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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number 1-8122.
--------------------------
GRUBB & ELLIS COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 94-1424307
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
2215 SANDERS ROAD, SUITE 400,
NORTHBROOK IL, 60062
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(Address of principal executive offices) (Zip Code)
(847) 753-7500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock New York Stock Exchange
Pacific Exchange
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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. / /
The aggregate market value of voting common stock held by non-affiliates of
the registrant as of August 12, 1997 was approximately $74,385,000.
The number of shares outstanding of the registrant's common stock as of
August 12, 1997 was 19,511,243 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 (June
30, 1997) are incorporated by reference into Part III of this Report.
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GRUBB & ELLIS COMPANY
FORM 10-K
TABLE OF CONTENTS
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PAGE
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COVER PAGE 1
TABLE OF CONTENTS 2
Part I.
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Part II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 8
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 12
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 34
Part III.
Item 10. Directors and Executive Officers of the Registrant 35
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial Owners and Management 35
Item 13. Certain Relationships and Related Transactions 35
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 36
SIGNATURES 40
EXHIBIT INDEX
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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 owned subsidiaries (the
"Company") is a full service commercial real estate company that provides
services to real estate owners/investors and tenants including transaction
services and property and facilities management. Additionally, the Company
provides financial advisory services as well as consulting and strategic
services with respect to commercial real estate. The Company is one of the
nation's largest publicly traded commercial real estate firms, based on total
revenues.
Property and facilities management services are provided by Grubb & Ellis
Management Services, Inc. ("GEMS"), a wholly owned subsidiary of the Company
since January 24, 1996 (at which time GEMS was a majority owned subsidiary).
GEMS (formerly Axiom Real Estate Management, Inc.) elected to change its name in
September 1997. GEMS has approximately 90.6 million square feet of property
under management, while the Company's affiliates manage an additional 19.3
million square feet.
Currently, the Company has offices and affiliates in 69 markets throughout
the United States, with approximately 4,000 professionals and staff.
Internationally, the Company serves the needs of its multinational clients
through its European headquarters in London.
STRATEGIC INITIATIVES
In fiscal 1997, the Company launched several initiatives designed to help
meet its goal of enhancing the quality of its service lines and expanding and
diversifying sources of revenue beyond traditional commercial brokerage. The
Company established the Corporate Services Group and Institutional Services
Group, which will utilize an innovative relationship management system to allow
the Company to respond to the increasing demand from major corporate and
institutional clients for expanded services through a single point of contact.
The Company also launched a national affiliate program, which will enable it to
enter markets where it previously did not have a formal presence and to better
meet the multi-market needs of national clients. Currently, the Company has
formed alliances with 13 independent brokerage firms with a presence in 16
geographic or metropolitan markets in the United States. The Company has also
begun to invest in technology systems designed to keep it competitive in future
years. Among them is a state-of-the-art, company-wide information sharing and
research network, to be implemented over the next 12 to 18 months, which the
Company believes will enable professional staff across all offices to work more
efficiently, access the latest market intelligence, and more fully address
clients' needs. In addition, the Company moved its corporate headquarters'
operations from San Francisco to Northbrook, Illinois, in the third quarter of
the year. By relocating to the Midwest, the Company's senior management team is
now in closer proximity to a larger number of corporate and institutional
clients. The relocation also enhances the Company's ability to provide support
to its offices around the country.
ORGANIZATION
The Company is organized to provide the following real estate related
services:
TRANSACTION SERVICES
The Company represents the interests of tenants, owners, buyers or sellers
in leasing, acquisition and disposition transactions. These transactions involve
various types of commercial real estate including office, industrial, retail and
land. Historically, these services have represented a significant majority of
the Company's revenue.
3
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MANAGEMENT SERVICES
GEMS provides comprehensive property management, leasing and related
services for properties owned primarily by institutional investors, along with
facilities management services for corporate users. Related services include
asset management, product/agency leasing, lease administration, business
services and engineering services.
OTHER SERVICES
The Company addresses the financial related needs of its clients, including
mortgage brokerage, investment analysis, appraisals and development financing,
through established relationships with more than 200 lenders and investors. The
Company's Corporate Services Group and Institutional Services Group deliver
consulting and strategic planning services to their major clients. These include
site selection, feasibility studies, exit strategies, market forecasts and
demographics and research services.
COMPETITION
The Company competes in a variety of service disciplines within the
commercial real estate industry. Each of these business areas is highly
competitive on a national as well as local level. The Company faces competition
not only from other real estate service providers, but also from mortgage
banking, accounting and appraisal firms. 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. Such laws
and regulations tend to discourage sales and leasing activities and mortgage
lending with respect to some properties, and may therefore adversely affect the
Company. Failure of the Company to disclose environmental issues in connection
with a real estate transaction may subject the Company to liability to a buyer
or lessee of property or to a purchaser of a mortgage loan. Insurance for such
matters may not be available. Additionally, new or modified environmental
regulations could develop in a manner which have not, but could adversely affect
the Company's transaction and management services. The Company's financial
results and competitive position for the fiscal year 1997 have not been
materially impacted by its compliance with environmental laws or regulations,
and no material capital expenditures relating to such compliance are planned.
SEASONALITY
The Company has typically experienced its lowest quarterly revenue in the
quarter ending March 31 of each year with higher and more consistent revenue in
the quarters ending June 30 and September 30. The quarter ending December 31 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 the years ended June 30, 1997,
1996 and 1995, as a percentage of total annual revenue, ranged from a high of
31.1% to a low of 19.0%.
SERVICE MARKS
The Company has registered tradenames and service marks for the "Grubb &
Ellis" name and logo. The right to use the "Grubb & Ellis" name is considered an
important asset of the Company, and the Company actively defends and enforces
such service marks.
4
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REAL ESTATE MARKETS
The Company's business is highly dependent on the commercial real estate
markets, which in turn are impacted by such factors as the general economy,
interest rates and demand for real estate in local markets. Changes in one or
more of these factors could affect the Company's business, and either favorably
or unfavorably impact the volume of transactions and prices or lease terms for
real estate. Consequently, the Company's revenues from brokerage commissions and
property management fees, operating results, cash flow and financial condition
would also be impacted by changes in these factors.
ITEM 2. PROPERTIES
The Company leases all of its office space. The terms of the leases vary
depending on the size and location of the office. As of June 30, 1997, the
Company leased approximately 568,000 square feet of office space in 63 locations
under leases which expire at various dates through November 2005. For those
leases which are not renewable, the Company believes there is adequate
alternative office space available at acceptable rental rates to meet its needs.
For further information, see Note 9 of the Notes to the Consolidated Financial
Statements under Item 8 of this Report.
ITEM 3. LEGAL PROCEEDINGS
The information called for by Item 3 is included in Note 9 of the Notes to
the Consolidated Financial Statements under Item 8 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1997.
5
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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 Stock
Exchange ("NYSE") and the Pacific Exchange. The following table sets forth the
high and low sales prices of the Company's common stock on the NYSE for each
quarter of the years ended June 30, 1997 and 1996.
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1997 1996
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HIGH LOW HIGH LOW
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First Quarter........... $ 4 3/4 $ 3 1/4 $ 2 3/4 $ 1 7/8
Second Quarter.......... 4 3/4 4 2 5/8 1 7/8
Third Quarter........... 10 1/8 4 1/4 3 1 7/8
Fourth Quarter.......... 17 1/8 9 5 1/4 2 1/4
</TABLE>
As of August 12, 1997, there were 2,240 registered holders of the Company's
common stock and 19,511,243 shares of common stock outstanding, of which
14,692,765 were held by persons who may be considered "affiliates" of the
Company, as defined in Federal securities regulations. Sales of substantial
amounts of common stock, including shares issued upon the exercise of warrants
or options held by affiliates (see Note 7 of the Notes to Consolidated Financial
Statements in Item 8 of this report), or the perception that such sales might
occur, could adversely affect prevailing market prices for the common stock.
No cash dividends were declared on the Company's common or preferred stock
during the years ended June 30, 1997 or 1996, and the Company does not
anticipate paying cash dividends in the foreseeable future. The Company is
prohibited from paying dividends on its common stock by the terms of its
revolving credit facility with PNC Bank, N.A. See Note 5 of the Notes to
Consolidated Financial Statements under Item 8 of this Report. The Company's
preferred stock was either retired or converted to common stock by February
1997.
The Company currently meets the criteria of the NYSE for the continued
listing of its common stock. The Company previously reported that for some time
it had not met certain criteria.
6
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ITEM 6. SELECTED FINANCIAL DATA
Five Year Comparison of Selected Financial and Other Data for the Company:
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FOR THE YEARS ENDED JUNE 30,(1)
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1997 1996 1995 1994 1993
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES)
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CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Total revenue............................. $ 228,630 $ 193,728 $ 185,784 $ 185,182 $ 207,410
Net income (loss)......................... 19,010 2,102 1,556 (17,540) (58,186)
Dividends applicable to preferred
stockholders:
Accretion of liquidation preference..... -- -- (877) (2,494) (998)
Dividends in arrears.................... (1,431) (3,012) (1,862) -- --
Provision for income taxes................ (372) (198) (448) (597) (500)
Reduction in deferred tax asset valuation
allowance............................... 3,220 -- -- -- --
Net income (loss) applicable to common
stockholders............................ 17,579 (910) (1,183) (20,034) (59,184)
Net income (loss) per common share and
equivalents
-- Primary.............................. 1.04 (.10) (.16) (4.92) (15.66)
-- Fully diluted........................ .93 (.10) (.16) (4.92) (15.66)
Weighted average common shares and
equivalents
-- Primary.............................. 17,259,655 8,870,720 7,271,257 4,073,715 3,778,645
-- Fully diluted........................ 20,427,140 8,870,720 7,271,257 4,073,715 3,778,645
OTHER DATA:
EBITDA (2)................................ $ 17,629 $ 7,418 $ 4,427 $ 841 $ (6,214)
</TABLE>
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(1) Net income (loss) and per share data reported on the above table reflect
other non-recurring expenses in the amounts of $2.4 million, $13.2 million
and $44.9 million for the fiscal years ended June 30, 1997, 1994 and 1993,
respectively. Other non-recurring income of $462,000 and $2.6 million is
included in the results for the fiscal years ended June 30, 1996 and 1995,
respectively. Net income for the year ended June 30, 1997 includes $5.4
million in extraordinary gain, net of taxes, on the extinguishment of debt.
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 10 of
the Notes to Consolidated Financial Statements.
(2) The Company defines EBITDA as earnings before interest expense, income
taxes, depreciation and amortization, adjusted to exclude other
non-recurring income and expense and extraordinary items, which may not be
comparable to measures of the same title reported by other companies.
7
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AS OF JUNE 30, (UNAUDITED)
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1997 1996 1995 1994 1993
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, SHARES AND STAFF DATA)
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CONSOLIDATED BALANCE SHEET DATA:
Total assets......................... $ 36,696 $ 29,658 $ 29,741 $ 32,142 $ 43,628
Working capital (deficit)............ 16,985 8,064 5,051 (14,308) 3,750
Long-term debt....................... -- 27,514 26,328 16,402 19,731
Other long-term liabilities.......... 12,700 14,948 14,668 15,990 24,194
Redeemable convertible preferred
stock.............................. -- -- -- 31,308 26,681
Stockholders' equity (deficit)....... 12,923 (27,475) (29,793) (73,538) (53,638)
Book value per common share.......... .66 (3.08) (3.38) (17.87) (13.21)
Common shares outstanding............ 19,509,952 8,916,415 8,810,220 4,114,549 4,060,268
Total staff.......................... 3,800 2,900 3,100 3,000 4,300
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this Annual Report on Form 10-K contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. There are a number of important factors with respect to
such forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those contemplated in such
forward-looking statements. Such factors, which could adversely affect the
Company's ability to obtain these results, include, among other things, (i) the
volume of transactions and prices for real estate in the real estate markets
generally, (ii) a general or regional economic downturn which could create a
recession in the real estate markets, (iii) the Company's debt level and its
ability to make interest and principal payments, (iv) an increase in expenses
related to new initiatives, investments in people and technology, and service
improvements, (v) the success of the new initiatives and investments and (vi)
other factors described elsewhere in this Annual Report.
RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $19.0 million for the year ended June 30,
1997, and made significant progress toward improving its financial condition
during the year. Aggregate gross proceeds of $21.25 million of equity capital
was raised from two strategic investors, enabling the Company to retire all of
its long-term debt. All outstanding Senior and Junior Convertible Preferred
Stock was either retired or converted into common stock, extinguishing $10.7
million of accrued and undeclared dividends on such stock. Additionally, the
Company secured a $15 million revolving credit facility for general working
capital purposes. Finally, the corporate headquarters operations were moved from
San Francisco, California to Northbrook, Illinois. The move is intended to serve
the long-term interests of the Company by providing better access to its
corporate and institutional clients.
The Company's transaction service commissions revenue, fueled by a continued
strong economy and commercial real estate markets, increased to $188.7 million
in fiscal year 1997, approximately 19.6% higher than fiscal year 1996. The
Company established its Institutional Services Group and Corporate Services
Group which provide value-added services for multi-market real estate owners and
investors, delivered
8
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through a single point of contact. The Company also established a national
affiliates program to enter markets in which the Company did not have a formal
presence and to better meet the multi-market needs of national clients.
Currently, the Company has formed alliances with 13 independent brokerage firms
with a presence in 16 geographic or metropolitan markets in the United States.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
REVENUE
Total revenue for fiscal year 1997 was $228.6 million, an increase of $34.9
million or 18.0% over fiscal year 1996, reflecting a continued strong national
economy, robust commercial real estate markets and increased business activity
across the Company's service lines. This improvement related primarily to a
$31.1 million increase in transaction service commissions over fiscal year 1996.
Management services and other fees of $39.9 million for fiscal year 1997
increased by $3.8 million, or 10.4%, as a result of increased activity in
business services, property and facilities management, and other services fees.
COSTS AND EXPENSES
Transaction service commission expense is the Company's major expense and is
a direct function of gross transaction service commission revenue levels. As a
percentage of transaction service commission revenue, related commission expense
remained relatively unchanged for fiscal year 1997 as compared to fiscal year
1996.
Total costs and expenses, other than transaction service commission expense
and other non-recurring expenses, increased by $5.8 million, or 6.1%, for fiscal
year 1997 compared to fiscal year 1996. The increase in costs and expenses was
primarily attributable to the $7.5 million increase in salary and wages.
Approximately $2.2 million of this increase was due to a reduction in reserves
in fiscal year 1996 related to partially self-insured employee benefit programs.
The balance of the increase was due to (a) the hiring costs and salaries related
to additional senior level executives for the Institutional Services Group and
Corporate Services Group, (b) increased salary cost (as opposed to participation
expense) related to salary guarantees provided to District and Sales Managers in
their initial year of service and (c) the impact of normal annual salary
increases and incentive bonuses.
Other non-recurring expenses of $2.4 million consist primarily of costs
related to the relocation of the Company's corporate headquarters from San
Francisco, California to Northbrook, Illinois.
Interest expense to related parties decreased by $1.6 million, or 52%,
resulting from the repayment of the Company's long-term debt in two installments
during December 1996 and January 1997. The terms of the repayment also provided
for a portion of the debt to be forgiven. As a result, the Company recognized an
extraordinary gain of $5.4 million, net of taxes, in fiscal year 1997 related to
this extinguishment of debt.
INCOME TAXES
GEMS has been included in the Company's consolidated tax return beginning
with calendar year 1996, due to the Company's purchase of the minority interest
in GEMS in January 1996, as described in Note 1 of the Notes to Consolidated
Financial Statements.
The Company maintains a fiscal year ending June 30 for financial reporting
purposes and reports on the calendar year on a consolidated basis for income tax
purposes. As of June 30, 1997, the Company had net deferred tax assets of $19.5
million, with approximately $12.0 million of the net deferred tax assets
relating to tax net operating loss and credit carryforwards which will be
available to offset future taxable income through 2010. The Company has recorded
a valuation allowance for $16.3 million against the deferred tax assets as of
June 30, 1997 and will continue to do so until such time as management believes
that it is more likely than not that the Company will generate taxable income
sufficient to realize such tax benefits. The Company recognized a $3.2 million
deferred tax benefit during fiscal 1997 which represented
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a partial reduction of the valuation allowance for the net deferred tax assets.
Management believes that, due to favorable economic conditions, the elimination
of debt and the recent trend of earnings, it is more likely than not that the
Company will generate sufficient future taxable income to realize the deferred
tax asset. Although uncertainties exist as to these fiscal year 1998 events, the
Company will continue to review its operations periodically to assess the
realizability of its deferred tax assets. See Note 6 of Notes to Consolidated
Financial Statements in Item 8 of this report for additional information.
NET INCOME
The Company reported net income of $19.0 million and $2.1 million for fiscal
years 1997 and 1996, respectively. Net income for fiscal year 1997 included
non-recurring expenses, a deferred tax benefit and an extraordinary gain, all of
which, when netted, totaled $6.2 million, while net income for fiscal year 1996
included non-recurring income of $462,000. Excluding the effect of these items,
net income in fiscal year 1997 was $12.8 million as compared to $1.6 million for
fiscal year 1996.
The accrued and undeclared dividends on the Company's convertible senior and
junior preferred stock totaled $1.4 million in fiscal year 1997, prior to the
conversion or retirement of all such stock in December 1996, and $3.0 million in
fiscal year 1996. Earnings per common share, including such accrued dividends,
of $1.04 and $.93 on a primary and fully diluted basis, respectively, were
earned in fiscal year 1997, as compared to a loss of $.10 per share on both a
primary and fully diluted basis in fiscal year 1996.
STOCKHOLDERS' EQUITY (DEFICIT)
During fiscal year 1997, stockholders' equity increased $40.4 million to
$12.9 million from a deficit of $27.5 million at June 30, 1996. In addition to
net income of $19.0 million for fiscal year 1997, the Company received $21.0
million, net of related costs, in connection with two common stock transactions
that raised new capital from two strategic investors. See Note 5 of Notes to
Consolidated Financial Statements for additional information. The book value per
common share issued and outstanding increased to $.66 at June 30, 1997 from
$(3.08) at June 30, 1996.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
REVENUE
Total revenue for fiscal year 1996 was $193.7 million, an increase of $7.9
million or 4.3% over fiscal year 1995. Revenue from transaction service
commissions increased in fiscal year 1996 by $5.4 million or 3.6% over fiscal
year 1995, reflecting a slower than anticipated growth in the market for
commercial real estate. Management services and other fees of $36.2 million in
fiscal year 1996 increased $2.5 million or 7.6% over fiscal year 1995. The
increase in these revenues related primarily to a $1.9 million increase in
property and facilities management fees over fiscal year 1995.
COSTS AND EXPENSES
Transaction service commission expense is the Company's major expense and is
a direct function of gross transaction service commission revenue levels. As a
percentage of transaction service commission revenue in fiscal year 1996,
transaction service commission expense increased by approximately 1.4% over
fiscal year 1995 primarily due to the performance of top service professionals
and the Company's commitment to strengthen its work force by adding seasoned
professionals.
Total costs and expenses, other than transaction service commission expense
and other non-recurring income, were $95.8 million in fiscal year 1996, only .7%
higher than fiscal year 1995.
Other non-recurring income of $462,000 and $2.6 million was recognized in
fiscal year 1996 and fiscal year 1995, respectively. The fiscal year 1996 income
included recoveries of $987,000 primarily related to previously established
reserves for severance and office closure costs, which were partially offset by
a
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$525,000 charge for severance costs for a senior executive related to
restructuring the operations of GEMS. The fiscal year 1995 income of $2.6
million also represented recoveries of previously established reserves for
severance and office closure costs, of which approximately $1.4 million related
to closing certain offices more efficiently than initially estimated and
$930,000 related to the reversal of the remaining net office lease liability of
the Company's residential brokerage operations.
INCOME TAXES
The fiscal year 1996 and fiscal year 1995 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 GEMS, the Company's
subsidiary which filed on a separate basis for tax purposes through calendar
1995.
NET INCOME
The Company reported net income of $2.1 million and $1.6 million for fiscal
years 1996 and 1995, respectively. Net income included $462,000 and $2.6 million
of other non-recurring income in fiscal years 1996 and 1995, respectively. Other
income in fiscal year 1996 included $818,000, representing the net gain in the
sale of a note secured by certain real estate.
The accrued and unpaid dividends on the Company's convertible senior and
junior preferred stock amounted to $3.0 million and $2.7 million for fiscal
years 1996 and 1995, respectively. Taking into effect such dividends, the net
loss per common share of $0.10 for fiscal year 1996 compared favorably to a net
loss of $0.16 per common share for fiscal year 1995.
STOCKHOLDERS' DEFICIT
During fiscal year 1996, stockholders' deficit decreased by $2.3 million
from fiscal 1995 as a result of fiscal year 1996 net income of $2.1 million, and
$216,000 related to common stock issued in connection with the employee stock
purchase plan and the matching contribution by the Company to the employee
401(k) plan. The book value per common share increased from $(3.38) at June 30,
1995 to $(3.08) per common share at June 30, 1996 as a result of the above
mentioned changes.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 1997, cash and cash equivalents increased by $3.2
million, primarily as a result of $8.0 million of net cash provided by operating
activities offset by $2.7 million of net cash used in investing activities and
$2.1 million of net cash used in financing activities. Net cash provided by
operating activities was significantly impacted by a decrease in the Company's
accrued claims and settlements as well as other accrued expenses. The net cash
used in investing activities related primarily to $3.2 million of purchases of
equipment and leasehold improvements, offset by $513,000 of proceeds from the
disposition of real estate and distributions from real estate joint ventures.
The net cash used in financing activities related to the Company's use of $21.25
million from the issuance of common stock to two strategic investors, along with
$1.75 million of existing cash reserves, to retire all of its outstanding
long-term debt and 130,233 shares of Junior Convertible Preferred Stock.
Working capital increased by $8.9 million to $17.0 million at June 30, 1997
primarily as a result of the increase in cash and cash equivalents of $3.2
million, the recognition of a deferred tax benefit of $3.2 million and a
reduction of current liabilities of $3.6 million.
The Company believes that its short-term and long-term cash requirements
will be met by operating cash flow. Significant progress has been made during
fiscal year 1997 towards improving the Company's financial condition. During
this period the Company sold 5.0 million shares of its common stock for
aggregate gross proceeds of $21.25 million, retired all of the outstanding
Payment-in-Kind Notes (approximately $13.6 million of principal and accrued
interest), Senior Notes ($10 million principal amount) and
11
<PAGE>
the $5 million Revolving Credit Note. As of January 27, 1997, the Company had no
outstanding long-term debt. Additionally, the Company retired 130,233 shares of
Junior Convertible Preferred Stock. All outstanding shares of Senior Convertible
Preferred Stock and all remaining shares of Junior Convertible Preferred Stock
were converted into an aggregate 5,520,624 shares of common stock.
On March 13, 1997 the Company entered into a $15 million revolving credit
facility (the "Credit Agreement") with PNC Bank, National Association ("PNC")
for general corporate purposes. The Credit Agreement expires on March 13, 2001.
Currently, the Company has no outstanding borrowings under the Credit Agreement.
