UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 1-8122
GRUBB & ELLIS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 94-1424307
State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Montgomery Street, - Telesis Tower,
San Francisco, CA 94104
(Address of principal executive offices) (Zip Code)
(415) 956-1990
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange
Pacific Stock Exchange
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 _____
The aggregate market value of voting Common Stock held by non-
affiliates of the registrant as of March 1, 1994 was approximately
$12,270,000.
The number of shares outstanding of the registrant's Common Stock
as of March 1, 1994 was 4,060,628 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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. [ X]
Total Pages:
Exhibit Index:
AMENDMENT NO. 1
Grubb & Ellis Company hereby amends the following items,
financial statements, exhibits or other portions of its
Annual Report for the fiscal year ended December 31, 1993 on
Form 10-K as set forth in the pages attached hereto:
Part III.
Item 10. Directors and Executive Officers of the
Registrant;
Item 11. Executive Compensation;
Item 12. Security Ownership of Certain Beneficial Owners
and Management; and
Item 13. Certain Relationships and Related Transactions.
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) (3) Exhibits
2
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
The Board currently consists of six directors, following the
resignation of John Mullman, a representative of The Prudential
Insurance Company of America ("Prudential"), in January 1994.
Joe F. Hanauer, 56, Chairman of the Board of the Company, has,
since December 1988, been a general partner of Combined
Investments, L.P., an investment management business located in
Laguna Beach, California, whose investments include real estate.
Since February 1993, Mr. Hanauer has served as a director of
certain subsidiaries of the Company and, through Combined
Investments, L.P., has also provided operational and management
services to the Company. From 1977 to December 1988, Mr.
Hanauer was associated with Coldwell Banker Residential Group,
Inc., serving as Chairman and Chief Executive Officer from 1984.
Since March 1989, he has also been Chairman of the Greyhawk
Corporation ("Greyhawk"), a corporation of which he is a
majority shareholder and which has interests in real estate
brokerage franchising. He is also a director of MAF Bancorp.
Mr. Hanauer was first elected as a director of the Company in
January 1993 pursuant to a stockholders' agreement among Warburg
Pincus Investors, L.P. ("Warburg"), Prudential, the Company and
Mr. Hanauer dated as of January 29, 1993 (the "Stockholders'
Agreement").
Lawrence S. Bacow, 42, is a professor at the Massachusetts
Institute of Technology ("M.I.T.") Center for Real Estate and
the M.I.T. Department of Urban Studies and Planning. He joined
the M.I.T faculty in 1977 and the M.I.T. Center for Real Estate
in 1983, serving as the director of the Center for Real Estate
from 1990 until 1992. From December 1987 to June 1990, he was
also a principal of Artel Associates, a company which provided
investment banking services to real estate companies.
Professor Bacow has served as a director of the Company since
January 1993.
3
Kenneth E. Field, 50, has been President and Chief Executive
Officer of INVESCORP, Limited, a private merchant banking and
real estate development company located in Toronto, Ontario,
Canada, since July 1989. Prior to that time, he was a
director of Bramalea Limited, a real estate development firm
located in Toronto, and served as its Chief Executive Officer
from 1986 and President from 1977. He is also a director and
a majority shareholder of Commercial Alcohols, Inc., an
industrial fuel alcohol company. Mr. Field has served as a
director of the Company since 1988.
Reuben S. Leibowitz, 46, is a Managing Director of E.M.
Warburg, Pincus & Co., Inc. ("Warburg Pincus"), a venture
banking and investment counseling firm. He has been
associated with Warburg Pincus since 1984. Warburg Pincus is
an affiliate of Warburg, the Company's principal stockholder.
Mr. Leibowitz is also a director of Chelsea GCA Realty, Inc.
Mr. Leibowitz was first elected as a director of the Company
in January 1993 as a representative of Warburg pursuant to
the Stockholders' Agreement.
John D. Santoleri, 30, has been a Vice President of Warburg,
Pincus Ventures, Inc., the venture banking subsidiary of
Warburg Pincus, since 1991, and has been associated with
Warburg Pincus since June 1989. From June 1985 to June 1989,
he was associated with The Harlan Company, a New York-based
real estate consulting firm, and served there as Vice
President from September 1988 to June 1989. Warburg, Pincus
Ventures, Inc. is an affiliate of Warburg, the Company's
principal stockholder. Mr. Santoleri also serves as a
director of Chelsea GCA Realty, Inc. Mr. Santoleri was first
elected as a director of the Company in January 1993 as a
representative of Warburg pursuant to the Stockholders'
Agreement.
Wilbert F. Schwartz, 52, has been President and Chief
Executive Officer of the Company since February 1993. He will
resign from such positions, which resignation is expected to
be effective July 1, 1994. He will remain a director of the
Company. He had been an employee of Prudential since 1976,
serving as Managing Director of its subsidiary, Prudential
Investment Corp., from October 1991 until February 1993, and
as President and Vice Chairman of Prudential's Real Estate
Affiliates division from March 1990 to October 1991. Mr.
Schwartz was first elected as a director of the Company in
January 1993 as a representative of Prudential, a principal
stockholder of the Company.
4
Executive Officers Of The Registrant
In addition to Mr. Schwartz, the following are executive officers
of the Company:
John F. Carpenter, 47, has been President of the Company's Pacific
Northwest Region, a Senior Vice President of the Company, and Regional
Director of Investment Marketing in the commercial brokerage division
since October 1992. From September 1990 to September 1992, he was
President and Chief Executive Officer of Real Estate Investment Trust
of California. He was previously associated with the Company as a
district manager from January 1987 to August 1990. He joined the
Company as a salesperson in 1979.
Robert J. Hanlon, Jr., 47, has been Senior Vice President and
Chief Financial Officer of the Company since December 1993.
Prior to joining the Company, Mr. Hanlon, who is a Certified
Public Accountant, was serving as Senior Vice President and Chief
Financial Officer of its affiliate, Prudential Capital Corporation,
from 1985 through 1989 and as Executive Vice President, Finance and
Administration, of Prudential's affiliate, Prudential Relocation
Management, from 1990 through 1993.
Gordon M. Hess, 45, has been Chief Administrative Officer of the Company
since June 1993, and a Senior Vice President of the Company since
January 1991. He was National Marketing Director of the Company's
commercial brokerage division from February 1992 to June 1993
and served as Vice President of the Company from February 1989 to
January 1991. From January 1989 to February 1992, he was Vice
President of the National/International Accounts for the Company's
Western Region. From February 1991 to February 1992, he was Vice
President of Corporate Support Services and National Retail Marketing for
the Company. He joined the Honolulu office of the Company in 1986
as Senior Vice President of the commercial brokerage division and
District Manager.
5
Phillip D. Royster, 50, has been President of the Company's Pacific
Southwest Region since January 1992 and a Senior Vice President of the
Company since May 1990. He was President of the Company's California
Region from January 1990 to January 1992, and a Senior Vice President of
the Company's commercial brokerage division from February 1984 to May
1990.
Robert J. Walner, 47, has been Senior Vice President, Secretary and
General Counsel of the Company since January 1994. From August 1992 to
January 1994, Mr. Walner was associated with Lawrence Walner & Associates,
Ltd. in Chicago, Illinois, a law firm specializing in state and federal
class action litigation on a national basis. From November 1979 to August
1992, he was Senior Vice President, General Counsel and Secretary to the
Balcor Company, a subsidiary of American Express Company.
Neil R. Young, 45, has been President of the Company's Eastern Region
since March 1994, President of the Midwest/Texas Region since January
1993, and a Senior Vice President of the Company since January 1992.
Mr. Young has been with the Company since 1983, serving prior to 1993 as
an Executive Vice President, Regional Manager, District Manager and Sales
Manager of the commercial brokerage division in the Midwest Region.
6
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Only directors who are not employees of the Company and who are
neither holders of five percent or more of the capital stock of
the Company ("Five-Percent Holders") nor employees or affiliates
of entities which are Five-Percent Holders ("Outside Directors"),
receive compensation for serving on the Board and on its
committees. Such compensation currently consists of an annual
retainer fee of $15,000 and a fee of $1,000 for each Board or
committee meeting attended. These fees are set by the Board.
In addition, under the 1993 Stock Option Plan for Outside
Directors, Outside Directors each receive an option to purchase
10,000 shares of Common Stock of the Company, $.01 par value
("Common Stock") upon the date of first election to the Board,
with an exercise price equal to market value on such date.
Pursuant to an agreement, effective as of February 1, 1993,
between the Company and Combined Investments, L.P., a company of
which Mr. Hanauer is the general partner, Mr. Hanauer devotes a
substantial amount of his working time providing operational and
management services to the Company for compensation of $15,000
per month plus expenses. During 1993, Combined Investments, L.P.
earned $165,000 under such agreement. The agreement is
terminable by either party on 30 days' notice. Mr. Hanauer
receives no other fees or compensation from the Company for his
service as Chairman of the Board.
7
Compensation Of Executive Officers
The following table sets forth, for all persons who served
as Chief Executive Officer in 1993 and each of the four
most highly compensated other executive officers of the
Company (determined as of December 31, 1993), compensation
earned, including deferred compensation, for services in
all capacities with the Company and its subsidiaries for
the fiscal years ended December 31, 1993, 1992, and 1991.
Two additional tables provide information about these
employees' stock options. <TABLE>
<CAPTION> SUMMARY COMPENSATION TABLE
<C> <C>
<C> Long Term
Compensation
Awards
Annual
Compensation
<C> <C> <C>
<C>
Other Securities
Name <C> <C> <C> Annual Under- All Other
and Compen- lying Compen-
Principal sation Options/ sation
Position Year Salary Bonus ($) SARs (#) (1)<F1> ($)
<C> <C> ($) ($) <C> <C>
<S>Wilbert F. Schwartz 1993 211,000 0 0 400,000 0
Chief Executive Officer(2) <F2> 1992 0 0 0 0 0
1991 0 0 0 0 0
<S>Alvin L. Swanson, Jr. 1993 92,000 0 14,000 0 149,000
<F3>Former Chief Executive Officer(3) 1992 154,000 60,000 19,000 60,000 0
1991 0 0 12,000 0 0
<S>Neil R. Young 1993 220,000 69,000 0 15,000 2,000(4)<F4>
President of the 1992 103,000 80,000 0 5,000(5)<F5> 0
Midwest/Texas Region 1991 73,000 82,000 0 800(5)<F6> 1,000(4)<F4>
<S>J. David Dawson 1993 195,000 0 0 20,000 2,000(4)<F4>)
President of the 1992 81,000 0 0 20,000(5)<F5> 0
Eastern Region 1991 0 0 0 0 0
8
<C> <C> <C> <C> <C>
<S>John F. Carpenter 1993 171,000 9,000 0 15,000 1,000(4)<F4>
President of the 1992 39,000 0 0 0 0
Pacific Northwest Region 1991 0 0 0 0 0
<S>Gordon M. Hess 1993 172,000 0 0 13,500 1,000(4)<F4>
Chief Administrative 1992 174,000 0 0 5,000 (5)<F5> 0
Officer 1991 157,000 0 0 800 (5)<F5> 0
<FN>
<F1>(1) The amounts represent options to purchase the designated numbers of
shares of Common Stock, except with respect to Mr. Swanson, in which case
the amounts represent stock appreciation rights ("SARs").
<F2>(2) Mr. Schwartz was elected President and Chief Executive Officer in
February 1993.
<F3>(3) Mr. Swanson served as President and Chief Executive Officer between
May 1992 through February 1993. Other annual compensation in 1993 relates
to legal expenses incurred in connection with his employment contract,
and in 1991 and 1992 represents directors' fees. All other
compensation relates to his severance agreement, which includes $5,200 for
health coverage.
<F4>(4) Represents Company contributions to the 401(k) plan accounts of the
designated individuals.
<F5>(5) These options were canceled in 1993 pursuant to a repricing program.
The repriced options are included in the 1993 grants of options.
9
</TABLE>
<TABLE> <CAPTION> OPTION/SAR GRANTS IN LAST FISCAL YEAR
<C>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
<C> <C> <C> <C> Appreciation
<C> Individual Grants For Option Term
(1)<F1>
<C> <C>
(a) (b) (c) (d) (e) (f) (g)
> % of
Securities Total
Under- Options/
lying SARs
Options/ Granted to Exercise
SARs Employees or Base
<C> Granted in Fiscal Price Expiration
Name______________ (#)(2)(3)<F2>< Year____ ($/Sh)_ Date ____ 5%($ 10%($)_
F3> _ )
<S>Wilbert F. Schwartz 400,000 77.4% $3.50 June 8, 2001 $ 595,000 $1,494,000
<S>Alvin L. Swanson, Jr. -- -- -- -- -- --
<S>Neil R. Young 15,000 2.9% $4.125 August 9, 2001 $ 30,000 $ 71,000
<S>J. David Dawson 20,000 3.9% $4.125 August 9, 2001 $ 39,000 $ 94,000
<S>John F. Carpenter 15,000 2.9% $4.125 August 9, 2001 $ 30,000 $ 71,000
<S>Gordon M. Hess 13,500 2.6% $4.125 August 9, 2001 $ 27,000 $ 64,000
<FN>
<F1>(1)The potential realizable value is calculated from the market price per
share, assuming the Common Stock appreciates in value at the stated percentage rate from
the date of grant of an option or SAR to the expiration date. Actual gains, if any, are
dependent on the future market price of the Common Stock.
