<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[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, 1995
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
----- -----
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. [X]
The aggregate market value of voting common stock held by nonaffiliates of the
registrant as of February 1, 1996 was approximately $10,180,960.
The number of shares outstanding of the registrant's common stock as of
March 1, 1996 was 8,883,970 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, 1995) are incorporated by reference into part III.
1
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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 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Part II.
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 7
Item 6. Selected Financial Data 8-9
Item 7. Management's Discussion and Analysis of Financial 10-15
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 16-40
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 41
Part III.
Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain Beneficial
Owners and Management 42
Item 13. Certain Relationships and Related Transactions 42
Part IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 43-47
SIGNATURES 48-49
FINANCIAL STATEMENT SCHEDULE 50
EXHIBIT INDEX 51
2
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GRUBB & ELLIS COMPANY
PART I
ITEM 1. BUSINESS
GENERAL
Grubb & Ellis Company, a Delaware corporation organized in 1980, is the
successor by merger to a real estate brokerage company first established in
California in 1958. Grubb & Ellis Company and its wholly and majority owned
subsidiaries (the "Company") is a fully integrated real estate services company
that provides real estate services to real estate owners/investors and tenants
including commercial brokerage and property and facilities management.
Additionally, the Company provides mortgage brokerage, appraisal, consultation
and asset management services. The Company also provided residential brokerage
services until November 1994 when it sold its remaining residential real estate
business in Southern California.
Based on revenue, the Company is one of the largest commercial real estate
services companies in the United States and is the largest such publicly-traded
company (NYSE). Axiom Real Estate Management, Inc. ("Axiom"), the Company's now
wholly owned subsidiary, which during 1995 was a majority owned subsidiary,
provides property and facilities management services and is one of the largest
property management firms in the country with approximately 61 million square
feet of property under management. At December 31, 1995, the Company had 80
offices in 58 cities in 17 states and the District of Columbia, with
approximately 1,150 commercial brokerage salespersons, 690 non-agent employees
and 1,140 Axiom property management staff. The cost of the property management
staff is substantially reimbursed by clients.
The Company maintains informal business relationships with full-service real
estate firms in England, France, Italy, Germany, Mexico, the Netherlands, Asia
and the Pacific Basin and has established its own representative office in
Europe.
COMMERCIAL BROKERAGE
The Company acts as a sales or leasing agent for commercial properties, which
include office, industrial, retail, apartment and hotel properties, as well as
undeveloped land. Properties range in size and type from single, free-standing
locations to multi-level, mixed-use projects. The Company's offices are
typically located in or near major metropolitan areas. Commercial brokerage
comprised approximately 81% of the Company's operating revenue for the year
ended December 31, 1995.
The majority of commercial brokerage salespersons, who are primarily leasing
agents, focus their activities on one type of commercial property (office,
industrial or retail) in a specific market area. Most of the Company's other
salespersons broker the sale of commercial investment property or undeveloped
land. The majority of salespersons are independent contractors of the Company,
although in certain offices, salespersons are hired as employees. During 1995,
the Company grew its commercial brokerage sales force by nearly 8% and
significantly increased its institutional and corporate services group
capabilities.
3
<PAGE>
OTHER REAL ESTATE SERVICES
PROPERTY MANAGEMENT
Substantially all of the Company's facilities and property management services
are conducted through Axiom, which managed approximately 61 million square feet
of property, including approximately 17 million square feet of facilities of
International Business Machines Corporation ("IBM") as of December 31, 1995.
The Company provides property and facilities management services to owners of
office, retail, industrial and multi-family residential real estate. These
services include tenant relations, facilities and construction management,
financial reporting and analysis, and engineering consultation. Property
management clients include pension funds, developers, financial institutions,
corporate and individual owners and syndicators. The principal markets for the
Company's property management services are in Georgia, Illinois, Michigan, New
Jersey, New York, Ohio, Pennsylvania, Texas and Washington, D.C. Property and
facilities management fees constituted approximately 12% of the Company's
operating revenue for the year ended December 31, 1995.
On January 24, 1996, the Company completed the purchase of the minority interest
held by IBM in Axiom as further described in Note 11 of the Notes to the
Consolidated Financial Statements under Item 8 of this report.
APPRAISAL AND CONSULTING
The Company offers appraisal and consulting services through offices in
California, Ohio and New York. Most of these resources are located within
commercial brokerage services offices. Appraisal and consulting services
primarily include valuation of single properties and real estate portfolios,
expert witness testimony, market and feasibility studies and investment
analysis.
OTHER SERVICES
Other revenue is derived from commercial mortgage brokerage operations and from
the Company's partnership and joint venture activities. Partnership and joint
venture activities are not a significant portion of the Company's business, and
the Company does not anticipate expansion of activity in this area.
RESIDENTIAL BROKERAGE
In November 1994, the Company sold its remaining residential brokerage
operations in Southern California. Commissions from residential brokerage
constituted approximately 10% of the Company's operating revenue for the year
ended December 31, 1993. The Company fully reserved for the closure/sale of its
residential brokerage operations in Southern California during the fourth
quarter of 1993, therefore, operating revenues and expenses from residential
brokerage operations in 1994 are included in "Other income, net", but have no
impact on net income.
From 1989 through 1994, the Company provided residential mortgage brokerage
services through Grubb & Ellis Mortgage Services, Inc. ("GEMS"), a wholly owned
subsidiary of the Company. The Company closed the remaining office in Southern
California during 1994.
4
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COMPETITION
Although the Company ranks among the largest national commercial real estate
information and services organizations in the United States in terms of revenue,
the real estate brokerage industry is fragmented and highly competitive. Thus,
the Company's most significant competition in a particular market may be one or
both of the other two national firms, and/or regional and local firms, in any
combination. In addition, companies not previously engaged primarily in the
real estate services business, but with substantial financial resources, now
provide real estate or real estate-related services. For example, certain
insurance companies, Wall Street investment firms, national property management
firms and major real estate developers participate in more traditional
commercial brokerage activities.
As a result of the recent recessionary economy and depressed real estate markets
in much of the country, a number of real estate services firms have decreased
their size and/or left the business entirely during the last five years. Real
estate companies may compete on the pricing of services, service delivery
capability (for example, the ability to deliver multiple services to a client or
the ability to deliver the same services in a number of different markets)
and/or proven record of success. Due to the relative strength and longevity of
the Company's position in the markets in which it presently operates, its
ability to offer clients a range of ancillary real estate services on a local,
regional and national basis, decreased competition in certain markets and the
Company's improved capital base, the Company believes that it can operate
successfully in the future in this highly competitive industry although there
can be no assurances in this regard.
ENVIRONMENTAL REGULATION
A number of states and localities have adopted laws and regulations imposing
environmental controls, disclosure rules and zoning restrictions which have
impacted the management, development, use, and/or sale of real estate.
Additionally, new or modified environmental regulations could develop in a
manner which have not, but could, adversely affect the Company's commercial
brokerage and property management operations. The Company believes it is in
compliance in all material respects with all environmental laws or regulations
applicable to its operations.
SEASONALITY
The Company has typically experienced its lowest quarterly revenue in the first
calendar quarter of each year with higher and more consistent revenue in the
second and third 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.
The Company recently announced that it will be changing its reporting period
from a calendar year to a fiscal year ending June 30 commencing in 1996 as
further described in Note 11 of the Notes to the Consolidated Financial
Statements under Item 8 of this Report.
5
<PAGE>
ITEM 2. PROPERTIES
Inapplicable.
ITEM 3. LEGAL PROCEEDINGS
The information called for by Item 3 is included in Note 8 of the Notes to the
Consolidated Financial Statements under Item 8 of this Report, which Note is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
<PAGE>
GRUBB & ELLIS COMPANY
PART II
----------------------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal markets for the Company's common stock are the New York and
Pacific Stock Exchanges. The following table sets forth the high and low sales
prices of the Company's common stock on the New York Stock Exchange ("NYSE") for
each quarter of 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------------
High Low High Low
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First Quarter $ 2 1/2 $ 1 7/8 $ 4 1/4 $ 2 7/8
Second Quarter 2 5/8 2 3 1/4 2 1/4
Third Quarter 2 3/4 1 7/8 2 7/8 1 5/8
Fourth Quarter 2 5/8 1 7/8 2 3/8 1 7/8
</TABLE>
As of March 1, 1996, there were 2,428 registered holders of the Company's common
stock.
No cash dividends were declared on the Company's common or preferred stock in
1995 or 1994.
Any dividend payments with respect to the common stock will be subject to the
restrictions in a certain debt agreement with The Prudential Insurance Company
of America ("Prudential"). The agreement prohibits the payment of cash
dividends on and repurchases of the Company's common stock.
The Company does not now nor has it for some time met certain criteria for the
continued listing of its common stock on the NYSE. Although the NYSE has
informed the Company that it is closely monitoring the Company's continued
listing status, it has not notified the Company of any plans to delist the
common stock. The common stock is also listed on the Pacific Stock Exchange.
In the event of delisting by the NYSE, the Company will use its best efforts to
have its common stock continue to be listed on the Pacific Stock Exchange and/or
traded in another exchange or market, such as the over-the-counter market.
However, the delisting of the common stock by the NYSE could have an adverse
impact on the market price and liquidity of the common stock.
As of February 15, 1996, the Company had 8,883,970 shares of common stock
outstanding. In addition, the Company has outstanding certain Senior
Convertible Preferred Stock and Junior Convertible Preferred Stock, which are
convertible into approximately 7.8 million shares of common stock, as well as
warrants to purchase approximately 1.7 million shares of common stock. See Note
4 to the Notes to Consolidated Financial Statements. The Company also has
outstanding options to purchase approximately
7
<PAGE>
1.2 million shares of common stock under certain Company plans. Combined with
the currently outstanding shares of common stock, the conversion of such shares
of Senior and Junior Convertible Preferred Stock and the exercise of such
warrants and options, which would result in a total of approximately 19.6
million shares of common stock, would dilute the proportionate equity interests
of the holders of the common stock. Sales of substantial amounts of common
stock (including shares issued upon the exercise of warrants or options), or
the perception that such sales could occur, could adversely affect prevailing
market prices for the common stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,(1)
----------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands, except per share amounts and shares)
<S> <C> <C> <C> <C> <C>
Operating Revenue $ 189,736 $ 183,602 $ 200,731 $ 222,962 $ 266,234
Net income (loss) $ 1,599 $ 2,343 $ (18,208) $ (59,676) $ (49,297)
Dividends applicable to preferred
stockholders:
Accretion of liquidation preference $ - $ (2,173) $ (2,196) - -
Dividends in arrears $ 2,870 (438) - - -
Net loss applicable
to common stockholders $ (1,271) $ (268) $ (20,404) $ (59,676) $ (49,297)
Loss per common share and
equivalents (2) $ (0.14) $ (0.05) $ (5.08) $ (17.01) $ (14.77)
Weighted average common shares and
equivalents (3) 8,824,926 4,934,806 4,019,795 3,509,303 3,336,572
</TABLE>
- --------------------------------------
(1) The Company reduced its residential real estate operations by selling
certain operations or closing certain offices from 1991 through 1994. The
remaining residential real estate operations were fully reserved for in December
1993. Operating revenue includes residential real estate brokerage commissions
of $20.3 million, $49.2 million and $88.6 million in 1993, 1992 and 1991,
respectively. Net income (loss) and per share data reported on the above table
reflect expenses related to special charges and unusual items in the amounts of
$13.5 million in 1993, $44.9 million in 1992 and $37.0 million in 1991.
Favorable adjustments of $601,000 and $2.2 million to special charges and
unusual items are included in the 1995 and 1994 results, respectively. For
information regarding comparability of this data as it may relate to future
periods, see discussion in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 9 of the Notes to
Consolidated Financial Statements.
(2) Loss per common share and equivalents were $3.40 and $2.95 for the years
ended December 31, 1992 and 1991, respectively, prior to the one-for-five
reverse stock split on January 29, 1993.
(3) Weighted average common shares and equivalents were 17,546,513 and
16,682,858 for the years ended December 31, 1992 and 1991, respectively, prior
to the one-for-five reverse stock split on January 29, 1993.
8
<PAGE>
Five Year Comparison of Selected Financial and Other Data for the Company:
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands, except per share amounts, shares and staff data)
<S> <C> <C> <C> <C> <C>
Total assets $ 46,176 $ 45,429 $ 42,185 $ 44,672 $ 81,805
Working capital
(deficit) $ 9,882 $ 7,349 $ (17,842) $ (33,273) $ 3,523
Long-term liabilities $ 40,966 $ 41,738 $ 30,648 $ 36,370 $ 44,015
Redeemable convertible
preferred stock $ - $ - $ 29,900 $ - $ -
Common stockholders'
equity (deficit) $ (23,719) $ (25,486) $ (68,867) $ (51,458) $ 6,466
Total staff 2,980 2,920 3,720 4,602 5,089
Book value per
common share (1) $ (2.67) $ (2.90) $ (16.96) $ (14.29) $ 1.93
Common shares
outstanding (2) 8,883,970 8,797,377 4,060,271 3,601,496 3,351,603
</TABLE>
- ---------------------------
(1) Book value per common share was $(2.86) and $.39 as of December 31, 1992
and 1991, respectively, prior to the one-for-five reverse stock split on January
29, 1993.
(2) Common shares outstanding were 18,007,481 and 16,758,016 as of December 31,
1992 and 1991, respectively, prior to the one-for-five reverse stock split on
January 29, 1993.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
During 1994, the Company substantially completed the process begun in 1990 of
selling or closing unprofitable offices and non-strategic businesses and new
management continued to downsize operations and lower operating costs. In
November 1994, the Company completed a financial restructuring (the "1994
Recapitalization"), including a rights offering to stockholders, amendments to
existing debt agreements with The Prudential Insurance Company of America
("Prudential") and amendments to existing preferred stock. The 1994
Recapitalization resulted in a total reduction of liabilities of approximately
$6.2 million and increase in equity of approximately $42.2 million.
During 1995, the Company grew its commercial brokerage sales force by nearly 8%
and significantly increased its institutional and corporate services group
capabilities. In January 1996, the Company completed the acquisition of the the
minority interest in Axiom Real Estate Management, Inc. ("Axiom"), its property
and facilities management subsidiary. Now that the Company owns 100% of Axiom,
it intends to create synergies that can be valuable to Axiom, the Company and
their clients. Management believes that these actions have positioned the
Company to better respond to its clients' needs.
1995 COMPARED TO 1994
REVENUE
Total revenue for 1995 was $189.7 million, an increase of $6.1 million or 3.3%
over 1994. Revenue from commercial brokerage offices increased in 1995 by $2.3
million or 1.5% over 1994, reflecting a slower than anticipated velocity in the
market for commercial real estate during the first three quarters of the year.
While the Company grew its salesforce by nearly 8% during 1995, relatively
little impact on full year results was realized since the time lag between
producers joining the organization and new transactions being consummated is
generally in excess of six months.
Real estate services fees, commissions and other fees of $35.4 million in 1995
increased $3.8 million or 12.1% over 1994. The increase in revenues relates
primarily to a $3.2 million increase in property and facilities management fees
over 1994.
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 levels. Commercial brokerage salespersons' participation expense
accounts for nearly all of real estate brokerage and other commissions expense
in 1995 and 1994. As a percentage of commercial real estate brokerage revenue
in 1995, commercial brokerage salespersons' participation expense increased by
approximately .6% over 1994 primarily due to the performance of top producers
and the Company's commitment to strengthen the salesforce by adding seasoned
salespersons.
10
<PAGE>
Total costs and expenses, other than salespersons' participation expense and the
favorable adjustments to special charges and unusual items, of $97.0 million for
1995 increased by $2.9 million or 3.0% over 1994. This increase related
primarily to personnel costs due to increased business activity levels in the
property management operations and increases in business development activities
relating to the commercial brokerage business.
Special charges and unusual items reflect net favorable adjustments of $601,000
and $2.2 million for 1995 and 1994, respectively. The 1995 adjustment includes
a $525,000 charge for severance costs for a senior executive related to
restructuring the operations of Axiom, offset by certain other credits including
approximately $700,000 of non-cash reversals of previously established reserves
for severance and office closure costs and the reversal of $360,000 of remaining
net office lease liability related to the sale of the Southern California
residential brokerage operations in 1994. The 1994 net favorable adjustment of
$2.2 million to special charges and unusual items represents non-cash reversals
of approximately $1.2 million related to closing certain offices more
efficiently than initially estimated and $750,000 related to the reversal of the
remaining net office lease liability of the residential brokerage operations
mentioned above.
Interest expense to related parties of $2.9 million in 1995 increased by
$110,000 over 1994. Principal outstanding on the revolving credit facility was
the same in 1995 and 1994 but the interest rate, which is calculated at 2.5%
above LIBOR, was higher in 1995 resulting in additional interest expense of
$95,000. The increase in interest expense of $176,000 in 1995 over 1994 on the
10.65% Payment-in-Kind Notes (the "10.65% PIK Notes") was the result of the
increased principal balance due to interest being paid in kind by the issuance
of additional 10.65% PIK Notes. Exactly offsetting the increase in interest
expense on the 10.65% PIK Notes was elimination of interest expense on the
interim financing loan provided in March 1994 by Warburg Pincus Investors, L.P.
