in any transaction or
series of related transactions, merge or consolidate with or into, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets as an entirety to, any Person or Persons, and
the Company shall not permit any of the Restricted Subsidiaries to enter into
any such transaction or series of related transactions if such transaction or
series of related transactions, in the aggregate, would result in a sale,
assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company and the
Restricted Subsidiaries (determined on a consolidated basis for the Company
and the Restricted Subsidiaries), to any Person or Persons, unless at the time
and after giving effect thereto (i) either (A) (1) if the transaction or
transactions is a merger or consolidation involving the Company, the Company
shall be the Surviving Person of such merger or consolidation or (2) if the
transaction or transactions is a merger or consolidation involving a
Restricted Subsidiary, such Restricted Subsidiary shall be the Surviving
Person of such merger or consolidation,

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or (B) (1) the Surviving Person shall be a corporation organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia and (2) in the case of a transaction involving the
Company, the Surviving Person, if other than the Company, shall expressly
assume (unless such obligations are otherwise assumed by operation of law) by
a supplemental indenture executed and delivered to the Trustee, all the
obligations of the Company under the Notes and the Indenture, and in each
case, the Indenture and the Notes shall remain in full force and effect; (ii)
immediately after giving effect to such transaction or series of related
transactions on a pro forma basis, no Default or Event of Default shall have
occurred and be continuing; and (iii) the Company, or the Surviving Person, as
the case may be, immediately after giving effect to such transaction or series
of related transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
covenant described above under "--Certain Covenants--Limitations on
Indebtedness," and at the time of the transaction if any of the property or
assets of the Company or any of its Restricted Subsidiaries would thereupon
become subject to any Lien, the provisions described under "--Certain
Covenants--Limitation on Liens" are complied with.

Upon any consolidation or merger of the Company or any transfer of all or
substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the Surviving Person, the Surviving
Person shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under the Indenture and the Notes with the same
effect as if such successor corporation had been named as the Company therein;
and thereafter, except in the case of (a) a lease or (b) any sale, assignment,
conveyance, transfer, lease or other disposition to a Restricted Subsidiary of
the Company, the Company shall be discharged from all obligations and
covenants under the Indenture.

The Indenture will provide for all purposes of the Indenture and the Notes
(including the provision of this covenant and the covenants described under
"--Certain Covenants--Limitation on Indebtedness," "--Certain Covenants--
Limitation on Restricted Payments" and "--Certain Covenants--Limitation on
Liens"), Subsidiaries of any Surviving Person shall, upon such transaction or
series of related transactions, become Restricted Subsidiaries unless and
until designated as Unrestricted Subsidiaries pursuant to and in accordance
with the provisions described under "--Certain Covenants--Limitations on
Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property or
assets, of the Company and the Restricted Subsidiaries in existence
immediately prior to such transactions or series of related transactions will
be deemed to have been incurred upon such transaction or series of related
transactions.

Notwithstanding the foregoing covenant, a Restricted Subsidiary may merge
with or into another Restricted Subsidiary.

EVENTS OF DEFAULT

The following will be "Events of Default" under the Indenture with respect
to the Notes:

(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes (whether at Stated Maturity, upon
optional redemption, acceleration, required purchase, sinking fund,
scheduled principal payment or otherwise); or

(ii) default in the payment of any installment of interest on any of the
Notes, when due and payable, continued for a period of 30 days; or

(iii) the Company fails to comply with any of its obligations described
under "--Consolidation, Merger, Sale of Assets, Etc.," "--Change of
Control" or "--Certain Covenants--Limitation of Sale of Assets"; or

(iv) the Company fails to perform or observe any other term, covenant or
agreement contained in the Notes, or the Indenture (other than a default
specified in clauses (i), (ii) or (iii) above) for a period of 30 days
after written notice to comply shall have been given (a) to the Company by
the Trustee or (b) to the

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Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Notes then outstanding; or

(v) a default or defaults under one or more agreements, indentures or
instruments under which the Company or any Restricted Subsidiary then has
Indebtedness outstanding in excess of $10.0 million, individually or in the
aggregate, and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults result in the acceleration of the
maturity of such Indebtedness; or

(vi) one or more judgments, orders or decrees of any court or regulatory
or administrative agency for the payment of money in excess of $10.0
million (in excess of the coverage under applicable insurance policies
(after giving effect to any deductibles) under which a financially sound
and reputable insurer has not disputed coverage), individually or in the
aggregate, shall have been rendered against the Company or any Restricted
Subsidiary or any of their respective properties and shall not have been
discharged, and either (a) any creditor shall have commenced an enforcement
proceeding upon such judgment, order or decree or (b) there shall have been
a period of 60 consecutive days during which a stay of enforcement of such
judgment, order or decree, by reason of a pending appeal or otherwise,
shall not be in effect; or

(vii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Material Subsidiary of the Company shall have
occurred; or

(viii) any holder of at least $10.0 million in aggregate principal amount
of Indebtedness of the Company, or any Restricted Subsidiary shall (a)
commence judicial proceedings to foreclose upon assets of the Company or
any Restricted Subsidiary having a Fair Market Value, individually or in
the aggregate, in excess of $10.0 million or (b) have exercised any right
under applicable law or applicable security documents to take ownership of
any such assets in lieu of foreclosure.

If an Event of Default (other than as specified in clause (viii) with
respect to the Company) shall occur and be continuing, the Trustee, by notice
to the Company, or the holders of at least 25% in aggregate principal amount
of the Notes then outstanding, by notice to the Trustee and the Company (an
"Acceleration Notice"), may declare the principal of, premium, if any, and
accrued interest on all of the outstanding Notes due and payable immediately,
upon which declaration all such amounts payable in respect of the Notes (x)
will become and be immediately due and payable or (y) if there are any amounts
outstanding under the Revolving Credit Facility, will become and be
immediately due and payable upon the first to occur of an acceleration under
the Revolving Credit Facility, or three (3) business days after receipt by the
Company and the agent under the Revolving Credit Facility of such Acceleration
Notice, unless such Event of Default has been cured or waived prior to such
date. If an Event of Default specified in clause (viii) above with respect to
the Company occurs and is continuing, then the principal of, premium, if any,
and accrued interest on all of the outstanding Notes will become and be
immediately due and payable without any declaration or further action on the
part of the Trustee or any holder of Notes.

After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of the Notes then outstanding, by
written notice to the Company and the Trustee, may rescind such declaration if
(a) the Company has paid or deposited with the Trustee a sum sufficient to pay
(i) all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest on all Notes, (iii) the
principal of and premium, if any, on any Notes which have become due otherwise
than by such declaration of acceleration and interest thereon at the rate
borne by the Notes, and (iv) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Notes, and (b)
all Events of Default, other than the non-payment of principal of, premium, if
any, and interest on the Notes that has become due solely by such declaration
of acceleration, have been cured or waived as provided in the Indenture.

No holder of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder unless the holders of at
least 25% in aggregate principal amount of the Notes then outstanding have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee

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under the Notes and the Indenture, the Trustee has failed to institute such
proceeding within 15 days after receipt of such notice, and the Trustee,
within such 15-day period, has not received directions inconsistent with such
written request by holders of a majority in aggregate principal amount of the
Notes then outstanding. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.

During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and to use
the same degree of care and skill in its exercise thereof as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of a majority in aggregate principal amount of the
Notes then outstanding 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 under the Indenture.

The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of their respective
obligations under the Indenture and as to any default in such performance. The
Company is also required to promptly notify the Trustee of any event which is
an Event of Default.

DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE

The Company may, at its option and at any time, terminate the obligations of
the Company, if any, with respect to the outstanding Notes ("defeasance").
Such defeasance means that the Company will be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes,
except for (i) the rights of holders of outstanding Notes to receive payment
in respect of the principal of, premium, if any, and interest on such Notes
when such payments are due, (ii) the Company's obligations to issue temporary
Notes, register the transfer or exchange of any Notes, replace mutilated,
destroyed, lost or stolen Notes and maintain an office or agency for payments
in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of the
Indenture. In addition, the Company, may, at its option and at any time, elect
to terminate the obligations of the Company with respect to certain covenants
that are set forth in the Indenture, some of which are described under "--
Certain Covenants" above, and any omission to comply with such obligations
will not constitute a Default or an Event of Default with respect to the Notes
("covenant defeasance"). In the event covenant defeasance occurs, certain
events (not including non-payment, bankruptcy and insolvency events) described
under "--Events of Default" will no longer constitute an Event of Default with
respect to the Notes.

In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, 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), or a
combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay and
discharge the principal of, premium, if any, and interest on the outstanding
Notes at maturity or redemption, as the case may be; (ii) the Company shall
have delivered to the Trustee an opinion of independent counsel in the United
States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such defeasance or covenant defeasance had not occurred
(in the case of defeasance, such opinion must refer to and be based upon a
ruling of the Internal Revenue Service or a change in applicable federal
income tax laws); (iii) no Default shall have occurred and be continuing on
the date of such deposit insofar as clause (vii) under the first paragraph
under "--Events of Default" is concerned at any

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time during the period ending on the 91st day after the date of deposit; (iv)
such defeasance or covenant defeasance shall not cause the Trustee to have a
conflicting interest with respect to any securities of the Company (v) such
defeasance or covenant defeasance shall not result in a breach or violation
of, or constitute a default under, any material agreement or instrument to
which the Company is a party or by which it is bound; (vi) such defeasance or
covenant defeasance shall not result in the trust arising from such deposit
constituting an investment company within the meaning of the Investment
Company Act of 1940, as amended, unless such trust shall be registered under
such Act or exempt from registration thereunder; (vii) the Company shall have
delivered to the Trustee an opinion of independent counsel in the United
States to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (viii) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of the Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; (ix) no event or condition shall exist
that would prevent the Company from making payments of the principal of,
premium, if any, and interest on the Notes on the date of such deposit or at
time ending on the 91st day after the date of such deposit; and (x) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent under the
Indenture to either defeasance or covenant defeasance, as the case may be,
have been complied with.

SATISFACTION AND DISCHARGE

The Supplemental Indenture will be discharged and will cease to be of
further effect (except as to surviving rights of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all of the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable at
their Stated Maturity within one year or are to be called for redemption
within one year upon arrangements satisfactory to the Trustee for the giving
of notice thereof and the Company has deposited or caused to be deposited with
the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee cancelled
or for cancellation, for principal of, premium, if any, and interest on the
Notes to the date of deposit (in the case of Notes which have become due and
payable), or to the Stated Maturity or Redemption Date, as the case may be;
(ii) the Company has paid all other sums payable under the Indenture by the
Company; and (iii) the Company has delivered to the Trustee such certificates,
if any, as the Trustee shall reasonably require, to the effect that all
conditions precedent to the satisfaction and discharge of the Company's
obligations under the Supplemental Indenture have been complied with.

AMENDMENT AND WAIVERS

The Original Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of Indenture Debt Securities of all series issued
under the Original Indenture and then outstanding and affected thereby (voting
as one class), to add any provisions to, or change in any manner, or eliminate
any of the provisions of, the Original Indenture or any supplemental indenture
or to modify in any manner the rights of the holders of the Indenture Debt
Securities of each such series; provided, however, that no such modification
or amendment may, without the consent of the holder of each outstanding Note
affected thereby, (i) change the maturity of the principal of, or any
installment of interest on, any such Note or alter the optional redemption or
repurchase provisions of any such Note or the Indenture in a manner adverse to
the holders of the Notes; (ii) reduce the principal amount of (or the premium
on) any such Note; (iii) reduce the rate of or extend the time for payment of
interest on any such Note; (iv) change the place or currency of payment of
principal of (or premium on) or interest on any such Note; (v) modify any
provisions of the Indenture relating to the waiver of past defaults (other
than to add sections of the Indenture or the Notes subject thereto) or the
right of the holders of the Notes to institute suit for the

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enforcement of any payment on or with respect to any such Note or the
modification and amendment provisions of the Indenture and the Notes (other
than to add sections of the Indenture or the Notes which may not be amended,
supplemented or waived without the consent of the holders of each outstanding
Note affected thereby); (vi) reduce the percentage of the principal amount of
outstanding Notes necessary for amendment to or for waiver of compliance with
any provision of the Indenture or the Notes or for waiver of any Default in
respect thereof; (vii) waive a default in the payment of principal of,
premium, if any, or interest on, or redemption payment with respect to, the
Notes (except a rescission of acceleration of the Notes by the holders thereof
as provided in the Indenture and a waiver of the payment default that resulted
from such acceleration); (viii) modify the ranking or priority of any Note; or
(ix) following the occurrence of a Change of Control or Asset Sale, modify the
provisions of any covenant (or the related definitions) in the Indenture
requiring the Company to make and consummate a Change of Control Offer in
respect of such Change of Control or Asset Sale Offer in respect of an Asset
Sale or modify any of the provisions or definitions with respect thereto in a
manner materially adverse to the holders of each outstanding Note affected
thereby.

Notwithstanding the foregoing, without the consent of any holders of the
Notes, the Company and the Trustee may modify or amend the Indenture (a) to
evidence the succession of another Person to the Company and the assumption by
any such successor of the covenants of the Company in the Indenture and in the
Notes in accordance with "--Consolidation, Merger, Sale of Assets, Etc."; (b)
to add to the covenants of the Company for the benefit of the holders of the
Notes, or to surrender any right or power herein conferred upon the Company in
the Indenture or in the Notes; (c) to cure any ambiguity, to correct or
supplement any provision in the Indenture that may be defective or
inconsistent with any other provision in the Indenture, in the Notes; (d) to
secure the Notes or add a guarantor under the Indenture; (e) to evidence and
provide the acceptance of the appointment of a successor Trustee under the
Indenture; or (f) to make any other provisions with respect to matters or
questions arising under the Indenture or the Notes; provided that, in the case
of clause (c) or (f), such provisions shall not adversely affect the interests
of any of the holders of the Notes.

Subject to the foregoing provisions with respect to change, modification or
amendment, (a) the holders of not less than a majority in aggregate principal
amount of the Notes then outstanding, on behalf of all holders of Notes, may
waive compliance by the Company with certain restrictive provisions of the
Indenture; and (b) subject to certain rights of the Trustee, as provided in
the Indenture, the holders of a majority in aggregate principal amount of the
Notes then outstanding, on behalf of all holders of the Notes, may waive any
past default under the Indenture (including any such waiver obtained in
connection with a tender offer or exchange offer for the Notes), except a
default in the payment of principal, premium or interest or a default arising
from failure to purchase any Notes tendered pursuant to an offer to purchase
pursuant thereto, or a default in respect of a provision that under the
Indenture cannot be modified or amended without the consent of the holders of
each Note affected thereby. The Amended Revolving Credit Facility will
prohibit certain amendments to the Indenture and the terms of the Notes.

BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY

DTC will act as securities depositary for the Notes. The Notes will be
issued only as fully registered securities registered in the name of DTC or
its nominee. One or more fully-registered global Notes certificates (each a
"Notes Global Certificate"), representing the total aggregate number of Notes,
will be issued and will be deposited with DTC.

The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in global Notes.

DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of

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securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other organizations
("Direct Participants"). DTC is owned by a number of its Direct Participants
and by the NYSE, the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the
Securities and Exchange Commission.

Upon issuance of a Notes Global Certificate, DTC will credit on its book-
entry registration and transfer system the number of Notes represented by such
Notes Global Certificate to the accounts of institutions that have accounts
with DTC. Ownership of beneficial interests in a Notes Global Certificate will
be limited to Participants or persons that may hold interests through
Participants. The ownership interest of each actual purchaser of each
Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners purchased
Notes. Transfers of ownership interests in the Notes are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial
Owners.

DTC has no knowledge of the actual Beneficial Owners of the Notes; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers. So long as DTC, or its nominee, is the owner of a
Notes Global Certificate, DTC or such nominee, as the case may be, will be
considered the sole owner and holder of record of the Notes represented by
such Notes Global Certificate for all purposes.

Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.

Redemption notices shall be sent to Cede & Co. If less than all of the Notes
are being redeemed, DTC will reduce the amount of interest of each Direct
Participant in the Notes in accordance with its procedures.

Although voting with respect to the Notes is limited, in those instances in
which a vote is required, neither DTC nor Cede & Co. itself will consent or
vote with respect to the Notes. Under its usual procedures, DTC would mail an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Notes are credited on the record date
(identified in a listing attached to the Omnibus proxy).