<F2>(2) The amounts represent options to purchase the designated numbers of
shares of Common Stock
10
<F3>(3)The option of Mr. Schwartz was granted on June 8, 1993, and the options
of Messrs. Young, Dawson, Carpenter and Hess were granted on August 9, 1993, under the
1990 Amended and Restated Stock Option Plan, as amended. The options were each granted at
market value on the date of grant, and vest in five, equal annual installments commencing
one year from the date grant. Vesting accelerates upon certain conditions related to changes
of control of the Company discretion of the Compensation Committee. Upon termination of Mr.
Dawson's employment on April 30, 1994, all of the options held by him will expire. In connection
with the resignation Mr. Schwartz, all of the options held by him will be canceled.
11
</TABLE>
<TABLE> <CAPTION>AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<C> <C> <C> <C>
<C>
<CAPTION>(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-
Money
Options/SARs Options/SARs
at at
FY-End (#) FY-End ($)
Shares Exercisable/ Exercisable/
Acquired
Name on Exercise Value Realized Unexercisable Unexercisable
(#) ($) (1)<F1> (2)<F2>
<C> <C> <C> <C> <C>
<S>Wilbert F. Schwartz - - - - 0/400,000 - -
<S>Alvin L. Swanson, Jr. - - - - 60,000/0 - -
<S>Neil R. Young - - - - 0/15,000 - -
<S>J. David Dawson - - - - 0/20,000 - -
<S>John F. Carpenter - - - - 0/15,000 - -
<S>Gordon M. Hess - - - - 0/13,500 - -
<FN>
<F1> (1) Mr. Swanson was granted 60,000 SARs. The other amounts represent
options to purchase the designated numbers of shares of Common Stock.
<F2> (2) The value of unexercised in-the-money options and SARs at fiscal year-
end was calculated based on the closing price of the Common Stock as
reported on the New York Stock Exchange on December 31, 1993 ($3.125 per
share).
12
</TABLE>
Employment Contracts and Termination of Employment and Change-In-
Control Arrangements
The Company entered into an agreement with Mr. Swanson as of May
20, 1992 in connection with his services as President and Chief
Executive Officer. Under the agreement, he received a base
salary of $250,000, health benefits and $60,000 incentive
compensation for services rendered during 1992. In addition,
pursuant to the agreement, 60,000 SARs were granted which expire
seven years from the date of grant and are exercisable for
Common Stock or, in certain circumstances, for cash. The
exercise price of the SARs is generally equal to the difference
between the fair market value of a share of Common Stock at
exercise and $3.52. As of February 24, 1993, Mr. Swanson
resigned as President and Chief Executive Officer, and from that
date until his resignation from all positions with the Company
on May 20, 1993, Mr. Swanson provided transitional services and
received a base salary of $200,000. Certain severance
compensation provisions of his employment agreement became
effective upon Mr. Swanson's termination of employment,
including the extension of payments equal to his original base
salary until May 20, 1994, continuing health benefits until age
65 and acceleration of the vesting of his SARs. In the event
that such severance payments are deemed to constitute "excess
parachute payments" as that term is defined in Section 280G of
the Internal Revenue Code, the Company is obligated under such
agreement to pay an additional amount equal to the federal
excise tax obligations of Mr. Swanson. Mr. Swanson's term as a
director expired August 9, 1993.
Mr. Schwartz was elected President and Chief Executive Officer
of the Company on February 24, 1993, receiving an annual salary
of $250,000, and eligibility for incentive compensation in an
amount of up to 60% of his salary in the discretion of the
Compensation Committee. In connection with his resignation from
such positions, Mr. Schwartz will receive severance compensation
equal to one year's base salary and continued health benefits
for one year.
In connection with his resignation effective April 30, 1994, Mr.
Dawson, formerly President of the Eastern Region of the Company,
will receive, pursuant to an agreement, severance compensation
equal to three and one-half months' salary, a payment of $40,000
and a relocation allowance of up to $15,000.
13
Compensation Committee Interlocks And Insider Participation
The members of the Compensation Committee of the Board
("Compensation Committee") from January 29, 1993 through
December 31, 1993 were Reuben S. Leibowitz (Chairman), Lawrence
S. Bacow and John Mullman, none of whom serve as officers of the
Company. John Mullman resigned from the Board in January 1994.
From January 1 through January 29, 1993, the members of the
Compensation Committee were Marvin M. Grove, Robert C. Kyle and
Henry S. Miller, Jr., none of whom served as officers of the
Company.
Until May 1992, Mr. Miller was Chairman of HSM Inc., a
subsidiary acquired by the Company in August 1984.
In connection with an exchange of obligations with respect to
certain partnerships between HSM Inc. and David Donosky, the son-
in-law of Mr. Miller and former President of the Texas Region of
the Company, Mr. Donosky owed, as of March 1, 1994, outstanding
principal and accrued interest of approximately $147,000 to HSM
Inc. The debt is non-recourse and due in 1996, bearing interest
at 11% per year. Mr. Donosky also borrowed $240,000 from the
Company on a recourse basis at a prime rate of interest and due
in November of 1993, secured by his rights to purchase 23,850
shares of Common Stock as a result of a stock option exercise,
at a weighted average exercise price of $14.50 per share. As of
March 1, 1994, the outstanding principal and accrued interest on
this loan was approximately $208,000. As a result of his failure
to purchase and sell the shares subject to the exercised stock
option within one year of the exercise, Mr. Donosky defaulted in
his obligation to the Company for payment of the purchase price
of the shares in the aggregate amount of approximately $346,000,
and the shares were not issued. The indebtedness related to the
partnerships and the $240,000 loan had also been secured by a
pledge of Mr. Donosky's non-qualified options to purchase 20,000
shares of Common Stock at a weighted average exercise price of
$17.40 per share. These options expired upon termination of Mr.
Donosky's employment in January 1993. In February 1993, Mr.
Donosky filed for bankruptcy under Chapter 7 of the U.S.
Bankruptcy Code.
14
Mr. Leibowitz is a Managing Director of Warburg, Pincus & Co.,
Inc. an affiliate of Warburg. Mr. Mullman is a Vice President,
Corporate Finance of Prudential. Warburg and Prudential entered
into certain agreements with the Company in connection with a
recapitalization in 1993 and a restructuring of debt in 1994 as
described below.
1993 Recapitalization. On January 29, 1993, the stockholders of
the Company approved a financial recapitalization and debt
restructuring (the "Recapitalization"), pursuant to which
Warburg (for a purchase price of $12,850,000) and Mr. Hanauer
(for a purchase price of $900,000) purchased (i) 128,266 and
8,894 shares, respectively, of newly issued Senior Preferred
Stock, (ii) five-year warrants initially to purchase 340,000 and
160,000 shares of Common Stock, respectively, at an exercise
price of $5.00 per share (the $5.00 Warrants"), (iii) five-year
warrants initially to purchase 142,000 and 58,000 shares of
Common Stock, respectively, at an exercise price of $5.50 per
share (the "$5.50 Warrants, and, together with the $5.00
Warrants, the "Warburg/Hanauer Warrants"), and (iv) subscription
warrants ("Subscription Warrants") to purchase 373,818 and
26,182 shares of Common Stock, respectively, at an exercise
price of $5.00 per share. The funds used by Warburg to purchase
the Senior Preferred Stock, the Warburg/Hanauer Warrants and the
Subscription Warrants were provided from Warburg's investment
capital. Mr. Hanauer purchased the Senior Preferred Stock, the
Warburg/Hanauer Warrants and the Subscription Warrants with
funds borrowed in the ordinary course of business under Mr.
Hanauer's unsecured line of credit with First National Bank of
Blue Island. The Company owed approximately $530,000 to Warburg
at December 31, 1993 for reimbursement of its expenses related
to the Recapitalization. As of April 1, 1994, such obligation
had been paid. In connection with the Recapitalization, the
Company paid certain fees and expenses to an affiliate of Mr.
Hanauer. See "Item 13. Certain Relationships and Related
Transactions."
Pursuant to the Recapitalization, the Company and Prudential
agreed to restructure an existing $5-million revolving line of
credit (the "Old Revolving Credit Note"), $10 million of
existing 9.90% Senior Notes due November 1996 (the "Senior
Notes") and $25 million of existing 10.65% Subordinated Notes
due November 1996 (the "Subordinated Notes") held by Prudential.
Prudential and the Company entered into a Senior Note,
Subordinated Note and Revolving Credit Note Agreement (the "New
Note Agreement") pursuant to which the Company issued to
Prudential (i) a new $5-million Revolving Credit Note due
December 31, 1994 (the "New Revolving Credit Note") upon
cancellation of the Old Revolving Credit Note, (ii) $10 million
of the Company's 9.9% Senior Notes due November 1, 1996 (the
"New Senior Notes") upon cancellation of all
15
of the outstanding Senior Notes and (iii) $10 million of the
Company's 10.65% Subordinated Payment-in-Kind Notes due November
1, 1999 (the "PIK Notes") upon conversion of $10 million of the
Subordinated Notes. In addition, prior to the Recapitalization,
Prudential held warrants (the "Old Prudential Warrants") to
purchase 397,549 shares of Common Stock at an exercise price of
$7.30 per share, which Prudential agreed to exercise through the
cancellation of approximately $1,982,000 of the accrued and
unpaid interest on the Subordinated Notes and cancellation of
approximately $920,000 of PIK Notes. In addition, Prudential,
in exchange for the cancellation of $15 million of Subordinated
Notes, purchased (x) 150,000 newly issued shares of Junior
Preferred Stock and (y) five-year warrants initially to purchase
200,000 shares of Common Stock at an exercise price of $5.50 per
share (the "Prudential $5.50 Warrants"). The Company reimbursed
Prudential for approximately $206,000 of its out-of-pocket costs
and expenses incurred in connection with the Recapitalization.
As part of the Recapitalization, Warburg, Prudential, Mr.
Hanauer and the Company entered into a stockholders' agreement
(the "Stockholders' Agreement"), which provides for the
nomination of up to three persons for election as director by
Warburg and up to two persons for election as director by
Prudential. Pursuant to the Stockholders' Agreement, Mr.
Leibowitz was nominated for election as a director by Warburg,
and Mr. Mullman was nominated for election as a director by
Prudential.
On July 1, 1993, Warburg and Mr. Hanauer sold an aggregate of
1,193 shares of Senior Preferred Stock, $5.00 Warrants to
purchase 4,350 shares, $5.50 Warrants to purchase 1,740 shares,
and Subscription Warrants to purchase 3,480 shares of Common
Stock to Wilbert F. Schwartz, President and Chief Executive
Officer of the Company, for a purchase price of approximately
$120,000, which was approximately equal to the consideration
paid by Warburg and Mr. Hanauer upon their acquisition of such
securities. In connection with the resignation of Mr. Schwartz,
he has agreed to resell such securities to Warburg and Mr.
Hanauer for the same purchase price that he paid upon
acquisition of such securities.
16
1994 Debt Restructuring. During March 1994, the Company, Warburg
and Prudential entered into an agreement in principle (the
"Agreement") pursuant to which the New Note Agreement was
amended to provide that the Company will not be required to make
principal payments on any of the Prudential debt prior to
November 1, 1997. Thereafter, the revolving credit facility
will mature on November 1, 1999, principal on the New Senior
Notes will be payable in two equal installments on November 1,
1997 and 1998, and principal on the PIK Notes will be payable in
two approximately equal installments on November 1, 2000 and
2001. The interest rate on the PIK Notes will increase from
10.65 % to 11.65% per annum on January 1, 1996. In addition,
certain covenants of the New Note Agreement will remain in
place, but will not be in effect until April 1, 1997. The New
Note Agreement, as amended, provides for supplemental principal
payments commencing July 1, 1998 if the Company meets certain
financial tests. The Agreement also provides a financing
commitment from Warburg for a $10 million interim loan which is
expected to be retired in connection with a proposed sale of
rights to acquire Common Stock of the Company. Warburg has
agreed to loan the Company up to $10 million at an initial
interest rate of 5% per annum with a maturity date of April 28,
1995. The interest rate will increase to 10% per annum in the
event that stockholder approval of certain of the transactions
contemplated by the Agreement is not obtained. Interest on the
loan will be due upon maturity or upon refinancing, whichever
occurs first. The loan will be secured by the Company's
commercial brokerage revenues through a cash collateral account.
Prudential also will have a lien on the cash collateral account
which will be subordinated to Warburg's loan.
The Agreement also provides for the Company to seek additional
equity capital through a rights offering, and contemplates that
the Company would issue to holders of the Common Stock, for each
share of Common Stock held, a non-transferable right to acquire
one share of Common Stock, at an exercise price tentatively set
at $2.375 per share. Subject to certain conditions,
stockholders also would have certain rights to oversubscribe to
the extent that other stockholders do not subscribe. Warburg
has agreed to acquire the Common Stock not acquired by the
holders of Common Stock in the rights offering through the
conversion of its loan up to an amount not exceeding $10 million
plus accrued interest on the loan. Pursuant to the Agreement,
the rights offering would occur after the Company obtains the
approval of the transactions contemplated by the Agreement from
the holders of a majority of the shares of the Company's
voting stock, including a majority of the holders of the shares
of the Company's voting stock other than Warburg and Prudential.
Accordingly, there can be no assurance that such approval will
be obtained.
