As filed with the Securities and Exchange Commission on March 24, 2010
Registration No. 333-163550
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GRUBB & ELLIS COMPANY
(Exact name of registrant as specified in its charter)
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Delaware
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6531
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94-1424307 |
(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number) |
1551 North Tustin Avenue, Suite 300
Santa Ana, California 92705
(714) 667-8252
(Address, including zip code, and telephone number, including area code, of the registrants principal executive offices)
Thomas DArcy
Chief Executive Officer and President
Grubb & Ellis Company
1551 North Tustin Avenue, Suite 300
Santa Ana, California 92705
(714) 667-8252
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Clifford A. Brandeis, Esq.
Zukerman Gore Brandeis & Crossman, LLP
875 Third Avenue
New York, New York 10022
(212) 223-6700
Approximate date of commencement of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the
following box. þ
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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Amount to be |
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Aggregate Offering |
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Aggregate Offering |
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Amount of |
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Securities to be Registered |
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Registered |
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Price Per Unit |
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Price(1) |
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Registration Fee |
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12% Cumulative Participating
Perpetual
Convertible Preferred Stock,
$0.01 par value
per share |
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125,000 |
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$100 |
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12,500,000 |
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697.50(2) |
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Common Stock, $0.01 par value per share |
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7,575,750 |
(3) |
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(4) |
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(1) |
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Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the
Securities Act), solely for the purpose of computing the amount of the registration fee. |
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Calculated pursuant to Rule 457(o) promulgated under the Securities Act and based on the
filing fee of $55.80 per $1,000,000 of securities registered. |
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Estimated based on the total number of shares of common stock currently issuable upon
conversion of the preferred stock. Pursuant to Rule 416 under the Securities Act, the common
stock offered hereby shall be deemed to cover additional securities to be offered to prevent
dilution resulting from stock splits, stock dividends or similar transactions (pursuant to the
first conversion formula on page 101 of the Form S-1). Adjustments to the conversion rate
resulting in the issuance of additional shares that are not addressed by Rule 416 will be
covered by a separate registration statement. |
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(4) |
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No separate consideration will be received for the shares of common stock issuable upon
conversion of the preferred stock, and, therefore, no registration fee for those shares is
required pursuant to Rule 457(i) under the Securities Act. |
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
PROSPECTUS
Grubb & Ellis Company
7,575,750 Shares of Common Stock
125,000 Shares of 12% Cumulative Participating Perpetual Convertible Preferred Stock
This prospectus relates to up to 125,000 shares of our outstanding 12% Cumulative
Participating Perpetual Convertible Preferred Stock, which we refer to herein as our 12% Preferred
Stock or Preferred Stock, and up to 7,575,750 shares of our common stock issuable upon
conversion of our 12% Preferred Stock that may be sold by the selling shareowners identified in
this prospectus. The selling shareowners acquired the shares of 12% Preferred Stock offered by this
prospectus in a private placement of our securities. We are registering the offer and sale of such
shares of 12% Preferred Stock and such shares of common stock to satisfy registration rights we
have granted. We will not receive any of the proceeds from the sale of the shares of 12% Preferred
Stock or shares of common stock by the selling shareowners. We have agreed to bear all expenses of
registration of our common stock offered by this prospectus. The selling shareowners, or their
transferees, pledgees, donees or other successors in interest, may sell their 12% Preferred Stock
and shares of common stock issuable upon conversion of our 12% Preferred Stock by the methods
described under Plan of Distribution.
We will pay cumulative dividends on the 12% Preferred Stock from and including the date of
original issuance in the amount of $12.00 per share each year, which is equivalent to 12% of the
initial liquidation preference per share. Dividends on the Preferred Stock will be payable when, as
and if declared, quarterly in arrears, on March 31, June 30, September 30 and December 31,
beginning on December 31, 2009. In addition, in the event of any cash distribution to holders of
the common stock, par value $0.01 per share, of our company, referred to as our common stock,
holders of our 12% Preferred Stock will be entitled to participate in such distribution as if such
holders had converted their shares of Preferred Stock into common stock. Generally, we may not
redeem the 12% Preferred Stock before November 15, 2014. On or after November 15, 2014, we may, at
our option, redeem the 12% Preferred Stock, in whole or in part, by paying an amount equal to 110%
of the sum of the initial liquidation preference per share plus any accrued and unpaid dividends to
and including the date of redemption. Holders of our 12% Preferred Stock may require us to
repurchase all, or a specified whole number, of their Preferred Stock upon the occurrence of a
fundamental change (i) prior to November 15, 2014, at a repurchase price equal to 110% of the sum
of the initial liquidation preference plus accumulated but unpaid dividends to but excluding the
fundamental change repurchase date and (ii) from November 15, 2014 until prior to November 15, 2019
at a repurchase price equal to 100% of the sum of the initial liquidation preference plus
accumulated but unpaid dividends to but excluding the fundamental change repurchase date. In
addition, if a holder elects to convert their Preferred Stock in connection with certain change in
control events prior to November 15, 2014, we may increase the conversion rate by a number of
additional shares of common stock deliverable upon conversion of such Preferred Stock. The 12%
Preferred Stock has no stated maturity, and will not be subject to any sinking fund or mandatory
redemption.
The 12% Preferred Stock is convertible, at the holders option, into our common stock at a
conversion rate of 60.606 shares of our common stock per share of Preferred Stock, which represents
a conversion price of approximately $1.65 per share of common stock. Except as required by law, the
holders of the Preferred Stock vote together with the holders of the common stock as one class on
all matters on which holders of common stock vote. The Preferred Stock votes as a separate class
with respect to certain matters. Holders of the Preferred Stock when voting with the common stock
are entitled to voting rights equal to the number of shares of common stock into which the
Preferred Stock is convertible, on an as if converted basis.
Our common stock is listed on the New York Stock Exchange under the symbol GBE. On March 19,
2010, the last reported sales price for our common stock was $2.04.
There is currently no established market for the 12% Preferred Stock. We do not intend to
apply for listing of the 12% Preferred Stock on any securities exchange or for inclusion of the 12%
Preferred Stock in any automated quotation system.
There are significant risks associated with an investment in our securities. See Risk
Factors beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is March 24, 2010.
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SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This
summary may not contain all of the information that you should consider before deciding whether to
invest in the preferred stock or the common stock. For a more complete understanding of our company
and this offering, we encourage you to read this entire document, including the Risk Factors
section, the financial information included in this prospectus, and the other documents
incorporated by reference herein before deciding to invest in the preferred stock or the common
stock. In this prospectus, references to Grubb & Ellis, we, us and our refer to Grubb &
Ellis Company, a Delaware corporation, and its subsidiaries unless otherwise stated or the context
indicates otherwise.
Company Overview
Grubb & Ellis Company (the Company or Grubb & Ellis), a Delaware corporation founded over
50 years ago, is one of the countrys largest and most respected commercial real estate services
and investment management firms. The Company offers property owners, corporate occupants and
program investors comprehensive integrated real estate solutions, including transactions,
management, consulting and investment advisory services supported by proprietary market research
and extensive local market expertise.
On December 7, 2007, the Company effected a stock merger (the Merger) with NNN Realty
Advisors, Inc. (NNN), a real estate asset management company and nationally recognized sponsor of
public non-traded real estate investment trusts (REITs), as well as a sponsor of tenant-in-common
(TIC) investments and other investment programs. Upon the closing of the Merger, a change of
control occurred. The former shareowners of NNN acquired approximately 60% of the Companys issued
and outstanding common stock.
In certain instances throughout this prospectus phrases such as legacy Grubb & Ellis or
similar descriptions are used to reference, when appropriate, Grubb & Ellis prior to the Merger.
Similarly, in certain instances throughout this prospectus the term NNN, legacy NNN or similar
phrases are used to reference, when appropriate, NNN Realty Advisors, Inc. prior to the Merger.
Our principal executive offices are located at 1551 North Tustin Avenue, Suite 300, Santa Ana,
California 92705. Our telephone number is (714) 667-8252. Our web address is
www.grubb-ellis.com. Information contained in our web site is not incorporated by reference
into this prospectus, and you should not consider information in our web site as part of this
prospectus.
Management Services
Grubb & Ellis delivers integrated property, facility, asset, construction, business and
engineering management services to a host of corporate and institutional clients. The Company
offers customized programs that focus on cost-efficient operations and tenant retention.
The Company manages a comprehensive range of properties including headquarters, facilities and
class A office space for major corporations, including many Fortune 500 companies. Grubb & Ellis
skills extend to management of industrial, manufacturing and warehousing facilities as well as data
centers and retail outlets for real estate users and investors.
Additionally, Grubb & Ellis provides consulting services, including site selection,
feasibility studies, exit strategies, market forecasts, appraisals, strategic planning and research
services.
The Company is committed to expanding the scope of products and services offered, while
ensuring that it can support client relationships with best-in-class service. During 2009, the
Company continued to expand the number of client service relationship managers, which provide a
single point of contact to corporate clients with multi-service needs.
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In 2009 Grubb & Ellis secured significant new management services contracts from Kraft,
Wachovia Corporation and Zurich Alternative Asset Management. The Company also secured significant
contract renewals with Citigroup, General Motors, Microsoft and Wells Fargo. As of December 31,
2009, Grubb & Ellis managed approximately 240.7 million square feet, of which 24.3 million square
feet related to its sponsored investment programs.
Transaction Services
Grubb & Ellis has a track record of over 50 years in the commercial real estate industry and
is one of the largest real estate brokerage firms in the country, offering clients the experience
of thousands of successful transactions and the expertise that comes from a nationwide platform.
There are 126 owned and affiliate offices worldwide (53 owned and approximately 73 affiliates) and
more than 6,000 professionals, including a brokerage sales force of more than 1,800 brokers. By
focusing on the overall business objectives of its clients, Grubb & Ellis utilizes its research
capabilities, extensive properties database and negotiation skills to create, buy, sell and lease
opportunities for both users and owners of commercial real estate. With a comprehensive approach to
transactions, Grubb & Ellis offers a full suite of services to clients, from site selection and
sale negotiations to needs analysis, occupancy projections, prospect qualification, pricing
recommendations, long-term value consultation, tenant representation and consulting services. As
one of the most active and largest commercial real estate brokerages in the United States, Grubb &
Ellis traditional real estate services provide added value to the Companys real estate investment
programs by offering a comprehensive market view and local area expertise.
The Company actively engages its brokerage force in the execution of its marketing strategy.
Regional and metro-area managing directors, who are responsible for operations in each major
market, facilitate the development of brokers. Through the Companys specialty practice groups, key
personnel share information regarding local, regional and national industry trends and participate
in national marketing activities, including trade shows and seminars. This ongoing communication
among brokers serves to increase their level of expertise as well as their network of
relationships, and is supplemented by other more formal education, including training programs
offering sales and motivational training and cross-functional networking and business development
opportunities.
In many local markets where the Company does not have owned offices, it has affiliation
agreements with independent real estate services providers that conduct business under the Grubb &
Ellis brand. The Companys affiliation agreements provide for exclusive mutual referrals in their
respective markets, generating referral fees. The Companys affiliation agreements are generally
multi-year contracts. Through its affiliate offices, the Company has access to more than 1,000
brokers with local market research capabilities.
The Companys Corporate Services Group provides comprehensive coordination of all required
real estate related services to help realize the needs of clients real estate portfolios and to
maximize their business objectives. These services include consulting services, lease
administration, strategic planning, project management, account management and international
services.
As of December 31, 2009, Grubb & Ellis had in excess of 1,800 brokers at its owned and
affiliate offices, of which 824 brokers were at its owned offices, up from 805 at December 31,
2008.
Investment Management
The Company and its subsidiaries are leading sponsors of real estate investment programs that
provide individuals and institutions the opportunity to invest in a broad range of real estate
investment vehicles, including public non-traded REITs, TIC investments, mutual funds and other
real estate investment funds. The Company brands its investment programs as Grubb & Ellis in order
to capitalize on the strength of the Grubb & Ellis brand name and to leverage the Companys various
platforms. During the year ended December 31, 2009, more than $554.7 million in investor equity was
raised for these sponsored investment programs. As of December 31, 2009, the Company has more than
$5.7 billion of assets under management related to the various programs that it sponsors. The
Company has completed transaction acquisition and disposition volume totaling approximately $12.3
billion on behalf of more than 55,000 program investors since 1998.
Investment management products are distributed through the Companys broker-dealer subsidiary,
Grubb & Ellis Securities Inc. (GBE Securities). GBE Securities is registered with the Securities
and Exchange Commission (the SEC), the Financial Industry Regulatory Authority (FINRA) and all
50 states. GBE Securities has agreements with an extensive network of broker dealers with selling
relationships providing access to thousands of licensed registered representatives. Part of the
Companys strategy is to expand its network of broker-dealers to increase the amount of equity that
it raises in its various investment programs.