("Warburg") which was repaid by the Company in November 1994.
INCOME TAXES
The 1995 and 1994 provision for income taxes consists of state and local income
taxes assessed on profitable subsidiaries of the Company and federal income
taxes related solely to Axiom, the Company's subsidiary which files on a
separate basis for tax purposes. Axiom will be included in the Company's
consolidated tax return beginning in 1996 due to the Company's purchase of the
minority interest in Axiom as described in Note 11 of the Notes to Consolidated
Financial Statements.
The Company reported a taxable loss of $11.5 million on its 1994 consolidated
federal income tax return and estimates that it will report a taxable loss of
approximately $3.0 million for 1995.
As of December 31, 1995, the Company had net current and noncurrent deferred tax
assets of $4.4 million and $20.7 million, respectively. Approximately $13.4
million of the net noncurrent deferred tax assets relate to tax net operating
loss carryforwards which will be available to offset future taxable income
through 2010. The Company has recorded a valuation allowance for the entire
amount of the net current and noncurrent deferred tax assets as of December 31,
1995 and will continue to do so until such time that management believes that it
is more likely than not that the Company will generate
11
<PAGE>
taxable income sufficient to realize such tax benefits. See Note 5 of Notes to
Consolidated Financial Statements for additional information.
NET INCOME
The Company reported net income of $1.6 million and $2.3 million for 1995 and
1994, respectively. Net income included favorable adjustments to special
charges and unusual items of $601,000 and $2.2 million in 1995 and 1994,
respectively, and 1995 included $818,000 in "Other income, net" representing the
net gain in the sale of a note secured by certain real estate.
Net loss per common share was $.14 and $.05 in 1995 and 1994, respectively. Net
loss applicable to common stockholders is calculated by reducing net income by
amounts applicable to the Senior and Junior Convertible Preferred Stock related
to undeclared dividends and accretion of liquidation preference (for the periods
during which the preferred stock was subject to mandatory redemption) of $2.9
million and $2.6 million in 1995 and 1994, respectively.
STOCKHOLDERS' DEFICIT
During 1995, stockholders' deficit decreased by $1.8 million from 1994 year-end
as a result of 1995 net income of $1.6 million and $168,000 in respect of common
stock issued in connection with the employee common stock purchase plan and the
matching contribution by the Company to the employee 401(k) plan. The book
value per common share increased from $(2.90) at December 31, 1994 to $(2.67)
per common share at December 31, 1995 as a result of the above mentioned
changes.
1994 COMPARED TO 1993
REVENUE
Total revenue for 1994 was $183.6 million, a decrease of 8.5% from $200.7
million in 1993. Excluding revenue from the Northern California residential
brokerage operations and real estate advisory services which were sold during
the first quarter of 1993, and certain other offices which at the end of 1993
were sold, closed, or expected to be closed, as well as government contracting
business conducted through April 1994, operating revenue of $183.1 million
increased by $17.0 million or 10.2% over 1993.
Revenue from commercial brokerage offices increased in 1994 by $10.2 million or
7.2% over 1993 as a result of improving markets for commercial real estate and
the Company's increasing market share in specific markets.
Revenue from the Company's residential brokerage operations of $20.3 million in
1993 consisted of $3.1 million from the Northern California operations which
were sold in March 1993 and $17.2 million from the Southern California
operations. The Company fully reserved for the closure/sale of its remaining
residential brokerage operations in Southern California during the fourth
quarter of 1993, therefore, revenues and expenses from the Southern California
operations were included in "Other income, net" in 1994, but have no impact on
net income.
Real estate services fees, commissions and other fees of $31.6 million in 1994
decreased by $7.0 million or 18.2% from $38.6 million in 1993. The decrease
12
<PAGE>
in revenues relates primarily to the closure, or provision to close, certain
mortgage brokerage, appraisal and consulting offices at the end of 1993.
COSTS AND EXPENSES
Salespersons' participation expense as a percentage of total operating revenue
decreased from 49.9% in 1993 to 47.7% in 1994. The decrease in participation
expense as a percentage of revenue was primarily related to the fact that the
Company did not reflect the revenues or expenses of the Southern California
residential brokerage operations in operating income for 1994, as the provision
for the closure of such operations was recorded at the end of 1993. Excluding
the impact of residential brokerage operations from 1993, participation expense
as a percentage of revenue was virtually the same as 1994 at 47.8%.
Total costs and expenses, other than salespersons' participation expense, of
$91.9 million for 1994 decreased by 21.1% from $116.5 million in 1993. The
decrease primarily resulted from a decrease in special charges and unusual items
and, as explained above, because the expenses of the residential brokerage
operations are included in "Other income, net" in 1994. Further excluding the
cost and expenses of businesses closed or sold in 1993 and 1994, and the special
charges and unusual items, 1994 costs and expenses increased by $4.2 million or
4.7% over 1993. Such expense increases were primarily a result of several key
management positions being filled in the latter part of 1993 and additional
investments in technology anticipated to improve profits in future years.
The Company recorded favorable adjustments of $2.2 million to special charges
and unusual items in 1994 as a result of reversals of previously established
reserves associated with the closure of certain offices which were accomplished
more efficiently than initially estimated at the end of 1993, and the sale of
the Company's remaining residential brokerage operations in November 1994. In
1993, special charges and unusual items of $13.5 million were recorded including
the write-down of the remaining unamortized goodwill of $10.1 million, office
closure and severance costs of $2.9 million and other charges of $500,000.
Interest expense to related parties of $2.8 million in 1994 increased by
$349,000 over the 1993 amount of $2.5 million primarily as a result of interest
on the interim financing loan provided by Warburg, Pincus Investors, L.P.
("Warburg") in connection with the 1994 Recapitalization ($175,000) and higher
interest on the revolving credit facility related to greater use in 1994
compared to 1993 ($142,000).
INCOME TAXES
The 1994 provision for income taxes was $307,000 compared to $575,000 in 1993.
The 1994 tax provision consists of federal, state and local income taxes
assessed on profitable subsidiaries of the Company, whereas the 1993 tax
provision has no federal income tax component. The 1994 federal income tax
component relates solely to Axiom, the Company's subsidiary which reported on a
separate basis for tax purposes.
13
<PAGE>
NET INCOME
Net income of $2.3 million for 1994 compared favorably to a net loss of $18.2
million for the previous year. Net income for 1994 included $2.2 million of
favorable adjustments to special charges and unusual items, whereas the net loss
for 1993 included charges of $13.5 million. Net loss per common share was $.05
in 1994 compared to a net loss per common share of $5.08 in 1993. Net loss
applicable to common stockholders is calculated by reducing net income (loss) by
undeclared dividends and accretion of liquidation preference on preferred stock
of $2.6 million and $2.2 million in 1994 and 1993, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, cash and cash equivalents increased by $3.2 million over the 1994
year-end level primarily as a result of $4.6 million of net cash provided by
operating activities offset by $1.1 million of net cash used in investing
activities. Net cash provided by operating activities was significantly
impacted by a $5.0 million decrease in other liability accounts including claims
and settlements, office closure and severance costs for which reserves were
provided at the end of 1993 and 1992. The net cash used in investing activities
primarily relates to $2.3 million of purchases of equipment and leasehold
improvements offset by $1.2 million of proceeds from disposition of real estate
joint ventures and real estate owned including the sale of a note receivable as
further described in Note 1 of the Notes to Consolidated Financial Statements.
The Company has historically experienced the highest use of operating cash in
the first quarter of the year, primarily related to the payment of year-end
compensation and deferred commissions payable balances which attain peak levels
as a result of fourth quarter business activity. Additionally, quarterly
revenues are typically at their lowest level in the first quarter.
As of December 31, 1995, the Company had current accrued severance and office
closure costs of approximately $1.6 million of which $776,000 of accrued
severance costs and $439,000 of accrued office closure costs, net of expected
sublease income, are expected to be paid in cash in 1996. Approximately
$861,000 of the $1.1 million of long-term accrued office closure costs, net of
expected sublease income, is expected to be paid in cash over the next six years
(see Note 9 of the Notes to Consolidated Financial Statements). The funding of
these cash requirements is expected to come from cash flow from operations.
Working capital improved by $2.5 million to $9.9 million at December 31, 1995
primarily as a result of the $3.2 million increase in cash and cash equivalents
offset by a $927,000 reduction in prepaids and other current assets. Total
current liabilities of $28.9 million at December 31, 1995 were comparable to the
December 31, 1994 total of $29.2 million, however, the composition has changed.
Compensation, benefits and deferred commissions payable increased by $3.3
million at December 31, 1995 over the 1994 year-end balance as a result of
strong year-end revenue levels and a greater number of salespeople electing to
defer commissions to 1996. Offsetting this increase in short-term liabilities
was a $3.0 million reduction in accrued severance, office closure, claims,
settlements and other accrued expenses.
14
<PAGE>
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
Note 4 to the Notes to Consolidated Financial Statements. To the extent that
the Company's cash requirements are not met by operating cash flow, due to
adverse economic 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.
DIVIDENDS
Any dividend payments by the Company on the common stock will be subject to
restrictions on the payment of dividends in the Prudential debt agreements and
the payment of all accrued and unpaid dividends on the Senior and Junior
Convertible Preferred Stock.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
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, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedules 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 $8,612,827 and $6,417,359
as of December 31, 1995 and 1994, respectively, and total revenues of
$24,960,603, $22,533,316 and $21,422,586 for the years in the period ended
December 31, 1995. 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.
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
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, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, 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 set forth therein.
San Francisco, California
February 5, 1996
16
<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, 1995 and 1994 and the related statements of
income and retained earnings and cash flows for the years then ended. 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.
As discussed in Note 1 to the financial statements, on January 24, 1996,
pursuant to a Stock Sale Agreement, Grubb & Ellis Company became the sole
stockholder of the Company by purchasing the outstanding Class B common stock
from International Business Machines Corporation.
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, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Pittsburgh, Pennsylvania Coopers & Lybrand L.L.P.
January 26, 1996
17
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
ASSETS
1995 1994
------ ------
<TABLE>
<CAPTION>
<S> <C> <C>
Current assets
Cash and cash equivalents $26,611 $23,371
Receivables:
Real estate brokerage commissions 3,313 4,500
Real estate services fees and other
commissions 3,669 3,317
Other receivables 3,923 3,116
Prepaids and other current assets 1,295 2,222
------ ------
Total current assets 38,811 36,526
Noncurrent assets
Real estate brokerage commissions receivable 272 454
Real estate investments held for sale and
real estate owned 579 1,016
Equipment and leasehold improvements, net 5,563 5,203
Other assets 951 2,230
------ ------
Total assets $46,176 $45,429
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
18
<PAGE>
GRUBB AND ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND SHARES)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current liabilities
Notes payable and current portion of long-term debt $ 276 $ 508
Accounts payable 1,498 1,764
Compensation and employee benefits payable 9,552 8,556
Deferred commissions payable 7,451 5,195
Accrued severance obligations 776 876
Accrued office closure costs 867 1,346
Accrued claims and settlements 2,132 2,502
Other accrued expenses 6,377 8,430
-------- --------
Total current liabilities 28,929 29,177
Long-term liabilities
Long-term debt, net of current portion 351 391
Long-term debt to related party, net of current portion 26,698 25,292
Accrued claims and settlements 12,802 13,404
Accrued severance obligations 16 277
Accrued office closure costs 1,099 2,220
Other - 154
-------- --------
Total liabilities 69,895 70,915
-------- --------
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
Common stock, $.01 par value: 25,000,000 shares
authorized; 8,883,970 and 8,797,377 shares issued and
outstanding at December 31, 1995 and 1994, respectively 90 89
Additional paid-in-capital 57,084 56,917
Retained earnings (deficit) (113,036) (114,635)
-------- --------
Total stockholders' equity (deficit) (23,719) (25,486)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 46,176 $ 45,429
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
19
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenue
Commercial real estate brokerage commissions $ 154,349 $ 152,031 $ 141,875
Residential real estate brokerage commissions - - 20,266
Real estate services fees, commissions and other 35,387 31,571 38,590
--------- --------- ---------
Total revenue 189,736 183,602 200,731
--------- --------- ---------
Cost and expenses
Real estate brokerage and other commissions 90,385 87,578 100,250
Selling, general and administrative 46,317 48,456 55,958
Salaries and wages 48,535 43,706 44,780
Depreciation and amortization 2,143 1,981 2,287
Special charges and unusual items (601) (2,241) 13,494
--------- --------- ---------
Total costs and expenses 186,779 179,480 216,769
--------- --------- ---------
Total operating income (loss) 2,957 4,122 (16,038)
Other income and expenses
Interest income 778 574 442
Other income, net 1,293 806 551
Interest expense (22) (51) (136)
Interest expense to related parties (2,911) (2,801) (2,452)
--------- --------- ---------
Income (loss) before income taxes 2,095 2,650 (17,633)
Provision for income taxes (496) (307) (575)
--------- --------- ---------
Net income (loss) $ 1,599 $ 2,343 $ (18,208)
--------- --------- ---------
--------- --------- ---------
Net loss applicable to common stockholders, net of
dividends in arrears and accretion of
liquidation preference on preferred stock in the
amounts of $2,870, $2,611 and $2,196 in 1995, 1994
and 1993, respectively $ (1,271) $ (268) $ (20,404)
Net loss per common share and equivalents, giving
retroactive effect to the one-for-five reverse
stock split on January 29, 1993 $ (.14) $ (.05) $ (5.08)
Weighted average common shares outstanding giving
retroactive effect to the one-for-five reverse
split on January 29, 1993 8,824,926 4,934,806 4,019,795
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
20
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES)
<TABLE>
<CAPTION>
Common Stock Total
-------------------------- Additional Retained Stockholders'
Outstanding Preferred Paid-in- Earnings Equity
Shares Amount Stock Capital (Deficit) (Deficit)
----------- ---------- -------- --------- -------- ---------
<C> <C> <C> <C> <C> <C>
Balance as of 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 - -
Accretion of liquidation
preference on preferred stock - - - (2,196) - (2,196)
Common stock issued for:
Exercise of Prudential warrant 397,549 4 - 2,898 - 2,902
Rights redemption 42,400 1 - - - 1
Employee common stock purchase
agreements and exercise 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)
---------- ------- -------- -------- -------- -------
Balance as of December 31, 1993 4,060,271 41 - 48,070 (116,978) (68,867)
Accretion of liquidation
preference on preferred stock - - - (2,173) - (2,173)
Elimination of mandatory
redemption provision on
preferred stock:
12% Senior Convertible
Preferred Stock - - 15,945 - - 15,945
5% Junior Convertible
Preferred Stock - - 16,198 - - 16,198
Warrants issued in connection
with 1994 Recapitalization - - - 259 - 259
Common stock issued for:
Stockholder rights offering and
standby commitment 4,361,975 44 - 9,847 - 9,891
Litigation settlements 299,898 3 - 678 - 681
Employee common stock purchase
agreements 14,525 - - 47 - 47
Employee 401(k) plan
matching contribution 60,708 1 - 189 - 190
Net income - - - - 2,343 2,343
---------- -------- -------- -------- -------- -------
Balance as of December 31, 1994 8,797,377 89 32,143 56,917 (114,635) (25,486)
Employee common stock purchase
agreements 33,063 - - 60 - 60
Employee 401(K) plan
matching contribution 53,530 1 - 107 - 108
Net Income 1,599 1,599
---------- -------- -------- -------- -------- -------
Balance as of December 31, 1995 8,883,970 $ 90 $32,143 $57,084 $(113,036) $(23,719)
---------- -------- -------- -------- -------- -------
---------- -------- -------- -------- -------- -------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
21
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 1,599 $ 2,343 $ (18,208)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,143 1,981 2,287
Interest expense on Payment-in-Kind Notes 1,501 1,301 1,279
Increase (decrease) in real estate brokerage commissions
receivable valuation allowances 120 (1,909) 25
Other non-cash charges related to special charges
and unusual items (601) (2,241) 13,494
Gain on sale of real estate and other assets - - 20
Decrease in real estate brokerage commissions receivable 1,249 4,561 3,270
Decrease (increase) in other asset accounts 1,426 1,047 (2,446)
Decrease in accounts payable (266) (109) (1,153)
Increase in deferred commissions payable 2,256 2,381 900
Decrease in other liability accounts (4,833) (9,821) (2,868)
-------- -------- --------
Net cash provided by (used in) operating activities 4,594 (466) (3,400)
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sale of assets - - 3,350
Purchases of equipment and leasehold improvements (2,311) (2,230) (3,115)
Proceeds from disposition of real estate joint ventures
and real estate owned 1,165 344 389
Distributions from real estate joint ventures 54 20 76
-------- -------- --------
Net cash provided by (used in) investing activities (1,092) (1,866) 700
-------- -------- --------
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 - 6,000 8,000
Repayment of notes payable (262) (263) (9,067)
Proceeds from issuance of common stock - 4,201 58
Costs related to Rights Offering and issuance of common stock - (586) -
Costs related to debt refinancing - (55) -
------- -------- --------
Net cash provided by (used in) financing activities (262) 9,297 11,460
-------- -------- --------
Net increase in cash and cash equivalents 3,240 6,965 8,760
Cash and equivalents at beginning of the year 23,371 16,406 7,646
-------- -------- --------
Cash and cash equivalents at end of the year $ 26,611 $ 23,371 $ 16,406
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
22
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY:
Grubb & Ellis Company (the "Company") is a fully integrated real estate
services company that provides real estate services to real estate
owners/investors and tenants including commercial brokerage and property and
facilities management. Additionally, the Company provides mortgage brokerage,
appraisal, consultation and asset management services. The Company also
provided residential brokerage services until November 1994 when it sold its
remaining residential real estate business in Southern California.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Grubb &
Ellis Company, its wholly and majority owned and controlled subsidiaries and
controlled partnerships. The Company consolidates its majority owned
subsidiary, Axiom Real Estate Management, Inc. ("Axiom"), which provides real
estate property and facilities management services. The minority interest in
Axiom is immaterial and has been included in other long-term liabilities on the
Consolidated Balance Sheets and other income, net on the Consolidated Statements
of Operations. The Company acquired the minority interest in Axiom in January
1996 as further described in Note 11 to the Notes to Consolidated Financial
Statements. All significant intercompany accounts and transactions with
consolidated entities and transactions with unconsolidated joint ventures and
partnerships accounted for under the equity method of accounting have been
eliminated.
