-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qd6+xcRvPPLaQIodym7sdqfRlIRyJlmGo5KfQHT6FXnpuqH8ntiEaecm9cO8cN+p Q9feKjy5Kh0UTLueD8UK3g== 0000950124-94-000790.txt : 19940425 0000950124-94-000790.hdr.sgml : 19940425 ACCESSION NUMBER: 0000950124-94-000790 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19940422 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GRUBB & ELLIS CO CENTRAL INDEX KEY: 0000216039 STANDARD INDUSTRIAL CLASSIFICATION: 6531 IRS NUMBER: 941424307 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-32339 FILM NUMBER: 94523893 BUSINESS ADDRESS: STREET 1: ONE MONTGOMERY ST-STE3100 STREET 2: TELESIS TWR 9TH FLR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4159561990 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL INSURANCE CO OF AMERICA CENTRAL INDEX KEY: 0000729057 STANDARD INDUSTRIAL CLASSIFICATION: 6311 IRS NUMBER: 221211670 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: PRUDENTIAL PLZ STREET 2: 751 BROAD STREET CITY: NEWARK STATE: NJ ZIP: 07102-3777 SC 13D/A 1 SCHEDULE 13D/A (SECOND AMENDMENT) 1 OMB Number: 3235-0145 Expires: August 31, 1991 Estimated average burden hours per response...14.90 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.___2__)* Grubb & Ellis Company ________________________________________________________________________________ (Name of Issuer) Common Stock, par value $.01 per share ________________________________________________________________________________ (Title of Class of Securities) 400095204 ________________________________________________________________________________ (CUSIP Number) John Mullman The Prudential Insurance Company of America, Four Gateway Center, Newark, NJ 07102 (201) 802-7500 ________________________________________________________________________________ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 28, 1994. ______________________________________________________ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box / /. Check the following box if a fee is being paid with the statement / /. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) NOTE: Six copies of this statment, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 2 SCHEDULE 13D CUSIP No. 400095204 Page 2 of Pages ________________________________________________________________________________ 1 NAME OF REPORTING PERSON S.S OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON THE PRUDENTIAL INSURANCE COMPANY OF AMERICA IRS Identification Number 22-1211670 ________________________________________________________________________________ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / / (b) /X/ ________________________________________________________________________________ 3 SEC USE ONLY ________________________________________________________________________________ 4 SOURCE OF FUNDS* 00 ________________________________________________________________________________ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(E) / / ________________________________________________________________________________ 6 CITIZENSHIP OR PLACE OR ORGANIZATION New Jersey ________________________________________________________________________________ 7 SOLE VOTING POWER 3,072,060 ______________________________________________________________ NUMBER OF SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY -0- EACH _______________________________________________________________ REPORTING PERSON 9 SOLE DISPOSITIVE POWER WITH 3,272,060 _______________________________________________________________ 10 SHARED DISPOSITIVE POWER -0- ________________________________________________________________________________ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,272,060 ________________________________________________________________________________ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / ________________________________________________________________________________ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 47.2% ________________________________________________________________________________ 14 TYPE OF REPORTING PERSON* IC ________________________________________________________________________________ *SEE INSTRUCTIONS BEFORE FILLING OUT! SEC 1746 (9-88) 2 0f 7 3 This Amendment No. 2 (the "Amendment") to Schedule 13D is being filed on behalf of the undersigned to amend the Schedule 13D (the "Schedule 13D") dated November 11, 1992, relating to the common stock, par value, $.01 per share (the "Common Stock"), of Grubb & Ellis Company, a Delaware corporation (the "Company"). The Amendment amends and restates the Schedule 13D in its entirety as required pursuant to Item 101(a)(2)(ii) of Regulation S-T under the Securities Exchange Act of 1934, as amended. ITEM 1. SECURITY AND ISSUER. This statement relates to the Common Stock, par value $.01 per share (the "Common Stock"), issued by Grubb & Ellis Company, a Delaware corporation (the "Company") which has its principal executive offices at One Montgomery Street, San Francisco, California 94104. ITEM 2. IDENTITY AND BACKGROUND. This statement is filed by The Prudential Insurance Company of America, a New Jersey corporation ("Prudential"). Prudential is a mutual life insurance company which has its principal business and principal office at 751 Broad Street, Newark, New Jersey 07102. The following persons are the current directors (the "Directors") of Prudential: James G. Affleck, P.O. Box 477, East Dorset, Vermont 05253, has been retired since 1984. Formerly the Chairman of American Cyanamid Company. Robert E. Beck, 751 Broad Street, Newark, New Jersey 07102, has been retired since 1992. Chairman - Emeritus of Prudential. William W. Boeschenstein, retired since 1990. Formerly the Chairman of the Board and Chief Executive Officer of Owens-Corning Fiberglass Corporation, Fiberglass Tower, Toledo, Ohio 43659, which engages in the business of manufacturing fiberglass products. Lisle C. Carter, Jr. has been retired since 1991 and formerly was a partner in the law firm of Verner Liipfert, Bernhard, McPherson & Hand, Chartered, 1307 Fourth Street, S.W., Washington, D.C. 20024 James G. Cullen is President of Bell Atlantic Corporation, 1310 North Court House Road, 11th Floor, Arlington, Virginia 22201. Carolyne K. Davis, is a Health Care Advisor at the accounting firm of Ernst & Young, 1200 Nineteenth Street, N.W. Washington, D.C. 20036. 4 Roger A. Enrico is Vice Chairman of Pepsico, Inc., 7701 Legacy Drive, Plano, Texas 75024. William H. Gray, III, is President and Chief Executive Officer of the United Negro College Fund, Inc., 500 East 62nd Street, New York, New York 10021. Jon F. Hanson, is Chairman of Hampshire Management Company, 235 Moore Street, Suite 200 Hackensack, New Jersey 07601. Constance J. Horner is a Guest Scholar at the Brookings Institution, 1775 Massachusetts Ave., N.W., Washington, D.C. 20036-2188. Allen F. Jacobson, 3050 Minnesota World Trade Center, 37th Street East, St. Paul Minnesota 55101, has been retired since 1991. Formerly the Chairman and Chief Executive Officer of Minnesota Mining and Manufacturing (3M). Garnett L. Keith, Jr., is Vice Chairman of Prudential, 751 Broad Street, Newark, New Jersey 07102. Burton G. Malkiel, is a Professor of Economics at Princeton University, 110 Fisher Hall, Prospect Avenue, Princeton University, Princeton, New Jersey 08544. John R. Opel, is Retired Chairman of International Business Machines Corporation, 590 Madison Avenue, New York, New York 10022. Donald E. Procknow, 18 Saw Mill Road, Saddle River, New Jersey 07458, has been retired since 1986. Formerly the Vice Chairman and Chief Operating Officer of AT&T Technologies, Inc. Richard M. Thomson, is Chairman of the Board and Chief Executive Officer of the Toronto-Dominion Bank, Toronto-Dominion Centre, Toronto, Ontario M5K 1A2, Canada. P. Roy Vagelos, M.D., is Chairman and Chief Executive Officer of Merck & Co., Inc., a manufacturer of pharmaceuticals, 126 East Lincoln Avenue, Rahway, New Jersey 07065. Stanley C. Van Ness, is an attorney at the law firm of Picco Mack Herbert Kennedy Jaffe Perrella and Yoskin, One State Street Square, Suite 1000, Trenton, New Jersey 08607 Paul A. Volcker, is Chairman of James D. Wolfenshohn, Inc., 599 Lexington Avenue, New York, New York 10022. -4- 5 Joseph H. Williams is Chairman of the Board of The Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172. Robert C. Winters, is Chairman of the Board, Chief Executive Officer and President of Prudential, 751 Broad Street, Newark, New Jersey 07102. The following persons are the current executive officers (the "Officers") and controlling persons of Prudential, and each of their business addresses is 751 Broad Street, Newark, New Jersey: Robert C. Winters - Chairman of the Board, Chief Executive Officer and President Garnett L. Keith, Jr. - Vice Chairman William P. Link - Chairman and Chief Executive Officer, Group Operations Edward D. Zinbarg - Executive Vice President Robert P. Hill - Chairman and Chief Executive Officer, Prudential Direct Robert E. Riley - Chairman and Chief Executive Officer, Prudential Reinsurance Company James W. Stevens - Chairman and Chief Executive Officer, Prudential Asset Management Group Martha J. Clark - President, Prudential Asset Management Company William M. Bethke - Senior Vice President Stephen R. Braswell - Senior Vice President John D. Brookmeyer - Senior Vice President E. Michael Caulfield - Senior Vice President Robert M. Chmely - Senior Vice President James E. Dwane - Senior Vice President William S. Field - Senior Vice President William D. Friel - Chief Executive Officer, Prudential Service Company -5- 6 James R. Gillen - Senior Vice President and General Counsel Bruce J. Goodman - President, Prudential Business Systems Nicholas M. Graves - Senior Vice President Allen M. Haight - Senior Vice President Samuel H. Havens - Senior Vice President Eugene B. Heimberg - Senior Vice President William G. Hunt, Jr. - Senior Vice President Milan E. Johnson - President, Prudential Residential Services Company Ira J. Kleinman - Senior Vice President Donald C. Mann - Senior Vice President John P. Murray - Executive Vice President and Director of Corporate Risk Management Eugene M. O'Hara - Senior Vice President, Comptroller and Chief Financial Officer I. Edward Price - Senior Vice President and Company Actuary Donald G. Southwell - Senior Vice President Dorothy K. Light - Vice President and Secretary Martin Pfinsgraff - Vice President and Treasurer Prudential, the Directors and the Officers are collectively referred to herein, as the "Enumerated Persons". Each of the Enumerated Persons are American citizens, with the exception of Mr. Richard M. Thomson, who is a Canadian citizen. Based upon the knowledge of Prudential and without independent verification, none of the Enumerated Persons has, during the last five years, been convicted in a criminal proceeding, nor have any of the Enumerated Persons, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, -6- 7 federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On January 29, 1993, Prudential purchased the Securities (as defined below) for $15 million, which amount was paid by the cancellation by Prudential and delivery to the Company of 10.65% Subordinated Notes due November 1996 of the Company ("Subordinated Notes") in the aggregate principal amount of $15 million. The Subordinated Notes were originally acquired by Prudential from the Company pursuant to that certain Note Purchase Agreement dated as of November 1, 1986 by and between Prudential and the Company (the "Old Note Purchase Agreement"). The other shares of Common Stock owned by Prudential were acquired upon the exercise of that certain Stock Subscription Warrant dated November 1, 1986 (the "Old Warrant"). The exercise price of the Old Warrant was $2,902,112.08, and was paid by application of $920,028.75 in principal amount of the PIK Notes (as defined below) and the cancellation of $1,982,083.33 of accrued and unpaid interest on the Subordinated Notes. In addition, it is contemplated by the provisions of the Term Sheet dated March 28, 1994 (the "1994 Term Sheet") that in connection with a proposed capital infusion (the "1994 Transaction") which was agreed to in principle by the Company, Prudential and Warburg, Pincus Investors, L.P. ("Warburg") that as consideration for modifying the terms of that certain Senior Note, Subordinated Note and Revolving Credit Note Agreement dated as of November 2, 1992 (the "New Note Purchase Agreement") Prudential will be granted additional warrants initially to purchase 150,000 shares of Common Stock at an exercise price of $2.375 per share (subject to adjustment to prevent dilution (the "1994 Prudential Warrants"). The Term Sheet is described in Items 4 and 6 hereto and is attached as Exhibit 1 hereto. The information contained in Items 4 and 6 and Exhibit 1 attached hereto is incorporated herein by reference. The New Note Purchase Agreement was included as part of Exhibit 1 to the Schedule 13D, as filed on November 11, 1992, and is incorporated herein by reference. ITEM 4. PURPOSE OF TRANSACTION. CONSUMMATION OF THE PRUDENTIAL SECURITIES PURCHASE AGREEMENT. On January 29, 1993 (the "Closing Date"), as part of a restructuring of the Company (the "Restructuring"), Prudential and the Company consummated the transactions contemplated by that certain Securities Purchase Agreement dated as of November 2, 1992 (the "Prudential Securities Purchase Agreement") between Prudential and the Company, pursuant to which, Prudential (for -7- 8 the consideration described in Item 3 above), upon the terms and conditions stated therein, purchased (i) 150,000 shares of a newly created series of Junior Convertible Preferred Stock of the Company and (ii) five-year warrants initially to purchase 200,000 shares of Common Stock at an exercise price of $5.50 per share (the "New Prudential Warrants" and, collectively with the Junior Convertible Preferred Stock, the "Securities"). Pursuant to the Term Sheet, Prudential has agreed that upon consummation of the Company's sale of rights to acquire common stock in the Company as contemplated by the Term Sheet (the "Rights Offering") the exercise price of the New Prudential Warrants will be reduced to $3.50 per share. Exercise of the Old Prudential Warrant. Additionally, on the Closing Date, immediately following consummation of the transactions contemplated by the New Note Purchase Agreement and immediately prior to the consummation of the transactions contemplated by the Prudential Securities Purchase Agreement, Prudential exercised the Old Warrant issued to it by the Company pursuant to the Old Note Purchase Agreement. Upon exercise of the Old Warrant, Prudential received 397,549 shares of Common Stock. See Item 3, above. Consummation of the New Note Purchase Agreement. In addition, on the Closing Date and prior to consummation of the transactions contemplated by the Prudential Securities Purchase Agreement and the exercise of the Old Warrant, Prudential and the Company consummated the transactions contemplated by the New Note Purchase Agreement, pursuant to which, the Company issued to Prudential (i) $5 million Revolving Credit Note due December 31, 1994 (the "New Revolving Credit Note"), (ii) $10 million of Senior Notes due November 1, 1996 (the "New Senior Notes"), and (iii) $10 million of 10.65% Subordinated Payment-in-Kind Notes ("PIK Notes"). The New Revolving Credit Note, the New Senior Notes and the PIK Notes were issued in consideration for the cancellation of certain notes of the Company, in an aggregate principal amount of $25 million, issued pursuant to the Old Note Purchase Agreement. Consummation of the Warburg Purchase Agreement. On the Closing Date and simultaneously with the consummation of the transactions contemplated by the Prudential Securities Purchase Agreement, Warburg, Joe F. Hanauer ("Hanauer") and the Company consummated the transactions contemplated by that certain Securities Purchase Agreement (the "Warburg Purchase Agreement", and collectively with the Prudential Purchase Agreement, the "Securities Agreements") dated as of November 2, 1992, pursuant to which Warburg (for a purchase price of $12,850,000) and Hanauer (for a purchase price of $900,000) purchased (i) 128,266 and 8,894 shares, respectively, of the Senior Convertible Preferred Stock, (ii) five year warrants initially to purchase 340,000 and 160,000 shares of Common Stock, respectively, at an -8- 9 exercise price of $5.00 (the "$5.00 Warrants"), (iii) five-year warrants initially to purchase 142,000 and 58,000 shares of Common Stock, respectively, at an exercise price of $5.50 per share (the "Warburg $5.50 Warrants"), and (iv) five-year warrants initially to purchase 373,818 and 26,182 shares of Common Stock, respectively, at an exercise price of $5.00 per share only in the event that the Company incurs certain defined liabilities in excess of $1.5 million (the "Contingent Warrants", and collectively with the Warburg $5.50 Warrants and the $5.00 Warrants, the "Warburg Warrants"). Entry Into the Stockholders' Agreement. On the Closing Date, the Company, Prudential, Warburg and Hanauer entered into the Stockholders' Agreement which contains an agreement between Warburg and Prudential with respect to voting for election of directors and grants Prudential, Warburg and Hanauer certain registration rights with respect to certain of the securities held by them. The specific terms of the voting agreement and the registration rights are described more fully in item 6, below, and are incorporated herein by reference. The Stockholders' Agreement was filed as Exhibit 1 to the First Amendment to the Schedule 13D, filed on February 9, 1993, and is incorporated herein by reference in its entirety. On July 1, 1993, the Company, Prudential, Warburg and Hanauer agreed to an amendment (the "Stockholders' Amendment") to the Stockholders' Agreement, which changed the terms of the voting