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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.___2__)*
Grubb & Ellis Company
________________________________________________________________________________
(Name of Issuer)
Common Stock, par value $.01 per share
________________________________________________________________________________
(Title of Class of Securities)
400095204
________________________________________________________________________________
(CUSIP Number)
John Mullman The Prudential Insurance Company of America, Four Gateway Center,
Newark, NJ 07102 (201) 802-7500
________________________________________________________________________________
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
March 28, 1994.
______________________________________________________
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement / /. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statment, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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SCHEDULE 13D
CUSIP No. 400095204 Page 2 of Pages
________________________________________________________________________________
1 NAME OF REPORTING PERSON
S.S OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
IRS Identification Number 22-1211670
________________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
4 SOURCE OF FUNDS*
00
________________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(E) / /
________________________________________________________________________________
6 CITIZENSHIP OR PLACE OR ORGANIZATION
New Jersey
________________________________________________________________________________
7 SOLE VOTING POWER
3,072,060
______________________________________________________________
NUMBER OF
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY -0-
EACH _______________________________________________________________
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH
3,272,060
_______________________________________________________________
10 SHARED DISPOSITIVE POWER
-0-
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,272,060
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
47.2%
________________________________________________________________________________
14 TYPE OF REPORTING PERSON*
IC
________________________________________________________________________________
*SEE INSTRUCTIONS BEFORE FILLING OUT!
SEC 1746 (9-88) 2 0f 7
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This Amendment No. 2 (the "Amendment") to Schedule 13D is being
filed on behalf of the undersigned to amend the Schedule 13D (the "Schedule
13D") dated November 11, 1992, relating to the common stock, par value, $.01
per share (the "Common Stock"), of Grubb & Ellis Company, a Delaware
corporation (the "Company"). The Amendment amends and restates the Schedule
13D in its entirety as required pursuant to Item 101(a)(2)(ii) of Regulation
S-T under the Securities Exchange Act of 1934, as amended.
ITEM 1. SECURITY AND ISSUER.
This statement relates to the Common Stock, par value
$.01 per share (the "Common Stock"), issued by Grubb & Ellis Company, a
Delaware corporation (the "Company") which has its principal executive offices
at One Montgomery Street, San Francisco, California 94104.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is filed by The Prudential Insurance
Company of America, a New Jersey corporation ("Prudential"). Prudential is a
mutual life insurance company which has its principal business and principal
office at 751 Broad Street, Newark, New Jersey 07102. The following persons
are the current directors (the "Directors") of Prudential:
James G. Affleck, P.O. Box 477, East Dorset, Vermont 05253,
has been retired since 1984. Formerly the Chairman of American
Cyanamid Company.
Robert E. Beck, 751 Broad Street, Newark, New Jersey 07102,
has been retired since 1992. Chairman - Emeritus of Prudential.
William W. Boeschenstein, retired since 1990. Formerly the
Chairman of the Board and Chief Executive Officer of Owens-Corning
Fiberglass Corporation, Fiberglass Tower, Toledo, Ohio 43659, which
engages in the business of manufacturing fiberglass products.
Lisle C. Carter, Jr. has been retired since 1991 and formerly
was a partner in the law firm of Verner Liipfert, Bernhard, McPherson
& Hand, Chartered, 1307 Fourth Street, S.W., Washington, D.C. 20024
James G. Cullen is President of Bell Atlantic Corporation,
1310 North Court House Road, 11th Floor, Arlington, Virginia 22201.
Carolyne K. Davis, is a Health Care Advisor at the accounting
firm of Ernst & Young, 1200 Nineteenth Street, N.W. Washington, D.C.
20036.
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Roger A. Enrico is Vice Chairman of Pepsico, Inc., 7701
Legacy Drive, Plano, Texas 75024.
William H. Gray, III, is President and Chief Executive
Officer of the United Negro College Fund, Inc., 500 East 62nd Street,
New York, New York 10021.
Jon F. Hanson, is Chairman of Hampshire Management Company,
235 Moore Street, Suite 200 Hackensack, New Jersey 07601.
Constance J. Horner is a Guest Scholar at the Brookings
Institution, 1775 Massachusetts Ave., N.W., Washington, D.C. 20036-2188.
Allen F. Jacobson, 3050 Minnesota World Trade Center, 37th
Street East, St. Paul Minnesota 55101, has been retired since 1991. Formerly
the Chairman and Chief Executive Officer of Minnesota Mining and Manufacturing
(3M).
Garnett L. Keith, Jr., is Vice Chairman of Prudential, 751
Broad Street, Newark, New Jersey 07102.
Burton G. Malkiel, is a Professor of Economics at Princeton
University, 110 Fisher Hall, Prospect Avenue, Princeton University, Princeton,
New Jersey 08544.
John R. Opel, is Retired Chairman of International Business
Machines Corporation, 590 Madison Avenue, New York, New York 10022.
Donald E. Procknow, 18 Saw Mill Road, Saddle River, New
Jersey 07458, has been retired since 1986. Formerly the Vice Chairman and
Chief Operating Officer of AT&T Technologies, Inc.
Richard M. Thomson, is Chairman of the Board and Chief
Executive Officer of the Toronto-Dominion Bank, Toronto-Dominion Centre,
Toronto, Ontario M5K 1A2, Canada.
P. Roy Vagelos, M.D., is Chairman and Chief Executive Officer
of Merck & Co., Inc., a manufacturer of pharmaceuticals, 126 East Lincoln
Avenue, Rahway, New Jersey 07065.
Stanley C. Van Ness, is an attorney at the law firm of Picco
Mack Herbert Kennedy Jaffe Perrella and Yoskin, One State Street Square, Suite
1000, Trenton, New Jersey 08607
Paul A. Volcker, is Chairman of James D. Wolfenshohn, Inc.,
599 Lexington Avenue, New York, New York 10022.
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Joseph H. Williams is Chairman of the Board of The Williams
Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172.
Robert C. Winters, is Chairman of the Board, Chief Executive
Officer and President of Prudential, 751 Broad Street, Newark, New
Jersey 07102.
The following persons are the current executive officers (the "Officers") and
controlling persons of Prudential, and each of their business addresses is 751
Broad Street, Newark, New Jersey:
Robert C. Winters - Chairman of the Board, Chief Executive
Officer and President
Garnett L. Keith, Jr. - Vice Chairman
William P. Link - Chairman and Chief Executive Officer, Group
Operations
Edward D. Zinbarg - Executive Vice President
Robert P. Hill - Chairman and Chief Executive Officer,
Prudential Direct
Robert E. Riley - Chairman and Chief Executive Officer,
Prudential Reinsurance Company
James W. Stevens - Chairman and Chief Executive
Officer, Prudential Asset Management Group
Martha J. Clark - President, Prudential Asset
Management Company
William M. Bethke - Senior Vice President
Stephen R. Braswell - Senior Vice President
John D. Brookmeyer - Senior Vice President
E. Michael Caulfield - Senior Vice President
Robert M. Chmely - Senior Vice President
James E. Dwane - Senior Vice President
William S. Field - Senior Vice President
William D. Friel - Chief Executive Officer, Prudential
Service Company
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James R. Gillen - Senior Vice President and General Counsel
Bruce J. Goodman - President, Prudential Business Systems
Nicholas M. Graves - Senior Vice President
Allen M. Haight - Senior Vice President
Samuel H. Havens - Senior Vice President
Eugene B. Heimberg - Senior Vice President
William G. Hunt, Jr. - Senior Vice President
Milan E. Johnson - President, Prudential Residential
Services Company
Ira J. Kleinman - Senior Vice President
Donald C. Mann - Senior Vice President
John P. Murray - Executive Vice President and
Director of Corporate Risk Management
Eugene M. O'Hara - Senior Vice President, Comptroller and
Chief Financial Officer
I. Edward Price - Senior Vice President and Company Actuary
Donald G. Southwell - Senior Vice President
Dorothy K. Light - Vice President and Secretary
Martin Pfinsgraff - Vice President and Treasurer
Prudential, the Directors and the Officers are collectively referred to herein,
as the "Enumerated Persons". Each of the Enumerated
Persons are American citizens, with the exception of Mr. Richard M. Thomson,
who is a Canadian citizen. Based upon the knowledge of
Prudential and without independent verification, none of the Enumerated Persons
has, during the last five years, been convicted in a
criminal proceeding, nor have any of the Enumerated Persons, during the last
five years, been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree
or final order enjoining future violations of, or prohibiting or mandating
activities subject to,
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federal or state securities laws or finding any violation with respect to such
laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On January 29, 1993, Prudential purchased the Securities (as
defined below) for $15 million, which amount was paid by the cancellation by
Prudential and delivery to the Company of 10.65% Subordinated Notes due
November 1996 of the Company ("Subordinated Notes") in the aggregate principal
amount of $15 million. The Subordinated Notes were originally acquired by
Prudential from the Company pursuant to that certain Note Purchase Agreement
dated as of November 1, 1986 by and between Prudential and the Company (the
"Old Note Purchase Agreement"). The other shares of Common Stock owned by
Prudential were acquired upon the exercise of that certain Stock Subscription
Warrant dated November 1, 1986 (the "Old Warrant"). The exercise price of the
Old Warrant was $2,902,112.08, and was paid by application of $920,028.75 in
principal amount of the PIK Notes (as defined below) and the cancellation of
$1,982,083.33 of accrued and unpaid interest on the Subordinated Notes.
In addition, it is contemplated by the provisions of
the Term Sheet dated March 28, 1994 (the "1994 Term Sheet") that in connection
with a proposed capital infusion (the "1994 Transaction") which was agreed to
in principle by the Company, Prudential and Warburg, Pincus Investors, L.P.
("Warburg") that as consideration for modifying the terms of that certain
Senior Note, Subordinated Note and Revolving Credit Note Agreement dated as of
November 2, 1992 (the "New Note Purchase Agreement") Prudential will be granted
additional warrants initially to purchase 150,000 shares of Common Stock at an
exercise price of $2.375 per share (subject to adjustment to prevent dilution
(the "1994 Prudential Warrants").
The Term Sheet is described in Items 4 and 6 hereto
and is attached as Exhibit 1 hereto. The information contained in Items 4 and
6 and Exhibit 1 attached hereto is incorporated herein by reference. The New
Note Purchase Agreement was included as part of Exhibit 1 to the Schedule 13D,
as filed on November 11, 1992, and is incorporated herein by reference.
ITEM 4. PURPOSE OF TRANSACTION.
CONSUMMATION OF THE PRUDENTIAL SECURITIES PURCHASE
AGREEMENT. On January 29, 1993 (the "Closing Date"), as part of a
restructuring of the Company (the "Restructuring"), Prudential and the Company
consummated the transactions contemplated by that certain Securities Purchase
Agreement dated as of November 2, 1992 (the "Prudential Securities Purchase
Agreement") between Prudential and the Company, pursuant to which, Prudential
(for
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the consideration described in Item 3 above), upon the terms and
conditions stated therein, purchased (i) 150,000 shares of a newly created
series of Junior Convertible Preferred Stock of the Company and (ii) five-year
warrants initially to purchase 200,000 shares of Common Stock at an exercise
price of $5.50 per share (the "New Prudential Warrants" and, collectively with
the Junior Convertible Preferred Stock, the "Securities"). Pursuant to the
Term Sheet, Prudential has agreed that upon consummation of the Company's sale
of rights to acquire common stock in the Company as contemplated by the Term
Sheet (the "Rights Offering") the exercise price of the New Prudential Warrants
will be reduced to $3.50 per share.
Exercise of the Old Prudential Warrant.
Additionally, on the Closing Date, immediately following consummation of the
transactions contemplated by the New Note Purchase Agreement and immediately
prior to the consummation of the transactions contemplated by the Prudential
Securities Purchase Agreement, Prudential exercised the Old Warrant issued to
it by the Company pursuant to the Old Note Purchase Agreement. Upon exercise
of the Old Warrant, Prudential received 397,549 shares of Common Stock. See
Item 3, above.
Consummation of the New Note Purchase Agreement.
In addition, on the Closing Date and prior to consummation of the transactions
contemplated by the Prudential Securities Purchase Agreement and the exercise
of the Old Warrant, Prudential and the Company consummated the transactions
contemplated by the New Note Purchase Agreement, pursuant to which, the Company
issued to Prudential (i) $5 million Revolving Credit Note due December 31, 1994
(the "New Revolving Credit Note"), (ii) $10 million of Senior Notes due
November 1, 1996 (the "New Senior Notes"), and (iii) $10 million of 10.65%
Subordinated Payment-in-Kind Notes ("PIK Notes"). The New Revolving Credit
Note, the New Senior Notes and the PIK Notes were issued in consideration for
the cancellation of certain notes of the Company, in an aggregate principal
amount of $25 million, issued pursuant to the Old Note Purchase Agreement.
Consummation of the Warburg Purchase Agreement.
