-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GhLyGPVskpTN8gzurmkZszw+/64NoFT8c9GAVwWliZYLlt9cScr0keAd6tC4Wqfm +VKfswoT41Py8G7iCc2WDQ== 0000912057-97-017977.txt : 19970520 0000912057-97-017977.hdr.sgml : 19970520 ACCESSION NUMBER: 0000912057-97-017977 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRUBB & ELLIS CO CENTRAL INDEX KEY: 0000216039 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE AGENTS & MANAGERS (FOR OTHERS) [6531] IRS NUMBER: 941424307 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08122 FILM NUMBER: 97607900 BUSINESS ADDRESS: STREET 1: ONE MONTGOMERY ST STE 3100 STREET 2: TELESIS TWR 9TH FLR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4159561990 MAIL ADDRESS: STREET 1: ONE MONTGOMERY ST STE 3100 STREET 2: TELESIS TWR 9TH FLR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 10-Q 1 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 ---------------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to ___________________ Commission File Number: 1-8122 ----------- GRUBB & ELLIS COMPANY (Exact Name of Registrant as Specified in Its Charter) Delaware 94-1424307 (State or Other Jurisdication of (I.R.S. Employer Incorporation or Organization) Identification No.) 2215 Sanders Road, 4th Floor, Northbrook, IL 60062 ---------------------------------- (Address of Principal Executive Offices) (Zip Code) (847) 753-9010 -------------------- (Registrant's Telephone Number, Including Area Code) No Change -------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 19,499,568 -------------------- (Number of Shares Outstanding of the Registrant's Common Stock at May 1, 1997) 1 PART I FINANCIAL INFORMATION 2 ITEM 1. FINANCIAL STATEMENTS GRUBB & ELLIS COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share amounts and shares) (unaudited)
For the Three Months For the Nine Months Ended March 31, Ended March 31, -------------------------- ------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Revenue: Commercial real estate brokerage commissions $ 38,993 $ 28,615 $ 138,294 $ 117,630 Real estate services fees, commissions and other 9,600 8,318 30,260 27,046 ---------- ---------- ---------- ---------- Total revenue 48,593 36,933 168,554 144,676 ---------- ---------- ---------- ---------- Costs and Expenses: Real estate brokerage and other commissions 23,302 17,467 84,455 71,081 Selling, general and administrative 10,575 11,058 32,863 33,671 Salaries and wages 14,493 12,418 41,103 36,273 Depreciation and amortization 777 674 2,429 1,847 Special charges and unusual items 1,097 (110) 1,997 (34) ---------- ---------- ---------- ---------- Total costs and expenses 50,244 41,507 162,847 142,838 ---------- ---------- ---------- ---------- Total operating income (loss) (1,651) (4,574) 5,707 1,838 Other income and expenses: Interest income 287 226 638 582 Other income, net 32 15 158 804 Interest expense to related parties (106) (777) (1,431) (2,248) ---------- ---------- ---------- ---------- Income (loss) before income taxes and extraordinary item (1,438) (5,110) 5,072 976 Provision for income taxes (28) (6) (95) (164) ---------- ---------- ---------- ---------- Income (loss) before extraordinary item (1,466) (5,116) 4,977 812 Extraordinary item - gain on extinguishment of debt 2,000 - 5,576 - ---------- ---------- ---------- ---------- Net income (loss) $ 534 $ (5,116) $ 10,553 $ 812 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See notes to condensed consolidated financial statements. 3 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations, Continued (in thousands, except per share amounts and shares) (unaudited)
For the Three Months For the Nine Months Ended March 31, Ended March 31, -------------------------- --------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net income (loss)applicable to common stockholders net of undeclared dividends earned on preferred stock $ 534 $(5,887) $ 9,122 $ (1,405) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) per common share and equivalents: Primary - -from operations $ (.07) $ (.66) $ .26 $ (.16) -from extraordinary gain .10 - .37 - ------------ ------------ ------------ ------------ $ .03 $ (.66) $ .63 $ (.16) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Weighted average common shares and equivalents outstanding 19,963,770 8,883,970 15,150,338 8,861,519 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Fully diluted - - from operations $ (.07) $ (.66) $ .26 $ (.16) - from extraordinary gain .10 - .30 - ------------ ------------ ------------ ------------ $ .03 $ (.66) $ .56 $ (.16) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Weighted average common shares and equivalents outstanding 20,162,084 8,883,970 18,787,134 8,861,519 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
See notes to condensed consolidated financial statements. 4 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) ASSETS (unaudited) March 31, June 30, 1997 1996 ---- ---- Current Assets: Cash and cash equivalents $ 13,106 $ 13,547 Real estate brokerage commissions receivable 1,696 206 Real estate services fees and other commissions receivable 3,805 3,172 Other receivables 3,417 4,326 Prepaids and other current assets 1,009 1,484 --------- --------- Total current assets 23,033 22,735 Noncurrent Assets: Real estate investments held for sale and real estate owned 357 537 Equipment and leasehold improvements, net 5,206 5,194 Other assets 1,837 1,192 --------- --------- Total assets $ 30,433 $ 29,658 --------- --------- --------- --------- See notes to condensed consolidated financial statements. 5 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets, continued (in thousands, except per share amounts and shares) (unaudited) March 31, June 30, 1997 1996 ---- ---- LIABILITIES Current Liabilities: Accounts payable $ 336 $1,652 Compensation and employee benefits payable 5,140 5,581 Accrued severance obligations 1,082 98 Accrued office closure costs 1,161 623 Accrued claims and settlements 1,218 1,779 Other accrued expenses 4,439 6,717 --------- --------- Total current liabilities 13,376 16,450 Long-Term Liabilities: Long-term debt to related party - 27,514 Accrued claims and settlements 11,113 11,804 Accrued office closure costs 449 960 Other 899 405 --------- --------- Total liabilities 25,837 57,133 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, $.01 par value: 1,000,000 shares authorized; 137,160 shares of 12% Senior Convertible Preferred Stock and 150,000 shares of 5% Junior Convertible Preferred Stock outstanding at June 30, 1996 - 32,143 Common stock, $.01 par value: 25,000,000 shares authorized; 19,499,568, 8,916,415, and 8,894,688 shares issued and outstanding at March 31, 1997 and June 30, 1996, respectively 196 90 Additional paid-in capital 110,709 57,154 Retained deficit (106,309) (116,862) --------- --------- Total stockholders' equity (deficit) 4,596 (27,475) --------- --------- Total liabilities and stockholders' equity (deficit) $ 30,433 $ 29,658 --------- --------- --------- --------- See notes to condensed consolidated financial statements. 6 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (unaudited - in thousands) For the Nine Months Ended March 31, ---------------------- 1997 1996 ---- ---- Cash Flows from Operating Activities: Net income $ 10,553 $ 812 Extraordinary item - gain on extinguishment of debt (5,576) - Other adjustments to reconcile net income to net cash provided by (used in) operating activities (2,268) (3,036) ---------- ---------- Net cash provided by (used in) operating activities 2,709 (2,224) ---------- ---------- Cash Flows from Investing Activities: Proceeds from disposition and distributions from real estate joint ventures and real estate owned 481 1,227 Purchases of equipment and leasehold improvements (1,852) (1,508) ---------- ---------- Net cash used in investing activities (1,371) (281) ---------- ---------- Cash Flows from Financing Activities: Proceeds from borrowing - 400 Repayment of notes payable (29) (112) Repayment of long-term debt to related party (23,000) - Issuance of common stock 21,250 - ---------- ---------- Net cash (used in) provided by financing activities (1,779) 288 ---------- ---------- Net decrease in cash and cash equivalents (441) (2,217) Cash and cash equivalents at beginning of period 13,547 11,406 ---------- ---------- Cash and cash equivalents at end of period $ 13,106 $ 9,189 ---------- ---------- ---------- ---------- Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 1,466 $ 1,319 Income taxes 126 959 See notes to condensed consolidated financial statements. 7 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 1. INTERIM PERIOD REPORTING The accompanying unaudited condensed consolidated financial statements include the accounts of Grubb & Ellis Company, its wholly and majority owned and controlled subsidiaries and controlled partnerships (the "Company"). The Company consolidates Axiom Real Estate Management, Inc. ("Axiom"), which provides property management, facilities management and related services. In January 1996, the Company acquired the minority interest in Axiom increasing its ownership from 74% to 100%. Prior to the acquisition, the related minority interest in operating results has been included in "Other income, net" on the Condensed Consolidated Statements of Operations through the date it was acquired. The accompanying unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and therefore, should be read in conjunction with the Company's Annual Report on Form 10-K, as amended by Amendment No. 1 thereto on Form 10-K/A, for the year ended June 30, 1996, and footnotes thereto. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts in prior periods have been reclassified to conform to the current presentation. Operating results for the three months or nine months ended March 31, 1997 are not necessarily indicative of the results that may be expected for future periods. 8 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 2. INCOME TAXES The Company's tax provision is attributable to state and local income taxes assessed on profitable subsidiaries of the Company. Additionally, the provision for income taxes for the nine months ended March 31, 1996 included federal income taxes related solely to Axiom which filed on a separate company basis for tax purposes through the tax year ended December 31, 1995. 3. FINANCING TRANSACTIONS SALE AGREEMENT - LONG-TERM DEBT - On October 21, 1996, Warburg, Pincus Investors, L.P. ("Warburg") and The Prudential Insurance Company of America ("Prudential") entered into an agreement (the "Sale Agreement") pursuant to which Warburg acquired from Prudential all of the outstanding debt, common stock warrants, and substantially all of the Junior Convertible Preferred Stock held by Prudential in the Company (together, the "Prudential Securities"), for $23 million plus accrued but unpaid interest on the debt. The closing occurred on October 22, 1996. Concurrently, Warburg granted the Company an option, (the "Option") until April 16, 1997, to acquire all of the Prudential Securities which Warburg acquired from Prudential, at Warburg's cost, plus interest. The Prudential Securities included: (a) $5 million Revolving Credit Note due November 1, 1999; (b) $10 million 9.9% Senior Notes due in equal installments on November 1, 1997 and 1998; (c) $10.9 million 10.65% Subordinated Payment-In-Kind Note due November 1, 2001; (d) $2.2 million 11.65% Subordinated Payment-In-Kind Notes, due November 1, 2001 (the "PIK Notes"); (e) 130,233 shares of Junior Convertible Preferred Stock; and (f) stock subscription warrants to subscribe for 350,000 shares of common stock. Pursuant to the Sale Agreement, Prudential agreed that in the event that Warburg converted its Senior Convertible Preferred Stock to common stock, Prudential would convert its remaining Junior Convertible Preferred Stock to common stock as well. As of the date of the Sale Agreement, Prudential continued to hold 397,549 shares of common stock and 19,767 shares of Junior Convertible Preferred Stock convertible into 352,447 shares of common stock. 9 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 3. FINANCING TRANSACTIONS (CONTINUED) While the Option remained unexercised during the Option period, no interest or dividends accrued or were due or payable on the Prudential Securities; however, the Company was obligated to pay Warburg interest at an initial rate of 10% per annum, increasing to 12% per annum as of February 1, 1997, on Warburg's $23 million investment in the Prudential Securities. In consideration of receipt of the Option, the Company agreed to extend the expiration date of warrants to purchase an aggregate of 1,012,358 shares of common stock of the Company, then held by Warburg, to January 29, 2002. EQUITY INVESTMENTS - On December 11, 1996, the Company sold 2.5 million shares of its common stock for $10 million to the principals of the Kojaian Companies, Southfield, Michigan. The $10 million was used to purchase from Warburg, and then retire, all of the outstanding PIK Notes (approximately $13.5 million principal amount) and 130,233 shares of Junior Convertible Preferred Stock (convertible into approximately 2.3 million shares of common stock). The repurchase of the PIK Notes resulted in a $3.6 million extraordinary gain on the extinguishment of debt for the quarter ended December 31, 1996. There were no income taxes recorded with respect to the extraordinary gain due to the Company's available net operating loss carryforward. Concurrently, Warburg and Joe F. Hanauer converted all of the Senior Convertible Preferred Stock held by them into an aggregate of 5,168,177 shares of common stock, and Mr. Hanauer agreed to cancel certain warrants held by him. In connection with these transactions, Warburg retained warrants to purchase an aggregate of 325,000 shares of common stock and Joe F. Hanauer received warrants to purchase an aggregate of 25,000 shares of common stock, which Warburg acquired from Prudential. At the same time, Warburg granted the Company a second option (the "Second Option") to purchase the 9.9% Senior Notes and Revolving Credit Note held by Warburg until April 16, 1997 for $13 million, plus interest, and the Option was cancelled. Pursuant to the Sale Agreement, Prudential converted all of its remaining shares of Junior Convertible Preferred Stock into an aggregate of 352,447 shares of common stock. On January 24, 1997, the Company sold 2.5 million shares of its common stock for $11.25 million to Archon Group, L.P., a majority owned subsidiary of the international investment bank, Goldman, Sachs & Co. The $11.25 million, together with existing cash, was used to exercise 10 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 3. FINANCING TRANSACTIONS (CONTINUED) the Second Option and purchase from Warburg, and then retire, the $10 million of outstanding 9.9% Senior Notes and $5 million Revolving Credit Note, at a price equal to $13 million plus accrued interest of approximately $96,000. The purchase of these notes resulted in a $2 million extraordinary gain on the extinguishment of debt for the quarter ended March 31, 1997. There were no income taxes recorded with respect to the extraordinary gain due to the Company's available net operating loss carryforward. As a result of the above mentioned transactions, all shares of Senior and Junior Convertible Preferred Stock of the Company were either converted to common stock or retired as of December 31, 1996, extinguishing accrued and unpaid dividends on such stock. Additionally, all long-term debt was eliminated as of January 27, 1997. 4. REVOLVING CREDIT FACILITY On March 13, 1997 the Company entered into a $15 million revolving credit facility (the "Credit Agreement") with PNC Bank, National Association ("PNC") for general corporate purposes and acquisitions. The Credit Agreement expires on March 13, 2001. Currently, the Company has no outstanding borrowings under the Credit Agreement. Interest on outstanding borrowings will be due quarterly in arrears and is based upon PNC's prime rate and/or the LIBOR rate plus, in either case, an additional margin based upon a particular financial ratio of the Company, and will vary depending upon which interest rate options the Company chooses to be applied to specific borrowings. In connection with the Credit Agreement, the Company incurred commitment and other financing fees totaling $213,000, which will be amortized over the term of the Credit Agreement. Performance of the Company's obligations under the Credit Agreement is secured by substantially all of the Company's assets. The Credit Agreement contains certain restrictive covenants, including the prohibition of the payment of dividends, restrictions on the issuance of certain types of preferred stock, and the maintenance of certain financial ratios. 5. NET INCOME (LOSS) PER COMMON SHARE AND EQUIVALENTS Net income (loss) per common share and equivalents computations are based on the weighted average number of common shares and equivalents outstanding. Common equivalent shares from stock options and warrants are excluded from the computation if their effect is anti-dilutive. 11 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 5. NET INCOME (LOSS) PER COMMON SHARE AND EQUIVALENTS (CONTINUED) The calculation of net income (loss) per common share and equivalents includes net income (loss), adjusted for amounts applicable to the Senior and Junior Convertible Preferred Stock related to undeclared dividends earned as shown below (in thousands). Since all of the preferred stock was either retired or converted to common stock during December, 1996 (see Note 3), undeclared dividends were only calculated through the date of conversion or retirement. For the For the Three Months Ended Nine Months Ended March 31, March 31, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Senior Convertible Preferred Stock $ - $ 557 $ 1,032 $ 1,589 Junior Convertible Preferred Stock - 214 - 628 -------- -------- -------- -------- Total undeclared dividends $ - $ 771 $ 1,032 $ 2,217 -------- -------- -------- -------- -------- -------- -------- -------- 12 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 5. NET INCOME (LOSS) PER COMMON SHARE AND EQUIVALENTS (CONTINUED) PRO FORMA INFORMATION - The information presented below presents the pro forma impact to net income (loss) per common share and equivalents assuming (a) the equity investments of $10 million in December 1996 and $11.25 million in January 1997 described in Note 3 above were made at the beginning of the respective periods, then concurrently (b) all outstanding long-term debt to Prudential was immediately retired and (c) all outstanding Senior and Junior Convertible Preferred Stock was also immediately retired or converted into common stock.
For the Three Months For the Nine Months Ended March 31, Ended March 31, ----------------------------- ------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net income (loss) applicable to common stockholders $ 534 $ (5,887) $ 9,122 $ (1,405) Add pro forma adjustments - Dividends applicable to preferred stock - 771 1,431 2,217 Interest expense to related parties 106 777 1,431 2,248 ------------ ---------- ---------- ---------- Pro forma net income (loss) applicable to common stockholders $ 640 $(4,339) $11,984 $ 3,060 ------------ ---------- ---------- ---------- ------------ ---------- ---------- ---------- Pro forma weighted average common shares and equivalents outstanding 20,630,437 19,404,594 20,219,393 19,343,886 ------------ ---------- ---------- ---------- ------------ ---------- ---------- ---------- Pro forma net income (loss) per common share(A): From operations $ (.07) $ (.22) $ .32 $ .16 From extraordinary gain .10 - .27 - ------------ ---------- ---------- ---------- $ .03 $ (.22) $ .59 $.16 ------------ ---------- ---------- ---------- ------------ ---------- ---------- ----------
(A) The primary and fully diluted pro forma net income (loss) per common share calculations are the same within each period presented, except for the nine months ended March 31, 1997. Fully diluted pro forma net income per share for this period totalled $.58 per share, and was comprised of $.31 per share from operations and $.27 per share from extraordinary gain. The pro forma information is not necessarily indicative of the results of the Company had such transactions occurred on the dates discussed above, nor does such information purport to represent the expected result for future periods. 13 GRUBB & ELLIS COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 6. IMPACT OF CHANGE IN ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted for periods ending after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options and other common stock equivalents will be excluded. The impact is expected to result in primary earnings per share for the quarter and nine months ended March 31, 1997 of $.03 and $.72 per share, respectively. The impact of Statement No. 128 on the calculation of fully diluted earnings per share for these quarters is not expected to be material. 7. COMMITMENTS AND CONTINGENCIES The Company has guaranteed, in the aggregate amount of $4 million, the contingent liabilities of one of its wholly-owned subsidiaries with respect to two limited partnerships in which the subsidiary formerly acted as general partner. The Company is involved in various claims and lawsuits arising out of the conduct of its business, as well as in connection with its participation in various joint ventures, partnerships, and a trust, many of which may not be covered by the Company's insurance policies. In the opinion of management, the eventual outcome of such claims and lawsuits is not expected to have a material adverse effect on the Company's financial position or results of operations. The Company previously disclosed in its Annual Report on Form 10-K, as amended by Amendment No. 1 thereto on Form 10-K/A for the year ended June 30, 1996, information concerning a lawsuit entitled JOHSZ ET AL. V. KOLL COMPANY, ET AL., and a related lawsuit entitled YOUNKIN, MAIONA, ET AL. V. KOLL COMPANY, ET AL. and a class action lawsuit, JOHN W. MATTHEWS, ET AL. V. KIDDER, PEABODY & CO., ET AL. AND HSM INC., ET AL. Since such report, there has been no material change with respect to these matters. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in this Quarterly Report on Form 10-Q that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties, including those listed from time to time in the Company's SEC Reports, including the Report on Form 10-K for the fiscal year ended June 30, 1996. RESULTS OF OPERATIONS REVENUE The Company's revenue is derived principally from commercial brokerage activities. Property and asset management, mortgage brokerage, appraisal and consulting fees provide substantially all of the remaining revenue. The Company has historically experienced its lowest quarterly revenue in the quarter ending March 31 of each year with historically higher revenue in the quarters ending June 30, September 30, and December 31, due to increased activity caused by the desire of clients to complete transactions by calendar year-end. Revenue in any given quarter during the three fiscal year period ended June 30, 1996, as a percentage of total annual revenue, ranged from a high of 31.2% to a low of 19.0%, as adjusted to eliminate the effect of operations sold or closed. Additionally, the Company operates in an industry that may be affected by various economic conditions, such as interest rates, and tax and environmental laws. For the nine months ended March 31, 1997, total revenue of $168.6 million increased by $23.9 million, or 16.5%, compared to the same period last year. Commercial brokerage revenue increased $20.7 million, or 17.6%, over the comparable fiscal year 1996 period, reflecting healthier market conditions overall, as well as inroads the Company has been making to expand market share in specific locations across the country. Other real estate services fees of $30.3 million for the nine months ended March 31, 1997 increased by $3.2 million, or 11.9%, as a result of increased activity in appraisal and consulting services and property management. Total revenue for the quarter ended March 31, 1997 was $48.6 million, an increase of 31.6% over revenue of $36.9 million for the same period last year. Commercial brokerage revenue increased $10.4 million or 36.3% over the comparable fiscal year 1996 period. Other real estate service fees of $9.6 million increased $1.3 million, or 15.4%, over the prior year period as described above. COSTS AND EXPENSES Real estate brokerage and other commission expense (salespersons' participation) is the Company's major expense and is a direct 15 function of gross brokerage commission revenue levels. As a percentage of total commercial real estate brokerage commission revenue, commercial brokerage salespersons' participation expense increased for the first nine months and decreased for the third quarter of fiscal year 1997 by 12 and 119 basis points, respectively, over the comparable periods in fiscal year 1996. The decrease in the third quarter participation expense percentage was primarily related to higher revenues earned by employee salespersons, whose participation expense is effectively fixed during the first part of the calendar year until their sales production levels exceed certain thresholds. Total costs and expenses, other than real estate brokerage commission expense and special charges and unusual items, increased by $4.6 million, or 6.4%, for the first nine months of fiscal year 1997 compared to the same period in fiscal year 1996. The increase in costs and expenses was primarily attributable to the $4.8 million increase in salary and wages. Approximately one-half of this increase was due to changes in reserves related to partially self-insured employee benefit programs. The balance of the increase was due to (a) the hiring costs and salaries related to additional senior level executives for the Institutional Services and Corporate Services groups of the commercial brokerage operations, (b) increased salary cost, as opposed to participation expense, due to guarantees provided to commercial brokerage office District and Sales Managers in their initial year of service and (c) the impact of normal annual salary increases. Total costs and expenses, other than real estate brokerage commission expense and special charges and unusual items, for the quarter ended March 31, 1997 increased by $1.7 million, or 7.0%, compared to the same quarter in fiscal year 1996 due primarily to the higher salary costs described above. Special charges and unusual items reflect a net charge of $2.0 million and $1.1 million, respectively, for the nine and three month periods ended March 31, 1997. These amounts included a $2.1 million charge for incremental non-recurring costs related to the relocation of the Company's corporate headquarters from San Francisco, California to Northbrook, Illinois. The Company estimates that an additional $400,000 charge will be incurred in the quarter ending June 30, 1997, for similar costs related to the relocation. As of March 31, 1997, the Company had current accrued severance and office closure costs of approximately $2.2 million, of which $1.1 million of accrued severance costs and $937,000 of accrued office closure costs, net of expected sublease income, are expected to be paid in cash. All of the $449,000 of long-term accrued office closure costs, net of expected sublease income, are expected to be paid in cash over the next five years. NET INCOME The net income of $10.6 million, or $.63 per common share, for the nine months ended March 31, 1997 compared favorably to the net 16 income of $812,000, or net loss of $(.16) per common share (reflecting an adjustment for undeclared dividends related to the Senior and Junior Convertible Preferred Stock), for the same period in fiscal year 1996. The increase over the prior year's performance was related to the $5.6 million extraordinary gain on the extinguishment of debt in connection with the financing transactions described above in Note 3 to the Condensed Consolidated Financial Statements, a decrease in interest expense to related parties of $817,000 and higher earnings from commercial brokerage activities. These improvements were offset by $2.0 million more in special charges and unusual items, primarily related to the relocation of the Company's corporate headquarters, and $646,000 less in other income. The net income of $534,000 or $.03 per common share for the quarter ended March 31, 1997 compared favorably to the net loss of $5.1 million or $(.66) per common share for the same period in fiscal year 1996. The increase over the prior year's performance was related to the $2.0 million extraordinary gain on the extinguishment of debt and higher earnings from commercial brokerage activities, offset by higher special charges and unusual items, primarily related to the relocation of the Company's corporate headquarters. LIQUIDITY AND CAPITAL RESOURCES Working capital increased by $3.4 million to $9.7 million during the nine months ended March 31, 1997 as the Company reduced its outstanding current liabilities by $3.1 million. Cash and cash equivalents decreased by $441,000 from June 30,1996 to March 31, 1997. Cash provided by operations of $2.7 million was offset by net cash of $1.4 million used in investing activities, primarily for purchases of equipment and leasehold improvements. In addition, the Company raised $21.25 million from the issuance of common stock and used these proceeds along with existing cash to retire all of its outstanding long-term debt and 130,233 shares of Junior Convertible Preferred Stock for a total of $23 million. The Company has historically experienced the highest use of operating cash in the quarter ended March 31, primarily related to the payment of incentive and deferred commission payable balances which attain peak levels as a result of business activity levels during the quarter ended December 31. Historically, higher revenue is received in the subsequent quarters, increasing the amount of funds available to the Company to meet its operating cash requirements. The Company believes that its short-term and long-term cash requirements will be met by operating cash flow. Significant progress has been made over the nine month period ended March 31, 1997 towards improving the Company's financial condition. During this period the Company sold 5.0 million shares of its common stock for aggregate gross proceeds of $21.25 million, retired all of the outstanding PIK Notes (approximately $13.5 million principal amount), 9.9% Senior Notes ($10 million principal 17 amount) and the $5 million Revolving Credit Note. As of January 27, 1997, the Company had no outstanding long-term debt. Additionally, the Company retired 130,233 shares of Junior Convertible Preferred Stock (convertible into approximately 2.3 million shares of common stock) and all outstanding shares of Senior Convertible Preferred Stock, and all remaining shares of Junior Convertible Preferred Stock were converted into an aggregate 5,520,624 shares of common stock. On March 13, 1997 the Company entered into a $15 million revolving credit facility (the "Credit Agreement") with PNC Bank, National Association ("PNC") for general corporate purposes and acquisitions. The Credit Agreement expires on March 13, 2001. Currently, the Company has no outstanding borrowings under the Credit Agreement. Interest on outstanding borrowings will be due quarterly in arrears and is based upon PNC's prime rate and/or the LIBOR rate plus, in either case, an additional margin based upon a particular financial ratio of the Company, and will vary depending upon which interest rate options the Company chooses to be applied to specific borrowings. In connection with the Credit Agreement, the Company incurred commitment and other financing fees totaling $213,000, which will be amortized over the term of the Credit Agreement. Performance of the Company's obligations under the Credit Agreement is secured by substantially all of the Company's assets. The Credit Agreement contains certain restrictive covenants, including the prohibition of the payment of dividends, restrictions on the issuance of certain types of preferred stock, and the maintenance of certain financial ratios. See Part II, Item 2(b) for additional information. For discussion regarding certain financing transactions, see Notes 3 and 4 to Condensed Consolidated Financial Statements, which are hereby incorporated herein by reference. To the extent that the Company's cash requirements are not met by operating cash flow or borrowings under the Credit Agreement, due to adverse economic conditions or other unfavorable events, the Company may find it necessary to reduce expense levels or undertake other actions as may be appropriate. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted for periods ending after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options and other common stock equivalents will be excluded. The impact is expected to result in primary earnings per share for the quarter and nine months ended March 31, 1997 of $.03 and $.72 per share, respectively. The impact of Statement No. 128 on the calculation of fully diluted earnings per share for these quarters is not expected to be material. 18 PART II OTHER INFORMATION (Items 1, 3, 4 and 5 are not applicable for the quarter ended March 31, 1997) 19 ITEM 2. CHANGES IN SECURITIES (b) Effective March 13, 1997, the Company entered into a Credit Agreement (the "Credit Agreement") with PNC Bank, National Association ("PNC"), providing for a $15 million revolving credit facility. The facility had not been utilized at the date of this Report. The term of the Credit Agreement extends until March 13, 2001. As security for the facility, PNC has a security interest in the majority of the assets of the Company and its primary subsidiaries. In addition, the material subsidiaries of the Company have guaranteed repayment of any amounts borrowed under the facility. Pursuant to the provisions of the Credit Agreement, the Company is prohibited from the payment of dividends with respect to its capital stock, and from the issuance of preferred stock unless the stock is unredeemable and not subject to any rights with respect to non-payment of dividends other than a right to cumulative dividends prior to the payment of dividends on the common stock. In addition, the consent of PNC is required prior to the amendment of the certificate of incorporation or bylaws of the Company. There are also restrictions on indebtedness, liens, guarantees, loans, investments, acquisitions, and dispositions of assets. The financial covenants of the Credit Agreement include maintaining a ratio of indebtedness to annual cash flow from operations of no more than 3.00, 2.75 and 2.50 to 1.00 at the end of each fiscal quarter during each of the periods from March 31, 1997 to December 31, 1998; March 31, 1999 to December 31, 1999; and March 31, 2000 through December 31, 2000, respectively. (c) Sales of Unregistered Securities during the three month period ended March 31, 1997: Each of the following transactions was consummated in reliance on Section 4(2) of the Securities Act of 1933, as amended, in that they did not involve a public offering or sale of the Company's securities. Neither of the sales was underwritten. On January 24, 1997, the Company sold 2,500,000 shares of Common Stock to Archon Group, L.P. for a purchase price of $4.50 per share, or $11,250,000 in the aggregate. The purchase price was paid in cash. On March 26, 1997, the Company issued to Alvin L. Swanson, Jr. 36,345 shares of Common Stock as a result of exercise of stock appreciation rights by Mr. Swanson, which were granted pursuant to the employment agreement dated as of May 20, 1992 by and between the Company and Mr. Swanson, as amended. ITEM 6(A). EXHIBITS (3) ARTICLES OF INCORPORATION AND BYLAWS 3.1 Certificate of Incorporation of the Registrant, as restated effective November 1, 1994, incorporated 20 herein by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K filed on March 31, 1995 (Commission File No. 1-8122). 3.2 Grubb & Ellis Company Bylaws, as amended and restated effective June 1, 1994, incorporated herein by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed on November 13, 1996 (Commission File No. 1-8122). 3.3 Certificate of Retirement with Respect to 130,233 Shares of Junior Convertible Preferred Stock of Grubb & Ellis Company, filed with the Delaware Secretary of State on January 22, 1997, incorporated herein by reference to Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). 3.4 Certificate of Retirement with Respect to 8,894 Shares of Series A Senior Convertible Preferred Stock, 128,266 Shares of Series B Senior Convertible Preferred Stock, and 19,767 Shares of Junior Convertible Preferred Stock of Grubb & Ellis Company, filed with the Delaware Secretary of State on January 22, 1997, incorporated herein by reference to Exhibit 3.4 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.1 First Amendment to Warrant No. 18, held by Warburg, Pincus Investors, L.P., exercisable for 687,358 shares of common stock of the Registrant extending the expiration date to January 29, 2002, incorporated herein by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q filed on November 13, 1996 (Commission File No. 1-8122). 4.2 First Amendment to Warrant No. 19, held by Warburg, Pincus Investors, L.P., exercisable for 325,000 shares of common stock of the Registrant extending the expiration date to January 29, 2002, incorporated herein by reference to Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-Q filed on November 13, 1996 (Commission File No. 1-8122). 4.3 Option Agreement dated as of December 11, 1996 by and between the Registrant and Warburg, Pincus Investors, L.P., incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on December 20, 1996 (Commission file No. 1-8122). 4.4 Stock Purchase Agreement dated as of December 11, 1996 by and among the registrant, Mike Kojaian, Kenneth J. Kojaian and C. Michael Kojaian, incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed on December 20, 1996 (Commission File No. 1-8122). 4.5 Registration Rights agreement dated as of December 11, 1996 by and among the Registrant, Warburg, Pincus Investors, L.P., Joe F. Hanauer, Mike Kojaian, Kenneth J. Kojaian and C. 21 Michael Kojaian, incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on December 20, 1996 (Commission File No. 1-8122). 4.6 Purchase Agreement dated as of January 24, 1997 by and among the Registrant, and Warburg, Pincus Investors, L.P., incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on February 4, 1997 (Commission File No. 1-8122). 