Interest on outstanding borrowings will be due quarterly in arrears and is based
upon PNC's prime rate and/or the LIBOR rate plus, in either case, an additional
margin based upon a particular financial ratio of the Company, and will vary
depending upon which interest rate options the Company chooses to be applied to
specific borrowings. In connection with the Credit Agreement, the Company
incurred commitment and other financing fees totaling $445,000, which will be
amortized over the term of the Credit Agreement. Performance of the Company's
obligations under the Credit Agreement is secured by substantially all of the
Company's assets.
For discussion regarding financing and capital related transactions, see
Note 5 of Notes to Consolidated Financial Statements in Item 8 of this report.
To the extent that the Company's cash requirements are not met by operating
cash flow or borrowings under the Credit Agreement, due to adverse economic
conditions or other unfavorable events, the Company may find it necessary to
reduce expense levels or undertake other actions as may be appropriate under the
circumstances.
The Company has increased its investment in various business and financial
system technology initiatives, entering into preliminary contracts for intranet,
human resources, and transaction services information systems. The Company's
contracted commitments for these systems, including required computer hardware
additions and upgrades, total approximately $1,400,000, with additional
commitments being contemplated.
DIVIDENDS
The Company's $15 million revolving credit facility contains certain
restrictive covenants including the prohibition of the payment of dividends,
restrictions on acquisitions, dispositions of assets, indebtedness, liens,
investments, the extension of credit and the issuance of certain types of
preferred stock, and the maintenance of a certain ratio of debt to cash flow. As
of June 30, 1997, the Company was in compliance with all covenants of the Credit
Agreement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
<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 June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Grubb & Ellis Company and Subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 18, 1997
13
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 16,790 $ 13,547
Commissions, management and other service fees receivable........................ 4,694 3,378
Other receivables................................................................ 2,097 4,326
Prepaids and other current assets................................................ 1,257 1,484
Deferred taxes................................................................... 3,220 --
------------- -------------
Total current assets....................................................... 28,058 22,735
Noncurrent assets:
Equipment and leasehold improvements, net........................................ 5,988 5,194
Transaction service commissions and management service and other fees
receivable..................................................................... 525 100
Other assets..................................................................... 2,125 1,629
------------- -------------
Total assets............................................................... $ 36,696 $ 29,658
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................. $ 1,938 $ 1,652
Compensation and employee benefits payable....................................... 4,568 5,380
Accrued office closure costs..................................................... 788 623
Other accrued expenses........................................................... 3,779 7,016
------------- -------------
Total current liabilities.................................................. 11,073 14,671
Long-term liabilities:
Long-term debt to related party.................................................. -- 27,514
Accrued claims and settlements................................................... 10,512 13,583
Accrued office closure costs..................................................... 308 960
Other liabilities................................................................ 1,880 405
------------- -------------
Total liabilities.......................................................... 23,773 57,133
------------- -------------
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 at June 30, 1996....................... -- 32,143
Common stock, $.01 par value: 25,000,000 shares authorized; 19,509,952 and
8,916,415 shares issued and outstanding at June 30, 1997 and 1996,
respectively................................................................... 196 90
Additional paid-in-capital....................................................... 110,579 57,154
Retained earnings (deficit)...................................................... (97,852) (116,862)
------------- -------------
Total stockholders' equity (deficit)....................................... 12,923 (27,475)
------------- -------------
Total liabilities and stockholders' equity (deficit)....................... $ 36,696 $ 29,658
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue
Transaction service commissions.................................... $ 188,686 $ 157,562 $ 152,160
Management services and other fees................................. 39,944 36,166 33,624
------------ ------------ ------------
Total revenue................................................ 228,630 193,728 185,784
------------ ------------ ------------
Costs and expenses
Transaction service commissions.................................... 113,460 95,037 89,596
Salaries and wages................................................. 55,095 47,562 46,565
Selling, general and administrative................................ 43,567 45,706 46,602
Depreciation and amortization...................................... 2,964 2,546 2,012
Other non-recurring expenses (income).............................. 2,431 (462) (2,606)
------------ ------------ ------------
Total costs and expenses..................................... 217,517 190,389 182,169
------------ ------------ ------------
Total operating income....................................... 11,113 3,339 3,615
Other income and expenses
Interest income.................................................... 840 689 773
Other income, net.................................................. 281 1,306 633
Interest expense to related parties................................ (1,453) (3,034) (3,017)
------------ ------------ ------------
Income before income taxes and extraordinary item............ 10,781 2,300 2,004
Net benefit (provision) for income taxes............................. 2,848 (198) (448)
------------ ------------ ------------
Income before extraordinary item..................................... 13,629 2,102 1,556
Extraordinary item -- gain on extinguishment of debt, net of taxes of
$195............................................................... 5,381 -- --
------------ ------------ ------------
Net income................................................... $ 19,010 $ 2,102 $ 1,556
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) applicable to common stockholders, net of
undeclared dividends earned on preferred stock in the amounts of
$1,431, $3,012, and $2,739 for the years ended June 30, 1997, 1996,
and 1995, respectively............................................. $ 17,579 $ (910) $ (1,183)
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per common share and equivalents:
Primary --
-- from operations................................................. $ .73 $ (.10) $ (.16)
-- from extraordinary gain......................................... .31 -- --
------------ ------------ ------------
$ 1.04 $ (.10) (.16)
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares and equivalents outstanding......... 17,259,655 8,870,720 7,271,257
------------ ------------ ------------
------------ ------------ ------------
Fully diluted --
-- from operations................................................. $ .67 $ (.10) $ (.16)
-- from extraordinary gain......................................... .26 -- --
------------ ------------ ------------
$ .93 $ (.10) $ (.16)
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares and equivalents outstanding......... 20,427,140 8,870,720 7,271,257
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ ADDITIONAL RETAINED STOCKHOLDERS
OUTSTANDING PREFERRED PAID-IN EARNINGS EQUITY
SHARES AMOUNT STOCK CAPITAL (DEFICIT) (DEFICIT)
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1994.............. 4,114,549 $ 42 $ -- $ 46,940 $ (120,520) $ (73,538)
Accretion of liquidation preference on
preferred stock........................ -- -- -- (877) -- (877)
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 purchases.......... 23,798 -- -- 61 -- 61
Employee 401(k) plan matching
contribution........................... 10,000 -- -- 31 -- 31
Net income............................... -- -- -- -- 1,556 1,556
----------- ----------- ----------- ----------- ----------- ------------
Balance as of June 30, 1995.............. 8,810,220 89 32,143 56,939 (118,964) (29,793)
Employee common stock purchases and
exercise of common stock options....... 52,665 -- -- 108 -- 108
Employee 401(K) plan matching
contribution........................... 53,530 1 -- 107 -- 108
Net income............................... -- -- -- -- 2,102 2,102
----------- ----------- ----------- ----------- ----------- ------------
Balance as of June 30, 1996.............. 8,916,415 90 32,143 57,154 (116,862) (27,475)
Employee common stock purchases and
exercise of common stock options....... 72,913 1 -- 430 -- 431
Issuance of common stock, net of related
costs.................................. 5,000,000 50 -- 20,907 -- 20,957
Retirement of preferred stock:
5% Junior Convertible Preferred Stock.. -- -- (14,064) 14,064 -- --
Conversion of preferred stock to common
stock:
12% Senior Convertible Preferred
Stock................................ 5,168,177 52 (15,945) 15,893 -- --
5% Junior Convertible Preferred Stock.. 352,447 3 (2,134) 2,131 -- --
Net income............................... -- -- -- -- 19,010 19,010
----------- ----------- ----------- ----------- ----------- ------------
Balance as of June 30, 1997.............. 19,509,952 $ 196 $ -- $ 110,579 $ (97,852) $ 12,923
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
16
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.......................................................... $ 19,010 $ 2,102 $ 1,556
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary item -- gain on extinguishment of debt, net of
tax............................................................. (5,381) -- --
Deferred tax benefit.............................................. (3,220) -- --
Depreciation and amortization..................................... 2,964 2,546 2,012
Interest expense on Payment-in-Kind Notes......................... 465 1,606 1,407
Recovery of real estate valuation allowance....................... (425) -- --
Other non-cash charges related to non-recurring income............ -- (462) (2,606)
(Recovery of) provision for commissions, management and other
service fees receivable valuation allowances.................... (1,306) 200 (1,303)
Increase (decrease) in commissions, management and other service
fees receivable................................................. (435) 2,306 2,288
Decrease (increase) in other assets............................... 1,775 (213) 3,065
Increase (decrease) in accounts payable........................... 286 (1,595) 608
(Decrease) increase in compensation and employee benefits
payable......................................................... (812) (38) 50
Decrease in other liabilities..................................... (4,918) (3,458) (6,358)
------------- ------------- -------------
Net cash provided by operating activities................... 8,003 2,994 719
------------- ------------- -------------
Cash Flows from Investing Activities:
Purchases of equipment and leasehold improvements................... (3,216) (1,724) (2,944)
Proceeds from disposition of real estate and distributions from real
estate joint ventures............................................. 513 1,090 83
------------- ------------- -------------
Net cash used in investing activities....................... (2,703) (634) (2,861)
------------- ------------- -------------
Cash Flows From Financing Activities:
Proceeds from borrowing............................................. -- 400 --
Repayment of notes payable and credit facility borrowings........... -- (654) (282)
Repayment of long-term debt to related party........................ (23,000) -- --
Proceeds from issuance of common stock, net......................... 21,388 35 3,615
Deferred financing fees............................................. (445) -- (55)
------------- ------------- -------------
Net cash (used in) provided by financing activities......... (2,057) (219) 3,278
------------- ------------- -------------
Net increase in cash and cash equivalents........................... 3,243 2,141 1,136
Cash and equivalents at beginning of the year....................... 13,547 11,406 10,270
------------- ------------- -------------
Cash and cash equivalents at end of the year........................ $ 16,790 $ 13,547 $ 11,406
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY:
Grubb & Ellis Company and Subsidiaries (the "Company") is a full service
commercial real estate company that provides services to real estate
owners/investors and tenants including transaction services involving leasing,
acquisitions and dispositions, and property and facilities management services.
Additionally, the Company provides financial advisory services as well as
consulting and strategic services with respect to commercial real estate.
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 Grubb & Ellis Management
Services, Inc. ("GEMS"), formerly named Axiom Real Estate Management, Inc.,
which provides property and facilities management services. As described below,
the Company acquired the minority interest in GEMS in January 1996. Prior to the
acquisition, the minority interest was included in other long-term liabilities
on the Consolidated Balance Sheet with the related minority interest in
operating results included in "Other income, net" in the Consolidated Statements
of Operations. All significant intercompany accounts have been eliminated.
On January 24, 1996, the Company completed the purchase of the common stock
held by International Business Machines Corporation ("IBM") in GEMS for a
purchase price of $600,000. The terms of the transaction required $150,000 cash
upon closing and three additional $150,000 annual installments beginning January
1997. At June 30, 1997 and 1996, the outstanding liability to IBM totaled
$300,000 and $450,000, respectively. As a result of this transaction, the
Company owns 100% of the outstanding common stock of GEMS. The acquisition of
the minority interest was accounted for as a purchase.
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:
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
about Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
Consolidated Balance Sheets. Considerable judgment is 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.
The carrying amounts of the Company's financial instruments, which include
cash and cash equivalents, receivables and obligations under accounts payable
and debt instruments, approximate their fair values.
18
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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 ("APB 25"). The Company elected to continue accounting
for stock based compensation to its employees under the provisions of APB 25.
Accordingly, if the exercise price of the Company's employee stock options
equals or exceeds the fair market value of the underlying stock on the date of
grant, no compensation expense is recognized by the Company. If the exercise
price of an award is less than the fair market value of the underlying stock at
the date of grant, the Company recognizes the difference as compensation expense
over the vesting period of the award. The Company, however, is required to
provide pro forma disclosure as if the fair value measurement provisions of
Statement 123 had been adopted. See Note 7 of Notes to Consolidated Financial
Statements for additional information.
