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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
[X] EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
[_] EXCHANGE ACT OF 1934
For the Transition Period from __________________ to __________________
Commission File Number 001-12231
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 52-1616016
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
533 South Fremont Avenue
Los Angeles, California 90071-1712
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (213) 613-3123
Securities registered pursuant to Section 12(b) of the Act: Common Stock $.01
par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant on February 28, 1998 was $977,551,313.
Number of shares of Common Stock outstanding at February 28, 1998 was
18,898,296.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its May 19, 1998
Annual Meeting of Stockholders are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
CB Commercial Real Estate Services Group, Inc. ("CBRESG") 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, CBRESG
completed an initial public offering (the "Offering") of 4,347,000 shares of
common stock, par value $.01 per share (the "Common Stock"). CBRESG is a holding
company that conducts its operations solely through CB Commercial Real Estate
Group, Inc. and its subsidiaries (collectively, the "Company").
The Company is the largest vertically-integrated commercial real estate
services company in the United States with aggregate 1997 revenue of $730.2
million, approximately 130 principal offices in the U. S. and over 200 offices
worldwide, including strategic alliance partner offices. The Company provides a
full range of services to commercial real estate tenants, owners and investors
including: (i) brokerage (facilitating sales and leases) ("Brokerage
Services"); (ii) transaction management, advisory services and facilities
management services to corporate real estate users ("Corporate Services"); (iii)
property management ("Institutional Management Services"); and (iv) capital
market activities, including mortgage banking, brokerage and servicing,
investment management and advisory services, investment property transactions
(acquisitions and sales on behalf of investors), real estate market research and
valuation and appraisal services (collectively "Financial Services").
INDUSTRY TRENDS
Over the last ten years, the commercial real estate industry has experienced
various structural changes, and over the last three or four years, the industry
has experienced a broad recovery from the real estate "depression" of the early
1990s. Management believes these factors and the resulting trends, the most
important of which are discussed below, create an opportunity for the Company to
leverage its experience, multi-discipline integrated services, multi-market
presence and brand equity to its competitive advantage.
. HEALTHY 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 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
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and professional education, and (iii) have access to sufficient capital to
support these service and investment needs. These factors have fueled the
current consolidating industry environment, which the Company believes will
motivate local and regional real estate service providers to sell to, or form
alliances with, major national and international companies.
. CONTINUING CORPORATE OUTSOURCING TREND.
Shareholder pressure for higher performance and return on equity within most
public corporations around the globe has heightened corporate management's
awareness that corporate real estate assets are a major component of corporate
net worth. Simultaneously, with competitive pressures encouraging greater focus
on core businesses, companies have emphasized leaner staffing in non-core
activities and, as a result, outsourced certain non-core activities to third
parties. As a consequence, the demand for multi-discipline, multi-market
professional real estate service firms that provide integrated services capable
of supplementing a corporate real estate department has increased significantly.
The Company's pending acquisition of REI Limited will provide access to
European, South American and Asian companies interested in outsourcing and
provides a global network of very high quality to provide service to companies
throughout the world in the outsourcing process. Following the REI acquisition,
which is scheduled to close in late April, 1998, the only major commercial real
estate area in the world not directly served by the Company with an owned, or at
least partially owned group of businesses, will be the United Kingdom.
. EXPANDING CMBS MARKET.
Historically, the majority of third-party financing for commercial real estate
assets was provided by banks and insurance companies who generally held the
mortgage loans they originated to the maturity date of the mortgage loans. More
recently, Wall Street firms and financial institutions have been providing a
significant amount of third-party mortgage financing, and have been accessing
the public debt markets by issuing Commercial Mortgage-Backed Securities
("CMBS") in order to securitize their portfolios and avoid holding mortgage
loans for the long term. The Company believes that its overall market presence,
extensive available market data and access to real estate transaction deal flow
positions its mortgage banking business to benefit substantially from the
expansion of the CMBS market. The Company's national geographic coverage and
mortgage origination capabilities through its L. J. Melody & Company subsidiary
have caused it to become one of the largest suppliers of commercial mortgages to
the CMBS market (over $1 billion in aggregate originations in 1997 or 30% of the
Company's $3.5 billion in new originations). In addition, the Company expects
to service a majority of the mortgage loans that it originated and the profit
margin potential for servicing an increasing volume of mortgage loans may be
significant for the Company's mortgage banking business. Following the North
Coast and Cauble acquisitions the Company services over $9 billion in loans.
The acquisition and subsequent combination with L. J. Melody in July 1996 was a
strategic step in substantially expanding the Company's capabilities in this
area. The Company does not currently securitize loans and has no present
intention of doing so.
ACQUISITIONS
As part of its growth strategy, the Company is continually assessing
acquisition opportunities and is currently involved in negotiating acquisitions
in the United Kingdom, Canada, the United States, Australia and New Zealand,
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
has completed six strategic acquisitions and has contractually agreed to a
seventh acquisition, REI Limited. In 1995, the Company acquired Westmark Realty
Advisors L.L.C. ("Westmark"), an investment management and advisory business
with approximately $4.5 billion of assets currently under management, and
Langdon Rieder Corporation ("Langdon Rieder"), a nationally-known tenant
representation firm. In 1996, the Company acquired L. J. Melody & Company ("L.
J. Melody"), a nationally-known mortgage banking firm. In August 1997, the
Company acquired Koll Real Estate Services ("Koll"), a real estate services
company primarily providing property management services, corporate and
facilities management services, and asset and portfolio management services. The
acquisition was accounted for as a purchase and resulted in the issuance of
Company equity valued at approximately $132.9 million and the assumption of debt
and minority interest of approximately $57.4 million at the time of the
transaction. In February 1998, the Company, through L. J. Melody, acquired
Cauble and Company of Carolina for approximately $2.2 million, and substantially
all of the assets of North Coast Mortgage Company for approximately $3.3
million, both regional mortgage banking firms. In addition, the Company has
reached definitive agreements with the holders of more than 75% of the
outstanding shares of REI Limited, the holding company for all Richard Ellis
operations outside of the United Kingdom to purchase their shares. The Company
expects to reach agreement with the remainder of the REI shareholders before the
end of March, 1998. The purchase price for 100% of the shares of REI is
(Pounds)57.25 million (the price was subject to downward adjustment if EBITDA
and net debt thresholds were not attained but those thresholds were met). The
entire purchase price is payable
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in common stock of the Company but the REI shareholders may elect to have up to
50% of the purchase price paid in cash or notes. Each REI shareholder can choose
at any time prior to March 20, 1998 between two methods (Method A and Method B)
in determining the number of shares of stock of the Company to which he or she
is entitled:
Under Method A, the number of shares of common stock is calculated based
upon the average price of the stock and the average U.S. Dollar/Pound
Sterling exchange rate for the 10 trading days preceding December 9, 1997
(the date the REI transaction was announced). The average trading price
was $33.76 and the average exchange rate was $1.674:(Pounds)1. The actual
value that a shareholder receives under Method A will increase or decrease
depending upon the difference between the December 9, 1997 averages and the
averages when the transaction closes. However, in no event can the value
of the common stock to be issued to REI shareholders be less than
(Pounds)50 million or more than (Pounds)65 million.
Under Method B, the number of shares of the Company's common stock to be
issued to REI shareholders is calculated based on the average closing price
of the stock and the average U.S. Dollar/Pound Sterling exchange rate for
the 10 days preceding the closing.
Under either method, a shareholder may elect to have up to 50% of the value of
the stock paid in cash or 52 month bank-guaranteed notes. The notes bear
interest at LIBOR less 150 basis points and may be redeemed at the option of the
holder on each December 31st and June 30th beginning December 31, 1998. The
transaction is expected to close at the end of April.
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 acquisitions in the United
Kingdom, the United States, Canada, Australia and New Zealand 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 be approximately $150 million. The
Company believes that the purchase price for any of these potential acquisitions
which do close will be paid partly in common stock of the Company and partly in
cash. Following the REI acquisition, the Company may not have adequate cash to
complete these acquisitions. In that event, 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 fifty-six offices in twenty-seven 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 20,850 completed
transactions. In 1997, brokerage facilitated over 3,000 sale transactions with
an aggregate estimated total consideration of over $3.75 billion and
approximately 17,700 lease transactions involving aggregate rents, under the
terms of leases facilitated, of approximately $8.7 billion.
Brokerage services comprise the largest source of revenue for the Company and
provide a foundation for growing the Company's other disciplines which make up
its multi-discipline integrated commercial real estate services. The Company
believes that its position in the brokerage services industry provides a
competitive advantage for all of its lines of business by enabling them to
leverage off brokerage's (i) national network of relationships with owners and
users of commercial real estate, (ii) real-time knowledge of completed
transactions and real estate market trends, and (iii) brand recognition in the
brokerage area.
OPERATIONS. As of December 31, 1997, the Company employed approximately
2,000 brokerage professionals in 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 25 to
30 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 $4.775 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.
COMPENSATION. Under a typical brokerage services agreement, the Company is
entitled to receive sale or lease commissions. Sale commissions, which are
calculated as a percentage of sales price, are generally earned by the Company
at the close of escrow. Sale commissions typically range from approximately 1%
to 6% with the rate of commission declining as the price of the property
increases. Lease commissions, which are calculated as a percentage of the
minimum rent payable during the term of the lease, are generally earned by the
Company at the commencement of a lease and are not contingent upon the tenant
fulfilling the terms of the lease. In cases where a third-party brokerage firm
is not involved, lease commissions earned by the Company for a new lease
typically range between 2% and 6% of minimum rent payable under the lease
depending upon the value of the lease. For renewal of an existing lease, such
fees are generally 50% of a new lease commission. In sales and leases where a
third-party broker is involved, the Company must typically share 50% of the
commission it would have otherwise received with the third-party broker. The
Company's brokerage sales professionals have typically received 50% of the
Company's share of commissions before costs and expenses. In 1999 the Company
anticipates changing its commission plan so that sales professionals who produce
commissions below a specified level will have a 40% commission, and sales
professionals who produce commissions above a specified level will achieve a 60%
commission. Sales professionals who produce commissions between these two levels
will continue to receive 50% of the commissions.
Corporate Services
The Company provides corporate services to major corporations around the
world. Corporate services include assisting corporations in developing and
executing multiple-market real estate strategies and facilities management
services. The Company's
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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 December
31, 1997, the Company had approximately 91 million square feet under facilities
management.
OPERATIONS. The Company's facilities management operations are organized into
three geographic regions in the Eastern, Western and Central areas of the United
States, with each geographic region comprised of consulting, corporate services
and team management professionals who provide corporate service clients with a
broad array of financial, real estate, technological and general business
skills. In addition to providing a full range of corporate services in a
contractual relationship, the facilities management group will respond to client
requests generated by other Company business groups for significant, single-
assignment acquisition, disposition and consulting assignments that may lead to
long-term relationships.
COMPENSATION. A typical corporate services agreement gives the Company the
right to execute some or all of the client's future sales and leasing
transactions. The commission rate with respect to such transactions frequently
reflects a discount for the captive nature and large volume of the business.
Under a typical facilities management agreement, the Company is entitled to
receive management fees and reimbursement for its costs (such as costs of wages
of on-site employees, capital expenditures, field office rent, supplies and
utilities) incurred that are directly attributable to management of the
facility. Payments for reimbursed expenses are set against those expenses and
not included in revenue. In most instances, office space and furniture for the
on-site office are provided by the client. Under certain facilities management
agreements, the Company may also be entitled to an additional incentive fee
which is paid if the Company meets certain performance criteria established in
advance between the client and the Company. The management fee in most cases is
based upon a fixed annual amount per square foot of the facility managed.
TERM. A typical corporate services agreement includes a stated term of at
least one year and normally contains provisions for extension of the agreement.
Agreements typically include a provision for cancellation by either party, upon
notice, within a specified short time frame.
Institutional Management Services
The Company provides value-added property management services for income-
producing properties owned primarily by institutional investors and, as of
December 31, 1997, managed approximately 211 million square feet of commercial
space.
Property management services include maintenance, marketing and leasing
services for investor-owned properties, including office, industrial, retail and
multi-family residential properties. Additionally, the Company provides
construction management services, which relate primarily to tenant improvements.
The Company works closely with its clients to implement their specific goals and
objectives, focusing on the enhancement of property values through maximization
of cash flow. The Company markets its services primarily to long-term
institutional owners of large commercial real estate assets.
OPERATIONS. The Company employs approximately 1,600 property management
professionals. Most property management services are performed by management
teams located on-site or in the vicinity of the properties they manage. This
provides property owners and tenants with immediate and easily accessible
service, enhancing client awareness of manager accountability. All personnel
are extensively trained and are encouraged to continue their education through
both Company-sponsored and outside training. The Company provides each local
office with centralized corporate resources including investments in computer
software and hardware as described below under the caption "Information
Technology". Property management personnel utilize state-of-the-art computer
systems for accounting, marketing, and maintenance management.
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COMPENSATION. Under a typical property management agreement, the Company
will be entitled to receive management fees and lease commissions. The
management fee in most cases is based upon a formula which gives the Company
either a certain amount per square foot managed or a specified percentage of the
monthly gross rental income collected from tenants occupying the property under
management. Where rent is used as the basis for the fee, the fee will increase
and decrease as building rents and occupancies increase and decrease. Many of
these property management agreements also include a stated minimum management
fee. The Company also may be entitled to reimbursement for costs incurred that
are directly attributable to management of the property. Reimbursable costs,
which are not included in the Company's revenue, include the wages of on-site
employees and the cost of field office rent, furniture, computers, supplies and
utilities. The Company pays its property management professionals a combination
of salary and incentive-based bonuses. Lease commissions, which are paid in
addition to the management fee, are similar to those described for brokerage
services. Revenue from leasing services provided to the Company's property
management clients is reflected in brokerage rather than property management
revenue since brokerage professionals are normally engaged to accomplish the
leasing.
TERM. A typical property management agreement contains an evergreen
provision which provides that the agreement remains in effect for an indefinite
period, but enables the property owner to terminate the agreement upon 30 days
prior written notice, which the Company believes to be customary in the
commercial real estate industry.
Financial Services
Mortgage Banking
The Company provides its mortgage origination and mortgage loan servicing
through L. J. Melody, which was acquired in July 1996 and is based in Houston,
Texas. The Company originated approximately $3.5 billion of mortgages in 1997.
As part of these origination activities, the Company has special conduit
arrangements with affiliates of Merrill Lynch & Co., Citicorp, NationsBank,
Heller Financial and Deutche Morgan Grenfell which permit it to service the
mortgage loans which it originates. Under these arrangements, the Company
generally originates mortgages in its name, makes limited representations and
warranties based upon representations made to it by the borrower or another
party and immediately sells them into a conduit program. The Company may
originate mortgages into other conduit programs where it does not have servicing
rights. The Company originates and services loans for Federal Home Loan
Mortgage Corp. (Freddie Mac) and is a major mortgage originator for insurance
companies having originated mortgages in the names of the insurance companies
valued at approximately $2 billion in 1997. The Company has correspondent
arrangements with various life insurance companies and pension funds which
entitle it to service the mortgage loans it originates. As of December 31, 1997,
the Company serviced mortgage loan portfolios of approximately $ 7.6 billion and
as a result of the North Coast and Cauble acquisitions currently services
portfolios in excess of $9 billion.
OPERATIONS. The Company employs approximately 55 mortgage banking
professionals in 20 offices in the United States. The Company's mortgage loan
originations take place throughout the United States, with support from L. J.
Melody's headquarters in Houston, Texas. The Company's mortgage loan servicing
primarily is handled by L. J. Melody in Houston, Texas. In February 1998, L. J.
Melody acquired Cauble and Company of Carolina for approximately $2.2 million,
and substantially all of the assets of North Coast Mortgage Company for
approximately $3.3 million, both regional mortgage banking firms. These
acquisitions give the Company a stronger presence in the Northwest (Washington
and Oregon) and Southeast (North Carolina and South Carolina) regions of the
United States with respect to its mortgage banking services.
COMPENSATION. The Company typically receives origination fees, ranging from
0.5% for large insurance company mortgage loans to 1.0% for most conduit
mortgage loans. In addition, the Company can earn special 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. A majority of the Company's 1997
mortgage loan origination revenue was from agreements which entitled it to both
originate and service mortgage loans. The Company also originates mortgage
loans on behalf of conduits and insurance companies for whom it does not perform
servicing. The Company's client relationships have historically been long term.
The Company pays its mortgage banking professionals a combination of salary,
commissions and incentive-based bonuses which typically average approximately
50% of the Company's loan origination fees.
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Investment Properties
Since 1992, investment properties has provided sophisticated strategic
planning for, and execution of, acquisitions and sales of income-producing
properties for its clients. In 1997, the Company completed approximately 1,240
investment property transactions with an aggregate value of over $9.4 billion,
generating total revenues of approximately $150 million. On behalf of property
owners seeking to dispose of investment properties, the Company strives to
ensure that the owner achieves the maximum value in the minimum amount of time
by providing services which include (i) accessing the Company's proprietary
databases and other information sources to provide real-time knowledge of
available properties, completed comparable transactions, real estate market
trends, and active investors in the market, and to assist with valuation and
buyer identification, and (ii) designing the appropriate marketing strategy that
allows the owner to target probable buyers or buyer categories. On behalf of
prospective investors, access to the same sources of information provides the
Company's clients with a competitive advantage by enabling the Company's
professionals (i) to identify the geographical areas and specific properties
which are most suitable for the investor and (ii) to advise investors in
negotiations and due diligence. REI's Richard Ellis operations around the globe
had significant investment sales in 1997. The Company believes that the
combination of the two investment property programs will be highly attractive to
buyers and sellers of investment properties.
OPERATIONS. As of December 31, 1997, the Company employed approximately 300
investment properties professionals who exclusively handle acquisitions and
sales of investment properties and are located in 90 offices in the United
States.
A team of professionals with expertise within a given market and property type
is assembled for each investment properties assignment to best accomplish the
client's objectives. As necessary, the team may also include professionals from
the Company's other disciplines. On larger and more complex assignments, the
Company's financial consulting professionals provide sophisticated financial and
analytical resources to the client, the marketing team and the investor. These
services provide the client with in-depth analyses of transaction specific data
as well as real estate market data.
COMPENSATION. Under the typical investment properties agreement, the Company
is entitled to receive sale commissions, which are calculated as a percentage of
sales price and are generally earned by the Company at the close of escrow. In
cases where another real estate broker is not involved, sale commissions earned
by the Company typically range from 1% to 6% of the sales price, with the rate
of commissions generally declining as the sales price increases. In cases where
another firm is involved in the transaction, the Company must typically share up
to 50% of the commission it would have otherwise received with the other firm.
The Company's investment properties professionals typically receive 50% of the
Company's commission before costs and expenses.
Investment Management and Investment Products
The investment advisory and investment activities of the Company are divided
into two parts--Westmark and CBC Global Capital Markets. Westmark continues to
focus on providing advisory services to the pension fund community while CBC
Global Capital Markets focuses on the development of products to serve non-
pension fund investors and co-investment opportunities.
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 will react favorably to commingled
equity funds which have liquidity and co-investment characteristics.
CBC Global Capital Markets is focused on developing securitized investment
products for clients and creating other investment strategies based on its
market research. In 1996, CBC Global Capital Markets formed a relationship with
Alliance Capital Management to manage investments in REIT securities for retail
and institutional clients. This venture utilizes the Company's proprietary
research tools and currently manages approximately $800 million in assets, of
which $575 million was raised in 1997.
7
<PAGE>
CBC Global Capital Markets is considering the development of investment programs
for international real estate securities, securitized commercial mortgage debt
and other specialized investment funds.
COMPENSATION. Westmark's fees are typically higher for managing commingled
and other funds than they are for separate accounts, but all of the fees are
within the ranges indicated below. Westmark receives an annual asset management
fee which is typically 0.5% to 1.2% of the lower of the cost of the assets
managed or their fair market value. When debt is managed, the asset management
fee is at the lower end of the range. Westmark also receives an acquisition fee
when it acquires property or places debt on behalf of a client that is typically
0.5% to 1.0% of funds invested or debt placed (the placement fee for debt is at
the low end of this range). In some, but not all cases, Westmark receives an
incentive fee when an asset or a fund is sold. Typically, the incentive fee
will only be payable after the client has achieved a specified real (adjusted
for inflation) rate of return of 8% to 12% and is a percentage of value in
excess of that return. In recent years, Westmark has experienced reduced rates
of asset management and acquisition fees.
CBC Global Capital Markets' fees for managing investments will vary depending
on product type. For the REIT investment business, CBC Global Capital Markets
shares the total fees with Alliance Capital Management with the gross income to
the Company ranging from 0.20% to 0.25% of assets under management.
TERM. The term of Westmark's advisory agreements vary by the form of
investment vehicle utilized. In the commingled funds, the term is generally 10
years with extension and early termination provisions based upon a vote of the
investors. Over the next several years several commingled funds formed in the
1980s will be liquidated. In the Company's separate account relationships, the
agreements are generally one to three years in term, with "at will" termination
provisions. In general, both the capital managed by Westmark and its client
relationships are long-term in nature.
Valuation and Appraisal Services
The Company's valuation and appraisal services business delivers sophisticated
commercial real estate valuations through a variety of products including market
value appraisals, portfolio valuation, discounted cash flow analyses, litigation
support, feasibility land use studies and fairness opinions. At December 31,
1997, the Company's appraisal staff had more than 92 professionals with
approximately 50% of the staff holding the MAI 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 3600 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, commencing in February 1997, 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
8
<PAGE>
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. Conversely, the Company's alliance
partners were obligated to refer their clients with commercial real estate needs
in the United States to the Company. Revenues from the alliance agreements
represent a small portion of total revenues.
INFORMATION TECHNOLOGY
In order to enhance the quality of its real estate services and improve the
productivity of its employees, the Company has invested in state-of-the-art
computer and telecommunication systems to provide real-time real estate
information and sophisticated presentation and analysis tools. The Company's
information technology group ("IT Group"), headquartered in Torrance,
California, employs 100 professionals that operate the Company's data center,
develops custom programs, implements special systems software, and provides
support for hardware and software utilized in the Company's national network of
offices.
