<PAGE>
EXHIBIT 99.5
------------
BLUM CB Corp.
c/o BLUM Capital Partners, L.P.
909 Montgomery Street, Suite 400
San Francisco, California 94133
(415) 434-1111
November 10, 2000
Board of Directors
CB Richard Ellis Services, Inc.
200 North Sepulveda Boulevard
El Segundo, California 90245-4380
Attention: James J. Didion
Chairman of the Board of Directors
Dear Sirs:
BLUM CB Corp., a Delaware corporation ("Newco"), is very pleased to present
its all-cash proposal ("Proposal") to purchase all of the common stock of CB
Richard Ellis Services, Inc. (the "Company") not owned by the Offering Group
identified below at a price of $15.50 per share (the "Transaction"). The
purchase price we are offering your stockholders represents a premium of 29.4%
to the average closing price of the Company's common stock on the New York Stock
Exchange for the three-month period ended on November 9, 2000. Newco has been
formed by RCBA Strategic Partners, L.P. ("BLUM"), an affiliate of BLUM Capital
Partners, L.P., for the purpose of effecting the Proposal. The Offering Group
includes (i) BLUM and other entities affiliated with BLUM, (ii) Freeman Spogli &
Co. Incorporated through its affiliates FS Equity Partners III, L.P., a Delaware
limited partnership, and FS Equity Partners International, L.P., a Delaware
limited partnership (collectively, "Freeman Spogli"), and (iii) certain
directors and senior management of the Company, including Mr. Ray Wirta. The
Offering Group presently owns or controls approximately 38% of the outstanding
common stock of the Company.
We believe that the Proposal constitutes an excellent opportunity for the
stockholders of the Company to realize full value for their shares to an extent
not available to them in the marketplace, and that they will find this value
compelling. In addition, we believe the financing needed to complete the
Transaction can be obtained in a timely manner and the conditions to the
Transaction will be limited. As a result, we believe we have the ability to
complete the Transaction quickly and provide near-term liquidity for your
stockholders.
<PAGE>
CB Richard Ellis Services, Inc. 2
November 10, 2000
The terms of the Proposal are summarized below:
Purchase Price
--------------
Our cash purchase price of $15.50 per share for the Company's common stock
places a total value on the Company's common stock of approximately $340 million
(including for each option to acquire the Company's common stock the difference
between the purchase price and the exercise price). The Proposal represents a
substantial premium to the Company's current stock price and prior averages. The
offer represents a 24.0% premium to the Company's closing stock price of $12.50
on November 9, 2000; a 29.4% premium to the Company's three-month average of
$11.98 per share for the period ending November 9, 2000; and a 37.1% premium to
the Company's six-month average of $11.31 per share for the period ending
November 9, 2000. In addition, the Company's "public float" is extraordinarily
limited with an average of 17,114 shares traded each market day during the 3-
month period ending November 9, 2000. In other words, we believe the Proposal
gives the Company's public stockholders an opportunity to obtain liquidity at a
full and fair valuation.
Equity Financing
-----------------
It is contemplated that the 8,052,113 outstanding shares of the Company
common stock currently owned by the Offering Group effectively will be converted
into shares of common stock of the Company after the closing of the Transaction.
In addition, BLUM will provide approximately an additional $47.6 million of
equity to the Company, as well as up to approximately an additional $52.6
million to the extent that the employees of the Company do not subscribe for all
of the common stock that we anticipate making available to them for purchase at
the closing of the Transaction.
BLUM Capital Partners, L.P., which together with its affiliates currently
beneficially owns approximately 16.1% of the Company's outstanding common stock,
is a leading private equity and strategic block investment firm with
approximately $3.8 billion of equity capital under management, including through
affiliates. BLUM Capital was founded 25 years ago and has invested in a wide
variety of businesses in partnership with management teams to create long-term
value.
The proposal contained in this letter has received all necessary internal
approvals from BLUM and no other internal approvals are required. A description
of the terms relating to the Equity Financing is contained within the letter
agreement (and related term sheet) attached hereto as Exhibit A.
<PAGE>
CB Richard Ellis Services, Inc. 3
November 10, 2000
Debt Financing
--------------
We have had discussions with Credit Suisse First Boston ("CSFB") regarding
debt financing totaling $600 million dollars to support the Transaction. This
debt would be comprised of funded senior term loans of up to $275 million and
$225 million of subordinated indebtedness. In addition, a revolving credit
facility of $100 million would be provided for ongoing working capital purposes
post-closing. The contemplated debt structure is structured to allow for the
consummation of the Proposal and provide ample capital for the Company' future
growth and working capital needs.
As is customary for transactions of this nature, consummation of the
Transaction is subject to receipt of the required debt financing. We intend to
execute commitment letters for all of the required debt financing at the time a
definitive merger agreement is executed. We anticipate that definitive
documentation for the debt financing would be finalized in the period prior to
the vote of the Company's stockholders with respect to the Transaction.
CSFB is prepared to devote the necessary resources to close the transaction
expeditiously. Should you wish to discuss any aspect of the proposed financing
with CSFB, we would be happy to arrange an opportunity for you to meet with
appropriate representatives.
Structure
---------
We currently contemplate that the Transaction will be consummated in two
steps. In the first step, each of the members of the Offering Group will
contribute all of the shares of common stock of the Company beneficially owned
by such member to Newco in exchange for newly-issued shares of Newco.
Immediately following completion of the first step of the Transaction, Newco
will be merged into the Company. Pursuant to the merger, all shares of the
Company's common stock (other than the shares held by Newco) will be converted
into the right to receive the Purchase Price, all shares of common stock of the
Company held by Newco will be cancelled and all shares of common stock of Newco
will be converted into shares of the common stock of the Company. At the
conclusion of the Transaction, assuming the Company's employees agree to
purchase the full amount of the common stock that we make available to them, the
outstanding equity ownership of the Company would approximately be as follows:
BLUM and affiliates, 45%; management and employees of the Company, 25%; Freeman
Spogli, 23% and other investors, 7%. We and our representatives are prepared to
discuss our proposed acquisition structure with you in detail at your request.
