<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 3)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
---------- ----------
Commission file number 1-8122 .
--------------
GRUBB & ELLIS COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1424307 .
- ------------------------- -------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Montgomery Street, - Telesis Tower,
San Francisco, CA 94104
------------------------
(Address of principal, executive offices)
(Zip Code)
(415)956-1990
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The aggregate market value of voting common stock held by nonaffiliates of the
registrant as of March 1, 1994 was approximately $12,270,000.
The number of shares outstanding of the registrant's common stock as of March 1,
1994 was 4,060,628 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A no later than 120 days after the end of the fiscal year (December
31, 1993) are incorporated by reference into part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in its definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. []
Total Pages:
Exhibit Index:
<PAGE>
GRUBB & ELLIS COMPANY
FORM 10-K
TABLE OF CONTENTS
PAGE
----
COVER PAGE 1
TABLE OF CONTENTS 2
Part I.
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II.
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 8
Item 6. Selected Financial Data 9-10
Item 7. Management's Discussion and Analysis of Financial 11-21
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 22-52
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 53
Part III.
Item 10. Directors and Executive Officers of the Registrant 54-57
Item 11. Executive Compensation 58-70
Item 12. Security Ownership of Certain Beneficial
Owners and Management 70-73
Item 13. Certain Relationships and Related Transactions 73-74
Part IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 75-80
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES 75
SIGNATURES 81-82
EXHIBIT INDEX 88
2
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Grubb & Ellis Company
We have audited the accompanying consolidated balance sheets of Grubb & Ellis
Company and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended. Our audits also included the financial
statement schedules for 1993 and 1992 listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits. We did not audit the financial
statements of Axiom Real Estate Management, Inc., a 74% owned subsidiary, which
statements reflect total assets of $5,837,845 and $3,856,419 as of December 31,
1993 and 1992, respectively, and total revenues of $21,422,586 and $7,054,979
for the year ended December 31, 1993 and the period September 1, 1992 through
December 31, 1992. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to data
included for Axiom Real Estate Management, Inc., is based solely on the report
of the other auditors. The financial statements and schedules of Grubb & Ellis
Company and Subsidiaries for the year ended December 31, 1991 were audited by
other auditors whose report dated March 27, 1992, except as to the information
presented in Schedule VIII, for which the date is December 24, 1992, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and related
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and related schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the 1993
and 1992 consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Grubb & Ellis
Company and Subsidiaries at December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information as of December 31, 1993 and 1992 and for the years then
ended set forth therein.
San Francisco, California ERNST & YOUNG
March 29, 1994
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Grubb & Ellis Company and Subsidiaries
We have audited the accompanying consolidated statements of
operations, stockholders' equity and cash flows of Grubb & Ellis Company and
Subsidiaries for the year ended December 31, 1991. We have audited the
financial statement schedules (Schedules II, VIII, and X) for the year ended
December 31, 1991. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated results of
operations and cash flows of Grubb & Ellis Company and Subsidiaries for the year
ended December 31, 1991, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND
San Francisco, California
March 27, 1992, except as
to the information presented
in Schedule VIII, for which
the date is December 24, 1992
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Axiom Real Estate Management, Inc.:
We have audited the accompanying balance sheets of Axiom Real
Estate Management, Inc. as of December 31, 1993 and 1992 and the related
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1993 and for the period September 1, 1992 (date of
inception) through December 31, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Axiom Real Estate
Management, Inc. as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the year ended December 31, 1993 and for the
period September 1, 1992 (date of inception) through December 31, 1992 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND
Pittsburgh Pennsylvania
January 28, 1994
24
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
ASSETS
1993 1992
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $22,364 $12,937
Receivables:
Real estate brokerage
commissions 493 4,406
Real estate services fees and other
commissions receivable 2,312 3,047
Other receivables 4,865 3,420
Real estate investments and other
assets held for sale -- 1,951
Prepaids and other current assets 2,628 726
------- -------
Total current assets 32,662 26,487
Noncurrent assets
Real estate brokerage commissions
receivable 1,155 1,214
Real estate investments held for sale and real estate owned 1,305 1,608
Equipment and leasehold improvements, net 5,063 3,974
Excess of cost over net assets of acquired
companies, net of accumulated amortization of
$15,555 at December 31, 1992 -- 10,458
Other assets 2,000 931
------- -------
Total assets $42,185 $44,672
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
25
<PAGE>
GRUBB AND ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(in thousands except per share amounts and shares)
<TABLE>
<CAPTION>
LIABILITIES
1993 1992
---- ----
<S> <C> <C>
Current liabilities
Notes payable and current portion of long-term debt $ 506 $ 2,277
Current portion of notes payable and long-term debt to
related party 8,830 18,830
Accounts payable 1,873 3,028
Compensation and employee benefits 11,817 8,628
Deferred commissions payable 2,814 1,914
Accrued severance obligations 2,883 1,424
Accrued office closure costs 3,043 3,036
Accrued claims and settlements 10,375 14,432
Other accrued expenses 8,363 6,191
--------- ---------
Total current liabilities 50,504 59,760
Long-term liabilities
Long-term debt, net of current portion 900 737
Long-term debt to related party , net of
current portion 15,237 20,507
Accrued claims and settlements 9,678 9,396
Accrued severance obligations 555 1,215
Accrued office closure costs 4,043 4,308
Other 235 207
--------- ---------
Total liabilities 81,152 96,130
--------- ---------
REDEEMABLE PREFERRED STOCK
12% Senior convertible preferred stock, $100.00 per share
Redemption Value:
137,160 shares outstanding 14,365 --
5% Junior convertible preferred stock, $100.00 per share
Redemption Value:
150,000 shares outstanding 15,535 --
--------- ---------
Total redeemable preferred stock 29,900 --
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value: 1,000,000
shares authorized; 287,160 shares issued as redeemable
preferred stock.
Common stock, $.01 par value:
25,000,000 shares authorized; 4,060,271
and 3,601,496 shares issued and outstanding at
December 31, 1993 and 1992, respectively, giving
retroactive effect to the one-for-five reverse
stock split and reduction in par value. 41 36
Additional paid-in-capital 48,070 47,276
Retained earnings (deficit) (116,978) (98,770)
--------- ---------
26
<PAGE>
Total stockholders' equity (deficit) (68,867) (51,458)
--------- ---------
Total liabilities and stockholders' deficit $ 42,185 $ 44,672
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
27
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1993, 1992 and 1991
(in thousands except per share amounts and shares)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenue
Commercial real estate brokerage
commissions $ 141,875 $ 136,082 $ 139,513
Residential real estate brokerage
commissions 20,266 49,171 88,572
Real estate services fees,
commissions and other 38,590 37,709 38,149
Interest income 442 529 1,656
Other 551 672 744
---------- ---------- ----------
Total revenue 201,724 224,163 268,634
---------- ---------- ----------
Cost and expenses
Real estate brokerage and other
commissions 100,250 117,154 138,459
Selling, general and administrative 55,958 64,607 72,022
Salaries and wages 44,780 48,412 58,477
Interest expense 333 155 553
Interest expense to related party 2,255 4,225 4,173
Depreciation and amortization 2,287 3,802 6,820
Special charges and unusual items 13,494 44,879 36,982
---------- ---------- ----------
Total costs and expenses 219,357 283,234 317,486
---------- ---------- ----------
Loss before income taxes (17,633) (59,071) (48,852)
Provision for income taxes (575) (605) (445)
---------- ---------- ----------
Net loss (18,208) (59,676) (49,297)
---------- ---------- ----------
---------- ---------- ----------
Undeclared dividends (accretion of
liquidation preference) on
preferred stock $ (2,196) -- --
Net loss applicable to
common stockholders $ (20,404) $ (59,676) $ (49,297)
Net loss per common share and
equivalents, giving retroactive
effect to the one-for-five reverse
stock split on January 29, 1993 $ (5.08) $ (17.01) $ (14.77)
Weighted average common shares
giving retroactive effect to the
one-for-five reverse split on
January 29, 1993. 4,019,795 3,509,303 3,336,572
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
28
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 1993, 1992 and 1991
(in thousands except per share amounts and shares)
<TABLE>
<CAPTION>
Total
Common Stock Common
------------ Additional Retained Stockholders'
Outstanding Paid-in- Earnings Equity
Shares Amount Capital (Deficit) (Deficit)
----------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
December 31, 1990 16,564,858 $ 16,565 $ 28,763 $ 10,203 $ 55,531
Common stock issued for:
Employee common stock
purchase agreements and
exercises of common stock
options, net of common
stock tendered 88,288 88 18 106
Acquisition earnouts 104,870 105 21 126
Net loss (49,297) (49,297)
----------- -------- -------- --------- ----------
December 31, 1991 16,758,016 16,758 28,802 (39,094) 6,466
Common stock issued for:
Defined contribution plan 211,753 212 79 291
Compensation in lieu of cash 905,749 905 405 1,310
Employee common stock
purchase agreements and
exercises of common stock
options, net of common
stock tendered 94,165 94 6 100
Acquisition earnouts 37,798 38 13 51
Net loss (59,676) (59,676)
----------- -------- -------- --------- ----------
December 31, 1992 18,007,481 18,007 29,305 (98,770) (51,458)
Effect of one-for-five reverse
stock split and change in par
value from $1.00 to $0.01
per share. (14,405,985) (17,971) 17,971
Undeclared dividends (accretion
of liquidation preference)
on preferred stock (2,196) (2,196)
Common stock issued for:
Exercise of Old Prudential
warrant 397,549 4 2,898 2,902
Rights redemption 42,400 1 1
Employee common stock
purchase agreements and
exercises of common stock
options, net of common
stock tendered 14,161 70 70
Acquisition earnouts 4,665 22 22