Interest payments on the Notes represented by a Notes Global Certificate
will be made by the Trustee to DTC. DTC's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions
and customary practices and will be the responsibility of such participants
and not of DTC, the Company or the Operating Partnership, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to DTC is the responsibility of the Company,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.

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Except as provided herein, a Beneficial Owner in a Notes Global Certificate
will not be entitled to receive physical delivery of Notes. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the Notes.

DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Company.
Under such circumstances, if a successor securities depository is not
obtained, Notes certificates will be required to be printed and delivered.
Additionally, the Company may decide to discontinue use of the system of book-
entry transfers through DTC (or a successor depository). In that event,
certificates for the Notes will be printed and delivered.

The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable. The
Company has no responsibility for the performance by DTC or its Participants
of their respective obligations as described hereunder or under the rules and
procedures governing their respective operations.

SAME-DAY SETTLEMENT AND PAYMENT

Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest on Global Notes will
be made by the Company in immediately available funds.

Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, while the
Notes are registered in the name of the Depositary or its nominee, the Notes
will trade in the Depositary's Same-Day Funds Settlement System, and secondary
market trading activity in the Notes will therefore be required by the
Depositary to settle in immediately available funds. No assurance can be given
as to the effect, if any, of settlement in immediately available funds on
trading activity in the Notes.

GOVERNING LAW

The Indenture and the Notes are governed by the internal laws of the State
of New York, without regard to the principles of conflicts of law.

CERTAIN DEFINITIONS

"Acquired Indebtedness" means Indebtedness of a Person (i) assumed in
connection with an Asset Acquisition from such Person or (ii) existing at the
time such Person becomes a Restricted Subsidiary of any other Person (other
than any Indebtedness incurred in connection with, or in contemplation of,
such Asset Acquisition or such Person becoming such a Restricted Subsidiary).
Acquired Indebtedness shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Restricted Subsidiary, as the case may be.

"Affiliate" means with respect to any specified Person; (i) any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or any officer, director or employee of any such specified Person or
other Person or, with respect to any natural Person, any person having a
relationship with such Person by blood, marriage or adoption no more remote
than first cousin; or (iii) any Person 10% or more of the Voting Stock of
which is beneficially owned or held directly or indirectly by such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

"Asset Acquisition" means (i) an Investment by the Company or any Restricted
Subsidiary in any other Person pursuant to which such Person will become a
Restricted Subsidiary or will be merged or consolidated

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with or into the Company or any Restricted Subsidiary or (ii) the acquisition
by the Company or any Restricted Subsidiary of the assets of any Person which
constitute substantially all of the assets of such Person, or any division or
line of business of such Person, or which is otherwise outside of the ordinary
course of business.

"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of: (i) any Capital
Stock of any Subsidiary; (ii) all or substantially all of the properties and
assets of any division or line of business of the Company or its Subsidiaries;
or (iii) any other properties or assets of the Company or any Subsidiary other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" shall not include any transfer of properties and assets
(a) that is governed by the provisions described under "--Consolidation,
Merger, Sale of Assets, Etc."; provided, however, that any transaction
consummated in compliance with "--Consolidation, Merger, Sale of Assets, Etc."
above involving a transfer of less than all of the properties or assets of the
Company shall be deemed to be an Asset Sale with respect to the properties or
assets of the Company that are not transferred in such transaction, (b) that
is by the Company to any Restricted Subsidiary, or by any Subsidiary to the
Company or any Restricted Subsidiary in accordance with the terms of the
Indenture, (c) that is of obsolete equipment in the ordinary course of
business, or (d) the Fair Market Value of any such Asset Sale not otherwise
described in clause (a) through (c) above which in the aggregate does not
exceed $10.0 million.

"Asset Sale Offer" has the meaning set forth under "--Certain Covenants--
Limitation on Sale of Assets."

"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (b) the
amount of each such principal payment by (ii) the sum of all such principal
payments.

"Bank Credit Facility" means any senior bank credit facility, including the
Revolving Credit Facility and any other facility provided by an institution in
the business of providing commercial credit, which facilities collectively
have an aggregate principal amount at any one time outstanding not to exceed
$500.0 million, less any permanent reductions made pursuant to the provision
described in the second paragraph under "--Certain Covenants--Limitation on
Sale of Assets."

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock, whether or not outstanding or issued
after the date of the Indenture.

"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.

"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with
a maturity of not more than one year issued or directly and fully guaranteed
or insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposit or
acceptance with a maturity of not more than one year of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500,000,000; (iii)
commercial paper with a maturity of not more than one year issued by a
corporation that is not an Affiliate of the Company organized under the laws
of any state of the United States or the District of Columbia and rated at
least A-1 by Standard & Poor's Corporation or at least P-1 by Moody's
Investors Service, Inc.; and (iv) repurchase obligations with a term of not
more than seven days for

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underlying securities of the types described in clauses (i) and (ii) above
entered into with any financial institution meeting the qualifications
specified in clause (ii) above.

"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company ): (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 50% or more of the total voting
power of the then outstanding Voting Stock of the Company; (ii) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the board of directors of the Company (together with any
new directors whose election to such board or whose nomination for election by
the stockholders of the Company was approved by a vote of 50% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved),
cease for any reason to constitute a majority of such board of directors then
in office; (iii) the Company consolidates with or merges with or into any
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any corporation
consolidates with or merges into or with the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
is changed into or exchanged for cash, securities or other property, other
than any such transaction where the outstanding Voting Stock of the Company is
not changed or exchanged at all (except to the extent necessary solely to
reflect a change in the jurisdiction of incorporation of the Company) or where
(A) the outstanding Voting Stock of the Company is changed into or exchanged
for (x) Voting Stock of the surviving corporation which is not Redeemable
Capital Stock or (y) cash, securities and other property (other than Capital
Stock of the surviving corporation) in an amount which could be paid by the
Company as a Restricted Payment as described under "--Certain Covenants--
Limitation on Restricted Payments" (and such amount shall be treated as a
Restricted Payment subject to the provisions in the Indenture described under
"--Certain Covenants--Limitation on Restricted Payments"), (B) no "person" or
"group" owns immediately after such transaction, directly or indirectly, 50%
or more of the total outstanding Voting Stock of the surviving corporation and
(C) the holders of the Voting Stock of the Company immediately prior to such
transaction own, directly or indirectly, not less than a majority of the total
voting power of the then outstanding Voting Stock of the surviving or
transferee corporation immediately after such transaction; or (iv) any order,
judgment or decree shall be entered against the Company decreeing the
dissolution or split up of the Company and such order shall remain
undischarged or unstayed for a period in excess of sixty days.

"Change of Control Offer" has the meaning set forth under "--Change of
Control."

"Consolidated Cash Flow Available for Fixed Charges" means, for any period,
(i) the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income, (b) to the extent
reducing Consolidated Net Income, Consolidated Non-cash Charges, (c) to the
extent reducing Consolidated Net Income, Consolidated Interest Expense, and
(d) to the extent reducing Consolidated Net Income, Consolidated Income Tax
Expense less (ii) other non-cash items increasing Consolidated Net Income for
such period.

"Consolidated Fixed Charge Coverage Ratio" means the ratio of the aggregate
amount of Consolidated Cash Flow Available for Fixed Charges of the Company
for the four full fiscal quarters immediately preceding the date of the
transaction (the "Transaction Date") giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio for which consolidated financial
information of the Company is available (such four full fiscal quarter period
being referred to herein as the "Four Quarter Period") to the aggregate amount
of Consolidated Fixed Charges of the Company for such Four Quarter Period. For
purposes of this definition, "Consolidated Cash Flow Available for Fixed
Charges" and "Consolidated Fixed Charges" will be calculated, without
duplication, after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence of any Indebtedness of the Company or any of
the Restricted Subsidiaries during the period commencing on the first day of
the Four Quarter Period to and including the Transaction Date (the "Reference
Period"), including, without limitation, the incurrence of the Indebtedness
giving rise to the need to make such calculation, as if such

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incurrence occurred on the first day of the Reference Period, except that with
respect to the calculation of Consolidated Interest Expense in the
determination of Consolidated Fixed Charges, the Consolidated Interest Expense
of such Person attributable to interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness based upon the number of days that
such Facility was in existence during the Reference Period, (ii) an adjustment
to eliminate or include, as applicable, the Consolidated Cash Flow Available
for Fixed Charges and Consolidated Fixed Charges of the Company directly
attributable to assets which are the subject of any Asset Sale or Asset
Acquisition (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring Acquired
Indebtedness) occurring during the Reference Period and (iii) the retirement
of Indebtedness during the Reference Period which cannot thereafter be
reborrowed occurring as if retired on the first day of the Reference Period.
In calculating "Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge
Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter will be deemed to accrue at a fixed rate per annum equal to the
rate of interest on such Indebtedness in effect on the Transaction Date; (2)
if interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date shall be deemed to have been
in effect during the Reference Period; and (3) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by Interest Rate Agreements, will be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements. If the Company or any Restricted Subsidiary directly or
indirectly guarantees Indebtedness of a third Person, the above definition
will give effect to the incurrence of such guaranteed Indebtedness as if the
Company or any Restricted Subsidiary had directly incurred or otherwise
assumed such guaranteed Indebtedness.

"Consolidated Fixed Charges" means, for any period, the sum of, without
duplication, the amounts for such period of (i) Consolidated Interest Expense;
and (ii) the aggregate amount of cash dividends and other distributions paid
or accrued during such period in respect of Redeemable Capital Stock and
Preferred Stock of the Company.

"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes payable by the Company and the
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.

"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of the Company and the Restricted
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (i) any amortization of
debt discount attributable to such period, (ii) the net cost under or
otherwise associated with Interest Rate Agreements, Currency Agreements
including any amortization of discounts, (ii) the interest portion of any
deferred payment obligation, (iv) all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing and (v) all capitalized interest and all accrued interest, and (b)
all but the principal component of Capitalized Lease Obligations, paid,
accrued and/or scheduled to be paid or accrued by the Company and the
Restricted Subsidiaries during such period and as determined on a consolidated
basis in accordance with GAAP.

"Consolidated Net Income" means, for any period, the consolidated net income
(or loss) of the Company and the Restricted Subsidiaries for such period on a
consolidated basis as determined in accordance with GAAP, adjusted, to the
extent included in calculating such net income (or loss), by excluding,
without duplication, (i) all extraordinary gains or losses (net of all fees
and expenses relating thereto), (ii) the portion of net income (or loss) of
the Company and its Restricted Subsidiaries on a consolidated basis allocable
to minority interests in unconsolidated Persons, except to the extent that
cash dividends or distributions are actually received by the Company or a
Restricted Subsidiary, (iii) income of the Company and the Restricted
Subsidiaries derived from or in respect of Investments in Unrestricted
Subsidiaries, except to the extent that cash dividends or distributions

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are actually received by the Company or a Restricted Subsidiary, (iv) net
income (or loss) of any Person combined with the Company or any of the
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (v) any gain or loss, net of taxes,
realized upon the termination of any employee pension benefit plan, (vi) net
gains (or losses), net of taxes, less all fees and expenses relating thereto,
in respect of any Asset Sales by the Company or a Restricted Subsidiary, (vii)
the net income of any Restricted Subsidiary to the extent that the declaration
of dividends or similar distributions by that Restricted Subsidiary of that
income is not at the time permitted, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (viii) any restoration to income of any
contingency reserve except to the extent provision for such reserve was made
out of income, accrued at any time following the Issue Date, (ix) any gain,
arising from the acquisition of any securities, or the extinguishment, under
GAAP, of any Indebtedness of the Company and (x) the net non-cash compensation
expense incurred in connection with the issuance or exercise of any employee
stock options the issuance of which was approved by the board of directors of
the Company.

"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and the
Restricted Subsidiaries reducing Consolidated Net Income for such period
(other than any non-cash item requiring an accrual or reserve for cash
disbursements in any future period), determined on a consolidated basis in
accordance with GAAP.

"Consolidated Tangible Assets" means, at any date, the total assets, less
goodwill and other intangibles, of the Company and the Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP as of the most
recent date for which a consolidated balance sheet of the Company is
available.

"covenant defeasance" has the meaning set forth under "--Defeasance or
Covenant Defeasance of Indenture."

"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or its Restricted Subsidiaries against fluctuations in currency
values.

"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.

"defeasance" has the meaning set forth under "--Defeasance or Covenant
Defeasance of Indenture."

"Designated Senior Indebtedness" means (a) all Senior Indebtedness
outstanding from time to time under the Revolving Credit Facility and (b) any
other Senior Indebtedness which, at the time of determination, is specifically
designated in the instrument governing such Senior Indebtedness as "Designated
Senior Indebtedness" by the Company and which, at the time of determination,
has an outstanding principal amount at least equal to $10.0 million.

"Designation" has the meaning set forth under "--Certain Covenants--
Limitations on Unrestricted Subsidiaries."

"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitations on Unrestricted Subsidiaries."

"Eligible Securities" means Capital Stock of any Person (or an Affiliate of
such Person) acquiring stock or assets from the Company or any of its
Restricted Subsidiaries which Capital Stock is listed on the New York Stock
Exchange, the American Stock Exchange or quoted on the National Association of
Securities Dealers, Inc.'s Automated Quotation System (National Market) or any
successor exchange or quotation system thereof.

"Event of Default" has the meaning set forth under "--Events of Default."

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"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.

"Exempted Affiliate Transaction" means any transaction solely between the
Company and any of its Wholly-Owned Restricted Subsidiaries or solely among
Wholly-Owned Restricted Subsidiaries.

"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair Market Value shall be
determined by the Board of Directors of the Company acting in good faith
evidenced by a board resolution thereof delivered to the Trustee.

"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."

"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for applicable periods.

"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.

"incur" has the meaning set forth in "--Certain Covenants--Limitation on
Indebtedness," and the terms "incurrence," "incurred," and "incurring" shall
have the meanings correlative to the foregoing.

"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities incurred or arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit, bankers
acceptance or other similar credit transaction and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for
value any Capital Stock of such Person, or any warrants, rights or options to
acquire such Capital Stock, now or hereafter outstanding, (ii) all obligations
of such Person evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even if the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), but excluding trade payables arising in the ordinary course of
business, (iv) all Capitalized Lease Obligations of such Person, (v) all
Indebtedness referred to in clauses (i) through (iv) above of other Persons
and all dividends of other Persons, the payment of which is secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or with respect to property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (vi) all guarantees of Indebtedness by such
Person, (vii) except for purposes of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," all Redeemable Capital Stock
issued by such Person valued at the greater of its voluntary or involuntary
maximum fixed repurchase price plus accrued and unpaid dividends and (viii)
all obligations under Interest Rate Agreements, Currency Agreements or
Commodity Price Protection Agreements of such Person (net of any payments owed
to such Person thereunder to the extent such Person's obligations thereunder
are subject to offset by the amount of payments owed to such Person
thereunder), and (ix) any amendment, supplement, modification, deferral,
renewal, extension, refunding or refinancing of any liability of the types
referred to in clauses (i) through (viii) above. For purposes hereof, the
"maximum fixed repurchase

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price" of any Redeemable Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable
Capital Stock as if such Redeemable Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Redeemable Capital Stock, such Fair Market Value shall be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.

"Independent Financial Advisor" means a nationally recognized accounting,
appraisal or investment banking firm (i) which does not, and whose directors,
officers and employees or Affiliates do not have, a direct or indirect
financial interest in the Company and (ii) which, in the judgment of the Board
of Directors of the Company, is otherwise independent and qualified to perform
the task for which it is to be engaged.

"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: obligations
of any Person pursuant to any arrangement with any other Person whereby,
directly or indirectly, such Person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount in exchange for periodic payments made by
such Person calculated by applying a fixed or a floating rate of interest on
the same notional amount or any other arrangement involving payments by or to
such Person based upon fluctuations in interest rates (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
and/or other types of interest rate hedging agreements from time to time.

"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit (including by means of a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others or otherwise), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by any other Person and all other items that would be
classified as investments on a balance sheet prepared in accordance with GAAP.
Investments shall exclude (i) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices and (ii) any
property or assets received solely in consideration for the issuance of
Capital Stock of the Company. In addition to the foregoing, any Currency
Agreement, Interest Rate Agreement or similar agreement shall constitute an
Investment in the net amount required to be set forth on such Person's balance
sheet in accordance with GAAP. Upon the sale of any portion of the Capital
Stock of any Restricted Subsidiary by the Company or any other Restricted
Subsidiary, the Company or such other Restricted Subsidiary shall be deemed to
have made an Investment in the amount of its remaining Investment, if any, in
such Person.