17
The Agreement also contemplates certain amendments to the
existing Senior Preferred Stock held by Warburg and the Junior
Preferred Stock held by Prudential (together, the "Preferred
Stock"). Both series of Preferred Stock would be amended to be
non-redeemable. As of the date of the rights offering, the
exercise prices on the outstanding Warrants held by Prudential
and Warburg would be reduced to $3.50 per share pursuant to the
terms of such Warrants, except that the exercise price on the
Subscription Warrants to purchase 370,566 shares held by
Warburg, which are exercisable only under specified
circumstances, would be reduced to the same price per share as
the rights offering. As it relates to the rights offering,
Warburg will retain certain anti-dilution rights with respect to
the preferred stock and Warrants which it currently holds.
Thereafter, the Preferred Stock and Warrants held by Warburg
would be amended to eliminate the anti-dilution provisions with
respect to the issuance of Common Stock and Common Stock
equivalents at less than the conversion price or exercise price.
The Preferred Stock and the outstanding Warrants held by
Prudential would be amended to eliminate the anti-dilution
provisions with respect to the issuance of Common Stock and
Common Stock equivalents at less than the conversion price or
exercise price. The Junior Preferred Stock also would be amended
to increase the dividend rate to 10% per annum effective January
1, 2002, with further increases of 1% per year effective January
1, 2003 and January 1, 2004, and 2% per year effective January
1, 2005 and each January 1 thereafter. The Senior Preferred
Stock would be amended to provide that at such time as the
dividend rate on the Junior Preferred Stock would increase above
12%, the dividend rate on the Senior Preferred Stock would
increase by the same amount as the dividend rate on the Junior
Preferred Stock. The Junior Preferred Stock also would be
amended to provide that under certain circumstances following
the conversion of the Senior Preferred Stock, holders of the
Junior Preferred Stock will be obligated to convert such
preferred stock.
In consideration of their agreements, the Company would grant
Warburg and Prudential warrants to purchase approximately
325,000 and 150,000 shares of Common Stock of the Company,
respectively. The exercise price of these warrants would be
equal to the rights offering price.
In the ordinary course of business, Prudential, its affiliates
and franchisees paid the Company approximately $4.6 million
during 1993 for management of several of its properties and for
leasing commissions. The Company also rents office space in the
ordinary course of business under a long-term lease from a
partnership of which Prudential is a general partner, paying
approximately $1,312,000 in rent during 1993.
18
A limited partnership which is affiliated with the Company is a
partner in a joint venture formed to develop an office building
in southern California. As a permanent financing for the
project, the joint venture borrowed $5.8 million on a non-
recourse basis from Prudential in September 1990, secured by an
unamortized first mortgage on the property, at a rate of 10.02%
per year and a term of five years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of March 1, 1994
concerning beneficial ownership of Common Stock by known
beneficial holders of more than 5% of the outstanding Common
Stock, directors, named executive officers, and all current
directors and executive officers as a group. Unless otherwise
noted, the listed persons have sole voting and dispositive
powers with respect to the shares held in their names, subject
to community property laws if applicable.
<TABLE>
<CAPTION>
<S> <C> <C>
Amount and Nature of
Beneficial Ownership Percent of Class(1)
<F1>
Warburg, Pincus Investors, L.P.
466 Lexington Avenue,
New York, NY 10017 5,067,425 (2)(5) <F2><F5> 55.5%
The Prudential Insurance
Company of America
Four Gateway Center
Newark, NJ 07102 3,272,060 (3)(5) <F3><F5> 47.2%
Joe F. Hanauer
Combined Investments, L.P.
361 Forest Ave., Suite 200
Laguna Beach, CA 92651 555,773(4) (5)<F4><F5> 12.1%
FMR Corp.
82 Devonshire Street
Boston, MA 02109-3614 307,600(6)<F6> 7.6%
Lawrence S. Bacow 4,134 (7)(8) <F7><F8> *
John F. Carpenter 638 (6)<F6> *
J. David Dawson 637 (8)<F8> *
Kenneth E. Field 27,137 (9)<F9> *
Gordon M. Hess 1,538 (8)<F8> *
Reuben S. Leibowitz -0- (2)<F2> --
John D. Santoleri -0- (2)<F2> --
Wilbert F. Schwartz 45,676 (10)<F10> 1.1%
Alvin L. Swanson, Jr. 81,804 (11)<F11> 2.0%
Neil R. Young 3,082 *
All current directors and
executive officers as a group (13 639,487 (8)<F8> 13.8%
persons)
* Does not exceed 1.0%.
19
<FN>
<F1>(1) Percentages total more than 100% due to the
requirement to count derivative securities for certain
purposes. The percentages of shares of Common Stock
beneficially owned by the designated persons assumes
that no other person exercises currently outstanding
warrants or options or convertible securities.
<F2>(2) At March 1, 1994, Warburg beneficially owned 5,067,425
shares of Common Stock through its ownership of (i)
127,150 shares of Senior Preferred Stock which are
convertible into an aggregate of 4,219,052 shares of
Common Stock, (ii) currently exercisable warrants to
purchase an aggregate of 477,807 shares of Common
Stock, and (iii) Subscription Warrants which will be
exercisable to purchase 370,566 shares of Common Stock
only in the event the Company pays certain liabilities
after January 29, 1993 which exceed an aggregate of
$1,500,000. Such Subscription Warrants, with an
aggregate exercise price equal to 92.64% of the amount
by which such excess liabilities exceed $500,000, will
be exercisable by Warburg for a period of 90 days.
The sole general partner of Warburg is Warburg, Pincus
& Co., a New York general partnership ("WP"). E.M.
Warburg, Pincus & Company, a New York general
partnership that has the same general partners as WP
("E.M. Warburg"), manages Warburg. Lionel I. Pincus
is the managing partner of WP and E.M. Warburg and may
be deemed to control them. WP has a 20% interest in
the profits of Warburg and, through its wholly-owned
subsidiary, E.M. Warburg, Pincus & Co., Inc. ("Warburg
Pincus"), owns 1.13% of the limited partnership
interests in Warburg. Mr. Leibowitz, a director of
the Company, is a Managing Director of Warburg Pincus
and a general partner of WP and E.M. Warburg. As
such, he may be deemed to be a beneficial owner of an
indeterminate portion of the shares of Common Stock
beneficially owned by Warburg, Warburg Pincus and WP.
He disclaims any such beneficial ownership. Mr.
Santoleri, a director of the Company, is a Vice
President of Warburg, Pincus Ventures, Inc., which is
an affiliate of Warburg. Mr. Santoleri disclaims
beneficial ownership of any shares of Common Stock
beneficially owned by Warburg.
20
<F3>(3) At March 1,1994, Prudential beneficially owned
3,272,060 shares of Common Stock through its ownership
of (i) 397,549 shares of Common Stock, (ii) 150,000
shares of Junior Preferred Stock which are convertible
into an aggregate of 2,674,511 shares of Common Stock,
and (iii) currently exercisable warrants to purchase
an aggregate of 200,000 shares of Common Stock.
<F4>(4) At March 1, 1994, Mr. Hanauer, a director and Chairman
of the Company, beneficially owned 555,773 shares of
Common Stock, through his ownership of the following
securities held in a trust of which Mr. Hanauer is the
trustee and he and his wife and children are
beneficiaries: (i) 21,153 shares of Common Stock,
(ii) 8,817 shares of Senior Preferred Stock
convertible into an aggregate of 292,563 shares of
Common Stock, (iii) currently exercisable warrants to
purchase an aggregate of 216,103 shares of Common
Stock, and (iv) Subscription Warrants to purchase
25,954 shares of Common Stock, which will be
exercisable only in the event the Company pays certain
liabilities after January 29, 1993 which exceed an
aggregate of $1,500,000. Such Subscription Warrants,
with an aggregate exercise price equal to 6.49% of the
amount by which such excess liabilities exceed
$500,000, will be exercisable by Mr. Hanauer for a
period of 90 days.
<F5>(5) Pursuant to the rules promulgated under the Securities
Exchange Act of 1934, as amended, Prudential, Warburg
and Mr. Hanauer may be deemed to be a "group," as
defined in Section 13(d) of such Act. Prudential,
Warburg and Mr. Hanauer do not affirm the existence of
such a group and disclaim beneficial ownership of
shares of Common Stock beneficially owned by any other
party.
<F6>(6) Includes 203,500 shares held by affiliates of FMR
Corp., which is a holding company for certain
investment advisors. Information with respect to FMR
Corp. is based on the most recent Schedule 13D filed
with the Securities and Exchange Commission reflecting
beneficial ownership of Common Stock.
<F7>(7) Includes an option under a Company stock option plan
which, as of March 1, 1994, was exercisable for 3,334
shares.
<F8>(8) Includes, in the aggregate, 838 shares held by
immediate family members of, and 424 shares held
jointly with immediate family members by, all current
directors and executive officers as a group.
<F9>(9) Includes 10,120 shares held by a corporation of which
Mr. Field is President and sole shareholder.
21
<F10>(10) At March 1, 1994 Mr. Schwartz beneficially owned
45,676 shares of Common Stock, through his ownership
of 1,193 shares of Senior Preferred Stock convertible
into an aggregate of 39,586 shares of Common Stock and
currently exercisable warrants to purchase an
aggregate of 6,090 shares of Common Stock. Mr.
Schwartz also holds Subscription Warrants to purchase
3,480 shares of Common Stock which will be
exercisable only in the event that the Company pays
certain liabilities after January 29, 1993 which
exceed an aggregate of $1,500,000. Such Subscription
Warrants, with an aggregate exercise price equal to
.87% of the amount by which such excess liabilities
exceed $500,000, will be exercisable by Mr. Schwartz
for a period of 90 days. In connection with the
resignation of Mr. Schwartz, he has agreed to resell
such securities to Warburg and Mr. Hanauer for the
same purchase price that he paid upon acquisition of
such securities.
<F11>(11) Includes 60,000 currently exercisable stock
appreciation rights ("SARs") held by Mr. Swanson which
fully vested upon his resignation on May 20, 1993.
The SARs are generally exercisable for shares of
Common Stock with an aggregate fair market value equal
to the excess of the fair market value of the Common
Stock over $3.52.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following are descriptions of certain transactions and business
relationships between the Company and its directors, executive
officers and principal stockholders. See also "Compensation
Committee Interlocks and Insider Participation."
In May 1992, the Company entered into an agreement with the
Meredith Corporation's operating group known as "Better Homes
and Garden Real Estate Service" ("BH&G") whereby certain
residential brokerage offices of the Company in California and
BH&G agreed to jointly offer marketing, training and other
support services to independent brokerage firms. Under the
agreement, the Company will be paid fees by Meredith Corporation
based upon the performance of the independent firms involved,
and will, after the first year of the agreement, be obligated to
pay fees to Meredith Corporation based upon the Company's gross
revenue for the offices participating in the program. To date,
no fees have been paid to the Company by Meredith Corporation
and the Company has not paid any fees to Meredith Corporation.
The Company believes the program with Meredith Corporation will
assist the participating offices to be more competitive and will
permit the Company to profit as a result of offering mortgage
services to
22
Meredith Corporation franchisees. Meredith Corporation and
Greyhawk, a corporation of which Mr. Hanauer is a majority
shareholder and chairman of the board, are parties to certain
agreements pursuant to which Greyhawk has agreed to assist
Meredith Corporation in developing its Better Homes and Gardens
franchises in several U.S. markets. Greyhawk has not to date
received any fees based on amounts received by Meredith
Corporation from the Company, but will be entitled to receive
such fees in the future.
In connection with the Recapitalization, Greyhawk was paid a fee
of $325,000 by the Company related to its efforts in introducing
to the Company various potential investors, including Warburg.
An additional $46,000 was paid by the Company to Greyhawk as
reimbursement of travel and legal expenses related to these
efforts.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this
report:
3. Exhibits required to be filed by Item 601 of Regulation S-
K:
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
4.15 Promissory Note in the amount of up to $10 million
dated as of March 29, 1994, executed by the Registrant
in favor of Warburg, Pincus Investors, L.P.
4.16 Loan and Security Agreement among the Registrant,
Warburg Pincus Investors, L.P. and The Prudential
Insurance Company of America dated as of March 29,
1994.
4.17 Modification to Note and Security Agreement between
the Registrant and The Prudential Insurance Company of
America dated as of March 28, 1994.
On an individual basis, instruments other than
Exhibits listed above defining the rights of holders
of long-term debt of the Registrant and its
consolidated subsidiaries and partnerships do not
exceed ten percent of total consolidated assets and
are, therefore, omitted; however, the Company will
furnish supplementally to the Commission any such
omitted instrument upon request.
(10) MATERIAL CONTRACTS
10.23 Separation Agreement between the Registrant and
Wilbert F. Schwartz dated as of April 25, 1994.
24
SIGNATURE
Pursuant to the requirements of Section 13 of 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 on the 28th day of April, 1994.
GRUBB & ELLIS COMPANY
(Registrant)
by /s/ Connie L. Hardisty
Connie L. Hardisty
Vice President and
Corporate Controller
25
EXHIBIT INDEX
Exhibit Page
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
4.15 Promissory Note in the amount of up to $10 million
dated as of March 29, 1994, executed by the
Registrant in favor of Warburg, Pincus
Investors, L.P.
4.16 Loan and Security Agreement among the Registrant,
Warburg Pincus Investors, L.P. and The Prudential
Insurance Company of America dated as of March 29,
1994.
4.17 Modification to Note and Security Agreement between
the Registrant and The Prudential Insurance
Company of America dated as of March 28, 1994.