Net loss (18,208) (18,208)
----------- -------- -------- --------- ----------
December 31, 1993 4,060,271 $ 41 $ 48,070 $(116,978) $ (68,867)
----------- -------- -------- --------- ----------
----------- -------- -------- --------- ----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
29
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1993, 1992, and 1991
(in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(18,208) $(59,676) $(49,297)
Adjustments to reconcile net loss to net cash used by
operating activities:
Gain (loss) on sale of real estate and other assets 20 (556) (1,497)
Loss from equity investments -- 190 572
Depreciation and amortization 2,287 3,802 6,820
Change in asset valuation allowances 25 1,981 (1,121)
Other non-cash charges related to special charges
and unusual items 13,494 44,879 36,618
Change in Operating Assets and Liabilities:
Decrease in real estate brokerage commissions receivable 3,937 2,748 2,904
Decrease (increase) in other asset accounts (2,446) 3,070 1,342
Increase (decrease) in accounts payable (1,153) 1,704 385
Increase (decrease) in deferred commissions payable 900 (857) 62
Decrease in other liability accounts (1,589) (62) (4,625)
------- -------- --------
Net cash used in operating activities (2,733) (2,777) (7,837)
------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sale of assets 3,350 3,747 4,659
Purchases of equipment and leasehold improvements (3,115) (1,577) (1,046)
Proceeds from disposition of real estate joint ventures
and real estate owned 389 526 1,319
Distribution from (advances to) real estate joint ventures 76 (152) (1,529)
Cash payments for acquisition earnout agreements -- (51) (210)
------- -------- --------
Net cash provided by investing activities 700 2,493 3,193
------- -------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of preferred stock 13,750 -- --
Offering costs related to issuance of preferred stock (1,281) -- --
Proceeds from borrowing 8,000 700 5,000
Repayment of notes payable (9,067) (1,690) (1,194)
Proceeds from issuance of common stock 58 104 106
------- -------- --------
Net cash provided by (used in) financing activities 11,460 (886) 3,912
Net increase (decrease) in cash and cash equivalents 9,427 (1,170) (732)
Cash and equivalents at beginning of the year 12,937 14,107 14,839
------- -------- --------
Cash and cash equivalents at end of the year $ 22,364 $ 12,937 $ 14,107
------- -------- --------
------- -------- --------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
30
<PAGE>
31
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------
1. COMPANY OPERATIONS AND LIQUIDITY
BUSINESS:
The Company's predominant business activity is providing real estate
services, comprised of commercial brokerage, residential brokerage,
property management (primarily through its majority owned subsidiary Axiom
Real Estate Management, Inc. ("Axiom")) and other services offered
primarily to real estate owners, investors and tenants.
LIQUIDITY AND SUBSEQUENT EVENTS:
Liquidity and stockholders' equity have been adversely affected during the
last four years by significant losses from operations resulting from
adverse economic conditions in the real estate industry. These accumulated
losses have resulted in a deficit in stockholders' equity and a negative
current ratio.
The Company has taken the following significant steps toward meeting its
1994 operating plan with the objective of returning to profitability and
improving liquidity:
During March 1994, the Company obtained an interim financing
commitment from Warburg, Pincus Investors, L.P., a Delaware limited
partnership ("Warburg"). This commitment provides for a loan of up to
$10 million at an initial interest rate of 5% per annum, and would
mature 13 months from issuance. The loan will be secured by the
Company's commercial brokerage revenues.
Subject to stockholder approval and certain other conditions, the
Company would obtain equity financing through a sale of rights (the
"Rights Offering"). The Rights Offering would entitle each
stockholder to acquire one right for each share of stock owned. Under
certain conditions, stockholders would have certain rights to
oversubscribe to the extent that other stockholders do not subscribe.
Warburg would acquire any common stock not acquired by the public
stockholders through the exercise of rights, up to an amount not
exceeding $10 million plus accrued interest on the Warburg loan. The
rights, which are planned to be non-transferable, would be offered to
common stockholders of the Company at a price tentatively set at
$2.375 per share. The interest rate on the Warburg interim financing
will increase to 10% per annum in the event that stockholder approval
of the Rights Offering is not obtained.
32
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
LIQUIDITY AND SUBSEQUENT EVENTS, CONTINUED:
The Company's debt to The Prudential Insurance Company of America
("Prudential") was restructured. The debt payment schedule was
amended such that the Company will not be required to make principal
payments on any of the Prudential debt prior to November 1, 1997.
Additionally, the New Revolving Credit Note, as amended, will be due
November 1, 1999, with a waiver of the requirement that the Company
pay this note in full during one consecutive sixty-day period in 1994
(see Note 5).
In consideration for these agreements, Warburg and Prudential would
receive approximately 325,000 warrants and 150,000 warrants,
respectively, to purchase common stock of the Company. The exercise
price of these warrants would be equal to the rights offering price.
Certain covenants related to the Prudential debt will remain in place,
but will not be in effect during a designated three-year period (see
Note 5).
The Company has established a restructuring plan that provides for
closure of certain unprofitable operations and which is expected to
centralize management and reduce overhead expense. As part of the
implementation of this plan, during February 1994, the Company closed
four of its unprofitable appraisal and consulting offices.
Additionally, during March 1994, the Company reorganized its
operations into three regions from four regions.
As part of its strategic planning, the Company has developed an operating
plan, which includes the above activities, and which projects cash flow for
the year adequate to meet obligations as they become due. It is
management's belief that the operating plan is achievable, although in the
event that the 1994 operating plan is not substantially achieved because of
deteriorating economic conditions or other unfavorable events, the Company
may further reduce expense levels, or undertake other actions as may be
appropriate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Grubb & Ellis
Company, its wholly and majority owned subsidiaries and controlled
partnerships (the "Company"). All significant intercompany accounts and
transactions and transactions with unconsolidated joint ventures and
partnerships accounted for under the equity method of accounting are
eliminated.
BASIS OF REVENUE RECOGNITION:
Real estate sales commissions are generally recognized at the earlier of
receipt of payment, close of escrow or transfer of title between buyer and
seller. Receipt of payment occurs at the point at which all Company
services have been performed, title to real property has passed from seller
33
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
BASIS OF REVENUE RECOGNITION, CONTINUED:
to buyer, if applicable, and no contingencies exist with respect to
entitlement to the payment. Real estate leasing commissions are generally
recognized at the earlier of receipt of payment or occupancy, assuming the
Company has possession of a signed lease agreement and all significant
contingencies have been removed. All other commissions and fees are
recognized at the time the related services have been performed by the
Company, unless significant future contingencies exist.
COSTS AND EXPENSES:
Real estate brokerage commission and other commission expense
(salespersons' participation) is recognized concurrently with the recording
of the related revenue. All other costs and expenses are recognized when
incurred.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are carried at cost. Depreciation of
equipment is computed by the straight-line method over estimated useful
lives ranging from three to seven years. Leasehold improvements are
amortized by the straight-line method over their useful lives not to exceed
the terms of the leases. Maintenance and repairs are charged to expense as
incurred.
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES:
The excess of cost over net assets of acquired companies ("goodwill"),
which includes additional consideration paid to the sellers in the form of
contingent earnout agreements, has been amortized using the straight-line
method over periods ranging from 10 to 40 years.
The Company evaluates the carrying value of its goodwill and other assets
on an ongoing basis by reviewing a number of factors, including operating
results, business plans, budgets and economic projections. The Company's
evaluation previously focused upon revenues, direct costs and operating
results of the residential and commercial units before allocation of
corporate overhead. These evaluations resulted in write-downs for
permanent impairment in value of approximately $18.9 million in 1992 and
$29.5 million in 1991. Of these amounts, in 1992 $10.6 million related to
commercial brokerage operations, $1.3 million related to residential
brokerage operations and $7.0 related to other operations, and in 1991,
$24.8 million related to commercial brokerage operations, $3.8 million
related to residential operations, and $900,000 related to other
operations. As of January 1, 1993, all of the remaining unamortized
goodwill ($10.5 million) was associated with the commercial brokerage
operation. Due to downsizing of operations and changes in its business
plan, the Company analyzed the recoverability of the remaining goodwill
based upon projected operations of the remaining business after considering
all corporate overhead. As more fully discussed in Note 10 regarding
special charges and unusual items, 1993 events and the Company's business
plan for 1994 indicated that the business unit as structured in 1993 was,
and would continue to be, unprofitable and therefore unable to generate
income sufficient to recover goodwill without a restructuring. As
34
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES, CONTINUED:
a result, the Company wrote off its remaining goodwill balance related to
this unit in the fourth quarter of 1993.
TAXES ON INCOME:
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. SFAS No.
109 supersedes SFAS No. 96, Accounting for Income Taxes, which was adopted
by the Company in January, 1987, and changes the criteria for recognition
and measurement of deferred tax assets. As permitted under the Statement,
the Company has elected not to restate the financial statements of prior
years. The cumulative effect of the change and the effect of the change on
pre-tax income for the year ended December 31, 1993 is not material.
Deferred income taxes, if any, are recorded to reflect the tax consequences
in future years of the differences between the tax bases of assets and
liabilities and their financial reporting amounts. Investment tax credits
are accounted for under the flow-through method, whereby the provision for
income taxes is reduced in the year the tax credits first become available.