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The Company and Grubb & Ellis Equity Advisors, LLC, (GEEA) a subsidiary of the Company,
sponsor and advise public non-traded REITs that are registered with the SEC but are not listed on a
national securities exchange like a traded REIT. According to the published Stanger Report, Winter
2010, by Robert A. Stanger and Co., an independent investment banking firm, approximately $6.7
billion was raised in the non-traded REIT sector in 2009. As of December 31, 2009, the Company
sponsors two demographically focused programs that are actively raising capital, Grubb & Ellis
Healthcare REIT II, Inc. and Grubb & Ellis Apartment REIT, Inc. In addition, the Company raised
equity for and provided advisory services to Grubb & Ellis Healthcare REIT, Inc. (now Healthcare
Trust of America, Inc.) until August 28, 2009 and September 20, 2009, respectively. Public
non-traded REITs sponsored or advised by the Company and its affiliates raised $536.9 million in
combined capital in 2009.
In 2008, the Company started a family of U.S. and global open end mutual funds that focus on
real estate securities and manage private investment funds exclusively for qualified investors
through its 51% ownership in Grubb & Ellis Alesco Global Advisors, LLC (Alesco). The Company,
through its subsidiary, Alesco, serves as general partner and investment advisor to one limited
partnership and as investment advisor to three mutual funds as of December 31, 2009. One of the
limited partnerships, Grubb & Ellis AGA Real Estate Investment Fund LP, is required to be
consolidated in accordance with the Consolidation Topic. As of December 31, 2009, Alesco had $8.0
million of investment funds under management.
In mid-2009, the Company formed Energy & Infrastructure Advisors, LLC, a joint venture between
Grubb & Ellis and the Meridian Companies that intends to sponsor retail and institutional products
focused on investment opportunities in the energy and infrastructure sector.
Grubb & Ellis Realty Investors, LLC (GERI) (formerly Triple Net Properties, LLC), a
subsidiary of the Company, had 146 sponsored TIC programs under management and has taken more than
60 programs full cycle (from acquisition through disposition) as of December 31, 2009.
Through its multi-family platform, the Company provides investment management services for
REIT and TIC apartment vehicles and currently manages in excess of 13,000 apartment units through
Grubb & Ellis Residential Management, Inc., the Companys multi-family management services
subsidiary.
Recent Events
Private Placement of 12% Preferred Stock
In the fourth quarter of 2009, the Company consummated the issuance and sale of an aggregate of 965,700 shares of our
12% Preferred Stock in a private placement exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. The
Company received net proceeds from the offering of approximately $90.1 million after deducting
the initial purchasers discounts and certain offering expenses and after giving effect to the conversion of $5.0 million of subordinated debt previously
provided in October, 2009 by an affiliate of the Companys largest shareowner. The Company used the
net proceeds to repay in full its indebtedness pursuant to the $75.0 million credit agreement
entered into on December 7, 2007, by and among the Company, the guarantors named therein, and the
financial institutions defined therein as lender parties, with Deutsche Bank Trust Company
Americas, as lender and administrative agent (the Credit Facility). The Credit Facility was
repaid at the agreed reduced principal amount equal to approximately 65% of the principal amount
outstanding under such facility. The balance of the net proceeds from the offering will be used for
general corporate purposes. See Managements Discussion and Analysis
of Financial Condition and Results of OperationsLiquidity and Capital Resources and
Description of Capital StockPreferred Stock.
Hiring of Chief Executive Officer
Effective November 16, 2009, Thomas P. DArcy joined the Company as its President, Chief
Executive Officer and as a member of its Board of Directors. Mr. DArcy entered into a three year
employment agreement with the Company subject to successive one-year extensions unless either party
advises the other to the contrary at least 90 days prior to the expiration of the then current
term. See Executive CompensationEmployment Contracts and Compensation ArrangementsThomas
DArcy.
Annual Meeting of Shareowners
At the Companys annual meeting of shareowners held on December 17, 2009 the Companys common
and preferred shareowners
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voted, among other things, to amend the Companys amended and restated certificate of
incorporation (the certificate of incorporation) to (i) increase the Companys authorized number
of shares of capital stock from 110,000,000 shares to 220,000,000 shares, of which 200,000,000
shares with a par value of $0.01 per share are designated common stock and of which 20,000,000
shares with a par value of $0.01 per share are designated preferred stock, and (ii) declassify the
Board of Directors of the Company and fix the number of Directors to no less than three and no more
than eight as determined by the Board of Directors from time to time. On December 17, 2009,
subsequent to the conclusion of its annual meeting of shareowners, the Company amended its
certificate of incorporation to effect the amendments approved by its shareowners at the annual
meeting. At the Companys 2009 annual shareowners meeting, the Companys common and preferred
shareowners also elected each of Thomas DArcy, C. Michael Kojaian, Robert J. McLaughlin, Devin I.
Murphy, D. Fleet Wallace and Rodger D. Young as the six directors of the declassified Board of
Directors, each to serve a term of one year, and ratified the appointment of Ernst & Young LLP as
the Companys independent auditing firm.
Selected Consolidated Financial Data
The following tables set forth the selected historical consolidated financial data for Grubb &
Ellis Company and its subsidiaries, as of and for the years ended, December 31, 2009, 2008, 2007,
2006, and 2005. The selected historical consolidated balance sheet data set forth below as of
December 31, 2009 and 2008 and the selected consolidated operating and cash flow data for the three
years in the period ending December 31, 2009 has been derived from the audited financial statements
beginning on page F-2 of this prospectus. The selected consolidated operating and cash flow data
set forth below as of and for the year ended December 31, 2006, and the selected consolidated
balance sheet data as of December 31, 2007, has been derived from audited consolidated financial
statements not included in this prospectus as adjusted for reclassifications required by the
Property, Plant and Equipment Topic for discontinued operations. The selected historical financial
data set forth below as of and for the year ended December 31, 2005 has been derived from unaudited
consolidated financial statements not included in this prospectus. Historical results are not
necessarily indicative of the results that may be expected for any future period. The selected
historical consolidated financial data set forth below should be read in conjunction with the
consolidated financial statements beginning on page F-2 of this prospectus and Managements
Discussion and Analysis of Financial Condition and Results of Operation.
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Year Ended December 31, |
(In thousands, except per share data) |
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2009 |
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2008 |
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2007(1) |
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2006(2) |
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2005(3) |
Consolidated Statement of Operations Data: |
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Total services revenue |
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$ |
505,360 |
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$ |
595,495 |
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$ |
201,538 |
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$ |
99,599 |
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$ |
80,817 |
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Total revenue |
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535,645 |
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628,779 |
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229,657 |
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108,543 |
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84,423 |
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Total compensation costs |
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469,538 |
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503,004 |
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104,109 |
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49,449 |
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29,873 |
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Total operating expense |
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641,551 |
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929,407 |
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195,723 |
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97,633 |
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71,035 |
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Operating (loss) income |
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(105,906 |
) |
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(300,628 |
) |
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33,934 |
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10,910 |
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13,388 |
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(Loss) income from continuing operations |
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(82,985 |
) |
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(318,668 |
) |
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23,741 |
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21,012 |
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13,679 |
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Net (loss) income |
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(80,499 |
) |
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(342,589 |
) |
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23,033 |
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20,049 |
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10,288 |
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Net (loss) income attributable to Grubb & Ellis Company |
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(78,838 |
) |
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(330,870 |
) |
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21,072 |
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19,971 |
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10,047 |
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Basic (loss) earnings per share attributable to Grubb
& Ellis Company |
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$ |
(1.27 |
) |
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$ |
(5.21 |
) |
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$ |
0.53 |
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$ |
1.01 |
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$ |
0.58 |
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(Loss) income from continuing operations per share
attributable to Grubb & Ellis Company |
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$ |
(1.31 |
) |
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$ |
(4.83 |
) |
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$ |
0.55 |
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$ |
1.06 |
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$ |
0.80 |
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Diluted (loss) earnings per share attributable to
Grubb & Ellis Company |
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$ |
(1.27 |
) |
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$ |
(5.21 |
) |
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$ |
0.53 |
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$ |
1.01 |
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$ |
0.58 |
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Basic weighted average shares outstanding |
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63,645 |
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63,515 |
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38,652 |
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19,681 |
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17,200 |
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Diluted weighted average shares outstanding |
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63,645 |
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63,515 |
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38,653 |
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19,694 |
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17,200 |
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Dividends declared per common share |
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$ |
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$ |
0.205 |
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$ |
0.36 |
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$ |
0.10 |
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$ |
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Dividends declared per preferred share |
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$ |
1.8333 |
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$ |
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$ |
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$ |
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|
$ |
|
|
Consolidated Statement of Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
$ |
(61,965 |
) |
|
$ |
(33,629 |
) |
|
$ |
33,543 |
|
|
$ |
17,356 |
|
|
$ |
23,536 |
|
Net cash provided by (used in) investing activities |
|
|
97,214 |
|
|
|
(76,330 |
) |
|
|
(486,909 |
) |
|
|
(56,203 |
) |
|
|
(35,183 |
) |
Net cash (used in) provided by financing activities |
|
|
(29,133 |
) |
|
|
93,616 |
|
|
|
400,468 |
|
|
|
140,525 |
|
|
|
10,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
Consolidated Balance Sheet Data (at end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
357,324 |
|
|
$ |
520,277 |
|
|
$ |
988,542 |
|
|
$ |
347,709 |
|
|
$ |
126,057 |
|
Long Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit |
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
|
|
|
|
8,500 |
|
Notes payable and capital lease obligations |
|
|
107,755 |
|
|
|
107,203 |
|
|
|
107,343 |
|
|
|
843 |
|
|
|
887 |
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
Senior notes |
|
|
16,277 |
|
|
|
16,277 |
|
|
|
16,277 |
|
|
|
10,263 |
|
|
|
2,300 |
|
Redeemable preferred liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,077 |
|
Preferred stock (12% cumulative participating perpetual convertible) |
|
|
90,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Grubb & Ellis shareowners equity |
|
|
1,327 |
|
|
|
70,171 |
|
|
|
404,056 |
|
|
|
217,125 |
|
|
|
20,081 |
|
|
|
|
(1) |
|
Based on Generally Accepted Accounting Principles (GAAP), the
operating results for the year ended December 31, 2007 includes the
results of legacy NNN Realty Advisors, Inc. prior to the Merger for
the full periods presented and the results of the legacy Grubb & Ellis
Company for the period from December 8, 2007 through December 31,
2007. |
|
(2) |
|
Includes a full year of operating results of GERI (formerly Triple Net
Properties, LLC), one and one-half months of Triple Net Properties
Realty, Inc. (Realty) (acquired on November 16, 2006) and one-half
month of GBE Securities (formerly NNN Capital Corp.) (acquired on
December 14, 2006). GERI was treated as the acquirer in connection
with these transactions. |
|
(3) |
|
Based on GAAP, reflects operating results of GERI. |
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA are non-GAAP measures of performance. EBITDA provides an indicator
of economic performance that is unaffected by debt structure, changes in interest rates, changes in
effective tax rates or the accounting effects of capital expenditures and acquisitions because
EBITDA excludes net interest expense, interest income, income taxes, depreciation, amortization,
discontinued operations and impairments related to goodwill and intangible assets.
The Company uses Adjusted EBITDA as an internal management measure for evaluating performance
and as a significant component when measuring performance under employee incentive programs.
Management considers Adjusted EBITDA an important supplemental measure of the Companys performance
and believes that it is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry, some of which present Adjusted EBITDA when
reporting their results. Management also believes that Adjusted EBITDA is a useful tool for
measuring the Companys ability to meet its future capital expenditures and working capital
requirements.