On the Closing Date and simultaneously with the consummation of the
transactions contemplated by the Prudential Securities Purchase Agreement,
Warburg, Joe F. Hanauer ("Hanauer") and the Company consummated the
transactions contemplated by that certain Securities Purchase Agreement (the
"Warburg Purchase Agreement", and collectively with the Prudential Purchase
Agreement, the "Securities Agreements") dated as of November 2, 1992, pursuant
to which Warburg (for a purchase price of $12,850,000) and Hanauer (for a
purchase price of $900,000) purchased (i) 128,266 and 8,894 shares,
respectively, of the Senior Convertible Preferred Stock, (ii) five year
warrants initially to purchase 340,000 and 160,000 shares of Common Stock,
respectively, at an
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exercise price of $5.00 (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 "Warburg $5.50
Warrants"), and (iv) five-year warrants initially to purchase 373,818 and
26,182 shares of Common Stock, respectively, at an exercise price of $5.00 per
share only in the event that the Company incurs certain defined liabilities in
excess of $1.5 million (the "Contingent Warrants", and collectively with the
Warburg $5.50 Warrants and the $5.00 Warrants, the "Warburg Warrants").
Entry Into the Stockholders' Agreement. On the
Closing Date, the Company, Prudential, Warburg and Hanauer entered into the
Stockholders' Agreement which contains an agreement between Warburg and
Prudential with respect to voting for election of directors and grants
Prudential, Warburg and Hanauer certain registration rights with respect to
certain of the securities held by them. The specific terms of the voting
agreement and the registration rights are described more fully in item 6,
below, and are incorporated herein by reference. The Stockholders' Agreement
was filed as Exhibit 1 to the First Amendment to the Schedule 13D, filed on
February 9, 1993, and is incorporated herein by reference in its entirety.
On July 1, 1993, the Company, Prudential, Warburg and
Hanauer agreed to an amendment (the "Stockholders' Amendment") to the
Stockholders' Agreement, which changed the terms of the voting agreement, among
other things.
Furthermore, the Term Sheet contemplates that, in an
effort to permit the Company's subsidiary, Grubb & Ellis Asset Services
Corporation, to re-enter the government contracting business with the
Resolution Trust Corporation ("RTC") and the Federal Deposit Insurance
Corporation ("FDIC"), Prudential will work with the Company in a good faith
effort, which may include certain further revisions to the Stockholders'
Agreement, as further described in Item 6 hereof and in Exhibit 1 hereto.
Certificate Amendments. On the Closing Date, prior
to the consummation of the Restructuring, the Company's Certificate of
Incorporation was amended (the "Certificate Amendments"). The Certificate
Amendments (i) reduced the par value of the Common Stock from $1.00 to $.01,
(ii) effected a one-for-five reverse stock split of the Common Stock, (iii)
authorized 250,000 shares of the Senior Convertible Preferred Stock and (iv)
authorized 200,000 shares of the Junior Convertible Stock. The Certificate
Amendments are in substantially the same form as was filed previously as part
of Exhibit 1 to the Schedule 13D, as filed on November 11, 1992.
On May 28, 1993, the Board of Directors of the
Company unanimously approved additional amendments to the
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Company's Certificate of Incorporation which amendments were approved at the
Annual Meeting of Stockholders of the Company on August 9, 1993. These
amendments, among other things, (a) eliminated the three classes of directors,
(b) eliminated cumulative voting in the election of directors, (c) allowed for
the removal of members of the Board, with or without cause, by the affirmative
vote of a majority of the outstanding shares, (d) provided the Bylaws may be
amended by the affirmative vote of a majority of the outstanding shares of
capital stock, (e) provided that amendments to the Certificate of Incorporation
which have been approved by the Board require approval of a majority (rather
than a supermajority) of the outstanding shares, (f) eliminated the
supermajority vote requirement for certain business combinations and (g)
permitted holders of a majority of the outstanding shares of capital stock to
call a special meeting of stockholders. Removal of the limitations contained
in these provisions would allow Prudential, Warburg and Hanauer, acting
together, to take certain actions as stockholders that periodically were not
permitted. Subsequently, the Board approved conforming amendments to the
Company's Bylaws.
Termination of the Rights Plan. Prior to the Closing Date, the
definition of "Acquiring Person" under the Company's Stockholders' Rights
Agreement was amended so that the consummation of the Restructuring would not
make Prudential, Warburg or Hanauer an "Acquiring Person" as originally defined
in the Rights Plan. On the Closing Date the Rights were redeemed under the
Rights Plan for $.01 per share of Common Stock, payable in shares of Common
Stock, which shares were listed on the New York Stock Exchange and the Pacific
Stock Exchange upon issuance. The Common Stock was valued for purposes of such
redemption on the basis of the current market price as defined in the Rights
Plan. The whole and fractional shares of Common Stock received pursuant to the
redemption were aggregated with the shares of Common Stock already held by each
stockholder for the purpose of calculating the shares of Common Stock to be
received by such stockholder after the reverse stock split. Following the
redemption of the Rights, the Rights Plan was terminated.
Election of Directors. On January 29, 1993, the Company's stockholders
approved the Restructuring and elected nine members to the Board of Directors
of the Company, including (i) two directors nominated by Prudential: Wilbert
F. Schwartz, who was then serving as Managing Director of Prudential
Investment Corp., an affiliate of Prudential, and John P. Mullman, Vice
President -- Corporate Finance of Prudential; (ii) three directors nominated by
Warburg: Douglas M. Karp and Reuben Leibowitz, each of whom is a partner of
Warburg, Pincus & Company and E.M. Warburg, Pincus & Company, (affiliates of
Warburg) and Managing Directors of E.M Warburg, Pincus & Co., Inc. (an
affiliate of Warburg), and John D. Santoleri, a Vice President of Warburg,
Pincus Ventures, Inc. (an affiliate of Warburg); and
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(iii) Hanauer, who serves as Chairman. Three existing directors also
were elected to the Board, subjects to two of such directors being replaced
with individuals who meet the New York Stock Exchange's criteria for
independent directors.
Subsequently, Wilbert F. Schwartz was elected as
President of the Company. Upon his election Mr. Schwartz resigned all of his
positions with Prudential affiliates. Furthermore, in accordance with the
terms of the Stockholders' Amendment, the number of directors constituting the
whole Board of Directors of the Company has been reduced to seven. The Board
currently consists of six directors including (i) two directors nominated by
Warburg: Reuben Leibowitz and John Santoleri; (ii) Hanauer; (iii) Wilbert F.
Schwartz and (iv) two additional directors.
Term Sheet. On March 28, 1994, the Company,
Prudential and Warburg agreed to the terms of the Term Sheet, which sets forth
certain terms and conditions for (i) a $10 million revolving bridge loan from
Warburg, (ii) a rights offering and subscription warrant conversion, and (iii)
modification to the New Note Purchase Agreement. The transactions contemplated
by the Term Sheet are designed to provide the Company with additional working
capital which the Company believes it requires to meet its current and
projected working capital needs. The Term Sheet and related agreements are
described in Item 6 below and such descriptions are incorporated herein by
reference.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of the date hereof, Prudential directly
beneficially owns 3,272,060 shares of Common Stock through its direct ownership
of (i) 397,549 shares of Common Stock issued upon exercise of the Old Warrant,
(ii) 150,000 shares of Junior Convertible Preferred Stock which are convertible
into an aggregate of 2,674,511 shares of Common Stock and (iii) currently
exercisable New Prudential Warrants to purchase an aggregate of 200,000 shares
of Common Stock. Such shares of Junior Convertible Preferred Stock and New
Prudential Warrants upon conversion and when combined with the shares of Common
Stock currently held by Prudential represent approximately 47.2% of the Common
Stock calculated in accordance with Rule 13d-3(d)(1)(i) as described below. As
of the date hereof and based upon the knowledge of Prudential and without
independent verification, none of the other Enumerated Persons beneficially
owns any shares of the Common Stock.
By reason of the provisions of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Act"), Prudential, Warburg
and Hanauer may be deemed to be a "group". Prudential does not admit that it
is a member of a "group" with
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Warburg and Hanauer, nor does it admit that it beneficially owns any
shares of Common Stock now or in the future owned by Warburg or Hanauer.
As of the date hereof, Warburg directly beneficially
owns 5,067,425 shares of Common Stock through its direct ownership of
(i) 127,150 shares of Senior Convertible Preferred Stock which are convertible
into an aggregate of 4,219,052 shares of Common Stock and (ii) currently
exercisable Warburg Warrants to purchase an aggregate of 848,373 shares of
Common Stock. Such shares of Senior Convertible Preferred Stock and Warburg
Warrants, upon conversion and exercise, represent approximately 55.5% of the
Common Stock calculated in accordance with Rule 13d-3(d)(1)(i) as described
below.
As of the date hereof, Hanauer directly beneficially
owns 555,773 shares of Common Stock through his direct ownership of (i) 21,153
shares of Common Stock, (ii) 8,817 shares of Senior Convertible Preferred Stock
which are convertible into an aggregate of 292,563 shares of Common Stock and
(iii) currently exercisable Warburg Warrants to purchase an aggregate of
242,057 shares of Common Stock. In addition, as of June 8 1993, Hanauer
received an option to purchase 135,000 shares of Common Stock pursuant to an
employee stock option plan; the shares underlying such option have been
excluded from Hanauer's beneficial holdings reported on this Schedule 13D as
such option will not be exercisable within 60 days of the date hereof. The
shares of Senior Convertible Preferred Stock and Warburg Warrants, upon
conversion and exercise, when combined with the shares of Common Stock
currently held by Hanauer represent approximately 12.1% of the Common Stock
calculated in accordance with Rule 13d-3(d)(1)(i) as described below.
The percentages used in this paragraph 5(a) are
calculated based upon the 4,060,628 shares of Common Stock issued and
outstanding as of March 1, 1994, as reported in the Company's Form 10-K for the
fiscal year ended December 31, 1993. The number of shares beneficially owned
by Warburg and Hanauer as of the date hereof is as reported in the Schedule
13D, as amended, of Warburg filed with the Securities and Exchange Commission
by Warburg. Pursuant to Rule 13d-3(d)(1)(i), shares of Common Stock which are
not outstanding but which are subject to convertible securities are deemed to
be outstanding for the purpose of computing the percentage of outstanding
securities of the shares of Common Stock owned by the person holding such
convertible securities, but are not deemed to be outstanding for purposes of
computing the percentage of such shares owned by any person.
(b) As of the date hereof, Prudential has full power
to vote all shares of Common Stock and Junior Convertible Preferred Stock
(which votes on an as-converted basis) held by
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it, subject to the terms of the Stockholders' Agreement. As of the
date hereof, Prudential does not have the power to vote any shares of Common
Stock issuable to it upon exercise of the New Prudential Warrants. Upon
exercise of the New Prudential Warrants, Prudential would have full power to
vote the shares of Common Stock issued upon exercise of the New Prudential
Warrants, subject to the terms of the Stockholders' Agreement. Prudential has
full power to dispose of any shares of the Common Stock and Junior Convertible
Preferred Stock and the New Prudential Warrants held by it. As of the date
hereof, none of the Enumerated Persons (other than Prudential) has the power to
vote or dispose of any shares of Common Stock or Junior Convertible Preferred
Stock.
(c) None of the Enumerated Parties has effected any
transactions in the Common Stock during the preceding 60 days.
(d) Except as set forth in this Item 5, no person
other than each respective record owner referred to herein of securities is
known to have the right to receive or the power to direct the receipt of
dividends from or the proceeds of sale of such securities.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR
RELATIONSHIP WITH RESPECT TO SECURITIES OF THE ISSUER.
A. Securities Purchase Agreements.
Prudential and the Company entered into the
Prudential Securities Purchase Agreement pursuant to which and upon the terms
and subject to the conditions contained therein Prudential (for the
consideration described in Item 3 above) purchased (i) 150,000 shares of a
newly created series of Junior Convertible Preferred Stock and (ii) the New
Prudential Warrants, all as described in Item 4, above. The Prudential
Securities Purchase Agreement contains customary representations, warranties,
agreements and indemnification provisions.
The Prudential Securities Purchase Agreement,
including the following exhibits thereto (i) the form of Note Purchase
Agreement, (ii) the form of Stockholders' Agreement, (iii) the form of Warburg
Purchase Agreement, (iv) the form of Certificate Amendment and (v) the form of
Warrant Certificate, was filed as Exhibit 1 to the Schedule 13D, as initially
filed on November 11, 1992. The information contained in Exhibit 1 thereto is
incorporated herein by reference.
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The terms and conditions of the Warburg Purchase
Agreement are substantially similar to the terms and conditions contained in
the Prudential Securities Purchase Agreement. Warburg's consummation of the
transactions contemplated by the Warburg Purchase Agreement is described
further in Item 4 above, and that description is incorporated herein by
reference.
B. Description of Equity Securities.
Junior Convertible Preferred Stock. The Junior
Convertible Preferred Stock will, with respect to dividend rights and rights on
redemption and on liquidation, winding up or dissolution rank prior to any
other equity securities of the Company, excluding the Senior Convertible
Preferred Stock. Holders of Junior Convertible Preferred Stock will be
entitled to receive, out of any funds legally available therefor, cumulative
dividends payable in cash at a rate of 5% of the Junior Stated Value (as
defined below) per annum. Accrued but unpaid dividends will increase at a
compounding rate equal to 5% of the Junior Stated Value per annum compounded
annually. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, if assets are
remaining after the payment in full of the liquidation preference of the Senior
Convertible Preferred Stock, the holders of the shares of Junior Convertible
Preferred Stock then outstanding will be entitled to be paid out of
the assets of the Company available for distribution to its stockholders an
amount in cash equal to $100.00 per share (the "Junior Stated Value") plus an
amount equal to all dividends (whether or not earned or declared) on such
shares accrued and unpaid thereon to the date of final distribution, before any
payment shall be made or any assets distributed to the holders of any equity
security of the Company.