"Issue Date" means the original issue date of the Notes under the Indenture.

"Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory
or other), privilege, security interest, hypothecation, cessation and
transfer, lease of real property, assignment for security, claim, deposit
arrangement, or preference or priority or other encumbrance upon or with
respect to any property of any kind (including any conditional sale, capital
lease or other title retention agreement, any leases in the nature thereof,
and any agreement to give any security interest), whether real, personal or
mixed, movable or immovable, now owned or hereafter acquired. A Person shall
be deemed to own subject to a Lien any property which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.

"L. J. Melody" means L. J. Melody & Company, a Texas corporation.

"Material Subsidiary" means each Restricted Subsidiary of the Company that
is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under
the Securities Act and the Exchange Act (as such regulation is in effect on
the Issue Date).

"Melody Loan Arbitrage Facility" means a credit facility provided to L. J.
Melody by any depository bank in which L. J. Melody deposits payments made on
mortgage loans for which L. J. Melody is servicer prior to

S-78
<PAGE>

distribution of such payments to or for the benefit of the holders of such
loans, so long as (i) L. J. Melody applies all proceeds of loans made under
such credit facility to purchase Cash Equivalents and (ii) all Cash
Equivalents purchased by L. J. Melody with the proceeds of loans thereunder
(and proceeds thereof and distributions thereon) are pledged to the depository
bank providing such credit facility, and such bank has a first priority
perfected security interest therein, to secure loans made under such credit
facility.

"Melody Mortgage Warehousing Facility" means the credit facility provided by
Residential Funding Corporation ("RFC") or any substantially similar facility,
pursuant to which RFC or another lender makes loans to L. J. Melody, the
proceeds of which loans are applied by L. J. Melody to fund commercial
mortgage loans originated and owned by L. J. Melody subject to an
unconditional, irrevocable commitment to purchase such mortgage loans by the
Federal Home Loan Mortgage Corporation, so long as loans made by RFC or such
other lender to L. J. Melody thereunder are secured by a pledge of commercial
mortgage loans made by L. J. Melody with the proceeds of such loans, and RFC
or such other lender has a perfected first priority security interest therein,
to secure loans made under such credit facility.

"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof (without duplication in respect of all Asset Sales) in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets
when disposed of for, cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary) net of (i) brokerage commissions and other reasonable
fees and expenses (including fees and expenses of legal counsel and investment
bankers) related to such Asset Sale, (ii) provision for all taxes payable as a
result of such Asset Sale, (iii) payments made to retire Indebtedness where
payment of such Indebtedness is secured by the assets or properties the
subject of such Asset Sale, (iv) amounts required to be paid to any Person
(other than the Company or any Restricted Subsidiary) owning a beneficial
interest in or having a Lien on the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale
(provided that the amount of any such reserves shall be deemed to constitute
Net Cash Proceeds at the time such reserves shall have been released or are
not otherwise required to be retained as a reserve), all as reflected in an
officers' certificate delivered to the Trustee and (b) with respect to any
issuance or sale of shares of Capital Stock that have been converted into or
exchanged for shares of Capital Stock as referred to under "--Certain
Covenants--Limitation on Restricted Payments," the proceeds of such issuance
or sale in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of, or stock or
other assets when disposed of for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary), net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.

"Pari Passu Indebtedness" means any Indebtedness of the Company which ranks
pari passu in right of payment of the Notes.

"Permitted Indebtedness" has the meaning set forth under "--Certain
Covenants--Limitation on Indebtedness."

"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and base utility
and workers' compensation performance and other similar deposits; (c) loans
and advances to vendors, employees and sales representatives, in each case,
made in the ordinary course of business and not to exceed $12.5 million in the
aggregate at any one time outstanding; (d) Interest Rate Agreements, Currency
Agreements and Commodity Price Protection Agreements permitted under clause
(vi) or (vii) of the second paragraph under "--Certain Covenant--Limitation on
Indebtedness"; (e) Investments represented by accounts receivable created or
acquired in the ordinary course of business;

S-79
<PAGE>

(f) Investments existing on the Issue Date and any renewal or replacement
thereof on terms and conditions no less favorable in any respect than that
existing on the Issue Date; (g) any Investment to the extent that the
consideration therefor is Qualified Capital Stock of the Company; (h) bonds,
notes, debentures or other securities or other non-cash proceeds received in
connection with an Asset Sale permitted under "--Certain Covenants--Limitation
on Sale of Assets," not to exceed 20% of the total consideration in such Asset
Sale; (i) Indebtedness permitted under clauses (iv) and (v) of the second
paragraph under "--Certain Covenants--Limitation on Indebtedness";
(j) Investments in any of the Notes or any other debt securities of the
Company not otherwise prohibited by the Indenture; and (k) the initial
Investment in any non-U.S. Person that becomes a Restricted Subsidiary,
pursuant to which the Company or a Wholly-Owned Restricted Subsidiary acquires
90% or more of the voting and economic interests therein.

"Permitted Melody Indebtedness" means Indebtedness of L. J. Melody under the
Melody Loan Arbitrage Facility and the Melody Mortgage Warehousing Facility.

"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency, authority or
political subdivision thereof.

"Preferred Stock" means, with respect to any Person, Capital Stock of any
class or, classes (however designated) of such Person which is preferred as to
the payment of dividends or distributions or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such person,
over Capital Stock of any other class of such Person.

"Public Equity Offering" has the meaning set forth under "--Optional
Redemption--Optional Redemption upon Public Equity Offering."

"Qualified Capital Stock" of any person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.

"Rating Agencies" means (i) Standard & Poor's Ratings Group and (ii) Moody's
Investors Service, Inc. or (iii) if Standard & Poor's Ratings Group or Moody's
Investors Service, Inc. or both shall not make a rating of the Notes publicly
available, a nationally recognized securities rating agency or agencies, as
the case may be, selected by the Company, which shall be substituted for
Standard & Poor's Ratings Group, Moody's Investors Service, Inc. or both, as
the case may be.

"Redeemable Capital Stock" means any class or series of Capital Stock to the
extent that, either by its terms, by the terms of any security into which it
is convertible or exchangeable, or by contract or otherwise, is or upon the
happening of an event or passage of time would be, required to be redeemed
prior to any Stated Maturity of the principal of the Notes or is redeemable at
the option of the holder thereof at any time prior to such stated Maturity, or
is convertible into or exchangeable for debt securities at any time prior to
such Stated Maturity.

"Reference Period" has the meaning set forth under the definition of
"Consolidated Fixed Charge Coverage Ratio."

"Related Business" means real estate services related businesses or a line
of business reasonably related to the business conducted by the Company or any
of its Subsidiaries at such time.

"Restricted Payment" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments."

"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a board
resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with the covenant described under "--Certain Covenants--
Limitations on

S-80
<PAGE>

Unrestricted Subsidiaries." Any such Designation may be revoked by a board
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of such covenant.

"Revocation" has the meaning set forth under "--Certain Covenants--
Limitations on Unrestricted Subsidiaries."

"Revolving Credit Facility" means amended and restated credit agreement to
be entered into on or about May 26, 1998 among the Company and Bank of America
National Trust and Savings Association, as agent, and the other financial
institutions party thereto, together with the related documents thereto
(including, without limitation, any guarantee agreements, pledge agreements
and security documents), in each case as such agreements may be amended
(including any amendment and restatement thereof), supplemented or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including increasing the
amount of available borrowings thereunder (provided that such increase in
borrowings is permitted under the provisions of the Indenture described under
"--Certain Covenants--Limitation on Indebtedness") or adding Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.

"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated by the Commission thereunder.

"Senior Indebtedness" means, with respect to the Company, the principal of,
premium, if any, and interest on any Indebtedness of the Company whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to any
Indebtedness of the Company. Without limiting the generality of the foregoing,
"Senior Indebtedness" will also include the principal of, premium, if any, and
interest (including interest that would accrue but for the filing of a
petition initiating any proceeding under any state or federal bankruptcy laws,
whether or not such claim is allowable in such proceeding at the rate provided
for in the documentation with respect thereto) on, and all other amounts owing
in respect of, all obligations of every nature of the Company, from time to
time owed to the lenders under the Revolving Credit Facility including,
without limitation, principal of and interest on, and reimbursement
obligations under letters of credit and all fees, expenses and indemnities
payable under the Revolving Credit Facility. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include, to the extent constituting
Indebtedness, (i) Indebtedness evidenced by the Notes (ii) Indebtedness that
is subordinate or junior in right of payment to any Indebtedness of the
Company, (iii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is without
recourse to the Company, (iv) Indebtedness which is represented by Redeemable
Capital Stock, (v) Indebtedness for goods, materials or services purchased in
the ordinary course of business or Indebtedness consisting of trade payables
or other current liabilities (other than any current liabilities owing under
the Revolving Credit Facility or the current portion of any long-term
Indebtedness which would constitute Senior Indebtedness but for the operation
of this clause (v)), (vi) Indebtedness of or amounts owed by the Company for
compensation to employees or for services rendered to the Company, (vii) any
liability for federal, state, local or other taxes owed or owing by the
Company, (viii) Indebtedness of the Company to a Subsidiary of the Company,
and (ix) that portion of any Indebtedness which at the time of issuance is
issued in violation of the Indenture.

"Stated Maturity" means, with respect to any Note or any installment of
interest thereon, the dates specified in such Note as the fixed date on which
the principal of such Note or such installment of interest is due and payable,
and when used with respect to any other Indebtedness means the date specified
in the instrument governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or any installment of interest is due and
payable.

"Subordinated Indebtedness" means, with respect to the Company, Indebtedness
of the Company which is expressly subordinated in right of payment to the
Notes.

S-81
<PAGE>

"Subordinated Obligations" means Indebtedness represented by, and all
obligations in respect of, the Notes and the payment of principal of, premium,
if any, interest on, and all other amounts owing in respect of, the Notes.

"Subsidiary" means, with respect to any Person, (a) any corporation of which
the outstanding shares of Voting Stock having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such Person, or (b) any other Person of which at
least a majority of the shares of Voting Stock are at the time, directly or
indirectly, owned by such first named Person.

"Surviving Person" means, with respect to any Person involved in any
consolidation or merger, or any sale, assignment, conveyance, transfer, lease
or other disposition of all or substantially all of its properties and assets
as an entirety, the Person formed by or surviving such merger or consolidation
or the Person to which such sale, assignment, conveyance, transfer or lease is
made.

"Transaction Date" has the meaning set forth under the definition of
"Consolidated Fixed Charge Coverage Ratio."

"Unrestricted Subsidiary" means each Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--
Certain Covenants--Limitations on Unrestricted Subsidiaries," and each
Subsidiary of each such Subsidiary of the Company. Any such designation may be
revoked by a board resolution of the Company delivered to the Trustee, subject
to the provisions of such covenant.

"Unutilized Net Cash Proceeds" has the meaning set forth under "--Certain
Covenants--Limitation on Sale of Assets."

"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).

"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company and/or
another Wholly-Owned Restricted Subsidiary. For purposes of this definition,
any directors' qualifying shares shall be disregarded in determining the
ownership of a Restricted Subsidiary.

S-82
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), BancAmerica Robertson Stephens and
NationsBanc Montgomery Securities LLC (the "Underwriters"), the Company has
agreed to sell to the Underwriters, and the Underwriters have severally agreed
to purchase, the respective principal amount of Notes set forth opposite their
names below. The Purchase Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Notes if any are
purchased.

<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL AMOUNT
----------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................... $103,425,000
BancAmerica Robertson Stephens.............................. 47,775,000
NationsBanc Montgomery Securities LLC....................... 23,800,000
------------
Total.................................................. $175,000,000
============
</TABLE>

The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession not in excess of .25% of the principal amount of the Notes.
The Underwriters may allow, and such dealers may re-allow, a discount not in
excess of .125% of the principal amount of the Notes to certain other dealers.
After the Offering, the public offering price, concession and discount may be
changed by the Underwriters.

The Notes will be a new issue of securities for which there currently is no
market. Although the Underwriters have informed the Company that they each
currently intend to make a market in the Notes, they are not obligated to do
so and any such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the liquidity of or development
of any market for the Notes. The Company does not intend to apply for listing
of the Notes on any securities exchange or for quotation thereof on any
automated quotation system.

The Company has agreed that, during a period of 180 days from the date of
this Prospectus Supplement, it will not, and will not cause or permit any of
its Subsidiaries to, without the prior written consent of Merrill Lynch, sell,
offer to sell, grant any option for the sale of, or otherwise dispose of, any
Notes or any other debt securities of the Company or any of its Subsidiaries,
or any securities convertible into or exchangeable or exercisable for any
Notes or any such other debt securities, except for Notes sold to the
Underwriters pursuant to the Purchase Agreement and except for certificates of
deposit and repurchase agreements and reverse repurchase agreements entered
into in the ordinary course of business.

Until the distribution of the Notes is completed, rules of the SEC may limit
the ability of the Underwriters to bid for and purchase the Notes. Pursuant to
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Notes. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Notes.

If the Underwriters create a short position in the Notes in connection with
the Offering, i.e., if they sell more Notes than set forth on the cover page
of this Prospectus Supplement, the Underwriters may reduce that short position
by purchasing Notes in the open market. In general, purchases of a security
for the purpose of stabilization or to reduce a short position could cause the
price of the security to be higher than it might be in the absence of such
purchases.

Neither the Company nor any of the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Notes. In addition,
neither the Company nor any of the Underwriters make any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

S-83
<PAGE>

The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in
respect thereof.

The participation of the Underwriters in the offer and sale of the Notes
will comply with the requirements of Rules 2710(c)(8) and 2720(c)(3) of the
Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD") regarding underwriting securities of a company with which a member of
the NASD or its associated persons, parent or affiliates have a conflict of
interest. An affiliate of BancAmerica Robertson Stephens will receive more
than 10% of the net proceeds of the Offering as repayment of indebtedness.
Accordingly, Merrill Lynch is acting as a "qualified independent underwriter"
in connection with the offer and sale of the Notes and is assuming the
responsibilities of acting as a qualified independent underwriter in pricing
the Offering and conducting due diligence.

The Underwriters, agents or their controlling persons may engage in
transactions with and perform services for the Company in the ordinary course
of business. Merrill Lynch has from time to time provided investment banking
services to the Company in connection with various transactions and proposed
transactions. In addition, Merrill Lynch and NationsBanc Montgomery Securities
acted as underwriters in the Company's initial public offering of Common
Stock. Merrill Lynch also acted as advisor to the Company in connection with
the acquisition of Koll. Bank of America NT&SA, an affiliate of BancAmerica
Robertson Stephens, acts as administrative agent under the Company's Revolving
Credit Facility and will act as administrative agent under the Amended
Revolving Credit Facility.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Notes offered
hereby will be passed upon for the Company by Pillsbury Madison & Sutro LLP,
Los Angeles, California and for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, Los Angeles, California.

EXPERTS

The consolidated financial statements and related schedules of the Company
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 the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
included or incorporated in this Prospectus Supplement and the accompanying
Prospectus by reference have been audited by Arthur Andersen LLP, independent
public accountants as indicated in their report 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 report.

S-84
<PAGE>

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1997, and 1996........... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995.................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1996 and 1995................................. F-7
Notes to Consolidated Financial Statements.............................. F-8
SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS
I--Condensed Financial Information of Registrant........................ F-27
II--Valuation and Qualifying Accounts................................... F-28
</TABLE>

All other schedules are not submitted because either they are not
applicable, not required or the information required is included in the
Consolidated Financial Statements, including the notes thereto.