4.7 Stock Purchase Agreement dated as of January 24, 1997 by and between the Registrant and Archon Group, L.P., incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on February 4, 1997 (Commission File No. 1-8122). 4.8 Registration Rights agreement dated as of January 24, 1997 by and between the Registrant and Archon Group, L.P., incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed on February 4, 1997 (Commission File No. 1-8122). 4.9 Stock Subscription Warrant No. 20 dated December 11, 1996 issued to Joe F. Hanauer Trust, incorporated herein by reference to Exhibit 4.11 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). 4.10 Stock Subscription Warrant No. 21 dated December 11, 1996 issued to Warburg, Pincus Investors, L.P. , incorporated herein by reference to Exhibit 4.12 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). 4.11 Stock Subscription Warrant No. 22 dated December 11, 1996 issued to Joe F. Hanauer Trust, incorporated herein by reference to Exhibit 4.13 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). 4.12 Stock Subscription Warrant No. 23 dated December 11, 1996 issued to Warburg, Pincus Investors, L.P. , incorporated herein by reference to Exhibit 4.14 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). 4.13 Form of Amendment No. 1 to Stock Subscription Warrants No. 8, 9, 13 and 15 issued to Joe F. Hanauer Trust, incorporated herein by reference to Exhibit 4.15 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). 4.14 Credit Agreement by and among the Registrant, certain Subsidiaries of the Registrant, and PNC Bank, National Association dated as of March 13, 1997. 22 4.15 Subordination Agreement by and among the Registrant, certain Subsidiaries of the Registrant in favor of PNC Bank, National Association dated as of March 13, 1997. 4.16 Revolving Credit Note executed by the Registrant in favor of PNC Bank, National Association in the amount of up to $15 million dated as of March 13, 1997. 4.17 Letter dated March 12, 1997 from IBM Credit Corporation to Axiom Real Estate Management, Inc., acknowledging release of collateral and discharge of all obligations under Revolving Loan and Security Agreement dated October 19, 1995. (10) MATERIAL CONTRACTS 10.1 Master Collateral Assignment of Contract Rights to PNC Bank, National Association by the Registrant and Subsidiaries of the Registrant dated as of March 13, 1997. 10.2 Master Agreement of Guaranty and Suretyship by and between the Registrant and Subsidiaries of the Registrant in favor of PNC Bank National Association dated as of March 13, 1997. 10.3 Pledge Agreement among the Registrant, certain Subsidiaries of the Registrant and PNC Bank, National Association dated as of March 13, 1997. 10.4 Security Agreement by and among the Registrant, certain Subsidiaries of the Registrant and PNC Bank, National Association dated as of March 13, 1997. 10.5 Trademark Security Agreement by the Registrant in favor of PNC Bank, National Association dated as of March 13, 1997. (11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (27) FINANCIAL DATA SCHEDULE ITEM 6(b) REPORTS ON FORM 8-K A Current Report on Form 8-K dated January 24, 1997 was filed, reporting under Item 5 a series of transactions whereby the Company sold 2,500,000 shares of Common Stock to Archon Group, L.P. and purchased the remainder of the Prudential Securities (as defined in Note 3 to the Condensed Consolidated Financial Statements). 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GRUBB & ELLIS COMPANY ----------------------- (Registrant) Date: May 15, 1997 /s/ Brian D. Parker --------------------- Brian D. Parker Senior Vice President and Chief Financial Officer 24 Grubb & Ellis Company and Subsidiaries EXHIBIT INDEX (A) FOR THE QUARTER ENDED MARCH 31, 1997 EXHIBIT (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.14 Credit Agreement by and among the Registrant, certain Subsidiaries of the Registrant, and PNC Bank, National Association dated as of March 13, 1997. 4.15 Subordination Agreement by and among the Registrant, certain Subsidiaries of the Registrant in favor of PNC Bank, National Association dated as of March 13, 1997. 4.16 Revolving Credit Note executed by the Registrant in favor of PNC Bank, National Association in the amount of up to $15 million dated as of March 13, 1997. 4.17 Letter dated March 12, 1997 from IBM Credit Corporation to Axiom Real Estate Management, Inc., acknowledging release of collateral and discharge of all obligations under Revolving Loan and Security Agreement dated October 19, 1995. (10) MATERIAL CONTRACTS 10.1 Master Collateral Assignment of Contract Rights to PNC Bank, National Association by the Registrant and Subsidiaries of the Registrant dated as of March 13, 1997. 10.2 Master Agreement of Guaranty and Suretyship by and between the Registrant and Subsidiaries of the Registrant in favor of PNC Bank National Association dated as of March 13, 1997. 10.3 Pledge Agreement among the Registrant, certain Subsidiaries of the Registrant and PNC Bank, National Association dated as of March 13, 1997. 10.4 Security Agreement by and among the Registrant, certain Subsidiaries of the Registrant and PNC Bank, National Association dated as of March 13, 1997. 10.5 Trademark Security Agreement by the Registrant in favor of PNC Bank, National Association dated as of March 13, 1997. (11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (27) FINANCIAL DATA SCHEDULE (A) Exhibits incorporated by reference are listed in Item 6(a) of this report. 25 EX-4.14 2 CRDT AGR. BETWN GRUBB AND PNC EXHIBIT 4.14 $15,000,000 REVOLVING CREDIT FACILITY CREDIT AGREEMENT by and among GRUBB & ELLIS COMPANY, THE GUARANTORS and PNC BANK, NATIONAL ASSOCIATION Dated as of March 13, 1997 TABLE OF CONTENTS SECTION PAGE - ------- ---- 1. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 CONSTRUCTION.. . . . . . . . . . . . . . . . . . . . . . . . . . . .18 1.2.1 NUMBER; INCLUSION.. . . . . . . . . . . . . . . . . . . . . .18 1.2.2 DETERMINATION.. . . . . . . . . . . . . . . . . . . . . . . .18 1.2.3 LENDER'S DISCRETION AND CONSENT.. . . . . . . . . . . . . . .19 1.2.4 DOCUMENTS TAKEN AS A WHOLE. . . . . . . . . . . . . . . . . .19 1.2.5 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . .19 1.2.6 IMPLIED REFERENCES TO THIS AGREEMENT. . . . . . . . . . . . .19 1.2.7 PERSONS.. . . . . . . . . . . . . . . . . . . . . . . . . . .19 1.2.8 MODIFICATIONS TO DOCUMENTS. . . . . . . . . . . . . . . . . .19 1.2.9 FROM, TO AND THROUGH. . . . . . . . . . . . . . . . . . . . .19 1.2.10 SHALL; WILL. . . . . . . . . . . . . . . . . . . . . . . . .20 1.3 ACCOUNTING PRINCIPLES. . . . . . . . . . . . . . . . . . . . . . . .20 2. REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . .20 2.1 REVOLVING CREDIT COMMITMENT. . . . . . . . . . . . . . . . . . . . .20 2.2 COMMITMENT FEE.. . . . . . . . . . . . . . . . . . . . . . . . . . .20 2.3 REVOLVING CREDIT FACILITY FEE. . . . . . . . . . . . . . . . . . . .21 2.4 REVOLVING CREDIT LOAN REQUESTS.. . . . . . . . . . . . . . . . . . .21 2.5 REVOLVING CREDIT NOTE. . . . . . . . . . . . . . . . . . . . . . . .21 2.6 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . .21 2.7 LETTER OF CREDIT SUBFACILITY.. . . . . . . . . . . . . . . . . . . .22 2.7.1 ISSUANCE OF LETTERS OF CREDIT.. . . . . . . . . . . . . . . .22 2.7.2 LETTER OF CREDIT FEES.. . . . . . . . . . . . . . . . . . . .22 2.7.3 DISBURSEMENTS, REIMBURSEMENT. . . . . . . . . . . . . . . . .22 2.7.4 DOCUMENTATION.. . . . . . . . . . . . . . . . . . . . . . . .23 2.7.5 DETERMINATIONS TO HONOR DRAWING REQUESTS. . . . . . . . . . .23 2.7.6 NATURE OF PARTICIPATION AND REIMBURSEMENT OBLIGATIONS.. . . .23 2.7.7 INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . .25 2.7.8 LIABILITY FOR ACTS AND OMISSIONS. . . . . . . . . . . . . . .25 3. [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . . .26 4. INTEREST RATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 4.1 INTEREST RATE OPTIONS. . . . . . . . . . . . . . . . . . . . . . . .26 -i- TABLE OF CONTENTS SECTION PAGE - ------- ---- 4.1.1 REVOLVING CREDIT INTEREST RATE OPTIONS. . . . . . . . . . . .26 4.1.2 RATE QUOTATIONS.. . . . . . . . . . . . . . . . . . . . . . .27 4.2 INTEREST PERIODS.. . . . . . . . . . . . . . . . . . . . . . . . . .27 4.2.1 ENDING DATE AND BUSINESS DAY. . . . . . . . . . . . . . . . .27 4.2.2 AMOUNT OF BORROWING TRANCHE.. . . . . . . . . . . . . . . . .27 4.2.3 TERMINATION BEFORE EXPIRATION DATE. . . . . . . . . . . . . .27 4.2.4 RENEWALS. . . . . . . . . . . . . . . . . . . . . . . . . . .27 4.3 INTEREST AFTER DEFAULT.. . . . . . . . . . . . . . . . . . . . . . .27 4.3.1 LETTER OF CREDIT FEES, INTEREST RATE. . . . . . . . . . . . .28 4.3.2 OTHER OBLIGATIONS.. . . . . . . . . . . . . . . . . . . . . .28 4.3.3 ACKNOWLEDGMENT. . . . . . . . . . . . . . . . . . . . . . . .28 4.4 EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE . . . . . . . . . . . . . . . . . . . . . . . .28 4.4.1 UNASCERTAINABLE.. . . . . . . . . . . . . . . . . . . . . . .28 4.4.2 ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE.. . . . .28 4.4.3 LENDER'S RIGHTS.. . . . . . . . . . . . . . . . . . . . . . .29 4.5 SELECTION OF INTEREST RATE OPTIONS.. . . . . . . . . . . . . . . . .29 5. PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 5.1 PAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 5.2 INTEREST PAYMENT DATES.. . . . . . . . . . . . . . . . . . . . . . .30 5.3 VOLUNTARY REPAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . .30 5.3.1 RIGHT TO REPAY. . . . . . . . . . . . . . . . . . . . . . . .30 5.3.2 COMMITMENT REDUCTIONS.. . . . . . . . . . . . . . . . . . . .31 5.4 MANDATORY REPAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . .31 5.4.1 SALE OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . .31 5.4.2 APPLICATION AMONG INTEREST RATE OPTIONS.. . . . . . . . . . .31 5.5 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.. . . . . . . . . .31 5.5.1 INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES, RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC. . . .31 5.5.2 INDEMNITY.. . . . . . . . . . . . . . . . . . . . . . . . . .32 5.5.3 REDUCED RETURN RELATING TO LENDER'S SERVICES. . . . . . . . .33 6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . .33 6.1 REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . . . .33 6.1.1 ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . . . .34 6.1.2 CAPITALIZATION AND OWNERSHIP. . . . . . . . . . . . . . . . .34 6.1.3 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . .34 6.1.4 POWER AND AUTHORITY.. . . . . . . . . . . . . . . . . . . . .34 -ii- TABLE OF CONTENTS SECTION PAGE - ------- ---- 6.1.5 VALIDITY AND BINDING EFFECT.. . . . . . . . . . . . . . . . .35 6.1.6 NO CONFLICT.. . . . . . . . . . . . . . . . . . . . . . . . .35 6.1.7 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . .35 6.1.8 TITLE TO PROPERTIES.. . . . . . . . . . . . . . . . . . . . .35 6.1.9 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . .36 6.1.10 USE OF PROCEEDS; MARGIN STOCK. . . . . . . . . . . . . . . .36 6.1.11 FULL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . .37 6.1.12 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . .37 6.1.13 CONSENTS AND APPROVALS.. . . . . . . . . . . . . . . . . . .37 6.1.14 NO EVENT OF DEFAULT; COMPLIANCE WITH INSTRUMENTS.. . . . . .38 6.1.15 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.. . . . . . .38 6.1.16 SECURITY INTERESTS.. . . . . . . . . . . . . . . . . . . . .38 6.1.17 STATUS OF THE PLEDGED COLLATERAL.. . . . . . . . . . . . . .39 6.1.18 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . .39 6.1.19 COMPLIANCE WITH LAWS.. . . . . . . . . . . . . . . . . . . .39 6.1.20 MATERIAL CONTRACTS; BURDENSOME RESTRICTIONS. . . . . . . . .39 6.1.21 INVESTMENT COMPANIES; REGULATED ENTITIES.. . . . . . . . . .40 6.1.22 PLANS AND BENEFIT ARRANGEMENTS.. . . . . . . . . . . . . . .40 6.1.23 EMPLOYMENT MATTERS.. . . . . . . . . . . . . . . . . . . . .41 6.1.24 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . .41 6.2 UPDATES TO SCHEDULES.. . . . . . . . . . . . . . . . . . . . . . . .43 7. CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . .43 7.1 FIRST LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 7.1.1 OFFICER'S CERTIFICATE.. . . . . . . . . . . . . . . . . . . .43 7.1.2 SECRETARY'S CERTIFICATE.. . . . . . . . . . . . . . . . . . .44 7.1.3 DELIVERY OF LOAN DOCUMENTS. . . . . . . . . . . . . . . . . .44 7.1.4 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . .44 7.1.5 LEGAL DETAILS.. . . . . . . . . . . . . . . . . . . . . . . .45 7.1.6 PAYMENT OF FEES.. . . . . . . . . . . . . . . . . . . . . . .45 7.1.7 CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .45 7.1.8 OFFICER'S CERTIFICATE REGARDING MACS. . . . . . . . . . . . .45 7.1.9 NO VIOLATION OF LAWS. . . . . . . . . . . . . . . . . . . . .45 7.1.10 NO ACTIONS OR PROCEEDINGS. . . . . . . . . . . . . . . . . .45 7.1.11 INSURANCE POLICIES; CERTIFICATES OF INSURANCE; ENDORSEMENTS.46 7.1.12 FILING RECEIPTS. . . . . . . . . . . . . . . . . . . . . . .46 7.1.13 TERMINATION OF EXISTING CREDIT AGREEMENT.. . . . . . . . . .46 7.1.14 FINANCIAL COVENANT CONDITION.. . . . . . . . . . . . . . . .46 7.2 EACH ADDITIONAL LOAN.. . . . . . . . . . . . . . . . . . . . . . . .46 -iii- TABLE OF CONTENTS SECTION PAGE - ------- ---- 8. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 8.1 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . .47 8.1.1 PRESERVATION OF EXISTENCE, ETC. . . . . . . . . . . . . . . .47 8.1.2 PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC. . . . . . . . .47 8.1.3 MAINTENANCE OF INSURANCE. . . . . . . . . . . . . . . . . . .47 8.1.4 MAINTENANCE OF PROPERTIES AND LEASES. . . . . . . . . . . . .48 8.1.5 MAINTENANCE OF PATENTS, TRADEMARKS, ETC.. . . . . . . . . . .48 8.1.6 VISITATION RIGHTS.. . . . . . . . . . . . . . . . . . . . . .48 8.1.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT.. . . . . . . . . . .48 8.1.8 PLANS AND BENEFIT ARRANGEMENTS. . . . . . . . . . . . . . . .49 8.1.9 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . .49 8.1.10 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . .49 8.1.11 FURTHER ASSURANCES.. . . . . . . . . . . . . . . . . . . . .50 8.1.12 SUBORDINATION OF INTERCOMPANY LOANS. . . . . . . . . . . . .50 8.2 NEGATIVE COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . .50 8.2.1 INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . .50 8.2.2 LIENS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .51 8.2.3 GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . . . .51 8.2.4 LOANS AND INVESTMENTS.. . . . . . . . . . . . . . . . . . . .51 8.2.5 DIVIDENDS AND RELATED DISTRIBUTIONS.. . . . . . . . . . . . .52 8.2.6 LIQUIDATIONS, MERGERS, CONSOLIDATIONS, ACQUISITIONS.. . . . .52 8.2.7 DISPOSITIONS OF ASSETS OR SUBSIDIARIES. . . . . . . . . . . .55 8.2.8 AFFILIATE TRANSACTIONS. . . . . . . . . . . . . . . . . . . .56 8.2.9 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES.. . . . . . . .56 8.2.10 CONTINUATION OF OR CHANGE IN BUSINESS. . . . . . . . . . . .56 8.2.11 PLANS AND BENEFIT ARRANGEMENTS.. . . . . . . . . . . . . . .56 8.2.12 FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . .57 8.2.13 ISSUANCE OF STOCK. . . . . . . . . . . . . . . . . . . . . .57 8.2.14 CHANGES IN ORGANIZATIONAL DOCUMENTS. . . . . . . . . . . . .58 8.2.15 INTEREST RATE PROTECTION.. . . . . . . . . . . . . . . . . .58 8.2.16 MAXIMUM DEBT TO CASH FLOW RATIO. . . . . . . . . . . . . . .58 8.3 REPORTING REQUIREMENTS.. . . . . . . . . . . . . . . . . . . . . . .58 9. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 9.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . .59 9.1.1 PAYMENTS UNDER LOAN DOCUMENTS.. . . . . . . . . . . . . . . .59 9.1.2 BREACH OF WARRANTY. . . . . . . . . . . . . . . . . . . . . .59 9.1.3 BREACH OF NEGATIVE COVENANTS OR VISITATION RIGHTS.. . . . . .59 9.1.4 BREACH OF OTHER COVENANTS.. . . . . . . . . . . . . . . . . .59 9.1.5 DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS. . . . . . . . .60 9.1.6 FINAL JUDGMENTS OR ORDERS.. . . . . . . . . . . . . . . . . .60 -iv- SECTION PAGE - ------- ---- 9.1.7 LOAN DOCUMENT UNENFORCEABLE.. . . . . . . . . . . . . . . . .60 9.1.8 UNINSURED LOSSES; PROCEEDINGS AGAINST ASSETS; ENVIRONMENTAL LIABILITY.. . . . . . . . . . . . . . . . . . .60 9.1.9 NOTICE OF LIEN OR ASSESSMENT. . . . . . . . . . . . . . . . .60 9.1.10 INSOLVENCY.. . . . . . . . . . . . . . . . . . . . . . . . .61 9.1.11 EVENTS RELATING TO PLANS AND BENEFIT ARRANGEMENTS. . . . . .61 9.1.12 CESSATION OF BUSINESS. . . . . . . . . . . . . . . . . . . .61 9.1.13 CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . . . .61 9.1.14 INVOLUNTARY PROCEEDINGS. . . . . . . . . . . . . . . . . . .62 9.1.15 VOLUNTARY PROCEEDINGS. . . . . . . . . . . . . . . . . . . .62 9.2 CONSEQUENCES OF EVENT OF DEFAULT.. . . . . . . . . . . . . . . . . .62 9.2.1 EVENTS OF DEFAULT OTHER THAN BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS. . . . . . . . . . . . . . . . . .62 9.2.2 BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS. . . . .63 9.2.3 SET-OFF.. . . . . . . . . . . . . . . . . . . . . . . . . . .63 9.2.4 SUITS, ACTIONS, PROCEEDINGS.. . . . . . . . . . . . . . . . .63 9.2.5 APPLICATION OF PROCEEDS.. . . . . . . . . . . . . . . . . . .63 9.2.6 OTHER RIGHTS AND REMEDIES.. . . . . . . . . . . . . . . . . .64 9.3 NOTICE OF SALE.. . . . . . . . . . . . . . . . . . . . . . . . . . .64 10. [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . . . . . . . . . .64 11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64 11.1 MODIFICATIONS, AMENDMENTS OR WAIVERS. . . . . . . . . . . . . . . .64 11.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED.. . . . .65 11.3 REIMBURSEMENT AND INDEMNIFICATION OF LENDER BY THE BORROWER; TAXES.. . . . . . . . . . . . . . . . . . . . . . . . . .65 11.4 HOLIDAYS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66 11.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE. . . . . . . . . . . . .66 11.5.1 NOTIONAL FUNDING.. . . . . . . . . . . . . . . . . . . . . .66 11.5.2 ACTUAL FUNDING.. . . . . . . . . . . . . . . . . . . . . . .66 11.6 NOTICES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67 11.7 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .67 11.8 GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . . . . . . . .67 11.9 PRIOR UNDERSTANDING.. . . . . . . . . . . . . . . . . . . . . . . .68 11.10 DURATION; SURVIVAL.. . . . . . . . . . . . . . . . . . . . . . . .68 11.11 SUCCESSORS AND ASSIGNS.. . . . . . . . . . . . . . . . . . . . . .68 11.12 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . .68 -v- SECTION PAGE - ------- ---- 11.13 COUNTERPARTS.. . . . . . . . . . . . . . . . . . . . . . . . . . .69 11.14 LENDER'S CONSENT.. . . . . . . . . . . . . . . . . . . . . . . . .69 11.15 EXCEPTIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .69 11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.. . . . . . . . . . . . . .69 11.17 JOINDER OF GUARANTORS. . . . . . . . . . . . . . . . . . . . . . .70 -vi- LIST OF SCHEDULES AND EXHIBITS SCHEDULES SCHEDULE 1.1(A) - PRICING GRID SCHEDULE 1.1(B) - ADDRESSES FOR NOTICES SCHEDULE 1.1(E) - EXISTING PARTNERSHIPS SCHEDULE 1.1(P) - PERMITTED LIENS SCHEDULE 6.1.1 - QUALIFICATIONS TO DO BUSINESS SCHEDULE 6.1.2 - CAPITALIZATION SCHEDULE 6.1.3 - SUBSIDIARIES SCHEDULE 6.1.7 - LITIGATION SCHEDULE 6.1.13 - CONSENTS AND APPROVALS SCHEDULE 6.1.15 - PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC. SCHEDULE 6.1.17 - PARTNERSHIP AGREEMENTS; LLC AGREEMENTS SCHEDULE 6.1.20 - MATERIAL CONTRACTS SCHEDULE 6.1.22 - BENEFIT PLAN DISCLOSURES SCHEDULE 6.1.24 - ENVIRONMENTAL DISCLOSURES SCHEDULE 8.2.1 - PERMITTED INDEBTEDNESS SCHEDULE 8.2.3 - PERMITTED GUARANTIES SCHEDULE 8.2.4 - PERMITTED LOANS AND INVESTMENTS SCHEDULE 8.3 - REPORTING REQUIREMENTS EXHIBITS EXHIBIT 1.1(C) - COLLATERAL ASSIGNMENT EXHIBIT 1.1(G)(1) - GUARANTOR JOINDER EXHIBIT 1.1(G)(2) - GUARANTY AGREEMENT EXHIBIT 1.1(I)(1) - INDEMNITY AGREEMENT EXHIBIT 1.1(I)(2) - SUBORDINATION AGREEMENT EXHIBIT 1.1(P) - PLEDGE AGREEMENT EXHIBIT 1.1(R) - REVOLVING CREDIT NOTE EXHIBIT 1.1(S) - SECURITY AGREEMENT EXHIBIT 1.1(T) - TRADEMARK SECURITY AGREEMENT EXHIBIT 2.4 - LOAN REQUEST EXHIBIT 7.1.4 - OPINION OF COUNSEL EXHIBIT 8.3.3 - QUARTERLY COMPLIANCE CERTIFICATE -vii- CREDIT AGREEMENT THIS CREDIT AGREEMENT is dated as of March 13, 1997 and is made by and among GRUBB & ELLIS COMPANY, a Delaware corporation (the "Borrower"), each of the Guarantors (as hereinafter defined), and PNC BANK, NATIONAL ASSOCIATION (the "Lender"). WITNESSETH: WHEREAS, the Borrower has requested the Lender to provide a revolving credit facility to the Borrower in an aggregate principal amount not to exceed $15,000,000; WHEREAS, the revolving credit facility shall be used for the repayment of existing indebtedness of the Borrower, for general corporate purposes, to provide for the issuance of letters of credit and as otherwise provided herein; and WHEREAS, the Lender is willing to provide such credit upon the terms and conditions hereinafter set forth. NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: 1. CERTAIN DEFINITIONS 1.1 CERTAIN DEFINITIONS. In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise: ACQUISITION INDEBTEDNESS shall mean Indebtedness incurred by the Borrower or Axiom as the purchaser and owed to the seller in connection with the Borrower's or Axiom's purchase of the ownership interests of another Person or the purchase of all or substantially all the assets of another Person or of a business or division of another Person. ADJUSTED CONSOLIDATED CASH FLOW FROM OPERATIONS for any period of determination shall mean (i) the sum of net income, depreciation, amortization, other non-cash charges to net income, interest expense, income tax expense and one-half of the Relocation Expense incurred in the fiscal quarters ended December 31, 1996, March 31, 1997 and June 30, 1997, minus (ii) non-cash credits to net income, in each case of the Borrower and its Subsidiaries for such period determined and consolidated in accordance with GAAP. It is acknowledged and agreed that the non-cash charges and non-cash credits which adjust net income pursuant to the preceding sentence in the determination of Adjusted Consolidated Cash Flow from Operations shall not include any non-cash charges or non-cash credits attributable to changes in the current asset or current liability accounts on the consolidated balance sheet of the Borrower and its Subsidiaries. If the Borrower or Axiom shall have made one or more Permitted Acquisitions as permitted under Section 8.2.6(2) during the period of determination, Adjusted Consolidated Cash Flow from Operations for such period shall be adjusted on a pro forma basis acceptable to the Lender and based upon the historical financial statements of the Person or assets acquired to give effect to such Permitted Acquisitions as if they had occurred at the beginning of such period. The pro forma adjustment shall include any income or loss attributable to the ownership interests or assets purchased, excluding in the case of a stock acquisition of the Person acquired any income on the historical financial statements attributable to stock or asset dispositions made prior to the time of the Permitted Acquisition. The pro forma adjustment shall exclude any income on the historical financial statements attributable to stock or assets acquired under the Permitted Acquisition which the Borrower or Axiom contemplate disposing of following the Permitted Acquisition. The pro forma adjustment shall not include any projected cost savings, cost reductions or similar synergistic adjustments forecasted by the Borrower or Axiom based upon the Permitted Acquisition. AFFILIATE as to any Person shall mean any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds 10% or more of any class of the voting or other equity interests of such Person, or (iii) 10% or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. Control, as used in this definition, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, including the power to elect a majority of the directors or trustees of a corporation or trust, as the case may be. AGREEMENT shall mean this Credit Agreement, as the same may be supplemented or amended from time to time, including all schedules and exhibits. ANNUAL ADJUSTED CONSOLIDATED CASH FLOW FROM OPERATIONS means Adjusted Consolidated Cash Flow from Operations calculated as of the end of each fiscal quarter for the four fiscal quarters then ended. ANNUAL CONSOLIDATED CASH FLOW FROM OPERATIONS means Consolidated Cash Flow from Operations calculated as of the end of each fiscal quarter for the four fiscal quarters then ended. ANNUAL STATEMENTS shall have the meaning assigned to that term in Section 6.1.9(i). APPLICABLE MARGIN shall mean, as applicable: -2- (A) the percentage margin to be added to Base Rate under the Base Rate Option at the indicated Ratio of Consolidated Funded Indebtedness to Annual Consolidated Cash Flow from Operations in the pricing grid on Schedule 1.1(A) below the heading "Base Rate Margin;" or (B) the percentage margin to be added to Euro-Rate under the Euro-Rate Option at the indicated Ratio of Consolidated Funded Indebtedness to Annual Consolidated Cash Flow from Operations in the pricing grid on 1.1(A) below the heading "Euro-Rate Margin". The ratio of Consolidated Funded Indebtedness to Annual Consolidated Cash Flow from Operations as of the last day of each fiscal quarter shall mean the ratio of (a) Consolidated Funded Indebtedness on such date to (b) Annual Consolidated Cash Flow from Operations as of such date. Any change in the Applicable Margin shall be based upon the financial statements and compliance certificates provided pursuant to paragraphs 1, 2 and 3 of Schedule 8.3 and shall become effective on the 45th day following the last day of the first three fiscal quarters and on the 90th day following the last day of the fiscal year. AUTHORIZED OFFICER shall mean those individuals, designated by written notice to the Lender from the Borrower, authorized to execute notices, reports and other documents on behalf of the Loan Parties required hereunder. The Borrower may amend such list of individuals from time to time by giving written notice of such amendment to the Lender. AXIOM shall mean Axiom Real Estate Management, Inc., a Delaware corporation. BASE RATE shall mean the greater of (i) the interest rate per annum announced from time to time by the Lender at its Principal Office as its then prime rate, which rate may not be the lowest rate then being charged commercial borrowers by the Lender, or (ii) the Federal Funds Effective Rate plus one-half percent (1/2%) per annum. BASE RATE OPTION shall mean the option of the Borrower to have Revolving Credit Loans bear interest at the rate and under the terms and conditions set forth in Section 4.1.1(i). BENEFIT ARRANGEMENT shall mean at any time an "employee benefit plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to by any member of the ERISA Group. BORROWER shall mean Grubb & Ellis Company, a corporation organized and existing under the laws of the State of Delaware. -3- BORROWING DATE shall mean, with respect to any Loan, the date for the making thereof or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day. BORROWING TRANCHE shall mean specified portions of Loans outstanding as follows: (i) any Loans to which a Euro-Rate Option applies which become subject to the same Interest Rate Option under the same Loan Request by the Borrower and which have the same Interest Period shall constitute one Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall constitute one Borrowing Tranche. BUSINESS DAY shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Pittsburgh, Pennsylvania, and if the applicable Business Day relates to any borrowing to which the Euro-Rate Option applies, such day must also be a day on which dealings are carried on in the London interbank market. CHANGE OF CONTROL shall mean the occurrence of any one or more of the following events: (A) During the period from the Closing Date through the second anniversary of the Closing Date, either (i) Warburg shall fail to own at least twenty percent (20%) of the Voting Stock (with full right to vote the shares) or (ii) any person or group of persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) other than Warburg shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of the Voting Stock in an amount greater than Warburg; (B) At any time after the second anniversary of the Closing Date, (i) Warburg shall fail to own at least twenty percent (20%) of the Voting Stock (with full right to vote the shares), unless at the time of the first disposition which causes Warburg to own less than 20 percent of the Voting Stock (w) the Annual Consolidated Cash Flow from Operations for the period ending with the most recent fiscal quarter (based upon the completed Exhibit 8.3.3 provided by the Borrower to the Lender for the most recent fiscal quarter or such other written report delivered with the notice described in (z) below as is satisfactory to the Lender) is equal to or greater than $5,000,000, (x) no person or group of persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) shall have beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20 percent or more of the Voting Stock, (y) no Event of Default or Potential Default has occurred and is continuing, and (z) the Lender is in receipt of written notice of the proposed disposition by Warburg at least 5 days prior to the disposition, (ii) any person or group of persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) other than Warburg shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said -4- Act) of 30 percent or more of the Voting Stock of the Borrower unless at the time of such acquisition by such person or group of persons, Warburg owns a greater percentage of the Voting Stock of the Borrower than such person or group of persons, or (iii) a majority of the seats (other than vacant seats) on the board of directors of the Borrower are occupied by Persons who are not Continuing Directors. CLOSING DATE shall mean March 13, 1997. The closing shall take place at 10:00 a.m., Pittsburgh time, on the Closing Date at the offices of Buchanan Ingersoll Professional Corporation or at such other time and place as the parties agree. COLLATERAL shall mean the Pledged Collateral, the UCC Collateral and the Intellectual Property Collateral. COLLATERAL ASSIGNMENT shall mean the Collateral Assignment in the form of EXHIBIT 1.1(C). COMMERCIAL LETTER OF CREDIT shall mean any Letter of Credit which is a commercial letter of credit issued in respect of the purchase of goods or services by one or more of the Loan Parties in the ordinary course of their business. COMMISSION ADVANCE PROGRAM shall mean any program pursuant to which a Loan Party may make advances to its employees and/or agents against future real estate commissions to be earned by such agents. COMMITMENT shall mean $15,000,000. COMMITMENT FEE shall have the meaning assigned to that term in Section 2.2. CONSIDERATION shall mean, at any time with respect to any Permitted Acquisition, the aggregate, without duplication, of (i) the cash paid by any of the Loan Parties, directly or indirectly, to the seller in connection therewith, (ii) Acquisition Indebtedness, (iii) capital stock of the Borrower, which for purposes of Section 8.2.6, shall be valued at the average of the high and low price listed on the New York Stock Exchange on the date of valuation, (iv) any Guaranty given or incurred by any Loan Party in connection therewith, (v) deferred payments contingent upon financial results or other performance-based criteria occurring after the closing of the Permitted Acquisition and valued at the time when made, and (vi) any other consideration given or obligation incurred by any of the Loan Parties in connection therewith. CONSOLIDATED CASH FLOW FROM OPERATIONS for any period of determination shall mean (i) the sum of net income, depreciation, amortization, other non-cash charges to net income, interest expense and income tax expense minus (ii) non-cash credits to net income, in each case of the Borrower and its Subsidiaries for such period determined and consolidated in accordance with GAAP. It is acknowledged and agreed that the non-cash charges and non-cash -5- credits which adjust net income pursuant to the preceding sentence in the determination of Consolidated Cash Flow from Operations shall not include any non-cash charges or non-cash credits attributable to changes in the current asset or current liability accounts on the consolidated balance sheet of the Borrower and its Subsidiaries. If the Borrower or Axiom shall have made one or more Permitted Acquisitions as permitted under Section 8.2.6(2) during the period of determination, Consolidated Cash Flow from Operations for such period shall be adjusted on a pro forma basis acceptable to the Lender and based upon the historical financial statements of the Person or assets acquired to give effect to such Permitted Acquisitions as if they had occurred at the beginning of such period. The pro forma adjustment shall include any income or loss attributable to the ownership interests or assets purchased, excluding in the case of a stock acquisition of the Person acquired any income on the historical financial statements attributable to stock or asset dispositions made prior to the time of the Permitted Acquisition. The pro forma adjustment shall exclude any income on the historical financial statements attributable to stock or assets acquired under the Permitted Acquisition which the Borrower or Axiom contemplate disposing of following the Permitted Acquisition. The pro forma adjustment shall not include any projected cost savings, cost reductions or similar synergistic adjustments forecasted by the Borrower or Axiom based upon the Permitted Acquisition. CONSOLIDATED FUNDED INDEBTEDNESS shall mean the principal balance of the Loans and the Letters of Credit Outstanding and all Indebtedness of the Borrower and its Subsidiaries for borrowed money, including without limitation capitalized leases and other Indebtedness permitted under Section 8.2.1(iii), as determined and consolidated in accordance with GAAP. CONTINUING DIRECTORS shall mean directors of the Borrower on the Closing Date and each other director, if such other director's nomination for election to the board of directors of the Borrower is recommended by a majority of the then Continuing Directors. DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall mean lawful money of the United States of America. DRAWING DATE shall have the meaning assigned to that term in Section 2.7.3.1. ENVIRONMENTAL COMPLAINT shall mean any written complaint setting forth a cause of action for personal injury or property damage or natural resource damage or equitable relief, order, notice of violation, citation, request for information issued pursuant to any Environmental Laws by an Official Body, subpoena or other written notice of any type relating to, arising out of, or issued pursuant to, any of the Environmental Laws or any Environmental Conditions, as the case may be. ENVIRONMENTAL CONDITIONS shall mean any conditions of the environment, including the workplace, the ocean, natural resources (including flora or fauna), soil, surface water, groundwater, any actual or potential drinking water supply sources, substrata or the -6- ambient air, relating to or arising out of, or caused by, the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, emptying, discharging, injecting, escaping, leaching, disposal, dumping, threatened release or other management or mismanagement of Regulated Substances resulting from the use of, or operations on, any Property. ENVIRONMENTAL LAWS shall mean all federal, state, local and foreign Laws and regulations, including permits, licenses, written authorizations, bonds, orders, judgments, and consent decrees issued, or entered into, pursuant thereto, relating to pollution or protection of human health or the environment or employee safety in the workplace. ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. ERISA GROUP shall mean, at any time, the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. EURO-RATE shall mean, with respect to any Loan comprising any Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period, the interest rate per annum determined by the Lender by dividing (the resulting quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Lender in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the average of the London interbank offered rates for U.S. Dollars set forth on Telerate display page 3750 or such other display page on the Telerate System as may replace such page to evidence the average of rates quoted by banks designated by the British Bankers' Association (or appropriate successor or, if the British Bankers' Association or its successor ceases to provide such quotes, a comparable replacement determined by the Lender ) two (2) Business Days prior to the first day of such Interest Period for an amount comparable to such Loan and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula: Telerate page 3750 as quoted by British Euro-Rate = Bankers' Association or appropriate successor --------------------------------------------- 1.00 - Euro-Rate Reserve Percentage EURO-RATE OPTION shall mean the option of the Borrower to have Revolving Credit Loans bear interest at the rate and under the terms and conditions set forth in Section 4.1.1(ii). -7- EURO-RATE RESERVE PERCENTAGE shall mean (i) prior to the time that any additional banks or other lenders other than the Lender join in this Agreement, the percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the Lender which is in effect during any relevant period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") applicable to the Lender, and (ii) upon and after such time that any additional banks or other lenders other than the Lender join in this Agreement, the maximum percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the Lender which is in effect during any relevant period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in such System. EVENT OF DEFAULT shall mean any of the events described in Section 9.1 and referred to therein as an "Event of Default." EXISTING PARTNERSHIPS shall mean the general and limited partnerships set forth on Exhibit 1.1(E) in which the Loan Parties own partnership interests on the Closing Date. EXPIRATION DATE shall mean, with respect to the Commitment, March 13, 2001. FACILITY FEE shall mean the fee referred to in Section 2.3. FEDERAL FUNDS EFFECTIVE RATE for any day shall mean the rate per annum (based on a year of 365 or 366 days, as the case may be, and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement; PROVIDED, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced. FINANCIAL PROJECTIONS shall have the meaning assigned to that term in Section 6.1.9(ii). GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section , and applied on a consistent basis both as to classification of items and amounts. -8- GOVERNMENTAL ACTS shall have the meaning assigned to that term in Section 2.7.7. GUARANTOR shall mean each of the parties to this Agreement which is designated as a "Guarantor" on the signature page hereof and each other Person which joins this Agreement as a Guarantor after the date hereof pursuant to Section 11.17. GUARANTOR JOINDER shall mean a joinder by a Person as a Guarantor under this Agreement, the Guaranty Agreement and the other Loan Documents in the form of EXHIBIT 1.1(G)(1). GUARANTY of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business. GUARANTY AGREEMENT shall mean the Guaranty and Suretyship Agreement in substantially the form of EXHIBIT 1.1(G)(2) executed and delivered by each of the Guarantors to the Lender. HISTORICAL STATEMENTS shall have the meaning assigned to that term in Section 6.1.9(i). IBM shall mean IBM Credit Corporation. IBM LOAN DOCUMENTS shall mean the Revolving Loan and Security Agreement dated October 29, 1995, by and between IBM and Axiom and all collateral documentation and other loan documentation executed and delivered in connection therewith. INDEBTEDNESS shall mean, as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations (contingent or otherwise) under any letter of credit, currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device, (iv) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than thirty (30) days past due), or (v) any Guaranty of Indebtedness for borrowed money. -9- INDEMNITY shall mean the Environmental Indemnity Agreement in the form of EXHIBIT 1.1(I)(1) among the Lender and the Loan Parties relating to possible environmental liabilities associated with any of the Property. INELIGIBLE SECURITY shall mean any security which may not be underwritten or dealt in by member bank of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended. INSOLVENCY PROCEEDING shall mean, with respect to any Person, (a) case, action or proceeding with respect to such Person (i) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or otherwise relating to liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person's creditors generally or any substantial portion of its creditors; undertaken under any Law. INTELLECTUAL PROPERTY COLLATERAL shall mean all of the property described in the Trademark Security Agreement. INTERCOMPANY SUBORDINATION AGREEMENT shall mean a Subordination Agreement among the Loan Parties in the form attached hereto as EXHIBIT 1.1(I)(2). INTEREST PERIOD shall have the meaning assigned to such term in Section 4.2. INTEREST RATE OPTION shall mean any Euro-Rate Option or the Base Rate Option. INTERIM STATEMENTS shall have the meaning assigned to that term in Section 6.1.9(i). INTERNAL REVENUE CODE shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. LABOR CONTRACTS shall mean all employment agreements, employment contracts, collective bargaining agreements and other agreements among any Loan Party or Subsidiary of a Loan Party and its employees. LAW shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body. -10- LENDER shall mean PNC Bank, National Association, and its successors and assigns. LETTER OF CREDIT shall have the meaning assigned to that term in Section 2.7.1. LETTER OF CREDIT BORROWING shall mean an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made and shall not have been converted into a Revolving Credit Loan under Section 2.7.3.1. LETTER OF CREDIT FEE shall have the meaning assigned to that term in Section 2.7.2. LETTERS OF CREDIT OUTSTANDING shall mean at any time the sum of (i) the aggregate undrawn face amount of outstanding Letters of Credit and (ii) the aggregate amount of all unpaid and outstanding Reimbursement Obligations. LIEN shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing). LLC INTERESTS shall have the meaning given to such term in Section 6.1.3. LOAN DOCUMENTS shall mean this Agreement, the Collateral Assignment, the Guaranty Agreement, the Indemnity, the Intercompany Subordination Agreement, the Note, the Trademark Security Agreement, the Pledge Agreement, the Security Agreement, and any other instruments, certificates or documents delivered or contemplated to be delivered hereunder or thereunder or in connection herewith or therewith, as the same may be supplemented or amended from time to time in accordance herewith or therewith, and LOAN DOCUMENT shall mean any of the Loan Documents. LOAN PARTIES shall mean the Borrower and the Guarantors. LOAN REQUEST shall have the meaning given to such term in Section 2.4. LOANS shall mean collectively and LOAN shall mean separately all Revolving Credit Loans or any Revolving Credit Loan. MATERIAL ADVERSE CHANGE shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever -11- upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition or results of operations of the Loan Parties taken as a whole, (c) impairs materially or could reasonably be expected to impair materially the ability of the Loan Parties taken as a whole to duly and punctually pay or perform its Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Lender to enforce its legal remedies pursuant to this Agreement or any other Loan Document. MONTCLAIR shall mean Montclair Insurance Company, Ltd., a Bermuda corporation. MONTH, with respect to an Interest Period under the Euro-Rate Option, shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. If any Euro-Rate Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final day of such Interest Period shall be deemed to end on the last Business Day of such month. MOODY'S shall mean Moody's Investor's Service, Inc. MULTIEMPLOYER PLAN shall mean any employee benefit plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which the Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions. MULTIPLE EMPLOYER PLAN shall mean a Plan which has two or more contributing sponsors (including the Borrower or any member of the ERISA Group) at least two of whom are not under common control, as such a plan is described in Sections 4063 and 4064 of ERISA. NOTE shall mean the Revolving Credit Note of the Borrower in the form of EXHIBIT 1.1(R) evidencing the Revolving Credit Loans, together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof in whole or in part. NOTICES shall have the meaning assigned to that term in Section 11.6. OBLIGATION shall mean any obligation or liability of any of the Loan Parties to the Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with this Agreement, the Note, the Letters of Credit, or any other Loan Document. OFFICIAL BODY shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central Bank, commission, -12- department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. PARTNERSHIP INTERESTS shall have the meaning given to such term in Section 6.1.3. PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor. PERMITTED ACQUISITIONS shall have the meaning assigned to such term in Section 8.2.6. PERMITTED INVESTMENTS shall mean: (i) commercial paper and taxable or tax-exempt instruments maturing not more than one year from the date of creation thereof and rated not lower than A-2 by Standard and Poor's or P-2 by Moody's; (ii) long term instruments rated not lower than A- by Standard and Poor's or A3 by Moody's, and having either "put" or rate reset features recurring no less frequently than annually; (iii) certificates of deposit issued by or repurchase agreements of a bank incorporated in, or a branch or office located in, the United States of America, having combined capital, surplus and undivided profits of not less than $250,000,000 and having a senior unsecured debt rating for such bank, or if such rating is not available for such bank, then the rating of its holding company, rated not lower than A- by Standard and Poor's or A3 by Moody's; (iv) marketable direct obligations issued or unconditionally guaranteed by the United States government or an agency thereof maturing within one year from the date of acquisition thereof; (v) money market funds; and (vi) deposits available for withdrawal on demand within the United States with financial institutions incorporated in the United States of America or any OECD country, if it has a branch or office located in the United States of America, and which have capital, surplus and undivided profits of not less than $250,000,000 and having a senior unsecured debt rating for such bank, or if such rating is not available for such bank, then the rating of its holding company, rated not lower than A- by Standard and Poor's or A3 by Moody's. PERMITTED LIENS shall mean: -13- (i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable; (ii) Pledges or deposits made in the ordinary course of business to secure payment of worker's compensation, or to participate in any fund in connection with worker's compensation, unemployment insurance, old-age pensions, retirement insurance, social security programs or similar obligations; (iii) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default; (iv) Good-faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (v) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use; (vi) Liens, security interests and mortgages in favor of the Lender; (vii) Liens on property leased by any Loan Party or Subsidiary of a Loan Party under operating leases securing obligations of such Loan Party or Subsidiary to the lessor under such leases; (viii) Any Lien existing on the date of this Agreement and described on SCHEDULE 1.1(P), PROVIDED that the principal amount secured thereby is not hereafter increased, and no additional assets become subject to such Lien; (ix) Purchase Money Security Interests and Liens granted pursuant to capitalized leases in the property leased by the Loan Parties as permitted under Section 8.2.1(iii) ; (x) Options for a time period not greater than one (1) year granted in connection with dispositions permitted under Section 8.2.7; -14- (xi) Liens arising in connection with deposits to secure public and statutory obligations of a Loan Party or in lieu of surety, appeal or customs bonds in proceedings to which a Loan Party is a party; and (xii) The following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within thirty (30) days of entry, and in either case they do not affect the Collateral or, in the aggregate, materially impair the ability of any Loan Party to perform its Obligations hereunder or under the other Loan Documents: (1) Claims or Liens for taxes, assessments or charges due and payable, PROVIDED that the applicable Loan Party maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien; (2) Claims, Liens or encumbrances upon, and defects of title to, real or personal property other than the Collateral, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits; or (3) Claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens. (4) Liens resulting from final judgments or orders described in Section 9.1.6. PERSON shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity. PLAN shall mean at any time an employee pension benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group. PLEDGE AGREEMENT shall mean the Pledge Agreement in substantially the form of EXHIBIT 1.1(P) executed and delivered by the Borrower, Axiom and HSM, Inc., a Texas corporation, to the Lender. -15- PLEDGED COLLATERAL shall mean the property of the Loan Parties in which security interests are to be granted under the Pledge Agreement or the Collateral Assignment. POTENTIAL DEFAULT shall mean any event or condition which with notice, passage of time or a determination by the Lender, or any combination of the foregoing, would constitute an Event of Default. PRINCIPAL OFFICE shall mean the main banking office of the Lender in Pittsburgh, Pennsylvania. PRIOR SECURITY INTEREST shall mean a valid and enforceable perfected first-priority security interest under the Uniform Commercial Code in the UCC Collateral and the Pledged Collateral which is subject only to (i) Liens for taxes not yet due and payable and statutory liens to the extent such prospective tax payments and statutory liens are given priority by statute, (ii) Purchase Money Security Interests and property subject to capital leases as permitted hereunder, (iii) pledges of cash and cash equivalents permitted under items (ii),(iv) and (xi) of the definition of Permitted Liens to the extent granted priority under applicable Law, and (v) other Liens which by the terms hereof are permitted to be prior to the Lender's security interest. PROHIBITED TRANSACTION shall mean any prohibited transaction as defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor. PROPERTY shall mean all real property, both owned and leased, of any Loan Party or Subsidiary of a Loan Party. PURCHASE MONEY SECURITY INTEREST shall mean Liens upon tangible personal property securing loans to any Loan Party or Subsidiary of a Loan Party or deferred payments by such Loan Party or Subsidiary for the purchase of such tangible personal property. REGULATED SUBSTANCES shall mean any substance, including any solid, liquid, semisolid, gaseous, thermal, thoriated or radioactive material, refuse, garbage, wastes, chemicals, petroleum products, by-products, coproducts, impurities, dust, scrap, heavy metals, defined as a "hazardous substance," "pollutant," "pollution," "contaminant," "hazardous or toxic substance," "extremely hazardous substance," "toxic chemical," "toxic waste," "hazardous waste," "industrial waste," "residual waste," "solid waste," "municipal waste," "mixed waste," "infectious waste," "chemotherapeutic waste," "medical waste," or "regulated substance" or any related materials, substances or wastes as now or hereafter defined pursuant to any Environmental Laws, ordinances, rules, regulations or other written directives of any Official Body, the generation, manufacture, extraction, processing, distribution, treatment, storage, disposal, transport, recycling, reclamation, use, reuse, spilling, leaking, dumping, injection, pumping, leaching, emptying, discharge, escape, release or other management or mismanagement of which is regulated by the Environmental Laws. -16- REGULATION U shall mean Regulation U, T, G or X as promulgated by the Board of Governors of the Federal Reserve System, as amended from time to time. REIMBURSEMENT OBLIGATION shall have the meaning assigned to such term in Section 2.7.3.1. RELOCATION EXPENSE shall mean the lesser of (i) the expenses incurred by the Borrower in connection with the movement of its corporate headquarters from San Francisco, California to Northbrook, Illinois, or (ii) $2,500,000. REPORTABLE EVENT shall mean a reportable event described in Section 4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan. REVOLVING CREDIT LOANS shall mean collectively and REVOLVING CREDIT LOAN shall mean separately all Revolving Credit Loans or any Revolving Credit Loan made by the Lender to the Borrower pursuant to Section 2.1 or 2.7.3. REVOLVING FACILITY USAGE shall mean at any time the sum of the Revolving Credit Loans outstanding and the Letters of Credit Outstanding. SECTION 20 SUBSIDIARY shall mean the Subsidiary of the bank holding company controlling the Lender, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. SECURITY AGREEMENT shall mean the Security Agreement in substantially the form of EXHIBIT 1.1(S) executed and delivered by each of the Loan Parties to the Lender. SHARES shall have the meaning assigned to that term in Section 6.1.2. STANDARD & POOR'S shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. STANDBY LETTER OF CREDIT shall mean a Letter of Credit issued to support obligations of one or more of the Loan Parties, contingent or otherwise, which finance the working capital and business needs of the Loan Parties incurred in the ordinary course of business. SUBSIDIARY of any Person at any time shall mean (i) any corporation or trust of which 50% or more (by number of shares or number of votes) of the outstanding capital stock or shares of beneficial interest normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person's Subsidiaries, (ii) any partnership of which such Person is a general partner or of which 50% or more of the partnership interests is at the time directly or indirectly owned by such -17- Person or one or more of such Person's Subsidiaries, (iii) any limited liability company of which such Person is a member or of which 50% or more of the limited liability company interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries or (iv) any corporation, trust, partnership, limited liability company or other entity which is controlled or capable of being controlled by such Person or one or more of such Person's Subsidiaries. SUBSIDIARY SHARES shall have the meaning assigned to that term in Section 6.1.3. TRADEMARK SECURITY AGREEMENT shall mean the Trademark Security Agreement in substantially the form of EXHIBIT 1.1(T) executed and delivered by each of the Loan Parties to the Lender. UCC COLLATERAL shall mean the property of the Loan Parties in which security interests are created under the Uniform Commercial Code and to be granted under the Security Agreement. UNIFORM COMMERCIAL CODE shall have the meaning assigned to that term in Section 6.1.16. VOTING STOCK shall mean the outstanding capital stock of the Borrower entitled to vote for the election of the members of the board of directors of the Borrower. WARBURG shall mean Warburg, Pincus Investors, L.P., a Delaware limited partnership. 1.2 CONSTRUCTION. Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents: 1.2.1 NUMBER; INCLUSION. references to the plural include the singular, the plural, the part and the whole; "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation"; 1.2.2 DETERMINATION. references to "determination" of or by the Lender shall be deemed to include good-faith estimates by the Lender (in the case of quantitative determinations) and good-faith beliefs by the Lender (in the case of qualitative determinations) and such determination shall be conclusive absent manifest error; -18- 1.2.3 LENDER'S DISCRETION AND CONSENT. whenever the Lender is granted the right herein to act in its sole discretion or to grant or withhold consent such right shall be exercised in good faith; 1.2.4 DOCUMENTS TAKEN AS A WHOLE. the words "hereof," "herein," "hereunder," "hereto" and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole and not to any particular provision of this Agreement or such other Loan Document; 1.2.5 HEADINGS. the section and other headings contained in this Agreement or such other Loan Document and the Table of Contents (if any), preceding this Agreement or such other Loan Document are for reference purposes only and shall not control or affect the construction of this Agreement or such other Loan Document or the interpretation thereof in any respect; 1.2.6 IMPLIED REFERENCES TO THIS AGREEMENT. article, section, subsection, clause, schedule and exhibit references are to this Agreement or other Loan Document, as the case may be, unless otherwise specified; 1.2.7 PERSONS. reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement or such other Loan Document, as the case may be, and reference to a Person in a particular capacity excludes such Person in any other capacity; 1.2.8 MODIFICATIONS TO DOCUMENTS. reference to any agreement (including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto), document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated; 1.2.9 FROM, TO AND THROUGH. relative to the determination of any period of time, "from" means "from and including," "to" means "to but excluding," and "through" means "through and including"; and -19- 1.2.10 SHALL; WILL. references to "shall" and "will" are intended to have the same meaning. 1.3 ACCOUNTING PRINCIPLES. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; PROVIDED, HOWEVER, subject to changes resulting from any agreement described in the next sentence, all accounting terms used in Section 8.2 (and all defined terms used in the definition of any accounting term used in Section 8.2 shall have the meaning given to such terms (and defined terms) under GAAP as in effect on the date hereof applied on a basis consistent with those used in preparing the Annual Statements referred to in Section 6.1.9(i). In the event of any change after the date hereof in GAAP, and if such change would result in the inability to determine compliance with the financial covenants set forth in Section 8.2 based upon the Borrower's regularly prepared financial statements by reason of the preceding sentence, then the parties hereto agree to endeavor, in good faith, to agree upon an amendment to this Agreement that would adjust such financial covenants in a manner that would not affect the substance thereof, but would allow compliance therewith to be determined in accordance with the Borrower's financial statements at that time. 2. REVOLVING CREDIT FACILITY 2.1 REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, the Lender agrees to make Revolving Credit Loans to the Borrower at any time or from time to time on or after the date hereof to the Expiration Date provided that after giving effect to such Loan the aggregate amount of Loans shall not exceed the Commitment minus the Letters of Credit Outstanding. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section 2.1. 2.2 COMMITMENT FEE. Accruing from the date hereof until the Expiration Date, the Borrower agrees to pay to the Lender, as consideration for the Commitment hereunder, a nonrefundable commitment fee (the "COMMITMENT FEE") equal to a rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) on the average daily difference between the amount of (i) the Commitment, and (ii) the Revolving Facility Usage. The rate per annum used to determine the Commitment Fee shall be based upon the ratio of Consolidated Funded -20- Indebtedness to Annual Consolidated Cash Flow from Operations, as set forth on SCHEDULE 1.1(A) and based upon the last completed Exhibit 8.3. All Commitment Fees shall be payable quarterly in arrears on or before the first day of each April, July, October and January after the date hereof and on the Expiration Date or upon acceleration of the Note. 2.3 REVOLVING CREDIT FACILITY FEE. The Borrower agrees to pay to the Lender, as consideration for the Commitment, a nonrefundable facility fee equal to $131,250 (the "FACILITY FEE"), payable on the Closing Date. 2.4 REVOLVING CREDIT LOAN REQUESTS. Except as otherwise provided herein, the Borrower may from time to time prior to the Expiration Date request the Lender to make Revolving Credit Loans, or renew or convert the Interest Rate Option applicable to existing Revolving Credit Loans pursuant to Section , by delivering to the Lender, not later than 12:00 noon, Pittsburgh time, (i) two (2) Business Days prior to the proposed Borrowing Date with respect to the making of a Revolving Credit Loan to which the Euro-Rate Option applies or the conversion to or the renewal of the Euro-Rate Option for any Revolving Credit Loan; and (ii) one (1) Business Day prior to either the proposed Borrowing Date with respect to the making of a Revolving Credit Loan to which the Base Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Base Rate Option for any Revolving Credit Loan, of a duly completed request therefor substantially in the form of EXHIBIT 2.4 (each, a "LOAN REQUEST"). Each Loan Request shall be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the aggregate amount of the proposed Revolving Credit Loan comprising each Borrowing Tranche, which shall be not less than $1,000,000 for each Borrowing Tranche to which the Euro-Rate Option applies ; (iii) whether the Euro-Rate Option or Base Rate Option shall apply to the proposed Revolving Credit Loan comprising the applicable Borrowing Tranche; and (iv) in the case of a Borrowing Tranche to which the Euro-Rate Option applies, an appropriate Interest Period for the proposed Revolving Credit Loan comprising such Borrowing Tranche. Notwithstanding the foregoing, the Borrower shall be limited to submitting one Loan Request in each calendar week with respect to the making of Revolving Credit Loans. 2.5 REVOLVING CREDIT NOTE. The obligation of the Borrower to repay the aggregate unpaid principal amount of the Revolving Credit Loans made to it by the Lender, together with interest thereon, shall be evidenced by the Note dated the Closing Date payable to the order of the Lender in a face amount equal to the Commitment. 2.6 USE OF PROCEEDS. The proceeds of the Revolving Credit Loans shall be used for general corporate purposes and in accordance with Section 8.1.10. -21- 2.7 LETTER OF CREDIT SUBFACILITY. 2.7.1 ISSUANCE OF LETTERS OF CREDIT. Borrower may request the issuance of a letter of credit (each a "LETTER OF CREDIT") on behalf of itself or another Loan Party by delivering to the Lender a completed application and agreement for letters of credit in such form as the Lender may specify from time to time by no later than 12:00 noon, Pittsburgh time, at least three (3) Business Days, or such shorter period as may be agreed to by the Lender, in advance of the proposed date of issuance. Each Letter of Credit shall be either a Standby Letter of Credit or a Commercial Letter of Credit. Subject to the terms and conditions hereof, the Lender will issue a Letter of Credit provided that each Letter of Credit shall (A) have a maximum maturity of twelve (12) months from the date of issuance, and (B) in no event expire later than one Business Day prior to the Expiration Date and providing that in no event shall (i) the Letters of Credit Outstanding exceed, at any one time, $2,000,000 or (ii) the Revolving Facility Usage exceed, at any one time, the Commitment. 2.7.2 LETTER OF CREDIT FEES. The Borrower shall pay to the Lender a fee (the "LETTER OF CREDIT FEE") at a rate per annum (computed on the basis of a year of 360 days and actual days elapsed ) equal to (i) with respect to all Standby Letters of Credit, the applicable Euro-Rate Margin (as such term is used in the definition of Applicable Margin) set forth on Schedule 1.1(A), and (ii) with respect to allCommercial Letters of Credit, one-half (1/2) of the applicable Euro-Rate Margin. The fee with respect to both Standby Letters of Credit and Commercial Letters of Credit shall be computed on the daily average Letters of Credit Outstanding and shall be payable quarterly in arrears commencing with the first day of each April, July, October and January following issuance of each Letter of Credit and on the Expiration Date. The Borrower shall also pay the Lender's then in effect customary fees and administrative expenses payable with respect to the Letters of Credit as the Lender may generally charge or incur from time to time in connection with the issuance, modification (if any), assignment or transfer (if any), and negotiation of Letters of Credit. 2.7.3 DISBURSEMENTS, REIMBURSEMENT. 2.7.3.1 In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Lender will promptly notify the Borrower. Provided that it shall have received such notice, the Borrower shall reimburse (such obligation to reimburse the Lender shall sometimes be referred to as a "REIMBURSEMENT OBLIGATION") the Lender prior to 12:00 noon, Pittsburgh time on each date that an amount is paid by the Lender under any Letter of Credit (each such date, a "DRAWING DATE") in an amount equal to the amount so paid by the Lender. In the event the Borrower fails to reimburse the Lender for the full amount of any drawing under any Letter of Credit by 12:00 noon, Pittsburgh time, on the Drawing Date, the Borrower shall be deemed to have requested that Revolving Credit Loans be made by the Lender under the Base Rate Option to be disbursed on the Drawing Date under such -22- Letter of Credit, subject to the amount of the unutilized portion of the Commitment and subject to the conditions set forth in Section 7.2 other than any notice requirements. Any notice given by the Lender pursuant to this Section 2.7.3.1 may be oral if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. 2.7.3.2 With respect to any unreimbursed drawing that is not converted into a Revolving Credit Loan under the Base Rate Option to the Borrower in whole or in part as contemplated by Section 2.7.3.1, because of the Borrower's failure to satisfy the conditions set forth in Section 7.2 other than any notice requirements or for any other reason, the Borrower shall be deemed to have incurred from the Lender a Letter of Credit Borrowing in the amount of such drawing. Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to the Revolving Credit Loans under the Base Rate Option. 2.7.4 DOCUMENTATION. Each Loan Party agrees to be bound by the terms of the Lender's application and agreement for letters of credit and the Lender's written regulations and customary practices relating to letters of credit, though such interpretation may be different from such Loan Party's own. In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern. It is understood and agreed that, except in the case of gross negligence or willful misconduct, the Lender shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following any Loan Party's instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto. 2.7.5 DETERMINATIONS TO HONOR DRAWING REQUESTS. In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Lender shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. 2.7.6 NATURE OF PARTICIPATION AND REIMBURSEMENT OBLIGATIONS. The Obligations of the Borrower to reimburse the Lender upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.7 under all circumstances, including the following circumstances: (i) any set-off, counterclaim, recoupment, defense or other right which any Loan Party may have against the Lender or any other Person for any reason whatsoever; -23- (ii) the failure of any Loan Party or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in Section 2.1, 2.4 or 7.2 or as otherwise set forth in this Agreement for the making of a Revolving Credit Loan, it being acknowledged that such conditions are not required for the making of a Letter of Credit Borrowing; (iii) any lack of validity or enforceability of any Letter of Credit; (iv) the existence of any claim, set-off, defense or other right which any Loan Party or the Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), the Lender or any other Person or, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for which any Letter of Credit was procured); (v) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect even if the Lender has been notified thereof; (vi) payment by the Lender under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit, unless such payment constitutes bad faith, gross negligence or willful misconduct on the part of the Lender; (vii) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Loan Party or Subsidiaries of a Loan Party; (viii) any breach of this Agreement or any other Loan Document by any party thereto; (ix) the occurrence or continuance of an Insolvency Proceeding with respect to any Loan Party; (x) the fact that an Event of Default or a Potential Default shall have occurred and be continuing; (xi) the fact that the Expiration Date shall have passed or this Agreement or the Commitment hereunder shall have been terminated; and -24- (xii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, unless the Lender's actions in connection therewith constitute bad faith, gross negligence or willful misconduct; PROVIDED that the Lender's obligation to make Revolving Credit Loans under Section 2.1 is subject to the conditions set forth in Section 7.2. 2.7.7 INDEMNITY. In addition to amounts payable as provided in Section 11.3, the Borrower hereby agrees to protect, indemnify, pay and save harmless the Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which the Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit, other than as a result of (A) the bad faith, gross negligence or willful misconduct of the Lender as determined by a final judgment of a court of competent jurisdiction or (B) subject to the following clause (ii), the wrongful dishonor by the Lender of a proper demand for payment made under any Letter of Credit, or (ii) the failure of the Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "GOVERNMENTAL ACTS"). 2.7.8 LIABILITY FOR ACTS AND OMISSIONS. As between any Loan Party and the Lender, such Loan Party assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Lender shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if the Lender shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Loan Party against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Loan Party and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of -25- Credit; or (viii) any consequences arising from causes beyond the control of the Lender, including any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of the Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Lender under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith and absent gross negligence or willful misconduct, shall not put the Lender under any resulting liability to the Borrower or any other Loan Party. 3. [INTENTIONALLY OMITTED] 4. INTEREST RATES 4.1 INTEREST RATE OPTIONS. The Borrower shall pay interest in respect of the outstanding unpaid principal amount of the Loans as selected by it from the Base Rate Option or the Euro-Rate Option set forth below applicable to the Loans, it being understood that, subject to the provisions of this Agreement, the Borrower may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Loans comprising different Borrowing Tranches and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Loans comprising any Borrowing Tranche, PROVIDED that there shall not be at any one time outstanding more than four (4) Borrowing Tranches in the aggregate among all of the Loans accruing interest at a Euro-Rate Option. If at any time the designated rate applicable to any Loan made by the Lender exceeds the Lender's highest lawful rate, the rate of interest on the Lender's Loan shall be limited to the Lender's highest lawful rate. 4.1.1 REVOLVING CREDIT INTEREST RATE OPTIONS. The Borrower shall have the right to select from the following Interest Rate Options applicable to the Revolving Credit Loans: (i) BASE RATE OPTION: A fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or (ii) EURO-RATE OPTION: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Euro-Rate plus the Applicable Margin. -26- 4.1.2 RATE QUOTATIONS. The Borrower may call the Lender on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such projection shall not be binding on the Lender nor affect the rate of interest which thereafter is actually in effect when the election is made. 4.2 INTEREST PERIODS. At any time when the Borrower shall select, convert to or renew a Euro-Rate Option, the Borrower shall notify the Lender thereof at least two (2)Business Days prior to the effective date of such Euro-Rate Option by delivering a Loan Request. The notice shall specify an interest period (the "INTEREST PERIOD") during which such Interest Rate Option shall apply, such Interest Period to be one, two, three or six Months. Notwithstanding the preceding sentence, the following provisions shall apply to any selection of, renewal of, or conversion to a Euro-Rate Option: 4.2.1 ENDING DATE AND BUSINESS DAY. any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; 4.2.2 AMOUNT OF BORROWING TRANCHE. each Borrowing Tranche of Euro-Rate Loans shall be not less than $1,000,000; 4.2.3 TERMINATION BEFORE EXPIRATION DATE. the Borrower shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Expiration Date; and 4.2.4 RENEWALS. in the case of the renewal of a Euro-Rate Option at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day. 4.3 INTEREST AFTER DEFAULT. To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured or waived: -27- 4.3.1 LETTER OF CREDIT FEES, INTEREST RATE. the Letter of Credit Fees and the rate of interest for each Loan otherwise applicable pursuant to Section 2.7.3 or Section 4.1, respectively, shall be increased by two percent (2%) per annum; and 4.3.2 OTHER OBLIGATIONS. each other Obligation hereunder if not paid when due shall bear interest at a rate per annum equal to the sum of the rate of interest applicable under the Base Rate Option plus an additional two percent (2%) per annum from the time such Obligation becomes due and payable and until it is paid in full. 4.3.3 ACKNOWLEDGMENT. The Borrower acknowledges that the increase in rates referred to in this Section reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Lender is entitled to additional compensation for such risk; and all such interest shall be payable by Borrower upon demand by Lender. 4.4 EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE 4.4.1 UNASCERTAINABLE. If on any date on which a Euro-Rate would otherwise be determined, the Lender shall have determined that: (i) adequate and reasonable means do not exist for ascertaining such Euro-Rate, or (ii) a contingency has occurred which materially and adversely affects the secondary market for the London interbank eurodollar market relating to the Euro-Rate, the Lender shall have the rights specified in Section . 4.4.2 ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE. If at any time the Lender shall have determined that: (i) the making, maintenance or funding of any Loan to which a Euro-Rate Option applies has been made impracticable or unlawful by compliance by the Lender in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), or -28- (ii) such Euro-Rate Option will not adequately and fairly reflect the cost to the Lender of the establishment or maintenance of any such Loan, or (iii) after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan to which a Euro-Rate Option applies are not available to the Lender at the effective cost of funding a proposed Loan in the London interbank market, then the Lender shall have the rights specified in Section 4.4.3. 4.4.3 LENDER'S RIGHTS. In the case of any event specified in Section 4.4.1 or 4.4.2 above, the Lender shall promptly so notify the Borrower thereof. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given), the obligation of the Lender to allow the Borrower to select, convert to or renew a Euro-Rate Option shall be suspended until the Lender shall have later notified the Borrower of the Lender's determination that the circumstances giving rise to such previous determination no longer exist. If at any time the Lender makes a determination under Section 4.4.1 or 4.4.2 and the Borrower has previously notified the Lender of its selection of, conversion to or renewal of a Euro-Rate Option and such Interest Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option otherwise available with respect to such Loans. 