(10) MATERIAL CONTRACTS
10.23 Separation Agreement between the Registrant
and Wilbert F. Schwartz dated as of April 25, 1994.
26
</TABLE>
PROMISSORY NOTE
San Francisco, California
$10,000,000.00 March 29, 1994
FOR VALUE RECEIVED, Grubb & Ellis Company, a Delaware
corporation (the "Company"), promises to pay to the order of Warburg,
Pincus Investors, L.P., a Delaware limited partnership, or order
(collectively, "Payee"), on or before the Maturity Date (as defined
in the Loan Agreement defined below), the lesser of (i) Ten Million
Dollars ($10,000,000.00) and (ii) the unpaid principal amount of all
advances made by Payee as the Loan under the Loan Agreement.
The Company also promises to pay interest on the unpaid
principal amount hereof from the date hereof until paid in full at
the rates and at the times which shall be determined in accordance
with the provisions of that certain Loan Agreement dated as of the
date hereof, by and between the Company and Warburg, Pincus
Investors, L.P., a Delaware limited partnership (such agreement, as
it may be amended, modified or supplemented from time to time, the
"Loan Agreement"). Capitalized terms used herein without definition
shall have the meanings set forth in the Loan Agreement.
This Note is issued pursuant to and entitled to the
benefits of the Loan Agreement to which reference is hereby made for
a more complete statement of the terms and conditions under which the
advances evidenced hereby were made and are to be repaid.
All payments of principal and interest in respect of this
Note shall be made in lawful money of the United States of America in
same day funds to the following account: Warburg, Pincus Investors,
L.P., Chemical Bank, 277 Park Avenue, New York, New York, Account
Number 144045515, ABA Number 021000128, or at such other place as
shall be designated in writing for such purpose in accordance with
the notice provisions of the Loan Agreement.
Whenever any payment on this Note shall be stated to be
due on a day which is not a Business Day, such payment shall be made
on the next succeeding business day and such extension of time shall
be included in the computation of the payment of interest on this
Note.
This Note is subject to repayment and mandatory prepayment
as, and to the extent, provided in the Loan Agreement and prepayment
at the option of the Company as provided in the Loan Agreement. This
Note is secured pursuant to the terms of the Loan Agreement and the
Cash Collateral Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS.
1
Upon the occurrence of an Event of Default, the unpaid
balance of the principal amount of this Note and all other
obligations of the Company under the Loan Agreement, together with
all accrued but unpaid interest thereon, may automatically become, or
may be declared to be, due and payable in the manner, upon the
conditions and with the effect provided in the Loan Agreement.
The terms of this Note are subject to amendment only in
the manner provided in the Loan Agreement.
The obligation of the Company to pay the principal of and
interest on this Note at the place, at the respective times, and in
the currency herein prescribed is absolute and unconditional.
The Company promises to pay all costs and expenses,
including all attorneys' fees and expenses, all as provided in the
Loan Agreement, actually incurred in the collection and enforcement of
this Note, including any such costs, expenses or fees actually
incurred in any appeal in connection with the collection and
enforcement of this Note. The Company and endorsers of this Note
hereby consent to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waive diligence,
presentment, protest, demand and notice of every kind and, to the full
extent permitted by law, the right to plead any statute of limitations
as a defense to any demand hereunder.
IN WITNESS WHEREOF, the Company has caused this Note to be
executed and delivered by its duly authorized officer, as of the day
and year and at the place first above written.
GRUBB & ELLIS COMPANY
By: /s/ Robert J. Hanlon, Jr.
Name: Robert J. Hanlon, Jr.
Title: SVP and Chief Financial Officer
2
[DESCRIPTION]Loan and Security Agreement
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (as it may be amended,
supplemented or otherwise modified from time to time, this
"Agreement") is entered into as of March 29, 1994, by and
between GRUBB & ELLIS COMPANY, a Delaware corporation
("Borrower"), and WARBURG, PINCUS INVESTORS, L.P., a Delaware
limited partnership ("Lender").
RECITAL
Borrower has requested from Lender the credit
accommodations described below, and Lender has agreed to provide
such credit accommodations to Borrower on the terms and subject
to the conditions contained herein.
AGREEMENT
NOW, THEREFORE, Lender and Borrower hereby agree as
follows:
ARTICLE I
THE LOAN; SECURITY; CASH COLLATERAL ACCOUNT; SUBORDINATION
SECTION 1.1. ADVANCES; REPAYMENT.
(a) Advances. Subject to the terms and conditions of this
Agreement, Lender hereby agrees to make advances (all such
advances at any time outstanding, collectively, the "Loan") to
Borrower from time to time up to but not including the Maturity
Date (as defined below), in an aggregate principal amount for
all such advances outstanding not to exceed Ten Million Dollars
($10,000,000) at any time. The Loan may be repaid and
reborrowed at any time prior to the Maturity Date. Proceeds of
the Loan shall be used for general corporate purposes of
Borrower other than Prohibited Uses (as defined below), subject
to the terms hereof and subject to the terms of the Cash
Collateral Documents (as defined below). Borrower's obligation
to repay the Loan shall be evidenced by a promissory note
substantially in the form of Exhibit A attached hereto (as it
may be amended, the "Note"), all terms of which are incorporated
herein by this reference.
1
(b) Advance Mechanics. When Borrower desires to borrow,
it shall deliver to Lender a notice of borrowing no later than
1:00 p.m. (Pacific Standard Time) at least three Business Days
(as defined below) in advance of the proposed funding date. The
notice of borrowing shall specify the proposed funding date
(which shall be a Business Day) and the amount of the requested
advance. Each requested advance shall be for a minimum amount
of $2,000,000. In lieu of delivering a notice of borrowing,
Borrower may give Lender telephonic notice by the required time
of the proposed borrowing; provided that such notice shall be
promptly, and in any event by 9:00 a.m. (Pacific Standard Time)
on the proposed funding day, confirmed in writing by delivery of
a notice of borrowing to Lender. Each such advance to Borrower
shall, by 12:00 p.m. (Pacific Standard Time) on the funding
date, be deposited in immediately available funds in the Cash
Collateral Account (as defined below), at Bank of America NT &
SA, ABA No. 121000358, Global Escrow Depository Services #3960,
Account Number 90098-83980, Reference Escrow Number 2337,
Attention: Betty Deichler, or at such other location as
Borrower has notified Lender in writing. "Business Day" shall
mean any day which is not a Saturday, Sunday or a generally
observed holiday for banks in San Francisco, California, or New
York, New York.
(c) Repayment. The outstanding principal amount of the
Loan, together with any accrued and unpaid interest thereon and
any other amounts due hereunder, shall be due and payable in
full on the last Business Day of the thirteenth month after the
date hereof (the "Maturity Date"). All Loan repayments or
prepayments made by Borrower to Lender shall be made to the
following account: Warburg, Pincus Investors, L.P., Chemical
Bank, 277 Park Avenue, New York, New York, Account Number
144045515, ABA Number 021000128, or to such other account
requested by Lender upon five Business Days' advance written
notice.
(d) Prepayment. Borrower may prepay all or any portion of
the Loan at any time, in any amount and without penalty.
SECTION 1.2. INTEREST.
(a) Interest. Subject to Section 1.2(b), the outstanding
principal amount of the Loan shall bear interest at a rate per
annum equal to five percent (5%); provided, however, that if
Borrower does not obtain stockholder approval for additional
financing, such as a rights offering to its stockholders, by
December 31, 1994, then the outstanding principal amount of the
Loan shall bear interest at a rate per annum equal to ten
percent (10%) retroactive to the date of the first advance
hereunder.
2
It is the intention of Lender and Borrower that this Agreement
and the Note be expressly limited so that in no contingency or
event whatsoever, whether by reason of acceleration of maturity
of the Loan or otherwise, shall the interest payable on the Loan
exceed the maximum rate permitted by applicable law.
Accordingly, anything to the contrary in this Agreement
notwithstanding, Lender and Borrower hereby agree that the
amount of interest (as defined by applicable law) due in respect
of the Loan shall not exceed the maximum rate permitted by
applicable law (the "Permitted Rate") and in the event that any
payments hereunder or under the Note are made in excess of the
Permitted Rate as finally determined by a court of competent
jurisdiction, the amount received by Lender in excess of the
Permitted Rate shall be applied by Lender to reduce the
principal amount of the Loan.
(b) Default Interest. After an Event of Default has
occurred and is continuing, the outstanding principal amount of
the Loan shall bear interest at a rate per annum equal to one
percent (1%) above the interest rate then in effect (the
"Default Rate"). In addition, to the extent permitted by
applicable law, any interest payments, fees or other amounts
owed hereunder and not paid when due, in each case whether at
stated maturity, by notice of prepayment, by acceleration or
otherwise, shall bear interest at the Default Rate. Payment or
acceptance of the Default Rate is not a permitted alternative to
timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies
of Lender.
(c) Computation and Payment. Interest on the outstanding
principal amount of the Loan shall be computed on the basis of a
365 or 366 (as applicable) day year, actual days elapsed and
shall be payable on the Maturity Date.
SECTION 1.3. COLLATERAL; GRANT OF SECURITY INTEREST. As
security for all indebtedness and other obligations of Borrower
to Lender pursuant to this Agreement and the other Loan
Documents (as defined below), Borrower hereby grants to Lender
(to secure all such indebtedness and other obligations hereunder
and under the other Loan Documents) a security interest of first
priority (except as otherwise provided in any of the Loan
Documents) in all of Borrower's right, title and interest in and
to, in each case whether now existing or hereafter acquired and
wherever located, all of the following (the "Collateral): (i)
all rights to payment in respect of all commercial real estate
fees and commissions due to Borrower or any of its subsidiaries
in connection with the commercial real estate brokerage
operations of Borrower and its subsidiaries ("Brokerage
Commissions"), (ii) Escrow No. 2337 (the "Existing Cash
Collateral Account") maintained by Borrower at Bank of America
NT & SA ("BofA") and any other Cash Collateral Account and all
monies, instruments and amounts at any time on deposit in the
Cash Collateral Account, and (iii) all proceeds of any of the
foregoing.
3
SECTION 1.4. LOCKBOX; CASH COLLATERAL ACCOUNT. Borrower
has or shall have established and shall maintain with BofA (or
such other financial institution or institutions as may be
acceptable to Lender, the "Depository Bank"), in the State of
California, a lockbox (together with any successor, replacement
or substitute lockbox, the "Lockbox") and one or more deposit
accounts (collectively, including the Existing Cash Collateral
Account and any successor, replacement or substitute account,
the "Cash Collateral Account"). Borrower shall instruct each of
its Brokers (as defined below) to deposit directly to the
Lockbox all Brokerage Commissions. "Brokers" shall mean
Company's brokers of record, whether employees of Company or any
of its subsidiaries, independent contractors or otherwise;
provided, however, that with respect to Brokerage Commissions
generated in connection with the services or operations of Grubb
& Ellis Asset Services Corporation, the broker of record shall
be the President of Grubb & Ellis Asset Services Corporation.
Pursuant to a lockbox service agreement, the Depository Bank
shall deposit once each Business Day (as defined below) all
Brokerage Commissions delivered into the Lockbox to the Cash
Collateral Account (in the same form as received, with any
necessary endorsements). In addition, Borrower shall promptly
deposit all Brokerage Commissions received directly by Borrower
or any of its subsidiaries (in the same form as received, with
any necessary endorsements) to either the Lockbox or the Cash
Collateral Account (amounts on deposit in the Cash Collateral
Account are referred to herein as "Collateral Account
Proceeds"). The Cash Collateral Account shall be established
pursuant to documentation in form and substance satisfactory to
Lender (as such documentation may be in effect from time to
time, the "Cash Collateral Documents"). The Cash Collateral
Documents shall provide, among other things, that (1) subject to
the following clause (2), Borrower may make withdrawals from the
Cash Collateral Account for any general corporate purpose other
than Prohibited Uses, and (2) during the existence of any Event
of Default, Lender may, by written notice to the Depository
Banks with which Cash Collateral Accounts are maintained,
terminate the right of Borrower to make any withdrawal from the
Cash Collateral Account.
SECTION 1.5. FURTHER ASSURANCES. Borrower agrees that
from time to time, at the expense of Borrower, Borrower will
promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or
desirable, or that Lender may request, in order to perfect,
protect and maintain or establish the priority of any security
interest granted or purported to be granted hereby or to enable
Lender to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. In addition, Borrower shall (a)
notify Lender of any change in Borrower's name, identity or
corporate structure at least 15 days prior to any such change,
and (b) not relocate Borrower's chief executive office from the
location therefor specified in Section 2.4 without less than 60
days' prior written notice to Lender.