BASIS OF PRESENTATION:
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
(including disclosure of contingent assets and liabilities) at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
In 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments," which
requires disclosure of fair value information about financial instruments,
whether or not recognized in the Consolidated Balance Sheets. Considerable
judgment is necessarily required in interpreting market data to develop
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
SHORT-TERM FINANCIAL INSTRUMENTS - the carrying amounts of cash and cash
equivalents, receivables, and obligations under accounts payable and debt
instruments approximate fair value because of the short maturity of these
instruments.
23
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-TERM DEBT - an estimate of the fair value of the Company's long-term
debt would require the use of a discounted cash flow analysis based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements. Management believes that the Company's current financial position
is significantly different from its financial position during the period in
which it originally acquired its long-term debt and believes that the Company
would be unable to obtain similar financing given these facts and the current
state of its financial matters. Accordingly, management is unable, without
incurring excessive costs, to estimate its incremental borrowing rate, and
considers estimation of fair value to be impracticable.
ACCOUNTING FOR STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued statement
No. 123, "Accounting for Stock-Based Compensation ("Statement 123")," which is
effective for the Company's next annual reporting period. Statement 123 allows
companies to either account for stock-based compensation under the new
provisions of Statement 123 or under the provisions of Accounting Principles
Bulletin Opinion No. 25, but requires pro forma disclosure in the footnotes to
the financial statements as if the measurement provisions of Statement 123 had
been adopted. The Company has not yet determined whether or not to adopt
Statement 123 in 1996, but does not believe that the adoption will have a
material impact on the financial position or the results of operations of the
Company.
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 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 tenant occupancy, assuming the Company has
possession of a signed lease agreement and no significant contingencies exist.
All other commissions and fees are recognized at the time the related services
have been performed by the Company, unless significant future contingencies
exist.
"Other income, net" includes revenues and expenses recognized subsequent
to 1993 related to offices which the Company determined in 1993 to close in
1994. Such revenues and expenses were $17,939,000 and $17,939,000,
respectively, in 1994. Also included are the revenues and expenses of
miscellaneous transactions and the disposition of real estate investments.
COSTS AND EXPENSES:
Real estate brokerage 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.
24
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are recorded at cost. Depreciation
of equipment is computed using the straight-line method over their estimated
useful lives ranging from three to seven years. Leasehold improvements are
amortized using the straight-line method over their useful lives not to exceed
the terms of the respective leases. Maintenance and repairs are charged to
expense as incurred.
ACCRUED CLAIMS AND SETTLEMENTS:
The Company maintains partially self-insured programs for errors and
omissions, general liability, workers' compensation and certain employee health
care costs. Reserves for such partially self-insured programs are included in
accrued claims and settlements and are based on the aggregate of the liability
for reported claims and an actuarially-based estimate of incurred but not
reported claims, net of expected insurance reimbursements.
INCOME TAXES:
The provision for income taxes is based on income or loss recognized for
financial statement purposes and includes the effects of temporary differences
between such income or loss and that recognized for tax return purposes.
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.
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. For specifics
regarding the potential dilution from common stock options and warrants, see
Note 4 to the Notes to Consolidated Financial Statements. As calculated in
accordance with Generally Accepted Accounting Principles, primary earnings
(loss) per common share is the same as fully diluted earnings (loss) per common
share for each year presented. Common share and per share amounts have been
adjusted to give retroactive effect to the one-for-five reverse stock split on
January 29, 1993.
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 and accretion of liquidation preference
(for the periods during which the preferred stock was subject to mandatory
redemption) as follows (in thousands):
<TABLE>
<CAPTION>
Cumulative
1995 1994 1993 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
Junior Convertible Preferred Stock -
Undeclared dividends $2,046 $ 131 $ - $2,177
Accretion of liquidation preference - 653 687 1,340
Senior Convertible Preferred Stock -
Undeclared dividends 824 307 - 1,131
Accretion of liquidation preference - 1,520 1,509 3,029
------ ------ ------ ------
$2,870 $2,611 $2,196 $7,677
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
25
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of demand deposits and highly liquid
short-term debt instruments with original maturities of three months or less
from the date of purchase and are stated at cost.
The Company had cash balances of $2,434,000 and $2,096,OOO at December
31, 1995 and 1994, respectively, restricted to use for errors and omissions
insurance claims associated with the Company's errors and omissions insurance
captive. Additionally, Axiom had cash balances of $3,476,000 and $2,490,000 at
December 31, 1995 and 1994, respectively, which prior to the purchase of the
minority ownership interest in Axiom in January 1996, were not available for use
by the Company. The restricted net assets of Axiom amounted to approximately
$2.0 million at December 31, 1995.
For purposes of disclosure for the Consolidated Statements of Cash Flows,
cash payments for interest for the three years ended December 31, 1995, 1994,
and 1993 were approximately $1,427,000, $1,418,000 and $1,005,000, respectively.
Cash payments for income taxes for the three years ended December 31, 1995, 1994
and 1993 were approximately $1,209,000, $363,000 and $515,000, respectively.
REAL ESTATE INVESTMENTS:
Real estate investments held for sale are recorded at the lower of cost
or net realizable value. The Company had a valuation allowance on real estate
investments and real estate owned of approximately $2,478,000 and $3,778,000 at
December 31, 1995 and 1994, respectively. In connection with the disposition of
real estate investments, the Company sold a property in 1993 with a book value
of approximately $413,000 in exchange for a note receivable of $1,190,000,
resulting in the deferral of $884,000 of revenue under the cost recovery method.
The note receivable was sold at a discount in 1995 resulting in a gain of
$818,000, net of the recognition of revenue previously deferred and is included
in "Other income, net".
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
2. REAL ESTATE BROKERAGE COMMISSIONS RECEIVABLE
Real estate brokerage commissions receivable consisted of the following
at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Commissions receivable $17,270 $17,484
Salespersons' participation (10,447) (9,412)
Allowance for uncollectible accounts (3,238) (3,118)
------- -------
Total 3,585 4,954
Less portion classified as current 3,313 4,500
------- -------
Noncurrent portion $ 272 $ 454
------- -------
------- -------
</TABLE>
26
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following at
December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Office furniture and equipment $14,844 $13,685
Leasehold improvements 4,886 4,846
------- -------
Total 19,730 18,531
Less accumulated depreciation and amortization 14,167 13,328
------- -------
Equipment and leasehold improvements, net $ 5,563 $ 5,203
------- -------
------- -------
</TABLE>
4. LONG-TERM DEBT AND RECAPITALIZATION
Long-term debt consisted of the following at December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Senior Notes, 9.9%, due
November 1, 1997 and 1998 $10,000 $10,000
$10 million 10.65% PIK Notes, net,
increasing to 11.65% effective
January 1, 1996, due November 1,
2000 and 2001 11,698 10,292
Revolving Credit Note at 2.5% above
LIBOR, due November 1, 1999 5,000 5,000
Other notes payable at various rates of
interest, due through 2005 627 899
------- -------
27,325 26,191
Less portion classified as current 276 508
------- -------
Long-term portion $27,049 $25,683
------- -------
------- -------
</TABLE>
27
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND RECAPITALIZATION (CONTINUED)
Aggregate maturities of long-term debt, excluding discount amortization,
for the next five years are as follows: 1996 - $276,000; 1997 - $5,029,000;
1998 - $5,033,000; 1999 - $5,036,000; 2000 - $5,952,000 and thereafter,
$6,127,000.
1994 RECAPITALIZATION:
On November 1, 1994, the Company, Warburg, Pincus Investors, L.P.
("Warburg") and The Prudential Insurance Company of America ("Prudential")
completed certain related party financing transactions (the "1994
Recapitalization") pursuant to agreements (the "Agreements") providing for,
among other things, (1) additional equity capital through a rights offering and
Standby Agreement by Warburg, (2) amendments to a debt agreement with
Prudential, (3) issuance of additional warrants to purchase common stock of the
Company and (4) amendments to the existing Junior and Senior Convertible
Preferred Stock and warrants held by Warburg and Prudential. The debt
amendments with Prudential include a provision for supplemental principal
payments commencing July 1, 1998 if the Company meets certain financial tests.
In addition, certain covenants of the debt agreement remain in place, but will
not be in effect until April 1, 1997.
STOCKHOLDER RIGHTS OFFERING:
Through a Stockholder Rights Offering which expired October 31, 1994,
common stockholders, other than Warburg and Prudential, purchased 84,542 shares
of common stock at the subscription price of $2.375 per share for total proceeds
of $201,000. Pursuant to a Standby Agreement, Warburg purchased 4,277,433
shares of common stock, not purchased by common stockholders in the Rights
Offering, at the subscription price of $2.375 per share for total proceeds of
approximately $10,159,000. As provided for in the Standby Agreement, Warburg
paid for its shares with $4,000,000 in cash and through cancellation of
$6,159,000 of indebtedness outstanding under an interim financing loan,
including accrued interest of approximately $159,000. Warburg had made the
interim financing loan pursuant to an agreement entered into in March 1994,
which was terminated in connection with the consummation of the 1994
Recapitalization. Direct costs of $469,000 were capitalized in connection with
the Stockholder Rights Offering.
9.9% SENIOR NOTES:
The 9.9% Senior Notes were issued to Prudential in 1986 and were
subsequently modified in 1992 and in connection with the 1994 Recapitalization.
The principal payment terms were modified requiring two approximately equal
installments on November 1, 1997 and 1998. The 9.9% Senior Notes require semi-
annual interest payments.
10.65% PAYMENT-IN-KIND NOTES:
In January 1993, Prudential agreed, among other things, to convert $10
million of the then outstanding 10.65% Subordinated Notes into $10 million of
10.65% Payment-in-Kind Notes (the "10.65% PIK Notes") due November 1, 1999 (the
"1993 Recapitalization"). The 10.65% PIK Notes require semi-annual
28
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND RECAPITALIZATION (CONTINUED)
interest payments, although until all of the 9.9% Senior Notes have been
retired, the interest may be paid in kind by the issuance of additional 10.65%
PIK Notes. In connection with the 1994 Recapitalization, the terms of the
principal payments were modified requiring two approximately equal installments
on November 1, 2000 and 2001. Additionally, the interest rate will increase
from 10.65% to 11.65% per annum on January 1, 1996. Interest expense is being
recorded on the level yield method at an effective yield rate of 11.5%. The
outstanding amount of the 10.65% PIK Notes is net of $920,000 canceled by
Prudential in payment of the exercise price of a warrant pursuant to the terms
of the 1993 Recapitalization and unamortized discount of $128,000 and $323,000
at December 31, 1995 and 1994, respectively.
REVOLVING CREDIT NOTE:
The Revolving Credit Note bears interest at 2.5% above LIBOR and has
certain repayment requirements and other financial covenants. Prior to the 1994
Recapitalization, upon maturity, the Company had the option of converting the
note into a term note which would mature on December 31, 1996, have an interest
rate of LIBOR plus 5% and require equal semi-annual principal payments beginning
June 30, 1995. In connection with the 1994 Recapitalization, Prudential
canceled the conversion option, extended the maturity date to November 1, 1999
and waived the Company's obligation to repay all of the outstanding principal
for a 60-day period in 1994 and in subsequent years until after April 1, 1997.
OTHER NOTES PAYABLE:
Other notes payable of the Company are secured by various assets with
carrying values of approximately $411,000 and $6,856,000 at December 31, 1995
and 1994, respectively.
AXIOM CREDIT FACILITY:
Axiom has a credit facility with a subsidiary of IBM which provides for
maximum outstanding borrowings not to exceed the lesser of $2,050,000 or Axiom's
borrowing base which is comprised of eligible accounts receivable as defined.
At December 31, 1995, IBM was a minority shareholder of Axiom. The credit
facility expires October 19, 1998 and is subject to automatic successive three
year extensions unless IBM provides ninety (90) days written notice of its
intent to terminate at the end of the initial three year term or at the end of
any successive three year terms. There were no borrowings outstanding under
this credit facility as of December 31, 1995. Any borrowings under this credit
facility would be collateralized by substantially all of Axiom's assets and
subject to certain financial ratio covenants, including the maintenance of
minimum levels of net worth.
JUNIOR CONVERTIBLE PREFERRED STOCK:
In January 1993, the Company issued 150,000 shares of 5% Junior
Convertible Preferred Stock ("Junior Preferred") and five-year warrants to
purchase 200,000 shares of common stock at an exercise price of $5.50 per share
to Prudential in exchange for $15 million of the then outstanding 10.65%
Subordinated Notes. Each share of Junior Preferred is convertible, at the
29
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND RECAPITALIZATION (CONTINUED)
option of the holder, into shares of common stock of the Company determined by
dividing the $100 stated value per share by the conversion price of $5.6085.
Prior to the 1994 Recapitalization, each share of Junior Preferred was subject
to mandatory conversion based on specific financial ratios and/or conditions.
Holders of Junior Preferred are entitled to receive, out of any funds legally
available, cumulative dividends payable in cash at a rate of 5% per annum
compounded annually.
The 1994 Recapitalization provided for the elimination of the mandatory
redemption provision and an increase in the dividend rate effective January 1,
2002 to 10% per annum with further increases of 1% per annum effective January
1, 2003 and January 1, 2004 and 2% per annum effective January 1, 2005 and each
January 1 thereafter.
With respect to dividend rights and rights on redemption and liquidation,
winding up and dissolution, the Junior Preferred ranks prior to any other equity
securities of the Company, including all classes of common stock and any series
of preferred stock of the Company other than the Senior Convertible Preferred
Stock, which ranks prior to Junior Preferred.
During 1994 and prior to the 1994 Recapitalization, the carrying value of
the Junior Preferred was adjusted by accretion of liquidation preference due
upon liquidation in the amount of $653,000, and accretion of direct costs of
$27,000. On a cumulative basis, undeclared dividends and accretion of direct
costs amounted to $1,340,000 and $58,000, respectively. In connection with the
1994 and 1993 Recapitalizations, the carrying value of the Junior Preferred was
adjusted by direct costs of $17,000 and $183,000, respectively.
SENIOR CONVERTIBLE PREFERRED STOCK:
In January 1993, the Company issued to Warburg and Joe F. Hanauer
("Hanauer") for $13,750,000 in cash, an aggregate of 137,160 shares of 12%
Senior Convertible Preferred Stock ("Senior Preferred"), 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 (the "Contingent Warrants") which become
exercisable at a formula price only in the event the Company incurs a defined
liability in excess of $1.5 million.
Each share of Senior Preferred is convertible, at the option of the
holder, into shares of common stock of the Company determined by dividing the
$100 stated value per share by the conversion price of $2.6564 for Warburg and
$2.63540 for Hanauer. Prior to the 1994 Recapitalization, each share of Senior
Preferred was subject to mandatory redemption based on specific financial
30
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND RECAPITALIZATION (CONTINUED)
SENIOR CONVERTIBLE PREFERRED STOCK (CONTINUED):
ratios and/or conditions and anti-dilution provisions with respect to the
issuance of common stock and common stock equivalents at less than the
conversion price or exercise price. Holders of Senior Preferred are entitled to
receive, out of any funds legally available, cumulative dividends payable in
cash at a rate of 12% per annum compounded annually.
The 1994 Recapitalization provided for the elimination of the mandatory
redemption provision and an increase in the dividend rate so that at such time
the dividend rate on the Junior Preferred increases above the dividend rate of
the Senior Preferred, the dividend rate on the Senior Preferred will increase by
the same amount. As a result of the application of the anti-dilution provisions
previously existing in the Senior Preferred, the number of shares issuable upon
conversion of the Senior Preferred increased from 4,551,201 shares to 5,166,029
shares. With respect to dividend rights and rights on redemption and on
liquidation, winding up and dissolution, the Senior Preferred 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.