4.5 SELECTION OF INTEREST RATE OPTIONS. If the Borrower fails to select a new Interest Period to apply to any Borrowing Tranche of Loans under the Euro-Rate Option at the expiration of an existing Interest Period applicable to such Borrowing Tranche in accordance with the provisions of Section 4.2, the Borrower shall be deemed to have converted such Borrowing Tranche to the Base Rate Option commencing upon the last day of the existing Interest Period. 5. PAYMENTS 5.1 PAYMENTS. All payments and prepayments to be made in respect of principal, interest, Commitment Fees, Facility Fee, Letter of Credit Fees, or other fees or amounts due from the Borrower hereunder shall be payable prior to 12:00 noon, Pittsburgh time, on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Lender at the Principal Office in U.S. Dollars and in immediately available funds. The Lender's statement of -29- account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans and other amounts owing under this Agreement and shall be deemed an "account stated." 5.2 INTEREST PAYMENT DATES. Interest on Loans shall be due and payable in arrears on the first day of each calendar quarter after the date hereof, commencing with a payment on April 1, 1997, and on each July 1, October 1, January 1 and April 1 thereafter, and on the Expiration Date or upon acceleration of the Note. Interest on the principal amount of each Loan or other monetary Obligation shall be due and payable on demand after such principal amount or other monetary Obligation becomes due and payable (whether on the stated maturity date, upon acceleration or otherwise). 5.3 VOLUNTARY REPAYMENTS. 5.3.1 RIGHT TO REPAY. The Borrower shall have the right at its option at any time and from time to time to repay the Loans in whole or part without premium or penalty (except as provided in Section 5.5). Whenever the Borrower desires to repay any part of the Loans, it shall provide a notice to the Lender at least two (2) Business Days prior to the date of repayment of Loans setting forth the following information: (y) the date, which shall be a Business Day, on which the proposed repayment is to be made; and (z) the total principal amount of such repayment, which shall not be less than $100,000. All repayment notices shall be irrevocable. The principal amount of the Loans for which a repayment notice is given shall be due and payable on the date specified in such prepayment notice as the date on which the proposed repayment is to be made. Except as provided in Section 4.4.3, if the Borrower repays a Loan but fails to specify the applicable Borrowing Tranche which the Borrower is repaying, the repayment shall be applied first to Loans to which the Base Rate Option applies, then to Loans to which the Euro-Rate Option applies. Any repayment hereunder shall be subject to the Borrower's Obligation to indemnify the Lender under Section 5.5.2. -30- 5.3.2 COMMITMENT REDUCTIONS. The Borrower may at any time and from time to time terminate in whole the Commitment. The Borrower may on two separate occasions reduce in part the Commitment, provided however, that after giving effect to any reduction, the Commitment is not less than $7,500,000. In the case of either a termination or reduction of the Commitment, the Borrower shall give the Lender not less than seven (7) days prior written notice to such effect. Notice of termination or reduction, having once been given by the Borrower, shall be irrevocable on the part of the Borrower. Each reduction of the Commitment shall be in the aggregate amount of Five Hundred Thousand ($500,000) or an integral multiple thereof. After each such reduction of the Revolving Credit Commitment, the fee payable pursuant to Section 2.2 shall be calculated upon the Commitment as so reduced. 5.4 MANDATORY REPAYMENTS. 5.4.1 SALE OF ASSETS. Within five (5) Business Days of any sale of assets authorized by Section 8.2.7(iv) when the Borrower's reasonable calculation of the net after-tax proceeds are greater than $1,000,000, the Borrower shall make a mandatory repayment of principal on the Loans equal to the lesser of (i) the then outstanding principal amount of the Loans, or (ii) the net after-tax proceeds of such sale (as estimated in good faith by the Borrower), together with accrued interest on such principal amount, and the Commitment shall be reduced by the amount of the net after-tax proceeds, rounded to the nearest multiple of $10,000. 5.4.2 APPLICATION AMONG INTEREST RATE OPTIONS. If at the time the Borrower makes a repayment required pursuant to this Section 5.4 and the Borrower fails to specify the applicable Borrowing Tranche to which the Borrower wants the repayment to be applied, the repayment shall first be applied among the Interest Rate Options to the principal amount of the Loans subject to the Base Rate Option, then to Loans subject to a Euro-Rate Option. In accordance with Section 5.5.2, the Borrower shall indemnify the Lender for any loss or expense, including loss of margin, incurred with respect to any such prepayments applied against Loans subject to a Euro-Rate Option on any day other than the last day of the applicable Interest Period. 5.5 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES. 5.5.1 INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES, RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC. If any Law, guideline or interpretation issued or adopted after the date hereof or any change in any Law, guideline or interpretation or application thereof after the date hereof by any Official Body charged with the interpretation or administration thereof or -31- compliance with any request or directive issued or adopted after the date hereof (whether or not having the force of Law) of any central bank or other Official Body: (i) subjects the Lender to any tax or changes the basis of taxation with respect to this Agreement, the Note, the Loans or payments by the Borrower of principal, interest, Commitment Fees, or other amounts due from the Borrower hereunder or under the Note (except for taxes on the overall net income of the Lender), (ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirement against credits or commitments to extend credit extended by, or assets (funded or contingent) of, deposits with or for the account of, or other acquisitions of funds by, the Lender, or (iii) imposes, modifies or deems applicable any capital adequacy or similar requirement (A) against assets (funded or contingent) of, or letters of credit, other credits or commitments to extend credit extended by, the Lender, or (B) otherwise applicable to the obligations of the Lender under this Agreement, and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, or impose any expense (including loss of margin) upon the Lender with respect to this Agreement, the Note or the making, maintenance or funding of any part of the Loans (or, in the case of any capital adequacy or similar requirement, to have the effect of reducing the rate of return on the Lender's capital, taking into consideration the Lender's customary policies with respect to capital adequacy) by an amount which is not reflected by the Euro-Rate and which the Lender in its sole discretion deems to be material, the Lender shall from time to time notify the Borrower of the amount determined in good faith (using any averaging and attribution methods employed in good faith) by the Lender to be necessary to compensate the Lender for such increase in cost, reduction of income, additional expense or reduced rate of return. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrower to the Lender ten (10) Business Days after such notice is given. If any event or circumstance arises or occurs which gives rise to the obligation of the Borrower to make a payment pursuant to this Section 5.5.1, the Lender shall promptly notify the Borrower of such event or circumstance. Notwithstanding anything to the contrary contained herein, the Borrower shall not be required to make any payment to the Lender pursuant to this Section 5.5.1 with respect to amounts which arise or relate to periods more than 180 days prior to the Lender's request for such payment. 5.5.2 INDEMNITY. In addition to the compensation required by Section 5.5.1, the Borrower shall indemnify the Lender against all liabilities, losses or expenses (including loss of margin, any loss or expense incurred in liquidating or employing deposits from third parties and any loss or expense incurred in connection with funds acquired by the Lender to fund or maintain Loans subject to a Euro-Rate Option) which the Lender sustains or incurs as a consequence of any -32- (i) payment, prepayment, conversion or renewal of any Loan to which a Euro-Rate Option applies on a day other than the last day of the corresponding Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due), (ii) attempt by the Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any Loan Requests under Section 2.4 or Section 4.2 or notice relating to prepayments under Section 5.3, or (iii) default by the Borrower in the performance or observance of any covenant or condition contained in this Agreement or any other Loan Document, including any failure of the Borrower to pay when due (by acceleration or otherwise) any principal, interest, Commitment Fee or any other amount due hereunder. If the Lender sustains or incurs any such loss or expense, it shall from time to time notify the Borrower of the amount determined in good faith by the Lender (which determination may include such assumptions, allocations of reasonable costs and expenses and averaging or attribution methods as the Lender shall deem reasonable) to be necessary to indemnify the Lender for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrower to the Lender ten (10) Business Days after such notice is given. 5.5.3 REDUCED RETURN RELATING TO LENDER'S SERVICES. If the Loan Parties shall cease to employ the Lender as the administrator of their 401K plan and the financial institution which provides the Loan Parties with their treasury management services as substantially in effect on the Closing Date, and the result of any of the foregoing failures to so utilize the Lender's services is to reduce the income receivable by an amount which the Lender in its sole discretion deems to be material, the Lender shall from time to time notify the Borrower of the amount determined in good faith by the Lender to be necessary to compensate the Lender for such reduction of income, and the Lender shall in its discretion adjust the Applicable Margin to compensate the Lender for such reduction. Such notice shall set forth in reasonable detail the basis for such determination and the date upon which the change in the Applicable Margin shall be effected. 6. REPRESENTATIONS AND WARRANTIES 6.1 REPRESENTATIONS AND WARRANTIES. The Loan Parties, jointly and severally, represent and warrant to the Lender as follows: -33- 6.1.1 ORGANIZATION AND QUALIFICATION. Each Loan Party is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each Loan Party has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct. Each Loan Party is duly licensed or qualified and in good standing in each jurisdiction listed on SCHEDULE 6.1.1 and in all other jurisdictions where the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary, except where such failure is not reasonably likely to cause a Material Adverse Change. 6.1.2 CAPITALIZATION AND OWNERSHIP. The authorized capital stock of the Borrower (referred to herein as the "Shares") and the issued and outstanding Shares and the ownership thereof are as indicated on SCHEDULE 6.1.2. All of the Shares have been validly issued and are fully paid and nonassessable. There are no options, warrants or other rights outstanding to purchase any such shares except as indicated on SCHEDULE 6.1.2. 6.1.3 SUBSIDIARIES. SCHEDULE 6.1.3 states the name of each of the Borrower's Subsidiaries other than Montclair and the Existing Partnerships, its jurisdiction of incorporation, its authorized capital stock, the issued and outstanding shares (referred to herein as the "Subsidiary Shares") and the owners thereof if it is a corporation, its outstanding partnership interests (the "Partnership Interests") if it is a partnership and its outstanding limited liability company interests, interests assigned to managers thereof and the voting rights associated therewith (the "LLC Interests") if it is a limited liability company. Each Loan Party has good and marketable title to all of the Subsidiary Shares, Partnership Interests and LLC Interests of the Loan Parties it purports to own, free and clear in each case of any Lien other than Permitted Liens. All Subsidiary Shares, Partnership Interests and LLC Interests of each Loan Party have been validly issued, and all Subsidiary Shares of each Loan Party are fully paid and nonassessable. All capital contributions and other consideration required to be made or paid in connection with the issuance of the Partnership Interests and LLC Interests have been made or paid, as the case may be. There are no options, warrants or other rights outstanding to purchase any such Subsidiary Shares, Partnership Interests or LLC Interests of any Loan Party except as indicated on SCHEDULE 6.1.3. With the exception of Montclair and the Existing Partnerships, no Subsidiary which is not a Loan Party has either (i) active business operations of any of the type described in Section 8.2.10, or (ii) assets having a book value equal to or greater than $50,000. 6.1.4 POWER AND AUTHORITY. Each Loan Party has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur -34- the Indebtedness contemplated by the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part. 6.1.5 VALIDITY AND BINDING EFFECT. This Agreement has been duly and validly executed and delivered by each Loan Party, and each other Loan Document which any Loan Party is required to execute and deliver on or after the date hereof will have been duly executed and delivered by such Loan Party on the required date of delivery of such Loan Document. This Agreement and each other Loan Document constitutes, or will constitute, legal, valid and binding obligations of each Loan Party which is or will be a party thereto on and after its date of delivery thereof, enforceable against such Loan Party in accordance with its terms, except to the extent that enforceability of any of such Loan Document may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally and by general equitable principles. 6.1.6 NO CONFLICT. Neither the execution and delivery of this Agreement or the other Loan Documents by any Loan Party nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of any Loan Party or (ii) any Law or any material agreement or instrument or order, writ, judgment, injunction or decree to which any Loan Party is a party or by which it is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan Party (other than Liens granted under the Loan Documents). 6.1.7 LITIGATION. Except as set forth on Schedule 6.1.7, there are no actions, suits, proceedings or investigations pending or, to the knowledge of any Loan Party, threatened against such Loan Party at law or equity before any Official Body which individually or in the aggregate is reasonably likely to result in any Material Adverse Change. None of the Loan Parties is in violation of any order, writ, injunction or any decree of any Official Body which may result in any Material Adverse Change. 6.1.8 TITLE TO PROPERTIES. Each Loan Party has good and marketable title to or valid leasehold interest in all material properties, assets and other rights which it purports to own or lease or -35- which are reflected as owned or leased on its books and records, free and clear of all Liens and encumbrances except Permitted Liens, and subject to the terms and conditions of the applicable leases. All leases of property are in full force and effect without the necessity for any consent which has not previously been obtained upon consummation of the transactions contemplated hereby. 6.1.9 FINANCIAL STATEMENTS. (i) HISTORICAL STATEMENTS. The Borrower has delivered to the Lender copies of its audited consolidated year-end financial statements for and as of the end of the two fiscal years ended June 30, 1996 and 1995 (the "Annual Statements"). In addition, the Borrower has delivered to the Lender copies of its unaudited consolidated interim financial statements for the fiscal year to date and as of the end of the fiscal quarter ended September 30, 1996 (the "Interim Statements") (the Annual and Interim Statements being collectively referred to as the "Historical Statements"). The Historical Statements were compiled from the books and records maintained by the Borrower's management, are correct and complete and fairly represent in all material respects the consolidated financial condition of the Borrower and its Subsidiaries as of their dates and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied, subject (in the case of the Interim Statements) to normal year-end audit adjustments. (ii) FINANCIAL PROJECTIONS. The Borrower has delivered to the Lender financial projections of the Borrower and its Subsidiaries for the period January 1, 1997 to June 30, 2001 derived from various assumptions of the Borrower's management (the "Financial Projections"). The Financial Projections represent a reasonable range of possible results in light of the history of the business, present and foreseeable conditions and the intentions of the Borrower's management. The Financial Projections accurately reflect the liabilities of the Borrower and its Subsidiaries upon consummation of the transactions contemplated hereby as of the Closing Date. (iii) ACCURACY OF FINANCIAL STATEMENTS. Neither the Borrower nor any Subsidiary of the Borrower has any liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Historical Statements or in the notes thereto, and except as disclosed therein there are no unrealized or anticipated losses from any commitments of the Borrower or any Subsidiary of the Borrower which is reasonably likely to cause a Material Adverse Change. Since June 30, 1996 no Material Adverse Change has occurred. 6.1.10 USE OF PROCEEDS; MARGIN STOCK. The Loan Parties intend to use the proceeds of the Loans in accordance with Sections 2.6 and 8.1.10. None of the Loan Parties or any Subsidiaries of any Loan Party engages or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or -36- carrying margin stock (within the meaning of Regulation U). No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or to refund Indebtedness originally incurred for such purpose, or for any purpose which entails a violation of or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. None of the Loan Parties holds or intends to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of any Loan Party are or will be represented by margin stock. 6.1.11 FULL DISCLOSURE. Neither this Agreement nor any other Loan Document, nor any certificate, written statement, agreement or other documents furnished to the Lender in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. As of the date hereof there is no fact known to any Loan Party which materially adversely affects the business, property, assets, financial condition or results of operations of any Loan Party which has not been set forth in this Agreement or in the certificates, statements, agreements or other documents furnished in writing to the Lender prior to or at the date hereof in connection with the transactions contemplated hereby. 6.1.12 TAXES. All federal, state and local income tax returns and all other material federal, state and local tax returns required to have been filed with respect to each Loan Party have been filed or properly extended, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made. There are no agreements or waivers extending the statutory period of limitations applicable to any federal income tax return of any Loan Party for any period. 6.1.13 CONSENTS AND APPROVALS. Except for the filing of financing statements and the Trademark Security Agreement in the state, county and federal filing offices, no consent, approval, exemption, order or authorization of, or a registration or filing with, any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents by any Loan Party, except as listed on SCHEDULE 6.1.13, all of which shall have been obtained or made on or prior to the Closing Date except as otherwise indicated on SCHEDULE 6.1.13. -37- 6.1.14 NO EVENT OF DEFAULT; COMPLIANCE WITH INSTRUMENTS. No event has occurred and is continuing and no condition exists or will exist after giving effect to the borrowings or other extensions of credit to be made on the Closing Date under or pursuant to the Loan Documents which constitutes an Event of Default or Potential Default. None of the Loan Parties is in violation of (i) any term of its certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents or (ii) any material agreement or instrument to which it is a party or by which it or any of its properties may be subject or bound where such violation would constitute a Material Adverse Change. 6.1.15 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC. Each Loan Party owns or possesses or has the right to use all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as conducted from time to time by such Loan Party, without known alleged or actual conflict with the rights of others. All material patents, trademarks, service marks, trade names and registered copyrights of each Loan Party are listed and described on SCHEDULE 6.1.15. 6.1.16 SECURITY INTERESTS. Upon proper completion of the Perfection Actions, the Liens and security interests granted to the Lender pursuant to the Collateral Assignment, the Trademark Security Agreement, the Pledge Agreement and the Security Agreement in the UCC Collateral constitute and will continue to constitute Prior Security Interests under the Uniform Commercial Code as in effect in each applicable jurisdiction (the "Uniform Commercial Code") or other applicable Law entitled to all the rights, benefits and priorities provided by the Uniform Commercial Code or such Law. Upon the filing of financing statements relating to said security interests in each office and in each jurisdiction where required in order to perfect the security interests described above, taking possession of any stock certificates or other certificates evidencing the Pledged Collateral, execution and delivery of the Collateral Assignment and recordation of the Trademark Security Agreement in the United States Patent and Trademark Office (collectively, the "Perfection Actions"), all such action as is necessary or advisable to establish such rights of the Lender will have been taken, and there will be upon execution and delivery of the Collateral Assignment, the Trademark Security Agreement, the Pledge Agreement and the Security Agreement, such filings and such taking of possession, no necessity for any further action in order to preserve, protect and continue such rights, except the filing of continuation statements with respect to such financing statements within six months prior to each five-year anniversary of the filing of such financing statements. All filing fees and other expenses in connection with each such action have been or will be paid by the Borrower to the Lender. -38- 6.1.17 STATUS OF THE PLEDGED COLLATERAL. All the shares of capital stock, Partnership Interests or LLC Interests included in the Pledged Collateral to be pledged pursuant to the Pledge Agreement or the Collateral Assignment are or will be subject to Lender's Prior Security Interest and are or will be upon issuance validly issued and nonassessable and owned beneficially and of record by the pledgor free and clear of any Lien or restriction on transfer, except for Permitted Liens or except as otherwise provided by the Pledge Agreement or the Collateral Assignment and except as the right of the Lender to dispose of the Shares, Partnership Interests or LLC Interests may be limited by the Securities Act of 1933, as amended, and the regulations promulgated by the Securities and Exchange Commission thereunder and by applicable state securities laws. There are no shareholder, partnership, limited liability company or other agreements or understandings with respect to the shares of capital stock, Partnership Interests or LLC Interests included in the Pledged Collateral except for the partnership agreements and limited liability company agreements described on SCHEDULE 6.1.17. The Loan Parties have delivered true and correct copies of such partnership agreements and limited liability company agreements to the Lender. 6.1.18 INSURANCE. All insurance policies and other bonds to which any Loan Party is a party are valid and in full force and effect. No notice has been given or claim made and no grounds exist to cancel or avoid any of such policies or bonds or to reduce the coverage provided thereby. Such policies and bonds provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the material assets and material risks of each Loan Party in accordance with prudent business practice in the industry of the Loan Parties. 6.1.19 COMPLIANCE WITH LAWS. The Loan Parties and their Subsidiaries are in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in Section 6.1.24) in all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is presently or will be doing business except where the failure to do so is not reasonably likely to constitute a Material Adverse Change. 6.1.20 MATERIAL CONTRACTS; BURDENSOME RESTRICTIONS. SCHEDULE 6.1.20 lists all material contracts relating to the business operations of each Loan Party, including all employee benefit plans and Labor Contracts. All such material contracts are valid, binding and enforceable in all material respects upon such Loan Party and each of the other parties thereto in accordance with their respective terms, and there is no default thereunder which would result in a Material Adverse Change, to the Loan Parties' knowledge, with respect to parties other than such Loan Party. None of the Loan Parties is bound by any contractual obligation, or subject to any restriction in any organization document, or any requirement of Law which is reasonably likely to result in a Material Adverse Change. -39- 6.1.21 INVESTMENT COMPANIES; REGULATED ENTITIES. None of the Loan Parties is an "investment company" registered or required to be registered under the Investment Company Act of 1940 or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940 and shall not become such an "investment company" or under such "control." None of the Loan Parties is subject to any other Federal or state statute or regulation limiting its ability to incur Indebtedness for borrowed money. 6.1.22 PLANS AND BENEFIT ARRANGEMENTS. Except as set forth on SCHEDULE 6.1.22: (i) The Borrower and each other member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has been no Prohibited Transaction with respect to any Benefit Arrangement or any Plan or, to the best knowledge of the Borrower, with respect to any Multiemployer Plan or Multiple Employer Plan, which could result in any material liability of the Borrower or any other member of the ERISA Group. The Borrower and all other members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan and Multiemployer Plan, the Borrower and each other member of the ERISA Group (i) have fulfilled in all material respects their obligations under the minimum funding standards of ERISA, (ii) have not incurred any liability to the PBGC, and (iii) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA. (ii) To the best of the Borrower's knowledge, each Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder when due. (iii) Neither the Borrower nor any other member of the ERISA Group has instituted or intends to institute proceedings to terminate any Plan. (iv) No event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Plan, and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Plan. (v) The aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in, and as of the date of, the most recent actuarial report for such Plan, does not exceed the aggregate fair market value of the assets of such Plan. -40- (vi) Neither the Borrower nor any other member of the ERISA Group has incurred or reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any other member of the ERISA Group has been notified by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been terminated within the meaning of Title IV of ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan or Multiple Employer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA. (vii) To the extent that any Benefit Arrangement is insured, the Borrower and all other members of the ERISA Group have paid when due all premiums required to be paid for all periods through the Closing Date. To the extent that any Benefit Arrangement is funded other than with insurance, the Borrower and all other members of the ERISA Group have made when due all contributions required to be paid for all periods through the Closing Date. (viii) All Plans, Benefit Arrangements and Multiemployer Plans have been administered in accordance with their terms and applicable Law in all material respects. 6.1.23 EMPLOYMENT MATTERS. Each of the Loan Parties and each of their Subsidiaries is in compliance with the material Labor Contracts and all applicable federal, state and local labor and employment Laws including those related to equal employment opportunity and affirmative action, labor relations, minimum wage, overtime, child labor, medical insurance continuation, worker adjustment and relocation notices, immigration controls and worker and unemployment compensation, where the failure to comply would constitute a Material Adverse Change. There are no material outstanding grievances, arbitration awards or appeals therefrom arising out of the Labor Contracts or current or threatened strikes, picketing, handbilling or other work stoppages or slowdowns at facilities of any of the Loan Parties or any of their Subsidiaries which in any case would constitute a Material Adverse Change. The Borrower has delivered to the Lender true and correct copies of each of the material employment agreements of the Borrower and the Loan Parties. 6.1.24 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 6.1.24 and except as is not reasonably likely to constitute a Material Adverse Change: (i) None of the Loan Parties or any Subsidiaries of any Loan Party has received any Environmental Complaint from any Official Body or private Person alleging that such Loan Party or Subsidiary or any prior or subsequent owner of any of the Property is a potentially responsible party under the Comprehensive Environmental Response, -41- Cleanup and Liability Act, 42 U.S.C. Section 9601, ET SEQ., and none of the Loan Parties has any reason to believe that such an Environmental Complaint might be received. There are no pending or, to any Loan Party's knowledge, threatened Environmental Complaints relating to any Loan Party or Subsidiary of any Loan Party or, to any Loan Party's knowledge, any prior or subsequent owner of any of the Property pertaining to, or arising out of, any Environmental Conditions. (ii) There are no circumstances at, on or under any of the Property that constitute a breach of or non-compliance with any of the Environmental Laws, and there are no past or present Environmental Conditions at, on or under any of the Property or, to any Loan Party's knowledge, at, on or under adjacent property, that prevent compliance with the Environmental Laws at any of the Property. (iii) Neither any of the Property nor any structures, improvements, equipment, fixtures, activities or facilities thereon or thereunder contain or use Regulated Substances except in compliance with Environmental Laws. There are no processes, facilities, operations, equipment or other activities at, on or under any of the Property, or, to any Loan Party's knowledge, at, on or under adjacent property, that currently result in the release or threatened release of Regulated Substances onto any of the Property, except to the extent that such releases or threatened releases are not a breach of or otherwise not a violation of the Environmental Laws. (iv) To the knowledge of the Loan Parties, there are no aboveground storage tanks, underground storage tanks or underground piping associated with such tanks, used for the management of Regulated Substances at, on or under any of the Property that (a) do not have, to the extent required by Environmental Laws, a full operational secondary containment system in place, and (b) are not otherwise in compliance with all applicable Environmental Laws. There are no abandoned underground storage tanks or underground piping associated with such tanks, previously used for the management of Regulated Substances at, on or under any of the Property that have not either been closed in place in accordance with Environmental Laws or removed in compliance with all applicable Environmental Laws and no contamination associated with the use of such tanks exists on any of the Property that is not in compliance with applicable Environmental Laws. (v) Each Loan Party and each Subsidiary of any Loan Party has all material permits, licenses, authorizations, plans and approvals necessary under the Environmental Laws for the conduct of the business of such Loan Party or Subsidiary as presently conducted. Each Loan Party and each Subsidiary of any Loan Party has submitted all material notices, reports and other filings required by the Environmental Laws to be submitted to an Official Body which pertain to past and current operations on any of the Property. (vi) All past and present on-site generation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Regulated Substances at, on, or under any of the Property and all off-site transportation, storage, processing, treatment, -42- recycling, reclamation, disposal or other use or management of Regulated Substances have been done in compliance with the Environmental Laws. 6.2 UPDATES TO SCHEDULES. Should any of the information or disclosures provided on any of the Schedules attached hereto become outdated or incorrect in any material respect, the Borrower shall promptly provide the Lender in writing with such revisions or updates to such Schedule as may be necessary or appropriate to update or correct same; PROVIDED, however, that no Schedule shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such Schedule be deemed to have been cured thereby, unless and until the Lender, in its sole and absolute discretion exercised in good faith, shall have accepted in writing such revisions or updates to such Schedule. 7. CONDITIONS OF LENDING The obligation of the Lender to make Loans and to issue Letters of Credit hereunder is subject to the performance by each of the Loan Parties of its Obligations to be performed hereunder at or prior to the making of any such Loans or issuance of such Letters of Credit and to the satisfaction of the following further conditions: 7.1 FIRST LOANS. On the Closing Date: 7.1.1 OFFICER'S CERTIFICATE. The representations and warranties of each of the Loan Parties contained in Section and in each of the other Loan Documents shall be true and accurate on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein), and each of the Loan Parties shall have performed and complied with all covenants and conditions hereof and thereof, which shall include certification of the condition set forth in Section 7.1.14, no Event of Default or Potential Default shall have occurred and be continuing or shall exist; and there shall be delivered to the Lender a certificate of each of the Loan Parties, dated the Closing Date and signed by the Chief Executive Officer, President or Chief Financial Officer of each of the Loan Parties, to each such effect. -43- 7.1.2 SECRETARY'S CERTIFICATE. There shall be delivered to the Lender a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of each of the Loan Parties, certifying as appropriate as to: (i) all action taken by such Loan Party in connection with this Agreement and the other Loan Documents; (ii) the names of the officer or officers authorized to sign this Agreement and the other Loan Documents and the true signatures of such officer or officers and specifying the Authorized Officers permitted to act on behalf of such Loan Party for purposes of this Agreement and the true signatures of such officers, on which the Lender may conclusively rely; and (iii) copies of its organizational documents, including its certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, and limited liability company agreement as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing of such Loan Party in each state where organized, and as requested by the Lender, where qualified to do business. 7.1.3 DELIVERY OF LOAN DOCUMENTS. The Collateral Assignment, Guaranty Agreement, Indemnity, Note, Trademark Security Agreement, Pledge Agreement, Intercompany Subordination Agreement and Security Agreement shall have been duly executed and delivered to the Lender together with all appropriate financing statements and appropriate stock powers and certificates evidencing the Shares, the Partnership Interests and the LLC Interests. 7.1.4 OPINION OF COUNSEL. There shall be delivered to the Lender a written opinion of Latham & Watkins and Carol M. Vanairsdale, counsel for the Loan Parties (who may rely on the opinions of such other counsel as may be acceptable to the Lender), dated the Closing Date and in form and substance satisfactory to the Lender and its counsel: (i) as to the matters set forth in EXHIBIT 7.1.4; and (ii) as to such other matters incident to the transactions contemplated herein as the Lender may reasonably request. -44- 7.1.5 LEGAL DETAILS. All legal details and proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be in form and substance satisfactory to the Lender and counsel for the Lender, and the Lender shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to the Lender and said counsel, as the Lender or said counsel may reasonably request. 7.1.6 PAYMENT OF FEES. The Borrower shall have paid or caused to be paid to the Lender to the extent not previously paid the Facility Fee, all other commitment and other fees accrued through the Closing Date and the costs and expenses for which the Lender is entitled to be reimbursed. 7.1.7 CONSENTS. All material consents required to effectuate the transactions contemplated hereby as set forth on SCHEDULE 6.1.13 shall have been obtained. 7.1.8 OFFICER'S CERTIFICATE REGARDING MACS. Since June 30, 1996 no Material Adverse Change shall have occurred; prior to the Closing Date, there shall have been no material change in the management of any Loan Party or Subsidiary of any Loan Party; and there shall have been delivered to the Lender for the benefit of the Lender a certificate dated the Closing Date and signed by the Chief Executive Officer, President or Chief Financial Officer of each Loan Party to each such effect. 