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of CB Commercial Real Estate
Services Group, Inc.:

We have audited the accompanying consolidated balance sheets of CB
Commercial Real Estate Services Group, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 1997, and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CB Commercial Real Estate
Services Group, Inc. and subsidiaries as of December 31, 1997, and 1996, and
the results of their operations and its cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements are presented for purposes of complying with
the Securities and Exchange Commissions rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

Arthur Andersen LLP

Los Angeles, California
February 14, 1998

F-2
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 47,181 $ 49,328
Receivables, less allowance of $8,980 and $4,423 for
doubtful accounts at December 31, 1997 and 1996,
respectively........................................... 77,734 40,927
Deferred taxes.......................................... 2,890 16,257
Prepaid expenses........................................ 9,819 1,685
Other assets............................................ 12,789 5,755
--------- ---------
Total current assets.................................. 150,413 113,952
Property and equipment, net.............................. 50,309 40,835
Goodwill, net of accumulated amortization of $13,561 and
$7,563 at December 31, 1997 and 1996.................... 196,358 65,362
Other intangible assets, net of accumulated amortization
of $261,519 and $253,061 at December 31, 1997 and 1996.. 43,026 10,521
Inventoried property..................................... 7,355 7,355
Deferred taxes........................................... 34,967 35,146
Other assets, net........................................ 22,763 5,773
--------- ---------
Total assets.......................................... $ 505,191 $ 278,944
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Compensation and employee benefits...................... $ 56,389 $ 38,747
Accounts payable and accrued expenses................... 61,345 28,020
Reserve for bonus and profit sharing.................... 33,538 21,414
Current maturities of long-term debt.................... 4,949 15,314
Current portion of capital lease obligations............ 1,655 2,510
--------- ---------
Total current liabilities............................. 157,876 106,005
--------- ---------
Long-term debt, less current maturities:
Senior term loans....................................... 136,551 65,528
Senior subordinated term loans.......................... -- 72,872
Inventoried property loan............................... 7,470 7,470
Other long-term debt.................................... 2,083 2,659
--------- ---------
Total long-term debt.................................. 146,104 148,529
--------- ---------
Other long-term liabilities.............................. 35,768 25,830
--------- ---------
Total liabilities..................................... 339,748 280,364
--------- ---------
Minority interest........................................ 7,672 95

Commitments and contingencies

Stockholders' Equity (Deficit):
Preferred stock, $.01 par value......................... 40 40
Common stock, $.01 par value............................ 188 133
Additional paid-in capital.............................. 333,981 198,026
Notes receivable from sale of stock..................... (5,956) (5,109)
Accumulated deficit..................................... (170,482) (194,605)
--------- ---------
Total stockholders' equity (deficit).................. 157,771 (1,515)
--------- ---------
Total liabilities and stockholders' equity (deficit).. $ 505,191 $ 278,944
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue................................... $ 730,224 $ 583,068 $ 468,460
Costs and expenses:
Commissions, fees and other incentives.. 365,705 292,266 239,018
Operating, administrative and other..... 274,447 228,799 187,968
Merger related and other non-recurring
charges................................ 12,924 -- --
Depreciation and amortization........... 18,060 13,574 11,631
----------- ----------- -----------
Operating income.......................... 59,088 48,429 29,843
Interest income........................... 2,598 1,503 1,674
Interest expense.......................... 15,780 24,123 23,267
----------- ----------- -----------
Income before provision (benefit) for
income tax............................... 45,906 25,809 8,250
Provision for income tax.................. 20,558 11,160 841
Reduction of valuation allowances......... -- (55,900) --
----------- ----------- -----------
Net provision (benefit) for income tax.... 20,558 (44,740) 841
----------- ----------- -----------
Income before extraordinary items......... 25,348 70,549 7,409
Extraordinary items, net.................. 951 -- --
----------- ----------- -----------
Net income................................ $ 24,397 $ 70,549 $ 7,409
=========== =========== ===========
Net income applicable to common
stockholders............................. $ 20,397 $ 69,549 $ 7,409
=========== =========== ===========
Basic earnings per share.................. $ 1.34 $ 5.05 $ 0.55
=========== =========== ===========
Weighted average shares outstanding for
basic earnings per share................. 15,237,914 13,783,882 13,499,862
=========== =========== ===========
Diluted earnings per share................ $ 1.28 $ 4.99 $ 0.55
=========== =========== ===========
Weighted average shares outstanding for
diluted earnings per share............... 15,996,929 14,126,636 13,540,541
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 24,397 $ 70,549 $ 7,409
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization excluding
deferred financing costs............... 18,060 13,574 11,631
Amortization of deferred financing
costs.................................. 983 2,840 1,392
Extraordinary items, net................ 951 -- --
Equity interest in (earnings) loss of
unconsolidated subsidiaries............ 113 (145) 180
Provision for litigation, doubtful
accounts and other..................... 2,421 9,543 346
Deferred interest....................... -- 6,927 7,738
Deferred compensation................... 6,121 2,159 1,762
Deferred taxes.......................... 17,122 (46,128) --
(Increase) decrease in receivables........ (6,073) (14,378) (1,778)
(Increase) decrease in prepaid expenses
and other assets......................... (10,634) 794 396
Increase in compensation and employee
benefits payable......................... 19,772 19,793 3,276
Increase (decrease) in other operating
liabilities.............................. 7,602 166 (1,720)
-------- -------- --------
Net cash provided by operating
activities........................... 80,835 65,694 30,632
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....... (9,927) (3,002) (2,143)
Proceeds from collections on notes
receivable............................... 2,236 2,726 215
Increase in intangibles and goodwill...... (8,478) (1,321) --
Acquisitions of businesses including net
assets acquired, intangibles and
goodwill................................. 3,216 (8,625) (22,376)
Other investing activities, net........... (5,065) (684) (584)
-------- -------- --------
Net cash used in investing activities. (18,018) (10,906) (24,888)
-------- -------- --------
Cash flows from financing activities:
Proceeds from senior revolving credit
line..................................... 16,000 21,000 14,000
Repayment of senior revolving credit line. (16,000) (21,000) (14,000)
Proceeds from senior term loans........... 155,000 -- --
Repayment of senior term loans............ (93,950) (95,865) (18,997)
Repayment of other loans.................. (45,431) (492) (251)
Proceeds from senior subordinated term
loan..................................... -- -- 10,000
Repayment of senior subordinated term
loan..................................... (74,872) (6,044) --
Repayment of capital leases............... (2,773) (2,945) (2,167)
Proceeds from issuance of common stock.... 2,430 79,540 --
Other financing activities, net........... (5,368) (2,699) (54)
-------- -------- --------
Net cash used in financing activities. (64,964) (28,505) (11,469)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................ (2,147) 26,283 (5,725)
Cash and cash equivalents, at beginning of
period..................................... 49,328 23,045 28,770
-------- -------- --------
Cash and cash equivalents, at end of period. $ 47,181 $ 49,328 $ 23,045
======== ======== ========
</TABLE>

F-5
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Supplemental Data:
Cash paid during the year for:
Interest (none capitalized).................. $ 14,073 $25,899 $14,410
Federal and state income taxes............... $ 2,736 $ 1,284 $ 497
Non-cash investing and financing activities:
Portion of Westmark acquisition financed by
notes payable............................... $ -- $ -- $20,283
Portion of L.J. Melody acquisition financed
by notes payable............................ $ -- $ 3,667 $ --
Equipment acquired under capital leases...... $ 2,299 $ 1,701 $ 3,347
Acquisition of Koll.......................... $132,873 $ -- $ --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NOTES
COMMON RECEIVABLE
STOCK ADDITIONAL FROM FOREIGN
PREFERRED COMMON OPTIONS PAID-IN SALE OF ACCUMULATED CURRENCY
STOCK STOCK OUTSTANDING CAPITAL STOCK DEFICIT TRANSLATION TOTAL
--------- ------ ----------- ---------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... $40 $ 89 $294 $107,708 $ -- $(272,679) $ -- $(164,548)
Net income............. -- -- -- -- -- 7,409 -- 7,409
Common stock issued for
deferred compensation. -- 4 -- 2,322 -- -- -- 2,326
Common stock options
exercised............. -- -- (31) 33 -- -- -- 2
Foreign currency
translation gain...... -- -- -- -- -- -- 123 123
--- ---- ---- -------- ------- --------- ----- ---------
Balance, December 31,
1995................... 40 93 263 110,063 -- (265,270) 123 (154,688)
Net income............. -- -- -- -- -- 70,549 -- 70,549
Common stock issued for
deferred compensation
and other incentives.. -- 8 -- 7,660 (5,109) -- -- 2,559
Common stock options
exercised............. -- -- (4) 104 -- -- -- 100
Preferred dividend
accrual............... -- -- -- (1,000) -- -- -- (1,000)
Net proceeds from
initial public
offering.............. -- 32 -- 79,399 -- -- -- 79,431
Benefit of permanent
deferred tax asset.... -- -- -- 1,541 -- -- -- 1,541
Foreign currency
translation loss...... -- -- -- -- -- -- (7) (7)
--- ---- ---- -------- ------- --------- ----- ---------
Balance, December 31,
1996................... 40 133 259 197,767 (5,109) (194,721) 116 (1,515)
Net income............. -- -- -- -- -- 24,397 -- 24,397
Common stock issued for
deferred compensation
and other incentives.. -- -- -- 4,707 (897) -- -- 3,810
Collection on stock
subscription notes.... -- -- -- -- 50 -- -- 50
Common stock issued for
Koll acquisition...... -- 52 -- 132,821 -- -- -- 132,873
Common stock options
exercised............. -- 3 (17) 2,444 -- -- -- 2,430
Preferred dividend
accrual............... -- -- -- (4,000) -- -- -- (4,000)
Foreign currency
translation loss...... -- -- -- -- -- -- (274) (274)
--- ---- ---- -------- ------- --------- ----- ---------
Balance, December 31,
1997................... $40 $188 $242 $333,739 $(5,956) $(170,324) $(158) $ 157,771
=== ==== ==== ======== ======= ========= ===== =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997

1. ORGANIZATION AND ACQUISITIONS

Organization. CB Commercial Real Estate Services Group, Inc. (formerly CB
Commercial Holdings, Inc.) ("CB Commercial") was organized to acquire Coldwell
Banker Commercial Group, Inc. and had no operations prior to the acquisition
on April 19, 1989 (the "Acquisition"). In 1991 Coldwell Banker Commercial
Group, Inc. was renamed CB Commercial Real Estate Group, Inc. On November 25,
1996, CB Commercial completed an initial public offering (the "Offering") of
4,347,000 shares of common stock, par value $.01 per share (the "Common
Stock"). The net proceeds from the Offering of $79.5 million were used to
repay a portion of CB Commercial's then outstanding senior secured
indebtedness and senior subordinated indebtedness. CB Commercial is a holding
company that conducts its operations primarily through CB Commercial Real
Estate Group, Inc. and its subsidiaries (collectively the "Company").

Nature of operations. The Company provides a full range of services to
commercial real estate tenants, owners, and investors including: (i) brokerage
(commercial property sales and leasing) ("Brokerage Services"), (ii)
outsourcing, transaction management, advisory services and facilities
management (collectively, "Corporate Services"), (iii) property management
("Institutional Management Services"), and (iv) investment property services
(acquisitions and sales on behalf of investors), mortgage loan origination and
servicing, investment management and advisory services, valuation and
appraisal services and real estate market research (collectively, "Financial
Services"). The Company's diverse client base includes local, national and
multinational corporations, financial institutions, pension funds and other
tax exempt entities, local, state and national governmental entities, and
individuals.

A significant portion of the Company's revenue is transactional in nature
and seasonal. Historically, this seasonality has caused the Company's revenue,
operating income and net income to be lower in the first two calendar quarters
and higher in the third and fourth calendar quarters of each year.

Acquisitions. Effective August 28, 1997 the Company purchased Koll Real
Estate Services ("Koll") through a merger. Under the terms of the agreement,
CB Commercial exchanged 5,187,737 shares of its common stock and 407,087 stock
options, as well as warrants to purchase an additional 599,967 shares at
$30.00 per share, subject to adjustment, for all of the outstanding stock and
stock options of Koll. The transaction, a tax-free reorganization accounted
for as a purchase, resulted in the issuance of equity valued at approximately
$132.9 million and the assumption of debt and minority interest of
approximately $57.4 million as of August 28, 1997. The initial purchase price
in excess of the net identifiable assets acquired totaled $95.3 million
including $20.0 million relating to incentive fees on investments fund
partnerships which will be earned as assets within the funds are sold and is
included, net of amortization, in goodwill and other intangible assets,
respectively, on the accompanying balance sheet. Goodwill is being amortized
on a straight line basis over 30 years. In the third quarter of 1997 CB
Commercial recorded the effects of a charge for merger related costs of $11.2
million, which is included in total merger related costs of $12.9 million.
These charges represent $8.8 million of accrued merger costs including costs
of future lease obligations on redundant assets and severance costs and $2.4
million of merger related incentive payments to Westmark Realty Advisors
L.L.C. ("Westmark") sellers.

The merger did not include several other entities which use the Koll name,
including, but not limited to, Koll Construction, Koll Real Estate Group (the
development and investment company) and Koll International (resorts and
recreational developments).

Effective July 1, 1996, CB Commercial Mortgage Company, Inc. ("CB
Mortgage"), a wholly-owned subsidiary of the Company, acquired all of the
outstanding capital stock of L.J. Melody & Company, a Texas corporation, and
L.J. Melody & Company of California, a Texas corporation ("LJMCal"). On July
9, 1996, CB

F-8
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Mortgage merged into L.J. Melody & Company. As a result, LJMCal became a
wholly-owned subsidiary of, and subsequently merged into, L.J. Melody &
Company. L.J. Melody & Company ("L.J. Melody") is a commercial mortgage
banking firm engaged in mortgage loan origination and loan servicing,
headquartered in Houston, Texas. The purchase consideration for L.J. Melody
was $15.0 million, including a $2.3 million contingent note to the principal
seller bearing 10.0% interest with principal payments starting in 1998, $9.0
million in cash and $3.7 million in additional senior notes to the sellers.
The notes bore interest of 10.0% per annum, with maturities through July 2001.
The $2.3 million note has been accounted for as compensation over the term of
the note as the payment of this note was contingent upon the principal
seller's continued employment with the Company. In October 1997 the Company
paid the outstanding balance of the senior and contingent notes related to the
L.J. Melody acquisition of $1.1 million and $3.0 million, respectively. Of
this amount, $1.7 million was related to the acceleration of a contingent note
and is included in merger related and other non-recurring charges in the
accompanying statements of operations.

The L.J. Melody acquisition was accounted for as a purchase. The Company
allocated approximately $3.7 million of the total purchase price to
identifiable intangible assets, consisting of loan servicing and asset
management contracts, trade name, a covenant not to compete and other
intangibles. The remaining $9.0 million and a $1.5 million deferred tax
liability resulting from the acquisition were recorded to goodwill. The
intangibles are being amortized over their estimated useful lives or the lives
of the underlying contracts, as applicable, over periods ranging from three to
13 years. Goodwill is being amortized on a straight line basis over 30 years.

On June 30, 1995 CB Commercial Real Estate Group, Inc., through a general
partnership ("WREAP") in which it directly or indirectly owns all of the
partnership interests, acquired Westmark Realty Advisors L.L.C. ("Westmark").
Westmark is an investment management and advisory business headquartered in
Los Angeles. The purchase price consisted of an aggregate initial purchase
price of $37.5 million plus $2.9 million in net liabilities assumed and an
additional $1.0 million in costs related to the Westmark acquisition.
Approximately $20.0 million ($18.9 million at December 31, 1997) of the $37.5
million is payable to the sellers ("Westmark Senior Notes") over periods
ranging from one to five years. The sellers were also entitled to a
supplemental purchase price based on the operating results of Westmark payable
over a period of six years and subject to a maximum aggregate payment of $18.0
million. As of December 31, 1996 approximately $2.8 million of the
supplemental purchase price was earned and recorded as additional goodwill. In
August 1997 the Company agreed to buy out the remaining Westmark supplemental
purchase price for $11.1 million. The Company paid $4.0 million of the
supplemental purchase price on August 15, 1997. The remaining payments were
made on January 15, 1998 and February 14, 1998 for $5.0 million and $2.1
million, respectively. The supplemental purchase price is being amortized over
Westmark goodwill's remaining estimated useful life, initially 30 years.
Approximately $17.5 million of the purchase price was paid in cash using $7.5
million contributed to WREAP by CB Commercial Real Estate Group, Inc. and
$10.0 million of proceeds from a senior subordinated loan ("Westmark Senior
Subordinated Loan"). In November 1996 the terms of the Westmark Senior
Subordinated Loan were amended to provide for interest to be payable quarterly
on a current basis at a rate of 11.0%, effective June 30, 1995, and to provide
for quarterly amortization payments by CB Commercial Real Estate Group, Inc.
of $500,000. Prior to the amendments, interest accrued on the Westmark Senior
Subordinated Loan at the original interest rate of 20.0%. Interest in excess
of 11.0% was forgiven upon the payment of the Westmark Senior Subordinated
Loan in full with the proceeds of the Revolving Credit Facility in August
1997. (See Note 6)

In August 1997 the Company also agreed to buy out an incentive plan related
to the Westmark supplemental purchase price for $2.4 million, which was paid
in August 1997. The buy out is included in merger related and other non-
recurring charges in the accompanying statement of operations and in accounts
payable and accrued expenses in the accompanying balance sheets as of December
31, 1997.