Treatment of Existing Indebtedness
----------------------------------
At the closing of the Transaction, the Company's existing bank credit
facility would be refinanced with the proceeds of the debt financing. In
addition, prior to the closing we would tender for all of the outstanding 8-7/8%
Senior Subordinated Notes of the Company. We would
<PAGE>
CB Richard Ellis Services, Inc. 4
November 10, 2000
also seek consents from the holders of the 8-7/8% Senior Subordinated Notes to
the deletion of substantially all of the negative covenants contained within the
indenture relating to such notes.
Employees
---------
We are keenly aware of the importance of the Company's employees, in
particular, sales professionals, and we believe the Transaction will benefit the
employees of the Company. Our capital structure is designed to enable the
Company to grow and thereby enhance the opportunities available to its
employees. In addition, the employees will be given the opportunity to own a
significant amount of equity in the Company going forward. At the closing of
the Transaction, we anticipate taking the following actions with respect to
certain of the compensation and benefit programs available to the Company's
employees:
. Deferred Compensation Plan. We will allow each participant in the Deferred
--------------------------
Compensation Plan who has invested his or her own funds in the stock fund
alternatives under the DCP to (i) convert the value of that investment
(based upon the purchase price paid to the Company's stockholders in the
Transaction) into any of the insurance mutual fund alternatives now
provided under the Deferred Compensation Plan, (ii) receive a cash payment
equal to the value of that investment (based upon the purchase price paid
to the Company's stockholders in the Transaction), which payment may at the
option of such participant be used to purchase shares of the common stock
of the Company that the Offering Group intends to make available after the
closing of the Transaction (which shares are included in the approximate
aggregate 12% made available to employees as discussed below), or (iii)
continue that investment in Company stock after the closing of the
Transaction as part of the approximate aggregate 12% to be made available
to employees. After the closing of the Transaction, future deferrals under
the DCP will only be invested in the insurance mutual fund alternatives
under the DCP.
. Capital Appreciation Plan (401(k)). For legal reasons, it is impractical
--------------------------------
for the Company's 401(k) plan to hold stock of a private company. However,
we will purchase all of the stock held in that plan at the price paid to
the Company's stockholders in the Transaction and permit participants to
invest the proceeds in any of the other funds available under the 401(k)
plan.
. Stock Options and Equity Incentive Plan Awards. Each outstanding employee
----------------------------------------------
option and equity incentive plan award will be purchased for a cash amount
equal to the difference between the price paid to the Company's
stockholders in the Transaction and such option's exercise price or such
award's purchase price, which amount may be used to purchase part of the
approximate aggregate 12% to be made available to employees.
. Stock Ownership in the New Private Company. We will make available up to
------------------------------------------
approximately 12% of the outstanding common stock of the Company for
purchase by employees at a purchase price equal to the price paid to the
Company's stockholders in the Transaction.
<PAGE>
CB Richard Ellis Services, Inc. 5
November 10, 2000
We also intend to maintain the Company's training and performance
recognition programs for its sales professionals going forward, including CBRE
University, the annual recognition event and the Las Vegas World Conference.
In addition, we intend to enter into agreements with certain members of
senior management of the Company allowing them to purchase, and to receive
options to purchase, common stock of the Company. We also anticipate entering
into employment agreements with certain members of senior management of the
Company.
Legal Documentation/Conditions
------------------------------
The Proposal is subject to the following conditions: (i) approval by the
board of directors of the Company and stockholders pursuant to the requirements
of the Delaware General Corporate Law and the rules of the New York Stock
Exchange, (ii) receipt of any material governmental and third party approvals
(including expiration of all applicable waiting periods under Hart-Scott-
Rodino), (iii) receipt of consents from the holders of a majority of the
outstanding 8-7/8% Senior Subordinated Notes as described above, (iv) receipt of
the necessary debt financing as described above and (v) the negotiation and
execution of definitive agreements providing for the merger and the transactions
outlined in Exhibit A to this letter, including a mutually satisfactory
definitive merger agreement which would contain customary covenants,
representations, warranties, conditions and other provisions. While we have
devoted a great deal of time and effort to studying the Company and have
completed substantially all of our business and financial due diligence, our
Proposal is also subject to completion of confirmatory legal due diligence to be
conducted by BLUM and its legal advisors. Given the familiarity of BLUM with
the Company, this diligence would be completed expeditiously and should not
delay consummation of a definitive merger agreement.
Our Proposal is based on our understanding that the Company's
capitalization consists of: (i) 21,213,928 common shares issued and outstanding,
(ii) 1,345,587 "phantom shares" outstanding under the Company's Deferred
Compensation Plan, (iii) 902,918 options to purchase common stock outstanding
that have exercise prices at or below $15.50 per share with an unweighted
average exercise price of $5.81 and (iv) 2,439,299 additional options and
warrants outstanding with exercise prices in excess of $15.50 per share.
We are prepared to negotiate a definitive merger agreement immediately and
would be delighted to provide a draft of such agreement at your request. If the
Company determines to promptly accept our Proposal, the Transaction could be
completed as early as February 2001.
<PAGE>
CB Richard Ellis Services, Inc.
November 10, 2000
* * *
We believe the Board of Directors should feel confident that this Proposal
represents a fair and attractive price for the Company. The Proposal provides
liquidity at a significant premium for the current stockholders. We have no
intention of attempting to acquire the Company other than in a transaction
approved by the Board of Directors. Unless earlier accepted, the Proposal will
terminate at 5:00 PM (PST) on December 1, 2000.
We are prepared to discuss this offer with you immediately. In responding
to us or in seeking further information concerning our Proposal, or for any
other matter, please call Claus Moller, Managing Partner, BLUM Capital Partners,
L.P. at 415-288-7262 or 212-521-4192.
Sincerely yours,
BLUM CB CORP.
By: _______________________
Name: Claus J. Moller
Title: President
<PAGE>
EXHIBIT A
RCBA Strategic Partners, L.P.
c/o BLUM Capital Partners, L.P.
909 Montgomery Street, Suite 400
San Francisco, California 94133
(415) 434-1111
November 10, 2000
FS Equity Partners III, L.P.
FS Equity Partners International, L.P.