EBITDA and Adjusted EBITDA are not a substitute for GAAP net income or cash flow and do not
provide a measure of the Companys ability to fund future cash requirements. Other companies may
calculate EBITDA and Adjusted EBITDA differently than the Company has and, therefore, EBITDA and
Adjusted EBITDA have material limitations as a comparative performance measure. The following table
reconciles EBITDA and Adjusted EBITDA with the net loss attributable to Grubb & Ellis Company for
the years ended December 31, 2009 and 2008. As a result of the Merger on December 7, 2007, the year
ended December 31, 2007 is not comparable to the year ended December 31, 2008. Therefore, a
reconciliation of EBITDA and Adjusted EBITDA for the year ended December 31, 2008 compared to the
year ended December 31, 2007 has not been provided as it would not be meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
Net loss attributable to Grubb & Ellis Company |
|
$ |
(78,838 |
) |
|
$ |
(330,870 |
) |
|
$ |
252,032 |
|
|
|
76.2 |
% |
Discontinued operations |
|
|
(2,486 |
) |
|
|
23,921 |
|
|
|
(26,407 |
) |
|
|
(110.4 |
) |
Interest expense |
|
|
15,446 |
|
|
|
14,207 |
|
|
|
1,239 |
|
|
|
8.7 |
|
Interest income |
|
|
(555 |
) |
|
|
(902 |
) |
|
|
347 |
|
|
|
38.5 |
|
Depreciation and amortization |
|
|
12,324 |
|
|
|
16,028 |
|
|
|
(3,704 |
) |
|
|
(23.1 |
) |
Goodwill and intangible assets impairment |
|
|
738 |
|
|
|
181,285 |
|
|
|
(180,547 |
) |
|
|
(99.6 |
) |
Taxes |
|
|
(1,175 |
) |
|
|
(827 |
) |
|
|
(348 |
) |
|
|
(42.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
|
(54,546 |
) |
|
|
(97,158 |
) |
|
|
42,612 |
|
|
|
43.9 |
|
Gain related to the repayment of the credit facility, net |
|
|
(21,935 |
) |
|
|
|
|
|
|
(21,935 |
) |
|
|
|
|
Charges related to sponsored programs |
|
|
23,348 |
|
|
|
27,771 |
|
|
|
(4,423 |
) |
|
|
(15.9 |
) |
Real estate related impairment |
|
|
17,372 |
|
|
|
59,114 |
|
|
|
(41,742 |
) |
|
|
(70.6 |
) |
Write off of investment in Grubb & Ellis Realty Advisors, net |
|
|
|
|
|
|
5,828 |
|
|
|
(5,828 |
) |
|
|
(100.0 |
) |
Share-based based compensation |
|
|
10,876 |
|
|
|
11,907 |
|
|
|
(1,031 |
) |
|
|
(8.7 |
) |
Amortization of signing bonuses |
|
|
7,535 |
|
|
|
7,603 |
|
|
|
(68 |
) |
|
|
(0.9 |
) |
Loss on marketable securities |
|
|
|
|
|
|
1,783 |
|
|
|
(1,783 |
) |
|
|
(100.0 |
) |
Merger related costs |
|
|
|
|
|
|
14,732 |
|
|
|
(14,732 |
) |
|
|
(100.0 |
) |
Amortization of contract rights |
|
|
|
|
|
|
1,179 |
|
|
|
(1,179 |
) |
|
|
(100.0 |
) |
Real estate operations |
|
|
(7,959 |
) |
|
|
(9,993 |
) |
|
|
2,034 |
|
|
|
20.4 |
|
Other |
|
|
1,319 |
|
|
|
163 |
|
|
|
1,156 |
|
|
|
709.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
|
$ |
(23,990 |
) |
|
$ |
22,929 |
|
|
$ |
(46,919 |
) |
|
|
(204.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA represents earnings before net interest expense, interest
income, realized gains or losses on sales of marketable |
7
|
|
|
|
|
securities,
income taxes, depreciation, amortization, discontinued operations and
impairments related to goodwill and intangible assets. Management
believes EBITDA is useful in evaluating our performance compared to
that of other companies in our industry because the calculation of
EBITDA generally eliminates the effects of financing and income taxes
and the accounting effects of capital spending and acquisition, which
items may vary for different companies for reasons unrelated to
overall operating performance. As a result, management uses EBITDA as
an operating measure to evaluate the operating performance of the
Company and for other discretionary purposes, including as a
significant component when measuring performance under employee
incentive programs. |
|
|
|
However, EBITDA is not a recognized measurement under U.S. generally
accepted accounting principles, or GAAP, and when analyzing the
Companys operating performance, readers should use EBITDA in addition
to, and not as an alternative for, net income as determined in
accordance with GAAP. Because not all companies use identical
calculations, our presentation of EBITDA may not be comparable to
similarly titled measures of other companies. Furthermore, EBITDA is
not intended to be a measure of free cash flow for managements
discretionary use, as it does not consider certain cash requirements
such as tax and debt service payments. |
8
RISK FACTORS
Investing in our common stock and 12% Preferred Stock will be subject to risks, including
risks inherent in our business. The value of your investment may decline and could result in a
loss. You should carefully consider the following factors as well as other information contained in
this prospectus before deciding to invest in our common stock or 12% Preferred Stock. Additional
risks and uncertainties not presently known to us, or not identified below, may also materially
adversely affect our business, liquidity, financial condition and results of operations.
Risks Related to our Equity Securities
The 12% Preferred Stock will rank senior to our common stock but junior to all of our liabilities
and our subsidiaries liabilities, in the event of a bankruptcy, liquidation or winding-up.
In the event of bankruptcy, liquidation or winding-up, our assets will be available to pay
obligations on the 12% Preferred Stock only after all of our liabilities have been paid, but prior
to any payments are made with respect to our common stock. In addition, the 12% Preferred Stock
effectively ranks junior to all existing and future liabilities of our subsidiaries. The rights of
holders of the 12% Preferred Stock to participate in the assets of our subsidiaries upon any
liquidation or reorganization of any subsidiary will rank junior to the prior claims of that
subsidiarys creditors. In the event of bankruptcy, liquidation or winding-up, there may not be
sufficient assets remaining, after paying our liabilities, and our subsidiaries liabilities, to
pay amounts due on any or all of the 12% Preferred Stock then outstanding.
Additionally, unlike indebtedness, where principal and interest customarily are payable on
specified due dates, in the case of the 12% Preferred Stock, (1) dividends are payable only if and
when declared by our Board of Directors or a duly authorized committee of the Board, and (2) as a
Delaware corporation, we are restricted to making dividend payments and redemption payments only
out of legally available assets. Further, the 12% Preferred Stock places no restrictions on our
business or operations or on our ability to incur indebtedness or engage in any transactions except
that a consent of holders representing at least a majority of the 12% Preferred Stock is required
to amend our certificate of incorporation as to the terms of the 12% Preferred Stock or to issue
additional 12% Preferred Stock that ranks senior to or, to the extent that 225,000 shares of the
12% Preferred Stock remain outstanding, on a parity with, the 12% Preferred Stock.
The market price of the 12% Preferred Stock will be directly affected by the market price of our
common stock, which may be volatile.
To the extent that a secondary market for the 12% Preferred Stock develops, we believe that
the market price of the 12% Preferred Stock will be significantly affected by the market price of
our common stock. We cannot predict how the shares of our common stock will trade in the future.
This may result in greater volatility in the market price of the 12% Preferred Stock than would be
expected for non-convertible stock. From the beginning of the year ended December 31, 2006 to March
19, 2010, the reported high and low sales prices for our common stock ranged from a low of $0.25 to
a high of $14.50 per share.
The market price of our common stock will likely fluctuate in response to a number of factors,
including, without limitation, the following:
| |
|
our liquidity risk management, including our ratings, if any, our liquidity plan and
potential transactions designed to enhance liquidity; |
| |
|
actual or anticipated quarterly fluctuations in our operating and financial results; |
| |
|
developments related to investigations, proceedings, or litigation that involves us; |
| |
|
changes in financial estimates and recommendations by financial analysts; |
| |
|
dispositions, acquisitions, and financings; |
| |
|
additional issuances by us of common stock; |
| |
|
additional issuances by us of other series or classes of preferred stock; |
9
| |
|
actions of our common shareowners, including sales of common stock by shareowners and our
directors and executive officers; |
| |
|
changes in funding markets, including commercial paper, term debt, bank deposits and the
asset-backed securitization markets; |
| |
|
changes in confidence in real estate markets and real estate investments; |
| |
|
fluctuations in the stock price and operating results of our competitors and real
estate-related stocks in general; |
| |
|
government reactions to current economic and market conditions; and |
| |
|
regional, national and global political and economic conditions and other factors. |
The market price of our common stock may also be affected by market conditions affecting the
stock markets in general and/or real estate stocks in particular, including price and trading
fluctuations on the New York Stock Exchange (NYSE). These conditions may result in (i) volatility
in the level of, and fluctuations in, the market prices of stocks generally and, in turn, our
common stock, and (ii) sales of substantial amounts of our common stock in the market, in each case
that could be unrelated or disproportionate to changes in our operating performance. These broad
market fluctuations may adversely affect the market prices of our common stock and, in turn, the
12% Preferred Stock. In addition, we expect that the market price of the 12% Preferred Stock will
be influenced by yield and interest rates in the capital markets, our creditworthiness, and the
occurrence of events affecting us that do not require an adjustment to the conversion rate.
There may be future sales or other dilution of our equity, which may adversely affect the market
price of our common stock or the 12% Preferred Stock and may negatively impact the holders
investment.
We are not restricted from issuing additional common stock, including any securities that are
convertible into or exchangeable for, or that represent the right to receive, common stock or any
substantially similar securities. In addition, with the applicable consent of holders of the 12%
Preferred Stock, we may issue additional preferred stock that ranks senior to, or on a parity with,
the 12% Preferred Stock. The market price of our common stock or 12% Preferred Stock could decline
as a result of sales of a large number of shares of common stock or 12% Preferred Stock or similar
securities in the market after this offering or the perception that such sales could occur. For
example, if we issue preferred stock in the future that has a preference over our common stock with
respect to the payment of dividends or upon our liquidation, dissolution, or winding-up, or if we
issue preferred stock with voting rights that dilute the voting power of our common stock, the
rights of holders of our common stock or the market price of our common stock could be adversely
affected.
In addition, each share of 12% Preferred Stock is convertible at the option of the holder
thereof into shares of our common stock. The conversion of some or all of the 12% Preferred Stock
will dilute the ownership interest of our existing common shareowners. Any sales in the public
market of our common stock issuable upon such conversion could adversely affect prevailing market
prices of the outstanding shares of our common stock and the 12% Preferred Stock. In addition, the
existence of our 12% Preferred Stock may encourage short selling or arbitrage trading activity by
market participants because the conversion of our 12% Preferred Stock could depress the price of
our equity securities. As noted above, a decline in the market price of the common stock may
negatively impact the market price for the 12% Preferred Stock.
An active trading market for the 12% Preferred Stock does not exist and may not develop.
The 12% Preferred Stock has no established trading market and is not listed on any securities
exchange. Since the securities have no stated maturity date, investors seeking liquidity will be
limited to selling their shares of 12% Preferred Stock in the secondary market or converting their
shares of 12% Preferred Stock into shares of common stock and subsequently seeking to sell those
shares of common stock. See Risk FactorsIf our common stock is delisted, your ability to
transfer or sell your shares of the 12% Preferred Stock, or common stock upon conversion, may be
limited and the market value of the 12% Preferred Stock will be adversely affected. We cannot
assure you that an active trading market in the 12% Preferred Stock will develop or, even if it
develops, we cannot assure you that it will last. In either case the trading price of the 12%
Preferred Stock could be adversely affected and the holders ability to transfer shares of 12%
Preferred Stock will be limited. We were advised by the initial purchaser in the offering of the
12% Preferred Stock that it intends to make a market in the shares of our 12% Preferred Stock;
however, it is not obligated to do so and may discontinue market-making at any time without notice.
We cannot assure you that another firm or person will make a market in the 12% Preferred Stock.
10
The 12% Preferred Stock has not been rated.
The 12% Preferred Stock has not been rated by any nationally recognized statistical rating
organization. This factor may affect the trading price of the 12% Preferred Stock.
Holders of the 12% Preferred Stock do not have identical rights as holders of common stock until
they acquire the common stock, but will be subject to all changes made with respect to our common
stock.
Except for voting and dividend rights, holders of the 12% Preferred Stock have no rights with
respect to the common stock until conversion of their 12% Preferred Stock, including rights to
respond to tender offers, but your investment in the 12% Preferred Stock may be negatively affected
by such events. See Description of 12% Preferred StockVoting Rights. Even though the holders of
the 12% Preferred Stock vote on an as-converted basis with holders of the common stock, upon
conversion of the 12% Preferred Stock, holders will be entitled to exercise the rights of a holder
of common stock only as to matters for which the record date occurs on or after the applicable
conversion date and only to the extent permitted by law, although holders will be subject to any
changes in the powers, preferences, or special rights of common stock that may occur as a result of
any shareowner action taken before the applicable conversion date. Certain actions, including
amendment of our certificate of incorporation, require the additional approval of a majority of
holders of the common stock voting as a separate class (excluding shares of common stock issuable
upon conversion of the 12% Preferred Stock).
The 12% Preferred Stock is perpetual in nature.
The shares of 12% Preferred Stock represent a perpetual interest in us and, unlike
indebtedness, will not give rise to a claim for payment of a principal amount at a particular date.
Holders have no right to call for the redemption of the 12% Preferred Stock. Therefore, holders
should be aware that they may be required to bear the financial risks of an investment in the 12%
Preferred Stock for an indefinite period of time.
We are obligated to pay quarterly dividends with respect to our Preferred Stock.
