<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File Number: 1-8122
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GRUBB & ELLIS COMPANY
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-1424307
- ------------------------------ ------------------
(State or Other Jurisdiction of (I.R.S. 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)
No Change
-----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
8,894,688
-------------------------------------------------
(Number of Shares Outstanding of the Registrant's
Common Stock at May 1, 1996)
1
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PART I
FINANCIAL INFORMATION
2
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ITEM 1. FINANCIAL STATEMENTS
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts and shares)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenue:
Commercial real estate brokerage commissions $ 28,615 $ 29,880
Real estate services fees, commissions and other 8,318 8,193
---------- ----------
Total Revenue 36,933 38,073
---------- ----------
Costs and Expenses:
Real estate brokerage and other commissions 17,467 17,555
Selling, general and administrative 11,761 12,181
Salaries and wages 11,715 11,385
Depreciation and amortization 674 437
Special charges and unusual items (110) (119)
---------- ----------
Total costs and expenses 41,507 41,439
---------- ----------
Total operating loss (4,574) (3,366)
Other income and expenses:
Interest income 226 288
Other income, net 15 (28)
Interest expense to related parties (777) (739)
---------- ----------
Loss before income taxes (5,110) (3,845)
Provision for income taxes 6 66
---------- ----------
Net loss $ (5,116) $ (3,911)
---------- ----------
---------- ----------
Net loss applicable to common stockholders,
net of undeclared dividends earned on
preferred stock $ (5,887) $ (4,612)
Net loss per common share and equivalents $ (.66) $ (.52)
Weighted average common shares outstanding 8,883,970 8,797,377
</TABLE>
See notes to condensed consolidated financial statements.
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited - in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,189 $26,611 $12,462
Real estate brokerage commissions receivable 3,229 3,313 2,715
Real estate services fees and
other commissions receivable 3,265 3,669 3,030
Other receivables 3,640 3,923 2,768
Prepaids and other current assets 667 1,295 1,184
----------- ----------- -----------
Total current assets 19,990 38,811 22,159
Noncurrent Assets:
Real estate brokerage commissions receivable 224 272 352
Real estate investments held for sale
and real estate owned 534 579 1,037
Equipment and leasehold improvements, net 5,374 5,563 5,251
Other assets 1,652 951 1,945
----------- ----------- -----------
Total assets $27,774 $46,176 $30,744
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
4
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, continued
(in thousands, except per share amounts and shares)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
LIABILITIES
Current Liabilities:
Notes payable and current portion of long-term debt $ 676 $ 276 $ 446
Accounts payable 1,075 1,498 2,102
Compensation and employee benefits payable 4,986 9,552 5,330
Deferred commissions payable 48 7,451 125
Accrued severance obligations 713 776 709
Accrued office closure costs 767 867 1,236
Accrued claims and settlements 1,824 2,132 2,264
Other accrued expenses 5,074 6,377 6,346
----------- ----------- -----------
Total current liabilities 15,163 28,929 18,558
Long-Term Liabilities:
Long-term debt, net of current portion 346 351 387
Long-term debt to related party,
net of current portion 27,450 26,698 25,674
Accrued claims and settlements 12,683 12,802 13,274
Accrued severance obligations -- 16 202
Accrued office closure costs 982 1,099 1,910
Other -- -- 130
----------- ----------- -----------
Total liabilities 56,624 69,895 60,135
----------- ----------- -----------
Commitments and contingencies (Note 4) -- -- --
----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value:
1,000,000 shares authorized; 137,160
shares of 12% Senior Convertible
Preferred Stock and 150,000 shares
of 5% Junior Convertible Preferred Stock outstanding 32,143 32,143 32,143
Common stock, $.01 par value:
25,000,000 shares authorized;
8,894,688, 8,883,970 and 8,800,633
shares issued and outstanding at
March 31, 1996, December 31, 1995
and March 31, 1995, respectively 90 90 89
Additional paid-in capital 57,068 57,084 56,923
Retained earnings (deficit) (118,151) (113,036) (118,546)
----------- ----------- -----------
Total stockholders' equity (deficit) (28,850) (23,719) (29,391)
----------- ----------- -----------
Total liabilities and stockholders' equity (deficit) $27,774 $ 46,176 $ 30,744
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
5
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (5,116) $ (3,911)
Adjustments to reconcile net loss to net
cash used in operating activities (12,440) (6,431)
---------- ----------
Net cash used in operating activities (17,556) (10,342)
---------- ----------
Cash Flows from Investing Activities:
Proceeds from disposition and distribution from
real estate joint ventures and real estate owned 39 --
Purchases of equipment and leasehold improvements (301) (501)
---------- ----------
Net cash used in investing activities (262) (501)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from borrowing 400 --
Repayment of notes payable (4) (66)
---------- ----------
Net cash used in financing activities 396 (66)
---------- ----------
Net decrease in cash and cash equivalents (17,422) (10,909)
Cash and cash equivalents at beginning of period 26,611 23,371
---------- ----------
Cash and cash equivalents at end of period $ 9,189 $ 12,462
---------- ----------
---------- ----------
--------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 603 $ 603
Income taxes 398 487
</TABLE>
See notes to condensed consolidated financial statements.
