<PAGE>
RULE 424(b)(3) - REGISTRATION NO. 33-54707
GRUBB & ELLIS COMPANY
RIGHTS TO PURCHASE
UP TO 4,433,000 SHARES OF COMMON STOCK
EXPIRING OCTOBER 31, 1994
Grubb & Ellis Company (the "Company") will issue at no cost to holders
of record on September 16, 1994 (the "Record Date") of its common stock, par
value $0.01 per share (the "Common Stock"), one nontransferable right (a
"Right") for each share of Common Stock. Each Right entitles the holder to
purchase, at any time prior to 5:00 p.m. (Chicago time) on October 31, 1994 (the
"Expiration Time"), one share of Common Stock (the "Basic Subscription
Privilege") at a subscription price of $2.375 per share (the "Subscription
Price"). The Rights are nontransferable. See "The Rights Offering."
To the extent any shares of Common Stock offered hereby are not
purchased pursuant to the Basic Subscription Privilege, a holder who validly
exercises all of its Rights pursuant to the Basic Subscription Privilege may
oversubscribe at the Subscription Price for remaining shares of Common Stock up
to a maximum number equal to the number of shares of Common Stock held by such
holder as of the Record Date, subject to proration (the "Oversubscription
Privilege"). See "The Rights Offering -- Oversubscription Privilege."
_______________
THE COMMON STOCK OFFERED HEREBY INVOLVES
CERTAIN RISKS. SEE "RISK FACTORS."
_______________
Warburg, Pincus Investors, L.P. ("Warburg"), has entered into a
Standby Agreement pursuant to which it has agreed to purchase at the
Subscription Price shares of Common Stock reserved for issuance pursuant to the
exercise of Rights and not purchased pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege, subject to a maximum number of
shares that will result in an aggregate purchase price paid by Warburg being
equal to $10 million plus accrued interest owed to Warburg by the Company under
the Loan and Security Agreement dated March 29, 1994 between the Company and
Warburg (the "Bridge Loan"). If common stockholders do not purchase any shares
of Common Stock in the Rights Offering, Warburg will purchase the maximum number
of shares it is committed to buy under the Standby Agreement, which would be
approximately 4,250,000 shares. See "Financing Transactions -- Summary of
Anticipated Effects of the Financing Transaction; Dilution," "The Rights
Offering -- Commitment of Warburg" and "Risk Factors."
(Cover continued on following page)
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Proceeds to Company(2)
Underwriting Discounts and
Subscription Price Commissions(1) Minimum(3) Maximum(4)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $2.375 None $2.375 $2.375
- -------------------------------------------------------------------------------------------
Total $10,528,375 None $10,100,000 $10,528,375
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<FN>
(1) The Shares are being offered and sold directly by the Company, and no
commissions or other remuneration is intended to be paid to any person for
soliciting purchases of the shares in this Offering. See "The Rights
Offering -- Method of Offering."
(2) Before deducting expenses payable by the Company estimated at $350,000.
(3) Approximate proceeds assuming the purchase of Common Stock only by Warburg
up to the maximum amount of its obligation. See "The Rights Offering --
Commitment of Warburg."
(4) Assumes the exercise of all Rights.
</TABLE>
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 16, 1994
<PAGE>
(Continued from previous page)
A nontransferable certificate evidencing the total number of Rights to
which a stockholder is entitled is being sent with this Prospectus to each
stockholder entitled to participate in this Rights Offering.
To the extent a stockholder does not exercise his Rights, his
percentage equity interest in the Company and his voting power will be reduced.
See "Financing Transactions -- Summary of Anticipated Effects of the Financing
Transactions; Dilution."
The Rights may not be exercised by any person, and neither this
Prospectus nor any Rights Certificate shall constitute an offer to sell or a
solicitation of an offer to purchase any shares of Common Stock, in any
jurisdiction in which such transactions would be unlawful. See "The Rights
Offering -- State and Foreign Securities Laws."
_______________
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (of which this Prospectus is
a part) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Rights and the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto. For further information with respect to the Company,
the Rights and the Common Stock, reference is hereby made to such Registration
Statement and exhibits filed therewith. The Registration Statement, including
the exhibits thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. The statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference and the exhibits thereto. Copies of each such
contract or other document may be obtained from the Commission at its principal
office in Washington, D.C. upon payment of the charges prescribed by the
Commission.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy and information statements
and other information with the Commission. The Registration Statement,
including the exhibits thereto, as well as such reports, proxy and information
statements and other information filed by the Company with the Commission, may
be inspected, without charge, and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
Room 1024; 7 World Trade Center, 13th Floor, New York, New York 10048; and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at
prescribed rates. The Company's Common Stock is listed on the NYSE. Reports,
proxy and information statements and other information concerning the Company
may be inspected at the offices of the NYSE at 20 Broad Street, New York, New
York 10005.
_______________
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed with the Commission and are
incorporated herein by reference:
a. Annual Report on Form 10-K for the fiscal year ended December 31,
1993 filed on March 31, 1994, as amended on Form 10-K/A
(Amendment No. 1) filed on April 29, 1994, Form 10-K/A (Amendment
No. 2) filed July 22, 1994, and Form 10-K/A (Amendment No. 3)
filed on July 27, 1994.
b. Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1994, as amended on Form 10-Q/A (Amendment No. 1) filed
on July 22, 1994, and on Form 10-Q/A (Amendment No. 2) filed on
July 27, 1994.
c. Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1994 filed on August 15, 1994.
d. Proxy Statement dated July 29, 1994 in connection with the 1994
Annual Meeting of Stockholders.
e. Description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A declared effective
on April 15, 1981, except that the number of authorized shares of
capital stock and common stock have been increased to 26,000,000
and 25,000,000, respectively.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made by this Prospectus shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, on written or oral request of such person, a copy of
any or all documents incorporated by reference in this Prospectus, without
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Copies of this Prospectus, as amended or
supplemented from time to time, and any other documents (or parts of documents)
that constitute part of the Prospectus under Section 10(a) of the Securities Act
will also be provided without charge to each such person, upon written or oral
request. Requests should be directed to Investor Relations, Grubb & Ellis
Company, One Montgomery Street, Telesis Tower, San Francisco, California, 94104,
telephone number (415) 956-1990.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED
BY REFERENCE IN THIS PROSPECTUS. EACH INVESTOR IS URGED TO READ THIS PROSPECTUS
IN ITS ENTIRETY PRIOR TO MAKING AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY.
THE COMPANY
Grubb & Ellis Company, a Delaware corporation organized in 1980, is
the successor by merger to a real estate brokerage company first established in
California in 1958. Grubb & Ellis Company and its wholly and majority owned
subsidiaries (the "Company") provide real estate services, including commercial
brokerage, residential brokerage, property and facilities management (through
its wholly owned operations and majority owned subsidiary, Axiom Real Estate
Management, Inc. ("Axiom")) and other services for real estate owners, investors
and tenants.
THE RIGHTS OFFERING
The Company is distributing at no cost to holders of record on
September 16, 1994 of its common stock, par value $0.01 per share (the "Common
Stock"), one nontransferable right (a "Right") for each share of Common Stock.
DESCRIPTION Each Right entitles the holder to purchase at a subscription
price of $2.375 (the "Subscription Price") one share of
Common Stock (the "Basic Subscription Privilege"). On
September 15, 1994, the closing price of the Common Stock on
the NYSE was $2-1/8 per share. See "The Rights Offering."
RECORD DATE September 16, 1994 (the "Record Date").
EXPIRATION
TIME . . . . 5:00 p.m. (Chicago time), October 31, 1994 (the "Expiration
Time").
OVERSUBSCRIPTION
PRIVILEGE . . To the extent any shares of Common Stock offered hereby are
not purchased pursuant to the Basic Subscription Privilege,
a stockholder who validly exercises all of its Rights may
oversubscribe at the Subscription Price for remaining shares
of Common Stock up to a maximum number equal to the number
of shares of Common Stock held by such holder on the Record
Date, subject to proration. See "The Rights Offering --
Subscription Privileges."
TRANSFER . . The Rights are nontransferable.
STANDBY COMMITMENT
TO PURCHASE
SHARES . . . . The Company's principal stockholder, Warburg, Pincus
Investors, L.P. ("Warburg"), has entered into a Standby
Agreement pursuant to which it has agreed to purchase at the
Subscription Price shares of Common Stock reserved for
issuance pursuant to the exercise of Rights and not
purchased pursuant to the Basic Subscription Privilege or
the Oversubscription Privilege, subject to a maximum number
of shares that will result in an aggregate purchase price
paid by Warburg being equal to $10 million plus accrued
interest owed to Warburg by the Company under the Loan and
Security Agreement dated March 29, 1994 between the Company
and Warburg (the "Bridge Loan"). Warburg will pay for such
shares first through the cancellation of indebtedness under
the Bridge Loan and thereafter through payment of funds
directly to the Company. As of
<PAGE>
September 1, 1994, the Company had borrowed $6 million under
the Bridge Loan. If common stockholders do not purchase any
shares of Common Stock in the Rights Offering, Warburg will
purchase the maximum number of shares it is committed to buy
under the Standby Agreement, which would be approximately
4,250,000 shares. See "Financing Transactions--Summary of
Anticipated Effects of the Financing Transaction; Dilution,"
"The Rights Offering -- Commitment of Warburg" and "Risk
Factors."
DILUTION OF
EXISTING COMMON
STOCK . . . . To the extent a holder of Common Stock (a "Common
Stockholder") does not exercise its Rights, such Common
Stockholder's percentage interest in the Company's voting
power will be diluted. If Common Stockholders do not
purchase shares of Common Stock in the Rights Offering, and
Warburg purchases the maximum number of shares of Common
Stock that it is obligated to purchase, the ownership
interest of the Common Stockholders in the Company would
decrease from approximately 34% to approximately 25%, while
Warburg's ownership interest in the Company would increase
from approximately 37% to approximately 55%. On the other
hand, participation in the Rights Offering would give each
Common Stockholder the opportunity to maintain or increase
his or her voting power in the Company through the exercise
of the Rights. If Common Stockholders fully participate in
the Rights Offering, the ownership interest of the Common
Stockholders in the Company would increase from
approximately 34% to approximately 51%. See "The Financing
Transactions--Summary of Anticipated Effects of the
Financing Transactions; Dilution."
DILUTION UPON
EXERCISE OF
RIGHTS . . . . The Subscription Price significantly exceeds the Company's
net tangible book value per share as of June 30, 1994, after
giving effect to the completion of the Rights Offering and
the other Financing Transactions (as defined below). Based
on an exercise price of $2.375 per share, Common
Stockholders who exercise Rights would have experienced an
immediate dilution in net tangible book value of $10.17 per
share and $8.28 per share assuming the exercise of all
outstanding warrants. See "Dilution."
COMMON STOCK
OUTSTANDING PRIOR
TO THE RIGHTS
OFFERING . . Approximately 4,433,000 shares.
COMMON STOCK
OUTSTANDING AFTER
THE RIGHTS
OFFERING . . Approximately 8,866,000 shares, assuming the exercise of all
Rights.
RISK FACTORS An investment in the Common Stock offered by this Prospectus
involves various risks, and prospective investors should
carefully consider the matters discussed under "Risk
Factors" prior to any investment in the Company. Such risks
include, among others:
- the Company has incurred net losses in each of the last four
fiscal years, primarily as a result of certain restructuring
charges associated with the Company's operations, and there
can be no assurance that after the Rights Offering the
Company will be able to achieve increased revenue or
profitability;
<PAGE>
- the operating activities of the Company and the settlement
of various lawsuits which arose before existing management
began operating the Company continue to consume net cash
resulting in a lack of liquidity, which if not improved,
could result in an inability to sustain the Company's
operations beyond 1994;
- the issuance of the large number of shares of Common Stock
pursuant to the Rights Offering and the New Warrants (as
defined below), could adversely affect the market price of
the Common Stock;
- substantial and immediate dilution in net tangible book
value of the Common Stock purchased in the Rights Offering;
- upon consummation of the Financing Transactions, the
percentage of the Company's voting securities owned by
existing Common Stockholders, other than Prudential and
Hanauer, could be reduced significantly; if Common
Stockholders do not participate in the Rights Offering, they
will experience a reduction in their voting power from
approximately 34% to approximately 25% of the outstanding
voting power of the Company;
- the Company does not now meet several of the listing
criteria for the New York Stock Exchange ("NYSE"), and
although the NYSE has informed the Company that it is
closely monitoring the Company's continued listing status,
the NYSE has not notified the Company of any plans to delist
the Common Stock; if the NYSE were to delist the Common
Stock, the market price and liquidity of the Common Stock
could be adversely affected;
- risks associated with servicing outstanding obligations,
including that the Company may not have funds sufficient to
meet debt obligations;
- if the Company were forced to seek protection from its
creditors under applicable federal bankruptcy laws and
reorganize or liquidate its assets, it is likely that
holders of Common Stock would receive little, if any,
consideration in respect of their shares;
- risks associated with the negative pressures that the
prolonged real estate recession continues to place on both
the volume of transactions and prices for real estate, which
could adversely and materially affect the Company's
operating results, cash flow and financial condition;
- Warburg, through its current stock ownership and Board
representation, is able to substantially influence the
management of the day-to-day operations and affairs of the
Company;
- if Warburg as a result of its purchase of Common Stock
pursuant to its standby commitment acquires control of more
than 50% of the outstanding voting power of the Company,
Warburg will have the power to elect a majority of the
Company's Directors (subject to its obligations under the
Stockholders' Agreement (as defined below)) and to approve
any action requiring Stockholder approval, assuming
compliance with applicable Delaware law and the Certificate
of Incorporation; and
- the Company does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future.
<PAGE>
USE OF PROCEEDS The maximum net proceeds to the Company from the sale of the
Common Stock offered hereby are estimated to be
approximately $10.1 million (assuming all of the shares of
Common Stock offered hereby are purchased pursuant to the
exercise of Rights and after deducting estimated expenses of
the Financing Transactions). The minimum net proceeds of
the Rights Offering are estimated to be approximately $9.8
million (assuming the purchase of Common Stock only by
Warburg up to the maximum amount of its obligation and after
deducting estimated expenses of the Financing Transactions).
Warburg is required to fulfill its standby commitment first
through cancellation of indebtedness under the Bridge Loan,
including accrued interest, and thereafter through payment
of funds directly to the Company. In the event that
following the purchase of shares by Warburg pursuant to its
standby commitment there is any outstanding indebtedness
remaining under the Bridge Loan, any such remaining amounts
outstanding under the Bridge Loan will be retired with the
proceeds of the Rights Offering. Thereafter, remaining
proceeds, if any, of the Rights Offering will be used for
general corporate purposes. See "The Rights Offering --
Commitment of Warburg" and "Use of Proceeds."
FINANCING TRANSACTIONS
BACKGROUND
On September 12, 1994, the Company held its Annual Meeting of
Stockholders (the "Annual Meeting"), at which the stockholders of the Company
(the "Stockholders"), including a majority of the Common Stockholders other than
Warburg and the Company's principal lender, The Prudential Insurance Company of
America ("Prudential") approved certain financing transactions (the "Financing
Transactions"), including the Rights Offering. The Financing Transactions also
include the amendment of certain agreements between the Company and Prudential,
the issuance to Warburg, under certain circumstances, and Prudential of warrants
to purchase 325,000 and 150,000 shares of Common Stock, respectively, and
amendments to the outstanding Senior Preferred Stock (as defined below), the
outstanding Junior Preferred Stock (as defined below) and outstanding warrants
to purchase Common Stock. It is anticipated that the Financing Transactions
will close promptly following the expiration of the Rights Offering. The
Financing Transactions other than the Rights Offering are described below. For
a discussion of the Rights Offering, see "The Rights Offering."
LOAN AGREEMENTS
BRIDGE LOAN. On March 29, 1994, Warburg and the Company entered into
a Loan and Security Agreement pursuant to which Warburg has agreed to make
advances to the Company from time to time in an aggregate principal amount for
all such advances outstanding not to exceed $10 million at any time. The
outstanding principal amount of the Bridge Loan bears interest at a rate of 5%
per annum. The Bridge Loan is secured by the Company's commercial brokerage
revenues and amounts held in a cash collateral account established by the
Company. Prudential also has a lien on the cash collateral account which is
subordinated to Warburg's lien. As of September 1, 1994, the Company had
borrowed $6 million under the Bridge Loan. As described above, all indebtedness
under the Bridge Loan will be retired in connection with the Rights Offering and
Warburg's standby commitment. See "The Rights Offering--Commitment of Warburg,"
"Financing Transactions--Exercise of Contingent Warrants," "Use of Proceeds."
PRUDENTIAL 1994 WAIVER. On March 28, 1994, in order to facilitate the
completion of the Financing Transactions, Prudential agreed to waive (the
"Prudential 1994 Waiver") through December 31, 1994 certain provisions of its
loan agreement with the Company (the "Prudential Debt Agreement") with respect
to the outstanding 9.9% Senior Notes (the "Senior Notes"), the 10.65%
Subordinated Payment-in-Kind Notes (the "PIK Notes") and the Revolving Credit
Note (the "Revolving Credit Note"). Pursuant to the Prudential 1994 Waiver,
Prudential waived compliance under covenants relating to working capital,
<PAGE>
cumulative operating losses and capital expenditures and waived the Company's
obligation to repay or prepay any principal under the Senior Notes and the
Revolving Credit Note that would have been due during 1994. Prudential excused
performance of the foregoing provisions until the earlier of the execution of a
definitive amendment of the Prudential Debt Agreement as contemplated by the
Financing Transactions or December 31, 1994.
PRUDENTIAL DEBT AGREEMENT. Upon consummation of the Financing
Transactions, the Company and Prudential will amend the Prudential Debt
Agreement with respect to the Senior Notes, the PIK Notes and the Revolving
Credit Note. Pursuant to the amendment, $15 million principal amount of the
Senior Notes, the PIK Notes and the Revolving Credit Note which would have been
due from 1994 through 1996 will be deferred and no principal payments will be
required until November 1, 1997, and thereafter (A) the Revolving Credit Note
will mature November 1, 1999, (B) principal on the Senior Notes will be payable
in two equal installments on November 1, 1997 and 1998, and (C) principal on the
PIK Notes will be payable in two approximately equal installments on November 1,
2000 and 2001, (ii) the interest rate on the PIK Notes will increase from 10.65%
to 11.65% per annum on January 1, 1996, (iii) the temporary repayment
requirements applicable to the Revolving Credit Note and certain covenants
relating to working capital, cumulative operating losses and capital
expenditures will be ineffective until April 1, 1997, (iv) the Company will be
required to maintain a ratio of EBITDA (as defined in the Prudential Debt
Agreement) to total interest expense equal to or greater than 2:1 on a rolling
12 month basis as of April 1, 1997 and quarterly thereafter, (v) the Company
will be required to make supplemental debt payments commencing in 1998 if the
Company generates certain levels of cash flow, (vi) the Company will be
permitted to make up to $5 million of loans and advances to its salespersons
against future commissions and guarantees of such loans and advances; and (vii)
certain other restrictions and covenants will be eliminated from the Prudential
Debt Agreement or waived by Prudential.
The following table compares the required principal payments due under
the existing terms of the Prudential Debt Agreement with the required principal
payments due under the Prudential Debt Agreement after giving effect to the
amendments which will be effected in connection with the Financing Transactions.
<TABLE>
<CAPTION>
Principal Due Under Principal Due Under
Existing Terms of Prudential Debt
Prudential Debt Agreement(1) Agreement As Amended(3)
---------------------------- -----------------------
<S> <C> <C>
1994 $4,000,000(2) $ -0-
1995 $5,500,000 $ -0-
1996 $5,500,000 $ -0-
1997 $3,000,000 $5,000,000
1998 $3,000,000 $5,000,000
1999 $3,000,000 $5,000,000
2000 -0- $4,500,000
2001 -0- $4,500,000
<FN>
____________________
(1) Under the Prudential Debt Agreement, the Company is required to repay all
outstanding principal under the Revolving Credit Note for a 60-day period
each year. The amount due under the Revolving Credit Note currently is
$5,000,000, all of which would have been required to be paid in 1994. The
Revolving Credit Note matures on December 31, 1994, at which time, the
Company may convert such Note into a new term note which would mature on
December 31, 1996. The table assumes that the Company elected to make such
conversion.