We are obligated to pay quarterly dividends with respect to the 12% Preferred Stock and in the
event such dividends are in arrears for six or more quarters, whether or not consecutive, subject
to certain limitations, holders representing a majority of shares of Preferred Stock (voting
together as a class with the holders of all other classes or series of preferred stock upon which
like voting rights have been conferred and are exercisable) will be entitled to nominate and vote
for the election of two additional directors to serve on our Board of Directors (the Preferred
Stock Directors), until all unpaid dividends with respect to the Preferred Stock and any other
class or series of preferred stock upon which like voting rights have been conferred and are
exercisable have been paid or declared and a sum sufficient for payment is set aside for such
payment; provided that the election of any such Preferred Stock Directors will not cause us to
violate the corporate governance requirements of the NYSE (or any other exchange or automated
quotation system on which our securities may be listed or quoted) that requires listed or quoted
companies to have a majority of independent directors; and provided further that the Board of
Directors will, at no time, include more than two Preferred Stock Directors.
The conversion rate of the 12% Preferred Stock may not be adjusted for all dilutive events that may
adversely affect the market price of the 12% Preferred Stock or the common stock issuable upon
conversion of the 12% Preferred Stock.
The number of shares of our common stock that holders are entitled to receive upon conversion
of a share of 12% Preferred Stock is subject to adjustment for certain events arising from
increases in dividends or distributions in common stock, subdivisions, splits, and combinations of
the common stock, certain issuances of stock and stock purchase rights, debt, or asset
distributions, cash distributions, self-tender offers and exchange offers, and certain other
actions by us that modify our capital structure. See Description of 12% Preferred
StockConversion RightsConversion Rate AdjustmentGeneral. We will not adjust the conversion
rate for other events, including our issuances of common stock in connection with acquisitions or
the exercise of options or restricted stock awards granted pursuant to equity plans approved by the
Board, or, after the six-month anniversary of November 6, 2009, for cash. There can be no assurance
that an event that adversely affects the value of the 12% Preferred Stock, but does not result in
an adjustment to the conversion rate, will not occur. Further, if any of these other events
adversely affects the market price of our common stock, it may also adversely affect the market
price of the 12% Preferred Stock. In addition, we are not restricted from offering common stock in
the future or engaging in other transactions that may dilute our common stock and we may issue
additional shares of 12% Preferred Stock, which may dilute our common stock.
11
A change in control with respect to us may not constitute a merger, consolidation or sale of assets
or a fundamental change for the purpose of the 12% Preferred Stock.
The 12% Preferred Stock contains no covenants or other provisions to afford protection to
holders in the event of certain mergers, consolidations or sales of assets with respect to us
constituting a change in control on or after November 15, 2019 except upon the occurrence of
certain mergers, consolidations or sales of assets. See Description of 12% Preferred
StockConversion RightsConversion Rate AdjustmentMerger, Consolidation or Sale of Assets,
Description of 12% Preferred StockRepurchase of Option of Holders Upon a Fundamental Change and
Description of 12% Preferred StockAdjustment to Conversion Rate Upon Certain Change of Control
Events. Furthermore, the limited covenants with respect to a fundamental change or change in
control may not include every change in control event that could cause the market price of the 12%
Preferred Stock to decline. The adjustment to conversion rate described under Description of 12%
Preferred StockAdjustment to Conversion Rate upon Certain Change in Control Events will not be
applicable on or after November 15, 2014 and the repurchase right of preferred holders described
under Repurchase at Option of Holders Upon a Fundamental Change will not be applicable on or
after November 15, 2019, and these limitations may have the effect of discouraging third parties
from pursuing a change in control of our company, which may otherwise be in the best interest of
our shareowners. Any change in control with respect to us either before or after November 15, 2019
may negatively affect the liquidity, value or volatility of our common stock, and thus, negatively
impact the value of the 12% Preferred Stock.
We may not have the funds necessary to repurchase the 12% Preferred Stock following a fundamental
change.
Holders of the notes have the right to require us to repurchase the 12% Preferred Stock in
cash upon the occurrence of a fundamental change prior to November 15, 2019. We may not have
sufficient funds to repurchase the 12% Preferred Stock at such time, and may not have the ability
to arrange necessary financing on acceptable terms. In addition, our ability to purchase the 12%
Preferred Stock may be limited by law or the terms of other agreements outstanding at such time.
Moreover, a failure to repurchase the 12% Preferred Stock may also constitute an event of default,
and result in the acceleration of the maturity of, any then existing indebtedness, under any
indenture, credit agreement or other agreement outstanding at that time, which could further
restrict our ability to make such payments.
The adjustment to conversion rate in respect of conversions following certain change in control
events may not adequately compensate you.
If certain change in control events occur prior to November 15, 2014, and a holder converts in
connection with such change in control, we will, under certain circumstances, pay a adjustment to
conversion rate in respect of any conversions of the 12% Preferred Stock that occur during the
period beginning on the date notice of such fundamental change is delivered and ending on the
change in control conversion date. See Description of 12% Preferred StockAdjustment to
Conversion Rate upon Certain Change in Control Events. Although the adjustment to the conversion
rate is designed to compensate holders for the lost option value of the holders 12% Preferred
Stock, it is only an approximation of such lost value and may not adequately compensate the holders
for their actual loss. Our obligation to adjust the conversion rate in respect of conversions
following certain changes in control may be considered a penalty, in which case the enforceability
thereof would be subject to general principles of reasonableness, as applied to such payments.
If our common stock is delisted, your ability to transfer or sell the 12% Preferred Stock, or
common stock upon conversion, may be limited and the market value of the 12% Preferred Stock will
be adversely affected.
The 12% Preferred Stock does not contain protective provisions in the event that our common
stock is delisted. Since the 12% Preferred Stock has no stated maturity date, holders may be forced
to elect between converting their shares of the 12% Preferred Stock into illiquid shares of our
common stock or holding their shares of the 12% Preferred Stock and receiving stated dividends on
the stock when, as and if authorized by our Board of Directors and declared by us with no assurance
as to ever receiving the liquidation preference of the 12% Preferred Stock. Accordingly, if our
common stock is delisted, the holders ability to transfer or sell their shares of the 12%
Preferred Stock, or common stock upon conversion, may be limited, and the market value of the 12%
Preferred Stock will be adversely affected.
Holders of the 12% Preferred Stock may be unable to use the dividends-received deduction.
Distributions paid to corporate U.S. holders (as defined herein) of the 12% Preferred Stock
(or our common stock) may be eligible for the dividends-received deduction to the extent we have
current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. As
of December 31, 2009, we had an accumulated deficit of $412.1 million and we had a net loss of
$78.8
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million in the year ended December 31, 2009. There can be no assurance that we will have
sufficient current or accumulated earnings and profits during future fiscal years for the
distributions on the 12% Preferred Stock (or our common stock) to qualify as dividends for U.S.
federal income tax purposes. If the distributions fail to qualify as dividends, U.S. holders would
be unable to use the dividends-received deduction. Instead, distributions would be treated first as
a tax-free return of capital to the extent of a U.S. holders adjusted tax basis in the 12%
Preferred Stock and thereafter as capital gain. If a corporate U.S. holders tax basis in the 12%
Preferred Stock (or our common stock) were reduced in this manner, then the amount of gain, if any,
recognized by such holder on a subsequent disposition of such stock would be increased and such
holder would not be eligible for a dividends-received deduction to offset such gain.
Holders may have to pay U.S. federal income tax if we adjust, or fail to adjust, the conversion
rate of the 12% Preferred Stock in certain circumstances, even if holders do not receive a
corresponding distribution of cash.
Holders may be treated as having received a constructive distribution from us as a result of
certain adjustments to (or certain failures to make adjustments to) the conversion rate or other
terms of the 12% Preferred Stock. The tax treatment of any constructive distributions is not
entirely clear. It is possible that such distribution could be treated as a taxable dividend for
U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits,
even though holders do not receive any cash with respect to such constructive distribution. In
addition, non-U.S. holders (as defined in Certain U.S. Federal Income Tax Considerations) of the
12% Preferred Stock may, in certain circumstances, be subject to U.S. federal withholding tax on
any constructive distributions on the 12% Preferred Stock that are treated as taxable dividends,
and we intend to withhold U.S. federal income tax with respect to any such constructive taxable
dividends from any payments made by us to such non-U.S. holders. You are advised to consult your
independent tax advisor and read Certain U.S. Federal Income Tax Considerations regarding the
U.S. federal income tax consequences of an adjustment to the conversion rate of the 12% Preferred
Stock and the issuance of the 12% Preferred Stock at less than the liquidation preference amount.
Risks Related to the Companys Business in General
The ongoing downturn in the general economy and the real estate market has negatively impacted and
could continue to negatively impact our business and financial results.
Periods of economic slowdown or recession, significantly reduced access to credit, declining
employment levels, decreasing demand for real estate, declining real estate values or the
perception that any of these events may occur, can reduce transaction volumes or demand for
services for each of our business lines. The current recession and the downturn in the real estate
market have resulted in and may continue to result in:
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a decline in acquisition, disposition and leasing activity; |
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a decline in the supply of capital invested in commercial real estate; |
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a decline in fees collected from investment management programs, which are dependent upon
demand for investment in commercial real estate; and |
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a decline in the value of real estate and in rental rates, which would cause us to realize
lower revenue from: |
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property management fees, which in certain cases are calculated as a percentage of the
revenue of the property under management; and |
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commissions or fees derived from property valuation, sales and leasing, which are
typically based on the value, sale price or lease revenue commitment, respectively. |
The declining real estate market in the United States, the availability and cost of credit,
increased unemployment, volatile oil prices, declining consumer confidence and the instability of
United States banking and financial institutions, have contributed to increased volatility, an
overall economic slowdown and diminished expectations for the economy and markets going forward.
The fragile state of the credit markets, the fear of a global recession for an extended period and
the current economic environment have impacted real estate services and investment management firms
like ours through reduced transaction volumes, falling transaction values, lower real estate
valuations, liquidity restrictions, market volatility, and the loss of confidence. As a
consequence, similar to other real estate services and investment management firms, our stock price
has declined significantly.
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Due the economic downturn, it may take us longer to dispose of real estate assets and
investments and the selling prices may be lower than originally anticipated. If this occurs, fees
from transaction services will be reduced. In addition, the performance of certain properties in
the investment management portfolio may be negatively impacted, which would likewise affect our
fees. As a result, the carrying value of certain of our real estate investments may become impaired
and we could record losses as a result of such impairment or we could experience reduced
profitability related to declines in real estate values. Pursuant to the requirements of the
Property, Plant, and Equipment Topic, we assess the value of our assets and real estate
investments. This valuation review resulted in us recognizing an impairment charge of approximately
$24.0 million against the carrying value of the properties and real estate investments during the
year ended December 31, 2009.
We are not able to predict the severity or duration of the current adverse economic
environment or the disruption in the financial markets. The real estate market tends to be cyclical
and related to the condition of the overall economy and to the perceptions of investors, developers
and other market participants as to the economic outlook. The ongoing downturn in the general
economy and the real estate market has negatively impacted and could continue to negatively impact
our business and results of operations.
The ongoing adverse developments in the credit markets and the risk of continued market
deterioration have adversely affected our revenues, expenses and operating results and may continue
to do so.
Our segments are sensitive to credit cost and availability as well as market place liquidity.
In addition, the revenues in all our businesses are dependent to some extent on overall volume of
activity and pricing in the commercial real estate market. In 2008 and 2009, the credit markets
experienced an unprecedented level of disruption and uncertainty. This disruption and uncertainty
has reduced the availability and significantly increased the cost of most sources of funding. In
certain cases, sources of funding have been eliminated.
Disruptions in the credit markets have adversely affected, and may continue to adversely
affect, our business of providing services to owners, purchasers, sellers, investors and occupants
of real estate in connection with acquisitions, dispositions and leasing of real property. If our
clients are unable to obtain credit on favorable terms, there will be fewer completed acquisitions,
dispositions and leases of property. In addition, if purchasers of real estate are not able to
obtain favorable financing resulting in a lack of disposition opportunities for funds for whom we
act as advisor, our fee revenues will decline and we may also experience losses on real estate held
for investment.
The recent decline in real estate values and the inability to obtain financing has either
eliminated or severely reduced the availability of our historical funding sources for our
investment management programs, and to the extent credit remains available for these programs, it
is currently more expensive. We may not be able to continue to access sources of funding for our
investment management programs or, if available to us, we may not be able to do so on favorable
terms. Any decision by lenders to make additional funds available to us in the future for our
investment management programs will depend upon a number of factors, such as industry and market
trends in our business, the lenders own resources and policies concerning loans and investments,
and the relative attractiveness of alternative investment or lending opportunities.
The depth and duration of the current credit market and liquidity disruptions are impossible
to predict. In fact, the magnitude of the recent credit market disruption has exceeded the
expectations of most if not all market participants. This uncertainty limits our ability to develop
future business plans and we believe that it limits the ability of other participants in the credit
markets and the real estate markets to do so as well. This uncertainty may lead market participants
to act more conservatively than in recent history, which may continue to depress demand and pricing
in our markets.