The Junior Convertible Preferred Stock will be
convertible into shares of Common Stock, at the option of the holder, at any
time. The initial conversion price will be set at the Closing, such that
conversion of the 150,000 shares of Junior Convertible Preferred Stock issued
to Prudential plus the shares of Common Stock issued upon exercise of the Old
Prudential Warrants would result in Prudential holding approximately 27% of the
Company's equity on a fully diluted basis, but before exercise of any warrants
issued in connection with the Restructuring. The Junior Convertible Preferred
Stock will be subject to mandatory conversion in the event that (i) at all
times during a two-year period the ratio of consolidated debt to net income
before taxes, excluding extraordinary items, and income or loss from
discontinued operations plus total interest expense and depreciation and
amortization has not exceeded 3.0:1.0, (ii) on each trading day during a
six-month period the price of the Common Stock has exceeded $1.75 per share,
and (iii) the Company is in full compliance with the terms and conditions
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<PAGE> 15
of all agreements pursuant to which the Company has incurred indebtedness for
borrowed money.
The conversion price is subject to adjustment from
time to time upon the occurrence of certain stock dividends or distributions,
stock splits, reverse stock splits or stock reclassifications, certain
issuances of rights, options, warrants or securities directly or indirectly
convertible into Common Stock to all holders of Common Stock entitling them to
purchase shares of Common Stock at a price per share less than the greater of
the current market price or the conversion price per share on the date of such
issue, certain extraordinary dividends or distributions to all holders of
Common Stock, and certain issuances of Common Stock for consideration per share
less than the greater of the current market price or the conversion price per
share on the date of such issue.
Assuming full satisfaction of the Company's mandatory
redemption obligation with respect to the Senior Convertible Preferred Stock,
on November 1, 2000, 2001, 2002 and 2003, the Company will be required to
redeem 16.67%, 16.67%, 33.4% and all remaining shares, respectively, of the
Junior Preferred Stock, in each case at the Junior State Value plus accrued and
unpaid dividends and to the extent the Company has the funds legally available
therefor.
The Term Sheet contemplates that Prudential will
exchange its Junior Convertible Preferred Stock for stock with substantially
equivalent rights but which will not be redeemable and will have certain
different dividend rights. See the discussion above.
Senior Convertible Preferred Stock. The Senior
Convertible Preferred Stock will, with respect to dividend rights and rights on
redemption and on liquidation, winding up or dissolution rank prior to any
other equity securities of the Company. Holders of Senior Convertible
Preferred Stock will be entitled to receive, out of any funds legally available
therefor, cumulative dividends payable in cash at a rate of 12% of the Senior
Stated Value (as defined below) per annum. Accrued but unpaid dividends will
increase at a compounding rate equal to 12% of the Senior Stated Value per
annum compounded annually. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the
holders of the shares of Senior Convertible Preferred Stock then outstanding
will be next entitled to be first paid out of the assets of the Company
available for distribution to its stockholders an amount in cash equal to
$100.00 per share (the "Senior Stated Value") plus an amount equal to all
dividends (whether or not earned or declared) on such shares accrued and unpaid
thereon to the date of final distribution, before any payment shall be made or
any
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<PAGE> 16
assets distributed to the holders of any equity security of the Company.
The Senior Convertible Preferred Stock will be
convertible into shares of Common Stock, at the option of the holder, at any
time. The initial conversion price will be set at the Closing, such that
conversion of the 137,160 shares of Senior Convertible Preferred Stock issued
to Warburg and Hanauer would result in such persons holding approximately 27%
of the Company's equity on a fully diluted basis, but before exercise of any
warrants issued in connection with the Restructuring. The Senior Convertible
Preferred Stock will be subject to mandatory conversion in the event that (i)
at all times during a two-year period the ratio of consolidated debt to net
income before taxes, excluding extraordinary items, and income or loss from
discontinued operations plus total interest expense and depreciation and
amortization has not exceeded 3.0:1.0, (ii) on each trading day during a
six-month period the price of the Common Stock has exceeded $1.75 per share,
and (iii) the Company is in full compliance with the terms and conditions of
all agreements pursuant to which the Company has incurred indebtedness for
borrowed money.
The conversion price is subject to adjustment from
time to time upon the occurrence of certain stock dividends or distributions,
stock splits, reverse stock splits or stock reclassifications, certain
issuances of rights, options, warrants or securities directly or indirectly
convertible into Common Stock to all holders of Common Stock entitling them to
purchase shares of Common Stock at a price per share less than the greater of
the current market price or the conversion price per share on the date of such
issue, certain extraordinary dividends or distributions to all holders of
Common Stock, and certain issuances of Common Stock for consideration per share
less than the greater of the current market price or the conversion price per
share on the date of such issue.
On November 1, 2000 up to 50% of the shares of Senior
Convertible Preferred Stock issued at any time will be subject to mandatory
redemption, with the remaining shares subject to mandatory redemption on
November 1, 2001, in each case at the Senior State Value plus accrued and
unpaid dividends and to the extent the Company has the funds legally available
therefor.
The Term Sheet contemplates that Warburg will
exchange its Senior Convertible Preferred Stock for stock with equivalent
rights but which is not redeemable. See the discussion above.
Voting Rights. The Preferred Stock is entitled to
vote on all matters submitted to a vote of the stockholders of
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<PAGE> 17
the corporation on an as-converted-to Common Stock basis. Without the
consent of two-thirds of the issued and outstanding shares of both the Senior
Convertible Preferred Stock and the Junior Convertible Preferred Stock, each
voting separately as a class, the Company may not (i) authorize or issue any
class of shares, (ii) increase the authorized shares of, or issue such shares,
(iii) amend, alter, waive the application of or repeal certain provisions of
the Certificate of Incorporation, or enter into any agreement or take any other
action which in any manner would alter, change or otherwise adversely affect
the powers, rights or preferences of either such security, (iv) effect a
reorganization, recapitalization, liquidation, dissolution, winding up, sale of
substantially all of the Company's assets or a merger, or (v) take any action
which would cause a dividend to be deemed received as to either such security
for certain purposes unless actually received. The Certificate Amendment
denies voting rights to the holders of Common Stock with respect to matters
described in clauses (ii), (iii) and (v) above except as otherwise required by
Delaware law.
New Prudential Warrants. Each of the New Prudential
Warrants entitles the holder thereof to purchase one fully paid and
nonassessable share of Common Stock at their respective initial exercise
prices, subject to adjustment as provided below. The New Prudential Warrants
have an initial exercise price of $5.50 per share. Payment of the aggregate
exercise price may be made, at the option of the holder (i) in cash, (ii) by
delivery of warrants, the value of which will be deemed to be equal to the
difference between the current market price per share (as defined) and the then
current exercise price or (iii) by the cancellation by Prudential and the
delivery to the Company of New Senior Notes, PIK Notes, the New Revolving
Credit or Converted Term Note (as defined below) or by cancellation of accrued
and unpaid interest thereon.
The exercise price and the number of shares of Common
Stock issuable upon exercise of each warrant issued in connection with the
Restructuring are subject to adjustment from time to time upon the occurrence
of certain stock dividends or distributions, stock splits, reserve stock splits
or stock reclassifications, certain issuance of rights, options, warrants or
securities directly or indirectly convertible into Common Stock to all holders
of Common Stock entitling them to purchase shares of Common Stock at a price
per share less than the greater of the current market price or the exercise
price per share on the date of such issue, certain extraordinary dividends or
distributions to all holders of Common Stock, and certain issuances of Common
Stock for a consideration per share less than the greater of the then current
exercise price and the then current market price per share on the date of such
issue.
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<PAGE> 18
The Term Sheet contemplates that upon commencement of
the Rights Offering the exercise price of the New Prudential Warrants will be
reduced to $3.50 per share and Prudential will relinquish the antidilution
provisions of the New Prudential Warrants for issuance of common stock for
consideration per share less than the current exercise price.
C. The Stockholders' Agreement
Voting Agreement. Pursuant to the Stockholders'
Agreement, each Stockholder (as defined below) agreed that at any special or
annual meeting of stockholders at which directors of the Company are to be
elected or in connection with a solicitation of consents through with Directors
are to be elected, it shall vote (or give a written consent with respect to)
all of its shares of capital stock in favor of: (i) the election to the Board
of Directors of the Company of two nominees designated by Prudential (the
"Prudential Nominees") and three nominees designated by Warburg (the "Warburg
Nominees"); and (ii) the election to the Board of Directors of such other
nominees, not running in opposition to the Prudential Nominees or to the
Warburg Nominees, who shall have been selected or approved as such by a
majority of the whole Board, provided that Prudential and Warburg will not be
obligated to comply with the foregoing provisions if the Board has failed, in
the case of Prudential to nominate for election to the Board two Prudential
Nominees after being requested to do so by Prudential, or has failed, in the
case of Warburg, to nominate for election to the Board three Warburg Nominees
after being requested to do so by Warburg. "Stockholder" as defined in the
Stockholders' Agreement means Warburg, Prudential and any other person (other
than Hanauer) who agrees to be bound by the terms of the Stockholders'
Agreement, provided that no person shall be a Stockholder if such person ceases
to beneficially own (i) at least 51% of the Senior Convertible Preferred Stock
and Warburg Warrants and all issued Warburg Registrable Securities (as defined
below) or (ii) at least 75% of the New Securities and all issued Prudential
Registerable Securities (as defined below).
Pursuant to the Stockholders' Agreement, each
Stockholder also will agree that (i) it will vote against removal of the other
party's nominees (unless requested by such party to vote for removal in which
case it will do so), (ii) it will exercise its best efforts to cause its
nominees on the Board to vote in favor of a nominee of the other party to fill
any vacancy on the Board created by the resignation, removal or death of such
party's nominee if the effect of failing to so fill a vacancy would be that
there would be less than two Prudential Nominees or three Warburg Nominees
remaining on the Board, (iii) it will not elect cumulative voting for the
election of Directors and, in the event that any other stockholder elects such
cumulative voting, it shall vote its shares of capital stock in the manner
necessary
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<PAGE> 19
to effect the election of the three Warburg Nominees and the two
Prudential Nominees, and (iv) unless Hanauer fails to consummate the
transactions contemplated by the Purchase Agreements, at any special or annual
meeting of stockholders prior to the Company's 1995 annual meeting it shall
vote (or give a written consent with respect to) all of its shares of capital
stock in favor of electing Hanauer as a Director or against removal of Hanauer
as Director.
The terms of the voting agreement were modified by
the Stockholders' Amendment. Pursuant to the Stockholders' Amendment the
number of Prudential Nominees was decreased from two to one and the number of
Warburg Nominees was decreased from three to two. Furthermore, the parties
agreed that from and after the 1993 Annual Meeting of Stockholders of the
Company, each of the parties would use its best efforts to cause their
respective board nominees to take such action as may be necessary so that the
number of directors which constitutes the whole Board equals seven. The
provisions of the Stockholders' Amendment will be binding until any Stockholder
notifies the Company and all of the other parties to the Stockholders'
Agreement that it desires the Stockholders' Amendment be null and void.
It is contemplated by the Term Sheet that the terms
of the Stockholders' Agreement may be further amended. See the discussion
below.
Registration Rights. The Stockholders' Agreement
provides that each of (i) the holders of at least 30% of the aggregate number
(on the date of the Stockholders' Agreement) of shares of Common Stock issued
or issuable upon conversion of any Senior Convertible Preferred Stock and all
shares of Common Stock issued or issuable upon exercise of any Warburg Warrants
(collectively, the "Warburg Registrable Securities") may make three written
requests to the Company for registration under the Securities Act of 1933, as
amended (the "Securities Act") of all or part of such securities; provided,
however, that Warburg may make any of such three requests for registration
regardless of the percentage of Warburg Registrable Securities held by it, and
(ii) the holders of at least 30% of the aggregate number (on the date of the
Stockholders' Agreement) of shares of Common Stock issued upon exercise of the
Old Prudential Warrant, all shares of Common Stock issued or issuable upon
conversion of any Junior Convertible Preferred Stock and all shares of Common
Stock issued or issuable upon exercise of any New Prudential Warrants
(collectively, the "Prudential Registrable Securities") may make three written
requests to the Company for registration under the Securities Act of all or
part of such securities; provided, however, that Prudential may make any of
such three requests for registrations regardless of the percentage of
Prudential Registrable Securities held by it.
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<PAGE> 20
The Stockholders' Agreement also provides that in the
event a holder of Warburg Registerable Securities requests a registration
pursuant to the foregoing provisions, Hanauer may elect to include a
proportionate share of Warburg Registrable Securities held by him in which case
he will be permitted to sell such Warburg Registrable Securities on the same
terms as the holder of the Warburg Registrable Securities requesting such
registration.
Pursuant to the Stockholders' Agreement, holders of
Warburg Registrable Securities and Prudential Registrable Securities will also
have certain "piggyback" registrations rights to include their securities,
subject to certain limitations, in any other registration statements filed by
the Company for its own account or pursuant to any of the foregoing requests,
or otherwise. Whenever the Company effects a registration pursuant to the
registration rights provisions of the Stockholders' Agreement, the Company will
be required to pay the costs of such registration of securities, except for
certain fees and disbursements of underwriters counsel and except that each
selling stockholder will bear its pro rata share of customary underwriting
discounts and commissions and applicable transfer taxes. The Stockholders'
Agreement contains customary indemnification and contribution provisions
relating to the exercise by the holders of registrable securities of their
registrations rights thereunder.