The Company has adopted computer hardware and software standards to maintain
the consistency and quality of its real estate services. Each office is
connected directly to the Company's wide area network for real-time access to
the Company's centralized databases, customized software applications and
electronic communications systems.
By special arrangement, some of the Company's clients have remote modem access
to selected client-customized software applications, and the CB Commercial Web
Site has also given clients direct access through the CB Internet home page.
These systems allow clients to gain access to various levels of information,
maintain day-to-day contact with the Company's professionals, and track and
monitor property acquisition and disposition activities and property portfolios.
Year 2000 Computer Issues
The Company's accounting (both for the Company and for its property and
facilities management clients), information technology and embedded (elevator,
HVAC, etc.) systems are all subject to potential problems relating to the
inability of such systems to recognize the year 2000. The Company believes that
its accounting systems will be year 2000 compliant by the end of 1998 but that
its information technology and embedded systems may not be year 2000 compliant
until sometime in 1999. There is no assurance that the Company can meet these
schedules and if it does not, the result would be material and adverse.
COMPETITION
The market for commercial real estate brokerage and other real estate services
provided by the Company is both highly fragmented and highly competitive.
Thousands of local commercial real estate brokerage firms and hundreds of
regional commercial real estate brokerage firms have offices in the United
States. The Company believes that no more than two other major firms have the
ability to compete nationally with the Company's brokerage business and that the
Company's national brokerage network enables it to compete effectively with
these organizations. Most of the Company's competitors are local or regional
firms that are substantially smaller than the Company on an overall basis, but
in some cases may be larger locally.
L. J. Melody competes with a large number of mortgage banking firms and
institutional lenders as well as regional and national investment banking firms
and insurance companies in providing its mortgage banking services. Appraisal
services are provided by other national, local and regional appraisal firms and
national and regional accounting firms. Consulting services are provided by
numerous commercial real estate firms (national, regional and local), accounting
firms, appraisal firms and others.
The Company's property management business competes for the right to manage
properties controlled by third parties. The competitor may be the owner of the
property (who is trying to decide the efficiency of outsourcing) or another
property management company. Increasing competition in recent years has
resulted in having to provide additional services at lower rates, thereby
eroding margins. In 1996, however, rates stabilized and, in some cases,
increased.
Westmark competes with a significant number of investment advisors, banks and
insurance companies in attracting investor money. Over the last several years,
Westmark experienced growth in its separate accounts and its commingled debt
funds, but not in its commingled equity funds.
In all of its business disciplines, the Company competes on the basis of the
skill and quality of its personnel, the variety of services offered, the breadth
of geographic coverage and the quality of its infrastructure, including
technology.
9
<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.
ITEM 2. 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 rental rates in some markets may adversly affect the Company's profits
in those markets.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock commenced trading on the New York Stock
Exchange on November 7, 1997 under the symbol "CBG." Prior to that, the
Company's Common Stock traded on The Nasdaq Stock Market--National Market System
("NASDAQ -- NMS") under the symbol "CBCG" from November 26, 1996 through
November 6, 1997. Prior to that period, there was no established public trading
market for the Company's Common Stock. The following table sets forth, for the
periods indicated, the high and low sales price per share of the Common Stock on
the NYSE, and the high and low bid prices for the Common Stock on the NASDAQ --
NMS.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
- ---------------------------- ------- -------
<S> <C> <C>
November 26, 1996 through December 31, 1996 $20 $18
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
First Quarter 27 3/8 18 1/4
Second Quarter 30 3/4 20 3/4
Third Quarter 33 3/4 28 3/4
Fourth Quarter (through November 6, 1997) 39 1/2 32 1/4
Fourth Quarter (from November 7, 1997) 38 28 1/2
</TABLE>
(b) As of February 28, 1998, the Company had 852 record holders of its Common
Stock.
(c) Since its incorporation in March 1989 the Company has not declared any
cash dividends on its Common Stock. The Company's existing credit agreement
restricts its ability to pay dividends on Common Stock but permits the payment
of dividends on preferred stock. The preferred stock was repurchased by the
Company in January 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations --- Liquidity and Capital Resources" under
Item 7 of this report.
(d) In June 1997, the Company sold 35,000 shares of Common Stock to an
executive officer of the Company under the Company's 1996 Equity Incentive Plan.
The sale was made by private placement in reliance on the exemption from
registration provisions provided for in Section 4(2) of the Securities Act of
1933, as amended. The recipient of such securities represented his intention to
acquire the securities for investment only and not with a view to distribution
thereof. An appropriate legend was affixed to the stock certificate issued in
such transaction. The recipient had adequate access, through employment, to
information about the Company.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION:
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ 730,224 $ 583,068 $ 468,460 $ 428,988 $ 392,037
Costs and Expenses:
Commissions, fees and other
incentives.......................... 365,705 292,266 239,018 225,085 206,070
Operating, administrative and other.. 274,447 228,799 187,968 170,234 160,073
Merger related and other
non-recurring charges............... 12,924 - - - -
Depreciation and amortization........ 18,060 13,574 11,631 8,091 49,606
----------- ----------- ----------- ----------- -----------
Operating income (loss)................. 59,088 48,429 29,843 25,578 (23,712)
Interest income......................... 2,598 1,503 1,674 1,109 915
Interest expense........................ 15,780 24,123 23,267 17,362 14,240
----------- ----------- ----------- ----------- -----------
Income (loss) before provision
(benefit) for income tax............... 45,906 25,809 8,250 9,325 (37,037)
Provision for income tax................ 20,558 11,160 841 152 112
Reduction of valuation allowances (1)... - (55,900) - - -
----------- ----------- ----------- ----------- -----------
Net provision (benefit) for income tax.. 20,558 (44,740) 841 152 112
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary items 25,348 70,549 7,409 9,173 (37,149)
Extraordinary items, net................ 951 - - - -
----------- ----------- ----------- ----------- -----------
Net income (loss)....................... $ 24,397 $ 70,549 $ 7,409 $ 9,173 $ (37,149)
=========== =========== =========== =========== ===========
Net income (loss) applicable to common
stockholders (2)....................... $ 20,397 $ 69,549 $ 7,409 $ 9,173 $ (37,149)
Basic earnings (loss) per share (2)..... $ 1.34 $ 5.05 $ 0.55 $ 0.69 $ (3.23)
Number of shares used in computing
basic earnings (loss)
per share (2).......................... 15,237,914 13,783,882 13,499,862 13,264,405 11,504,644
Diluted earnings (loss) per share (2)... $ 1.28 $ 4.99 $ 0.55 $ 0.69 $ (3.23)
Number of shares used in computing
diluted earnings (loss)
per share (2).......................... 15,996,929 14,126,636 13,540,541 13,305,118 11,504,644
OTHER DATA:
EBITDA (3).............................. $ 90,072 $ 62,003 $ 41,474 $ 33,669 $ 25,894
Net cash provided by operating
activities............................. $ 80,835 $ 65,694 $ 30,632 $ 31,418 $ 19,609
Net cash used in investing activities... $ (18,018) $ (10,906) $ (24,888) $ (3,865) $ (5,629)
Net cash used in financing activities... $ (64,964) $ (28,505) $ (11,469) $ (4,923) $ (14,662)
AS OF DECEMBER 31,
------------------------------------------------------------------------------------
BALANCE SHEET DATA: 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents............... $ 47,181 $ 49,328 $ 23,045 $ 28,770 $ 6,140
Total assets............................ 505,191 278,944 190,954 150,100 128,914
Total long-term debt.................... 146,104 148,529 250,142 233,571 239,853
Total liabilities....................... 339,748 280,364 345,642 314,648 303,774
Minority interest....................... 7,672 95 - - -
Total stockholders' equity (deficit).... 157,771 (1,515) (154,688) (164,548) (174,860)
</TABLE>
- ----------------
(1) See Note 9 of Notes to Consolidated Financial Statements.
(2) See Per Share Information in Note 2 of Notes to Consolidated Financial
Statements.
(3) 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.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
CB Commercial Real Estate Services Group, Inc. (the "Company") is the largest
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 country 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 a $86.9 million
public offering of common stock and six strategic acquisitions with a seventh --
a major international acquisition -- in process. 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.
13
<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, 1997, 1996 and 1995,
presented in dollars and as a percentage of revenue.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................................ $730,224 100.0% $583,068 100.0% $468,460 100.0%
Costs and expenses:
Commissions, fees and other incentives............ 365,705 50.1 292,266 50.1 239,018 51.0
Operating, administrative and other............... 274,447 37.6 228,799 39.3 187,968 40.1
Merger related and other non-recurring
charges......................................... 12,924 1.8 - - - -
Depreciation and amortization..................... 18,060 2.4 13,574 2.3 11,631 2.5
-------- ----- -------- ----- -------- -----
Operating income................................... 59,088 8.1 48,429 8.3 29,843 6.4
Interest income.................................... 2,598 0.3 1,503 0.2 1,674 0.4
Interest expense................................... 15,780 2.2 24,123 4.1 23,267 5.0
-------- ----- -------- ----- -------- -----
Income before provision (benefit) for income tax... 45,906 6.2 25,809 4.4 8,250 1.8
Provision for income tax........................... 20,558 2.8 11,160 1.9 841 0.2
Reduction of valuation allowances.................. - - (55,900) (9.6) - -
-------- ----- -------- ----- -------- -----
Net provision (benefit) for income tax............. 20,558 2.8 (44,740) (7.7) 841 0.2
-------- ----- -------- ----- -------- -----
Income (loss) before extraordinary items........... 25,348 3.4 70,549 12.1 7,409 1.6
Extraordinary items, net........................... 951 0.1 - - - -
-------- ----- -------- ----- -------- -----
Net income......................................... $ 24,397 3.3% $ 70,549 12.1% $ 7,409 1.6%
======== ===== ======== ===== ======== =====
EBITDA............................................. $ 90,072 12.3% $ 62,003 10.6% $ 41,474 8.9%
======== ===== ======== ===== ======== =====
</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.
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 Real Estate Services ("Koll") at the end of August 1997 and a full year of
revenue from L.J. Melody & Company ("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
14
<PAGE>
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 ("Offering"), 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. 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, 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).
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.
15
<PAGE>
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 Offering.
NET PROVISION (BENEFIT) FOR INCOME TAX on a consolidated basis in 1996 was a
benefit of $(44.7) million, compared to a $0.8 million provision in 1995.
During the third quarter of 1996, the Company projected, on a more likely than
not basis, that a portion of its NOL would be realizable in future periods and,
accordingly, reduced its existing deferred tax asset valuation allowances by
$45.7 million of which $5.3 million was allocated to the purchase price of L.J.
Melody based on its estimated future potential to generate taxable income, and
the remaining $40.4 million was recorded as a tax benefit (a reduction in income
tax provision). During the fourth quarter of 1996, the Company further reduced
its deferred tax asset valuation allowances by $15.5 million based on its
ability to generate additional taxable income in the future through interest
savings resulting from the paydown of part of its senior secured and senior
subordinated debt with proceeds from the Offering. This reduction has also been
recorded as a tax benefit resulting in a cumulative year-to-date tax benefit of
$55.9 million. With the recognition of deferred tax assets, the future period
provisions for income tax will be recorded at the full effective tax rate
excluding the impact of other adjustments, if any, to valuation allowances. For
the year ended December 31, 1996, a $11.2 million provision for income taxes 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.
16
<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. Brokerage Services consists of
brokerage (commercial property sales and leasing). Corporate Services consists
of outsourcing, transaction management, advisory services and facilities
management. Institutional Management Services consists of property management.
Financial Services consists of investment property services (acquisitions and
sales on behalf of investors), mortgage loan origination and servicing through
L.J. Melody, investment management and advisory services through Westmark Realty
Advisors L.L.C. ("Westmark"), capital markets activities, valuation and
appraisal services and real estate market research. The following tables
summarize the revenue, cost and expenses, and operating income by operating
segment for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995
----------------- ----------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BROKERAGE SERVICES
Revenue.................................... $423,485 100.0% $345,906 100.0% $301,272 100.0%
Costs and expenses:
Commissions, fees and other incentives... 237,697 56.1 191,830 55.5 168,049 55.8
Operating, administrative and other...... 133,661 31.6 122,845 35.5 100,502 33.4
Depreciation and amortization............ 8,200 1.9 7,092 2.0 7,484 2.4
-------- ----- -------- ----- -------- -----
Operating income........................... $ 43,927 10.4% $ 24,139 7.0% $ 25,237 8.4%
======== ===== ======== ===== ======== =====
EBITDA..................................... $ 52,127 12.3% $ 31,231 9.0% $ 32,721 10.9%
======== ===== ======== ===== ======== =====
CORPORATE SERVICES
Revenue.................................... $ 37,608 100.0% $ 25,564 100.0% $ 21,750 100.0%
Costs and expenses:
Commissions, fees and other incentives... 18,429 49.0 14,286 55.9 12,208 56.1
Operating, administrative and other...... 16,693 44.4 10,700 41.9 8,120 37.3
Depreciation and amortization............ 898 2.4 243 0.9 268 1.3
-------- ----- -------- ----- -------- -----
Operating income (loss).................... $ 1,588 4.2% $ 335 1.3% $ 1,154 5.3%
======== ===== ======== ===== ======== =====
EBITDA..................................... $ 2,486 6.6% $ 578 2.3% $ 1,422 6.5%
======== ===== ======== ===== ======== =====
INSTITUTIONAL MANAGEMENT SERVICES
Revenue.................................... $ 67,442 100.0% $ 44,783 100.0% $ 41,067 100.0%
Costs and expenses:
Commissions, fees and other incentives... 22,230 33.0 17,416 38.9 15,630 38.1
Operating, administrative and other...... 38,625 57.3 21,518 48.0 23,203 56.5
Depreciation and amortization............ 2,040 3.0 700 1.6 506 1.2
-------- ----- -------- ----- -------- -----
Operating income (loss).................... $ 4,547 6.7% $ 5,149 11.5% $ 1,728 4.2%
======== ===== ======== ===== ======== =====
EBITDA..................................... $ 6,587 9.8% $ 5,849 13.1% $ 2,234 5.4%
======== ===== ======== ===== ======== =====
FINANCIAL SERVICES
Revenue.................................... $201,689 100.0% $166,815 100.0% 104,371 100.0%
Costs and expenses:
Commissions, fees and other incentives... 87,349 43.3 68,734 41.2 43,131 41.3
Operating, administrative and other...... 85,468 42.4 73,736 44.2 56,143 53.8
Depreciation and amortization............ 6,922 3.4 5,539 3.3 3,373 3.2
-------- ----- -------- ----- -------- -----
Operating income........................... $ 21,950 10.9% $ 18,806 11.3% $ 1,724 1.7%
======== ===== ======== ===== ======== =====
EBITDA..................................... $ 28,872 14.3% $ 24,345 14.6% $ 5,097 4.9%
======== ===== ======== ===== ======== =====
MERGER RELATED AND OTHER
NON-RECURRING CHARGES $(12,924) $ - $ -
======== ======== ========
TOTAL OPERATING INCOME $ 59,088 $ 48,429 $ 29,843
======== ======== ========
TOTAL EBITDA $ 90,072 $ 62,003 $ 41,474
======== ======== ========
</TABLE>
17
<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.
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.
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.
18
<PAGE>
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 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
19
<PAGE>
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. The improvement in EBITDA reflects 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 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.
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 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 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. This balance consists of various borrowings
pursuant to the Revolving Credit Facility. The 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 Revolving Credit
Facility is subject to mandatory commitment reductions of $30.0 million, on
December 31, 1999 and $60.0 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 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. The Revolving Credit Facility
currently bears interest at 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.
20
<PAGE>
At December 31, 1997, the effective interest rate was 6.78%. The interest rate
is subject to change if the Company's leverage increases or decreases.
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. However, at the end of
January 1998, the Company borrowed $78.0 million to repurchase its preferred
stock and expects to use approximately $46.0 million to fund the acquisition of
REI Limited ("REI"). See Note 13. 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. 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 Revolving Credit Facility exceeds
$270,000, $210,000 and/or $150,000, respectively.
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.
Effective October 1996, a dividend on the Company's preferred stock was
reinstated and a conversion feature was added. The $0.25 per share quarterly
dividend on the Company's preferred stock has accrued from October 1, 1996, and
resulted in a cost of $1.0 million per quarter. In January 1998 the Company
purchased all 4.0 million 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 will reduce 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 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 primarily 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 August 28, 1997 the Company purchased Koll Real Estate Services ("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 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.
21
<PAGE>
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. For 1997 REI had revenues of approximately $119.0
million and pre-tax income of $7.9 million. Its principle operations are in the
Netherlands, France, Spain, Brazil, Australia, Hong Kong (including Taiwan and
the People's Republic of China) and Singapore.
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.
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 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.
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 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.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards ("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
22
<PAGE>
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.
SAFE HARBOR STATEMENT REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA
Portions of the Annual Report, including Management's Discussion and
Analysis, are forward-looking and involve known and unknown risks, uncertainties
and other factors that may cause the Company's actual results and performance in
future periods to be materially different from any future results or performance
suggesting the forward-looking statements in this release. Such forward-looking
statements speak only as of the date of this report. The Company expressly
disclaims any obligation to update or revise any forward-looking statements
found herein to reflect any changes in Company expectations or results or any
change in events. 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.
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 judgement so that such statements reflect fairly the
consolidated financial position, results of operations and cash flows of the
Company.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS AND OTHER FINANCIAL DATA
The following table sets forth certain unaudited consolidated statement of
operations data for each of the Company's last twelve quarters and the
percentage of the Company's revenues represented by each line item reflected in
each consolidated income statement. In the opinion of management, this
information has been presented on the same basis as the consolidated financial
statements included in Item 8, and includes all adjustments, consisting only of
normal recurring adjustments and accruals, that the Company considers necessary
for a fair presentation. The unaudited quarterly information should be read in
conjunction with the audited financial statements of the Company and the notes
thereto. The operating results for any quarter are not necessarily indicative
of the results for any future period.
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------ ------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
---------- ----------- ---------- ----------- ---------- ---------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue...................... $260,682 $177,520 $157,958 $134,064 $192,205 $147,168 $130,954 $112,741
Costs and expenses:
Commissions, fees and
other incentives........... 127,752 87,825 82,521 67,607 96,801 74,196 66,262 55,007
Operating, administrative
and other.................. 89,042 68,809 60,206 56,390 69,603 56,042 53,594 49,560
Merger related and other
non-recurring charges...... - 12,924 - - - - - -
Depreciation and
amortization............... 5,788 6,098 3,053 3,121 3,825 3,431 3,038 3,280
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)...... 38,100 1,864 12,178 6,946 21,976 13,499 8,060 4,894
Interest income.............. 639 740 587 632 468 286 354 395
Interest expense............. 3,773 4,158 4,104 3,745 6,240 6,196 5,759 5,928
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision (benefit) for
income tax.................. 34,966 (1,554) 8,661 3,833 16,204 7,589 2,655 (639)
Provision (benefit) for
income tax.................. 15,772 (569) 3,795 1,560 6,550 4,220 438 (48)
Reduction of valuation
allowances.................. - - - - (15,500) (40,400) - -
-------- -------- -------- -------- -------- -------- -------- --------
Net provision (benefit) for
income tax.................. 15,772 (569) 3,795 1,560 (8,950) (36,180) 438 (48)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary items.......... 19,194 (985) 4,866 2,273 25,154 43,769 2,217 (591)
Extraordinary items, net..... - 951 - - - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)............ $ 19,194 $ (1,936) $ 4,866 $ 2,273 $ 25,154 $ 43,769 $ 2,217 $ (591)
======== ======== ======== ======== ======== ======== ======== ========
Other Financial Data:
EBITDA....................... $ 43,888 $ 20,886 $ 15,231 $ 10,067 $ 25,801 $ 16,930 $ 11,098 $ 8,174
Net cash provided by (used
in) operating activities.... $ 55,055 $ 22,328 $ 19,218 $(15,766) $ 41,524 $ 22,150 $ 13,865 $(11,845)
Net cash provided by (used
in) investing activities.... $ (7,702) $ 330 $ (803) $ (9,843) $ (1,389) $ (9,401) $ 1,768 $ (1,884)
Net cash provided by (used
in) financing activities.... $(43,795) $(29,314) $ (3,512) $ 11,657 $(15,710) $(15,297) $ (4,306) $ 6,808
<CAPTION>
1995
---------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31
---------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Results of Operations:
Revenue...................... $143,570 $116,603 $108,361 $ 99,926
Costs and expenses:
Commissions, fees and
other incentives........... 71,449 57,804 57,370 52,395
Operating, administrative
and other.................. 53,129 47,803 44,206 42,830
Merger related and other
non-recurring charges...... - - - -
Depreciation and
amortization............... 3,458 3,546 2,297 2,330
-------- -------- -------- --------
Operating income (loss)...... 15,534 7,450 4,488 2,371
Interest income.............. 446 345 393 490
Interest expense............. 6,323 6,428 5,313 5,203
-------- -------- -------- --------
Income (loss) before
provision (benefit) for
income tax.................. 9,657 1,367 (432) (2,342)
Provision (benefit) for
income tax.................. 603 138 26 74
Reduction of valuation
allowances.................. - - - -
-------- -------- -------- --------
Net provision (benefit) for
income tax.................. 603 138 26 74
-------- -------- -------- --------
Income (loss) before
extraordinary items.......... 9,054 1,229 (458) (2,416)
Extraordinary items, net..... - - - -
-------- -------- -------- --------
Net income (loss)............ $ 9,054 $ 1,229 $ (458) $ (2,416)
======== ======== ======== ========
Other Financial Data:
EBITDA....................... $ 18,992 $ 10,996 $ 6,785 $ 4,701
Net cash provided by (used
in) operating activities.... $ 30,082 $ 8,143 $ 6,890 $(14,483)
Net cash provided by (used
in) investing activities.... $ (2,928) $ (595) $(18,887) $ (2,478)
Net cash provided by (used
in) financing activities.... $(16,002) $ (8,098) $ 15,391 $ (2,760)
AS A PERCENTAGE OF REVENUES
-----------------------------------------------------------------------------------------
1997 1996
------------------------------------------- ------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
------- -------- ------- -------- ------- -------- ------- --------
Results of Operations:
Revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Commissions, fees and
other incentives........... 49.0 49.5 52.2 50.4 50.4 50.4 50.6 48.8
Operating, administrative
and other.................. 34.2 38.8 38.1 42.1 36.2 38.1 40.9 44.0
Merger related and other
non-recurring charges...... - 7.3 - - - - - -
Depreciation and
amortization............... 2.2 3.4 1.9 2.3 2.0 2.3 2.3 2.9
-------- -------- -------- -------- -------- -------- ------- --------
Operating income (loss)...... 14.6 1.0 7.8 5.2 11.4 9.2 6.2 4.3
Interest income.............. 0.2 0.4 0.3 0.5 0.2 0.2 0.3 0.3
Interest expense............. 1.4 2.3 2.6 2.8 3.2 4.2 4.4 5.2
-------- -------- -------- -------- -------- -------- ------- --------
Income (loss) before
provision (benefit) for
income tax.................. 13.4 (0.9) 5.5 2.9 8.4 5.2 2.1 (0.6)
Provision for income tax..... 6.1 (0.3) 2.4 1.2 3.4 2.9 0.3 0.0
Reduction of valuation
allowances.................. - - - - (8.1) (27.5) - -
-------- -------- -------- -------- -------- -------- ------- --------
Net provision (benefit) for
income tax.................. 6.1 (0.3) 2.4 1.2 (4.7) (24.6) 0.3 0.0
-------- -------- -------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary items......... 7.4 (0.6) 3.1 1.7 13.1 29.7 1.8 (0.6)
Extraordinary items, net..... - 0.5 - - - - - -
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss) 7.4% (1.1)% 3.1% 1.7% 13.1% 29.7% 1.8% (0.6)%
======== ======== ======== ======== ======== ======== ======= ========
AS A PERCENTAGE OF REVENUES
------------------------------------------------
1995
------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31
------- -------- ------- --------
<S> <C> <C> <C> <C>
Results of Operations:
Revenue...................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Commissions, fees and
other incentives........... 49.8 49.6 52.9 52.4
Operating, administrative
and other.................. 37.0 41.0 40.8 42.9
Merger related and other
non-recurring charges...... - - - -
Depreciation and
amortization............... 2.4 3.0 2.1 2.3
-------- -------- -------- --------
Operating income (loss)...... 10.8 6.4 4.2 2.4
Interest income.............. 0.3 0.3 0.3 0.5
Interest expense............. 4.4 5.5 4.9 5.2
-------- -------- -------- --------
Income (loss) before
provision (benefit) for
income tax.................. 6.7 1.2 (0.4) (2.3)
Provision for income tax..... 0.4 0.1 0.0 0.1
Reduction of valuation
allowances.................. - - - -
-------- -------- -------- --------
Net provision (benefit) for
income tax.................. 0.4 0.1 0.0 0.1
-------- -------- -------- --------
Income (loss) before
extraordinary items......... 6.3 1.1 (0.4) (2.4)
Extraordinary items, net..... - - - -
-------- -------- -------- --------
Net income (loss) 6.3% 1.1% (0.4)% (2.4)%
======== ======== ======== ========
</TABLE>
24
<PAGE>
ITEM 7A. 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 significant currency expense 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>
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.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of Independent Public Accountants............................................... 27
Consolidated Balance Sheets as of December 31, 1997, and 1996.......................... 28
Consolidated Statements of Operations for the Years Ended December 31, 1997,
1996 and 1995......................................................................... 29
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995......................................................................... 30
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1996 and 1995................................................ 32
Notes to Consolidated Financial Statements............................................. 33
SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS
I-Condensed Financial Information of Registrant........................................ 51
II-Valuation and Qualifying Accounts................................................... 52
Exhibit 12-Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends... 53
</TABLE>
All other schedules and exhibits are not submitted because either they are
not applicable, not required or the information required is included in the
Consolidated Financial Statements, including the notes thereto.