(2) Pursuant to the Prudential 1994 Waiver, Prudential agreed to waive the
Company's obligation to repay any principal under the Revolving Credit Note
and to prepay the $4,000,000 principal which would have been due on the
Senior Notes through the earlier of the execution of a definitive amendment
of the Prudential Debt Agreement as contemplated by the Financing
Transactions or December 31, 1994.
(3) Pursuant to the proposed amendments to the Prudential Debt Agreement, the
requirement to repay principal under the Revolving Credit Note will be
deferred until November 1, 1999 and the Company will not have the option of
converting the Revolving Credit Note into a new term note. The table
excludes PIK Notes issued and to be issued in lieu of cash interest.
</TABLE>
<PAGE>
ISSUANCE OF NEW WARRANTS
As consideration for acquiring unsubscribed shares of Common Stock in
connection with the Rights Offering, and agreeing to the other transactions
contemplated by the Rights Offering, the Company will issue to Warburg warrants
to purchase 325,000 shares of Common Stock at an exercise price of $2.375 per
share (the "Warburg 1994 Warrants"); provided that the Company will be obligated
to issue the Warburg 1994 Warrants only if Warburg purchases at least 500,000
shares of Common Stock pursuant to the Standby Agreement. As consideration for
modifying the Prudential Debt Agreement with the Company, waiving noncompliance
with certain covenants and agreeing to the other transactions contemplated by
the Financing Transactions, the Company will issue to Prudential warrants to
purchase 150,000 shares of Common Stock at an exercise price of $2.375 per share
(the "Prudential 1994 Warrants" and together with the Warburg 1994 Warrants, the
"New Warrants"). Any or all of the New Warrants may be exercised at any time
until five years after the date of issuance. The other terms of the New
Warrants will be the same as the terms of the Existing Warrants (as defined
below), after giving effect to the amendments to the Existing Warrants discussed
below (including the amendments to the Warrant Anti-Dilution Provisions (as
defined below).
1993 RESTRUCTURING
On January 29, 1993, the stockholders of the Company approved a
financial recapitalization and debt restructuring (the "Restructuring"),
pursuant to which Warburg, for a purchase price of $12,850,000, purchased (i)
128,266 shares of the Company's 12% Senior Convertible Preferred Stock (the
"Senior Preferred Stock"), (ii) five-year warrants initially to purchase 340,000
shares of Common Stock, at an exercise price of $5.00 per share (the "$5.00
Warrants"), (iii) five-year warrants initially to purchase 142,000 shares of
Common Stock at an exercise price of $5.50 per share (the "$5.50 Warrants" and
together with the $5.00 Warrants, the "Warburg 1993 Warrants"), and (iv)
warrants to purchase 373,818 shares of Common Stock at an exercise price of
$5.00 per share, subject to certain limitations (the "Contingent Warrants").
Also pursuant to the Restructuring, Joe F. Hanauer ("Hanauer"), who is currently
Chairman of the Board, Executive Chairman and Chief Executive Officer of the
Company purchased for $900,000 (i) 8,894 shares of Senior Preferred Stock, (ii)
$5.00 Warrants initially to purchase 160,000 shares of Common Stock, (iii) $5.50
Warrants initially to purchase 58,000 shares of Common Stock and (iv) Contingent
Warrants to purchase 26,182 shares of Common Stock.
Pursuant to the Restructuring, the Company and Prudential agreed to
restructure the existing indebtedness of the Company owed to Prudential,
including the issuance to Prudential, in exchange for the cancellation of $15
million of subordinated debt, of 150,000 shares of the Company's 5% Junior
Convertible Preferred Stock (the "Junior Preferred Stock" and together with the
Senior Preferred Stock, the "Preferred Stock") and $5.50 Warrants initially to
purchase 200,000 shares of Common Stock (the "Prudential 1993 Warrants"). The
Common Stock and the Preferred Stock are sometimes collectively referred to
herein as the "Capital Stock." The Warburg 1993 Warrants, the Prudential 1993
Warrants and the $5.00 Warrants and $5.50 Warrants held by Hanauer are sometimes
collectively referred to herein as the "Existing Warrants."
As part of the Restructuring, Warburg, Prudential, Hanauer and the
Company entered into a Stockholders' Agreement (as amended as of this date, the
"Stockholders' Agreement"), which provides for the nomination of up to three
persons for election as Director by Warburg and up to two persons for election
as Director by Prudential.
Pursuant to the Financing Transactions, the Existing Warrants and the
Preferred Stock will be subject to certain amendments and adjustments which are
summarized below. See "Financing Transactions." The following chart describes
the changes to the outstanding Preferred Stock, Existing Warrants and Contingent
Warrants held by Warburg and Prudential which will be effected in connection
with the Financing Transactions:
<PAGE>
<TABLE>
<CAPTION>
Current Exercise Price New Exercise Price
and Amount of and Amount of
Security Underlying Securities Underlying Securities(1)
- ------------------------------ --------------------------------------- -----------------------------------------
<C> <S> <C>
WARBURG
Senior Preferred Stock Convertible into 4,256,083 shares at a Convertible into approximately 4,650,000
conversion price of $3.0137 per share. shares at a conversion price of
approximately $2.76 per share.
$5.00 Warrants Exercisable for 340,000 shares at an Exercisable for approximately 459,000
exercise price of $5.00 per share. shares at an exercise price of $3.50 per
share.
$5.50 Warrants Exercisable for 142,000 shares at an Exercisable for approximately 198,000
exercise price of $5.50 per share. shares at an exercise price of $3.50 per
share.
PRUDENTIAL
Junior Preferred Stock Convertible into 2,674,511 shares at a Convertible into 2,674,511 shares at a
conversion price of $5.6085 per share. conversion price of $5.6085 per share.
Prudential $5.50 Warrants Exercisable for 200,000 shares at an Exercisable for 200,000 shares at an
exercise price of $5.50 per share. exercise price of $3.50 per share.
HANAUER(2)
Senior Preferred Stock Convertible into 295,118 shares at a Convertible into approximately 322,000
conversion price of $3.0137 per share. shares at a conversion price of
approximately $2.76 per share.
$5.00 Warrants Exercisable for 160,000 shares at an Exercisable for approximately 216,000
exercise price of $5.00 per share. shares at an exercise price of
approximately $3.70 per share.
$5.50 Warrants Exercisable for 58,000 shares at an Exercisable for approximately 81,000
exercise price of $5.50 per share. shares at an exercise price of
approximately $3.94 per share.
Contingent Warrants Exercisable for 26,182 shares at an Exercisable for approximately 35,000
exercise price of $5.00 per share. shares at an exercise price of
approximately $3.70 per share.
<FN>
______________________
(1) Assumes the issuance of all shares of Common Stock reserved for issuance in
the Rights Offering. The exact adjustments will be based on, among other
things, the number of shares of Common Stock issued in the Rights Offering.
(2) All changes to the number of underlying securities and exercise or
conversion price of the securities held by Hanauer will be made solely upon
application of the anti-dilution provisions contained in such securities.
</TABLE>
AMENDMENTS TO EXISTING WARRANTS
Upon consummation of the Financing Transactions, the Warburg 1993
Warrants and the Prudential 1993 Warrants will be subject to certain adjustments
and amendments. The exercise price and the number of shares of Common Stock
issuable upon exercise of each Existing Warrant currently are subject to
adjustment from time to time upon the occurrence of certain events, including
upon the issuance of rights, options, warrants or securities directly or
indirectly convertible into Common Stock, and certain issuances of Common Stock,
for a consideration per share less than the greater of the current market price
or the warrant exercise price per share on the date of such issue (the "Warrant
Anti-Dilution Provisions"). Upon consummation of the Financing Transactions,
the exercise prices of the Warburg 1993 Warrants will be reduced to $3.50 per
share and the number of shares issuable upon exercise of the Warburg 1993
Warrants will be increased from 340,000 and 142,000 to approximately 459,000 and
198,000 shares of Common Stock for the $5.00 Warrants and $5.50 Warrants,
respectively. The exact adjustments will be based on, among other things, the
number of shares of Common Stock issued in the Rights Offering. The exercise
price of the Prudential 1993 Warrants will be reduced to $3.50 per share, but
the number of shares of Common Stock issuable upon exercise will not change.
The expiration date
<PAGE>
of the Prudential 1993 Warrants will be extended from January 29, 1998 to
December 31, 1998. Upon consummation of the Financing Transactions, the Warrant
Anti-Dilution Provisions contained in the Existing Warrants held by Warburg and
Prudential will be amended to, among other things, eliminate the anti-dilution
protection upon issuance of shares at a price which is less than the greater of
the market price and the exercise price.
CANCELLATION OF CONTINGENT WARRANTS
Upon consummation of the Restructuring, Warburg acquired Contingent
Warrants to purchase 373,818 shares of Common Stock only in the event that the
Company incurs a defined liability in excess of $1,500,000 at an aggregate
exercise price equal to the lesser of 93.45% of the amount by which such excess
liability exceeds $500,000 or $5.00 per share multiplied by the number of shares
purchased. The other terms of the Contingent Warrants, including the anti-
dilution provisions, are the same as those contained in the Existing Warrants.
Concurrently with the consummation of the Rights Offering, the Contingent
Warrants will be cancelled; PROVIDED that Warburg will be obligated to surrender
the Contingent Warrants for cancellation only if the Company issues the Warburg
1994 Warrants.
AMENDMENTS TO PREFERRED STOCK
Upon consummation of the Restructuring, the Company issued Warburg and
Hanauer 128,266 and 8,894 shares of Senior Preferred Stock and issued to
Prudential 150,000 shares of Junior Preferred Stock. Upon consummation of the
Financing Transactions, the Company's Certificate of Incorporation will be
amended to modify the terms of the Senior Preferred Stock and the terms of the
Junior Preferred Stock will be amended as described below.
REDEMPTION PROVISIONS. The Preferred Stock is subject to mandatory
redemption at certain specified times commencing on November 1, 2000. Upon
consummation of the Financing Transactions, the mandatory redemption provisions
will be eliminated, except that under certain limited circumstances, the Company
may be required to redeem the Junior Preferred Stock in connection with an
underwritten public offering of the Company's Common Stock as described in
"-- Conversion of Junior Preferred Stock" below.
ANTI-DILUTION PROVISIONS. The outstanding shares of Senior Preferred
Stock, all of which are held by Warburg and Hanauer, currently are convertible
into an aggregate of 4,551,201 shares of Common Stock, at the option of the
holder, at a conversion price of $3.0137 per share of Common Stock. The
outstanding shares of Junior Preferred Stock, all of which are held by
Prudential, currently are convertible into an aggregate of 2,674,511 shares of
Common Stock, at the option of the holder, at a conversion price of $5.6085 per
share of Common Stock. The Preferred Stock currently provides that the
conversion prices are subject to adjustment from time to time upon the
occurrence of certain events, including upon the issuance of rights, options,
warrants or securities directly or indirectly convertible into Common Stock, and
certain issuances of Common Stock for a consideration per share less than the
greater of the current market price or the conversion price per share on the
date of such issue (the "Preferred Stock Anti-Dilution Provisions"). Warburg,
Hanauer and Prudential have waived application of the Preferred Stock Anti-
Dilution Provisions with respect to issuances by the Company from January 29,
1993 through consummation of the Financing Transactions pursuant to the
Company's 1990 Stock Option Plan (including securities issued upon the exercise
of stock options granted pursuant to such Plan) and the Company's Employee Stock
Purchase Plan. Upon consummation of the Rights Offering and upon application of
the Preferred Stock Anti-Dilution Provisions, the conversion price of the Senior
Preferred Stock will be adjusted to approximately $2.76 per share, assuming the
issuance of all shares reserved for issuance in the Rights Offering. As a
result of the adjustment to the conversion price, the number of shares of Common
Stock issuable upon conversion of the Senior Preferred Stock held by Warburg and
Hanauer will increase to approximately 4,972,000. The exact adjustments will be
based on, among other things, the number of shares of Common Stock issued in the
Rights Offering. Prudential has agreed to waive the application of the
Preferred Stock Anti-Dilution Provisions with respect to the Junior Preferred
Stock in connection with the Financing Transactions. Upon consummation of the
Financing Transactions,
<PAGE>
the Preferred Stock Anti-Dilution Provisions contained in the Senior Preferred
Stock held by Warburg and the Junior Preferred Stock held by Prudential will be
amended to, among other things, eliminate the anti-dilution protection upon
issuance of shares at a price which is less than the greater of the market price
and the conversion price.
DIVIDEND RATE. Holders of the Senior Preferred Stock and the Junior
Preferred Stock are entitled to receive cumulative dividends payable in cash, at
a rate of 12% and 5% per annum, respectively. Upon consummation of the
Financing Transactions, the Junior Preferred Stock will be amended to increase
the dividend rate effective January 1, 2002 to 10% per annum with further
increases of 1% per annum effective January 1, 2003 and January 1, 2004 and 2%
per annum effective January 1, 2005 and each January 1 thereafter. Also in
connection with the Financing Transactions, the Senior Preferred Stock will be
amended so that at such time as the dividend rate on the Junior Preferred Stock
would increase above the dividend rate on the Senior Preferred Stock, the
dividend rate on the Senior Preferred Stock will increase by the same amount.
Assuming no other changes to the dividend rates of the Preferred Stock, as a
result of these amendments, the dividend rate on the Senior Preferred Stock will
increase by 2% per annum effective January 1, 2005. The Preferred Stock is
subject to mandatory conversion provisions under certain limited circumstances,
pursuant to which the Preferred Stock would be converted to Common Stock. The
conversion price of the Preferred Stock is not subject to adjustment for accrued
but unpaid dividends and upon conversion the dividends are no longer payable.
CONVERSION OF JUNIOR PREFERRED STOCK. The Junior Preferred Stock will
be amended to provide that in the event that the Company undertakes to sell
Common Stock in an underwritten public offering and the Company's investment
bankers advise the Company that in order to complete the public offering on the
most favorable terms to the Company it is necessary to retire the Junior
Preferred Stock, then the Company may direct all holders of the Junior Preferred
Stock to convert the Junior Preferred Stock to Common Stock; provided that such
holders will be obligated to convert only after the later of the time Warburg
has committed to convert its Senior Preferred Stock and the consummation of such
underwritten public offering. If the holders of the Junior Preferred Stock are
required to convert the Junior Preferred Stock at a time when the Common Stock
issuable upon conversion would have a value less than the accreted value of the
Junior Preferred Stock (including all unpaid dividends), then such holders must
either, at their option, require the Company to redeem the Junior Preferred
Stock at the accreted value or convert the Junior Preferred Stock.
AMENDMENTS TO STOCKHOLDERS' AGREEMENT
The Stockholders' Agreement, which contains agreements among Warburg,
Prudential and Hanauer with respect to voting for the election of Directors and
grants Warburg, Prudential and Hanauer certain registration rights with respect
to the securities received by them in the Restructuring, will be amended so that
Warburg and Prudential will have the same registration rights for the New
Warrants, the Common Stock issuable upon exercise of the New Warrants and any
shares of Common Stock acquired in connection with the Rights Offering. The
Common Stock issuable upon exercise of the New Warrants and the Common Stock
acquired in connection with the Rights Offering will be subject to the voting
requirements of the Stockholders' Agreement.
SUMMARY OF ANTICIPATED EFFECTS OF THE FINANCING TRANSACTIONS
The Financing Transactions, if approved and implemented, will have a
material effect on the Company and on the holders of the Company's Common Stock.
The Financing Transactions may result in a significant dilution of the equity
ownership of the Common Stockholders, depending on the participation of the
Common Stockholders in the Rights Offering. In addition, adjustments in the
number of shares issuable upon conversion of the Senior Preferred Stock,
adjustments in the number of shares issuable upon exercise of the Existing
Warrants held by Warburg and Hanauer and the Contingent Warrants held by Warburg
(if not cancelled) and Hanauer and the issuance of the New Warrants will have a
dilutive effect on the equity ownership of the Common Stockholders. Such
dilution would reduce a
<PAGE>
Common Stockholder's ownership interest in the Company. See "The Financing
Transactions--Summary of Anticipated Effects of the Financing Transactions."
<PAGE>
HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1994, and such capitalization as adjusted to give effect to the
consummation of the Financing Transactions, including the Rights Offering,
assuming that the Financing Transactions had occurred as of June 30, 1994. This
table should be read in conjunction with the Company's consolidated financial
statements for the six months ended June 30, 1994 contained in the Form 10-Q for
the quarter ended June 30, 1994, incorporated herein by reference.
<TABLE>
<CAPTION>
June 30, 1994
(unaudited)
(in thousands)
--------------------------
Historical Pro Forma(1)
---------- ------------
<S> <C> <C>
Long-term debt obligations:
Related Party
9.9% Senior Notes $ 10,000 $ 10,000
10.65% PIK Notes, net of $920,000 cancellation and
$408,000 of unamortized discount 9,636 9,636
Revolving Credit Note 5,000 5,000
Bridge Loan 6,000 --(2)
Notes payable at various rates of interest, due through
2005, long-term portion 766 766
Other 256 256
--------- ---------
Total long-term debt obligations 31,658 25,658
--------- ---------
Redeemable preferred stock:
12% Senior convertible preferred stock:
137,160 shares outstanding 15,366 --
5% Junior convertible preferred stock:
150,000 shares outstanding 15,942 --
--------- ---------
Total redeemable preferred stock 31,308 --
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value:
1,000,000 shares authorized; 287,160 shares issued as
redeemable preferred stock; as adjusted: 8,894 shares of
Series A 12% Senior Convertible Preferred Stock
outstanding, 128,266 shares of Series B 12% Senior
Convertible Preferred Stock outstanding and 150,000
shares of 5% Junior Convertible Preferred Stock
outstanding, with dividend rates subject to increase
commencing 2005, 2005 and 2002, respectively -- 31,308
Common stock, $.01 par value:
25,000,000 shares authorized; 4,114,549 shares
outstanding; 8,229,098 shares outstanding as adjusted 42 83
Additional paid-in capital 46,940 56,321
Retained earnings (deficit) (120,520) (120,520)
--------- ---------
Total stockholders' equity (deficit) (73,538) (32,808)
--------- ---------
Total capitalization $(10,572) $ (7,150)
--------- ---------
--------- ---------
<FN>
____________________
(1) Assumes consummation of the Financing Transactions, including the issuance
of 4,114,549 shares of Common Stock pursuant to the Rights Offering and the
effectiveness of amendments to the Certificate of Incorporation pursuant to
which the mandatory redemption provisions of the Preferred Stock will be
eliminated. Also assumes payment of expenses attributable to the Rights
Offering of $350,000. The number of shares reserved for issuance upon
exercise
</TABLE>
<PAGE>
of the Rights will be dependent on the number of shares outstanding as of
the Rights Offering, which is anticipated to be approximately 4,400,000
shares.
(2) Pursuant to the Financing Transactions, all indebtedness under the Bridge
Loan will be repaid with the proceeds from the Rights Offering and/or
retired pursuant to the Standby Agreement. See "Use of Proceeds" and "The
Rights Offering - Commitment of Warburg."
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED BY THIS PROSPECTUS INVOLVES
CERTAIN RISKS. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE ENTIRE
PROSPECTUS AND CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING A DECISION TO
PARTICIPATE IN THE RIGHTS OFFERING.
HISTORICAL NET LOSSES; STOCKHOLDERS' DEFICIT
The Company has incurred net losses in each of the last four fiscal
years, primarily as a result of certain restructuring charges associated with
the Company's operations. During fiscal years 1990, 1991 and 1992, losses
increased from $29.8 million in 1990 to $49.3 million in 1991 and to $59.7
million in 1992. The Company's net loss for 1993 was $18.2 million. Over the
same four-year period, stockholders' equity decreased from $55.5 million in
1990, to $6.5 million in 1991, to a deficit of $51.5 million in 1992 and to a
deficit of $68.9 million in 1993, as a direct result of the losses from
operations and special charges and unusual items. During that time, the Company
did not incur any material defaults under its outstanding debt obligations.