4
SECTION 1.6. SUBORDINATION. Lender and Borrower agree,
upon the delivery of a Notice of Blockage (as defined in the
Cash Collateral Account Agreement, dated as of the date hereof,
among Lender, Borrower, The Prudential Insurance Company of
America ("Prudential"), and BofA (as amended, the "Cash
Collateral Account Agreement")) or at such time as Lender
exercises any other remedies with respect to the Cash Collateral
Account, that the Loan and all other indebtedness evidenced by
the Note shall be subordinated in right of payment to the extent
of any proceeds within the Cash Collateral Account, as and in
the manner provided herein, to the prior payment in full of all
Broker Fees (as defined below), and that the subordination is
for the benefit of Borrower. "Broker Fees" shall mean (i) the
fees, commissions and other amounts to be paid to Brokers as
compensation for the commercial real estate brokerage operations
that gave rise to the Broker Commissions, and (ii) reimbursement
to any banks that advanced such fees, commissions and other
amounts from Borrower accounts pursuant to Borrower's transfer
instructions. During the effectiveness of this subordination,
Borrower shall provide to Lender Broker Fee notices no earlier
than two Business Days prior to a proposed Broker Fee payment
date. Each such notice shall identify each Broker owed a Broker
Fee or each bank that is to be reimbursed for an advanced Broker
Fee, the transaction giving rise to the Broker Fee, the
transaction date, the amount of the Broker Fee, the proposed
Broker Fee payment date and payment instructions. During the
effectiveness of this subordination, to the extent Lender may
withdraw funds from the Cash Collateral Account, Lender shall
hold such funds in trust for the Brokers or banks who are to
receive a Broker Fee, until such time as Lender pays such fees
on behalf of Borrower, which payments shall be made,
notwithstanding any Event of Default, to the extent of the funds
in the Cash Collateral Account. If no Broker Fees are
outstanding, Lender may apply or disburse any additional funds
in the Cash Collateral Account pursuant to the Loan Documents.
If there are insufficient funds in the Cash Collateral Account
to make the payments pursuant to a Broker Fee notice, Lender
shall immediately notify Borrower, and Borrower shall modify the
notice accordingly.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties
to Lender, which representations and warranties shall be true
and correct immediately before and at the time of entering into
this Agreement and at the time of each request for an advance.
5
SECTION 2.1. LEGAL STATUS. Borrower is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware, and is qualified or licensed to
do business, and is in good standing as a foreign corporation,
if applicable, in all jurisdictions in which such qualification
or licensing is required or in which the failure to so qualify
or to be so licensed would not reasonably be expected to have a
Material Adverse Effect. For purposes of this Agreement, the
term "Material Adverse Effect" means a material adverse effect
upon the business, operations, properties, assets or condition
(financial or otherwise) of Borrower and its wholly owned
subsidiaries, taken as a whole.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement,
the Note, and each other document, contract and instrument
required by or at any time delivered to Lender in connection
with this Agreement (with all of the foregoing, including,
without limitation, the Cash Collateral Documents, referred to
herein collectively as the "Loan Documents") to which Borrower
is a party have been (or, with respect to any of the foregoing
executed and delivered after the date hereof, will have been at
the time of such execution and delivery) duly authorized by
Borrower, and upon such execution and delivery will constitute
legal, valid and binding agreements and obligations of Borrower
or the party which executes the same, enforceable in accordance
with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and
performance by Borrower of each of the Loan Documents to which
it is a party do not violate any provision of any law or
regulation, or contravene any provision of Borrower's
Certificate of Incorporation or By-Laws, or result in a breach
of or constitute a default under any contract, obligation,
indenture or other instrument to which Borrower is a party or by
which Borrower or any of its properties may be bound except for
any such breach or default which has been duly waived or
consented to by all necessary parties.
SECTION 2.4. CHIEF EXECUTIVE OFFICE; FEIN NUMBER. The
chief executive office and the office where Borrower keeps its
records regarding the Collateral is located at One Montgomery
Street, Telesis Tower, San Francisco, California 94104.
Borrower's Federal Employer Identification Number is 94-1424307.
SECTION 2.5. SECURITY INTEREST. Upon the execution and
delivery of this Agreement and the Cash Collateral Account
Agreement, Lender shall have a valid and continuing security
interest in the Cash Collateral Account, and all action
necessary to perfect such security interest shall have been
taken.
6
Lender's security interest in the Cash Collateral Account is,
and will continue to be, a first priority security interest
which is free and clear of all liens, claims, security interest
and encumbrances, except with respect to any liens, claims,
security interest and encumbrances of the Depository Bank
granted by statute or pursuant to the Cash Collateral Account
Agreement or any other Loan Document.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1. CONDITIONS OF INITIAL LOAN. The obligation
of Lender to make any advances hereunder is subject to the
fulfillment to Lender's satisfaction of all of the following
conditions:
(a) Documentation. Lender shall have received, in form
and substance satisfactory to Lender, each of the following (in
each case, duly executed by Borrower and/or each other party, as
applicable):
(i) This Agreement;
(ii) The Note;
(iii) The Cash Collateral Account
Agreement;
(iv) Intercreditor Agreement dated
as of the date hereof, by and between Lender
and Prudential, and acknowledged by
Borrower;
(v) Prudential Waiver dated as of
the date hereof with respect to any and all
events of default which have occurred and
are continuing under the Senior Note,
Subordinated Note and Revolving Credit Note
Agreement dated as of November 2, 1992, by
and between Borrower and Prudential, as
amended by that certain Modification to Note
and Security Agreement dated as of the date
hereof (collectively, the "Prudential Credit
Facility"); and
(vi) Written Consent dated as of
the date hereof by Company, Lender and
Prudential to certain terms and conditions
for the transactions contemplated herein and
a proposed stockholder rights offering.
7
(b) Cash Collateral Account. The Cash Collateral Account
shall have been established in a manner satisfactory to Lender
in its sole discretion and Lender shall be satisfied that all
steps shall have been taken necessary to create and perfect in
favor of Lender (to secure all obligations of Borrower under the
Loan Documents) a first priority security interest in the Cash
Collateral Account and all other Collateral described and
subject to the terms set forth in Sections 1.3 and 1.4.
SECTION 3.2. CONDITIONS OF EACH ADVANCE. The obligation
of Lender to make each advance hereunder shall be subject to the
fulfillment to Lender's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties
contained herein shall be true, correct and complete (and shall
be deemed made) on and as of the date of the signing of this
Agreement and on the date of each advance hereunder, with the
same effect as though such representations and warranties had
been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or
act which with the giving of notice or the passage of time or
both would constitute such an Event of Default, shall have
occurred and be continuing or shall exist. Each request by
Borrower for an advance hereunder shall constitute a
certification of Borrower that the conditions of this Section
3.2(a) are satisfied as of the date of such advance.
(b) Documentation. Lender shall have received all
additional documents which may be required in connection with
such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as the Loan (or any portion
thereof) remains outstanding or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Lender
under any of the Loan Documents remain outstanding, and until
payment in full of all obligations of Borrower subject hereto,
Borrower shall:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay the
interest and principal on each of the Loan Documents requiring
any such payments at the times and place and in the manner
specified therein, and any fees or other liabilities due under
any of the Loan Documents at the times and place and in the
manner specified therein.
8
SECTION 4.2. COMPLIANCE. Comply with the provisions of
all documents pursuant to which Borrower is organized and/or
which govern Borrower's continued existence and with the
requirements of all laws, rules, regulations and orders of any
governmental authority applicable to Borrower or its business.
SECTION 4.3. TAXES AND OTHER LIABILITIES. Pay and
discharge when due any and all indebtedness, obligations,
assessments and taxes, both real or personal and including
federal and state income taxes, which in the aggregate the
nonpayment of would have a Material Adverse Effect, except such
as Borrower may in good faith contest or as to which a bona fide
dispute may arise, so long as provision is made to the
satisfaction of Lender for eventual payment thereof in the event
that it is found that the same is an obligation of Borrower.
SECTION 4.4. NOTICES TO LENDER. Promptly (but in no
event more than ten Business Days after one or more senior
executive officers of Borrower have actual knowledge of the
occurrence of each such event or matter) give written notice to
Lender in reasonable detail of: (a) the occurrence of any Event
of Default, or any condition, event or act which with the giving
of notice or the passage of time or both would constitute an
Event of Default; or (b) the commencement, or threatened
commencement in which Borrower has received written notice, of
any litigation, arbitration or other proceeding against Borrower
involving a reasonably potential liability in excess of
$3,000,000 (after giving effect to reasonably probable insurance
contribution or other reimbursement rights).
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as the Loan (or any
portion thereof) remains outstanding or any liabilities (whether
direct or contingent, liquidated or unliquidated) of Borrower to
Lender under any of the Loan Documents remain outstanding, and
until payment in full of all obligations of Borrower subject
hereto, Borrower will not without the prior written consent of
Lender:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of
the Loan or any Collateral Account Proceeds for any of the
following purposes (each, a "Prohibited Use"):
9
(a) the satisfaction of any judgment or other award of
damages of any type rendered against Borrower or any of its
affiliates pursuant to legal process or otherwise which
judgment, award or damages in any one case or group of
consolidated and related cases exceeds $1,000,000; provided
that this subsection (a) will not apply to use of the
proceeds of the Loan to pay any judgment or award of
damages or settlement payments in Anderson, et al. v. Grubb
& Ellis Company or Aguilar v. Grubb & Ellis Company, which
cases are now a consolidated class action related to a
limited partnership formed to purchase an official retail
building at 222 Sutton (the "Sutton Litigation");
(b) any capital expenditure during any fiscal year of
Borrower which, when aggregated with all other capital
expenditures by Borrower and its subsidiaries during such
fiscal year, would cause the aggregate amount of all such
capital expenditures to exceed the greater of (i)
$5,000,000, and (ii) two times the amount set forth
opposite the heading "Total Assets" on the then most
current audited consolidated balance sheet of Borrower and
its subsidiaries;
(c) "golden handcuff" or similar payments to any one
officer or other employee of Borrower or any of its
subsidiaries which would cause the aggregate amount of all
such payments to such officer or employee to exceed
$1,000,000; or
(d) payments in respect of any lease of real property
entered into after the date hereof if the aggregate rent
required under such lease during its term (including any
mandatory or optional extensions thereof) exceeds
$5,000,000.
SECTION 5.2. GUARANTIES. Any new guarantee or new
liability or become liable in any way as surety, endorser (other
than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation
endorser or otherwise for, nor pledge or hypothecate any assets
of Borrower as security for, any liabilities or obligations of
any other person or entity.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. EVENTS OF DEFAULT. The occurrence of any of
the following shall constitute an "Event of Default" under this
Agreement:
(a) Borrower shall fail to pay when due any principal,
interest, fees or other amounts payable under any of the Loan
Documents.
10
(b) Any certificate furnished to Lender in connection with
any Loan Document or any representation or warranty made or
deemed made by Borrower hereunder shall prove to be false,
incorrect or incomplete in any material respect when furnished,
made or deemed made.
(c) Any default in the performance of or compliance with
any obligation, agreement or other provision contained herein or
in the other Loan Documents (other than those referred to in
Sections 6.1(a) and (b) above), and with respect to any such
default which by its nature can be cured, such default shall
continue for a period of thirty (30) days from its occurrence.
(d) Except as existing and disclosed to Lender prior to
the date hereof, any default in the payment or performance of
any obligation, or any defined event of default, under the terms
of any contract or instrument (other than any of the Loan
Documents) pursuant to which Borrower or any of its subsidiaries
has incurred any debt or other liability to any person or
entity, including Lender, in each case beyond the end of any
period prior to which the obligee thereunder is prohibited from
accelerating payment thereunder, and which default shall have a
Material Adverse Effect.
(e) Any defined event of default under any of the Loan
Documents other than this Agreement.
(f) Any money judgment, writ or warrant of attachment, or
similar process (other than a judgment in the Sutton Litigation)
involving (i) in any individual case an amount in excess of
$1,000,000, or (ii) in the aggregate at any time in an amount in
excess of $3,000,000 (in either case not adequately covered by
insurance as to which the insurance company has acknowledged
coverage) shall be entered or filed against Borrower or any of
its subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a
period of 60 days or in any event later than five days prior to
the date of any proposed sale thereunder.
(g) Borrower shall become insolvent, or shall suffer or
consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or
shall generally fail to pay its debts as they become due, or
shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seek
reorganization, in order to effect a plan or other arrangement
with creditors or any other relief under the Bankruptcy Reform
Act, Title 11 of the United States Code, as amended or
recodified from time to time or any successor statute (the
"Bankruptcy Code"), or under any state or federal law granting
relief to debtors, whether now or
11
hereafter in effect; or any involuntary petition or proceeding
pursuant to the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower, or
Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition;
or Borrower shall be adjudicated a bankrupt, or an order for
relief shall be entered by any court of competent jurisdiction
under the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other
relief for debtors.
(h) There shall occur a material adverse change in the
condition (financial or otherwise), operations, properties or
performance of Borrower or any other event or condition which,
in Lender's opinion, Lender reasonably and in good faith
believes impairs, or is substantially likely to impair either
(i) the prospect of payment or performance by Borrower of its
obligations under any of the Loan Documents, or (ii) the rights
and remedies of Lender under any Loan Document.
(i) Lender shall cease for any reason to have a valid and
perfected first priority security interest in the Collateral
(except as otherwise provided in the Loan Documents) securing
payment in full of all obligations of Borrower hereunder.
(j) The Cash Collateral Documents shall be modified
without the consent of Lender, except with respect to fees
charged by the Depository Bank or other administrative changes
required by the Depository Bank that do not adversely affect
Lender's security interest in the Cash Collateral Account.
(k) An Event of Default (as defined therein) has occurred
and is continuing under the Prudential Credit Facility and
Prudential has delivered a Notice of Blockage to the Depository
Bank.