F-9
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

The Westmark acquisition was accounted for as a purchase. The Company has
allocated approximately $6.9 million of the initial purchase price of $41.4
million to identifiable intangible assets acquired, consisting of asset
management contracts, employment agreements, and trade name and the remaining
$34.5 million was recorded as goodwill. The intangibles are being amortized
over their estimated useful lives of 6, 5 and 10 years, respectively. Based on
the nature of the business, Westmark's market position, its workforce and
other factors, management estimates that the goodwill resulting from this
acquisition has a useful life of approximately 30 years and will be amortized
on a straight line basis over this period.

The assets and liabilities of the acquired companies, along with the related
goodwill, intangibles and indebtedness, are reflected in the accompanying
consolidated financial statements as of December 31, 1997 and 1996. The
results of operations of the acquired companies are included in the
consolidated results from the dates they were acquired. The following table
presents summarized pro forma results of operations of the Company for the
years ended December 31, 1997, 1996 and 1995, assuming the L.J. Melody and
Westmark acquisitions had occurred on January 1, 1995 and the Koll Real Estate
Services acquisition had occurred on January 1, 1996 (amounts in thousands
except per share data):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenue........................................... $817,911 $701,301 $489,684
Net income........................................ 5,092 68,068 4,903
Net income applicable to common stockholders...... 1,092 67,068 4,903
Earnings per share
Basic........................................... 0.06 3.53 0.36
Diluted......................................... 0.06 3.52 0.36
</TABLE>

The proforma results do not necessarily represent results which would have
occurred if the acquisitions had taken place on the basis assumed above, nor
are they indicative of the results of future combined operations. The amounts
are based upon certain assumptions and estimates, and do not reflect any
benefit from economies which might be achieved from combined operations.
Further, Koll historical results for the first eight months of 1997 include
certain non-recurring adjustments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company. All significant intercompany accounts and transactions have been
eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with
an original maturity of less than three months.

Goodwill and other Intangible Assets

Goodwill at December 31, 1997 consisted of $176.1 million related to the
1995, 1996 and 1997 acquisitions which is being amortized over an estimated
useful life of 30 years and $20.3 million related to the Company's original
acquisition in 1989 which is being amortized over an estimated useful life of
40 years.

F-10
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Other intangible assets at December 31, 1997 included approximately $2.2
million of deferred financing costs and $40.8 million of intangibles stemming
from the L.J. Melody, Westmark and Koll acquisitions.

The Company periodically evaluates the recoverability of the carrying amount
of goodwill and other intangible assets. In this assessment, the Company
considers macro market conditions and trends in the Company's relative market
position, its capital structure, lender relationships and the estimated
undiscounted future cash flows associated with these assets. If any of the
significant assumptions inherent in this assessment materially change due to
market, economic and/or other factors, the recoverability is assessed based on
the revised assumptions and resultant undiscounted cash flows. If such
analysis indicates impairment, it would be recorded in the period such changes
occur based on the fair value of the goodwill and other intangible assets. In
the third quarter 1997, the Company wrote off the remaining Langdon Rieder
goodwill of $2.1 million, which has been recorded to amortization expense in
the accompanying statement of operations.

Investments in Unconsolidated Subsidiaries

Investments in unconsolidated subsidiaries in which the Company does not
have majority control are accounted for under the equity method. (See Note 4)

Income Recognition

Real estate commissions on sales are recorded as income upon close of escrow
or upon transfer of title. Real estate commissions on leases are generally
recorded as income upon the earlier of date of occupancy or cash receipt
unless significant future contingencies exist. Realty advisor incentive fees
are recognized when earned under the provisions of the related advisory
agreements. Other commissions and fees are recorded as income at the time the
related services have been performed unless significant future contingencies
exist.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
at the date of the financial statements and the reported amounts of certain
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Management believes that these estimates provide a
reasonable basis for the fair presentation of its financial condition and
results of operations.

Certain Significant Estimates

Deferred Taxes. The Company has net deferred tax assets of approximately
$67.8 million at December 31, 1997, of which $29.9 has been reserved through a
valuation allowance. The valuation allowance is based on management's
conclusion regarding the realizability of this asset on a more likely than not
basis, as defined in SFAS No. 109. In reaching this conclusion management
considered the Company's past operating results, as well as the current year
events and trends, including the impact if any, of the acquisitions that were
concluded during the year as well as other factors. Management will continue
to evaluate the appropriateness of all or part of this valuation allowance on
a periodic basis and if its conclusions change with respect to realizability,
any necessary adjustments will be made at that time. The impact of these
adjustments, if any, could be material to the Company's financial statements.
(See Note 9)

F-11
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Per Share Information

In 1997 the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share, which establishes standards for
computing and presenting earnings per share ("EPS"). As a result, earnings per
share for 1996 and 1995 were restated as indicated below. Basic earnings per
share was computed by dividing net income, less preferred dividend
requirements, by the weighted average number of common shares outstanding
during each year. The computation of diluted earnings per share further
assumes the dilutive effect of stock options and, during periods when
preferred stock was convertible, the conversion of the preferred stocks when
dilutive. In 1997 the preferred stock was anti-dilutive. The adoption of SFAS
No. 128 resulted only in changing the previously reported fully diluted
earnings per share for 1996 from $4.97 per share to $4.99 per share.

The following is a calculation of earnings per share for the years ended
December 31 (in thousands, except share and per share data):

<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- ------------------------
PER- PER- PER-
SHARE SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ---------- ------ ------- ---------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income before
extraordinary items.... $25,348 $70,549 $7,409
Preferred stock
dividends (see Note
13).................... (4,000) (1,000) --
------- ------- ------
Income before
extraordinary items
applicable to common
shareholders........... 21,348 15,237,914 $1.40 69,549 13,783,882 $5.05 7,409 13,499,862 $0.55
Extraordinary items,
net.................... (951) (0.06) -- -- -- --
------- ----- ------- ----- ------ -----
Income applicable to
common shareholders.... $20,397 $1.34 $69,549 $5.05 $7,409 $0.55
======= ===== ======= ===== ====== =====
DILUTED EARNINGS PER
SHARE
Income before
extraordinary items
applicable to common
shareholders........... $21,348 15,237,914 $70,549 13,783,882 $7,409 13,499,862
Diluted effect of
exercise of options
outstanding............ 759,015 61,443 40,679
Diluted effect of
convertible preferred
stock.................. -- 281,311 --
------- ------- ---------- ------ ----------
Income before
extraordinary items
applicable to common
shareholders........... 21,348 15,996,929 $1.34 70,549 14,126,636 $4.99 $7,409 13,540,541 $0.55
Extraordinary items,
net.................... (951) (0.06) -- -- -- --
------- ----- ------- ----- ------ -----
Income applicable to
common shareholders.... $20,397 $1.28 $70,549 $4.99 $7,409 $0.55
======= ===== ======= ===== ====== =====
</TABLE>

F-12
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

The following items were not included in the computation of diluted earnings
per share because their effect was anti-dilutive for the years ended December
31:

<TABLE>
<CAPTION>
1997 1996 1995
---------------- ----------------- -------
<S> <C> <C> <C>
Stock options
Outstanding....................... 845,500 70,000 960,000
Price ranges...................... $31.00-$36.75 $20.00 $10.00
Expiration ranges................. 4/21/07-11/17/07 11/24/06-11/25/06 4/18/99
Stock warrants
Outstanding....................... 599,967 -- --
Price ranges...................... $30.00 -- --
Expiration........................ 8/28/04 -- --
Convertible preferred shares
Number of common shares at the
applicable conversion ratio...... 2,400,000 -- --
</TABLE>

New Accounting Pronouncements

Reclassifications

Certain reclassifications, which do not have an effect on net income, have
been made to the 1996 and 1995 financial statements to conform to the 1997
presentation.

3. PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and consists of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Land..................................................... $ 11,946 $ 11,946
Buildings and improvements............................... 29,312 23,977
Furniture and equipment.................................. 46,066 36,672
Equipment under capital leases........................... 11,916 9,617
-------- --------
99,240 82,212
Accumulated depreciation and amortization................ (48,931) (41,377)
-------- --------
Property and equipment, net.............................. $ 50,309 $ 40,835
======== ========
</TABLE>

The Company capitalizes expenditures that materially increase the life of
the related assets and charges the cost of maintenance and repairs to expense.
Upon sale or retirement, the capitalized costs and related accumulated
depreciation or amortization are eliminated from the respective accounts, and
the resulting gain or loss is included in operating income.

F-13
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Depreciation is computed primarily using the straight-line method over
estimated useful lives ranging from 3 to 45 years. Leasehold improvements are
amortized over the term of the respective leases, excluding options to renew.
Equipment under capital leases is depreciated over the related term of the
leases.

4. OTHER ASSETS

Included in other assets at December 31, 1997 and 1996 are $3.0 million and
$2.7 million, respectively, of investments in limited partnerships managed for
a fee for institutional investors. The Company has a 1.0% general partnership
interest in each of the limited partnerships which is accounted for under the
equity method. Although the Company is the general partner of each limited
partnership, it does not have majority control over investment decisions in
any of the limited partnerships. Management fee income from the partnerships
was approximately $7.9 million, $7.6 million and $6.4 million for the years
ended December 31, 1997, 1996, and 1995, respectively. The limited
partnerships' total assets were approximately $1.257 billion and $363.8
million and total liabilities were approximately $86.1 million and $72.6
million as of December 31, 1997, and 1996, respectively. The increased
activity was primarily attributable to the additional investment fund
partnerships related to the Koll acquisition. The Company's share of net
income (loss) for the years ended December 31, 1997, 1996, and 1995 was not
material.

The Company contributed subscription notes payable to certain investee
partnerships. The aggregate notes contributed to the investee partnerships
totaled $5,079,000 as of December 31, 1997, of which $3,100,000 as of December
31, 1997 consist of nonrecourse notes that are netted with the investment
balances. The remaining notes totaling $1,979,000 net of discounts of $351,000
at December 31, 1997 are recourse notes and are included in other long-term
obligations. The notes accrue interest at the long-term applicable federal
rate circulated by the Internal Revenue Service (6.31% at December 31, 1997).
The notes mature upon the earlier of dates ranging from December 2005 to
December 2006, or the termination of the respective investee partnerships.
Principal and interest payments are to be made as distributions are received
from the investee partnerships.

The general partner capital contributions for certain partnerships are in
the form of unsecured notes payable totaling approximately $0.8 million and
$2.9 million at December 31, 1997, and 1996, respectively. (See Note 6)

Also included in other assets are investments in unconsolidated subsidiaries
as of December 31, 1997 and 1996. Investments in and advances to (from)
unconsolidated subsidiaries are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
INTEREST 1997 1996
-------- ------ ------
<S> <C> <C> <C>
Koll Telecommunications L.L.C........................ 30% $2,032 $ --
WPI/Koll Asia Pacific Advisors, L.L.C................ 50 1,178 --
CB Commercial Real Estate Group Canada Inc........... 25 843 1,743
Koll Malaysia SDN BHD................................ 50 756 --
Koll Amata Co., LTD.................................. 46 390 --
Other................................................ * 1,391 232
------ ------
$6,590 $1,975
--- ====== ======
</TABLE>
- --------
* Various interests with varying ownership rates.

F-14
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Unaudited combined condensed financial information for the entities
accounted for using the equity method is as follows (in thousands):

Condensed Statement of Operations Information:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net revenue......................................... $ 36,091 $14,195 $11,710
Income from operations.............................. 8,915 2,313 1,214
Net income.......................................... 5,246 927 377

Condensed Balance Sheet Information:

<CAPTION>
DECEMBER 31,
----------------
1997 1996
-------- -------
<S> <C> <C>
Current assets...................................... $ 33,745 $11,322
Noncurrent assets................................... 142,770 2,298
Current liabilities................................. 20,915 5,943
Noncurrent liabilities.............................. 143,816 677
</TABLE>

Equity interest in earnings (losses) of the unconsolidated subsidiaries of
$(113,000), $145,000 and $180,000 for the years ended December 31, 1997, 1996
and 1995, respectively, have been included in "Operating, administrative and
other" on the Consolidated Statements of Operations.

Other assets also includes costs of $8.0 million, net of amortization,
incurred by the Company to organize and structure investment funds in which
the Company holds general partnership interests and for which the Company
performs investment management and advisory services. Such costs are amortized
using the straight-line method over the estimated period benefited of five
years. Accumulated amortization totaled $673,000 at December 31, 1997. Other
assets also includes certain long-term fees receivable of $1.5 million, net of
allowances of $705,000 at December 31, 1997.

In addition, included in other assets was a note receivable aggregating $2.2
million at December 31, 1996. During the third quarter of 1997, payment in
full on this 9.5% note was received.

5. EMPLOYEE BENEFIT PLANS

Option Plans. A total of 1,000,000 shares of common stock have been reserved
for issuance under the CB Commercial Real Estate Services Group, Inc. 1990
Stock Option Plan. Prior to the Company's November 1996 public offering,
options for 1,000,000 shares, at an exercise price of $10 per share, were
granted pursuant to the plan and vest over one to four year periods, expiring
at various dates through September 2001. In 1996, at the time of the Company's
public offering, options for 40,000 shares were granted at a $20.00 exercise
price. Options for 790,000 shares were outstanding as of December 31, 1997.

A total of 600,000 shares of Common Stock have been reserved for issuance
under the CB Commercial Real Estate Services Group, Inc. 1991 Service
Providers Stock Option Plan. In 1991, below market options were granted to
certain directors in partial payment of director fees. All options vested at
grant date and expire at various dates through November 2006. During 1997 and
1996, options to purchase 2,287 and 467 shares, respectively, of Common Stock
were exercised. In 1997, options to purchase 120,000 and 200,000 shares were

F-15
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

granted to certain directors and executive officers at $31.00 and $21.25 per
share, respectively, and vest over a five year period. As of December 31,
1997, options to purchase 383,853 shares of Common Stock were outstanding.

A total of 90,750 shares of Common Stock have been reserved for issuance
under the L.J. Melody Acquisition Stock Option Plan, which was adopted by the
Board of Directors in September 1996 as part of the July 1996 acquisition of
L.J. Melody. Options for all such shares have been issued at an exercise price
of $10.00 per share and vest over a period of five years at the rate of five
percent per quarter. Options for 90,750 shares of Common Stock were
outstanding as of December 31, 1997.

In August 1997, in conjunction with the Koll acquisition, the Company
approved the assumption of the options outstanding under the KMS (Koll)
Holding Company Amended 1994 Stock Option Plan (now known as the Company's
Substitute Option Plan ("CBCSP")), the Koll Acquisition Stock Option Plan
("KASOP") and the issuance of warrants. Under the CBCSP, 407,087 stock options
were issued with exercise prices ranging from $12.89 to $18.04 in exchange for
existing Koll options. These options were immediately exercisable. As of
December 31, 1997, 52,776 options have been exercised. Under the KASOP,
550,000 stock options were issued to former senior executives of Koll who
became employees or directors of the Company. Of the 550,000 stock options
issued, 300,000 options have an exercise price of $22.75 and vest over three
years beginning April 22, 2000 and 250,000 options were immediately
exercisable at $36.75. As of December 31, 1997, 550,000 options were
outstanding.

A total of 700,000 shares of Common Stock have been reserved for issuance
under the CB Commercial Real Estate Services Group, Inc. 1997 Employee Stock
Option Plan which was approved by shareholders. An option for 40,000 shares,
at an exercise price of $23.75, was granted and vests quarterly, expiring in
March 2007. Options for 475,500 shares, at an exercise price of $33.50 per
share, were granted pursuant to the plan and vest over one to five year
periods, expiring in November 2007. Options for 515,500 shares were
outstanding as of December 31, 1997.