agreement, among other things. Furthermore, the Term Sheet contemplates that, in an effort to permit the Company's subsidiary, Grubb & Ellis Asset Services Corporation, to re-enter the government contracting business with the Resolution Trust Corporation ("RTC") and the Federal Deposit Insurance Corporation ("FDIC"), Prudential will work with the Company in a good faith effort, which may include certain further revisions to the Stockholders' Agreement, as further described in Item 6 hereof and in Exhibit 1 hereto. Certificate Amendments. On the Closing Date, prior to the consummation of the Restructuring, the Company's Certificate of Incorporation was amended (the "Certificate Amendments"). The Certificate Amendments (i) reduced the par value of the Common Stock from $1.00 to $.01, (ii) effected a one-for-five reverse stock split of the Common Stock, (iii) authorized 250,000 shares of the Senior Convertible Preferred Stock and (iv) authorized 200,000 shares of the Junior Convertible Stock. The Certificate Amendments are in substantially the same form as was filed previously as part of Exhibit 1 to the Schedule 13D, as filed on November 11, 1992. On May 28, 1993, the Board of Directors of the Company unanimously approved additional amendments to the -9- 10 Company's Certificate of Incorporation which amendments were approved at the Annual Meeting of Stockholders of the Company on August 9, 1993. These amendments, among other things, (a) eliminated the three classes of directors, (b) eliminated cumulative voting in the election of directors, (c) allowed for the removal of members of the Board, with or without cause, by the affirmative vote of a majority of the outstanding shares, (d) provided the Bylaws may be amended by the affirmative vote of a majority of the outstanding shares of capital stock, (e) provided that amendments to the Certificate of Incorporation which have been approved by the Board require approval of a majority (rather than a supermajority) of the outstanding shares, (f) eliminated the supermajority vote requirement for certain business combinations and (g) permitted holders of a majority of the outstanding shares of capital stock to call a special meeting of stockholders. Removal of the limitations contained in these provisions would allow Prudential, Warburg and Hanauer, acting together, to take certain actions as stockholders that periodically were not permitted. Subsequently, the Board approved conforming amendments to the Company's Bylaws. Termination of the Rights Plan. Prior to the Closing Date, the definition of "Acquiring Person" under the Company's Stockholders' Rights Agreement was amended so that the consummation of the Restructuring would not make Prudential, Warburg or Hanauer an "Acquiring Person" as originally defined in the Rights Plan. On the Closing Date the Rights were redeemed under the Rights Plan for $.01 per share of Common Stock, payable in shares of Common Stock, which shares were listed on the New York Stock Exchange and the Pacific Stock Exchange upon issuance. The Common Stock was valued for purposes of such redemption on the basis of the current market price as defined in the Rights Plan. The whole and fractional shares of Common Stock received pursuant to the redemption were aggregated with the shares of Common Stock already held by each stockholder for the purpose of calculating the shares of Common Stock to be received by such stockholder after the reverse stock split. Following the redemption of the Rights, the Rights Plan was terminated. Election of Directors. On January 29, 1993, the Company's stockholders approved the Restructuring and elected nine members to the Board of Directors of the Company, including (i) two directors nominated by Prudential: Wilbert F. Schwartz, who was then serving as Managing Director of Prudential Investment Corp., an affiliate of Prudential, and John P. Mullman, Vice President -- Corporate Finance of Prudential; (ii) three directors nominated by Warburg: Douglas M. Karp and Reuben Leibowitz, each of whom is a partner of Warburg, Pincus & Company and E.M. Warburg, Pincus & Company, (affiliates of Warburg) and Managing Directors of E.M Warburg, Pincus & Co., Inc. (an affiliate of Warburg), and John D. Santoleri, a Vice President of Warburg, Pincus Ventures, Inc. (an affiliate of Warburg); and -10- 11 (iii) Hanauer, who serves as Chairman. Three existing directors also were elected to the Board, subjects to two of such directors being replaced with individuals who meet the New York Stock Exchange's criteria for independent directors. Subsequently, Wilbert F. Schwartz was elected as President of the Company. Upon his election Mr. Schwartz resigned all of his positions with Prudential affiliates. Furthermore, in accordance with the terms of the Stockholders' Amendment, the number of directors constituting the whole Board of Directors of the Company has been reduced to seven. The Board currently consists of six directors including (i) two directors nominated by Warburg: Reuben Leibowitz and John Santoleri; (ii) Hanauer; (iii) Wilbert F. Schwartz and (iv) two additional directors. Term Sheet. On March 28, 1994, the Company, Prudential and Warburg agreed to the terms of the Term Sheet, which sets forth certain terms and conditions for (i) a $10 million revolving bridge loan from Warburg, (ii) a rights offering and subscription warrant conversion, and (iii) modification to the New Note Purchase Agreement. The transactions contemplated by the Term Sheet are designed to provide the Company with additional working capital which the Company believes it requires to meet its current and projected working capital needs. The Term Sheet and related agreements are described in Item 6 below and such descriptions are incorporated herein by reference. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) As of the date hereof, Prudential directly beneficially owns 3,272,060 shares of Common Stock through its direct ownership of (i) 397,549 shares of Common Stock issued upon exercise of the Old Warrant, (ii) 150,000 shares of Junior Convertible Preferred Stock which are convertible into an aggregate of 2,674,511 shares of Common Stock and (iii) currently exercisable New Prudential Warrants to purchase an aggregate of 200,000 shares of Common Stock. Such shares of Junior Convertible Preferred Stock and New Prudential Warrants upon conversion and when combined with the shares of Common Stock currently held by Prudential represent approximately 47.2% of the Common Stock calculated in accordance with Rule 13d-3(d)(1)(i) as described below. As of the date hereof and based upon the knowledge of Prudential and without independent verification, none of the other Enumerated Persons beneficially owns any shares of the Common Stock. By reason of the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Act"), Prudential, Warburg and Hanauer may be deemed to be a "group". Prudential does not admit that it is a member of a "group" with -11- 12 Warburg and Hanauer, nor does it admit that it beneficially owns any shares of Common Stock now or in the future owned by Warburg or Hanauer. As of the date hereof, Warburg directly beneficially owns 5,067,425 shares of Common Stock through its direct ownership of (i) 127,150 shares of Senior Convertible Preferred Stock which are convertible into an aggregate of 4,219,052 shares of Common Stock and (ii) currently exercisable Warburg Warrants to purchase an aggregate of 848,373 shares of Common Stock. Such shares of Senior Convertible Preferred Stock and Warburg Warrants, upon conversion and exercise, represent approximately 55.5% of the Common Stock calculated in accordance with Rule 13d-3(d)(1)(i) as described below. As of the date hereof, Hanauer directly beneficially owns 555,773 shares of Common Stock through his direct ownership of (i) 21,153 shares of Common Stock, (ii) 8,817 shares of Senior Convertible Preferred Stock which are convertible into an aggregate of 292,563 shares of Common Stock and (iii) currently exercisable Warburg Warrants to purchase an aggregate of 242,057 shares of Common Stock. In addition, as of June 8 1993, Hanauer received an option to purchase 135,000 shares of Common Stock pursuant to an employee stock option plan; the shares underlying such option have been excluded from Hanauer's beneficial holdings reported on this Schedule 13D as such option will not be exercisable within 60 days of the date hereof. The shares of Senior Convertible Preferred Stock and Warburg Warrants, upon conversion and exercise, when combined with the shares of Common Stock currently held by Hanauer represent approximately 12.1% of the Common Stock calculated in accordance with Rule 13d-3(d)(1)(i) as described below. The percentages used in this paragraph 5(a) are calculated based upon the 4,060,628 shares of Common Stock issued and outstanding as of March 1, 1994, as reported in the Company's Form 10-K for the fiscal year ended December 31, 1993. The number of shares beneficially owned by Warburg and Hanauer as of the date hereof is as reported in the Schedule 13D, as amended, of Warburg filed with the Securities and Exchange Commission by Warburg. Pursuant to Rule 13d-3(d)(1)(i), shares of Common Stock which are not outstanding but which are subject to convertible securities are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the shares of Common Stock owned by the person holding such convertible securities, but are not deemed to be outstanding for purposes of computing the percentage of such shares owned by any person. (b) As of the date hereof, Prudential has full power to vote all shares of Common Stock and Junior Convertible Preferred Stock (which votes on an as-converted basis) held by -12- 13 it, subject to the terms of the Stockholders' Agreement. As of the date hereof, Prudential does not have the power to vote any shares of Common Stock issuable to it upon exercise of the New Prudential Warrants. Upon exercise of the New Prudential Warrants, Prudential would have full power to vote the shares of Common Stock issued upon exercise of the New Prudential Warrants, subject to the terms of the Stockholders' Agreement. Prudential has full power to dispose of any shares of the Common Stock and Junior Convertible Preferred Stock and the New Prudential Warrants held by it. As of the date hereof, none of the Enumerated Persons (other than Prudential) has the power to vote or dispose of any shares of Common Stock or Junior Convertible Preferred Stock. (c) None of the Enumerated Parties has effected any transactions in the Common Stock during the preceding 60 days. (d) Except as set forth in this Item 5, no person other than each respective record owner referred to herein of securities is known to have the right to receive or the power to direct the receipt of dividends from or the proceeds of sale of such securities. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIP WITH RESPECT TO SECURITIES OF THE ISSUER. A. Securities Purchase Agreements. Prudential and the Company entered into the Prudential Securities Purchase Agreement pursuant to which and upon the terms and subject to the conditions contained therein Prudential (for the consideration described in Item 3 above) purchased (i) 150,000 shares of a newly created series of Junior Convertible Preferred Stock and (ii) the New Prudential Warrants, all as described in Item 4, above. The Prudential Securities Purchase Agreement contains customary representations, warranties, agreements and indemnification provisions. The Prudential Securities Purchase Agreement, including the following exhibits thereto (i) the form of Note Purchase Agreement, (ii) the form of Stockholders' Agreement, (iii) the form of Warburg Purchase Agreement, (iv) the form of Certificate Amendment and (v) the form of Warrant Certificate, was filed as Exhibit 1 to the Schedule 13D, as initially filed on November 11, 1992. The information contained in Exhibit 1 thereto is incorporated herein by reference. -13- 14 The terms and conditions of the Warburg Purchase Agreement are substantially similar to the terms and conditions contained in the Prudential Securities Purchase Agreement. Warburg's consummation of the transactions contemplated by the Warburg Purchase Agreement is described further in Item 4 above, and that description is incorporated herein by reference. B. Description of Equity Securities. Junior Convertible Preferred Stock. The Junior Convertible Preferred Stock will, with respect to dividend rights and rights on redemption and on liquidation, winding up or dissolution rank prior to any other equity securities of the Company, excluding the Senior Convertible Preferred Stock. Holders of Junior Convertible Preferred Stock will be entitled to receive, out of any funds legally available therefor, cumulative dividends payable in cash at a rate of 5% of the Junior Stated Value (as defined below) per annum. Accrued but unpaid dividends will increase at a compounding rate equal to 5% of the Junior Stated Value per annum compounded annually. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, if assets are remaining after the payment in full of the liquidation preference of the Senior Convertible Preferred Stock, the holders of the shares of Junior Convertible Preferred Stock then outstanding will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to $100.00 per share (the "Junior Stated Value") plus an amount equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution, before any payment shall be made or any assets distributed to the holders of any equity security of the Company. The Junior Convertible Preferred Stock will be convertible into shares of Common Stock, at the option of the holder, at any time. The initial conversion price will be set at the Closing, such that conversion of the 150,000 shares of Junior Convertible Preferred Stock issued to Prudential plus the shares of Common Stock issued upon exercise of the Old Prudential Warrants would result in Prudential holding approximately 27% of the Company's equity on a fully diluted basis, but before exercise of any warrants issued in connection with the Restructuring. The Junior Convertible Preferred Stock will be subject to mandatory conversion in the event that (i) at all times during a two-year period the ratio of consolidated debt to net income before taxes, excluding extraordinary items, and income or loss from discontinued operations plus total interest expense and depreciation and amortization has not exceeded 3.0:1.0, (ii) on each trading day during a six-month period the price of the Common Stock has exceeded $1.75 per share, and (iii) the Company is in full compliance with the terms and conditions -14- 15 of all agreements pursuant to which the Company has incurred indebtedness for borrowed money. The conversion price is subject to adjustment from time to time upon the occurrence of certain stock dividends or distributions, stock splits, reverse stock splits or stock reclassifications, certain issuances of rights, options, warrants or securities directly or indirectly convertible into Common Stock to all holders of Common Stock entitling them to purchase shares of Common Stock at a price per share less than the greater of the current market price or the conversion price per share on the date of such issue, certain extraordinary dividends or distributions to all holders of Common Stock, and certain issuances of Common Stock for consideration per share less than the greater of the current market price or the conversion price per share on the date of such issue. Assuming full satisfaction of the Company's mandatory redemption obligation with respect to the Senior Convertible Preferred Stock, on November 1, 2000, 2001, 2002 and 2003, the Company will be required to redeem 16.67%, 16.67%, 33.4% and all remaining shares, respectively, of the Junior Preferred Stock, in each case at the Junior State Value plus accrued and unpaid dividends and to the extent the Company has the funds legally available therefor. The Term Sheet contemplates that Prudential will exchange its Junior Convertible Preferred Stock for stock with substantially equivalent rights but which will not be redeemable and will have certain different dividend rights. See the discussion above. Senior Convertible Preferred Stock. The Senior Convertible Preferred Stock will, with respect to dividend rights and rights on redemption and on liquidation, winding up or dissolution rank prior to any other equity securities of the Company. Holders of Senior Convertible Preferred Stock will be entitled to receive, out of any funds legally available therefor, cumulative dividends payable in cash at a rate of 12% of the Senior Stated Value (as defined below) per annum. Accrued but unpaid dividends will increase at a compounding rate equal to 12% of the Senior Stated Value per annum compounded annually. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of the shares of Senior Convertible Preferred Stock then outstanding will be next entitled to be first paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to $100.00 per share (the "Senior Stated Value") plus an amount equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution, before any payment shall be made or any -15- 16 assets distributed to the holders of any equity security of the Company. The Senior Convertible Preferred Stock will be convertible into shares of Common Stock, at the option of the holder, at any time. The initial conversion price will be set at the Closing, such that conversion of the 137,160 shares of Senior Convertible Preferred Stock issued to Warburg and Hanauer would result in such persons holding approximately 27% of the Company's equity on a fully diluted basis, but before exercise of any warrants issued in connection with the Restructuring. The Senior Convertible Preferred Stock will be subject to mandatory conversion in the event that (i) at all times during a two-year period the ratio of consolidated debt to net income before taxes, excluding extraordinary items, and income or loss from discontinued operations plus total interest expense and depreciation and amortization has not exceeded 3.0:1.0, (ii) on each trading day during a six-month period the price of the Common Stock has exceeded $1.75 per share, and (iii) the Company is in full compliance with the terms and conditions of all agreements pursuant to which the Company has incurred indebtedness for borrowed money. The conversion price is subject to adjustment from time to time upon the occurrence of certain stock dividends or distributions, stock splits, reverse stock splits or stock reclassifications, certain issuances of rights, options, warrants or securities directly or indirectly convertible into Common Stock to all holders of Common Stock entitling them to purchase shares of Common Stock at a price per share less than the greater of the current market price or the conversion price per share on the date of such issue, certain extraordinary dividends or distributions to all holders of Common Stock, and certain issuances of Common Stock for consideration per share less than the greater of the current market price or the conversion price per share on the date of such issue. On November 1, 2000 up to 50% of the shares of Senior Convertible Preferred Stock issued at any time will be subject to mandatory redemption, with the remaining shares subject to mandatory redemption on November 1, 2001, in each case at the Senior State Value plus accrued and unpaid dividends and to the extent the Company has the funds legally available therefor. The Term Sheet contemplates that Warburg will exchange its Senior Convertible Preferred Stock for stock with equivalent rights but which is not redeemable. See the discussion above. Voting Rights. The Preferred Stock is entitled to vote on all matters submitted to a vote of the stockholders of -16- 17 the corporation on an as-converted-to Common Stock basis. Without the consent of two-thirds of the issued and outstanding shares of both the Senior Convertible Preferred Stock and the Junior Convertible Preferred Stock, each voting separately as a class, the Company may not (i) authorize or issue any class of shares, (ii) increase the authorized shares of, or issue such shares, (iii) amend, alter, waive the application of or repeal certain provisions of the Certificate of Incorporation, or enter into any agreement or take any other action which in any manner would alter, change or otherwise adversely affect the powers, rights or preferences of either such security, (iv) effect a reorganization, recapitalization, liquidation, dissolution, winding up, sale of substantially all of the Company's assets or a merger, or (v) take any action which would cause a dividend to be deemed received as to either such security for certain purposes unless actually received. The Certificate Amendment denies voting rights to the holders of Common Stock with respect to matters described in clauses (ii), (iii) and (v) above except as otherwise required by Delaware law. New Prudential Warrants. Each of the New Prudential Warrants entitles the holder thereof to purchase one fully paid and nonassessable share of Common Stock at their respective initial exercise prices, subject to adjustment as provided below. The New Prudential Warrants have an initial exercise price of $5.50 per share. Payment of the aggregate exercise price may be made, at the option of the holder (i) in cash, (ii) by delivery of warrants, the value of which will be deemed to be equal to the difference between the current market price per share (as defined) and the then current exercise price or (iii) by the cancellation by Prudential and the delivery to the Company of New Senior Notes, PIK Notes, the New Revolving Credit or Converted Term Note (as defined below) or by cancellation of accrued and unpaid interest thereon. The exercise price and the number of shares of Common Stock issuable upon exercise of each warrant issued in connection with the Restructuring are subject to adjustment from time to time upon the occurrence of certain stock dividends or distributions, stock splits, reserve stock splits or stock reclassifications, certain issuance of rights, options, warrants or securities directly or indirectly convertible into Common Stock to all holders of Common Stock entitling them to purchase shares of Common Stock at a price per share less than the greater of the current market price or the exercise price per share on the date of such issue, certain extraordinary dividends or distributions to all holders of Common Stock, and certain issuances of Common Stock for a consideration per share less than the greater of the then current exercise price and the then current market price per share on the date of such issue. -17- 18 The Term Sheet contemplates that upon commencement of the Rights Offering the exercise price of the New Prudential Warrants will be reduced to $3.50 per share and Prudential will relinquish the antidilution provisions of the New Prudential Warrants for issuance of common stock for consideration per share less than the current exercise price. C. The Stockholders' Agreement Voting Agreement. Pursuant to the Stockholders' Agreement, each Stockholder (as defined below) agreed that at any special or annual meeting of stockholders at which directors of the Company are to be elected or in connection with a solicitation of consents through with Directors are to be elected, it shall vote (or give a written consent with respect to) all of its shares of capital stock in favor of: (i) the election to the Board of Directors of the Company of two nominees designated by Prudential (the "Prudential Nominees") and three nominees designated by Warburg (the "Warburg Nominees"); and (ii) the election to the Board of Directors of such other nominees, not running in opposition to the Prudential Nominees or to the Warburg Nominees, who shall have been selected or approved as such by a majority of the whole Board, provided that Prudential and Warburg will not be obligated to comply with the foregoing provisions if the Board has failed, in the case of Prudential to nominate for election to the Board two Prudential Nominees after being requested to do so by Prudential, or has failed, in the case of Warburg, to nominate for election to the Board three Warburg Nominees after being requested to do so by Warburg. "Stockholder" as defined in the Stockholders' Agreement means Warburg, Prudential and any other person (other than Hanauer) who agrees to be bound by the terms of the Stockholders' Agreement, provided that no person shall be a Stockholder if such person ceases to beneficially own (i) at least 51% of the Senior Convertible Preferred Stock and Warburg Warrants and all issued Warburg Registrable Securities (as defined below) or (ii) at least 75% of the New Securities and all issued Prudential Registerable Securities (as defined below). Pursuant to the Stockholders' Agreement, each Stockholder also will agree that (i) it will vote against removal of the other party's nominees (unless requested by such party to vote for removal in which case it will do so), (ii) it will exercise its best efforts to cause its nominees on the Board to vote in favor of a nominee of the other party to fill any vacancy on the Board created by the resignation, removal or death of such party's nominee if the effect of failing to so fill a vacancy would be that there would be less than two Prudential Nominees or three Warburg Nominees remaining on the Board, (iii) it will not elect cumulative voting for the election of Directors and, in the event that any other stockholder elects such cumulative voting, it shall vote its shares of capital stock in the manner necessary -18- 19 to effect the election of the three Warburg Nominees and the two Prudential Nominees, and (iv) unless Hanauer fails to consummate the transactions contemplated by the Purchase Agreements, at any special or annual meeting of stockholders prior to the Company's 1995 annual meeting it shall vote (or give a written consent with respect to) all of its shares of capital stock in favor of electing Hanauer as a Director or against removal of Hanauer as Director. The terms of the voting agreement were modified by the Stockholders' Amendment. Pursuant to the Stockholders' Amendment the number of Prudential Nominees was decreased from two to one and the number of Warburg Nominees was decreased from three to two. Furthermore, the parties agreed that from and after the 1993 Annual Meeting of Stockholders of the Company, each of the parties would use its best efforts to cause their respective board nominees to take such action as may be necessary so that the number of directors which constitutes the whole Board equals seven. The provisions of the Stockholders' Amendment will be binding until any Stockholder notifies the Company and all of the other parties to the Stockholders' Agreement that it desires the Stockholders' Amendment be null and void. It is contemplated by the Term Sheet that the terms of the Stockholders' Agreement may be further amended. See the discussion below. Registration Rights. The Stockholders' Agreement provides that each of (i) the holders of at least 30% of the aggregate number (on the date of the Stockholders' Agreement) of shares of Common Stock issued or issuable upon conversion of any Senior Convertible Preferred Stock and all shares of Common Stock issued or issuable upon exercise of any Warburg Warrants (collectively, the "Warburg Registrable Securities") may make three written requests to the Company for registration under the Securities Act of 1933, as amended (the "Securities Act") of all or part of such securities; provided, however, that Warburg may make any of such three requests for registration regardless of the percentage of Warburg Registrable Securities held by it, and (ii) the holders of at least 30% of the aggregate number (on the date of the Stockholders' Agreement) of shares of Common Stock issued upon exercise of the Old Prudential Warrant, all shares of Common Stock issued or issuable upon conversion of any Junior Convertible Preferred Stock and all shares of Common Stock issued or issuable upon exercise of any New Prudential Warrants (collectively, the "Prudential Registrable Securities") may make three written requests to the Company for registration under the Securities Act of all or part of such securities; provided, however, that Prudential may make any of such three requests for registrations regardless of the percentage of Prudential Registrable Securities held by it. -19- 20 The Stockholders' Agreement also provides that in the event a holder of Warburg Registerable Securities requests a registration pursuant to the foregoing provisions, Hanauer may elect to include a proportionate share of Warburg Registrable Securities held by him in which case he will be permitted to sell such Warburg Registrable Securities on the same terms as the holder of the Warburg Registrable Securities requesting such registration. Pursuant to the Stockholders' Agreement, holders of Warburg Registrable Securities and Prudential Registrable Securities will also have certain "piggyback" registrations rights to include their securities, subject to certain limitations, in any other registration statements filed by the Company for its own account or pursuant to any of the foregoing requests, or otherwise. Whenever the Company effects a registration pursuant to the registration rights provisions of the Stockholders' Agreement, the Company will be required to pay the costs of such registration of securities, except for certain fees and disbursements of underwriters counsel and except that each selling stockholder will bear its pro rata share of customary underwriting discounts and commissions and applicable transfer taxes. The Stockholders' Agreement contains customary indemnification and contribution provisions relating to the exercise by the holders of registrable securities of their registrations rights thereunder. Termination. The provisions of the Stockholders' Agreement pertaining to voting by Stockholders will terminate at such time as there is one Stockholder. In any event, the provisions of the Stockholders' Agreement with respect to voting arrangements and restrictions will terminate no later than ten years from the date of the Stockholders' Agreement in accordance with applicable law, subject to extension by the agreement of the remaining parties thereto. D. Agreements Regarding Debt Financing The New Note Purchase Agreement. Prudential and the Company entered into the New Note Purchase Agreement, as described in Item 4, above. The New Note Purchase Agreement, upon the terms and subject to the conditions contained therein, restructured $10 million of the Senior Notes and $10,000,000 of Subordinated Notes and the Revolving Credit Note issued pursuant to the Old Note Purchase Agreement. Pursuant to the New Note Purchase Agreement, the Company, on the Closing Date, issued to Prudential (i) the New Revolving Credit Note upon cancellation, (ii) $10 million of the New Senior Notes, and (iii) $10 million of the PIK Notes. Pursuant to the New Note Purchase Agreement, upon maturity of the New Revolving Credit Note, the Company, at its option, may convert such note to a newly issued Converted Revolving Note Due December 31, 1996 (the "Converted Term Note"). -20- 21 The New Senior Notes, the PIK Notes and the Converted Term Notes are subject to certain scheduled prepayments and the New Senior Notes (or if they have been repaid in full) the PIK Notes are subject to prepayment from 50% of certain asset sales which in the aggregate exceed $5 million. The scheduled prepayments of the New Senior Notes, the New Revolving Credit Notes and the Converted Term Notes will be deferred if the Company or any subsidiary pays or becomes obligated to pay certain liabilities. The New Note Purchase Agreement contains significant restrictions on the payment of cash dividends and repurchases of stock of the Company. The New Note Purchase Agreement also contains significant restrictions on the Company's (and certain of its subsidiaries' ability to, among other things, (i) incur debt and liens upon their properties, (ii) enter into guarantees and make loans, investments and advances, (iii) merge or enter into similar business combinations, (iv) conduct any business other than their present businesses, (v) sell assets, including receivables, and (vi) enter into certain other transactions. Further, the Company's ability to make capital expenditures and purchase the stock or assets of any other person or entity during the term of the New Note Purchase Agreement is limited to the aggregate of $10 million plus additional amounts based upon, among other things, the Company's and certain other proceeds. The New Note Purchase Agreement contains various affirmative and negative covenants. For example, the New Note Agreement requires that the Company (combined with certain of its subsidiaries and taken as a whole) must (i) maintain a ratio of Consolidated Current Assets to Consolidated Current Liabilities (as such terms are defined in the New Note Purchase Agreement), excluding the current portion of long-term debt, of greater than 1:1 at the end of each of its fiscal quarters, and (ii) not permit the sum of the net loss before interest, taxes, depreciation, amortization and non-recurring items and excluding certain other items ("Adjusted Net Loss") to exceed $4 million as of December 31, 1993, and $6 million as of the end of each fiscal quarter after the fiscal quarter ended December 31, 1993 for any two consecutive fiscal quarters. As contemplated by the Term Sheet, on March 28, 1994, Prudential executed that certain Prudential Note Agreement Waiver (the "Waiver Letter") pursuant to which it, among other things, (i) waived compliance with the working capital ratio requirement as of December 31, 1993 with respect to the fourth quarter of 1993 and the first quarter of 1994, (ii) waived until December 31, 1994 compliance with the working capital ratio requirement, the Adjusted Net Loss requirement, the capital expenditures limitation and the requirement that the Company pay down the Revolving Loans during one sixty consecutive day period, -21- 22 and (iii) consented to the extension of credit by Warburg to the Company and the other transactions contemplated by or permitted pursuant to the Loan and Security Agreement dated as of March 29, 1994 by and between the Company and Warburg (the "Warburg Loan Agreement"), and the related Loan Documents (as defined therein). The Waiver Letter is filed herewith as Exhibit 2 and is incorporated herein by reference in its entirety. The Term Sheet contemplates further amendments to the New Note Purchase Agreement. See the discussion below. Modification to Note and Security Agreement. Also as contemplated by the Term Sheet, Prudential and the Company entered into that certain Modification to Note and Security Agreement (the "Modification and Security Agreement", and collectively with the Warburg Loan Agreement, the "1994 Loan Documents"). Pursuant to the Modification and Security Agreement, in consideration for the forbearances, modifications and waivers granted by Prudential, the Company granted to Prudential to secure its Senior Debt (as defined in the New Note Purchase Agreement) a security interest in all of the following assets of the Company (collectively, the "Collateral"): (i) all rights to payment in respect of all commercial real estate fees and commissions due to the Company or any of its subsidiaries in connection with the commercial real estate brokerage operations of the Company and its subsidiaries, (ii) a newly created cash collateral account described below (the "Cash Collateral Account"), and any other cash collateral account, and all