6
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. INTERIM PERIOD REPORTING
The accompanying unaudited condensed consolidated financial statements
include the accounts of Grubb & Ellis Company, its wholly and majority
owned and controlled subsidiaries and controlled partnerships (the
"Company"), and are prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements
and therefore, should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and footnotes
thereto.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain amounts in prior periods have been reclassified to
conform to the current presentation.
Operating results for the quarter ended March 31, 1996 are not necessarily
indicative of the results that may be expected for future periods. Any
adjustments to reserves provided in prior periods in connection with
offices which management determined in 1993 to close in 1994 are reflected
as "Special charges and unusual items".
On January 24, 1996, the Board of Directors of the Company determined to
change the Company's fiscal year from a calendar year to a fiscal year
ending June 30 commencing in 1996. This change is intended to enable
management to improve the Company's planning capability related to its
natural business cycle, as well as enable it to adjust operations earlier
in the fiscal year based on the cash flows generated during its typically
strongest revenue quarter which ends December 31.
2. INCOME TAXES
The Company's tax provision is attributable to federal, state and local
income taxes assessed on profitable subsidiaries of the Company.
3. 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. Common equivalent
shares from stock options and
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
warrants are excluded from the computation if their effect is anti-
dilutive.
The calculation of earnings (loss) per common share includes net income
(loss), adjusted for amounts applicable to the Senior and Junior
Convertible Preferred Stock related to undeclared dividends earned as
follows (in thousands):
1996 1995
------ -----
Senior Convertible Preferred Stock $ 557 $ 498
Junior Convertible Preferred Stock 214 203
------ -----
$ 771 $ 701
------ -----
------ -----
4. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed, in the aggregate amount of $4 million, the
contingent liabilities of one of its wholly-owned subsidiaries with respect
to two limited partnerships in which the subsidiary formerly acted as
general partner.
The Company is involved in various claims and lawsuits arising out of the
conduct of its business, as well as in connection with its participation in
various joint ventures, partnerships, and a trust, many of which may not be
covered by the Company's insurance policies. In the opinion of management,
the eventual outcome of such claims and lawsuits is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
The Company previously disclosed in its Annual Report on Form 10-K for the
year ended December 31, 1995 the information concerning a lawsuit entitled
JOHSZ ET AL. V. KOLL COMPANY, ET AL., and a related lawsuit entitled
YOUNKIN, MAIONA, ET AL. V. KOLL COMPANY, ET AL. and a purported class
action lawsuit, JOHN W. MATTHEWS, ET AL. V. KIDDER, PEABODY & CO., ET AL.
AND HSM INC., ET AL. There has been no material change with respect to
these matters.
8
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
5. PURCHASE OF AXIOM REAL ESTATE MANAGEMENT, INC. MINORITY INTEREST
On January 24, 1996, the Company completed the purchase of the common stock
held by International Business Machines Corporation ("IBM") in Axiom Real
Estate Management, Inc. ("Axiom") for a purchase price of $600,000. The
Company paid $150,000 cash upon closing and will pay three additional
$150,000 annual installments beginning January 1997. As a result of this
transaction, the Company owns 100% of the outstanding common stock of
Axiom. The excess of the purchase price over the underlying proportionate
value of the net assets acquired of approximately $450,000 has been
recorded related to the purchase and will be amortized over five years.