26
<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
27
<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.
28
<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.
29
<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>
30
<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.
31
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
Notes
receivable
Common 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.
32
<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
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.
33
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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.
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.
34
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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,
---------------------------------
(unaudited)
1997 1996 1995
-------- ----------- --------
<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.
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
35
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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)
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 antidilutive. 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.
36
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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
--------------------------------------- ----------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------------ ---------- ----------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income before extraordinary items... $ 25,348 $ 70,549
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
Extraordinary items, net................ (951) (0.06) - -
---------- ------ -------- --------
Income applicable to common
shareholders........................... $ 20,397 $ 1.34 $ 69,549 $ 5.05
========== ======= ======== ========
DILUTED EARNINGS PER SHARE
Income before extraordinary items
applicable to common shareholders...... $ 21,348 15,237,914 $ 70,549 13,783,882
Diluted effect of exercise of options
outstanding............................ 759,015 61,443
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
Extraordinary items, net................ (951) (0.06) - -
---------- ---------- ------- -------- --------
Income applicable to common
shareholders........................... $ 20,397 $ 1.28 $ 70,549 $ 4.99
========== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------
Per-Share
Income Shares Amount
------ ------ ---------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income before
extraordinary items............................ $ 7,409
Preferred stock dividends (see Note 13)........ -
---------
Income before extraordinary items applicable
to common shareholders......................... 7,409 13,499,862 $ 0.55
Extraordinary items, net....................... - -
--------- -------
Income applicable to common shareholders....... $ 7,409 $ 0.55
========= =======
DILUTED EARNINGS PER SHARE
Income before extraordinary items applicable
to common shareholders........................ $ 7,409 13,499,862
Diluted effect of exercise of options
outstanding................................... 40,679
Diluted effect of convertible preferred stock.. -
--------- ----------
Income before extraordinary items
applicable to common shareholders............. $ 7,409 13,540,541 $ 0.55
Extraordinary items, net....................... - -
--------- -------
Income applicable to common shareholders....... $ 7,409 $ 0.55
========= =======
</TABLE>
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
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.
37
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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.
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)
38
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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.
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.
39
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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 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 CBC 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> <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>
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.
40
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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>
Outstanding Options and Warrants Exercisable 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>
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
41
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
$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.
42
<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 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.
43
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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 secured by substantially
all of the personal and real property assets of the Company. Collectively these
loans are guaranteed by CB Commercial and all the common stock of CB Commercial
Real Estate Group, Inc. is pledged to secure the guarantee.
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.
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.
44
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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.
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 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.
45
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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>
46
<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.
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.
47
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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.
48
<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
======== ======== ========
<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>
49
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
DECEMBER 31, 1997
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.
50
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Dollars in thousands)
<TABLE>
<CAPTION>
BALANCE SHEET 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>
<TABLE>
<CAPTION>
INCOME STATEMENT 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>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS 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.
51
<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>
52
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
EXHIBIT 12 - COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED DIVIDENDS
FOR THE FIVE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Pre-tax income (loss) from continuing
operations................................... $45,906 $25,809 $ 8,250 $ 9,325 $(37,037)
Fixed Charges............................ 22,884 30,629 29,172 23,283 20,570
------- ------- ------- ------- --------
Total earnings (loss) before fixed charges.... $68,790 $56,438 $37,422 $32,608 $(16,467)
======= ======= ======= ======= ========
Fixed Charges
Portion of rent expense representative
of the interest factor (1)............. $ 7,104 $ 6,506 $ 5,905 $ 5,921 $ 6,330
Interest expense......................... 15,780 24,123 23,267 17,362 14,240
Preferred stock dividends (2)............ 6,557 1,639 - - -
------- ------- ------- ------- --------
Total fixed charges and preferred
dividends.............................. $29,441 $32,268 $29,172 $23,283 $ 20,570
======= ======= ======= ======= ========
Ratio of earnings to fixed charges and
preferred dividends (3)...................... 2.34 1.75 1.28 1.40 -
======= ======= ======= ======= ========
</TABLE>
(1) Represents one-third of operating lease costs which approximates the portion
that relates to the interest portion.
(2) Preferred stock dividend requirements have been reflected at their pre-tax
amounts.
(3) The Company's earnings were not sufficient to cover its fixed charges
requirements by $37.0 million for December 31, 1993.
In computing the ratio of earnings to fixed charges; (a) earnings have been
based on income from continuing operations before income taxes, extraordinary
items and fixed charges (exclusive of interest capitalized) and (b) fixed
charges consist of interest and amortization of debt discount and expense
(including amounts capitalized) and the estimated interest portion of rents.
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company expects to file with the Securities and Exchange Commission its
definitve proxy statement concerning its 1998 Annual Meeting of Stockholders
(the "1998 Annual Meeting Proxy Statement") no later than 120 days after
December 31, 1997. The information required by this item is set forth in the
1998 Annual Meeting Proxy Statement under the headings "Nomination and Election
of Directors---Directors and Nominees for Directors," "Nomination and Election
of Directors---Management" and "Nomination and Election of Directors---Section
16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the 1998 Annual Meeting
Proxy Statement under the headings "Nomination and Election of Directors---
Directors Fees" and "Nomination and Election of Directors---Executive
Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in the 1998 Annual Meeting
Proxy Statement under the heading "Nomination and Election of Directors---
Principal Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the 1998 Annual Meeting
Proxy Statement under the heading "Nomination and Election of Directors---
Certain Relationships and Related Transactions" and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
See Index to Consolidated Financial Statements set forth on page 26.
2. Financial Statement Schedules
See Index to Consolidated Financial Statements set forth on page 26.
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1* Agreement and Plan of Reorganization dated as of May 13, 1997 by
and among CB Commercial Real Estate Services Group, Inc. (the
"Company"), CBC Acquisition Corporation, Koll Real Estate
Services, FS Equity
54
<PAGE>
Partners III, L.P., FS Equity Partners International, L.P., AP KMS
Partners, L.P., AP KMS II, LLC, The Koll Holding Company and
certain individual signatories thereto, filed as Annex 1 to the
Company's definitive proxy statement/prospectus dated July 31,
1997 as part of the Company's Registration Statement on Form S-4
Amendment No. 4 (File No. 333-28731)
3.1* Fourth Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company's Form 10-K for the year ended
December 31, 1996
3.2* Fourth Amended and Restated Bylaws of the Company, filed as
Exhibit 3(ii) to the Company's Registration Statement on Form S-4
Amendment No. 1 (File No. 333-28731)
4.1* Specimen Form of Common Stock Certificate, filed as Exhibit 4.1 to
the Company's Form S-1 Registration Statement (File No. 333-12757)
4.2* Form of the Company's Restricted Stock Agreement between the
Company and the Company's Officer or Employee, filed as Exhibit
4.8 to the Company's Form S-1 Registration Statement (File No. 33-
29410).
4.3* First Amendment to the Company's Restricted Stock Agreement, filed
as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
4.4* Form of Warrant Agreement between the Company, FS Equity Partners
III, L.P., FS Equity Partners International, L.P., AP KMS
Partners, L.P., AP KMS II, LLC, The Koll Holding Company and
certain individuals, with attached Form of Warrant Certificate,
filed as Annex 2 to the Company's definitive proxy
statement/prospectus dated July 31, 1997 as part of the Company's
Registration Statement on Form S-4 Amendment No. 4 (File No. 333-
28731)
10.1(i)*+ CB Commercial Real Estate Services Group, Inc. Omnibus Stock and
Incentive Plan, filed as Exhibit 10.13 to Post-Effective Amendment
No. 1 to the Company's Form S-1 Registration Statement (File No.
33-29410)
10.1(ii)*+ First Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1990
10.1(iii)*+ Second Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.16(iii)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993
10.1(iv)*+ Third Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.4(iv)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994
10.2(i)*+ 1990 Stock Option Plan, filed as Exhibit 4(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990
10.2(ii)*+ First Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.15(ii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992
10.2(iii)*+ Second Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.8(iii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993
10.2(iv)*+ Third Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.5(iv) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994
10.3*+ Form of Incentive Stock Option Agreement, filed as Exhibit 4(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1990
55
<PAGE>
10.4*+ Form of Nonstatutory Stock Option Agreement, filed as Exhibit 4(c)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990
10.5(i)*+ CB Commercial Real Estate Services Group, Inc. 1991 Service
Providers Stock Option Plan, filed as Exhibit 10.27 to the
Company's Current Report on Form 8-K dated April 1, 1992
10.5(ii)*+ 1997 Amendment to the 1991 Service Providers Stock Option Plan,
filed as Annex 7 to the Company's definitive proxy
statement/prospectus dated July 31, 1997 as part of the Company's
Registration Statement on Form S-4 Amendment No. 4 (File No. 333-
28731)
10.6+ CB Commercial Real Estate Services Group, Inc. Amended and
Restated Deferred Compensation Plan
10.7*+ Amended and Restated 1996 Equity Incentive Plan of CB Commercial
Real Estate Services Group, Inc., filed as Annex 8 to the
Company's definitive proxy statement/prospectus dated July 31,
1997 as part of the Company's Registration Statement on Form S-4
Amendment No. 4 (File No. 333-28731)
10.8*+ CB Commercial Real Estate Services Group, Inc. L.J. Melody
Acquisition Stock Option Plan, filed as Exhibit 10.10 to the
Company's Form 10-K for the yeard ended December 31, 1996
10.9*+ Form of Indemnification Agreement between the Company, CB
Commercial Real Estate Group, Inc. and directors and officers,
filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992
10.10*+ Employment Agreement between the Company and Lawrence J. Melody
dated July 1, 1996, filed as Exhibit 10.12 to the Company's Form
S-1 Registration Statement (File No. 333-12757)
10.11*+ CB Commercial Real Estate Services Group, Inc. 1997 Employee Stock
Option Plan, filed as Annex 5 to the Company's definitive proxy
statement/prospectus dated July 31, 1997 as part of the Company's
Registration Statement on Form S-4 Amendment No. 4 (File No. 333-
28731)
10.12*+ CB Commercial Real Estate Services Group, Inc. 1998 Employee Stock
Purchase Plan, filed as Annex 6 to the Company's definitive proxy
statement/prospectus dated July 31, 1997 as part of the Company's
Registration Statement on Form S-4 Amendment No. 4 (File No. 333-
28731)
10.13+ CB Commercial Real Estate Services Group, Inc. Koll Acquisition
Stock Option Plan
10.14(i)+ CB Commercial Real Estate Services Group, Inc. / KMS Holding
Corporation Amended 1994 Nonqualified Performance Stock Option
Plan
10.14(ii)+ Form of Nonstatutory Stock Option Agreement evidencing substitute
options granted by the Company upon assumption of options issued
under the KMS Holding Corporation Amended 1994 Stock Option Plan
10.15+ Consulting Agreement dated July 16, 1997 between CB Commercial
Real Estate Group, Inc. and Donald M. Koll
10.16*+ Employment Agreement dated May 23, 1997 between the Company and
James J. Didion, filed as Exhibit 10(iii)(17) to the Company's
Registration Statement on Form S-4 Amendment No. 1 (File No. 333-
28731)
10.17* Registration Rights Agreement by and among the Company, FS Equity
Partners III, L.P., FS Equity Partners International, L.P., AP KMS
Partners, L.P., AP KMS II, LLC, The Koll Holding Company, Raymond
E. Wirta and William S. Rothe, Jr. dated as of May 14, 1997, filed
as Exhibit 10(i)(3) to the Company's Registration Statement on
Form S-4 (File No. 333-28731)
56
<PAGE>
10.18*+ Noncompetition and Confidentiality Agreement by and among the
Company, CBC Acquisition Corporation, Koll Real Estate Services,
Donald M. Koll and The Koll Holding Company dated May 14, 1997,
filed as Exhibit 10(i)(4) to the Company's Registration Statement on
Form S-4 (File No. 333-28731)
10.19*+ Noncompetition and Confidentiality Agreement by and among the
Company, Koll Real Estate Services, and William S. Rothe dated as of
May 14, 1997, filed as Exhibit 10(i)(5) to the Company's
Registration Statement on Form S-4 (File No. 333-28731)
10.20*+ Noncompetition and Confidentiality Agreement by and among the
Company, Koll Real Estate Services, and Raymond E. Wirta dated as of
May 14, 1997, filed as Exhibit 10(i)(6) to the Company's
Registration Statement on Form S-4 (File No. 333-28731)
10.21*+ Employment Agreement by and between the Company and William Rothe
dated as of May 14, 1997, filed as Exhibit 10(iii)(1) to the
Company's Registration Statement on Form S-4 (File No. 333-28731)
10.22(i)* Credit Agreement dated as of August 28, 1997 by and among the
Company; Bank of America NT & SA; The Sumitomo Bank, Limited; Wells
Fargo Bank, N.A.; BHF - Bank Aktiengeselleshaft; Credit Lyonnais Los
Angeles Branch; Dresdner Bank AG, New York Branch and Grand Cayman
Branch; Key Bank National Association; and other financial
institutions, filed as Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended September 30, 1997
10.22(ii) Amendment No. 1 dated as of January 21, 1998, to the Credit
Agreement dated as of August 28, 1997 by and among the Company; Bank
of America NT & SA; The Sumitomo Bank, Limited; Wells Fargo Bank,
N.A.; BHF -Bank Aktiengeselleshaft; Credit Lyonnais Los Angeles
Branch; Dresdner Bank AG, New York Branch and Grand Cayman Branch;
Key Bank National Association; and other financial institutions
10.23+ Form of amendment to the Company's 1990 Stock Option Plan, the 1991
Service Providers Stock Option Plan, the L.J. Melody Acquisition
Stock Option Plan, and the Koll Acquisition Stock Option Plan
10.24(i)* Purchase Agreement dated as of May 15, 1995 among CB Commercial Real
Estate Group, Inc., Westmark Real Estate Acquisition Partnership,
L.P., and certain individuals signatory thereto, filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated June 30, 1995
10.24(ii) Form of SPP Purchase Agreement by and among Westmark Real Estate
Acquisition Partnership, L.P., CB Commercial Real Estate Group, Inc.
and certain individuals, dated as of August 15, 1997
12 Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividends (filed as a Schedule Supporting the Consolidated Financial
Statements - See Index to Consolidated Financial Statements)
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule (filed only with the SEC)
________________________
* Incorporated by reference
+ Management contract or compensatory plan required by Item 601 of Regulation
S-K
57
<PAGE>
(b) Reports on Form 8-K
1. The Registrant filed a Current Report on Form 8-K dated November 3, 1997
announcing (i) developments in it facilities management operation and a
joint venture in New England, (ii) that its common stock will be traded on
the New York Stock Exchange beginning November 7, 1997, and (iii) results
of operations for the quarter and nine-month period ended September 30,
1997.
2. The Registrant filed a Current Report on Form 8-K dated December 9, 1997
announcing that it entered into an agreement as to the terms of a merger
with REI Ltd., the holding company for all Richard Ellis operations
outside of the United Kingdom.
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
(Registrant)
By /s/ JAMES J. DIDION
----------------------------------------
James J. Didion
Chairman of the Board and Chief Executive Officer
Date: March 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C>
/s/ JAMES J. DIDION Chief Executive Officer and Director March 24, 1998
- ------------------------------
James J. Didion
/s/ JOHN C. HAECKEL Senior Executive Vice President, Chief March 24, 1998
- ------------------------------ Financial Officer and Treasurer
John C. Haeckel
/s/ RONALD J. PLATISHA Executive Vice President March 24, 1998
- ------------------------------- Principal Accounting Officer
Ronald J. Platisha
/s/ STANTON D. ANDERSON Director March 24, 1998
- -------------------------------
Stanton D. Anderson
/s/ GARY J. BEBAN Director March 24, 1998
- -------------------------------
Gary J. Beban
Director March ___, 1998
_______________________________
Richard C. Blum
/s/ RICHARD C. CLOTFELTER Director March 24, 1998
- -------------------------------
Richard C. Clotfelter
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C>
/s/ DANIEL A. D'ANIELLO Director March 24, 1998
- -------------------------------
Daniel A. D'Aniello
/s/ BRADFORD M. FREEMAN Director March 24, 1998
- -------------------------------
Bradford M. Freeman
Director March ___, 1998
_______________________________
Hiroaki Hoshino
/s/ GEORGE J. KALLIS Director March 24, 1998
- -------------------------------
George J. Kallis
/s/ RICARDO KOENIGSBERGER Director March 24, 1998
- -------------------------------
Ricardo Koenigsberger
/s/ TAKAYUKI KOHRI Director March 24, 1998
- -------------------------------
Takayuki Kohri
/s/ DONALD M. KOLL Director March 24, 1998
- ---------------------------------
Donald M. Koll
/s/ PAUL C. LEACH Director March 24, 1998
- ----------------------------------
Paul C. Leach
/s/ FREDERIC V. MALEK Director March 24, 1998
- ----------------------------------
Frederic V. Malek
/s/ LAWRENCE J. MELODY Director March 24, 1998
- ----------------------------------
Lawrence J. Melody
/s/ PETER V. UEBERROTH Director March 24, 1998
- ----------------------------------
Peter V. Ueberroth
/s/ RAY ELIZABETH UTTENHOVE Director March 24, 1998
- ----------------------------------
Ray Elizabeth Uttenhove
Director March ___, 1998
__________________________________
Gary L. Wilson
/s/ RAYMOND E. WIRTA Director March 24, 1998
- -----------------------------------
Raymond E. Wirta
</TABLE>
60
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
2.1* Agreement and Plan of Reorganization dated as of May 13, 1997 by
and among CB Commercial Real Estate Services Group, Inc. (the
"Company"), CBC Acquisition Corporation, Koll Real Estate
Services, FS Equity Partners III, L.P., FS Equity Partners
International, L.P., AP KMS Partners, L.P., AP KMS II, LLC, The
Koll Holding Company and certain individual signatories thereto,
filed as Annex 1 to the Company's definitive proxy
statement/prospectus dated July 31, 1997 as part of the Company's
Registration Statement on Form S-4 Amendment No. 4 (File No. 333-
28731)
3.1* Fourth Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.1 to the Company's Form 10-K for the year
ended December 31, 1996
3.2* Fourth Amended and Restated Bylaws of the Company, filed as
Exhibit 3(ii) to the Company's Registration Statement on Form S-4
Amendment No. 1 (File No. 333-28731)
4.1* Specimen Form of Common Stock Certificate, filed as Exhibit 4.1
to the Company's Form S-1 Registration Statement (File No. 333-
12757)
4.2* Form of the Company's Restricted Stock Agreement between the
Company and the Company's Officer or Employee, filed as Exhibit
4.8 to the Company's Form S-1 Registration Statement (File No.