Termination. The provisions of the Stockholders'
Agreement pertaining to voting by Stockholders will terminate at such time as
there is one Stockholder. In any event, the provisions of the Stockholders'
Agreement with respect to voting arrangements and restrictions will terminate
no later than ten years from the date of the Stockholders' Agreement in
accordance with applicable law, subject to extension by the agreement of the
remaining parties thereto.
D. Agreements Regarding Debt Financing
The New Note Purchase Agreement. Prudential and the
Company entered into the New Note Purchase Agreement, as described in Item 4,
above. The New Note Purchase Agreement, upon the terms and subject to the
conditions contained therein, restructured $10 million of the Senior Notes and
$10,000,000 of Subordinated Notes and the Revolving Credit Note issued pursuant
to the Old Note Purchase Agreement. Pursuant to the New Note Purchase
Agreement, the Company, on the Closing Date, issued to Prudential (i) the New
Revolving Credit Note upon cancellation, (ii) $10 million of the New Senior
Notes, and (iii) $10 million of the PIK Notes. Pursuant to the New Note
Purchase Agreement, upon maturity of the New Revolving Credit Note, the
Company, at its option, may convert such note to a newly issued Converted
Revolving Note Due December 31, 1996 (the "Converted Term Note").
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<PAGE> 21
The New Senior Notes, the PIK Notes and the Converted
Term Notes are subject to certain scheduled prepayments and the New Senior
Notes (or if they have been repaid in full) the PIK Notes are subject to
prepayment from 50% of certain asset sales which in the aggregate exceed $5
million. The scheduled prepayments of the New Senior Notes, the New Revolving
Credit Notes and the Converted Term Notes will be deferred if the Company or
any subsidiary pays or becomes obligated to pay certain liabilities.
The New Note Purchase Agreement contains significant
restrictions on the payment of cash dividends and repurchases of stock of the
Company. The New Note Purchase Agreement also contains significant
restrictions on the Company's (and certain of its subsidiaries' ability to,
among other things, (i) incur debt and liens upon their properties, (ii) enter
into guarantees and make loans, investments and advances, (iii) merge or enter
into similar business combinations, (iv) conduct any business other than their
present businesses, (v) sell assets, including receivables, and (vi) enter into
certain other transactions. Further, the Company's ability to make capital
expenditures and purchase the stock or assets of any other person or entity
during the term of the New Note Purchase Agreement is limited to the aggregate
of $10 million plus additional amounts based upon, among other things, the
Company's and certain other proceeds.
The New Note Purchase Agreement contains various
affirmative and negative covenants. For example, the New Note Agreement
requires that the Company (combined with certain of its subsidiaries and taken
as a whole) must (i) maintain a ratio of Consolidated Current Assets to
Consolidated Current Liabilities (as such terms are defined in the New Note
Purchase Agreement), excluding the current portion of long-term debt, of
greater than 1:1 at the end of each of its fiscal quarters, and (ii) not permit
the sum of the net loss before interest, taxes, depreciation, amortization and
non-recurring items and excluding certain other items ("Adjusted Net Loss") to
exceed $4 million as of December 31, 1993, and $6 million as of the end of each
fiscal quarter after the fiscal quarter ended December 31, 1993 for any two
consecutive fiscal quarters.
As contemplated by the Term Sheet, on March 28, 1994,
Prudential executed that certain Prudential Note Agreement Waiver (the "Waiver
Letter") pursuant to which it, among other things, (i) waived compliance with
the working capital ratio requirement as of December 31, 1993 with respect to
the fourth quarter of 1993 and the first quarter of 1994, (ii) waived until
December 31, 1994 compliance with the working capital ratio requirement, the
Adjusted Net Loss requirement, the capital expenditures limitation and the
requirement that the Company pay down the Revolving Loans during one sixty
consecutive day period,
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<PAGE> 22
and (iii) consented to the extension of credit by Warburg to the Company and
the other transactions contemplated by or permitted pursuant to the Loan and
Security Agreement dated as of March 29, 1994 by and between the Company and
Warburg (the "Warburg Loan Agreement"), and the related Loan Documents (as
defined therein). The Waiver Letter is filed herewith as Exhibit 2 and is
incorporated herein by reference in its entirety. The Term Sheet contemplates
further amendments to the New Note Purchase Agreement. See the discussion
below.
Modification to Note and Security Agreement. Also as
contemplated by the Term Sheet, Prudential and the Company entered into that
certain Modification to Note and Security Agreement (the "Modification and
Security Agreement", and collectively with the Warburg Loan Agreement, the
"1994 Loan Documents"). Pursuant to the Modification and Security Agreement,
in consideration for the forbearances, modifications and waivers granted by
Prudential, the Company granted to Prudential to secure its Senior Debt (as
defined in the New Note Purchase Agreement) a security interest in all of the
following assets of the Company (collectively, the "Collateral"): (i) all
rights to payment in respect of all commercial real estate fees and commissions
due to the Company or any of its subsidiaries in connection with the commercial
real estate brokerage operations of the Company and its subsidiaries, (ii) a
newly created cash collateral account described below (the "Cash Collateral
Account"), and any other cash collateral account, and all monies, instruments
and amount at any time on deposit in such accounts, and (iii) all proceeds of
any of the foregoing. The Modification and Security Agreement will terminate
upon the termination of the Warburg Loan Agreement and payment to Prudential of
all of the Collateral, if any, extant as of such date. The Modification and
Security Agreement is filed herewith as Exhibit 3 and is incorporated herein by
reference in its entirety.
Warburg Loan Agreement. On March 29, 1994, the
Company and Warburg entered into the Warburg Loan Agreement. Pursuant to the
Warburg Loan Agreement, Warburg agreed to make advances for a thirteen month
period to the Company in amounts not to exceed $10 million at any one time
outstanding. Proceeds of such advances are to be used by the Company for
general corporate purposes other than certain prohibited uses. Such prohibited
uses include the following:
(a) the satisfaction of any judgment against the Company
and/or its affiliates in excess of $1 million;
(b) capital expenditures in any year, which when aggregated,
exceed the greater of (x) $5 million and (y) two times the Company's Total
Assets, as reported in its then current audited balance sheet;
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<PAGE> 23
(c) aggregate "golden handcuff" or similar payments to any one
employee in excess of $1 million; and
(d) payments in respect of any lease of real property entered
into after the March 29, 1994 if the aggregate rent required during its term
(including any mandatory or optional extensions) exceeds $5 million.
Advances under the Warburg Loan Agreement will bear interest at a rate of 5%
per annum provided that if the Company does not obtain stockholder approval of
the Rights Offering (or a similar transaction to retire the indebtedness under
the Warburg Loan Agreement) and the other transactions contemplated by the Term
Sheet by December 31, 1994, then the outstanding advances will bear interest at
a rate of 10% per annum retroactive to the date of the first advance. As
security for all indebtedness of the Company to Warburg pursuant to the Warburg
Loan Agreement and the other Loan Documents (as defined in the Warburg Loan
Agreement), the Company granted Warburg a security interest in the Collateral.
The Term Sheet contemplates that all advances under the Warburg Loan Agreement
will be refinanced from the proceeds of the Rights Offering contemplated
thereby.
Cash Collateral Account. In connection with the 1994
Loan Documents, the Company established the Cash Collateral Account, upon the
terms specified in that certain Cash Collateral Account Agreement (the "Cash
Collateral Letter") dated March 29, 1994 by and between the Company, Bank of
America NT & SA (the "Bank"), Warburg and Prudential. Pursuant to the 1994
Loan Documents, the Company is obligated to instruct each of its brokers to
deposit all brokerage commissions directly to the Cash Collateral Account. In
addition, the Company is obligated to deposit all brokerage commissions it
receives directly into the Cash Collateral Account. Funds in the Cash
Collateral Account are held in trust for the benefit of Prudential and Warburg,
provided however that so long as a notice of blockage has not been delivered,
the Company will have the right to withdraw funds from the Cash Collateral
Account. Prudential and/or Warburg may deliver a notice of blockage if an
event of default as defined in the New Note Purchase Agreement, as modified by
the Modification and Security Agreement, and/or the Warburg Loan Document,
respectively, has occurred and is continuing. Upon the delivery of a notice of
blockage the Company will no longer have any right to receive funds from the
Cash Collateral Account and the funds in the account will be under the control
of Warburg with all funds then or thereafter deposited in the Cash Collateral
Account becoming the exclusive property of Warburg and Prudential. The Cash
Collateral Letter is filed herewith as Exhibit 4 and is incorporated herein by
reference in its entirety.
Intercreditor Agreement. Also on March 28, 1994, the
Company, Warburg and Prudential entered into that certain
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<PAGE> 24
Intercreditor Agreement. Pursuant to the Intercreditor Agreement, Prudential
agreed that its interest in the Collateral is to be junior to Warburg's
interest therein. Furthermore, Prudential agreed that it would issue a notice
of blockage only after three business days notice to Warburg of Prudential's
intention to issue such a notice to the Bank. Additionally, pursuant to the
Intercreditor Agreement, the parties thereto agreed that upon the issuance of a
notice of blockage to the Bank, Warburg would apply the Collateral as follows:
(a) first to the payment of all Brokers Fees (as defined in
the 1994 Loan Documents);
(b) second, to the payment of outstanding amounts under the
Warburg Loan Agreement;
(c) third, to payment of Prudential's Senior Debt (as defined
in the Note Agreement; and
(d) fourth, to the Company.
The Intercreditor Agreement is filed herewith as Exhibit 5 and is incorporated
herein by reference in its entirety.
E. Additional Transactions Contemplated By The Term Sheet
On March 28, 1994, the Company, Prudential and
Warburg agreed to the terms of the Term Sheet, which sets forth certain terms
and conditions for (i) the Warburg Loan Agreement, (ii) a rights offering and
subscription warrant conversion, and (iii) modification to the New Note
Purchase Agreement. By agreeing to the terms sheet, Warburg, Prudential and
the Company agreed to be bound by the terms and conditions set forth therein
subject to (i) execution of definitive documents satisfactory in form and
substance to each of Warburg, Prudential and the Company, and each of their
respective counsel and (ii) obtaining of any necessary or reasonable requested
third party consents, including, without limitation, majority consent of the
shareholders of the Company. The transactions contemplated by the Term Sheet
are designed to provide the Company with additional working capital which the
Company believes it requires to meet its current and projected working capital
needs. In addition to agreements with respect to the Warburg Loan Agreement,
the Prudential Waiver, the Modification and Security Agreement, the Cash
Collateral Account and the Intercreditor Agreement, the significant terms of
the Term Sheet include the following:
Proposed Rights Offering. The Term Sheet
contemplates that the Company will seek additional equity capital through the
Rights Offering pursuant to which the Company would issue to each holder of
Common Stock one non-transferable right,
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<PAGE> 25
per share of Common Stock owned, which right will entitle such holder
to acquire one additional share of Common Stock for $2.375. Common shareholders
may, subject to certain limitation, oversubscribe to the extent that
unsubscribed shares are available. Warburg has agreed to acquire any of the
rights which are not ultimately acquired by the public shareholders through a
conversion of the Company's indebtedness pursuant to the Warburg Loan
Agreement, up to an amount not exceeding $10 million, plus any accrued interest
on advances under the Warburg Loan Agreement. Consummation of the Rights
Offering requires the approval of the transactions by holders of a majority of
the shares of the Company's voting stock, other than Warburg and Prudential.
There can be no assurance that such approval will be obtained and, therefore,
that the Rights Offering will be initiated or consummated.
As consideration for providing the Warburg Loan
Agreement and standing behind the Rights Offering, the Company will grant
Warburg approximately 325,000 warrants which will result in fully diluted stock
ownership by Warburg of 52.7%, assuming that none of the holders of Common
Stock acquire shares in the Rights Offering. The exercise price of such
warrants would be $2.375 per share.
Loan Modifications. The Term Sheet contemplates
that Prudential will further amend the New Note Purchase Agreement. Such
modifications include, among others, (i) extending the maturity of the
Revolving Credit Notes to November 1, 1999 (and eliminating the Company's
option to convert the Revolving Credit Note into a Term Note), (ii) extending
the maturity of the Senior Notes, such that they will be repaid in two equal
installments on November 1, 1997 and 1998, (iii) extending the maturity of the
PIK Notes, such that they will be repaid in two equal installments on November
1, 2000 and 2001, (iv) increasing the interest rate on the PIK Notes from
10.65% to 11.65% effective January 1, 1996, (v) providing that commencing
January 1, 1998, the Company will apply 75% of its previous year's Adjusted
Cash Inflow (as defined in the Term Sheet) in excess of $5 million to repay the
PIK Notes.
Modification of Junior Convertible Preferred Stock.
Prudential will convert the Junior Convertible Preferred Stock into equivalent
stock which is not redeemable. In addition, effective January 1, 2002, the
dividend rate will be increased to 10% 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. Additionally, Prudential has agreed to
relinquish the anti-dilution provisions of the Junior Convertible Preferred
Stock and the New Prudential Warrants which result in an adjustment of the
conversion price because of the issuance of Common Stock (or Common Stock
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<PAGE> 26
equivalents) for consideration per share less than the conversion or exercise
price per share on the date of such issue.