monies, instruments and amount at any time on deposit in such accounts, and (iii) all proceeds of any of the foregoing. The Modification and Security Agreement will terminate upon the termination of the Warburg Loan Agreement and payment to Prudential of all of the Collateral, if any, extant as of such date. The Modification and Security Agreement is filed herewith as Exhibit 3 and is incorporated herein by reference in its entirety. Warburg Loan Agreement. On March 29, 1994, the Company and Warburg entered into the Warburg Loan Agreement. Pursuant to the Warburg Loan Agreement, Warburg agreed to make advances for a thirteen month period to the Company in amounts not to exceed $10 million at any one time outstanding. Proceeds of such advances are to be used by the Company for general corporate purposes other than certain prohibited uses. Such prohibited uses include the following: (a) the satisfaction of any judgment against the Company and/or its affiliates in excess of $1 million; (b) capital expenditures in any year, which when aggregated, exceed the greater of (x) $5 million and (y) two times the Company's Total Assets, as reported in its then current audited balance sheet; -22- 23 (c) aggregate "golden handcuff" or similar payments to any one employee in excess of $1 million; and (d) payments in respect of any lease of real property entered into after the March 29, 1994 if the aggregate rent required during its term (including any mandatory or optional extensions) exceeds $5 million. Advances under the Warburg Loan Agreement will bear interest at a rate of 5% per annum provided that if the Company does not obtain stockholder approval of the Rights Offering (or a similar transaction to retire the indebtedness under the Warburg Loan Agreement) and the other transactions contemplated by the Term Sheet by December 31, 1994, then the outstanding advances will bear interest at a rate of 10% per annum retroactive to the date of the first advance. As security for all indebtedness of the Company to Warburg pursuant to the Warburg Loan Agreement and the other Loan Documents (as defined in the Warburg Loan Agreement), the Company granted Warburg a security interest in the Collateral. The Term Sheet contemplates that all advances under the Warburg Loan Agreement will be refinanced from the proceeds of the Rights Offering contemplated thereby. Cash Collateral Account. In connection with the 1994 Loan Documents, the Company established the Cash Collateral Account, upon the terms specified in that certain Cash Collateral Account Agreement (the "Cash Collateral Letter") dated March 29, 1994 by and between the Company, Bank of America NT & SA (the "Bank"), Warburg and Prudential. Pursuant to the 1994 Loan Documents, the Company is obligated to instruct each of its brokers to deposit all brokerage commissions directly to the Cash Collateral Account. In addition, the Company is obligated to deposit all brokerage commissions it receives directly into the Cash Collateral Account. Funds in the Cash Collateral Account are held in trust for the benefit of Prudential and Warburg, provided however that so long as a notice of blockage has not been delivered, the Company will have the right to withdraw funds from the Cash Collateral Account. Prudential and/or Warburg may deliver a notice of blockage if an event of default as defined in the New Note Purchase Agreement, as modified by the Modification and Security Agreement, and/or the Warburg Loan Document, respectively, has occurred and is continuing. Upon the delivery of a notice of blockage the Company will no longer have any right to receive funds from the Cash Collateral Account and the funds in the account will be under the control of Warburg with all funds then or thereafter deposited in the Cash Collateral Account becoming the exclusive property of Warburg and Prudential. The Cash Collateral Letter is filed herewith as Exhibit 4 and is incorporated herein by reference in its entirety. Intercreditor Agreement. Also on March 28, 1994, the Company, Warburg and Prudential entered into that certain -23- 24 Intercreditor Agreement. Pursuant to the Intercreditor Agreement, Prudential agreed that its interest in the Collateral is to be junior to Warburg's interest therein. Furthermore, Prudential agreed that it would issue a notice of blockage only after three business days notice to Warburg of Prudential's intention to issue such a notice to the Bank. Additionally, pursuant to the Intercreditor Agreement, the parties thereto agreed that upon the issuance of a notice of blockage to the Bank, Warburg would apply the Collateral as follows: (a) first to the payment of all Brokers Fees (as defined in the 1994 Loan Documents); (b) second, to the payment of outstanding amounts under the Warburg Loan Agreement; (c) third, to payment of Prudential's Senior Debt (as defined in the Note Agreement; and (d) fourth, to the Company. The Intercreditor Agreement is filed herewith as Exhibit 5 and is incorporated herein by reference in its entirety. E. Additional Transactions Contemplated By The Term Sheet On March 28, 1994, the Company, Prudential and Warburg agreed to the terms of the Term Sheet, which sets forth certain terms and conditions for (i) the Warburg Loan Agreement, (ii) a rights offering and subscription warrant conversion, and (iii) modification to the New Note Purchase Agreement. By agreeing to the terms sheet, Warburg, Prudential and the Company agreed to be bound by the terms and conditions set forth therein subject to (i) execution of definitive documents satisfactory in form and substance to each of Warburg, Prudential and the Company, and each of their respective counsel and (ii) obtaining of any necessary or reasonable requested third party consents, including, without limitation, majority consent of the shareholders of the Company. The transactions contemplated by the Term Sheet are designed to provide the Company with additional working capital which the Company believes it requires to meet its current and projected working capital needs. In addition to agreements with respect to the Warburg Loan Agreement, the Prudential Waiver, the Modification and Security Agreement, the Cash Collateral Account and the Intercreditor Agreement, the significant terms of the Term Sheet include the following: Proposed Rights Offering. The Term Sheet contemplates that the Company will seek additional equity capital through the Rights Offering pursuant to which the Company would issue to each holder of Common Stock one non-transferable right, -24- 25 per share of Common Stock owned, which right will entitle such holder to acquire one additional share of Common Stock for $2.375. Common shareholders may, subject to certain limitation, oversubscribe to the extent that unsubscribed shares are available. Warburg has agreed to acquire any of the rights which are not ultimately acquired by the public shareholders through a conversion of the Company's indebtedness pursuant to the Warburg Loan Agreement, up to an amount not exceeding $10 million, plus any accrued interest on advances under the Warburg Loan Agreement. Consummation of the Rights Offering requires the approval of the transactions by holders of a majority of the shares of the Company's voting stock, other than Warburg and Prudential. There can be no assurance that such approval will be obtained and, therefore, that the Rights Offering will be initiated or consummated. As consideration for providing the Warburg Loan Agreement and standing behind the Rights Offering, the Company will grant Warburg approximately 325,000 warrants which will result in fully diluted stock ownership by Warburg of 52.7%, assuming that none of the holders of Common Stock acquire shares in the Rights Offering. The exercise price of such warrants would be $2.375 per share. Loan Modifications. The Term Sheet contemplates that Prudential will further amend the New Note Purchase Agreement. Such modifications include, among others, (i) extending the maturity of the Revolving Credit Notes to November 1, 1999 (and eliminating the Company's option to convert the Revolving Credit Note into a Term Note), (ii) extending the maturity of the Senior Notes, such that they will be repaid in two equal installments on November 1, 1997 and 1998, (iii) extending the maturity of the PIK Notes, such that they will be repaid in two equal installments on November 1, 2000 and 2001, (iv) increasing the interest rate on the PIK Notes from 10.65% to 11.65% effective January 1, 1996, (v) providing that commencing January 1, 1998, the Company will apply 75% of its previous year's Adjusted Cash Inflow (as defined in the Term Sheet) in excess of $5 million to repay the PIK Notes. Modification of Junior Convertible Preferred Stock. Prudential will convert the Junior Convertible Preferred Stock into equivalent stock which is not redeemable. In addition, effective January 1, 2002, the dividend rate will be increased to 10% with further increases of 1% per year effective January 1, 2003 and January 1, 2004 and 2% per year effective January 1, 2005 and each January 1 thereafter. Additionally, Prudential has agreed to relinquish the anti-dilution provisions of the Junior Convertible Preferred Stock and the New Prudential Warrants which result in an adjustment of the conversion price because of the issuance of Common Stock (or Common Stock -25- 26 equivalents) for consideration per share less than the conversion or exercise price per share on the date of such issue. Furthermore, Prudential will agree to convert its preferred stock if (i) Warburg converts its Senior Convertible Preferred Stock and (ii) any investment banker retained by the Company advises the Company that they deem it necessary to retire Prudential's Junior Convertible Preferred Stock in order to complete a public offering of Common Stock on the most favor terms. However, if Prudential is required to convert its Junior Convertible Preferred Stock at a time when the stock would have a value less than the accreted value of the Junior Convertible Preferred Stock which is the sum of the par value thereof plus accrued dividends, then at the option of Prudential, the Company will redeem Prudential's Junior Convertible Preferred Stock at such accreted value. Modification of Senior Convertible Preferred Stock and Warburg Warrants. Warburg will convert the Senior Convertible Preferred Stock into equivalent stock which is not redeemable. In addition, at such time as the dividend rate with respect to the Junior Convertible Preferred Stock would increase above the dividend rate with respect to the Senior Convertible Preferred Stock, the dividend rate of the Senior Convertible Preferred Stock will be increased so that it equals the dividend rate with respect to the Junior Convertible Preferred Stock. Finally, Warburg has agreed, following the Rights Offering, to relinquish the anti-dilution provisions of the Senior Convertible Preferred Stock and the Warburg Warrants which result in an adjustment of the conversion price because of the issuance of Common Stock (or Common Stock equivalents) for consideration per share less than the conversion or exercise price per share on the date of such issue. In addition, the exercise price of the Warburg Warrants, other than the Contingent Warrants, will be reduced to $3.50 per share, and the exercise price of the Contingent Warrants will be reduced to the same per share price as the Rights Offering. Prudential's Rights as a Stockholder. Prudential has agreed that it will work with the Company in a good faith effort to permit the Company's subsidiary, Grubb & Ellis Asset Services Corporation, to re-enter the government contracting business with the RTC and the FDIC. Prudential's support in this effort may include, but not be limited to the following so long as it is a disqualified person: (i) to waive, but not relinquish, its right to appoint any directors to the Company's Board, (ii) to waive, but not relinquish, all rights other than registration rights under the Stockholders' Agreement and (iii) to the extent that its stock entitles it to cast more than 24.9% of the votes which all stockholders are eligible to cast on any matter, to grant a proxy to the Company's Board to vote all shares in excess of 24.9% (but not the shares constituting 24.9%) -26- 27 on such matter in proportion to the vote thereon of all stockholders other than Prudential. The Term Sheet is attached hereto as Exhibit 1 and incorporated herein by reference. F. Amendment to the Rights Plan The Board of Directors has amended the definition of "Acquiring Person" under the Rights Plan so that the consummation of the Restructuring would not make Prudential, Warburg or Hanauer an "Acquiring Person" as originally defined in the Rights Plan. It is a condition to the Closing of the Restructuring that the Rights be redeemed. Immediately prior to the closing of the Restructuring, the Company redeemed all Rights existing under the Rights Plan for $.01 per share of Common Stock, payable in shares of Common Stock listed on the New York Stock Exchange and the Pacific Stock Exchange upon issuance. G. Miscellaneous Except as described herein (including, without limitation in Items 4 and 6) there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the Enumerated Persons or between such persons and any other persons with respect to any securities of the Company, including but not limited to transfer or voting of any other securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. ITEM 7. MATERIAL FILED AS EXHIBITS. 1. There was filed with the Schedule 13D, as initially filed on November 11, 1992, as Exhibit 1 attached thereto the Securities Purchase Agreement dated as of November 2, 1992 by and among the Company and Prudential, including the forms of New Prudential Warrant, Certificate Amendments, New Note Purchase Agreement and Warburg Purchase Agreement. 2. There was filed with the First Amendment to the Schedule 13D as Exhibit 1 thereto the Stockholders' Agreement dated as of January 29, 1993, by and among the Company, Prudential, Warburg and Hanauer. 3. There is filed herewith as Exhibit 1 the Letter Agreement dated as of March 28, 1994 by and between Warburg, Prudential and the Company, including the Term Sheet. 4. There is filed herewith as Exhibit 2 the Prudential Note Agreement Waiver Letter dated March 28, 1994. -27- 28 5. There is filed herewith as Exhibit 3 the Modification to Note and Security Agreement dated as of March 29, 1994 by and between Prudential and the Company. 6. There is filed herewith as Exhibit 4 the Cash Collateral Account Agreement dated March 29, 1994 by and between Prudential, Warburg, the Company and the Bank. 7. There is filed herewith as Exhibit 5 the Intercreditor Agreement dated as of March 28, 1994 by and between Prudential, Warburg and the Company. -28- 29 SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. April 14, 1994 (Date) THE PRUDENTIAL INSURANCE COMPANY OF AMERICA /s/ NICHOLAS M. GRAVES (Signature) Nicholas M. Graves, Senior V.P. (Name and Title) -29- 30 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1 Letter Agreement dated as of March 28, 1994 by and between The Prudential Insurance Company of America ("Prudential"), Warburg, Pincus Inventors, L.P. ("Warburg") and Grubb & Ellis Company ("Grubb & Ellis"). 2 Note Agreement Waiver Letter dated March 28, 1994 from Prudential to Grubb & Ellis. 3 Modification To Note and Security Agreement, dated as of March 29, 1994, by and between Prudential and Grubb & Ellis. 4 Cash Collateral Account Agreement dated March 29, 1994 by and between Prudential, Warburg, Grubb & Ellis and Bank of America NT & SA. 5 Intercreditor Agreement, dated as of March 29, 1994, by and between Prudential, Warburg and Grubb and Ellis. EX-99.1 2 LETTER AGREEMENT 1 EXHIBIT 1 GRUBB & ELLIS COMPANY March 28, 1994 Warburg, Pincus Investors, L.P. c/o E.M. Warburg, Pincus & Co., Inc. 466 Lexington Avenue, 10th Floor New York, New York 10017 The Prudential Insurance Company of America c/o The Prudential Corporate Finance Group Four Gateway Center 100 Mulberry Street Newark, New Jersey 07102 Re: Grubb & Ellis Company Bridge Financing and Equity Offering Acknowledgment Ladies and Gentlemen: In connection with the proposed Grubb & Ellis Company (the "Company") bridge financing and equity offering, attached is the Grubb & Ellis Bridge Loan and Rights Offering Term Sheet, dated the date hereof (the "Term Sheet"). The Term Sheet sets forth certain terms and conditions for (i) a 13-month bridge facility to be provided by Warburg, Pincus Investors, L.P. ("Warburg"), (ii) a rights offering and subscription warrant conversion, and (iii) modification to certain credit facilities provided by The Prudential Insurance Company of America ("Prudential"). Although the Term Sheet does not specify all of the terms and conditions which would be necessary to consummate the contemplated transactions, it does reflect material provisions negotiated and, we believe, finalized among Warburg, Prudential and the Company, and outlines certain key points of business understanding around which legal documentation can be structured. By signing where indicated below, the parties acknowledge that, with respect to the terms and conditions set forth in the Term Sheet, the Term Sheet provisions are final, and the parties consent to and agree to be bound by such provisions, subject to: 1. Execution and delivery of definitive documents contemplated by or reasonably requested with respect to the Term Sheet, satisfactory in form and substance to each of Warburg, Prudential and the Company, and each of their respective counsel; and 2. Obtainment of any necessary or reasonably requested third party consents to the transactions contemplated by the Term Sheet, including, without limitation, majority consent of the shareholders of the Company. 