During 1994 and prior to the 1994 Recapitalization, the carrying value of
the Senior Preferred was adjusted by accretion of liquidation preference due
upon liquidation in the amount of $1,520,000 and the accretion of direct costs
of $160,000. On a cumulative basis, undeclared dividends and accretion of
direct costs amounted to $3,029,000 and $336,000, respectively. In connection
with the 1994 and 1993 Recapitalizations, the carrying value of the Senior
Preferred was adjusted by direct costs of $100,000 and $1,070,000, respectively.
NEW WARRANTS AND AMENDMENTS TO EXISTING WARRANTS:
As consideration for acquiring shares of stock not purchased in the
Stockholder Rights Offering in connection with the Standby Agreement, and
agreeing to other financing transactions, the Company issued to Warburg a
warrant to purchase 325,000 shares at an exercise price of $2.375 per share,
exercisable within 5 years. As consideration for modifying the terms of the
9.9% Senior Notes, 10.65% PIK Notes and Revolving Credit Note, waiving
noncompliance with and deferring application of certain covenants of the
Prudential debt agreement, and agreeing to other financing transactions, the
Company issued to Prudential a warrant to purchase 150,000 shares at an exercise
price of $2.375 per share, exercisable within 5 years. Loan costs of $225,000
were capitalized in connection with the Prudential warrant and are being
amortized over the weighted average remaining terms of the debt agreements with
Prudential.
In connection with the 1994 Recapitalization, the Company's warrants to
purchase common stock issued to Warburg and Prudential in connection with the
1993 Recapitalization were amended to reduce the exercise price to $3.50 per
share, eliminate certain anti-dilution provisions, and in the case of the
warrants held by Prudential, extend the expiration date from January 1998 until
December 1998. Prudential waived the anti-dilution provisions of its existing
warrants in connection with the 1994 Recapitalization.
31
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND RECAPITALIZATION (CONTINUED)
As a result of the 1994 Recapitalization and application of the anti-
dilution provisions previously existing in the warrants held by Warburg and
Hanauer, the aggregate number of shares issuable upon conversion of such
warrants increased from 726,182 to 1,043,199 shares. Loan costs of $34,000 were
capitalized in connection with the Prudential warrant amendments and are being
amortized over the weighted average remaining terms of the debt agreements with
Prudential. Contingent warrants held by Warburg, originally issued with the
Senior Preferred, to acquire up to 373,818 shares under certain circumstances,
were canceled.
PRUDENTIAL LONG-TERM DEBT RESTRICTIONS:
In connection with the 1993 Recapitalization, Prudential and the Company
signed an agreement (the "New Note Agreement") which contains significant
restrictions on the payment of cash dividends and purchases 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) maintain a ratio of consolidated current assets to consolidated current
liabilities (the "Working Capital Ratio") as 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. In connection with the 1994 Recapitalization,
Prudential agreed to waive the requirements of the Working Capital Ratio,
cumulative loss provisions and covenants restricting the Company's capital
expenditures until April 1, 1997.
5. INCOME TAXES
The provision for income taxes for each of the three years ended December
31, 1995 consisted of state and local income taxes due currently. Additionally,
the provision for income taxes for 1995 and 1994 includes federal income taxes
related solely to Axiom which files on a separate tax basis for tax purposes.
At December 31, 1995, the following income tax carryforwards were
available to the Company (in thousands):
<TABLE>
<CAPTION>
Expiration
Amount Dates
------- -----------
<S> <C> <C>
Federal regular tax operating
loss carryforwards $39,719 2005 to 2010
Federal investment tax credit
carryforwards $ 278 1998 to 2000
</TABLE>
32
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
As of December 31, 1995, the Company had a federal tax net operating loss
carryforward of $39.7 million and a federal investment tax credit carryforward
of $278,000, after taking into effect the reduction in tax attributes resulting
from the cancellation of indebtedness pursuant to Section 108(b)(2) of the
Internal Revenue Code (the "Code"). The 1993 Recapitalization constituted an
ownership change within the meaning of Section 382 of the Code thereby limiting
the amount of post-ownership change taxable income 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
Section 382 will be approximately $825,000. Net operating losses not subject to
the limitation under Section 382 are approximately $19.5 million.
The Company's effective tax rate on its income (loss) before taxes
differs from the statutory federal regular tax rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% (35.0)%
State and local income taxes
(net of federal benefit) 9.5 3.7 3.3
Goodwill amortization - - 20.9
Meals and entertainment 6.7 5.2 -
Recognition of a deferred tax asset in the
current period - (32.3) -
Losses for which a tax detriment (benefit)
was recorded in current period (27.6) - 14.1
----- ----- -----
Effective income tax rate for the year 23.6% 11.6% 3.3%
----- ----- -----
----- ----- -----
</TABLE>
At December 31, 1995, net deferred tax assets totaled approximately $25.1
million. The total valuation allowance recognized for net deferred tax assets
was also approximately $25.1 million. The valuation allowance decreased by
approximately $600,000 during 1995.
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: reserves for severance, office closures
and claims and settlements, real estate investment valuation allowances, equity
in partnership gains and losses, property and equipment depreciation and accrued
expenses.
33
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The components of the Company's deferred tax (liabilities) and assets are
as follows as of December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Gross deferred tax liabilities - current
Commission and fee reserves $ (546)
Gross deferred tax assets - current
Commission and fee reserves 2,179
Claims and settlements 972
Compensation accrual 1,820
-----
Gross deferred tax assets - current 4,971
Deferred tax assets valuation
allowance - current (4,425)
Gross deferred tax assets - noncurrent
Investment in partnerships $ 19
Depreciation 19
Investment tax credit 278
Commission and fee reserves 2,069
Claims and settlements 4,897
Net operating loss carryforwards 15,192
Estimated net operating loss
carryforward limitation under
Code Section 382 (1,770)
------
Gross deferred tax assets - noncurrent 20,704
Deferred tax assets valuation
allowance - noncurrent (20,704)
-------
Net deferred tax (liability) asset $ -
------
------
</TABLE>
6. STOCK OPTIONS, STOCK PURCHASE AND EMPLOYEE 401(K) PLANS
STOCK OPTION PLANS:
The information set forth below regarding stock option 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, 1995, 1994 and 1993:
34
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS, STOCK PURCHASE AND EMPLOYEE 401(K) PLANS (CONTINUED)
STOCK OPTION PLANS (CONTINUED):
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- --------------------- --------------------
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock Options
outstanding at the
beginning of the $2.00 to $2.88 to $5.00 to
year 314,251 $28.75 727,701 $28.75 199,762 $51.88
Granted or $1.88 to $2.00 to $2.88 to
regranted 892,850 $2.38 55,000 $3.13 662,000 $4.38
Lapsed or
canceled $4.13 to $3.50 to $5.00 to
(13,701) $23.15 (468,450) $18.75 (129,395) $51.88
Exercised - - - - (4,666) $6.88
------- -------- -------- -------- ------- --------
Stock options
outstanding at the $1.88 to $2.00 to $2.88 to
end of the year 1,193,400 $28.75 314,251 $28.75 727,701 $28.75
--------- -------- ------- -------- ------- --------
--------- -------- ------- -------- ------- --------
Exercisable at end $2.00 to $2.88 to $6.25 to
of the year 181,285 $28.75 114,653 $28.75 51,680 $28.75
------- -------- ------- -------- ------ --------
------- -------- ------- -------- ------ --------
</TABLE>
The Company's 1990 Amended and Restated Stock Option Plan, as amended,
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, 1995, 1994 and 1993, 181,934, 1,065,749 and
627,633 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 members of the Board of
Directors of options to purchase 10,000 shares for each such Director of common
stock, at exercise prices set at the market price at the date of grant. The
plan has authorized 50,000 shares for issuance. The options expire five years
from the date of grant and vest over three years from such date. At December
31, 1995 and 1994, options to purchase 30,000 shares, were outstanding under the
plan. As of December 31, 1995, options to purchase 13,335 shares have vested
under this plan.
EMPLOYEE COMMON STOCK PURCHASE PLAN:
In 1987, the Company adopted the New 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, 1995, 60,763 shares
were available for issue. During 1995, 1994 and 1993, 33,063, 6,174 and 6,342
shares, respectively, were purchased under this plan.
35
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS, STOCK PURCHASE AND EMPLOYEE 401(k) PLANS (CONTINUED)
EMPLOYEE 401(k) PLANS:
The Company has an employee 401(k) plan covering eligible employees other
than employees of Axiom. The Company contributes on a discretionary basis to
the plan based upon specified percentages of voluntary employee contributions,
which employer contributions may be made in common stock or cash, or a
combination of both. Axiom has an employee 401(k) plan that does not provide
for employer contributions to be made in stock. Discretionary contributions by
the Company and other expenses for the plans amounted to approximately $442,000,
$548,000 and $418,000 for 1995, 1994 and 1993, respectively.
7. 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, 1995, 1994 and 1993
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Real estate brokerage $ 77 $ 633 $ 618
commissions
Real estate services
fees and commissions $1,182 $1,489 $1,214
</TABLE>
The Company rents office space from Related Parties. Such rent expense
for the years ended December 31, 1995, 1994 and 1993 was $1,121,000, $1,122,000
and $1,312,000, respectively. See Note 4 to the Notes to Consolidated Financial
Statements for information regarding long-term debt with Prudential, a Related
Party.
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. In April 1995, in response to the joint venture's inability
to make the required interest payments, the joint venture entered into a
forbearance agreement with the Related Party providing for reduced interest
payments, and in November 1995, the Related Party sold the loan to a third
party.
36
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
During 1993, the Company paid approximately $50,000, to a Related Party
for administration of the Company's employee health plan for four of its
offices.
In connection with the 1993 Recapitalization, certain Related Parties
received reimbursement of expenses totaling approximately $783,000, and one
Related Party received fees of $325,000. In connection with the 1994
Recapitalization, the Company entered into agreements with certain Related
Parties (see Note 4 to Notes to Consolidated Financial Statements) and paid
approximately $70,000 in legal fees on behalf of Prudential.
8. COMMITMENTS AND CONTINGENCIES
REAL ESTATE JOINT VENTURES AND PARTNERSHIPS:
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.
NONCANCELABLE OPERATING LEASES:
The Company has noncancelable operating lease obligations for office
space and certain equipment ranging from one to eight years, and sublease
agreements under which the Company acts as sublessor. The office space leases
provide for annual rent increases based on the Consumer Price Index, or other
specified terms, and typically require payment of property taxes, insurance and
maintenance costs.
Future minimum payments under noncancelable operating leases with an
initial term of one year or more were as follows at December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
Gross Sublease
Lease Rental Net Lease
Year Obligation Income Obligation
---- ---------- --------- ----------
<S> <C> <C> <C>
1996 $12,342 $1,449 $10,893
1997 7,786 403 7,383
1998 6,212 127 6,085
1999 3,811 127 3,684
2000 2,579 127 2,452
Thereafter 1,046 64 982
------- ------ -------
Total $33,776 $2,297 $31,479
------- ------ -------
------- ------ -------
</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 $1,967,000 of the above expected future minimum rental payments,
net of expected sublease income of approximately $816,000 as of December 31,
1995.
37
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lease and rental expense for the years ended December 31, 1995, 1994 and
1993 amounted to $15,820,000, $15,339,000 and $19,552,000, respectively, net of
sublease income of $818,000, $1,087,000 and $1,214,000, respectively.
LEGAL MATTERS:
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, a trust and appraisal business, 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.
On March 14, 1994, JOHSZ, ET AL. V. KOLL COMPANY, ET AL., was filed in
the Orange County (California) Superior Court against the Koll Company, Grubb &
Ellis Company, Koll Center Newport Number 10, a California general partnership
("Koll"), and Southern California Edison Company ("Edison"). The complaint was
served on the Company in June 1994. A second complaint, YOUNKIN, MAIONA, ET AL.
V. KOLL COMPANY, ET AL., based on similar causes of action was filed in the same
court on December 13, 1994 and served on the Company in February 1995. The
plaintiffs in these two cases, three former Company brokers, a former Company
employee, a current Company employee, and their spouses, allege that the brokers
and employees acquired cancer from electromagnetic waves produced by the
electric transformer owned by Edison and situated in a vault below office space
leased by the Company in a building owned by Koll. The complaints allege
negligence, battery, negligent infliction of emotional distress, fraudulent
concealment, loss of consortium and, against Edison only, strict liability.
Specific damages were not pled, but punitive as well as compensatory damages
were sought. In the JOHSZ case, plaintiffs dismissed with prejudice all causes
of action allowing punitive damages. The remaining causes of action were
dismissed by summary judgment of the Superior Court, entered on December 18,
1995. Plaintiffs have appealed this summary judgment to the California Court of
Appeals. In the YOUNKIN case, plaintiffs dismissed without prejudice all causes
of action allowing punitive damages. Discovery is proceeding and a trial date
has been set for November 4, 1996 for the remaining causes of action.
JOHN W. MATTHEWS, ET AL. V. KIDDER, PEABODY & CO., ET AL. AND HSM INC.,
ET AL., filed on January 23, 1995 in the United States District Court for the
Western District of Pennsylvania, is a purported class action on behalf of
approximately 6,000 limited partners who invested approximately $85 million in
three public real estate limited partnerships (the "Partnerships") during the
period beginning in 1982 and continuing through 1986. HSM Inc. is a wholly-owned
subsidiary of the Company. The complaint alleges violations under the Racketeer
Influenced and Corrupt Organizations Act, securities fraud, breach of fiduciary
duty and negligent misrepresentation surrounding the defendants' organization,
promotion, sponsorship and management of the Partnerships. Specific damages
were not pled, but treble, punitive as well as compensatory damages and
restitution are sought. On December 19, 1995 the court granted the defendants'
motion to dismiss the entire complaint with regard to two of the three
Partnerships, based upon the plaintiff's lack of standing in those Partnerships
but denied the motion with respect to the plaintiff's standing in the third
Partnership, in which the plaintiff was a unitholder. The court
38
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
declined to rule on the other bases for dismissal, stating that they could
be raised by summary judgment motion after discovery. Discovery has commenced.
No plaintiff class has been certified.
The Company intends to vigorously defend the JOHSZ appeal, and the
YOUNKIN and MATTHEWS actions. Management believes it has meritorious defenses to
contest the claims asserted in those actions. Based upon available information,
the Company is not able to determine the financial impact, if any, of such
actions, but believes that the outcome will not have a material
adverse effect on the Company's financial position or results of operations.
9. SPECIAL CHARGES AND UNUSUAL ITEMS
The Company's management periodically evaluates its business strategy and
direction and the carrying value of certain assets. Over the four-year period
ended December 31, 1994, management implemented a variety of restructuring and
recapitalization measures necessary for the Company to continue as a going
concern. The financial impact of certain of these measures, as well as other
special charges, have been recorded in "Special Charges and Unusual Items".
During 1993, the Company recorded Special Charges and Unusual Items
totaling $13.5 million, including the write-off of the remaining $10.1 million
of goodwill related to its commercial brokerage business, $2.9 million for
severance and office closure costs and $454,000 of other net costs inclusive of
the net gain from the sale of the Company's real estate advisory business and
Northern California residential real estate operations.
In 1994, the Company made non-cash reversals of approximately $2.2
million of previously established reserves for severance and office closure
costs. Approximately $1.2 million of the reversals related to closing certain
offices more efficiently than initially estimated and $750,000 related to the
remaining net office lease liability of the Company's Southern California
residential brokerage operations which were sold in November 1994.
During 1995, the Company recorded a $601,000 net credit to Special
Charges and Unusual Items. Special charges included $525,000 of severance costs
for a senior executive related to restructuring the operations of Axiom and
credits to Special Charges and Unusual Items included approximately $766,000 of
non-cash reversals of previously established reserves for severance and office
closure costs and the reversal of an additional $360,000 of remaining net office
lease liability related to the sale of the Southern California residential
brokerage operations in 1994. Should the buyer of the Southern California
residential brokerage operations perform under the remaining lease liability
that it assumed (which extends to November 1997), remaining office closure
reserves of approximately $400,000 will be reduced in future periods.
As of December 31, 1995, the Company had current accrued severance and
office closure costs of approximately $1.6 million of which $776,000 of accrued
severance costs and $439,000 of accrued office closure costs, net of anticipated
sublease income, are expected to be paid in cash in 1996. As of
39
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SPECIAL CHARGES AND UNUSUAL ITEMS (CONTINUED)
December 31, 1995, approximately $861,000 of the $1.1 million of long-term
accrued office closure costs, net of anticipated sublease income, are expected
to be paid in cash over the next six years. During 1995, the Company paid $1.5
million in cash for the accrued severance and office closure costs.
10. 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 and 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 Company policy and pursuant to
restrictions in the New Note Agreement with Prudential.
11. SUBSEQUENT EVENTS
PURCHASE OF AXIOM MINORITY INTEREST:
On January 24, 1996, the Company completed the purchase of the common
stock held by International Business Machines Corporation ("IBM") in 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.
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 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.
CHANGE IN REPORTING PERIOD:
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.