33-29410).
4.3* First Amendment to the Company's Restricted Stock Agreement,
filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989.
4.4* Form of Warrant Agreement between the Company, FS Equity Partners
III, L.P., FS Equity Partners International, L.P., AP KMS
Partners, L.P., AP KMS II, LLC, The Koll Holding Company and
certain individuals, with attached Form of Warrant Certificate,
filed as Annex 2 to the Company's definitive proxy
statement/prospectus dated July 31, 1997 as part of the Company's
Registration Statement on Form S-4 Amendment No. 4 (File No. 333-
28731)
10.1(i)* CB Commercial Real Estate Services Group, Inc. Omnibus Stock and
Incentive Plan, filed as Exhibit 10.13 to Post-Effective
Amendment No. 1 to the Company's Form S-1 Registration Statement
(File No. 33-29410)
10.1(ii)* First Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1990
10.1(iii)* Second Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit
10.16(iii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993
10.1(iv)* Third Amendment to the CB Commercial Real Estate Services Group,
Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.4(iv)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994
10.2(i)* 1990 Stock Option Plan, filed as Exhibit 4(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990
10.2(ii)* First Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.15(ii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992
<PAGE>
10.2(iii)* Second Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.8(iii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993
10.2(iv)* Third Amendment to the 1990 Stock Option Plan, filed as Exhibit
10.5(iv) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994
10.3* Form of Incentive Stock Option Agreement, filed as Exhibit 4(b)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990
10.4* Form of Nonstatutory Stock Option Agreement, filed as Exhibit
4(c) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990
10.5(i)* CB Commercial Real Estate Services Group, Inc. 1991 Service
Providers Stock Option Plan, filed as Exhibit 10.27 to the
Company's Current Report on Form 8-K dated April 1, 1992
10.5(ii)* 1997 Amendment to the 1991 Service Providers Stock Option Plan,
filed as Annex 7 to the Company's definitive proxy
statement/prospectus dated July 31, 1997 as part of the Company's
Registration Statement on Form S-4 Amendment No. 4 (File No. 333-
28731)
10.6 CB Commercial Real Estate Services Group, Inc. Amended and
Restated Deferred Compensation Plan
10.7* Amended and Restated 1996 Equity Incentive Plan of CB Commercial
Real Estate Services Group, Inc., filed as Annex 8 to the
Company's definitive proxy statement/prospectus dated July 31,
1997 as part of the Company's Registration Statement on Form S-4
Amendment No. 4 (File No. 333-28731)
10.8* CB Commercial Real Estate Services Group, Inc. L.J. Melody
Acquisition Stock Option Plan, filed as Exhibit 10.10 to the
Company's Form 10-K for the yeard ended December 31, 1996
10.9* Form of Indemnification Agreement between the Company, CB
Commercial Real Estate Group, Inc. and directors and officers,
filed as Exhibit 10.29 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1992
10.10* Employment Agreement between the Company and Lawrence J. Melody
dated July 1, 1996, filed as Exhibit 10.12 to the Company's Form
S-1 Registration Statement (File No. 333-12757)
10.11* CB Commercial Real Estate Services Group, Inc. 1997 Employee
Stock Option Plan, filed as Annex 5 to the Company's definitive
proxy statement/prospectus dated July 31, 1997 as part of the
Company's Registration Statement on Form S-4 Amendment No. 4
(File No. 333-28731)
10.12* CB Commercial Real Estate Services Group, Inc. 1998 Employee
Stock Purchase Plan, filed as Annex 6 to the Company's definitive
proxy statement/prospectus dated July 31, 1997 as part of the
Company's Registration Statement on Form S-4 Amendment No. 4
(File No. 333-28731)
10.13 CB Commercial Real Estate Services Group, Inc. Koll Acquisition
Stock Option Plan
10.14(i) CB Commercial Real Estate Services Group, Inc. / KMS Holding
Corporation Amended 1994 Nonqualified Performance Stock Option
Plan
10.14(ii) Form of Nonstatutory Stock Option Agreement evidencing substitute
options granted by the Company upon assumption of options issued
under the KMS Holding Corporation Amended 1994 Stock Option Plan
10.15 Consulting Agreement dated July 16, 1997 between CB Commercial
Real Estate Group, Inc. and Donald M. Koll
10.16* Employment Agreement dated May 23, 1997 between the Company and
James J. Didion, filed as
<PAGE>
Exhibit 10(iii)(17) to the Company's Registration Statement on
Form S-4 Amendment No. 1 (File No. 333-28731)
10.17* Registration Rights Agreement by and among the Company, FS Equity
Partners III, L.P., FS Equity Partners International, L.P., AP
KMS Partners, L.P., AP KMS II, LLC, The Koll Holding Company,
Raymond E. Wirta and William S. Rothe, Jr. dated as of May 14,
1997, filed as Exhibit 10(i)(3) to the Company's Registration
Statement on Form S-4 (File No. 333-28731)
10.18* Noncompetition and Confidentiality Agreement by and among the
Company, CBC Acquisition Corporation, Koll Real Estate Services,
Donald M. Koll and The Koll Holding Company dated May 14, 1997,
filed as Exhibit 10(i)(4) to the Company's Registration Statement
on Form S-4 (File No. 333-28731)
10.19* Noncompetition and Confidentiality Agreement by and among the
Company, Koll Real Estate Services, and William S. Rothe dated as
of May 14, 1997, filed as Exhibit 10(i)(5) to the Company's
Registration Statement on Form S-4 (File No. 333-28731)
10.20* Noncompetition and Confidentiality Agreement by and among the
Company, Koll Real Estate Services, and Raymond E. Wirta dated as
of May 14, 1997, filed as Exhibit 10(i)(6) to the Company's
Registration Statement on Form S-4 (File No. 333-28731)
10.21* Employment Agreement by and between the Company and William Rothe
dated as of May 14, 1997, filed as Exhibit 10(iii)(1) to the
Company's Registration Statement on Form S-4 (File No. 333-28731)
10.22(i)* Credit Agreement dated as of August 28, 1997 by and among the
Company; Bank of America NT & SA; The Sumitomo Bank, Limited;
Wells Fargo Bank, N.A.; BHF - Bank Aktiengeselleshaft; Credit
Lyonnais Los Angeles Branch; Dresdner Bank AG, New York Branch
and Grand Cayman Branch; Key Bank National Association; and other
financial institutions, filed as Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended September 30, 1997
10.22(ii) Amendment No. 1 dated as of January 21, 1998, to the Credit
Agreement dated as of August 28, 1997 by and among the Company;
Bank of America NT & SA; The Sumitomo Bank, Limited; Wells Fargo
Bank, N.A.; BHF - Bank Aktiengeselleshaft; Credit Lyonnais Los
Angeles Branch; Dresdner Bank AG, New York Branch and Grand
Cayman Branch; Key Bank National Association; and other financial
institutions
10.23 Form of amendment to the Company's 1990 Stock Option Plan, the
1991 Service Providers Stock Option Plan, the L.J. Melody
Acquisition Stock Option Plan, and the Koll Acquisition Stock
Option Plan
10.24(i)* Purchase Agreement dated as of May 15, 1995 among CB Commercial
Real Estate Group, Inc., Westmark Real Estate Acquisition
Partnership, L.P., and certain individuals signatory thereto,
filed as Exhibit 10.1 to the Company's Current Report on Form 8-K
dated June 30, 1995
10.24(ii) Form of SPP Purchase Agreement by and among Westmark Real Estate
Acquisition Partnership, L.P., CB Commercial Real Estate Group,
Inc. and certain individuals, dated as of August 15, 1997
12 Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividends (filed as a Schedule Supporting the Consolidated
Financial Statements - See Index to Consolidated Financial
Statements)
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule (filed only with the SEC)
_________________________
* Incorporated by reference
<PAGE>
EXHIBIT 10.6
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
DEFERRED COMPENSATION PLAN
--------------------------
(AS AMENDED AND RESTATED)
December 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. PURPOSE............................................................. 1
-------
2. DEFINITIONS......................................................... 1
-----------
3. ELECTION TO DEFER................................................... 3
-----------------
4. DEFERRED COMPENSATION ACCOUNTS...................................... 4
------------------------------
5. INVESTMENT OPTIONS.................................................. 5
------------------
6. VESTING OF ACCOUNTS................................................. 5
-------------------
7. PAYMENT OF ACCOUNTS................................................. 6
-------------------
8. PLAN ADMINISTRATION................................................. 7
-------------------
9. NO FUNDING OBLIGATION............................................... 7
---------------------
10. NONALIENATION OF BENEFITS........................................... 8
-------------------------
11. NO LIMITATION OF EMPLOYER RIGHTS.................................... 8
--------------------------------
12. APPLICABLE LAW...................................................... 8
--------------
</TABLE>
EXHIBIT A PARTICIPATING EMPLOYERS
<PAGE>
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
----------------------------------------------
DEFERRED COMPENSATION PLAN
--------------------------
(AS AMENDED AND RESTATED)
1. PURPOSE
-------
The purpose of the CB Commercial Real Estate Services Group, Inc.
Deferred Compensation Plan (the "Plan") is to allow a select group of management
or highly compensated employees of CB Commercial Real Estate Services Group,
Inc. and its affiliates that adopt this Plan to defer receipt of Compensation.
The Plan is intended to be an unfunded plan maintained primarily for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees, as described in section 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
2. DEFINITIONS
-----------
Whenever referred to in this Plan, the following terms shall have the
meanings set forth below except where the context indicates otherwise.
Capitalized terms used in this Plan that are not defined in this Section 2 are
defined elsewhere in the Plan.
2.1 "Account" means a Participant's Deferred Compensation Account.
-------
2.2 "Beneficiary" means the person or persons who are the
-----------
Participant's beneficiaries pursuant to the Employer's group term life insurance
programs unless otherwise designated by the Participant on a form prescribed by
the Committee.
2.3 "CAP Plan" means the CB Commercial Real Estate Services Group,
--------
Inc. Capital Accumulation Plan, as amended from time to time.
2.4 "CBC Stock Fund Unit" shall have the meaning set forth in Section
--------- ---- ----
5.2.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
----
2.6 "Committee" means the Chief Executive Officer of CB Commercial
---------
Real Estate Services Group, Inc., or a committee consisting of two or more
employees of the Employer selected by the Chief Executive Officer.
2.7 "Compensation" has the same meaning as it has under the CAP Plan
------------
without regard to deferrals under this Plan, the limitations of Code section
401(a)(17), income earned from the exercise of stock options, stock appreciation
or other rights, car allowances, reimbursements for moving or other expenses or
the imputed value of life insurance.
-1-
<PAGE>
2.8 "Deferral Date" means January 1, or July 1, as the case may be,
-------------
of the year in or for which deferrals are to commence.
2.9 "Employee" means a salaried employee of an Employer whose
--------
Compensation for the Plan Year preceding any Deferral Date equals or exceeds
$100,000, any commissioned employee of an Employer or a key management employee
selected by the Committee. For purposes of this section, car allowances and
stock option income paid to any Employee shall be included in Compensation
solely for purposes of determining whether the Employee's Compensation equals
$100,000.
2.10 "Employer" means CB Commercial Real Estate Services Group, Inc.
--------
("CB Commercial") and any entity affiliated with CB Commercial Real Estate
Services Group, Inc. that, with the consent of the Committee, adopts this Plan.
A list of participating Employers is attached as Exhibit A.
2.11 "Participant" means any Employee who has made an election to
-----------
defer Compensation under Section 3.1 or for whom the Plan maintains an Account.
2.12 "Payment Year" means the year selected by the Employee under
------------
Section 3.4.
2.13 "Plan Year" means the calendar year.
---------
2.14 "Stock" means the Common Stock, par value $0.01 per share, of CB
-----
Commercial Real Estate Services Group, Inc. In the event of any change in the
outstanding shares of Stock that occurs by reason of a stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar corporate change, the aggregate number of shares of Stock (or CBC
Stock Fund Units) credited to any Participant's Account shall be adjusted
appropriately by the Committee, whose determination shall be final and
conclusive; provided, however, that fractional shares shall be rounded to the
nearest whole share.
2.15 "Termination of Employment" means any voluntary or involuntary
-------------------------
termination of employment, except on account of death or Total and Permanent
Disability, but does not include a transfer among the entities which make up the
Employer, a transfer to an entity affiliated with CB Commercial Real Estate
Services Group, Inc. unless such transfer is otherwise determined to be a
Termination of Employment by the Committee in its sole discretion or a change of
status from employee to independent contractor.
2.16 "Total and Permanent Disability" has the same meaning given to
------------------------------
such term or comparable term under the Company's long term disability plan as in
effect from time to time.
2.17 "Valuation Date" means the last day of each year, or such other
--------------
dates as may be selected by the Committee.
-2-
<PAGE>
3. ELECTION TO DEFER
-----------------
3.1 An Employee may elect to defer receipt of his or her Compensation
for any Plan Year by completing the deferral election form prescribed by the
Committee, specifying a percentage or percentages of Compensation to be
deferred, which shall not exceed one hundred percent, and, at the Employee's
option, the maximum dollar amount of any deferral. The deferral election form
must be filed with the Committee by no later than fifteen days before the
Deferral Date for the applicable Plan Year (December 31, 1997 in the case of the
1998 Plan Year). Alternatively, an Employee may elect to defer receipt of his or
her Compensation earned during the last six months of any Plan year by filing
with the Committee the deferral election form no later than June 15 of such Plan
Year. Unless otherwise determined in writing by the Committee, an Employee who
has an outstanding loan from an Employer or is a commissioned salesperson on
transitional draw shall not be eligible to make a deferral election or his then
current election will become ineffective upon achievement of either status.
3.2 An election to defer shall be effective on the date the Employee
delivers a completed deferral election form to the Committee; provided, however,
that if an Employee subsequently delivers a properly completed deferral election
form to the Committee no later than fifteen days before the Deferral Date (or
December 31, 1997 in the case of the 1998 Plan Year), the latest dated deferral
election form shall take effect. The election of any Employee who is a
commissioned salesperson of an Employer shall not become effective for any Plan
Year until such Employee's Compensation for the Plan Year (including for this
purpose only car allowances and stock option income) exceeds $100,000 and shall
only be effective with respect to that portion of the Employee's Compensation
earned thereafter. After the fifteenth day before the Deferral Date for the
applicable Plan Year (or December 31 in the case of the 1998 Plan Year) or for
the last half of the applicable Plan Year, the elections made on the deferral
election form for that Plan Year shall be irrevocable; provided, however, that a
Participant may elect, with fifteen days' written notice, to revoke completely
his or her deferrals for the remainder of the Plan Year as of the first day of
any succeeding calendar month. Any Participant who so revokes his or her
election to defer shall not be eligible to make an election pursuant to Section
3.1 for the Plan Year succeeding the Plan Year during which the Participant
revoked his or her election but may resume deferrals in the next successive Plan
Year.
3.3 A separate election to defer must be made for each successive
Plan Year no later than fifteen days prior to the Deferral Date for that Plan
Year or Deferral Date for the last half of the Plan Year.
3.4 The Employee shall elect, when completing the deferral election
form, to defer receipt of all of the Compensation deferred for that Plan Year
and all prior Plan Years until one of the following "Payment Years":
(a) The calendar year specified by the Employee, which shall be
at least the third year after the year in which the election
is made; or
-3-
<PAGE>
(b) The calendar year following the Employee's Termination of
Employment.
The Employee shall elect, when completing his or her deferral election form, to
receive his or her Account in a single lump sum payment or in a specified number
of annual installment payments not to exceed ten. If the Employee fails to
elect a form of distribution, his or her Account will be distributed in five
annual installments following Termination of Employment.
3.5 A Participant may, so long as such Participant is employed by the
Employer, elect to change the Payment Year selected under Section 3.4 subject to
the following: (i) if the Participant specifies a calendar year, the year
selected must be at least the third year after the year in which the Committee
receives the Participant's election under this Section 3.5; (ii) if the
Participant changes the Payment Year to the calendar year following Termination
of Employment, the Participant's election under this Section 3.5 must be
received by the Committee by the end of the calendar year before the year in
which the Participant's Termination of Employment occurs; and (iii)
notwithstanding any elections that the Participant may make, the Committee shall
have the absolute right in its sole and absolute discretion to have the CBC
Stock Fund Units or dollar amounts credited to a Participant's Account paid in
not more than five annual installments commencing one year after the Payment
Year selected by the Participant.
3.6 A Participant may, so long as such Participant remains employed
by the Employer, change his or her election from a single lump sum payment to
annual installments over a period not to exceed ten years or from annual
installments to a single lump sum payment.
4. DEFERRED COMPENSATION ACCOUNTS
------------------------------
4.1 Compensation deferred pursuant to Section 3 shall be credited to
an Account in the name of the Participant established for this purpose on the
Employer's books or the books of the Employer who has assumed the obligation to
make payments hereunder to the Participant in accordance with Section 9.
Compensation shall be credited to the Account as of the first day of the month
after the month in which it otherwise would have been paid, except that amounts
that would have been payable in December shall be credited to the Account as of
December 31.
4.2 The balance credited to each Participant's Account shall be
allocated to one or both of the following investment option(s) offered under the
Plan:
(a) CBC Stock Fund; and
(b) Interest Index Fund.
The measure of the investment return for any Participant's Account shall be
equal to the proportionate gain (or loss) of the two investment options as
described in Section 5.
-4-
<PAGE>
5. INVESTMENT OPTIONS
------------------
5.1 Each Participant may direct the Committee on the investment mix
for the balance credited to his or her Account. Such direction shall be in
writing and shall be made on the form prescribed by the Committee no later than
15 days prior to the last day of any calendar year (December 31 in the case of
an election in 1996). Any portion of the Participant's Account allocated to the
CBC Stock Fund may not be subsequently allocated to the Interest Index Fund.
5.2 If any portion of a Participant's Account is allocated to the CBC
Stock Fund during the Plan Year, the Participant's Account shall be credited
with units ("CBC Stock Fund Units") equal to the number of shares of Stock which
could be purchased based on the average closing price of the Stock for the last
five trading days of the month in which the deferred amount would otherwise have
been paid to Participant; provided that in the case of a deferral of
Compensation consisting of a bonus payable in the first 90 days of a year,
shares of Stock shall be credited based on the average closing price of the
Stock for the last five trading days of February of such year. In the event
dividends are paid or payable during the Plan Year on Stock underlying CBC Stock
Fund Units credited to a Participant's Account, the Participant's Account shall
be credited with the number of whole shares equal to the number of shares which
could be purchased with such dividends based on the average closing price of the
Stock for the five trading days preceding the date the dividend is paid.
5.3 Any portion of a Participant's Account allocated to the Interest
Index Fund shall be accumulated and credited with interest at the rate payable
by CB Commercial Real Estate Services Group, Inc. on its senior secured debt,
determined as of the first day of any calendar quarter and compounded monthly on
the last day of each month based on the Participant's balance in the Interest
Index Fund as of the first day of that month.
5.4 So long as a Participant remains employed by the Employer, such
Participant may elect to have all or any portion of the value of the Interest
Index Fund credited to such Participant's Account transferred to the CBC Stock
Fund. Such election shall be effective on the Deferral Date following the date
on which the Participant makes such election under this Section 5.4. To be
effective, such election must be received by the Committee by December 16 of
such year (December 31 in the case of an election in 1997). A Participant who
elects to transfer all or any portion of the Interest Index Fund credited to
such Participant's Account to the CBC Stock Fund shall be credited with the
number of CBC Stock Fund Units determined by dividing the dollar amount being
transferred by the average closing price of the Stock for the last five trading
days of the year in which the election is made.
6. VESTING OF ACCOUNTS
-------------------
6.1 Amounts credited to a Participant's Account shall be vested and
nonforfeitable (except to the extent of investment losses) at all times.
-5-
<PAGE>
7. PAYMENT OF ACCOUNTS
-------------------
7.1 Amounts credited to a Participant's Account shall be distributed
as described in Sections 3.4 and 3.5, subject to the terms and conditions of
this Section 7.
7.2 If a Participant has elected to receive his or her Account in a
single lump sum payment, such Account shall be valued as of the last day of the
Plan Year immediately preceding the Payment Year and a single lump sum payment
of cash and/or whole shares of Stock (determined in accordance with Section 7.4)
shall be made during the first quarter of the Payment Year. The Account shall
not be credited with any additional investment return under Sections 5.2 and 5.3
after the last day of the Plan Year preceding the Payment Year except that the
value of any CBC Stock Fund Units distributed in accordance with Sectioin 7.4
reflect appreciation or depreciation in the Stock at the time of distribution.
7.3 If a Participant has elected to receive his or her Account in
installments, the installments of such Account shall be distributed during the
first quarter of the Payment Year and each subsequent year in which installments
are payable. Each installment payment shall be calculated based on the value of
the Interest Index Fund credited, and the number of CBC Stock Fund Units
allocated, to the Account on the last day of the Plan Year immediately preceding
the year in which such installment is payable and distributed in cash and/or in
whole shares of Stock. When a Participant's Account is payable in installments,
it will continue to be credited with dividends, in the case of the CBC Stock
Fund, or interest, in the case of the Interest Index Fund until the applicable
Payment Year with respect to any installment payment. The amount of the
installment payment to be distributed in any year shall be determined by
multiplying the value of the Account on the last day of the preceding year by a
fraction, the numerator of which is one and the denominator of which is the
total number of installments remaining to be paid (including the installment for
which the calculation is being made).
7.4 The portion of a Participant's Account consisting of CBC Stock
Fund Units shall be distributed in whole shares of Stock equal to the number of
CBC Stock Fund Units credited to the Participant's Account. The Interest Index
Fund credited to a Participant's Account shall be distributed in cash.
7.5 If a Participant dies before all of the amounts credited to his
or her Account have been distributed, the Participant's Beneficiary shall
receive the amounts in the Participant's Account in accordance with such
Participant's election then in effect; provided, however, that the Committee
may, in its sole discretion, distribute the balance credited to the
Participant's Account to the Participant's Beneficiary in such other manner as
the Committee shall determine.