11100 Santa Monica Boulevard, Suite 1900
Los Angeles, California 90025
Attention: J. Fredrick Simmons
Gentlemen:
This letter outlines the general terms and conditions under which
RCBA Strategic Partners, L.P. ("BLUM"), which is an affiliate of BLUM Capital
Partners, L.P., FS Equity Partners III, L.P. and FS Equity Partners
International, L.P. (together with their affiliates other than the Company,
"FS") and the other signatories hereto (the "Other Investors") would propose to
acquire all of the Common Stock, par value $0.01 per share (the "Common Stock"),
of CB Richard Ellis Services, Inc. (the "Company"). Such acquisition would be
structured as a proposed merger of BLUM CB Corp. ("Newco") with and into the
Company (the "Proposed Transaction").
1. Proposal to the Board; Negotiation of Proposed Transaction.
----------------------------------------------------------
Attached hereto as Annex A is a letter from Newco to the Board of Directors of
the Company (the "Board") proposing the Proposed Transaction (the "Proposal
Letter"). The parties hereto agree that Newco will submit the Proposal Letter
to the Board. The specific terms and conditions of the Proposed Transaction
(including, without limitation, the financing thereof and the agreement and plan
of merger (the "Merger Agreement")), except as specifically provided in Sections
2, 3 and 4 of this letter, will be determined by BLUM in its sole discretion and
BLUM will determine whether Newco will enter into the Merger Agreement and
proceed with the Proposed Transaction; provided, however that if either the
-------- -------
amount of consideration payable per share of Common Stock or any other material
economic terms of the Proposed Transaction (including, without limitation, the
material economic terms of the financing thereof) are changed without the prior
consent of FS, then FS will thereafter no longer be bound by the terms of
Sections 2 and 3 of this letter if FS objects in writing to such revised terms
within three business days of being notified of such terms (in which event FS
will no longer have the right to invest in the Proposed Transaction or receive
the New FS Warrant as contemplated by Section 2 below). In addition, with
respect to all material terms of the Proposed Transaction (including, without
limitation, the financing thereof), BLUM will use its good faith efforts to (i)
promptly communicate such terms to the other parties hereto, (ii) permit the
other parties hereto to participate in the negotiation of
<PAGE>
FS Equity Parnters III, L.P.
FS Equity Partners International, L.P.
November 10, 2000
Page 2
such terms and (iii) consider the views of the other parties hereto in the
negotiation of such terms.
2. Equity Contributions. (a) In furtherance of the Proposed
--------------------
Transaction, on the closing date of the Proposed Transaction, (x) BLUM would
contribute to Newco all of the Common Stock beneficially owned by it as of the
date hereof (which is equal to 2,345,900 shares) and receive in exchange
therefor an equivalent number of shares of Newco common stock, (y) FS would
contribute to Newco all of the Common Stock beneficially owned by it as of the
date hereof (which is equal to 3,402,463 shares) and receive in exchange
therefor an equivalent number of shares of Newco common stock, and (z) the Other
Investors would contribute to Newco all of the outstanding Common Stock
beneficially owned by them as of the date hereof (which shares are set forth
opposite the names of such Other Investors on Schedule I hereto) and receive in
exchange therefor an equivalent number of shares of Newco common stock. In
addition, on the closing date of the Proposed Transaction, BLUM and its
affiliates would purchase from Newco between approximately $64.3 million and
$116.9 million (depending upon the extent that employees of the Company decide
to purchase equity of the Company anticipated to be made available on the
closing date of the Proposed Transaction) (the "Additional Equity Contribution")
of newly issued common stock of Newco for a cash price per share of common stock
equal to the cash price per share of Common Stock paid to the stockholders of
the Company in the Proposed Transaction. In connection with the consummation of
the Proposed Transaction, each outstanding share of Newco common stock would be
converted automatically into one share of Common Stock. Each of the parties
hereto agrees to negotiate in good faith and use all reasonable efforts to enter
into definitive documentation with respect to the matters set forth in this
paragraph (the "Investment Documentation") prior to the execution of the Merger
Agreement. The Investment Documentation will be drafted by Simpson Thacher &
Bartlett (counsel to Newco and BLUM).
(b) On the closing date of the Proposed Transaction, the warrant
currently held by FS to acquire Common Stock (the "Old FS Warrant") will be
cancelled and the Company will issue to FS a new warrant to acquire Common Stock
(the "New FS Warrant") at an exercise price of $30 per share and that is
substantially similar to the Old FS Warrant, with the following exceptions: (i)
the New FS Warrant will expire on August 27, 2007, (ii) the New FS Warrant will
be a warrant to acquire a number of shares of Common Stock equal to the number
that represents the same percentage of the total outstanding shares of Common
Stock immediately after consummation of the Proposed Transaction as the Old FS
Warrant entitled FS immediately prior to the consummation of the Proposed
Transaction, and (iii) the New FS Warrant will not be exercisable unless and
until (x) a merger, sale or other acquisition of the Company, (y) an
underwritten initial public offering of the Common Stock or (z) August 26, 2007,
and upon the occurrence of any event specified in clause (x) or (y) the New FS
Warrant will automatically be exercised in a cashless manner.
3. Stockholders Agreement. Attached hereto as Annex B is a summary
----------------------
setting forth the principal terms governing the ownership of Common Stock by the
parties hereto subsequent to the consummation of the Proposed Transaction. Each
of the parties hereto agrees
<PAGE>
FS Equity Parnters III, L.P.
FS Equity Partners International, L.P.
November 10, 2000
Page 3
to negotiate in good faith and use all reasonable efforts to enter into a
definitive stockholders agreement with terms reflecting those set forth in Annex
B to this letter (the "Stockholders Agreement") prior to the execution of the
Merger Agreement. The Stockholders Agreement will be drafted by Simpson Thacher
& Bartlett.
4. Management and Employee Arrangements. Each of the parties
------------------------------------
hereto agrees to negotiate in good faith and, to the extent a party thereto, use
all reasonable efforts to enter into, mutually agreeable definitive agreements
(the "Management and Employee Agreements") prior to the execution of the Merger
Agreement that set forth the employment terms of, and the receipt of equity-
based and other compensation by, certain of the Other Investors and other
employees of the Company subsequent to the consummation of the Proposed
Transaction. Such definitive agreements will be drafted by Simpson Thacher &
Bartlett.