SECTION 6.2. REMEDIES. (a) If an Event of Default shall
occur, (i) any indebtedness of Borrower under any of the Loan
Documents, any term thereof to the contrary notwithstanding,
shall (automatically and without further action, in the case of
an Event of Default under Section 6.1(g) and, in all other
cases, at Lender's option and without notice) become immediately
due and payable without presentment, demand, protest or notice
of dishonor, all of which are hereby expressly waived by
Borrower; (ii) the obligation, if any, of Lender to make further
advances hereunder shall immediately cease and terminate; and
(iii) Lender shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law,
including without
12
limitation the right to resort to any or all of the Collateral
or any other security for any of the obligations of Borrower
hereunder and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law. All
rights, powers and remedies of Lender in connection with each of
the Loan Documents may be exercised at any time by Lender and
from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to
any other rights, powers or remedies provided by law or equity.
(b) If any Event of Default shall have occurred and be
continuing, Lender may exercise in respect of the Collateral,
(a) all the rights and remedies of a secured party on default
under the Uniform Commercial Code of the State of California
(the "Code") (whether or not the Code applies to the affected
Collateral), (b) all of the rights and remedies provided for in
this Agreement, the Cash Collateral Documents and any other
agreement between Borrower and Lender, and (c) such other rights
and remedies as may be provided by law or otherwise (such rights
and remedies of Lender to be cumulative and non-exclusive).
Borrower hereby waives (to the extent permitted by applicable
law) all rights of redemption, stay and/or appraisal which it
now has or may at any time in the future have under any rule of
law or statute now existing or hereafter enacted. Borrower
agrees that at least ten days' notice to Borrower of the time
and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or
discontinuance of Lender in exercising any right, power or
remedy under any of the Loan Documents shall affect or operate
as a waiver of such right, power or remedy; nor shall any single
or partial exercise of any such right, power or remedy preclude,
waive or otherwise affect any other or further exercise thereof
or the exercise of any other right, power or remedy. Any
waiver, permit, consent or approval of any kind by Lender of any
breach of or default under any of the Loan Documents must be in
writing and shall be effective only to the extent expressly set
forth in such writing.
13
SECTION 7.2. NOTICES. All notices, requests and demands which
any party is required or may desire to give to any other party
under any provision of this Agreement must be in writing
delivered to each party at the following addresses:
BORROWER: Grubb & Ellis Company
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telephone Number: (415) 956-4699
Telecopier Number: (415) 274-9700
Attn: General Counsel
LENDER: Warburg, Pincus Investors, L.P.
c/o E.M. Warburg, Pincus & Co., Inc.
466 Lexington Avenue
10th Floor
New York, New York 10017
Telephone Number: (212) 878-0653
Telecopier Number: (212) 878-9200
Attn: Reuben S. Leibowitz
or to such other address as any party may designate by written
notice to each other party. Each such notice, request and
demand shall be deemed given or made as follows: (a) if sent by
hand delivery or courier service, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days
after deposit in the U.S. mail, first class and postage prepaid;
or (c) if sent by telecopy, upon receipt.
SECTION 7.3. INDEMNITY, COSTS, EXPENSES AND ATTORNEYS' FEES.
Borrower shall indemnify Lender against, hold Lender harmless
from, and pay to Lender immediately upon demand, the full amount
of all costs and expenses, including reasonable attorneys' fees,
incurred by Lender in connection with (a) Lender's
administration of this Agreement and each of the other Loan
Documents (including, without limitation, the subordination
provisions in Section 1.6 and any costs or other expenses
incurred in establishing or maintaining the Cash Collateral
Account), and the preparation of this Agreement and the other
Loan Documents and any amendments and waivers hereto and
thereto, (b) the enforcement of Lender's rights and/or the
collection of any amounts which become due to Lender under any
of the Loan Documents (including in connection with any
bankruptcy, reorganization, "work-out" or similar circumstance
or proceeding), and (c) the prosecution or defense of any claim
or action in any way arising out of or related to any of the
Loan Documents or the transactions contemplated thereby,
including without limitation any action for declaratory relief.
14
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be
binding on and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of
the parties; provided however, that Borrower may not assign or
transfer its interest or obligations hereunder without the prior
written consent of Lender. Lender reserves the right to sell,
assign, transfer, negotiate or grant participations in all or
any part of, or any interest in, Lender's rights and benefits
under this Agreement, the Notes and each of the other Loan
Documents.
SECTION 7.5. ENTIRE AGREEMENT; COUNTERPARTS; AMENDMENT. This
Agreement and each of the other Loan Documents constitute the
entire agreement between Borrower and Lender with respect to the
Loan and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter
hereof. This Agreement may be executed in any number of
counterparts and may be amended or modified only by a written
instrument executed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is
made and entered into for the sole protection and benefit of the
parties hereto and their respective permitted successors and
assigns, and no other person or entity shall be a third party
beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the
Loan Documents to which it is not a party.
SECTION 7.7. TIME IS OF THE ESSENCE. Time is of the essence
of each and every provision of this Agreement and each of the
other Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of
this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating
the remainder of such provision or any remaining provisions of
this Agreement.
SECTION 7.9. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of California.
15
IN WITNESS WHEREOF, the parties hereto have caused this
Loan and Security Agreement to be executed as of the day and
year first written above.
WARBURG, PINCUS INVESTORS, L.P.,
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Reuben S. Leibowitz
Name: Reuben S. Leibowitz
Title: Partner
GRUBB & ELLIS COMPANY
By: /s/ Robert. J. Hanlon, Jr.
Name: Robert J. Hanlon, Jr.
Title: SVP & Chief Financial Officer
16
MODIFICATION TO NOTE AND SECURITY AGREEMENT
THIS MODIFICATION TO NOTE AND SECURITY AGREEMENT (the
"Modification Agreement") modifies the Senior Note, Subordinated
Note and Revolving Note Agreement, dated as of November 2, 1992
(the "Note Agreement"), and is entered into as of the 28th day of
March 1994, by and between GRUBB & ELLIS COMPANY, a Delaware
corporation ("Company"), and THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation ("Prudential").
RECITAL
A. Pursuant to the Note Agreement, Company became indebted
to Prudential in an amount as set forth in and more fully defined
as the "Senior Debt" in the Note Agreement.
B. Prudential asserts that certain Events of Default, as
defined in the Note Agreement, have occurred and are continuing.
C. Company has requested that Prudential waive certain
rights and forebear from the exercise of certain remedies under
the Note Agreement and to otherwise accommodate Company with
respect to a certain financing agreement (the "Warburg Loan")
made pursuant to a certain Loan and Security Agreement dated as
of March 28, 1994 (the "Warburg Loan Agreement") between Company
and Warburg, Pincus Investors, L.P., a Delaware limited
partnership ("Warburg"), as evidenced by certain Loan Documents,
as that term is defined in the Warburg Loan Agreement, and
Prudential has agreed to provide such waivers, consents and
accommodations to Company subject to the conditions contained
herein and on the terms set forth in a certain Note Agreement
Waiver, of even date herewith, and a certain letter agreement
entitled Bridge Financing and Equity Offering Acknowledgment,
also of even date herewith (the Note Agreement, the Modification
Agreement, the Note Agreement Waiver and the letter agreement are
collectively referred to herein as the "Prudential Agreement").
1
AGREEMENT
NOW, THEREFORE, Prudential and Company hereby agree as
follows:
ARTICLE I
GRANT OF SECURITY: CASH COLLATERAL ACCOUNT: SUBORDINATION
SECTION 1.1. COLLATERAL; GRANT OF SECURITY INTEREST. In
consideration for the forbearance, modifications and waivers
granted by Prudential, as security for Company's indebtedness to
Prudential for the Senior Debt, pursuant to and as defined in the
Note Agreement, Company hereby grants to Prudential (to secure
all such indebtedness) a security interest of first priority
(subject to the terms of a certain Intercreditor Agreement, dated
as of March 28, 1994, between Prudential and Warburg (the
"Intercreditor Agreement"), a certain Cash Collateral Account
Agreement, dated as of March 28, 1994 (the "Cash Collateral
Account Agreement); a certain Prudential Waiver dated as of the
date hereof with respect to any and all Events of Default which
have occurred and are continuing under the Note Agreement; and a
certain Written Consent dated as of the date hereof by Company,
Warburg and Prudential to certain terms and conditions for the
transactions contemplated herein and a proposed stockholder
rights offering, (collectively, the "Prudential Documents")), in
all of Company's right, title and interest in and to, in each
case whether now existing or hereafter acquired and wherever
located, all of the following (the "Collateral): (i) all rights
to payment in respect of all commercial real estate fees and
commissions due to Company or any of its subsidiaries in
connection with the commercial real estate brokerage operations
of Company and its subsidiaries ("Brokerage Commissions"), (ii)
Escrow No. 2337 (the "Existing Cash Collateral Account")
maintained by Company at Bank of America NT&SA ("BofA") and any
other Cash Collateral Account (as defined below) and all monies,
instruments and amounts at any time on deposit in the Cash
Collateral Account, and (iii) all proceeds of any of the
foregoing.
SECTION 1.2. LOCKBOX; CASH COLLATERAL ACCOUNT. Company
has or shall have established and shall maintain with BofA (or
such other financial institution or institutions as may be
acceptable to Warburg, the "Depository Bank"), in the State of
California, a lockbox (together with any successor, replacement
or substitute lockbox, the "Lockbox") and one or more deposit
accounts (collectively, including the Existing Cash Collateral
Account and any successor, replacement or substitute account, the
"Cash Collateral Account") into which Company hereby agrees to
deposit the proceeds of the Warburg Loan. Company shall instruct
each of its brokers, whether employees of Company or any of its
2
subsidiaries, independent contractors or otherwise (collectively,
"Brokers"), to deposit directly to the Lockbox all Brokerage
Commissions. The Depository Bank shall deposit once each
Business Day (as defined below) all Brokerage Commissions
delivered into the Lockbox to the Cash Collateral Account (in the
same form as received, with any necessary endorsements). In
addition, Company shall promptly deposit all Brokerage
Commissions received directly by Company or any of its
subsidiaries (in the same form as received, with any necessary
endorsements) to either the Lockbox or the Cash Collateral
Account (amounts on deposit in the Cash Collateral Account are
referred to herein as "Collateral Account Proceeds"). The Cash
Collateral Account shall be established pursuant to documentation
in form and substance satisfactory to Prudential (as such
documentation may be in effect from time to time, the "Cash
Collateral Documents"). The Cash Collateral Documents shall
provide, among other things, that (1) subject to the following
clause (2), Company may make withdrawals from the Cash Collateral
Account for any general corporate purpose other than Prohibited
Uses as defined in the Warburg Loan Agreement, and (2) during the
existence and continuance of any Event of Default under the
Prudential Agreement, Prudential may, by written notice to the
Depository Bank with which Cash Collateral Accounts are
maintained, terminate the right of Company to make any withdrawal
from the Cash Collateral Account.
SECTION 1.3. FURTHER ASSURANCES. Company agrees that from
time to time, at the expense of Company, Company will promptly
execute and deliver all further instruments and documents, and
take all further action, that may be necessary or desirable, or
that Prudential may request, in order to perfect, protect and
maintain or establish the priority of any security interest
granted or purported to be granted hereby or to enable Prudential
to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. In addition, Company shall (a) notify
Prudential of any change in Company's name, identity or corporate
structure at least 15 days prior to any such change, and (b) not
relocate Company's chief executive office from the location
therefor specified in Section 2.4 without less than 60 days'
prior written notice to Prudential.
SECTION 1.4. SUBORDINATION. Prudential and Company agree,
upon the delivery of a Notice of Blockage (as defined in the Cash
Collateral Account Agreement) or at such time as Prudential or
Warburg exercises any other remedies with respect to the Cash
Collateral Account, that the Senior Debt evidenced by the Senior
Note, as defined in the Note Agreement, shall be subordinated in
right of payment to the extent of any proceeds within the Cash
Collateral Account, as and in the manner provided herein, (i)
first, to the prior payment in full of all Broker Fees (as
defined below), and, (ii) second, to any outstanding obligations
under the
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Warburg Note, and that the subordination is for the benefit of
Company. "Broker Fees" shall mean (i) the fees, commissions and
other amounts to be paid to Brokers as compensation for the
commercial real estate brokerage operations that gave rise to the
Broker Commissions, and (ii) reimbursement to any banks that
advanced such fees, commissions and other amounts from Company
accounts pursuant to Company's transfer instructions. During the
effectiveness of this subordination, Company shall provide Broker
Fee notices to Warburg and Prudential no earlier than two
Business Days prior to a proposed Broker Fee payment date. Each
such notice shall identify each Broker owed a Broker Fee or each
bank that is to be reimbursed for an advanced Broker Fee, the
transaction giving rise to the Broker Fee, the transaction date,
the amount of the Broker Fee, the proposed Broker Fee payment
date and payment instructions.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Company makes the following representations and warranties
to Prudential, which representations and warranties shall be true
and correct immediately before and at the time of entering into
this Agreement and at the time of each request for an advance.
SECTION 2.1. LEGAL STATUS. Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware, and is qualified or licensed to do
business, and is in good standing as a foreign corporation, if
applicable, in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to
be so licensed would not reasonably be expected to have a
Material Adverse Effect. For purposes of this Agreement, the
term "Material Adverse Effect" means a material adverse effect
upon the business, operations, properties, assets or condition
(financial or otherwise) of Company and its wholly owned
subsidiaries, taken as a whole.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement,
and each other document, contract and instrument required by or
at any time delivered to Prudential in connection with this
Agreement (with all of the foregoing, including, without
limitation, the Prudential Documents and the Cash Collateral
Documents, referred to herein collectively as the "Prudential
Loan Documents") to which Company is a party have been (or, with
respect to any of the foregoing executed and delivered after the
date hereof, will have been at the time of such execution and
delivery) duly authorized by Company, and upon such execution and
delivery will constitute legal, valid and binding agreements and
obligations of Company or the party which executes the same,
enforceable in accordance with their respective terms.