We experienced additional, unanticipated costs and may have additional risk and further costs as a
result of the restatement of our financial statements.
As a result of the restatement in 2009 of certain audited and unaudited financial data, and
the special investigation in connection therewith, we incurred substantial, additional
unanticipated costs for accounting and legal fees. The restatement and special investigation was
also time-consuming and affected managements attention and resources. Further, there are no
assurances that we will not become involved in legal proceedings in the future in relation to these
restatements. In connection with any such potential proceedings, any incurred expenses not covered
by available insurance or any adverse resolution could have a material adverse effect on the
Company. Any such future legal proceedings could also be time-consuming and distract our management
from the conduct of our business.
14
Our ability to access credit and capital markets may be adversely affected by factors beyond our
control, including turmoil in the financial services industry, volatility in financial markets and
general economic downturns.
There can be no assurances that our anticipated cash flow from operations will be sufficient
to meet all of our cash requirements. We intend to continue to make investments to support our
business growth and may require additional funds to respond to business challenges. We have
historically relied upon access to the credit markets from time to time as a source of liquidity
for the portion of our working capital requirements not provided by cash from operations. We used a
significant portion of the net proceeds from the sale of the 12% Preferred Stock to pay off and
terminate our Credit Facility and have not secured a new credit facility or line or credit with
which to borrow funds. Market disruptions such as those currently being experienced in the United
States and other countries may increase our cost of borrowing or adversely affect our ability to
access sources of capital. These disruptions include turmoil in the financial services and real
estate industries, including substantial uncertainty surrounding particular lending institutions,
and general economic downturns. If we are unable to access credit at competitive rates or at all,
or if our short-term or long-term borrowing costs dramatically increase, our ability to finance our
operations, meet our short-term obligations and implement our operating strategy could be adversely
affected.
We have received a notice from the NYSE that we did not meet our continued listing requirements. If
we are unable to rectify this non-compliance in accordance with NYSE rules, our common stock will
be delisted from trading on the NYSE, which could have a material adverse effect on the liquidity
and value of our common stock.
On August 11, 2009, we received notification from NYSE Regulation, Inc. that we were not in
compliance with the NYSEs continued listing standard requiring that we maintain an average market
capitalization and shareowners equity of not less than $50 million. In connection with the NYSEs
rules, we submitted a business plan to the NYSE on November 3, 2009 evidencing how the Company
intends to come into compliance with the continued listing standards and on November 9, 2009, we
were advised that the NYSEs Listing and Compliance Committee has accepted the Companys business
plan. Accordingly, we need to have an average market capitalization over a consecutive 30 trading
day period of $50 million or total shareowners equity of $50 million by April 11, 2011 although we
may come into compliance sooner, or based on two consecutive quarterly monitoring periods, which is
an ongoing process. The NYSE conducts quarterly reviews during the 18-month period from August 11,
2009 through February 11, 2011.
If we are unable to regain compliance with the NYSEs continued listing standard within the
required time frame, our common stock will be delisted from the NYSE. As a result, we likely would
have our common stock quoted on the Over-the-Counter Bulletin Board (OTC BB) in order to have our
common stock continue to be traded on a public market. Securities that trade on the OTC BB
generally have less liquidity and greater volatility than securities that trade on the NYSE.
Delisting from the NYSE also may preclude us from using certain state securities law exemptions,
which could make it more difficult and expensive for us to raise capital in the future and more
difficult for us to provide compensation packages sufficient to attract and retain top talent. In
addition, because issuers whose securities trade on the OTC BB are not subject to the corporate
governance and other standards imposed by the NYSE, and such issuers receive less news and analyst
coverage, our reputation may suffer, which could result in a decrease in the trading price of our
shares. The delisting of our common stock from the NYSE, therefore, could significantly disrupt the
ability of investors to trade our common stock and could have a material adverse effect on the
value and liquidity of our common stock.
The TIC business in general, from which we have historically generated significant revenues,
materially contracted in 2009.
We have historically generated significant revenues from fees earned through the transaction
structuring and property management of our TIC programs. In 2009, however, with the nationwide
decline in real estate values and the global credit crisis, the TIC industry contracted
significantly. According to data from OMNI Research & Consulting, approximately $3.7 billion of TIC
equity was raised in 2006. In 2009, the amount of TIC equity raised declined by approximately 94%
to $228.7 million. As we have historically generated a significant amount of revenue from our TIC
operations, the rapid and steep decline in this industry may have a material, adverse effect on our
business and results of operations if it is unable to generate revenues in our other business
segments, of which there can be no assurances, to make up for the loss of TIC-related revenues. We
do not anticipate the TIC market to recover in the near term.
The decline in value of many of the properties purchased by TIC and real estate fund investors in
our sponsored programs as a result of the downturn in the real estate market, and the potential
loss of investor equity in these programs, may negatively affect our reputation and ability to sell
future sponsored programs.
The declining real estate market has resulted in declining values for many of the properties
purchased by investors in our sponsored TIC and real estate fund programs. In addition, the lack of
available credit has negatively impacted the ability to refinance these
15
properties at loan maturity. As a consequence, the TIC and fund program investors may be
forced to dispose of their properties at selling prices lower than the original purchase price. In
addition, some properties may be valued at less than the outstanding loan amount and may be subject
to default and foreclosure by the lender. Sales of these real estate assets at less than original
purchase price, loan defaults or foreclosures will result in the loss of investor equity. Losses by
investors may negatively affect the reputation of our investment management business and our
ability to sell current or future sponsored programs and earn fees. Any decrease in our fees could
have a material adverse effect on our business, results of operations and financial condition.
We are in a highly competitive business with numerous competitors, some of which may have greater
financial and operational resources than we do.
We compete 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 on a regional and local
level. We face competition not only from other national real estate service providers, but also
from global real estate service providers, boutique real estate advisory firms, consulting and
appraisal firms. Depending on the product or service, we also face competition from other real
estate service providers, institutional lenders, insurance companies, investment banking firms,
investment managers and accounting firms, some of which may have greater financial resources than
we do. We are also subject to competition from other large national firms and from multi-national
firms that have similar service competencies to us. Although many of our competitors are local or
regional firms that are substantially smaller than us, some of our competitors are substantially
larger than us on a local, regional, national or international basis. In general, there can be no
assurance that we will be able to continue to compete effectively with respect to any of our
business lines or on an overall basis, or to maintain current fee levels or margins, or maintain or
increase our market share.
As a service-oriented company, we depend upon the retention of senior management and key personnel,
and the loss of our current personnel or our failure to hire and retain additional personnel could
harm our business.
Our success is dependent upon our ability to retain our executive officers and other key
employees and to attract and retain highly skilled personnel. We believe that our future success in
developing our business and maintaining a competitive position will depend in large part on our
ability to identify, recruit, hire, train, retain and motivate highly skilled executive,
managerial, sales, marketing and customer service personnel. Competition for these personnel is
intense, and we may not be able to successfully recruit, assimilate or retain sufficiently
qualified personnel. We use equity incentives to attract and retain our key personnel. In 2009, our
stock price declined significantly, resulting in the decline in value of previously provided equity
awards, which may result in an increase risk of loss of key personnel. The performance of our stock
may also diminish our ability to offer attractive incentive awards to new hires. Our failure to
recruit and retain necessary executive, managerial, sales, marketing and customer service personnel
could harm our business and our ability to obtain new customers.
We may expand our business to include international operations so that we may be more competitive,
but in doing so it could subject us to social, political and economic risks of doing business in
foreign countries.
Although we do not currently conduct significant business outside the United States, we are
considering an expansion of our international operations so that we may be more competitive.
Currently, our lack of international capabilities sometimes places us at a competitive disadvantage
when prospective clients are seeing one real estate services provider that can service their needs
both in the United States and overseas. There can be no assurances that we will be able to
successfully expand our business in international markets. Current global economic conditions may
restrict, limit or delay our ability to expand our business into international markets or make such
expansion less economically feasible. If we expand into international markets, circumstances and
developments related to international operations that could negatively affect our business or
results of operations include, but are not limited to, the following factors:
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lack of substantial experience operating in international markets; |
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lack of recognition of the Grubb & Ellis brand name in international markets; |
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difficulties and costs of staffing and managing international operations; |
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currency restrictions, which may prevent the transfer of capital and profits to the United
States; |
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diverse foreign currency fluctuations; |
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changes in regulatory requirements; |
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potentially adverse tax consequences; |
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the responsibility of complying with multiple and potentially conflicting laws; |
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the impact of regional or country-specific business cycles and economic instability; |
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the geographic, time zone, language and cultural differences among personnel in different
areas of the world; |
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political instability; and |
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foreign ownership restrictions with respect to operations in certain countries. |
Additionally, we may establish joint ventures with foreign entities for the provision of
brokerage services abroad, which may involve the purchase or sale of our equity securities or the
equity securities of the joint venture participant(s). In these joint ventures, we may not have the
right or power to direct the management and policies of the joint venture and other participants
may take action contrary to our instructions or requests and against our policies and objectives.
In addition, the other participants may become bankrupt or have economic or other business
interests or goals that are inconsistent with ours. If a joint venture participant acts contrary to
our interest, then it could have a material adverse effect on our business and results of
operations.
Failure to manage any future growth effectively may have a material adverse effect on our financial
condition and results of operations.
We will need to successfully manage any future growth effectively. The integration and
additional growth may place a significant strain upon management, administrative, operational and
financial infrastructure. Our ability to grow also depends upon our ability to successfully hire,
train, supervise and manage additional executive officers and new employees, obtain financing for
our capital needs, expand our systems effectively, allocate our human resources optimally, maintain
clear lines of communication between our transactional and management functions and our finance and
accounting functions, and manage the pressures on our management and administrative, operational
and financial infrastructure. Additionally, managing future growth may be difficult due to the new
geographic locations and business lines of the Company. There can be no assurance that we will be
able to accurately anticipate and respond to the changing demands we will face as we integrate and
continue to expand our operations, and we may not be able to manage growth effectively or to
achieve growth at all. Any failure to manage the future growth effectively could have a material
adverse effect on our business, financial condition and results of operations.
Risks Related to the Companys Transaction Services and Management Services Business
Our quarterly operating results are likely to fluctuate due to the seasonal nature of our business
and may fail to meet expectations, which may cause the price of our securities to decline.
Historically, the majority of our revenue has been derived from the transaction services that
it provides. Such services are typically subject to seasonal fluctuations. We typically experience
the 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. However, our non-variable
operating expenses, which are treated as expenses when incurred during the year, are relatively
constant in total dollars on a quarterly basis. As a result, since a high proportion of these
operating expenses are fixed, declines in revenue could disproportionately affect our operating
results in a quarter. In addition, our quarterly operating results have fluctuated in the past and
will likely continue to fluctuate in the future. If our quarterly operating results fail to meet
expectations, the price of our securities could fluctuate or decline significantly.
If the properties that we manage fail to perform, then our business and results of operations could
be harmed.
Our success partially depends upon the performance of the properties we manage. We could be
adversely affected by the nonperformance of, or the deteriorating financial condition of, certain
of our clients. The revenue we generate from our property management business is generally a
percentage of aggregate rent collections from the properties. The performance of these properties
will depend upon the following factors, among others, many of which are partially or completely
outside of our control:
17
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our ability to attract and retain creditworthy tenants; |
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the magnitude of defaults by tenants under their respective leases; |
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our ability to control operating expenses; |
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governmental regulations, local rent control or stabilization ordinances which are in, or
may be put into, effect; |
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various uninsurable risks; |
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financial condition of certain clients; |
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financial conditions prevailing generally and in the areas in which these properties are
located; |
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the nature and extent of competitive properties; and |
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the general real estate market. |
These or other factors may negatively impact the properties that we manage, which could have a
material adverse effect on our business and results of operations.
If we fail to comply with laws and regulations applicable to real estate brokerage and mortgage
transactions and other business lines, then we may incur significant financial penalties.
Due to the broad geographic scope of our operations and the real estate services performed, we
are subject to numerous federal, state and local laws and regulations specific to the services
performed. For example, the brokerage of real estate sales and leasing transactions requires us to
maintain brokerage licenses in each state in which it operates. If we fail to maintain our licenses
or conduct brokerage activities without a license or violate any of the regulations applicable to
our licenses, then we may be required to pay fines (including treble damages in certain states) or
return commissions received or have our licenses suspended or revoked. In addition, because the
size and scope of real estate sales transactions have increased significantly during the past
several years, both the difficulty of ensuring compliance with the numerous state licensing regimes
and the possible loss resulting from non-compliance have increased. Furthermore, the laws and
regulations applicable to our business, both in the United States and in foreign countries, also
may change in ways that increase the costs of compliance. The failure to comply with both foreign
and domestic regulations could result in significant financial penalties which could have a
material adverse effect on our business and results of operations.