5. Representation and Warranty. Each of the parties hereto
---------------------------
represents and warrants to each of the other parties hereto that the total
number of shares of Common Stock beneficially owned by such first party and its
affiliates as of the date hereof is accurately set forth on Schedule I to this
letter.
6. Exclusivity; Voting. (a) During the Exclusivity Period (as
-------------------
defined below), each of the parties hereto other than BLUM (in their individual
capacities as stockholders of the Company and not in their capacities as
officers or directors of the Company, if applicable) will (i) not, directly or
indirectly, make, participate in or agree to, or initiate, solicit, encourage or
knowingly facilitate any inquiries or the making of, any proposal or offer with
respect to, or a transaction to effect, a merger, reorganization, share
exchange, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
subsidiaries, or any purchase or sale of 20% or more of the consolidated assets
(including without limitation stock of its subsidiaries) of the Company and its
subsidiaries, taken as a whole, or any purchase or sale of, or tender or
exchange offer for, the equity securities of the Company that, if consummated,
would result in any person or entity beneficially owning securities representing
20% or more of the total voting power of the Company (or of the surviving parent
entity in such transaction) or any of its subsidiaries (any such proposal, offer
or transaction (other than the transactions contemplated by this letter) being
hereinafter referred to as a "Competing Acquisition Proposal"), (ii) vote or
consent (or cause to be voted or consented), in person or by proxy, any shares
of Common Stock beneficially owned or held by record such party hereto or to
which such party has, directly or indirectly, the right to vote or direct the
voting (the "Subject Shares") against any Competing Acquisition Proposal at any
meeting (whether annual or special and whether or not an adjourned or postponed
meeting) of stockholders of the Company, (iii) not, directly or indirectly,
sell, transfer or otherwise dispose of any shares of Common Stock beneficially
owned by such party and (iv) not enter into any agreement, commitment or
arrangement that is inconsistent with any of the foregoing. Notwithstanding
anything to the contrary stated herein, each of the parties hereto other than
BLUM may undertake any of the acts otherwise not permitted by this Section 6(a)
to the extent such act is part of the Proposed Transaction.
<PAGE>
FS Equity Parnters III, L.P.
FS Equity Partners International, L.P.
November 10, 2000
Page 4
(b) During the Exclusivity Period, each of the parties hereto
agrees to vote or consent (or cause to be voted or consented), in person or by
proxy, any Subject Shares in favor of the Proposed Transaction and the approval
and adoption of the Merger Agreement and any related transactions at any meeting
(whether annual or special and whether or not an adjourned or postponed meeting)
of stockholders of the Company.
(c) For purposes of this letter, the "Exclusivity Period" shall be
defined as the period beginning upon execution of this letter and ending upon
the earliest to occur of the following events: (i) 6 months after the date
hereof, (ii) if Credit Suisse First Boston ("CSFB") notifies BLUM that CSFB will
be unable to arrange or provide the debt financing necessary to consummate the
Proposed Transaction at the expected closing date, (iii) the date that the Board
enters into a binding agreement to effect a Competing Acquisition Proposal, (iv)
30 days after the date the Board rejects the Proposed Transaction in writing and
(v) Newco's proposal to enter into the Proposed Transaction is terminated;
provided, however that, in the case of clause (iv), if the process implemented
-------- -------
by the Board to consider the Proposed Transaction and/or a Competing Acquisition
Proposal is continuing and BLUM in good faith is continuing to pursue the
Transaction in a manner consistent with such process, then the duration of the
period set forth in such clause shall continue for so long as such process and
BLUM's good faith pursuit continue.
(d) Notwithstanding anything to the contrary in this Section 6,
Section 6(a) and (b) of this letter shall terminate and be of no further force
and effect in the event that any of the following shall occur: (i) BLUM or BLUM
Capital Partners, L.P. ("BLUM Capital") sells, transfers or otherwise disposes
of, or agrees to sell, transfer or otherwise dispose of, any shares of Common
Stock beneficially owned by BLUM or BLUM Capital other than in connection with
the Proposed Transaction, or (ii) BLUM or BLUM Capital votes or agrees to vote
in favor of, or sells or agrees to sell any shares of Common Stock beneficially
owned by BLUM or BLUM Capital pursuant to, a Competing Acquisition Proposal.
BLUM agrees to provide reasonable prior notice to each of the other parties
hereto of any intention by BLUM or BLUM Capital to undertake any of the acts set
forth in this Section 6(d).
(e) During the Exclusivity Period, without the prior consent of
FS, BLUM will not make a Competing Acquisition Proposal other than the Proposed
Transaction; provided, however that for purposes of this clause (e), the
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"Exclusivity Period" shall be determined without regard to clause (c)(v) of this
paragraph 6.
(f) The obligations of the parties hereto under paragraphs 2, 3
and 4 will terminate immediately upon expiration of the Exclusivity Period.
7. Fees and Expenses. (a) Except to the extent otherwise set
-- -----------------
forth in the Merger Agreement, all costs incurred by any party hereto in
preparing this letter and the annexes hereto and in pursuing and negotiating the
transactions contemplated hereby (including all attorneys' fees and costs
relating thereto) ("Transaction Expenses") will be paid by the party incurring
such Transaction Expenses; provided, that the parties hereto agree that if a
--------
Merger Agreement is
<PAGE>
FS Equity Parnters III, L.P.
FS Equity Partners International, L.P.
November 10, 2000
Page 5
executed it shall provide for the reimbursement of all such Transaction Expenses
by the Company at the time of the consummation of the Proposed Transaction.
(b) Any break-up fee or similar payment made to Newco in
connection with the Proposed Transaction that is not required to be paid to the
debt financing sources for the Proposed Transaction shall be distributed to BLUM
and, if and to the extent as may be agreed pursuant to paragraph 4 above, to
Raymond E. Wirta and W. Brett White.
(c) In the event that the Proposed Transaction is consummated, the
parties hereto agree that RCBA GP, L.L.C. and FS Holdings, Inc. shall be
entitled to receive from the Company at closing a transaction fee of $3 million
and $2 million, respectively.