As allowed under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion ("APB") No.
25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock based compensation plans. Under this method
the Company does not recognize compensation expense for options that were
granted at the market price of the underlying stock on the date of grant. Had
compensation expense been determined consistent with SFAS No. 123, the
Company's net income and per share information would have been reduced to the
following pro forma amounts (in thousands except per share data):

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Net Income:
As Reported......................................... $24,397 $70,549 $7,409
Pro Forma........................................... 21,940 69,932 7,406
Basic EPS:
As Reported......................................... 1.34 5.05 0.55
Pro Forma........................................... 1.18 5.00 0.55
Diluted EPS:
As Reported......................................... 1.28 4.99 0.55
Pro Forma........................................... 1.12 4.95 0.55
</TABLE>

F-16
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.541%, 6.753% and 5.890% for the various plans. Expected
volatility for each year is 36.67%. Dividend yield is excluded from the
calculation since it is the present intention of the Company to retain all
earnings for future acquisitions.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, the Company believes the Black-Scholes model does not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

A summary of the status of the Company's option plans at December 31, 1997,
1996 and 1995 and changes during the years then ended is presented in the
table and narrative below:

<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
STOCK OPTIONS AND WARRANTS SHARES PRICE SHARES PRICE SHARES PRICE
- -------------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
the year............... 1,116,890 $10.32 996,607 $ 9.65 1,010,713 $ 9.61
Granted................. 1,792,587 25.98 180,750 13.87 20,000 10.00
Exercised............... (225,063) 10.78 (10,467) 9.57 (4,106) 8.01
Forfeited/Expired....... -- -- (50,000) 10.00 (30,000) 10.00
--------- ------ --------- ------ --------- ------
Outstanding end of year. 2,684,414 $20.74 1,116,890 $10.32 996,607 $ 9.65
--------- ------ --------- ------ --------- ------
Exercisable at end of
year................... 1,412,800 $16.08 809,383 $ 9.55 886,607 $ 9.60
Weighted average fair
value of options and
warrants granted....... $14.27 $ 5.36 $ 4.22
</TABLE>

Significant option and warrant groups outstanding at December 31, 1997 and
related weighted average price and life information is presented below:

<TABLE>
<CAPTION>
EXERCISABLE
OUTSTANDING OPTIONS AND WARRANTS OPTIONS AND WARRANTS
------------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ------------------------ ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$00.31 - $10.00 874,603 4.19 $ 9.63 737,328 $ 9.56
$12.89 - $18.04 354,311 7.36 14.06 354,311 14.06
$20.00 - $36.75 1,415,500 9.54 29.15 315,161 33.43
--------- ------ --------- ------
2,644,414 $20.67 1,406,800 $16.04
========= ====== ========= ======
</TABLE>

F-17
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Stock Purchase Plan. The Company has a restricted stock purchase plan
covering certain key employees including senior management. A total of 550,000
shares of Common Stock have been reserved for issuance under the 1996 Equity
Incentive Plan of CB Commercial Real Estate Services Group, Inc. The shares
may be issued to senior executives for a purchase price equal to the greater
of $10.00 per share or fair market value. The Company has sold 35,000 shares
and 510,906 shares in 1997 and 1996, respectively. As of December 31, 1997,
545,906 shares were sold. The weighted average fair value of shares sold in
1997 was $23.50. The purchase price for shares under this plan must be paid
either in cash or by delivery of a full recourse promissory note. The related
promissory notes are also included in stockholders' equity.

Bonuses. The Company has bonus programs covering certain key employees,
including senior management. Awards are based on the position and performance
of the employee and the achievement of pre-established financial, operating
and strategic objectives. The amounts charged to expense for bonuses were
$28.8 million, $19.0 million and $10.2 million for the years ended December
31, 1997, 1996, and 1995, respectively.

Capital Accumulation Plan (the "Cap Plan"). The Cap Plan is a defined
contribution profit sharing plan under Section 401(k) of the Internal Revenue
Code and is the Company's only such plan. Under the Cap Plan, each
participating employee may elect to defer a portion of his or her earnings and
the Company may make additional contributions from the Company's current or
accumulated net profits to the Cap Plan in such amounts as determined by the
Board of Directors. The Company expensed, in connection with the Cap Plan,
$2.9 million, $1.9 million and $1.0 million for the years ended December 31,
1997, 1996, and 1995, respectively. (See Note 8)

Deferred Compensation Plan (the "DCP"). In 1994 the Company implemented the
DCP. Under the DCP, a select group of management and highly compensated
employees can defer the payment of all or a portion of their compensation
(including any bonus). The DCP permits participating employees to make an
irrevocable election at the beginning of each year to receive amounts deferred
at a future date either in cash, which accrues at a rate of interest
determined in accordance with the DCP and is an unsecured long term liability
of the Company, or in newly issued shares of Common Stock of the Company which
elections are recorded as additions to Stockholders' Equity. For the year
ended December 31, 1997, approximately $4.7 million and $1.7 million were
deferred in cash (including interest) and stock, respectively. The accumulated
deferrals as of December 31, 1997, were approximately $6.7 million in cash
(including interest) and $4.7 million in stock for a total of $11.4 million,
all of which was charged to expense in the period of deferral.

F-18
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

6. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
Revolving Credit Facility, with variable interest rates
based on LIBOR plus
1.0% (6.7786% weighted average at December 31, 1997)....... $120,000 $ --
Senior Term Loans, with variable interest rates based on
LIBOR plus 2.5% (8.15625% weighted average at December 31,
1996) Senior Term Loan..................................... -- 37,415
Mortgage Term Loan.......................................... -- 18,000
Westmark Senior Notes, with interest ranging from 9.0% to
12.0% through December 31, 2004 and at variable rates
depending on the Company's credit facility rate thereafter,
$2.309 million due June 30, 1998, $2.546 million due June
30, 2008, with the remaining balance due June 30, 2010..... 18,861 19,771
L.J. Melody Senior Notes, with interest at 10.0%............ -- 2,625
Senior Subordinated Term Loan, with variable interest rates
based on LIBOR plus 0.25%, (5.90625% at December 31, 1996). -- 65,872
Westmark Senior Subordinated Loan, with interest at 11.0%... -- 9,000
Inventoried Property Loan, secured by inventoried property,
with interest at short-term commercial paper borrowing rate
plus 3.5% (9.1% and 9.0% at December 31, 1997 and 1996,
respectively) due in full March 2, 1999.................... 7,470 7,470
Koll Acquisition Obligations, with interest ranging from
0.0% to 9.0%............................................... 3,944 --
Equipment Loan, secured by computer equipment with interest
at the prime rate plus 0.5% (8.75% at December 31, 1996)... -- 164
L.J. Melody Contingent Note, with interest at 10%........... -- 667
Unsecured Notes Payable, with fixed interest at 10.0% and
ranging from 6.0% to 13.0% at December 31, 1997 and 1996,
respectively............................................... 778 2,859
-------- --------
Total..................................................... 151,053 163,843
Less current maturities................................... 4,949 15,314
-------- --------
Total long-term maturities................................ $146,104 $148,529
======== ========
</TABLE>

Annual aggregate maturities of long-term debt as of December 31, 1997 are as
follows (in thousands): 1998--$4,949; 1999--$8,775; 2002--$120,000 and $17,329
thereafter.

In August 1997 the Company refinanced substantially all of its outstanding
debt through a credit agreement with Bank of America, as agent for a group of
banks, which provided a $300.0 million five-year revolving credit facility
("Revolving Credit Facility") which is included in senior term loans in the
accompanying balance sheet. The credit facility also provided for the
refinancing of substantially all debt of Koll assumed pursuant to the merger
and provides additional borrowing capacity for the Company for general
corporate purposes (including acquisitions). The Company is subject to
mandatory commitment reductions of $30 million, $60 million and $60 million on
December 31 of the years 1999, 2000 and 2001, respectively. In the event that
on any date the Company's loan commitment obligations exceed the combined
commitments in effect on such date after giving effect to the mandatory
reductions, the Company shall, on such date, make mandatory repayment of the
loans in a principal amount equal to such excess. Payment in full of all
outstanding amounts under the credit facility will be no later than October
31, 2002. As of December 31, 1997 the outstanding balance of $120.0 million
consists of various borrowings pursuant to the Revolving Credit Facility. The
Revolving Credit Facility bears interest at

F-19
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

a rate of LIBOR plus 1.0%, and is payable upon the maturity of the various
underlying revolving loans, which is currently between one and three months.

In November 1996 approximately $74.4 million was used from the Offering to
repay a portion of the indebtedness under the Senior Secured Credit Agreement
and $5.0 million was used to pay accrued and unpaid interest on the
indebtedness outstanding under the Senior Subordinated Credit Agreement from
the net proceeds of the Offering. Also, in connection with the Offering, the
Senior Secured Credit Agreement was amended to provide for interest at the
rate of LIBOR plus 2.5% payable quarterly on a current basis and the senior
subordinated credit terms were amended to provide for interest payable on a
current basis commencing January 1, 1997. The senior secured indebtedness and
senior subordinated indebtedness were prepaid on August 28, 1997 with proceeds
from the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility are guaranteed by CB
Commercial and all the common stock of CB Commercial Real Estate Group, Inc.
is pledged to secure the guarantee.

The Revolving Credit Facility contains numerous restrictive covenants that,
among other things, limit the Company's ability to incur or repay other
indebtedness, make advances or loans to subsidiaries and other entities, make
capital expenditures, incur liens, enter into mergers or effect other
fundamental corporate transactions, sell its assets, or declare dividends. In
addition, the Company is required to meet certain ratios relating to its
adjusted net worth, level of indebtedness, fixed charges and interest
coverage. The Company is in compliance with all covenants as of December 31,
1997.

See Note 1 for indebtedness regarding the Westmark, Langdon Reider, L.J.
Melody and Koll acquisitions.

7. COMMITMENTS AND CONTINGENCIES

The Company is a party to a number of pending or threatened lawsuits arising
out of, or incident to, its ordinary course of business. In August 1993, a
former commissioned salesperson of the Company filed a lawsuit against the
Company in the Superior Court of New Jersey, Bergin County, alleging gender
discrimination and wrongful termination by the Company. On November 20, 1996 a
jury returned a verdict against the Company, awarding $6.5 million in general
and punitive damages to the plaintiff. The Company hired new counsel and in
January 1997 filed motions for a new trial, reversal of the verdict and
reduction of damages. On March 27, 1997 the trial court denied the Company's
motions and awarded the plaintiff $638,000 in attorneys' fees and costs. The
Company has been advised by appellate counsel that it has a meritorious basis
to pursue an appeal of the verdict, which the Company has done. The Company
recorded an initial accrual in connection with this matter of $250,000 in 1994
and increased the accrual to $800,000 in 1995 which represented the Company's
estimate of its loss exposure for this matter based on its assessment and
analysis as of those dates. In 1996, further adjustments were made to the
reserve to reflect the Company's estimate of ultimate loss, if any. The
Company believes its reserves for this case at December 31, 1997 are adequate.
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. Management believes that any liability to the Company that
may result from disposition of pending lawsuits will not have a material
effect on the consolidated financial position or results of operations of the
Company.

Future minimum rental commitments for noncancelable operating leases at
December 31, 1997, are as follows (in thousands): 1998--$26,647; 1999--
$22,939; 2000--$19,214; 2001--$15,157; 2002--$11,240 and $24,527 thereafter.

F-20
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Future minimum lease commitments for noncancelable capital leases at
December 31, 1997 are as follows (in thousands): 1998--$1,655; 1999--$1,260;
and 2000--$483. The interest portion of the lease payments totals $101,000.
Capital lease payments due within one year are classified as current
liabilities.

Substantially all leases require the Company to pay maintenance costs,
insurance and property taxes, and generally may be renewed for five year
periods. Total rental expense under noncancelable operating leases was $24.3
million, $18.1 million and $22.5 million for the years ended December 31,
1997, 1996 and 1995, respectively.

8. STOCKHOLDERS' EQUITY

On November 25, 1996 the Company provided liquidity to its common
stockholders by publicly registering its common stock and raised additional
capital in the Offering. The Company issued 4,347,000 shares of common stock
in the Offering at $20.00 per share. The proceeds from the Offering totalled
$79.5 million, net of a $6.1 million underwriters' discount and $1.4 million
in estimated offering expenses, all of which has been recorded to equity. The
proceeds were used to repay $74.4 million and $5.0 million of the Company's
senior secured and subordinated indebtedness, respectively. The Company
recapitalized its various classes of stock in conjunction with the Offering.

In August 1997, in conjunction with the Koll acquisition, the Company
approved the issuance of 599,967 warrants. Of the outstanding warrants, 43,644
are attached to Common Stock obtainable under the CBCSP and 556,323 are
attached to shares of outstanding Common Stock. Each warrant is exercisable
into one share of Common Stock at an exercise price of $30.00 (subject to
adjustment) commencing on August 28, 2000 and expiring on August 27, 2004. As
of December 31, 1997, 599,967 warrants issued were outstanding.

Effective October 1, 1996 the preferred stock accrued dividends at the rate
of $1.00 per share per annum. Accrued dividends as of December 31, 1997 were
$5.0 million and are included in other long-term liabilities in the
accompanying balance sheet. On January 27, 1998 the Company repurchased all
4,000,000 shares of its preferred stock for $77.4 million, including $5.0
million in previously accrued dividends.

In 1997 the Company issued 5,187,737 shares of Common Stock in the Koll
Acquisition, 35,000 shares to certain key employees in connection with the
1996 Equity Incentive Plan, 82,740 shares with a stated value of approximately
$1.9 million to the Cap Plan for the year ended December 31, 1996 and 225,063
shares in connection with stock option plans.

9. INCOME TAXES

The regular federal income tax return loss carryforward is $133.6 million as
of December 31, 1997, expiring in the years 2005 through 2008 as follows: $4.7
million--2005; $76.2 million--2006; $38.0 million--2007; and $14.7 million--
2008. The unexpired loss carryforward for federal alternative minimum tax
purposes is $129.6 million as of December 31, 1997 primarily due to
depreciation differences. Use of the federal alternative minimum tax loss
carryforward is limited to the lesser of 90.0% of the year's alternative
minimum taxable income or the remaining alternative minimum tax loss
carryforward. The current federal tax includes alternative minimum tax paid.
The payment of alternative minimum tax creates credit carryforwards which
total $2.2 million as of December 31, 1997. Such credit carryforwards do not
expire. Loss carryforwards for state income tax purposes expire in various
states beginning in 1995, 1996, 1997 and thereafter.

F-21
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

cumulatively caused a more than 50.0% change of ownership within a three year
period. As a result of the limitation, the Company will only be able to use
approximately $26.0 million of its NOL in 1998 and each subsequent year. The
availability of NOLs is, in any event, subject to uncertainty since their
validity is not reviewed by the Internal Revenue Service until such time as
they are utilized to offset taxable income.