7.1.9 NO VIOLATION OF LAWS. The making of the Loans and the issuance of the Letters of Credit shall not contravene any Law applicable to any Loan Party or the Lender. 7.1.10 NO ACTIONS OR PROCEEDINGS. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, this Agreement, the other Loan Documents or the consummation of the transactions contemplated hereby or thereby or which, in the Lender's sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents. -45- 7.1.11 INSURANCE POLICIES; CERTIFICATES OF INSURANCE; ENDORSEMENTS. The Loan Parties shall have delivered evidence acceptable to the Lender that adequate insurance in compliance with Section 8.1.3 is in full force and effect and that all premiums then due thereon have been paid, together with a certified copy of each Loan Party's casualty insurance policy or policies evidencing coverage satisfactory to the Lender, with additional insured and lender loss payable special endorsements attached thereto in form and substance satisfactory to the Lender and its counsel naming the Lender as additional insured and lender loss payee. 7.1.12 FILING RECEIPTS. The Lender shall have received (i) copies of all filing receipts and acknowledgments issued by any governmental authority to evidence any recordation or filing necessary to perfect the Lien of the Lender on the Collateral or other satisfactory evidence of such recordation and filing and (ii) evidence in a form acceptable to the Lender that such Lien constitutes a Prior Security Interest in favor of the Lender. 7.1.13 TERMINATION OF EXISTING CREDIT AGREEMENT. The loans and related obligations of the Loan Parties to IBM under the IBM Loan Documents shall have been satisfied in full, and the IBM Loan Documents shall have been terminated. All Liens securing the indebtedness of the Loan Parties to IBM shall have been terminated. 7.1.14 FINANCIAL COVENANT CONDITION. The Annual Consolidated Cash Flow from Operations for the four fiscal quarters ended December 31, 1996, exclusive of Relocation Expenses, shall be equal to or greater than $9,500,000. 7.2 EACH ADDITIONAL LOAN. At the time of making any Loans or issuing any Letters of Credit other than Loans made or Letters of Credit issued on the Closing Date and after giving effect to the proposed extensions of credit: the representations and warranties of the Loan Parties contained in Section and in the other Loan Documents shall be true on and as of the date of such additional Loan or Letter of Credit with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which expressly relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein) and the Loan Parties shall have performed and complied with all covenants and conditions hereof; no Event of Default or -46- Potential Default shall have occurred and be continuing or shall exist; the making of the Loans or issuance of such Letter of Credit shall not contravene any Law applicable to any Loan Party or the Lender; and the Borrower shall have delivered to the Lender a duly executed and completed Loan Request or application for a Letter of Credit as the case may be. 8. COVENANTS 8.1 AFFIRMATIVE COVENANTS. The Loan Parties, jointly and severally, covenant and agree that until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings, and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties' other Obligations and termination of the Commitment, the Loan Parties shall comply at all times with the following affirmative covenants: 8.1.1 PRESERVATION OF EXISTENCE, ETC. Each Loan Party shall maintain its legal existence as a corporation, limited partnership or limited liability company and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, except as otherwise expressly permitted in Section 8.2.6 or when the failure to do so would not result in a Material Adverse Change. 8.1.2 PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC. Each Loan Party shall duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such liabilities, including taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made, but only to the extent that failure to discharge any such liabilities would not result in any additional liability which would adversely affect to a material extent the financial condition of any Loan Party or which would adversely affect the Collateral, PROVIDED that the Loan Parties and their Subsidiaries will pay all such liabilities forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor. 8.1.3 MAINTENANCE OF INSURANCE. Each Loan Party shall, and shall cause each of its Subsidiaries to, insure its material properties and material assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, extended coverage, property -47- damage, workers' compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary. At the request of the Lender, the Loan Parties shall deliver to the Lender (x) on the Closing Date and annually thereafter if requested by the Lender an original certificate of insurance signed by the Loan Parties' independent insurance broker describing and certifying as to the existence of the insurance on the Collateral required to be maintained by this Agreement and the other Loan Documents, together with a copy of the endorsement described in the next sentence attached to such certificate and (y) from time to time a summary schedule indicating all insurance then in force with respect to each of the Loan Parties. Such policies of insurance shall contain special endorsements, in form and substance acceptable to the Lender, which shall specify the Lender as an additional insured and lender loss payee as its interests may appear. 8.1.4 MAINTENANCE OF PROPERTIES AND LEASES. Each Loan Party shall maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties necessary to its business, and from time to time, such Loan Party will make or cause to be made all appropriate material repairs, renewals or replacements thereof. 8.1.5 MAINTENANCE OF PATENTS, TRADEMARKS, ETC. Each Loan Party shall maintain in full force and effect all patents, trademarks, service marks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of its properties and business if the failure so to maintain the same would constitute a Material Adverse Change. 8.1.6 VISITATION RIGHTS. Each Loan Party shall permit any of the officers or authorized employees or representatives of the Lender to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times and as often as the Lender may reasonably request. 8.1.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Borrower shall, and shall cause each Subsidiary of the Borrower to, maintain and keep proper books of record and account which enable the Borrower and its Subsidiaries to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrower or any Subsidiary -48- of the Borrower, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs. 8.1.8 PLANS AND BENEFIT ARRANGEMENTS. The Borrower shall, and shall cause each other member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws applicable to Plans and Benefit Arrangements except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Change. Without limiting the generality of the foregoing, the Borrower shall cause all of its Plans and all Plans maintained by any member of the ERISA Group to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each member of the ERISA Group to make, in a timely manner, all contributions due to Plans, Benefit Arrangements and Multiemployer Plans except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Change. 8.1.9 COMPLIANCE WITH LAWS. Each Loan Party shall, and shall cause each of its Subsidiaries to, comply with all applicable Laws, including all Environmental Laws, in all respects, PROVIDED that it shall not be deemed to be a violation of this Section 8.1.9 if any failure to comply with any Law would not result in fines, penalties, remediation costs, other similar liabilities or injunctive relief which in the aggregate would constitute a Material Adverse Change. 8.1.10 USE OF PROCEEDS. 8.1.10.1 GENERAL. The Loan Parties will use the Letters of Credit and the proceeds of the Loans only (i) to finance Permitted Acquisitions or (ii) for general corporate purposes and for working capital. The Loan Parties shall not use the Letters of Credit and the proceeds of the Loans for any purpose which contravenes any applicable Law or any provision hereof. 8.1.10.2 MARGIN STOCK. The Loan Parties shall not use the proceeds of the Loans to purchase margin stock as more fully provided in Section 6.1.10. 8.1.10.3 SECTION 20 SUBSIDIARIES. The Loan Parties will not, directly or indirectly, use any portion of the proceeds of the Loans (i) knowingly to purchase any Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (ii) knowingly to purchase during the underwriting or placement period -49- Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (iii) to make payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of any Loan Party or any Affiliate of any Loan Party. 8.1.11 FURTHER ASSURANCES. Each Loan Party shall, from time to time, at its expense, faithfully preserve and protect the Lender's Lien on and Prior Security Interest in the Collateral as a continuing first priority perfected Lien, subject only to Permitted Liens, and shall do such other acts and things as the Lender in its sole discretion exercised in good faith may deem necessary or advisable from time to time in order to preserve, perfect and protect the Liens granted under the Loan Documents and to exercise and enforce its rights and remedies thereunder with respect to the Collateral. 8.1.12 SUBORDINATION OF INTERCOMPANY LOANS. Each Loan Party shall cause any intercompany Indebtedness, loans or advances owed by any Loan Party to any other Loan Party to be subordinated pursuant to the terms of the Intercompany Subordination Agreement. 8.2 NEGATIVE COVENANTS. The Loan Parties, jointly and severally, covenant and agree that until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties' other Obligations and termination of the Commitment, the Loan Parties shall comply with the following negative covenants: 8.2.1 INDEBTEDNESS. Each of the Loan Parties shall not at any time create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness under the Loan Documents; (ii) Existing Indebtedness set forth on SCHEDULE 8.2.1 (including any extensions, renewals or refinancings thereof), PROVIDED there is no increase in the amount thereof or other significant change in the terms thereof unless otherwise specified on SCHEDULE 8.2.1; (iii) other Indebtedness (including, without limitation, Indebtedness secured by Purchase Money Security Interests, Indebtedness incurred pursuant to capitalized leases and Acquisition Indebtedness permitted under Section 8.2.6 (2) and (3)), -50- provided that the aggregate amount of all such Indebtedness does not exceed $2,500,000 at any one time outstanding, and provided further that all Acquisition Indebtedness shall be unsecured Indebtedness and shall be subordinated to the Obligations on terms and conditions acceptable to the Lender in its sole discretion; (iv) Interest Rate Protection Agreements permitted under Section 8.2.15; (v) Indebtedness of a Loan Party to another Loan Party which is subordinated in accordance with the provisions of Section 8.1.12; and (vi) Guaranties not prohibited under the terms of Section 8.2.3 hereof. 8.2.2 LIENS. Each of the Loan Parties shall not at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so, except Permitted Liens. 8.2.3 GUARANTIES. Each of the Loan Parties shall not at any time, directly or indirectly, become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person, except for (i) Guaranties of Indebtedness of the Loan Parties permitted under Section 8.2.1, (ii) Guaranties set forth on Schedule 8.2.3, (iii) Guaranties in connection with indemnity programs for employees and/or agents, (iv) Guaranties in connection with indemnification provided in the organizational documents of one or more Loan Parties; (v) indemnification granted by the Loan Parties in the ordinary course of business and usual and customary for companies engaged in the businesses described in Section 8.2.10 and of the size of the Borrower and its Subsidiaries, as well as Guaranties by the Borrower of such indemnification granted by other Loan Parties, and (vi) Guaranties of loans and advances made to employees and/or agents pursuant to the Commission Advance Program or on account of errors and omissions insurance programs, provided that after giving effect thereto the aggregate amount of such guarantees plus the aggregate amount of the loans and advances permitted pursuant to Section 8.2.4(vi) shall not exceed $5,000,000 at any one time outstanding. 8.2.4 LOANS AND INVESTMENTS. Each of the Loan Parties shall not at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) or limited liability company -51- interest in, or any other investment or interest in, or make any capital contribution to, any other Person, or agree, become or remain liable to do any of the foregoing, except: (i) trade credit extended on usual and customary terms in the ordinary course of business; (ii) advances to employees and agents to meet expenses incurred by such employees and agents in the ordinary course of business; (iii) Permitted Investments; (iv) loans, advances and investments in and/or to other Loan Parties; (v) loans, advances and investments described on Schedule 8.2.4; (vi) loans or other advances under the Commission Advance Program to, or on account of errors and omissions insurance premium payments for, employees and/or agents provided that the aggregate principal amount of all such loans or advances plus the aggregate amount of all guarantees permitted pursuant to Section 8.2.3(vi) shall not exceed $5,000,000 outstanding at any one time; (vii) acquisitions of equity securities of a Loan Party; and (viii) loans and advances to employees to assist with relocation and similar costs and expenses no greater than $500,000 at any time outstanding. 8.2.5 DIVIDENDS AND RELATED DISTRIBUTIONS. Each of the Loan Parties shall not make or pay any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of its shares of capital stock, partnership interests or limited liability company interests on account of the purchase, redemption, retirement or acquisition of its shares of capital stock (or warrants, options or rights therefor), partnership interests or limited liability company interests, except dividends or other distributions payable to another Loan Party. 8.2.6 LIQUIDATIONS, MERGERS, CONSOLIDATIONS, ACQUISITIONS. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person, PROVIDED that -52- (1) upon prior written notice to the Lender, any Loan Party other than the Borrower and Axiom may consolidate with or merge into or convey substantially all of its assets to the Borrower or another Loan Party which is wholly-owned by one or more of the other Loan Parties, and (2) the Borrower or Axiom may acquire, whether by purchase or by merger and when the Consideration given by the Loan Parties, determined at the time of the closing of the Permitted Acquisition, is equal to or greater than $2,000,000, (A) all of the ownership interests of another Person or (B) all or substantially all of the assets of another Person or of a business or division of another Person (together with the acquisitions described in Section 8.2.6(3), each a "Permitted Acquisition"), PROVIDED that each of the following requirements is met: (i) if the Borrower or Axiom are acquiring the ownership interests in such Person, such Person shall be a corporation, limited liability company or other entity with respect to which applicable state law provides that the owners of all stock or other ownership interests in such entity shall not be liable for any obligations of such entity or for the claims of any creditors thereof, (ii) if the Borrower or Axiom are acquiring the ownership interests in such Person, such Person shall execute the Guarantor Joinder in the form of Exhibit 1.1(G)(1) hereto and join this Agreement as a Guarantor pursuant to Section 11.17 and such Person and its owners shall grant Liens in the assets and stock or other ownership interests in such Person and otherwise comply with Section 11.17 on or before the date of such Permitted Acquisition, (iii) the board of directors or other equivalent governing body of such Person shall have approved such Permitted Acquisition and the Loan Parties shall have delivered to the Lender written evidence of such approval prior to such Permitted Acquisition, (iv) the business acquired, or the business conducted by the Person whose ownership interests are being acquired, as applicable, shall be substantially the same as one or more line or lines of business conducted by the Loan Parties and shall comply with Section 8.2.10, (v) no Potential Default or Event of Default shall exist immediately prior to and after giving effect to such Permitted Acquisition, (vi) the Borrower shall demonstrate that it shall be in compliance with this Section 8.2.6 and with the covenant contained in Section 8.2.16 with respect to the requirement for the most recent fiscal quarter after giving effect to such Permitted Acquisition by delivering at least ten (10) Business Days prior to such Permitted Acquisition evidence of such compliance satisfactory to the Lender, -53- (vii) the Borrower provides the Lender with a summary description of the acquisition, including without limitation, the terms of the purchase (including the Borrower's calculation of the Consideration), the historical financial statements of the Person or assets to be acquired, including without limitation, the cash flow from operations for such Person or assets for each of the four fiscal quarters preceding the date of the Permitted Acquisition, and projected financial statements of the Borrower after giving effect to the proposed acquisition, all in form and content acceptable to the Lender and to be provided at least 30 Business Days prior to closing date of the acquisition, and (viii) after giving effect to such Permitted Acquisition, (x) the aggregate Consideration in the form of capital stock of the Borrower for all Permitted Acquisitions made during the period of the Lender's Commitment shall not exceed $15,000,000, (y) the aggregate Consideration other than capital stock of the Borrower for all Permitted Acquisitions made during the period of the Lender's Commitment shall not exceed $15,000,000, and (z) the aggregate Consideration for all Permitted Acquisitions made during the period of the Lender's Commitment shall not exceed $30,000,000. (3) the Borrower or Axiom may acquire, whether by purchase or by merger and when the Consideration given by the Loan Parties, determined at the time of the closing of the Permitted Acquisition, is less than $2,000,000, (A) all of the ownership interests of another Person or (B) all or substantially all of the assets of another Person or of a business or division of another Person (together with the acquisitions described in Section 8.2.6(2), each a "Permitted Acquisition"), PROVIDED that each of the following requirements is met: (i) if the Borrower or Axiom are acquiring the ownership interests in such Person, such Person shall be a corporation, limited liability company or other entity with respect to which applicable state law provides that the owners of all stock or other ownership interests in such entity shall not be liable for any obligations of such entity or for the claims of any creditors thereof, (ii) if the Loan Parties are acquiring the ownership interests in such Person, within 45 days after the effective date of the acquisition, such Person shall execute the Guarantor Joinder in the form of Exhibit 1.1(G)(1) hereto and join this Agreement as a Guarantor pursuant to Section 11.17 and such Person and its owners shall grant Liens in the assets and stock or other ownership interests in such Person and otherwise comply with Section 11.17 on or before the date of such Permitted Acquisition, (iii) the business acquired, or the business conducted by the Person whose ownership interests are being acquired, as applicable, shall be substantially the same as one or more line or lines of business conducted by the Loan Parties and shall comply with Section 8.2.10, (iv) no Potential Default or Event of Default shall exist immediately prior to and after giving effect to such Permitted Acquisition, -54- (v) within 45 days after the effective date of the acquisition, the Borrower provides the Lender with a summary description of the acquisition, including without limitation, the terms of the purchase (including the Borrower's calculation of the Consideration), the historical financial statements of the Person or assets to be acquired and projected financial statements of the Borrower after giving effect to the proposed acquisition, all in form and content acceptable to the Lender, and (vi) after giving effect to such Permitted Acquisition, (x) the aggregate Consideration in the form of capital stock of the Borrower for all Permitted Acquisitions made during the period of the Lender's Commitment shall not exceed $15,000,000, (y) the aggregate Consideration other than capital stock of the Borrower for all Permitted Acquisitions made during the period of the Lender's Commitment shall not exceed $15,000,000, and (z) the aggregate Consideration for all Permitted Acquisitions made during the period of the Lender's Commitment shall not exceed $30,000,000. 8.2.7 DISPOSITIONS OF ASSETS OR SUBSIDIARIES. Each of the Loan Parties shall not sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest, partnership interests or limited liability company interests of a Subsidiary of such Loan Party), except: (i) any sale, transfer or lease of assets in the ordinary course of business which are no longer necessary or required in the conduct of such Loan Party's or such Subsidiary's business; (ii) any sale, transfer or lease of assets by a Loan Party to another Loan Party; (iii) any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets acquired or leased under usual and customary terms in the ordinary course of business, PROVIDED such substitute assets are subject to the Lender's Prior Security Interest; (iv) any sale, transfer or lease of assets, other than those specifically excepted pursuant to clauses (i) through (iv) above, so long as in the case of dispositions when the net after-tax proceeds (as reasonably estimated by the Borrower) are greater than $1,000,000, the net after-tax proceeds are applied as a mandatory repayment of the Loans and a reduction of the Commitment in accordance with the provisions of Section 5.4.1 above; or -55- (v) any sale or transfer of the interests of the Loan Parties in the Existing Partnerships. 8.2.8 AFFILIATE TRANSACTIONS. Each of the Loan Parties shall not enter into or carry out any transaction (including purchasing property or services from or selling property or services to any Affiliate of any Loan Party or other Person) unless such transaction is not otherwise prohibited by this Agreement, is entered into in the ordinary course of business upon fair and reasonable arm's-length terms and conditions which in the case of a material transaction are fully disclosed to the Lender and is in accordance with all applicable Law. 8.2.9 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES. Each of the Loan Parties shall not, own or create directly or indirectly any Subsidiaries other than (i) any Subsidiary which has joined this Agreement as a Guarantor on the Closing Date and those set forth on Schedule 6.1.3; and (ii) any Subsidiary formed after the Closing Date which joins this Agreement as a Guarantor pursuant to Section 11.17, provided that the Lender shall have consented to such formation and joinder and that such Subsidiary and the Loan Parties, as applicable, shall grant a Prior Security Interest to the Lender in the assets held by, and stock of or other ownership interests in, such Subsidiary. Each of the Loan Parties shall not become or agree to (1) become a general or limited partner in any general or limited partnership, except that the Loan Parties may be general or limited partners in other Loan Parties, (2) become a member or manager of, or hold a limited liability company interest in, a limited liability company, except that the Loan Parties may be members or managers of, or hold limited liability company interests in, other Loan Parties, or (3) become a joint venturer or hold a joint venture interest in any joint venture. 8.2.10 CONTINUATION OF OR CHANGE IN BUSINESS. Each of the Loan Parties shall not engage in any business other than real estate property, facilities and asset management, real estate and mortgage brokerage services, appraisal, corporate real estate consulting and mortgage banking and other fee based real estate related services, substantially as conducted and operated by such Loan Party or Subsidiary during the present fiscal year, and such Loan Party or Subsidiary shall not permit any material change in such business. 8.2.11 PLANS AND BENEFIT ARRANGEMENTS. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to: (i) fail to satisfy the minimum funding requirements of ERISA and the Internal Revenue Code with respect to any Plan; -56- (ii) request a minimum funding waiver from the Internal Revenue Service with respect to any Plan; (iii) engage in a Prohibited Transaction with any Plan, Benefit Arrangement or Multiemployer Plan which, alone or in conjunction with any other circumstances or set of circumstances resulting in liability under ERISA, would constitute a Material Adverse Change; (iv) permit the aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in the most recent actuarial report completed with respect to such Plan, to exceed, as of any actuarial valuation date, the fair market value of the assets of such Plan; (v) fail to make when due any contribution to any Multiemployer Plan that the Borrower or any member of the ERISA Group may be required to make under any agreement relating to such Multiemployer Plan, or any Law pertaining thereto; (vi) withdraw (completely or partially) from any Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to withdraw) from any Multiple Employer Plan, where any such withdrawal is likely to result in a material liability of the Borrower or any member of the ERISA Group; (vii) terminate, or institute proceedings to terminate, any Plan, where such termination is likely to result in a material liability to the Borrower or any member of the ERISA Group; (viii) make any amendment to any Plan with respect to which security is required under Section 307 of ERISA; or (ix) fail to give any and all notices and make all disclosures and governmental filings required under ERISA or the Internal Revenue Code, where such failure is likely to result in a Material Adverse Change. 8.2.12 FISCAL YEAR. The Borrower shall not, and shall not permit any Subsidiary of the Borrower to, change its fiscal year from the twelve-month period beginning July 1 and ending June 30. 8.2.13 ISSUANCE OF STOCK. Each of the Guarantors shall not issue any additional shares of its capital stock or any options, warrants or other rights in respect thereof. The Borrower shall not issue any shares of preferred stock unless such stock is not subject to redemption and limits the rights -57- of preferred stockholders for the non-payment of dividends to the payment of all cumulative dividends prior to the payment of any dividend or distribution on, or the redemption of, any common stock. 8.2.14 CHANGES IN ORGANIZATIONAL DOCUMENTS. Each of the Loan Parties shall not amend in any respect its certificate of incorporation (including any provisions or resolutions relating to capital stock), by-laws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents without providing at least thirty (30) calendar days' prior written notice to the Lender and, in the event such change would be adverse to the Lender as determined by the Lender in its sole discretion, obtaining the prior written consent of the Lender. 8.2.15 INTEREST RATE PROTECTION. The Loan Parties shall not enter into any interest rate protection agreement (the "Interest Rate Protection Agreement") without the prior written consent of the Lender, which consent shall not be unreasonably withheld. Any Interest Rate Protection Agreement shall be with a financial institution acceptable to the Lender and contain such terms and conditions as shall be acceptable to the Lender. Documentation for the Interest Rate Protection Agreement shall be in a standard International Swap Dealer Association Agreement or such other form as is acceptable to the Lender and shall provide for the method of calculating the reimbursable amount of the provider's credit exposure in a reasonable and customary manner. 8.2.16 MAXIMUM DEBT TO CASH FLOW RATIO. The Loan Parties shall not permit the ratio of Consolidated Funded Indebtedness to Annual Adjusted Consolidated Cash Flow from Operations, as measured at the end of each fiscal quarter of the Borrower, to exceed the amounts set forth below at the relevant time of measurement: (i) March 31, 1997 through December 31, 1998 -- 3.00 to 1.00; (ii) March 31, 1999 through December 31, 1999 -- 2.75 to 1.00; and (iii) March 31, 2000 through December 31, 2000 -- 2.50 to 1.00. 8.3 REPORTING REQUIREMENTS. The Loan Parties, jointly and severally, covenant and agree that until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan -58- Parties' other Obligations and termination of the Commitment, the Loan Parties will furnish or cause to be furnished to the Lender the financial statements, certificates, notices, budgets, forecasts, reports and other information set forth in Schedule 8.3 within the time frames and as described in Schedule 8.3. 9. DEFAULT 9.1 EVENTS OF DEFAULT. An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law): 9.1.1 PAYMENTS UNDER LOAN DOCUMENTS. The Borrower shall fail to pay any principal of any Loan (including mandatory repayments or the payment due at maturity), Reimbursement Obligation or Letter of Credit Borrowing when due or shall fail to pay any interest on any Loan, Reimbursement Obligation or Letter of Credit Borrowing or shall fail to pay any other amount (other than principal) owing hereunder or under the other Loan Documents within five (5) days after such interest or other amount becomes due in accordance with the terms hereof or thereof; 9.1.2 BREACH OF WARRANTY. Any representation or warranty made at any time by any of the Loan Parties herein or by any of the Loan Parties in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished; 9.1.3 BREACH OF NEGATIVE COVENANTS OR VISITATION RIGHTS. Any of the Loan Parties shall default in the observance or performance of any covenant contained in Section 8.1.6 or Section 8.2; 9.1.4 BREACH OF OTHER COVENANTS. Any of the Loan Parties shall default in the observance or performance of any other covenant, condition or provision hereof or of any other Loan Document and such default shall continue unremedied for a period of ten (10) Business Days after any officer of any Loan Party becomes aware of the occurrence of such default (such grace period to be applicable only in the event such default can be remedied by corrective action of the Loan Parties as determined by the Lender in its sole discretion); -59- 9.1.5 DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS. A default or event of default shall occur at any time under the terms of any other agreement involving borrowed money or the extension of credit or any other Indebtedness under which any Loan Party may be obligated as a borrower or guarantor in excess of $1,000,000 in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any indebtedness when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default permits or causes the acceleration of any indebtedness (whether or not such right shall have been waived) or the termination of any commitment to lend; 9.1.6 FINAL JUDGMENTS OR ORDERS. Any final judgments or orders for the payment of money in excess of $1,000,000 in the aggregate shall be entered against any Loan Party by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry; 9.1.7 LOAN DOCUMENT UNENFORCEABLE. Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the Loan Party executing the same or such Loan Party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby; 9.1.8 UNINSURED LOSSES; PROCEEDINGS AGAINST ASSETS; ENVIRONMENTAL LIABILITY. There shall occur any material uninsured damage to or loss, theft or destruction of any of the Collateral in excess of $2,000,000, or the Collateral or any other of the Loan Parties' assets are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter; any Loan Party shall become liable for a violation of Environmental Laws in an amount in excess of $2,000,000; 9.1.9 NOTICE OF LIEN OR ASSESSMENT. A notice of Lien or assessment in excess of $2,000,000 which is not a Permitted Lien is filed of record with respect to all or any part of any of the Loan Parties' assets by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including the PBGC, or any taxes or debts -60- owing at any time or times hereafter to any one of these becomes payable and the same is not paid within thirty (30) days after the same becomes payable; 9.1.10 INSOLVENCY. Any Loan Party ceases to be solvent or admits in writing its inability to pay its debts as they mature; 9.1.11 EVENTS RELATING TO PLANS AND BENEFIT ARRANGEMENTS. Any of the following occurs: (i) any Reportable Event, which the Lender determines in good faith constitutes grounds for the termination of any Plan by the PBGC or the appointment of a trustee to administer or liquidate any Plan, shall have occurred and be continuing; (ii) proceedings shall have been instituted or other action taken to terminate any Plan, or a termination notice shall have been filed with respect to any Plan; (iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice of its intent to institute proceedings to terminate any Plan or Plans or to appoint a trustee to administer or liquidate any Plan; (v) the Borrower or any member of the ERISA Group shall fail to make any contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower or any other member of the ERISA Group shall make any amendment to a Plan with respect to which security is required under Section 307 of ERISA; (vii) the Borrower or any other member of the ERISA Group shall withdraw completely or partially from a Multiemployer Plan; (viii) the Borrower or any other member of the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by any Official Body with respect to or otherwise affecting one or more Plans, Multiemployer Plans or Benefit Arrangements and, with respect to any of the events specified in (i), (ii), (iii). (iv), (v), (vi), (vii), (viii) or (ix), the Lender determines in good faith that any such occurrence would be reasonably likely to result in a Material Adverse Change; 9.1.12 CESSATION OF BUSINESS. Any Loan Party ceases to conduct its business as contemplated, except as expressly permitted under Section 8.2.6 or 8.2.7, or any Loan Party is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business and such injunction, restraint or other preventive order is not dismissed within thirty (30) days after the entry thereof; 9.1.13 CHANGE OF CONTROL. Any Change of Control shall occur; -61- 9.1.14 INVOLUNTARY PROCEEDINGS. A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of any Loan Party in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party for any substantial part of its property, or for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of sixty (60) consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; or 9.1.15 VOLUNTARY PROCEEDINGS. Any Loan Party shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or other similar official) of itself or for any substantial part of its property or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any of the foregoing. 9.2 CONSEQUENCES OF EVENT OF DEFAULT. 9.2.1 EVENTS OF DEFAULT OTHER THAN BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS. If an Event of Default specified under Sections 9.1.1 through 9.1.13 shall occur and be continuing, the Lender shall be under no further obligation to make Loans or issue Letters of Credit, as the case may be, and the Lender may (i) declare the unpaid principal amount of the Note then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lender hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Lender without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, and (ii) require the Borrower to, and the Borrower shall thereupon, deposit with the Lender, as cash collateral for its Obligations under the Loan Documents, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrower hereby pledges to the Lender and grants to the Lender a security interest in, all such cash as security for such Obligations. Upon the curing of all existing Events of Default to the satisfaction of the Lender or upon indefeasible payment in full of the Obligations and termination of the Commitment, the Lender shall return such cash collateral to the Borrower; and -62- 9.2.2 BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS. If an Event of Default specified under Section 9.1.14 or 9.1.15 shall occur, the Lender shall be under no further obligations to make Loans hereunder and the unpaid principal amount of the Note then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lender hereunder and thereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and 9.2.3 SET-OFF. If an Event of Default shall occur and be continuing, the Lender shall have the right, in addition to all other rights and remedies available to it, without notice to such Loan Party, to set-off against and apply to the then unpaid balance of all the Loans and all other Obligations of the Borrower and the other Loan Parties hereunder or under any other Loan Document any debt owing to, and any other funds held in any manner for the account of, the Borrower or such other Loan Party by the Lender, including all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Borrower or such other Loan Party for its own account (but not including funds held in custodian or trust accounts) with the Lender. Such right shall exist whether or not the Lender shall have made any demand under this Agreement or any other Loan Document, whether or not such debt owing to or funds held for the account of the Borrower or such other Loan Party is or are matured or unmatured and regardless of the existence or adequacy of any Collateral, Guaranty or any other security, right or remedy available to the Lender; and 9.2.4 SUITS, ACTIONS, PROCEEDINGS. If an Event of Default shall occur and be continuing, and whether or not the Lender shall have accelerated the maturity of Loans pursuant to any of the foregoing provisions of this Section 9.2, the Lender, if owed any amount with respect to the Note, may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement or the Note, including as permitted by applicable Law the obtaining of the EX PARTE appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Lender; and 9.2.5 APPLICATION OF PROCEEDS. From and after the date on which the Lender has taken any action pursuant to this Section 9.2 and until all Obligations of the Loan Parties have been paid in full, any and all proceeds received by the Lender from any sale or other disposition of the Collateral, or any part thereof, or the exercise of any other remedy by the Lender, shall be applied as follows: -63- (i) first, to reimburse the Lender for reasonable out-of-pocket costs, expenses and disbursements, including reasonable attorneys' and paralegals' fees and legal expenses, incurred by the Lender in connection with realizing on the Collateral or collection of any Obligations of any of the Loan Parties under any of the Loan Documents, including advances made by the Lender for the reasonable maintenance, preservation, protection or enforcement of, or realization upon, the Collateral, including advances for taxes, insurance, repairs and the like and reasonable expenses incurred to sell or otherwise realize on, or prepare for sale or other realization on, any of the Collateral; (ii) second, to the repayment of all Indebtedness then due and unpaid of the Loan Parties to the Lender incurred under this Agreement or any of the other Loan Documents, whether of principal, interest, fees, expenses or otherwise, in such manner as the Lender may determine in its discretion; and (iii) the balance, if any, to the Borrower or as otherwise required by Law. 9.2.6 OTHER RIGHTS AND REMEDIES. In addition to all of the rights and remedies contained in this Agreement or in any of the other Loan Documents, the Lender shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable Law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by Law. The Lender may exercise all post-default rights granted to the Lender under the Loan Documents or applicable Law. 9.3 NOTICE OF SALE. Any notice required to be given by the Lender of a sale, lease, or other disposition of the Collateral or any other intended action by the Lender, if given ten (10) days prior to such proposed action, shall constitute commercially reasonable and fair notice thereof to the Borrower. 