8. Confidentiality. Except as otherwise required by law or
---------------
paragraph 1 above or as may be required to be disclosed by any party in any
Schedule 13D filing, the terms of the Proposed Transaction and this letter will
be kept strictly confidential by the parties hereto regarding persons other than
their attorneys and accountants (under duties of confidentiality) unless each of
the other parties hereto releases or consents to the release of any such
information.
9. Governing Law; Jurisdiction. This letter agreement shall be
---------------------------
governed by and interpreted and enforced in accordance with the laws of the
State of New York as applied to contracts made and fully performed in such
state. Each of the parties hereto hereby submits to the exclusive jurisdiction
of any state or federal court sitting in the Borough of Manhattan in the City of
New York. The parties hereto waive all right to trial by jury in any action,
suit or proceeding brought to enforce or defend any rights or remedies under
this Agreement.
10. Legal Effect. The consummation of the transactions
------------
contemplated by Sections 2, 3 and 4 of this letter are conditioned upon the
negotiation and execution of the Merger Agreement and of definitive Investment
Documentation, a definitive Stockholders Agreement and definitive Management and
Employee Agreements, respectively, that are consistent with the terms of
Sections 1, 2, 3 and 4 of this letter (and any Annexes referred to therein) and
such other terms as the parties thereto may agree among themselves.
[Remainder of Page Intentionally Left Blank]
<PAGE>
If this letter agreement correctly sets forth our agreements with
respect to the matters described herein, please so indicate by signing this
letter in the space provided below for that purpose.
Very truly yours,
RCBA STRATEGIC PARTNERS, L.P.
By: RCBA GP, L.L.C., its general partner
By: _____________________________
Name:
Title:
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:
FS EQUITY PARTNERS III, L.P.
By: FS Capital Partners, L.P., its general Partner
By: FS Holdings, Inc., its general partner
By: ________________________
Name:
Title:
FS EQUITY PARTNERS INTERNATIONAL, L.P.
By: FS&Co. International, L.P., its general Partner
By: FS International Holdings Limited,
its general partner
By: ________________________
Name:
Title:
<PAGE>
OTHER INVESTORS:
______________________________
Raymond E. Wirta
______________________________
W. Brett White
______________________________
Frederic V. Malek
THE KOLL HOLDING COMPANY
______________________________
By: Donald M. Koll
<PAGE>
SCHEDULE I
Total Shares of
Outstanding Total Shares of
Common Common Stock
Stock Owned Beneficially Owned/1/
----------- ---------------------
BLUM and its affiliates 3,423,886 3,439,091
FS and its affiliates 3,402,463 3,402,463
Raymond E. Wirta 35,000 647,526/2/
W. Brett White 58,600 125,200
Frederic V. Malek 397,874 409,984
Donald M. Koll 734,290 555,360/2/
/1/ Except as set forth in footnote 2, as determined in accordance with Rule
13d-3 promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended.
/2/ The shares listed as beneficially owned by Raymond E. Wirta include
currently exercisable options (the "Wirta-Koll Options") granted by The Koll
Holding Company (which is the wholly-owned subsidiary of The Koll Company, which
is wholly-owned by the Don Koll Separate Property Trust, a trust for which
Donald M. Koll is trustee) to Mr. Wirta with respect to 521,590 shares of Common
Stock held by The Koll Holding Company and warrants to acquire 55,936 shares of
Common Stock, which warrants are also held by The Koll Holding Company. The
shares listed as beneficially owned by Donald M. Koll do not include the Wirta-
Koll Options.
<PAGE>
ANNEX A
BLUM CB Corp.
c/o BLUM Capital Partners, L.P.
909 Montgomery Street, Suite 400
San Francisco, California 94133
(415) 434-1111
November 10, 2000
Board of Directors
CB Richard Ellis Services, Inc.
200 North Sepulveda Boulevard
El Segundo, California 90245-4380
Attention: James J. Didion
Chairman of the Board of Directors
Dear Sirs:
BLUM CB Corp., a Delaware corporation ("Newco"), is very pleased to present
its all-cash proposal ("Proposal") to purchase all of the common stock of CB
Richard Ellis Services, Inc. (the "Company") not owned by the Offering Group
identified below at a price of $15.50 per share (the "Transaction"). The
purchase price we are offering your stockholders represents a premium of 29.4%
to the average closing price of the Company's common stock on the New York Stock
Exchange for the three-month period ended on November 9, 2000. Newco has been
formed by RCBA Strategic Partners, L.P. ("BLUM"), an affiliate of BLUM Capital
Partners, L.P., for the purpose of effecting the Proposal. The Offering Group
includes (i) BLUM and other entities affiliated with BLUM, (ii) Freeman Spogli &
Co. Incorporated through its affiliates FS Equity Partners III, L.P., a Delaware
limited partnership, and FS Equity Partners International, L.P., a Delaware
limited partnership (collectively, "Freeman Spogli"), and (iii) certain
directors and senior management of the Company, including Mr. Ray Wirta. The
Offering Group presently owns or controls approximately 38% of the outstanding
common stock of the Company.
We believe that the Proposal constitutes an excellent opportunity for the
stockholders of the Company to realize full value for their shares to an extent
not available to them in the marketplace, and that they will find this value
compelling. In addition, we believe the financing needed to complete the
Transaction can be obtained in a timely manner and the conditions to the
Transaction will be limited. As a result, we believe we have the ability to
complete the Transaction quickly and provide near-term liquidity for your
stockholders.
The terms of the Proposal are summarized below:
(a) Purchase Price
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CB Richard Ellis Services, Inc. 10
November 10, 2000
Our cash purchase price of $15.50 per share for the Company's common stock
places a total value on the Company's common stock of approximately $340 million
(including for each option to acquire the Company's common stock the difference
between the purchase price and the exercise price). The Proposal represents a
substantial premium to the Company's current stock price and prior averages. The
offer represents a 24.0% premium to the Company's closing stock price of $12.50
on November 9, 2000; a 29.4% premium to the Company's three-month average of
$11.98 per share for the period ending November 9, 2000; and a 37.1% premium to
the Company's six-month average of $11.31 per share for the period ending
November 9, 2000. In addition, the Company's "public float" is extraordinarily
limited with an average of 17,114 shares traded each market day during the 3-
month period ending November 9, 2000. In other words, we believe the Proposal
gives the Company's public stockholders an opportunity to obtain liquidity at a
full and fair valuation.