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts and shares)
<S> <C> <C> <C> <C>
Operating Revenue $ 38,073 $ 43,920 $ 47,362 $ 60,381
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Operating income (loss) $ (3,366) $ (89) $ 407 $ 6,005
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income(loss) before
income taxes $ (3,845) $ (146) $ 808 $ 5,278
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) $ (3,911) $ (418) $ 596 $ 5,332
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss)
per common share:
Primary $ (.52) $ (.13) $ (.01) $ .42
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted $ (.52) $ (.13) $ (.01) $ .32
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common
shares and equivalents 8,797,377 8,797,377 8,814,832 8,814,832
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Common stock market
price range (high:low) 2 1/2 : 1 7/8 2 5/8 : 2 2 3/4 : 1 7/8 2 5/8 : 1 7/8
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
1994
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts and shares)
<S> <C> <C> <C> <C>
Operating Revenue $ 34,345 $ 45,479 $ 47,004 $ 56,774
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Operating income (loss) $ (3,884) $ 804 $ 1,224 $ 5,978
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income(loss) before
income taxes $ (4,630) $ 1,283 $ 685 $ 5,312
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) $ (4,747) $ 1,203 $ 584 $ 5,303
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) per
common share:
Primary $ (1.33) $ 0.11 $ (0.02) $ 0.49
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted $ (1.33) $ 0.11 $ (0.02) $ 0.35
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common
shares 4,062,136 4,114,549 4,261,351 7,275,468
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Common stock market price
range (high:low) 4 1/4 : 2 7/8 3 1/4 : 2 1/4 2 7/8 : 1 5/8 2 3/8 : 1 7/8
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
41
<PAGE>
GRUBB & ELLIS COMPANY
PART III
--------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
no later than 120 days after the end of the 1995 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
no later than 120 days after the end of the 1995 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
no later than 120 days after the end of the 1995 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
no later than 120 days after the end of the 1995 fiscal year and the information
contained in Notes 4 and 7 of the Notes to Consolidated Financial Statements.
42
<PAGE>
GRUBB & ELLIS COMPANY
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, 1995 and
December 31, 1994.
- Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993.
- Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1995, 1994 and 1993.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
- Notes to Consolidated Financial Statements.
2. The following Consolidated Financial Statement Schedules are submitted
herewith:
II. Valuation and Qualifying Accounts
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
November 1, 1994, incorporated herein by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K filed 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).
3.3 Amendment to the Grubb & Ellis Company Bylaws, effective as of June 1,
1994, incorporated herein by reference to Exhibit 4.20 to the
Registrant's Quarterly Report on Form 10-Q filed on November 14, 1994
(Commission File No. 1-8122).
43
<PAGE>
(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 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).
4.4 Letter agreement between The Prudential Insurance Company of
America and the Registrant dated March 28, 1994, incorporated
herein 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).
4.5 Amendment dated July 20, 1994 to the Senior Note, Subordinated Note
and Revolving Credit Note Agreement between the Registrant and The
Prudential Insurance Company of America, incorporated herein by
reference to Exhibit 10.2 to the Registrant's registration statement
on Form S-3 filed on July 22, 1994 (Registration No. 33-54707).
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 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).
4.8 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).
4.9 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).
44
<PAGE>
4.10 Specimen of Stock Subscription Warrant No. S-4 issued to the Joe F.
Hanauer Trust, dated January 29, 1993, incorporated herein by
reference to Exhibit 4.18 to the Registrant's registration statement
on Form S-8 filed on November 12, 1993 (Registration No. 33-71484).
4.11 Specimen of Stock Subscription Warrant No. 16 issued to The Prudential
Insurance Company of America, restated as of November 1, 1994,
incorporated herein by reference to Exhibit 4.23 to the Registrant's
Quarterly Report on Form 10-Q filed on November 14, 1994 (Commission
File No. 1-8122).
4.12 Specimen of Stock Subscription Warrant No. 17 issued to The Prudential
Insurance Company of America, as of November 1, 1994, incorporated
herein by reference to Exhibit 4.24 to the Registrant's Quarterly
Report on Form 10-Q filed on November 14, 1994 (Commission File No. 1-
8122).
4.13 Specimen of Stock Subscription Warrant No. 18 issued to Warburg,
Pincus Investors, L.P., restated as of November 1, 1994, incorporated
herein by reference to Exhibit 4.25 to the Registrant's Quarterly
Report on Form 10-Q filed on November 14, 1994 (Commission File
No. 1-8122).
4.14 Specimen of Stock Subscription Warrant No. 19 issued to Warburg,
Pincus Investors, L.P., as of November 1, 1994, incorporated herein by
reference to Exhibit 4.26 to the Registrant's Quarterly Report on Form
10-Q filed on November 14, 1994 (Commission File No. 1-8122).
4.16 Amended Senior Note executed by the Registrant in favor of The
Prudential Insurance Company of America in the amount of $6,500,000,
dated as of November 1, 1994, incorporated herein by reference to
Exhibit 4.27 to the Registrant's Quarterly Report on Form 10-Q filed
on November 14, 1994 (Commission File No. 1-8122).
4.17 Amended Senior Note executed by the Registrant in favor of The
Prudential Insurance Company of America in the amount of $3,500,000,
dated as of November 1, 1994, incorporated herein by reference to
Exhibit 4.28 to the Registrant's Quarterly Report on Form 10-Q filed
on November 14, 1994 (Commission File No. 1-8122).
4.18 Amended Payment-In-Kind Note executed by the Registrant in favor of
The Prudential Insurance Company of America in the amount of
$10,900,834.333, dated as of November 1, 1994, incorporated herein by
reference to Exhibit 4.29 to the Registrant's Quarterly Report on Form
10-Q filed on November 14, 1994 (Commission File No. 1-8122).
4.19 Amended Revolving Credit Note executed by the Registrant in favor of
The Prudential Insurance Company of America in the amount of
$5,000,000, dated as of November 1, 1994, incorporated herein by
reference to Exhibit 4.30 to the Registrant's Quarterly Report on Form
10-Q filed on November 14, 1994 (Commission File No. 1-8122).
4.20 Payment-in-Kind Note executed by the Registrant in favor of The
Prudential Insurance Company of America in the amount of
$1,520,058.79, dated as of February 1, 1996.
45
<PAGE>
On an individual basis, instruments other than Exhibits, listed above
under Exhibit 4 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 May 28, 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* 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 Second Amendment to the Stockholders' Agreement dated November 1,
1994, among the Registrant, Warburg, Pincus Investors, L.P., The
Prudential Insurance Company of America, and Joe F. Hanauer,
incorporated herein by reference to Exhibit 10.19 to the Registrant's
Quarterly Report on Form 10-Q filed on November 14, 1994 (Commission
File No. 1-8122).
10.8* 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).
10.9* 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).
46
<PAGE>
10.11 Agreement dated November 8, 1994 among the Registrant, Newco Realty
Corp., Dennis Gordon, John Tillotson, Javier Uribe, and Charles
Neubauer, incorporated herein by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on December 1, 1994
(Commission File No. 1-8122).
10.12 Servicemark License Agreement dated November 17, 1994 between the
Registrant and Newco Realty Corp., incorporated herein by reference
to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed
on December 1, 1994 (Commission File No. 1-8122).
10.13 Guaranty dated November 8, 1994 executed by Dennis Gordon, Javier
Uribe, John Tillotson and Charles Neubauer, incorporated herein by
reference to Exhibit 10.3 to the Registrant's Current Report on Form
8-K filed on December 1, 1994 (Commission File No. 1-8122).
10.14* Description of Grubb & Ellis Company Management Separation
Arrangements, incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K filed on March 31, 1995
(Commission File No. 1-8122).
10.15* Separation Agreement between the Registrant and John C. Carpenter
dated January 24, 1996.
10.16* Employment Agreement between the Registrant and Allan D. Schuster
dated November 15, 1995.
10.17 Stock Sale Agreement between the Registrant and International
Business Machines Corporation dated January 19, 1996, incorporated
herein by reference to Exhibit 99.1 to the Registrant's Current
Report on Form 8-K filed on February 8, 1996 (Commission File No. 1-
8122).
10.18 Managed Service Agreement between International Business Machines
Corporation and Axiom Real Estate Management, Inc. dated as of
January 1, 1996, and Side Letter Agreement between the parties dated
January 19, 1996, incorporated herein by reference to Exhibit 99.2
to the Registrant's Current Report on Form 8-K filed on February 8,
1996 (Commission File No. 1-8122).
10.19* Description of Neil R. Young's employment agreement.
* Management contract or compensatory plan or arrangement.
(11) Statement regarding Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
23.1 Consent of Ernst & Young LLP
23.2 Consent of Coopers & Lybrand L.L.P.
(24) Powers of Attorney
(27) Financial Data Schedule
(b) Reports on Form 8-K: none.
47
<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 25th day of March,
1996.
GRUBB & ELLIS COMPANY
(REGISTRANT)
by *
-----------------------------------
Neil R. Young
President and
Chief Executive Officer
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.
/s/ Robert J. Hanlon, Jr. March 25, 1996
- --------------------------------------
Robert J. Hanlon, Jr.
Senior Vice President and
Chief Financial Officer
/s/ James E. Klescewski March 25, 1996
- --------------------------------------
James E. Klescewski
Vice President and Corporate Controller
* March 25, 1996
- --------------------------------------
Joe F. Hanauer, Chairman of the Board
and Director
* March 25, 1996
- --------------------------------------
R. David Anacker, Director
* March 25, 1996
- --------------------------------------
Neil R. Young
President, Chief Executive
Officer and Director
48
<PAGE>
SIGNATURES (CONTINUED)
GRUBB & ELLIS COMPANY
(REGISTRANT)
* March 25, 1996
- ----------------------------------------
Reuben S. Leibowitz, Director
* March 25, 1996
- ----------------------------------------
John D. Santoleri, Director
* March 25, 1996
- ----------------------------------------
Lawrence S. Bacow, Director
* March 25, 1996
- ----------------------------------------
Robert J. McLaughlin, Director
/s/ Robert J. Walner *Pursuant to Powers of Attorney
-----------------------------------
By: Robert J. Walner, Attorney-in-Fact
49
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
SCHEDULE II - 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
of period expenses (1) receivable (1) period
Description
-------------------------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Allowance for uncollectible
real estate brokerage
commissions receivable (1)
--------------------------------
Year ended December 31, 1995: 3,118 120 - 3,238
Year ended December 31, 1994: 5,027 - 1,909 3,118
Year ended December 31, 1993: 5,002 25 - 5,027
Reserves on real estate
investments and real
estate owned
--------------------------------
Year ended December 31, 1995 3,778 71 1,371 2,478
Year ended December 31, 1994: 3,792 264 278 3,778
Year ended December 31, 1993: 6,366 2,574 3,792
</TABLE>
(1) The above additions and deletions have been presented as a net
balance due to limitations in the Company's computer systems.
50
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT INDEX(A)
FOR THE YEAR ENDED DECEMBER 31, 1995
EXHIBIT
(10) Material Contracts
10.15 Separation Agreement between the Registrant and John C.
Carpenter dated January 24, 1996.
10.16 Employment Agreement between the Registrant and Allan
D. Schuster dated November 15, 1995.
10.19 Description of Neil R. Young's employment agreement.
(11) Statement regarding Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consents of Independent Auditors
23.1 Consent of Ernst & Young LLP
23.2 Consent of Coopers & Lybrands L.L.P.
(24) Powers of Attorney
(27) Financial Data Schedule
(A) Exhibits incorporated by reference are listed in Item 14(a)3 of this
report.
51
<PAGE>
EXHIBIT 10.15
January 24, 1996
John F. Carpenter
121 Daniel Drive
Alamo, CA 94507
Re: Separation Agreement
--------------------
Dear John:
This letter, upon your signature, will constitute the entire agreement
("Agreement") between you and Grubb & Ellis Company and all of its subsidiaries,
divisions, regions, and related entities (collectively, the "Company") regarding
your separation from employment with the Company.
1. Due to elimination of your position as President of the Pacific
Northwest Region of the Company as of January 24, 1996, your employment with
the Company will be terminated.
2. Although you are not otherwise entitled to the following except
pursuant to this Agreement, upon the effectiveness of this Agreement (see
Paragraph 11, below) the Company agrees to extend your employment until the
earlier of end of the workday on July 24, 1996 or the last business day prior to
your employment or association with another firm as set forth in subparagraph e.
below ("your termination date"), under the following terms and conditions:
a. From January 24, 1996 until your termination date (the "term"),
your title shall be Vice President - Business Development of the Company. Your
primary duties during such term shall be business development for the Company,
transitional services related to closure of the Pacific Northwest Regional
office, and such other duties as shall be reasonably required by Neil R. Young,
President of Commercial Brokerage Operations;
b. During the term, you will be paid your existing base salary,
less withholding and customary payroll deductions;
c. You will not be eligible for any incentive compensation;
d. You agree to waive any entitlement to payment of accrued vacation
time and to severance compensation;
e. In the event that you become employed with another firm or become
associated with another business during the term, your employment with the
Company will thereupon terminate and your termination date will be the last
business day prior to your first day of employment or association with the other
firm;
f. During the term, the Company agrees to make available for your
exclusive use your existing office space, office telephone number, voice mailbox
and secretarial assistance at the Walnut Creek, California location of the
Company; provided that in the event that the Company determines, in its sole
discretion, that for legitimate business reasons, you must leave the Company's
premises during the term, you agree to do upon the request of Neil
52
<PAGE>
John F. Carpenter Page 2 of 4
January 24, 1996
Young, and your employment shall extend for the balance of the term on the basis
of a paid leave of absence;
g. Until your termination date and so long as you are permitted to
remain on Company premises, you may pursue other employment or business
opportunities while in the Company's offices and you may use Company resources
in that endeavor; provided, however, that: (i) such pursuit does not conflict
with the above-referenced duties or create a conflict of interest with your
responsibilities at the Company; (ii) you disclose to the Company any real
estate services opportunities which the Company could reasonably be expected to
have an interest in pursuing, and you and your affiliates refrain from pursuing
such opportunities unless the Company declines the opportunities; and (iii)
Company resources and facilities are not used for such employment or business
once it is undertaken;
h. Except as set forth herein, your employment is subject to all the
terms and conditions of the Grubb & Ellis Employee Handbook, as it may be
amended from time to time.
3. In exchange for the extension of your employment under the terms
described in Paragraph 2 above, to which you are not otherwise entitled except
pursuant to this Agreement, you agree to and hereby do waive and release, and
promise never to assert, any claims of any kind or nature whatsoever, in law or
equity, known or unknown, direct and indirect, that you have or might in the
future have against Grubb & Ellis Company and its predecessors, subsidiaries,
affiliates, associates, owners, divisions, representatives, related entities,
officers, directors, shareholders, agents, partners, insurers, employee benefit
plans (and their trustees, administrators and other fiduciaries), attorneys,
employees, heirs, successors, and assigns, arising from or related to your
employment and/or the termination of your employment with the Company.
The claims that you are waiving, releasing and promising not to assert
include, but are not limited to, claims arising under federal, state and local
statutory and common law, such as the Age Discrimination in Employment Act, as
amended, the Americans with
Disabilities Act of 1990, the Family Medical Leave Act of 1993, Title VII of the
Civil Rights Act of 1964, as amended, the Equal Pay Act of 1963, as amended, the
Civil Rights Act of 1866, as amended, the common law of contract and tort, and
any other laws and regulations relating to employment, or employment
discrimination and/or the payment of wages or benefits.
4. You agree and understand that the claims that you are waiving,
releasing and promising never to assert include claims that you now know or have
reason to know exist, as well as those that you do not presently have any reason
to know, believe or suspect that you have. You waive any statutory rights that
permit the release only of known claims, including any and all rights and
benefits conferred upon you by the provisions of Section 1542 of the Civil Code
of the State of California, which states as follows:
A general release does not extend to claims which
the creditor does not know or suspect to exist in
his favor at the time of executing the release,
which if known
53
<PAGE>
John F. Carpenter Page 3 of 4
January 24, 1996
by him must have materially affected his
settlement with the debtor.
5. You agree to resign as Senior Vice President and President of the
Pacific Northwest Region of Grubb & Ellis Company and to resign as a director
and/or officer of all subsidiaries and related entities effective January 24,
1996.
6. You agree to return to the Company, by your termination date, any and
all information and materials, whether in paper, magnetic, electronic or other
form, that you have about the Company's practices, procedures, trade secrets,
finances, client lists, or marketing of the Company's services.
7. You agree that you will not, unless required by law or otherwise
permitted by express written permission from or request by the Company, disclose
to anyone any information regarding the following:
a. Any non-public information regarding the Company practices,
procedures, trade secrets, client lists, or product marketing of the Company's
services.
b. The terms of this Agreement, except that you may disclose this
information to members of your immediate family and to your attorney, accountant
or other professional advisor(s) to whom you must make the disclosure in order
for them to render professional services to you. You will instruct them,
however, to maintain the confidentiality of this information just as you must,
and any breach of this obligation of confidentiality by such family member or
professional advisor(s) shall be deemed to be a breach by you.
8. You acknowledge that you are not entitled to any incentive
compensation which has not already been paid.