Since its inception in 1992, Axiom has provided facilities management to
IBM pursuant to a facilities management agreement (the "Managed Service
Agreement"). In connection with the purchase transaction, the Managed
Service Agreement was modified effective January 1, 1996 providing for the
extension of its term until December 31, 2000, with the option for IBM to
extend it for two additional one year periods, the reduction of fees
charged, and the ability for IBM to change the facilities portfolio under
management by Axiom under certain circumstances. The modified Managed
Service Agreement is expected to result in the reduction of annual fees
paid by IBM to Axiom of approximately $1.8 million for each of the years
1996 and 1997. This reduction in revenue is expected to be offset in part
by the extension of the contract, the opportunity to obtain additional
business from IBM and a reduction in costs by reducing certain duplicative
administrative, marketing and other costs.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
The Company's revenue is derived principally from commercial brokerage
activities. Property and asset management, mortgage brokerage and appraisal
and consulting fees provide substantially all of the remaining revenue.
The Company has historically experienced its lowest quarterly revenue in the
first calendar quarter of each year with historically higher and more
consistent revenue in the second and third calendar quarters. The fourth
calendar quarter has historically provided the highest quarterly level of
revenue due to increased activity caused by the desire of clients to complete
transactions by calendar year-end. Revenue in any given quarter during 1995,
1994 and 1993, as a percentage of total annual revenue, ranged from a high of
31.7% to a low of 19.8%, as adjusted to eliminate the effect of operations
sold or closed. Additionally, the Company operates in an industry that may
be affected by various economic conditions, such as interest rates, and tax
and environmental laws.
Total revenue for the quarter ended March 31, 1996 was approximately $36.9
million, a decrease of 3.0% from revenue of $38.1 million for the same period
last year. Commercial brokerage revenue decreased $1.3 million or 4.2% from
the comparable 1995 period. The commercial brokerage revenue for the quarter
ended March 31, 1995 was particularly strong and at a level which had not
been surpassed since the comparable 1990 period. Commercial brokerage
revenues for the quarter ended March 31, 1996 reflected slower paced
commercial brokerage market activities which has been historically
characteristic of the quarter ending March 31. Other real estate service
fees of $8.3 million increased slightly over the prior year period.
COSTS AND EXPENSES
Real estate brokerage and other commission expense (salespersons'
participation) is the Company's major expense and is a direct function of
gross brokerage commission revenue levels. As a percentage of total
commercial real estate brokerage commission revenue, commercial brokerage
salespersons' participation expense for the first three months of 1996
increased by 200 basis points over the comparable period in 1995. The
increased participation expense percentage was primarily related to
performance of top producers who earned commissions at higher levels.
Total costs and expenses, other than real estate brokerage commission expense
and special charges and unusual items, for the quarter ended March 31, 1996
were $24.2 million, level with the comparable prior year quarter.
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Special charges and unusual items reflect net favorable adjustments of
$110,000 and $119,000 for the quarters ended March 31, 1996 and 1995,
respectively, primarily related to the non-cash reversal of the remaining net
office lease liability of the Southern California residential brokerage
operations sold in November 1994.
As of March 31, 1996, the Company had current accrued severance and office
closure costs of approximately $1.5 million of which $713,000 of accrued
severance costs and $403,000 of accrued office closure costs, net of expected
sublease income, are expected to be paid in cash. Approximately $900,000 of
the $1.0 million of long-term accrued office closure costs, net of expected
sublease income, are expected to be paid in cash over the next six years.