(b) Equity Financing
It is contemplated that the 8,052,113 outstanding shares of the Company
common stock currently owned by the Offering Group effectively will be converted
into shares of common stock of the Company after the closing of the Transaction.
In addition, BLUM will provide approximately an additional $47.6 million of
equity to the Company, as well as up to approximately an additional $52.6
million to the extent that the employees of the Company do not subscribe for all
of the common stock that we anticipate making available to them for purchase at
the closing of the Transaction.
BLUM Capital Partners, L.P., which together with its affiliates currently
beneficially owns approximately 16.1% of the Company's outstanding common stock,
is a leading private equity and strategic block investment firm with
approximately $3.8 billion of equity capital under management, including through
affiliates. BLUM Capital was founded 25 years ago and has invested in a wide
variety of businesses in partnership with management teams to create long-term
value.
The proposal contained in this letter has received all necessary internal
approvals from BLUM and no other internal approvals are required. A description
of the terms relating to the Equity Financing is contained within the letter
agreement (and related term sheet) attached hereto as Exhibit A.
(c) Debt Financing
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CB Richard Ellis Services, Inc. 11
November 10, 2000
We have had discussions with Credit Suisse First Boston ("CSFB") regarding
debt financing totaling $600 million dollars to support the Transaction. This
debt would be comprised of funded senior term loans of up to $275 million and
$225 million of subordinated indebtedness. In addition, a revolving credit
facility of $100 million would be provided for ongoing working capital purposes
post-closing. The contemplated debt structure is structured to allow for the
consummation of the Proposal and provide ample capital for the Company' future
growth and working capital needs.
As is customary for transactions of this nature, consummation of the
Transaction is subject to receipt of the required debt financing. We intend to
execute commitment letters for all of the required debt financing at the time a
definitive merger agreement is executed. We anticipate that definitive
documentation for the debt financing would be finalized in the period prior to
the vote of the Company's stockholders with respect to the Transaction.
CSFB is prepared to devote the necessary resources to close the transaction
expeditiously. Should you wish to discuss any aspect of the proposed financing
with CSFB, we would be happy to arrange an opportunity for you to meet with
appropriate representatives.
(d) Structure
We currently contemplate that the Transaction will be consummated in two
steps. In the first step, each of the members of the Offering Group will
contribute all of the shares of common stock of the Company beneficially owned
by such member to Newco in exchange for newly-issued shares of Newco.
Immediately following completion of the first step of the Transaction, Newco
will be merged into the Company. Pursuant to the merger, all shares of the
Company's common stock (other than the shares held by Newco) will be converted
into the right to receive the Purchase Price, all shares of common stock of the
Company held by Newco will be cancelled and all shares of common stock of Newco
will be converted into shares of the common stock of the Company. At the
conclusion of the Transaction, assuming the Company's employees agree to
purchase the full amount of the common stock that we make available to them, the
outstanding equity ownership of the Company would approximately be as follows:
BLUM and affiliates, 45%; management and employees of the Company, 25%; Freeman
Spogli, 23% and other investors, 7%. We and our representatives are prepared to
discuss our proposed acquisition structure with you in detail at your request.
(e) Treatment of Existing Indebtedness
At the closing of the Transaction, the Company's existing bank credit
facility would be refinanced with the proceeds of the debt financing. In
addition, prior to the closing we would tender for all of the outstanding 8-7/8%
Senior Subordinated Notes of the Company. We would also seek consents from the
holders of the 8-7/8% Senior Subordinated Notes to the deletion of
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CB Richard Ellis Services, Inc. 12
November 10, 2000
substantially all of the negative covenants contained within the indenture
relating to such notes.
(f) Employees
We are keenly aware of the importance of the Company's employees, in
particular, sales professionals, and we believe the Transaction will benefit the
employees of the Company. Our capital structure is designed to enable the
Company to grow and thereby enhance the opportunities available to its
employees. In addition, the employees will be given the opportunity to own a
significant amount of equity in the Company going forward. At the closing of the
Transaction, we anticipate taking the following actions with respect to certain
of the compensation and benefit programs available to the Company's employees:
. Deferred Compensation Plan. We will allow each participant in the
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Deferred Compensation Plan who has invested his or her own funds in
the stock fund alternatives under the DCP to (i) convert the value of
that investment (based upon the purchase price paid to the Company's
stockholders in the Transaction) into any of the insurance mutual fund
alternatives now provided under the Deferred Compensation Plan, (ii)
receive a cash payment equal to the value of that investment (based
upon the purchase price paid to the Company's stockholders in the
Transaction), which payment may at the option of such participant be
used to purchase shares of the common stock of the Company that the
Offering Group intends to make available after the closing of the
Transaction (which shares are included in the approximate aggregate
12% made available to employees as discussed below), or (iii) continue
that investment in Company stock after the closing of the Transaction
as part of the approximate aggregate 12% to be made available to
employees. After the closing of the Transaction, future deferrals
under the DCP will only be invested in the insurance mutual fund
alternatives under the DCP.
. Capital Appreciation Plan (401(k)). For legal reasons, it is
----------------------------------
impractical for the Company's 401(k) plan to hold stock of a private
company. However, we will purchase all of the stock held in that plan
at the price paid to the Company's stockholders in the Transaction and
permit participants to invest the proceeds in any of the other funds
available under the 401(k) plan.
. Stock Options and Equity Incentive Plan Awards. Each outstanding
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employee option and equity incentive plan award will be purchased for
a cash amount equal to the difference between the price paid to the
Company's stockholders in the Transaction and such option's exercise
price or such award's purchase price, which amount may be used to
purchase part of the approximate aggregate 12% to be made available to
employees.
. Stock Ownership in the New Private Company. We will make available up
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to approximately 12% of the outstanding common stock of the Company
for purchase by employees at a purchase price equal to the price paid
to the Company's stockholders in the Transaction.