4
SECTION 2.3. NO VIOLATION. The execution, delivery and
performance by Company of each of the Prudential Loan Documents
to which it is a party do not violate any provision of any law or
regulation, or contravene any provision of Company's Certificate
of Incorporation or By-Laws, or result in a breach of or
constitute a default under any contract, obligation, indenture or
other instrument to which Company is a party or by which Company
or any of its properties may be bound except for any such breach
or default which has been duly waived or consented to by all
necessary parties.
SECTION 2.4. CHIEF EXECUTIVE OFFICE; FEIN NUMBER. The
chief executive office and the office where Company keeps its
records regarding the Collateral is located at One Montgomery
Street, Telesis Tower, San Francisco, California 94104.
Company's Federal Employer Identification Number is: 94-1424307.
SECTION 2.5. SECURITY INTEREST. Upon the execution and
delivery of this Agreement and the Cash Collateral Account
Agreement, Prudential shall have a valid and continuing security
interest in the Cash Collateral Account, and all action necessary
to perfect such security interest shall have been taken.
Prudential's security interest in the Cash Collateral Account is,
and will continue to be, a first priority (subject to the terms
of the Prudential Loan Documents) security interest, free and
clear of all liens, claims, security interest and encumbrances,
except with respect to any liens, claims, security interest and
encumbrances of the Depository Bank granted by statute or
pursuant to the Cash Collateral Account Agreement or any other
Loan Document, and acknowledged by Prudential under the
Intercreditor Agreement.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1. (a) Documentation. Prudential shall have
received, in form and substance satisfactory to Prudential, the
Prudential Agreement and each of the Prudential Loan Documents
(in each case, duly executed by Company and/or each other party,
as applicable).
(b) Cash Collateral Account. The Cash
Collateral Account shall have been established in a manner
satisfactory to Prudential in its sole discretion and Prudential
shall be satisfied that all steps shall have been taken necessary
to create and perfect in favor of Prudential (to secure all
obligations of Company under the Prudential Loan Documents) a
first priority (subject to the terms of the Prudential Loan
Documents) security interest in the Cash Collateral Account and
all other Collateral described in Section 1.1 and 1.2.
5
ARTICLE IV
AFFIRMATIVE COVENANTS
Company covenants that so long as the Senior Debt owed by
Company to Prudential under the Note Agreement remains
outstanding, and until payment in full of all obligations of
Company secured hereby, Company shall:
SECTION 4.1. Note Agreement. Comply fully will all
obligations under the Note Agreement and this Security Agreement.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1. DEFAULT The occurrence of any of the
following shall constitute an "Event of Default" under this
Prudential Security Agreement:
(a) An Event of Default (as defined therein), shall have
occurred and be continuing under the Prudential Note Agreement.
(b) Prudential shall cease for any reason to have a valid
and perfected first priority security interest in the Collateral
securing payment in full of the Senior Debt owed by Company under
the Note Agreement, junior only to the interests of Warburg or as
otherwise provided in the Cash Collateral Agreement.
(c) The Cash Collateral Documents shall be modified without
the consent of Prudential except with respect to fees charged by
the Depository Bank or other administrative changes required by
the Depository Bank that do not adversely affect Prudential's
security interest in the Cash Collateral Account.
SECTION 5.2. REMEDIES.
(a) If an Event of Default shall occur, in addition to, and
not in substitution for any remedies to Prudential under the Note
Agreement, (i) Prudential shall have all rights, powers and
remedies available under each of the Prudential Loan Documents,
or accorded by law, including without limitation the right to
resort to any or all of the Collateral or any other security for
any of the obligations of Company hereunder and to exercise any
or all of the rights of a beneficiary or secured party pursuant
to applicable law subject to the Intercreditor Agreement. All
rights, powers and remedies of Prudential in connection with each
of the Prudential Loan Documents may be exercised at any time by
Prudential and from time to time after the occurrence of an Event
of Default, are cumulative and not exclusive, and shall be in
addition to any other rights, powers or remedies provided by law
or equity.
6
(b) If any Event of Default shall have occurred and be
continuing, in addition to, and not in substitution for any
remedies available to Prudential under the Note Agreement,
Prudential may exercise in respect of the Collateral, (i) all the
rights and remedies of a secured party on default under the
Uniform Commercial Code of the State of California (the "Code")
(whether or not the Code applies to the affected Collateral);
(ii) all of the rights and remedies provided for in this
Agreement, the Cash Collateral Documents and any other agreement
between Company and Prudential; and (iii) such other rights and
remedies as may be provided by law or otherwise (such rights and
remedies of Prudential to be cumulative and non-exclusive).
Company hereby waives (to the extent permitted by applicable law)
all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Company agrees that
at least ten days' notice to Company of the time and place of any
public sale or the time after which any private sale is to be
made shall constitute reasonable notification.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. TERMINATION OF AGREEMENT. This Agreement
shall terminate upon termination of the Warburg Loan Agreement
pursuant to its terms and payment to Prudential of the
Collateral, if any, extant as of date of termination of the
Warburg Loan Agreement.
SECTION 6.2. NO WAIVER. No delay, failure or
discontinuance of Prudential in exercising any right, power or
remedy under any of the Prudential Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy
preclude, waive or otherwise affect any other or further exercise
thereof or the exercise of any other right, power or remedy. Any
waiver, permit, consent or approval of any kind by Prudential of
any breach of or default under any of the Prudential Loan
Documents must be in writing and shall be effective only to the
extent expressly set forth in such writing.
7
SECTION 6.3. NOTICES. All notices, requests and demands
which any party is required or may desire to give to any other
party under any provision of this Agreement must be in writing
delivered to each party at the following addresses:
COMPANY: Grubb & Ellis Company
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telephone Number: (415) 956-4699
Telecopier Number: (415) 274-9700
Attn: General Counsel
LENDER: The Prudential Insurance Company of
America
c/o The Prudential Corporate Finance Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attention: Senior Managing Director
Telephone Number: (201) 802-6655
Telecopier Number: (201) 802-2662
or to such other address as any party may designate by written
notice to each other party. Each such notice, request and demand
shall be deemed given or made as follows: (a) if sent by hand
delivery or courier service, upon delivery; (b) if sent by mail,
upon the earlier of the date of receipt or three (3) days after
deposit in the U.S. mail, first class and postage prepaid; or (c)
if sent by telecopy, upon receipt.
SECTION 6.4. INDEMNITY, COSTS, EXPENSES AND ATTORNEYS'
FEES. Company shall indemnify Prudential against, hold
Prudential harmless from, and pay to Prudential immediately upon
demand, the full amount of all costs and expenses, including
reasonable attorneys' fees, incurred by Prudential in connection
with (a) Prudential's administration of this Agreement and each
of the other Prudential Loan Documents (including, without
limitation, the subordination provisions in Section 1.6 and any
costs or other expenses incurred in establishing or maintaining
the Cash Collateral Account), and the preparation of this
Agreement and the other Prudential Loan Documents and any
amendments and waivers hereto and thereto, (b) the enforcement of
Prudential's rights and/or the collection of any amounts which
become due to Prudential under any of the Prudential Loan
Documents (including in connection with any bankruptcy,
reorganization, "work-out" or similar circumstance or
proceeding), and (c) the prosecution or defense of any claim or
action in any way arising out of or related to any of the
Prudential Loan Documents or the transactions contemplated
thereby, including without limitation any action for declaratory
relief.
8
SECTION 6.5. SUCCESSORS, ASSIGNMENT. This Agreement shall
be binding on and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of
the parties; provided however, that Company may not assign or
transfer its interest or obligations hereunder without the prior
written consent of Prudential. Prudential reserves the right to
sell, assign, transfer, negotiate or grant participations in all
or any part of, or any interest in, Prudential's rights and
benefits under this Agreement, the Notes and each of the other
Prudential Loan Documents.
SECTION 6.6. ENTIRE AGREEMENT; COUNTERPARTS; AMENDMENT.
The Prudential Loan Documents constitute the entire agreement
between Company and Prudential with respect to the Prudential
Debt and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter
hereof. This Modification Agreement may be executed in any
number of counterparts and may be amended or modified only by a
written instrument executed by each party hereto.
SECTION 6.7. NO THIRD PARTY BENEFICIARIES. This Agreement
is made and entered into for the sole protection and benefit of
the parties hereto and their respective permitted successors and
assigns, and no other person or entity shall be a third party
beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any other of the
Prudential Loan Documents to which it is not a party.
SECTION 6.8. TIME IS OF THE ESSENCE. Time is of the
essence of each and every provision of this Agreement and each of
the other Prudential Loan Documents.
SECTION 6.9. SEVERABILITY OF PROVISIONS. If any provision
of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating the
remainder of such provision or any remaining provisions of this
Agreement.
SECTION 7.0. GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the internal laws of
the State of California.
9
IN WITNESS WHEREOF, the parties hereto have caused this Loan
and Modification Agreement to be executed as of the day and year
first written above.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: The Prudential Insurance
Company of America
By: /s/ John P. Mullman
Name: John P. Mullman
Title: Vice President
GRUBB & ELLIS COMPANY
By: /s/ Robert J. Hanlon, Jr.
Name: Robert J. Hanlon, Jr.
Title: SVP and Chief Financial Officer
10
SEPARATION AGREEMENT
This Separation Agreement (the Agreement) is made as of
April 25, 1994 by and between Wilbert F. Schwartz (Executive) on
the one hand, and Grubb & Ellis Company, a Delaware corporation
(the Company), on the other.
R E C I T A L S
WHEREAS, the Company has employed Executive since
February 24, 1993 and Executive now serves as its President and
Chief Executive Officer and on its Board of Directors; and
WHEREAS, Executive wishes to resign as of the Effective
Date (as defined below) from his offices as President and Chief
Executive Officer of the Company and as an employee of the
Company and the Company wishes to accept Executive's resignation;
and
WHEREAS, the Company wishes to provide Executive with
severance benefits under the terms and conditions set forth
hereinbelow.
A G R E E M E N T
NOW, THEREFORE, the parties hereby agree as follows:
1. Employment Status
(a) Executive hereby voluntarily resigns as of the
Effective Date (as defined below) from his positions as President
and Chief Executive Officer of the Company, from all committees
of the Board of Directors of the Company, as an employee of the
Company and from all positions held at, and all boards of
directors and committees of such boards of, all affiliates of the
Company; provided that Executive may, if he so wishes, continue
to serve as a director of Axiom Real Estate Management, Inc. at
the pleasure of the Company. No later than the Effective Date,
Executive shall return to the Company all Company property in his
possession, including without limitation, keys, credit cards,
telephone calling cards, manuals, books, notebooks, financial
statements, computer software, cellular and portable telephone
equipment, reports and other documents. The "Effective Date"
shall be July 1, 1994 or such earlier date as Executive or the
Board so elects (the "Effective Date"); provided that the
occurrence of the Effective Date prior to July 1, 1994 as a
result of the Board's election shall not affect Executive's right
to receive the salary, benefits and perquisites described in
paragraph 1(b) below.
1
(b) From the date hereof through June 30, 1994,
Executive shall be entitled to continue to receive his current
base salary and all benefits and perquisites that he currently is
entitled to receive from the Company, provided that if Executive
elects to terminate his employment with the Company prior to July
1, 1994, then he shall be entitled to receive only the severance
and medical and dental benefits described in paragraphs 1(c) and
2 below.
(c) On the Effective Date, Executive's employment with
the Company shall terminate. From July 1, 1994, or such earlier
date on which Employee elects to terminate his employment with
the Company, until June 30, 1995, Executive shall be paid
severance benefits in the form of the continuation of his current
base salary and shall be entitled to receive medical and dental
benefits in accordance with paragraph 2 below. The benefits
payable to Executive under this Agreement shall be in lieu of any
and all other severance or termination benefits which would
otherwise be payable to Executive under any plan, policy,
agreement or arrangement of the Company. In addition, the
Company shall reimburse Executive for 50% of the cost of
reasonable and customary out-placement counseling services,
provided that the Company's obligation hereunder shall not exceed
$20,000.
(d) Executive shall, if Executive so elects, continue
to serve as a member of the Board of Directors, subject to
removal under the Company's charter and by-laws. For so long as
Executive shall continue to receive salary continuation benefits
under this Agreement, Executive shall not be entitled to receive
any directors' fees or participate in the directors stock option
plan. For so long as Executive shall continue to serve on the
Board after he ceases to receive salary continuation benefits
under this Agreement, he shall be entitled to receive
compensation pursuant to the same plans, programs and policies as
the Company's other nonemployee directors are then entitled to
receive. For so long as Executive shall continue to serve on the
Board of Directors of the Company or any affiliate, Executive
shall be entitled to receive reimbursement for out-of-pocket
expenses reasonably incurred in connection with his service as a
director in accordance with the Company's expense reimbursement
policy for directors, and shall be covered (to the same extent as
other directors) under any Directors' and Officers' Liability
Insurance Policy which the Company has in effect and be covered
by his existing indemnification agreement with the Company.
(e) If Executive accepts full-time employment which
will commence prior to June 30, 1995, then immediately upon
securing such employment, Executive shall notify the Company of
the identity of the employer, his position and start date. Such
employment shall in no way diminish the benefits to which
Executive is entitled hereunder, except as provided in paragraphs
1(b) and 2 hereof.