NET LOSS
The net loss of $5.1 million or $.66 per common share for the quarter ended
March 31, 1996 compared unfavorably to the net loss of $3.9 million or $.52
per common share for the same period in 1995. The decrease from prior year's
performance was primarily related to lower earnings from commercial brokerage
activities and higher national marketing costs reflecting the continued
implementation of the strategy to integrate the Company's resources to better
serve its clients.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $5.1 million to $4.8 million during the first
three months of 1996. Cash and cash equivalents decreased by $17.4 million
from December 31, 1995 to March 31, 1996. The decrease was mainly
attributable to cash used by operations of $17.6 million, which included cash
outflows of $4.0 million for 1995 salespersons' and managers' incentive
compensation, $7.4 million for deferred salespersons' commission payments,
and aggregate interest payments of $600,000 on the 9.9% Senior Notes and the
Revolving Credit Note.
The Company has historically experienced the highest use of operating cash in
the quarter ended March 31, primarily related to the payment of incentive and
deferred commission payable balances which attain peak levels as a result of
business activity levels during the quarter ending December 31.
Additionally, quarterly revenues are typically at their lowest level of the
year during the quarter ending March 31. Historically, operating cash
requirements reduce significantly with higher and more consistent revenue in
the subsequent quarters.
Operating cash flow is expected to be sufficient to meet the Company's
anticipated normal operating expenses. The Company's long-term cash
requirements include principal payments on its long-term debt as described in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
and footnotes thereto. To the extent that the Company's cash requirements are
not met by operating cash flow, due to adverse economic
11
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conditions or other unfavorable events, the Company may find it necessary to
further reduce expense levels, seek refinancing, or undertake other actions
as may be appropriate. In such event, the Company anticipates that its
ability to raise financing on acceptable terms would be severely limited and
there can be no assurance that the Company would be able to raise additional
financing.
12
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PART II
OTHER INFORMATION
(Items 2, 3, 4 and 5 are not applicable
for the quarter ended March 31, 1996)
13
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ITEM 1. LEGAL PROCEEDINGS
The Company previously disclosed in its Annual Report on Form 10-K for the
year ended December 31, 1995 the information concerning a lawsuit entitled JOHSZ
ET AL. V. KOLL COMPANY, ET AL., and a related lawsuit entitled YOUNKIN, MAIONA,
ET AL. V. KOLL COMPANY, ET AL. and a purported class action lawsuit, JOHN W.
MATTHEWS, ET AL. V. KIDDER, PEABODY & CO., ET AL. AND HSM INC., ET AL. There
has been no material change with respect to these matters.
ITEM 6(A). EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
3.1 Certificate of Incorporation of the Registrant, as restated effective
November 1, 1994, incorporated herein by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K filed on March 31, 1995
(Commission File No. 1-8122).
3.2 Grubb & Ellis Company Bylaws, as amended effective June 1, 1994,
incorporated herein by reference to Exhibit 4.21 to the Registrant's
Quarterly Report on Form 10-Q filed on November 14, 1994 (Commission
File No. 1-8122).
(10) MATERIAL CONTRACTS
10.1 Employment agreement between Neil R. Young and the Registrant
dated as of February 22, 1996.
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(27) FINANCIAL DATA SCHEDULE
ITEM 6(b) REPORTS ON FORM 8-K
NONE
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRUBB & ELLIS COMPANY
(Registrant)
Date: May 15, 1996 /s/ James E. Klescewski
----------------------------
James E. Klescewski
Vice President and Corporate
Controller
(Chief Accounting Officer)
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Grubb & Ellis Company and Subsidiaries
EXHIBIT INDEX (A)
FOR THE QUARTER ENDED MARCH 31, 1996
EXHIBIT
(10) MATERIAL CONTRACTS
10.1 Employment Agreement between Neil R. Young and the Registrant
dated as of February 22, 1996.
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(27) FINANCIAL DATA SCHEDULE
(A) Exhibits incorporated by reference are listed in Item 6(a) ofthis report.
16
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), is made and entered into as of
February 22, 1996, between GRUBB & ELLIS COMPANY, a Delaware corporation (the
"Company"), and NEIL R. YOUNG (the "Executive").