We also intend to maintain the Company's training and performance
recognition programs for its sales professionals going forward, including CBRE
University, the annual
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CB Richard Ellis Services, Inc. 13
November 10, 2000
recognition event and the Las Vegas World Conference.
In addition, we intend to enter into agreements with certain members of
senior management of the Company allowing them to purchase, and to receive
options to purchase, common stock of the Company. We also anticipate entering
into employment agreements with certain members of senior management of the
Company.
(g) Legal Documentation/Conditions
The Proposal is subject to the following conditions: (i) approval by the
board of directors of the Company and stockholders pursuant to the requirements
of the Delaware General Corporate Law and the rules of the New York Stock
Exchange, (ii) receipt of any material governmental and third party approvals
(including expiration of all applicable waiting periods under Hart-Scott-
Rodino), (iii) receipt of consents from the holders of a majority of the
outstanding 8-7/8% Senior Subordinated Notes as described above, (iv) receipt of
the necessary debt financing as described above and (v) the negotiation and
execution of definitive agreements providing for the merger and the transactions
outlined in Exhibit A to this letter, including a mutually satisfactory
definitive merger agreement which would contain customary covenants,
representations, warranties, conditions and other provisions. While we have
devoted a great deal of time and effort to studying the Company and have
completed substantially all of our business and financial due diligence, our
Proposal is also subject to completion of confirmatory legal due diligence to be
conducted by BLUM and its legal advisors. Given the familiarity of BLUM with the
Company, this diligence would be completed expeditiously and should not delay
consummation of a definitive merger agreement.
Our Proposal is based on our understanding that the Company's
capitalization consists of: (i) 21,213,928 common shares issued and outstanding,
(ii) 1,345,587 "phantom shares" outstanding under the Company's Deferred
Compensation Plan, (iii) 902,918 options to purchase common stock outstanding
that have exercise prices at or below $15.50 per share with an unweighted
average exercise price of $5.81 and (iv) 2,439,299 additional options and
warrants outstanding with exercise prices in excess of $15.50 per share.
We are prepared to negotiate a definitive merger agreement immediately and
would be delighted to provide a draft of such agreement at your request. If the
Company determines to promptly accept our Proposal, the Transaction could be
completed as early as February 2001.
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CB Richard Ellis Services, Inc.
November 10, 2000
* * *
We believe the Board of Directors should feel confident that this Proposal
represents a fair and attractive price for the Company. The Proposal provides
liquidity at a significant premium for the current stockholders. We have no
intention of attempting to acquire the Company other than in a transaction
approved by the Board of Directors. Unless earlier accepted, the Proposal will
terminate at 5:00 PM(PST) on December 1, 2000.
11. We are prepared to discuss this offer with you immediately. In
responding to us or in seeking further information concerning our Proposal, or
for any other matter, please call Claus Moller, Managing Partner, BLUM Capital
Partners, L.P. at 415-288-7262 or 212-521-4192.
Sincerely yours,
BLUM CB CORP.
By: _____________________
Name: Claus J. Moller
Title: President
<PAGE>
ANNEX B
Stockholders Agreement
Outline of Material Terms
-------------------------
All capitalized terms not otherwise defined herein shall have the meanings
given such terms in the letter agreement dated as of November 10, 2000 to which
this term sheet is attached.
Restrictions on Transfer Except as described under "Co-Sale/Tag Along Right"
and "Right of First Offer" below, no holder (each a
"Stockholder") of Common Stock may transfer such
Common Stock except (a) in the case each of FS,
Frederic V. Malek and The Koll Holding Company, to
its or his affiliates or, in the case of FS,
commencing on or after April 12, 2003, pro rata to
its partners, provided that each such transferee
agrees to be bound by the terms of the Stockholders
Agreement, (b) in the case of each of Raymond E.
Wirta and W. Brett White, to the members of such
Stockholder's immediate family or a trust for the
benefit of such Stockholder's immediately family
members, provided that such transferee agree to be
bound by the terms of the Stockholders Agreement, or
(c) as provided by, and in compliance with, the
other sections hereof.
The restrictions on transfer set forth in the prior
paragraph shall terminate upon the earlier of (x)
ten years after the closing, and (y) the first date
on which Common Stock has been sold in an
underwritten public offering registered under the
Securities Act of 1933 (the "Initial Public
Offering"). Each Stockholder (including BLUM) will
agree to a 180 day lock-up period on transfers in
connection with an Initial Public Offering.
In addition, no Common Stock may be transferred
prior to its registration under applicable
securities laws unless the transferring Stockholder
(x) delivers to the Company an opinion of counsel
reasonably satisfactory to the Company indicating
that the proposed transfer is exempt from applicable
securities laws and (y) causes the transferee(s) to
execute and deliver to the Company a counterpart to
the Stockholders Agreement.
Co-Sale/Tag Along Right BLUM may transfer its Common Stock in its sole
discretion; however, prior to the Initial Public
Offering, each Stockholder may elect to participate
pro-rata in any such transfer (other than transfers
to affiliates of BLUM who agrees in writing to be
bound by the Stockholders Agreement).
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Right of First Offer Beginning on the third anniversary of the closing of
the Merger Agreement, each of FS, Frederic V. Malek
and The Koll Holding Company may transfer the shares
of Common Stock it or he beneficially owns to any
unaffiliated entity if prior to such transfer (i)
such Stockholder has offered to transfer such shares
to BLUM pursuant to a written notice of offer (which
notice shall include the per share offer price and
any other material terms of the offer), (ii) BLUM
has refused to purchase such shares on the terms of
such offer notice and (iii) such shares are
transferred to the proposed transferee within 120
days of BLUM's refusal on terms no more favorable to
the proposed transferee than those identified to
BLUM in the offer notice, provided that such
transferee (A) is acceptable to BLUM (such
acceptance to not be unreasonably withheld; it is
understood that if the proposed transfer is to a
nationally-recognized private equity sponsor or
institutional equity investor such consent will not
be withheld unless BLUM's decision to withhold
consent results from BLUM's direct experience with
such proposed transferee in connection with another
actual or proposed transaction), and (B) agrees to
be bound by the terms of the Stockholders Agreement.