7.6 If a Participant suffers Total and Permanent Disability before
all of the amounts credited to his or her Account have been distributed, the
Participant shall receive the amounts in his or her Account in accordance with
such Participant's election then in effect; provided, however, that the
Committee may, in its sole discretion, distribute the balance credited
-6-
<PAGE>
to the Participant's Account to the Participant in such other manner as the
Committee shall determine.
7.7 Prior to the date on which payments are distributable under the
Plan, distributions of amounts credited to the Participant's Account shall be
permitted only on account of an unforeseeable emergency, and only if the
distribution is necessary in light of immediate and heavy financial needs of the
Participant. The amount of any hardship distribution shall not exceed the
amount required to meet the need as determined by the Committee. The
Participant shall submit a written request to the Committee which shall have
sole discretion to establish rules and standards for making hardship
distributions, to determine whether to make a hardship distribution from a
Participant's Account and to determine the amount of such distribution, if any.
The Committee's decision shall be final and binding on all interested parties.
8. PLAN ADMINISTRATION
-------------------
8.1 This Plan shall be adopted by each Employer and shall be
administered by the Committee.
8.2 This Plan may be amended in any way or may be terminated, in
whole or in part, at any time, in the discretion of the Committee or the Board
of Directors of CB Commercial Real Estate Services Group, Inc. Upon termination
of the Plan, the Committee or the Board of Directors may, in its sole
discretion, elect to distribute all Accounts immediately or in accordance with
each Participant's deferral election(s) and the provisions of the Plan as they
existed at the time of the Plan's termination.
8.3 The Committee shall have the sole authority, in its discretion,
to adopt, amend and rescind such rules and regulations as it deems advisable for
the administration of the Plan, to construe and interpret the Plan, the rules
and regulations, and deferral election forms, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Committee shall be
binding on all persons. The Committee may delegate its responsibilities as it
sees fit.
9. NO FUNDING OBLIGATION
---------------------
No Employer is under any obligation to secure any amount credited to a
Participant's Account by any specific assets of any Employer or any other assets
in which any Employer has an interest. Neither the Participant nor his or her
estate shall have any rights against any Employer with respect to any portion of
the Account except as a general unsecured creditor. No Participant has an
interest in his or her Account except to the extent the Participant actually
receives a distribution of cash or Stock.
The obligation to make payments to any Participant hereunder shall be
that of the Employer that employed such Participant during the period or periods
that such Participant deferred receipt of Compensation unless any other Employer
agrees to assume such obligation and
-7-
<PAGE>
such Participant was informed of such assumption at the time of his or her
election to defer, in which case only the Employer that agreed to assume such
obligation shall have such obligation.
10. NONALIENATION OF BENEFITS
-------------------------
No benefit under this Plan may be sold, assigned, transferred,
conveyed, hypothecated, encumbered, anticipated, or otherwise disposed of, and
any attempt to do so shall be void. No such benefit, prior to receipt thereof
by a Participant, shall be in any manner subject to the debts, contracts,
liabilities, engagements, or torts of such Participant.
11. NO LIMITATION OF EMPLOYER RIGHTS
--------------------------------
Nothing in this Plan shall be construed to limit in any way the right
of any Employer to terminate an Employee's employment at any time for any
reason; nor shall it be evidence of any agreement or understanding, express or
implied, that any Employer (a) will employ an Employee in any particular
position, (b) will ensure participation in any incentive programs, or (c) will
grant any awards under such programs.
12. APPLICABLE LAW
--------------
This Plan shall be construed and its provisions enforced and
administered in accordance with ERISA and, to the extent not preempted, the laws
of the State of Delaware.
IN WITNESS WHEREOF, CB Commercial Real Estate Services Group, Inc. has
------------------
caused this Deferred Compensation Plan (as amended and restated) to be duly
executed by the undersigned this 12th day of December, 1997.
CB COMMERCIAL REAL ESTATE
SERVICES GROUP, INC.
By: /s/ James J. Didion
-------------------
James J. Didion
Chief Executive Officer
-8-
<PAGE>
EXHIBIT A
---------
Participating Employers in the
CB Commercial Real Estate Services Group, Inc.
Deferred Compensation Plan
--------------------------
CB Commercial Real Estate Services Group, Inc.
CB Commercial Real Estate Group, Inc.
Westmark Realty Advisors L.L.C.
L.J. Melody & Company
CB Commercial Real Estate Group of Hawaii, Inc.
<PAGE>
EXHIBIT 10.13
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
KOLL ACQUISITION STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN
1.1 Establishment. CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC., a
--------------
Delaware corporation (the "Company"), hereby establishes the KOLL ACQUISITION
STOCK OPTION PLAN (the "Plan").
1.2 Purpose. The Koll Acquisition Stock Option Plan is established in
--------
connection with the merger (the "Merger") of Koll Real Estate Services, a
Delaware corporation ("Koll"), into a wholly owned subsidiary of the Company as
a result of which Koll will become a wholly owned subsidiary of the Company for
the purpose of granting options thereunder to certain key employees of such firm
as an inducement to enter into or remain in the service of the Company and its
subsidiaries and as an incentive for extraordinary efforts during such service.
1.3 Effective Date. The Plan shall become effective upon its adoption
---------------
by the Board of Directors of the Company and the consummation of the Merger.
SECTION 2. DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have
------------
their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Compensation Committee of the Board.
(d) "Disability" means the inability to engage in any Substantial
Gainful Activity by reason of any medically determinable
physical or mental impairment which, in the sole and final
judgment of the Committee, can be expected to result in death or
which has lasted, or can be expected to last, for a continuous
period of not less than twelve months.
(e) "Employee" means a regular employee (including officers and
directors who are also employees) or independent contractor
(including any independent contractor operating in the form of a
corporation, partnership, limited liability company or otherwise
and any director) of Koll or any of its subsidiaries, or any
branch or division thereof.
1
<PAGE>
(f) "Fair Market Value" of the Stock on any date means, in the event
that the Stock is listed on an established national or regional
stock exchange, is admitted to quotation on The Nasdaq Stock
Market, or is publicly traded in an established securities
market, the closing price of the Stock on such exchange or in
such market (the highest such closing price if there is more
than one such exchange or market) on such date, or, if there is
no such closing price, the mean between the highest bid and
lowest asked prices or between the high and low prices on such
date or, if no sale of the Stock has been made on such day, on
the next preceding day on which any such sale shall have been
made; or the value determined by using such other method as the
Committee may determine.
(g) "Option" means the right to purchase Stock at a stated price for
a specified period of time.
(h) "Participant" means any Employee granted an option under the
Plan.
(i) "Stock" means the Common Stock of the Company, par value $.01
per share.
(j) "Substantial Gainful Activity" means the performance of
significant duties over a reasonable period of time in work for
remuneration or profit (or in work or a type generally performed
for remuneration or profit).
2.2 Gender and Number. Except when otherwise indicated by the context,
------------------
words in the masculine gender when used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
SECTION 3. ELIGIBILITY AND PARTICIPATION
Options may be granted under the Plan to any Employee.
SECTION 4. ADMINISTRATION
4.1 Compensation Committee. The Committee shall be responsible for the
-----------------------
administration of the Plan. The Committee, by majority action thereof, is
authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to provide for conditions and assurances
deemed necessary or advisable to protect the interest of the Company, and to
make all other determinations necessary or advisable for the administration of
the Plan, all in the Committee's sole and absolute discretion, but only to the
extent not contrary to the express provisions of the Plan. Determinations,
interpretations or other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final and binding and conclusive for all
purposes and upon all persons whomsoever.
2
<PAGE>
4.2 No Liability. No member of the Committee shall be liable for and
-------------
the Company shall indemnify and hold each such member harmless with respect to
any action or determination made in good faith with respect to the Plan or any
Option granted or Option Agreement entered into hereunder.
SECTION 5. STOCK SUBJECT TO PLAN
5.1 Number. The total number of shares subject to Options may not
-------
exceed 550,000 shares. The number of shares of Stock subject to Options under
the Plan and the Option prices are subject to adjustment upon occurrence of any
of the events indicated in Section 5.3. The shares to be delivered under the
Plan may consist, in whole or in part, of authorized but unissued Stock or
treasury Stock not reserved for any other purpose.
5.2 Lapsed Options. To the extent any Option granted under the Plan
---------------
terminates, expires or lapses for any reason, any shares subject to such Option
again shall be available for the grant of an Option.
5.3 Adjustment in Capitalization. In the event of any change in the
-----------------------------
outstanding shares of Stock that occurs by reason of a stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar corporate change, the aggregate number of shares of Stock subject
to each outstanding Option, and its stated Option price, shall be adjusted
appropriately by the Committee, whose determination shall be final and
conclusive; provided, however that fractional shares shall be rounded to the
nearest whole share. In such event, the Committee also shall have complete
discretion to make adjustments in the number and type of shares subject to Stock
grants then outstanding under the Plan pursuant to the terms of such grants or
otherwise as it deems appropriate.
SECTION 6. DURATION OF PLAN
6.1 Duration of Plan. The Plan shall remain in effect, subject to the
-----------------
Board's right to earlier terminate the Plan pursuant to Section 11 hereof, until
all Stock subject to it shall have been purchased, acquired or lapsed pursuant
to the provisions hereof. Notwithstanding the foregoing, no Option may be
granted under the Plan on or after the tenth (10th) anniversary of the Plan's
effective date.
SECTION 7. STOCK OPTIONS
7.1 Grant of Options. Options may be granted to Participants at any
-----------------
time and from time to time as shall be determined by the Committee or the Board.
The Committee or the Board, as applicable, shall have complete discretion in
determining the number, type and price of Options granted to each Participant;
provided, however, the aggregate Fair Market Value (determined at the time the
Option is granted) of the Stock with respect to which an incentive stock option
under Section 422A of the Code becomes exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000, nor shall any
incentive stock option under Section 422A
3
<PAGE>
of the Code be granted to any person who owns, directly or indirectly, Stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company. Nothing in this Section 7 of the Plan shall be
deemed to prevent the grant of nonstatutory stock options in amounts which
exceed the maximum established by Section 422A of the Code with respect to
incentive stock options.
7.2 Option Agreement. Each Option shall be evidenced by an Option
-----------------
Agreement that shall specify the type of Option granted, the Option price, the
duration of the Option, the number of shares of Stock to which the Option
pertains, and such other provisions as the Chief Executive Officer or Committee
shall determine.
7.3 Option Price. No Option granted pursuant to the Plan which is
-------------
intended to be an incentive stock option under Section 422A of the Code shall
have an Option price that is less than the Fair Market Value of the Stock on the
date the Option is granted.
7.4 Duration of Options. Each Option shall expire at such time as the
--------------------
Committee shall determine at the time it is granted, provided, however, that no
Option shall be exercisable later than ten years from the date of its grant.
7.5 Exercise of Options. Options granted under the Plan shall be
--------------------
exercisable at such time and be subject to such restrictions and conditions as
the Committee or the Board, as applicable, shall in each instance approve, which
need not be the same for all Participants. Each Option which is intended to
qualify as an incentive stock option pursuant to Section 422A of the Code shall
comply with the applicable provisions of the Code pertaining to such Options.
7.6 Payment. The purchase price of Stock upon exercise of any Option
--------
shall be paid in full either (i) in cash or (ii) with the consent of the
Committee, through the tender to the Company of shares of Stock valued at Fair
Market Value on the date of exercise, or (iii) by a combination of (i) and (ii).
If shares of Stock are surrendered by an officer of the Company who is subject
to Section 16(b) of the Securities Exchange Act of 1934 as payment of the Option
Price and the Stock surrendered was acquired pursuant to an option to acquire
Stock and such acquisition was not an exempt transaction under Section 16 of the
Securities Exchange Act of 1934, then six (6) months must have elapsed since the
date of grant of such option. The payment in full of the Option price shall be
deemed to have been made with the written notice of exercise provided the notice
of exercise directs that the stock certificate or certificates for the shares of
Stock for which the Option is exercised be delivered to a licensed broker
acceptable to the Company as the agent for the individual exercising the Option
and, at the time such stock certificate or certificates are delivered, the
broker tenders to the Company cash (or cash equivalents acceptable to the
Company) equal to the Option price for the shares of Stock purchased plus the
amount (if any) of Federal and/or other taxes which the Company, in its
discretion, requires to be withheld with respect to the exercise of the Option.
An attempt to exercise any Option granted hereunder other than as set forth
above shall be invalid and of no force and effect. Promptly after the exercise
of an Option and the payment or deemed payment in full of the Option price
therefor and any applicable withholding taxes, the individual exercising the
Option shall be
4
<PAGE>
entitled to the issuance of a stock certificate or certificates evidencing his
or her ownership of such shares. A separate stock certificate or certificates
shall be issued for any shares purchased pursuant to the exercise of an Option
which is an incentive stock option, which certificate or certificates shall not
include any shares which were purchased pursuant to the exercise of an Option
which is not an incentive stock option. An individual holding or exercising an
Option shall have none of the rights of a stockholder until the shares of Stock
covered thereby are fully paid and issued, and except as provided in Section 5.3
above, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.
7.7 Restriction on Stock Transferability. The Committee shall impose
-------------------------------------
such restrictions on any shares of Stock acquired pursuant to the exercise of an
Option under the Plan as it may deem advisable including, without limitation,
restrictions under applicable Federal securities laws, under the requirements of
any stock exchange upon which such shares of Stock are then listed, under any
blue sky or state securities laws applicable to such shares, and under any
Stockholders' Agreement then in effect.
7.8 Termination Due to Death or Disability. In the event a Participant
---------------------------------------
ceases to be an Employee by reason of death or Disability, any outstanding
Options then exercisable may be exercised at any time prior to the expiration
date of the Options or within twelve (12) months after such date of termination
of employment, whichever period is the shorter.
7.9 Termination other then for Death or Disability. If a Participant
-----------------------------------------------
ceases to be an Employee for any reason other than death or Disability, the
rights which he or she may have under any then outstanding Option granted
pursuant to the Plan shall terminate in accordance with the terms of the Option
agreement. Except with respect to grants of incentive stock options, a
Participant who is a common law employee of the Company shall not cease to be an
Employee if he or she becomes an independent contractor with respect to the
Company and an independent contractor with respect to the Company shall not
cease to be an Employee if he or she immediately becomes a common law employee
of the Company.
7.10 Nontransferability of Options. No Option granted under the Plan may
------------------------------
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated
otherwise than by will or by the laws of descent and distribution. Further, all
Options granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant or by such Participant's conservator of the
estate or the equivalent.
SECTION 8. RIGHTS OF EMPLOYEES
8.1 Termination. Nothing in the Plan shall interfere with or limit in
------------
any way the right of the Company or its subsidiaries to terminate any
Participant's employment as a common law employee or engagement as an
independent contractor at any time, with or without cause, nor confer upon any
Participant any right to continue in the employ of the Company or its
subsidiaries.
5
<PAGE>
8.2 Participation. No employee shall have a right to be selected as a
--------------
Participant or, having been so selected, to be selected again as a Participant.
SECTION 9. AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
Unless sooner terminated as provided herein, the Plan will automatically
terminate on April 21, 2007. The Board at any time may terminate, and from time
to time may amend or modify, the Plan. No amendment, modification, or
termination of the Plan shall in any manner adversely affect any Option
theretofore granted under the Plan, without the consent of the Participant.
SECTION 10. TAX WITHHOLDING
The Company shall have the right to withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy Federal, state, and local
withholding tax requirements on any Option under the Plan and, notwithstanding
any other provision to the contrary, no Option shall be subject to exercise
until withholding satisfactory to the Company has been made.
SECTION 11. MISCELLANEOUS
11.1 Requirements of Law. The granting of Options and the issuance of
--------------------
shares of Stock upon exercise of an Option shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required.
11.2 Use of Proceeds. The proceeds received by the Company from the
----------------
sale of Stock pursuant to Options granted under the Plan shall constitute
general funds of the Company.
11.3 Gender and Number. Except as otherwise indicated by the context,
------------------
words in the masculine gender when used in this Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
11.4 Headings. The headings herein are for convenience only and shall
---------
not be used in interpreting the Plan.
11.5 Governing Law. The validity, interpretation and effect of this
--------------
Plan, and all agreements hereunder, shall be governed by and construed in
accordance with and governed by the laws of the State of Delaware, other than
the choice of law rules thereof.
6
<PAGE>
IN WITNESS WHEREOF, CB Commercial Real Estate Services Group, Inc. has
caused this Plan to be adopted this 22nd day of April, 1997.
CB COMMERCIAL REAL ESTATE
SERVICES GROUP, INC.
By: /s/ James J. Didion
------------------------
James J. Didion
Chief Executive Officer
7
<PAGE>
EXHIBIT 10.14(i)
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC./
KMS HOLDING CORPORATION
AMENDED 1994 NONQUALIFIED PERFORMANCE STOCK OPTION PLAN
Section 1. Description of Plan. This is the Amended 1994
-------------------
Nonqualified Performance Stock Option Plan, dated November 23, 1994, as amended
May 26, 1995 (the "Plan"), of KMS Holding Corporation, a Delaware corporation
(the "Company"). Under the Plan, officers, certain directors, key employees and
consultants of the Company or any of the directly or indirectly owned
subsidiaries of the Company (individually, a "Subsidiary," and collectively, the
"Subsidiaries"), to be selected as set forth below, may be granted options
("Options") to purchase shares of the Common Stock, $.01 par value per share, of
the Company (the "Common Stock"). It is intended that Options under the Plan
will not qualify for treatment as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and will thus be
designated "Nonqualified Stock Options."
Section 2. Purpose of Plan. The purpose of the Plan and of
---------------
granting Options to specified persons is to further the growth, development and
financial success of the Company and its Subsidiaries by providing additional
incentives to certain officers, certain directors, key employees and
consultants. By assisting such persons in acquiring shares of the Common Stock,
the Company can ensure that such persons will themselves benefit directly from
the Company's and the Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to
-----------
receive grants of Options under the Plan shall be directors who are designated
as "independent" members of the Company's Board of Directors (the "Board") and
the officers and key employees and consultants of the Company and the
Subsidiaries, including those directors of the Company and the Subsidiaries who
are also officers, key employees and/or consultants. A person who holds an
Option is herein referred to as a "Participant," and more than one Option may be
granted to any Participant. Notwithstanding the foregoing, the Board may at
any time or from time to time designate one or more directors as ineligible for
selection as a Participant under the Plan for any period or periods of time.
The designation by the Board of a director as ineligible for selection as a
Participant under the Plan shall not affect Options previously granted to such
director under the Plan.
Section 4. Administration.
--------------
(a) The Plan shall be administered by the Board or, at the Board's
option, by a compensation committee established by the Board (the Board and
such committee, collectively, the "Committee").
(b) The Committee is authorized and empowered to administer the Plan
and, subject to the Plan (i) to select the Participants, to specify the number
of shares of
<PAGE>
Common Stock with respect to which Options are granted to each Participant, to
specify the terms of the Options, and in general to grant Options; (ii) to
determine the dates upon which Options shall be granted and the terms and
conditions thereof in a manner consistent with the Plan, which terms and
conditions need not be identical as to the various Options granted; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules relating to the
Plan; (v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Committee; (vi) to determine the rights and obligations of Participants
under the Plan; (vii) to specify the Option Price (as defined in Section 6);
(viii) to accelerate the time during which an Option may be exercised in
accordance with the provisions of Section 15 hereof, and to otherwise accelerate
the time during which an Option may be exercised, in each case notwithstanding
the provisions in the Option Agreement (as defined in Section 12) stating the
time during which it may be exercised; and (ix) to make all other determinations
deemed necessary or advisable for the administration of the Plan. The good
faith interpretation and construction by the Committee of any provision of the
Plan or of any Option granted under it shall be final, conclusive and binding.
No member of the Committee shall be liable for any action or determination made
with respect to the Plan or any Option granted hereunder.
Section 5. Shares Subject to the Plan. The number of shares of
--------------------------
Common Stock which may be purchased pursuant to the exercise of Options granted
under the Plan shall not exceed 515,000 subject to adjustment as provided in
Section 11 hereof. Upon the expiration or termination, in whole or in part, for
any reason of an outstanding Option or any portion thereof which shall not have
vested or shall not have been exercised in full or in the event that any shares
of Common Stock acquired pursuant to the Plan are reacquired by the Company, (a)
any shares of Common Stock then remaining unissued which shall have been
reserved for issuance upon such exercise or (b) the shares reacquired, as the
case may be, shall again become available for the granting of additional Options
under the Plan.
Section 6. Option Price. The purchase price per share (the
------------
"Option Price") of the shares of Common Stock underlying each Option shall be
determined by the Committee, and shall be subject to adjustment as provided
herein.
Section 7. Restrictions on Grants; Vesting of Options.
------------------------------------------
Notwithstanding any other provisions set forth herein or in any Option
Agreement, no Options may be granted under the Plan subsequent to 10 years from
the date hereof. The vesting of all Options may be based on the Company's
attaining of performance criteria as specified at the time of the granting
thereof and may also be based on the passage of time. The Committee shall
determine the performance criteria, the performance measurement period and the
vesting schedule applicable to each Option or group of Options in a schedule, a
copy of which shall be filed with the records of the Committee and attached to
each Option Agreement to which the same applies. The performance criteria, the
performance
2
<PAGE>
measurement period and the vesting schedule need not be identical for all
Options granted hereunder. Following the conclusion of each applicable
performance measurement period, the Committee shall determine the extent, if at
all, that each Option subject thereto shall have vested based upon the
applicable performance criteria and vesting schedule. To the extent each such
Option shall not have vested, and does not also vest based on the passage of
time, it shall, to that extent, automatically terminate and cease to be
exercisable to such extent notwithstanding the stated term during which it may
be exercised. The Committee shall promptly notify each affected Participant of
such determination. The Committee may periodically review the performance
criteria applicable to any Option or Options and, in its sole good faith
judgment, may adjust the same to reflect unanticipated major events, such as
catastrophic occurrences, mergers, acquisitions and the like.