There can be no assurance that after the Rights Offering the Company will be
able to achieve increased revenue or profitability.
LACK OF LIQUIDITY
The operating activities of the Company and the settlement of various
lawsuits which arose before existing management began operating the Company
continue to consume net cash. The Company believes that as a result of the
proceeds of the Rights Offering, the cost reduction programs already
implemented, the nonrecurring nature of lawsuits which generally arose out of
discontinued operations and the deferral of principal owed to Prudential, the
Company will have sufficient cash liquidity through 1994. In order for cash
flow from operating activities to be sufficient to sustain the Company's
operations beyond 1994, the Company will likely be required to achieve an
increase in revenue. There can be no assurance that such an increase in revenue
will occur or that it will be sufficient to maintain adequate cash to continue
operations beyond 1994.
POSSIBLE DECLINE OF STOCK PRICE AFTER RIGHTS OFFERING
The issuance of approximately 4,400,000 shares pursuant to the Rights
Offering at $2.375 per share and the New Warrants (as defined below) to purchase
475,000 shares of Common Stock at $2.375, which together would represent
approximately 27% of the equity of the Company on a fully diluted basis, could
adversely affect the market price of the Common Stock. On March 28, 1994, the
last trading day prior to the announcement of the Financing Transactions by the
Company, the closing sales price on the NYSE was $3-3/8 per share. On September
15, 1994, the closing sales price of the Common Stock on the NYSE was $2-1/8 per
share.
DILUTION IN NET TANGIBLE BOOK VALUE UPON EXERCISE OF RIGHTS
The Subscription Price per Right significantly exceeds the Company's
net tangible book value per share as of March 31, 1994, after giving effect to
the completion of the Rights Offering. Based on an exercise price of $2.375 per
share, Common Stockholders who exercise Rights would have experienced an
immediate dilution in net tangible book value of $10.17 per share and $8.28 per
share assuming the exercise of all outstanding warrants. See "Summary--
Historical and Pro Forma Capitalization."
DILUTION OF VOTING POWER OF EXISTING COMMON STOCK
Upon consummation of the Financing Transactions, the percentage of the
Company's voting securities owned by existing Common Stockholders, other than
Prudential and Hanauer, could be
1
<PAGE>
reduced significantly on a fully diluted basis. In particular, such reduction
will result from the issuance of shares of Common Stock pursuant to the Rights
Offering, adjustments in the number of shares issuable upon exercise of the
Existing Warrants held by Warburg and Hanauer and the Contingent Warrants held
by Warburg (if not cancelled) and Hanauer and the issuance of the New Warrants.
If Common Stockholders do not participate in the Rights Offering, the
outstanding voting power held by such Common Stockholders will be reduced from
approximately 34% to approximately 25% of the outstanding voting power of the
Company. On a fully diluted basis, assuming exercise of all outstanding
warrants and conversion of Preferred Stock, the outstanding voting power held by
such Common Stockholders will be reduced from approximately 31% to approximately
22% of the outstanding voting power of the Company. See "Financing
Transactions--Summary of Anticipated Effects of the Financing Transactions;
Dilution."
EFFECT ON COMMON STOCK OF FAILURE TO MEET CONTINUED LISTING CRITERIA ON THE NYSE
There are certain quantitative and qualitative criteria for the
continued listing of the Common Stock on the NYSE. The Company does not now
meet several of the criteria, including a minimum level of net tangible assets
and three year average net income, and does not anticipate it will meet such
criteria after the Financing Transactions. Although the NYSE has informed the
Company that it is closely monitoring the Company's continued listing status, it
has not notified the Company of any plans to delist the Common Stock. In the
event of delisting, the Company will use its best efforts to have its Common
Stock traded in another market, such as the over-the-counter market. However,
the delisting of the Common Stock by the NYSE could have an adverse impact on
the market price and liquidity of the Common Stock.
SUBSTANTIAL DEBT OBLIGATIONS; INABILITY TO SERVICE DEBT
After completion of the Financing Transactions, the Company will
continue to have substantial debt obligations of approximately $24 million under
the Prudential Debt Agreement and will continue to have significant Preferred
Stock dividend obligations. Management believes that, after completion of the
Financing Transactions, it will have sufficient operating cash flow to pay
interest and scheduled amortization on all of its outstanding indebtedness. In
1994, the Company's obligations for cash interest payments will be approximately
$1.3 million. See "Financing Transactions--Financing Transactions and Deferral
of Debt Payments" for a description of the Company's future obligations of
principal payments. However, even if the Financing Transactions are completed,
the Company's ability to meet its debt service obligations will depend on a
number of factors, including its ability to improve operating cash flow. There
can be no assurance that targeted levels of operating cash flow will actually be
achieved. The Company's ability to maintain or increase operating cash flow
will be largely dependent upon the real estate markets across the country.
ADVERSE IMPACT OF REORGANIZATION UNDER FEDERAL BANKRUPTCY CODE ON VALUE OF
COMMON STOCK
If, in the future, the Company's financial forecasts indicate that
there is no longer a reasonable prospect to meet its debts as they come due, the
Company could be required to restructure its financial affairs under the Federal
Bankruptcy Code or seek some other type of restructuring. If the Company were
unable to meet its debt service burden, the Company would be forced to seek
protection from its creditors under applicable federal bankruptcy laws. If this
were to occur and the Company were forced to reorganize or liquidate its assets,
it is likely that holders of Common Stock would receive little, if any,
consideration in respect of their shares.
ADVERSE EFFECT OF CONTINUING REAL ESTATE RECESSION ON COMPANY'S OPERATIONS
If the prolonged real estate recession continues, it may place
severely negative pressures on both the volume of transactions and prices for
real estate. Further declines in the volume of
2
<PAGE>
transactions and prices for real estate could adversely and materially affect
the Company's operating results, cash flow and financial condition and could
require the Company to discontinue certain of its operations or sell additional
assets.
OWNERSHIP BY CONTROLLING STOCKHOLDERS AND POSSIBLE EFFECTS
Warburg currently holds approximately 36.5% of the outstanding Capital
Stock of the Company, and approximately 39.5% on a fully diluted basis assuming
the exercise of warrants. Warburg, through ownership of its Senior Preferred
Stock and Common Stock and Board representation, is able to substantially
influence the management of the day-to-day operations and affairs of the
Company. Prudential holds approximately 26.4% of the outstanding Capital Stock
of the Company (approximately 25.3% on a fully diluted basis assuming the
exercise of all warrants) and is the Company's principal lender. As a result of
such stock ownership, Warburg and Prudential collectively have the power to
elect all of the Directors of the Company and collectively have the power, as
shareholders, to act together to approve all fundamental corporate transactions,
including mergers and the sale of all or substantially all of the Company's
assets.
POSSIBLE CONFLICTS OF INTEREST
Following the completion of the Financing Transactions, Warburg will
hold between approximately 28.0% and approximately 54.4% of the outstanding
Capital Stock of the Company, depending on the participation of the Common
Stockholders in the Rights Offering. On a fully diluted basis, assuming
exercise of all outstanding warrants, Warburg will hold between approximately
31.5% and approximately 54.8% of the outstanding Capital Stock of the Company,
depending on the participation of the Common Stockholders in the Rights
Offering. In the event that Warburg controls more than 50% of the outstanding
voting power of the Company, Warburg will have the power to elect a majority of
the Company's Directors (subject to its obligations under the Stockholders'
Agreement (as defined below)) and to approve any action requiring Stockholder
approval, assuming compliance with applicable Delaware law and the Certificate
of Incorporation, including approval of certain corporate transactions,
including a merger or the sale of all or substantially all of the Company's
assets.
Common Stockholders should be aware that two of the Board's six
members have been nominated by Warburg and thus have certain interests that are
in addition to and may conflict with those of Common Stockholders. In
connection with the Financing Transactions, Warburg has agreed to loan the
Company up to $10 million under the Bridge Loan, and through September 1, 1994,
has advanced the Company $6 million under the Bridge Loan. Also in connection
with the Financing Transaction, Warburg has agreed to purchase shares of Common
Stock not purchased by Common Stockholders in the Rights Offering and, under
certain circumstances, will be granted the Warburg 1994 Warrants. In addition,
Hanauer holds Preferred Stock and warrants which will be subject to certain
anti-dilution adjustments as a result of the Financing Transactions.
As a significant institutional investor in real estate, Prudential
also utilizes the services of the Company and its competitors on a regular
basis. Prudential, its affiliates and franchisees paid the Company
approximately $4.6 million for management of several of its properties and for
leasing commissions during 1993. The Company also rents office space in the
ordinary course of business under a long-term lease from a partnership of which
Prudential is a general partner, paying approximately $1.3 million in rent
during 1993. See "Financing Transactions--Summary of Anticipated Effects of the
Financing Transactions; Dilution."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company does not anticipate paying any cash dividends in the
foreseeable future. The Prudential Debt Agreement contains provisions that
prohibit payment of cash dividends or
3
<PAGE>
distributions on the Common Stock. In addition, unless full cumulative
dividends have been paid on the Senior Preferred Stock and the Junior Preferred
Stock, the Company will not be entitled to pay dividends on the Common Stock.
EFFECT ON COMMON STOCK OF SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Financing Transactions, a total of
approximately 9,312,000 shares of Common Stock will be issuable upon conversion
of the Preferred Stock and upon exercise of outstanding warrants. The Company
also has stock option, purchase and other plans covering up to 1,660,000 shares
of Common Stock. Options to purchase 321,585 shares of Common Stock under the
stock option plans were outstanding as of June 1, 1994. The conversion of such
shares of Preferred Stock and the exercise of such warrants and options, along
with the issuance of shares under other Company plans, would result in the
issuance of a substantial number of shares of Common Stock, thereby diluting the
proportionate equity interests of the holders of the Common Stock. No
prediction can be made as to the effect, if any, that future sales of shares, or
the availability of shares for future sales, will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock (including shares issued upon the exercise of warrants or options),
or the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock.
4
<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing as soon as practicable after the date of
this Prospectus, at no cost, to each holder of Common Stock of record as of
September 16, 1994 (the "Record Date"), one Right for each share of Common
Stock. Each Right entitles the holder to purchase at the subscription price of
$2.375 (the "Subscription Price") one share of Common Stock. Rights expire at
5:00 p.m. (Chicago time) on October 31, 1994 (the "Expiration Time").
The Rights are evidenced by nontransferable rights certificates
("Rights Certificates"), which record holders are receiving with copies of this
Prospectus.
Stockholders may (a) purchase Common Stock through the exercise of
their Rights (including Rights obtained pursuant to the Oversubscription
Privilege) or (b) allow Rights to expire unexercised.
There is no minimum number of shares which must be subscribed for in
the Rights Offering. There is no assurance that any shares offered hereby will
be subscribed for and purchased by holders of Common Stock, in which case
Warburg will acquire up to approximately 4,250,000 shares. See "-- Commitment
of Warburg."
All commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the exercise of
Rights are the responsibility of the holder of the Rights and none of such
commissions, fees or expenses shall be paid by the Company.
Reference is made to the "Instructions for Use of Grubb & Ellis
Company Rights Certificate" accompanying the Rights Certificate for a
description of how to exercise Rights.
METHOD OF OFFERING
The Rights Offering is being made directly by the Company. The
Company will pay no underwriting discounts or commissions, finders fees or other
remuneration in connection with any distribution of the Rights or sales of the
shares of Common Stock offered hereby, other than the fees paid to Harris Trust
Company of California, as Subscription Agent. The Company estimates that the
expenses of the Rights Offering will total approximately $350,000.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. Each Right will entitle the holder to
purchase at the Subscription Price one share of Common Stock (the "Basic
Subscription Privilege"). Each holder is entitled to subscribe for all or any
portion of the shares of Common Stock that may be acquired through the exercise
of its Basic Subscription Privilege.
OVERSUBSCRIPTION PRIVILEGE. Any shares of Common Stock offered hereby
and not purchased pursuant to the Basic Subscription Privilege will be available
for subscription pursuant to an oversubscription privilege (the
"Oversubscription Privilege"). A holder who validly exercises all of the Rights
evidenced by the Rights Certificate issued pursuant to the Rights Offering may
oversubscribe at the Subscription Price for remaining shares of Common Stock, up
to a maximum number equal to the number of shares of Common Stock held by such
holder as of the Record Date. If the total number of shares of Common Stock
available for purchase pursuant to the Oversubscription Privilege (the "Excess
Shares") is insufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata among
the holders exercising the Oversubscription Privilege in proportion
5
<PAGE>
to the number of Rights exercised by each such holder, relative to the number of
Rights exercised by all holders exercising the Oversubscription Privilege. No
fractional shares will be issued. The Oversubscription Privilege is not
transferable.
The Company will notify a holder exercising the Oversubscription
Privilege promptly after the Expiration Time of the number of Excess Shares
available to such holder for oversubscription. If a proration of the Excess
Shares results in a holder's receiving fewer shares of Common Stock than the
holder subscribed for pursuant to the Oversubscription Privilege, then the
excess funds paid by that holder as the Subscription Price for shares not issued
will be returned by mail to subscribers as soon as practicable after the
Expiration Time, without interest or deduction.
In order to exercise the Oversubscription Privilege, banks, brokers
and other nominee holders who exercise the Oversubscription Privilege on behalf
of beneficial owners of Rights will be required to certify (a "Nominee Holder
Certification") to the Subscription Agent and the Company the number of shares
held on the Record Date on behalf of each such beneficial owner of Rights, the
number of Rights as to which the Basic Subscription Privilege has been exercised
on behalf of each such beneficial owner, that each such beneficial owner's Basic
Subscription Privilege held in the same capacity has been exercised in full and
the number of shares of Common Stock subscribed for pursuant to the
Oversubscription Privilege by each such beneficial owner, and to record certain
other information received from each such beneficial owner.
COMMITMENT OF WARBURG
The Company's principal stockholder, Warburg, Pincus Investors, L.P.
("Warburg"), has entered into a Standby Agreement pursuant to which it has
agreed to purchase at the Subscription Price shares of Common Stock reserved for
issuance pursuant to the exercise of Rights and not purchased pursuant to the
Basic Subscription Privilege or the Oversubscription Privilege, subject to a
maximum number of shares that will result in an aggregate purchase price paid by
Warburg being equal to $10 million plus accrued interest owed to Warburg by the
Company under the Loan and Security Agreement dated March 29, 1994 between the
Company and Warburg (the "Bridge Loan"). Warburg will pay for such shares first
through the cancellation of indebtedness under the Bridge Loan, and thereafter
through payment of funds directly to the Company. As of September 1, 1994, the
Company had borrowed $6 million under the Bridge Loan. If Common Stockholders
do not purchase any shares of Common Stock in the Rights Offering, Warburg will
purchase the maximum number of shares it is committed to buy under the Standby
Agreement, which would be approximately 4,250,000 shares. See "Financing
Transactions -- Summary of Anticipated Effects of the Financing Transaction;
Dilution" and "Risk Factors."
EXERCISE OF RIGHTS AND SUBSCRIPTION AGENT
Rights holders may exercise the Basic Subscription Privilege and the
Oversubscription Privilege by properly completing and signing the subscription
form on the Rights Certificate, including, if required, a signature guarantee
from an Eligible Institution (as defined in "Instructions for Completing Rights
Certificates" accompanying the Rights Certificate), and mailing or delivering
the Rights Certificate to Harris Trust Company of California (the "Subscription
Agent"), together with payment of the aggregate Subscription Price in full (in
United States dollars). A holder who wishes to exercise the Oversubscription
Privilege may elect to subscribe for (a) a specified number of shares (subject
to the maximum oversubscription permitted hereby) or (b) the maximum number of
shares to which he may be entitled to oversubscribe.
A holder may exercise Rights in whole or in part, but no Rights may be
exercised for fractional shares. If an exercising Rights holder does not
indicate the number of Rights being exercised, or does not forward full payment
of the aggregate Subscription Price for the number of Rights that the
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<PAGE>
holder indicates are being exercised, then the holder will be deemed to have
exercised the Basic Subscription Privilege with respect to the maximum number of
Rights that may be exercised for the aggregate Subscription Price payment
delivered by the holder, and to the extent that the aggregate Subscription price
payment delivered by the holder exceeds the product of the Subscription Price
multiplied by the number of Rights evidenced by the Rights Certificate delivered
by the holder (such excess being the "Subscription Excess"), the holder will be
deemed to have exercised the Oversubscription Privilege to purchase, to the
extent available, that number of whole Excess Shares equal to the quotient
obtained by dividing the Subscription Excess by the Subscription Price. Any
amount remaining after application of the foregoing procedures shall be returned
to the holder as soon as practicable by mail without interest or deduction.
Rights Certificates and payment should be mailed or delivered by hand
or overnight courier by such holders to:
IF BY MAIL: IF BY HAND OR OVERNIGHT COURIER:
Harris Trust Company of California Harris Trust Company of California
c/o Harris Trust and Savings Bank c/o Harris Trust and Savings Bank
P.O. Box 830 311 West Monroe, 11th Floor
Chicago, Illinois 60690-0830 Chicago, Illinois 60606
The Subscription Agent's telephone number is (312) 461-3324.
Payment of the Subscription Price may be made by wire transfer, check,
bank draft or money order payable to the order of Harris Trust Company of
California, as Subscription Agent, for all shares of Common Stock subscribed
for. Wire transfers should be sent to: Harris Trust & Savings Bank, ABA:
071000288, Account No: 1092113, Account Name: Harris Trust Shareholder Services.
The Subscription Price will be considered to have been paid only upon
clearance of the wire transfer, check, bank draft or money order tendered
therefor. All funds received by the Subscription Agent from the exercise of the
Rights will be deposited upon receipt.
Pending issuance of certificates representing shares of Common Stock,
funds received for the exercise of Rights and, if applicable, the
Oversubscription Privilege, will be held in a segregated escrow account. If
shares are not issued pursuant to the Basic Subscription Privilege, or if a
holder exercising the Oversubscription Privilege is allocated less than all of
the shares of Common Stock for which that holder subscribed pursuant to the
Oversubscription Privilege, then the excess funds held in escrow paid by such
holder shall be returned by mail without interest or deduction as soon as
practicable after the Expiration Time and after all prorations and adjustments
contemplated by the Rights Offering have been effected.
Certificates representing the shares of Common Stock subscribed for
will be issued and delivered as soon as practicable after payment of the
Subscription Price. Subscribers will have no rights as stockholders of the
Company until stock certificates representing the shares of Common Stock
subscribed for are issued to them.
If, prior to the Expiration Time, the Subscription Agent receives
payment in full for each share of Common Stock being subscribed for and a
written notice of guarantee (a "Notice of Guaranteed Delivery") from an Eligible
Institution stating the name of the subscriber, the number of Rights represented
by Rights Certificate it holds and the number of shares of Common Stock
subscribed for, and guaranteeing the prompt delivery of the Rights Certificate,
such subscription may be accepted (such procedure being referred to as the
"Guaranteed Delivery Procedure"). However, no such exercise of Rights shall be
honored unless the Company receives the duly completed Rights Certificate at or
before
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<PAGE>
5:00 p.m., Chicago Time, on November 7, 1994. The Notice of Guaranteed Delivery
may be delivered to the Subscription Agent in the same manner as the Rights
Certificates at the addresses set forth above, or may be delivered by telecopy
to (312) 765-8244.
ONCE A HOLDER HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR THE
OVERSUBSCRIPTION PRIVILEGE, THE EXERCISE MAY NOT BE REVOKED.
TO BE ACCEPTED, THE PROPERLY COMPLETED RIGHTS CERTIFICATES AND PAYMENT
WITH RESPECT TO THE EXERCISE OF THE BASIC SUBSCRIPTION PRIVILEGE AND THE
OVERSUBSCRIPTION PRIVILEGE MUST BE RECEIVED BY THE COMPANY BEFORE 5:00 P.M.,
CHICAGO TIME, ON OCTOBER 31, 1994, UNLESS THE GUARANTEED DELIVERY PROCEDURE IS
COMPLIED WITH.