2 Warburg, Pincus Investors, L.P. The Prudential Insurance Company of America March 28, 1994 Page 2 This Acknowledgment shall be binding only upon the execution and delivery of the Acknowledgment by each of the parties hereto. If the foregoing is acceptable, please sign all three enclosed copies. One executed copy should be sent to me by telecopy and all three executed original copies should then be sent to my attention by hand delivery or by overnight courier. Grubb & Ellis Company By: /s/ Robert J. Hanlon, Jr. Name: Robert J. Hanlon, Jr. Title: Chief Financial Officer ACKNOWLEDGED AND CONSENTED TO AS OF THE DATE FIRST ABOVE WRITTEN: Warburg, Pincus Investors, L.P. By: /s/ Warburg, Pincus & Co., General Partner By: /s/ Reuben S. Leibowitz Name:Reuben S. Leibowitz Partner The Prudential Insurance Company of America By: /s/ John P. Mullman Name: John P. Mullman Title: Vice President 3 Warburg, Pincus Investors, L.P. The Prudential Insurance Company of America March 28, 1994 Page 3 ACKNOWLEDGMENT OF TERM SHEET FOR GRUBB & ELLIS BRIDGE FINANCING AND EQUITY OFFERING Exhibit A Term Sheet 4 GRUBB & ELLIS COMPANY PROPOSED BRIDGE LOAN & RIGHTS OFFERING March 28, 1994 Grubb & Ellis Company ("G&E") proposes to raise additional equity capital, initially through a bridge loan which is to be refinanced from the proceeds of the subsequent sale of rights (the "Rights Offering") to acquire common stock in the Company. The Rights Offering will occur after the Company obtains the approval of the amendments (the "Charter Amendments") of the Company's Certificate of Incorporation necessary and/or appropriate to consummate the Rights Offering and the other transactions discussed herein from the holders of a majority of the shares of the Company's voting stock including a majority of the holders of the shares of the Company's common shares other than Warburg, Pincus L.P. ("Warburg") and The Prudential Insurance Company of America ("Prudential") while the short term financial needs of the Company are met through the bridge financing. Bridge Financing . The Company proposes to enter into a bridge loan agreement with Warburg which would mature 13 months from initial advance. . The loan would be secured by a cash collateral account pursuant to a cash collateral account agreement under which substantially all of the Company's commercial real estate brokerage revenues would flow through the collateral account. Prudential will also have a lien on this collateral subordinated to Warburg's lien as will be set forth in an intercreditor agreement between Prudential and Warburg. . The interest on the outstanding loans under this agreement would be 5%, provided, however, that in the event that shareholder approval of the Charter Amendments was not obtained the interest rate would retroactively increase to 10%. Interest computed without compounding, will be due on maturity of the note or refinancing, whichever occurs first. . The proceeds of the Rights Offering will be used to (1) cover transaction costs associated with these transactions, (2) retire the bridge financing, and (3) meet the Company's operational needs. . Warburg will convert its redeemable preferred stock into equivalent non-redeemable preferred stock and will relinquish the anti-dilution provision 5 Proposed Bridge Financing & Rights Offering 03/28/94 Page 5 of its preferred stock and warrants with respect to issuance of common stock and common stock equivalents at less than the conversion or exercise price; however, pre-existing warrant exercise prices will be reduced to $3.50 effective as of the date of the Rights Offering. At such time as the coupon on Prudential's preferred stock would increase above the rate of Warburg's preferred, then Warburg's coupon will increase by the same amount. . The Company will not be required to represent and warrant that it is in compliance with the terms of its financing agreement with Prudential. Rights Offering and Subscription Warrant Conversion . The Company will offer the rights for sale to the holders of all of G&Es common stock. . Each common shareholder will be entitled to acquire one right for each share of common stock owned. . Common shareholders may in addition to their own existing rights to subscribe to additional shares, oversubscribe to the extent that unsubscribed shares are available from other shareholders; however, shareholder or affiliated group oversubscriptions will be limited to an amount equal to the existing holding. . Warburg will stand behind the offering and acquire any of the rights which have not ultimately been acquired by the public shareholders up to an amount not exceeding $10 Million, plus any accrued interest on the bridge loan. . The rights price will be $2.375. . The rights will not be tradeable. . Notwithstanding the foregoing, for this transaction only, Warburg will retain certain antidilution provisions in the warrants and preferred stock currently held by Warburg and the exercise price of the contingent warrants currently held by Warburg will be repriced at $2.375. . As consideration for providing the bridge loan and standing behind the Rights Offering the Company will grant Warburg approximately 325,000 warrants 6 Proposed Bridge Financing & Rights Offering 03/28/94 Page 3 which will result in fully diluted ownership of approximately 52.70%, if none of the common stockholders acquire their shares. These warrants would have an exercise price of $2.375. Prudential Modifications As part of this proposal certain modifications in Prudential's financing will be completed. The following is subject to documentation satisfactory to all parties. These are: . It is agreed that no amortization of the Senior Notes, Revolver or PIK Notes will occur prior to November 1, 1997. Thereafter amortization will occur as follows. The $5 Million revolver will mature November 1, 1999. The $10 Million Senior Note will amortize in two equal installments on November 1, 1997 and 1998. The Subordinated PIK Notes will amortize in two approximately equal installments on November 1, 2000 and 2001. . The interest rate on the revolver and the senior notes will remain unchanged. The interest rate on the PIK notes will increase from 10.65% to 11.65% on January 1, 1996 and remains constant thereafter until maturity. . Effective at the time of the initial funding of the Warburg loan, Sections 6(a), 6(d), 6(e) and 6(g) of the Senior Note, Subordinated Note and Revolving Credit Note Agreement dated as of November 2, 1992 covering working capital, cumulative operating losses, capital expenditure and clean down requirements shall remain in force, but the effectiveness of these sections will be suspended until April 1, 1997. Prudential agrees to waive certain covenants in the Note Agreement as set forth in the Note Agreement Waiver attached hereto. In addition, the specific prohibition of a sale of Axiom will be eliminated and, in the event such sale does occur, it will be captured under the existing asset sale provision. As of April 1, 1997 and quarterly thereafter the Company will be required to meet an interest coverage ratio of 2:1 the test of which will be EBITDA, as defined below, to total interest expense on a rolling 12 months basis. . Commencing January 1, 1998, in addition to the debt payments in the above schedule, the Company will make supplemental debt amortization payments in each year (50% on July 1 and 50% on October 1), if it meets the following test. If in the preceding year, Adjusted Cash Inflow exceeds $5 Million, then 7 Proposed Bridge Financing & Rights Offering 03/28/94 Page 4 the Company will pay to Prudential 75% of such excess as a supplemental debt amortization payment which will be applied to the PIK debt in reverse order of maturity. Adjusted Cash Inflow is defined as earnings before interest, taxes, depreciation and amortization ("EBITDA") less the sum of (a) Axiom Pre-tax Earnings net of any debt repayments or dividend payments from Axiom; (b) interest paid in cash; (c) taxes paid in cash; (d) the above amortization paid in the year; and (e) any supplemental debt payment paid in the year. . Prudential will convert its redeemable preferred stock into equivalent non-redeemable preferred stock with a coupon rate increase effective January 1, 2002 to 10% with further increases of 1% per year effective January 1, 2003 and January 1, 2004 and 2% per year effective January 1, 2005 and each January 1 thereafter. . Prudential will work with the Company in a good faith effort to permit the Company's subsidiary, Grubb & Ellis Asset Services Corporation, to re-enter the government contracting business with the RTC and the FDIC. Prudential's support in this effort may include, but not be limited to the following so long as it is a disqualified person: (1) to waive, but not relinquish, its right to appoint Company Directors and (2) to waive, but not relinquish all rights other than registration rights under the shareholders agreement and (3) to the extent that its stock entitles Prudential to cast more than 24.9% of the votes which all stockholders are eligible to cast on any matter, to grant a proxy to the board of directors to vote the excess shares (but only the excess shares) on such matter in proportion to the vote thereon of all stockholders other than Prudential. . In the event that Warburg converts its preferred stock and the Company's investment bankers advise the Company that they deem it necessary to retire Prudential's preferred stock in order to complete a public offering of the Company's common stock on the most favorable terms, Prudential will be obligated to convert its preferred stock, provided, that, if Prudential is required to convert its preferred stock at a time when the common stock would have a value less than the accreted value of the preferred stock which is the sum of the par value of the preferred stock plus accreted dividends, then at the option of Prudential, the preferred stock may be redeemed at such accreted value or Prudential may convert its preferred stock into common stock. . Prudential will relinquish the anti-dilution provisions of its preferred stock and its warrants with respect to issuances of common stock and common stock 8 Proposed Bridge Financing & Rights Offering 03/28/94 Page 5 equivalents at less than the conversion exercise price; however, pre-existing warrant exercise prices will be reduced to $3.50 effective as of the date of the Rights Offering. . Prudential will grant such waivers as described in the Note Agreement Waiver of even date herewith relative to the end of 1993 and the end of the First Quarter, 1994 to permit the Company to be in compliance with the provisions of its agreements with Prudential. . In the event that the Company elects to make a public offering subsequent to this financing none of the proceeds of such financing will be required to pay down debt. . As a consideration for modifying its loan agreement with the Company, Prudential would be granted 150,000 warrants to purchase the Company's common stock which will result in fully diluted ownership of approximately 18.24%, but not less than 18%. The warrants will have an exercise price of $2.375. . Upon funding under the Warburg Bridge Loan Agreement the Company will pay Prudential the interest payment due February 1, 1994 together with interest at the overdue interest rate and will pay Prudential all of its legal costs and out of pocket expenditures incurred in connection with the waivers and modifications referenced herein. Note All share amounts and percentages do not reflect any adjustments for shares to be tendered as a result of the reverse stock split which have not been received; however, these adjustments should be modest. EX-99.2 3 NOTE AGREEMENT WAIVER 1 EXHIBIT 2 March 28, 1994 Grubb & Ellis Company One Montgomery Street Telesis Tower San Francisco, CA 94104 Attention: Robert J. Hanlon, Jr. Chief Financial Officer Re: NOTE AGREEMENT WAIVER Ladies and Gentlemen: Reference is made to the Senior Note, Subordinated Note and Revolving Credit Note Agreement between Grubb & Ellis Company (the "Company") and The Prudential Insurance Company of America ("Prudential"), dated as of November 2, 1992, as amended (the "Agreement"), pursuant to which the Company issued and sold and Prudential purchased (i) the Company's 9.9% senior notes in the aggregate principal amount of $10,000,000 due November 1, 1996 (the "Senior Note") and (ii) the Company's 10.65% subordinated payment-in-kind notes in the aggregate principal amount of $10,000,000, due December 31, 1999 (the "PIK Note"); and pursuant to which Prudential agreed to make available to the Company Revolving Loans not exceeding an aggregate principal amount of $5,000,000 at any one time outstanding represented by the revolving note (the "Revolving Note" and together with the Senior Note and the PIK Note, the "Prudential Notes"). Pursuant to the request of the Company and the provisions of paragraph 12C of the Agreement: a) compliance with the working capital ratio requirement set forth in paragraph 6A of the Agreement is hereby waived by Prudential as of December 31, 1993 with respect to the quarter then ended; b) notwithstanding anything to the contrary in paragraphs 6C(1), 6C(2), 6C(3) and 6E of the Agreement, in connection with the sale of certain assets of the Company's real estate advisory business to JMB Institutional Realty Advisers, L.P. ("JMB"), Prudential hereby consents to the acquisition by Grubb & Ellis Institutional Properties, Inc., a Restricted Subsidiary as defined in the Agreement, of real property 2 consisting of land and an 18,000-rentable square foot industrial building commonly referred to as 1417 Chattahoochee Avenue, Atlanta, Georgia from JMB Industrial Properties Fund, a California limited partnership, and the assumption of indebtedness secured by the property in the amount of approximately $385,000. The purchase price was $410,000, which was paid through reduction in the sales price of the advisory assets sold to JMB. JMB Industrial Properties Fund was originally named Grubb & Ellis Industrial Properties Fund, a California limited partnership previously sponsored by the Company. JMB replaced Grubb & Ellis Institutional Properties, Inc. as general partner of the partnership; c) notwithstanding anything to the contrary in paragraphs 6C(1), 6C(2), 6C(3) and 6E or any other provision of the Agreement, Prudential hereby consents to the investment by the Company in DW Limited Partnership in January 1990, accompanied by incurrence of indebtedness of $250,000 secured by a demand promissory note dated January 8, 1990; d) paragraph 6C(6) of the Agreement shall be amended to read in its entirety as follows: "6C.(6) SALE OF ASSETS - Transfer, sell or otherwise dispose of assets of the Company (including, without limitation, capital stock of or Indebtedness owned by a Restricted Subsidiary to the Company or another Restricted Subsidiary) other than (i) assets transferred, sold or otherwise disposed of in the ordinary course of business, including any assets which are obsolete or worn out or which are replaced within three months of sale by assets of at least the equivalent market value, (ii) equipment being sold, leased, transferred or otherwise disposed of which the Company determines is no longer required by it in conducting its business so long as replacements are obtained for such equipment within three months of at least the equivalent market value, (iii) assets (other than those described in clauses (i) or (ii)) having a fair market value of up to $5,000,000 in the aggregate and (iv) assets (other than those described in clauses (i) or (ii) having a fair market value above $5,000,000 in the aggregate so long as the Company prepays its obligations hereunder and under the Notes pursuant to Paragraph 4D, except that any Restricted Subsidiary may at any time transfer assets to a wholly owned Restricted Subsidiary of the Company; provided, however, that (A) no assets may be disposed of pursuant to clause (iv) at a time when an Event of Default has occurred and is continuing and (B) in no event shall the Company permit the sale of its name, its trademark, its logo or any other significant intangible assets, except in connection with a permitted sale of a Subsidiary or division;" 3 It is Prudential's understanding that as of December 31, 1993, the Company had sold assets pursuant to paragraph 6C(6) for net proceeds totalling $3,162,937 in the aggregate. (e) notwithstanding anything to the contrary in paragraph 5D, paragraph 6C or the extension of credit by Warburg, Pincus Investors, L.P, ("Warburg") to the Company and the other transactions contemplated by or permitted pursuant to the Loan and Security Agreement dated as of the date hereof, between the Company and Warburg, as amended (the "Warburg Loan Agreement") and the related Loan Documents (as defined therein). As collateral for the extensions of credit of Warburg referred to above, as well as the Senior Note and the Revolving Note, the Company will establish a cash collateral account pursuant to the Cash Collateral Account Agreement dated as of the date hereof, among the Company, Prudential, Warburg, and Bank of American NT & SA, in which Prudential will have a security interest subordinated to that of Warburg; and f) notwithstanding anything to the contrary in the Agreement or its related documents, Prudential agrees to excuse performance under the following paragraphs of the Agreement until the earlier of (A) execution by the Company of a definitive amendment to the Agreement upon the terms set forth in the term sheet related to the Warburg Loan Agreement or (B) December 31, 1994 (the "Final Waiver Date"): paragraph 2, with respect to any obligation to repay or prepay principal under any of the Prudential Notes; paragraph 6A; paragraph 6D; paragraph 6E; and paragraph 6G. The Company's failure to comply with any of these specified paragraphs will not give rise to a Default or an Event of Default under the Agreement prior to the Final Waiver