REVENUE RECOGNITION:
Real estate sales commissions are 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 recognized at the earlier of
receipt of payment or tenant occupancy, assuming a lease agreement has been
executed 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.
COSTS AND EXPENSES:
Real estate transaction and other commission expense is recognized
concurrently with the related revenue. All other costs and expenses are
recognized when incurred.
GEMS incurs salaries, wages and benefits in connection with the property and
corporate facilities management services it provides which are in part
reimbursed by the owners of such properties. The following is a summary of the
GEMS total gross and reimbursable salaries, wages and benefits (in thousands)
for the years ended June 30, 1997, 1996 and 1995. The net expense is included in
salaries and wages on the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross salaries, wages and benefits........................... $ 82,681 $ 80,757 $ 65,465
Less: reimbursements from property owners.................... (67,051) (66,310) (51,959)
--------- --------- ---------
Net salaries, wages and benefits............................. $ 15,630 $ 14,447 $ 13,506
--------- --------- ---------
--------- --------- ---------
</TABLE>
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.
19
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 has maintained 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.
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 are recorded based on enacted statutory rates to reflect
the tax consequences in future years of the differences between the tax bases of
assets and liabilities and their financial reporting amounts. Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that realization of such benefits through future taxable earnings or alternative
tax strategies are more likely than not.
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
Notes 5 and 7 of the Notes to Consolidated Financial Statements. In addition,
earnings (loss) per common share and equivalents computations are also presented
on a fully diluted basis, giving additional effect to potential dilution from
all other dilutive securities. Primary earnings (loss) per common share is the
same as fully diluted earnings (loss) per common share for the years ended June
30, 1996 and 1995.
The calculation of earnings (loss) per common share includes net income
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. All of the preferred stock was either retired or converted to common
stock in December, 1996 (see Note 5), and all accrued and undeclared dividends
through that date were forgiven. Accrued and undeclared dividends totaled
approximately $1,431,000, $3,012,000, and $2,739,000 for the fiscal years ended
June 30, 1997, 1996, and 1995, respectively.
IMPACT OF CHANGE IN ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted for periods ending
after December 15, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements, the dilutive effect of stock options and
other common stock equivalents currently included in calculating primary
earnings per share will be excluded from basic earnings per share. The impact of
this change would result in basic earnings per share of $1.22
20
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and diluted earnings per share of $.97 for the year ended June 30, 1997.
Statement No. 128 had no impact on the calculation of earnings per share for the
years ended June 30, 1996 and 1995.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of demand deposits and highly liquid
short-term debt instruments with maturities of three months or less from the
date of purchase and are stated at cost.
Cash payments for interest were approximately $1.5 million for the fiscal
year ended June 30, 1997 and $1.4 million for each of the fiscal years ended
June 30, 1996 and 1995. Cash payments for income taxes for the fiscal years
ended June 30, 1997, 1996 and 1995 were approximately $168,000, $975,000, and
$720,000 respectively.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. COMMISSIONS, MANAGEMENT AND OTHER SERVICE FEES RECEIVABLE
Commissions, management and other service fees receivable consisted of the
following at June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Commissions and fees receivable......................................... $ 15,145 $ 15,561
Commissions payable..................................................... (8,052) (8,903)
Allowance for uncollectible accounts.................................... (1,874) (3,180)
--------- ---------
Total........................................................... 5,219 3,478
Less portion classified as current...................................... 4,694 3,378
--------- ---------
Noncurrent portion.............................................. $ 525 $ 100
--------- ---------
--------- ---------
</TABLE>
21
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. COMMISSIONS, MANAGEMENT AND OTHER SERVICE FEES RECEIVABLE (CONTINUED)
The following is a summary of the changes in the allowance for uncollectible
commissions, management and other service fees receivable for the fiscal years
ended June 30, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year..................................... $ 3,180 $ 2,980 $ 4,283
Provision for bad debt........................................... -- 200 --
Recovery of allowance............................................ (1,306) -- (1,303)
--------- --------- ---------
Balance at end of year........................................... $ 1,874 $ 3,180 $ 2,980
--------- --------- ---------
--------- --------- ---------
</TABLE>
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following at June 30,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Office furniture and equipment.......................................... $ 17,490 $ 15,639
Leasehold improvements.................................................. 2,451 4,858
--------- ---------
Total................................................................. 19,941 20,497
Less accumulated depreciation and amortization.......................... 13,953 15,303
--------- ---------
Equipment and leasehold improvements, net............................... $ 5,988 $ 5,194
--------- ---------
--------- ---------
</TABLE>
During the year ended June 30, 1997, the Company wrote-off approximately
$400,000 of fully depreciated office furniture and equipment and $3.4 million of
fully amortized leasehold improvements.
4. REAL ESTATE
At June 30, 1997 and 1996, the Company held investments in real estate or
real estate related investments equaling $299,000 and $537,000, respectively,
net of applicable valuation allowances. These amounts are included in other
assets in the Consolidated Balance Sheets.
The following is a summary of the changes in the valuation allowance for
real estate investments and real estate owned for the fiscal years ended June
30, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year................................... $ 2,393 $ 3,501 $ 3,763
Charged to costs and expenses.................................. -- 31 --
Amounts written off............................................ (1,504) (1,139) (262)
Recoveries..................................................... (425) -- --
--------- --------- ---------
Balance at end of year......................................... $ 464 $ 2,393 $ 3,501
--------- --------- ---------
--------- --------- ---------
</TABLE>
22
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FINANCING AND CAPITAL RELATED TRANSACTIONS
During the year ended June 30, 1997, the Company retired all of its
outstanding long-term debt, as further described below. At June 30, 1996,
long-term debt to related party consisted of the following (in thousands):
<TABLE>
<S> <C>
Senior Notes, 9.9% semi-annual interest payments, principal due in
two approximately equal installments on November 1, 1997 and
1998............................................................. $ 10,000
Payment-in-Kind Notes, 11.65% semi-annual interest payments,
principal due in two equal installments on November 1, 2000 and
2001............................................................. 12,514
Revolving Credit Note, monthly interest payments of 2.5% above
LIBOR, principal due November 1, 1999............................ 5,000
---------
$ 27,514
---------
---------
</TABLE>
FISCAL 1997 FINANCING TRANSACTIONS:
SALE AGREEMENT -- LONG-TERM DEBT -- On October 21, 1996, Warburg, Pincus
Investors, L.P. ("Warburg") and The Prudential Insurance Company of America
("Prudential") entered into an agreement (the "Sale Agreement") pursuant to
which Warburg acquired from Prudential all of the outstanding debt, common stock
warrants, and substantially all of the Junior Convertible Preferred Stock held
by Prudential in the Company (together, the "Prudential Securities"), for $23
million plus accrued but unpaid interest on the debt. The closing occurred on
October 22, 1996. Concurrently, Warburg granted the Company an option, (the
"Option") until April 16, 1997, to acquire all of the Prudential Securities
which Warburg acquired from Prudential, at Warburg's cost, plus interest.
The Prudential Securities included: (a) $5 million Revolving Credit Note due
November 1, 1999 (the "Revolving Credit Note"); (b) $10 million 9.9% Senior
Notes due in equal installments on November 1, 1997 and 1998 (the "Senior
Notes"); (c) $10.9 million 11.65% Subordinated Payment-In-Kind Note due November
1, 2000 and 2001; (d) $2.2 million 11.65% Subordinated Payment-In-Kind Notes,
due November 1, 2000 and 2001 ((c) and (d) collectively the "PIK Notes"); (e)
130,233 shares of Junior Convertible Preferred Stock; and (f) stock subscription
warrants to subscribe for 350,000 shares of common stock.
Pursuant to the Sale Agreement, Prudential agreed that in the event that
Warburg converted its Senior Convertible Preferred Stock to common stock,
Prudential would convert its remaining Junior Convertible Preferred Stock to
common stock. As of the date of the Sale Agreement, Prudential continued to hold
397,549 shares of common stock and 19,767 shares of Junior Convertible Preferred
Stock convertible into 352,447 shares of common stock.
While the Option remained unexercised during the Option period, no interest
or dividends accrued or were due or payable on the Prudential Securities;
however, the Company was obligated to pay Warburg interest at an initial rate of
10% per annum, increasing to 12% per annum as of February 1, 1997, on Warburg's
$23 million investment in the Prudential Securities. In consideration of receipt
of the Option, the Company agreed to extend the expiration date of warrants to
purchase an aggregate of 1,012,358 shares of common stock of the Company, then
held by Warburg, to January 29, 2002.
EQUITY INVESTMENTS -- On December 11, 1996, the Company sold 2.5 million
shares of its common stock for $10 million to the principals of the Kojaian
Companies, Southfield, Michigan. The $10 million
23
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FINANCING AND CAPITAL RELATED TRANSACTIONS (CONTINUED)
was used to purchase from Warburg, and then retire, all of the outstanding PIK
Notes (approximately $13.6 million of principal and accrued interest) and
130,233 shares of Junior Convertible Preferred Stock. The repurchase of the PIK
Notes resulted in a $3.6 million extraordinary gain on the extinguishment of
debt. Concurrently, Warburg and Joe F. Hanauer, a director of the Company,
converted all of the Senior Convertible Preferred Stock held by them into an
aggregate of 5,168,177 shares of common stock, and Mr. Hanauer agreed to cancel
certain warrants held by him. In connection with these transactions, Warburg
retained warrants to purchase an aggregate of 325,000 shares of common stock and
Mr. Hanauer received, from Warburg, warrants to purchase an aggregate of 25,000
shares of common stock. At the same time, Warburg granted the Company a second
option (the "Second Option") to purchase the Senior Notes and Revolving Credit
Note held by Warburg until April 16, 1997 for $13 million, plus interest, and
the Option was canceled. Pursuant to the Sale Agreement, Prudential converted
all of its remaining shares of Junior Convertible Preferred Stock into an
aggregate of 352,447 shares of common stock.
On January 24, 1997, the Company sold 2.5 million shares of its common stock
for $11.25 million to Archon Group, L.P., a majority owned subsidiary of the
international investment bank, Goldman, Sachs & Co. The $11.25 million, together
with existing cash, was used to exercise the Second Option and purchase from
Warburg, and then retire, the $10 million Senior Notes and $5 million Revolving
Credit Note, at a price equal to $13 million plus accrued interest of
approximately $96,000. The purchase of these notes resulted in a $2 million
extraordinary gain on the extinguishment of debt.
As a result of the above mentioned transactions, all shares of Senior and
Junior Convertible Preferred Stock of the Company were either converted to
common stock or retired, and all accrued and undeclared dividends were forgiven.
REVOLVING CREDIT FACILITY:
On March 13, 1997 the Company entered into a $15 million revolving credit
facility (the "Credit Agreement") with PNC Bank, National Association ("PNC")
for general corporate purposes and acquisitions. The Credit Agreement expires on
March 13, 2001. At June 30, 1997, the Company had no outstanding borrowings
under the Credit Agreement.
Interest on outstanding borrowings will be due quarterly in arrears and is
based upon PNC's prime rate and/or the LIBOR rate plus, in either case, an
additional margin based upon a particular financial ratio of the Company, and
will vary depending upon which interest rate options the Company chooses to be
applied to specific borrowings. In connection with the Credit Agreement, the
Company incurred commitment and other financing fees totaling $445,000, which
are being amortized over the term of the Credit Agreement. Performance of the
Company's obligations under the Credit Agreement is collateralized by
substantially all of the Company's assets. The Credit Agreement contains certain
restrictive covenants, including the prohibition of the payment of dividends,
restrictions on the issuance of certain types of preferred stock, and the
maintenance of certain financial ratios.