Furthermore, Prudential will agree to convert its
preferred stock if (i) Warburg converts its Senior Convertible Preferred Stock
and (ii) any investment banker retained by the Company advises the Company that
they deem it necessary to retire Prudential's Junior Convertible Preferred
Stock in order to complete a public offering of Common Stock on the most favor
terms. However, if Prudential is required to convert its Junior Convertible
Preferred Stock at a time when the stock would have a value less than the
accreted value of the Junior Convertible Preferred Stock which is the sum of
the par value thereof plus accrued dividends, then at the option of Prudential,
the Company will redeem Prudential's Junior Convertible Preferred Stock at such
accreted value.
Modification of Senior Convertible Preferred Stock
and Warburg Warrants. Warburg will convert the Senior Convertible Preferred
Stock into equivalent stock which is not redeemable. In addition, at such time
as the dividend rate with respect to the Junior Convertible Preferred Stock
would increase above the dividend rate with respect to the Senior Convertible
Preferred Stock, the dividend rate of the Senior Convertible Preferred Stock
will be increased so that it equals the dividend rate with respect to the
Junior Convertible Preferred Stock. Finally, Warburg has agreed, following the
Rights Offering, to relinquish the anti-dilution provisions of the Senior
Convertible Preferred Stock and the Warburg Warrants which result in an
adjustment of the conversion price because of the issuance of Common Stock (or
Common Stock equivalents) for consideration per share less than the conversion
or exercise price per share on the date of such issue. In addition, the
exercise price of the Warburg Warrants, other than the Contingent Warrants,
will be reduced to $3.50 per share, and the exercise price of the Contingent
Warrants will be reduced to the same per share price as the Rights Offering.
Prudential's Rights as a Stockholder. Prudential has
agreed that it will work with the Company in a good faith effort to permit the
Company's subsidiary, Grubb & Ellis Asset Services Corporation, to re-enter the
government contracting business with the RTC and the FDIC. Prudential's
support in this effort may include, but not be limited to the following so long
as it is a disqualified person: (i) to waive, but not relinquish, its right
to appoint any directors to the Company's Board, (ii) to waive, but not
relinquish, all rights other than registration rights under the Stockholders'
Agreement and (iii) to the extent that its stock entitles it to cast more than
24.9% of the votes which all stockholders are eligible to cast on any matter,
to grant a proxy to the Company's Board to vote all shares in excess of 24.9%
(but not the shares constituting 24.9%)
-26-
<PAGE> 27
on such matter in proportion to the vote thereon of all stockholders other than
Prudential.
The Term Sheet is attached hereto as Exhibit 1 and
incorporated herein by reference.
F. Amendment to the Rights Plan
The Board of Directors has amended the definition of
"Acquiring Person" under the Rights Plan so that the consummation of the
Restructuring would not make Prudential, Warburg or Hanauer an "Acquiring
Person" as originally defined in the Rights Plan. It is a condition to the
Closing of the Restructuring that the Rights be redeemed. Immediately prior to
the closing of the Restructuring, the Company redeemed all Rights existing
under the Rights Plan for $.01 per share of Common Stock, payable in shares of
Common Stock listed on the New York Stock Exchange and the Pacific Stock
Exchange upon issuance.
G. Miscellaneous
Except as described herein (including, without
limitation in Items 4 and 6) there are no contracts, arrangements,
understandings or relationships (legal or otherwise) among the Enumerated
Persons or between such persons and any other persons with respect to any
securities of the Company, including but not limited to transfer or voting of
any other securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or
loss, or the giving or withholding of proxies.
ITEM 7. MATERIAL FILED AS EXHIBITS.
1. There was filed with the Schedule 13D, as
initially filed on November 11, 1992, as Exhibit 1 attached thereto the
Securities Purchase Agreement dated as of November 2, 1992 by and among the
Company and Prudential, including the forms of New Prudential Warrant,
Certificate Amendments, New Note Purchase Agreement and Warburg Purchase
Agreement.
2. There was filed with the First Amendment to the
Schedule 13D as Exhibit 1 thereto the Stockholders' Agreement dated as of
January 29, 1993, by and among the Company, Prudential, Warburg and Hanauer.
3. There is filed herewith as Exhibit 1 the Letter
Agreement dated as of March 28, 1994 by and between Warburg, Prudential and the
Company, including the Term Sheet.
4. There is filed herewith as Exhibit 2 the
Prudential Note Agreement Waiver Letter dated March 28, 1994.
-27-
<PAGE> 28
5. There is filed herewith as Exhibit 3 the
Modification to Note and Security Agreement dated as of March 29, 1994 by and
between Prudential and the Company.
6. There is filed herewith as Exhibit 4 the Cash
Collateral Account Agreement dated March 29, 1994 by and between Prudential,
Warburg, the Company and the Bank.
7. There is filed herewith as Exhibit 5 the
Intercreditor Agreement dated as of March 28, 1994 by and between Prudential,
Warburg and the Company.
-28-
<PAGE> 29
SIGNATURES
After reasonable inquiry and to the best of my
knowledge and belief, I certify that the information set forth in this
statement is true, complete and correct.
April 14, 1994
(Date)
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
/s/ NICHOLAS M. GRAVES
(Signature)
Nicholas M. Graves, Senior V.P.
(Name and Title)
-29-
<PAGE> 30
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1 Letter Agreement dated as of March 28, 1994 by and between The
Prudential Insurance Company of America ("Prudential"),
Warburg, Pincus Inventors, L.P. ("Warburg") and Grubb & Ellis
Company ("Grubb & Ellis").
2 Note Agreement Waiver Letter dated March 28, 1994 from
Prudential to Grubb & Ellis.
3 Modification To Note and Security Agreement, dated as of
March 29, 1994, by and between Prudential and Grubb & Ellis.
4 Cash Collateral Account Agreement dated March 29, 1994 by and
between Prudential, Warburg, Grubb & Ellis and Bank of America
NT & SA.
5 Intercreditor Agreement, dated as of March 29, 1994, by and
between Prudential, Warburg and Grubb and Ellis.
<PAGE> 1
EXHIBIT 1
GRUBB & ELLIS COMPANY
March 28, 1994
Warburg, Pincus Investors, L.P.
c/o E.M. Warburg, Pincus & Co., Inc.
466 Lexington Avenue, 10th Floor
New York, New York 10017
The Prudential Insurance Company of America
c/o The Prudential Corporate Finance Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Re: Grubb & Ellis Company
Bridge Financing and Equity Offering Acknowledgment
Ladies and Gentlemen:
In connection with the proposed Grubb & Ellis Company (the "Company")
bridge financing and equity offering, attached is the Grubb & Ellis Bridge Loan
and Rights Offering Term Sheet, dated the date hereof (the "Term Sheet"). The
Term Sheet sets forth certain terms and conditions for (i) a 13-month bridge
facility to be provided by Warburg, Pincus Investors, L.P. ("Warburg"), (ii) a
rights offering and subscription warrant conversion, and (iii) modification to
certain credit facilities provided by The Prudential Insurance Company of
America ("Prudential"). Although the Term Sheet does not specify all of the
terms and conditions which would be necessary to consummate the contemplated
transactions, it does reflect material provisions negotiated and, we believe,
finalized among Warburg, Prudential and the Company, and outlines certain key
points of business understanding around which legal documentation can be
structured.
By signing where indicated below, the parties acknowledge that, with
respect to the terms and conditions set forth in the Term Sheet, the Term Sheet
provisions are final, and the parties consent to and agree to be bound by such
provisions, subject to:
1. Execution and delivery of definitive documents contemplated by
or reasonably requested with respect to the Term Sheet,
satisfactory in form and substance to each of Warburg,
Prudential and the Company, and each of their respective
counsel; and
2. Obtainment of any necessary or reasonably requested third
party consents to the transactions contemplated by the Term
Sheet, including, without limitation, majority consent of the
shareholders of the Company.
<PAGE> 2
Warburg, Pincus Investors, L.P.
The Prudential Insurance Company
of America
March 28, 1994
Page 2
This Acknowledgment shall be binding only upon the execution and
delivery of the Acknowledgment by each of the parties hereto. If the foregoing
is acceptable, please sign all three enclosed copies. One executed copy should
be sent to me by telecopy and all three executed original copies should then be
sent to my attention by hand delivery or by overnight courier.
Grubb & Ellis Company
By: /s/ Robert J. Hanlon, Jr.
Name: Robert J. Hanlon, Jr.
Title: Chief Financial Officer
ACKNOWLEDGED AND CONSENTED TO
AS OF THE DATE FIRST ABOVE WRITTEN:
Warburg, Pincus Investors, L.P.
By: /s/ Warburg, Pincus & Co.,
General Partner
By: /s/ Reuben S. Leibowitz
Name:Reuben S. Leibowitz
Partner
The Prudential Insurance Company of America
By: /s/ John P. Mullman
Name: John P. Mullman
Title: Vice President
<PAGE> 3
Warburg, Pincus Investors, L.P.
The Prudential Insurance Company
of America
March 28, 1994
Page 3
ACKNOWLEDGMENT OF TERM SHEET FOR
GRUBB & ELLIS BRIDGE FINANCING AND EQUITY OFFERING
Exhibit A
Term Sheet
<PAGE> 4
GRUBB & ELLIS COMPANY
PROPOSED
BRIDGE LOAN
&
RIGHTS OFFERING
March 28, 1994
Grubb & Ellis Company ("G&E") proposes to raise additional equity
capital, initially through a bridge loan which is to be refinanced from the
proceeds of the subsequent sale of rights (the "Rights Offering") to acquire
common stock in the Company. The Rights Offering will occur after the Company
obtains the approval of the amendments (the "Charter Amendments") of the
Company's Certificate of Incorporation necessary and/or appropriate to
consummate the Rights Offering and the other transactions discussed herein 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 common shares other
than Warburg, Pincus L.P. ("Warburg") and The Prudential Insurance Company of
America ("Prudential") while the short term financial needs of the Company are
met through the bridge financing.
Bridge Financing
. The Company proposes to enter into a bridge loan agreement
with Warburg which would mature 13 months from initial
advance.
. The loan would be secured by a cash collateral account
pursuant to a cash collateral account agreement under which
substantially all of the Company's commercial real estate
brokerage revenues would flow through the collateral account.
Prudential will also have a lien on this collateral
subordinated to Warburg's lien as will be set forth in an
intercreditor agreement between Prudential and Warburg.
. The interest on the outstanding loans under this agreement
would be 5%, provided, however, that in the event that
shareholder approval of the Charter Amendments was not
obtained the interest rate would retroactively increase to
10%. Interest computed without compounding, will be due on
maturity of the note or refinancing, whichever occurs first.
. The proceeds of the Rights Offering will be used to (1) cover
transaction costs associated with these transactions, (2)
retire the bridge financing, and (3) meet the Company's
operational needs.
. Warburg will convert its redeemable preferred stock into
equivalent non-redeemable preferred stock and will relinquish
the anti-dilution provision
<PAGE> 5
Proposed Bridge Financing
& Rights Offering
03/28/94
Page 5
of its preferred stock and warrants with respect to
issuance of common stock and common stock equivalents at less
than the conversion or exercise price; however, pre-existing
warrant exercise prices will be reduced to $3.50 effective as
of the date of the Rights Offering. At such time as the coupon
on Prudential's preferred stock would increase above the rate
of Warburg's preferred, then Warburg's coupon will increase by
the same amount.
. The Company will not be required to represent and warrant that
it is in compliance with the terms of its financing agreement
with Prudential.
Rights Offering and Subscription Warrant Conversion
. The Company will offer the rights for sale to the holders of
all of G&Es common stock.
. Each common shareholder will be entitled to acquire one right
for each share of common stock owned.
. Common shareholders may in addition to their own existing
rights to subscribe to additional shares, oversubscribe to the
extent that unsubscribed shares are available from other
shareholders; however, shareholder or affiliated group
oversubscriptions will be limited to an amount equal to the
existing holding.
. Warburg will stand behind the offering and acquire any of the
rights which have not ultimately been acquired by the public
shareholders up to an amount not exceeding $10 Million, plus
any accrued interest on the bridge loan.
. The rights price will be $2.375.
. The rights will not be tradeable.
. Notwithstanding the foregoing, for this transaction only,
Warburg will retain certain antidilution provisions in the
warrants and preferred stock currently held by Warburg and the
exercise price of the contingent warrants currently held by
Warburg will be repriced at $2.375.
. As consideration for providing the bridge loan and standing
behind the Rights Offering the Company will grant Warburg
approximately 325,000 warrants
<PAGE> 6
Proposed Bridge Financing
& Rights Offering
03/28/94
Page 3
which will result in fully diluted ownership of
approximately 52.70%, if none of the common stockholders
acquire their shares. These warrants would have an exercise
price of $2.375.
Prudential Modifications
As part of this proposal certain modifications in Prudential's financing will
be completed. The following is subject to
documentation satisfactory to all parties. These are:
. It is agreed that no amortization of the Senior Notes,
Revolver or PIK Notes will occur prior to November 1, 1997.
Thereafter amortization will occur as follows. The $5 Million
revolver will mature November 1, 1999. The $10 Million Senior
Note will amortize in two equal installments on November 1,
1997 and 1998. The Subordinated PIK Notes will amortize in
two approximately equal installments on November 1, 2000 and
2001.
. The interest rate on the revolver and the senior notes will
remain unchanged. The interest rate on the PIK notes will
increase from 10.65% to 11.65% on January 1, 1996 and remains
constant thereafter until maturity.