Date. If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterparts of this letter and return the same to the undersigned, whereupon this letter shall become a binding agreement between the Company and Prudential, 4 amending the Agreement in the manner and to the extent hereinabove provided. Very truly yours, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/JOHN P. MULLMAN ____________________________________ Vice President The foregoing is hereby accepted as of the date first above written GRUBB & ELLIS COMPANY By: /s/ROBERT J. HANLON, JR. ________________________ Chief Financial Officer EX-99.3 4 MOFICIATION TO NOTE AND SECURITY AGREEMENT 1 amending the Agreement in the manner and to the extent hereinabove provided. Very truly yours, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/JOHN P. MULLMAN ____________________________________ Vice President The foregoing is hereby accepted as of the date first above written GRUBB & ELLIS COMPANY By: /s/ROBERT J. HANLON, JR. ________________________ Chief Financial Officer 2 EXHIBIT 3 MODIFICATION TO NOTE AND SECURITY AGREEMENT THIS MODIFICATION TO NOTE AND SECURITY AGREEMENT (the "Modification Agreement") modifies the Senior Note, Subordinated Note and Revolving Note Agreement, dated as of November 2, 1992 (the "Note Agreement"), and is entered into as of the 29th day of March 1994, by and between GRUBB & ELLIS COMPANY, a Delaware corporation ("Company"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Prudential"). RECITAL A. Pursuant to the Note Agreement, Company became indebted to Prudential in an amount as set forth in and more fully defined as the "Senior Debt" in the Note Agreement. B. Prudential asserts that certain Events of Default, as defined in the Note Agreement, have occurred and are continuing. C. Company has requested that Prudential waive certain rights and forebear from the exercise of certain remedies under the Note Agreement and to otherwise accommodate Company with respect to a certain financing agreement (the "Warburg Loan") made pursuant to a certain Loan and Security Agreement dated as of March 29, 1994 (the "Warburg Loan Agreement") between Company and Warburg, Pincus Investors, L.P., a Delaware limited partnership ("Warburg"), as evidenced by certain Loan Documents, as that term is defined in the Warburg Loan Agreement, and Prudential has agreed to provide such waivers, consents and accommodations to Company subject to the conditions contained herein and on the terms set forth in a certain Note Agreement Waiver, of even date herewith, and a certain letter agreement entitled Bridge Financing and Equity Offering Acknowledgment, also of even date herewith (the Note Agreement, the Modification Agreement, the Note Agreement Waiver and the letter agreement are collectively referred to herein as the "Prudential Agreement"). AGREEMENT NOW, THEREFORE, Prudential and Company hereby agree as follows: ARTICLE I GRANT OF SECURITY: CASH COLLATERAL ACCOUNT: SUBORDINATION SECTION 1.1. COLLATERAL; GRANT OF SECURITY INTEREST. In consideration for the forbearance, modifications and waivers granted by Prudential, as security for Company's indebtedness to Prudential for the Senior Debt, pursuant to and as defined in the Note Agreement, Company hereby grants to Prudential (to secure all such indebtedness) a security interest of first priority (subject to the terms of a certain Intercreditor Agreement, dated as of March 29, 1994, between Prudential and Warburg (the "Intercreditor Agreement"), a certain Cash Collateral Account Agreement, dated as of March 29, 1994 (the "Cash Collateral Account Agreement); a certain Prudential Waiver dated as of the date hereof with respect to any and all Events of Default which have occurred and are continuing under the Note Agreement; and a certain Written Consent dated as of the date hereof by Company, Warburg and Prudential to certain terms and conditions for the transactions contemplated herein and a proposed stockholder rights offering, (collectively, the "Prudential Documents")), in all of Company's right, title and interest in and to, in each case whether 3 now existing or hereafter acquired and wherever located, all of the following (the "Collateral): (i) all rights to payment in respect of all commercial real estate fees and commissions due to Company or any of its subsidiaries in connection with the commercial real estate brokerage operations of Company and its subsidiaries ("Brokerage Commissions"), (ii) Escrow No. 2337 (the "Existing Cash Collateral Account") maintained by Company at Bank of America NT&SA ("BofA") and any other Cash Collateral Account (as defined below) and all monies, instruments and amounts at any time on deposit in the Cash Collateral Account, and (iii) all proceeds of any of the foregoing. SECTION 1.2. LOCKBOX; CASH COLLATERAL ACCOUNT. Company has or shall have established and shall maintain with BofA (or such other financial institution or institutions as may be acceptable to Warburg, the "Depository Bank"), in the State of California, a lockbox (together with any successor, replacement or substitute lockbox, the "Lockbox") and one or more deposit accounts (collectively, including the Existing Cash Collateral Account and any successor, replacement or substitute account, the "Cash Collateral Account") into which Company hereby agrees to deposit the proceeds of the Warburg Loan. Company shall instruct each of its brokers, whether employees of Company or any of its subsidiaries, independent contractors or otherwise (collectively, "Brokers"), to deposit directly to the Lockbox all Brokerage Commissions. The Depository Bank shall deposit once each Business Day (as defined below) all Brokerage Commissions delivered into the Lockbox to the Cash Collateral Account (in the same form as received, with any necessary endorsements). In addition, Company shall promptly deposit all Brokerage Commissions received directly by Company or any of its subsidiaries (in the same form as received, with any necessary endorsements) to either the Lockbox or the Cash Collateral Account (amounts on deposit in the Cash Collateral Account are referred to herein as "Collateral Account Proceeds"). The Cash Collateral Account shall be established pursuant to documentation in form and substance satisfactory to Prudential (as such documentation may be in effect from time to time, the "Cash Collateral Documents"). The Cash Collateral Documents shall provide, among other things, that (1) subject to the following clause (2), Company may make withdrawals from the Cash Collateral Account for any general corporate purpose other than Prohibited Uses as defined in the Warburg Loan Agreement, and (2) during the existence and continuance of any Event of Default under the Prudential Agreement, Prudential may, by written notice to the Depository Bank with which Cash Collateral Accounts are maintained, terminate the right of Company to make any withdrawal from the Cash Collateral Account. SECTION 1.3. FURTHER ASSURANCES. Company agrees that from time to time, at the expense of Company, Company will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Prudential may request, in order to perfect, protect and maintain or establish the priority of any security interest granted or purported to be granted hereby or to enable Prudential to exercise and enforce its rights and remedies hereunder with respect to any Collateral. In addition, Company shall (a) notify Prudential of any change in Company's name, identity or corporate structure at least 15 days prior to any such change, and (b) not relocate Company's chief executive office from the location therefor specified in Section 2.4 without less than 60 days' prior written notice to Prudential. SECTION 1.4. SUBORDINATION. Prudential and Company agree, upon the delivery of a Notice of Blockage (as defined in the Cash Collateral Account Agreement) or at such time as Prudential or Warburg exercises any other remedies with respect to the Cash Collateral Account, that the Senior Debt evidenced by the Senior Note, as defined in the Note Agreement, shall be subordinated in right of payment to the extent of any proceeds within the Cash Collateral Account, as and in the manner provided herein, (i) first, to the prior payment in full of all Broker Fees (as 2 4 defined below), and, (ii) second, to any outstanding obligations under the Warburg Note, and that the subordination is for the benefit of Company. "Broker Fees" shall mean (i) the fees, commissions and other amounts to be paid to Brokers as compensation for the commercial real estate brokerage operations that gave rise to the Broker Commissions, and (ii) reimbursement to any banks that advanced such fees, commissions and other amounts from Company accounts pursuant to Company's transfer instructions. During the effectiveness of this subordination, Company shall provide Broker Fee notices to Warburg and Prudential no earlier than two Business Days prior to a proposed Broker Fee payment date. Each such notice shall identify each Broker owed a Broker Fee or each bank that is to be reimbursed for an advanced Broker Fee, the transaction giving rise to the Broker Fee, the transaction date, the amount of the Broker Fee, the proposed Broker Fee payment date and payment instructions. ARTICLE II REPRESENTATIONS AND WARRANTIES Company makes the following representations and warranties to Prudential, which representations and warranties shall be true and correct immediately before and at the time of entering into this Agreement and at the time of each request for an advance. SECTION 2.1. LEGAL STATUS. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified or licensed to do business, and is in good standing as a foreign corporation, if applicable, in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed would not reasonably be expected to have a Material Adverse Effect. For purposes of this Agreement, the term "Material Adverse Effect" means a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of Company and its wholly owned subsidiaries, taken as a whole. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, and each other document, contract and instrument required by or at any time delivered to Prudential in connection with this Agreement (with all of the foregoing, including, without limitation, the Prudential Documents and the Cash Collateral Documents, referred to herein collectively as the "Prudential Loan Documents") to which Company is a party have been (or, with respect to any of the foregoing executed and delivered after the date hereof, will have been at the time of such execution and delivery) duly authorized by Company, and upon such execution and delivery will constitute legal, valid and binding agreements and obligations of Company or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Company of each of the Prudential Loan Documents to which it is a party do not violate any provision of any law or regulation, or contravene any provision of Company's Certificate of Incorporation or By-Laws, or result in a breach of or constitute a default under any contract, obligation, indenture or other instrument to which Company is a party or by which Company or any of its properties may be bound except for any such breach or default which has been duly waived or consented to by all necessary parties. SECTION 2.4. CHIEF EXECUTIVE OFFICE; FEIN NUMBER. The chief executive office and the office where Company keeps its records regarding the Collateral is located at One Montgomery Street, Telesis Tower, San Francisco, California 94104. Company's Federal 3 5 Employer Identification Number is: 94-1424307. SECTION 2.5. SECURITY INTEREST. Upon the execution and delivery of this Agreement and the Cash Collateral Account Agreement, Prudential shall have a valid and continuing security interest in the Cash Collateral Account, and all action necessary to perfect such security interest shall have been taken. Prudential's security interest in the Cash Collateral Account is, and will continue to be, a first priority (subject to the terms of the Prudential Loan Documents) security interest, free and clear of all liens, claims, security interest and encumbrances, except with respect to any liens, claims, security interest and encumbrances of the Depository Bank granted by statute or pursuant to the Cash Collateral Account Agreement or any other Loan Document, and acknowledged by Prudential under the Intercreditor Agreement. ARTICLE III CONDITIONS PRECEDENT SECTION 3.1. (A) DOCUMENTATION. Prudential shall have received, in form and substance satisfactory to Prudential, the Prudential Agreement and each of the Prudential Loan Documents (in each case, duly executed by Company and/or each other party, as applicable). (B) CASH COLLATERAL ACCOUNT. The Cash Collateral Account shall have been established in a manner satisfactory to Prudential in its sole discretion and Prudential shall be satisfied that all steps shall have been taken necessary to create and perfect in favor of Prudential (to secure all obligations of Company under the Prudential Loan Documents) a first priority (subject to the terms of the Prudential Loan Documents) security interest in the Cash Collateral Account and all other Collateral described in Section 1.1 and 1.2. ARTICLE IV AFFIRMATIVE COVENANTS Company covenants that so long as the Senior Debt owed by Company to Prudential under the Note Agreement remains outstanding, and until payment in full of all obligations of Company secured hereby, Company shall: SECTION 4.1. NOTE AGREEMENT. Comply fully will all obligations under the Note Agreement and this Security Agreement. ARTICLE V EVENTS OF DEFAULT SECTION 5.1. DEFAULT The occurrence of any of the following shall constitute an "Event of Default" under this Prudential Security Agreement: (a) An Event of Default (as defined therein), shall have occurred and be continuing under the Prudential Note Agreement. (b) Prudential shall cease for any reason to have a valid and perfected first priority security interest in the Collateral securing payment in full of the Senior Debt owed by Company under the Note Agreement, junior only to the interests of Warburg or as otherwise provided in the 4 6 Cash Collateral Agreement. (c) The Cash Collateral Documents shall be modified without the consent of Prudential except with respect to fees charged by the Depository Bank or other administrative changes required by the Depository Bank that do not adversely affect Prudential's security interest in the Cash Collateral Account. SECTION 5.2. REMEDIES. (a) If an Event of Default shall occur, in addition to, and not in substitution for any remedies to Prudential under the Note Agreement, (i) Prudential shall have all rights, powers and remedies available under each of the Prudential Loan Documents, or accorded by law, including without limitation the right to resort to any or all of the Collateral or any other security for any of the obligations of Company hereunder and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law subject to the Intercreditor Agreement. All rights, powers and remedies of Prudential in connection with each of the Prudential Loan Documents may be exercised at any time by Prudential and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. (b) If any Event of Default shall have occurred and be continuing, in addition to, and not in substitution for any remedies available to Prudential under the Note Agreement, Prudential may exercise in respect of the Collateral, (i) all the rights and remedies of a secured party on default under the Uniform Commercial Code of the State of California (the "Code") (whether or not the Code applies to the affected Collateral); (ii) all of the rights and remedies provided for in this Agreement, the Cash Collateral Documents and any other agreement between Company and Prudential; and (iii) such other rights and remedies as may be provided by law or otherwise (such rights and remedies of Prudential to be cumulative and non-exclusive). Company hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Company agrees that at least ten days' notice to Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. ARTICLE VI MISCELLANEOUS SECTION 6.1. TERMINATION OF AGREEMENT. This Agreement shall terminate upon termination of the Warburg Loan Agreement pursuant to its terms and payment to Prudential of the Collateral, if any, extant as of date of termination of the Warburg Loan Agreement. SECTION 6.2. NO WAIVER. No delay, failure or discontinuance of Prudential in exercising any right, power or remedy under any of the Prudential Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Prudential of any breach of or default under any of the Prudential Loan Documents must be in writing and shall be effective only to the extent expressly set forth in such writing. 5 7 SECTION 6.3. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following addresses: COMPANY: Grubb & Ellis Company One Montgomery Street Telesis Tower San Francisco, California 94104 Telephone Number: (415) 956-4699 Telecopier Number: (415) 274-9700 Attn: General Counsel LENDER: The Prudential Insurance Company of America c/o The Prudential Corporate Finance Group Four Gateway Center 100 Mulberry Street Newark, New Jersey 07102-4069 Attention: Senior Managing Director Telephone Number: (201) 802-6655 Telecopier Number: (201) 802-2662 or to such other address as any party may designate by written notice to each other party. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery or courier service, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; or (c) if sent by telecopy, upon receipt. SECTION 6.4. INDEMNITY, COSTS, EXPENSES AND ATTORNEYS' FEES. Company shall indemnify Prudential against, hold Prudential harmless from, and pay to Prudential immediately upon demand, the full amount of all costs and expenses, including reasonable attorneys' fees, incurred by Prudential in connection with (a) Prudential's administration of this Agreement and each of the other Prudential Loan Documents (including, without limitation, the subordination provisions in Section 1.6 and any costs or other expenses incurred in establishing or maintaining the Cash Collateral Account), and the preparation of this Agreement and the other Prudential Loan Documents and any amendments and waivers hereto and thereto, (b) the enforcement of Prudential's rights and/or the collection of any amounts which become due to Prudential under any of the Prudential Loan Documents (including in connection with any bankruptcy, reorganization, "work-out" or similar circumstance or proceeding), and (c) the prosecution or defense of any claim or action in any way arising out of or related to any of the Prudential Loan Documents or the transactions contemplated thereby, including without limitation any action for declaratory relief. SECTION 6.5. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding on and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Company may not assign or transfer its interest or obligations hereunder without the prior written consent of Prudential. Prudential reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Prudential's rights and benefits under this Agreement, the Notes and each of the other Prudential 6 8 Loan Documents. SECTION 6.6. ENTIRE AGREEMENT; COUNTERPARTS; AMENDMENT. The Prudential Loan Documents constitute the entire agreement between Company and Prudential with respect to the Prudential Debt and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Modification Agreement may be executed in any number of counterparts and may be amended or modified only by a written instrument executed by each party hereto. SECTION 6.7. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Prudential Loan Documents to which it is not a party. SECTION 6.8. TIME IS OF THE ESSENCE. Time is of the essence of each and every provision of this Agreement and each of the other Prudential Loan Documents. SECTION 6.9. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.0. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California. 7 9 IN WITNESS WHEREOF, the parties hereto have caused this Loan and Modification Agreement to be executed as of the day and year first written above. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: The Prudential Insurance Company of America By: /s/ John P. Mullman .................................. Name: John P. Mullman Title: Vice President GRUBB & ELLIS COMPANY By: /s/ Robert J. Hanlon, Jr. .................................. Name: Robert J. Hanlon, Jr. Title: Chief Financial Officer 8 EX-99.4 5 CASH COLLATERAL ACCOUNT AGREEMENT 1 EXHIBIT 4 March 29, 1994 Bank of America NT & SA Global Escrow Depository Services One Embarcadero Center, Fifth Floor San Francisco, California 94111 Attention: Betty Deichler Vice President Re: Grubb & Ellis Company Cash Collateral Account Agreement Ladies and Gentlemen: Reference is made to (i) a certain Loan and Security Agreement dated as of March 29, 1994 (as amended, supplemented or otherwise modified from time to time, the "Warburg Loan Agreement"), by and between Grubb & Ellis Company, a Delaware corporation ("Company"), and Warburg, Pincus Investors, L.P., a Delaware limited partnership ("Warburg" or "Lender"), and (ii) a certain Senior Note, Subordinated Note and Revolving Credit Note Agreement dated as of November 2, 1992, as modified by a certain Modification to Note and Security Agreement dated as of the date hereof (the "Prudential Loan Agreement" and sometimes collectively referred to herein with the Warburg Loan Agreement, the "Loan Agreements"), by and between Company and The Prudential Insurance Company of America, a New Jersey corporation ("Prudential" or "Lender," and sometimes collectively referred to herein with Warburg, "Lenders"). This letter agreement (as amended, supplemented or otherwise modified from time to time, this "Agreement") sets forth and confirms (x) the agreements among Company, Lenders and Bank of America NT & SA ("Bank") with respect to the administration of the account maintained by Company with Bank and identified as of the date hereof as "Bank of America as Escrow Agent under Escrow Number 2337" (together with any successor, replacement or substitute account(s), the "Cash Collateral Account"), and (y) certain of the agreements between Company and Lenders with respect to the ownership and control of the Cash Collateral Account 2 Bank of America NT & SA March 29, 1994 Page 2 and the funds deposited therein. The funds to be received by Bank are received in trust for the benefit of Lenders, are held by Bank as agent for Lenders and are for application against Company's obligation to each Lender under the applicable Loan Agreements, pursuant to the terms hereof. 1. This Agreement shall serve as notice from Lenders to Bank, and Bank hereby acknowledges receipt of such notice, of Lenders' security interest in the Cash Collateral Account and in any and all monies, instruments and other amounts from time to time held therein or credited thereto (such amounts, collectively, the "Cash Collateral"). Bank confirms to Lenders that it has received no notice of any other pledge or assignment of or lien or security interest in the Cash Collateral Account or the Cash Collateral as of the date hereof and agrees to promptly notify Lenders upon receipt of any such notice. Bank acknowledges that the funds in the Cash Collateral Account are held in trust for the benefit of Lenders. 2. So long as Bank has not received a Notice of Blockage (as defined below) from either Lender, Company shall have the right to withdraw Cash Collateral from the Cash Collateral Account, subject at all times to the rules and regulations of Bank and to all applicable laws. Bank shall remit to Company all available funds in the Cash Collateral Account on a daily basis as instructed in writing by Company; provided, however, that (a) any transfer of Cash Collateral made at Company's request shall only be made by Bank to another account maintained by and on behalf of Company, and (b) no payments (whether by check, wire transfer or otherwise) shall be made to any third party directly from the Cash Collateral Account. Company acknowledges and agrees that, as between Company and Lenders, Company's right to withdraw and utilize Cash Collateral shall, in addition to the terms and conditions of this Agreement, at all times be subject to the terms and conditions of the Loan Agreements. As used in this Agreement, the term "Notice of Blockage" means (a) a written notice to Bank from either Lender ("Notifying Lender") stating that (i) an Event of Default under (and as defined in) the applicable Loan Agreement has occurred and is continuing, (ii) Company will no longer have any access to, or any right to withdraw Cash Collateral from, the Cash Collateral Account, and (iii) a copy of such notice has been delivered to Company and the other Lender. Each Lender agrees to deliver to Company and to the other Lender a copy of any Notice of Blockage concurrently with the delivery thereof to Bank. 3. Company agrees that it will not deposit or permit to be deposited to the Cash Collateral Account any monies other than proceeds of the Loan (as defined in the Warburg Loan Agreement) and amounts in respect of Brokerage Commissions (as defined below). The Cash Collateral Account will not, under any circumstances be subject to deductions, set-off, 3 Bank of America NT & SA March 29, 1994 Page 3 banker's lien, recoupment, counterclaim, chargeback or any other right in favor of any person other than Lenders, except that (i) Bank shall retain all of its present and future rights, whether described as rights of set-off, banker's lien, recoupment, counterclaim, chargeback or otherwise, with respect to items deposited to the Cash Collateral Account which are returned unpaid or otherwise returned to Bank for any reason, and (ii) all charges incurred in connection with the operation and maintenance of the Lockbox (as defined below) and the Cash Collateral Account shall be charged against the Cash Collateral Account. Bank's fee schedule is attached hereto as Annex A. 4. Company has established with Bank a lockbox (together with any successor, replacement or substitute lockbox, the "Lockbox"), the address of which is "Grubb & Ellis Company, in care of Bank of America, 1455 Market Street, San Francisco, California 94103, file number 72654." Company shall instruct each of its Brokers (as defined below) to deposit directly to the Lockbox all payments in respect of all commercial real estate fees and commissions due to Company or any of its subsidiaries in connection with the commercial real estate brokerage operations of Company and its subsidiaries ("Brokerage Commissions"). "Brokers" shall mean Company's brokers of record, whether employees of Company or any of its subsidiaries, independent contractors or otherwise; provided, however, that with respect to Brokerage Commissions generated in connection with the services or operations of Grubb & Ellis Asset Services Corporation, the broker of record shall be the President of Grubb & Ellis Asset Services Corporation. Pursuant to a lockbox service agreement, Bank shall deposit once each Business Day (as defined below) all Brokerage Commissions delivered into the Lockbox to the Cash Collateral Account (in the same form as received, with any necessary endorsements). In addition, Company shall promptly deposit any and all Brokerage Commissions received directly by Company or any of its subsidiaries (in the same form as received, with any necessary endorsements) to either the Lockbox or the Cash Collateral Account. 5. On and after Bank's receipt of a Notice of Blockage from Notifying Lender, Company shall (unless and until Bank is otherwise notified by Notifying Lender in writing) no longer have access to the Cash Collateral Account or any right of withdrawal thereunder, and the Cash Collateral Account and all withdrawals therefrom shall be subject to the provisions of paragraph 6. 6. On and after Bank's receipt of a Notice of Blockage from Notifying Lender: 4 Bank of America NT & SA March 29, 1994 Page 4 (a) Bank shall immediately change the name on the Cash Collateral Account to "Bank of America as Escrow Agent under Escrow Number 2337 for the joint benefit of Warburg, Pincus Investors, L.P. and The Prudential Insurance Company of America, as Lenders (Deposits Made by or for the Account of Grubb & Ellis Company)," and the Cash Collateral Account will be subject to written instruction to Bank as designated by Warburg only. As between Lenders, each Lender's rights, interest in, and obligations and remedies with respect to the Cash Collateral Account shall be determined pursuant to an Intercreditor Agreement dated as of the date hereof, by and between Warburg and Prudential, and acknowledged by Company, as amended, supplemented or otherwise modified from time to time. (b) All amounts received by Bank for deposit in the Cash Collateral Account, whether in the form of currency, checks, wire transfers or otherwise, shall be credited to the Cash Collateral Account in total on each Business Day. Bank may supply Company's endorsement on checks received by it by endorsing them "Credited to the account of the within payee," and will present them for payment through the customary collection procedures and subject to the terms of Bank's rules and regulations and all applicable laws covering the handling of items deposited with it. Bank will remit to Warburg available funds in the Cash Collateral Account on a daily basis on each Business Day (or otherwise as agreed to by Warburg and Bank), by means of federal wire transfer or otherwise, in each case as directed in writing by Warburg. (c)(i) All funds in the Cash Collateral Account will be under the sole and exclusive dominion and control of Warburg, (ii) the Cash Collateral Account and any funds then or thereafter on deposit therein shall be the exclusive property of Lenders, (iii) Company shall have no further interest in or control of the Cash Collateral Account or such funds, and (iv) such funds will not be subject to deductions, set-off, banker's lien, recoupment, counterclaim or any other right in favor of any other person other than Warburg and Bank as set forth above. (d) All instructions regarding the Cash Collateral Account shall be made exclusively by Warburg, and Bank shall not accept instructions with respect thereto from Company or Prudential. (e) Bank will promptly notify Lenders and Company at the addresses set forth below of the amount of all checks deposited to the Cash Collateral Account which are returned unpaid for any reason after receipt by Bank of a Notice of Blockage. 5 Bank of America NT & SA March 29, 1994 Page 5 (f) At the end of each month, Bank will mail its regular statement covering all deposits and withdrawals from the Cash Collateral Account to Lenders and Company at the addresses below. (g) For purposes of this paragraph 6 and paragraph 9, Business Day" shall mean any day (other than Saturdays and Sundays) on which Bank is open for business. Notwithstanding any contrary provision hereof, Bank shall not be required to remit any funds in the Cash Collateral Account to Warburg if such payment would violate any injunction or other legal process. 7. Any Notice of Blockage given by Notifying Lender to Bank hereunder shall be sent, delivered or teletransmitted to Bank, with a copy sent contemporaneously to Company and to the other Lender. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following addresses: BANK: Bank of America NT & SA Global Escrow Depository Services One Embarcadero Center, Fifth Floor San Francisco, California 94111 Attention: Betty Deichler Telephone Number: (415) 953-5705 Telecopier Number: (415) 622-2413 COMPANY: Grubb & Ellis Company One Montgomery Street Telesis Tower San Francisco, California 94104 Attn: General Counsel (or Attn: Treasurer, for purposes of sending regular statements pursuant to paragraph 6(f) above) Telephone Number: (415) 956-4699 Telecopier Number: (415) 274-9700 6 Bank of America NT & SA March 29, 1994 Page 6 WARBURG: Warburg, Pincus Investors, L.P. c/o E.M. Warburg, Pincus & Co., Inc. 466 Lexington Avenue, 10th Floor New York, New York 10017 Attn: Reuben S. Leibowitz Telephone Number: (212) 878-0653 Telecopier Number: (212) 878-9200 PRUDENTIAL: The Prudential Insurance Company of America c/o The Prudential Corporate Finance Group Four Gateway Center 100 Mulberry Street Newark, New Jersey 07102-4069 Attn: Senior Managing Director Telephone Number: (201) 802-7500 Telecopier Number: (201) 802-2662 or to such other address as any party may designate by written notice to each other party. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery or courier service, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; or (c) if sent by telecopy, upon receipt. Notwithstanding the foregoing, with respect to disbursements or investment of funds in the Cash Collateral Account, Bank may accept oral instructions of Treasurer or such other individual Company designates in writing to Bank prior to the delivery of a Notice of Blockage, or such individual Notifying Lender designates in writing to Bank after the delivery of a Notice of Blockage, so long as Bank receives a written confirmation on the Business Day in which such disbursement or investment is to be made. 8. Bank agrees to exercise the same degree of care in the servicing and administration of the Cash Collateral Account as would be customarily exercised in connection with accounts maintained by Bank, provided that Bank will not be liable for any error in judgment or for any action taken or omitted to be taken by Bank, except for Bank's own gross negligence or willful misconduct. Bank's General Provisions for Corporate Escrow Agreements applicable with respect to its escrow services, as revised and attached hereto as Annex B, is incorporated herein and made a part of this Agreement. 7 Bank of America NT & SA March 29, 1994 Page 7 9. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California. 10. This Agreement shall terminate upon the earlier of (i) written notice by Company and Lenders to Bank, (ii) termination of the Warburg Loan Agreement, or (iii) notice by Lenders to Bank and Company after Notifying Lender has delivered a Notice of Blockage pursuant to the terms hereof. 11. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 12. This Agreement shall become effective upon execution by all the parties hereto, and may be amended, modified or revoked only upon the written consent of all the parties hereto. 