EARNINGS (LOSS) PER COMMON SHARE AND EQUIVALENTS:
Earnings (loss) per common share and equivalents computations are based on
the weighted average number of common shares outstanding after giving
effect to potential dilution from common stock options and warrants. The
calculation of loss per common share includes net loss adjusted for amounts
applicable to the Senior and Junior Convertible Preferred Stock for the
undeclared dividends (accretion of liquidation preference) in the amounts
of approximately $1,509,000 and $687,000, respectively, for the year ended
December 31, 1993.
CASH AND CASH EQUIVALENTS:
The Company had $1,275,260 of cash that is subject to withdrawal
restrictions at December 31, 1993, and none was restricted at December 31,
1992. These balances are associated with the Company's error and omissions
insurance captive and are restricted to use for errors and omissions
insurance claims.
For purposes of the Statement of Cash Flows, cash equivalents include
investments in highly liquid debt instruments which are purchased with a
maturity of ninety days or less. Cash payments for interest for the three
years ended December 31, 1993, 1992 and 1991 were approximately $1.0
million, $2.7 million and $4.7 million, respectively. Cash payments for
income taxes for the three years ended December 31, 1993, 1992 and 1991
were approximately $515,000, $949,000 and $1,146,000, respectively.
REAL ESTATE INVESTMENTS:
Real estate investments which are held for sale are recorded at the lower
of cost or net realizable value. Carrying amounts reflect periodic
depreciation. The Company has recorded a valuation allowance on real
35
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
REAL ESTATE INVESTMENTS, CONTINUED:
estate investments and real estate owned of approximately $3,792,000 and
$6,366,000 at December 31, 1993 and 1992, respectively.
In connection with the disposition of real estate investments, the Company
sold a property with a book value of approximately $413,000 in exchange for
a note receivable. The Company received a note receivable of $1.2 million
and recorded $778,000 of deferred revenue related to this transaction. The
Company sold another property for approximately $1.1 million, the proceeds
from which were used to extinguish the debt on the property. Additionally,
a property with a basis of approximately $411,000 was acquired in
connection with the sale of the Company's real estate advisory operations,
in exchange for a note payable of approximately $381,000.
Included in accrued claims and settlements is an estimated amount
representing the Company's interest in operating losses of a prior joint
venture investment in real estate for which the Company could be liable.
RECLASSIFICATIONS:
Certain reclassifications of the 1992 and 1991 consolidated financial
statements have been made to conform to the 1993 presentation.
3. REAL ESTATE BROKERAGE COMMISSIONS RECEIVABLE
Real estate brokerage commissions receivable were as follows at December
31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Commissions receivable $ 16,625 $ 22,082
Salespersons' participation (9,950) (11,460)
Allowance for uncollectible accounts (5,027) (5,002)
-------- --------
Total 1,648 5,620
Less portion classified as current 493 4,406
-------- --------
Noncurrent portion $ 1,155 $ 1,214
-------- --------
-------- --------
</TABLE>
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following at December
31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Office furniture and equipment $12,701 $11,448
Leasehold improvements 5,055 6,672
------- -------
Total 17,756 18,120
Less accumulated depreciation and amortization 12,693 14,146
------- -------
Equipment and leasehold improvements, net $ 5,063 $ 3,974
------- -------
------- -------
</TABLE>
36
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
5. LONG-TERM DEBT AND RECAPITALIZATION
Long-term debt consisted of the following at December 31, 1993 and 1992,
before the restructuring of debt which occurred in March 1994:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in thousands)
<S> <C> <C>
New Senior Notes, 9.9%, due
November 1, 1996 $ 10,000 - -
Senior Notes, 9.9%, due November 1, 1996 - - $ 10,000
$10 million 10.65% PIK Notes, net of
$920,000 cancellation pursuant
to terms of debt restructuring
and $493,000 of unamortized discount, due
November 1, 1999 9,067 - -
$25 million Subordinated Notes,
10.65%, net of unamortized
discount of $664,000 at December 31, 1992 - - 24,336
New Revolving Credit Note at 2.5%
above LIBOR, due December 31, 1994
(exchangeable for a 2-year term loan
due December 31, 1996) 5,000 - -
1991 Revolving Line of Credit, at 3.5%
above LIBOR, due February 15, 1993 - - 5,000
Notes payable at various rates of interest,
due through 2005 1,406 3,015
-------- --------
25,473 42,351
Less portion classified as current 9,336 21,107
-------- --------
Long-term portion $ 16,137 $ 21,244
-------- --------
-------- --------
</TABLE>
Annual maturities of the outstanding principal of long-term debt were as follows
at December 31, 1993: 1994, $9,336,000; 1995, $3,386,000; 1996, $2,870,000;
1997, $3,212,000; 1998, $3,214,000 and thereafter, $3,455,000.
SENIOR AND SUBORDINATED NOTES:
During 1986, the Senior and Subordinated Notes were issued to Prudential. In
connection with the issuance of the Subordinated Notes, the Company also issued
a detachable stock subscription warrant ("Old Prudential Warrant") to
37
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
SENIOR AND SUBORDINATED NOTES, CONTINUED:
purchase shares of the Company's common stock, the number of shares and exercise
price of which were subject to certain anti-dilution provisions.
The Subordinated Notes were discounted to yield an effective annual rate of 12%.
The resultant discount, net of issuance costs, was allocated to the warrant and
included in additional paid-in-capital.
At December 31, 1991, the Old Prudential Warrant provided for the purchase of
1,987,748 shares of the Company's common stock at an exercise price of $2.47 per
share. In connection with a modification of the debt agreements, as of January
1, 1992, the price was adjusted to $1.46 per share and the term of the warrant
was extended from November 1994 to November 1996. Giving effect to the one-for-
five reverse stock split, the Old Prudential Warrant provided for the purchase
of 397,549 shares at a price of $7.30 per share. The Old Prudential Warrant was
exercised in connection with the debt restructuring in January 1993.
REVOLVING LINE OF CREDIT:
On February 8, 1991, the Company entered into an agreement under which
Prudential provided a revolving line of credit of up to $5 million for two years
(the "1991 Revolving Line of Credit"), which was fully utilized by the Company.
OTHER NOTES PAYABLE:
Other notes payable of the Company are secured by various assets with a carrying
value of approximately $6.2 million and $5.9 million at December 31, 1993 and
1992, respectively.
1992 MODIFICATIONS OF DEBT AGREEMENTS:
On March 25, 1992 the Senior and Subordinated Notes and the 1991 Revolving Line
of Credit were amended effective January 1, 1992. The amendment modified the
financial covenants and provided for a deferral of the $5 million principal
payment on the Subordinated Notes due November 1, 1992 to February 1, 1993. In
addition, interest payments totaling approximately $1.8 million due on May 1,
1992 on the Senior and Subordinated Notes were deferred until August 1, 1992.
In November 1992, the Company and Prudential signed a Senior Note, Subordinated
Note and Revolving Credit Note Agreement (the "New Note Agreement") to
restructure the Senior and Subordinated Notes and Revolving Line of Credit
discussed above. Additionally, on January 29, 1993, the Company issued 150,000
shares of 5% Junior Convertible Preferred Stock and five-year warrants to
purchase 1 million shares of common stock at an exercise price of $1.10 per
share (200,000 shares at $5.50 per share after the January 29, 1993 one-for-five
reverse stock split) in exchange for $15 million of the original Prudential
Subordinated Notes. Holders of Junior Convertible Preferred Stock will be
entitled to receive, out of any funds legally
38
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
1992 MODIFICATIONS OF DEBT AGREEMENTS, CONTINUED:
available, cumulative dividends payable in cash at a rate of 5% per annum
compounded annually.
Pursuant to the New Note Agreement, all of the outstanding Senior Notes were
converted into $10 million of the Company's 9.9% Senior Notes Due November 1,
1996 (the "New Senior Notes"). The New Senior Notes defer the 1993 principal
payment until 1995 and 1996. Further, $10 million of the Subordinated Notes
were converted into $10 million of 10.65% Payment-in-Kind Notes Due November 1,
1999 (the "10.65% PIK Notes"). Also pursuant to the New Note Agreement,
Prudential exercised its warrants to purchase 1,987,748 shares at $1.46 (397,549
shares at an exercise price of $7.30 after the one-for-five reverse stock
split), for which approximately $920,000 of the 10.65% PIK Notes and $1,982,000
of accrued interest on the original Subordinated Notes were canceled by
Prudential in payment of the exercise price of the warrants. Semi-annual
interest payments are required pursuant to both the New Senior Notes and the
10.65% PIK Notes, although until all of the New Senior Notes have been retired,
the interest due under the 10.65% PIK Notes may be paid in kind by the issuance
of additional 10.65% 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 New Senior Notes, (ii) $3 million on November 1 of each of 1995 and 1996,
also with respect to the New Senior Notes, (iii) one third of the principal
amount of the 10.65% PIK Notes outstanding on November 1 of each of 1997 and
1998, and (iv) all remaining outstanding principal amounts of the 10.65% PIK
Notes on November 1, 1999. The $2 million payment due November 1, 1993 on the
New Senior Note has been deferred until May 1, 1994.