10. [INTENTIONALLY OMITTED] 11. MISCELLANEOUS 11.1 MODIFICATIONS, AMENDMENTS OR WAIVERS. The Lender and the Loan Parties may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of the Lender or the Loan Parties hereunder or thereunder, or may grant written waivers or consents to a departure from the due performance of the Obligations of the Loan Parties hereunder or -64- thereunder. Any such agreement, waiver or consent made with such written consent shall be effective to bind the Lender and the Loan Parties. 11.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED. No course of dealing and no delay or failure of the Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof, nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Lender under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of the Lender of any breach or default under this Agreement or any such waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. 11.3 REIMBURSEMENT AND INDEMNIFICATION OF LENDER BY THE BORROWER; TAXES. The Borrower agrees unconditionally upon demand to pay or reimburse to the Lender and to save the Lender harmless against (i) liability for the payment of all reasonable out-of-pocket costs, expenses and disbursements (including reasonable fees and expenses of counsel (including allocated costs of staff counsel) for the Lender), incurred by the Lender (a) in connection with preparation, negotiation, documentation, administration and interpretation of this Agreement, and other instruments and documents to be delivered hereunder, (b) relating to any amendments, waivers or consents pursuant to the provisions hereof, (c) in connection with the enforcement of this Agreement or any other Loan Document, or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (d) in any workout or restructuring or in connection with the protection, preservation, exercise or enforcement of any of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Lender, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by the Lender hereunder or thereunder, PROVIDED that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (A) if the same results from the Lender's gross negligence or willful misconduct, or (B) if the Borrower was not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that the Borrower shall remain liable to the extent such failure to give notice does not result in a loss to the Borrower), or (C) if the same results from a compromise or settlement agreement entered into without the consent of the Borrower, -65- which shall not be unreasonably withheld. The Borrower agrees unconditionally to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter reasonably determined by the Lender to be payable in connection with this Agreement or any other Loan Document, and the Borrower agrees unconditionally to save the Lender harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions, other than those which arise and/or are payable as a result of the gross negligence or willful misconduct of the Lender. 11.4 HOLIDAYS. Whenever payment of a Loan to be made or taken hereunder shall be due on a day which is not a Business Day such payment shall be due on the next Business Day and such extension of time shall be included in computing interest and fee, except that the Loans shall be due on the Business Day preceding the Expiration Date if the Expiration Date is not a Business Day. Whenever any payment or action to be made or taken hereunder (other than payment of the Loans) shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day (except as provided in Section 4.2 with respect to Interest Periods under the Euro-Rate Option), and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action. 11.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE. 11.5.1 NOTIONAL FUNDING. The Lender shall have the right from time to time, without notice to the Borrower, to deem any branch, Subsidiary or Affiliate (which for the purposes of this Section 11.5 shall mean any corporation or association which is directly or indirectly controlled by or is under direct or indirect common control with any corporation or association which directly or indirectly controls the Lender) of the Lender to have made, maintained or funded any Loan to which the Euro-Rate Option applies at any time, PROVIDED that immediately following (on the assumption that a payment were then due from the Borrower to such other office), and as a result of such change, the Borrower would not be under any greater financial obligation pursuant to Section 5.5 than it would have been in the absence of such change. Notional funding offices may be selected by the Lender without regard to the Lender's actual methods of making, maintaining or funding the Loans or any sources of funding actually used by or available to Lender. 11.5.2 ACTUAL FUNDING. The Lender shall have the right from time to time to make or maintain any Loan by arranging for a branch, Subsidiary or Affiliate of the Lender to make or maintain such Loan subject to the last sentence of this Section 11.5.2. If the Lender causes a branch, Subsidiary or Affiliate to make or maintain any part of the Loans hereunder, all terms and conditions of this -66- Agreement shall, except where the context clearly requires otherwise, be applicable to such part of the Loans to the same extent as if such Loans were made or maintained by the Lender, but in no event shall the Lender's use of such a branch, Subsidiary or Affiliate to make or maintain any part of the Loans hereunder cause the Lender or such branch, Subsidiary or Affiliate to incur any cost or expenses payable by the Borrower hereunder or require the Borrower to pay any other compensation to the Lender (including any expenses incurred or payable pursuant to Section 5.5) which would otherwise not be incurred. 11.6 NOTICES. All notices, requests, demands, directions and other communications (as used in this Section 11.6, collectively referred to as "notices") given to or made upon any party hereto under the provisions of this Agreement shall be by telephone or in writing (including telex or facsimile communication) unless otherwise expressly permitted hereunder and shall be delivered or sent by telex or facsimile to the respective parties at the addresses and numbers set forth under their respective names on SCHEDULE 1.1(B) hereof or in accordance with any subsequent unrevoked written direction from any party to the others. All notices shall, except as otherwise expressly herein provided, be effective (a) in the case of telex or facsimile, when received, (b) in the case of hand-delivered notice, when hand-delivered, (c) in the case of telephone, when telephoned, PROVIDED, however, that in order to be effective, telephonic notices must be confirmed in writing no later than the next day by letter, facsimile or telex, (d) if given by mail, four (4) days after such communication is deposited in the mail with first-class postage prepaid, return receipt requested, and (e) if given by any other means (including by air courier), when delivered; PROVIDED, that notices to the Lender shall not be effective until received. 11.7 SEVERABILITY. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 11.8 GOVERNING LAW. Each Letter of Credit and Section 2.7 shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be revised or amended from time to time, and to the extent not inconsistent therewith, the internal laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles and the balance of this Agreement shall be deemed to be a contract under the Laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles. -67- 11.9 PRIOR UNDERSTANDING. This Agreement and the other Loan Documents supersede all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein and therein, including any prior confidentiality agreements and commitments. 11.10 DURATION; SURVIVAL. All representations and warranties of the Loan Parties contained herein or made in connection herewith shall survive the making of Loans and issuance of Letters of Credit and shall not be waived by the execution and delivery of this Agreement, any investigation by the Lender, the making of Loans, issuance of Letters of Credit, or payment in full of the Loans. All covenants and agreements of the Loan Parties contained in Sections 8.1, 8.2 and 8.3 herein shall continue in full force and effect from and after the date hereof so long as the Borrower may borrow or request Letters of Credit hereunder and until termination of the Commitment and payment in full of the Loans and expiration or termination of all Letters of Credit. All covenants and agreements of the Borrower contained herein relating to the payment of interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Note, Section 5 and Section 11.3, shall survive payment in full of the Loans, expiration or termination of the Letters of Credit and termination of the Commitment. 11.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the Lender, the Loan Parties and their respective successors and assigns, except that none of the Loan Parties may assign or transfer any of its rights and Obligations hereunder or any interest herein. The Lender may, at its own cost, make assignments of or sell participations in all or any part of its Commitment and the Loans made by it to one or more banks or other entities. 11.12 CONFIDENTIALITY. The Lender agrees to keep confidential all information obtained from any Loan Party or its Subsidiaries which is nonpublic and confidential or proprietary in nature (including any information the Borrower specifically designates as confidential), except as provided below, and to use such information only in connection with their respective capacities under this Agreement and for the purposes contemplated hereby. The Lender shall be permitted to disclose such information (i) to outside legal counsel, accountants and other professional advisors who need to know such information in connection with the administration and enforcement of this Agreement, subject to agreement of such Persons to maintain the confidentiality, (ii) to assignees and participants as contemplated by Section 11.11 , subject to the agreement of such Persons to maintain the confidentiality, (iii) to the extent requested by the Lender regulatory authority or, with notice to the Borrower, as otherwise required by applicable Law or by any subpoena or similar legal process, or in connection with any investigation or proceeding arising out of the -68- transactions contemplated by this Agreement, (iv) if it becomes publicly available other than as a result of a breach of this Agreement or becomes available from a source not known to be subject to confidentiality restrictions, or (v) if the Borrower shall have consented to such disclosure. 11.13 COUNTERPARTS. This Agreement may be executed by different parties hereto on any number of separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument. 11.14 LENDER'S CONSENT. Unless otherwise expressly provided for herein, whenever the Lender's consent is required to be obtained under this Agreement or any of the other Loan Documents as a condition to any action, inaction, condition or event, the Lender shall be authorized to give or withhold such consent in its sole and absolute discretion exercised in good faith and to condition its consent upon the giving of additional collateral, the payment of money or any other matter. 11.15 EXCEPTIONS. The representations, warranties and covenants contained herein shall be independent of each other, and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable Law. 11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. EACH LOAN PARTY AND THE LENDER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH PERSON AT THE ADDRESSES PROVIDED FOR IN SECTION 11.6 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY AND THE LENDER WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. THE LENDER AND EACH LOAN PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. -69- EACH LOAN PARTY (I) ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT, (II) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (III) ACKNOWLEDGES THAT THE ENTERING INTO OF THE CREDIT AGREEMENT BY THE LENDER HAS BEEN INDUCED BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS SET FORTH IN THIS SECTION. 11.17 JOINDER OF GUARANTORS. Any Subsidiary of the Borrower which is required to join this Agreement as a Guarantor pursuant to Section 8.2.9 shall execute and deliver to the Lender (i) a Guarantor Joinder in substantially the form attached hereto as EXHIBIT 1.1(G)(1) pursuant to which it shall join as a Guarantor each of the documents to which the Guarantors are parties; (ii) documents in the forms described in Section 7.1 [First Loans] modified as appropriate to relate to such Subsidiary; and (iii) documents necessary to grant and perfect Prior Security Interests to the Lender in all Collateral held by such Subsidiary. The Loan Parties shall deliver such Guarantor Joinder and related documents to the Lender at the time of the filing of such Subsidiary's articles of incorporation if the Subsidiary is a corporation, the date of the filing of its certificate of limited partnership if it is a limited partnership or the date of its organization if it is an entity other than a limited partnership or corporation. [SIGNATURES APPEAR ON THE NEXT PAGE.] -70- IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written. GRUBB & ELLIS COMPANY By: /s/ Brian Parker ------------------------------------ Brian Parker Senior Vice President and Chief Financial Officer [Seal] EACH OF THE SUBSIDIARIES OF GRUBB & ELLIS COMPANY SET FORTH ON THE ATTACHED SCHEDULE I By: /s/ Brian Parker ----------------------------------- Brian Parker Senior Vice President and Chief Financial Officer of each of the subsidiaries listed on Schedule I PNC BANK, NATIONAL ASSOCIATION By: /s/ Paul A. Palombo ------------------------------------ Name: Paul A. Palombo Title: Vice President -71- EX-4.15 3 SUBORDINATION AGREEMENT Exhibit 4.15 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT is dated as of March 13, 1997 and is made by and among GRUBB & ELLIS COMPANY, a Delaware corporation ( the "Borrower"), and EACH OF THE CORPORATIONS LISTED ON THE ATTACHED SUBSIDIARIES SCHEDULE I (the "Subsidiaries" being collectively referred to herein together with Borrower as the "Companies" and individually as a "Company"), and for the benefit of PNC BANK, NATIONAL ASSOCIATION (the "Lender"). Each capitalized term used herein shall, unless otherwise defined herein, have the same meaning given to such term in the Credit Agreement of even date herewith (as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") by and among the Borrower, each of the Guarantors party thereto (as defined in the Credit Agreement) and the Lender. WITNESSETH THAT: WHEREAS, pursuant to the Credit Agreement, the Lender intends to make or has made Revolving Credit Loans to the Borrower as provided therein; WHEREAS, the Companies are now or may hereafter become indebted to each other (all present and future indebtedness of the Companies to each other, whether created directly or acquired by assignment or otherwise, and interest and premiums, if any, thereon and other amounts payable in respect thereof are hereinafter collectively referred to as the "SUBORDINATED DEBT"); and WHEREAS, the obligation of the Lender to make Revolving Credit Loans is subject to the condition, among others, that the Companies subordinate the Subordinated Debt to the Obligations of the Loan Parties to the Lender pursuant to the Loan Documents (the "SENIOR DEBT") in the manner set forth herein. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto covenant and agree as follows: 1. SUBORDINATED DEBT SUBORDINATED TO SENIOR DEBT. The recitals set forth above are hereby incorporated by reference. All Subordinated Debt shall be subordinate and subject in right of payment to the prior indefeasible payment in full of all Senior Debt pursuant to the provisions contained herein. 2. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. Upon any distribution of assets of any Company (a) in the event of any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization, assignment for the benefit of creditors or other similar case or proceeding in connection therewith, relative to any such Company or to its assets, or (b) after the occurrence and during the continuance of an Event of Default or Potential Default under the Credit Agreement or any liquidation, dissolution or other winding up of any such Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) in the event of any assignment for the benefit of creditors or any marshalling of assets and liabilities of any such Company (a Company distributing assets as set forth herein being referred to in such capacity as a "DISTRIBUTING COMPANY"), then and in any such event the Lender shall be entitled to receive indefeasible payment in full of all amounts due at the time of such event and which are incurred by the Lender thereafter which are payable by the Borrower under the Credit Agreement(whether or not an Event of Default has occurred under the terms of the Loan Documents or the Senior Debt has been declared due and payable prior to the date on which it would otherwise have become due and payable) on or in respect of any and all Senior Debt before the holder of any Subordinated Debt owed by the Distributing Company is entitled to receive any payment on account of the principal of or interest on such Subordinated Debt, and to that end the Lender shall be entitled to receive, for application to the payment of the Senior Debt, any payment or distribution of any kind or character, whether in cash, property or securities, which may be payable or deliverable in respect of the Subordinated Debt owed by the Distributing Company in any such case, proceeding, dissolution, liquidation or other winding up or event. 3. NO COMMENCEMENT OF ANY PROCEEDING. Each Company agrees that, so long as the Senior Debt shall remain unpaid, it will not commence, or join with any creditor other than the Lender in commencing, any collection or enforcement proceeding against any other Company, including, but not limited to, those described in Section 2 hereof, or any other enforcement action of any kind against any Company in respect of the Subordinated Debt. 4. PRIOR PAYMENT OF SENIOR DEBT UPON ACCELERATION OF SUBORDINATED DEBT. If any portion of the Subordinated Debt owed by any Company becomes or is declared due and payable before its stated maturity based upon a defualt or an event of default under any loan document evidencing the Subordinated Debt, then and in such event the Lender shall be entitled to receive indefeasible payment in full of all amounts due and to become due on or in respect of the Senior Debt (whether or not an Event of Default has occurred under the terms of the Credit Agreement or the Senior Debt has been declared due and payable prior to the date on which it would otherwise have become due and payable) before the holder of any such Subordinated Debt is entitled to receive any payment thereon. 5. NO PAYMENT WHEN SENIOR DEBT IN DEFAULT. If any Event of Default under the Credit Agreement shall have occurred and be continuing or such an Event of Default would result from or exist after giving effect to a payment with respect to any portion of the Subordinated Debt, unless the Lender shall have consented to or waived the same, so long as any of the Senior Debt shall remain outstanding, no payment shall be made by the Company owing such Subordinated Debt on account of principal or interest on any portion of the Subordinated Debt. 6. PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in this Agreement shall prevent any of the Companies, at any time, except during the pendency of any of the conditions described in Sections 2, 4 and 5, from making the regularly scheduled payments of the Subordinated Debt, or the retention thereof by any of the Companies of any money deposited with it for the regularly scheduled payments of or on account of the Subordinated Debt. -2- 7. RECEIPT OF PROHIBITED PAYMENTS. If, notwithstanding the foregoing provisions of Sections 2, 4, 5 and 6, a Company which is owed Subordinated Debt by a Distributing Company shall have received any payment or distribution of assets from the Distributing Company of any kind or character, whether in cash, property or securities, other than as expressly permitted by the terms of this Agreement, then and in such event such payment or distribution shall be held in trust for the benefit of the Lender, shall be segregated from other funds and property held by such Company, and shall be forthwith paid over to the Lender in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to or held as collateral (in the case of non-cash property) for the payment or prepayment of the Senior Debt in accordance with the terms of the Credit Agreement. 8. RIGHTS OF SUBROGATION. Each Company agrees that no payment or distribution to the Lender pursuant to the provisions of this Agreement shall entitle the Company to exercise any rights of subrogation in respect thereof until the Senior Debt shall have been indefeasibly paid in full and the Commitment under the Credit Agreement shall have terminated. 9. INSTRUMENTS EVIDENCING SUBORDINATED DEBT. At the request of the Lender, each Company shall cause each instrument which now or hereafter evidences all or a portion of the Subordinated Debt to be conspicuously marked as follows: "This instrument is subject to the terms of a Subordination Agreement dated as of March 13, 1997, in favor of PNC Bank, National Association, which Subordination Agreement is incorporated herein by reference. Notwithstanding any contrary statement contained in the within instrument, no payment on account of the principal thereof or interest thereon shall become due or payable except in accordance with the express terms of said Subordination Agreement." At the Lender's request, each Company will further mark its books of account in such a reasonable manner as shall be effective to give proper notice to the effect of this Agreement. 10. AGREEMENT SOLELY TO DEFINE RELATIVE RIGHTS. The purpose of this Agreement is solely to define the relative rights of the Companies, on the one hand, and the Lender, on the other hand. Nothing contained in this Agreement is intended to or shall prevent the Companies from exercising all remedies otherwise permitted by applicable law upon default under any agreement pursuant to which the Subordinated Debt is created, subject to Sections 2, 3, 4, 5 and 6 hereof, including, without limitation, the rights under this Agreement of the Lender to receive cash, property or securities otherwise payable or deliverable with respect to the Subordinated Debt. 11. NO IMPLIED WAIVERS OF SUBORDINATION. No right of the Lender to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Company, by any act or failure to act by the Lender, or by any non-compliance by any Company with the terms, provisions and covenants of any agreement pursuant to which the Subordinated Debt is created, regardless of any knowledge thereof the Lender may have or be otherwise charged with. Each Company by its acceptance hereof agrees that, so long as there is Senior Debt outstanding or any Commitment is in effect under the Credit Agreement, such Company shall not agree to sell, assign, pledge, encumber or otherwise dispose -3- of, the obligations of the Subordinated Debt, other than by means of payment of such Subordinated Debt according to its terms, without the prior written consent of the Lender. Without in any way limiting the generality of the foregoing paragraph, in accordance with the Credit Agreement, the Lender, at any time and from time to time, without the consent of or notice to the Companies, except to the extent required by the Credit Agreement or other Loan Documents, without incurring responsibility to the Companies and without impairing or releasing the subordination provided in this Agreement or the obligations hereunder of the Companies to the Lender, may do any one or more of the following: (i) change the manner, place or terms of payment, or extend the time of payment, renew or alter the Senior Debt or otherwise amend, restate, supplement or otherwise modify the Senior Debt or the Credit Agreement; (ii) release any person liable in any manner for the payment or collection of the Senior Debt; and (iii) exercise or refrain from exercising any rights against any of the Companies and any other person or entity. 12. ADDITIONAL SUBSIDIARIES. The Companies covenant and agree that each of them shall cause any Subsidiary (including, without limitation, each direct or indirect Subsidiary) which it creates or acquires after the date hereof to become a party to this Agreement by executing a joinder to this Agreement in a form of the Guarantor Joinder attached to the Credit Agreement as Exhibit 1.1(G)(1) promptly after such Company acquires or creates such Subsidiary. 13. CONTINUING FORCE AND EFFECT. This Agreement shall continue in force until all of the Senior Debt is indefeasibly paid in full and the Commitments under the Credit Agreement have terminated, it being contemplated that this Agreement be of a continuing nature. 14. MODIFICATION, AMENDMENTS OR WAIVERS. Any and all agreements amending or changing any provision of this Agreement or the rights of the Lender hereunder, and any and all waivers or consents to any departures from the due performance of the Companies hereunder shall be made only by written agreement, waiver or consent signed by the Lender and the Loan Parties. 15. EXPENSES. To the extent set forth in and subject to the Credit Agreement, the Companies each unconditionally and jointly and severally agree upon demand to pay to the Lender the amount of any and all reasonable and necessary out-of-pocket costs, expenses and disbursements, including but not limited to reasonable fees and expenses of counsel, which may be incurred by the Lender in connection with (a) the exercise or enforcement of any of the rights of the Lender hereunder, or (b) the failure by the Companies to perform or observe any of the provisions hereof. 16. SEVERABILITY. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. -4- 17. GOVERNING LAW. This Agreement shall be a contract under the internal laws of the Commonwealth of Pennsylvania and for all purposes shall be construed in accordance with the laws of said Commonwealth without giving effect to its conflicts of law principles. 18. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of the Lender, and its successors and assigns, and the obligations of the Companies shall be binding upon their respective successors and assigns. The duties and obligations of each of the Companies may not be delegated or transferred by it. 19. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when executed and delivered, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. 20. ATTORNEYS-IN-FACT. Each Company hereby authorizes and empowers the Lender, at its election and in the name of either itself, or in the name of each Company after the occurrence and during the continuance of an Event of Default, to execute and file proofs and documents and take any other action the Lender may deem advisable in good faith to enforce the Lender's interests relating to the Subordinated Debt created hereunder and their right of enforcement thereof as set forth herein, and to that end the Companies hereby irrevocably make, constitute and appoint the Lender, its officers, employees and Lenders, or any of them, with full power of substitution, as the true and lawful attorney-in-fact and agent of such Company and with full power for such Company and in the name, place and stead of such Company for the purpose of carrying out the provisions of this Agreement and taking any action and executing, delivering, filing and recording any instruments which the Lender may deem necessary or advisable in good faith to accomplish the purposes hereof, which power of attorney, being given for security, is coupled with an interest and irrevocable. Each Company hereby ratifies and confirms and agrees to ratify and confirm all action taken by the Lender, its officers, employees or agents pursuant to and in accordance with the foregoing power of attorney. 21. REMEDIES. In the event of a breach by any of the Companies in the performance of any of the terms of this Agreement, the Lender may demand specific performance of this Agreement and seek injunctive relief and may exercise any other remedy available at law or in equity, it being recognized that the remedies of the Lender at law may not fully compensate the Lender for the damages it may suffer in the event of a breach hereof. 22. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. EACH COMPANY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA. EACH COMPANY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH COMPANY (i) ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT, (ii) -5- CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (iii) ACKNOWLEDGES THAT THE ENTERING INTO OF THE CREDIT AGREEMENT BY THE LENDER HAS BEEN INDUCED BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS SET FORTH IN THIS SECTION. [Signatures Appear on the Next Page.] -6- [SIGNATURE PAGE 1 OF 1 TO SUBORDINATION AGREEMENT] WITNESS the due execution hereof as of the day and year first above written. GRUBB & ELLIS COMPANY By: /s/ Brian Parker ----------------------------- Brian Parker Senior Vice President and Chief Financial Officer EACH OF THE SUBSIDIARIES LISTED ON THE ATTACHED SCHEDULE I By: /s/ Brian Parker ----------------------------- Brian Parker Senior Vice President and Chief Financial Officer of each of the Subsidiaries listed on Schedule I -7- EX-4.16 4 REVOLVING CREDIT NOTE Exhibit 4.16 REVOLVING CREDIT NOTE $15,000,000.00 Pittsburgh, Pennsylvania March 13, 1997 FOR VALUE RECEIVED, the undersigned, GRUBB & ELLIS COMPANY, a Delaware corporation (the "Maker"), promises to pay to the order of PNC BANK, NATIONAL ASSOCIATION, ("Lender") in immediately available funds at the Pittsburgh, Pennsylvania office of Lender at One PNC Plaza, 249 Fifth Avenue, 19th Floor, Pittsburgh, Pennsylvania 15222-2707, or at such other location as the holder hereof may designate from time to time, the lesser of (i) the principal sum of Fifteen Million Dollars ($15,000,000.00) or (ii) the aggregate unpaid principal amount of all loans made by Lender to Maker pursuant to Section 2.1 of the Credit Agreement dated as of March 13, 1997, among Lender and Maker (the "Credit Agreement"), on March 13, 2001, together with interest from the date hereof on the unpaid balance of the principal hereof (i) until maturity, at the rate set forth in Section 4.1 of the Credit Agreement, as selected by the Maker in accordance with the terms of the Credit Agreement, payable in accordance with Section 5 of the Credit Agreement, and at maturity, and (ii) after maturity, whether by declaration, acceleration or otherwise, until paid at the rate set forth in Section 4.3 of the Credit Agreement, payable upon demand. The aforesaid interest rates shall continue to apply whether or not judgment shall be entered on this Note. If any payment of principal or interest on this Note shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time may in such case be included in computing interest in connection with such payment. This Note is the Note referred to in and issued pursuant to the Credit Agreement, and capitalized terms not otherwise defined herein shall have the meanings given to them in the Credit Agreement. The Credit Agreement contains provisions, among other things, for the acceleration of the stated maturity of this Note upon the happening of certain stated events recited therein and also for late payment charges and prepayments on account of the principal hereof prior to maturity as provided therein. The Maker hereby waives presentment, demand, protest or notice of any kind in connection with this Note. This Note shall bind the Maker and the successors and assigns of the Maker, and the benefits hereof shall inure to the benefit of Lender and its successors and assigns. All references herein to "Maker" shall be deemed to apply to the Maker and to the successors and assigns of Maker, and all references herein to "Lender" shall be deemed to apply to Lender and its successors and assigns. [SIGNATURE PAGE 1 OF 1 TO REVOLVING CREDIT NOTE] IN WITNESS WHEREOF, Maker, intending to be legally bound, has executed this Note on the day and year first above written with the intention that this Note shall constitute a sealed instrument. ATTEST: GRUBB & ELLIS COMPANY /s/ Robert J. Walner By: /s/ Brian Parker - ------------------------------- ----------------------------------- Senior Vice President and Brian Parker Corporate Secretary Senior Vice President and Chief Financial Officer [Corporate Seal] -2- EX-4.17 5 LTR FROM IBM TO AXIOM Exhibit 4.17 IBM - -------------------------------------------------------------------------- IBM Credit Corporation P.O. Box 105061 Atlanta, GA 30348-9990 March 12, 1997 Axiom Real Estate Management, Inc. Six PPG Place Pittsburgh, PA 15222 Re: Acknowledgment of Payment ------------------------- Gentlemen: - ---------- Reference is made to those certain loans made pursuant to Revolving Loan and Security Agreement dated October 19, 1995, by and between Axiom Real Estate Management, Inc. (the "Company") and IBM Credit Corporation (the "Lender") and all other documents executed in connection therewith (collectively, the "Agreement"). Further reference is made to the provisions therein relating to the terms for payment to be made by the Company under the Agreement and all notes issued thereunder. The Lender hereby acknowledges: (i) that all precedent stated in the Agreements have been satisfied, (ii) the receipt of payment in full of all amounts to be paid by the Company under the Agreements and (iii) the satisfaction and discharge of all obligations of the Company under the Agreements are hereby satisfied and discharged. The Lender hereby: (i) releases all liens, mortgages, pledges, security interests and other encumbrances on any of your property or assets, (ii) reassigns to you all our rights, title and interest in insurance policies, if any, and (iii) reassigns all property and assets heretofore transferred to us, in each case to secure any obligations under the Agreements or any related instruments or documents. We agree that we will do, execute, acknowledge and deliver or will cause to be done executed and delivered all and every such further acts, terminations, releases and assurances as reasonably may be required in furtherance of the purposes hereof. Very truly yours, /s/Robert J. Halapin --------------------------- Robert J. Halapin Account Executive EX-10.1 6 COLLATERAL AGREEMENT Exhibit 10.1 MASTER COLLATERAL ASSIGNMENT OF CONTRACT RIGHTS THIS ASSIGNMENT is made and entered into the 13th day of March, 1997, by GRUBB & ELLIS COMPANY, a Delaware corporation (the "Borrower"), and EACH OF THE CORPORATIONS LISTED AS A SUBSIDIARY ON THE ATTACHED SCHEDULE I (the "Subsidiaries" being collectively referred to herein together with the Borrower as the "Assignors" and each individually as an "Assignor"), in favor of PNC Bank, National Association, a national banking association ("Assignee"). WITNESSETH: WHEREAS, pursuant to that certain Credit Agreement (as it may hereafter from time to time be restated, amended, modified or supplemented, the "Credit Agreement") dated March 13, 1997 between the Borrower and the Assignee, the Assignee has agreed to provide certain loans and issue certain letters of credit to the Borrower; and WHEREAS, in order to provide additional security for the Borrower's repayment and each of the other Assignor's Guaranty Agreement with respect to repayment of such loans, the parties hereto desire that Assignee be granted an assignment and security interest in all rights of each Assignor under those property management contracts and agreements to which such Assignor now is a party and those to which it shall hereafter become a party (the "Assigned Contracts"). NOW, THEREFORE, in consideration of the promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each Assignor, and intending to be legally bound, each Assignor assigns to Assignee all of its right, title and interest in and to its Assigned Contracts to the extent assignable and to the fullest extent permitted by Law. 1. Except as otherwise expressly provided herein, capitalized terms used in this Assignment shall have the respective meanings given to them in the Credit Agreement. 