9. After your termination date, you will no longer be covered by or
eligible for any benefits under any Company employee benefit plans, and your
health and/or dental coverages will cease at the end of the last month of your
employment. You will receive by separate cover information regarding your
rights to health insurance continuation and any 401(k) PLUS benefits. To the
extent that you have such rights, nothing in this Agreement will impair those
rights.
10. In the event that you breach any of your obligations under this
Agreement or as otherwise imposed by the law, the Company will be entitled to
recover the benefits paid under the Agreement and to obtain all other relief
provided by law and equity. This Agreement will be governed by the law of the
State of California.
11. To accept the Agreement, please date and sign this Agreement and
return it, either by personal delivery or by mail, to GRUBB & ELLIS COMPANY, c/o
Laura J. Ferracane, Human Resources Director, at One Montgomery Street, Telesis
Tower, 9th Floor, San Francisco, CA 94104. An extra original for your records
is enclosed.
54
<PAGE>
John F. Carpenter Page 4 of 4
January 24, 1996
a. You have up to 21 days from the date you receive this Agreement
to accept the terms of this Agreement, although you may accept it at any time
within those 21 days.
b. Once you accept this Agreement, you will have seven (7) days
after signing to revoke your acceptance. To revoke, you must send, either by
personal delivery or by mail, to the Human Resources Director is indicated
above, a written statement of revocation. If you do not revoke, the eighth day
after the date of your acceptance will be the "effective date" of this
Agreement.
12. This Agreement represents the sole and entire agreement between you
and the Company and supersedes any and all previous verbal or written promises,
representations, agreements, negotiations and/or discussions, if any, between
you and the Company with respect to the subject matters covered herein. This
Agreement cannot be terminated or changed except in writing by you and a duly
authorized representative of the Company. You are advised to consult an
attorney about this Agreement.
13. Nothing in this Agreement shall constitute an admission of liability
or wrongdoing by the Company. This Agreement shall not be binding on the
Company unless and until it is signed, in unaltered form, and returned to the
Company as provided above.
GRUBB & ELLIS COMPANY
/S/ Neil R. Young
----------------------------
By Neil R. Young
Dated: January 25 , 1996 President of Commercial
------------------- Brokerage Operations
By signing this separation agreement letter, I acknowledge that I have had
the opportunity to review it carefully with an attorney of my choice, that I
understand the terms of the agreements contained therein, and that I voluntarily
agree to them.
Dated: January 24 , 1996 /S/ John F. Carpenter
---------------------- ---------------------
John F. Carpenter
7CV\2104
55
<PAGE>
EXHIBIT 10.16
Grubb & Ellis Company
One Montgomery Street
Telesis Tower
San Francisco, CA 94104
November 15, 1995
Mr. Allan D. Schuster
3937 Merriweather Woods
Alpharetta, Georgia 30202
Re: LETTER AGREEMENT OF EMPLOYMENT
------------------------------
Dear Allan:
This letter confirms the terms of your employment with Grubb & Ellis
Company (the "Company").
POSITION. You will be Chief Executive Officer and President of the
Company. You will be elected to serve on the Board of Directors of the
Company, and during the Period of Contract Employment (as defined below)
you will be nominated to serve as a director upon expiration of your term
as a director and will serve as a director at the pleasure of the Company's
stockholders. You will also serve as Chief Executive Officer, and be a
member of the Board of Directors, of such subsidiaries of the Company as
the Board of Directors of the Company determines (the "Designated
Subsidiaries"). You will serve at the pleasure of the Board of Directors
of the Company and will report directly to the Chairman and Board of
Directors of the Company. In such capacities, you will work closely with
other members of the management team to accomplish the goals of the Company
and the Designated Subsidiaries.
DUTIES AND RESPONSIBILITIES. Subject to control of the Board of
Directors of the Company and the Designated Subsidiaries, you will direct
the day-to-day operations of the Company and the Designated Subsidiaries
and you will formulate plans and policies to achieve overall corporate
objectives and targeted profitability, including: (i) creating, approving
and implementing broad corporate policies, procedures and organizational
structure; (ii)
56
<PAGE>
establishing and monitoring short-term and long-term plans consistent with
overall profit and growth objectives; (iii) providing advice, guidance and
direction to carry out major plans and procedures consistent with policies
established by Board
of Directors of the Company or a Designated Subsidiary; (iv) monitoring and
analyzing operating results to ensure that corporate performance is
satisfactorily maintained; and (v) performing additional assignments as
directed by the Chairman of the Company or the Board of Directors of the
Company or the Designated Subsidiaries.
PERIOD OF CONTRACT EMPLOYMENT. As used herein, the term "Period of
Contract Employment" means the period beginning on the date hereof and
ending on the earlier of December 31, 2000 or at the time of the
Termination of Contract Employment (as defined below under the caption
"Termination"). The Period of Contract Employment may be extended by a
written agreement signed by you and the Company; PROVIDED, that if the
Company offers to extend your employment beyond December 31, 2000, such
offer must include a compensation arrangement that includes an amount of
Base Salary (as defined below under the caption "Annual Base
Salary") equal to or greater than the amount of Base Salary paid or payable
during calendar year 2000 and, with respect to Target Bonus (as defined
below under the caption "Bonus Compensation"), includes an amount equal to
or greater than the Target Bonus applicable in calendar year 2000.
Notwithstanding the foregoing, neither you nor the Company will have any
obligation to extend the Period of Contract Employment. If you remain in
the employ of the Company following the Period of Contract Employment and
any extension thereof in accordance with this paragraph, such employment
will be at will unless different terms of employment are established in
writing.
ANNUAL BASE SALARY. During the Period of Contract Employment the
Company agrees to pay you a base salary (the "Base Salary") in the annual
amount set forth below:
<TABLE>
<CAPTION>
Calendar Base Salary
-------- -----------
Year
----
<S> <C>
1995 $350,000 (prorated for portion of year employed
by the Company)
1996 $350,000
1997 $350,000
1998 $380,000
1999 $400,000
57
<PAGE>
2000 $415,000
</TABLE>
The Base Salary will be payable as current salary, in installments
(not less frequent than monthly) subject to all applicable withholding and
deductions, in accordance with the Company's customary payroll practices.
BONUS COMPENSATION. During the Period of Contract Employment, you
will be entitled to receive annual bonus compensation ("Bonus
Compensation") comprised of a target bonus (the "Target Bonus") and a
special bonus (the "Special Bonus"). Bonus Compensation, if earned, will
be payable after December 31 of the calendar year in which the Bonus
Compensation was earned in one lump sum in accordance with the Company's
customary payroll practices, but in no event later than 90 days after the
end of such calendar year.
During the Period of Contract Employment and upon the completion of
each of the calendar years 1996 and 1997, the Company agrees to pay you a
minimum Target Bonus equal to $175,000 with a maximum bonus amount to be
established in the sole discretion of the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee") based on the
achievement of performance factors to be established by the Compensation
Committee after consultation with you. During the Period of Contract
Employment and with respect to calendar year 1998 and calendar years
thereafter, you will be eligible to receive a Target Bonus based upon
achievement of performance factors to be established by the Compensation
Committee after consultation with you. For each performance factor, after
consultation with you the Compensation Committee will establish
quantitative performance standards and an accompanying Target Bonus equal
to fifty percent (50%) of your Base Salary for the applicable year, subject
to increase or decrease in the event such quantitative performance
standards are exceeded or not met, as the case may be.
During the Contract Period of Employment, you will be eligible to
receive a Special Bonus with respect to calendar years 1998, 1999 and 2000.
The Special Bonus will be payable in the event the Company's Net Income for
the twelve months ending December 31 of a given year equals or exceeds a
level as set forth below (the "Earnings Level"). For purposes of
determining whether the Earnings Level is achieved for a given calendar
year, Net Income means after-tax, net income as reported in the Company's
Consolidated Statement of Operations in a manner consistent with the
Company's accounting practices used as of the date hereof but excluding
extraordinary items of income and expense.
58
<PAGE>
For purposes of this letter agreement, any annual amount of depreciation
and amortization expense in excess of $2,000,000 will be deemed an
extraordinary expense and will not be included in determining Net Income.
You will have the right to request the Company's principal accounting
officer to provide a presentation of the Company's Net Income for a given
calendar year calculated in a manner consistent with the accounting
practices used as of the date hereof.
<TABLE>
<CAPTION>
Calendar Year Earnings Level
------------- --------------
<S> <C>
1998 $14,500,000
1999 $17,000,000
2000 $20,000,000
</TABLE>
In the event the Company achieves the Earnings Level during a given
calendar year, the Company agrees to pay you a Special Bonus equal to
$333,000 (the "Special Bonus Amount"). In the event the Company achieves
at least eighty-five percent (85%) but less than one hundred percent (100%)
of the Earnings Level in a given calendar year, the Company agrees to pay
you a pro-rata share of the Special Bonus Amount in an amount equal to the
percentage of the Earnings Level achieved by the Company that year. To the
extent that the Company's Net Income for a given calendar year exceeds the
Earnings Level, you will have the right to deduct the aggregate amount of
such excess in such portions as you direct (PROVIDED that the aggregate
amount of such portions does not exceed the aggregate amount of such
excess) from the specified Earnings Level of any preceding and/or any
succeeding calendar year for which you were eligible to earn a Special
Bonus but for which the full Special Bonus Amount was not earned, and the
Company agrees to pay you the Special Bonus for such prior and/or
succeeding calendar year in accordance with the Earnings Level, as
adjusted.
EQUITY INCENTIVE. Concurrent with the execution of this letter
agreement and pursuant to the Company's 1990 Amended and Restated Stock Option
Plan (the "Plan"), the Company has granted you a non-qualified stock option (the
"Option") to purchase 500,000 shares of the Company's common stock, $.01 par
value per share (the "Common Stock"), at an exercise price equal to the closing
price of the Common Stock on The New York Stock Exchange on the date of such
grant. The Option vests in five equal, annual installments commencing on
December 31, 1996, provided you are still employed by the Company on each such
installment date. Notwithstanding the foregoing, the option agreement with
respect to the Option (the "Stock Option Agreement") provides that the Option
becomes fully vested in the
59
<PAGE>
event the Company achieves the Earnings Level in calendar year 1998 or 1999 or
in the event of a Change of Control Termination (as defined below under the
caption "Change of Control Termination"). Except as otherwise provided herein
or in the Stock Option Agreement and subject to the following paragraph, the
Option may be exercised at any time in accordance with the provisions of the
Plan, if and to the extent vested, until the tenth anniversary of the date of
grant.
The Company will amend the Plan to permit you to exercise the Option
as contemplated by this letter agreement and the grant of the Option is
subject to such amendment. The failure of the Company to amend the Plan
during calendar year 1996 shall entitle you to terminate your employment as
if a Change of Control Termination had occurred.
BENEFITS. During the Period of Contract Employment, you will be
entitled to participate in or receive benefits under 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 and 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 letter agreement establishes
any right on your part to the availability or continuance of any such plan
or arrangement.
EXPENSES AND OFFICE SPACE. The Company agrees that during the Period
of Contract Employment, you will be reimbursed for reasonable documented
traveling and entertainment expenses directly related to the business of
the Company or any Designated Subsidiary and you will be furnished office
space, assistance and accommodations within the Company's place of business
suitable to the character of your position with the Company and adequate
for the performance of your duties hereunder. The Company also will
reimburse you for membership fees to organizations and societies related to
the Company's business. During the Period of Contract Employment, you
agree that you will maintain and use your private airplane as may be
necessary or required to perform and fulfill your duties and
responsibilities with the Company. To the extent that you pilot yourself
for business air travel, the Company will reimburse you at the standard
coach fare for such air travel.
RELOCATION AND REIMBURSEMENT. You will be resident in
60
<PAGE>
the Company's offices located in Rosemont, Illinois and you agree to
relocate to the Chicago area within such time period as is
appropriate to effect your orderly transition to your position with the
Company or following the reasonable request of the Board of
Directors of the Company on or after July 1, 1996. You will be entitled
to reimbursement for the reasonable expenses for moving household
goods incurred by you in connection with your relocation from Atlanta,
Georgia to the Chicago area, for the customary commission paid by
you in connection with the sale of your current, primary residence in
Atlanta, and for the customary closing costs paid by you in
connection with the purchase of a residence in the Chicago area. The
Company is not obligated to purchase your Atlanta residence. The
Company will reimburse you for the cost of coach-class plane fare
for a reasonable number of round-trips for you and/or your wife from
Atlanta in connection with searching for a residence in the Chicago
area. During the first 90 days of your temporary residence in the
Chicago area, the Company will reimburse you for reasonable and
customary expenses incurred by you in connection with commuting to or
from the Company's Rosemont offices (including accommodation, meals
and transportation). The Company will not reimburse you for any tax
liability associated with your movement of household goods, the
commission paid by you in connection with the sale of your
residence or the closing costs associated with the purchase of a
residence in the Chicago area. Except as set forth above, you will
bear all expenses, costs and capital losses associated with your
relocation.
TERMINATION. Your employment hereunder will terminate upon the first
to occur of the following circumstances (any such termination and any
termination pursuant to this section is referred to herein as a
"Termination of Contract Employment").
EXPIRATION. Your employment hereunder will terminate on December
31, 2000 unless you and the Company agree to extend the Period of
Contract Employment pursuant to the paragraph above captioned "Period
of Contract Employment." In the event of such termination, you will
be paid:
(i) all earned but unpaid Base Salary (including any of such
amount deferred, which amount of deferred Base Salary will be
paid within five business days after the date of termination
notwithstanding anything herein to the contrary) to and including
the date of termination, payable
61
<PAGE>
in a lump sum within five business days after the date of
termination;
(ii) all earned but unpaid Bonus Compensation (including any of
such amount deferred, which amount of deferred Bonus Compensation
will be paid within five business days after the date of
termination notwithstanding anything herein to the contrary) to
and including the date of termination, payable when such amount
would have been otherwise payable in accordance with the
Company's customary payroll practices but in no event later than
April 1, 2001; and
(iii) six months' Base Salary (based on the Base Salary paid
during the first six months of the calendar year 2000), payable
over the first six months of 2001 when such amounts would have
been otherwise payable in accordance with the Company's customary
payroll practices, PROVIDED that the Company will not be
obligated to make any payment to you pursuant to this clause
(iii) if, on or prior to June 30, 2000, the Company offers to
extend your employment for at least one year and such offer
includes a compensation arrangement that includes an amount of
Base Salary equal to or greater than the amount of Base Salary
paid or payable during calendar year 2000 and with respect to
Target Bonus, includes an amount equal to or greater than the
Target Bonus applicable in calendar year 2000, and you decline
such offer.
After expiration of your initial term of employment with the
Company pursuant to this subsection, the Option may be exercised in
accordance with the Plan through the term of the Option and thereafter
any unexercised portion of the Option will be forfeited.
DEATH OR DISABILITY. Your employment hereunder will terminate
upon your death or disability. In the event of such termination, you
or your estate will be paid:
(i) all earned but unpaid Base Salary (including any of such
amount deferred) to and including the date of termination,
payable in a lump sum within five business days after the date of
termination;
(ii) all Bonus Compensation earned with respect to
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<PAGE>
calendar years ended prior to the date of termination
(including any of such amount deferred, which amount of deferred
Bonus Compensation will be paid within five business days after
the date of termination notwithstanding anything herein to the
contrary) but which is unpaid as of the date of termination,
payable in a lump sum within five business days after the
effective date of the termination, PROVIDED that in the event the
Company has not determined as of the date of termination the
amount of Bonus Compensation payable pursuant to this clause
(ii), the amount paid pursuant to this clause (ii) will be
calculated based upon 80% of Company projections for the calendar
year immediately preceding the effective date of termination, and
PROVIDED FURTHER that in the event the amount of any projected
Bonus Compensation paid pursuant to this clause (ii) is greater
or less than the actual amount of Bonus Compensation as
calculated in accordance with the Company's customary payroll
practices (which calculation will be completed not later than 90
days after the end of the calendar year immediately preceding the
termination) then the Company will give you notice of such
difference within five business days after making such
determination and you or the Company, as the case may be, agree
to pay the other party the amount of such difference within 10
business days after such notice is delivered to you;
(iii) a pro-rata share of the Target Bonus calculated as follows:
(A) if the termination occurs on or before June 30 of a
given year, you will receive the established Target Bonus
for that year pro-rated for the percentage of the year you
were employed by the Company, payable in a lump sum within
five business days after the effective date of termination;
or
(B) if the termination occurs on or after July 1 of a given
year, you will receive:
(I) the established Target Bonus for that year pro-
rated up to June 30 of that year, payable in a lump sum
within five business days after the effective date of
termination; and
63
<PAGE>
(II) the pro-rata share of the Target Bonus for the
calendar year in which the termination occurred based
on the percentage of the year you were employed by the
Company less the amount in clause (I) above, payable in
a lump sum when such amount would have been otherwise
payable in accordance with the Company's customary
payroll practices; and
(iv) if the termination occurs on or after January 1, 1998 and
after comparing the Company's financial performance through the
end of the month nearest to the date of termination against the
approved Company financial plan for the same period, the Company
has achieved a level of Net Income such that on a pro forma basis
taking into consideration the actual financial performance to the
date of termination the Company would have achieved the specified
Earnings Level for the calendar year in which the termination
occurred, you will receive a pro-rata share of the Special Bonus
for the calendar year in which the termination occurred based on
the percentage of the calendar year you were employed by the
Company, payable in a lump sum by the later to occur of five
business days after the date of termination or two business days
after the Company prepares final financial reports for the end of
the month nearest to the date of termination, which reports will
be prepared no later than 12 business days after the end of such
month; and
(v) any amounts payable to you by reason of the Company's
disability or other benefit plans in effect and applicable to you
at the time of such termination, payable when such amounts would
be otherwise payable in accordance with the terms and provisions
of such plans.