Pursuant to the New Note Agreement, the Company issued to Prudential a $5
million Revolving Credit Note due December 31, 1994 (the "New Revolving Credit
Note"), as a restructuring of the 1991 Revolving Line of Credit, which was to
expire on February 15, 1993. The New Revolving Credit Note bears interest at
2.5% above LIBOR (2% below the rate of interest pursuant to the 1991 Revolving
Line of Credit). During one sixty consecutive day period in 1994, the Company
will be required to pay down in full this note. Upon maturity, the Company will
have the option of converting the New 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 require
semi-annual principal payments (payable on June 30 and December 31 of each of
1995 and 1996) of $1,250,000.
The New Note Agreement contains significant restrictions on the payment of cash
dividends and repurchases of stock of the Company. The New Note 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, (vi) make capital expenditures and (vii) enter into certain other
transactions.
The New Note Agreement between the Company and Prudential contains various
affirmative and negative covenants, which require, among other things, that the
Company (combined with certain of its subsidiaries and taken as a whole)
39
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
1992 MODIFICATIONS OF DEBT AGREEMENTS, CONTINUED:
maintain a ratio of Consolidated Current Assets to Consolidated Current
Liabilities (as such terms are defined in the New Note Agreement), excluding the
current portion of long-term debt, of greater than 1:1 at the end of each of its
fiscal quarters.
As of December 31, 1993 the Company did not meet certain covenants and
restrictions as established in the New Note Agreement, including the
aforementioned ratio. However, Prudential has provided a waiver of these
covenants as of December 31, 1993 (see Note 1).
The Company issued to Warburg and Joe F. Hanauer ("Hanauer") 137,160 shares of
12% Senior Convertible Preferred Stock, five-year warrants to purchase 500,000
and 200,000 shares of common stock at exercise prices of $5.00 and $5.50 per
share, respectively, and five-year warrants to purchase up to 400,000 shares of
common stock which become exercisable at a formula price only in the event the
Company incurs a defined liability in excess of $1.5 million, all in exchange
for $13,750,000 in cash. These amounts reflect the one-for-five reverse stock
split. Holders of Senior Convertible Preferred Stock will be entitled to
receive, out of any funds legally available, cumulative dividends payable in
cash, at a rate of 12% per annum.
AXIOM NOTE PAYABLE:
The Company's subsidiary, Axiom, has a credit facility with IBM. As of December
31, 1993, the available line of credit was $2,050,000. This credit facility is
collateralized by substantially all of Axiom's assets and contains certain
covenants, including the maintenance of minimum levels of net worth, financial
ratios and restrictions on the payment of dividends.
PREFERRED STOCK:
The 12% Senior Convertible Preferred Stock and 5% Junior Convertible Preferred
Stock are subject to mandatory conversion in the event that (i) at all times
during a two-year period the consolidated debt to net income before taxes,
excluding extraordinary items, and income or loss from discontinued operations
plus total interest expense and depreciation and amortization has not exceeded
3.0:1.0, (ii) on each trading day during a six-month period the price of the
Common Stock has exceeded $8.75 per share and (iii) the Company is in full
compliance with the terms and conditions of all agreements pursuant to which the
Company has incurred indebtedness for borrowed money.
The Company must redeem the Senior and Junior Convertible Preferred Stock
beginning November 1, 2000 and ending no later than November 1, 2003.
Each share of Senior Convertible Preferred Stock and Junior Convertible
Preferred Stock is convertible, at the option of the holder, into shares of
common stock of the Company, which number of common shares is determined by
dividing the Senior Convertible Preferred Stock Stated Value or the Junior
Convertible Preferred Stock Stated Value, as the case may be, by the conversion
prices of $3.01371 and $5.6085, respectively. The stated value of the Senior
Convertible Preferred Stock and Junior Convertible Preferred Stock is an amount
in cash equal to $100.00 per share. Such initial conversion
40
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
PREFERRED STOCK, CONTINUED:
prices are subject to adjustment as provided in the Certificate of Amendment of
Certificate of Incorporation.
Except as otherwise required by law, the Senior Convertible Preferred Stock, the
Junior Convertible Preferred Stock, the common stock and any other capital stock
of the Company entitled to vote with the common stock is deemed to be one class
for the purpose of voting on all matters submitted for the approval of the
stockholders of the Company.
The carrying value of the Senior Convertible Preferred Stock and the Junior
Convertible Preferred Stock is adjusted by undeclared dividends (accretion of
liquidation preference) due upon maturity in the amount of $1,509,000 and
$687,000, respectively, for the year ended December 31,1993, direct costs
associated with the Recapitalization in the amount of $1,095,000 and $187,000,
respectively, for the year ended December 31,1993 and the accretion of direct
costs in the amount of $201,000 and $34,000, respectively, for the year ended
December 31, 1993.
The Senior Convertible Preferred Stock, with respect to dividend rights and
rights on redemptions and on liquidation, winding up and dissolution, ranks
prior to any other equity securities of the Company, including all classes of
common stock and any other series of Preferred Stock of the Company. The Junior
Convertible Preferred Stock, with respect to dividend rights and rights on
redemption and on liquidation, winding up and dissolution, ranks prior to any
other equity securities of the Company, including all classes of common stock
and any other series of Preferred Stock of the Company other than the Senior
Convertible Preferred Stock, which ranks prior to the Junior Convertible
Preferred Stock.
STOCKHOLDER RIGHTS PLAN:
In March 1989, the Company adopted a Stockholder Rights Plan (the "Rights
Plan"), pursuant to which each outstanding share of common stock carried with it
the right ("Right") to purchase from the Company certain junior participating
preferred stock. Upon the closing of the transactions of the Recapitalization,
all Rights existing under the Rights Plan were redeemed for $.01 per share, paid
in shares of common stock.
MARCH 1994 DEBT RESTRUCTURING:
During March 1994, the Company, Warburg and Prudential entered into an agreement
in principle (the "Agreement") pursuant to which the existing Prudential debt
agreements were amended to provide that the Company will not be required to make
principal payments on any of the Prudential debt prior to November 1, 1997.
Thereafter, the revolving credit facility will mature on November 1, 1999,
principal on the Senior Note will be payable in two equal installments on
November 1, 1997 and 1998, and principal on the PIK Notes will be payable in two
approximately equal installments on November 1, 2000 and 2001. The interest
rate on the PIK Notes will increase from 10.65% to 11.65% per annum on January
1, 1996. In addition, certain covenants of the debt agreements remain in place,
but will not be in effect until April 1, 1997. The debt agreements, as amended,
provide for supplemental principal payments commencing July 1, 1998 if the
Company meets certain financial tests.
41
<PAGE>
42
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
MARCH 1994 RESTRUCTURING, CONTINUED:
The Agreement also contemplates certain amendments to the existing Senior
Convertible Preferred Stock held by Warburg and the Junior Convertible Preferred
Stock held by Prudential. Both series of preferred stock would be amended to be
nonredeemable. As of the date of the Rights Offering, the exercise prices on
the outstanding warrants held by Prudential and Warburg would be reduced to
$3.50 per share pursuant to the terms of such warrants, except that the exercise
price on the contingent warrants to purchase 370,566 shares held by Warburg,
which are exercisable only under specified circumstances, would be reduced to
the same price per share as the Rights Offering. As it relates to the Rights
Offering, Warburg will retain certain anti-dilution rights with respect to the
preferred stock and warrants which it currently holds. Thereafter, the
preferred stock and warrants held by Warburg would be amended to eliminate the
anti-dilution provisions with respect to the issuance of common stock and common
stock equivalents at less than the conversion price or exercise price.
The preferred stock and the outstanding warrants held by Prudential would be
amended to eliminate the anti-dilution provisions with respect to the issuance
of common stock and common stock equivalents at less than the conversion price
or exercise price. The Junior Convertible Preferred Stock also would be amended
to increase the dividend rate to 10% per annum effective January 1, 2002, with
further increases of 1% per year effective January 1, 2003 and January 1, 2004
and 2% per year effective January 1, 2005 and each January 1 thereafter. The
Senior Convertible Preferred Stock would be amended to provide that at such time
as the dividend rate on the Junior Convertible Preferred Stock would increase
above 12%, the dividend rate on the Senior Convertible Preferred Stock would
increase by the same amount as the dividend rate on the Junior Convertible
Preferred Stock. The Junior Convertible Preferred Stock also would be amended
to provide that under certain circumstances, following the conversion of the
Senior Convertible Preferred Stockholders of the Junior Convertible Preferred
Stock will be obligated to convert such preferred stock.
43
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
6. INCOME TAXES
The provision for income taxes for each of the three years ended December 31,
1993 consisted of state income taxes due currently.
At December 31, 1993, the following income tax carryforwards were available to
the Company:
<TABLE>
<CAPTION>
Expiration
Amount Dates
-------------- -------------
(in thousands)
<S> <C> <C>
Federal regular tax operating loss
carryforwards $28,600 2001 to 2008
Federal investment tax credit
carryforwards $ 278 1998 to 2000
</TABLE>
As of December 31, 1993, the Company had a federal tax net operating loss
carryforward of $28.6 million and a federal investment tax credit carryforward
of $278,000, after taking into effect the reduction in tax attributes pursuant
to Section 108(b)(2) of the Internal Revenue Code (the "Code"), resulting from
the cancellation of indebtedness pursuant to Section 108(a) of the Code. The
Recapitalization that occurred in January 1993 constituted an ownership change
within the meaning of Section 382 of the Code thereby limiting the amount of
taxable income after the ownership change which may be offset by the above net
operating loss carryovers attributable to periods prior to the ownership change.
The annual amount of net operating losses allowed under such Section 382 will be
approximately $825,000. Net operating losses attributable to periods subsequent
to the ownership change are approximately $10.5 million, and are not subject to
the limitation under Code Section 382.