2. As security for the due and punctual payment and performance of the Obligations as defined in the Credit Agreement, each Assignor does hereby grant, bargain, sell, assign, transfer and set over unto Assignee, its successors and assigns, all the rights, interests and privileges which such Assignor has or may have in or under the Assigned Contracts, including without limiting the generality of the foregoing, the present and continuing right with full power and authority, in its own name, or in the name of such Assignor, or otherwise, but subject to the provisions and limitations of Section 3 hereof, (i) to make claim for, enforce, perform, collect and receive any and all rights under the Assigned Contracts, (ii) to do any and all things which such Assignor is or may become entitled to do under the Assigned Contracts, and (iii) to make all waivers and agreements, give all notices, consents and releases and other instruments and to do any and all other things whatsoever which such Assignor is or may become entitled to do under the Assigned Contracts. Notwithstanding the foregoing assignment, each Assigned Contract which by its terms or by operation of law would become void, terminable, revocable, or in default if pledged or assigned hereunder or if a security interest therein were granted hereunder is expressly excepted and excluded from the lien and terms of this assignment to the extent necessary so to avoid such voidness, voidability, terminability or revocability. 3. The acceptance of this Assignment and the payment or performance under the Assigned Contracts shall not constitute a waiver of any rights of Assignee under the terms of the Note, the Credit Agreement or any other Loan Documents, it being understood that, until the occurrence of an Event of Default, and the exercise of Assignee's rights under Section 4 hereof, each Assignor shall have all rights to its respective Assigned Contracts and to retain, use and enjoy the same. 4. Each Assignor, upon the occurrence and during the continuance of an Event of Default, hereby authorizes Assignee, at Assignee's option, to do all acts required or permitted under the Assigned Contracts as Assignee in its sole discretion may deem proper. Each Assignor does hereby irrevocably constitute and appoint Assignee, while this Assignment remains in force and effect and, in each instance, to the full extent permitted by applicable Law, its true and lawful attorney in fact, coupled with an interest and with full power of substitution and revocation, for such Assignor and in its name, place and stead, to demand and enforce compliance with all the terms and conditions of its Assigned Contract and all benefits accrued thereunder, whether at law, in equity or otherwise; PROVIDED, HOWEVER, that Assignee shall not exercise any such power unless and until an Event of Default shall have occurred and is continuing. 5. Assignee shall not be obligated to perform or discharge any obligation or duty to be performed or discharged by any Assignor under the Assigned Contracts, and each Assignor hereby agrees to indemnify Assignee for, and to save Assignee harmless from, any and all liability arising under the Assigned Contracts, other than arising or resulting from Assignee's (or its agents, employees or contractors) gross negligence or willful misconduct. 6. Each Assignor agrees that this Assignment and the designation and directions herein set forth are irrevocable. 7. Neither this Assignment nor any action or inaction on the part of Assignee shall constitute an assumption on the part of Assignee of any obligations or duties under the Assigned Contracts. 8. Each Assignor covenants and warrants that: (a) its Assigned Contracts are and shall be valid contracts, and that there are and shall be, to the extent ascertainable by such Assignor, no material defaults on the part of any of the parties thereto; -2- (b) other than with a respect to Permitted Liens, it will not assign, pledge or otherwise encumber the Assigned Contracts without the prior written consent of Assignee; (c) other than in the ordinary course of business, it will not cancel, terminate or accept any surrender of the Assigned Contracts; (d) other than in the ordinary course of business, it will not waive or give any consent with respect to any material default or material variation in the performance under the Assigned Contracts, it will at all times take proper steps to enforce all of the provisions and conditions thereof, and it will forthwith notify Assignee of any material default under the Assigned Contracts; (e) it will in all material respects perform and observe, or cause to be performed and observed, all of the terms, covenants and conditions on its part to be performed and observed with respect to the Assigned Contracts; and (f) it will execute from time to time any and all additional assignments or instruments of further assurance to Assignee, as Assignee may at any time reasonably request to evidence the intent of this Assignment. 9. At such time as the Loans are indefeasibly paid in full and the Commitment has terminated, this Assignment and all of Assignee's right, title and interest hereunder with respect to the Assigned Contracts shall terminate. 10. This Assignment shall inure to the benefit of Assignee, its successors and assigns, and shall be binding upon each Assignor, their successors, successors in title and assigns. 11. This Assignment shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania without regard to its conflicts of Law principles. 12. The provisions of this Assignment are intended to be severable. If any provision of this Assignment shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 13. This Assignment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when executed and delivered, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. [SIGNATURES APPEAR ON NEXT PAGE] -3- [SIGNATURE PAGE 1 OF 1 TO MASTER COLLATERAL ASSIGNMENT OF CONTRACT RIGHTS] IN WITNESS WHEREOF, the parties have executed this instrument under seal as of the day and year first above written. GRUBB & ELLIS COMPANY By: /s/ Brian Parker ------------------------------------ Brian Parker Senior Vice President and Chief Financial Officer EACH OF THE CORPORATIONS LISTED AS A SUBSIDIARY ON THE ATTACHED SCHEDULE I By: /s/ Brian Parker -------------------------------------- Brian Parker Senior Vice President and Chief Financial Officer of each of the Subsidiaries listed on Schedule I PNC BANK, NATIONAL ASSOCIATION By: /s/ Paul A. Palombo -------------------------------------- Title: Vice President -4- EX-10.2 7 GUARANTY AGREEMENT EXHIBIT 10.2 MASTER AGREEMENT OF GUARANTY AND SURETYSHIP This Master Agreement of Guaranty and Suretyship (the "Guarantee") is made and entered into this 13th day of March, 1997, by and between the undersigned corporations, with their respective principal offices as set forth on Schedule 1.1(b) of the Credit Agreement, or as otherwise notified from time to time pursuant to the Credit Agreement (collectively the "Guarantors" and individually a "Guarantor"), in favor of PNC Bank, National Association, a national banking association (the "Bank"). BACKGROUND In order to induce the Bank to make and continue to make Loans to Grubb & Ellis Company, a Delaware corporation (the "Borrower"), in accordance with that certain Credit Agreement dated March 13, 1997 (as it may hereafter from time to time be amended, restated, modified or supplemented, the "Credit Agreement") by and between the Borrower, the Guarantors and the Bank, each of the undersigned Guarantors hereby unconditionally and irrevocably guarantees and becomes surety as though it was a primary obligor for the full and timely payment when due, whether at maturity, by declaration, acceleration or otherwise, of the principal of and interest and fees on the Loans (as defined in the Credit Agreement), of the Bank to the Borrower under the Credit Agreement and the Note issued by the Borrower in connection therewith and any extensions or renewals thereof, and each and every other obligation or liability (both those now in existence and those that shall hereafter arise and including, without limitation, all costs and expenses of enforcement and collection after the occurrence and during the continuance of an Event of Default, including reasonable attorney's fees) of the Borrower to the Bank under the Credit Agreement and the other Loan Documents (as defined in the Credit Agreement) except this Guarantee, and any extensions or renewals thereof (hereinafter referred to as the "Guaranteed Indebtedness"), whether or not such Guaranteed Indebtedness or any portion thereof shall hereafter be released or discharged or is for any reason invalid or unenforceable. 1. Capitalized terms used herein and not otherwise defined herein shall have such meanings given to them in the Credit Agreement. 2. Each Guarantor agrees to make such full payment forthwith upon demand of the Bank when the Guaranteed Indebtedness or any portion thereof is due to be paid by the Borrower to the Bank, whether at stated maturity, by declaration, acceleration or otherwise. Each Guarantor agrees to make such full payment irrespective of whether or not any one or more of the following events has occurred: (i) the Bank has made any demand on the Borrower or any other guarantor; (ii) the Bank has taken any action of any nature against the Borrower or any other guarantor; (iii) the Bank has pursued any rights which it has against any other Person who may be liable for the Guaranteed Indebtedness; (iv) the Bank holds or has resorted to any security for the Guaranteed Indebtedness; or (v) the Bank has invoked any other remedy or right it has available with respect to the Guaranteed Indebtedness. Each Guarantor further agrees to make full payment to the Bank even if circumstances exist which otherwise constitute a legal or equitable discharge of the Guarantor as surety or guarantor. 3. Each Guarantor warrants to the Bank that: (i) no other agreement (other than the Credit Agreement and the Loan Documents), representation or special condition exists between the Guarantor and the Bank regarding the liability of such Guarantor hereunder, nor does any understanding exist between such Guarantor and the Bank that the obligations of the Guarantor hereunder are or will be other than as set forth herein; and (ii) as of the date hereof, such Guarantor has no defense whatsoever to any action or proceeding that may be brought to enforce this Guarantee. 4. Until indefeasible payment in full of the Loans and termination of all Letters of Credit and the Commitment, each Guarantor waives and agrees not to enforce any of the rights of the Guarantor against the Borrower or any other guarantor which arise as a result of this Guarantee, including, but not limited to: (i) any right of the Guarantor to be subrogated in whole or in part to any right or claim with respect to any Guaranteed Indebtedness or any portion thereof to the Bank which might otherwise arise from payment by the Guarantor to the Bank on the account of the Guaranteed Indebtedness or any portion thereof until all the Guaranteed Indebtedness is indefeasibly paid in full; and (ii) any right of the Guarantor to require the marshalling of assets of the Borrower or any other guarantor which might otherwise arise from payment by the Guarantor to the Bank on account of the Guaranteed Indebtedness or any portion thereof. If any amount shall be paid to any Guarantor in violation of the preceding sentence, such amount shall be deemed to have been paid to the Guarantor for the benefit of, and held in trust for the benefit of, the Bank and shall forthwith be paid to the Bank to be credited and applied upon the Guaranteed Indebtedness, whether matured or unmatured, in accordance with the terms of the Credit Agreement. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waivers set forth in this Section are knowingly made in contemplation of such benefits. 5. Each Guarantor waives promptness and diligence by the Bank with respect to his rights under the Credit Agreement or any of the other Loan Documents, including, but not limited to, this Guarantee. 6. Each Guarantor waives any and all notice with respect to: (i) acceptance by the Bank of this Guarantee; (ii) the provisions of any note, instrument or agreement relating to the Guaranteed Indebtedness; and (iii) any default in connection with the Guaranteed Indebtedness. 7. Each Guarantor waives any presentment, demand, notice of dishonor or nonpayment, protest, and notice of protest in connection with the Guaranteed Indebtedness. 8. Each Guarantor agrees that the Bank may from time to time and as many times as the Bank, in its sole discretion, deems appropriate, do any of the following without notice to such Guarantor and without adversely affecting the validity or enforceability of this Guarantee: (i) release, surrender, exchange, compromise, or settle the Guaranteed Indebtedness or any portion thereof; (ii) change, renew, or waive the terms of the Guaranteed Indebtedness or any portion thereof; (iii) change, renew, or waive the terms, including without limitation, the rate of interest charged to the Borrower or the Guarantor, of any note, instrument, or agreement relating to the Guaranteed Indebtedness or any portion thereof; (iv) grant any extension or indulgence with respect to the payment to the Bank of the Guaranteed Indebtedness or any portion thereof; (v) enter into any agreement of forbearance with respect to the Guaranteed Indebtedness or any portion thereof; (vi) release, surrender, exchange or compromise any security held by the Bank for the Guaranteed Indebtedness; (vii) release any Person who is a guarantor or surety or who has agreed to purchase the Guaranteed Indebtedness or any portion thereof; and (viii) release, surrender, exchange or compromise any security or Lien held by the Bank for the liabilities of any Person who is a guarantor or surety for the Guaranteed Indebtedness or any portion thereof. Each Guarantor agrees that the Bank may do any of the above as it deems necessary or advisable, in its sole discretion, without giving any notice to the Guarantor, and that the Guarantor will remain liable for full payment to the Bank of the Guaranteed Indebtedness. 9. If any amount owing hereunder shall have become due and payable (by acceleration or otherwise) and an Event of Default has occcured and is continuing, the Bank and any branch, subsidiary or affiliate of the Bank anywhere in the world shall each have the right, at any time and from time to time to the fullest extent permitted by Law, in addition to all other rights and remedies available to it, without prior notice to any Guarantor, to set-off against and to appropriate and apply to such due and payable amounts any debt owing to, and any other funds held in any manner for the account of the Guarantor by the Bank or any such branch, subsidiary or affiliate including, without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Guarantor with the Bank or such branch, subsidiary or affiliate. Such right shall exist whether or not the Bank shall have given notice or made any demand hereunder or under any of the Note or any other Loan Document, whether or not such debt owing to or funds held for the account of any Guarantor is or are matured or unmatured, and regardless of the existence or adequacy of any collateral, guarantee or any other security, right or remedy available to the Bank. Each Guarantor hereby consents to and confirms the foregoing arrangements, and confirms the Bank's rights and each such branch's, subsidiary's and affiliate's rights of banker's lien and set-off. 10. Each Guarantor recognizes and agrees that the Borrower, after the date hereof, may incur additional Indebtedness or other obligations, fees and expenses to the Bank under the Credit Agreement or pay existing Guaranteed Indebtedness, and that in any such transaction, even if such transaction is not now contemplated, the Bank will rely in any such case upon this Guarantee and the enforceability thereof against the Guarantor and that this Guarantee shall remain in full force and effect with respect to such Indebtedness of the Borrower to the Bank and such Indebtedness shall for all purposes constitute Guaranteed Indebtedness. 11. Each Guarantor further agrees that, if at any time all or any part of any payment, from whomever received, theretofore applied by the Bank to any of the Guaranteed Indebtedness is or must be rescinded or returned by the Bank for any reason whatsoever including, without limitation, the insolvency, bankruptcy or reorganization of the Guarantor, such liability shall, for the purposes of this Guarantee, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Bank, and this Guarantee shall continue to be effective or be reinstated, as the case may be, as to such liabilities, all as though such application by the Bank had not been made. 12. Each Guarantor agrees that no failure or delay on the part of the Bank to exercise any of its rights, powers or privileges under this Guarantee shall be a waiver of such rights, powers or privileges or a waiver of any default, nor shall any single or partial exercise of any of the Bank's rights, powers or privileges preclude other or further exercise thereof or the exercise of any other right, power or privilege or be construed as a waiver of any default. Each Guarantor further agrees that no waiver or modification of any rights of the Bank under this Guarantee shall be effective unless in writing and signed by the Bank. Each Guarantor further agrees that each written waiver shall extend only to the specific instance actually recited in such written waiver and shall not impair the rights of the Bank in any other respect. 13. Each Guarantor unconditionally agrees to pay all reasonable costs and expenses, including reasonable attorney's fees, incurred after the occurrence of and during the continuance of an Event of Default by the Bank in enforcing this Guarantee against such Guarantor. 14. Each Guarantor agrees that this Guarantee and the rights and obligations of the parties hereto shall for all purposes be governed by and construed and enforced in accordance with the substantive law of the Commonwealth of Pennsylvania without giving effect to its principles of conflict of laws. 15. Each Guarantor recognizes that this Guarantee when executed constitutes a sealed instrument and as a result the instrument will be enforceable as such without regard to any statute of limitations which might otherwise be applicable and without any consideration. 16. Each Guarantor acknowledges that in addition to binding itself to this Guarantee, at the time of execution of this Guarantee the Bank offered to the Guarantor a copy of this Guarantee in the form in which it was executed and that by acknowledging this fact the Guarantor may not later be able to claim that a copy of the Guarantee was not received by it. 17. Each Guarantor agrees that this Guarantee shall be binding upon each Guarantor, its successors and assigns; PROVIDED, HOWEVER, that the Guarantor may not assign or transfer any of its rights and obligations hereunder or any interest herein. Each Guarantor further agrees that (i) this Guarantee is freely assignable and transferable by the Bank in connection with any assignment or transfer of the Guaranteed Indebtedness in accordance with the Credit Agreement and (ii) this Guarantee shall inure to the benefit of the Bank, its successors and assigns. Upon indefeasible payment in full of the Guaranteed Indebtedness, this Guarantee shall terminate and be of no further effect and the Bank shall execute any documents, instruments, agreements or any combination thereof as the Guarantors shall reasonably request to evidence such termination. 18. Each Guarantor agrees that if such Guarantor fails to perform any covenant or agreement hereunder or if there occurs an Event of Default under the Credit Agreement, all or any part of the Guaranteed Indebtedness may be declared to be forthwith due and payable and, in the case of an Event of Default described in Sections 9.1.14 or 9.1.15 of the Credit Agreement, the Guaranteed Indebtedness shall be immediately due and payable, in any case without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. 19. Each Guarantor agrees that the enumeration of the Bank's rights and remedies set forth in this Guarantee is not intended to be exhaustive and the exercise by the Bank of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative and shall be in addition to any other right or remedy given hereunder or under any other agreement among the parties to the Loan Documents or which may now or hereafter exist at law or in equity or by suit or otherwise. 20. Each Guarantor agrees that all notices, statements, requests, demands and other communications under this Guarantee shall be given to the Guarantor at the address set forth in Schedule 1.1(B) to the Credit Agreement in the manner provided in Section 11.6 of the Credit Agreement. 21. Each Guarantor agrees that the provisions of this Guarantee are severable, and in an action or proceeding involving any state or federal bankruptcy, insolvency or other law affecting the rights of creditors generally: (a) if any clause or provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Guarantee in any jurisdiction. (b) if this Guarantee would be held or determined to be void, invalid or unenforceable on account of the amount of the Guarantor's aggregate liability under this Guarantee, then, notwithstanding any other provision of this Guarantee to the contrary, the aggregate amount of such liability shall, without any further action by the Bank, the Guarantor or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding, which (without limiting the generality of the foregoing) may be an amount which is not greater than the greater of: (A) the fair consideration actually received by the Guarantor under the terms of and as a result of the Loan Documents, including, without limiting the generality of the foregoing, and to the extent not inconsistent with applicable federal and state laws affecting the enforceability of guarantees, distributions or advances made to the Guarantor with the proceeds of any credit extended under the Loan Documents in exchange for its guaranty of the Guaranteed Indebtedness, or (B) ninety-five percent (95%) of the excess of (1) the amount of the fair saleable value of the assets of the Guarantor as of the date of this Guarantee as determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors as in effect on the date thereof over (2) the amount of all liabilities of the Guarantor as of the date of this Guarantee, also as determined on the basis of applicable federal and state laws governing the insolvency of debtors as in effect on the date thereof. 22. EACH GUARANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTEE. EACH GUARANTOR (i) ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS GUARANTEE (ii) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND EXECUTION AND DELIVERY HEREOF BY THE GUARANTOR, AND (iii) ACKNOWLEDGES THAT THE ENTERING INTO OF THE CREDIT AGREEMENT BY THE BANK HAS BEEN INDUCED BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS SET FORTH IN THIS SECTION. Each Guarantor (i) hereby irrevocably submits to the nonexclusive jurisdiction of the Court of Common Pleas of Allegheny County, Commonwealth of Pennsylvania, or any successor to said court, and to the nonexclusive jurisdiction of the United States District Court for the Western District of Pennsylvania, or any successor to said court (hereinafter referred to as the "Pennsylvania Courts") for purposes of any suit, action or other proceeding which relates to this Guarantee or any other Loan Document, (ii) to the extent permitted by applicable Law, hereby waives and agrees not to assert by way of motion, as a defense or otherwise in any such suit, action or proceeding, any claim that he is not personally subject to the jurisdiction of the Pennsylvania Courts; that such suit, action or proceeding is brought in an inconvenient forum; that the venue of such suit, action or proceeding is improper; or that this Guarantee or any Loan Document may not be enforced in or by the Pennsylvania Courts, (iii) hereby agrees not to seek, and hereby waives, any collateral review by any other court, which may be called upon to enforce the judgment of any of the Pennsylvania Courts, of the merits of any such suit, action or proceeding or the jurisdiction of the Pennsylvania Courts, and (iv) waives personal service of any and all process upon it and consents that all such service of process may be made by certified or registered mail addressed as provided in Schedule 1.1(B) of the Credit Agreement and service so made shall be deemed to be completed upon actual receipt thereof. Nothing herein shall limit the Bank's right to bring any suit, action or other proceeding against any Guarantor or any of the Guarantor's assets or to serve process on the Guarantor by any means authorized by Law. [SIGNATURES BEGIN ON THE NEXT PAGE.] [SIGNATURE PAGE 1 OF 1 TO MASTER AGREEMENT OF GUARANTY AND SURETYSHIP] IN WITNESS WHEREOF, the Guarantors intending to be legally bound, have executed this Guarantee as of the date first above written with the intention that this Guarantee shall constitute a sealed instrument. EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I ATTACHED HERETO By: /s/ Brian Parker --------------------------------- Brian Parker Senior Vice President and Chief Financial Officer of each of the Subsidiaries listed on Schedule I attached hereto EX-10.3 8 PLEDGE AGREEMENT Exhibit 10.3 PLEDGE AGREEMENT THIS AGREEMENT, dated as of March 13, 1997, among GRUBB & ELLIS COMPANY, a Delaware corporation (the "Borrower"), each of the undersigned Subsidiaries of the Borrower, identified in Schedule I attached hereto and made a part hereof (each a "Guarantor" and collectively with the Borrower the "Pledgors"), and PNC BANK, NATIONAL ASSOCIATION ("Lender"), is delivered pursuant to the terms of that certain Credit Agreement dated as of March 13, 1997, among the Borrower, the Guarantors and the Lender (the "Credit Agreement") WITNESSETH THAT: WHEREAS, each Pledgor is the legal and beneficial owner and the holder of its respective Pledged Collateral (as defined in Section 1(b) hereof) as set forth on Exhibit A hereto; and WHEREAS, pursuant to the Credit Agreement the Lender may make certain loans to the Borrower and the Lender may issue certain letters of credit for the account of the Borrower and its Subsidiaries; and WHEREAS, the obligations of the Lender to make loans and issue letters of credit under the Credit Agreement are subject to the condition, among others, that each Pledgor secure its obligations to the Lender under the Credit Agreement in the manner set forth therein and herein; NOW, THEREFORE, intending to be legally bound hereby, the parties hereto covenant and agree as follows: 1. DEFINITIONS. Terms which are defined in the Credit Agreement and not otherwise defined herein are used herein as defined therein. In addition to the words and terms defined elsewhere in this Pledge Agreement (the "Pledge Agreement"), the following words and terms shall have the following meanings, respectively, unless the context hereof otherwise clearly requires: (a) "Code" shall mean the Uniform Commercial Code as in effect in the Commonwealth of Pennsylvania or other applicable jurisdiction on the date hereof and as the same may subsequently be amended from time to time. (b) "Pledged Collateral" shall mean and include with respect to each Pledgor (i) the securities listed on Exhibit A attached hereto and made a part hereof, with respect to each Pledgor, and all rights and privileges pertaining thereto, including, without limitation, all securities and additional securities receivable in respect of or in exchange for such securities, all rights to subscribe for securities incident to or arising from ownership of such securities, all cash, interest, stock and other dividends or distributions paid or payable on such securities, and all books and records pertaining to the foregoing, including, without limitation, all stock record and transfer books, (ii) any and all other securities hereafter pledged to the Lender to secure the Obligations and the Pledgor's obligations hereunder, and all rights and privileges pertaining thereto, including, without limitation, all securities and additional securities receivable in respect of or in exchange for such securities, all rights to subscribe for securities incident to or arising from ownership of such securities, all cash, interest, stock and other dividends or distributions paid or payable on such securities, and all books and records pertaining to the foregoing, including, without limitation, all stock record and stock transfer books, and (iii) whatever is received when any of the foregoing is sold, exchanged or otherwise disposed of, including any proceeds as such term is defined in the Code. 2. PLEDGE. As security for the due and punctual payment and performance of the Obligations in full, each Pledgor hereby agrees that the Lender shall have, and each Pledgor hereby grants to and creates in favor of the Lender, a first priority security interest under the Code in and to all of the Pledged Collateral which constitutes a Prior Security Interest. 3. DELIVERY OF CERTIFICATES, ETC. Upon the execution and delivery of this Pledge Agreement, each Pledgor has delivered to and deposited with the Lender in pledge, stock certificates and any other instruments evidencing the Pledged Collateral, together with undated stock powers signed in blank by such Pledgor as the Lender shall have required. 4. REPRESENTATIONS AND WARRANTIES. Each Pledgor represents and warrants to the Lender as follows: (a) The Pledgor has good and marketable title to the Pledged Collateral; (b) Any shares of capital stock of a Subsidiary forming part of the Pledged Collateral have been duly authorized and validly issued to the Pledgor, are fully paid and nonassessable and constitute all of the issued and outstanding stock of such Subsidiary, and there are no outstanding options or rights to purchase or acquire any additional shares of capital stock of such Subsidiary; (c) Other than the security interest granted to and created in favor of the Lender hereunder, all of the Pledged Collateral is free and clear of any pledge, lien, security interest, encumbrance, option or rights of others, other than Permitted Liens and except to the extent transfer of the Pledged Collateral may be restricted by the federal Securities Act of 1933, as amended, and state securities laws; and -2- (d) The Pledgor has delivered to the Lender a true and correct copy of the articles or certificate of incorporation, bylaws and other organizational documents of each Subsidiary of a Pledgor the shares of capital stock of which constitute part of the Pledged Collateral. 5. FURTHER ASSURANCES. Each Pledgor will faithfully preserve and protect the Lender's security interest in the Pledged Collateral as a first priority perfected security interest under the Code, and will do all such other acts and things, and will upon request therefor by the Lender execute and deliver all such other documents and instruments, including, without limitation, further pledges, assignments, documents and powers of attorney with respect to its Pledged Collateral consistent with the terms of this Pledge Agreement and the Credit Agreement, as the Lender may deem necessary or advisable from time to time in order to preserve, perfect and protect said security interest. 6. CERTAIN COVENANTS OF THE PLEDGOR. Each Pledgor covenants and agrees that (a) it will defend the Lender's right, title and security interest in and to the Pledged Collateral and the proceeds thereof against the claims and demands of all persons whomsoever other than any Person claiming a right in the Pledged Collateral pursuant to an agreement between such Person and the Lender and other than the holder of a Permitted Lien; (b) it will have like title to and right to pledge any other property at any time hereafter pledged to the Lender pursuant to the Credit Agreement and will likewise defend the Lender's right thereto and security interest therein; (c) except as permitted by the Credit Agreement it will not assign, transfer, pledge, or otherwise encumber any of its right, title or interest under, in or to the Pledged Collateral other than pursuant hereto; (d) except as permitted by the Credit Agreement it will not take or omit to take any action, or permit any Subsidiary, any shares of capital stock of which constitute a part of the Pledged Collateral, to take or omit to take any action, the taking or the omission of which might result in an alteration or impairment of the Pledged Collateral or of this Pledge Agreement; (e) it will not permit any Subsidiary, any shares of capital stock of which constitute a part of the Pledged Collateral, to repeal, amend or modify its articles or certificate of incorporation, bylaws or other organizational documents, other than as permitted under the terms of the Credit Agreement; (f) it will cause each Subsidiary, any shares of capital stock of which constitute a part of the Pledged Collateral, to maintain accurate stock record and stock transfer books, and upon request of the Lender, provide the Lender with access to and copies of such stock record and stock transfer books; (g) it will not, without the prior written consent of the Lender, waive or release any obligation of any party to the Pledged Collateral; and (h) it will execute and deliver to the Lender and record such supplements to this Pledge Agreement and additional assignments as the Lender reasonably may request to evidence and confirm the pledge herein contained. 7. PROTECTION OF THE LENDER'S INTEREST IN THE PLEDGED COLLATERAL AGAINST OTHERS. Each Pledgor assumes full responsibility for taking any and all necessary steps to preserve the Lender's rights, other than Permitted Liens, with respect to its Pledged Collateral against all others, including the respective issuers of capital stock forming part of the Pledged Collateral. -3- The Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Lender takes such action for that purpose as the Pledgor shall request in writing (or in the absence of such request, if the Bank deals with it in the same manner that it deals with similar property for its own account), provided that such requested action will not, in the judgment of the Lender, impair the security interest in the Pledged Collateral created hereby or the Lender's rights in, or the value of, the Pledged Collateral, and provided further that such written request is received by the Lender in sufficient time to permit the Lender to take the requested action. 8. CONTINUATION OF PERFECTION OF SECURITY INTEREST. Each Pledgor shall at such Pledgor's own cost and expense cause the security interest in its Pledged Collateral granted to and created in favor of the Lender under this Pledge Agreement to be perfected and continue to be perfected as long as the Obligations or any part thereof is outstanding and unpaid or not performed in full, and for such purpose such Pledgor shall from time to time deliver possession to the Lender of and execute, deliver and file or record (or cause to be filed or recorded) such instruments, documents and notices (including, without limitation, amendments or supplements to this Pledge Agreement, financing statements and continuation statements) as the Lender may deem necessary or advisable from time to time in order to confirm, perfect and preserve such security interest. The Lender is hereby irrevocably appointed attorney-in-fact of each Pledgor to do all acts and things which the Lender, in the exercise of its responsibilities under the Credit Agreement, may deem necessary or advisable to perfect and continue perfected the Lender's security interest in the Pledged Collateral. 9. VOTING RIGHTS; DIVIDENDS; ETC. (a) So long as no Event of Default or Potential Default shall have occurred and is continuing: (i) Each Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement or the Credit Agreement; PROVIDED, HOWEVER, that such Pledgor shall not exercise or refrain from exercising any such right if such action or inaction would REASONABLY BE LIKELY to have a material adverse effect on the value of the Pledged Collateral or any part thereof; (ii) Any and all instruments and other property (other than cash dividends) received, receivable or otherwise distributed in respect of, or in exchange for, any of the Pledged Collateral shall be forthwith delivered to the Lender to hold as part of the Pledged Collateral and shall, if received by any Pledgor, be received in trust for the benefit of the Lender, be segregated from the other property or funds of such Pledgor, and be forthwith delivered to the Lender as Pledged Collateral in the same form as so received (with any necessary endorsement). To the extent permitted -4- by the Credit Agreement, a Pledgor may receive and retain cash dividends from any of the Subsidiaries; and (iii) The Lender shall execute and deliver (or cause to be executed and delivered) to any Pledgor all such proxies and other instruments as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above, and to receive the dividends which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default or Potential Default under the terms of the Credit Agreement: (i) All rights of any Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 9(a)(i) and to receive the dividends which it would otherwise be authorized to receive and retain pursuant to Section 9(a)(ii) shall cease, and all such rights shall, upon notice by the Lender to such Pledgor, become vested in the Lender, who shall thereupon have the sole right to exercise such voting and other consensual rights and the sole right to receive and hold as Pledged Collateral such dividends and apply them to payment of the Obligations; and (ii) All dividends which are received by any Pledgor contrary to the provisions of paragraph (i) of this Section 9(b) shall be received in trust for the benefit of the Lender, shall be segregated from other funds of such Pledgor and shall be forthwith paid over to the Lender as Pledged Collateral in the same form as so received (with any necessary endorsement). In the event of any inconsistency between the provisions of this Section 9 and Section 9.2.5 of the Credit Agreement, the terms of the Credit Agreement shall control. 