We may have liabilities in connection with real estate brokerage and property and facilities
management activities.
As a licensed real estate broker, we and our licensed employees and independent contractors
that work for us are subject to statutory due diligence, disclosure and standard-of-care
obligations. Failure to fulfill these obligations could subject us or our employees to litigation
from parties who purchased, sold or leased properties that we or they brokered or managed. We could
become subject to claims by participants in real estate sales, as well as building owners and
companies for whom we provide management services, claiming that we did not fulfill our statutory
obligations as a broker.
In addition, in our property and facilities management businesses, we hire and supervise
third-party contractors to provide construction and engineering services for our managed
properties. While our role is limited to that of a supervisor, we may be subject to claims for
construction defects or other similar actions. Adverse outcomes of property and facilities
management litigation could have a material adverse effect on our business, financial condition and
results of operations.
Environmental regulations may adversely impact our business and/or cause us to incur costs for
cleanup of hazardous substances or wastes or other environmental liabilities.
Federal, state and local laws and regulations impose various environmental zoning
restrictions, use controls, and disclosure obligations which impact the management, development,
use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing
activities, as well as mortgage lending availability, with respect to some properties. A decrease
or delay in such transactions may adversely affect the results of operations and financial
condition of our real estate brokerage business. In addition, a failure by us to disclose
environmental concerns in connection with a real estate transaction may subject it to liability to
a buyer or lessee of property.
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In addition, in our role as a property manager, we could incur liability under environmental
laws for the investigation or remediation of hazardous or toxic substances or wastes at properties
we currently or formerly managed, or at off-site locations where wastes from such properties were
disposed. Such liability can be imposed without regard for the lawfulness of the original disposal
activity, or our knowledge of, or fault for, the release or contamination. Further, liability under
some of these laws may be joint and several, meaning that one liable party could be held
responsible for all costs related to a contaminated site. We could also be held liable for property
damage or personal injury claims alleged to result from environmental contamination, or from
asbestos-containing materials or lead-based paint present at the properties we manage. Insurance
for such matters may not be available or sufficient.
Certain requirements governing the removal or encapsulation of asbestos-containing materials,
as well as recently enacted local ordinances obligating property managers to inspect for and remove
lead-based paint in certain buildings, could increase the our cost of legal compliance and
potentially subject us to violations or claims. Although such costs have not had a material impact
on our financial results or competitive position during fiscal year 2007, 2008 or 2009, the
enactment of additional regulations, or more stringent enforcement of existing regulations, could
cause us to incur significant costs in the future, and/or adversely impact our brokerage and
management services businesses.
Risks Related to the Companys Investment Management and Broker-Dealer Business
Declines in asset value, reductions in distributions in investment programs or loss of properties
to foreclosure could adversely affect our business, as it could cause harm to our reputation, cause
the loss of management contracts and third-party broker-dealer selling agreements, limit our
ability to sign future third-party broker-dealer selling agreements and potentially expose us to
legal liability.
The current market value of many of the properties owned through our investment programs have
decreased as a result of the overall decline in the economy and commercial real estate markets. In
addition, there have been reductions in distributions in numerous investment programs in 2008 and
2009, in many instances to a zero percent distribution rate. Significant declines in value and
reductions in distributions in the investment programs sponsored by us could adversely affect our
reputation and our ability to attract investors for future investment programs. In addition,
significant declines in value and reductions in distributions could cause us to lose asset and
property management contracts for our investment management programs, cause us to lose third-party
broker-dealer selling agreements for existing investment programs, including our REITs, and limit
our ability to sign future third-party broker-dealer agreements. The loss of value may be
significant enough to cause certain investment programs to go into foreclosure or result in a
complete loss of equity for program investors. Significant losses in asset value and investor
equity and reductions in distributions increases the risk of claims or legal actions by program
investors. Any such legal liability could result in further damage to our reputation, loss of
third-party broker-dealer selling agreements and incurrence of legal expenses which could have a
material adverse effect on our business, results of operations and financial condition.
We currently provide our Investment Management services primarily to our investment programs. Our
revenue depends on the number of our programs, on the price of the properties acquired or disposed,
and on the revenue generated by the properties under our management.
We derive fees for Investment Management services based on a percentage of the price of the
properties acquired or disposed of by our programs and for management services based on a
percentage of the rental amounts of the properties in our programs. We are responsible for the
management of all of the properties owned by our programs, but as of December 31, 2009 we had
subcontracted the property management of approximately 11.0% of our programs office, medical
office and healthcare related facilities and retail properties (based on square footage) and 16.3%
of our programs multi-family apartment units to third parties. For REITs, investment decisions are
controlled by the Board of Directors of REITs that are independent of us. Investment decisions of
these Boards affect the fees we earn. As a result, if any of our programs are unsuccessful, our
Investment Management services fees will be reduced, if any are paid at all. In addition, failure
of our programs to provide competitive investment returns could significantly impair our ability to
market future programs. Our inability to spread risk among a large number of programs could cause
us to be over-reliant on a limited number of programs for our revenues. There can be no assurance
that we will maintain current levels of transaction and management services for our programs
properties.
We may be required to repay loans we guaranteed that were used to finance properties acquired by
our programs.
From time to time we or our investment management subsidiaries provided guarantees of loans
for properties under management. As of December 31, 2009, there were 146 properties under
management with loan guarantees of approximately $3.6 billion in total principal outstanding with
terms ranging from 1 to 10 years, secured by properties with a total aggregate purchase price of
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approximately $4.8 billion as of December 31, 2009. Our guarantees consisted of
non-recourse/carve-out guarantees of debt of properties under management, non-recourse/carve-out
guarantees of our debt, recourse guarantees of debt of properties under management and recourse
guarantees of our debt.
A non-recourse/carve-out guarantee imposes personal liability on the guarantor in the event
the borrower engages in certain acts prohibited by the loan documents. Each non-recourse carve-out
guarantee is an individual document entered into with the mortgage lender in connection with the
purchase or refinance of an individual property. While there is not a standard document evidencing
these guarantees, liability under the non-recourse carve-out guarantees generally may be triggered
by, among other things, any or all of the following:
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a voluntary bankruptcy or similar insolvency proceeding of any borrower; |
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a transfer of the property or any interest therein in violation of the loan documents; |
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a violation by any borrower of the special purpose entity requirements set forth in the
loan documents; |
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any fraud or material misrepresentation by any borrower or any guarantor in connection with
the loan; |
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the gross negligence or willful misconduct by any borrower in connection with the property,
the loan or any obligation under the loan documents; |
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the misapplication, misappropriation or conversion of (i) any rents, security deposits,
proceeds or other funds, (ii) any insurance proceeds paid by reason of any loss, damage or
destruction to the property, and (iii) any awards or other amounts received in connection
with the condemnation of all or a portion of the property; |
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any waste of the property caused by acts or omissions of borrower of the removal or
disposal of any portion of the property after an event of default under the loan documents;
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the breach of any obligations set forth in an environmental or hazardous substances
indemnification agreement from borrower. |
Certain violations (typically the first three listed above) render the entire debt balance
recourse to the guarantor regardless of the actual damage incurred by lender, while the liability
for other violations is limited to the damages incurred by the lender. Notice and cure provisions
vary between guarantees. Generally the guarantor irrevocably and unconditionally guarantees to the
lender the payment and performance of the guaranteed obligations as and when the same shall be due
and payable, whether by lapse of time, by acceleration or maturity or otherwise, and the guarantor
covenants and agrees that it is liable for the guaranteed obligations as a primary obligor. As of
December 31, 2009, to the best of our knowledge, there is no amount of debt owed by us as a result
of the borrowers engaging in prohibited acts.
In addition, the consolidated variable interest entities (VIEs) and unconsolidated VIEs are
jointly and severally liable on the non-recourse mortgage debt related to the interests in our TIC
investments totaling $277.0 million and $154.8 million as of December 31, 2009, respectively.
As property values and performance decline, the risk of exposure under these guarantees
increases. We initially evaluate these guarantees to determine if the guarantee meets the criteria
required to record a liability in accordance with the Guarantees Topic. As of December 31, 2009 and
2008, we had recourse guarantees of $33.9 million and $42.4 million, respectively, relating to debt
of properties under management. As of December 31, 2009, approximately $9.8 million of these
recourse guarantees relate to debt that has matured or is not currently in compliance with certain
loan covenants. In evaluating the potential liability relating to such guarantees, we consider
factors such as the value of the properties secured by the debt, the likelihood that the lender
will call the guarantee in light of the current debt service and other factors. As of December 31,
2009 and 2008, we recorded a liability of $3.8 million and $9.1 million, respectively, related to
our estimate of probable loss related to recourse guarantees of debt of properties under management
which matured in January and April 2009.
Our evaluation of the potential liability may prove to be inaccurate and liabilities may
exceed estimates. In the event that actual losses materially exceed estimates, individual
investment management subsidiaries may not be able to pay such obligations as they become due.
Failure of any investment management subsidiary to pay our debts as they become due would likely
have a materially negative impact on the ongoing business of the Company, and the investment
management operations in particular.
We may be unable to grow our investment programs, which would cause us to fail to satisfy our
business strategy.
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A significant element of our business strategy is the growth in the size and number of our
investment programs. The success of each investment program will depend on raising adequate capital
for the investment, identifying appropriate assets for acquisition and effectively and efficiently
closing the transactions. There can be no assurance that we will be able to identify and invest in
additional properties or will be able to raise adequate capital to grow or launch new programs in
the future. If we are unable to grow our existing vehicles or consummate new programs in the
future, growth of the revenue we receive from transaction and management services may be negatively
affected.
The revenue streams from our management services for sponsored programs are subject to limitation
or cancellation.
The agreements under which we provide advisory and management services to public non-traded
REITs we have sponsored may generally be terminated by each REITs independent Board of Directors
following a notice period, with or without cause. We cannot assure you that these agreements will
not be terminated. Grubb & Ellis Healthcare REIT, Inc. (now Healthcare Trust of America, Inc. as of
August 31, 2009) did not renew its Advisory Agreement with our subsidiary upon the termination of
the Advisory Agreement on September 20, 2009 and, as a result, our asset and property management
fees have been reduced.
The management agreements under which we provide property management services to our sponsored
TIC programs may generally be terminated by a single TIC investor with cause upon 30 days notice or
without cause annually upon renewal. Appointment of a new property manager requires unanimous
agreement of the TIC investors and, generally, the approval of the lender. We have received
termination notices on approximately one-third of our managed TIC properties resulting in the
termination of one property management agreement during 2009. Although we are disputing these
terminations, it is not likely that we will be able to retain all of the management contracts for
these properties. Loss of a significant number of contracts and fees could have a material adverse
effect on our business, results of operations and financial condition.
The inability to access investors for our programs through broker-dealers or other intermediaries
could have a material adverse effect on our business.
Our ability to source capital for our programs depends significantly on access to the client
base of securities broker-dealers and other financial investment intermediaries that may offer
competing investment products. We believe that our future success in developing our business and
maintaining a competitive position will depend in large part on our ability to continue to maintain
these relationships as well as finding additional securities broker-dealers to facilitate offerings
by our programs or to find investors for our REITs, TIC programs and other investment programs. We
cannot be sure that we will continue to gain access to these channels. In addition, competition for
capital is intense and we may not be able to obtain the capital required to complete a program. The
inability to have this access could have a material adverse effect on our business and results of
operations.
The termination of any of our broker-dealer relationships, especially given the limited number of
key broker-dealers, could have a material adverse effect on our business.
Our securities programs are sold through third-party broker-dealers who are members of our
selling group. While we have established relationships with our selling group, we are required to
enter into a new agreement with each member of the selling group for each new program we offers. In
addition, our programs may be removed from a selling broker-dealers approved program list at any
time for any reason. We cannot assure you of the continued participation of existing members of our
selling group nor can we make an assurance that our selling group will expand. While we continue to
diversify and add new investment channels for our programs, a significant portion of the growth in
recent years in the number of TIC programs we sponsor and in our REITs has been as a result of
capital raised by a relatively limited number of broker-dealers. Loss of any of these key
broker-dealer relationships, or the failure to develop new relationships to cover our expanding
business through new investment channels, could have a material adverse effect on our business and
results of operations.
Misconduct by third-party selling broker-dealers or our sales force, could have a material adverse
effect on our business.
We rely on selling broker-dealers and our sales force to properly offer our securities
programs to customers in compliance with our selling agreements and with applicable regulatory
requirements. While these persons are responsible for their activities as registered
broker-dealers, their actions may nonetheless result in complaints or legal or regulatory action
against us.
A significant amount of our programs are structured to provide favorable tax treatment to investors
or REITs. If a program fails to satisfy the requirements necessary to permit this favorable tax
treatment, we could be subject to claims by investors and our
21
reputation for structuring these transactions would be negatively affected, which would have an
adverse effect on our financial condition and results of operations.