The Company's effective tax rate on its loss before taxes differs from the
statutory regular tax rate as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate (35.0)% (34.0)% (34.0)%
State income taxes 3.3 1.0 0.9
Goodwill amortization 20.9 11.6 22.4
Losses for which no tax benefit was
recorded in current period 14.1 22.4 11.6
---- ---- ----
Effective income tax rate for the year 3.3% 1.0% 0.9%
---- ---- ----
---- ---- ----
</TABLE>
The differences between the tax bases of assets and liabilities and their
financial reporting amounts that give rise to significant portions of deferred
income tax liabilities or assets are: real estate investment valuation
allowances, equity in partnership gains and losses, property and equipment
depreciation and accrued expenses.
44
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
6. INCOME TAXES, CONTINUED:
At December 31, 1993, net deferred tax assets totaled approximately $24.8
million. The total valuation allowance recognized for the net deferred tax
assets was also approximately $24.8 million. The valuation allowance decreased
by approximately $2.8 million during the year.
The components of the Company's deferred tax (liabilities) and assets are as
follows as of December 31, 1993:
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
Gross deferred tax liabilities - current
Commission and fee reserves $ (514)
Gross deferred tax assets - current
Commission and fee reserves 4,263
Litigation accrual 3,631
Compensation accrual 2,540
Gross deferred tax assets - current ------ 10,434
Deferred tax assets valuation
allowance - current (9,920)
Gross deferred tax liabilities - noncurrent
Investment in partnerships $ (231)
Gross deferred tax assets - noncurrent
Depreciation 27
Commission and fee reserves 3,726
Litigation accrual 3,387
Net operating loss carryforwards 10,010
Estimated net operating loss
carryforward limitation under
Code Section 382 (2,010)
Gross deferred tax assets - noncurrent ------ 15,140
Deferred tax assets valuation
allowance - noncurrent (14,909)
-------
Net deferred tax (liability) asset $ 0
-------
-------
</TABLE>
45
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
7. STOCK PLANS
The information set forth below regarding stock option compensation plans
gives effect to the one-for-five reverse stock split in 1993. Changes in
stock options were as follows for the years ended December 31, 1993 and
1992:
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------- --------------------------- ---------------------------
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Stock options
outstanding
at the
beginning of $5.00 to $5.00 to $11.25 to
the year 199,762 51.88 209,159 51.88 193,248 51.88
Granted or 2.88 to $5.00 to $5.00 to
regranted 662,000 4.38 52,399 10.00 67,800 10.00
Lapsed or 5.00 to 5.00 to 6.88 to
canceled (129,395) 51.88 (61,796) 20.00 (51,889) 22.50
Exercised (4,666) 6.88 - - - - - - - -
------- -------------- ------- -------------- ------- --------------
Stock options
outstanding
at the end of $2.88 to $5.00 to $5.00 to
the year 727,701 28.75 199,762 51.88 209,159 51.88
------- -------------- ------- -------------- ------- --------------
------- -------------- ------- -------------- ------- --------------
Exercisable at
end of the $6.25 to $11.25 to $11.25 to
year 51,680 28.75 107,879 51.88 130,012 51.88
------- -------------- ------- -------------- ------- --------------
------- -------------- ------- -------------- ------- --------------
</TABLE>
STOCK OPTION PLANS:
The Company's 1990 Amended and Restated Stock Option Plan provides for
grants of options to purchase the Company's common stock. The plan was
amended effective May 1993 to authorize a fixed number of 1,350,000 shares
for the plan. At December 31, 1993 and 1992, 627,633 and 70,282 shares
were available for the grant of options, respectively. Stock options under
this plan are granted at prices from 50% up to 100% of the market price per
share at the dates of grant, the terms and vesting schedules of which are
determined by the Compensation Committee of the Board of Directors.
The Company's 1993 Stock Option Plan for Outside Directors provides for
automatic grants to newly-elected non-management directors of options to
purchase 10,000 shares of common stock, at exercise prices set at the
market price at the date of grant. 50,000 shares are authorized for the
plan. The options expire five years from the date of grant and vest over
46
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
STOCK OPTION PLANS, CONTINUED:
three years from such date. At December 31, 1993, an option to purchase
10,000 shares were outstanding under the plan, which was not vested.
During 1991, no options were exercised.
EMPLOYEE COMMON STOCK PURCHASE PLAN:
In 1987, the Company adopted an employee stock purchase plan which enables
eligible employees to purchase common stock of the Company at discounted
prices. In August 1993, the plan was amended to authorize up to 200,000
shares of stock for issuance under this plan. As of December 31, 1993,
100,000 shares were available for issue. During 1993, 1992 and 1991,
6,342, 19,240 and 19,326 shares, respectively, were purchased under this
plan.
401(K) PLANS:
The Company has a defined contribution plan covering eligible employees
other than employees of Axiom. The Company discretionarily contributes to
the plan based upon specified percentages of voluntary employee
contributions, which contributions may be made in common stock or cash, or
a combination of each. Axiom has a 401(k) plan that does not provide for
employer contributions to be made in stock. Expenses for the plans
amounted to approximately $418,000, $32,000, and $353,000 for 1993, 1992,
and 1991, respectively.
8. RELATED PARTY TRANSACTIONS
The Company participates in joint ventures, partnerships and trusts in
which officers, directors and salespersons of the Company may also
participate as investors. Such persons or their affiliates frequently
provide property management and other real estate services to these
entities, and such persons may manage or otherwise control such joint
ventures or partnerships.
Revenue earned by the Company for services rendered to affiliates,
including joint ventures, officers and directors and their affiliates
("Related Parties"), was as follows for the years ended December 31, 1993,
1992, and 1991:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Real estate brokerage
commissions $ 618 $ 404 $ 3,334
Real estate services
fees and commissions 1,214 1,235 2,560
</TABLE>
47
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
8. RELATED PARTY TRANSACTIONS, CONTINUED:
The Company rents office space from Related Parties. Such rent expense for
the years ended December 31, 1993, 1992 and 1991 was $1,312,000,
$1,502,000, and 2,628,000, respectively.
At December 31, 1993 and 1992, the Company had $494,000 and $865,000,
respectively, of notes and other receivables from Related Parties, which
are fully reserved.
At December 31, 1993 the Company had a liability of $530,000 due to a
Related Party related to a reimbursement of out-of-pocket costs and
expenses incurred in connection with the Recapitalization.
A limited partnership which is affiliated with the Company is a partner in
a joint venture formed to develop an office building in Southern
California. As permanent financing for the project, the joint venture
borrowed $5.8 million on a non-recourse basis from a Related Party in
September 1990, secured by an unamortized first mortgage on the property at
a rate of 10.02% per year and a term of five years. As of December 31,
1993, the outstanding principal amount on the note was $5.8 million.
At December 31, 1993 and 1992, the Company paid approximately $50,000 and
$190,000, respectively, to a Related Party for administration of the
Company's employee health plan for four of its offices.
In connection with the Recapitalization, certain Related Parties, including
persons or entities which became Related Parties as a result of the
transaction, received reimbursement of expenses totaling approximately
$253,000, and one Related Party received a fee of $325,000.
9. COMMITMENTS AND CONTINGENCIES
The Company was contingently liable for approximately $512,000 at December
31, 1993 as a guarantor of certain obligations of unrelated third parties.
The guarantees arose in connection with the transfer of assets and
liabilities to such parties. These notes payable mature at various dates
through 1998. Of the Company's contingent liability at December 31, 1993,
substantially all is collateralized by land and improved property of these
entities. In the opinion of management, the current underlying value of
the assets collateralizing the contingent liabilities is greater than the
related obligations guaranteed by the Company. The Company has also
indemnified two wholly owned partnerships for their contingent liabilities
of up to $2 million each.
The Company has noncancelable operating lease obligations for office space
and certain equipment ranging from one to eight years, as well as sublease
48
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED:
agreements. The leases provide for increases that compound annually based
on the Consumer Price Index or otherwise increase at specific rates and
times. Substantially all leases require payment of property taxes,
insurance and maintenance costs in addition to rental payments. The
minimum lease payments are as follows at December 31, 1993:
<TABLE>
<CAPTION>
Gross Sublease
Lease Rental Net Lease
Year Obligation Income Obligation
---- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C>
1994 $14,793 $1,199 $13,594
1995 11,558 978 10,580
1996 8,233 738 7,495
1997 4,090 127 3,963
1998 2,892 127 2,765
Thereafter 3,195 318 2,877
</TABLE>
As a component of the Company's restructuring charges related to the
downsizing and closing of certain offices, the Company has accrued for
approximately $7.1 million of the above expected future minimum rental
payments for offices which have been or are planned to be closed during
1994, net of expected sublease income of approximately $2.7 million, as of
December 31, 1993.
Lease and rental expense for the years ended December 31, 1993, 1992 and
1991 was $19,552,000, $27,510,000, and $30,841,000 , respectively, net of
sublease income of $1,214,000, $1,138,000, and $814,000, respectively.
The Company and certain of its affiliates are defendants in a series of
lawsuits arising from the formation of a limited partnership to purchase an
office/retail building in San Francisco in 1985 in which they acted as the
syndicator, the general partner of the partnership and the property manager
of the investment property. These lawsuits are described below.