1. POSITION AND DUTIES. The Executive shall have the title and
position of Chief Executive Officer and President of the Company. Effective
February 22, 1996, the Executive shall be elected to the Board of Directors
of the Company (the "Board"), and during the Period of Contract Employment
(as defined in Section 2 of this Agreement) he shall be nominated for
reelection to the Board upon expiration of his term as a Director. The
Executive, subject to control of the Board, shall direct the day-to-day
operations of the Company and formulate plans and policies to achieve overall
corporate objectives and targeted profitability.
2. PERIOD OF CONTRACT EMPLOYMENT. The term "Period of Contract
Employment," as used in this Agreement, means the period beginning on
February 22, 1996 and ending on the earlier of June 30, 1999 or upon
termination of the Executive's employment with the Company. The Executive may
elect to extend the Period of Contract Employment to June 30, 2000 by
providing written notice to the Company during December 1998, provided that
no termination of the Executive's employment with the Company has occurred on
or prior to the date such written notice is provided. In the event that the
Executive elects to extend the Period of Contract Employment, the terms of
such employment shall include a compensation arrangement that includes an
amount of Base Salary and Bonus Compensation (each as defined below) equal to
or greater than the amount of Base Salary and Bonus Compensation paid or
payable during fiscal year 1999. If the Executive remains in the employ of
the Company following the Period of Contract Employment and any extension
thereof in accordance with this Section, such employment will be at will
unless different terms of employment are established in writing.
3. ANNUAL BASE SALARY. During the Period of Contract Employment, the
Company agrees to pay the Executive a base salary (the "Base Salary") in the
annual amount set forth below:
PERIOD BASE SALARY
------ -----------
February 22, 1996 through $400,000 (pro-rated for the
June 30, 1996 portion of the year the Executive
is employed by the Company under
this Agreement)
July 1, 1996 through June 30, 1997 $400,000
July 1, 1997 through June 30, 1998 $425,000
July 1, 1998 through June 30, 1999 $425,000
The Base Salary shall be payable as current salary, in installments (not
less frequently than monthly) subject to all applicable withholding and
deductions, in accordance with the Company's customary payroll practices.
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4. BONUS COMPENSATION. During the Period of Contract Employment, the
Executive shall receive annual bonus compensation ("Bonus Compensation") as
follows:
PEROID BONUS COMPENSATION
------ ------------------
July 1, 1996 through June 30, 1997 $125,000 guaranteed, but $200,000
in the event the Company's net
income for the twelve (12) months
ending June 30, 1997 is at least
eighty percent (80%) of the
target net income level for such
period established by the Board
July 1, 1997 through June 30, 1998 $212,500 in the event the
Company's net income for the
twelve (12) months ending
June 30, 1998 is at least eighty
percent (80%) of the target net
income level for such period
established by the Board
July 1, 1998 through June 30, 1999 $212,500 in the event the
Company's net income for the
twelve (12) months ending
June 30, 1999 is at least eighty
percent (80%) of the target net
income level for such period
established by the Board
Bonus Compensation may be increased in the sole discretion of the
Compensation Committee of the Board. Bonus Compensation shall be payable
after June 30th of the year to which the Bonus Compensation is applicable in
one lump sum subject to all applicable withholding and deductions, in
accordance with the Company's customary payroll practices.
5. EQUITY INCENTIVE. Pursuant to the Company's 1990 Amended and
Restated Stock Option Plan (the "Plan"), the Company has granted the
Executive stock options (the "Options") to purchase an aggregate of four
hundred and fifty thousand (450,000) shares of the Company's common stock,
$.01 par value per share (the "Common Stock"), at an exercise price equal to
$2.375 per share (the closing price of the Common Stock on The New York Stock
Exchange on February 21, 1996). The terms of the Options shall be set forth
in an agreement between the Company and the Executive (the "Option
Agreement") which shall not be less favorable to the Executive than the terms
of this Agreement. The Options shall become exercisable in five equal,
annual installments commencing on December 31, 1996 and shall expire on
February 22, 2006; provided, however, that in the event that the Executive's
employment with the Company is terminated, whether by the Company or the
Executive, the Executive shall have the right to exercise vested Options
(i.e., Options which are exercisable as of the termination date) for a period
of three (3) months after such termination date and if such termination
occurs on or after June 30, 2000 the Executive shall also have the right to
exercise unvested Options (i.e., Options which had not been exercisable as of
the termination date) for a period of three
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(3) months after the termination date. Notwithstanding the foregoing, in
addition to the provisions of Section 8(b)(iii) of the Plan, following an
event that causes a stockholder other than Warburg, Pincus Investors, L.P. or
its affiliates to own more than twenty-five percent (25%) of the issued and
outstanding Common Stock of the Company, if the Executive terminates his
employment with the Company after a material reduction in his position or
responsibilities with the Company, then all unvested Options shall
immediately become exercisable and remain so for a period of three (3)
months. The Options are subject to approval of the Company's stockholders of
an amendment to the Plan adopted by the Board of Directors on November 21,
1995, which approval the Company covenants to use its best efforts to obtain.