6. INCOME TAXES
The Company maintains a fiscal year ending June 30 for financial reporting
purposes and reports on the calendar year on a consolidated basis for income tax
purposes. The provision for income taxes for the fiscal years ended June 30,
1997, 1996 and 1995 consisted of currently payable state and local income taxes
and in 1997 also included a federal alternative minimum tax provision of
$217,000 and a deferred tax
24
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
benefit of $3.2 million. Additionally, the provision for income taxes for the
year ended June 30, 1995 included federal income taxes related solely to Axiom,
which filed on a separate basis for income tax purposes.
At June 30, 1997, the following income tax carryforwards were available to
the Company (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATES
--------- --------------
<S> <C> <C>
Federal income tax operating loss carryforwards................... $ 30,027 2007 to 2010
Federal investment tax credit carryforwards....................... 278 1998 to 2000
Federal alternative minimum tax credit carryforward............... 217 Indefinite
</TABLE>
In addition, certain of the Company's net operating loss carryforwards
(NOL's) are limited pursuant to Section 382 of the Internal Revenue Code
relating to a prior ownership change. The NOL's allowable under Section 382 are
limited to approximately $825,000 per year. At June 30, 1997, the amount of
NOL's not subject to limitation amounted to approximately $18.1 million.
The Company's effective tax rate on its income before taxes differs from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate......................................... 35.0% 35.0% 35.0%
State and local income taxes (net of federal tax benefits)..... 1.4 1.9 5.1
Alternative minimum tax........................................ 1.3 -- --
Meals and entertainment........................................ .8 5.5 6.6
Reduction in valuation allowance............................... (32.0) (33.8) (24.2)
Utilization of NOL carryforwards............................... (22.7) -- --
--------- --------- ---------
Effective income tax rate.................................... (16.2)% 8.6% 22.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1997, the Company reduced the valuation allowance against the net
deferred tax assets. The reduction reflects the utilization of deferred tax
assets, which lowered 1997 taxable income, and the recognition of a deferred tax
asset of $3.2 million. The recognition of the deferred tax asset is based upon
the expected utilization of NOL's and is classified as a current asset in the
consolidated balance sheet as of June 30, 1997. Management believes that, due to
favorable economic conditions, the elimination of debt and the recent trend of
earnings, it is more likely than not that the Company will generate sufficient
future taxable income to realize the deferred tax asset. In 1996 and 1995, a
valuation allowance equal to 100% of the net deferred tax asset was recorded by
the Company due to the uncertainty of realization.
25
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Deferred income tax liabilities or assets are determined based on the
differences between the financial statement and tax bases of assets and
liabilities. The components of the Company's deferred tax assets and
(liabilities) are as follows as of June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Commission and fee reserves........................................... $ 2,531 $ 3,102
Insurance reserves.................................................... 2,404 --
Claims and settlements................................................ 1,679 2,955
Compensation accrual.................................................. 1,090 936
NOL and credit carryovers............................................. 11,980 14,394
Other................................................................. 368 690
--------- ---------
20,052 22,077
Deferred tax liabilities:
Commission and fee reserves........................................... 586 489
--------- ---------
Net deferred tax assets............................................. 19,466 21,588
Less valuation allowance................................................ (16,246) (21,588)
--------- ---------
Net deferred tax asset.............................................. $ 3,220 $ --
--------- ---------
--------- ---------
</TABLE>
7. STOCK OPTIONS, WARRANTS AND STOCK PURCHASE AND EMPLOYEE 401(K) PLANS
STOCK OPTION PLANS:
Changes in stock options were as follows for the fiscal years ended June 30,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- --------------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stock Options outstanding at the beginning $ 1.88 to $ 1.88 to $ 2.88 to
of the year............................. 1,085,400 $28.75 651,900 $28.75 321,118 $28.75
$ 3.38 to $ 2.13 to $ 1.88 to
Granted or regranted...................... 800,000 $15.25 1,000,000 $2.38 352,850 $2.38
$ 1.88 to $ 1.88 to $ 4.13 to
Lapsed or canceled........................ (61,340) $28.75 (552,100) $23.15 (22,068) $18.75
$ 1.88 to $ 1.88 to --
Exercised................................. (21,740) $10.00 (14,400) $3.13 --
---------- ---------- ---------
Stock options outstanding at the end of $ 1.88 to $ 1.88 to $ 1.88 to
the year................................ 1,802,320 $27.50 1,085,400 $28.75 651,900 $28.75
---------- ---------- ---------
---------- ---------- ---------
$ 1.88 to $ 1.88 to $ 2.88 to
Exercisable at end of the year............ 446,864 $27.50 300,235 $28.75 165,251 $28.75
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
26
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTIONS, WARRANTS AND STOCK PURCHASE AND EMPLOYEE 401(K) PLANS
(CONTINUED)
During fiscal year 1997, the weighted average exercise price of options
granted or regranted was $7.539 (with a weighted average fair market value of
$4.395), lapsed or canceled was $4.624, exercised was $3.079 and options
outstanding at June 30 was $4.810.
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, subject to shareholder approval, effective February 1, 1997 and
June 20, 1997 to increase the authorized number of shares issuable under the
plan by 300,000 and 200,000 shares, respectively, to a total of 2,000,000
shares. At June 30, 1997, 1996 and 1995, the number of shares available for the
grant of options were 186,874, 425,534 and 723,434, respectively. Stock options
under this plan may be 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 have
been determined by the Compensation Committee of the Board of Directors until
September 1996, and thereafter, by the Board of Directors.
The Company's 1993 Stock Option Plan for Outside Directors provides for an
automatic grant to each newly-elected non-management member of the Board of
Directors of an option to purchase 10,000 shares 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 each of June 30, 1997, 1996 and
1995, the number of shares available for the grant of options was 20,000. As of
June 30, 1997, options to purchase 26,667 shares have vested under this plan.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its options under the fair value method of that Statement. The
fair value for the options as of July 1, 1995 was estimated at the date of grant
using a Black-Scholes option pricing model. Weighted-average assumptions for
1997 and 1996, respectively, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Risk free interest rates........................................... 6.27% 5.60%
Dividend yields.................................................... 0% 0%
Volatility factors of the expected market price of the common
stock............................................................ .586 .515
Weighted-average expected lives.................................... 4.96 years 5.15 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of options
granted.
The effect on 1997 and 1996 pro forma net income and pro forma earnings per
common share and common share equivalent of amortizing to expense the estimated
fair value of stock options are not necessarily representative of the effects on
net income to be reported in future years due to such things as the vesting
period of the stock options, and the potential for issuance of additional stock
options in future years. For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over the options' vesting
period. The pro forma effect of applying Statement 123's fair value
27
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTIONS, WARRANTS AND STOCK PURCHASE AND EMPLOYEE 401(K) PLANS
(CONTINUED)
method to the Company's stock-based awards results in net income and earnings
per share that are not materially different from amounts reported.
STOCK WARRANTS
As of June 30, 1997, the Company had the following stock warrants
outstanding, all of which expire on January 29, 2002:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
WARRANTS PRICE
- ----------- ----------
<S> <C>
475,000 $ 2.37500
235,045 3.40355
887,358 3.50000
88,496 3.60449
</TABLE>
EMPLOYEE COMMON STOCK PURCHASE PLAN:
In 1987, the Company adopted the Employee New Stock Purchase Plan which
enables eligible employees to purchase common stock of the Company at discounted
prices. As amended, up to 200,000 shares of stock were authorized for issuance
under this plan. On June 30, 1997, the plan terminated pursuant to its terms. At
that time, all but 20,576 shares had been issued under the plan. During the
fiscal years ended June 30, 1997, 1996 and 1995, the number of shares purchased
under this plan were 22,970, 38,265 and 15,804, respectively.
On June 20, 1997, the Board of Directors adopted, subject to shareholder
approval, a new employee stock purchase plan effective August 1, 1997. The new
plan provides for the purchase of up to 750,000 shares of common stock by
employees of the Company at a discount from market price through payroll
deductions.
EMPLOYEE 401(K) PLANS:
Prior to January 1, 1997, the Company had an employee 401(k) plan covering
eligible employees other than employees of GEMS. The Company contributed 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. Prior to January 1, 1997, GEMS also had an
employee 401(k) plan, but such plan did not provide for employer contributions
to be made in stock. The two plans were merged together on January 1, 1997 and
provide that employer contributions may be made in common stock of the Company
or cash. Discretionary contributions by the Company and other expenses for the
plans amounted to approximately $585,000, $418,000 and $484,000 for the fiscal
years ended June 30, 1997, 1996 and 1995, respectively.
28
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS
Revenue earned by the Company for services rendered to affiliates, including
joint ventures, officers and directors and their affiliates, was as follows for
the fiscal years ended June 30, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Transaction service commissions.................................... $ 836 $ 710 $ 977
Management services and other fees................................. $ 1,028 $ 1,102 $ 458
</TABLE>
The Company rented office space from a company which was a related party
until October 1996. Such rent expense was $374,000, $1,122,000 and $1,122,000
for the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
See Note 5 to the Notes to Consolidated Financial Statements for information
regarding long-term debt with related parties.
9. 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 June 30, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING LEASE
JUNE 30, OBLIGATIONS
- ------------ -----------
<S> <C>
1998 $ 11,370
1999 9,161
2000 7,755
2001 5,895
2002 4,065
Thereafter 4,231
-----------
$ 42,477
-----------
-----------
</TABLE>
As a component of the Company's restructuring charges related to the closing
of certain offices, the Company has accrued for approximately $1,096,000 of the
above expected future minimum rental payments, net of expected sublease income
of approximately $539,000 as of June 30, 1997.
29
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lease and rental expense for the fiscal years ended June 30, 1997, 1996 and
1995 amounted to $14,542,000, $15,104,000, and $15,788,000 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, two former Company
employees, 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. One of the plaintiffs in the YOUNKIN case has recently
died of her illnesses. 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. No trial date on the remaining causes of action has been set in
YOUNKIN.
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 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. Discovery has commenced. On December 19, 1995 the court granted the
defendants' motion to dismiss the entire complaint with regard to Partnerships I
and III, based upon the plaintiff's lack of standing in those Partnerships but
denied the motion with respect to the plaintiff's standing in Partnership II, in
which the plaintiff was a unitholder. The court declined to rule on the other
bases for dismissal, stating that they could be raised by summary judgment
motion after discovery. Plaintiff filed a motion for leave to file an amended
complaint adding new party plaintiffs in order to preserve claims relating to
Partnerships I and III. On September 27, 1996, the court granted plaintiff's
motion to file an amended complaint to add additional plaintiffs with respect to
Partnerships I and III. Also on that date, the court granted plaintiff's motion
for class certification with respect to Partnerships I, II and III.
30
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Defendants have appealed the court's ruling permitting plaintiff to file an
amended complaint. The case has been stayed, including discovery, pending the
outcome of the appeal.
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.
10. OTHER NON-RECURRING EXPENSE (INCOME)
During the fiscal year ended June 30, 1995, the Company recognized
recoveries of approximately $2.6 million of previously established reserves for
severance and office closure costs. Approximately $1.4 million of the recoveries
related to closing certain offices more efficiently than initially estimated and
$930,000 related to the reversal of the remaining net office lease liability of
the Company's Southern California residential brokerage operations which were
sold in November 1994.
During the fiscal year ended June 30, 1996, the Company recorded a $462,000
net credit to other non-recurring expenses. Charges included $525,000 of
severance costs for a senior executive related to restructuring the operations
of GEMS, while income credits included recoveries of $987,000 primarily related
to previously established reserves for severance and office closure costs.
During the fiscal year ended June 30, 1997, the Company recorded a $2.4
million charge for incremental non-recurring costs related to the relocation of
the Company's corporate headquarters from San Francisco, California to
Northbrook, Illinois.
11. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and interest-bearing investments. Users
of real estate services account for a substantial portion of trade receivables
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 of its interest-bearing investments
with major financial institutions and limits the amount of credit exposure to
any one financial institution.
31
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. PRO FORMA INFORMATION (UNAUDITED)
The information presented below presents the unaudited pro forma impact to
net income per common share and equivalents assuming (a) the equity investments
of $10 million in December 1996 and $11.25 million in January 1997 described in
Note 5 to the Notes to Consolidated Financial Statements were made at the
beginning of the respective years, then concurrently (b) all outstanding
long-term debt to The Prudential Insurance Company of America was immediately
retired and (c) all outstanding Senior and Junior Convertible Preferred Stock
was also immediately retired or converted into common stock.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
1997 1996
------------- -------------
<S> <C> <C>
Net income (loss) applicable to common stockholders...................... $ 17,579 $ (910)
Add pro forma adjustments --
Dividends applicable to preferred stock................................ 1,431 3,012
Interest expense to related parties.................................... 1,453 3,034
------------- -------------
Pro forma net income applicable to common stockholders................... $ 20,463 $ 5,136
------------- -------------
------------- -------------
Pro forma weighted average common shares and equivalents outstanding
-- Primary............................................................. 21,064,891 19,362,599
------------- -------------
------------- -------------
-- Fully diluted....................................................... 21,924,395 19,362,599
------------- -------------
------------- -------------
Pro forma net income per common share:
Primary:
From operations...................................................... $ .71 $ .27
From extraordinary gain.............................................. .26 --
------------- -------------
$ .97 $ .27
------------- -------------
------------- -------------
Fully diluted:
From operations...................................................... $ .68 $ .27
From extraordinary gain.............................................. .25 --
------------- -------------
$ .93 $ .27
------------- -------------
------------- -------------
</TABLE>
The pro forma information is not necessarily indicative of the results of
the Company had such transactions occurred on the dates discussed above, nor
does such information purport to represent the expected results for future
periods.
32
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1997
---------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES)
<S> <C> <C> <C> <C>
Operating revenue............................................ $ 51,927 $ 68,034 $ 48,593 $ 60,076
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Operating income (loss)...................................... $ 1,947 $ 5,411 $ (1,651) $ 5,406
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Income (loss) before income taxes and extraordinary item..... $ 1,326 $ 5,184 $ (1,438) $ 5,709
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Extraordinary item -- gain on extinguishment of debt......... -- $ 3,576 $ 2,000 $ (195)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Net income (loss)............................................ $ 1,296 $ 8,723 $ 534 $ 8,457
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Net income (loss) per common share and equivalents:
Primary --
-- from operations......................................... $ .06 $ .35 $ (.07) $ .40
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
-- from extraordinary gain................................. -- $ .27 $ .10 $ (.01)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Weighted average common shares and equivalents
outstanding.............................................. 8,916,567 13,334,656 19,963,770 21,819,489
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Fully diluted --
-- from operations......................................... $ .06 $ .30 $ (.07) $ .39
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
-- from extraordinary gain................................. -- $ .20 $ .10 $ (.01)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Weighted average common shares and equivalents
outstanding.............................................. 8,916,567 17,343,642 20,162,084 22,140,076
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
4 3/4 : 10 1/8 :
Common stock market price range (high:low)................... 3 1/4 4 3/4 : 4 4 1/4 17 1/8 : 9
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1996
------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES)
<S> <C> <C> <C> <C>
Operating revenue........................................ $ 47,362 $ 60,381 $ 36,933 $ 49,052
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Operating income (loss).................................. $ 407 $ 6,005 $ (4,574) $ 1,501
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income (loss) before income taxes........................ $ 808 $ 5,278 $ (5,110) $ 1,324
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss)........................................ $ 596 $ 5,332 $ (5,116) $ 1,290
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per common share and equivalents:
Primary................................................ $ (.01) $ .42 $ (.67) $ .06
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully diluted.......................................... $ (.01) $ .32 $ (.67) $ .06
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares and equivalents
outstanding............................................. 8,827,675 8,827,675 8,827,675 8,831,513
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
2 3/4 : 2 5/8 : 5 1/4 :
Common stock market price range (high:low)............... 1 7/8 1 7/8 3 : 1 7/8 2 1/4
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
34
<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 1997 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 1997 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 1997 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 1997 fiscal year.
35
<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 Report of Independent Auditors and Consolidated Financial
Statements are submitted herewith:
Report of Independent Auditors
Consolidated Balance Sheets at June 30, 1997 and June 30,
1996.
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended June 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
2. All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions, are inapplicable, or the information is
contained in the Notes to Consolidated Financial Statements and therefore
have been omitted.
3. Exhibits required to be filed by Item 601 of Regulation S-K:
(3) Articles of Incorporation and Bylaws
<TABLE>
<S> <C>
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 Certificate of Retirement with respect to 130,233 Shares of Junior Convertible
Preferred Stock of Grubb & Ellis Company, filed with the Delaware Secretary of State
on January 22, 1997, incorporated herein by reference to Exhibit 3.3 to the
Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission
File No. 1-8122).
3.3 Certificate of Retirement with respect to 8,894 Shares of Series A Senior
Convertible Preferred Stock, 128,266 Shares of Series B Senior Convertible Preferred
Stock, and 19,767 Shares of Junior Convertible Preferred Stock of Grubb & Ellis
Company, filed with the Delaware Secretary of State on January 22, 1997,
incorporated herein by reference to Exhibit 3.4 to the Registrant's Quarterly Report
on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122).
3.4 Grubb & Ellis Company Bylaws, as amended and restated effective June 1, 1994,
incorporated herein by reference to Exhibit 3.2 to the Registrant's Quarterly Report
on Form 10-Q filed on November 13, 1996 (Commission File No. 1-8122).
(4) Instruments Defining the Rights of Security Holders, including Indentures
4.1 First Amendment to Warrant No. 18, held by Warburg, Pincus Investors, L.P.,
exercisable for 687,358 shares of common stock of the Registrant extending the
expiration date to January 29, 2002, incorporated herein by reference to Exhibit 4.2
to the Registrant's Quarterly Report on Form 10-Q filed on November 13, 1996
(Commission File No. 1-8122).
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
4.2 First Amendment to Warrant No. 19, held by Warburg, Pincus Investors, L.P.,
exercisable for 325,000 shares of common stock of the Registrant extending the
expiration date to January 29, 2002, incorporated herein by reference to Exhibit 4.3
to the Registrant's Quarterly Report on Form 10-Q filed on November 13, 1996
(Commission File No. 1-8122).
4.3 Option Agreement dated as of December 11, 1996 between the Registrant and Warburg,
Pincus Investors, L.P., incorporated herein by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K filed on December 20, 1996 (Commission file
No. 1-8122).
4.4 Stock Purchase Agreement dated as of December 11, 1996 among the Registrant, Mike
Kojaian, Kenneth J. Kojaian and C. Michael Kojaian, incorporated herein by reference
to Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed on December 20,
1996 (Commission File No. 1-8122).
4.5 Registration Rights Agreement dated as of December 11, 1996 among the Registrant,
Warburg, Pincus Investors, L.P., Joe F. Hanauer, Mike Kojaian, Kenneth J. Kojaian
and C. Michael Kojaian, incorporated herein by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed on December 20, 1996 (Commission File
No. 1-8122).
4.6 Purchase Agreement dated as of January 24, 1997 between the Registrant and Warburg,
Pincus Investors, L.P., incorporated herein by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed on February 4, 1997 (Commission File
No. 1-8122).
4.7 Stock Purchase Agreement dated as of January 24, 1997 between the Registrant and
Archon Group, L.P., incorporated herein by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K filed on February 4, 1997 (Commission File
No. 1-8122).
4.8 Registration Rights Agreement dated as of January 24, 1997 between the Registrant
and Archon Group, L.P., incorporated herein by reference to Exhibit 4.3 to the
Registrant's Current Report on Form 8-K filed on February 4, 1997 (Commission File
No. 1-8122).
4.9 Stock Subscription Warrant No. 20 dated December 11, 1996 issued to Joe F. Hanauer
Trust, incorporated herein by reference to Exhibit 4.11 to the Registrant's
Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No.
1-8122).
4.10 Stock Subscription Warrant No. 21 dated December 11, 1996 issued to Warburg, Pincus
Investors, L.P., incorporated herein by reference to Exhibit 4.12 to the
Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission
File No. 1-8122).
4.11 Stock Subscription Warrant No. 22 dated December 11, 1996 issued to Joe F. Hanauer
Trust, incorporated herein by reference to Exhibit 4.13 to the Registrant's
Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No.
1-8122).
4.12 Stock Subscription Warrant No. 23 dated December 11, 1996 issued to Warburg, Pincus
Investors, L.P., incorporated herein by reference to Exhibit 4.14 to the
Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission
File No. 1-8122).
4.13 Form of Amendment No. 1 to Stock Subscription Warrants No. 8, 9, 13 and 15 issued to
Joe F. Hanauer Trust, incorporated herein by reference to Exhibit 4.15 to the
Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission
File No. 1-8122).
4.14 Credit Agreement among the Registrant, certain Subsidiaries of the Registrant, and
PNC Bank, National Association dated as of March 13, 1997, incorporated herein by
reference to Exhibit 4.14 to the Registrant's Quarterly Report on Form 10-Q filed on
May 15, 1997 (Commission File No. 1-8122).
4.15 Subordination Agreement by and among the Registrant and certain Subsidiaries of the
Registrant in favor of PNC Bank, National Association dated as of March 13, 1997,
incorporated herein by reference to Exhibit 4.15 to the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 1997 (Commission File No. 1-8122).
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
4.16 Revolving Credit Note executed by the Registrant in favor of PNC Bank, National
Association in the amount of up to $15 million dated as of March 13, 1997,
incorporated herein by reference to Exhibit 4.16 to the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 1997 (Commission File No. 1-8122).
4.17 Letter dated March 12, 1997 from IBM Credit Corporation to Axiom Real Estate
Management, Inc., acknowledging release of collateral and discharge of all
obligations under Revolving Loan and Security Agreement dated October 19, 1995,
incorporated herein by reference to Exhibit 4.17 to the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 1997 (Commission File No. 1-8122).
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.
</TABLE>
<TABLE>
<S> <C>
(10) Material Contracts
10.1* Employment agreement between Neil R. Young and the Registrant dated as of February
22, 1996, incorporated herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q filed on May 15, 1996 (Commission File No. 1-8122).
10.2* Grubb & Ellis Company 1990 Amended and Restated Stock Option Plan, as amended and
restated as of September 25, 1996.
10.3* 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).
10.4* 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).
10.5* Description of Grubb & Ellis Company Management Separation Arrangements,
incorporated herein 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).
10.6 Master Collateral Assignment of Contract Rights to PNC Bank, National Association by
the Registrant and Subsidiaries of the Registrant dated as of March 13, 1997,
incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 1997 (Commission File No. 1-8122).
10.7 Master Agreement of Guaranty and Suretyship by and between the Registrant and
Subsidiaries of the Registrant in favor of PNC Bank National Association dated as of
March 13, 1997, incorporated herein by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q filed on May 15, 1997 (Commission File No. 1-8122).
10.8 Pledge Agreement among the Registrant, certain Subsidiaries of the Registrant and
PNC Bank, National Association dated as of March 13, 1997, incorporated herein by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed on
May 15, 1997 (Commission File No. 1-8122).
10.9 Security Agreement by and among the Registrant, certain Subsidiaries of the
Registrant and PNC Bank, National Association dated as of March 13, 1997,
incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 1997 (Commission File No. 1-8122).