The Option, to the extent vested at the date of termination, may
be exercised in accordance with the Plan within twelve months after
termination of your employment with the Company pursuant to this
subsection and any unexercised portion of the Option will be
forfeited.
For purposes of this subsection, "disability" means your failure,
during the Period of Contract
64
<PAGE>
Employment, to render services to the Company for a continuous period
of 120 days because of your physical or mental disability during said
period. If there should be any dispute between the Company and you as
to your physical or mental disability at any time, such question will
be settled by the opinion of an impartial reputable physician agreed
upon for the purpose by the Company and you or our respective
representatives, or failing such agreement within ten days of a
written request therefor by either of us to the other, then one
designated by the then president of the Chicago Medical Society. The
certificate of such physician as to the matter in dispute will be
final and binding on you and the Company.
Nothing in this subsection will be construed to waive your
rights, if any, under existing law including the Family and Medical
Leave Act and the Americans with Disabilities Act and the provisions
of this subsection will be construed so as to assure compliance with
such laws.
COMPANY CONVENIENCE. The Company may terminate your employment
hereunder without cause at any time by giving written notice
("Termination Notice") to you. Such termination will become effective
upon the date specified in the Termination Notice, which date will be
on or after the date such Termination Notice is delivered to you. In
the event of such termination, you will be paid:
(i) all earned but unpaid Base Salary (including any of such
amount deferred) to and including the date of termination,
payable in a lump sum within five business days after the date of
termination;
(ii) the amount of Base Salary you would have otherwise earned
during the twelve months following the termination, payable over
a twelve month period when such amounts would have been otherwise
payable in accordance with the Company's customary payroll
practices;
(iii) all Bonus Compensation earned with respect to calendar
years ended prior to the date of termination (including any of
such amount deferred, which amount of deferred Bonus Compensation
will be paid within five business days after the date of
termination notwithstanding anything herein to the contrary) but
which is
65
<PAGE>
unpaid as of the date of termination, payable in a lump sum
within five business days after the effective date of the
termination, PROVIDED that in the event the Company has not
determined as of the date of termination the amount of Bonus
Compensation payable pursuant to this clause (iii), the amount
paid pursuant to this clause (iii) will be calculated based upon
80% of Company projections for the calendar year immediately
preceding the effective date of termination, and PROVIDED FURTHER
that in the event the amount of any projected Bonus Compensation
paid pursuant to this clause (iii) is greater or less than the
actual amount of Bonus Compensation as calculated in accordance
with the Company's customary payroll practices (which calculation
will be completed not later than 90 days after the end of the
calendar year immediately preceding the termination) then the
Company will give you notice of such difference within five
business days after making such determination and you or the
Company, as the case may be, agree to pay the other party the
amount of such difference within 10 business days after such
notice is delivered to you;
(iv)
(A) if the effective date of the termination is prior to
January 1, 1998:
(I) the pro-rata share of the Target Bonus for the
calendar year in which the termination occurred based
on the percentage of the calendar year you were
employed by the Company, payable in a lump sum within
five business days after the date of termination; and
(II) an amount equal to fifty percent (50%) of the Base
Salary that you would have otherwise earned during the
calendar year following the year in which the
termination occurred, payable in equal installments
over the twelve months following the effective date of
the termination in accordance with the Company's
customary payroll practices; or
(B) if the effective date of the termination
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<PAGE>
is on or after January 1, 1998:
(I) an amount based on Target Bonus calculated as
follows:
(a) if the termination occurs on or before June 30
of a given year, you will receive the established
Target Bonus for that calendar year pro-rated for
the percentage of the calendar year you were
employed by the Company, payable in a lump sum
within five business days after the effective date
of termination; or
(b) if the termination occurs on or after July 1
of a given year, you will receive:
(1) the established Target Bonus for that
year pro-rated up to June 30 of that year,
payable in a lump sum within five business
days after the effective date of termination;
and
(2) the pro-rata share of the Target Bonus
for the calendar year in which the
termination occurred based on the percentage
of the year you were employed by the Company
less the amount in clause (1) above, payable
in a lump sum when such amount would have
been otherwise payable in accordance with the
Company's customary payroll practices; and
(II) if the termination occurs on or after January 1,
1998 and after comparing the Company's financial
performance through the end of the month nearest to the
date of termination against the approved Company
financial plan for the same period, the Company has
achieved a level of Net Income such that on a pro forma
basis taking into
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<PAGE>
consideration the actual financial performance to the
date of termination the Company would have achieved the
specified Earnings Level for the calendar year in which
the termination occurred, you will receive a pro-rata
share of the Special Bonus for the calendar year in
which the termination occurred based on the percentage
of the calendar year you were employed by the Company,
payable in a lump sum by the later to occur of five
business days after the date of termination or two
business days after the Company prepares final
financial reports for the end of the month nearest to
the date of termination, which reports will be prepared
no later than 12 business days after the end of such
month; and
(III) an amount equal to fifty percent (50%) of the
Base Salary that you would have otherwise earned during
the calendar year following the year in which the
termination occurred, payable in equal installments
over the twelve months following the effective date of
the termination in accordance with the Company's
customary payroll practices.
The Option, to the extent vested at the date of termination, may
be exercised in accordance with the Plan within 24 months after the
effective date of termination of your employment with the Company
pursuant to this subsection and any unexercised portion of the Option
will be forfeited.
EXECUTIVE CONVENIENCE. You may terminate your employment
hereunder without cause at any time by giving a Termination Notice to
the Company. Such termination will become effective upon the date
specified in the Termination Notice, provided that such date is at
least sixty days after the date of the Termination Notice. In the
event of such termination, you will be paid:
(i) all earned but unpaid Base Salary (including any of such
amount deferred) to date of termination, payable in a lump sum
within five business days after the effective date of the
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termination; and
(ii) all Bonus Compensation earned with respect to calendar years
ended prior to the date of termination (including any of such
amount deferred, which amount of deferred Bonus Compensation will
be paid within five business days after the date of termination
notwithstanding anything herein to the contrary) but which is
unpaid as of the date of termination, payable in a lump sum
within five business days after the effective date of the
termination, PROVIDED that in the event the Company has not
determined as of the date of termination the amount of Bonus
Compensation payable pursuant to this clause (ii), the amount
paid pursuant to this clause (ii) will be calculated based upon
80% of Company projections for the calendar year immediately
preceding the effective date of termination, and PROVIDED FURTHER
that in the event the amount of any projected Bonus Compensation
paid pursuant to this clause (ii) is greater or less than the
actual amount of Bonus Compensation as calculated in accordance
with the Company's customary payroll practices (which calculation
will be completed not later than 90 days after the end of the
calendar year immediately preceding the termination) then the
Company will give you notice of such difference within five
business days after making such determination and you or the
Company, as the case may be, agree to pay the other party the
amount of such difference within 10 business days after such
notice is delivered to you.
The Option, to the extent vested at the date of termination, may
be exercised in accordance with the Plan within three months after the
effective date of termination of your employment with the Company
pursuant to this subsection and any unexercised portion of the Option
will be forfeited.
FOR CAUSE BY COMPANY. The Company may terminate your employment
at any time for cause by giving a Termination Notice to you. Unless
otherwise specified in the Termination Notice, such termination will
become effective immediately upon giving of such Termination Notice.
In the event of such termination, the terms with respect to Base
Salary, Bonus Compensation and the Option will be the same as those
set forth in the paragraph captioned "--Executive Convenience." For
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<PAGE>
purposes of this subsection, "cause" means: (i) your failure to remedy
any breach of this letter agreement or serious breach of Company
policy, or any gross negligence on your part, which failure or gross
negligence shall continue for 30 days after receipt of written notice
from the Company's Board of Directors regarding such breach or gross
negligence; or (ii) serious, willful misconduct by you, including,
self-dealing, disloyalty, the commission of any felony, or any act of
dishonesty, fraud or other crime against the Company or a Designated
Subsidiary.
CHANGE OF CONTROL. You or the Company may terminate your
employment hereunder (a "Change of Control Termination") after the
occurrence of a Trigger Event or of both (a) a Change of Control and
(b) any Termination Event by giving a Termination Notice to the other
party. Such termination will become effective upon the date specified
in the Termination Notice, which date shall be on or after the date
such Termination Notice is delivered to the other party. In the event
of a Change of Control Termination, the terms with respect to Base
Salary, Bonus Compensation and severance will be the same as those set
forth in the paragraph captioned "--Company Convenience"; PROVIDED
that the amounts required to be paid pursuant to clauses (ii) and
(iv)(B)(III) therein will be payable within five business days after
the date of termination. The Option will become fully vested in the
event of a Change of Control Termination and may be exercised in
accordance with the Plan within 24 months after the effective date of
termination of your employment with the Company pursuant to this
subsection and any unexercised portion of the Option will be
forfeited.
For purposes of this subsection, Trigger Event means (i) the
Company is liquidated or the Company sells or disposes of all or
substantial assets of the Company such that your ability to earn the
Target Bonus and/or the Special Bonus will be materially jeopardized
solely as a result of such sale, disposition or liquidation and/or
(ii) the securities of Company cease for more than 60 consecutive days
to be listed or quoted on any national securities exchange or market,
PROVIDED that this clause (ii) will not be deemed a Trigger Event if
the Company uses its best efforts to have the securities of the
Company listed or quoted on any national securities exchange or
market. Notwithstanding anything herein to the contrary, no
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Trigger Event will be deemed to have occurred for purposes of this
letter agreement if in connection with or by virtue of such Trigger
Event, you receive an amount equal to the established Target Bonus for
the calendar year in which such Trigger Event occurred, an amount
equal to the Special Bonus Amount, if any, payable in such year, and
an amount equal to or greater than $10.00 for each share of Common
Stock vested pursuant to the Option.
For purposes of this subsection, Change of Control means the
occurrence of one or more of the following events:
(1) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (together
with any comparable provisions of any successor statute, the "Exchange
Act")) becomes a "beneficial owner" (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) (other than the Company, any
trustee or other fiduciary holding securities under an employee
benefit plan of the Company, any employee benefit plan of the Company
or its affiliates, or any corporation owned, directly or indirectly,
by the stockholders of the Company, in substantially the same
proportions as their ownership of stock of the Company), directly or
indirectly, of securities of the Company, representing thirty percent
(30%) or more of the combined voting power of the Company's then
outstanding securities; or
(2) persons who, as of the date of this letter agreement,
constituted the Company's Board of Directors (the "Incumbent Board")
cease for any reason including, without limitation, as a result of a
tender offer, proxy contest, merger or similar transaction or event,
to constitute at least one-third (1/3) of the Board of Directors,
provided that any person becoming a director of the Company subsequent
to the date of this letter agreement whose election was approved by at
least a majority of the directors then comprising the Incumbent Board
will, for purposes of this clause (2), be considered a member of the
Incumbent Board; or
(3) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other
entity, other than (a) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
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outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (b) a
merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities.
Notwithstanding anything in the foregoing to the contrary, no
Change of Control will be deemed to have occurred for purposes of this
letter agreement by virtue of or in connection with (i) any
transaction which results in you, or any "person" (as such term is
used in Sections 13(d) or 14(d)(2) of the Exchange Act) which includes
you, acquiring, directly or indirectly, 30% or more of the combined
voting power of the Company's then outstanding securities, or (ii) any
distribution by Warburg, Pincus Investors, L.P. or its affiliates
(collectively, "Warburg") of the Company's securities to investors of
Warburg.
For purposes of this subsection, Termination Event means the
occurrence of one or more of the following events:
(1) a material adverse change of your title or position or a
material adverse change in the responsibilities and/or duties
exercised by you before the Change of Control; or
(2) as a result of a Change of Control, you are unable to
exercise substantially the responsibilities, authorities, powers,
functions or duties exercised by you before the Change of Control; or
(3) the relocation beyond the Chicago metropolitan area (MSA) or
beyond 25 miles of your residence or the offices at which you are
principally employed as of the Change of Control; or
(4) a reduction of your Base Salary or a material reduction in
your ability to earn a Target Bonus and/or Special Bonus solely by
reason of (a) the Company's entering one or more new core businesses
and/or (b) the Company's accelerating expenditures in a manner
materially different than that before the Change of
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Control with the express purpose of decreasing the amount of Net
Income during the remaining Period of Contract Employment and
increasing Net Income thereafter, PROVIDED that this clause (4) will
be deemed a Termination Event only after an event described in clauses
(1), (2) and (3) under Change of Control above.
For purposes of this letter agreement, Bonus Compensation will be
earned only upon completion of the entire calendar or fiscal year with
respect to which such Bonus Compensation is calculated; PROVIDED that a
pro-rata share of Bonus Compensation may be earned in accordance with the
provisions of this letter agreement under the captions "Termination--Death
or Disability," "--Company Convenience" and "--Change of Control." The
Company reserves the right to change its fiscal year and the Company and
you agree to use reasonable good faith efforts to adjust the terms and
provisions of this letter agreement so that the parties are in
substantially the same economic position after such change in the fiscal
year.
FULL-TIME EXECUTIVE. You hereby covenant and agree that during the
Period of Contract Employment you will faithfully and in conformity with
the directions of the Company's Board of Directors perform the duties of
your employment hereunder, and that you will be a full-time employee of the
Company and that you will devote to the performance of said duties all such
time and attention as said duties reasonably require, taking, however, from
time to time (as the Company agrees that you may) reasonable vacations.
NO DETRACTION FROM PERFORMANCE. You hereby consent and agree that
during the Period of Contract Employment you will not, without the express
consent of the Company's Board of Directors or a committee thereof to which
such authority is delegated by the Company's Board of Directors, become
actively associated with or engaged in any business other than that of the
Company, or a division, or subsidiary of the Company that would detract
from the performance of your duties to the Company or any Designated
Subsidiary, and you will do nothing inconsistent with such duties.
Notwithstanding anything herein to the contrary, you may serve on any Board
of Directors or similar governing body of an organization that is not a
Competing Business, and you may continue to serve on any Board of Directors
or similar governing body on which you currently serve, including the Board
of Directors of Avalon.
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CONFIDENTIAL INFORMATION. It is recognized by you and the Company
that your duties during the Period of Contract Employment will entail the
receipt of confidential information concerning not only the Company's and
the Designated Subsidiaries' current operations and procedures but also
their respective short-term and long-term plans. You hereby covenant and
agree that during the Period of Contract Employment and at any time
thereafter, you will not disclose to anyone outside of the Company or any
Designated Subsidiary, except as appropriate in the course of performing
your duties hereunder, or use in any activity or business (other than the
business of the Company or a Designated Subsidiary), Confidential
Information (as defined below) relating to the business of the Company or a
Designated Subsidiary, in any way obtained by you while employed by the
Company, unless authorized in writing by the Company or a Designated
Subsidiary, as the case may be. For purposes of this letter agreement, the
term "Confidential Information" includes all information of any nature and
in any form which is owned by the Company or a Designated Subsidiary and
which is not publicly available or generally known to persons engaged in
businesses similar to that of the Company or a Designated Subsidiary,
including, but not limited to, research techniques; patents and patent
applications; inventions and improvements, whether patentable or not;
development projects; computer software and related documentation and
materials; designs, practices, processes, methods, know-how and other facts
relating to the business of the Company or a Designated Subsidiary;
practices, processes, methods, know-how and other facts related to sales,
advertising, promotions, financial matters, customers, customer lists or
customers' purchases of goods or services from the Company or a Designated
Subsidiary; industry contracts; and all other secrets and information of a
confidential and proprietary nature. In the event that you are requested
or required in connection with a legal proceeding or civil investigative
demand to disclose any Confidential Information, you will provide the
Company with prompt written notice of any such request or requirement so
that the Company may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this letter agreement. If,
in the absence of a protective order or other remedy or the receipt of a
waiver by the Company, you are nonetheless legally compelled to disclose
Confidential Information in connection with such proceedings, then
notwithstanding anything in this paragraph to the contrary, you may,
without liability hereunder, disclose in any such proceedings only that
portion of Confidential Information that you are legally required to
disclose; PROVIDED, that you exercise your best efforts to
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<PAGE>
preserve the confidentiality of the Confidential Information, including,
without limitation, by cooperating with the Company to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information. The agreements
set forth in this paragraph will not terminate upon the Termination of
Contract Employment.
CONFLICT OF INTEREST AND BUSINESS ETHICS STATEMENT. You hereby
covenant and agree that you will comply with and, if requested, execute
such statements relating to conflicts of interest or business ethics in
forms satisfactory to the Company's Board of Directors and that during the
Period of Contract Employment you will not knowingly engage in any activity
which would violate any such statement unless it is otherwise authorized by
this letter agreement.