Notwithstanding any other provision of this Section 5, if the Executive's
employment is extended through June 30, 2000 but does not continue thereafter
then all unvested Options shall immediately become exercisable and remain so
for a period of three (3) months.
6. BENEFITS. During the Period of Contract Employment, and in the
event of a termination under Sections 7 or 8 of this Agreement during the
Severance Period or Extension Period (each as defined below), as applicable,
the Executive shall be entitled to participate in or receive benefits
equivalent to any employee benefit plan or other arrangement, including but
not limited to any medical, dental, retirement, disability, life insurance,
sick leave and vacation plans or arrangements, generally made available by
the Company to its executive officers, subject to or on a basis consistent
with the terms, conditions and overall administration of such plans or
arrangements; PROVIDED, that such plans and arrangements are made available
at the discretion of the Company and nothing in this Agreement establishes
any right of the Executive to the availability or continuance of any such
plan or arrangement.
7. SEVERANCE. The Company may terminate the Executive's employment
hereunder with or without cause at any time, including during the extended
period referred to in Section 2 of this Agreement, by giving written notice
("Termination Notice") to the Executive. Such termination shall become
effective upon the date specified in the Termination Notice (the "date of
termination"). In the event of such termination the Executive shall be
entitled to: (i) payment of all earned but unpaid Base Salary, Bonus
Compensation, and vacation pay through the date of termination, payable in a
lump sum within five (5) days after the date of termination; (ii) payment of
an amount equal to the Base Salary the Executive would have earned during the
twelve (12) months following the date of termination (the "Severance
Period"), payable in equal installments over the Severance Period in
accordance with the Company's customary payroll practices; (iii) continuation
during the Severance Period of all benefit plans or other arrangements, or
their equivalent, referred to in Section 6 of this Agreement; and, (iv)
payment of a pro-rata share of the Bonus Compensation the Executive would
have otherwise earned during the fiscal year in which the date of termination
occurred based on the percentage of the fiscal year the Executive was
employed by the Company, payable in a lump sum when such Bonus Compensation
would have been payable in accordance with the Company's customary payroll
practices. Upon the termination of his employment by the Company, the
Executive shall have no right to compensation except as set forth in this
Section and Section 5 of this Agreement.
8. TERMINATION BY THE EXECUTIVE. The Executive may terminate his
employment with the Company by giving a Termination Notice to the Company.
Such termination will become effective upon the date specified in the
Termination Notice (the "Effective Date"),
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provided that the Effective Date is at least thirty (30) days after the date
of the Termination Notice. In the event that the Executive delivers a
Termination Notice to the Company after February 22, 1996 and the Effective
Date is on or prior to June 30, 1997, the Executive shall be entitled to: (i)
payment of all earned but unpaid Base Salary, Bonus Compensation, and
vacation pay through the Effective Date, payable in a lump sum within five
(5) days after the Effective Date; (ii) payment of an amount equal to the
Base Salary the Executive would have earned during the six (6) months
following the Effective Date (the "Extension Period"), payable in equal
installments over the Extension Period in accordance with the Company's
customary payroll practices; (iii) continuation during the Extension Period
of all benefit plans or other arrangements, or their equivalent, referred to
in Section 6 of this Agreement.