10. REMEDIES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. If there shall have occurred and is then continuing an Event of Default under the terms of the Credit Agreement, then the Lender shall have such rights and remedies with respect to the Pledged Collateral or any part thereof and the proceeds thereof as are provided by the Code and such other rights and remedies with respect thereto which it may have at law or in equity or under this Pledge Agreement, including without limitation, to the extent not inconsistent with the provisions of the Code, the right to (a) transfer all or any part of the Pledged Collateral into the Lender's name or into the name of its nominee and thereafter receive all cash, stock and other dividends or distributions paid or payable in respect thereof, and otherwise act with respect thereto for the benefit of the Lender as the absolute owner thereof, and (b) sell, assign, give an option or options to purchase or otherwise dispose of all or any part of the Pledged Collateral at -5- any public or private sale at such place or places and at such time or times and upon such terms, whether for cash or on credit, and in such manner as the Lender may determine, and apply the proceeds so received in accordance with the terms of the Credit Agreement. Each Pledgor shall be liable for any deficiency if the proceeds of any sale, assignment, giving of an option or options to purchase or other disposition of its Pledged Collateral is insufficient to pay all amounts to which the Lender is entitled. 11. NOTICE OF SALE OF THE PLEDGED COLLATERAL BY THE LENDER. If any notification of intended sale of any of the Pledged Collateral is required by law, such notification shall be deemed reasonable if provided at least ten (10) days before such sale, addressed to the Pledgor as provided in Section 11.6 of the Credit Agreement. 12. NATURE OF SALE. Each Pledgor recognizes that the Lender may be compelled to resort to one or more private sales of the Pledged Collateral to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not, for such reason alone, be deemed to have been made in a commercially unreasonable manner. The Lender shall not be under any obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the federal Securities Act of 1933, as amended, or under applicable state securities laws, even if the issuer would agree to do so. 13. TERMINATION. Upon payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties' other Obligations and the termination of the Commitment, this Pledge Agreement shall terminate and be of no further force and effect, and the Lender shall thereupon promptly return to each Pledgor such of the Pledged Collateral and such other documents delivered by such Pledgor hereunder as may then be in the Lender's possession and execute such documents, instruments, agreements or any combination thereof as the Pledgors shall reasonably request to evidence such termination.. Until such time, however, this Pledge Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective successors and assigns. 14. NO WAIVER. No failure or delay on the part of the Lender in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof or of any other right, remedy, power or privilege of the Lender hereunder; nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights and remedies of the Lender under this Pledge Agreement are cumulative and not exclusive of any rights or remedies which it may otherwise have. -6- 15. NOTICES. All notices, statements, requests and demands given to or made upon either party hereto in accordance with the provisions of this Pledge Agreement shall be given or made as provided in Section 11.6 of the Credit Agreement. 16. SUCCESSORS AND ASSIGNS. This Pledge Agreement shall be binding upon and inure to the benefit of the Lender and its successors and assigns, and each Pledgor and its successors and assigns, except that the Pledgors may not assign or transfer the respective Pledgor's obligations hereunder or any interest herein. 17. GOVERNING LAW. This Pledge Agreement shall be deemed to be a contract under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of said Commonwealth excepting its rules relating to conflicts of Law. 18. SURVIVAL. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. -7- [SIGNATURE PAGE 1 OF 1 TO PLEDGE AGREEMENT] IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed and delivered this Pledge Agreement as of the day and year first above set forth. GRUBB & ELLIS COMPANY By /s/ Brian Parker ------------------------------- Brian Parker Senior Vice President and Chief Financial Officer AXIOM REAL ESTATE MANAGEMENT, INC. By /s/ Brian Parker ------------------------------- Brian Parker Senior Vice President and Chief Financial Officer HSM INC. By /s/ Brian Parker ------------------------------- Brian Parker Senior Vice President and Chief Financial Officer PNC BANK, NATIONAL ASSOCIATION By /s/ Paul A. Palombo ------------------------------- Title Vice President ---------------------------- EX-10.4 9 SECURITY AGREEMENT Exhibit 10.4 SECURITY AGREEMENT THIS SECURITY AGREEMENT (the "Agreement"), dated March 13, 1997, is entered into by and among GRUBB & ELLIS COMPANY, a Delaware corporation (the "Borrower"), and EACH OF THE CORPORATIONS LISTED AS A SUBSIDIARY ON THE ATTACHED SCHEDULE I (the "Subsidiaries" being collectively referred to herein together with the Borrower as the "Debtors" and individually as a "Debtor"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association (the "Bank"); WITNESSETH THAT: WHEREAS, each Debtor is (or will be with respect to after-acquired property) the legal and beneficial owner and the holder of its respective Collateral (as defined in Section 1 hereof); and WHEREAS, pursuant to that certain Credit Agreement (as it may hereafter from time to time be restated, amended, modified or supplemented, the "Credit Agreement") of even date herewith among, INTER ALIA, the Bank, Grubb & Ellis Company, a Delaware corporation (the "Borrower"), and the Debtor, the Bank has agreed to make certain loans to the Borrower and issue letters of credit for the account of the Borrower and the Guarantors; and WHEREAS, the obligation of the Bank to make loans and issue letters of credit under the Credit Agreement is subject to the condition, among others, that each of the Debtors secure its obligations to the Bank under the Credit Agreement and the other Loan Documents in the manner set forth herein. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto covenant and agree as follows: 1. Terms which are defined in the Credit Agreement and not otherwise defined herein are used herein as defined therein. The following words and terms shall have the following meanings, respectively, unless the context hereof otherwise clearly requires: (a) "Code" means the Uniform Commercial Code of each state as in effect on the date hereof and as the same may subsequently be amended from time to time, the substantive provisions of which are applicable to any of the property of the Debtors in which the Bank is granted a security interest pursuant to this Agreement. (b) "Collateral" means, in the case of each Debtor, all of its right, title and interest in, to and under the following described property of such Debtor (each capitalized term used in this Section 1(b) shall have in this Agreement the meaning given to it by Article 9 of the Code as in effect in Pennsylvania): (i) all now existing and hereafter acquired and arising Accounts, General Intangibles, Chattel Paper, Investment Property, Documents, Instruments, Letters of Credit, Advices of Credit, Equipment, and Inventory, all Products of and Accessions to the foregoing and all Proceeds of all of the foregoing (including without limitation all insurance policies and proceeds thereof); (ii) to the extent, if any, not included in clause (i) above, each and every other item of personal property and fixtures, both those that are now owned and those that hereafter arise or are acquired, regardless of whether Article 9 of the Code is applicable to any extent to the creation, perfection or enforcement of Liens thereon or therein. Without limiting the foregoing and to the extent permitted by applicable Law, Collateral includes all business records and information, including computer tapes and other storage media containing the same and computer programs and software (including without limitation, source code, object code and related manuals and documentation and all licenses to use such software) for accessing and manipulating such information. The definition of Collateral shall not include the general or limited partnership interests of the Debtors in the Existing Partnerships to the extent that the grant of a security interest in such partnerships interests is not permitted under the terms of the applicable partnership agreement. Notwithstanding anything to the contrary contained herein or in the other Loan Documents, the Bank will not take any action pursuant to this Agreement, the Credit Agreement or any other Loan Document that would constitute or result in any assignment of any rights under or with respect to any General Intangible, license, permit or authorization without first obtaining the prior approval of the applicable federal, state or local governmental authority, if, under the existing Law, such assignment of any rights under or with respect to any General Intangible, license, permit or authorization would require the prior approval of such federal, state or local governmental authority. Prior to the exercise by the Bank of any power, right, privilege or remedy pursuant to this Agreement which requires any consent, approval, recording, qualification or authorization of any federal, state or local governmental authority or instrumentality, appropriate Debtor will execute and deliver, or will cause the execution and delivery of, all applications, certificates, instruments and other documents and papers that the Bank may be required to obtain for such governmental consent, approval, recording, qualification or authorization. Without limiting the generality of the foregoing, such Debtor will use its best efforts upon the request of the Bank to obtain from the appropriate governmental authorities the necessary consents and approvals, if any (i) for the granting to the Bank pursuant hereto of the security interest provided for in this Agreement to the extent, if any, such security interest may be granted under existing statutes or regulations and (ii) for the assignment or transfer of such authorizations, licenses and permits to the Bank or its designee upon or following the occurrence and during the continuance of an Event of Default. (c) "Debt" means, collectively, all now existing and hereafter arising Indebtedness of the Borrower and the other Debtors to the Bank under the Credit Agreement, the Guaranty Agreement of the Debtors and other Loan Documents, including without limitation, all -2- Indebtedness, whether of principal, interest, fees, expenses or otherwise, of the Borrower and the Debtors to the Bank now existing or hereafter incurred under the Credit Agreement, the Guarantee Agreement of the Debtors or the Note, or any of the other Loan Documents referred to therein as any of the same or any one or more of them may from time to time be amended, restated, modified or supplemented, together with any and all extensions, renewals, refinancings or refundings thereof in whole or in part. (d) "Receivables" means all of the Collateral except Equipment and Inventory. 2. As security for the due and punctual payment and performance of the Debt in full, each Debtor hereby agrees that the Bank shall have, and each Debtor hereby grants to and creates in favor of the Bank, a first priority security interest under the Code and lien in and to each Debtor's respective Collateral subject only to Permitted Liens. Without limiting the generality of Section 4 below, each Debtor further agrees that with respect to each item of Collateral as to which (i) the creation of a valid and enforceable security interest is not governed exclusively by the Code or (ii) the perfection of a valid and enforceable security interest therein under the Code cannot be accomplished either by the Bank taking possession thereof or by the filing in appropriate locations of appropriate Code financing statements executed by the Debtor, such Debtor will at its expense execute and deliver to the Bank such documents, agreements, notices, assignments and instruments and take such further actions as may be requested by the Bank from time to time for the purpose of creating a valid and perfected first priority Lien on such item, subject only to Permitted Liens, enforceable against the Debtor and all third parties to secure the Debt. 3. Each Debtor jointly and severally represents and warrants to the Bank that (a) such Debtor has good and marketable title to its Collateral, and (b) except for the security interest granted to and created in favor of the Bank hereunder and Permitted Liens, all the Collateral is free and clear of any Lien. 4. Each Debtor will faithfully preserve and protect the Bank's security interest in such Debtor's Collateral as a prior perfected security interest under the Code, superior and prior to the rights of all third Persons, except for Permitted Liens, and will, upon request therefor by the Bank, do all such other acts and things and will, upon request therefor by the Bank, execute, deliver, file and record all such other documents and instruments, including, without limitation, financing statements, security agreements, assignments and documents and powers of attorney with respect to the Collateral, and pay all filing fees and taxes related thereto, as the Bank in its reasonable discretion deems necessary or advisable from time to time in order to attach, continue, preserve, perfect and protect said security interest; and each Debtor hereby irrevocably appoints the Bank, its officers, employees and agents, or any of them, as attorneys-in-fact for such Debtor to execute, deliver, file and record such items for such Debtor and in such Debtor's name, place and stead. This power of attorney, being coupled with an interest, shall be irrevocable for the life of this Agreement. -3- 5. Each Debtor jointly and severally covenants and agrees that: (a) it will defend the Bank's right, title and security interest in and to the Collateral and the proceeds thereof against the claims and demands of all Persons whomsoever, other than any Person claiming a right in the Collateral pursuant to an agreement between such Person and the Bank and other than the holder of a Permitted Lien; (b) it will not suffer or permit to exist on any Collateral any Lien except for Permitted Liens; (c) it will not take or omit to take any action, the taking or the omission of which might result in a material alteration or impairment of the Collateral or of the Bank's rights under this Agreement; (d) except as permitted by the Credit Agreement it will not sell, assign or otherwise dispose of any portion of the Collateral; (e) it will (i) obtain and maintain sole and exclusive possession or control of the Collateral, (ii) keep the Collateral and all records pertaining thereto at the locations specified on the Security Interest Data Summary attached as SCHEDULE A hereto, unless it shall have given the Bank prior notice and taken any action reasonably requested by the Bank to maintain its security interest therein, (iii) deliver to the Bank upon the Bank's request therefor all Collateral consisting of Chattel Paper immediately upon such Debtor's receipt of a request therefor, and (iv) keep materially accurate and complete books and records concerning the Collateral and such other books and records as the Bank may from time to time reasonably require; (f) it will promptly furnish to the Bank such information and documents relating to the Collateral as the Bank may reasonably request, including, without limitation, all invoices, Documents, contracts, Chattel Paper, Instruments and other writings pertaining to such Debtor's contracts or the performance thereof; all of the foregoing to be certified upon request of the Bank by an Authorized Officer of such Debtor; 6. Each Debtor assumes full responsibility for taking any and all necessary steps to preserve the Bank's rights with respect to the Collateral against all Persons other than anyone asserting rights in respect of a Permitted Lien. The Bank shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Bank takes such action for that purpose as the Debtors shall request in writing or in the absence of such request, if the Bank deals with it in the same manner that it deals with similar property for its own account, provided that such requested action will not, in the judgment of the Bank, impair the security interest in the Collateral created hereby or the Bank's rights in, or the value of, the Collateral, and provided further that such written request is received by the Bank in sufficient time to permit the Bank to take the requested action. -4- 7. (a) At any time and from time to time whether or not an Event of Default then exists and without prior notice to or consent of the Debtors, the Bank may at its option take such actions as the Bank deems appropriate (i) to attach, perfect, continue, preserve and protect the Bank's prior security interest in the Collateral, and/or (ii) inspect, audit and verify the Collateral, including reviewing all of the Debtors' books and records and copying and making excerpts therefrom, provided that prior to an Event of Default or a Potential Default, the same is done with advance notice during normal business hours to the extent access to any of the Debtors' premises is required, and to add all liabilities, obligations, costs and expenses reasonably incurred in connection with the foregoing clauses (i) and (ii) to the Debt, to be paid by the Debtors to the Bank upon demand; (b) At any time and from time to time after an Event of Default exists and is continuing and without prior notice to or consent of the Debtors, the Bank may at its option take such action as the Bank deems appropriate (i) to maintain, repair, protect and insure the Collateral, and/or (ii) to perform, keep, observe and render true and correct any and all covenants, agreements, representations and warranties of the Debtors hereunder, and to add all liabilities, obligations, costs and expenses reasonably incurred in connection with the foregoing clauses (i) and (ii) to the Debt, to be paid by the Debtors to the Bank upon demand. 8. After the occurrence and during the continuance of an Event of Default under the Credit Agreement: (a) The Bank shall have and may exercise all the rights and remedies available to a secured party under the Code in effect at the time, and such other rights and remedies as may be provided by Law and as set forth below, including without limitation to take over and collect all the Debtors' Receivables and all other Collateral, and to this end each Debtor hereby appoints the Bank, its officers, employees and agents, as its irrevocable, true and lawful attorneys-in-fact with all necessary power and authority to (i) take possession immediately, with or without notice, demand, or legal process, of any of or all of the Collateral wherever found, and for such purposes, enter upon any premises upon which the Collateral may be found and remove the Collateral therefrom, (ii) require the Debtors to assemble the Collateral and deliver it to the Bank or to any place designated by the Bank at the Debtors' expense, (iii) receive, open and dispose of all mail addressed to any Debtor and notify postal authorities to change the address for delivery thereof to such address as the Bank may designate, (iv) demand payment of the Receivables, (v) enforce payment of the Receivables by legal proceedings or otherwise, (vi) exercise all of the Debtors' rights and remedies with respect to the collection of the Receivables, (vii) settle, adjust, compromise, extend or renew the Receivables, (viii) settle, adjust or compromise any legal proceedings brought to collect the Receivables, (ix) to the extent permitted by applicable Law, sell or assign the Receivables upon such terms, for such amounts and at such time or times as the Bank deems advisable, (x) discharge and release the Receivables, (xi) take control, in any manner, of any item of payment or proceeds from any account debtor, (xii) prepare, file and sign the Debtor's name on any Proof of Claim in Bankruptcy or similar document against any account debtor, (xiii) prepare, file and sign the Debtor's name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables, (xiv) do all acts and things necessary, in the Bank's sole discretion, exercised in good faith, to fulfill the Debtors' -5- obligations under the Loan Documents, (xv) endorse the name of the Debtor upon any check, Chattel Paper, Document, Instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Receivables or Inventory; (xvi) use the Debtor's stationery and sign the Debtor's name to verifications of the Receivables and notices thereof to account debtors; (xvii) access and use the information recorded on or contained in any data processing equipment or computer hardware or software relating to the Receivables, Inventory, or other Collateral or proceeds thereof to which the Debtor has access, (xviii) demand, sue for, collect, compromise and give acquittances for any and all Collateral, (xix) prosecute, defend or compromise any action, claim or proceeding with respect to any of the Collateral, and (xx) take such other action as the Bank may deem appropriate with respect to the Collateral, including extending or modifying the terms of payment of the Debtor's debtors. This power of attorney, being coupled with an interest, shall be irrevocable for the life of this Agreement. To the extent permitted by Law, each Debtor hereby waives all claims of damages due to or arising from or connected with any of the rights or remedies exercised by the Bank pursuant to this Agreement, except claims for physical damage to the Collateral arising from gross negligence or willful misconduct by the Bank. (b) The Bank shall have the right to lease, sell or otherwise dispose of all or any of the Collateral at public or private sale or sales for cash, credit or any combination thereof, with such notice as may be required by Law (it being agreed by each Debtor that, in the absence of any contrary requirement of Law, ten (10) days' prior notice of a public or private sale of Collateral shall be deemed reasonable notice), in lots or in bulk, for cash or on credit, all as the Bank, in its sole discretion exercised in good faith, may deem advisable. Such sales may be adjourned from time to time with or without notice. The Bank shall have the right to conduct such sales on any Debtor's premises or elsewhere and shall have the right to use any Debtor's premises without charge for such sales for such time or times as the Bank may see fit. The Bank may purchase all or any part of the Collateral at public or, if permitted by Law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Debt. 9. The security interest in each Debtor's Collateral granted to and created in favor of the Bank by this Agreement shall be for the benefit of the Bank. Each of the rights, privileges, and remedies provided to the Bank hereunder or otherwise by Law with respect to each Debtor's Collateral shall be exercised by the Bank only for its own benefit, and any of the Debtor's Collateral or proceeds thereof held or realized upon at any time by the Bank shall be applied as set forth in Section 9.2.5 of the Credit Agreement. Each Debtor shall remain liable to the Bank for and shall pay to the Bank any deficiency which may remain after such sale or collection. 10. If the Bank repossesses or seeks to repossess any of the Collateral pursuant to the terms hereof because of the occurrence and continuance of an Event of Default, then to the extent it is commercially reasonable for the Bank to store any Collateral on any Debtor's premises, such Debtor, to the extent it has the right to do so, hereby agrees to lease to the Bank on a month-to-month tenancy for a period not to exceed one hundred twenty (120) days at the Bank's election, at a rental of One Dollar ($1.00) per month, the premises on which the Collateral is located, provided it is located on premises owned or leased by such Debtor. -6- 11. Upon indefeasible payment in full of the Debt, expiration of the Letters of Credit and termination of the Credit Agreement, this Agreement shall terminate and be of no further force and effect, and the Bank shall thereupon promptly return to each Debtor such of its Collateral and such other documents delivered by such Debtor hereunder as may then be in the Bank's possession and execute such documents, instruments, agreements or any combination thereof as the Debtors shall reasonably request to evidence such termination. Until such time, however, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Upon any sale or other transfer of any Collateral which sale is not prohibited by and which disposition is made in accordance with the Credit Agreement, the Bank shall (i) release its security interest on the Collateral being sold or transferred and (ii) execute such documents, instruments, agreements or any combination thereof as the Debtor shall request to evidence such termination. 12. No failure or delay on the part of the Bank in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof or of any other right, remedy, power or privilege of the Bank hereunder; nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. No waiver of a single Event of Default shall be deemed a waiver of a subsequent Event of Default. All waivers under this Agreement must be in writing. The rights and remedies of the Bank under this Agreement are cumulative and in addition to any rights or remedies which it may otherwise have, and the Bank may enforce any one or more remedies hereunder successively or concurrently at its option. 13. All notices, statements, requests and demands given to or made upon either party hereto in accordance with the provisions of this Agreement shall be given or made as provided in Section 11.6 of the Credit Agreement. 14. Each Debtor agrees that as of the date hereof, all information contained on the Security Interest Data Schedule attached hereto as SCHEDULE A is accurate and complete and contains no omission or misrepresentation. The Debtors shall promptly notify the Bank of any changes in the information set forth thereon. 15. Each Debtor acknowledges that the provisions hereof giving the Bank rights of access to books, records and information concerning the Collateral and such Debtor's operations and providing the Bank access to such Debtor's premises are intended to afford the Bank with immediate access to current information concerning such Debtor and its activities, including without limitation, the value, nature and location of the Collateral so that the Bank can, among other things, make an appropriate determination after the occurrence of an Event of Default, whether and when to exercise its other remedies hereunder and at Law, including without limitation, instituting a replevin action should such Debtor refuse to turn over any Collateral to the Bank. Each Debtor further acknowledges that should such Debtor at any time fail to promptly provide such information and access to the Bank, such Debtor acknowledges that the Bank would have no adequate remedy at Law to promptly obtain the same. Each Debtor agrees that the provisions hereof may be specifically enforced by the Bank and waives any claim or defense in any such action or proceeding that the Bank has an adequate remedy at Law. -7- 16. This Agreement shall be binding upon and inure to the benefit of the Bank and its successors and assigns, and each Debtor and their successors and assigns, except that the Debtors may not assign or transfer the Debtor's obligations hereunder or any interest herein. 17. This Agreement shall be deemed to be a contract under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of said Commonwealth excluding its rules relating to conflicts of Law. 18. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. [SIGNATURES APPEAR ON NEXT PAGE] -8- [SIGNATURE PAGE 1 OF 1 TO SECURITY AGREEMENT] IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed and delivered this Agreement as of the day and year first above set forth. GRUBB & ELLIS COMPANY By: /s/ Brian Parker ------------------------------- Brian Parker Senior Vice President and Chief Financial Officer EACH OF THE CORPORATIONS LISTED AS A SUBSIDIARY ON THE ATTACHED SCHEDULE I By: /s/ Brian Parker ------------------------------ Brian Parker Senior Vice President and Chief Financial Officer PNC BANK, NATIONAL ASSOCIATION By: /s/ Paul A. Palombo ------------------------------ Name: Paul A. Palombo Title: Vice President EX-10.5 10 TRADEMARK SECURITY Exhibit 10.5 TRADEMARK SECURITY AGREEMENT FOR VALUE RECEIVED, the receipt and sufficiency of which are hereby acknowledged, the undersigned GRUBB & ELLIS COMPANY ("Debtor"), a Delaware corporation, hereby conveys a security interest to PNC BANK, NATIONAL ASSOCIATION ("Lender"), a national banking association, its successors and assigns, all of the Debtor's right, title and interest in and to (i) the trademarks and any applications therefor listed on EXHIBIT A hereto and (ii) any United States federally registered other trademarks and applications therefor which Debtor shall hereafter acquire, in each case including without limitation all proceeds thereof, (all of the aforesaid property being hereinafter referred to as the "Collateral") as security for the payment when due whether by declaration, acceleration or otherwise of the principal of and interest on each and every loan of Lender to the Debtor and each and every other liability of Debtor to Lender, including (i) all "Obligations", as such term is defined in the Credit Agreement of even date herewith among, inter alia, the Debtor and the Lender, as the same may be amended and modified from time to time (the "Credit Agreement"), (ii) liabilities now in existence, (iii) liabilities incurred or arising contemporaneously herewith, and (iv) liabilities that shall hereafter be incurred or arise (collectively, the "Liabilities"). Capitalized terms not otherwise defined herein shall have the meanings given to them in the Credit Agreement unless the context clearly indicates otherwise. 1. Debtor covenants and warrants that as of the date hereof and to the best of its knowledge: (a) Each of the trademarks constituting a part of the Collateral is subsisting and has not been adjudged invalid or unenforceable; (b) All of the trademarks constituting a part of the Collateral are valid and enforceable; (c) No claim has been made that the use of any of the trademarks constituting a part of the Collateral does or may violate the rights of any third person; (d) With the exception of licenses of the Collateral, the Debtor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to all of the trademarks constituting a part of the Collateral, free and clear of any liens, charges and encumbrances other than Permitted Liens (as defined in the Credit Agreement); (e) Debtor has the unqualified right to enter into this Agreement and perform its terms; (f) Debtor has used, and shall continue to use for the duration of this Agreement, consistent standards of quality in its services sold under any trademarks constituting part of the Collateral. 2. Debtor agrees that, until such time as all of the Liabilities shall have been satisfied in full, it shall not enter into any agreement which is inconsistent with Debtor's obligations under this Agreement, without Lender's prior written consent;. 3. If, during the term of this Agreement, Debtor shall at any time or from time to time acquire any additional material United States federally registered trademarks and/or applications therefor not then listed on Exhibit A, the Debtor shall give to Lender prompt notice thereof in writing and the provisions hereof shall automatically apply thereto. 4. In any case mentioned in Section 3 hereof, Debtor authorizes Lender to modify this Agreement by amending Exhibit A to include any material United States federally registered trademarks and/or applications therefor so acquired by Debtor. 5. In addition to the rights and remedies available to Lender hereunder, Lender shall have such rights and remedies as are set forth in the Credit Agreement. At such time as Debtor shall have satisfied in full all of the Liabilities and the Commitment is terminated, this Agreement shall terminate and Lender shall execute and deliver to Debtor all documents, instruments, agreement or any combination thereof as may be necessary or proper as the Debtors shall reasonably request to evidence such termination. 6. To the extent set forth in, and subject to, the Credit Agreement, any and all reasonable fees, costs and expenses of whatever kind or nature incurred by Lender in connection with the filing or recording of any documents, and the payment or discharge of reasonable counsel fees, maintenance fees or other costs of protecting, maintaining or preserving of any of the Collateral, or of defending or prosecuting any actions or proceedings arising out of or related to any of the Collateral, shall be borne and paid by Debtor on demand by Lender and until so paid shall be added to the principal amount of the Liabilities and shall bear interest at default rate prescribed in the instrument or instruments evidencing such Liabilities. 7. Debtor shall have the duty to prosecute diligently any application with respect to any material trademarks constituting a part of the Collateral pending as of the date of this Agreement or thereafter until the Liabilities shall have been paid in full, to make any necessary federal application with respect thereto, to file and prosecute opposition and cancellation proceedings, and to do any and all acts which are necessary to preserve and maintain all rights in all of the material trademarks constituting a part of the Collateral. Any expenses incurred in connection with the Collateral shall be borne by Debtor. Debtor shall not abandon any of the trademarks constituting a part of the Collateral, without the consent of Lender, which consent shall not be unreasonably withheld. 8. If Debtor fails to comply with any of its obligations hereunder, Lender may after the occurrence and during the continuance of an Event of Default do so in Debtor's name or in Lender's name, but at Debtor's expense, and Debtor hereby agrees to in accordance with, and subject to the Credit Agreement, reimburse Lender in full for all expenses, including reasonable attorneys' fees, incurred by Lender in protecting, defending and maintaining any of the trademarks constituting a part of the Collateral. 9. No course of dealing between Debtor and Lender, nor any failure to exercise, nor any delay in exercising, on the part of Lender, any right, power or privilege hereunder or under any note or instrument evidencing any of the Liabilities or any agreement pursuant to which they were incurred shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 10. All of Lender's rights and remedies with respect to any of the trademarks constituting a part of the Collateral, whether established hereby or by any instrument or instruments evidencing any of the Liabilities or by any other agreements or by law, shall be cumulative and may be exercised singularly or concurrently. 11. If any provision of this Agreement is hereafter determined to be unlawful, and if the unlawful provision can be deleted without altering the essence of this Agreement, the unlawful provision and only that provision shall be severed from this Agreement and the remaining provisions shall remain in full force and effect. 12. This Agreement is subject to modification only by a writing signed by the parties, except as provided in Section 4 hereof. 13. The benefits and burdens of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. 14. This Trademark Security Agreement and any other documents delivered in connection herewith and the rights and obligations of the parties hereto and thereto shall for all purposes be governed by and construed and enforced in accordance with the substantive law of the Commonwealth of Pennsylvania without giving effect to the principles of conflict of laws. [SIGNATURES APPEAR ON NEXT PAGE] [SIGNATURE PAGE 1 OF 1 TO TRADEMARK SECURITY AGREEMENT] WITNESS the due execution hereof this 13th day of March, 1997. GRUBB & ELLIS COMPANY By: /s/ Brian Parker -------------------------------- Brian Parker Senior Vice President and Chief Financial Officer EX-11 11 STATEMENT RE: EXHIBIT 11 GRUBB & ELLIS COMPANY AND SUBSIDIARIES EXHIBIT (11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS - FORM 10-Q for the three and nine months periods ended March 31, 1997 and 1996 (Unaudited) (in thousands, except for shares and per share amounts)
For the Three Months For the Nine Months Ended March 31, Ended March 31, ------------------------- ------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Primary income (loss) per share applicable to Common Stock: Weighted average common shares and equivalents outstanding 19,963,770 8,883,970 15,150,338 8,861,519 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 534 $ (5,116) $ 10,553 $ 812 Earnings applicable to Senior Preferred Stock - (557) (1,032) (1,590) Junior Preferred Stock - (214) - (627) ---------- ---------- ---------- ---------- Net income (loss) applicable to Common Stockholders $ 534 $ (5,887) $ 9,521 $ (1,405) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per common shares and equivalents applicable to Common Stock- From operations $ (.07) $ (.66) $ .26 $ (.16) From extraordinary gain .10 - .37 - ---------- ---------- ---------- ---------- $ .03 $ (.66) $ .63 $ (.16) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Fully-diluted income (loss) per share applicable to Common Stock: Weighted average common shares and equivalents outstanding 20,162,084 8,883,970 18,787,134 8,861,519 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to Common Stockholders $ 534 $ (5,887) $ 10,553 $ (1,405) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per common share and equivalents applicable to Common Stock- From operations $ (.07) $ (.66) $ .26 $ (.16) From extraordinary gain .10 - .30 - ---------- ---------- ---------- ---------- $ .03 $ (.66) $ .56 $ (.16) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
EX-27 12 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 13,106 0 8,918 3,615 0 23,033 22,285 17,079 30,433 13,376 0 0 0 196 4,400 30,433 0 169,350 0 84,455 78,392 0 1,431 5,072 95 4,977 0 5,576 0 10,553 .63 .58 INTEREST INCOME AND OTHER INCOME, NET ARE INCLUDED UNDER TOTAL REVENUES.
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