COMPETING BUSINESS. You hereby covenant and agree that, during the
Period of Contract Employment and for one year following the Termination of
Contract Employment, you will not have any investment in a Competing
Business (as defined below) 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
letter agreement, "Competing Business" means 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 or any Designated Subsidiary, in any metropolitan
area, city, county or other political subdivision, where the Company or any
Designated Subsidiary presently does business or, at any time during the
Period of Contract Employment, will do business. If you breach the
agreement contained in this paragraph, such breach may render you liable to
the Company for damages therefor and entitle the Company to enjoin you from
making such investment or from rendering such personal services. In
addition, the Company will have the right in such event to enjoin you from
disclosing any Confidential Information concerning the Company or any
Designated Subsidiary to any Competing Business, to enjoin any Competing
Business from receiving you 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 or a Designated Subsidiary.
Notwithstanding anything herein to the contrary, you may serve on any Board
of Directors or
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similar governing body of an organization that is not a Competing Business,
and you may continue to serve on any Board of Directors similar governing
body on which you currently serve, including the Board of Directors of
Avalon.
NO SOLICITATION. You hereby covenant and agree that during the Period
of Contract Employment and for two years following the Termination of
Contract Employment, you will not, for yourself or any third party,
directly or indirectly, (i) divert or attempt to divert from the Company or
a Designated Subsidiary any business of any kind in which the Company or a
Designated Subsidiary is engaged, including, without limitation, the
solicitation of its customers or interference with any of its suppliers or
customers; or (ii) solicit for employment any person employed by the
Company or a Designated Subsidiary during the period of such person's
employment.
REMEDIES. You and the Company agree that the Company will be
irreparably harmed by any violation or threatened violation of any of the
foregoing provisions of the paragraphs captioned "Full-Time Executive," "No
Detraction from Performance," "Confidential Information," "Conflict of
Interest and Business Ethic Statement," "Competing Business" and "No
Solicitation" if such provisions are not specifically enforced and
therefore that the Company will be entitled to an injunction restraining
any violation of such provisions by you, or any other appropriate decree of
specific performance. Such remedies will not be exclusive and will be in
addition to any other remedy to which the Company may be entitled under
this letter agreement or at law.
GOVERNING LAW. This letter agreement is being made and executed in
and is intended to be performed in the State of Illinois and will 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.
ENTIRE AGREEMENT. This letter agreement and the Stock Option
Agreement comprise the entire agreement between you and the Company
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 you, as the same may have been amended or
modified, and any of your rights 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 you and the Company or
any predecessor to
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the Company. The terms of this letter agreement are intended by you and
the Company to be the final expression of our agreement with respect to
your employment by the Company and may not be contradicted by evidence of
any prior or contemporaneous agreement. In the event of any conflict
between this letter agreement and the Stock Option Agreement, the Stock
Option Agreement will control.
DISPUTES. Any dispute or controversy arising under, out of, in
connection with or in relation to this letter agreement will be finally
determined and settled by arbitration. Arbitration will 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 (the "AAA") in Chicago, Illinois. The arbitration
proceeding will be conducted in Chicago, Illinois by a single arbitrator in
accordance with the Expedited Procedures of the Employment Dispute
Resolutions Rules of the American Arbitration Association (the "EDR
Rules"), except as otherwise provided herein. The arbitrator will be
appointed expeditiously in accordance with the EDR Rules and the arbitrator
will be mindful of the mutual desire of the parties to conduct the
arbitration in an expeditious and efficient manner and the arbitrator is
hereby authorized to manage the proceedings in order to accomplish such
desire. Except as required by the arbitrator, the parties will have no
obligation to comply with discovery requests made in the arbitration
proceeding. The arbitration award will be a final and binding
determination of the dispute and will 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) will 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 non-prevailing party (as determined by the arbitrator)
will pay the arbitrator's fees and expenses.
SEVERABILITY; ENFORCEABILITY. In the event that the provisions of the
paragraphs 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 hereby acknowledging their desire
that in such event such action to be taken. Without
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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 the Designated Subsidiaries or
their respective successors now transact any business or propose to
transact business, (b) each business now conducted by the Company or any
Designated Subsidiary or their successors, and (c) the Company and the
Designated Subsidiaries and their successors separately. In addition to
the above, all provisions of this letter agreement are severable, and the
invalidity or unenforceability of any provision or provisions of this
letter agreement or portions or aspects thereof will not affect the
validity or enforceability of any other provision, or portion of this
letter 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.
NOTICES. Any notice, request, claim, demand, document and other
communication hereunder to any party will be effective upon receipt (or
refusal of receipt) and 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 the
address above with a copy to Grubb & Ellis Company, 10275 W. Higgins Road,
Suite 300, Rosemont, IL 60018, attention: General Counsel; and if to you,
at the address set forth below under your signature; or at any other
address as any party has specified by notice in writing to the other party.
COUNTERPARTS. This letter agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of
which together will constitute one and the same agreement.
AMENDMENTS; WAIVERS. This letter agreement may not be modified,
amended, or terminated except by an instrument in writing, approved by the
Company's Board of Directors and signed by you and the Company. By an
instrument in writing similarly executed, you or the Company may waive
compliance by the other party with any provision of this letter agreement
that such other party was or is obligated to comply with or perform;
PROVIDED, that such waiver will 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 will
preclude any other or further exercise of any other
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right, remedy or power provided herein or by law or in equity.
NO INCONSISTENT ACTIONS. You and the Company will not voluntarily
undertake or fail to undertake any action or course of action inconsistent
with, or to avoid or evade, the provisions or essential intent of this
letter agreement. Furthermore, it is the intent of the Company and you
hereto to act in a fair and reasonable manner with respect to the
interpretation and application of the provisions of this letter agreement.
ATTORNEYS' FEES. The Company agrees to reimburse you for reasonable
attorneys' fees incurred by you in connection with negotiating and
executing this letter agreement up to a maximum amount of $10,000.
We look forward to working with you.
If this letter accurately reflects our agreement, please sign and
return to the Company the enclosed duplicates of this letter whereupon this
letter will become a binding agreement between the Company and you in accordance
with its terms.
Very truly yours,
GRUBB & ELLIS COMPANY
/s/ Joe F. Hanauer
Joe F. Hanauer
Chairman
CONFIRMED AND ACCEPTED as of the
date first above written.
/S/ ALLAN D. SCHUSTER
- ---------------------
Allan D. Schuster
Address: 3937 MERRIWEATHER WOODS
-----------------------
ALPHARETTA, GEORGIA
-------------------
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EXHIBIT 10.19
DESCRIPTION OF NEIL R. YOUNG'S EMPLOYMENT ARRANGEMENT
In connection with the appointment of Neil R. Young as President and Chief
Executive Officer of Grubb & Ellis Company (the "Company") in February 1996,
Mr. Young has agreed to serve in such capacities for a term expiring in June
1999, with an option to extend the term for an additional year. He will receive
an annual salary of $400,000 through June 30, 1997, which salary thereafter
increases to $425,000 per year. He is eligible to receive incentive
compensation targeted at 50% of his annual salary, based upon achievement of
certain Company performance levels to be determined, with a minimum incentive
payment of $125,000 to be paid with respect to the 1997 fiscal year. Mr. Young
also received, subject to stockholder approval of an amendment to the Company's
1990 Amended and Restated Stock Option Plan (the "Plan"), a non-qualified
option to purchase 450,000 shares of Common Stock of the Company at an exercise
price of $2.375 per share, with a ten-year term and five-year vesting, with the
first installment vesting on December 31, 1996. The option contains additional
terms related to vesting and exercise of the option which will be effective
upon stockholder approval of the Plan amendment. Additional terms and
conditions of Mr. Young's employment with the Company have yet to be
determined, and will be set forth in an employment agreement expected to be
entered into between Mr. Young and the Company.
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT (11)
COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) $ 1,599 $ 2,343 $ (18,208)
Dividends in arrears on preferred
stock (2,870) (438) -
Accretion of liquidation preference
on preferred stock - (2,173) (2,196)
---------- ----------- -----------
Net loss applicable to common
stockholders $ (1,271) $ (268) $ (20,404)
---------- ----------- -----------
---------- ----------- -----------
Primary loss per share applicable
to common stock:
Weighted average common
shares outstanding 8,824,926 4,934,806 4,019,795
Dilutive stock options-based
on the treasury stock method - - -
Total 8,824,926 4,934,806 4,019,795
Loss per common share and
equivalents $ (.14) $ (.05) $ (5.08)
---------- ----------- -----------
---------- ----------- -----------
Fully-diluted loss per share
applicable to Common Stock (A):
Weighted average common
shares outstanding 8,824,926 4,934,806 4,019,795
Dilutive stock options-
based on the treasury
stock method - - -
---------- ----------- -----------
Total 8,824,926 4,934,806 4,019,795
---------- ----------- -----------
---------- ----------- -----------
Loss per common share and
equivalents $ (.14) $ (.05) $ (5.08)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
(A) This calculation is submitted in accordance with the Securities Exchange
Act of 1934, Release No. 9083, although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because it results in dilutions of less than 3%
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EXHIBIT 21
SUBSIDIARIES AS OF MARCH 1, 1996
SUBSIDIARIES OF GRUBB & ELLIS COMPANY
<TABLE>
<CAPTION>
NAME AND STATE OF
- -------- ---------
TRADE NAMES (IF ANY) INCORPORATION
- -------------------- -------------
<S> <C>
Adams-Cates Company Georgia
Axiom Real Estate Management, Inc. Delaware
Collective Services, Inc. Pennsylvania
Grubb & Ellis Asset Services Company Delaware
Grubb & Ellis Colorado, Inc. California
TRADE NAME: Grubb & Ellis Company
Grubb & Ellis Mortgage Company California
Grubb & Ellis Mortgage Services, Inc. California
TRADE NAME: GEMS
Grubb & Ellis New York, Inc. New York
TRADE NAMES: James Felt Realty Services
Wm. A. White/Grubb & Ellis
Grubb & Ellis Institutional Properties, Inc. California
Grubb & Ellis of Nevada, Inc. Nevada
Grubb & Ellis of Oregon, Inc. Washington
Grubb & Ellis Realty Advisers, Inc. California
Grubb & Ellis Services Corporation Florida
Grubb & Ellis Southeast Partners, Inc. California
G&E Investor Properties I, Inc. California
G&E Investor Properties III, Inc. California
G&E Investor Properties IV, Inc. California
HSM Inc. Texas
Leggat McCall/Grubb & Ellis, Inc. Massachusetts
Montclair Insurance Company Ltd. Bermuda
The Schuck Commercial Brokerage Company Colorado
Wm. A. White/Grubb & Ellis Inc. New York
Wm. A. White/Tishman East Inc. New York
81
</TABLE>
<PAGE>
SUBSIDIARIES OF AXIOM REAL ESTATE MANAGEMENT, INC.
<TABLE>
<CAPTION>
NAME AND STATE OF
- -------- --------
TRADE NAMES (IF ANY) INCORPORATION
- -------------------- -------------
<S> <C>
Axiom Real Estate Management of Colorado, Inc. Colorado
TRADE NAME: Axiom Real Estate Management, Inc.
SUBSIDIARIES OF HSM INC.
<CAPTION>
NAME AND STATE OF
- -------- --------
TRADE NAMES (IF ANY) INCORPORATION
- -------------------- -------------
<S> <C>B
Henry S. Miller Financial Corporation Texas
HSM Condominium Corporation Texas
HSM Real Estate Securities Corporation Texas
Miller Capital Corporation Texas
Miller Real Estate Services Corporation Texas
</TABLE>
82
<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, 33-35640 and
2-98541) 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, and the Registration
Statement (Form S-8 Number 33-17194) pertaining to the 1985 Restricted Value
Stock Plan, as amended of Grubb & Ellis Company and Subsidiaries of our report
dated February 5, 1996, with respect to the financial statements and schedules
of Grubb & Ellis Company and Subsidiaries included in the Annual Report (Form
10-K) for the year ended December 31, 1995, filed with the Securities Exchange
Commission.
San Francisco, California Ernst & Young LLP
March 22, 1996
83
<PAGE>
Exhibit 23.2
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, 33-35640 and
2-98541) 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, and the Registration
Statement (Form S-8 Number 33-17194) pertaining to the 1985 Restricted Value
Stock Plan, as amended, of Grubb & Ellis Company and Subsidiaries of our report
dated January 26, 1996, the financial statements of Axiom Real Estate
Management, Inc. (Axiom) as of and for the year ended December 31, 1995. Ernst
& Young LLP has placed reliance on our work performed on the financial
statements of Axiom as of and for the year ended December 31, 1995, and has
elected to make reference to that effect in its report on the consolidated
financial statements of Grubb & Ellis Company and Subsidiaries dated February
5, 1996, which is included in the Annual Report (Form 10-K) for the year ended
December 31, 1995, filed with the Securities Exchange Commission.
Pittsburgh, Pennsylvania Coopers & Lybrand L.L.P
March 22, 1996
84
<PAGE>
EXHIBIT 24
GRUBB & ELLIS COMPANY
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
Each of the undersigned directors of Grubb & Ellis Company, a Delaware
corporation (the "Company"), hereby constitutes and appoints Robert J.
Walner, James E. Klescewski, and Carol M. Vanairsdale, jointly and severally,
his attorneys with full power of substitution, to sign and file with the
Securities and Exchange Commission, in his capacity as director of the
Company, the Company's Annual Report on Form 10-K for the fiscal year
ending December 31, 1995 and any and all amendments thereto, and any and
all instruments or documents filed as part of or in conjunction wit
such Annual Report or amendments thereto, and hereby ratifies all that
said attorneys or any of them may do or cause to be done by virtue hereof.
This instrument may be executed in a number of identical counterparts,
each of which shall be deemed an original for all purposes and all of which
shall constitute, collectively, one instrument.
IN WITNESS WHEREOF, we have signed these presents this 22nd day of
February, 1996.
/s/ R. David Anacker /s/ Joe F. Hanuer
- -------------------- -----------------
R. David Anacker Joe F. Hanauer
/s/ Lawrence S. Bacow /s/ Reuben S. Leibowitz
- --------------------- -----------------------
Lawrence S. Bacow Reuben S. Leibowitz
/s/ Robert J. McLaughlin /s/ John D. Santoleri
- ------------------------ ---------------------
Robert J. McLaughlin John D. Santoleri
85
<PAGE>
EXHIBIT 24
GRUBB & ELLIS COMPANY
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
The undersigned Chairman of Grubb & Ellis Company, a Delaware corporation
(the "Company"), hereby constitutes and appoints Robert J. Walner, James E.
Klescewski, and Carol M. Vanairsdale, jointly and severally, his attorneys
with full power of substitution, to sign and file with the Securities and
Exchange Commission, in his capacity as Chairman of the Company, the Company's
Annual Report on Form 10-K for the fiscal year ending December 31, 1995 and
any and all amendments thereto, and any and all instruments or documents filed
as part of or in conjunction wit such Annual Report or amendments thereto,
and hereby ratifies all that said attorneys or any of them may do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, I have signed these presents this 22nd day of
February, 1996.
/S/ Joe F. Hanauer
------------------
Joe F. Hanauer
Chairman
86
<PAGE>
EXHIBIT 24
GRUBB & ELLIS COMPANY
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
The undersigned President, Chief Executive Officer and a Director of
Grubb & Ellis Company, a Delaware corporation (the "Company"), hereby
constitutes and appoints Robert J. Walner, James E. Klescewski, and Carol M.
Vanairsdale, jointly and severally, his attorneys with full power of
substitution, to sign and file with the Securities and Exchange Commission,
in his capacity as President, Chief Executive Officer and a Director of the
Company, the Company's Annual Report on Form 10-K for the fiscal year
ending December 31, 1995 and any and all amendments thereto, and any and all
instruments or documents filed as part of or in conjunction with such Annual
Report or amendments thereto, and hereby ratifies all that said attorneys or
any of them may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have signed these presents this 11th day of
March, 1996.
/S/ Neil R. Young
-----------------
Neil R. Young
President, Chief Executive Officer
and a Director
87
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and the consolidated statements of operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 26,611
<SECURITIES> 0
<RECEIVABLES> 12,675
<ALLOWANCES> 5,363
<INVENTORY> 0
<CURRENT-ASSETS> 38,811
<PP&E> 19,730
<DEPRECIATION> 14,167
<TOTAL-ASSETS> 46,176
<CURRENT-LIABILITIES> 28,929
<BONDS> 0
0
32,143
<COMMON> 90
<OTHER-SE> 57,084
<TOTAL-LIABILITY-AND-EQUITY> 46,176
<SALES> 0
<TOTAL-REVENUES> 191,807<F1>
<CGS> 0
<TOTAL-COSTS> 90,385
<OTHER-EXPENSES> 96,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,933
<INCOME-PRETAX> 2,095
<INCOME-TAX> 496
<INCOME-CONTINUING> 1,599
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,599
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
<FN>
<F1>Interest income and Other income, net are included under Total Revenues.
</FN>
</TABLE>