The tax provision for the years ended December 31, 1997, 1996 and 1995
excluding the tax impact on extraordinary items of $0.7 million, consisted of
the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Federal:
Current........................................ $ 1,243 $ 730 $ 503
Deferred tax................................... 17,436 9,522 1,231
Reduction of valuation allowances.............. -- (55,900) (1,231)
------- -------- -------
18,679 (45,648) 503
State:
Current........................................ 2,193 658 338
Deferred tax................................... (314) 250 209
Reduction of valuation allowances.............. -- -- (209)
------- -------- -------
1,879 908 338
------- -------- -------
$20,558 $(44,740) $ 841
======= ======== =======
</TABLE>

The following is a reconciliation, stated as a percentage of pre-tax income,
of the U.S. statutory federal income tax rate to the Company's effective tax
rate on income from operations:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Federal statutory tax rate..................... 35% 35% 34%
Permanent differences, including goodwill,
meals and entertainment....................... 7 5 14
State taxes, net of federal benefit............ 2 4 3
Utilization of previously unrecognized net
operating losses.............................. -- (41)
Reduction of valuation allowances and other.... 1 (217) --
------- -------- -------
Effective tax rate............................. 45% (173)% 10%
======= ======== =======
</TABLE>

F-22
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

Beginning in 1992, the Company implemented SFAS No. 109, the modified
liability method of accounting for income taxes. Until the third quarter of
1996, the resulting net deferred tax asset had been fully reserved. Cumulative
tax effects of temporary differences are shown below as of December 31, 1997
and 1996 (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Asset (Liability)
Property and equipment.......................... $ 1,272 $ 1,952
Reserves for bad debts, building write down,
legal expenses................................. 14,849 6,386
Intangible amortization......................... (10,170) 1,060
Bonus, unexercised restricted stock, deferred
compensation................................... 6,820 2,907
Partnership income.............................. 4,643 584
Debt modification............................... 135 1,871
Net operating loss and alternative minimum tax
credit carryforwards........................... 49,003 65,257
Unconsolidated affiliates....................... (173) (218)
Acquisitions.................................... (1,248) (1,435)
All other, net.................................. 2,627 (582)
--------- ---------
Net deferred tax asset before valuation
allowances..................................... 67,758 77,782
Valuation allowances............................ (29,901) (26,379)
--------- ---------
Net deferred tax asset.......................... $ 37,857 $ 51,403
========= =========
</TABLE>

Management evaluates the appropriateness of all or part of these valuation
allowances on a periodic basis and if the Company concludes there is a change
with respect to realizability, any necessary adjustments are made at that
time. As of September 30, 1996 the Company had experienced continuing
profitability due to a variety of reasons, including the strength of the
commercial real estate markets. In addition, the Company had operated Westmark
for one full year since acquiring Westmark in June 1995, and as a result had
concluded that Westmark should make a positive contribution to the Company's
consolidated taxable income. Finally, the acquisition of L.J. Melody in July
1996 is expected to make a positive contribution to the Company's consolidated
taxable income. As a result of these factors, during the third quarter of
1996, the Company projected, on a more likely than not basis, that a portion
of its NOL would be realizable in future periods and, accordingly, reduced its
existing deferred tax asset valuation allowances by $45.7 million of which
$5.3 million has been allocated to the purchase price of L.J. Melody based on
its estimated future potential to generate taxable income, and the remaining
$40.4 million has been recorded as a tax benefit (a reduction in income tax
provision). During the fourth quarter of 1996 the Company further reduced its
deferred tax asset valuation allowances by $15.5 million based on its ability
to generate additional taxable income in the future through interest savings
resulting from the paydown of part of its senior secured and senior
subordinated debt with proceeds from the Offering. This reduction has also
been recorded as a tax benefit resulting in a cumulative year-to-date tax
benefit of $55.9 million for 1996. With the recognition of deferred tax
assets, the future period provisions for income tax will be recorded at the
full effective tax rate excluding the impact of other adjustments, if any, to
valuation allowances.

10. FIDUCIARY FUNDS

The consolidated balance sheets do not include the net assets of escrow,
agency and fiduciary funds, which amounted to $186.8 million and $133.7
million at December 31, 1997 and 1996, respectively.

F-23
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Notes Receivable. The Company has determined that it is not practicable to
estimate the fair value of the notes receivable amounting to $1.4 million and
$2.2 million at December 31, 1997 and 1996, respectively, due to the cost
involved in developing the information as such notes are not publicly traded.

Long-Term Debt. The Revolving Credit Facility and the Westmark Senior Notes,
including their respective maturities, are discussed in Note 6. Estimated fair
values for these liabilities are not presented because the Company believes
that they are not materially different from book value, primarily because the
majority of the Company's debt is based on variable rates. Due to such
immateriality, the Company does not consider it practicable to incur the
excessive costs to engage an investment banker to perform a fair value
analysis of these liabilities.

The fair value of the Inventoried Property Loan discussed in Note 6 is not
materially different from the carrying value of the debt.

The Unsecured Notes Payable discussed in Note 6, which represent the
Company's share of unfunded equity participation, are not considered financial
instruments.

F-24
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

12. INDUSTRY SEGMENTS

The Company operates in four business segments--Brokerage Services,
Corporate Services, Institutional Management Services and Financial Services.
Brokerage Services consists of brokerage (commercial property sales and
leasing). Corporate Services consists of transaction management, advisory
services and facilities management. Institutional Management Services consists
of property management and outsourcing. Financial Services consists of
investment property services (acquisitions and sales on behalf of investors),
mortgage banking (mortgage loan origination and servicing), investment
management and advisory services, valuation and appraisal services and real
estate market research.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue
Brokerage Services................................ $423,485 $345,906 $301,272
Corporate Services................................ 37,608 25,564 21,750
Institutional Management Services................. 67,442 44,783 41,067
Financial Services................................ 201,689 166,815 104,371
-------- -------- --------
$730,224 $583,068 $468,460
======== ======== ========
Operating income
Brokerage Services................................ $ 43,927 $ 24,139 $ 25,237
Corporate Services................................ 1,588 335 1,154
Institutional Management Services................. 4,547 5,149 1,728
Financial Services................................ 21,950 18,806 1,724
Merger related and other non-recurring costs...... (12,924) -- --
-------- -------- --------
59,088 48,429 29,843
Interest income.................................... 2,598 1,503 1,674
Interest expense................................... 15,780 24,123 23,267
-------- -------- --------
Income before provision for income taxes........... $ 45,906 $ 25,809 $ 8,250
======== ======== ========
Depreciation and amortization
Brokerage Services................................ $ 8,200 $ 7,092 $ 7,484
Corporate Services................................ 898 243 268
Institutional Management Services................. 2,040 700 506
Financial Services................................ 6,922 5,539 3,373
-------- -------- --------
$ 18,060 $ 13,574 $ 11,631
======== ======== ========
Capital expenditures (purchases)
Brokerage Services................................ $ 6,678 $ 2,372 $ 1,729
Corporate Services................................ 537 87 63
Institutional Management Services................. 1,492 209 118
Financial Services................................ 1,220 334 233
-------- -------- --------
$ 9,927 $ 3,002 $ 2,143
======== ======== ========
</TABLE>

F-25
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Identifiable assets
Brokerage Services....................................... $ 64,363 $ 56,274
Corporate Services....................................... 72,189 2,290
Institutional Management Services........................ 131,285 5,273
Financial Services....................................... 122,757 94,364
Corporate................................................ 114,597 120,743
--------- ---------
$ 505,191 $ 278,944
========= =========
</TABLE>

Identifiable assets by industry segment are those assets used in the Company
operations in each segment. Corporate identified assets are principally made
up of cash and cash equivalents, inventoried property, general prepaids and
deferred taxes.

The Company does not have significant foreign operations at December 31,
1997.

13. SUBSEQUENT EVENT

On December 9, 1997 the Company announced that it had reached an agreement
with REI, which owns and operates the internationally known real estate
services firm of Richard Ellis in all major commercial real estate locations
in the world other than the United Kingdom, to purchase all of REI's
outstanding stock. The net purchase price for REI is approximately
(Pounds)57.2 million (approximately $94.5 million using the exchange rate at
March 4, 1998) and will be payable entirely in shares of the Company's common
stock, par value $0.01, but with each shareholder of REI having the right to
elect to have up to 50% of the purchase price paid in cash or debt. The
purchase is expected to be completed in the second quarter of 1998. Its
principle operations are in the Netherlands, France, Spain, Brazil, Australia,
Hong Kong (including Taiwan and the People's Republic of China) and Singapore.
Since the acquisition will be a taxable transaction, the Company will be able
to amortize a significant portion of the purchase price for tax purposes over
15 years.

On January 27, 1998, the Company purchased all 4.0 million of its existing
convertible preferred shares which could have been converted into
approximately 2.56 million common shares, based on the Company's prevailing
stock price on that date. The preferred shares carried a dividend requirement
of $.25 per share per quarter. The total cost to purchase the preferred shares
was $77.4 million, including $5.0 million of previously accrued dividends. The
shares were originally issued in conjunction with the Company's acquisition by
management in 1989.

In February 1998 the Company, through L.J. Melody, acquired Cauble & 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.

F-26
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(DOLLARS IN THOUSANDS)

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
Advances to CB Commercial Real Estate Group, Inc............. $263,438 $124,274
Investment in CB Commercial Real Estate Group, Inc. and
subsidiaries................................................ 62,124 62,124
-------- --------
Total assets............................................... $325,562 $186,398
======== ========
Accounts Payable and Accrued Liabilities..................... $ 200 $ --
Dividends Payable............................................ 5,000 1,000
Stockholders' Equity......................................... 320,362 185,398
-------- --------
Total Liabilities and Stockholders' Equity................. $325,562 $186,398
======== ========
</TABLE>

INCOME STATEMENT

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Expenses--other.................................... $ -- $ -- $ 39
Interest expense................................... 200 -- --
Provision for income tax........................... -- 735 51
-------- -------- -------
Net income (loss)................................ $ (200) $ (735) $ (90)
======== ======== =======
</TABLE>

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income (loss)................................... $ (200) $ (735) $ (90)
Adjustments to reconcile net income (loss) to net
cash used in operating activities.................. -- -- --
Advances to CB Commercial........................... 200 735 90
------- ------- -------
Net cash provided by operating activities......... -- -- --
Cash flows from investing activities................ -- -- --
Cash flows from financing activities................ -- -- --
Net change in cash and cash equivalents............. -- -- --
Cash and cash equivalents, at beginning of period... -- -- --
------- ------- -------
Cash and cash equivalents, at end of period......... $ -- $ -- $ --
======= ======= =======
</TABLE>

NOTES TO CONDENSED FINANCIAL INFORMATION

Note 1--In connection with the Acquisition, the Company, together with all
other CB Commercial subsidiaries, has guaranteed any and all
obligations of CB Commercial Real Estate Group, Inc.

F-27
<PAGE>

CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
RESERVE FOR ALLOWANCE
EMPLOYEE FOR BAD LEGAL
LOANS DEBTS RESERVE
----------- --------- -------
<S> <C> <C> <C>
Balance, December 31, 1994....................... $1,745 $ 4,544 $ 3,455
Charges to expense............................. -- 346 --
Write-offs..................................... (210) (490) --
------ ------- -------
Balance, December 31, 1995....................... $1,535 $ 4,400 $ 3,455
Charges to expense............................. 600 1,257 7,686
Write-offs..................................... (425) (1,234) (1,820)
------ ------- -------
Balance, December 31, 1996....................... $1,710 $ 4,423 $ 9,321
Koll balance at the date of acquisition........ -- 4,401 --
Charges to expense............................. -- 1,226 1,195
Write-offs..................................... (893) (1,070) (709)
------ ------- -------
Balance, December 31, 1997....................... $ 817 $ 8,980 $ 9,807
====== ======= =======
</TABLE>

F-28
<PAGE>

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. (the "Company") by the Company
and (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 were issued to certain of the Selling Shareholders by
the Company in connection with the Company's acquisition of all of the
outstanding shares of A, B and C ordinary stock of REI Limited ("REI"), a
United Kingdom corporation, on April 17, 1998. See "The Company--
Acquisitions." Such Shares were 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 April 15, 1998 the last sale price for the Common Stock, as reported
on the New York Stock Exchange, was $38 3/16 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 April 17, 1998.
<PAGE>

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

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company 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 the Company's proxy
statements, reports, and other information concerning the Company 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.

The Company 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 documents are incorporated herein by reference: (a) the
Company'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 THE COMPANY 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 the
Company 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 the
Company's business. Such economic conditions could result in a general decline
in rents which in turn would adversely affect revenues from property
management fees and brokerage commissions derived from property sales and
leases. Such conditions could also lead to a decline in sale prices as well as
a decline in demand for funds invested in commercial real estate and related
assets. An economic downturn or increase in interest rates also may reduce the
amount of loan originations and related servicing by the Company's commercial
mortgage banking business. If the Company's brokerage and mortgage banking
businesses are adversely affected, it is quite likely that other segments of
the Company's business will also be adversely affected, due to the
relationship among the Company's various business segments.

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
the Company'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

The Company competes in a variety of service disciplines within the
commercial real estate industry, including (i) brokerage (facilitating sales
and leases on behalf of investors), investment properties (acquisitions and
sales), corporate services, property management, and real estate market
research and (ii) mortgage banking (loan origination and servicing),
investment management and advisory services, and valuation and appraisal
services. Each of these business areas is highly competitive on a national as
well as local level. The Company faces competition not only from other real
estate service providers, but also from institutional lenders, insurance
companies and investment advisory, mortgage banking, accounting and appraisal
firms. The Company 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 the Company. Moreover,
although many of the Company's competitors are local or regional firms that
are substantially smaller than the Company on an overall

4
<PAGE>

basis, they may be substantially larger on a local or regional basis. Because
of these factors, these companies may be better able than the Company to
obtain new customers, pursue new business opportunities or to survive periods
of industry consolidation. In addition, the Company has faced increased
competition in recent years in the property management and investment advisory
segment of its business which has resulted in decreased property management
fee rates and margins and decreased investment advisory fees and margins. As a
result of these factors, the Company will continue to face intense competition
in its existing markets. In general, in each of the Company's businesses there
can be no assurance that the Company will be able to continue to compete
effectively or that it will be able to maintain current fee levels or margins
or that it will not encounter increased competition which could limit the
Company's ability to maintain or increase its market share.

RISKS INHERENT IN ACQUISITION GROWTH STRATEGY

Risks With Respect to Potential Acquisitions

The Company 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 the Company,
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 for all of these potential acquisitions.

Lack of Availability of Acquisition Candidates

A significant component of the Company's growth in 1996 and 1997 was, and
part of its principal strategy for continued growth is, through acquisitions.
Recent acquisitions have included REI (international real estate services),
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). The Company expects to
continue its acquisition program. Any future growth by the Company 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.

Difficulty of Integration In Connection with Acquisition Growth Strategy

5
<PAGE>

from other business concerns and the potential loss of key employees of either
the Company or the acquired operations. The Company encountered a number of
these difficulties 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 the Company and L.J. Melody and the
integration of the Koll and the Company property, facilities and corporate
accounting systems is still not fully completed. With respect to the 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. The Company believes that most acquisitions will
have an adverse impact on operating income and net income during the first six
months following the acquisition. There can be no assurance that the Company's
management will be able to effectively manage any acquired business or that
any acquisition will benefit the Company overall.

Lack of Available Financing

SEASONALITY

A substantial component of the Company's revenues is transactional in nature
and as a result is subject to seasonality. Historically, the Company's
revenues, operating income and net income in the first two calendar quarters
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, the Company has historically
sustained a loss. The Company's non-variable operating expenses, which are
treated as expenses when incurred during the year, are relatively constant in
total dollars on a quarterly basis. As a consequence of the seasonality of
revenues and the relatively constant level of quarterly expenses, a
substantial majority of the Company's operating income and net income has
historically been realized in the third and fourth calendar quarters. The
Company believes that future operating results will 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 the Company will be profitable on a quarterly or annual basis
in the future.

THE COMPANY'S LEVERAGE AND INTANGIBLE NATURE OF ITS ASSETS

The Company's 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 the Company's revenue or increase in its costs and
expenses could result in the Company's being unable to meet its debt
obligations. As of December 31, 1997 the Company 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 the Company or its competitors, conditions in the
commercial real estate industry, the commencement of, developments in or
outcome of litigation, changes in estimates of the Company's performance by
securities analysts, and other events or factors. In addition, the stock
market in recent years has experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating
performance of companies. These fluctuations, as well as general economic and
market conditions, may adversely affect the market price of the Company's
Common Stock.

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POTENTIAL LACK OF SPACE TO LEASE

ENVIRONMENTAL CONCERNS

Numerous laws and regulations have been enacted which regulate exposure to
potentially hazardous materials often found in and around buildings. Some of
these laws and regulations directly and indirectly impact the commercial real
estate market by imposing additional costs and liability on owners, operators
and sellers as well as lenders. Such laws and regulations tend to discourage
sales and leasing activities and mortgage lending with respect to some
properties, and may therefore adversely affect the Company. In addition, the
failure of the Company to disclose environmental issues may subject the
Company to liability to a buyer or lessee of property or to a purchaser of a
mortgage loan.

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THE COMPANY

COMPANY OVERVIEW

CBC 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 offices acquired in the acquisition of REI Limited. 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

. 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 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 acquisition of REI Limited will provide access to
European, South American and Asian companies interested in outsourcing and
provides a global network to provide service to companies throughout the world
in the outsourcing process. Following the REI acquisition, 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, is 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 seven acquisitions. 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. On April 17,
1998, the Company acquired REI Limited, the holding company for all Richard
Ellis operations outside of the United Kingdom. The purchase price for 100% of
the shares of REI was approximately (Pounds)62.6 million, payable
approximately (Pounds)31.3 million in cash and notes and (Pounds)31.3 million
in the Company's Common Stock, $.01 par value.