10.10 Trademark Security Agreement by the Registrant in favor of PNC Bank, National
Association dated as of March 13, 1997, incorporated herein by reference to Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q filed on May 15, 1997
(Commission File No. 1-8122).
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
10.11 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).
10.12 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).
</TABLE>
- ------------------------
<TABLE>
<S> <C>
* 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
(24) Powers of Attorney
(27) Financial Data Schedule
(b) Reports on Form 8-K: none
</TABLE>
39
<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 day of
September, 1997.
GRUBB & ELLIS COMPANY
(REGISTRANT)
<TABLE>
<S> <C> <C>
By *
----------------------------------------------------
Neil Young September 26, 1997
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
</TABLE>
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.
<TABLE>
<C> <S>
/s/ BRIAN D. PARKER September 26, 1997
- ---------------------------------------------------------
Brian D. Parker
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
* September 26, 1997
- ---------------------------------------------------------
R. David Anacker
DIRECTOR
* September 26, 1997
- ---------------------------------------------------------
Lawrence S. Bacow
DIRECTOR
* September 26, 1997
- ---------------------------------------------------------
Joe F. Hanauer
DIRECTOR
* September 26, 1997
- ---------------------------------------------------------
C. Michael Kojaian
DIRECTOR
* September 26, 1997
- ---------------------------------------------------------
Sidney Lapidus
DIRECTOR
</TABLE>
40
<PAGE>
<TABLE>
<C> <S>
* September 26, 1997
- ---------------------------------------------------------
Reuben S. Leibowitz
DIRECTOR
* September 26, 1997
- ---------------------------------------------------------
Robert J. McLaughlin
DIRECTOR
* September 26, 1997
- ---------------------------------------------------------
John D. Santoleri
DIRECTOR
* September 26, 1997
- ---------------------------------------------------------
Todd A. Williams
DIRECTOR
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ROBERT J. WALNER
--------------------------------------
Robert J. Walner
ATTORNEY-IN-FACT,
PURSUANT TO POWERS OF ATTORNEY
</TABLE>
41
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT INDEX (A)
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<C> <S>
(10) Material Contracts
10.2 1990 Amended and Restated Stock Option Plan, as amended and restated as of September 25, 1996.
(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
(24) Powers of Attorney
(27) Financial Data Schedule
(A) Exhibits incorporated by reference are listed in Item 14(a)3 of this Report.
</TABLE>
<PAGE>
EXHIBIT 10.2
GRUBB & ELLIS COMPANY
1990 AMENDED AND RESTATED STOCK OPTION PLAN
AS AMENDED EFFECTIVE AS OF SEPTEMBER 25, 1996
1. PURPOSE. The purpose of the 1990 Amended and Restated Stock Option
Plan (the "Plan") is to promote the interests of Grubb & Ellis Company (the
"Company"), its subsidiaries and its stockholders, in retaining and
attracting key persons associated with the Company and its subsidiaries who
are in a position to contribute significantly to the success of the Company
and its subsidiaries, by granting options ("Options") to such persons to
purchase shares of its Common Stock, $0.01 Par Value ("Shares"). This Plan is
an amendment and restatement of the Company's 1981, 1982, 1983, 1984 and 1985
Stock Option Plans (Amended) ("Plans"), and includes the Second Amendment to
the Plan effective as of November 21, 1995 and the Third Amendment to the
Plan effective as of September 25, 1996.
2. EFFECTIVE DATE OF THE PLAN; TERM. Subject to approval by the
holders of a majority of the outstanding shares of Common Stock of the
Company voting on or before May 16, 1991, this Plan shall be effective as of
May 16, 1990 ("Effective Date"). Upon becoming effective, this Plan shall
continue in effect until such date as the Board of Directors of the Company
discontinues the Plan; provided, however, that no "incentive stock Options"
shall be granted under the Plan after May 16, 2000. Any such termination of
the Plan shall not affect Options previously granted and such Options shall
remain in full force and effect as if this Plan had not been terminated. On
and after the Effective Date, all outstanding options under the previous
Plans shall continue to be effective under this Plan upon the terms and
conditions of the options as granted and amended prior to the Effective Date.
3. ADMINISTRATION. This Plan shall be administered by the Board of
Directors of the Company or by such committee of directors (in either case,
the "Board/Committee") as may be established by the Board of Directors in
accordance with Rule 16b-3 of the Securities Exchange Act of 1934, as
amended. No member of the Compensation Committee of the Board of Directors
(the "Compensation Committee") shall be eligible to participate in this Plan
while serving as a member of the Compensation Committee, nor shall any such
member have been so eligible for one year prior to becoming a member of the
Compensation Committee. Subject to the provisions of this Plan, the
Board/Committee shall have sole authority, in its absolute discretion, to
determine which eligible persons shall receive Options (the "Optionees"), the
dates when Options shall be granted, the terms of such Options (which may
differ from one another), the number of Shares to be optioned, and the
exercise price of such Options, and shall have authority to do everything
necessary or appropriate to administer this Plan, including, without
limitation, interpreting this Plan. All decisions, determinations and
interpretations of the Board/Committee shall be final and binding on all
persons, including the Company and its subsidiaries, and all Optionees.
4. ELIGIBILITY. The Board/Committee may grant Options to any key
employee of the Company or of any of its subsidiaries, whether presently in
existence or hereinafter organized or acquired, and to any director of the
Company,
<PAGE>
whether or not such director is an employee; provided, however, that
directors who are members of the Compensation Committee are not eligible to
receive Options under the Plan. On and after such date when securities
issuable under the Plan to independent contractors are registrable on a Form
S-8 or similar registration statement, or otherwise when securities
compliance becomes similarly simplified, in the judgment of the appropriate
corporate officers of the Company, upon written notification to the
Board/Committee, the Board/Committee may grant "non-qualified" Options (see
below) to any key independent contractor associated with the Company or any
of its subsidiaries, subject to the above limitation on members of the
Compensation Committee. As of the Effective Date, independent contractors
are not eligible to be granted Options under the Plan. A key employee or key
independent contractor associated with the Company is one whose duties and/or
authority are such that, in the judgment of the Board/Committee, he or she is
in a position to contribute significantly to the success of the Company or
any of its subsidiaries.
5. STOCK TO BE OPTIONED. The maximum number of Shares of authorized,
but unissued, or reacquired Common Stock of the Company, which may be
optioned and sold under this Plan is 1,500,000 Shares. Outstanding Options
under the previous Plans will be subject to and authorized by this Plan. On
and after the Effective Date, Shares subject to expired or cancelled Options
will be available for regrant of Options. The Shares authorized will be
available for the grant of either "incentive stock Options" (see below) or
non-qualified Options. Except as set forth in this paragraph, as of the
Effective Date, the authorization of Shares under the previous Plans shall be
cancelled.
6. GRANTING OF OPTIONS.
(a) Options may be granted pursuant to this Plan at any time during its
term. Options granted may be either incentive stock Options ("ISOs") meeting
the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or "non-qualified Options" which do not meet such
requirements; provided, however, that ISOs shall be granted only to eligible
employees. Each Option grant shall be consistent with the terms of this
Plan. No Option granted pursuant to this Plan shall be exercisable more than
ten years after the date of grant, unless the Board/Committee determines
otherwise with respect to individual Option grants or for all Options or
Optionees; provided, however, that no ISO granted to an Optionee who owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company at the date of grant shall be exercisable
more than five years after the date of grant.
(b) DOLLAR LIMITATION ON ISOS GRANTED BEFORE JANUARY 1, 1987. The
aggregate fair market value (determined as of the date the Option is granted)
of the Shares for which any employee may be granted ISOs in any calendar year
under this Plan and under any other plan of the Company, its subsidiaries
and/or any parent corporation before January 1, 1987, shall not exceed
$100,000 plus any "unused limit carryover" to such year. If $100,000 exceeds
the aggregate fair market value (determined as of the date the Option is
granted) of the Shares for which an employee was granted ISOs in any calendar
year after 1980, under any ISO plan of his or her employer corporation and
its parent and subsidiary corporations, then one-half of such excess shall be
"unused limit carryover" to each of the three succeeding calendar years. The
amount of the unused limit carryover for any calendar year which may be taken
-2-
<PAGE>
into account in any succeeding calendar year shall be the amount of such
carryover reduced by the amount of such carryover which was used in prior
calendar years. For purposes of the foregoing sentence, the amount of ISOs
granted during any calendar year shall be treated as first using up the
$100,000 limitation of the first sentence of this Section 6(b), and then
shall be treated as using up unused limit carryovers to such year in the
order of the calendar years in which the carryovers arose.
(c) DOLLAR LIMITATION ON ISOS GRANTED AFTER DECEMBER 31, 1986. For
ISOs granted after December 31, 1986, the aggregate fair market value
(determined as of the respective date or dates of grant) of the Shares with
respect to which ISOs may first be exercisable under the Plan (or any other
plan of the Optionee's employer corporation or its parent or subsidiary
corporation) during any one calendar year shall not exceed the sum of
$100,000.
7. OPTION PRICE. The Option price for each Share purchasable upon
exercise of Options granted pursuant to this Plan either shall be its fair
market value or, in the case of non-qualified Options only, may be such other
price as the Board/Committee shall determine which shall be at least 50% of
the fair market value of such Share, at the date of grant of the Option;
provided, however, that the exercise price of ISOs granted to an Optionee who
owns stock possessing more than 10% of the total combined voting power of all
classes of the Company at the date of grant shall be set at not less than
110% of the fair market value per Share at the date of grant. The fair
market value of the Shares on any given date shall be determined by reference
to the closing market price per Share on the New York Stock Exchange
Composite Reporting System (or on such other major trading market or exchange
on which the Company's Common Stock is then traded) on the trading date next
preceding such date.
8. VESTING OF OPTIONS.
(a) The vesting period of each Option granted shall be as determined by
the Board/Committee; provided, that if a vesting period is not specified by
the Board/Committee, the number of Shares granted to an Optionee shall be
divided into three, equal installments. The first such installment shall
vest, and the Option shall be exercisable with respect to the Shares included
in such installment, on the date one year after the grant of the Option, and
each succeeding installment shall vest, and the Option shall be exercisable
with respect to the Shares included therein, annually thereafter.
(b) Notwithstanding the foregoing, Options granted pursuant to this
Plan shall vest immediately upon the occurrence of any of the following
events (hereafter referred to as "Acceleration"): (i) at the election of
the Board/Committee with respect to Options specifically designated; (ii)
the merger or combination of the Company with another corporation, when as a
result thereof the shareholders of the Company immediately preceding such
merger or combination shall immediately thereafter own less than 50% of the
outstanding shares of the surviving corporation which at the time shall have,
by the terms thereof, the ordinary voting power to elect the directors of
such corporation; (iii) a tender offer or single transaction (other than a
merger or combination of the Company with another corporation) which in
-3-
<PAGE>
either case results in a change in ownership of 33-1/3% or more of the
outstanding shares of Common Stock of the Company; (iv) a sale to an
unrelated party of substantially all of the assets of the Company; or (v) a
substantial partial or complete liquidation of the Company.
9. EXERCISE OF OPTIONS.
(a) An Option may be exercised when installments vest and at any time
from time to time thereafter during the specified term of the Option with
respect to all or a portion of the Shares covered by such vested
installments; provided, that not less than ten Shares may be purchased at any
one time unless the number purchased is the total number at the time
purchasable under such Option and only whole Shares may be purchased; and
further subject to the restrictions contained in this Section 9.
(b) An ISO granted before January 1, 1987 shall not be exercisable
while there is "outstanding" any ISO which was granted before the granting of
such Option to such Optionee to purchase stock in the Company or in a
corporation which (at the date such Option is granted) is a parent or
subsidiary corporation of the Company, or in a predecessor corporation of any
of such corporations. For purposes of the foregoing sentence, any ISO shall
be treated as "outstanding" until such Option is exercised in full or expires
by reason of lapse of time.