Section 8. Exercise of Options. Once vested, an Option may be exercised
-------------------
by the Participant by giving written notice to the Company specifying the
number of full shares to be purchased and accompanied by payment of the full
purchase price therefor in cash, by check or in such other form of lawful
consideration as the Committee may approve from time to time, including, without
limitation and in the sole discretion of the Committee, the assignment and
transfer by the Participant to the Company of outstanding shares of Common Stock
theretofore held by the Participant in a manner intended to comply with the
provisions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
if applicable. Once vested, an Option may only be exercised by the Participant
or in the event of death of the Participant, by the person or persons (including
the deceased Participant's estate) to whom the deceased Participant's rights
under such Option shall have passed by will or the laws of descent and
distribution or the terms of the Participant's inter vivos trust.
Notwithstanding the foregoing in the immediately preceding sentence, in the
event of disability (within the meaning of Section 22(e)(3) of the Code) of a
Participant, a designee, or if the Participant has no designee, the legal
representative, of such Participant may exercise the Option on behalf of such
Participant (provided such Option would have been exercisable by such
Participant) until the right to exercise such Option expires, as set forth in
such Participant's particular Option Agreement.
Section 9. Issuance of Common Stock. The Company's obligation to issue
------------------------
shares of its Common Stock upon exercise of an Option is expressly conditioned
upon the compliance by the Company with any registration or other qualification
obligations with respect to such shares under any state and/or federal law or
rulings and regulations of any government regulatory body and/or the making of
such investment representations or other representations and undertakings by the
Participant (or the Participant's legal representative, heir or legatee, as the
case may be) in order to comply with the requirements of any exemption from any
such registration or other qualification obligations with respect to such shares
which the Company in its sole discretion shall deem necessary or advisable.
Such required representations and undertakings may include representations and
agreements that such Participant (or the Participant's legal representative,
heir or legatee): (a) is purchasing
3
<PAGE>
such shares for investment and not with any present intention of selling or
otherwise disposing of such shares; and (b) agrees to have a legend placed upon
the face and reverse of any certificates evidencing such shares (or, if
applicable, an appropriate data entry made in the ownership records of the
Company) setting forth (i) any representations and undertakings which such
Participant has given to the Company or a reference thereto, and (ii) that,
prior to effecting any sale or other disposition of any such shares, the
Participant must furnish to the Company an opinion of counsel, satisfactory to
the Company and its counsel, to the effect that such sale or disposition will
not violate the applicable requirements of state and federal laws and regulatory
agencies; provided, however, that any such legend or data entry shall be removed
when no longer applicable. Inability of the Company to obtain, from any
regulatory body having jurisdiction, authority reasonably deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such shares as to which such requisite authority shall
not have been obtained. Any shares of Common Stock issued by the Company upon
exercise of an Option granted hereunder shall be subject to a right of first
refusal of the Company with respect to all shares proposed to be transferred by
Participant, as described in Section 12 hereof and as more fully described in
each particular Option Agreement.
Section 10. Nontransferability. An Option may not be sold, pledged,
------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or inter vivos to a trust for the
benefit of the Participant or the Participant and the Participant's spouse. Any
permitted transferee shall be required prior to any transfer of an Option or
shares of Common Stock acquired pursuant to the exercise of an Option to execute
a written undertaking to be bound by the provisions of the applicable Option
Agreement.
Section 11. Adjustments To Capitalization. Subject to Section 14(b)
-----------------------------
hereof, if the outstanding shares of the Common Stock of the Company are changed
into, or exchanged for, a different number or kind of shares or securities of
the Company through reorganization, recapitalization or reclassification, or if
the number of outstanding shares is changed through a stock split, stock
dividend, stock consolidation or like capital adjustment, or if the Company
makes a distribution in partial liquidation or any other comparable
extraordinary distribution with respect to its Common Stock, an appropriate
adjustment shall be made by the Committee in the number, kind or exercise price
of shares as to which Options may be granted. A corresponding adjustment shall
likewise be made in the number, kind or exercise price of shares with respect to
which unexercised Options have theretofore been granted. Any such adjustment in
an outstanding Option, however, shall be made without change in the total price
applicable to the unexercised portion of the Option but with a corresponding
adjustment in the price for each share covered by the Option. In making such
adjustments, or in determining that no such adjustments are necessary, the
Committee may rely upon the advice of counsel and accountants to the Company,
and the good faith
4
<PAGE>
determination of the Committee shall be final, conclusive and binding. No
fractional shares of stock shall be issued under the Plan on account of any such
adjustment.
Section 12. Option Agreement. Each Option granted under the Plan
----------------
shall be evidenced by a written nonqualified performance stock option agreement
(an "Option Agreement") executed by the Company and the Participant which (a)
shall contain each of the provisions and agreements herein specifically required
to be contained therein; (b) shall contain provisions which give the Company a
right to first refusal to purchase any Common Stock issued pursuant to the
exercise of Options granted under the Plan which a Participant proposes to sell;
and (c) may contain such other terms and conditions as the Committee deems
desirable and which are not inconsistent with the Plan.
Section 13. Rights as a Stockholder. A Participant shall have no
-----------------------
rights as a stockholder with respect to any shares covered by an Option until
the date (the "Exercise Date") an entry evidencing such ownership is made in the
stock transfer books of the Company. Except as otherwise provided in Section 11
hereof, no adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the Exercise Date.
Section 14. Termination of Options.
----------------------
(a) Each Option granted under the Plan shall set forth a termination
date thereof, which shall be not later than ten (10) years from the date such
Option is granted subject to earlier termination as set forth in Section 7,
Section 14(b) or Section 15 hereof, or as otherwise set forth in each particular
Option Agreement. The termination of employment of, or of a consulting
relationship with, a Participant for any reason shall not accelerate or
otherwise affect the number of shares with respect to which an Option may be
exercised; provided, however, that the Option may only be exercised with respect
to that number of shares which could have been purchased under the Option had
the Option been exercised by the Participant on the date of such termination.
(b) Subject to Section 15 hereof, upon the dissolution, liquidation or
sale of all or substantially all of the business, properties and assets of the
Company, or upon any reorganization, merger or consolidation in which the
Company does not survive, or upon any reorganization, merger or consolidation in
which the Company does survive and the Company's stockholders have the
opportunity to receive cash, securities of another corporation and/or other
property in exchange for their capital stock of the Company, the Plan and each
outstanding Option shall terminate; provided that in such event each Participant
who is not tendered an option by the surviving corporation in accordance with
all of the terms of the immediately succeeding sentence, or does not accept any
such substituted option which is so tendered, shall have the right until 10 days
before the effective date of such dissolution, liquidation, reorganization,
merger or consolidation to exercise, in whole or in
5
<PAGE>
part, any unexpired Option or Options issued to the Participant, to the extent
that said Option is then vested and exercisable pursuant to the provisions of
said Option or Options and of Section 7 of the Plan. In its sole and absolute
discretion, the surviving corporation in any reorganization, merger or
consolidation may, but shall not be so obligated to, tender to any Participant
an option or options to purchase shares of the surviving corporation, and such
new option or options shall contain such terms and provisions as shall be
required to substantially preserve the rights and benefits of any Option then
outstanding under the Plan and, if accepted by such Participant, such new option
shall replace the Option under the Plan.
Section 15. Acceleration of Options. Notwithstanding the provisions
-----------------------
of Section 7 or Section 14 hereof, or any provision of the contrary contained in
a particular Option Agreement, the Committee, in its sole discretion, at any
time, or from time to time, may elect to accelerate the vesting of all or any
portion of any Option then outstanding. The decision by the Committee to
accelerate an Option or to decline to accelerate an Option shall be final,
conclusive and binding. In the event of the acceleration of the exercisability
of Options as the result of a decision by the Committee pursuant to this Section
15, each outstanding Option so accelerated shall be exercisable for a period
from and after the date of such acceleration and upon such other terms and
conditions as the Committee may determine in its sole discretion provided that
such terms and conditions (other than terms and conditions relating solely to
the acceleration of exercisability and the related termination of an Option) may
not adversely affect the rights of any Participant without the consent of the
Participant so adversely affected. Any outstanding Option which has not been
exercised by the holder at the end of such period shall terminate automatically
and become null and void.
Section 16. Withholding of Taxes. The Company, or a Subsidiary, as
--------------------
the case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company or such Subsidiary to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
Common Stock issued to the Participant upon the exercise of an Option, as may be
required from time to time under any federal or state tax laws and regulations.
This withholding of tax shall be made from the Company's (or such Subsidiary's)
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the Company (or such Subsidiary) by the Participant
of the required withholding tax, as the Committee may determine; provided,
however, that, in the sole discretion of the Committee, the Participant may pay
such tax by reducing the number of shares of Common Stock issued upon exercise
of an Option (for which purpose such shares shall be valued at fair market value
as determined in good faith by the Committee, which determination shall be
final, conclusive and binding).
Section 17. Effectiveness and Termination of the Plan. The Plan
-----------------------------------------
shall be effective on the date on which it is adopted by the Board. The Plan
shall terminate at the earliest of the time when all shares of Common Stock
which may be issued hereunder have
6
<PAGE>
been so issued or such other time as set forth in Section 14(b) hereof;
provided, however, that the Board may in its sole discretion terminate the Plan
at any other time. Subject to Section 14(b) hereof, no such termination shall
in any way affect any Option then outstanding.
Section 18. Time of Granting Options. The date of grant of an
------------------------
Option shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Participant to whom an Option is so granted within a reasonable time
after the date of such grant.
Section 19. Amendment of Plan. The Committee may make such
-----------------
amendments to the Plan and, with the consent of each Participant affected, in
the terms and conditions of granted Options as it shall deem advisable,
including, without limitation, accelerating the time at which an Option may be
exercised. No amendment shall in any way adversely affect any Option then
outstanding, without the consent of the Participant so adversely affected.
Section 20. Transfers and Leave of Absence. For purposes of the
------------------------------
Plan, (a) a transfer of a Participant's employment or consulting relationship,
without an intervening period, between the Company and a Subsidiary shall not
be deemed a termination of employment or a termination of consulting
relationship and (b) a Participant who is granted in writing a leave of absence
shall be deemed to have remained in the employ of, or in a consulting
relationship with, the Company (or a Subsidiary, whichever is applicable) during
such leave of absence.
Section 21. No Obligation to Exercise Option. The granting of an
--------------------------------
Option shall impose no obligation on the Participant to exercise such Option.
Section 22. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as directors, the members of the Board or
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses, including attorney's fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgement in any such action, suit or
proceeding.
Section 23. Governing Law. The Plan and any Option granted pursuant
-------------
to the Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
7
<PAGE>
Section 24. Not an Employment or Other Agreement. Nothing contained in
------------------------------------
the Plan or in any Option Agreement shall confer, intend to confer or imply any
rights of employment or any rights to any other relationship or rights to
continued employment by, or rights to a continued relationship with, the Company
or any Subsidiary in favor of any Participant or limit the ability of the
Company or any Subsidiary to terminate with or without cause, in its sole and
absolute discretion, the employment of, or relationship with, any Participant,
subject to the terms of any written employment or other agreement to which a
Participant is a party.
8
<PAGE>
EXHIBIT 10.14(ii)
==============================================
CB Commercial Real Estate Services Group, Inc.
NONQUALIFIED STOCK OPTION AGREEMENT
==============================================
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is entered into
as of August 28, 1997 by and between CB Commercial Real Estate Services Group,
Inc., a Delaware corporation (the "Company"), and _______ ("Optionee") pursuant
to the CB Commercial Real Estate Services Group, Inc./KMS Holding Corporation
Amended 1994 Nonqualified Performance Stock Option Plan (the "Plan").
RECITALS
A. Optionee was an employee, independent director or consultant of Koll
Real Estate Services or of a direct or indirect subsidiary of Koll
Real Estate Services who was granted a stock option by Koll Real
Estate Services or its predecessor (collectively "KRES").
B. Koll Real Estate Services is being acquired by the Company and will
thereby become a wholly owned indirect subsidiary of the Company and
pursuant to the terms of the Agreement and Plan of Reorganization
dated as of May 14, 1997, the Company, Koll Real Estate Services, and
other persons named therein, the Company has agreed to issue this
stock option to Optionee in substitution for the stock option
previously granted to Optionee by KRES.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants hereinafter set forth,
the parties agree as follows:
1. OPTION; NUMBER OF SHARES. The Company hereby grants to Optionee the right
------------------------
(the "Option") to purchase ______ shares (the "Shares") of the Common
Stock, $.01 par value per share, of the Company (the "Common Stock") at a
purchase price of $____ per share (the "Option Price"), to be paid in
accordance with Section 4 hereof. The Option and the right to purchase all
or any portion of the Shares is subject to the terms and conditions stated
in this Agreement and in the Plan. It is intended that the Option will not
qualify for treatment as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. TERM OF AGREEMENT. The Option, and Optionee's right to exercise the
-----------------
Option, shall terminate when the first of the following occurs:
a. termination pursuant to Section 14(b) or Section 15 of the Plan;
1
<PAGE>
b. ______; or
c. 90 days after the date of termination of Optionee's employment or
other relationship with the Company and all of its direct or indirect
subsidiaries (the "Subsidiaries") unless such termination results from
Optionee's death or disability (within the meaning of Section 22(e)(3)
of the Code) or Optionee dies within 90 days after the date of
termination of Optionee's employment or other relationship with the
Company and all of the Subsidiaries, in which case this Agreement and
the Option shall terminate 180 days after the date of termination of
Optionee's employment or other relationship with the Company and all
of the Subsidiaries.
3. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of Optionee under this
--------------------------------
Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution or inter vivos to a trust for the benefit of
Optionee or Optionee and Optionee's spouse and may be exercised during the
lifetime of Optionee only by such Optionee; provided, however, that in the
event of disability (within the meaning of Section 22(e)(3) of the Code) of
Optionee, a designee of Optionee, or if Optionee has not designated anyone,
his or her legal representative, may exercise the Option on behalf of
Optionee (provided the Option would have been exercisable by Optionee)
until the right to exercise the Option expires pursuant to Section 2
hereof. Any attempt to sell, pledge, assign, hypothecate, transfer or
otherwise dispose of the Option in contravention of this Agreement or the
Plan shall be void and shall have no effect. If Optionee should die while
Optionee is engaged in an employment or other relationship with the Company
and/or any Subsidiary, Optionee's legal representative, Optionee's legatee,
the successor trustee of Optionee's inter vivos trust or the person who
acquired the right to exercise the Option by reason of the death of
Optionee (individually, a "Successor") shall succeed to Optionee's rights
under this Agreement. After the death of Optionee, only a Successor may
exercise the Option.
4. EXERCISE OF OPTION. Until termination of the Option in accordance with
------------------
Section 2 hereof, the Option may be exercised by Optionee (or such other
person specified in Section 3 hereof), upon delivery of the following to
the Company at its principal executive offices:
a. a written notice of exercise which identifies this Agreement and
states the number of Shares (which may not be less than 100, or all of
the Shares if less than 100 Shares then remain covered by the Option)
then being purchased;
b. a check, cash or any combination thereof in the amount of the Option
Price (or payment of the Option Price in such other form of lawful
consideration as the Committee may approve from time to time under the
provisions of Section 8 of the Plan, including without limitation and
in the sole discretion of the Committee,
i. the assignment and transfer by Optionee to the Company of
outstanding shares of Common Stock theretofore held by Optionee;
and
ii. the surrender of that number of Options necessary (based on the
amount that the aggregate fair market value of the Shares covered
by the Options being surrendered exceeds the aggregate Option
Price with respect to such Shares) to pay the Option Price with
respect to those Options being exercised, each in a manner
intended to comply with the provisions of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, if applicable). Such
shares of Common Stock delivered or Shares covered by Options
surrendered in payment of the Option Price shall be valued at
fair market value as determined by the Committee in good faith,
which determination shall be final, conclusive and binding;
2
<PAGE>
c. a check or cash in the amount reasonably requested by the Company to
satisfy the Company's withholding obligations under federal, state or
other applicable tax laws with respect to the taxable income, if any,
recognized by Optionee in connection with the exercise, in whole or in
part, of the Option (unless the Committee has determined to allow the
Optionee to, and the Optionee elects to, pay such tax by reducing the
number of shares of Common Stock issued upon exercise of the Option
(for which purpose such shares shall be valued at fair market value as
determined in good faith by the Committee, which determination shall
be final, conclusive and binding) or unless the Company and Optionee
shall have made other arrangements for deductions or withholding from
Optionee's wages, bonus or other income paid to Optionee by the
Company or any Subsidiary, provided such arrangement satisfy the
requirements of applicable tax laws); and
d. a written representation and undertaking, if requested by the Company
pursuant to Section 5.b. hereof, in such form and substance as the
Company may require, setting forth the investment intent of Optionee,
or a Successor, as the case may be, and such other agreements,
representations and undertakings as described in the Plan.
5. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
------------------------------------------
a. Optionee represents and warrants that the Option is being acquired by
Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other
disposition thereof.
b. Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such Common Stock under the
Act on the basis of certain exemptions from such registration
requirement. Accordingly, Optionee agrees that Optionee's exercise of
the Option may be expressly conditioned upon Optionee's delivery to
the Company of such representations and undertakings as the Company
may reasonably require in order to secure the availability of such
exemptions, including a representation that Optionee is acquiring the
Shares for investment and not with a present intention of selling or
otherwise disposing of such Shares. Optionee acknowledges that,
because Shares receive upon exercise of an Option may be unregistered,
Optionee may be required to hold the Shares indefinitely unless they
are subsequently registered for resale under the Act or an exemption
from such registration is available.
c. Optionee acknowledges receipt of this Agreement granting the Option,
and the Plan, and understands that all rights and liabilities
connected with the Option are set forth herein and in the Plan.
6. NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a stockholder
------------------------
of any shares of Common Stock covered by the Option until the date (the
"Exercise Date") an entry evidencing such ownership is made in the stock
transfer books of the Company. Except as may be provided under Section 11
of the Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the
Exercise Date.
7. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. Inability of the
-------------------------------------------------
Company to obtain, from any regulatory body having jurisdiction, authority
reasonably deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares of its Common Stock hereunder and under the
Plan shall relieve the Company of any liability in respect of the
3
<PAGE>
nonissuance or sale of such shares as to which such requisite authority
shall not have been obtained.
8. THIS AGREEMENT SUBJECT TO PLAN. This Agreement is made under the
------------------------------
provisions of the Plan and shall be interpreted in a manner consistent with
it. To the extent any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is
available to Optionee at the Company's principal executive offices upon
request and without charge. The good faith interpretation of the Committee
of any provision of the Plan, the Option or this Agreement, and any
determination with respect thereto or hereto by the Committee, shall be
final, conclusive and binding on all parties.
9. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that federal securities
-------------------
laws and the securities laws of the state in which Optionee resides may
require the placement of certain restrictive legends upon the Shares issued
upon exercise of the Option, and Optionee hereby consents to the placing of
any such legends upon certificates evidencing the Shares as the Company, or
its counsel, may reasonably deem necessary; provided, however, that any
such legend shall be removed when no longer applicable.
10. NOTICES. All notices, requests and other communications hereunder shall be
-------
in writing and, if given by telegram, telecopy or telex, shall be deemed to
have been validly served, given or delivered when sent, if given by
personal delivery, shall be deemed to have been validly served, given or
delivered upon actual delivery and, if mailed, shall be deemed to have been
validly served, given or delivered three business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the
following addresses (or such other address(es) as a party may designate for
itself by like notice):
If To The Company: CB Commercial Real Estate Services Group, Inc.
533 S. Fremont Avenue
Los Angeles, California 90071-1798
Attention: Secretary
If To Optionee:
11. NOT AN EMPLOYMENT OR OTHER AGREEMENT. Nothing contained in this Agreement
------------------------------------
shall confer, intend to confer or imply any rights to an employment or
other relationship or rights to a continued employment or other
relationship with the Company and/or any Subsidiary in favor of Optionee or
limit the ability of the Company and/or any Subsidiary to terminate, with
or without cause, in its sole and absolute discretion, the employment or
other relationship with Optionee, subject to the terms of any written
employment or other agreement to which Option is a party.
12. GOVERNING LAW. This Agreement shall be construed under and governed by the
-------------
laws of the State of Delaware without regard to the conflict of law
provisions thereof.
13. COUNTERPARTS. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original and both of which together shall be
deemed one Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement
as of the date first above written.
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
By: ____________________________________________
Walter V. Stafford
Senior Executive Vice President
OPTIONEE:
________________________________
5
<PAGE>
EXHIBIT 10.15
[LETTERHEAD OF CB COMMERCIAL]
May 20, 1997
Mr. Donald M. Koll
KOLL The REAL ESTATE SERVICES COMPANY
4343 Von Karman Avenue
Newport Beach, California 92660
Dear Don:
This letter will confirm your engagement as a consultant to CB Commercial Real
Estate Group, Inc. ("CBC") for a one year period commencing with the Effective
Date of our Merger with Koll Real Estate Services. We ask that you spend not to
exceed 20 hours a month doing the following:
. Consulting with our senior executives with respect to commercial real estate
matters including economic trends.
. Acting as a goodwill agent of CB Commercial at the many real estate related
conferences and groups of which you are such an important part.
For your services CBC will pay you $12,500 per month and reimburse you for all
expenses which you reasonably incur on our behalf including travel expenses
incurred at our request. Your engagement may be terminated by either party on 30
days advance written notice and neither party shall have any liability to the
other party as a result of such termination.
You have been granted a stock option by CB Commercial Real Estate Services
Group, Inc. for 250,000 shares of its common stock at a price of $36.75. Your
option is fully vested but will terminate one year after this Letter Agreement
is terminated.
You will be an independent contractor and as such you will determine when and
how you provide services as well as the projects which you are to work on. You
will have no authority to bind CB Commercial or its affiliates.
If the foregoing is acceptable please sign and return to me the extra copy of
this letter which I have enclosed.
Yours very truly,
/s/ James J. Didion
James J. Didion
c. Nancy Morris/CB Commercial
Walter Stafford/CB Commercial
AGREED AND ACCEPTED THIS 16 DAY OF JULY, 1997
/s/ Donald M. Koll
_____________________
<PAGE>
EXHIBIT 10.22(ii)
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
_________________________________
AMENDMENT NO. 1 (this "Amendment") dated as of January 21, 1998, to
---------
the Credit Agreement dated as of August 28, 1997 (the "Credit Agreement"), by
----------------
and among CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC., a Delaware corporation
(the "Company"), the BANKS (as such term is defined in the Credit Agreement),
-------
THE SUMITOMO BANK, LIMITED, as senior managing agent for the Banks (the "Senior
------
Managing Agent"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
- --------------
Issuing Bank and as Agent, and WELLS FARGO BANK, N.A., BHF-BANK
AKTIENGESELLSCHAFT, CREDIT LYONNAIS LOS ANGELES BRANCH, DRESDNER BANK AG, NEW
YORK BRANCH AND GRAND CAYMAN BRANCH, and KEY BANK NATIONAL ASSOCIATION, as Co-
Agents (collectively, the "Co-Agents"; individually, a "Co-Agent").