2
2. Welfare Benefits
The Company shall continue to provide medical and
dental benefits to Executive pursuant to the terms of its group
medical benefit plan, as it may be amended from time to time, for
so long as he shall continue to receive salary continuation
benefits under paragraph 1 on the cost-sharing basis which is in
effect on the Effective Date; provided, however, that after July
1, 1994, the Company's obligation to provide such medical and
dental benefits shall terminate at such time as Executive becomes
covered under any another group medical benefit plan.
3. Executive's Rights Under Company Plans
(a) Immediately upon execution of this Agreement, all
stock options previously granted to Executive pursuant to the
Company's 1990 Amended and Restated Stock Option Plan shall be
canceled and terminated. Executive agrees to execute any
documents and take such further actions as may be requested by
the Company in order to effect such cancellation.
(b) Nothing contained in this Agreement shall affect
or otherwise diminish Executive's rights with respect to the
assets held for his benefit in, or which he has contributed to,
the Company's 401(k) Plan or the Company's Employee Stock
Purchase Plan.
(c) Except as provided in this Agreement, Executive
acknowledges and agrees that he has no interest in and is
entitled to receive no compensation under any other plan, policy
or program of the Company, including but not limited to incentive
compensation arrangements as outlined in memos to Executive from
the Company.
4. Mutual Release
(a) For valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Executive, on the one
hand, hereby release and forever discharge the Company and
Warburg, Pincus Investors, L.P. ("WPI") and the Company and WPI,
on the other, hereby releases and forever discharges Executive
and, as the case may be, each of their associates; owners;
stockholders; affiliates; divisions; subsidiaries; predecessors;
successors; heirs; assigns; agents; directors; officers;
partners; employees; insurers; representatives; attorneys;
employee welfare benefit plans, employee pension benefit plans
and deferred compensation plans, and their trustees,
administrators and other fiduciaries; and all persons acting by,
through, under or in concert with them, or any of them, of and
from any and all manner of action or actions, cause or causes of
action, in law or in equity, suits, debts, liens, contracts,
agreements, promises, liability, claims,
3
demands, damages, loss, cost or expense, of any nature
whatsoever, known or unknown, fixed or contingent (hereinafter
called Claims), which each now has or may hereafter have against
the other, or any of them, by reason of any matter, cause or
thing whatsoever from the beginning of time to and including
April 25, 1994, including, without limiting the generality of the
foregoing, any Claims arising out of, based upon or relating to
Executive's performance or nonperformance of duties or conduct
while employed by the Company or Executive's hire, employment,
remuneration (including salary; bonus; incentive or other
compensation; vacation; sick leave or medical insurance benefits;
and/or benefits from any employee stock ownership, profit-sharing
and/or deferred compensation plan) or termination of employment
by the Company (including any Claims under Title VII of the Civil
Rights Act of 1964, as amended; the Civil Rights Act of 1991; the
Civil Rights Act of 1866, as amended; the Consolidated Omnibus
Budget Reconciliation Act; the Age Discrimination in Employment
Act, as amended; the Equal Pay Act, as amended; the Fair Labor
Standards Act, as amended; the Executive Retirement Income
Security Act, as amended; applicable state employment
discrimination statutes; applicable state wage and hour statutes;
and/or any other local, state or federal law governing
discrimination in employment and/or the payment of wages or
benefits). In giving this Release, Executive forever releases
and gives up his employment rights and employee status with the
other releasees, and each of them. Excepted from the foregoing
releases by the Company and WPI are any causes of action or
Claims brought against Executive by the Company or WPI in
connection with any causes of action or Claims brought against
the Company or WPI by third parties in which Executive's actions,
omissions or conduct are at issue, subject to Executive's rights
of indemnification under his existing indemnification agreement,
which rights, notwithstanding anything contained herein, shall
continue pursuant to the terms of such agreement, including but
not limited to pursuant to section 5 thereof. Excepted from the
foregoing release by Executive are any causes of action or Claims
brought against the Company or WPI by Executive in connection
with any causes of action or Claims brought against Executive by
third parties in which the Company's or WPI's actions, omissions
or conduct are at issue.
(b) IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT
PROTECTION ACT OF 1990, Executive IS AWARE OF THE FOLLOWING WITH
RESPECT TO HIS RELEASE OF ANY CLAIMS UNDER THE AGE DISCRIMINATION
IN EMPLOYMENT ACT (ADEA):
(1) HE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY
BEFORE SIGNING THIS AGREEMENT;
(2) HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS
AGREEMENT;
4
(3) HE HAS SEVEN (7) DAYS AFTER SIGNING THIS
AGREEMENT TO REVOKE THIS AGREEMENT, AND THIS AGREEMENT WILL NOT
BE EFFECTIVE AS TO ANY ADEA CLAIM UNTIL THE EIGHTH DAY FOLLOWING
Executive'S SIGNING THIS AGREEMENT.
(c) Each of the parties represents and warrants that
there has been no assignment or other transfer of any interest in
any Claim which it may have against the other, or any of them,
and each agrees to indemnify and hold the other, and each of
them, harmless from any liability, Claims, demands, damages,
costs, expenses and attorneys' fees incurred by the other, or any
of them, as a result of any person asserting such assignment or
transfer. It is the intention of the parties that this indemnity
does not require payment as a condition precedent to recovery by
an indemnified party against an indemnifying party under this
indemnity.
(d) Each party agrees that if it hereafter commences,
joins in, or in any manner seeks relief through any suit arising
out of, based upon, or relating to any of the Claims released
hereunder, or in any manner asserts against a released party, or
any of them, any of the Claims released hereunder, then it shall
pay to the other, and each of them, in addition to any other
damages caused to it thereby, all reasonable attorneys' fees and
costs incurred by it in defending or otherwise responding to said
suit or Claim.
5. Confidentiality and Non-Solicitation Covenants
Except as permitted or directed by the Board of
Directors of the Company, Executive shall not divulge, furnish or
make accessible to anyone or use in any way any confidential or
secret knowledge or information of the Company which Executive
has acquired or become acquainted with during the term of his
employment by the Company or any time thereafter, whether
developed by himself or by others, concerning any trade secrets,
confidential financial information, confidential or secret plans,
or materials (whether or not patented or patentable) directly or
indirectly useful in any aspect of the business of the Company.
Executive acknowledges that the above-described knowledge or
information constitutes a unique and valuable asset of the
Company and represents a substantial investment of time and
expense by the Company, and that any disclosure or other use of
such knowledge would be wrongful and would cause irreparable harm
to the Company. The foregoing obligations of confidentiality
shall not apply to any knowledge or information which is now
published or which subsequently becomes generally publicly known
other than as a direct or indirect result of the breach of this
Agreement by Executive.
5
Executive further agrees that through June 30, 1995,
Executive shall not, for himself or any third party, directly or
indirectly, (i) divert or attempt to divert from the Company or
any affiliated company, any business of any kind in which the
Company is engaged, including, without limitation, the
solicitation of its customers or interference with any of its
suppliers or customers, or (ii) employ or solicit for employment
any person employed by the Company, or by any affiliated company,
during the period of such person's employment.
Executive shall not be prohibited from engaging in any
business which competes with the Company, provided that in
engaging in any such business, Executive shall be subject to the
restrictions contained in this Agreement, including but not
limited to the restrictions contained in this paragraph 5.
6. Non-Disparagement Covenant
Executive agrees not to make any statement, publicly or
privately, disparaging any of the Releasees. The Company agrees,
and agrees to use its best efforts to cause its executive
officers, directors and affiliates, not to make any statement,
publicly or privately, disparaging Executive.
7. Confidentiality of Settlement Covenant
The parties shall not disclose the terms of this
Agreement unless required to do so by law or as may be necessary
to enforce this Agreement; provided, however, Executive may
disclose such terms in confidence to his immediate family,
attorneys, accountants and advisers provided that such persons
also agree to this pledge of confidentiality, and the Company may
disclose such terms in confidence to its management personnel,
directors, attorneys, accountants and advisers who have a
legitimate need to know. The parties acknowledge that the
Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, which require disclosure of the terms of
this Agreement as well as require the Company to file this
Agreement with the Securities and Exchange Commission. The
parties hereby agree to the Company's issuance of the press
release attached hereto as Exhibit "A". The parties further
agree that they will respond to all inquiries concerning
Executive's resignation in a manner which is consistent with the
tone and content of the attached press release.
6
8. Cooperation Covenant
Executive shall make himself available to the Company's
Board of Directors and its Chief Executive Officer to consult as
may reasonably be requested by them and cooperate fully in (i)
consulting with the Company with respect to all matters
concerning the Company in which Executive had personal
involvement during his period of employment with the Company,
(ii) assisting the Company in the consummation of any business
matters pending as of the Effective Date, and (iii) assisting the
Company in defending and testifying in any legal and other
proceedings relating to the affairs of the Company; provided that
(A) such requests shall not interfere with Executive's search for
new employment or business development activities or with any
other employment, consulting engagement or other business
activities Executive may accept, (B) the Company shall reimburse
Executive for out-of-pocket expenses reasonably incurred in
connection with such requests in accordance with the expense
reimbursement policy which is applicable to senior executives,
(C) the requests made pursuant to clauses (ii) and (iii) may be
made only for so long as Executive shall continue to receive
salary continuation benefits under this Agreement and may not
require that Executive provide more than occasional advice to the
Company. The parties may agree from time to time for Executive
to be retained to perform special projects upon such terms and
for such compensation as the parties may agree upon, although
nothing contained herein shall obligate either party to enter
into any such agreement. Nothing contained in this paragraph 8
shall limit Executive's right to obtain full- or part-time
employment or engage in consulting or other business activities.
9. Breach of Covenants
Executive and the Company agree that the Company will
be irreparably harmed by any violation or threatened violation of
any of the provisions of paragraphs 5, 6, 7 or 8 if such
provisions are not specifically enforced and therefore that the
Company shall be entitled to an injunction restraining any
violation of these paragraphs by Executive (without any bond or
other security being required), or any other appropriate decree
of specific performance. Such remedies shall not be exclusive
and shall be in addition to any other remedy to which the Company
may be entitled.
Executive and the Company agree that Executive will be
irreparably harmed by any violation or threatened violation of
any of the provisions of paragraphs 6 or 7 if such provisions are
not specifically enforced and therefore that Executive shall be
entitled to an injunction restraining any violation of these
paragraphs by the Company (without any bond or other security
being required), or any other appropriate decree of specific
performance. Such remedies shall not be exclusive and shall be
in addition to any other remedy to which Executive may be
entitled.
7
10. Waiver of Breach
A waiver by Executive or the Company of a breach of any
provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by either party.
11. Written Notice
Any written notice required or permitted to be given
under this Agreement shall be sufficient only if sent by
registered mail to Executive's residence, in the case of
Executive, or to the Company's principal office in the case of
the Company.
12. Assumption of Risk
Each of the parties to this Agreement fully understands
that if any fact with respect to any matter covered by this
Agreement is found hereafter to be other than, or different from,
the facts now believed to be true, each of the parties expressly
accepts and assumes the risk of such possible difference in fact
and agrees that the release provisions hereof shall be and remain
effective notwithstanding any such difference in fact.
13. Construction of Agreement
This Agreement shall be construed as a whole in
accordance with its fair meaning and in accordance with the
laws of the State of California. The language of this
Agreement shall not be construed for or against any particular
party. The headings used herein are for reference only and
shall not affect the construction of this Agreement.
14. Severability; Enforceability
If any provision of this Agreement, or the application
thereof to any person, place, or circumstance, shall be held to
be invalid, unenforceable, or void by the final determination of
a court of competent jurisdiction and all appeals therefrom shall
have failed or the time for such appeals shall have expired, such
clause or provision shall be deemed eliminated from this
Agreement but the remaining provisions shall nevertheless be
given full force and effect. In the event this Agreement or any
portion hereof is more restrictive than permitted by the law of
the jurisdiction in which enforcement is sought, this Agreement
or such portion shall be limited in that jurisdiction only, and
shall be enforced in that jurisdiction as so limited to the
maximum extent permitted by the law of that jurisdiction.
8
15. Entire Agreement
This Agreement sets forth the entire agreement between
the parties with respect to the termination of Executive's
employment with the Company and supersedes all other prior
agreements between the parties except for the agreements referred
to in paragraph 3 above.
16. Amendment to Agreement
Any Amendment to this Agreement must be in a writing
signed by duly authorized representatives of the parties hereto
and stating the intent of the parties to amend this Agreement.
17. Representation by Counsel
Executive represents and acknowledges that he has been
represented by legal counsel in connection with the negotiation
and preparation of this Agreement, that he has discussed all
aspects of this Agreement with his attorneys and that he has
carefully read and understands all of the provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the dates indicated below, effective as of the
Effective Date specified above.
GRUBB & ELLIS COMPANY,
A DELAWARE CORPORATION
By /s/ Joe F. Hanauer
Title: Chairman
Date: April 25, 1994
By /s/ Wilbert F. Schwartz
Name: Wilbert F. Schwartz
Date: April 25, 1994
AGREED AND ACCEPTED AS TO
PARAGRAPH 4:
WARBURG, PINCUS INVESTORS,
L.P., A DELAWARE LIMITED PARTNERSHIP
BY: WARBURG, PINCUS & CO.
General Partner
BY: /s/ Reuben Leibowitz
General Partner
9