. Effective at the time of the initial funding of the Warburg
loan, Sections 6(a), 6(d), 6(e) and 6(g) of the Senior Note,
Subordinated Note and Revolving Credit Note Agreement dated as
of November 2, 1992 covering working capital, cumulative
operating losses, capital expenditure and clean down
requirements shall remain in force, but the effectiveness of
these sections will be suspended until April 1, 1997.
Prudential agrees to waive certain covenants in the Note
Agreement as set forth in the Note Agreement Waiver attached
hereto. In addition, the specific prohibition of a sale of
Axiom will be eliminated and, in the event such sale does
occur, it will be captured under the existing asset sale
provision. As of April 1, 1997 and quarterly thereafter the
Company will be required to meet an interest coverage ratio of
2:1 the test of which will be EBITDA, as defined below, to
total interest expense on a rolling 12 months basis.
. Commencing January 1, 1998, in addition to the debt payments
in the above schedule, the Company will make supplemental debt
amortization payments in each year (50% on July 1 and 50% on
October 1), if it meets the following test. If in the
preceding year, Adjusted Cash Inflow exceeds $5 Million, then
<PAGE> 7
Proposed Bridge Financing
& Rights Offering
03/28/94
Page 4
the Company will pay to Prudential 75% of such excess
as a supplemental debt amortization payment which will be
applied to the PIK debt in reverse order of maturity.
Adjusted Cash Inflow is defined as earnings before interest,
taxes, depreciation and amortization ("EBITDA") less the sum
of (a) Axiom Pre-tax Earnings net of any debt repayments or
dividend payments from Axiom; (b) interest paid in cash; (c)
taxes paid in cash; (d) the above amortization paid in the
year; and (e) any supplemental debt payment paid in the year.
. Prudential will convert its redeemable preferred stock into
equivalent non-redeemable preferred stock with a coupon rate
increase effective January 1, 2002 to 10% 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.
. Prudential will work with the Company in a good faith effort
to permit the Company's subsidiary, Grubb & Ellis Asset
Services Corporation, to re-enter the government contracting
business with the RTC and the FDIC. Prudential's support in
this effort may include, but not be limited to the following
so long as it is a disqualified person: (1) to waive, but not
relinquish, its right to appoint Company Directors and (2) to
waive, but not relinquish all rights other than registration
rights under the shareholders agreement and (3) to the extent
that its stock entitles Prudential to cast more than 24.9% of
the votes which all stockholders are eligible to cast on any
matter, to grant a proxy to the board of directors to vote the
excess shares (but only the excess shares) on such matter in
proportion to the vote thereon of all stockholders other than
Prudential.
. In the event that Warburg converts its preferred stock and the
Company's investment bankers advise the Company that they deem
it necessary to retire Prudential's preferred stock in order
to complete a public offering of the Company's common stock on
the most favorable terms, Prudential will be obligated to
convert its preferred stock, provided, that, if Prudential is
required to convert its preferred stock at a time when the
common stock would have a value less than the accreted value
of the preferred stock which is the sum of the par value of
the preferred stock plus accreted dividends, then at the
option of Prudential, the preferred stock may be redeemed at
such accreted value or Prudential may convert its preferred
stock into common stock.
. Prudential will relinquish the anti-dilution provisions of its
preferred stock and its warrants with respect to issuances of
common stock and common stock
<PAGE> 8
Proposed Bridge Financing
& Rights Offering
03/28/94
Page 5
equivalents at less than the conversion exercise price;
however, pre-existing warrant exercise prices will be reduced
to $3.50 effective as of the date of the Rights Offering.
. Prudential will grant such waivers as described in the Note
Agreement Waiver of even date herewith relative to the end of
1993 and the end of the First Quarter, 1994 to permit the
Company to be in compliance with the provisions of its
agreements with Prudential.
. In the event that the Company elects to make a public offering
subsequent to this financing none of the proceeds of such
financing will be required to pay down debt.
. As a consideration for modifying its loan agreement with the
Company, Prudential would be granted 150,000 warrants to
purchase the Company's common stock which will result in fully
diluted ownership of approximately 18.24%, but not less than
18%. The warrants will have an exercise price of $2.375.
. Upon funding under the Warburg Bridge Loan Agreement the
Company will pay Prudential the interest payment due February
1, 1994 together with interest at the overdue interest rate
and will pay Prudential all of its legal costs and out of
pocket expenditures incurred in connection with the waivers
and modifications referenced herein.
Note
All share amounts and percentages do not reflect any adjustments for shares to
be tendered as a result of the reverse stock split which have not been
received; however, these adjustments should be modest.
<PAGE> 1
EXHIBIT 2
March 28, 1994
Grubb & Ellis Company
One Montgomery Street
Telesis Tower
San Francisco, CA 94104
Attention: Robert J. Hanlon, Jr.
Chief Financial Officer
Re: NOTE AGREEMENT WAIVER
Ladies and Gentlemen:
Reference is made to the Senior Note, Subordinated Note and Revolving
Credit Note Agreement between Grubb & Ellis Company (the "Company") and The
Prudential Insurance Company of America ("Prudential"), dated as of November 2,
1992, as amended (the "Agreement"), pursuant to which the Company issued and
sold and Prudential purchased (i) the Company's 9.9% senior notes in the
aggregate principal amount of $10,000,000 due November 1, 1996 (the "Senior
Note") and (ii) the Company's 10.65% subordinated payment-in-kind notes in the
aggregate principal amount of $10,000,000, due December 31, 1999 (the "PIK
Note"); and pursuant to which Prudential agreed to make available to the
Company Revolving Loans not exceeding an aggregate principal amount of
$5,000,000 at any one time outstanding represented by the revolving note (the
"Revolving Note" and together with the Senior Note and the PIK Note, the
"Prudential Notes").
Pursuant to the request of the Company and the provisions of paragraph 12C of
the Agreement:
a) compliance with the working capital ratio requirement set
forth in paragraph 6A of the Agreement is hereby waived by Prudential as of
December 31, 1993 with respect to the quarter then ended;
b) notwithstanding anything to the contrary in paragraphs 6C(1),
6C(2), 6C(3) and 6E of the Agreement, in connection with the sale of certain
assets of the Company's real estate advisory business to JMB Institutional
Realty Advisers, L.P. ("JMB"), Prudential hereby consents to the acquisition by
Grubb & Ellis Institutional Properties, Inc., a Restricted Subsidiary as
defined in the Agreement, of real property
<PAGE> 2
consisting of land and an 18,000-rentable square foot industrial
building commonly referred to as 1417 Chattahoochee Avenue, Atlanta, Georgia
from JMB Industrial Properties Fund, a California limited partnership, and the
assumption of indebtedness secured by the property in the amount of
approximately $385,000. The purchase price was $410,000, which was paid
through reduction in the sales price of the advisory assets sold to JMB. JMB
Industrial Properties Fund was originally named Grubb & Ellis Industrial
Properties Fund, a California limited partnership previously sponsored by the
Company. JMB replaced Grubb & Ellis Institutional Properties, Inc. as general
partner of the partnership;
c) notwithstanding anything to the contrary in paragraphs 6C(1),
6C(2), 6C(3) and 6E or any other provision of the Agreement, Prudential hereby
consents to the investment by the Company in DW Limited Partnership in January
1990, accompanied by incurrence of indebtedness of $250,000 secured by a demand
promissory note dated January 8, 1990;
d) paragraph 6C(6) of the Agreement shall be amended to read in
its entirety as follows:
"6C.(6) SALE OF ASSETS - Transfer, sell or otherwise dispose of assets
of the Company (including, without limitation, capital stock of or
Indebtedness owned by a Restricted Subsidiary to the Company or
another Restricted Subsidiary) other than (i) assets transferred, sold
or otherwise disposed of in the ordinary course of business, including
any assets which are obsolete or worn out or which are replaced within
three months of sale by assets of at least the equivalent market
value, (ii) equipment being sold, leased, transferred or otherwise
disposed of which the Company determines is no longer required by it
in conducting its business so long as replacements are obtained for
such equipment within three months of at least the equivalent market
value, (iii) assets (other than those described in clauses (i) or
(ii)) having a fair market value of up to $5,000,000 in the aggregate
and (iv) assets (other than those described in clauses (i) or (ii)
having a fair market value above $5,000,000 in the aggregate so long
as the Company prepays its obligations hereunder and under the Notes
pursuant to Paragraph 4D, except that any Restricted Subsidiary may at
any time transfer assets to a wholly owned Restricted Subsidiary of
the Company; provided, however, that (A) no assets may be disposed of
pursuant to clause (iv) at a time when an Event of Default has
occurred and is continuing and (B) in no event shall the Company
permit the sale of its name, its trademark, its logo or any other
significant intangible assets, except in connection with a permitted
sale of a Subsidiary or division;"
<PAGE> 3
It is Prudential's understanding that as of December 31, 1993, the
Company had sold assets pursuant to paragraph 6C(6) for net proceeds totalling
$3,162,937 in the aggregate.
(e) notwithstanding anything to the contrary
in paragraph 5D, paragraph 6C or the extension of credit by Warburg, Pincus
Investors, L.P, ("Warburg") to the Company and the other transactions
contemplated by or permitted pursuant to the Loan and Security Agreement dated
as of the date hereof, between the Company and Warburg, as amended (the
"Warburg Loan Agreement") and the related Loan Documents (as defined therein).
As collateral for the extensions of credit of Warburg referred to above, as
well as the Senior Note and the Revolving Note, the Company will establish a
cash collateral account pursuant to the Cash Collateral Account Agreement dated
as of the date hereof, among the Company, Prudential, Warburg, and Bank of
American NT & SA, in which Prudential will have a security interest
subordinated to that of Warburg; and
f) notwithstanding anything to the
contrary in the Agreement or its related documents, Prudential agrees to excuse
performance under the following paragraphs of the Agreement until the earlier
of (A) execution by the Company of a definitive amendment to the Agreement upon
the terms set forth in the term sheet related to the Warburg Loan Agreement or
(B) December 31, 1994 (the "Final Waiver Date"): paragraph 2, with respect to
any obligation to repay or prepay principal under any of the Prudential Notes;
paragraph 6A; paragraph 6D; paragraph 6E; and paragraph 6G. The Company's
failure to comply with any of these specified paragraphs will not give rise to
a Default or an Event of Default under the Agreement prior to the Final Waiver
Date.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the undersigned, whereupon this letter shall become a binding agreement between
the Company and Prudential,
<PAGE> 4
amending the Agreement in the manner and to the extent hereinabove provided.
Very truly yours,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/JOHN P. MULLMAN
____________________________________
Vice President
The foregoing is hereby
accepted as of the date
first above written
GRUBB & ELLIS COMPANY
By: /s/ROBERT J. HANLON, JR.
________________________
Chief Financial Officer
<PAGE> 1
amending the Agreement in the manner and to the extent hereinabove provided.
Very truly yours,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/JOHN P. MULLMAN
____________________________________
Vice President
The foregoing is hereby
accepted as of the date
first above written
GRUBB & ELLIS COMPANY
By: /s/ROBERT J. HANLON, JR.
________________________
Chief Financial Officer
<PAGE> 2
EXHIBIT 3
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 29th 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 29, 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").
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 29, 1994, between Prudential and Warburg (the "Intercreditor
Agreement"), a certain Cash Collateral Account Agreement, dated as of March 29,
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
<PAGE> 3
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 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
2
<PAGE> 4
defined below), and, (ii) second, to any outstanding obligations under the
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.
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
3
<PAGE> 5
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.
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
4
<PAGE> 6
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.
(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.
5
<PAGE> 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.
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
6
<PAGE> 8
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.
7
<PAGE> 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: Chief Financial Officer
8
<PAGE> 1
EXHIBIT 4
March 29, 1994
Bank of America NT & SA
Global Escrow Depository Services
One Embarcadero Center, Fifth Floor
San Francisco, California 94111
Attention: Betty Deichler
Vice President
Re: Grubb & Ellis Company
Cash Collateral Account Agreement
Ladies and Gentlemen:
Reference is made to (i) a certain Loan and Security Agreement
dated as of March 29, 1994 (as amended, supplemented or otherwise modified from
time to time, the "Warburg Loan Agreement"), by and between Grubb & Ellis
Company, a Delaware corporation ("Company"), and Warburg, Pincus Investors,
L.P., a Delaware limited partnership ("Warburg" or "Lender"), and (ii) a
certain Senior Note, Subordinated Note and Revolving Credit Note Agreement
dated as of November 2, 1992, as modified by a certain Modification to Note and
Security Agreement dated as of the date hereof (the "Prudential Loan Agreement"
and sometimes collectively referred to herein with the Warburg Loan Agreement,
the "Loan Agreements"), by and between Company and The Prudential Insurance
Company of America, a New Jersey corporation ("Prudential" or "Lender," and
sometimes collectively referred to herein with Warburg, "Lenders").
This letter agreement (as amended, supplemented or otherwise
modified from time to time, this "Agreement") sets forth and confirms (x) the
agreements among Company, Lenders and Bank of America NT & SA ("Bank") with
respect to the administration of the account maintained by Company with Bank
and identified as of the date hereof as "Bank of America as Escrow Agent under
Escrow Number 2337" (together with any successor, replacement or substitute
account(s), the "Cash Collateral Account"), and (y) certain of the agreements
between Company and Lenders with respect to the ownership and control of the
Cash Collateral Account
<PAGE> 2
Bank of America NT & SA
March 29, 1994
Page 2
and the funds deposited therein. The funds to be received by Bank are
received in trust for the benefit of Lenders, are held by Bank as agent for
Lenders and are for application against Company's obligation to each Lender
under the applicable Loan Agreements, pursuant to the terms hereof.