THE INSTRUCTIONS ACCOMPANYING THE RIGHTS CERTIFICATE SHOULD BE READ
CAREFULLY AND FOLLOWED IN DETAIL. RIGHTS CERTIFICATES SHOULD BE SENT WITH
PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND RIGHTS CERTIFICATES TO THE
COMPANY.
Questions relating to the method of subscription and requests for
additional copies of this Prospectus should be directed to the Subscription
Agent at (312) 461-3324.
INFORMATION AGENT
The Company has engaged Morrow & Co., Inc. to act as information agent
(the "Information Agent") and to assist the Company in contacting certain
stockholders in connection with the Rights Offering. Pursuant to this
engagement, the Information Agent will be calling directly certain of the
Company's stockholders, as well as brokers in whose name the shares of Common
Stock may be held of record by such stockholders, to inform them of the Rights
Offering. Upon request of the stockholders, the Information Agent will follow
up by sending an information packet containing this Prospectus and the
instructions for the use of the Rights Certificate. The Information Agent will
neither supply Rights Certificates nor will it be able to accept completed
Rights Certificates on behalf of the Company. RIGHTS HOLDERS SHOULD NOT FORWARD
THEIR COMPLETED RIGHTS CERTIFICATES TO THE INFORMATION AGENT. EXERCISE OF THE
RIGHTS MAY BE MADE ONLY BY DELIVERY OF THE RIGHTS CERTIFICATES TO THE
SUBSCRIPTION AGENT IN THE MANNER SET FORTH ABOVE.
The Information Agent's address and phone number are as follows:
Morrow & Co., Inc.
909 3rd Avenue
New York, New York 10022-4799
Call Toll Free: (800) 662-5200
EXPIRATION OF RIGHTS
THE RIGHTS WILL EXPIRE AND BECOME VOID AT 5:00 P.M., CHICAGO TIME, ON
OCTOBER 31, 1994 (the "Expiration Time").
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<PAGE>
Rights not exercised prior to the Expiration Time will no longer be
exercisable and will be cancelled without further action. The Company will not
be obligated to honor any purported exercise of Rights received by the
Subscription Agent after the Expiration Time, except pursuant to the Guaranteed
Delivery Procedure described above.
The Company reserves the right, in its sole discretion, to extend the
Expiration Time in order to deal with any unforeseen contingencies relating to
the conduct of the Rights Offering, but does not otherwise expect to extend the
Expiration Time.
DELIVERY OF CERTIFICATES
Certificates for shares of Common Stock issuable upon exercise of the
Basic Subscription Privilege will be mailed as soon as practicable after the
subscriptions have been accepted by the Subscription Agent to holders not
participating in the Oversubscription Privilege. Certificates for shares of
Common Stock issuable upon exercise of the Basic Subscription Privilege and the
Oversubscription Privilege will be mailed as soon as practicable after the
Expiration Time. However, holders participating in the Oversubscription
Privilege may elect to have certificates for shares of Common Stock issuable
upon exercise of the Basic Subscription Privilege mailed as soon as practicable
after the subscriptions have been accepted and to have certificates representing
shares issuable upon exercise of the Oversubscription Privilege mailed as soon
as practicable after the Expiration Time.
RISK OF DELIVERY AND PAYMENT; DELIVERY BY MAIL
The risk of method of delivery of all documents and payment is on
subscribers, not the Company. If the mail is used, it is recommended that
insured, registered mail be used and that a sufficient number of days be allowed
to ensure delivery to the Subscription Agent before the Expiration Time.
Because uncertified personal checks may take at least five business days to
clear, Rights holders are strongly urged to pay, or arrange for payment, by
means of certified or cashier's check, bank draft, money order or wire transfer
of funds.
TRANSFER OF RIGHTS
Rights may be not be transferred.
NOMINEE HOLDERS
Holders on the Record Date who hold shares of Common Stock for the
account of others, such as brokers, trustees or depositories for securities (a
"Nominee Record Date Holder"), should contact the respective beneficial owners
of such shares as soon as possible to ascertain those beneficial owners'
intentions and to obtain instructions and certain beneficial owner
certifications with respect to their Rights, all as included in the Instructions
distributed by Nominee Record Date Holders to beneficial owners. If a beneficial
owner so instructs, the Nominee Record Date Holder should complete the
appropriate subscription form on the Rights Certificate, and, in the case of any
exercise of the Oversubscription Privilege, the related Nominee Holder
Certification and submit them to the Subscription Agent with the proper payment.
In addition, beneficial owners of Common Stock or Rights held through such
Nominee Record Date Holder should contact the Nominee Record Date Holder and
request the Nominee Record Date Holder to effect transactions in accordance with
the beneficial owner's instructions.
PROCEDURES FOR DTC PARTICIPANTS
It is anticipated that the exercise of the basic Subscription
Privilege (but not the Oversubscription Privilege) may be effected through the
facilities of The Depository Trust Company ("DTC"). Rights exercised as part of
the Basic Subscription Privilege through the DTC are referred to
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<PAGE>
as "DTC Exercised Rights." A holder of DTC Exercised Rights may exercise the
Oversubscription Privilege in respect thereof by properly executing and
delivering to the Subscription Agent, on or prior to the Expiration Time, a DTC
Participant Oversubscription Exercise Form and a Nominee Holder Certification,
together with payment of the appropriate Subscription Price of the number of
shares of Common Stock for which the Oversubscription Privilege is to be
exercised. Copies of the DTC Participant Oversubscription Exercise Form and the
Nominee Holder Certification may be obtained from the Subscription Agent.
INTERPRETATION
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of any subscription or request for division will be
determined by the Company, in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any
subscription or request for division if it is not in proper form or if the
acceptance thereof or the issuance of Common Stock or Rights pursuant thereto
could be deemed unlawful. The Company also reserves the right to waive any
defect with regard to any particular subscription or request for division. The
Company shall not be under any duty to give notification of any defects or
irregularities in subscriptions or requests for division, nor shall it incur any
liability for failure to give such notification. Subscriptions will not be
deemed to have been made nor requests for division received until any such
defects or irregularities have been cured or waived within such time as the
Company shall determine. Subscriptions or requests for division with defects or
irregularities which have not been cured or waived will be returned by the
Company to the appropriate holder of the Rights as soon as practicable.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined through negotiations among
Warburg, Prudential and the Company in March 1994 in which the terms of the
Financing Transactions were finalized. See "Financing Transaction--Background
and Financial Condition" above for a description of the Financing Transactions.
See "Market Price". In approving the Subscription Price, the Board of Directors
considered the historical trading prices of the Common Stock as quoted on the
New York Stock Exchange and, among other things, such factors as the history of
and prospects for the Company, its past and present operating losses, the
prospects for future earnings and the present state of the Company's
development. On September 15, 1994, the closing price of the Common Stock on
the NYSE was $2-1/8 per share.
There can be no assurance that the market price for the Common Stock
during the Rights Offering will not be equal to or below the Subscription Price,
or that, following the issuance of the Rights and of the Common Stock upon an
exercise of Rights, a subscribing Rights holder will be able to sell shares
purchased in the Rights Offering at a price equal to or greater than the
Subscription Price.
The Company has not retained a financial advisor to render any opinion
as to the fair market value of the Company. Accordingly, the fair market value
of a share of Common Stock may be less or more than the Subscription Price.
STATE AND FOREIGN SECURITIES LAWS
The Rights may not be exercised by any person, and neither this
Prospectus nor any Rights Certificate shall constitute an offer to sell or a
solicitation of an offer to purchase any shares of Common Stock in any
jurisdiction in which such transactions would be unlawful. The Company believes
that any action required of the Company has been taken in all jurisdictions of
the United States to permit exercises of the Rights and purchases of the Common
Stock by the stockholders of the Company. No action has been taken in any
jurisdiction outside the United States to permit offers and sales of the Rights
or the Common Stock. Consequently, the Company may reject subscriptions
pursuant to the exercise of
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<PAGE>
Rights by any holder of Rights outside the United States, and the Company may
also reject subscriptions from holders in jurisdictions within the United States
if it should later determine that it may not lawfully issue shares to such
holders, even if it could do so by qualifying the shares for sale or by taking
other actions in such jurisdictions.
ANTI-TAKEOVER EFFECT OF RIGHTS OFFERING
The Rights Offering has no anti-takeover purpose and the Company does
not believe that the Rights Offering has any anti-takeover effect.
FINANCING TRANSACTIONS
BACKGROUND AND FINANCIAL CONDITION
In 1980, the Company was primarily a West Coast real estate brokerage
operation. The Company concluded that it would be best positioned to serve
large corporate clients and institutional investors by operating on a nationwide
basis and providing a full range of real estate services in addition to
brokerage services. The Company implemented this strategy through the
acquisition of existing brokerage businesses and diversification into fee-based
real estate related services. These services included appraisal and consulting,
property management, mortgage brokerage and asset management. In 1981, the
Company became a publicly owned company through a merger, thereby acquiring a
number of real estate assets that were later sold.
From 1981 through 1986, the Company grew dramatically, acquiring 24
regional and local real estate services firms in the commercial brokerage,
residential brokerage, property management, and related services areas. The
acquisitions have enabled the Company to provide diversified services to multi-
regional and national clients. Most of the acquired companies no longer use
their original company names and are identified solely as Grubb & Ellis Company.
By 1987, the Company operated 162 offices in 95 cities in 19 states and the
District of Columbia, with approximately 4,100 real estate agents and 2,600 non-
agent employees. In November 1986, the Company borrowed $35 million from
Prudential to refinance debt incurred in connection with the acquisitions. This
debt consisted of $10 million of 9.9% Senior Notes (the "Old Senior Notes") and
$25 million of 10.65% Subordinated Notes (the "Old Subordinated Notes").
The following table sets forth the Company's revenue and expenses for
the five years ended December 31, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
1993(1) 1992(2) 1991(3) 1990 1989
------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue
Commercial real estate brokerage commissions. . . . . . $141,875 $136,082 $139,513 $174,569 $199,026
Residential real estate brokerage commissions . . . . . 20,266 49,171 88,572 101,719 119,567
Real estate service fees, commissions and other . . . . 38,590 37,709 38,149 42,734 38,973
Interest income . . . . . . . . . . . . . . . . . . . . 442 529 1,656 1,429 2,919
Other . . . . . . . . . . . . . . . . . . . . . . . . . 551 672 744 909 1,545
-------- -------- -------- -------- --------
Total Revenue. . . . . . . . . . . . . . . . . . . . . . . 201,724 224,163 268,634 321,360 362,030
-------- -------- -------- -------- --------
Costs and expenses
Real estate brokerage and other commissions . . . . . . 100,250 117,154 138,459 165,896 190,879
Selling, general and administrative . . . . . . . . . . 55,958 64,607 72,022 92,303 87,929
Salaries and wages. . . . . . . . . . . . . . . . . . . 44,780 48,412 58,477 69,558 68,702
Interest expense. . . . . . . . . . . . . . . . . . . . 2,588 4,380 4,726 3,993 4,689
Depreciation and amortization . . . . . . . . . . . . . 2,287 3,802 6,820 11,973 7,136
Special charges and unusual items(4). . . . . . . . . . 13,494 44,879 36,982 7,088 608
Total costs and expenses . . . . . . . . . . . . . . . . . . 219,357 283,234 317,486 350,811 359,943
-------- -------- -------- -------- --------
Loss before income taxes. . . . . . . . . . . . . . . . (17,633) (59,071) (48,852) (29,451) (2,087)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
1993(1) 1992(2) 1991(3) 1990 1989
------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Provision for income taxes. . . . . . . . . . . . . . . (575) (605) (445) (300) ( 1,566)
-------- -------- -------- -------- --------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $(18,208) $(59,676) $(49,297) $(29,751) $ 521
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<FN>
____________________
(1) Northern California residential brokerage operations were sold in
March 1993 and real estate advisory business was sold in February 1993.
(2) Georgia residential brokerage operations were sold in January 1992.
(3) Texas residential brokerage operations were sold in July 1991.
(4) Includes writedowns of goodwill as follows: for 1993, $10,054,000; for
1992, $18,895,000; for 1991, $29,465,000; and for 1990, $4,179,000.
</TABLE>
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<PAGE>
Since 1988, the Company's business and financial condition has been
substantially impaired. The largest factor contributing to the decline in the
Company's revenue, business and financial condition has been the general
economic recession and resulting severe downturn in activity levels and prices
within the commercial real estate sector. In addition, the Company's expansion
prior to 1986 resulted in a significant increase in the Company's level of fixed
costs and overhead. Beginning in Texas in 1985, where approximately 40% of the
Company's commercial and residential brokerage operations were based, brokerage
revenue declined due to the collapse of oil and gas prices and general
unavailability of credit. The 1986 Tax Reform Act limited the ability of
investors to utilize losses generated from real estate investments and
significantly reduced the demand for investments in real estate throughout the
country. In 1987, the real estate recession began to affect commercial
brokerage operations in the Northeast. By late 1989, revenue from commercial
brokerage operations nationwide decreased dramatically, reflecting substantial
declines in the number of and prices for investment and land transactions due to
recessionary economic conditions and the continued unavailability of credit.
In addition, real estate partnerships and joint ventures sponsored or
participated in by the Company were adversely impacted as the real estate
markets deteriorated. As a result, the Company either lost its investment or
had to contribute additional cash either to service debt for which the Company
was liable or to meet its obligations under partnership agreements.
Beginning in 1989, the Company adopted certain cost-cutting measures
including closing selected offices and reducing its work force and salary
expenses. In 1990, in response to adverse real estate market conditions, the
Company closed 15 offices in locations judged to be non-strategic. In 1991, the
Company closed four additional offices and also sold its Texas residential
brokerage operations. In January 1992, the Company sold its Georgia residential
brokerage operations, leaving California as its sole focus for residential
business at that time. Restructuring charges in connection with these measures
of approximately $15.3 million were first incurred by the Company in the third
quarter of 1990, including amounts for additional reserves for joint ventures
and partnerships in the Company's Texas operations. Operating expenses were
further reduced and additional restructuring charges of $36.7 million were taken
in the third and fourth quarters of 1991. In order to cover the Company's
negative cash flow, in February 1991, the Company arranged and fully utilized a
$5 million revolving line of credit from Prudential (the "1991 Revolving Line of
Credit").
FINANCIAL RESTRUCTURING
From 1990 to late 1992, the Company actively pursued equity financing
to strengthen its liquidity and meet its short- and long-term working capital
needs, as the severe economic recession had hindered its ability to meet debt
principal and interest obligations to Prudential. On January 29, 1993, the
Stockholders approved a proposal for restructuring the debt and equity of the
Company (the "Restructuring"), which involved a cash investment of $12,850,000
by Warburg and $900,000 by Joe F. Hanauer ("Hanauer"), a private investor who
became Chairman of the Board of the Company. Pursuant to the Restructuring
Warburg purchased (i) 128,266 shares of the Company's Senior Preferred Stock,
(ii) five-year warrants initially to purchase 340,000 shares of Common Stock, at
an exercise price of $5.00 per share (the "$5.00 Warrants"), (iii) five-year
warrants initially to purchase 142,000 shares of Common Stock at an exercise
price of $5.50 per share (the "$5.50 Warrants" and together with the $5.00
Warrants, the "Warburg 1993 Warrants"), and (iv) warrants to purchase 373,818
shares of Common Stock at an exercise price of $5.00 per share, subject to
certain limitations (the "Contingent Warrants"). Also pursuant to the
Restructuring, Hanauer purchased (i) 8,894 shares of Senior Preferred Stock,
(ii) $5.00 Warrants initially to purchase 160,000 shares of Common Stock, (iii)
$5.50 Warrants initially to purchase 58,000 shares of Common Stock and (iv)
Contingent Warrants to purchase 26,182 shares of Common Stock.
Also pursuant to the Restructuring, Prudential cancelled $10 million
of the Old Senior Notes in exchange for $10 million of the 9.9% Senior Notes
(the "Senior Notes"), and cancelled $15
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<PAGE>
million of the Old Subordinated Notes in exchange for 150,000 shares of the 5%
Junior Preferred Stock and warrants exercisable for 200,000 shares of Common
Stock at an exercise price of $5.50 per share (the "Prudential 1993 Warrants"
and together with the Warburg 1993 Warrants and the $5.00 Warrants and $5.50
Warrants held by Hanauer, the "Existing Warrants"). Prudential also cancelled
the remaining $10 million of Old Subordinated Notes in exchange for $10 million
of 10.65% Payment-In-Kind Notes (the "PIK Notes"), which were reduced to
approximately $9 million when Prudential exercised its then existing warrant to
purchase 397,549 shares of Common Stock at an exercise price per share of $7.30
(giving effect to the reverse stock split which was effected on January 29,
1993). Approximately $1,982,000 of accrued interest payable to Prudential also
was cancelled in conjunction with the exercise of this warrant. Additionally,
the $5 million 1991 Revolving Line of Credit was exchanged for a $5 million
Revolving Credit Note due December 31, 1994 (the "Revolving Credit Note"),
exchangeable for a two-year term loan due December 31, 1996. The Senior Note,
Subordinated Note and Revolving Credit Note Agreement with Prudential dated
November 2, 1992 (the "Prudential Debt Agreement") prohibits the payment of cash
dividends and contains additional restrictions on the making of acquisitions,
loans, investments, debt and sales of assets. The Company also is required to
maintain a defined working capital ratio. As of December 31, 1993, the Company
did not meet the working capital ratio requirement, and was in violation of
certain other covenants. However, Prudential provided a waiver of these
covenants as of December 31, 1993. The Prudential Debt Agreement also requires
the Company to periodically make certain principal and interest payments.
During 1993, Prudential allowed a deferral of the $2 million principal payment
on the Senior Notes due November 1, 1993, until May 1, 1994. As described
below, in March 1994, in order to facilitate the completion of the Financing
Transactions, Prudential deferred the Company's obligation to make this
principal payment until the earlier of the execution of a definitive amendment
of the Prudential Debt Agreement as contemplated by the Financing Transactions
or December 31, 1994.
As a result of the Restructuring, Warburg and Hanauer together hold
approximately 39% and Prudential holds approximately 26% of the Company's equity
on a fully diluted basis but before exercise of outstanding warrants at June 1,
1994. Warburg and Hanauer together hold approximately 44% and Prudential holds
approximately 25% of the Company's equity on a fully diluted basis at June 1,
1994, assuming the exercise of all outstanding warrants.
1993 FINANCIAL RESULTS
The Company's net loss for 1993 was $18.2 million compared to a net
loss of $59.7 million for the previous year. The Company's results included a
restructuring charge of $13.5 million related to a write-off of goodwill and
restructuring charges associated with its operations. During 1993,
stockholders' deficit increased by $17.4 million from 1992 and book value
decreased from $(14.29) per share of Common Stock, giving effect to the one-for-
five reverse stock split, to $(16.96) per share of Common Stock, as a direct
result of the loss from operations and special charges and unusual items.
During 1993 and the first quarter of 1994, the Company continued to
close or sell additional offices. In February 1993, the Company completed the
sale of the real estate advisory business of Grubb & Ellis Realty Advisers,
Inc., a wholly owned subsidiary of the Company, to a privately held concern. In
early March 1993, the Company sold its Northern California residential real
estate brokerage operations. The sale included 13 residential real estate
offices located throughout Northern California as well as a relocation office.
Under the terms of the sale, most of the approximately 400 employees and
salespersons of the Company's Northern California residential operations became
employees of the purchaser. Also, in October 1993, the Company's residential
mortgage services operations in Northern California were closed. The Company's
only remaining residential brokerage and residential mortgage service operations
are in Southern California. Effective February 1994, the Company closed
unprofitable appraisal and consulting offices in Dallas, Phoenix and Atlanta.
During 1993 and 1994, the Company has settled, or reached agreement to settle,
various lawsuits and claims which arose before existing management began
operating the Company. The lawsuits and claims principally arose out of the
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<PAGE>
Company's activities in connection with certain partnerships and joint ventures
in which the Company was involved. The aggregate amount of cash which the
Company has been, or will be, required to pay to settle these lawsuits and
claims is expected to be approximately $4.4 million, which amount has been
accrued in the Company's financial statements. In connection with the
settlement of these lawsuits and claims, it is anticipated that the Company will
issue approximately 300,000 shares of Common Stock.