We structure TIC programs and public non-traded REITs to provide favorable tax treatment to
investors. For example, our TIC investors are able to defer the recognition of gain on sale of
investment or business property if they enter into a 1031 exchange. Similarly, qualified REITs
generally are not subject to federal income tax at corporate rates, which permits REITs to make
larger distributions to investors (i.e. without reduction for federal income tax imposed at the
corporate level). If we fail to properly structure a TIC transaction or if a REIT fails to satisfy
the complex requirements for qualification and taxation as a REIT under the Internal Revenue Code,
we could be subject to claims by investors as a result of additional tax they may be required to
pay or because they are unable to receive the distributions they expected at the time they made
their investment. In addition, any failure to satisfy applicable tax regulations in structuring our
programs would negatively affect our reputation, which would in turn affect our ability to earn
additional fees from new programs. Claims by investors could lead to losses and any reduction in
our fees would have a material adverse effect on our revenues.
Any future co-investment activities we undertake could subject us to real estate investment risks
which could lead to the need for substantial capital contributions, which may impact our cash flows
and financial condition and, if we are unable to make them, could damage our reputation and result
in adverse consequences to our holdings.
We may from time to time invest our capital in certain real estate investments with other real
estate firms or with institutional investors such as pension plans. Any co-investment will
generally require us to make initial capital contributions, and some co-investment entities may
request additional capital from us and our subsidiaries holding investments in those assets. These
contributions could adversely impact our cash flows and financial condition. Moreover, the failure
to provide these contributions could have adverse consequences to our interests in these
investments. These adverse consequences could include damage to our reputation with our
co-investment partners as well as dilution of ownership and the necessity of obtaining alternative
funding from other sources that may be on disadvantageous terms, if available at all.
Geographic concentration of program properties may expose our programs to regional economic
downturns that could adversely impact their operations and, as a result, the fees we are able to
generate from them, including fees on disposition of the properties as we may be limited in our
ability to dispose of properties in a challenging real estate market.
Our programs generally focus on acquiring assets satisfying particular investment criteria,
such as type or quality of tenants. There is generally no or little focus on the geographic
location of a particular property. We cannot guarantee, however, that our programs will have, or
will be able to maintain, a significant amount of geographic diversity. Although our property
programs are located in 29 states, a majority of these properties (by square footage) are located
in Texas, Georgia, California, Florida and North Carolina. Geographic concentration of properties
exposes our programs to economic downturns in the areas where the properties are located. A
regional recession or other major, localized economic disruption in a region, such as earthquakes
and hurricanes, in any of these areas could adversely affect our programs ability to generate or
increase their operating revenues, attract new tenants or dispose of unproductive properties. Any
reduction in program revenues would effectively reduce the fees we generate from them, which would
adversely affect our results of operations and financial condition.
If third-party managers providing property management services for our programs office, medical
office and healthcare related facilities, retail and multi-family properties are negligent in their
performance of, or default on, their management obligations, the tenants may not renew their leases
or we may become subject to unforeseen liabilities. If this occurs, it could have an adverse effect
on our financial condition and operating results.
We have entered into agreements with third-party management companies to provide property
management services for a significant number of our programs properties, and we expect to enter
into similar third-party management agreements with respect to properties our programs acquire in
the future. We do not supervise these third-party managers and their personnel on a day-to-day
basis and we cannot assure you that they will manage our programs properties in a manner that is
consistent with their obligations under our agreements, that they will not be negligent in their
performance or engage in other criminal or fraudulent activity, or that these managers will not
otherwise default on their management obligations to us. If any of the foregoing occurs, the
relationships with our programs tenants could be damaged, which may cause the tenants not to renew
their leases, and we could incur liabilities resulting from loss or injury to the properties or to
persons at the properties. If we are unable to lease the properties or we become subject to
significant liabilities as a result of third-party management performance issues, our operating
results and financial condition could be substantially harmed.
22
We or our new programs may be required to incur future indebtedness to raise sufficient funds to
purchase properties.
One of our business strategies is to develop new investment programs. The development of a new
program requires the identification and subsequent acquisition of properties when the opportunity
arises. In some instances, in order to effectively and efficiently complete a program, we may
provide deposits for the acquisition of the property or actually purchase the property and
warehouse it temporarily for the program. If we do not have cash on hand available to pay these
deposits or fund an acquisition, we or our programs may be required to incur additional
indebtedness, which indebtedness may not be available on acceptable terms. If we incur substantial
debt, we could lose our interests in any properties that have been provided as collateral for any
secured borrowing, or we could lose our assets if the debt is recourse to it. In addition, our cash
flow from operations may not be sufficient to repay these obligations upon their maturity, making
it necessary for us to raise additional capital or dispose of some of our assets. We cannot assure
you that we will be able to borrow additional debt on satisfactory terms, or at all.
Future pressures to lower, waive or credit back our fees could reduce our revenue and
profitability.
We have on occasion waived or credited our fees for real estate acquisitions, financings,
dispositions and management fees for our TIC programs to improve projected investment returns and
attract TIC investors. There has also been a trend toward lower fees in some segments of the
third-party asset management business, and fees paid for the management of properties in our TIC
programs or public non-traded REITs could follow these trends. In order for us to maintain our fee
structure in a competitive environment, we must be able to provide clients with investment returns
and service that will encourage them to be willing to pay such fees. We cannot assure you that we
will be able to maintain our current fee structures. Fee reductions on existing or future new
business could have a material adverse impact on our revenue and profitability.
Regulatory uncertainties related to our broker-dealer services could harm our business.
The securities industry in the United States is subject to extensive regulation under both
federal and state laws. Broker-dealers are subject to regulations covering all aspects of the
securities business. The SEC, FINRA, and other self-regulatory organizations and state securities
commissions can censure, fine, issue cease-and-desist orders to, suspend or expel a broker-dealer
or any of our officers or employees. The ability to comply with applicable laws and rules is
largely dependent on an internal system to ensure compliance, as well as the ability to attract and
retain qualified compliance personnel. We could be subject to disciplinary or other actions in the
future due to claimed noncompliance with these securities regulations, which could have a material
adverse effect on our operations and profitability.
We depend upon our programs tenants to pay rent, and their inability to pay rent may substantially
reduce certain fees we receive which are based on gross rental amounts.
Our programs are subject to varying degrees of risk that generally arise from the ownership of
real estate. For example, the income we are able to generate from management fees is derived from
the gross rental income on the properties in our programs. The rental income depends upon the
ability of the tenants of our programs properties to generate enough income to make their lease
payments. Changes beyond our control may adversely affect the tenants ability to make lease
payments or could require them to terminate their leases. Either an inability to make lease
payments or a termination of one or more leases could reduce the management fees we receive. These
changes include, among others, the following:
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downturns in national or regional economic conditions where our programs properties are
located, which generally will negatively impact the demand and rental rates; |
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changes in local market conditions such as an oversupply of properties, including space
available by sublease or new construction, or a reduction in demand for properties in our
programs, making it more difficult for our programs to lease space at attractive rental rates
or at all; |
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competition from other available properties, which could cause our programs to lose current
or prospective tenants or cause them to reduce rental rates; and |
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changes in federal, state or local regulations and controls affecting rents, prices of
goods, interest rates, fuel and energy consumption. |
Due to these changes, among others, tenants and lease guarantors, if any, may be unable to make
their lease payments.
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Defaults by tenants or the failure of any lease guarantors to fulfill their obligations, or
other early termination of a lease could, depending upon the size of the leased premises and our
ability as property manager to successfully find a substitute tenant, have a material adverse
effect on our revenue.
Conflicts of interest inherent in transactions between our programs and us, and among our programs,
could create liability for us that could have a material adverse effect on our results of
operations and financial condition.
These conflicts include but are not limited to the following:
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we experience conflicts of interests with certain of our directors, officers and affiliates
from time to time with regard to any of our investments, transactions and agreements in which
we hold a direct or indirect pecuniary interest; |
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since we receive both management fees and acquisition and disposition fees for our
programs properties, we could be in conflict with our programs over whether their properties
should be sold or held by the program and we may make decisions or take actions based on
factors other than in the best interest of investors of a particular sponsored investor
program; |
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a component of the compensation of certain of our executives is based on particular
programs, which could cause the executives to favor those programs over others; |
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we may face conflicts of interests as to how we allocate property acquisition opportunities
or prospective tenants among competing programs; |
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we may face conflicts of interests if programs sell properties to each other or invest in
each other; and |
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our executive officers will devote only as much of their time to a program as they
determine is reasonably required, which may be substantially less than full time; during
times of intense activity in other programs, these officers may devote less time and fewer
resources to a program than are necessary or appropriate to manage the programs business. |
We cannot assure you that one or more of these conflicts will not result in claims by investors in
our programs, which could have a material adverse effect on our results of operations and financial
condition.
The offerings conducted to raise capital for our TIC programs are done in reliance on exemptions
from the registration requirements of the Securities Act. A failure to satisfy the requirements for
the appropriate exemption could void the offering or, if it is already completed, provide the
investors with rescission rights, either of which would have a material adverse effect on our
reputation and as a result our business and results of operations.
The securities of our TIC programs are offered and sold in reliance upon a private placement
offering exemption from registration under the Securities Act and applicable state securities laws.
If we or our dealer-manager failed to comply with the requirements of the relevant exemption and an
offering were in process, we may have to terminate the offering. If an offering was completed, the
investors may have the right, if they so desired, to rescind their purchase of the securities. A
rescission offer could also be required under applicable state securities laws and regulations in
states where any securities were offered without registration or qualification pursuant to a
private offering or other exemption. If a number of holders sought rescission at one time, the
applicable program would be required to make significant payments which could adversely affect our
business and as a result, the fees generated by us from such program. If one of our programs was
forced to terminate an offering before it was completed or to make a rescission offer, our
reputation would also likely be significantly harmed. Any reduction in fees as a result of a
rescission offer or a loss of reputation would have a material adverse effect on our business and
results of operations.
The inability to identify suitable refinance options may negatively impact investment program
performance and cause harm to our reputation, cause the loss of management contracts and
third-party broker-dealer selling agreements, limit our ability to sign future third-party
broker-dealer selling agreements and potentially expose us to legal liability.
The availability of real estate financing has greatly diminished over the past year as a
result of the global credit crisis and overall decline in the real estate market. As a result, we
may not be able to refinance some or all of the loans maturing in our investment management
portfolio. Failure to obtain suitable refinance options may have a negative impact on investment
returns and may potentially cause investments to go into foreclosure or result in a complete loss
of equity for program investors. Any such negative impact on distributions, foreclosure or loss of
equity in an investment program could adversely affect our reputation and our ability to
24
attract investors for future investment programs. In addition, it could cause us to lose asset
and property management contracts, cause us to lose third-party broker-dealer selling agreements
for existing investment programs, including our REITs, and limit our ability to sign future
third-party broker-dealer agreements. Significant losses in investor equity and reductions in
distributions increase the risk of claims or legal actions by program investors. Any such legal
liability could result in damage to our reputation, loss of third-party broker-dealer selling
agreements and incurrence of legal expenses.
An increase in interest rates may negatively affect the equity value of our programs or cause us to
lose potential investors to alternative investments, causing the fees we receive for transaction
and management services to be reduced.
Although in the last two years, interest rates in the United States have generally decreased,
if interest rates were to rise, our financing costs would likely rise and our net yield to
investors may decline. This downward pressure on net yields to investors in our programs could
compare poorly to rising yields on alternative investments. Additionally, as interest rates rise,
valuations of commercial real estate properties typically decline. A decrease in both the
attractiveness of our programs and the value of assets held by these programs could cause a
decrease in both transaction and management services revenues, which would have an adverse effect
on our results of operations.
Increasing competition for the acquisition of real estate may impede our ability to make future
acquisitions which would reduce the fees we generate from these programs and could adversely affect
our operating results and financial condition.
The commercial real estate industry is highly competitive on an international, national and
regional level. Our programs face competition from REITs, institutional pension plans, and other
public and private real estate companies and private real estate investors for the acquisition of
properties and for raising capital to create programs to make these acquisitions. Competition may
prevent the Companys programs from acquiring desirable properties or increase the price they must
pay for real estate. In addition, the number of entities and the amount of funds competing for
suitable investment properties may increase, resulting in increased demand and increased prices
paid for these properties. If our programs pay higher prices for properties, investors may
experience a lower return on investment and be less inclined to invest in our next program which
may decrease our profitability. Increased competition for properties may also preclude our programs
from acquiring properties that would generate the most attractive returns to investors or may
reduce the number of properties our programs could acquire, which could have an adverse effect on
our business.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse
changes in the performance of our programs properties and harm our financial condition.