--------- --------
RECITALS
--------
A. The Company has proposed to repurchase all of its outstanding
shares of Convertible Preferred Stock for a purchase price (including payment of
accrued dividends thereon) not to exceed $82,000,000 in the aggregate (the
"Stock Repurchase"), which shares are currently held by four institutions.
- -----------------
B. The Company has requested that the Credit Agreement be amended to
permit, among other things, the amount of the Combined Commitments, in an
aggregate amount not to exceed $82,000,000, to be used for the Company's general
corporate purposes, including the repurchase of the Convertible Preferred Stock
of the Company and payment of accrued dividends thereon, and each of the Agent,
the Issuing Bank and the Banks is willing to agree to such amendments subject to
the terms and conditions hereinafter set forth.
C. Section 11.01 of the Credit Agreement provides that the Credit
Agreement may be amended after the Closing Date with the written consent of the
Company, and, in certain circumstances, the Required Banks.
<PAGE>
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. RELATION TO THE CREDIT AGREEMENT; DEFINITIONS.
1.1 Relation to Credit Agreement. This Amendment constitutes an
----------------------------
integral part of the Credit Agreement.
1.2 Capitalized Terms. For all purposes of this Amendment,
-----------------
capitalized terms used herein without definition shall have the meanings
specified in the Credit Agreement, as said agreement shall be in effect on the
Effective Date after giving effect to this Amendment.
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT.
2.1 Amendment to Section 1.01 of the Credit Agreement. (a) Section
-------------------------------------------------
1.01 of the Credit Agreement is amended to add the following definitions, in
alphabetical order:
"Amendment" means Amendment No. 1 to Credit Agreement dated as of
---------
January 21, 1998 by and among the Company, the Banks, the Issuing
Bank, the Senior Managing Agent, the Co-Agents and the Agent.
"Stock Repurchase" has the meaning specified in the Amendment.
----------------
(b) Section 1.01 of the Credit Agreement is amended by deleting
each of the definitions of "Agreement," "EBITDA," "Indebtedness," "Interest
Period," "Inventory Property Loan" and "Restricted Payment" in its entirety and
replacing it with the following:
"Agreement" means this Credit Agreement, as amended from time to
---------
time.
"EBITDA" means for any period for which the amount thereof is to
------
be determined, the consolidated net income of such Person for such
-2-
<PAGE>
period plus the aggregate amounts deducted in determining such
----
consolidated net income in respect of (i) consolidated interest
expense of such Person for such period, (ii) income and other taxes
measured by income or profits of such Person for such period, and
(iii) depreciation and amortization for such period, in each case in
accordance with GAAP; provided, however, that consolidated net income
-------- -------
shall be computed for these purposes without giving effect to
extraordinary losses or extraordinary gains and without giving effect
to any income contributed by the Inventory Property Loan.
"Indebtedness" of any Person means, without duplication, (a) all
------------
indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into or commissions or
bonuses payable in the ordinary course of business on ordinary terms);
(c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property,
assets or businesses; (e) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred
as financing, in either case with respect to property acquired by the
Person (even though the rights and remedies of the seller or bank
under such agreement in the event of default are limited to
repossession or sale of such property); (f) all obligations with
respect to capital leases; (g) all indebtedness referred to in clauses
(a) through (f) above 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 in property (including accounts and
contracts rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness; and
(h) all Contingent Obligations (excluding any portion of recorded
liabilities for legal judgments which are collateralized by cash
secured letters of credit); provided, that, with respect to clauses
--------
(a), (d), (e) and (f) above, the term "Indebtedness" shall exclude the
obligations evidenced by the Inventory Property Loan in an aggregate
amount not to exceed $7,400,000.
For all purposes of this Agreement, the Indebtedness of any Person
shall include all obligations of such Person of the character
described in
-3-
<PAGE>
clauses (a) through (h) above to the extent such Person remains
legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP, and the
Indebtedness of any Person shall include all recourse Indebtedness of
any partnership or joint venture or limited liability company in which
such Person is a general partner or a joint venturer or a member.
"Interest Period" means, as to any Offshore Rate Loan, the period
---------------
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date seven (7)
days or one (1), two (2), three (3) or six (6) months thereafter as
selected by the Company in its Notice of Borrowing or Notice of
Conversion/Continuation; provided, that, the Company may only select a
--------
seven (7)-day Interest Period up to six (6) times per calendar year;
provided, further that:
-------- -------
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless, in the case of an Offshore Rate Loan,
the result of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest Period shall
end on the preceding Business Day;
(ii) other than with respect to a seven (7) day Interest Period,
any Interest Period pertaining to an Offshore Rate Loan that begins on
the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period; and
(iii) no Interest Period for any Loan shall extend beyond the
Revolving Termination Date.
-4-
<PAGE>
"Inventory Property Loan" means the obligations as evidenced by
-----------------------
each of the Second Amended and Restated Promissory Note One dated as
of December 30, 1994, as amended, and the Second Amended and Restated
Promissory Note Two dated as of December 30, 1994, as amended, each
between CB Commercial Warehouse Property Corp., a Delaware corporation
and General Electric Capital Corporation, a New York corporation, now
held by GELCO Corporation, a Minnesota corporation.
"Restricted Payment" means, (a) any dividend or other
------------------
distribution, direct or indirect, in respect of any shares of the
Capital Stock of the Company or any of its Subsidiaries, other than
dividends or other distributions payable solely in shares of its
Capital Stock, or warrants, rights, or options therefor, and dividends
or other distributions by any of its Subsidiaries to the Company or
another Subsidiary; and (b) any purchase, redemption, retirement or
other acquisition of any shares of Capital Stock of the Company or any
of its Subsidiaries, now or hereafter outstanding (except for the
Stock Repurchase or any purchase, redemption, retirement or other
acquisition of any shares of Capital Stock of any Subsidiary by the
Company), or of any warrants, rights or options evidencing a right to
purchase or acquire any such shares (except in exchange for other
shares of Capital Stock or warrants, rights or options evidencing a
right to purchase or acquire any such shares).
2.2 Amendment to Section 7.12 of the Credit Agreement. Section 7.12 of
-------------------------------------------------
the Credit Agreement is amended by deleting it in its entirety and replacing it
with the following.
7.12 Use of Proceeds. The Company shall use the proceeds of the
---------------
Loans (i) to refinance a portion of outstanding indebtedness of the Company
to The Sumitomo Bank, Limited and certain other creditors in an aggregate
amount up to $165,000,000; (ii) to prepay a portion of outstanding
Indebtedness of Koll in an aggregate amount up to $55,000,000 in connection
with the Merger; (iii) to pay expenses and costs associated with the Loans
and the Merger; and (iv) to provide for general corporate purposes
including funding working capital needs, funding the Stock Repurchase (in
an aggregate amount not exceeding $82,000,000), issuing letters of credit,
and financing future acquisitions
-5-
<PAGE>
not in contravention of any Requirement of Law or of any Loan Document.
2.3 Amendment to Section 8.11 of the Credit Agreement. Section 8.11 of the
-------------------------------------------------
Credit Agreement is amended by deleting it in its entirety and replacing it with
the following:
8.11 Maintenance of Consolidated Net Worth. The Company shall not
-------------------------------------
permit Consolidated Net Worth at any time to be less than the sum of (i)
seventy-five percent (75%) of Consolidated Net Worth as of December 31,
1997, determined on a pro forma basis to give effect to the Stock
Repurchase (provided, that in no event shall such Consolidated Net Worth be
--------
less than $57,000,000) plus (ii) seventy percent (70%) of Consolidated Net
----
Income for each completed fiscal quarter beginning with the fiscal quarter
ended March 31, 1998, for which Consolidated Net Income is a positive
number (Consolidated Net Income for any such fiscal quarter where
Consolidated Net Income is a loss having no effect on the calculation of
the amount referred to in this clause (ii)), plus (iii) seventy percent
----
(70%) of any new equity issuances of the Company and its Subsidiaries after
December 31, 1997.
SECTION 3. REPRESENTATION AND WARRANTIES OF THE COMPANY.
3.1 Representations and Warranties. To induce each of the Agent, the
------------------------------
Issuing Bank and the Banks to execute and deliver this Amendment (which
representations shall survive the execution and deliver of this Amendment), the
Company represents and warrants to each of the Agent, the Issuing Bank and the
Banks that:
(a) Authority. This Amendment has been duly authorized, executed and
----------
delivered by it and this Amendment constitutes the legal, valid and binding
obligation, contract and agreement of the Company enforceable against it in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally;
(b) Validity of Amendment. The Loan Documents, as amended by this
----------------------
Amendment, constitute the legal, valid and binding obligations, contracts and
agreements of the Company enforceable against it in accordance with their
respective terms, except
-6-
<PAGE>
as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting
creditors' rights generally;
(c) Authorization; No Violation. The execution, delivery and
----------------------------
performance by the Company of this Amendment (i) has been duly authorized by all
requisite corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body or
agency, and (iii) will not (A) violate (1) any provision of law, statute, rule
or regulation or its certificate of incorporation or bylaws, (2) any order of
any court or any rule, regulation or order of any other agency or government
binding upon it, or (3) any provision of any material indenture, agreement or
other instrument to which it is a party or by which its properties or assets are
or may be bound, or (B) result in a breach or constitute (alone or with due
notice or lapse of time or both) a default under any indenture, agreement or
other instrument referred to in clause (iii)(A)(3) of this Section 2.1(c);
(d) No Default or Event of Default. As of the date hereof and after
-------------------------------
giving effect to this Amendment, no Default or Event of Default has occurred
which is continuing; and
(e) All Other Representations and Warranties. All the
----------------------------------------
representations and warranties contained in Section VI of the Credit Agreement
are true and correct in all materials respects with the same force and effect as
if made by the Company on and as of the date hereof (except as to the extent
that any such representations or warranties relate to a specific prior date or
period).
SECTION 4. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.
4.1 Effective Date. This Amendment shall not become effective until, and
--------------
shall become effective when, each and every one of the following conditions
shall have been satisfied or waived by the Agent, the Issuing Bank and the
Required Banks (the "Effective Date"); provided, however, that the provisions of
-------------- -------- -------
Section 2.1 of this Amendment, to the extent such provisions add or change
definitions of terms used in the Credit Agreement as amended by this Amendment
(other than with respect to the definition of "Restricted Payment"), shall
become effective as of the date on which each of the following conditions (other
than clause (c)) shall have been satisfied or waived by the Agent, the Issuing
Bank and the Required Banks.
-7-
<PAGE>
(a) Execution of Counterparts. Counterparts of this Amendment shall
-------------------------
have been executed and delivered by each of the Company, the Guarantors, the
Agent, the Issuing Bank and the Banks.
(b) Representations True; No Event of Default. The Company shall
-----------------------------------------
have delivered to the Agent an Officer's Certificate, dated the Effective Date,
certifying that the representations and warranties of the Company contained
herein shall be true on and as of the Effective Date (except as to the extent
that any such representations or warranties relate to a specific prior date or
period) and that there exists no Event of Default or Default, assuming for this
purpose that this Amendment had been effective from and after the date hereof.
(c) Consummation of Stock Repurchase. Concurrently with or
---------------------------------
immediately after the consummation of the transactions hereunder and in any
event not later than March 30, 1998, the Stock Repurchase shall have been
consummated in accordance with all applicable statutes, laws, rules and
regulations.
(d) No Material Adverse Change. There shall have been no material
---------------------------
adverse change in the business, earnings, prospects, properties or condition
(financial or otherwise) of the Company or any of its Subsidiaries since
December 31, 1997.
(e) Fees and Disbursements of Special Counsel for the Agent. The
--------------------------------------------------------
Agent's special counsel, Paul, Hastings, Janofsky & Walker LLP ("Special
-------
Counsel"), shall have received payment of the invoice rendered for its fees and
- -------
disbursements posted through the date of such invoice (with the understanding
that a supplemental statement for fees and disbursements subsequently posted is
to be rendered at a later date) in connection with the consummation of the
transactions contemplated hereunder.
(f) Amendment Fee. The Company shall pay to the Agent for the account
-------------
of each Bank , which (i) indicates its approval to this Amendment by executing a
copy of the letter from the Agent to each Bank dated January 16, 1998 and
returning such letter by telecopy to the Agent by no later than 5:00 p.m. (Los
Angeles time) on January 21, 1998 and (ii) executes a counterpart of this
Amendment, an amendment fee equal to one-eighth of one percent (1/8%) of such
Bank's Commitment, and such amendment fee shall be due and payable on the
Effective Date whether or not the Stock Repurchase has been or will be
consummated.
(g) Consents. The Company shall have delivered to the Agent an
---------
Officer's Certificate, dated the Effective Date, certifying that any necessary
consents,
-8-
<PAGE>
waivers, approvals, authorizations, registrations, filings and notifications in
connection with the authorization, execution and delivery of this Amendment have
been obtained or made and are in full force and effect.
(h) Proceedings, Instruments, etc. All proceedings and actions taken
------------------------------
on or prior to the Effective Date in connection with the transactions
contemplated by this Amendment and all instruments incident thereto shall be in
form and substance satisfactory to the Agent and its Special Counsel, and the
Agent and its Special Counsel shall have received copies of all documents that
it or they may request in connection with such proceedings, actions and
transactions (including, without limitation, copies of court documents,
certifications, and evidence of the correctness of the representations and
warranties contained herein and certifications and evidence of the compliance
with the terms and the fulfillment of the conditions of this Amendment) in the
form and substance satisfactory to the Agent and its Special Counsel.
SECTION 5. PAYMENT OF AGENT'S COUNSEL FEES AND EXPENSES.
5.1 The Company agrees to pay upon demand, the reasonable fees and
expenses of Paul, Hastings, Janofsky & Walker, LLP, counsel to the Agent, in
connection with the negotiation, preparation, approval, execution and delivery
of this Amendment.
SECTION 6. CONSENT OF GUARANTORS.
6.1 Each Guarantor, as a guarantor under the Credit Agreement, hereby
consents to the terms of this Amendment and hereby confirms and agrees that its
Guaranty is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects.
SECTION 7. CONSENT OF AGENT AND BANKS.
7.1 Pursuant to Section 11.01 of the Credit Agreement, each of the Agent,
the Issuing Bank and the Banks hereby consents to the Stock Repurchase by the
Company.
SECTION 8. MISCELLANEOUS.
8.1 Cross-References. References in this Amendment to any Section are,
-----------------
unless otherwise specified, to such Section of this Amendment.
-9-
<PAGE>
8.2 Instrument Pursuant to Existing Credit Agreement;
-------------------------------------------------
Limited Amendment. This Amendment is executed pursuant to Section
------------------
11.01 of the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered, and applied in accordance with all of the
terms and provisions of the Credit Agreement, including Section 11.01 thereof.
Except as expressly amended, any conditions of the Credit Agreement shall remain
unamended and unwaived. The amendments set forth herein shall be limited
precisely as provided for herein to the provisions expressly amended herein and
shall not be deemed to be a waiver of, amendment of, consent to or modification
of any other term or provision of any other document or of any transaction or
further action on the part of the Company or the Guarantors which would require
the consent of any Bank, the Issuing Bank or the Agent under the Credit
Agreement.
8.3. Successors and Assigns. This Amendment shall be binding upon and
-----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
8.4 Counterparts. This Amendment may be executed simultaneously in two or
-------------
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute together but one and the same instrument.
8.5 Governing Law. This Amendment and the notes shall be governed by and
--------------
construed in accordance with the laws of the State of California.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
CB COMMERCIAL REAL ESTATE
SERVICES GROUP, INC.
By: /s/ John C. Haeckel
------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Janet Hammond
-------------------------------------
Name: Janet Hammond
Title: Vice President
Agency Specialist
-11-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Issuing Bank
By: /s/ Gina M. West
--------------------------------------------
Name: Gina M. West
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/ Gina M. West
--------------------------------------------
Name: Gina M. West
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: /s/ Goro Hirai
--------------------------------------------
Name: Goro Hirai
Title: Joint General Manger
WELLS FARGO BANK, N.A.
By: /s/ Clare T. Gurbach
--------------------------------------------
Name: Clare T. Gurbach
Title: Vice President
-12-
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Dan Dobrjanskyj
--------------------------------------------
Name: Dan Dobrjanskyj
Title: Assistant Vice President
By: /s/ Anthony Heyman
--------------------------------------------
Name: Anthony Heyman
Title: Assistant Treasurer
CREDIT LYONNAIS LOS ANGELES
BRANCH
By: /s/ Diane M. Scott
--------------------------------------------
Name: Diane M. Scott
Title: Vice President and Manager
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN BRANCH
By: /s/ Christopher E. Sarisky
--------------------------------------------
Name: Christopher E. Sarisky
Title: Assistant Treasurer
By: /s/ John W. Sweeney
--------------------------------------------
Name: John W. Sweeney
Title: Assistant Vice President
KEY BANK NATIONAL ASSOCIATION
By: /s/ Richard J. Ameny. Jr.
--------------------------------------------
Name: Richard J. Ameny. Jr.
Title: Assistant Vice President
-13-
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ M. Van Otterloo
--------------------------------------------
Name: M. Van Otterloo
Title: Senior Relationship Manager
LASALLE NATIONAL BANK
By: /s/ John Berghorst
--------------------------------------------
Name: John Berghorst
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Yasushi Satomi
--------------------------------------------
Name: Yasushi Satomi
Title: Senior Vice President
THE SAKURA BANK, LIMITED
By: /s/ Fernando Buesa
--------------------------------------------
Name: Fernando Buesa
Title: Vice President
By: /s/ Ofusa Sato
--------------------------------------------
Name: Ofusa Sato
Title: Senior Vice President and Assistant
General Manager
-14-
<PAGE>
THE BANK OF NEW YORK
By: /s/ Jonathan Rollins
--------------------------------------------
Name: Jonathan Rollins
Title: Assistant Vice President
MELLON BANK, N.A.
By: /s/ L.C. Ivey
--------------------------------------------
Name: L.C. Ivey
Title: Vice President
THE FUJI BANK, LIMITED, LOS ANGELES
AGENCY
By: /s/ Masahito Fukuda
--------------------------------------------
Name: Masahito Fukuda
Title: Joint General Manager
NATEXIS BANQUE-BFCE
By: Not a signatory
--------------------------------------------
Name:
Title:
-15-
<PAGE>
BANK OF MONTREAL
By: /s/ B.A. Blucher
--------------------------------------------
Name: B.A. Blucher
Title: Senior Vice President
-16-
<PAGE>
The foregoing Amendment is
consented to and accepted:
CB COMMERCIAL REAL ESTATE GROUP, INC.,
a Delaware corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
KOLL MANAGEMENT SERVICES, INC.,
a Delaware corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
WESTMARK REALTY ADVISORS LLC,
a Delaware limited liability company
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Vice President and Assistant Treasurer
-17-
<PAGE>
L.J. MELODY & COMPANY,
a Texas corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Treasurer
CB COMMERCIAL/KOLL CORPORATE FACILITIES MANAGEMENT, INC.,
a Delaware corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Assistant Treasurer
KOLL INVESTMENT MANAGEMENT, INC.,
a California corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Vice President and Assistant Treasurer
KOLL BREN REALTY ADVISORS, INC.,
Delaware corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
-18-
<PAGE>
CBS INVESTMENT REALTY, INC.,
an Arizona corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
KOLL PARTNERSHIPS I, INC.,
a Delaware corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
KOLL PARTNERSHIPS II, INC.,
a Delaware corporation
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
-19-
<PAGE>
KOLL/CC&F MANAGEMENT SERVICES,
a California general partnership
By: KOLL MANAGEMENT SERVICES, INC.,
General Partner
By: /s/ John C. Haeckel
---------------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
-20-
<PAGE>
EXHIBIT 10.23
AMENDMENT TO
CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
1990 STOCK OPTION PLAN (THE "1990 PLAN"),
1991 SERVICE PROVIDERS STOCK OPTION PLAN (THE "1991 PLAN"),
L.J. MELODY ACQUISITION STOCK OPTION PLAN (THE "MELODY PLAN"),
KOLL ACQUISITION STOCK OPTION PLAN (THE "KOLL PLAN")
ADOPTED BY THE BOARD OF DIRECTORS
NOVEMBER 18, 1997
Section 5.3 of each of the 1990 Plan, the 1991 Plan, the Melody Plan and
the Koll Plan is amended to read in its entirety as follows:
"5.3. EFFECT OF CHANGES IN CAPITALIZATION
-----------------------------------
"(a) CHANGES IN STOCK. If the outstanding shares of Stock are increased or
-----------------
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock, or other increase
or decrease affecting such outstanding shares generally that is effected without
receipt of consideration by the Company, occurring after the effective date of
the Plan, the number and kinds of shares for the purchase of which Options may
be granted under the Plan shall be adjusted proportionately and accordingly by
the Committee. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate ownership interest of the holder of the Option immediately
following such event shall, to the extent practicable, be the same as
immediately prior to such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares
subject to the unexercised portion of the Option outstanding but shall include a
corresponding proportionate adjustment in the Option Price per share. If there
is a distribution payable in the capital stock of a Subsidiary ("Spin-off
Shares"), to the extent consistent with Treasury Regulation Section 1.425-
1(a)(6) or the corresponding provision of any subsequent regulation, each
outstanding Option shall thereafter additionally pertain to the number of Spin-
off Shares which would have been received if the Optionee had been the holder on
the distribution date of the number of shares that are subject to the Option at
the time of such distribution, and the aggregate Option Price of the Option
shall be allocated between the Spin-off Shares and the Stock in proportion to
the relative fair market values of a Spin-off Share and a share of Stock
immediately after the distribution of Spin-off Shares.