9. COMPETING BUSINESS. The Executive hereby covenants and agrees
that, during the Period of Contract Employment and for one year following the
expiration or termination of employment with the Company, the Executive will
not have any investment in a Competing Business (as defined in this Section)
other than an equity interest of less than five percent (5%) of any company
whose securities are listed on The New York Stock Exchange, The American
Stock Exchange or quoted on NASDAQ and will not render personal services to
any Competing Business in any manner, including, without limitation, as
owner, partner, director, trustee, officer, employee, consultant or advisor
thereof.
For purposes of this Agreement, "Competing Business" shall mean any
business which derives a substantial portion of its revenue from business
similar or competitive to that now, or at any time during the Period of
Contract Employment, conducted by the Company, in any metropolitan area,
city, county or other political subdivision, where the Company presently does
business or, at any time during the Period of Contract Employment, will do
business.
If the Executive shall breach the agreement contained in this Section,
such breach may render the Executive liable to the Company for damages
therefor and entitle the Company to enjoin the Executive from making such
investment or from rendering such personal services. In addition, the Company
shall have the right in such event to enjoin the Executive from disclosing
any confidential information concerning the Company to any Competing
Business, to enjoin any Competing Business from receiving from the Executive
or using any such confidential information and/or to enjoin any Competing
Business from retaining or seeking to retain any other employees of the
Company.
10. NO SOLICITATION. The Executive hereby covenants and agrees that
during the Period of Contract Employment and for one year following the
expiration or termination of employment with the Company, he will not, for
himself or any third party, directly or indirectly: (i) divert or attempt to
divert from the Company any business of any kind in which the Company is
engaged; or (ii) employ or solicit for employment any person employed by the
Company during the period of such person's employment.
11. SEVERABILITY. ENFORCEABILITY. In the event that the provisions of
the Sections captioned "Competing Business" and "No Solicitation", or any
portion thereof, should ever be adjudicated by a court of competent
jurisdiction in proceedings to which the Company is a proper party to exceed
the time or geographic or other limitations permitted by applicable law, then
such provisions will be deemed reformed to the maximum time or geographic or
other limitations permitted by applicable law, as determined by such court in
such action, the parties
20
<PAGE>
hereby acknowledging their desire that in such event such action be taken.
Without limiting the foregoing, the covenants contained herein will be
construed as separate covenants covering their respective subject matters,
including, without limitation, with respect to (a) each of the separate
cities, counties, metropolitan areas, and each other political subdivision of
the United States in which any of the Company or its successors now transact
any business or propose to transact business, (b) each business now conducted
by the Company or its successors, and (c) the Company and its successors
separately. In addition to the above, all provisions of this Agreement are
severable, and the invalidity or unenforceability of any provision or
provisions of this Agreement or portions or aspects thereof will not affect
the validity or enforceability of any other provision, or portion of this
Agreement, which will remain in full force and effect as if executed with the
unenforceable or invalid provision or portion or aspect thereof modified, as
set forth above.
12. GOVERNING LAW. This Agreement is being made and executed in and is
intended to be performed in the State of Illinois and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws
of the State of Illinois, without regard to the conflict of laws principles
thereof.
13. ENTIRE AGREEMENT. This Agreement and the Option Agreement comprise
the entire agreement between the parties hereto relating to the subject
matter hereof and, as of the date hereof, supersede, cancel and annul all
previous employment agreements between the Company (and/or its predecessors)
and the Executive, as the same may have been amended or modified, and any
right of the Executive thereunder other than for compensation accrued
thereunder as of the date hereof, and supersede, cancel and annul all other
prior written and oral agreements between the Executive and the Company or
any predecessor to the Company. The terms of this Agreement and the Option
Agreement are intended by the parties to be the final expression of their
agreement with respect to the employment of the Executive by the Company and
may not be contradicted by evidence of any prior or contemporaneous
agreement. In the event of any inconsistency between this Agreement and the
Option Agreement, the Option Agreement shall control.
14. DISPUTES. Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall be finally determined
and settled by arbitration. Arbitration shall be initiated by one party
making written demand upon the other party and simultaneously filing the
demand together with required fees in the office of the American Arbitration
Association in Chicago, Illinois. The arbitration proceeding shall be
conducted in Chicago, Illinois by a single arbitrator in accordance with the
Expedited Procedures of the Employment Dispute Resolution Rules of the
American Arbitration Association, except as otherwise provided herein.