MICHAEL R. SPARER, ET AL. V. 222 SUTTER STREET PARTNERS, LTD., ET AL., San
Francisco Superior Court, was filed on March 16, 1989 by nine limited
partners who contended that the Company's affiliates made
misrepresentations in certain partnership offering documents, were
negligent in their investigation of an investment and mismanaged a
property. Pursuant to an agreement among the parties, the plaintiffs'
claims were submitted to arbitration, resulting in an award to the
plaintiffs. The insurance company paid a substantial portion of this award
in 1993. The portion paid by the Company did not have a material effect on
the Company's results of operations.
DONALD C. ANDERSON, ET AL. V. GRUBB & ELLIS COMPANY, ET AL., San Francisco
Superior Court, filed on May 24, 1990, and GABRIEL L. AGUILAR, ET AL. V.
GRUBB & ELLIS COMPANY, ET AL., San Francisco Superior Court, filed on May
31, 1990, are purported class actions on behalf of approximately 180
limited partners other than the SPARER plaintiffs and current Company
employees or affiliates, who invested $14.5 million in the partnership.
The two lawsuits have been consolidated into one action. The allegations
49
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED:
include claims similar to those in the SPARER case and additional
allegations that the defendants improperly extended the termination date of
the offering. The plaintiffs sought rescission of their interests at the
time of purchase. In March 1994, the Company agreed to settle both
lawsuits subject to court approval and certain other conditions. The court
preliminarily approved the settlement and notices of the settlement have
been sent to the limited partners. A hearing will be held for the court to
consider final approval of the proposed settlement, which includes the
issuance of 50,000 shares of common stock of the Company and the payment of
cash. The Company's insurance carrier will pay a substantial portion of
any cash settlement in these cases.
In March 1994, the Company reached a tentative agreement in principle to
settle a potential claim by a former joint venture partner, relating to a
partnership involving the ownership and operation of commercial real
estate. A number of issues remain outstanding to be negotiated between the
parties. It is expected that these issues can be resolved but there can be
no assurances in this regard. If a settlement is finalized, the Company
expects to pay cash and issue shares of common stock of the Company in
settlement of this claim (see Note 2 "Real Estate Investments"). The
Company has accrued for the estimated settlement costs of this case, of
which such amount is included in special charges and unusual items.
The Company is involved in various other claims and lawsuits arising in the
ordinary course of business, as well as in connection with its
participation in various joint ventures, partnerships and a trust.
In the opinion of management, upon the advice of counsel, the eventual
outcome of the above claims and lawsuits will not have a material adverse
effect on the Company's financial position or results of operations.
The Company's errors and omissions insurance carrier issued a notice of
non-renewal of this coverage, effective June 1994. The Company is actively
pursuing this coverage with other underwriters and does not anticipate
difficulty in obtaining coverage with another carrier.
50
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
10. SPECIAL CHARGES AND UNUSUAL ITEMS
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in millions)
<S> <C> <C> <C>
Goodwill write-down $10.1 $18.9 $29.5
Severance and office closure
costs 2.9 6.1 4.4
Reduction in carrying value of
equity in joint venture and other
property investments - - 2.8 2.8
Legal expense and estimated
settlement provisions - - 16.2 - -
Other 0.5 0.9 0.3
---- ---- ----
$13.5 $44.9 $37.0
---- ---- ----
---- ---- ----
</TABLE>
As discussed in Note 2, the Company evaluates the carrying value of its
goodwill and other assets by reviewing a number of factors, including
operating results, business plans, budgets and economic projections, to
determine whether such goodwill is recoverable from future operations. The
Company's evaluation for 1991, 1992 and 1993 was significantly impacted by
a continuation of the recessionary cycle and the severe downturn in the
real estate markets. Goodwill associated with certain acquisitions was
written off in 1991 and 1992 because the Company's analysis of the future
activity of those operations indicated permanent impairment; these entities
were acquired during a period of rapid expansion during the 1980's when
real estate activity was at increased levels and profit margins were
substantially higher than those found in the market today. As of December
31, 1992, all of the remaining unamortized goodwill was associated with the
commercial brokerage operation.
In early 1993, the Company completed a Recapitalization and retained a new
executive management team. New management reevaluated the Company's
business strategy and determined that a variety of restructuring and
recapitalization efforts were necessary in order for the business to
continue as a going concern. These restructuring efforts have included
downsizing operations and refocusing the Company's activities on its core
business functions as well as realigning the operational structure into a
more centralized operation with less middle management. Recapitalization
efforts have included the restructuring of the Company's debt and the
infusion of cash by Warburg and Hanauer (see Note 5). The Company's
analysis of goodwill performed in the fourth quarter of 1993 indicated that
the commercial brokerage business would operate at a loss without the
planned restructuring and recapitalization efforts and would, therefore, be
unable to recover goodwill; accordingly, the remaining goodwill was written
off as of December 31, 1993.
51
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
10. SPECIAL CHARGES AND UNUSUAL ITEMS, CONTINUED:
During each of the last three years, the Company determined that it would
close certain offices and terminate certain employees. The net costs of
such actions were accrued as severance and office closure costs when such
plans were adopted and amounted to approximately $3.9 million, $1.3 million
and $3.6 million for 1993, 1992 and 1991, respectively. Approximately
$443,000, $55,000 and $518,000 of these costs represent non-cash write-
downs and write-offs of equipment and leasehold improvements and other
asset and liability balances for the years 1993, 1992 and 1991,
respectively, with the remaining costs expected to be paid in cash.
As a consequence of the recessionary cycle and depressed real estate
markets, the Company made provisions to increase its valuation allowance of
its partnership and joint venture investments during 1992 and 1991 to
reflect reductions in estimated net realizable values. Estimated net
realizable value is current market value less disposition costs.
The substantial legal expense and estimated settlement provision for 1992
reflects several significant lawsuits including those discussed in Note 9.
Additionally, the Company has evaluated potential professional liability
exposure arising from the Company's salesforce, and this provision includes
an estimate for incurred but not reported cases.
The gains from the sales of the Company's real estate advisory business and
Northern California residential real estate operations during the first
quarter of 1993 which are included in "other" in special charges and
unusual items.
All of the $13.5 million of special charges and unusual items were provided
for in the fourth quarter of 1993. Such amounts are generally attributable
to events which occurred subsequent to the third quarter, such as the
reevaluation of the carrying value of goodwill and other assets due to the
revised business strategy and market emphasis, and events and the
recognition of additional costs for restructuring that became evident in
the fourth quarter when the related plans were developed and adopted.
11. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and interest-bearing investments.
Users of real estate services account for a substantial portion of trade
receivables; collateral is generally not required. The risk associated
with this concentration is limited due to the large number of users and
their geographic dispersion.
The Company places substantially all its interest-bearing investments with
major financial institutions and limits the amount of credit exposure to
any one financial institution in accordance with policy and pursuant to
restrictions in the New Note Agreement with Prudential.
52
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1993
----
First Second Third Fourth
Quarter Quarter Quarter Quarter (A)
------- ------- ------- -----------
(in thousands except per share amounts and shares)
<S> <C> <C> <C> <C>
Revenue $ 42,297 $ 50,732 $ 50,852 $ 57,843
--------- ------------ ----------- -----------
--------- ------------ ----------- -----------
Income(loss) before income
taxes $ (4,562) $ 529 $ (538) $ (13,062)
--------- ------------ ----------- -----------
--------- ------------ ----------- -----------
Net income (loss) $ (4,662) $ 454 $ (638) $ (13,362)
--------- ------------ ----------- -----------
--------- ------------ ----------- -----------
Loss per common share and
equivalents $ (1.30) $ (0.04) $ (0.30) $ (3.44)
--------- ------------ ----------- -----------
--------- ------------ ----------- -----------
Weighted average common
shares and equivalents 3,900,154 4,056,954 4,060,268 4,060,271
--------- ------------ ----------- -----------
--------- ------------ ----------- -----------
Common stock market price
range (high:low) 8:1 7/8 5 7/8:3 3/8 4 1/2:2 3/4 3 5/8:2 5/8
--------- ------------ ----------- -----------
--------- ------------ ----------- -----------
<FN>
(A) See Note 10 for discussion of special charges and unusual items recorded in
the fourth quarter.
</TABLE>
53
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
---------------
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1992
----
First Second Third Fourth
Quarter Quarter Quarter Quarter (A)
------- ------- ------- -----------
(in thousands except per share amounts and shares)
<S> <C> <C> <C> <C>
Revenue $ 48,805 $ 60,111 $ 54,307 $ 60,940
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Loss before income taxes $ (5,269) $ (149) $ (4,101) $ (49,552)
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Net loss $ (5,429) $ (269) $ (4,193) $ (49,785)
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Loss per common share and
equivalents $ (0.32) $ (0.02) $ (0.23) $ (2.77)
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Weighted average common
shares and equivalents 16,763,871 17,593,968 17,865,009 17,955,215
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Common stock market price
range (high:low) 2 1/2:1 3/8 2 1/8:1 1/4 1 5/8:1 1 1/4:7/8
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Retroactive effect of one-
for five reverse stock
split in January 1993:
Loss per common share and
equivalents $ (1.62) $ (0.08) $ (1.17) $ (13.86)
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Weighted average common
shares and equivalents 3,352,774 3,518,794 3,573,002 3,591,043
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Common Stock market price
range (high:low) 12 1/2:6 7/8 10 5/8:6 1/4 8 1/8:5 6 1/4:4 3/8
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
<FN>
(A) See Note 10 for discussion of special charges and unusual items recorded in
the fourth quarter.
</TABLE>
54
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
1. The following Reports of Independent Auditors and Consolidated
Financial Statements are submitted herewith:
- Reports of Independent Auditors.