-1-
<PAGE>
"(b) REORGANIZATION IN WHICH THE COMPANY IS THE SURVIVING COMPANY. If the
-------------------------------------------------------------
Company shall be the surviving company in any reorganization, merger, or
consolidation of the Company with one or more other companies which is approved
by the Board of Directors, any Option theretofore granted pursuant to the Plan
shall pertain to and apply to the securities to which a holder of the number of
shares of Stock subject to such Option would have been entitled immediately
following such reorganization, merger, or consolidation, with a corresponding
proportionate adjustment of the Option Price per share so that the aggregate
Option Price thereafter shall be the same as the aggregate Option Price of the
shares remaining subject to the Option immediately prior to such reorganization,
merger, or consolidation.
"(c) REORGANIZATION IN WHICH THE COMPANY IS NOT THE SURVIVING COMPANY; SALE
----------------------------------------------------------------------
OF ASSETS OR STOCK. Upon any of the following events, which event was opposed
- -------------------
by the Board of Directors; i) the dissolution or liquidation of the Company; ii)
a merger, consolidation or reorganization of the Company with one or more other
companies in which the Company is not the surviving company; iii) a sale of
substantially all of the assets of the Company to another company; or iv) any
transaction (including, without limitation, a merger or reorganization in which
the Company is the surviving company) following the adoption of this amendment
to the Plan which results in any person or entity owning twenty-five percent
(25%) or more of the combined voting power of all classes of stock of the
Company, the Plan and all Options outstanding hereunder shall terminate, except
to the extent provision is made in writing in connection with such transaction
for the continuation of the Plan and/or the assumption of the Options
theretofore granted, or for the substitution for such Options of new options
covering the stock of a successor company, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kinds of shares and exercise
prices, in which event the Plan and Options theretofore granted shall continue
in the manner and under the terms so provided. In the event of any such
termination of the Plan, each individual holding an Option shall have the right
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Committee in its sole discretion
shall determine and designate, to exercise such Option in whole or in part,
whether or not such Option was otherwise exercisable at the time such
termination occurs and without regard to any installment limitation on exercise
imposed pursuant to the Plan or Option Agreement. The Committee shall send
written notice of an event that will result in such a termination to all
individuals who hold Options not later than the time at which the Company gives
notice thereof to its stockholders.
"(d) ADJUSTMENTS. Adjustments under this Section 5.3
------------
-2-
<PAGE>
related to stock or securities of the Company shall be made by the Committee,
whose determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.
"(e) NO LIMITATIONS ON THE COMPANY. The grant of an Option pursuant to the
------------------------------
Plan shall not affect or limit in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve or liquidate, or to
sell or transfer all or any part of its business or assets."
-3-
<PAGE>
EXHIBIT 10.24(ii)
SPP PURCHASE AGREEMENT
BY AND AMONG
WESTMARK REAL ESTATE ACQUISITION PARTNERSHIP, L.P.,
CB COMMERCIAL REAL ESTATE GROUP, INC.
AND
______________________________
August 15, 1997
<PAGE>
SPP PURCHASE AGREEMENT
THIS SPP PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of the 15th day of August, 1997 by and among WESTMARK REAL ESTATE ACQUISITION
PARTNERSHIP, L.P., a limited partnership organized under the laws of Delaware
("Purchaser"), CB COMMERCIAL REAL ESTATE GROUP, INC., a Delaware corporation
("CBC"), and _____________, an individual ("Owner").
R E C I T A L S
A. Pursuant to the Purchase Agreement, dated May 15, 1995 by and among
Purchaser, CBC, the Controlling Westmark Owners and the Individual Westmark
Owners (the "1995 Purchase Agreement"), Purchaser acquired all of the voting and
ownership interests in Westmark Realty Advisors L.L.C., a Delaware limited
liability company ("Westmark"), from the Controlling Westmark Owners and the
Individual Westmark Owners (as defined in the 1995 Purchase Agreement).
B. Purchaser currently is obligated to pay to Owner, the other
Controlling Westmark Owners and the Individual Westmark Owners the Supplemental
Purchase Price under the terms and conditions set forth in the 1995 Purchase
Agreement (the "Supplemental Purchase Price").
C. Purchaser desires to purchase from Owner, and Owner desires to sell to
Purchaser, all of Purchasers' right, title and interest in and to the
Supplemental Purchase Price.
D. The parties hereto desire to modify certain of the rights and
obligations of the parties established by the 1995 Purchase Agreement and the
ancillary agreements entered into in connection therewith.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, agreements and covenants herein contained, and for other
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
TRANSACTIONS
------------
1.1 Payment in Satisfaction of Supplemental Purchase Price. Subject to
------------------------------------------------------
the conditions set forth in Section 1.5, Purchaser hereby agrees to pay to Owner
the SPP Payment as set forth in Schedule 1.1 on the Payment Date set forth on
such Schedule by cashier's check payable to Owner, and Owner agrees to accept
such payment, in full and complete satisfaction of any and all obligations of
Purchaser or CBC (whether
-1-
<PAGE>
presently accrued or to accrue hereafter) to pay the Supplemental Purchase Price
under the 1995 Purchase Agreement.
1.2 Changes to Transaction Documentation. Purchaser and CBC, on the one
------------------------------------
hand, and Owner, on the other hand, hereby agree that effective as of the date
on which all of the conditions set forth in Section 1.5 shall have been
satisfied or waived by Purchaser and CBC (the "Effective Date") and without any
further action of any party:
(a) 1995 Purchase Agreement Amendments. The 1995 Purchase Agreement is
-----------------------------------
amended as follows:
(i) Article 3 thereof is deleted in its entirety and replaced with
"[intentionally omitted]".
(ii) Section 9.14, 9.16 and 9.18 thereof each is deleted in their
entirety and replaced with "[intentionally omitted]".
(iii) Article 11 thereof is amended by deleting all references to
Sections 9.16 and 9.18 contained therein.
(iv) Section 14.5 thereof is deleted in its entirety.
(v) Section 15.11 thereof is deleted in its entirety.
(b) Termination of Incentive Compensation Plan. Owner acknowledges and
------------------------------------------
agrees that:
(i) the Westmark Realty Advisers Incentive Compensation Plan (the
"Incentive Plan") is terminated;
(ii) Vincent F. Martin, Jr., Bruce L. Ludwig and Stanton F. Zarrow
resign as members of the Incentive Plan Committee (as defined in the
Incentive Plan), and appoint Walter V. Stafford, John C. Haeckel and Ronald
Plakshe to fill the resulting vacancies; and
(iii) Owner has no interest of any kind, whether presently accrued or
to accrue hereafter, resulting from, relating to or arising out of,
directly or indirectly, the Incentive Plan.
1.3 Release of Purchaser and CBC. Owner agrees that effective as of the
-----------------------------
Effective Date and without any further action of any party:
(a) Owner, on behalf of himself or herself and on behalf of his or her
heirs, executors, administrators, beneficiaries, assigns, successors, attorneys-
in-fact and anyone claiming an interest through or under any of them
(collectively,
-2-
<PAGE>
"Releasor"), unconditionally and irrevocably releases and discharges Purchaser,
CBC and Westmark and all of their respective present and former parent
companies, subsidiaries, predecessors, successors, divisions, partnerships
and/or associated companies, corporations, partnerships and organizations and
all of their present and former officers, directors, employees, agents,
representatives, attorneys, partners, affiliates and stockholders (collectively,
the "Released Parties") with respect to any and all manner of action or actions,
suits, cause or causes of action, in law or in equity or otherwise, claims,
covenants, controversies, promises, contracts, agreements, accounts, payments,
acts, liabilities, obligations, defenses, demands, damages, losses, costs or
expenses of any kind or nature whatsoever, known or unknown, fixed, contingent,
foreseen or unforeseen, suspected or unsuspected, whether presently accrued or
to accrue hereafter, whether or not heretofore asserted (collectively, the
"Claims") which Releasor ever had, now has or may hereafter have against one or
more of the Released Parties resulting from, relating to or arising out of,
directly or indirectly, the payment of Supplemental Purchase Price
(collectively, the "Released Matters").
(b) This Agreement shall be effective as a full and final accord and
satisfaction of any and all Claims of Releasor as set forth in paragraph (a)
above. In furtherance of this intention, Releasor acknowledges that he or she
is familiar with any and all rights and benefits which he or she may have under
section 1542 of the Civil Code of the State of California, which provides as
follows:
"Certain claims not affected by general release. A general release does
not extend to claims which the creditor does not know or suspect to exist
in his favor at the time of executing the release, which if known by him
must have materially affected his settlement with debtor."
Releasor expressly waives and relinquishes any rights or benefits which he or
she had, now has or may have in the future under section 1542 of the Civil Code
of the State of California, or any similar provision of statutory or non-
statutory law, to the fullest extent that he or she may lawfully waive any such
rights and benefits pertaining to the subject matter of this Agreement. In this
regard, Releasor acknowledges that he or she is aware that he or she may
hereinafter discover Claims or facts in addition to or different from those
which he or she now knows or believes to exist with respect to the subject
matter of this Agreement, and it is Releasor's intention to fully, finally and
forever settle and release all such Claims.
(c) Releasor shall not bring, commence, institute, maintain or prosecute or
allow any person, entity or organization to bring, commence, institute, maintain
or prosecute in the name of Releasor, any other action at law or in
-3-
<PAGE>
equity, or any legal proceeding whatsoever, in whole or in part upon any fact or
event described or released herein. This Agreement may be plead as a full and
complete defense to, and may be used as a basis for injunctive relief against,
any action, suit or other proceeding which may be instituted, prosecuted or
attempted in breach of this Section 1.3.
(d) (i) Releasor acknowledges that he or she has been fully advised with
respect to his or her rights and obligations under this Agreement and
understands those rights and obligations. Releasor also acknowledges that prior
to the execution of this Agreement, he or she has had an adequate opportunity to
make whatever investigation or inquiries were deemed necessary or desirable with
respect to the subject matter of this Agreement.
(ii) Releasor acknowledges that he or she has had the opportunity to
seek the advice of counsel regarding this Agreement. Releasor acknowledges that
whether or not he or she seeks the advice of counsel is his or her prerogative,
and any failure on Releasor's part to seek the advice of counsel cannot be
asserted as a basis to claim that Releasor was unaware of the terms and meaning
of this Agreement. Releasor acknowledges that the consideration recited herein
is the sole and only consideration for this Agreement and that Releasor has
voluntarily entered into this Agreement.
(iii) Releasor understands and agrees that if the facts to which this
Agreement is executed are found hereinafter to be other than, or different from,
the facts now believed by Releasor to be true, Releasor expressly accepts and
agrees that this Agreement shall be and remain effective notwithstanding such
differences in facts.
(iv) Releasor warrants and represents that he or she is the sole and
lawful owner of all right, title and interest in and to all the Claims released
herein, and that he or she has not voluntarily, by operation of law or
otherwise, assigned or transferred or purported to assign or transfer to any
other person or entity any Claims, or any part or portion thereof, or any
interest therein.
(e) Releasor shall indemnify the Released Parties from and against any and
all liabilities, damages, losses, costs or expenses of any kind or nature
whatsoever, including (without limitation) attorneys' fees and costs of defense,
resulting from relating to or arising out of Releasor's breach of this Section
1.3.
1.4 Other Agreements. Each of the parties agrees to use best efforts to
----------------
take or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other in doing, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by
-4-
<PAGE>
this Article 1, including the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Article 1.
1.5 Conditions to Effectiveness. The effectiveness of the agreements of
---------------------------
the parties set forth in this Article 1 are subject to the satisfaction of the
following conditions, unless waived by Purchaser and CBC:
(a) Controlling Westmark Owners and Individual Westmark Owners
entitled to receive at least 95% of the Supplemental Purchase Price (and
each Controlling Westmark Owner and Individual Westmark Owner that
currently is an employee of Westmark) shall have executed and delivered to
Purchaser and CBC an SPP Purchase Agreement in the form hereof;
(c) The Note Amendment Agreement, of even date herewith, by and among
Purchaser, CBC, the Noteholders listed therein and the Westmark Owners
Representative (the "Note Amendment Agreement") shall have been executed
and delivered to Purchaser and CBC by the holders of all of the outstanding
principal amount of the Notes (as defined in the Note Amendment Agreement).
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF OWNERS
----------------------------------------
Owner represents and warrants to Purchaser and CBC as of the date hereof
and as of the Effective Date as follows:
2.1 Authority.
---------
(a) Owner has all necessary right, power, capacity, and authority and has
taken all action necessary to execute and deliver this Agreement, to consummate
the transactions contemplated hereby and to perform his or her obligations
hereunder, and no other proceedings on his or her part are necessary to
authorize this Agreement and the transactions contemplated hereby, and this
Agreement has been duly executed and delivered by Owner and constitutes his or
her valid and binding obligation enforceable in accordance with its terms.
(b) No consent, approval, order, waiver or authorization is required by or
with respect to Owner in connection with his or her execution or delivery of
this Agreement or his or her consummation of the transactions contemplated
hereby.
-5-
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND CBC
---------------------------------------------------
Purchaser and CBC jointly and severally represent and warrant to Owner as
of the date hereof and as of the Effective Date as follows:
3.1 Organization. Purchaser is a limited partnership duly organized and
------------
validly existing under the laws of the State of Delaware. CBC is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware.
3.2 Authority.
--- ---------
(a) Each of Purchaser and CBC has all requisite corporate or partnership
power and authority to enter into this Agreement and, subject to satisfaction of
the conditions set forth herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action on the part of Purchaser and CBC. This Agreement
has been duly executed and delivered by Purchaser and CBC and constitutes a
valid and binding obligation of Purchaser and CBC enforceable in accordance with
its terms. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under (i) any
provision of the organizational documents of Purchaser or CBC or (ii) any
material agreement or instrument, permit, judgment, order, statute, law,
ordinance, rule or regulation applicable to Purchaser or CBC or their properties
or assets, other than any such conflicts, violations, defaults, terminations,
cancelations or accelerations which individually or in the aggregate would not
have a Material Adverse Effect (as defined in the 1995 Purchase Agreement) on
Purchaser or CBC, as applicable.
(b) No consent, approval, order, waived or authorization is required by or
with respect to Purchaser or CBC in connection with the execution and delivery
of this Agreement or the consummation by Purchaser or CBC of the transactions
contemplated hereby.
-6-
<PAGE>
ARTICLE 4
GENERAL
-------
4.1 Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy, or by
courier service, as follows:
if to Purchaser or CBC, to:
CB Commercial Real Estate Group, Inc.
533 So. Fremont Avenue
Los Angeles, CA 90071
Attention: Walter V. Stafford
Fax: (213) 613-3015
with a copy to:
Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attention: John T. Vangel
Fax: (213) 629-1033
and if to Owner, to:
as set forth on Schedule 4.1
with a copy to:
Stanton H. Zarrow
865 South Figueroa Street, Suite 3500
Los Angeles, CA 90017
Fax: (213) 683-4201
and
Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attention: Richard Strong
Fax: (213) 229-7520
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
4.2 Expenses.
--------
(a) Except as provided in Section 4.2(b), Purchaser and CBC, on the one
hand, and Owner, on the other hand, shall each pay their own fees and expenses
incurred incident to the preparation and carrying out of the transactions
contemplated herein or in the Note Amendment Agreement.
(b) On the Effective Date, Purchaser and CBC will pay on behalf of Owner
and the other Controlling Westmark Owners and Individual Westmark Owners who
-7-
<PAGE>
shall have executed a SPP Purchase Agreement or the Note Amendment Agreement,
collectively, an amount, not to exceed $30,000, equal to all reasonable,
documented legal fees and expenses of Gibson, Dunn & Crutcher LLP incurred by
such persons incident to the preparation and carrying out of the transactions
contemplated herein or in the Note Amendment Agreement.
4.3 Amendments. This Agreement may be amended only by a written
----------
instrument executed by each party hereto.
4.4 Headings. The headings of the several sections of this Agreement are
--------
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
4.5 Counterparts. This Agreement may be executed in counterparts, and
------------
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
4.6 Binding Nature; Assignment. This Agreement and all of the provisions
--------------------------
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but except as otherwise
specifically provided, neither this Agreement nor any of the rights, interests
or obligations of the parties hereto may be assigned by Owner without the
express written consent of Purchaser which consent will not be withheld unless
Purchaser reasonably determines that such assignment will or has a reasonable
likelihood of materially and adversely affecting the benefits to Purchaser of
the transactions contemplated hereby.
4.7 Applicable Law. This Agreement shall be governed by, construed and
--------------
enforced in accordance with the laws of the State of California as applied to
contracts entered into solely between residents of, and to be performed entirely
in, such state.
4.8 Dispute Resolution. Any dispute arising out of or relating to this
------------------
Agreement (or any exhibit or schedule hereto) or the transactions contemplated
hereby or thereby or the breach, termination or validity hereof or thereof,
shall be resolved in the manner contemplated by Section 15.8 of the 1995
Purchase Agreement.
4.9 Severability. If for any reason whatsoever, any one or more of the
------------
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
-8-
<PAGE>
4.10 No Third Party Beneficiary. Except as expressly set forth herein, no
--------------------------
provision of this Agreement, including the Exhibits and Schedules hereto, is
intended or should be construed to create any third party beneficiaries or to
give any rights, including rights of subrogation, to any person other than the
parties to this Agreement.
IN WITNESS WHEREOF, Purchaser, CBC and Owner have caused this Agreement to
be signed all as of the date first above written.
WESTMARK REAL ESTATE ACQUISITION PARTNERSHIP, L.P.
By: CB COMMERCIAL REAL ESTATE GROUP, INC., its general
partner
By _______________________________________________
CB COMMERCIAL REAL ESTATE GROUP, INC.
By ____________________________________________________
OWNER:
_______________________________________________________
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<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARY STATE OR COUNTRY OF INCORPORATION
---------- ---------------------------------
<S> <C>
BL/Westmark, Inc. California
Bonutto-Hofer Investments California
CB Bienes Raices, S.A. de C.V. Mexico
CB Commercial Partners, Inc. Delaware
CB Commercial/Koll Corporate Facilities Management, Inc. Delaware
CB Commercial Real Estate Group, Inc. Delaware
CB Commercial Real Estate Fund Management, Inc. California
CB Commercial Real Estate Group of Canada, Inc. Ontario, Canada
CB Commercial Real Estate Group of Colorado, Inc. Delaware
(dba: CB Commercial Real Estate Group, Inc.)
CB Commercial Real Estate Group of Hawaii, Inc. Delaware
CB Commercial Real Estate Group of Iowa Iowa
CB Commercial Realty Advisors, Inc. California
CB Commercial Sutton & Towne, Inc. New York
CB Commercial Warehouse Property Corp. Delaware
CBS Investment Realty, Inc. (dba: CBS Property Services, Inc.) Arizona
CBS Investment Realty of New Mexico, Inc. (dba: CBS Property Arizona
Services of New Mexico, Inc.)
D.A. Management, Inc. California
Global Professional Assurance Company Vermont
Holdpar A (limited partnership formed under the laws of Delaware) Delaware
Holdpar B (limited partnership formed under the laws of Delaware) Delaware
KEA/I, Inc. Delaware
KEA/II, Inc. Delaware
KMS Construction Co. Delaware
KMS Corporate Real Estate Services, Inc. Toronto, Canada
Koll 1031 Exchange Services, Inc. Delaware
Koll Asia Pacific-Hawaii, Inc. Hawaii
Koll Bren Realty Advisors, Inc. Delaware
Koll Capital Markets Group, Inc. Delaware
Koll Corporate Management Systems, Inc. Delaware
Koll Holdings International, Inc. Delaware
Koll Investment Management, Inc. (dba: K/B Realty Advisors) California
Koll Management Service Corporation Colorado
Koll Management Services, Inc. Delaware
Koll Partnerships I, Inc. Delaware
Koll Partnerships II, Inc. Delaware
Koll Real Estate Services Delaware
Koll Specialty Finance Corporation Delaware
Koll Strategic HR Services, Inc. (dba: Real Estate Temps, Inc.) California
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARY STATE OR COUNTRY OF INCORPORATION
---------- ---------------------------------
<S> <C>
Koll Tender Corporation II Delaware
Koll Tender Corporation III Delaware
Koll Von Karman, Inc. Delaware
L. J. Melody & Company Texas
L. J. Melody Investments, Inc. Texas
Property Management Services, Inc. Hawaii
Roger C. Schultz, Inc. California
Sol L. Rabin, Inc. California
Stanton H. Zarrow, Inc. California
Sutter Fremont, Inc. California
Sutter Fremont Property Services, Inc. Washington
Sutter Fremont Real Estate Merchant Capital Corporation California
Vincent F. Martin, Jr., Inc. California
Westmark Realty Advisors L.L.C. Delaware
Westmark Real Estate Acquisition Partnership, L.P. Delaware
(limited partnership formed under the laws of Delaware)
WPI/Koll Real Estate Services Company Delaware
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statements: Form S-8 (File No. 33-39436), Form S-8 (File No.
33-40953), Form S-8 (File No. 33-44346), Form S-8 (File No. 33-273236), Form S-8
(File No. 33-90014), Form S-8 (File No. 333-21597), Form S-8 (File No.
333-21599), Form S-8 (File No. 333-34375), Form S-8 (File No. 333-41697) and
Form S-8 (File No. 333-43433).
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
March 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 47,181
<SECURITIES> 0
<RECEIVABLES> 86,714
<ALLOWANCES> 8,980
<INVENTORY> 0
<CURRENT-ASSETS> 150,413
<PP&E> 99,240
<DEPRECIATION> 48,931
<TOTAL-ASSETS> 505,191
<CURRENT-LIABILITIES> 157,876
<BONDS> 0
0
40
<COMMON> 188
<OTHER-SE> 157,543
<TOTAL-LIABILITY-AND-EQUITY> 505,191
<SALES> 730,224
<TOTAL-REVENUES> 730,224
<CGS> 0
<TOTAL-COSTS> 671,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,780
<INCOME-PRETAX> 45,906
<INCOME-TAX> 20,558
<INCOME-CONTINUING> 25,348
<DISCONTINUED> 0
<EXTRAORDINARY> 951
<CHANGES> 0
<NET-INCOME> 24,397
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.28
</TABLE>