FIRST SIX MONTHS 1994 FINANCIAL RESULTS
During the first six months of 1994, the Company had a net loss of
$3.5 million compared to a net loss of $4.2 million for the same period of 1993.
Total revenues of $80.8 million for the first six months of 1994 declined over
the same period in 1993 by approximately $12.2 million. Excluding revenue from
the sold Northern California residential brokerage operations and certain
offices which at the end of 1993 were closed or were expected to be closed, as
well as government contracting business conducted during the first quarter of
1993 which was not repeated in 1994, revenue increased approximately $7.6
million or 10.4% in the first six months of 1994 compared to the same period of
1993.
Revenue of $46.3 million for the second quarter of 1994 declined by
$4.4 million or 8.7% from revenue of $50.7 million for the second quarter of
1993. However, excluding revenue from those offices that were closed at the end
of 1993 or expected to be closed, revenue from continuing operations of $46.3
million in the second quarter 1994 increased by $3.4 million or 7.9% compared to
the second quarter 1993 revenue from continuing operations of $42.9 million.
The increase in revenue in the second quarter is primarily attributed to
increased real estate activity in the Pacific Northwest region.
Effective February 1, 1994, the Company modified its reporting
structure to increase operating efficiencies and reduce costs. The
modifications include the integration of management of commercial brokerage
operations with the appraisal and consulting and commercial mortgage brokerage
operations, on a regional basis. The integration also includes those property
management operations which the Company has resumed, independent of Axiom Real
Estate Management, Inc. ("Axiom"), a majority owned subsidiary of the Company
which provides property and facilities management. Axiom closed offices in
geographic areas in which it did not manage a sufficient number of properties to
support the costs associated with operating those offices. These closures were
consistent with Axiom's strategic objective to focus on those markets where it
has a larger number of properties which will enable it to provide more
efficient, cost-effective service. Additionally, in February 1994, the Company
closed several unprofitable appraisal and consulting offices.
Net loss of $3.5 million or $1.18 per share for the first six months
of 1994 compares favorably to the net loss of $4.2 million or $1.31 per share
for the same period in 1993. Net income for the second quarter of 1994 was $1.2
million as compared to net income of $454,000 for the second quarter of 1993,
primarily a result of management focusing on its core businesses and the
streamlining of operations which were accomplished more efficiently than had
been expected when reserves were initially established at year end. Net income
per common share was $.11 for the second quarter of 1994. This compares to a
net loss of $.04 per share for the same period last year.
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<PAGE>
Assuming the exercise of Rights to purchase approximately 2,526,000
shares of Common Stock (the number of shares required to generate proceeds
sufficient to retire the $6 million of principal outstanding under the Bridge
Loan), earnings (loss) per share would have been $.09 and ($.89) for the three
months and the six months ended June 30, 1994, respectively. For such periods,
the effect on the Company's earnings of the retirement of the Bridge Loan would
have been to reduce interest expense by approximately $57,000.
FINANCING TRANSACTIONS AND DEFERRAL OF DEBT PAYMENTS
As of the end of 1993, the Company projected that without additional
capital, the Company would be unable beyond the near term to meet its working
capital needs and service its principal obligations to Prudential. As of
December 31, 1993, the Company did not meet the working capital covenant
contained in the Prudential Debt Agreement.
The Company explored various alternatives in order to meet its short-
and long-term cash requirements, including reducing costs, closing additional
operations and obtaining financing, including through the possible sale of
assets. Throughout late 1993 and early 1994, the Company held discussions with
Warburg and Prudential concerning the possibility of additional investments in
the Company and with Prudential concerning a possible deferral of amounts due
under the Prudential Debt Agreement. During that time, Prudential indicated
that it was unwilling to invest additional capital into the Company.
During March 1994, the Company, Warburg and Prudential substantially
completed negotiations on the terms of the proposed financing transactions (the
"Financing Transactions," as described below). On March 28, 1994, Warburg and
the Company entered into a Loan and Security Agreement pursuant to which Warburg
agreed to loan the Company up to $10 million at an initial interest rate of 5%
per annum with a maturity date of April 28, 1995 (the "Bridge Loan"). Also, at
that time, in order to facilitate the completion of the Financing Transactions,
Prudential waived certain failures to perform under the Prudential Debt
Agreement, including the non-compliance with the working capital ratio and
cumulative loss covenants (the "Prudential 1994 Waiver"). Pursuant to the
Prudential 1994 Waiver, Prudential waived compliance under covenants relating to
working capital, cumulative operating losses and capital expenditures and waived
the Company's obligation to repay or prepay any principal under the Senior Notes
and the Revolving Credit Note that would have been due during 1994, and
Prudential excused performance of the foregoing provisions until the earlier of
the execution of a definitive amendment of the Prudential Debt Agreement as
contemplated by the Financing Transactions or December 31, 1994.
At the same time, the Company, Warburg and Prudential also
substantially completed their negotiations with respect to (i) the terms of the
Rights Offering which will result in an investment of approximately $10 million
for equity of the Company through the issuance of Common Stock and the
retirement of the Bridge Loan provided by Warburg, (ii) a deferral of the
Company's obligations to repay principal under the Prudential Debt Agreement
until November 1, 1997 and a waiver of certain covenants under the Prudential
Debt Agreement through April 1, 1997, and (iii) the terms of certain amendments
to the Preferred Stock and the Existing Warrants held by each of Warburg and
Prudential. The transactions described in (i)-(iii) are also included in the
Financing Transactions.
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<PAGE>
The following table compares the required principal payments due under
the existing terms of the Prudential Debt Agreement with the required principal
payments due under the Prudential Debt Agreement after giving effect to the
amendments which will be effected in connection with the Financing Transactions.
<TABLE>
<CAPTION>
Principal Due Under Principal Due Under
Existing Terms of Prudential Debt
Prudential Debt Agreement(1) Agreement As Amended(3)
---------------------------- -----------------------
<S> <C> <C>
1994 $4,000,000(2) $ -0-
1995 $5,500,000 $ -0-
1996 $5,500,000 $ -0-
1997 $3,000,000 $5,000,000
1998 $3,000,000 $5,000,000
1999 $3,000,000 $5,000,000
2000 -0- $4,500,000
2001 -0- $4,500,000
<FN>
____________________
(1) Under the Prudential Debt Agreement, the Company is required to repay all
outstanding principal under the Revolving Credit Note for a 60-day period
each year. The amount due under the Revolving Credit Note currently is
$5,000,000, all of which would have been required to be paid in 1994. The
Revolving Credit Note matures on December 31, 1994, at which time, the
Company may convert such Note into a new term note which would mature on
December 31, 1996. The table assumes that the Company elected to make such
conversion.
(2) Pursuant to the Prudential 1994 Waiver, Prudential agreed to waive the
Company's obligation to repay any principal under the Revolving Credit Note
and to prepay the $4,000,000 principal which would have been due on the
Senior Notes through the earlier of the execution of a definitive amendment
of the Prudential Debt Agreement as contemplated by the Financing
Transactions or December 31, 1994.
(3) Pursuant to the proposed amendments to the Prudential Debt Agreement, the
requirement to repay principal under the Revolving Credit Note will be
deferred until November 1, 1999 and the Company will not have the option of
converting the Revolving Credit Note into a new term note. The table
excludes PIK Notes issued and to be issued in lieu of cash interest.
</TABLE>
ANNUAL MEETING OF STOCKHOLDERS
On September 12, 1994, the Company held its Annual Meeting of the
Stockholders (the "Annual Meeting"), at which the stockholders of the Company
(the "Stockholders"), including a majority of the holders of Common Stock (the
"Common Stockholders"), other than Prudential and Warburg, approved the
Financing Transactions including the Rights Offering. The Financing
Transactions also include the amendment of certain agreements between the
Company and Prudential, the issuance to Warburg and Prudential of warrants to
purchase 325,000 and 150,000 shares of Common Stock, respectively, and amendment
to the outstanding Senior Preferred Stock (as defined below), the outstanding
Junior Preferred Stock (as defined below) and outstanding warrants to purchase
Common Stock. It is anticipated that the Financing Transactions will close
promptly after the Expiration Time. The Financing Transactions other than the
Rights Offering are described below. For a discussion of the Rights Offering,
see "The Rights Offering."
Also at the Annual Meeting, the Stockholders elected the following
persons to serve as directors: Joe F. Hanauer, Chairman, Reuben S. Leibowitz
and John D. Santoleri, designees of Warburg, R. David Anacker, Lawrence S.
Bacow, and Robert J. McLaughlin. Effective August 29, 1994, Wilbert F. Schwartz
resigned from the Board of the Company. Mr. Schwartz advised the Company that
he had resigned in order to avoid any potential conflict of interest in
anticipation of his taking a new position with another firm that regularly
retains real estate service firms.
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<PAGE>
TERMS OF THE FINANCING TRANSACTIONS
BRIDGE LOAN AGREEMENT
On March 29, 1994, Warburg and the Company entered into a Loan and
Security Agreement (the "Bridge Loan Agreement") pursuant to which Warburg has
agreed to make advances to the Company from time to time in an aggregate
principal amount for all such advances outstanding not to exceed $10 million at
any time (the "Bridge Loan"). The outstanding principal amount of the Bridge
Loan bears interest at a rate of 5% per annum. All outstanding principal and
interest on the Bridge Loan mature on April 28, 1995. As of September 1, 1994,
the Company had borrowed $6 million under the Bridge Loan.
Pursuant to the Bridge Loan Agreement, the Company has established a
system pursuant to which all commercial brokerage commissions are deposited into
a cash collateral account. The Company's obligations under the Bridge Loan
Agreement are secured by the cash collateral account and all rights to payment
in respect of all commercial real estate brokerage 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. Prior to the
existence of an event of default under the Bridge Loan Agreement and delivery of
the requisite notice of blockage of the cash collateral account (a "Notice of
Blockage"), the Company may make withdrawals from the cash collateral account,
and may use the proceeds from the Bridge Loan, for any general corporate purpose
other than certain Prohibited Uses. "Prohibited Uses" include uses of proceeds
for (i) the satisfaction of a judgment or other award of damages in excess of $1
million in any one case or group of consolidated cases, (ii) annual capital
expenditures in excess of the greater of $5 million or two times the Company's
consolidated total assets, (iii) severance payments to a single employee of the
Company or any subsidiary in excess of $1 million, or (iv) payment in respect of
any lease of real property entered into after the date of the Bridge Loan
Agreement if the aggregate rent required under such lease during its term
exceeds $5 million. After the delivery of a Notice of Blockage, the right of
the Company to make any withdrawal from the cash collateral account will be
terminated and Warburg's security interest in the cash collateral account will
be subordinated in right of payment to the extent of the proceeds in the cash
collateral account to the prior payment of commissions to be paid to real estate
agents and brokers as compensation for the commercial real estate brokerage
operations that gave rise to the brokerage commissions collected by the Company.
Pursuant to an amendment to the Prudential Debt Agreement, the Company has
granted Prudential a lien on the cash collateral account to secure the Company's
obligations under the Prudential Debt Agreement. Prudential's lien is
subordinated to Warburg's lien.
Pursuant to the Bridge Loan Agreement, the Company is subject to
various affirmative and negative covenants, including a prohibition from
entering into guarantees of new liabilities and from pledging any Company assets
as security for any liabilities or obligations of any other person.
Upon an event of default, indebtedness under the Bridge Loan
Agreement, at Warburg's option, will become immediately due and Warburg will not
have any further obligation to make advances under the Bridge Loan Agreement.
An event of default under the Bridge Loan Agreement includes (i) the Company's
failure to pay principal, interest, fees or other amounts due under the Bridge
Loan Agreement, (ii) any material default under the Company's other loan
agreements or delivery by Prudential of a Notice of Blockage after an event of
default under the Prudential Debt Agreement, (iii) a money judgment, writ or
warrant of attachment or similar process involving any individual case in an
amount in excess of $1 million or in the aggregate at any time in an amount in
excess of $3 million (in either case not adequately covered by insurance as to
which an insurance company has acknowledged coverage) which shall have been
entered or filed against the Company or any of its subsidiaries or any of their
respective assets and shall remain undischarged for a period of 60 days, (iv)
the Company becoming insolvent, filing for bankruptcy or similar events, and (v)
a material adverse change in the condition
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<PAGE>
(financial or otherwise), operations, properties or performance of the Company
or any other event which Warburg reasonably and in good faith believes impairs,
or is substantially likely to impair either the prospect of payment or
performance by the Company of its obligations, or the rights and remedies of
Warburg, under the Bridge Loan Agreement or related documents.
PRUDENTIAL DEBT AGREEMENT
Pursuant to the Restructuring, Prudential and the Company entered into
the Prudential Debt Agreement, pursuant to which the Company issued $10 million
of the Senior Notes and approximately $9 million of the PIK Notes. Semi-annual
interest payments are required pursuant to both the Senior Notes and the PIK
Notes, although until all of the Senior Notes have been retired, the interest on
the PIK Notes may be paid in kind, by the issuance of additional PIK Notes.
Annual principal payments are required in the amount of (i) $2 million on
November 1 of each of 1993 and 1994 with respect to the Senior Notes, (ii) $3
million on November 1 of each of 1995 and 1996, also with respect to the Senior
Notes, (iii) one third of the principal amount of the PIK Notes on November 1 of
each of 1997 and 1998, and (iv) all remaining outstanding principal amounts of
the PIK Notes on November 1, 1999. All annual principal payments also will
include accrued and unpaid interest on the principal so paid. The Company was
unable to make the principal payment due on the Senior Notes on November 1,
1993, and Prudential agreed to defer such payment until May 1, 1994.
Pursuant to the Prudential Debt Agreement, the Company also issued
Prudential the $5 million Revolving Credit Note. The Revolving Credit Note
bears interest at 2.5% above LIBOR, which interest is payable quarterly. During
one sixty consecutive-day period during 1994, the Company will be required to
pay down in full, and make no additional borrowings pursuant to, or permit any
fees to be outstanding with respect to, the Revolving Credit Note (the "Pay Down
Provision"). After the expiration of such sixty-day period, the full $5 million
may once again become available. Additionally, upon maturity, the Company may
have the option of converting the Revolving Credit Note into a new term note,
which would mature on December 31, 1996 (the "Converted Term Note"). The
Converted Term Note would have an interest rate of LIBOR plus 3% and mature on
December 31, 1996, and require semi-annual principal payments (payable on
June 30 and December 31 of each of 1995 and 1996) of $1.25 million.
The Prudential Debt Agreement contains a provision whereby if the
Company or any subsidiary of the Company pays a liability, or (upon certain
circumstances) becomes obligated to pay liabilities, in excess of $1.5 million,
any of which arise out of a single event (or a series of related events) and
relate to certain liabilities or contingent liabilities (other than for borrowed
money) of certain partnerships or joint ventures in which the Company or any
subsidiary of the Company owns or owned an interest, then, upon notice to
Prudential, Prudential will defer certain of the principal (but not interest)
payments on the Senior Notes or the Revolving Credit Note. Principal payments
will be deferred in an amount equal to the lesser of (i) $3 million and (ii) the
amount by which the relevant liability exceeds $1.5 million. Any amounts
deferred will have to be repaid after the earlier to occur of (i) five years
from the date of the deferral notice and (ii) the maturity of the Senior Notes.
The Prudential Debt Agreement contains significant restrictions on the
payment of cash dividends on and repurchases of stock of the Company. The
Prudential Debt 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 Prudential Debt Agreement will be limited to the aggregate of $10 million
plus additional amounts based upon, among other things, the Company's
19
<PAGE>
earnings (or minus the Company's losses) and other proceeds as defined by the
Prudential Debt Agreement.
The Prudential Debt Agreement contains various other covenants. For
example, the Prudential Debt Agreement requires that the Company (combined with
certain of its subsidiaries and taken as a whole) must (i) maintain a ratio (the
"Working Capital Ratio") of Consolidated Current Assets to Consolidated Current
Liabilities (as such terms are defined in the Prudential Debt Agreement),
excluding the current portion of long-term debt, of at least 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 (a "Cumulative 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 of December 31, 1993, the Company was not in compliance with the Working
Capital Ratio requirement.
PRUDENTIAL 1994 WAIVER
On March 28, 1994, in connection with the negotiation of the Financing
Transactions, Prudential agreed to waive the Company's failure to comply with
the Working Capital Ratio as of December 31, 1993, and waived certain provisions
relating to certain asset sales and incurrence of debt that the Company had made
during 1993. Prudential also agreed to waive the Company's obligations to pay
principal amounts under the Prudential Debt Agreement (including the payment of
$2 million principal amount on the Senior Notes due in May 1994 and the payment
of $2 million principal amount on the Senior Notes due in November 1994) and
compliance with the Working Capital Ratio requirement, the Cumulative Loss
requirement, restrictions on capital expenditures and the Pay Down Provision
with respect to the Revolving Credit Note until the earlier of (i) execution of
a definitive amendment to the Prudential Debt Agreement or (ii) December 31,
1994. Prudential also waived any provisions of the Prudential Debt Agreement
which would have prohibited the Company from entering into the Bridge Loan
Agreement.
AMENDMENTS TO PRUDENTIAL DEBT AGREEMENT
Pursuant to the Financing Transactions, Prudential and the Company
will amend the Prudential Debt Agreement to provide that (i) $15 million
principal amount of the Senior Notes, the PIK Notes and the Revolving Credit
Note which would have been due from 1994 through 1996 will be deferred and no
principal payments will be required until November 1, 1997, and thereafter (A)
the Revolving Credit Note will mature on November 1, 1999, (B) principal on the
Senior Notes will be payable in two equal installments on November 1 of each of
1997 and 1998, and (C) principal on the PIK Notes will be payable in two
approximately equal installments on November 1 of each of 2000 and 2001, (ii)
the interest rate on the PIK Notes will increase from 10.65% to 11.65% per annum
on January 1, 1996, (iii) the Pay Down Provisions applicable to the Revolving
Credit Note and the covenants requiring the Company to maintain the Working
Capital Ratio, the Cumulative Loss provisions and covenants restricting the
Company's capital expenditures will be ineffective until April 1, 1997, (iv) as
of April 1, 1997 and quarterly thereafter, the Company will be required to
maintain a ratio of EBITDA (as defined below) to total interest expense at least
2:1 on a rolling 12-month basis, (v) commencing January 1, 1998, if in the
preceding year Adjusted Cash Flow (as defined below) exceeds $5 million, then
the Company will be required to make supplemental debt repayments in the
following year (50% on July 1 and 50% on October 1) in an amount equal to 75% of
such excess, with payments being applied to the PIK Notes in reverse order of
maturity, (vi) the Company will be permitted to make up to $5 million of loans
and advances to its salespersons against future commissions, and guarantees of
such loans and advances, and (vii) the Company will not be required to use the
proceeds of any public offering to repay indebtedness under the Prudential Debt
Agreement. "Adjusted Cash Flow" is defined as earnings before interest, taxes,
depreciation and amortization ("EBITDA") less the sum of (a) pre-tax earnings of
Axiom, net of
20
<PAGE>
any debt repayments or dividend payments from Axiom, (b) interest paid in cash,
(c) taxes paid in cash, and (d) supplemental debt repayments made pursuant to
clause (v) above.
ISSUANCE OF NEW WARRANTS
As consideration for acquiring unsubscribed shares of Common Stock in
connection with the Rights Offering and agreeing to the other transactions
contemplated by the Financing Transactions, the Company will issue Warburg
warrants to purchase 325,000 shares of Common Stock at an exercise price of
$2.375 per share (the "Warburg 1994 Warrants"): provided that the Company will
be obligated to issue the Warburg 1994 Warrants only if Warburg purchases at
least 500,000 shares of Common Stock pursuant to the Standby Agreement. As
consideration for modifying the Prudential Debt Agreement with the Company,
waiving noncompliance with certain covenants and agreeing to the other
transactions contemplated by the Financing Transactions, the Company will issue
Prudential warrants to purchase 150,000 shares of Common Stock at an exercise
price of $2.375 per share (the "Prudential 1994 Warrants" and together with the
Warburg 1994 Warrants, the "New Warrants"). Any or all of the New Warrants may
be exercised at any time until five years after the date of issuance. The other
terms of the New Warrants will be the same as the Existing Warrants, after
giving effect to the amendments thereto which will be made in connection with
the Financing Transactions (including the elimination of the Warrant Anti-
Dilution Provisions).