Except as required by the arbitrator, the parties shall have no obligation to
comply with discovery requests made in the arbitration proceeding. The
arbitration award shall be a final and binding determination of the dispute
and shall be fully enforceable as an arbitration award in any court having
jurisdiction and venue over such parties. The prevailing party (as
determined by the arbitrator) shall be awarded by the arbitrator such party's
attorneys' fees and expenses in connection with such proceeding, in addition
to any other relief that may be granted. The nonprevailing party (as
determined by the arbitrator) shall pay the arbitrator's fees and expenses.
15. NOTICES. Any notice, request, claim, demand, document and other
communication hereunder to any party will be effective upon receipt (or
refusal of receipt) and
21
<PAGE>
will be in writing and delivered personally or sent by telecopy or certified
or registered mail, postage prepaid, as follows: if to the Company, addressed
to the attention of its General Counsel at One Montgomery Street, 9th Floor,
San Francisco, CA 94104 with a copy to Grubb & Ellis Company, 10275 W.
Higgins Road, Suite 300, Rosemont, IL 60018, attention: General Counsel; and
if to the Executive, at the address set forth below under his signature; or
at any other address as any party has specified by notice in writing to the
other party.
16. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, approved by the Board and
signed by the Executive and the Company. By an instrument in writing
similarly executed, the Executive or the Company may waive compliance by the
other party with any provision of this Agreement that such other party was or
is obligated to comply with or perform; provided, that such waiver shall not
operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy
or power hereunder shall preclude any other or further exercise of any other
right, remedy or power provided herein or by law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
GRUBB & ELLIS COMPANY NEIL R. YOUNG
/s/ R.J. Hanlon, Jr. /s/ Neil R. Young
- --------------------------------- -----------------------------------
Name: R.J. Hanlon, Jr. Neil R. Young
Title: SVP & CFO 1 Court of Connecticut
River Valley Lincolnshire, Illinois 60069
22
<PAGE>
EXHIBIT 11
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT (11) STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS - FORM 10-Q
for the three months ended
March 31, 1996 and 1995
(Unaudited)
(in thousands, except for shares and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Primary loss per share applicable
to Common Stock:
Weighted average common
shares outstanding 8,883,970 8,797,377
---------- ----------
---------- ----------
Net loss $ (5,116) $ (3,911)
Earnings applicable to Preferred Stock (771) (701)
----------- ----------
Net loss applicable to Common Stockholders $ (5,887) $ (4,612)
----------- ----------
----------- ----------
Net loss per common share and equivalents
applicable to Common Stock $ (.66) $ (.52)
----------- ----------
----------- ----------
Fully-diluted loss per share applicable
to Common Stock:
Weighted average common shares outstanding 8,883,970 8,797,377
----------- ----------
----------- ----------
Net loss $ (5,887) $ (4,612)
----------- ----------
----------- ----------
Net loss per common share and equivalents
applicable to Common Stock $ (.66) $ (.52)
----------- ----------
----------- ----------
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements
of Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,189
<SECURITIES> 0
<RECEIVABLES> 12,119
<ALLOWANCES> 5,342
<INVENTORY> 0
<CURRENT-ASSETS> 19,990
<PP&E> 20,031
<DEPRECIATION> 14,657
<TOTAL-ASSETS> 27,774
<CURRENT-LIABILITIES> 15,163
<BONDS> 0
0
32,143
<COMMON> 90
<OTHER-SE> 57,068
<TOTAL-LIABILITY-AND-EQUITY> 28,850
<SALES> 0
<TOTAL-REVENUES> 37,174<F1>
<CGS> 0
<TOTAL-COSTS> 17,467
<OTHER-EXPENSES> 24,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 777
<INCOME-PRETAX> (5,110)
<INCOME-TAX> 6
<INCOME-CONTINUING> (5,116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,116)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
<FN>
<F1>Interest income and Other income, net are included in Total Revenue.
</FN>
</TABLE>