(c) An Option may be exercised by delivery of written notice of such
exercise to the Company at its principal business office by the Optionee,
together with one of the following:
1) full cash payment for the Shares with respect to which the
Option is exercised, in the form of a check payable to the Company in the
amount of the aggregate purchase price;
2) full payment for the Shares with respect to which the Option is
exercised in the form of shares of Common Stock of the Company already owned
by the Optionee having a fair market value (determined in accordance with
Paragraph 7) equal to the aggregate purchase price of the Shares;
3) full payment for the Shares with respect to which the Option is
exercised in the form of a combination of cash and already-owned shares;
4) in the discretion of the Board/Committee, payment on an
installment basis by making an initial payment and thereafter paying the
balance of the exercise price within a term not to exceed ten years from the
date of exercise (or sooner upon termination of employment for any reason
other than incapacity, retirement or death);
5) if offered by the Board/Committee, an executed subscription
agreement and promissory note upon such terms and conditions as the Company
may require, which shall evidence the Optionee's irrevocable agreement to
purchase the Shares within one year of such notice.
Until the issuance of the stock certificate, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
optioned Shares notwithstanding the exercise of the Option. No adjustment
will be made for any dividend or distribution in respect of the Shares for
which the record date is prior to the date the stock certificate is issued
except as provided in Section 13.
-4-
<PAGE>
(d) Except as otherwise provided in the option agreement or form of
grant with respect to an Option, an Option may be exercised by the Optionee
either while he or she is, and has continually been since the date of the
grant of the Option, an employee of the Company, its subsidiaries, its parent
or its successor companies, or a director of the Company, or within three
months after termination of such status, except that if his or her continuous
employment or service as a director terminates by reason of his or her death,
to the extent that installments have vested and remain unexercised on the
date of the Optionee's death, such Option of the deceased Optionee may be
exercised within one year after the death of such Optionee, by (and only by)
the person or persons to whom his or her rights under such Option shall have
passed by will or by the laws of descent and distribution.
(e) A non-qualified Option granted to an Optionee while associated with
the Company or its subsidiaries as an independent contractor may be exercised
under the same conditions as that of an employee Optionee described in
Paragraph 9(d) above, except that "associate" and "association" shall be
substituted for "employee" and "employment," respectively.
10. OPTIONS NOT TRANSFERABLE. Options granted under this Plan may not
be sold, pledged, assigned, or transferred in any manner otherwise than by
will or the laws of descent or distribution, and may be exercised during the
lifetime of an Optionee only by such Optionee.
11. CANCELLATION AND NEW GRANT OF OPTIONS. The Board/Committee shall
have the authority to effect, at any time and from time to time, with the
consent of the affected Optionees, the cancellation of any or all outstanding
Options under the Plan and to grant in substitution therefor new Options
under the Plan covering the same or a different number and class of shares of
stock and having an Option price per share on the new grant date set
according to Paragraph 7 above, and a new vesting schedule commencing on such
date.
12. AMENDMENT OR TERMINATION OF THE PLAN.
(a) The Board of Directors of the Company may amend this Plan from time
to time in such respects as it may deem advisable; provided, however, that
without stockholder approval, the Board of Directors may not amend the Plan
to effect an increase in the number of Shares authorized for the grant of
Options to a number greater than is authorized hereunder.
(b) The Board of Directors of the Company may at any time terminate
this Plan. Any such termination of this Plan shall not affect Options
previously granted and such Options shall remain in full force and effect as
if this Plan had not been terminated.
(c) The Board/Committee may amend or modify outstanding Options issued
under the Plan in any or all aspects whatsoever not inconsistent with terms
of the Plan; provided, however, that no such amendment or modification shall
adversely affect the rights of an Optionee with respect to Options at the
time outstanding under the Plan unless the Optionee consents to such
amendment.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If all or any portion
of an Option is exercised subsequent to any of the following kinds of changes
in the outstanding Common Stock of the Company: a stock dividend,
-5-
<PAGE>
stock-split, recapitalization, combination or exchange of shares, merger,
consolidation, acquisition of property for stock, corporate separation,
reorganization or liquidation; and if as a result shares of any class shall
be issued in respect of outstanding shares of Common Stock or shares of
Common Stock shall be changed into the same or a different number of shares
of the same or another class or classes; then the Optionee, upon exercising
such an Option, shall receive, for the aggregate price paid, the aggregate
number and class of Shares which he or she would have been holding following
any and all such changes in the outstanding Common Stock of the Company as if
Shares (as authorized at the date of the granting of such Option) had been
purchased by him or her at the date of granting of such Option for the same
aggregate price (on the basis of the price per Share provided in such Option)
and had not been disposed of; provided, however, that no fractional Share
shall be issued upon any such exercise, and the aggregate price paid shall be
appropriately reduced on account of any fractional Share not issued. In the
event of any such change in the outstanding Common Stock of the Company, the
aggregate number and class of Shares remaining available under this Plan
shall be that number and class which a person, to whom an Option had been
granted for all of the available Shares under this Plan on the date preceding
such change, would be entitled to receive as provided in the first sentence
of this Section 13.
14. AGREEMENT AND REPRESENTATIONS OF OPTIONEE. As a condition to the
exercise of any portion of an Option, the Company may require the Optionee of
such Option to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required under the Securities Act of
1933, as amended, or any other applicable law, regulation or rule of any
governmental agency.
15. RESERVATION OF SHARES OF COMMON STOCK. The Company during the term
of this Plan, will at all times reserve and keep available, and will seek or
obtain from any regulatory body having jurisdiction any requisite authority,
in order to issue and sell such number of Shares of its Common Stock as
shall be sufficient to satisfy the requirements of this Plan. Inability of
the Company to obtain from any regulatory body having jurisdiction authority
deemed by the Company's counsel to be necessary for the lawful issuance and
sale of any Shares of its Common Stock hereunder shall relieve the Company of
any liability in respect to the non-issuance or sale of such stock as to
which such requisite authority shall not have been obtained.
-6-
<PAGE>
16. MISCELLANEOUS.
(a) No person shall have any claim or right to be granted an Option
under this Plan. The grant of an Option under this Plan shall not confer any
right on the Optionee to continue in the employ of or association with the
Company or limit in any way the right of the Company to terminate such
employment or association.
(b) The Company shall have the right to condition exercise of Options
granted pursuant to this Plan upon satisfactory arrangements to assure that,
to the extent the exercise of such Options shall result in realization by the
person exercising such Options of income subject to a requirement that taxes
be withheld with respect to such income, the amount of such taxes shall be
provided by the Optionee at the time of exercise of the Options or the number
of Shares issuable upon such exercise shall be reduced and withheld to
satisfy such tax obligations.
-7-
<PAGE>
EXHIBIT 11
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY INCOME (LOSS) PER SHARE APPLICABLE
TO COMMON STOCK:
Net income................................... $ 19,010 $ 2,102 $ 1,556
Dividends in arears on preferred
stock..................................... (1,032) (3,012) (1,862)
Accretion of liquidation preference on
preferred stock........................... -- -- (877)
----------- ----------- -----------
Net income (loss) applicable to common
stockholders................................ $ 17,978 $ (910) $ (1,183)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares and
equivalents outstanding..................... 17,259,655 8,870,720 7,271,257
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per common share
and equivalents
-- from operations.......................... $ .73 $ (.10) $ (.16)
-- extraordinary gain....................... .31 -- --
----------- ----------- -----------
$ 1.04 $ (.10) $ (.16)
----------- ----------- -----------
----------- ----------- -----------
FULLY DILUTED INCOME (LOSS) PER SHARE
APPLICABLE TO COMMON STOCK:
Net income (loss) applicable to common
stockholders................................. $ 19,010 $ (910) $ (1,183)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares and
equivalents outstanding...................... 20,427,140 8,870,720 7,271,257
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per common share
and equivalents
-- from operations.......................... $ .67 $ (.10) $ (.16)
-- extraordinary gain....................... .26 -- --
----------- ----------- -----------
$ .93 $ (.10) $ (.16)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF GRUBB & ELLIS COMPANY
NAME AND STATE OF
TRADE NAMES (IF ANY) INCORPORATION
-------------------- -------------
Adams-Cates Company Georgia
Collective Services, Inc. Pennsylvania
Grubb & Ellis Affiliates, Inc. Delaware
Grubb & Ellis Asset Services Company Delaware
Grubb & Ellis Colorado, Inc. California
TRADE NAME: Grubb & Ellis Company
Grubb & Ellis Europe, Inc. California
Grubb & Ellis Management Services, Inc. Delaware
Grubb & Ellis Mortgage Group, Inc. 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
Oliver Realty, Inc. Delaware
The Schuck Commercial Brokerage Company Colorado
Wm. A. White/Grubb & Ellis Inc. New York
Wm. A. White/Tishman East Inc. New York
<PAGE>
SUBSIDIARIES OF GRUBB & ELLIS MANAGEMENT SERVICES, INC.
NAME AND STATE OF
TRADE NAMES (IF ANY) INCORPORATION
-------------------- -------------
Grubb & Ellis Management Services of
Colorado, Inc. Colorado
TRADE NAME: Grubb & Ellis
Management Services, Inc.
SUBSIDIARIES OF HSM INC.
NAME AND STATE OF
TRADE NAMES (IF ANY) INCORPORATION
-------------------- -------------
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
<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 August 18, 1997, with respect to the
financial statements of Grubb & Ellis Company and Subsidiaries included in
the Annual Report (Form 10-K) for the year ended June 30, 1997, filed with
the Securities and Exchange Commission.
ERNST & YOUNG LLP
Chicago, Illinois
September 23, 1997
<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, Carol M. Vanairsdale, and Blake Harbaugh, 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
June 30, 1997 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 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 20th day of
June, 1997.
/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
/s/ R. David Anacker /s/ Joe F. Hanauer
- ----------------------------- -------------------------------
R. David Anacker Joe F. Hanauer
/s/ Neil Young /s/ Sidney Lapidus
- ----------------------------- -------------------------------
Neil Young Sidney Lapidus
/s/ Todd Williams /s/ C. Michael Kojaian
- ----------------------------- -------------------------------
Todd Williams C. Michael Kojaian
<PAGE>
GRUBB & ELLIS COMPANY
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
The undersigned President and Chief Executive Officer of Grubb & Ellis
Company, a Delaware corporation (the "Company"), hereby constitutes and
appoints Robert J. Walner, Carol M. Vanairsdale and Blake Harbaugh, 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 and Chief Executive Officer of the Company, the Company's Annual
Report on Form 10-K for the fiscal year 1997 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 20th day of June,
1997.
/s/ Neil Young
----------------------------------
Neil Young
President and Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS 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
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,790
<SECURITIES> 0
<RECEIVABLES> 9,190
<ALLOWANCES> 1,874
<INVENTORY> 0
<CURRENT-ASSETS> 28,058
<PP&E> 19,941
<DEPRECIATION> 13,953
<TOTAL-ASSETS> 36,696
<CURRENT-LIABILITIES> 11,073
<BONDS> 0
0
0
<COMMON> 196
<OTHER-SE> 12,727
<TOTAL-LIABILITY-AND-EQUITY> 36,696
<SALES> 0
<TOTAL-REVENUES> 229,751
<CGS> 0
<TOTAL-COSTS> 113,460
<OTHER-EXPENSES> 104,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,453
<INCOME-PRETAX> 10,781
<INCOME-TAX> (2,848)
<INCOME-CONTINUING> 13,629
<DISCONTINUED> 0
<EXTRAORDINARY> 5,381
<CHANGES> 0
<NET-INCOME> 19,010
<EPS-PRIMARY> 1.04
<EPS-DILUTED> .93
</TABLE>