- Consolidated Balance Sheets at December 31, 1993 and
December 31, 1992.
- Consolidated Statements of Operations for the years ended
December 31, 1993, 1992 and 1991.
- Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1993, 1992 and 1991.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991.
- Notes to Consolidated Financial Statements.
2. The following Consolidated Financial Statement Schedules are submitted
herewith:
II. Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties at
December 31, 1993, 1992 and 1991.
VII. Guarantees of Securities of Other Issuers at December 31, 1993.
VIII. Valuation and Qualifying Accounts
IX. Short Term Borrowings
X. Supplementary Income Statement Information for the years ended
December 31, 1993, 1992 and 1991.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
3. Exhibits required to be filed by Item 601 of Regulation S-K:
(3) ARTICLES OF INCORPORATION AND BYLAWS
3.1 Certificate of Incorporation of the Registrant, as restated
effective December 8, 1993, incorporated herein by reference
to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K
filed on March 31, 1994 (Commission File No. 1-8122).
3.2 Grubb & Ellis Company Bylaws, as amended effective August 9, 1993,
incorporated herein by reference to Exhibit 4.4 to the
78
<PAGE>
Registrant's registration statement on Form S-8 filed on
November 12, 1993
(Registration No. 33-71484).
3.3 Amendment to the Grubb & Ellis Company Bylaws, effective as of
August 9, 1993, incorporated herein by reference to Exhibit 4.5 to
the Registrant's registration statement on Form S-8 filed on
November 12, 1993. (Registration No. 33-71484).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Senior Note, Subordinated Note and Revolving Credit Note Agreement
between The Prudential Insurance Company of America and the
Registrant dated as of November 2, 1992, incorporated herein by
reference to Exhibit 4.6 to the Registrant's Current Report on Form
8-K filed on February 8, 1993 (Commission File No. 1-8122).
4.2 Letter agreement between The Prudential Insurance Company of America
and the Registrant dated March 26, 1993, incorporated herein by
reference to Exhibit 4.10 to the Registrant's Quarterly Report on
Form 10-Q filed on May 15, 1993 (Commission File No. 1-8122).
4.3 Letter agreement between The Prudential Insurance Company of America
and the Registrant dated April 19, 1993, incorporated herein by
reference to Exhibit 4.11 to the Registrant's Quarterly Report on
Form 10-Q filed on May 15, 1993 (Commission File No. 1-8122).
4.4 Letter agreement between The Prudential Insurance Company of America
and the Registrant dated October 26, 1993, incorporated herein by
reference to Exhibit 4.21 to the Registrant's registration statement
on Form S-8 filed on November 12, 1993 (Registration No. 33-71484).
4.5 Letter agreement between The Prudential Insurance Company of America
and the Registrant dated March 28, 1994, incorporated herein by
by reference to Exhibit 4.5 to the Registrant's Annual Report on
Form 10-K filed on March 31, 1994 (Commission File No. 1-8122).
4.6 Securities Purchase Agreement between The Prudential Insurance
Company of America and the Registrant, dated as of November 2, 1992,
incorporated herein by reference to Exhibit 28.4 to the Registrant's
Current Report on Form 8-K filed on November 12, 1992 (Commission
File No. 1-8122).
4.7 Specimen of stock subscription warrant No. 5 issued to The
Prudential Insurance Company of America, dated January 29, 1993,
exercisable for 200,000 shares of the Registrant's Common Stock,
incorporated by reference to Exhibit 28.10 to the Registrant's
Current Report on Form 8-K filed on February 8, 1993 (Commission
File No. 1-8122).
4.8 Securities Purchase Agreement among Warburg, Pincus Investors, L.P.,
Joe F. Hanauer and the Registrant, dated as of November 2, 1992,
incorporated herein by reference to Exhibit 28.3 to the Registrant's
Current Report on Form 8-K filed on November 12, 1992 (Commission
File No. 1-8122).
4.9 Specimen of stock subscription warrant No. 6 issued to Warburg,
Pincus Investors, L.P., dated as of January 29, 1993, exercisable
79
<PAGE>
for 337,042 shares of the Registrant's Common Stock, incorporated
herein by reference to Exhibit 4.11 to the Registrant's registration
statement on Form S-8 filed on November 12, 1993 (Registration
No. 33-71484).
4.10 Specimen of stock subscription warrant No. S-3 issued to Warburg,
Pincus Investors, L.P., dated January 29, 1993, exercisable for
370,566 shares of the Registrant's Common Stock, incorporated herein
by reference to Exhibit 4.17 to the Registrant's registration
statement on Form S-8 filed on November 12, 1993 (Registration
No. 33-71484).
4.11 Summary of terms of proposed bridge loan and rights offering
executed by Warburg, Pincus Investors, L.P., The Prudential
Insurance Company of America and the Registrant as of March 28,
1994, incorporated herein by reference to Exhibit 4.11 to the
Registrant's Annual Report on Form 10-K filed on March 31, 1994
(Commission File No. 1-8122).
4.12 Cash Collateral Account Agreement between Bank of America N.T.&S.A.
and the Registrant dated as of March 29, 1994, incorporated herein
by reference to Exhibit 4.12 to the Registrant's Annual Report
on Form 10-K filed on March 31, 1994 (Commission File No. 1-8122).
4.13 Intercreditor Agreement between Warburg, Pincus, Investor, L.P. and
The Prudential Insurance Company of America dated as of March 28,
1994, incorporated herein by reference to Exhibit 4.13 to the
registrant's Annual Report on Form 10-K filed on March 31, 1994
(Commission File No. 1-8122).
4.14 Promissory Note in the amount of $250,000 dated as of January 8,
1990 executed by the Registrant in favor of DW Limited Partnership,
incorporated herein by reference to Exhibit 4.14 to the Registrant's
Annual Report on Form 10-K filed on March 31, 1994 (Commission File
No. 1-8122).
4.15 Promissory Note in the amount of up to $10 million dated as of
March 29, 1994, executed by the Registrant in favor of Warburg,
Pincus Investors, L.P., incorporated herein by reference to
Exhibit 4.15 to the Registrant's Amendment to its Annual Report
on Form 10-K/A filed on April 29, 1994 (Commission File
No. 1-8122).
4.16 Loan and Security Agreement among the Registrant, Warburg Pincus
Investors, L.P. and The Prudential Insurance Company of America
dated as of March 29, 1994, incorporated herein by reference
to Exhibit 4.16 to the Registrant's Amendment to its Annual Report
on Form 10-K/A filed on April 29, 1994 (Commission File No. 1-8122).
4.17 Modification to Note and Security Agreement between the Registrant
and The Prudential Insurance Company of America dated as of March
28, 1994, incorporated herein by reference to Exhibit 4.17 to the
Registrant's Amendment to its Annual Report on Form 10-K/A filed
on April 29, 1994 (Commission file No. 1-8122).
On an individual basis, instruments other than Exhibits listed above
defining the rights of holders of long-term debt of the Registrant
and its consolidated subsidiaries and partnerships do not exceed ten
percent of total consolidated assets and are, therefore, omitted;
however, the Company will furnish supplementally to the Commission
any such omitted instrument upon request.
(10) MATERIAL CONTRACTS
10.1 Grubb & Ellis Company 1990 Amended and Restated Stock Option Plan,
as amended as of August 9, 1993, incorporated herein by reference to
Exhibit 4.1 to the Registrant's registration statement on Form S-8
filed on November 12, 1993 (Registration No. 33-71580).
10.2 Grubb & Ellis Company Executive Supplemental Deferred Compensation
Plan, incorporated herein by reference to Exhibit 10.13 to the
Registrant's Registration Statement on Form S-2 filed on January 12,
1990 (Registration No. 33-32979).
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<PAGE>
10.3 Grubb & Ellis Company 1985 Restricted Value Stock Plan, as amended
effective December 3, 1987, incorporated herein by reference to
Exhibit 10.13 to the Registrant's Annual Report on Form 10-K filed
on March 31, 1989 (Commission File No. 1-8122).
10.4 Agreement between HSM Inc. and David Donosky dated January 15,
1988, regarding exchange of indebtedness, incorporated herein by
reference to Exhibit 10.23 to the Registrant's Annual Report on
Form 10-K filed on March 30, 1988 (Commission File No. 1-8122).
10.5 Loan Agreement between David Donosky and the Registrant dated
October 20, 1989, incorporated herein by reference to Exhibit 10.21
to the Registrant's registration statement on Form S-2 filed on
January 12, 1990 (Registration No. 33-32979).
10.6 Description of Grubb & Ellis Company Senior Management Compensation
Plan, incorporated herein by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K filed on March 30, 1992
(Commission File No. 1-8122).
10.7 Stock Purchase and Stockholder Agreement dated May 6, 1992, among GE
New Corp., the Registrant and International Business Machines
Corporation, incorporated herein by reference to Exhibit 28.2 to the
Registrant's Quarterly Report on Form 10-Q filed on May 15, 1992
(Commission File No. 1-8122).
10.8 Master Management Agreement dated May 6, 1992 between International
Business Machines Corporation and GE New Corp., incorporated herein
by reference to Exhibit 28.2 to the Registrant's Quarterly Report on
Form 10-Q filed on May 15, 1992 (Commission File No. 1-8122).
10.9 Master Financing Agreement dated August 5, 1992 between IBM Credit
Corporation and Axiom Real Estate Management, Inc., incorporated
herein by reference to Exhibit 28.4 to the Registrant's Quarterly
Report on Form 10-Q filed on August 13, 1992 (Commission File
No. 1-8122).