AMENDMENTS TO THE EXISTING WARRANTS
Warburg and Hanauer hold Existing Warrants to purchase an aggregate of
500,000 shares of Common Stock at an initial exercise price of $5.00 per share
and Existing Warrants to purchase an aggregate of 200,000 shares at an initial
exercise price of $5.50 per share and Prudential holds Existing Warrants to
purchase 200,000 shares at an initial exercise price of $5.50 per share. Any or
all of the Existing Warrants may be exercised at any time until January 29,
1998, which is the fifth anniversary of the closing date of the Restructuring.
Payment of the aggregate exercise price may be made in cash or at the election
of the holder by delivering warrants, the value of which will be deemed to be
equal to the difference between the then current Market Price (as defined) per
share and the exercise price. Payment of the aggregate price of the Prudential
1993 Warrants may also be made by the cancellation by Prudential and the
delivery to the Company of the Senior Notes, the PIK Notes, the Revolving Credit
Note or the Converted Term Note 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 Existing Warrant are subject to adjustment from time to time
upon the occurrence of certain stock dividends or distributions, stock splits,
reverse stock splits, certain issuances of rights, options, warrants or
securities directly or indirectly convertible into 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 Market Price or
the exercise price per share on the date of such issue (the "Warrant Anti-
Dilution Provisions"). Warburg, Hanauer and Prudential have waived application
of the Warrant Anti-Dilution Provisions with respect to issuances by the Company
from January 29, 1993 through consummation of the Financing Transactions
pursuant to the Company's 1990 Stock Option Plan (including securities issued
upon the exercise of stock options granted pursuant to such Plan) and the
Company's Employee Stock Purchase Plan. Upon consummation of the Financing
Transactions, the Warrant Anti-Dilution Provisions contained in the Existing
Warrants held by Warburg and Prudential will be amended to provide that in the
event of certain stock dividends or distributions, stock splits, reverse stock
splits and stock reclassifications, mergers, consolidations or similar
transactions, each holder of such Existing Warrants will have the right to
receive upon exercise the number and kind of shares or other securities or
property which it would have been entitled to receive had the Existing Warrants
been exercised immediately prior to such event. As amended, the Existing
Warrants held by Warburg and Prudential no longer will have the benefit of
receiving adjustments to the
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<PAGE>
exercise price and number of shares issuable upon exercise in the event of
certain dilutive stock issuances, including issuances of rights, options,
warrants or securities convertible into Common Stock at a price per share less
than the greater of the then current Market Price or the exercise price per
share.
Pursuant to the Warrant Anti-Dilution Provisions, the issuance of
shares of Common Stock pursuant to the Rights Offering would result in an
adjustment in both the exercise price and the number of shares issuable upon
exercise of all of the Existing Warrants. In particular, for Existing Warrants
with an exercise price of $5.00 per share, the exercise price would be adjusted
to approximately $3.70 per share, and for Existing Warrants with an exercise
price of $5.50 per share, the exercise price would be adjusted to approximately
$3.94 per share, and the number of shares issuable upon exercise would be
proportionately increased. Pursuant to agreements among Warburg, Prudential and
the Company, the exercise prices of the Existing Warrants held by Warburg and
Prudential will be reduced to $3.50 per share, the number of shares issuable
upon exercise of the Warburg 1993 Warrants will be adjusted only to extent of
the proportionate adjustment provided for in the Warrant Anti-Dilution
Provisions, and the number of shares issuable upon exercise of the Prudential
1993 Warrants will not be subject to any adjustment. Therefore, upon
consummation of the Financing Transactions, and assuming the issuance of all
shares reserved for issuance in the Rights Offering, Warburg's $5.00 Warrants to
purchase 340,000 will be exchanged for warrants to purchase approximately
459,000 shares of Common Stock at $3.50 per share, Warburg's $5.50 Warrants to
purchase 142,000 shares will be exchanged for warrants to purchase approximately
198,000 shares of Common Stock at $3.50 per share, and the Prudential 1993
Warrants will be exchanged for warrants to purchase 200,000 shares of Common
Stock at $3.50 per share. The exact adjustments to the number of shares
issuable upon exercise of the Existing Warrants held by Warburg will be based
on, among other things, the number of shares of Common Stock issued in the
Rights Offering. In addition, the expiration date of the Prudential 1993
Warrants will be extended from January 29, 1998 to December 31, 1998.
In connection with the Restructuring, the Company also issued Existing
Warrants to Hanauer. Pursuant to the Warrant Anti-Dilution Provisions, and
assuming the issuance of all shares reserved for issuance in the Rights
Offering, the current exercise prices of $5.00 and $5.50 per share of Hanauer's
Existing Warrants will be adjusted to approximately $3.70 and $3.94 per share,
respectively, and the number of shares of Common Stock issuable upon exercise of
such warrants will be increased proportionately from 160,000 and 58,000 shares,
respectively, to approximately 216,000 and 81,000 shares of Common Stock,
respectively, upon consummation of the Financing Transactions. The exact
adjustments will be based on, among other things, the number of shares of Common
Stock issued in the Rights Offering.
CANCELLATION OF CONTINGENT WARRANTS
Upon consummation of the Restructuring, Warburg and Hanauer acquired
Contingent Warrants to purchase 373,818 and 26,182 shares of Common Stock,
respectively, at an exercise price of $5.00 per share, which Contingent Warrants
will become exercisable for a period of 90 days in the event that Warburg and
Hanauer are notified that the Company or any subsidiary of the Company pays a
liability ("Contingent Liability") or becomes obligated to pay a liability which
(a) exceeds $1,500,000 and (b)(i) arises out of a single event, occurrence or
proceeding (or a series of events, occurrences or proceedings which arise out of
or present the same factual issues) and (ii) relates to any partnership
liability of any partnership or joint venture in which the Company or any
subsidiary of the Company owns or owned, directly or indirectly, any partnership
or other equity interest, or of which the Company or any subsidiary of the
Company is or was a general partner, other than indebtedness for borrowed money,
which partnership liability is identified on the disclosure schedule to the
Purchase Agreement which was executed in connection with the Restructuring.
Warburg and Hanauer have the right to exercise at any time until January 29,
1998 all or a portion of their respective Contingent Warrants up to an aggregate
exercise price equal to the lesser of (x) the amount by which such excess
liability exceeds $500,000 and (y) $5.00 multiplied by the number of shares
issuable upon exercise of the Contingent
22
<PAGE>
Warrants. In the event that Hanauer determines not to exercise his Contingent
Warrants, he has agreed to offer them to Warburg for an aggregate consideration
of $1.00. The other terms of the Contingent Warrants, including the anti-
dilution provisions, are the same as those contained in the Existing Warrants.
In 1994, the Company incurred a Contingent Liability and the Contingent Warrants
became exercisable for a period of 90 days, which 90-day period has expired. It
is expected that Hanauer will not exercise his Contingent Warrants at this time,
and it is also expected that Warburg will not acquire Hanauer's Contingent
Warrants.
Concurrently with the consummation of the Financing Transactions, the
Contingent Warrants held by Warburg will be cancelled; PROVIDED that Warburg
will be obligated to surrender the Contingent Warrants for cancellation only if
the Company issues the Warburg 1994 Warrants.
Pursuant to the anti-dilution provisions in the Contingent Warrants
held by Hanauer, and assuming the issuance of all shares reserved for issuance
in the Rights Offering, the current exercise price of $5.00 per share will be
adjusted to approximately $3.70 per share, and the number of shares of Common
Stock issuable upon exercise of such warrants will be increased proportionately
from 26,182 shares to approximately 35,370 shares of Common Stock following
consummation of the Financing Transactions. The exact adjustments will be based
on, among other things, the number of shares of Common Stock issued in the
Rights Offering. If the Company is not required to issue the Warburg 1994
Warrants, then Warburg will continue to hold the Contingent Warrants, in which
case, upon application of the anti-dilution provisions, the exercise price of
Warburg's Contingent Warrants and number of shares issuable upon exercise would
be adjusted in the same manner as the Contingent Warrants held by Hanauer.
AMENDMENTS TO PREFERRED STOCK
Upon consummation of the Restructuring, the Company issued Warburg and
Hanauer 128,266 and 8,894 shares of Senior Preferred Stock and issued to
Prudential 150,000 shares of Junior Preferred Stock. Upon consummation of the
Financing Transactions, the Certificate of Incorporation will be amended to
effect certain amendments to the terms of the Senior Preferred Stock held by
Warburg and the Junior Preferred Stock. The Senior Preferred Stock will be
divided into two series, Series A and Series B. The Series A Senior Convertible
Preferred Stock, par value $.01 per share, will be held by Hanauer and will be
subject to certain amendments other than the amendments to the Preferred Stock
Anti-Dilution Provisions, and the Series B Senior Convertible Preferred Stock,
par value $.01 per share, will be held by Warburg and will be subject to all of
the proposed amendments. The amendments to the Preferred Stock were agreed to
by the parties in their negotiation of the terms of the Financing Transactions.
AUTHORIZED PREFERRED STOCK. Currently, the Company is authorized to
issue 1,000,000 shares of Preferred Stock, of which 250,000 have been designated
Senior Convertible Preferred Stock and of which 200,000 have been designated
Junior Convertible Preferred Stock. Pursuant to the amendments, the Company
will be authorized to issue 1,000,000 shares of Preferred Stock, of which 50,000
will be designated Series A Senior Convertible Preferred Stock, 200,000 will be
designated Series B Senior Convertible Preferred Stock and 200,000 will be
designated Junior Convertible Preferred Stock.
REDEMPTION PROVISIONS. The Senior Preferred Stock and the Junior
Preferred Stock will be amended to eliminate the mandatory redemption
provisions, except that under certain limited circumstances, the Company may be
required to redeem the Junior Preferred Stock in connection with an underwritten
public offering of the Company's Common Stock as described in "Conversion of
Junior Preferred Stock" below.
ANTI-DILUTION PROVISIONS. As a result of the Financing Transactions
and upon application of the Preferred Stock Anti-Dilution Provisions, the
conversion price of the Senior Preferred Stock will
23
<PAGE>
be adjusted from $3.0137 to approximately $2.76 per share of Common Stock,
which 2st will result in the Senior Preferred Stock held by Warburg and
Hanauer being convertible into an aggregate of approximately 4,650,000
and 322,000 shares of Common Stock, respectively. The exact adjustment will
be based on, among other things, the number of shares of Common Stock issued
in the Rights Offering. Prudential has agreed to waive the application of
the Preferred Stock Anti-Dilution Provisions in connection with the Financing
Transactions. As a result, the Junior Preferred Stock will continue to be
convertible into 2,674,511 shares of Common Stock and the conversion price
will remain at $5.6085 per share.
The Preferred Stock Anti-Dilution Provisions contained in the Senior
Preferred Stock held by Warburg and the Junior Preferred Stock held by
Prudential will be amended to provide that in the event of certain stock
dividends or distributions, stock splits, reverse stock splits and stock
reclassifications, mergers, consolidations or similar transactions, each holder
of such Preferred Stock will have the right to receive upon conversion the
number and kind of shares or other securities or property which it would have
been entitled to receive had the Preferred Stock been converted immediately
prior to such event. As amended, the Preferred Stock held by Warburg and
Prudential no longer will have the benefit of receiving an adjustment to the
number of shares issuable upon conversion in the event of certain dilutive stock
issuances, including issuances of rights, options, warrants or securities
convertible into Common Stock at a price per share less than the greater of the
current market price or the conversion price per share.
DIVIDEND RATE. The Junior Preferred Stock will be amended to increase
the dividend rate effective January 1, 2002 to 10% per annum with further
increases of 1% per annum effective January 1, 2003 and January 1, 2004 and 2%
per annum effective January 1, 2005 and each January 1 thereafter. Also in
connection with the Financing Transactions, the Senior Preferred Stock will be
amended so that at such time as the dividend rate on the Junior Preferred Stock
would increase above the dividend rate on such Senior Preferred Stock, the
dividend rate on the Senior Preferred Stock will increase by the same amount.
Assuming no other changes to the dividend rates of the Preferred Stock, as a
result of these amendments, the dividend rate on the Senior Preferred Stock held
by Warburg will increase by 2% per annum effective January 1, 2005.
CONVERSION OF JUNIOR PREFERRED STOCK. The Junior Preferred Stock will
be amended to provide that in the event that the Company undertakes to sell
Common Stock in an underwritten public offering and the Company's investment
bankers advise the Company that in order to complete the public offering on the
most favorable terms to the Company it is necessary to retire the Junior
Preferred Stock, then the Company may direct all holders of the Junior Preferred
Stock to convert the Junior Preferred Stock; provided that such holders will be
obligated to convert only after the later of the time Warburg has committed to
convert its Senior Preferred Stock and the consummation of such underwritten
public offering. If the holders of the Junior Preferred Stock are required to
convert the Junior Preferred Stock at a time when the Common Stock issuable upon
conversion would have a value less than the accreted value of the Junior
Preferred Stock (including all unpaid dividends), then such holders must either,
at their option, require the Company to redeem the Junior Preferred Stock at the
accreted value or convert the Junior Preferred Stock.
STOCKHOLDERS' AGREEMENT
Upon consummation of the Restructuring, the Company, Warburg, Hanauer
and Prudential entered into the Stockholders' Agreement dated January 29, 1993
and amended July 1, 1993 (the "Stockholders' Agreement").
VOTING AGREEMENT. Pursuant to the Stockholders' Agreement prior to
July 1, 1993, at any special or annual meeting of Stockholders at which
Directors are to be elected or in connection with a solicitation of consents
through which Directors are to be elected, each "Stockholder" (as defined
24
<PAGE>
below) is required to 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 two
nominees designated by Prudential (the "Prudential Nominee") and three nominees
designated by Warburg (the "Warburg Nominees"); and (ii) the election to the
Board 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 the Board. The Stockholders' Agreement was amended on July 1, 1993 to
decrease the required number of Prudential Nominees to one and to decrease the
required number of Warburg nominees to two. Warburg or Prudential may at any
time cause the Stockholders' Agreement to be amended so that the required number
of Prudential Nominees is increased to two and the required number of Warburg
Nominees is increased to three. 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 the required number of
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 the required
number of Warburg Nominees after being requested to do so by Warburg.
"Stockholder" is currently defined in the Stockholders' Agreement to mean
Warburg, Prudential and any other person (except 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 (x) at least 51% of the
Senior Preferred Stock, Warburg 1993 Warrants and all issued Warburg Registrable
Securities (as defined below) or (y) at least 75% of the Junior Preferred Stock,
Prudential $5.50 Warrants and all issued Prudential Registrable Securities (as
defined below).
The Stockholders' Agreement also provides that each "Stockholder"
(i) 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) 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 such vacancy would be that there would be less than one Prudential
Nominee or two Warburg Nominees remaining on the Board, and (iii) at any special
or annual meeting of Stockholders prior to the Company's 1995 annual meeting,
will 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 a Director.
The provisions of the Stockholders' Agreement pertaining to voting by
Stockholders will terminate at such time as there is only 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 to the Stockholders'
Agreement.
Pursuant to the Stockholders' Agreement, Reuben S. Leibowitz, John D.
Santoleri and Douglas M. Karp were Warburg Nominees, and Wilbert F. Schwartz and
John P. Mullman were Prudential Nominees who were elected to the Board in
January 1993. Mr. Karp and Mr. Mullman have resigned from the Board. In
February 1993, Mr. Schwartz became President and Chief Executive Officer of the
Company and was no longer a Prudential Nominee. Effective July 1, 1994, Mr.
Schwartz resigned his position as President and Chief Executive Officer, and
effective August 29, 1994, Mr. Schwartz resigned from the Board. Messrs.
Leibowitz and Santoleri were elected to the Board at the Annual Meeting.
Prudential did not designate a nominee for election to the Board at the Annual
Meeting.
Upon consummation of the Financing Transactions, the definition of
"Stockholder" in the Stockholders' Agreement will be amended to mean Warburg,
Prudential and any other person (except Hanauer) who agrees to be bound by the
terms of the Stockholders' Agreement, provided that no person shall be a
"Stockholder" (as defined in the Stockholders' Agreement) if such person ceases
to beneficially own (x) at least 51% of the Senior Preferred Stock, Warburg 1993
Warrants, Warburg 1994 Warrants and all issued Warburg Registrable Securities or
(y) at least 75% of the Junior Preferred Stock, Prudential $5.50 Warrants,
Prudential 1994 Warrants and all issued Prudential Registrable Securities. The
Common Stock issuable upon exercise of the New Warrants and the Common Stock
acquired by Warburg, Hanauer
25
<PAGE>
or Prudential, as the case may be, in connection with the Rights Offering will
be subject to the voting requirements of the Stockholders' Agreement.
Prior to September 1993, the Company and its subsidiary, Grubb & Ellis
Asset Services Company ("GEASC"), provided services to the Resolution Trust
Company (the "RTC") and the Federal Deposit Insurance Corporation (the "FDIC").
As a result of Prudential's current stock ownership and certain of its rights
under the Stockholders' Agreement, Prudential may be deemed to be a related
entity to the Company under RTC regulation. The Company, upon learning that
Prudential was party to a lawsuit with the FDIC, voluntarily refrained from
entering into new RTC contracts on the basis that if Prudential is deemed to be
a related party with the Company, the existence of the lawsuit might impair the
Company's and GEASC's ability to contract with the RTC and the FDIC. The Company
is currently in contact with the RTC to determine what limits might be placed on
Prudential in order to satisfy RTC regulations. Prudential has expressed its
willingness to enter into certain amendments to the Stockholders' Agreement to
eliminate one impediment to resumption of the Company's contracting business
with the RTC and the FDIC, including (i) terminating the voting agreements
contained in the Stockholders' Agreement, (ii) waiving, but not relinquishing,
its right to nominate Directors until such time as Prudential's equity ownership
in the Company will not impair GEASC's ability to perform government contracting
services, and (iii) to the extent that Prudential is entitled to cast more than
24.9% of the votes which all Stockholders are eligible to cast on any matter,
granting a proxy to the Board 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. Prudential will continue to have registration rights
under the Stockholders' Agreement as described below. In April 1994, the
Company was notified by the RTC that it has proposed to exclude the Company from
RTC contracting as the Company had not filed certain reports with the RTC. The
Company has filed a response to the RTC's proposed exclusion. Both matters must
be resolved before the Company or GEASC can be eligible to resume its RTC and
FDIC contracting business. The Company is unable to predict the outcome or
timing of these matters or whether or when it will be allowed to resume RTC and
FDIC contracting services.
REGISTRATION RIGHTS. The Stockholders' Agreement provides that at any
time 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 Preferred Stock and all shares of Common
Stock issued or issuable upon exercise of any Existing Warrants and Contingent
Warrants issued to Warburg and Hanauer (collectively, the "Warburg 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 Warburg may make any of such three requests for registration regardless of
the percentage of Warburg Registrable Securities held by it, and (ii) each of
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 Warrants, all shares of Common Stock issued or issuable upon
conversion of any Junior Preferred Stock and all shares of Common Stock issued
or issuable upon exercise of any Prudential $5.50 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 registration regardless of the percentage of Prudential Registrable
Securities held by it.
The Stockholders' Agreement also provides that in the event a holder
of Warburg Registrable 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 also have certain
"piggyback" registration rights to include their securities, subject to certain
limitations, in any other registration statement filed by the Company for its
26
<PAGE>
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 that each selling
stockholder will bear its pro rata share of customary underwriting discounts and
commissions, the customary fees and expenses of its counsel 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 registration rights thereunder.
Upon consummation of the Financing Transactions, the Stockholders'
Agreement will be amended to extend the registration rights currently granted to
Warburg and Prudential to the Warburg 1994 Warrants and the Prudential 1994
Warrants to be issued in connection with the Financing Transactions, any shares
of Common Stock issued upon exercise of such Warrants and any shares of Common
Stock acquired by Warburg, Hanauer or Prudential, as the case may be, in
connection with the Rights Offering. Warburg, Prudential and Hanauer have not
requested that the Company include any registrable securities in the
registration statement which the Company filed in connection with the Rights
Offering.