1. This Agreement shall serve as notice from Lenders to
Bank, and Bank hereby acknowledges receipt of such notice, of Lenders' security
interest in the Cash Collateral Account and in any and all monies, instruments
and other amounts from time to time held therein or credited thereto (such
amounts, collectively, the "Cash Collateral"). Bank confirms to Lenders that
it has received no notice of any other pledge or assignment of or lien or
security interest in the Cash Collateral Account or the Cash Collateral as of
the date hereof and agrees to promptly notify Lenders upon receipt of any such
notice. Bank acknowledges that the funds in the Cash Collateral Account are
held in trust for the benefit of Lenders.
2. So long as Bank has not received a Notice of
Blockage (as defined below) from either Lender, Company shall have the right to
withdraw Cash Collateral from the Cash Collateral Account, subject at all times
to the rules and regulations of Bank and to all applicable laws. Bank shall
remit to Company all available funds in the Cash Collateral Account on a daily
basis as instructed in writing by Company; provided, however, that (a) any
transfer of Cash Collateral made at Company's request shall only be made by
Bank to another account maintained by and on behalf of Company, and (b) no
payments (whether by check, wire transfer or otherwise) shall be made to any
third party directly from the Cash Collateral Account. Company acknowledges
and agrees that, as between Company and Lenders, Company's right to withdraw
and utilize Cash Collateral shall, in addition to the terms and conditions of
this Agreement, at all times be subject to the terms and conditions of the Loan
Agreements. As used in this Agreement, the term "Notice of Blockage" means (a)
a written notice to Bank from either Lender ("Notifying Lender") stating that
(i) an Event of Default under (and as defined in) the applicable Loan Agreement
has occurred and is continuing, (ii) Company will no longer have any access to,
or any right to withdraw Cash Collateral from, the Cash Collateral Account, and
(iii) a copy of such notice has been delivered to Company and the other Lender.
Each Lender agrees to deliver to Company and to the other Lender a copy of any
Notice of Blockage concurrently with the delivery thereof to Bank.
3. Company agrees that it will not deposit or permit to
be deposited to the Cash Collateral Account any monies other than proceeds of
the Loan (as defined in the Warburg Loan Agreement) and amounts in respect of
Brokerage Commissions (as defined below). The Cash Collateral Account will
not, under any circumstances be subject to deductions, set-off,
<PAGE> 3
Bank of America NT & SA
March 29, 1994
Page 3
banker's lien, recoupment, counterclaim, chargeback or any other right
in favor of any person other than Lenders, except that (i) Bank shall retain
all of its present and future rights, whether described as rights of set-off,
banker's lien, recoupment, counterclaim, chargeback or otherwise, with respect
to items deposited to the Cash Collateral Account which are returned unpaid or
otherwise returned to Bank for any reason, and (ii) all charges incurred in
connection with the operation and maintenance of the Lockbox (as defined below)
and the Cash Collateral Account shall be charged against the Cash Collateral
Account. Bank's fee schedule is attached hereto as Annex A.
4. Company has established with Bank a lockbox (together
with any successor, replacement or substitute lockbox, the "Lockbox"), the
address of which is "Grubb & Ellis Company, in care of Bank of America, 1455
Market Street, San Francisco, California 94103, file number 72654." Company
shall instruct each of its Brokers (as defined below) to deposit directly to
the Lockbox all payments 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"). "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, 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 any and 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.
5. On and after Bank's receipt of a Notice of Blockage
from Notifying Lender, Company shall (unless and until Bank is otherwise
notified by Notifying Lender in writing) no longer have access to the Cash
Collateral Account or any right of withdrawal thereunder, and the Cash
Collateral Account and all withdrawals therefrom shall be subject to the
provisions of paragraph 6.
6. On and after Bank's receipt of a Notice of Blockage
from Notifying Lender:
<PAGE> 4
Bank of America NT & SA
March 29, 1994
Page 4
(a) Bank shall immediately change the name on the
Cash Collateral Account to "Bank of America as Escrow Agent under
Escrow Number 2337 for the joint benefit of Warburg, Pincus Investors,
L.P. and The Prudential Insurance Company of America, as Lenders
(Deposits Made by or for the Account of Grubb & Ellis Company)," and
the Cash Collateral Account will be subject to written instruction to
Bank as designated by Warburg only. As between Lenders, each Lender's
rights, interest in, and obligations and remedies with respect to the
Cash Collateral Account shall be determined pursuant to an
Intercreditor Agreement dated as of the date hereof, by and between
Warburg and Prudential, and acknowledged by Company, as amended,
supplemented or otherwise modified from time to time.
(b) All amounts received by Bank for deposit in
the Cash Collateral Account, whether in the form of currency, checks,
wire transfers or otherwise, shall be credited to the Cash Collateral
Account in total on each Business Day. Bank may supply Company's
endorsement on checks received by it by endorsing them "Credited to
the account of the within payee," and will present them for payment
through the customary collection procedures and subject to the terms
of Bank's rules and regulations and all applicable laws covering the
handling of items deposited with it. Bank will remit to Warburg
available funds in the Cash Collateral Account on a daily basis on
each Business Day (or otherwise as agreed to by Warburg and Bank), by
means of federal wire transfer or otherwise, in each case as directed
in writing by Warburg.
(c)(i) All funds in the Cash Collateral Account will
be under the sole and exclusive dominion and control of Warburg, (ii)
the Cash Collateral Account and any funds then or thereafter on
deposit therein shall be the exclusive property of Lenders, (iii)
Company shall have no further interest in or control of the Cash
Collateral Account or such funds, and (iv) such funds will not be
subject to deductions, set-off, banker's lien, recoupment,
counterclaim or any other right in favor of any other person other
than Warburg and Bank as set forth above.
(d) All instructions regarding the Cash
Collateral Account shall be made exclusively by Warburg, and Bank
shall not accept instructions with respect thereto from Company or
Prudential.
(e) Bank will promptly notify Lenders and Company
at the addresses set forth below of the amount of all checks deposited
to the Cash Collateral Account which are returned unpaid for any
reason after receipt by Bank of a Notice of Blockage.
<PAGE> 5
Bank of America NT & SA
March 29, 1994
Page 5
(f) At the end of each month, Bank will mail its
regular statement covering all deposits and withdrawals from the Cash
Collateral Account to Lenders and Company at the addresses below.
(g) For purposes of this paragraph 6 and
paragraph 9, Business Day" shall mean any day (other than Saturdays
and Sundays) on which Bank is open for business.
Notwithstanding any contrary provision hereof, Bank shall not
be required to remit any funds in the Cash Collateral Account to Warburg if
such payment would violate any injunction or other legal process.
7. Any Notice of Blockage given by Notifying Lender to
Bank hereunder shall be sent, delivered or teletransmitted to Bank, with a copy
sent contemporaneously to Company and to the other Lender. 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:
BANK: Bank of America NT & SA
Global Escrow Depository Services
One Embarcadero Center, Fifth Floor
San Francisco, California 94111
Attention: Betty Deichler
Telephone Number: (415) 953-5705
Telecopier Number: (415) 622-2413
COMPANY: Grubb & Ellis Company
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Attn: General Counsel (or Attn: Treasurer,
for purposes of sending regular
statements pursuant to paragraph
6(f) above)
Telephone Number: (415) 956-4699
Telecopier Number: (415) 274-9700
<PAGE> 6
Bank of America NT & SA
March 29, 1994
Page 6
WARBURG: Warburg, Pincus Investors, L.P.
c/o E.M. Warburg, Pincus & Co., Inc.
466 Lexington Avenue, 10th Floor
New York, New York 10017
Attn: Reuben S. Leibowitz
Telephone Number: (212) 878-0653
Telecopier Number: (212) 878-9200
PRUDENTIAL: The Prudential Insurance Company of America
c/o The Prudential Corporate Finance Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Senior Managing Director
Telephone Number: (201) 802-7500
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. Notwithstanding the foregoing, with
respect to disbursements or investment of funds in the Cash Collateral Account,
Bank may accept oral instructions of Treasurer or such other individual Company
designates in writing to Bank prior to the delivery of a Notice of Blockage, or
such individual Notifying Lender designates in writing to Bank after the
delivery of a Notice of Blockage, so long as Bank receives a written
confirmation on the Business Day in which such disbursement or investment is to
be made.
8. Bank agrees to exercise the same degree of care in
the servicing and administration of the Cash Collateral Account as would be
customarily exercised in connection with accounts maintained by Bank, provided
that Bank will not be liable for any error in judgment or for any action taken
or omitted to be taken by Bank, except for Bank's own gross negligence or
willful misconduct. Bank's General Provisions for Corporate Escrow Agreements
applicable with respect to its escrow services, as revised and attached hereto
as Annex B, is incorporated herein and made a part of this Agreement.
<PAGE> 7
Bank of America NT & SA
March 29, 1994
Page 7
9. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California.
10. This Agreement shall terminate upon the earlier of
(i) written notice by Company and Lenders to Bank, (ii) termination of the
Warburg Loan Agreement, or (iii) notice by Lenders to Bank and Company after
Notifying Lender has delivered a Notice of Blockage pursuant to the terms
hereof.
11. This Agreement may be executed in counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
12. This Agreement shall become effective upon execution
by all the parties hereto, and may be amended, modified or revoked only upon
the written consent of all the parties hereto.
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Bank of America NT & SA
March 29, 1994
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This Cash Collateral Account Agreement, upon execution and
delivery by the parties hereto, shall be dated and effective as of the date
above written. Please sign and return two counterparts of this Agreement.
Thank you for your assistance in this matter.
Very truly yours,
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co., general partner
By: /s/ REUBEN S. LEIBOWITZ
Name: Reuben S. Leibowitz
Partner:
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: Chief Financial Officer
ACKNOWLEDGED AND AGREED TO
AS OF THE DATE FIRST ABOVE WRITTEN:
BANK OF AMERICA NT & SA
By: /s/BETTY ANN DEICHLER
Name: Betty Ann Deichler
Title: Vice President
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CASH COLLATERAL ACCOUNT AGREEMENT
Annex A
Bank of America Fee Schedule
See attached.
A-1
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BANK OF AMERICA NT & SA
Global Escrow Depository Services
Fee Schedule
Cash Management Account
GRUBB & ELLIS COMPANY
ACCEPTANCE FEE (NON REFUNDABLE):
Includes review of Agreement and establishing $28,000
procedures and controls. (maximum)
INVESTMENT PROCESSING FEES:
Bank of America Investments: No charge
Outside Investments processed through Bank of
America (per transaction): $50
Outside Investments not processed through
Bank of America (per transaction): $100
ACTIVITY FEES: (BILLED QUARTERLY)
Incoming wire, check disbursement, direct deposit: $10
Outgoing wire: $23.75
OUT-OF-POCKET EXPENSES: Billed at Cost
Expenses including but not limited to stationery,
postage, telephone, insurance, shipping, Telex/Telegram,
services of outside counsel and agents.
(Plus indirect out-of-pocket at 3 % of annual fees.)
Note: Charges for performing other escrow services not specifically covered in
this schedule will be determined by an appraisal of the services rendered.
March 22, 1994
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CASH COLLATERAL ACCOUNT AGREEMENT
Annex B
Bank of America General Provisions
for Corporate Escrow Agreements
See attached.
B-1
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Global Escrow Depository Services
General Provisions for
Corporate Escrow Agreements
LIABILITY OF ESCROW SERVICES
In performing any duties under the Escrow Agreement ("Agreement"),
Escrow Agent ("Agent") shall not be liable to any Party for damages, losses, or
expenses, except for gross negligence or willful misconduct on the part of the
Agent. Agency shall not incur any such liability for (I) any act or failure to
act made or omitted in good faith or (II) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that Agent shall in good faith believe to be
genuine, nor will Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, Agent may consult with the legal counsel in connection with Agent's
duties under this Agreement and shall be fully protected in any act taken,
suffered, or permitted by him/her in good faith in accordance with the advice
of counsel. Agent is not responsible for determining and verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement.
FEES AND EXPENSES
It is understood that the fees and usual charges agreed upon for
services of Agent shall be considered compensation for ordinary services as
contemplated by this Agreement. In the event that the conditions of this
Agreement are not promptly fulfilled, or if Agent renders any service not
provided for this Agreement, or if the Parties request a substantial
modification of its terms, or if any controversy arises, or if Agent is made a
Party to, or intervenes in, any litigation pertaining to this escrow or its
subject matter, Agent shall be reasonably compensated for such extraordinary
services and reimbursed for all costs, attorney's fees, including allocated
costs of in-house counsel, and expenses occasioned by such default, delay,
controversy or litigation and Agent shall have the right to retain all
documents and/or other things of value at any time held by Agent in this escrow
until such compensation, fees, costs, and expenses are paid. The Parties
jointly and severally promise to pay these sums upon demand.
INDEMNIFICATION OF ESCROW AGENT
The Parties and their respective successors and assigns agree jointly
and severally to indemnify and hold Agent harmless against any and all losses,
claims, damages, liabilities, and expenses, including reasonable costs of
investigation, counsel fees, including allocated costs of in-house counsel and
disbursements that may be imposed on Agent or incurred by Agent in connection
with the performance of his/her duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving its subject
matter. Agent shall have a first lien on the property and papers held under
this Agreement for such compensation and expenses.