8 Bank of America NT & SA March 29, 1994 Page 8 This Cash Collateral Account Agreement, upon execution and delivery by the parties hereto, shall be dated and effective as of the date above written. Please sign and return two counterparts of this Agreement. Thank you for your assistance in this matter. Very truly yours, WARBURG, PINCUS INVESTORS, L.P. By: Warburg, Pincus & Co., general partner By: /s/ REUBEN S. LEIBOWITZ Name: Reuben S. Leibowitz Partner: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/JOHN P. MULLMAN Name: John P. Mullman Title: Vice President GRUBB & ELLIS COMPANY By: /s/ROBERT J. HANLON, JR. Name: Robert J. Hanlon, Jr. Title: Chief Financial Officer ACKNOWLEDGED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN: BANK OF AMERICA NT & SA By: /s/BETTY ANN DEICHLER Name: Betty Ann Deichler Title: Vice President 9 CASH COLLATERAL ACCOUNT AGREEMENT Annex A Bank of America Fee Schedule See attached. A-1 10 BANK OF AMERICA NT & SA Global Escrow Depository Services Fee Schedule Cash Management Account GRUBB & ELLIS COMPANY ACCEPTANCE FEE (NON REFUNDABLE): Includes review of Agreement and establishing $28,000 procedures and controls. (maximum) INVESTMENT PROCESSING FEES: Bank of America Investments: No charge Outside Investments processed through Bank of America (per transaction): $50 Outside Investments not processed through Bank of America (per transaction): $100 ACTIVITY FEES: (BILLED QUARTERLY) Incoming wire, check disbursement, direct deposit: $10 Outgoing wire: $23.75 OUT-OF-POCKET EXPENSES: Billed at Cost Expenses including but not limited to stationery, postage, telephone, insurance, shipping, Telex/Telegram, services of outside counsel and agents. (Plus indirect out-of-pocket at 3 % of annual fees.) Note: Charges for performing other escrow services not specifically covered in this schedule will be determined by an appraisal of the services rendered. March 22, 1994 11 CASH COLLATERAL ACCOUNT AGREEMENT Annex B Bank of America General Provisions for Corporate Escrow Agreements See attached. B-1 12 Global Escrow Depository Services General Provisions for Corporate Escrow Agreements LIABILITY OF ESCROW SERVICES In performing any duties under the Escrow Agreement ("Agreement"), Escrow Agent ("Agent") shall not be liable to any Party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of the Agent. Agency shall not incur any such liability for (I) any act or failure to act made or omitted in good faith or (II) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that Agent shall in good faith believe to be genuine, nor will Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, Agent may consult with the legal counsel in connection with Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. FEES AND EXPENSES It is understood that the fees and usual charges agreed upon for services of Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if Agent renders any service not provided for this Agreement, or if the Parties request a substantial modification of its terms, or if any controversy arises, or if Agent is made a Party to, or intervenes in, any litigation pertaining to this escrow or its subject matter, Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorney's fees, including allocated costs of in-house counsel, and expenses occasioned by such default, delay, controversy or litigation and Agent shall have the right to retain all documents and/or other things of value at any time held by Agent in this escrow until such compensation, fees, costs, and expenses are paid. The Parties jointly and severally promise to pay these sums upon demand. INDEMNIFICATION OF ESCROW AGENT The Parties and their respective successors and assigns agree jointly and severally to indemnify and hold Agent harmless against any and all losses, claims, damages, liabilities, and expenses, including reasonable costs of investigation, counsel fees, including allocated costs of in-house counsel and disbursements that may be imposed on Agent or incurred by Agent in connection with the performance of his/her duties under this Agreement, including but not limited to any litigation arising from this Agreement or involving its subject matter. Agent shall have a first lien on the property and papers held under this Agreement for such compensation and expenses. 13 General Provisions for Corporation Escrow Agreements Page 2 of 2 INVESTMENT INSTRUCTIONS Agent will act upon investment instructions the day that such instructions are received, provided the requests are communicated within a sufficient amount of time to all Agents to make the specified investment. Instructions received after an applicable investment cutoff deadline will be treated as being received by Agent on the next business day, and Agent shall not be liable for any loss arising directly or indirectly, in whole or in part, from the inability to invest funds on the day the instructions are received. Agent shall not be liable for any loss incurred by the actions of third parties or by any loss arising by error, failure, or delay in making of an investment which is caused by circumstances beyond Agent's reasonable control. FUNDS-INVESTED DURING ESCROW The Parties acknowledge that payment of any interest earned on the funds invested in this escrow will be subject to backup withholding penalties unless either a properly completed Internal Revenue Service form W8 or W9 certification is submitted to Escrow Agent. RESIGNATION OF ESCROW AGENT Agent may resign at any time upon giving at least thirty (30) days written notice to the Parties; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: The Parties shall use their best efforts to mutually agree on a successor escrow agent within thirty (30) days after receiving such notice. If the Parties fail to agree upon a successor escrow agent within such time, Agent shall have the right to appoint a successor escrow agent authorized to do business in the state of California. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. Agent shall be discharged from any further duties and liability under this Agreement. GOVERNING LAW This Agreement is to be construed and interpreted according to California law. Prepared by Bank of America Global Escrow Depository Services. EX-99.5 6 INTERCREDITOR AGREEMENT 1 EXHIBIT 5 INTERCREDITOR AGREEMENT This Intercreditor Agreement, dated as of March 29, 1994 (this "Agreement"), is made by and between Warburg, Pincus Investors, L.P., a Delaware limited partnership ("Warburg") and The Prudential Insurance Company of America, a New Jersey corporation ("Prudential"). RECITALS A. Pursuant to a certain Senior Note, Subordinated Note, and Revolving Credit Note Agreement, dated as of November 2, 1992 (the "Prudential Note Agreement"), as modified by a certain Modification to Note and Security Agreement, dated as of March 29, 1994, by and between Grubb & Ellis Company (the "Company") and Prudential (collectively, the "Prudential Security Agreement"), Company became indebted to Prudential, among other things, in an amount as set forth in and more fully defined as the "Senior Debt" in the Prudential Note Agreement (the "Senior Debt"). B. Pursuant to a certain Loan and Security Agreement entered into as of March 29, 1994 by and between Company and Warburg (the "Warburg Loan Agreement"), Company became indebted, or will become indebted to Warburg in an amount or amounts equal to the lesser of (i) Ten Million Dollars, and (ii) the unpaid principal amount of all advances made by Warburg as the Loan under, and as defined in, the Warburg Loan Agreement (the "Warburg Debt"). C. Company's obligations under each of the Prudential Note Agreement and the Warburg Loan Agreement (collectively the "Loan Agreements" or singular, a "Loan Agreement") are secured by a security interest in all of Company's right, title, and interest in and to certain personal property (as defined in the Prudential Security Agreement and the Warburg Loan Agreement as the "Collateral"), including a certain Cash Collateral Account, all as set forth in and defined under the Prudential Security Agreement and the Warburg Loan Agreement. D. In connection with the grant of a security interest by Company in favor of Warburg and Prudential, respectively, the parties have established a Cash Collateral Account pursuant to a certain Cash Collateral Account Agreement, dated as of March 29, 1994, among such parties and Bank of America NT&SA (the "Bank.") E. Prudential and Warburg (the "Lenders") wish to set forth their agreement with respect to the Collateral, each Lender's respective rights in and to the Collateral, and the allocation of the Collateral between each Lender; Now, therefore, Prudential and Warburg agree as follows: 2 AGREEMENT Section I. Defined terms. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Cash Collateral Account Agreement. Section II. Sharing of Security. 2.1 Right to Payment. Prior to the issuance of a Notice of Blockage, as defined in the Cash Collateral Account Agreement, from a Notifying Lender, Warburg may receive repayments or prepayments pursuant to the terms of the Warburg Loan Agreement, and Prudential specifically consents that such repayments and prepayments may be made from the Collateral until such time as an Event of Default shall have occurred and be continuing under the Warburg Loan Agreement or the Prudential Security Agreement. From on and after the issuance of a Notice of Blockage, withdrawal of funds from the Cash Collateral Account shall be made in accordance with the allocation formula set forth in Section 3.2, below. 2.2 Interest in Collateral. Each Lender shall share an undivided interest in the Collateral and all proceeds thereof as defined in Section 3, below, provided, however, that Prudential's interest in the Collateral shall be, and is junior to Warburg's interest in the Collateral. 2.3 Shared Benefit of Liens. Each Lender hereby acknowledges and agrees that it holds its lien upon and security interest in the Collateral and may exercise its rights and remedies with respect to the Collateral only as set forth herein. 2.4 Liens Governed by Intercreditor Agreement. The provisions of this Agreement shall govern each Lender's rights and interests in and to the Collateral and all proceeds thereof. Section III. Enforcement of Remedies. 3.1 Title. Upon the occurrence of an Event of Default under the Prudential Security Agreement or the Warburg Loan Agreement, each Lender shall be entitled to enforce its rights and remedies under its respective Loan Agreement, including, without limitation, its recourse to the Collateral and the issuance of a Notice of Blockage with respect to the Collateral held by the Bank, only in a manner consistent with this Agreement, as follows: (a) Warburg. Warburg may issue a Notice of Blockage with respect to the Collateral held by the Bank, and otherwise enforce its rights and remedies under the Warburg Loan Agreement at any time upon the occurrence of an Event of Default under the Warburg Loan Agreement; 2 3 (b) Prudential. Prudential shall be entitled to issue a Notice of Blockage upon the occurrence of an Event of Default under the Prudential Security Agreement only after three Business Days notice to Warburg of Prudential's intention to issue a Notice a Blockage to the Bank, provided, however, that if the Event of Default upon which Prudential intends to issue the Notice of Blockage arises solely as a result of the occurrence of an Event of Default under the Warburg Loan Agreement, and within such three Business Days, Warburg notifies Prudential in writing that Warburg has waived the relevant Event of Default, Prudential shall withdraw its Notice of Blockage. (c) Warburg shall take possession of the Collateral after issuance of a Notice of Blockage pursuant to the Cash Collateral Account Agreement whether Prudential or Warburg is the Notifying Lender. 3.2 Allocation of Receipts. During the term of this Agreement, from, on and after the date of the occurrence of an Event of Default under either the Warburg Loan Agreement or the Prudential Security Agreement, and upon the issuance of a Notice of Blockage to the Bank by a Lender (the "Notifying Lender") under the Cash Collateral Account Agreement, the Collateral shall be applied by Warburg, as follows: (a) First: to the payment in full of all Broker Fees (as defined in the Loan Agreements) pursuant to the terms of the applicable Loan Agreements; (b) Second: to Warburg, but only as long as the Warburg Debt and other obligations by Company under the Warburg Loan Agreement, as entered on March 29, 1994, remain outstanding. (c) Third: to Prudential, upon and on the date of the termination of the Warburg Loan Agreement either by (i) the Company's full repayment of the Warburg Debt, or (ii) the conversion of the Warburg Debt to shares of either common or preferred stock in Company, in an amount equal to the unpaid, outstanding Senior Debt owed by Company under the Prudential Note Agreement. (d) Fourth: upon Company's repayment in full of the Senior Debt owing to Prudential under the Prudential Security Agreement, the remainder, if any, of monies remaining in the Cash Collateral Account shall be returned to Company. 3.3 Receipt of Collateral and Proceeds. To the extent any Lender receives any distribution hereunder in excess of the amounts then due such Lender, such Lender shall hold the excess in trust for the other Lender and Company and such receiving Lender shall, as soon as practicable, distribute such excess receipts to the other Lender or Company, as applicable, in such amounts as will be required to satisfy the payment priority distribution set 3 4 forth in Section 3.2 above. Section IV. Exercise of Remedies. 4.1 General. (a) The rights and remedies of each Lender to collect and enforce Company's obligations to such Lender under the applicable Loan Agreement shall be exercised only in a manner consistent with the terms of the applicable Loan Agreements, the Cash Collateral Account Agreement and this Agreement. 4.2 Foreclosure. Subject to the provisions of this Agreement, each Lender may exercise all of its respective remedies under its Loan or Security Agreement, including foreclosure permitted thereunder, at any time following the occurrence and continuance of any Event of Default under the applicable Loan Agreement, provided, however, that, upon foreclosing against the Cash Collateral Account, Warburg shall instruct the Bank pursuant to the Cash Collateral Account Agreement, to distribute available funds in the Cash Collateral Account to each of the Lenders as set forth in this Agreement. 4.3 Notices of Default. Any notice required to be given by a Lender to Company under either of the Loan Agreements in respect of defaults, notices of default, or enforcement of remedies shall likewise be given by such Lender to the other Lender contemporaneously with the issuance of such notice to Company. Section V. Miscellaneous. 5.1 Termination. This Agreement shall terminate upon the first to occur of the date on which the Company's obligations to Warburg under the Warburg Loan Agreement or the Company's obligations to Prudential under the Prudential Note Agreement shall have been paid in full, or the Warburg Debt or the Senior Debt, as applicable, shall have been terminated. 5.2 Notices. Except as expressly provided herein all notices, demands or other communications hereunder to any of the parties hereto shall be in writing and shall become effective when delivered by hand or by air courier or when received by telex, telecopier, telegram or cable in each case sent to the parties at the addresses as stated below or at such other address as any party hereto may hereafter notify the other parties in writing as aforesaid; 4 5 Lender: Warburg Pincus Investors, L.P. c/o E.M. Warburg, Pincus and Co. Inc. 466 Lexington Avenue, Tenth Floor New York, New York 10017 Telephone: (212) 878-0653 Telecopier: (212) 878-9200 Atten.: Reuben S. Leibowitz Lender: The Prudential Insurance Company of America c/o The Prudential Corporate Finance Group Four Gateway Center 100 Mulberry Street Newark, New Jersey 07102-4069 Telephone: (201) 802-7500 Telecopier: (201) 802-2662 Atten.: Senior Managing Director Company: Grubb & Ellis Company One Montgomery Street Telesis Tower San Francisco, California 94104 Telephone: (415) 956-4699 Telecopier: (415) 274-9700 Atten.: General Counsel 5.3 Governing Law. This Intercreditor Agreement shall be governed by and construed in an accordance with the laws of the State of California (without giving effect to principals of conflicts of law). 5.4 Jurisdiction. The parties hereto hereby irrevocably submit to the jurisdiction of the Courts of the State of California and the United States District Court for the Northern District of California in any action, suit, or proceeding related to or in connection with this Agreement and the parties hereto consent to the service of all process, notices and papers by first class mail at the addresses set forth herein in any such action, suit, or proceeding. 5.5 Execution In Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement. 5.6 Amendments etc. No amendment or waiver of any provision of this Agreement nor consent to any departure therefrom, shall in any event be effective unless the 5 6 same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 5.7 Integration. This Intercreditor Agreement, together with the Loan Agreements and the Cash Collateral Account Agreement, constitute the sole agreement of the parties with respect to the subject matter hereof and supersedes all oral negotiations and prior writings with respect to the subject matter hereof. 5.8 Severability. Any provisions hereof prohibited by, or unlawful or unenforceable under, any applicable law of any jurisdiction shall as to such jurisdiction be ineffective without modifying the remaining provisions of this Agreement or its applicability to any other Agreement and any such prohibition or unenforceability in any jurisdiction shall not of its self invalidate or render such provision unenforceable in any other jurisdiction. Where, however, the provisions of such applicable law may be waived they are hereby waived by the parties hereto to the full extent permitted by law, to the end that this Agreement shall be a valid and binding Agreement enforceable in accordance with its terms. 5.9 Attorney's Fees. If a Lender hereto fails to perform any of its obligations under this Agreement or if any dispute arises between or among the Lenders concerning the meaning or interpretation of any provision of this Agreement, then the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable attorney's fees and disbursements incurred in the dispute, in enforcing any judgement thereon and in any appeal. 6 7 IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be duly executed by their authorized officers, as of the date and year first above written. WARBURG, PINCUS INVESTORS LP By: /s/ Reuben S. Leibowitz Title: Partner THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ John P. Mullman Title: Vice President Grubb & Ellis hereby acknowledges and consents to the terms hereof: GRUBB & ELLIS COMPANY By: /s/ Robert J. Hanlon, Jr. Title: Chief Financial Officer 7 -----END PRIVACY-ENHANCED MESSAGE-----