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 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).

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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 21,000
completed transactions. In 1997, brokerage facilitated over 3,000 sale
transactions with an aggregate estimated total consideration of over $3.75
billion and approximately 18,000 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 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 20 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

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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.

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 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
March 31, 1998, the Company had approximately 80 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 employees providing direct services for the property whether or not
on-site, 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.

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Institutional Management Services

The Company provides value-added property management services for income-
producing properties owned primarily by institutional investors and, as of
March 31, 1998, managed approximately 206 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 trained and are encouraged to continue their education through both
Company-sponsored and outside training. The Company provides each local
office with centralized corporate resources including investments in computer
software and hardware as described below under the caption "Information
Technology." Property management personnel utilize state-of-the-art computer
systems for accounting, marketing, and maintenance management.

COMPENSATION. Under a typical property management agreement, the Company
will be entitled to receive management fees and lease commissions. The
management fee in most cases is based upon a formula which gives the Company
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

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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 $2.0
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 $9.0
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 Southeast (North
Carolina and South Carolina) and Northwest (Washington and Oregon) 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 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 geographic 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.

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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 CB Richard Ellis Global Capital Markets. Westmark
continues to focus on providing advisory services to the pension fund
community while CB Richard Ellis 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.

CB Richard Ellis Global Capital Markets is focused on developing securitized
investment products for clients and creating other investment strategies based
on its market research. In 1996, CB Richard Ellis Global Capital Markets
formed a relationship with Alliance Capital Management to manage investments
in REIT securities for retail and institutional clients. Utilizing the
Company's proprietary research tools, the Alliance REIT Fund currently manages
approximately $800 million in assets, of which $575 million was raised in
1997. CB Richard Ellis 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.

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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 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.

16
<PAGE>

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.

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 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

COMPETITION

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.

17
<PAGE>

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

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.

The Company's executive offices are located at 533 South Fremont Avenue, Los
Angeles, California 90071-1712 and its telephone number is (213) 613-3123.

18
<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......... 1,163 * 1,163 0 0
Jeremy C. Alpe.................. 31,210 * 31,210 0 0
Clive N. G. Arding.............. 28,055 * 28,055 0 0
Clive N. G. Arding and Mary G.
Arding......................... 10,471 * 10,471 0 0
Gerard Aubert................... 21,493 * 21,493 0 0
Eric Auterbe.................... 2,203 * 2,203 0 0
Bacon & Woodrow Trust Company
(C.I.) Limited................. 44,156 * 44,156 0 0
Michael J. Bamber............... 21,132 * 21,132 0 0
Antyony M. N. Barron............ 1,745 * 1,745 0 0
Tom Bartlett.................... 91 * 91 0 0
</TABLE>

19
<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......... 573 * 573 0 0
Glenn Bechtel........... 1,943 * 1,943 0 0
Valeria Belinszki....... 84 * 84 0 0
Anuradha Beri........... 804 * 804 0 0
Donald H. Bodel......... 10,054 * 10,054 0 0
John Bowerman........... 1,246 * 1,246 0 0
Philippe Bresteau....... 2,792 * 2,792 0 0
Feroze Bundhun.......... 1,291 * 1,291 0 0
Richard Graves Butler... 5,007 * 5,007 0 0
CN Limited.............. 20,055 * 20,055 0 0
Patrick Callesen........ 3,467 * 3,467 0 0
Walter Cardoso.......... 20,279 * 20,279 0 0
Thomaz Valladao Catunda. 922 * 922 0 0
Dinesh Chandiok......... 8,024 * 8,024 0 0
Ram Chandnani........... 357 * 357 0 0
Tom Cheung.............. 364 * 364 0 0
Cicihold Pty Ltd........ 1,703 * 1,703 0 0
Kim Jonathan Clarkson... 549 * 549 0 0
A. John Corbett......... 1,611 * 1,611 0 0
Brian W. Cox............ 458 * 458 0 0
James A. D. Croft....... 38,896 * 38,896 0 0
Marc Crowe.............. 608 * 608 0 0
Paul Dale............... 183 * 183 0 0
Angelique de Rouge...... 3,232 * 3,232 0 0
Thom C. Dijksman........ 3,979 * 3,979 0 0
Luis A. Donaldson....... 20,290 * 20,290 0 0
Martin Donaldson........ 859 * 859 0 0
Bruno Dupont............ 350 * 350 0 0
Phil Duval.............. 1,006 * 1,006 0 0
Stephen B. G. Ellis..... 6,881 * 6,881 0 0
Andrew Evans............ 1,004 * 1,004 0 0
Simon Fairfax........... 349 * 349 0 0
John Falkiner........... 1,642 * 1,642 0 0
Fernando M. G. de Faria. 9,400 * 9,400 0 0
Eduardo Fernandez-
Cuesta................. 7,853 * 7,853 0 0
Gerog Fichtinger........ 746 * 746 0 0
N. H. Christopher
Fleetwood-Bird......... 529 * 529 0 0
Jean-Pierre Forgeot..... 2,288 * 2,288 0 0
Christopher J. Fossick.. 11,270 * 11,270 0 0
Yukio Furuta............ 1,747 * 1,747 0 0
Alfonso Galobart Maronc. 1,735 * 1,735 0 0
Jaime Garcia del Rio.... 2,387 * 2,387 0 0
Janet S. Goatly......... 3,232 * 3,232 0 0
Pauline Goh............. 11,959 * 11,959 0 0
John Gomez Hall......... 25,306 * 25,306 0 0
Bruce M. Gray-Buchanan.. 4,265 * 4,265 0 0
Michaela Grunstejdl..... 746 * 746 0 0
D. Mike Hannan.......... 1,767 * 1,767 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>
Brian N. Harris.................. 6,061 * 6,061 0 0
Brian N. Harris & Mrs. Rosalyn M.
Harris.......................... 5,509 * 5,509 0 0
Brian N. Harris & Mrs. Rosalyn M.
Harris & Mr. Peter R. Davies.... 4,763 * 4,763 0 0
Marco S. C. Hekman............... 4,758 * 4,758 0 0
Francoise Heraud................. 3,232 * 3,232 0 0
Brian Hose....................... 698 * 698 0 0
Andrew J.M. Huntley.............. 11,548 * 11,548 0 0
Andrew John Mack Huntley and
Mrs. Juliet Vivian Huntley...... 9,218 * 9,218 0 0
Andrew Jamson.................... 2,041 * 2,041 0 0
Michael Janotta.................. 2,239 * 2,239 0 0
Neville Jensen................... 1,255 * 1,255 0 0
Kannalink Pty Limited............ 8,372 * 8,372 0 0
Supreet Kaur..................... 315 * 315 0 0
Yasuo Kawakami................... 1,734 * 1,734 0 0
Martin Kaye...................... 2,014 * 2,014 0 0
Christoipher Keenan.............. 291 * 291 0 0
Klaus Keil....................... 2,892 * 2,892 0 0
Davdi A. Kennedy................. 4,030 * 4,030 0 0
Arvind Khanna.................... 539 * 539 0 0
Chan Fook Kheong................. 1,144 * 1,144 0 0
Corrine Koh...................... 759 * 759 0 0
Cora M. Kok...................... 2,074 * 2,074 0 0
William Kreuger.................. 6,238 * 6,238 0 0
Angela Kyster.................... 113 * 113 0 0
Keremy N. Lake................... 3,866 * 3,866 0 0
Alan Lee......................... 1,816 * 1,816 0 0
K. W. Lee........................ 672 * 672 0 0
Leitha Holdings Pty
Superannuation Fund............. 2,321 * 2,321 0 0
Jose Antonio Leon Gondalez....... 8,049 * 8,049 0 0
Dominic Leung.................... 16,964 * 16,964 0 0
Hiaw Ho Li....................... 5,811 * 5,811 0 0
Lay See Lim...................... 1,451 * 1,451 0 0
Andrew Liu....................... 243 * 243 0 0
Michael Loeckx................... 395 * 395 0 0
See Hong Long.................... 91 * 91 0 0
Roger D. Lucas................... 23,830 * 23,830 0 0
Anshuman Magazine................ 804 * 804 0 0
Dino Mancini..................... 1,047 * 1,047 0 0
Rob J. C. Mans................... 4,535 * 4,535 0 0
Gavin Page Martin................ 2,648 * 2,648 0 0
Lester D. J. Martin.............. 10,972 * 10,972 0 0
Luis Martinez.................... 1,432 * 1,432 0 0
Enrique Martinez Laguna.......... 1,163 * 1,163 0 0
Gaetan Mary...................... 3,232 * 3,232 0 0
Charles A. Mataure............... 1,077 * 1,077 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>
Sean Maxell....................... 119 * 119 0 0
Luis Gonzaga Soares Mayor......... 9,996 * 9,996 0 0
Mayfair S.A.R.L................... 4,848 * 4,848 0 0
Tom McCallum...................... 549 * 549 0 0
Michelle McKellar................. 2,254 * 2,254 0 0
Jan McNally....................... 384 * 384 0 0
Dan McVay......................... 916 * 916 0 0
Anthony P. McVeigh................ 11,047 * 11,047 0 0
Herve Miliotis.................... 4,439 * 4,439 0 0
Ian A. C. Mitchell................ 924 * 924 0 0
Marcos L. B. Montandon............ 9,698 * 9,698 0 0
Kishore Moorjani.................. 804 * 804 0 0
H. Scott Morgan................... 23,490 * 23,490 0 0
Douglas F. F. Munro............... 6,870 * 6,870 0 0
Unthika Naiyaruxsaeree............ 376 * 376 0 0
Andrew Ness....................... 297 * 297 0 0
Tom Ng............................ 364 * 364 0 0
Yumiko Nishio..................... 1,996 * 1,996 0 0
Sergio Ricardo Paciullo........... 717 * 717 0 0
Manuel Palencia Cortes............ 1,090 * 1,090 0 0
Gines Palencia Cortes............. 174 * 174 0 0
Elizabeth Parry................... 804 * 804 0 0
Aliwassa Pathuadabutr............. 3,648 * 3,648 0 0
D. N. Idris Pearce................ 9,759 * 9,759 0 0
Alberto Rabalinho Senra Pecanha... 922 * 922 0 0
Wilson A. Penman.................. 814 * 814 0 0
Penticton Investments Inc......... 27,347 * 27,347 0 0
Victor J. Perez Arias............. 9,278 * 9,278 0 0
Dino Piccini...................... 4,127 * 4,127 0 0
Franc Pigna....................... 1,537 * 1,537 0 0
Pine Consulting Corporation....... 1,245 * 1,245 0 0
Dominic G. Pirard................. 725 * 725 0 0
David Pitcher..................... 2,036 * 2,036 0 0
James Robert Pitchon.............. 6,052 * 6,052 0 0
Francis J. Pons................... 74,143 * 74,143 0 0
Javier Prades Rebato.............. 10,502 * 10,502 0 0
Jose Puig de la Bellacasa......... 4,745 * 4,745 0 0
Qingpu Holdings PLC............... 1,047 * 1,047 0 0
Harald Rank....................... 746 * 746 0 0
Richard G. Ray.................... 1,407 * 1,407 0 0
William Rea....................... 938 * 938 0 0
W. Rea Pty Ltd.................... 1,188 * 1,188 0 0
David H. Read..................... 2,413 * 2,413 0 0
PD Realty Pty Ltd................. 3,301 * 3,301 0 0
Christopher Redman................ 1,044 * 1,044 0 0
Michael Rhyddrech................. 1,440 * 1,440 0 0
Andreas Ridder.................... 9,376 * 9,376 0 0
Spencer G. Roberts................ 432 * 432 0 0
Lionello Rosina................... 645 * 645 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>
Rod Routh........................ 1,817 * 1,817 0 0
David A. Runciman................ 37,650 * 37,650 0 0
Graeme Stuart Russell............ 916 * 916 0 0
Gary E. Ryan..................... 8,651 * 8,651 0 0
Patrick Sabban................... 3,232 * 3,232 0 0
Moffatt Sanders.................. 3,864 * 3,864 0 0
Annop Sangprasit................. 697 * 697 0 0
Jerry T. Scott................... 3,806 * 3,806 0 0
Pedro M. F. C. Seabra............ 18,740 * 18,740 0 0
G. John Selman................... 20,216 * 20,216 0 0
Willy Y. P. Shee................. 17,720 * 17,720 0 0
Hwee Yan Sim..................... 1,451 * 1,451 0 0
David C. Simister................ 12,639 * 12,639 0 0
David A. Sizer................... 26,179 * 26,179 0 0
David A. Sizer & Mrs. Janet M
Sizer........................... 13,041 * 13,041 0 0
Wayne Richard Smith.............. 349 * 349 0 0
Su Lin Soon...................... 4,080 * 4,080 0 0
Sounds Excellent Limited......... 39,071 * 39,071 0 0
Brian Spence, David A. Wright and
Massimo Papini.................. 1,845 * 1,845 0 0
Christopher Steel................ 3,013 * 3,013 0 0
Michael Steur.................... 1,639 * 1,639 0 0
Superseven Limited............... 6,473 * 6,473 0 0
Anthony P. Sutcliffe............. 4,146 * 4,146 0 0
Jason Tam........................ 364 * 364 0 0
Joseph Tan....................... 778 * 778 0 0
Ayumi Tanaka..................... 620 * 620 0 0
Sumalee Tavivaradilok............ 697 * 697 0 0
It Tuan Tay...................... 778 * 778 0 0
Threshold Pty Ltd................ 1,554 * 1,554 0 0
Albert Tong...................... 8,701 * 8,701 0 0
Pedro P. Toscano................. 2,077 * 2,077 0 0
Roberto Trella................... 6,802 * 6,802 0 0
William J. Tucker................ 1,943 * 1,943 0 0
Mark Alfred Turnbull............. 1,076 * 1,076 0 0
Edoardo Vigano................... 9,558 * 9,558 0 0
Juan Carlos Vidosola............. 307 * 307 0 0
Alan Anthony Vincent............. 2,307 * 2,307 0 0
Vysden Pty Ltd................... 1,208 * 1,208 0 0
Asharawan Wachananont............ 697 * 697 0 0
Waterways Inc.................... 15,157 * 15,157 0 0
Felix Wehrli..................... 2,792 * 2,792 0 0
Michael D. G. Wheldon............ 16,558 * 16,558 0 0
M. D. G. Wheldon, Mrs. C. G.
Wheldon, Ms. J. L. Wheldon
(Trustees of the Wheldon
Charitable Trust)............... 1,931 * 1,931 0 0
M. D. G. Wheldon, Mrs. C. G.
Weldon, Ms. J. L. Wheldon
(Trustees for the Life Interest
Settlement)..................... 16,558 * 16,558 0 0
Ian J. White..................... 14,824 * 14,824 0 0
Brian R. White................... 7,787 * 7,787 0 0
</TABLE>

23
<PAGE>

(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.

24
<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

25
<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

26
<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.

27
<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.

28
<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 the Company
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 the
Company'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.

29
<PAGE>

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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY REF-
ERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN CON-
NECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OF-
FER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES OFFERED HEREBY, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE, SUCH OF-
FER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE ACCOMPANYING PROSPEC-
TUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................................. S-4
Risk Factors.............................................................. S-13
Use of Proceeds........................................................... S-19
Capitalization............................................................ S-19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-20
Business.................................................................. S-36
Management................................................................ S-48
Description of Certain Other Indebtedness................................. S-53
Description of the Notes.................................................. S-54
Underwriting.............................................................. S-83
Legal Matters............................................................. S-84
Experts................................................................... S-84
Index to Consolidated Financial Statements................................ F-1

PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 3
Risk Factors.............................................................. 4
The Company............................................................... 8
Use of Proceeds........................................................... 19
Ratio of Earnings to Fixed Charges........................................ 19
Selling Shareholders...................................................... 19
Description of the Debt Securities........................................ 25
Plan of Distribution...................................................... 28
Legal Matters............................................................. 29
Experts................................................................... 29
</TABLE>

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$175,000,000

CB RICHARD ELLIS
SERVICES, INC.

8 7/8% SENIOR SUBORDINATED NOTES DUE 2006

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PROSPECTUS SUPPLEMENT

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MERRILL LYNCH & CO.

BANCAMERICA ROBERTSON STEPHENS

NATIONSBANC MONTGOMERY SECURITIES LLC

MAY 20, 1998

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