Preemptive Right Prior to the Initial Public Offering, if the Company
issues any shares of capital stock of the Company or
any options, warrants, convertible securities or
other right to acquire such capital stock, the other
Stockholders will be entitled to purchase a pro rata
portion of such securities upon the same terms in
order to maintain their percentage ownership of the
capital stock of the Company, provided that such
preemptive right will be subject to customary
exceptions, including, without limitation, issuances
(i) to Company employees, outside directors and
consultants and (ii) to customers, venders, lenders
and other non-equity financing sources, lessors of
equipment and other providers of goods or services
to the Company.
Sale of the Company If BLUM sells to a third party a majority of the
Common Stock beneficially owned by BLUM, BLUM will
have the right to require that all other
Stockholders sell a pro rata portion of their shares
of Common Stock on the same terms as BLUM.
Initial Public Offering Each Stockholder will vote for, consent to, raise no
objections against and participate in any
reorganization of the Company effectuated to
facilitate an Initial Public Offering, provided that
such reorganization may not have a disproportionate
impact upon any of the Stockholders.
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Registration Rights Subsequent to an Initial Public Offering, each
Stockholder (including BLUM) will be entitled to one
demand registration right for each 7.5% of the
Common Stock owned by such Stockholder at the
closing of the merger (rounded down to the nearest
whole number of demands). Such demand rights may be
exercised beginning 180 days after an Initial Public
Offering and will be subject to customary
restrictions and limitations.
Subsequent to an Initial Public Offering, whenever
the Company proposes to register any of its
securities under the Securities Act of 1933 and the
form to be used may be used for the registration of
a Stockholder's Common Stock, such Stockholder may
elect to participate in the registration, subject to
customary priorities, cutbacks and other terms and
conditions.
All of the reasonable costs and expenses of
registering such Common Stock pursuant to the
foregoing paragraphs (other than any underwriters
discounts and commissions) will be paid by the
Company.
Voting In addition to the voting requirements otherwise set
forth in this term sheet, each Stockholder other
than BLUM shall vote all shares beneficially owned
by such Stockholder in the manner directed by BLUM,
except with respect to the following matters:
. any transaction with BLUM and its affiliates,
other than a transaction with another
portfolio company of BLUM that has been
negotiated on arms-length terms in the
ordinary course of business between the
managements of the Company and such other
portfolio company
. any amendment to the certificate of
incorporation or bylaws of the Company that
adversely affects any Stockholder, other than
an increase in the authorized capital stock
of the Company.
<PAGE>
Board Representation Each Stockholder agrees to vote all shares
beneficially owned by such Stockholder at any
meeting of the stockholders of the Company (or to
consent in any written consent in lieu thereof) in
favor of the election of the following directors of
the Company:
. 3 directors designated by BLUM
. Raymond E. Wirta and W. Brett White (each for
so long as remaining an employee of the
Company)
. 1 director designated by FS
The Stockholders further agree, upon the request of
BLUM at any time, to vote all shares beneficially
owned by such Stockholder at any meeting of the
stockholders of the Company (or to consent in any
written consent in lieu thereof) in favor of the
election of 1 additional director designed by BLUM.
FS shall have the additional right to designate up
to two non-voting observers to the Board.
Advisory Assistance Frederic V. Malek and Donald M. Koll each will
continue to assist the Company in an advisory
capacity for so long as he beneficially owns Common
Stock.
General Consent Rights Prior to an Initial Public Offering, without the
approval of a majority of the directors that are not
appointed by BLUM, the Company will not do any of
the following:
. enter into any transaction with BLUM and its
affiliates, other than a transaction with
another portfolio company of BLUM that has
been negotiated on arms-length terms in the
ordinary course of business between the
managements of the Company and such other
portfolio company
. amend its certificate of incorporation or
bylaws in a manner that adversely affects any
Stockholder, other than an increase in the
authorized capital stock of the Company
. repurchase or redeem, or declare or pay a
dividend with respect to or make a
distribution upon, any shares of capital
stock of the Company beneficially owned by
BLUM unless (x) all other holders of such
class of capital stock of the Company are
given the same right and (y) if such capital
stock is not Common Stock, such repurchase,
redemption or dividend is required by the
terms of such capital stock
<PAGE>
FS Consent Rights Prior to an Initial Public Offering, without the
approval of the director designated by FS, the
Company will not do any of the following:
. acquire by purchase or otherwise any business
or assets for a purchase price in excess of
$75 million
. sell or dispose of assets which have an
aggregate fair market value in excess of $75
million
. incur indebtedness, unless such indebtedness
would (i) be permitted pursuant to the terms
of the debt financing entered into in
connection with the Proposed Transaction or
(ii) not cause the Company to exceed a 4.5:1
ratio of total outstanding indebtedness to
normalized EBITDA for the trailing 12-month
period
. issue to Company employees, directors or
consultants capital stock, or options,
warrants or other securities to acquire
capital stock if such other issuances, in the
aggregate, on a fully diluted basis, exceed
5% of the total amount of outstanding capital
stock of the Company immediately after the
closing of the Merger Agreement, other than
(i) issuances pursuant to the Management and
Employee Agreements or (ii) issuances in
amounts equal to the capital stock
repurchased from, or the options, warrants or
other securities to acquire capital stock
cancelled with respect to, Company employees,
outside directors or consultants
Information Rights/ Prior to an Initial Public Offering, any group of
Inspection Rights affiliated Stockholders beneficially owning greater
than 10% of the Common Stock will be entitled to (i)
receive the annual, quarterly and monthly financial
statements of the Company that are prepared for the
Board of Directors of the Company, and (ii) exercise
customary inspection rights with respect to the
books, records and employees of the Company.
Indemnification The Company would agree to indemnify each
Stockholder in its or his capacity as such, and,
with respect to BLUM, FS and The Koll Holding
Company, its officers, directors, members, partners
and affiliates, against all third party claims
arising from the operation of the Company or the
ownership of Common Stock, unless such loss resulted
from such party's (or such party's representative's)
committing fraud, gross negligence, or willful
misconduct.