10.10 Credit Agreement dated as of August 31, 1992, between Axiom Real
Estate Management, Inc. and the Registrant, incorporated herein by
reference to Exhibit 28.6 to the Registrant's Quarterly Report on
Form 10-Q filed on November 16, 1992 (Commission File No. 1-8122).
10.11 Purchase Agreement dated February 16, 1993 between the Registrant
and JMB Institutional Realty Advisers, L.P., incorporated herein by
reference to Exhibit 10.20 to the Registrant's Quarterly Report on
Form 10-Q filed on May 15, 1993 (Commission File No. 1-1822).
10.12 Purchase Agreement dated March 4, 1993 between the Registrant and
Fox and Carskadon/Better Homes and Gardens, incorporated herein by
reference to Exhibit 10.21 to the Registrant's Quarterly Report on
Form 10-Q filed May 15, 1993 (Commission File No. 1-1822).
10.13 Stockholders' Agreement among Warburg, Pincus Investors, L.P., The
Prudential Insurance Company of America, Joe F. Hanauer and the
Registrant dated January 29, 1993, incorporated herein by reference
to Exhibit 28.1 to the Registrant's Current Report on Form 8-K filed
on February 8, 1993 (Commission File No. 1-8122).
81
<PAGE>
10.14 Amendment to Stockholders' Agreement among Warburg, Pincus
Investors, L.P., The Prudential Insurance Company of America, Joe F.
Hanauer and the Registrant, dated as of July 1, 1993, incorporated
herein by reference to Exhibit 10.15 to the Registrant's Quarterly
Report on Form 10-Q filed on August 16, 1993 (Commission File
No. 1-8122).
10.15 Severance Compensation Agreement, dated as of December 31, 1992,
between the Registrant and Donald L. McGee, incorporated herein by
reference to Exhibit 10.25 to the Registrant's Annual Report on Form
10-K filed on April 15, 1993 (Commission File No. 1-8122).
10.16 Severance Compensation Agreement, dated as of August 31, 1992,
between the Registrant and Emmett R. DeMoss, Jr., incorporated
herein by reference to Exhibit 10.26 to the Registrant's Annual
Report on Form 10-K filed on April 15, 1993 (Commission File
No. 1-8122).
10.17 Severance Compensation Agreement, dated as of December 31, 1992,
between the Registrant and Donald V. Jones, incorporated herein by
reference to Exhibit 10.27 to the Registrant's Annual Report on Form
10-K filed on April 15, 1993 (Commission File No. 1-8122).
10.18 Amendment No. 1 to Severance Compensation Agreement, dated as of
December 31, 1992, between the Registrant and Donald V. Jones,
incorporated herein by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K filed on April 15, 1993
(Commission File No. 1-8122).
10.19 Employment Agreement, effective May 20, 1992, between the Registrant
and Alvin L. Swanson, Jr., incorporated herein by reference to
Exhibit 10.29 to the Registrant's Annual Report on Form 10-K filed
on April 15, 1993 (Commission File No. 1-8122).
10.20 First Amendment to Employment Agreement, effective as of May 20,
1992, between the Registrant and Alvin L. Swanson, Jr., incorporated
herein by reference to Exhibit 10.30 to the Registrant's Annual
Report on Form 10-K filed on April 15, 1993 (Commission File
No. 1-8122).
10.21 Second Amendment to Employment Agreement, effective as of February
24, 1993, between the Registrant and Alvin L. Swanson, Jr.,
incorporated herein by reference to Exhibit 10.31 to the
Registrant's Quarterly Report on Form 10-Q filed on May 15, 1993
(Commission File No. 1-8122).
10.22 1993 Stock Option Plan for Outside Directors, incorporated herein by
reference to Exhibit 4.1 to the Registrant's registration statement
on Form S-8 filed on November 12, 1993 (Registration No. 33-71484).
10.23 Separation Agreement between the Registrant and Wilbert F. Schwartz
dated as of April 25, 1994, incorporated herein by reference to
Exhibit 10.23 to the Registrant's Amendment to its Annual Report
on Form 10-K/A filed on April 29, 1994 (Commission File No. 1-8122).
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS, incorporated
herein by reference to Exhibit 11 to the Registrant's Annual Report
on Form 10-K filed on March 31, 1994 (Commission File No. 1-8122).
(21) SUBSIDIARIES OF THE REGISTRANT, incorporated herein by reference to
Exhibit 21 to the Registrant's Annual Report on Form 10-K filed on
March 31, 1994 (Commission File No. 1-8122).
(23.1) CONSENTS OF INDEPENDENT AUDITORS - Ernst & Young
(23.2) CONSENTS OF INDEPENDENT AUDITORS - Coopers & Lybrand
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<PAGE>
23.1 Consent of Ernst & Young
23.2 Consent of Coopers & Lybrand
(24) POWERS OF ATTORNEY, incorporated herein by reference to Exhibit 24
to the Registrant's Annual Report on Form 10-K filed on March 31,
1994 (Commission File No. 1-8122).
(b) Reports on Form 8-K:
None.
83
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 30th day of March,
1994.
GRUBB & ELLIS COMPANY
(Registrant)
by *
------------------------------------
Wilbert F. Schwartz
President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
March 30, 1994
- --------------------------------------
Robert J. Hanlon, Jr.
Chief Financial Officer and
Senior Vice President
March 30, 1994
- --------------------------------------
Connie Hardisty
Vice President and
Corporate Controller
* March 30, 1994
- --------------------------------------
Joe F. Hanauer, Chairman of the Board
and Director
* March 30, 1994
- --------------------------------------
Kenneth E. Field, Director
* March 30, 1994
- --------------------------------------
Reuben S. Leibowitz, Director
84
<PAGE>
* March 30, 1994
- --------------------------------------
John D. Santoleri, Director
* March 30, 1994
- --------------------------------------
Lawrence S. Bacow, Director
*Pursuant to Powers of Attorney
- --------------------------------------
By: Robert J. Walner, Attorney-in-Fact
85
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------- ---------- ------------ -------------- ----------
Additions Deductions
------------ --------------
Amounts
written off or
Balance at Charged to recovered upon Balance at
beginning costs and repayment of end of
Description of period expenses receivable (2) period
- ---------------------------- ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Allowance for uncollectible
real estate brokerage
commissions receivable (1)
- ----------------------------
Year ended December 31, 1993: 5,002 25 5,027
Year ended December 31, 1992: 3,182 1,820 5,002
Year ended December 31, 1991: 4,301 1,119 3,182
Reserves on real estate
investments and real
estate owned
- ----------------------------
Year ended December 31, 1993: 6,366 2,574 3,792
Year ended December 31, 1992: 4,255 2,987 876 6,366
Year ended December 31, 1991: 5,104 3,048 3,897 4,255
<FN>
(1) The above additions and deletions have been presented as a net balance due
to limitations in the Company's computer systems.
(2) Reductions in reserves on real estate investments and real estate owned
relate primarily to sales of real estate.
</TABLE>
88
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT INDEX(A)
FOR THE YEAR ENDED DECEMBER 31, 1993
Exhibit Page:
- -------
(23) Consents of Independent Auditors
23.1 Consent of Ernst & Young
23.2 Consent of Coopers & Lybrand
(A) Exhibits incorporated by reference are listed in Item 14(a)3 of this
report.
91
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in the Registration Statement (Form
S-8 Number 33-71578) pertaining to the Employee New Stock Purchase Plan, as
amended, the Registration Statement (Form S-8 Number 33-71580 and 33-35640)
pertaining to the 1990 Amended and Restated Stock Option Plan, as amended, the
Registration Statement (Form S-8 Number 33-71484) pertaining to the 1993 Stock
Option Plan for Outside Directors, the Registration Statement (Form S-8 Number
33-17194) pertaining to the 1985 Restricted Value Stock Plan, as amended and the
Registration Statement (Form S-2 Number 33-32979) pertaining to the Executive
Supplemental Deferred Compensation Plan of Grubb & Ellis Company and
Subsidiaries of our report dated March 29, 1994, with respect to the financial
statements and schedules of Grubb & Ellis Company and Subsidiaries included in
the Annual Report (Form 10-K/A (Amendment No. 3)) for the year ended December
31, 1993, filed with the Securities Exchange Commission.
/s/ Ernst & Young
San Francisco, California
July 21, 1994
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our report dated March 27, 1992,
except as to the information presented in Schedule VIII, for which the date is
December 24, 1992, on our audits of the consolidated statements of operations,
stockholders' equity and cash flows and financial statement schedules of
Grubb & Ellis Company and Subsidiaries for the year ended December 31, 1991,
which report is included in the Annual Report on Form 10-K and 10-K/A (Amendment
No. 3), in the registration statements of Grubb & Ellis Company and Subsidiaries
as follows:
Form S-8: The 1985 Restricted Value Stock Plan and the
1987 Hamilton Purchase Stock Plan (File No.
33-17194).
Form S-2: The Deferred Equity Program for Commissioned
Salespersons (File No. 33-32979).
Form S-8: The 1990 Amended and Restated Stock Option
Plan, As Amended (File No. 33-71580 and 33-
35640).
Form S-8: The 1993 Stock Option Plan for Outside
Directors (File No. 33-71484).
Form S-8: Employee New Stock Purchase Plan, As Amended
(File No. 33-71578).
COOPERS & LYBRAND
San Francisco, California
July 26, 1994