SUMMARY OF ANTICIPATED EFFECTS OF THE FINANCING TRANSACTIONS; DILUTION
The Financing Transactions will have a material effect on the Company
and on the holders of the Company's Common Stock. The Financing Transactions
may result in a significant dilution of the voting interests of the Company's
Common Stockholders, depending on the participation of the Stockholders in the
Rights Offering. Such dilution would reduce a Common Stockholder's ownership
interest in the Company.
The following table sets forth the equity ownership of the Company
prior to the consummation of the Financing Transactions and assuming conversion
of Preferred Stock.
<TABLE>
<CAPTION>
Before Financing Transactions
-----------------------------
Number of Percent of
Common Equity
Number of and Assuming
Common Preferred Exercise of
Shares Percent Shares(1) Percent Warrants(2)
------ ------- --------- ------- -----------
<S> <C> <C> <C> <C> <C>
Public 4,010,000 90.5% 4,010,000 34.4% 30.9%
Warburg 0 0 4,256,000 36.5 39.5
Hanauer 21,000 0.5 316,000 2.7 4.3
Prudential 398,000 9.0 3,072,000 26.4 25.3
--------- ------ ---------- ------ ------
Total 4,429,000 100.0% 11,654,000 100.0% 100.0%
<FN>
____________________
(1) Assumes conversion of the Senior Preferred Stock held by Warburg and
Hanauer into approximately 4,256,000 and 295,000 shares of Common Stock,
respectively. Assumes conversion of the Junior Preferred Stock held by
Prudential into approximately 2,675,000 shares of Common Stock. Holders of
the Senior Preferred Stock and the Junior Preferred Stock have one vote for
each share of Common Stock into which the Preferred Stock could be
converted. Does not assume exercise of stock options issued pursuant to
the Company's stock option plans.
(2) Assumes the exercise of Existing Warrants held by Warburg, Hanauer and
Prudential for 482,000, 218,000 and 200,000 shares of Common Stock,
respectively. Assumes the exercise of Contingent Warrants held by Warburg
and Hanauer for approximately 374,000 and 26,000 shares of Common Stock,
respectively.
</TABLE>
27
<PAGE>
The following table sets forth the equity ownership of the Company
after the consummation of the Financing Transactions, assuming that Common
Stockholders fully subscribe to the Rights Offering and assuming that Common
Stockholders do not purchase any shares of Common Stock upon exercise of the
Rights, and that Warburg acquires 4,250,000 shares of Common Stock, which is
approximately the maximum number which it has agreed to acquire pursuant to the
Stand-by Agreement.
<TABLE>
<CAPTION>
After Financing Transactions After Financing Transactions
Assuming Common Stockholders Assuming Common Stockholders Do Not
Purchase Shares in Rights Offering(1) Purchase Shares in Rights Offering(3)
------------------------------------- -------------------------------------
Percent Percent
of Equity of Equity
Number of Assuming Number of Assuming
Common Percent All Warrants Common Percent All Warrants
Shares of Equity Exercised(2) Shares of Equity Exercised(4)
------ --------- ------------ ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Public 8,417,000 51.1% 46.0% 4,010,000 24.6% 22.3%
Warburg 4,615,000 28.0 31.5 8,887,000 54.4 54.8
Hanauer 362,000 2.2 3.8 364,000 2.2 3.9
Prudential 3,072,000 18.7 18.7 3,072,000 18.8 19.0
---------- ----- ----- ---------- -----
Total 16,466,000 100.0% 100.0% 16,333,000 100.0% 100.0%
<FN>
____________________
(1) Assumes the purchase of all shares of Common Stock issuable upon exercise
of all Rights by Common Stockholders, other than Prudential. Also assumes
conversion of the Senior Preferred Stock held by Warburg and Hanauer into
4,615,000 and 320,000 shares of Common Stock, respectively, and conversion
of the Junior Preferred Stock held by Prudential into approximately
2,675,000 shares of Common Stock. Does not assume exercise of stock
options issued pursuant to the Company's stock option plans.
(2) Assumes (i) the exercise of Existing Warrants, as amended, held by Warburg,
Hanauer and Prudential for 645,000, 291,000 and 200,000 shares of Common
Stock, respectively, (ii) the exercise of New Warrants held by Prudential
for 150,000 shares of Common Stock and (iii) the exercise of Contingent
Warrants held by Warburg and Hanauer for 495,000 and 35,000 shares of
Common Stock, respectively.
(3) Assumes acquisition by Warburg of 4,250,000 shares of Common Stock in
connection with the Rights Offering. Also assumes conversion of the Senior
Preferred Stock held by Warburg and Hanauer into 4,639,000 and 322,000
shares of Common Stock, respectively, the acquisition by Hanauer of
approximately 21,000 shares of Common Stock upon exercise of Rights and
conversion of the Junior Preferred Stock held by Prudential into
approximately 2,675,000 shares of Common Stock. Does not assume exercise
of stock options issued pursuant to the Company's stock option plans.
(4) Assumes (i) the exercise of Existing Warrants, as amended, held by Warburg,
Hanauer and Prudential for 654,000, 295,000 and 200,000 shares of Common
Stock, respectively, (ii) the exercise of New Warrants held by Warburg and
Prudential for 325,000 and 150,000 shares of Common Stock, respectively,
and (iii) the exercise of Contingent Warrants held by Hanauer for 35,000
shares of Common Stock.
</TABLE>
USE OF PROCEEDS
The maximum net proceeds to the Company from the sale of the Common
Stock offered hereby are estimated to be approximately $10.1 million (assuming
all of the shares of Common Stock offered hereby are purchased pursuant to the
exercise of Rights and after deducting estimated expenses of the Financing
Transactions). The minimum net proceeds of the Rights Offering are estimated to
be approximately $9.8 million (assuming the purchase of Common Stock only by
Warburg up to the maximum amount of its obligation and after deducting estimated
expenses of the Financing Transactions). Warburg is required to fulfill its
standby commitment first through cancellation of indebtedness under the Bridge
Loan, including accrued interest, and thereafter through payment of funds
directly to the Company. In the event that following the purchase of shares by
Warburg pursuant to its standby commitment there is any outstanding indebtedness
remaining under the Bridge Loan, any such remaining amounts outstanding under
the Bridge Loan will be retired with the proceeds of the Rights Offering.
Thereafter, remaining proceeds, if any, of the Rights Offering will be used for
general corporate purposes.
28
<PAGE>
29
<PAGE>
MARKET PRICE
The principal markets for the Company's Common Stock are the NYSE and
the Pacific Stock Exchange. The following table sets forth the high and low
sales prices of the Company's Common Stock as reported on the NYSE composite
tape for the period indicated. The prices shown have been adjusted to give
retroactive effect to a one-for-five reverse stock split as of January 29, 1993.
<TABLE>
<CAPTION>
Price Range of
Common Stock
------------------
High Low
--------- -------
<C> <S> <C> <C>
1991
First Quarter . . . . . . . . . . . . . . . $14-3/8 $5
Second Quarter . . . . . . . . . . . . . . . 12-1/2 7-1/2
Third Quarter . . . . . . . . . . . . . . . 10 6-7/8
Fourth Quarter . . . . . . . . . . . . . . . 8-3/4 6-1/4
1992
First Quarter . . . . . . . . . . . . . . . $12-1/2 $6-7/8
Second Quarter . . . . . . . . . . . . . . . 10-5/8 6-1/4
Third Quarter . . . . . . . . . . . . . . . 8-1/2 5
Fourth Quarter . . . . . . . . . . . . . . . 6-1/4 4-3/8
1993
First Quarter . . . . . . . . . . . . . . . $ 8 $1-7/8
Second Quarter . . . . . . . . . . . . . . . 5-7/8 3-3/8
Third Quarter . . . . . . . . . . . . . . . 4-1/2 2-3/4
Fourth Quarter . . . . . . . . . . . . . . . 3-5/8 2-5/8
1994
First Quarter . . . . . . . . . . . . . . . $ 3-7/8 $2-7/8
Second Quarter . . . . . . . . . . . . . . . 3-1/4 2-1/4
Third Quarter (through September 12, 1994) 2-3/4 1-3/4
</TABLE>
On March 28, 1994, the last trading day prior to the announcement of
the Financing Transactions by the Company, the closing sales price of the Common
Stock on the NYSE was $3-3/8 per share. On September 12, 1994, the date of the
Annual Meeting at which the Financing Transactions were approved, the closing
sales price of the Common Stock on the NYSE was $2.00 per share.
The Company did not pay any cash dividends during the periods
indicated, and is prohibited from doing so under the Prudential Debt Agreement.
30
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of June
30, 1994 was approximately ($73.5 million) or ($17.87) per share. "Net tangible
book value" per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of the 4,114,549 shares of Common Stock
pursuant to the Rights Offering and after deducting the estimated offering
expenses, the pro forma net tangible book value of the Company as of June 30,
1994 would have been approximately ($64.1 million), or ($7.79) per share,
representing an immediate increase in net tangible book value of $10.08 per
share to existing stockholders and an immediate and substantial dilution of
$10.17 per share to stockholders purchasing shares in the Rights Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Subscription Price . . . . . . . . . . . . . . . . . . $ 2.38
Net tangible book value per share before offering. ($17.87)
Increase per share attributable to stockholders
exercising Rights. . . . . . . . . . . . . . . . 10.08
-----
Pro forma net tangible book value per share after offering (7.79)
------
Dilution to stockholders exercising Rights (1). . . . . ($10.17)
--------
--------
<FN>
____________________
(1) Dilution is determined by subtracting the pro forma net tangible book value
per share from the Subscription Price paid by a stockholder for a share of
Common Stock.
</TABLE>
The above calculations do not give effect to the exercise of all
warrants that will be outstanding upon consummation of the Financing
Transactions. Assuming the exercise of all outstanding warrants, Common
Stockholders who exercise Rights would have experienced an immediate dilution in
net tangible book value of $8.28 per share.
DIVIDEND POLICY
The Company intends to retain any future earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Prudential Debt Agreement prohibits the
payment by the Company of dividends or distributions on the Common Stock until
the outstanding debt under such Agreement is paid in full.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of federal income tax consequences is based on
current law, is for general information only and is not based upon or supported
by a ruling of the Internal Revenue Service (the "Service"). The tax treatment
of a holder of Rights or Common Stock acquired on exercise of a Right may vary
depending upon his particular situation. Certain holders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. EACH HOLDER SHOULD
CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF
RECEIVING, HOLDING, EXERCISING AND DISPOSING OF THE RIGHTS OR COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, FOREIGN AND PENDING
TAX LAWS.
RIGHTS
RECEIPT OF RIGHTS. Pursuant to Section 305(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), a holder should not recognize income for
federal income tax purposes by reason
31
<PAGE>
of the receipt of a Right, and the Company intends to so treat the distribution
of Rights as a nontaxable distribution.
If the Service were to take a contrary position with respect to this
matter, by deeming the distribution of Rights to constitute a taxable
distribution, a holder receiving a Right would recognize a dividend, taxable as
ordinary income, in an amount equal to the fair market value of the Right
received, but only to the extent of the current and accumulated earnings and
profits of the Company. To the extent the deemed distribution exceeds the
current and accumulated earnings and profits of the Company, such excess would
be treated first as a nontaxable recovery of adjusted tax basis in the Common
Stock with respect to which the Right was distributed and then as gain from the
sale or exchange of such Common Stock. A holder's tax basis in a Right received
in a taxable distribution would equal the fair market value of the Right as of
the date of distribution of the Right (the "Distribution Date").
Under the Company's intended treatment (i.e., a nontaxable
distribution), if a Right is exercised, the tax basis of the Right in the hands
of a holder will be determined by allocating the holder's tax basis in his
shares of Common Stock with respect to which the Right was distributed between
such shares of Common Stock and the Right, in proportion to their relative fair
market values on the Distribution Date. If, however, the fair market value of
the Right on the Distribution Date is less than 15% of the fair market value of
the shares of Common Stock with respect to which the Right was distributed, the
holder's tax basis in the Right will be deemed to be zero unless the holder
affirmatively elects, in accordance with Treasury Regulations, to apportion his
tax basis in accordance with the preceding sentence. The holding period of a
Right will include the holding period for the shares of Common Stock with
respect to which the Right was distributed.
EXERCISE OF RIGHTS. No gain or loss will be recognized by a holder of
Rights upon exercise of the Rights for cash. The adjusted tax basis of a holder
of Common Stock acquired upon exercise of Rights will be equal to the sum of the
holder's adjusted tax basis in the exercised Rights and the Subscription Price.
The holding period for Common Stock acquired upon exercise of Rights will
commence on the date of such exercise.
EXPIRATION OF RIGHTS WITHOUT EXERCISE. A holder of a Right who allows
it to expire without exercise may not allocate any tax basis to the unexercised
Right and will therefore not sustain a loss because of its expiration.
ADJUSTMENT TO THE TERMS OF A RIGHT. An adjustment to the Subscription
Price of a Right, or the failure to make such an adjustment (and possibly an
adjustment to the number of shares of Common Stock purchasable upon the exercise
of the Right or the failure to make such an adjustment), in certain
circumstances may result in a distribution that could be taxable as a dividend
under the Code to the holder of the Right or the Common Stock. Alternatively, a
modification of the terms of a Right may be treated as a taxable exchange of the
Right for a new right to purchase Common Stock, with the holder recognizing gain
or loss (as discussed above), even though no cash may have been distributed to
the holder.
COMMON STOCK
DISPOSITION OF COMMON STOCK. The sale or other disposition of Common
Stock acquired on exercise of a Right will result in the recognition of gain or
loss by the holder of such Common Stock in an amount equal to the difference
between the amount realized and the holder's adjusted tax basis in the Common
Stock. Gain or loss will be capital gain or loss if the Common Stock was held
as a capital asset, and will be long-term capital gain or loss if the Common
Stock has a holding period for tax purposes of more than one year. The holding
period of shares of Common Stock acquired by exercise of the Rights commences on
the date such Rights are exercised.
32
<PAGE>
POTENTIAL LIMITATIONS ON USE OF LOSS CARRYFORWARDS
In general, upon a change of ownership, Section 382 of the Code limits
the amount of a loss corporation's taxable income that could be offset annually
by its carryforwards of net operating loss (and certain "built-in" losses that
are economically accrued but not recognized at the time of a change of
ownership) to an amount equal to the product obtained by multiplying the
aggregate value of such corporation's capital stock immediately prior to the
requisite change of ownership by the federal long-term tax-exempt interest rate.
A change of ownership occurs and Section 382 of the Code will apply if, within a
three year "testing period," there is more than a 50 percentage point increase
in the capital stock of the loss corporation held by persons who own (actually
or constructively) at least five percent in value of the loss corporation's
stock (with persons who separately are less than five percent stockholders
generally being treated in the aggregate as a single stockholder). Except in
limited circumstances, options to acquire stock will be treated as if they had
been exercised, on an option-by-option basis, if such treatment results in the
requisite change of ownership.
Upon the reorganization of the Company in January 1993, a change of
ownership occurred for Section 382 purposes, which limited the availability of
any then existing net operating loss carryforwards and built-in losses of the
Company. Although the Rights Offering, of itself, will not trigger a change of
ownership for purposes of Section 382 of the Code, future events beyond the
control of the Company, such as transactions in its Common Stock or other
ownership interests, could cause a change of ownership and result in limitations
on the use of losses by the Company. Therefore, there can be no assurance that
carryforwards of net operating loss (and certain "built-in" loss, when
recognized) of the Company will be available to offset future income and tax
liability of the Company.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
FOR GENERAL INFORMATION ONLY. ACCORDINGLY, EACH HOLDER OF RIGHTS AND COMMON
STOCK SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE RIGHTS AND COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND PENDING TAX
LAWS.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Latham & Watkins, San Francisco, California.
EXPERTS
The consolidated financial statements and schedules of Grubb & Ellis
Company and Subsidiaries at December 31, 1993 and 1992, and for the years then
ended, incorporated by reference in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon incorporated by reference herein and in the Registration
Statement which, as to the year ended December 31, 1993, is based in part on the
report of Coopers & Lybrand LLP independent public accountants. The
consolidated financial statements and schedules of Grubb & Ellis Company and
Subsidiaries at December 31, 1991 and for the year then ended, incorporated by
reference in this Prospectus and Registration Statement have been audited by
Coopers & Lybrand LLP, independent public accountants, as set forth in their
report thereon incorporated by reference herein and in the Registration
Statement. The financial statements referred to above are included in reliance
upon such reports given upon the authority of such firms as experts in
accounting and auditing.
33
<PAGE>
- ------------------------------------------ ----------------------------------
- ------------------------------------------ ----------------------------------
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND, IF GRUBB & ELLIS COMPANY
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED ON AS RIGHTS TO PURCHASE
HAVING BEEN AUTHORIZED BY THE COMPANY. COMMON STOCK
THIS PROSPECTUS DOES NOT CONSTITUTE AN EXPIRING OCTOBER 31, 1994
OFFER OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE RIGHTS
OR THE COMMON STOCK TO WHICH IT RELATES,
OR AN OFFER IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE ________________
SUCH AN OFFER IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ________________
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED BY
REFERENCE HEREIN IS CORRECT AT ANY TIME
AFTER THE DATE HEREOF.
_________________________
TABLE OF CONTENTS
_________________________
PAGE
---- September 16, 1994
Available Information . . . . . . . ii
Incorporation of Certain Documents
By Reference . . . . . . . . . . iii
Prospectus Summary . . . . . . . . iv
Risk Factors . . . . . . . . . . . 1
The Rights Offering . . . . . . . . 5
Financing Transactions . . . . . . 11
Use of Proceeds . . . . . . . . . . 27
Market Price . . . . . . . . . . . 28
Dilution . . . . . . . . . . . . . 29
Dividend Policy . . . . . . . . . . 29
Certain Federal Income Tax
Consequences . . . . . . . . . . 29
Legal Matters . . . . . . . . . . . 31
Experts . . . . . . . . . . . . . 31
- ------------------------------------------ ----------------------------------
- ------------------------------------------ ----------------------------------
<PAGE>
INSTRUCTIONS FOR USE OF GRUBB & ELLIS COMPANY
RIGHTS CERTIFICATE
---------------------------------------
CONSULT THE SUBSCRIPTION AGENT OR YOUR BANK OR
BROKER AS TO ANY QUESTIONS
---------------------------------------
In any state where the offering made thereby must be made by a broker-
dealer registered in that state, the offering is being made on behalf of Grubb &
Ellis Company by one or more registered brokers or dealers licensed under the
laws of such jurisdiction.
--------------------------------------
The following instructions relate to a rights offering (the "Rights
Offering") by Grubb & Ellis Company, a Delaware corporation (the "Company"), to
the holders of its Common Stock, $0.01 par value (the "Common Stock"), as
described in the Company's Prospectus dated September 16, 1994 (the
"Prospectus"). Holders of record of Common Stock at the close of business on
September 16, 1994 (the "Record Date") are receiving one nontransferable
subscription right (each, a "Right") for each share of Common Stock held of
record on the Record Date. The Rights are evidenced by nontransferable rights
certificates ("Rights Certificates"), which record holders are receiving with
copies of the Company's Prospectus. Each whole Right entitles the holder
thereof to purchase from the Company one share of Common Stock at the
subscription price of $2.375 (the "Subscription Price"). An aggregate of
approximately 4,433,000 Rights exercisable to purchase an aggregate of
approximately 4,433,000 shares of Common Stock are being distributed in
connection with the Rights Offering. Any shares of Common Stock offered hereby
and not purchased pursuant to the Basic Subscription Privilege will be available
for subscription pursuant to an oversubscription privilege (the
"Oversubscription Privilege"). A holder who validly exercises all of the Rights
evidenced by the Rights Certificate issued pursuant to the Rights Offering may
oversubscribe at the Subscription Price for remaining shares of Common Stock, up
to a maximum number equal to the number of shares of Common Stock held by such
holder as of the Record Date. If the total number of shares of Common Stock
available for purchase pursuant to the Oversubscription Privilege (the "Excess
Shares") is insufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata among
the holders exercising the Oversubscription Privilege in proportion to the
number of Rights exercised by each such holder, relative to the number of Rights
exercised by all holders exercising the Oversubscription Privilege. If such pro
rata allocation results in any holder being allocated a greater number of Excess
Shares than such holder subscribed for pursuant to the exercise of that holder's
Oversubscription Privilege, then such holder will be allocated only that number
of Excess Shares for which such holder oversubscribed, and the remaining Excess
Shares will be allocated among all other holders exercising the Oversubscription
Privilege on the same pro rata basis outlined above. No fractional shares will
be issued. The Oversubscription Privilege is not transferable. See "The Rights
Offering - Subscription Privileges - Oversubscription Privilege" in the
Prospectus.