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General Provisions for Corporation Escrow Agreements Page 2 of 2
INVESTMENT INSTRUCTIONS
Agent will act upon investment instructions the day that such
instructions are received, provided the requests are communicated within a
sufficient amount of time to all Agents to make the specified investment.
Instructions received after an applicable investment cutoff deadline will be
treated as being received by Agent on the next business day, and Agent shall
not be liable for any loss arising directly or indirectly, in whole or in part,
from the inability to invest funds on the day the instructions are received.
Agent shall not be liable for any loss incurred by the actions of third parties
or by any loss arising by error, failure, or delay in making of an investment
which is caused by circumstances beyond Agent's reasonable control.
FUNDS-INVESTED DURING ESCROW
The Parties acknowledge that payment of any interest earned on the
funds invested in this escrow will be subject to backup withholding penalties
unless either a properly completed Internal Revenue Service form W8 or W9
certification is submitted to Escrow Agent.
RESIGNATION OF ESCROW AGENT
Agent may resign at any time upon giving at least thirty (30) days
written notice to the Parties; provided, however, that no such resignation
shall become effective until the appointment of a successor escrow agent which
shall be accomplished as follows: The Parties shall use their best efforts to
mutually agree on a successor escrow agent within thirty (30) days after
receiving such notice. If the Parties fail to agree upon a successor escrow
agent within such time, Agent shall have the right to appoint a successor
escrow agent authorized to do business in the state of California. The
successor escrow agent shall execute and deliver an instrument accepting such
appointment and it shall, without further acts, be vested with all the estates,
properties, rights, powers, and duties of the predecessor escrow agent as if
originally named as escrow agent. Agent shall be discharged from any further
duties and liability under this Agreement.
GOVERNING LAW
This Agreement is to be construed and interpreted according to California law.
Prepared by Bank of America Global Escrow Depository Services.
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EXHIBIT 5
INTERCREDITOR AGREEMENT
This Intercreditor Agreement, dated as of March 29, 1994 (this
"Agreement"), is made by and between Warburg, Pincus Investors, L.P., a
Delaware limited partnership ("Warburg") and The Prudential Insurance Company
of America, a New Jersey corporation ("Prudential").
RECITALS
A. Pursuant to a certain Senior Note, Subordinated Note, and
Revolving Credit Note Agreement, dated as of November 2, 1992 (the "Prudential
Note Agreement"), as modified by a certain Modification to Note and Security
Agreement, dated as of March 29, 1994, by and between Grubb & Ellis Company
(the "Company") and Prudential (collectively, the "Prudential Security
Agreement"), Company became indebted to Prudential, among other things, in an
amount as set forth in and more fully defined as the "Senior Debt" in the
Prudential Note Agreement (the "Senior Debt").
B. Pursuant to a certain Loan and Security Agreement entered into
as of March 29, 1994 by and between Company and Warburg (the "Warburg Loan
Agreement"), Company became indebted, or will become indebted to Warburg in an
amount or amounts equal to the lesser of (i) Ten Million Dollars, and (ii) the
unpaid principal amount of all advances made by Warburg as the Loan under, and
as defined in, the Warburg Loan Agreement (the "Warburg Debt").
C. Company's obligations under each of the Prudential Note
Agreement and the Warburg Loan Agreement (collectively the "Loan Agreements" or
singular, a "Loan Agreement") are secured by a security interest in all of
Company's right, title, and interest in and to certain personal property (as
defined in the Prudential Security Agreement and the Warburg Loan Agreement as
the "Collateral"), including a certain Cash Collateral Account, all as set
forth in and defined under the Prudential Security Agreement and the Warburg
Loan Agreement.
D. In connection with the grant of a security interest by Company
in favor of Warburg and Prudential, respectively, the parties have established
a Cash Collateral Account pursuant to a certain Cash Collateral Account
Agreement, dated as of March 29, 1994, among such parties and Bank of America
NT&SA (the "Bank.")
E. Prudential and Warburg (the "Lenders") wish to set forth their
agreement with respect to the Collateral, each Lender's respective rights in
and to the Collateral, and the allocation of the Collateral between each
Lender;
Now, therefore, Prudential and Warburg agree as follows:
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AGREEMENT
Section I. Defined terms. Capitalized terms used but not
otherwise defined herein shall have the meanings given to them in the Cash
Collateral Account Agreement.
Section II. Sharing of Security.
2.1 Right to Payment. Prior to the issuance of a Notice
of Blockage, as defined in the Cash Collateral Account Agreement, from a
Notifying Lender, Warburg may receive repayments or prepayments pursuant to the
terms of the Warburg Loan Agreement, and Prudential specifically consents that
such repayments and prepayments may be made from the Collateral until such time
as an Event of Default shall have occurred and be continuing under the Warburg
Loan Agreement or the Prudential Security Agreement. From on and after the
issuance of a Notice of Blockage, withdrawal of funds from the Cash Collateral
Account shall be made in accordance with the allocation formula set forth in
Section 3.2, below.
2.2 Interest in Collateral. Each Lender shall share an
undivided interest in the Collateral and all proceeds thereof as defined in
Section 3, below, provided, however, that Prudential's interest in the
Collateral shall be, and is junior to Warburg's interest in the Collateral.
2.3 Shared Benefit of Liens. Each Lender hereby
acknowledges and agrees that it holds its lien upon and security interest in
the Collateral and may exercise its rights and remedies with respect to the
Collateral only as set forth herein.
2.4 Liens Governed by Intercreditor Agreement. The
provisions of this Agreement shall govern each Lender's rights and interests in
and to the Collateral and all proceeds thereof.
Section III. Enforcement of Remedies.
3.1 Title. Upon the occurrence of an Event of Default
under the Prudential Security Agreement or the Warburg Loan Agreement, each
Lender shall be entitled to enforce its rights and remedies under its
respective Loan Agreement, including, without limitation, its recourse to the
Collateral and the issuance of a Notice of Blockage with respect to the
Collateral held by the Bank, only in a manner consistent with this Agreement,
as follows:
(a) Warburg. Warburg may issue a Notice of Blockage
with respect to the Collateral held by the Bank, and otherwise enforce its
rights and remedies under the Warburg Loan Agreement at any time upon the
occurrence of an Event of Default under the Warburg Loan Agreement;
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(b) Prudential. Prudential shall be entitled to issue a
Notice of Blockage upon the occurrence of an Event of Default under the
Prudential Security Agreement only after three Business Days notice to Warburg
of Prudential's intention to issue a Notice a Blockage to the Bank, provided,
however, that if the Event of Default upon which Prudential intends to issue
the Notice of Blockage arises solely as a result of the occurrence of an Event
of Default under the Warburg Loan Agreement, and within such three Business
Days, Warburg notifies Prudential in writing that Warburg has waived the
relevant Event of Default, Prudential shall withdraw its Notice of Blockage.
(c) Warburg shall take possession of the Collateral after
issuance of a Notice of Blockage pursuant to the Cash Collateral Account
Agreement whether Prudential or Warburg is the Notifying Lender.
3.2 Allocation of Receipts. During the term of this
Agreement, from, on and after the date of the occurrence of an Event of Default
under either the Warburg Loan Agreement or the Prudential Security Agreement,
and upon the issuance of a Notice of Blockage to the Bank by a Lender (the
"Notifying Lender") under the Cash Collateral Account Agreement, the Collateral
shall be applied by Warburg, as follows:
(a) First: to the payment in full of all Broker Fees (as
defined in the Loan Agreements) pursuant to the terms of the
applicable Loan Agreements;
(b) Second: to Warburg, but only as long as the Warburg
Debt and other obligations by Company under the Warburg Loan
Agreement, as entered on March 29, 1994, remain outstanding.
(c) Third: to Prudential, upon and on the date of the
termination of the Warburg Loan Agreement either by (i) the
Company's full repayment of the Warburg Debt, or (ii) the
conversion of the Warburg Debt to shares of either common or
preferred stock in Company, in an amount equal to the unpaid,
outstanding Senior Debt owed by Company under the Prudential
Note Agreement.
(d) Fourth: upon Company's repayment in full of the
Senior Debt owing to Prudential under the Prudential Security
Agreement, the remainder, if any, of monies remaining in the
Cash Collateral Account shall be returned to Company.
3.3 Receipt of Collateral and Proceeds. To the extent
any Lender receives any distribution hereunder in excess of the amounts then
due such Lender, such Lender shall hold the excess in trust for the other
Lender and Company and such receiving Lender shall, as soon as practicable,
distribute such excess receipts to the other Lender or Company, as applicable,
in such amounts as will be required to satisfy the payment priority
distribution set
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forth in Section 3.2 above.
Section IV. Exercise of Remedies.
4.1 General. (a) The rights and remedies of each Lender
to collect and enforce Company's obligations to such Lender under the
applicable Loan Agreement shall be exercised only in a manner consistent with
the terms of the applicable Loan Agreements, the Cash Collateral Account
Agreement and this Agreement.
4.2 Foreclosure. Subject to the provisions of this
Agreement, each Lender may exercise all of its respective remedies under its
Loan or Security Agreement, including foreclosure permitted thereunder, at any
time following the occurrence and continuance of any Event of Default under the
applicable Loan Agreement, provided, however, that, upon foreclosing against
the Cash Collateral Account, Warburg shall instruct the Bank pursuant to the
Cash Collateral Account Agreement, to distribute available funds in the Cash
Collateral Account to each of the Lenders as set forth in this Agreement.
4.3 Notices of Default. Any notice required to be given
by a Lender to Company under either of the Loan Agreements in respect of
defaults, notices of default, or enforcement of remedies shall likewise be
given by such Lender to the other Lender contemporaneously with the issuance of
such notice to Company.
Section V. Miscellaneous.
5.1 Termination. This Agreement shall terminate upon the
first to occur of the date on which the Company's obligations to Warburg under
the Warburg Loan Agreement or the Company's obligations to Prudential under the
Prudential Note Agreement shall have been paid in full, or the Warburg Debt or
the Senior Debt, as applicable, shall have been terminated.
5.2 Notices. Except as expressly provided herein all
notices, demands or other communications hereunder to any of the parties hereto
shall be in writing and shall become effective when delivered by hand or by air
courier or when received by telex, telecopier, telegram or cable in each case
sent to the parties at the addresses as stated below or at such other address
as any party hereto may hereafter notify the other parties in writing as
aforesaid;
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Lender: Warburg Pincus Investors, L.P.
c/o E.M. Warburg, Pincus and Co. Inc.
466 Lexington Avenue, Tenth Floor
New York, New York 10017
Telephone: (212) 878-0653
Telecopier: (212) 878-9200
Atten.: Reuben S. Leibowitz
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
Telephone: (201) 802-7500
Telecopier: (201) 802-2662
Atten.: Senior Managing Director
Company: Grubb & Ellis Company
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telephone: (415) 956-4699
Telecopier: (415) 274-9700
Atten.: General Counsel
5.3 Governing Law. This Intercreditor Agreement shall be
governed by and construed in an accordance with the laws of the State of
California (without giving effect to principals of conflicts of law).
5.4 Jurisdiction. The parties hereto hereby irrevocably
submit to the jurisdiction of the Courts of the State of California and the
United States District Court for the Northern District of California in any
action, suit, or proceeding related to or in connection with this Agreement and
the parties hereto consent to the service of all process, notices and papers by
first class mail at the addresses set forth herein in any such action, suit, or
proceeding.
5.5 Execution In Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
5.6 Amendments etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure therefrom, shall in
any event be effective unless the
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same shall be in writing and signed by the parties hereto, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
5.7 Integration. This Intercreditor Agreement, together
with the Loan Agreements and the Cash Collateral Account Agreement, constitute
the sole agreement of the parties with respect to the subject matter hereof and
supersedes all oral negotiations and prior writings with respect to the subject
matter hereof.
5.8 Severability. Any provisions hereof prohibited by,
or unlawful or unenforceable under, any applicable law of any jurisdiction
shall as to such jurisdiction be ineffective without modifying the remaining
provisions of this Agreement or its applicability to any other Agreement and
any such prohibition or unenforceability in any jurisdiction shall not of its
self invalidate or render such provision unenforceable in any other
jurisdiction. Where, however, the provisions of such applicable law may be
waived they are hereby waived by the parties hereto to the full extent
permitted by law, to the end that this Agreement shall be a valid and binding
Agreement enforceable in accordance with its terms.
5.9 Attorney's Fees. If a Lender hereto fails to perform
any of its obligations under this Agreement or if any dispute arises between or
among the Lenders concerning the meaning or interpretation of any provision of
this Agreement, then the defaulting party or the party not prevailing in such
dispute, as the case may be, shall pay any and all costs and expenses incurred
by the other party on account of such default and/or in enforcing or
establishing its rights hereunder, including, without limitation, court costs
and reasonable attorney's fees and disbursements incurred in the dispute, in
enforcing any judgement thereon and in any appeal.
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IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be duly executed by their authorized officers, as of the date and year first
above written.
WARBURG, PINCUS INVESTORS LP
By: /s/ Reuben S. Leibowitz
Title: Partner
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ John P. Mullman
Title: Vice President
Grubb & Ellis hereby acknowledges and consents to the terms
hereof:
GRUBB & ELLIS COMPANY
By: /s/ Robert J. Hanlon, Jr.
Title: Chief Financial Officer
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