The Rights will expire at 5:00 p.m, Chicago time, on October 31, 1994
(the "Expiration Time"), subject to extension in the discretion of the Company.
The number of Rights to which you are entitled is printed on the face
of your Rights Certificate. You should indicate your wishes with regard to the
exercise of your Rights by completing the appropriate form or forms on the back
of your Rights Certificate and returning the Rights Certificate to the
Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION RIGHT MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, OR
GUARANTEED DELIVERY PROCEDURES WITH RESPECT TO YOUR SUBSCRIPTION RIGHT MUST BE
COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE, INCLUDING FINAL CLEARANCE
OF ANY CHECKS, MUST BE
<PAGE>
RECEIVED BY THE SUBSCRIPTION AGENT, AT OR BEFORE 5:00 P.M, CHICAGO TIME, ON
OCTOBER 31, 1994, OR SUCH LATER DATE AS IS DETERMINED BY THE COMPANY. YOU MAY
NOT REVOKE ANY PROPER EXERCISE OF A RIGHT.
1. SUBSCRIPTION.
To exercise Rights, complete and sign the Rights Certificate and send
it (or Notice of Guaranteed Delivery), together with payment in full of the
Subscription Price for each share of Common Stock subscribed for pursuant to the
Basic Subscription Privilege and the Oversubscription Privilege to Harris Trust
Company of California, as Subscription Agent (the "Subscription Agent").
Payment of the Subscription Price must be made for the full number of shares of
Common Stock being subscribed for (a) in U.S. dollars by check or postal,
telegraphic or express money order payable to Harris Trust Company of
California, as Subscription Agent or (b) by wire transfer of funds in U.S.
dollars to the account maintained by the Subscription Agent for such purpose at
Harris Trust & Savings Bank, ABA No. 071000288; Account No. 1092113; Account
Name: Harris Trust Shareholder Services. THE SUBSCRIPTION PRICE WILL BE DEEMED
TO HAVE BEEN RECEIVED BY THE SUBSCRIPTION AGENT ONLY UPON (i) CLEARANCE OF ANY
UNCERTIFIED CHECK, (ii) RECEIPT BY THE SUBSCRIPTION AGENT OF ANY CERTIFIED OR
CASHIER'S CHECK OR OF ANY POSTAL, TELEGRAPHIC OR EXPRESS MONEY ORDER OR (iii)
RECEIPT OF COLLECTED FUNDS IN THE SUBSCRIPTION AGENT'S ACCOUNT DESIGNATED ABOVE.
If paying by uncertified personal check, please note that the funds paid thereby
may take at least five business days to clear. ACCORDINGLY, REGISTERED HOLDERS
OF RIGHTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF AN UNCERTIFIED
PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION TIME TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE
AND ARE URGED TO CONSIDER, IN THE ALTERNATIVE, PAYMENT BY MEANS OF CERTIFIED OR
CASHIER'S CHEEK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
Alternatively, you may cause a written guarantee substantially in the
form of Exhibit A to these Instructions (the "Notice of Guaranteed Delivery")
from a member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc., or from a commercial bank
or trust company having an office or correspondent in the United States (each,
an "Eligible Institution"), to be received by the Subscription Agent prior to
the Expiration Time; payment in full of the applicable Subscription Price may be
made separately as long as said payment is received by the Subscription Agent
prior to the Expiration Time. Such Notice of Guaranteed Delivery must state
your name, the number of Rights represented by your Rights Certificate and the
number of Underlying Shares being subscribed for pursuant to the Basic
Subscription Privilege and, if any, pursuant to the Oversubscription Privilege,
and must guarantee the delivery to the Subscription Agent of your properly
completed and executed Rights Certificate by 5:00 p.m., Chicago time on November
7, 1994. Additional copies of the Notice of Guaranteed Delivery may be obtained
upon request from the Subscription Agent or the Information Agent at the
addresses, or by calling the telephone numbers, indicated below.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company (by delivery to the Subscription Agent of a Nominee Holder
Certification substantially in the form available from the Subscription Agent or
the Information Agent), as to the aggregate number of Rights which have been
exercised and the number of shares of Common Stock thereby subscribed for
pursuant to the Basic Subscription Privilege and the Oversubscription Privilege
by each beneficial owner of Rights (which may include such nominee) on whose
behalf such nominee is acting. If more Excess Shares are subscribed for
pursuant to the Oversubscription Privilege than are available for sale, Excess
Shares will be allocated PRO RATA, as described above.
ONCE A HOLDER HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR THE
OVERSUBSCRIPTION PRIVILEGE, THE EXERCISE MAY NOT BE REVOKED.
2
<PAGE>
The addresses and telephone number of the Subscription Agent, are as
follows:
GENERAL INFORMATION:
(312) 461-3324
BY MAIL: FACSIMILE TRANSMISSION BY HAND OR OVERNIGHT COURIER:
COPY NUMBER:
Harris Trust Company (312) 765-8244 Harris Trust Company
of California of California
c/o Harris Trust and c/o Harris Trust and
Savings Bank Savings Bank
P.O. Box 830 CONFIRM FACSIMILE 311 West Monroe, 11th Floor
Chicago, Illinois BY TELEPHONE: Chicago, Illinois, 60606
60690-0830 (312) 461-3324
The address and telephone number of Morrow & Co., Inc., the
Information Agent, are as follows:
Morrow & Co., Inc.
909 3rd Avenue
New York, New York 10022-4799
Call Toll Free: (800) 662-5200
If the aggregate Subscription Price that you have paid is insufficient
to purchase the number of shares of Common Stock that you have indicated are
being subscribed for, or if you do not specify the number of shares of Common
Stock you intend to purchase, then you will be deemed to have exercised first
the Basic Subscription Privilege and second the Oversubscription Privilege to
purchase shares of Common Stock to the full extent of the payment tendered
(subject to the restrictions described above). If the aggregate Subscription
Price that you have paid exceeds the amount necessary to purchase the number of
shares of Common Stock for which you have indicated an intention to subscribe,
then you will be deemed to have exercised first, the Basic Subscription
Privilege (if not already fully exercised) and second, the Oversubscription
Privilege to the full extent of the excess payments tendered (subject to the
restrictions described above).
2. ISSUANCE AND DELIVERY OF STOCK CERTIFICATES, ETC.
The following issuances, deliveries and payments will be made to you
at the address shown on the face of your Rights Certificate.
(a) DELIVERY OF CERTIFICATES. Certificates for shares of Common
Stock issuable upon exercise of the Basic Subscription Privilege will be mailed
as soon as practicable after the subscriptions have been accepted by the
Subscription Agent to holders not participating in the Oversubscription
Privilege. Certificates for shares of Common Stock issuable upon exercise of
the Basic Subscription Privilege and the Oversubscription Privilege will be
mailed as soon as practicable after the Expiration Time. However, holders
participating in the Oversubscription Privilege may elect to have certificates
for shares of Common Stock issuable upon exercise of the Basic Subscription
Privilege mailed as soon as practicable after the subscriptions have been
accepted and to have certificates representing shares issuable upon exercise of
the Oversubscription Privilege mailed as soon as practicable after the
Expiration Time.
(b) CASH PAYMENTS. As soon as practicable after the Expiration Time
and after all prorations and adjustments contemplated by the terms of the Rights
Offering have been effected, the Subscription Agent will return by mail without
interest or deduction to each registered holder of Rights exercising the
Oversubscription Privilege any excess funds received in payment of the
Subscription Price for Excess Shares that are subscribed for by such Rights
holder but not allocated to such Rights holder pursuant to the Oversubscription
Privilege.
3
<PAGE>
3. SIGNATURES.
(a) SIGNATURES BY REGISTERED HOLDER. The signature on the Rights
Certificate must correspond with the name of the registered holder exactly as it
appears on the face of the Rights Certificate without any alteration or change
whatsoever. Joint owners should each sign. Persons who sign the Rights
Certificate in a representative or other fiduciary capacity, such as an
executor, trustee or corporate officer, must indicate their capacity when
signing and, unless waived by the Subscription Agent in its sole and absolute
discretion, must present to the Subscription Agent satisfactory evidence of
their authority to so act.
(b) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the Rights
Certificate is signed by a person other than the holder named on the face of the
Rights Certificate, proper evidence of authority of the person signing the
Rights Certificate must accompany the same unless, for good cause, the
Subscription Agent dispenses with proof of authority.
4. METHOD OF DELIVERY.
The method of delivery of Subscription Rights and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
the registered holder of the Rights, but, if sent by mail, it is recommended
that they be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to
the Subscription Agent and the clearance of any uncertified personal checks sent
in payment of the Subscription Price prior to 5:00 p.m., Chicago time, on
October 31, 1994.
5. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE
DEPOSITORY TRUST COMPANY.
In the case of Rights that are held of record through The Depository
Trust Company ("DTC"), exercises of the Basic Subscription Privilege (but not
the Oversubscription Privilege) may be effected by instructing DTC to transfer
Rights (such Rights being "DTC Exercised Rights") from the DTC account of such
holder to the DTC account of the Subscription Agent, together with making
payment of the Subscription Price for each share of Common Stock subscribed for
pursuant to the Basic Subscription Privilege. THE OVERSUBSCRIPTION PRIVILEGE IN
RESPECT OF THE DTC EXERCISED RIGHTS MAY NOT BE EXERCISED THROUGH DTC. The
holder of DTC Exercised Rights may exercise the Oversubscription Privilege in
respect of such DTC Exercised Rights by properly executing and delivering to the
Subscription Agent at or prior to 5:00 p.m. Chicago time, on October 31, 1994, a
DTC Participant Oversubscription Exercise Form, in the form available from the
Information Agent or the Subscription Agent, together with payment of the
appropriate Subscription Price for the number of shares of Common Stock for
which the Oversubscription Privilege is to be exercised.
If a Notice of Guaranteed Delivery relates to Rights with respect to
which exercise of the Basic Subscription Privilege will be made through DTC and
such Notice of Guaranteed Delivery also relates to the exercise of the
Oversubscription Privilege, a DTC Participant Oversubscription Exercise Form
must also be received by the Subscription Agent in respect of such exercise of
the Oversubscription Privilege at or prior to the Expiration Time.
6. TRANSFER TAXES.
The Company will pay transfer taxes, if any, applicable to the
issuance and sale of Common Stock to a registered holder of Rights upon the
exercise of Rights by such holder. If, however, a transfer tax is imposed for
any reason other than the issuance and sale of the Company's Common Stock to a
registered holder of Rights upon exercise of Rights by such holder, the amount
of any such transfer taxes (whether imposed on the registered holder or any
other person) will be payable by the registered holder or such other person. In
any such event, the Subscription Agent will be entitled to refuse to take the
action requested until it has received satisfactory evidence of the payment of
such taxes or exemption therefrom.
4
<PAGE>
7. IRREGULARITIES.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company, in its sole discretion,
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Rights Certificates will not be deemed to have been received or
accepted until all irregularities have been waived or cured within such time as
the Company determines, in its sole discretion. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Rights Certificates or incur
any liability for failure to give such notification.
Exhibit A - Notice of Guaranteed Delivery
5
<PAGE>
EXHIBIT A
TO INSTRUCTIONS
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION RIGHTS
ISSUED BY
GRUBB & ELLIS COMPANY
This form, or one substantially equivalent thereto, must be used to
exercise Rights pursuant to the Rights Offering described in the Prospectus
dated September 16, 1994 (the "Prospectus") of Grubb & Ellis Company, a Delaware
corporation (the "Company"), if a registered holder of Rights cannot deliver the
Rights Certificate evidencing the Rights (the "Rights Certificate"), to the
Subscription Agent listed below (the "Subscription Agent") at or prior to 5:00
p.m., Chicago time, on October 31, 1994 (the "Expiration Time"), or such later
time to which the Rights Offering may have been extended. Such form must be
delivered by hand or sent by facsimile transmission or mail to the Subscription
Agent, and must be received by the Subscription Agent at or prior to the
Expiration Time. See "The Rights Offering-Exercise of Rights and Subscription
Agent" in the Prospectus. Payment of the Subscription Price of $2.375 per share
for each share of the Company's Common Stock subscribed for upon exercise of
such Right must be received by the Subscription Agent in the manner specified in
the Instructions at or prior to 5:00 p.m., Chicago time, on October 31, 1994,
even if the Rights Certificate evidencing such Right is being delivered pursuant
to the procedure for guaranteed delivery thereof.
THE SUBSCRIPTION AGENT IS:
HARRIS TRUST COMPANY OF CALIFORNIA
The addresses and telephone number of the Subscription Agent, are as
follows:
GENERAL INFORMATION:
(312) 461-3324
BY MAIL: FACSIMILE TRANSMISSION BY HAND OR OVERNIGHT COURIER:
COPY NUMBER:
Harris Trust Company (312) 765-8244 Harris Trust Company
of California of California
c/o Harris Trust and c/o Harris Trust and
Savings Bank Savings Bank
P.O. Box 830 CONFIRM FACSIMILE 311 West Monroe, 11th Floor
Chicago, Illinois BY TELEPHONE: Chicago, Illinois, 60606
60690-0830 (312) 461-3324
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
A-1
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby represents that he or she is the registered
holder of Rights Certificate(s) representing _________ Rights and that such
Rights Certificate(s) cannot be delivered to the Subscription Agent at or before
5:00 p.m., Chicago time, on October 31, 1994. Upon the terms and subject to the
conditions set forth in the Prospectus, receipt of which is hereby acknowledged,
the undersigned hereby elects to exercise (i) the Basic Subscription Privilege
to subscribe for one share of Common Stock per right with respect to each of
______________ Rights represented by such Subscription Right and (ii) the
Oversubscription Privilege relating to each such Right to subscribe, to the
extent that Excess Shares (as defined in the Prospectus) are available therefor,
for an aggregate of up to __________ Excess Shares, subject to a maximum equal
to the number of shares owned by the undersigned as of September 16, 1994. The
undersigned understands that payment of the Subscription Price of $2.375 per
share for each share of Common Stock subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege must be received by
the Subscription Agent at or before 5:00 p.m., Chicago time, on October 31,
1994, and represents that such payment, in the aggregate amount of
$____________, either (check appropriate box):
/ / is being delivered to / / has been delivered separately to the
the Subscription Agent; Subscription Agent; and is being or was
delivered in the manner set forth below
(check appropriate box and complete
information relating thereto):
/ / wire transfer of funds
- name of transferor institution ______________________________________
- date of transfer _____________________________
- confirmation number if available ____________________________________
/ / uncertified check (Payment by uncertified check will not be deemed to have
been received by the Subscription Agent until such check has cleared. Holders
paying by such means are urged to make payment sufficiently in advance of the
Expiration Time to ensure that such payment clears by such date.)
/ / certified or cashier's check
/ / money order
- name of maker _______________________________________________________
- date and number of check or money order ____________________________
- bank on which check is drawn or issuer or money order _____________
Signature ________________________ Address:
___________________________________ _____________________________________
Name(s) ___________________________ _____________________________________
(INCLUDING ZIP CODE)
___________________________________
PLEASE TYPE OR PRINT Area Code and Tel. No(s) ____________
_____________________________________
(If signature is by a trustee(s),
executor(s), administrator(s),
guardian(s), attorney(s)-in-fact,
agent(s), officer(s) of a
corporation or another acting
in a fiduciary or representative
capacity, such capacity must be
clearly indicated below.) Subscription Right
No(s). (if available) ---------------
GUARANTEE OF DELIVERY
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or correspondent in the United States,
guarantees that the undersigned will deliver to the Subscription Agent the
Rights Certificate(s) representing the Rights being exercised hereby and any
other required documents, by 5:00 p.m., Chicago time on November 7, 1994.
___________________________________ Dated: ________________________, 1994
Name(s) ___________________________ _____________________________________
___________________________________ _____________________________________
(Address) (Name of Firm)
__________________________________ ____________________________________
(Area Code and Telephone Number) (Authorized Signature)
The institution which completes this form must communicate the guarantee to
the Subscription Agent and must deliver the Rights Certificate(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
A-2
<PAGE>
- -------------------------------------------------------------------------------
GRUBB & ELLIS COMPANY
EXERCISE FORM
SUBSCRIPTION: The undersigned hereby irrevocably subscribes for full shares
of Common Stock as indicated below, on the terms specified in the Prospectus
dated September[nb]16, 1994, and instructions relating thereto, receipt of
which is hereby acknowledged.
Number of shares subscribed for pursuant to the Basic
Subscription Privilege (one Right needed to subscribe for
each full share) ___________
Number of shares subscribed for pursuant to the
Oversubscription Privilege (subject to maximum equal to
number of Rights indicated on reverse side). Subscriber may
indicate ""Maximum'' in lieu of indicating number of shares. ___________
Total subscription price (total shares subscribed for
times $2.375) ___________
- -------------------------------------------------------
Subscriber(s) Signature(s)
Telephone No. (__________)_______-____________
DELIVERY OF CERTIFICATES: A holder who has elected to participate in the
Oversubscription Privilege may elect to have certificates for shares of Common
Stock issuable upon exercise of the Basic Subscription Privilege mailed as
soon as practicable after the Basic Subscription Privilege has been exercised
by checking here: ____________
See Instruction 2.
QUESTIONS REGARDING THE EXERCISE FORM SHOULD BE DIRECTED TO THE INFORMATION
AGENT, MORROW[nb]& CO., INC.
Call Toll Free:[nb](800)662-5200
CHECK, BANK DRAFT OR MONEY ORDER MADE OUT TO HARRIS TRUST COMPANY OF
CALIFORNIA MUST BE ENCLOSED HEREWITH, UNLESS PAYMENT IS MADE BY WIRE TRANSFER
AS PROVIDED IN THE PROSPECTUS AND THE INSTRUCTIONS
PLEASE READ BEFORE SIGNING
Signature(s) must correspond with the name(s) of the registered holder of
the rights certificate. If a joint account, each must sign. Persons signing in
a representative capacity must indicate capacity when signing.
See Instruction 3.
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RIGHTS NUMBER
CERTIFICATE NO. CUSIP NO. OF RIGHTS
RIGHTS CERTIFICATE FOR COMMON STOCK OF GRUBB & ELLIS COMPANY
VOID AND VALUELESS IF NOT RECEIVED BY SUBSCRIPTION AGENT WITH PAYMENT IN
FULL BY 5:00 P.M. CHICAGO TIME ON OCTOBER 31, 1994.
SUBSCRIPTION PRICE: $2.375 for each share of Common Stock
EXPIRATION TIME: 5:00[nb]p.m., Chicago Time on October[nb]31, 1994
The registered holder named below is entitled to subscribe for shares of
Common Stock, par value $.01 per share, of Grubb[nb]& Ellis Company upon the
terms and conditions set forth in the Prospectus dated September[nb]16, 1994,
and the instructions relating thereto. All capitalized terms used herein have
the same meaning as are given to them in the Prospectus.
One Right and $2.375 are needed to subscribe for one share of Common Stock.
GRUBB & ELLIS COMPANY
By __________________________________________
Chief Executive Officer
The Subscription Agent is Harris Trust Company
of California
c/o Harris Trust and Savings Bank
P.O. Box 830, Chicago, Illinois 60690-0830
Telephone (312) 461-3324
THIS OFFERING MAY BE WITHDRAWN UNDER CERTAIN CIRCUMSTANCES. Subscribers are
advised to review the instructions and the prospectus before subscribing for
shares of Common Stock.
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