Because real estate investments are relatively illiquid, our ability to promptly facilitate a
sale of one or more properties or investments in our programs in response to changing economic,
financial and investment conditions may be limited. In particular, these risks could arise from
weakness in the market for a property, changes in the financial condition or prospects of
prospective purchasers, changes in regional, national or international economic conditions, and
changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.
Fees from the disposition of properties would be materially affected if we were unable to
facilitate a significant number of property dispositions for our programs.
Risks Related to the Company in General
Delaware law and provisions of our amended and restated certificate of incorporation and restated
bylaws contain provisions that could delay, deter or prevent a change of control.
The anti-takeover provisions of Delaware law impose various impediments on the ability or
desire of a third party to acquire control of the Company, even if a change of control would be
beneficial to our existing shareowners, and we will be subject to these Delaware anti-takeover
provisions. Additionally, our amended and restated certificate of incorporation and our restated
bylaws contain provisions that might enable our management to resist a proposed takeover of the
Company. The provisions include:
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the authority of our board to issue, without shareowner approval, preferred stock with such
terms as our board may determine; |
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the authority of our board to adopt, amend or repeal our bylaws; and |
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a prohibition on holders of less than a majority of our outstanding shares of capital stock
calling a special meeting of our shareowners. |
These provisions could discourage, delay or prevent a change of control of the Company or an
acquisition of the Company at a price
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that our shareowners may find attractive. These provisions also may discourage proxy contests and
make it more difficult for our shareowners to elect directors and take other corporate actions. The
existence of these provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock.
We have the ability to issue blank check preferred stock, which could adversely affect the voting
power and other rights of the holders of our common stock.
The Board of Directors has the right to issue blank check preferred stock, which may affect
the voting rights of holders of common stock and could deter or delay an attempt to obtain control
of the Company. There are currently nineteen million authorized and undesignated shares of
preferred stock that could be so issued. Our Board of Directors is authorized, without any further
shareowner approval, to issue one or more additional series of preferred stock in addition to the
currently outstanding 12% Preferred Stock. We are authorized to fix and state the voting rights,
powers, designations, preferences and relative participation or other special rights of each such
series of preferred stock and any qualifications, limitations and restrictions thereon. Preferred
stock typically ranks prior to the common stock with respect to dividend rights, liquidation
preferences, or both, and may have full, limited, or expanded voting rights. Accordingly, issuances
of preferred stock could adversely affect the voting power and other rights of the holders of
common stock and could negatively affect the market price of our common stock.
We have registration rights outstanding, which could have a negative impact on our share price if
exercised.
In addition to the registration rights granted to one of the institutional purchasers of the
12% Preferred Stock, which has been exercised, pursuant to the Companys registration rights
agreement with Kojaian Ventures, L.L.C. and Kojaian Holdings, LLC, the holders of such rights
could, in the future, cause the Company to file additional registration statements with respect to
certain of our shares of common stock, which could have a negative impact on the market price of
the Companys common stock.
Future sales of our common stock could adversely affect our stock price.
There are an aggregate of 469,746 Company shares as of December 31, 2009 subject to issuance
upon the exercise of outstanding options. Accordingly, these shares will be available for sale in
the open market, subject to vesting restrictions, and, in the case of affiliates, certain volume
limitations. The sale of shares either pursuant to the exercise of outstanding options or as after
the satisfaction of vesting restriction of certain restricted stock could also cause the price of
our common stock to decline.
Uninsured and underinsured losses may adversely affect operations.
Should a property sustain damage or an occupant sustain an injury, we may incur losses due to
insurance deductibles, co-payments on insured losses or uninsured losses. In the event of a
substantial property loss or personal injury, the insurance coverage may not be sufficient to pay
the full damages. In the event of an uninsured loss, we could lose some or all of our capital
investment, cash flow and anticipated profits related to one or more properties. Inflation, changes
in building codes and ordinances, environmental considerations, and other factors also might make
it not feasible to use insurance proceeds to replace a property after it has been damaged or
destroyed. Under these circumstances, the insurance proceeds we receive, if any, might not be
adequate to restore our economic position with respect to the property. In the event of a
significant loss at one or more of the properties in our programs, the remaining insurance under
the applicable policy, if any, could be insufficient to adequately insure the remaining properties.
In this event, securing additional insurance, if possible, could be significantly more expensive
than the current policy. A loss at any of these properties or an increase in premium as a result of
a loss could decrease the income from or value of properties under management in our programs,
which in turn would reduce the fees we receive from these programs. Any decrease or loss in fees
could have a material adverse effect on our financial condition or results of operations.
We carry commercial general liability, fire and extended coverage insurance with respect to
our programs properties. We obtain coverage that has policy specifications and insured limits that
we believe are customarily carried for similar properties. We cannot assure you, however, that
particular risks that are currently insurable will continue to be insurable on an economic basis or
that current levels of coverage will continue to be available. In addition, we generally do not
obtain insurance against certain risks, such as floods.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We are including the following discussion to inform you of some of the risks and uncertainties
that can affect our company. Various statements contained in this prospectus, including those that
express a belief, expectation, or intention, as well as those that are not statements of historical
fact, are forward-looking statements. We use words such as believe, intend, expect,
anticipate, plan, may, will, should and similar expressions to identify forward-looking
statements. The forward-looking statements in this prospectus speak only as of the date of this
prospectus; we disclaim any obligation to update these statements unless required by applicable
securities laws, and we caution you not to rely on them unduly. You are further cautioned that any
forward-looking statements are not guarantees of future performance. Our beliefs, expectations and
intentions can change as a result of many possible events or factors, not all of which are known to
us or are within our control, and a number of risks and uncertainties could cause actual results to
differ materially from those anticipated in the forward-looking statements. Such factors, risks and
uncertainties include, but are not limited to:
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liquidity and availability of additional or continued sources of financing; |
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the continued weakening national economy in general and the commercial real estate markets
in particular; |
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the continued global credit crises and capital markets disruption; |
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changes in general economic and business conditions, including interest rates, the cost and
availability of financing of capital for investment in real estate, clients willingness to
make real estate commitments and other factors impacting the value of real estate assets; |
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our ability to retain major clients and renew related contracts; |
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our ability to return advisory and management contracts on sponsored REIT and TIC programs,
respectively; |
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the failure of properties sponsored or managed by us to perform as anticipated; |
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our exposure to liabilities in connection with sponsored investment programs; |
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our ability to compete in specific geographic markets or business segments that are
material to us; |
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the contraction of the TIC market; |
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declining values of real assets and distributions on our programs; |
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significant variability in our results of operations among quarters; |
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our ability to retain our senior management and attract and retain qualified and
experienced employees; |
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our ability to comply with the laws and regulations applicable to real estate brokerage
investment syndication and mortgage transactions; |
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our potential liability under loan guarantees in connection with investment programs; |
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our ability to sign and retain selling agreements; |
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our exposure to liabilities in connection with real estate brokerage, real estate and
property management activities; |
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changes in the key components of revenue growth for large commercial real estate services
companies; |
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reliance of companies on outsourcing for their commercial real estate needs; |
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liquidity and availability of additional or continued sources of financing for the
Companys investment programs; |
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trends in use of large, full-service real estate providers; |
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diversification of our client base; |
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improvements in operating efficiency; |
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protection of our brand; |
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trends in pricing for commercial real estate services; |
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the effect of implementation of new tax and accounting rules and standards; and |
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the other risks identified in this prospectus including, without limitation, those under
the headings Risk Factors, Managements Discussion and Analysis of Financial Condition and
Results of Operations and Business. |
You should carefully consider these and other factors, risks and uncertainties before you make
an investment decision with respect to the 12% Preferred Stock or our common stock.
THE COMPANY
General
Grubb & Ellis Company (the Company or Grubb & Ellis), a Delaware corporation founded over
50 years ago, is one of the countrys largest and most respected commercial real estate services
and investment management firms. The Company offers property owners, corporate occupants and
program investors comprehensive integrated real estate solutions, including transactions,
management, consulting and investment advisory services supported by proprietary market research
and extensive local market expertise.
On December 7, 2007, the Company effected a stock merger (the Merger) with NNN Realty
Advisors, Inc. (NNN), a real estate asset management company and nationally recognized sponsor of
public non-traded real estate investment trusts (REITs), as well as a sponsor of tenant-in-common
(TIC) investments and other investment programs. Upon the closing of the Merger, a change of
control occurred. The former shareowners of NNN acquired approximately 60% of the Companys issued
and outstanding common stock.
In certain instances throughout this prospectus, phrases such as legacy Grubb & Ellis or
similar descriptions are used to reference, when appropriate, Grubb & Ellis prior to the Merger.
Similarly, in certain instances throughout this prospectus the term NNN, legacy NNN or similar
phrases are used to reference, when appropriate, NNN Realty Advisors, Inc. prior to the Merger.
Business Segment Reporting
The Company currently reports its revenue by three operating business segments in accordance
with the provisions of Segment Reporting Topic of the Financial Accounting Standards Board (FASB)
Accounting Standards Codification (Codification): Management Services, which includes property
management, corporate facilities management, project management, client accounting, business
services and engineering services for unrelated third parties and the properties owned by the
investment programs it sponsors; Transaction Services, which comprises its real estate brokerage
operations; and Investment Management, which includes providing acquisition, financing, disposition
and asset management services with respect to its investment programs and dealer-manager services
by its securities broker-dealer, which facilitates capital raising transactions for its REIT, TIC
and other investment programs. Additional information on these business segments can be found in
Note 25 of Notes to Consolidated Financial Statements in Item 8 of this Report.
Management Services
Grubb & Ellis delivers integrated property, facility, asset, construction, business and
engineering management services to a host of corporate and institutional clients. The Company
offers customized programs that focus on cost-efficient operations and tenant retention.
28
The Company manages a comprehensive range of properties including headquarters, facilities and
class A office space for major corporations, including many Fortune 500 companies. Grubb & Ellis
skills extend to management of industrial, manufacturing and warehousing facilities as well as data
centers and retail outlets for real estate users and investors.
Additionally, Grubb & Ellis provides consulting services, including site selection,
feasibility studies, exit strategies, market forecasts, appraisals, strategic planning and research
services.
The Company is committed to expanding the scope of products and services offered, while
ensuring that it can support client relationships with best-in-class service. During 2009, the
Company continued to expand the number of client service relationship managers, which provide a
single point of contact to corporate clients with multi-service needs.
In 2009 Grubb & Ellis secured significant new management services contracts from Kraft,
Wachovia Corporation and Zurich Alternative Asset Management. The Company also secured significant
contract renewals with Citigroup, General Motors, Microsoft and Wells Fargo. As of December 31,
2009, Grubb & Ellis managed approximately 240.7 million square feet, of which 24.3 million square
feet related to its sponsored investment programs.
Transaction Services
Grubb & Ellis has a track record of over 50 years in the commercial real estate industry and
is one of the largest real estate brokerage firms in the country, offering clients the experience
of thousands of successful transactions and the expertise that comes from a nationwide platform.
There are 126 owned and affiliate offices worldwide (53 owned and approximately 73 affiliates) and
more than 6,000 professionals, including a brokerage sales force of more than 1,800 brokers. By
focusing on the overall business objectives of its clients, Grubb & Ellis utilizes its research
capabilities, extensive properties database and negotiation skills to create, buy, sell and lease
opportunities for both users and owners of commercial real estate. With a comprehensive approach to
transactions, Grubb & Ellis offers a full suite of services to clients, from site selection and
sale negotiations to needs analysis, occupancy projections, prospect qualification, pricing
recommendations, long-term value consultation, tenant representation and consulting services. As
one of the most active and largest commercial real estate brokerages in the United States, Grubb &
Ellis traditional real estate services provide added value to the Companys real estate investment
programs by offering a comprehensive market view and local area expertise.
The Company actively engages its brokerage force in the execution of its marketing strategy.
Regional and metro-area managing directors, who are responsible for operations in each major
market, facilitate the development of brokers. Through the Companys specialty practice groups, key
personnel share information regarding local, regional and national industry trends and participate
in national marketing activities, including trade shows and seminars. This ongoing communication
among brokers serves to increase their level of expertise as well as their network of
relationships, and is supplemented by other more formal education, including training programs
offering sales and motivational training and cross-functional networking and business development
opportunities.
In many local markets where the Company does not have owned offices, it has affiliation
agreements with independent real estate services providers that conduct business under the Grubb &
Ellis brand. The Companys affiliation agreements provide for exclusive mutual referrals in their
respective markets, generating referral fees. The Companys affiliation agreements are generally
multi-year contracts. Through its affiliate offices, the Company has access to more than 1,000
brokers with local market research capabilities.
The Companys Corporate Services Group provides comprehensive coordination of all required
real estate related services to help realize the needs of clients real estate portfolios and to
maximize their business objectives. These services include consulting services, lease
administration, strategic planning, project management, account management and international
services.
As of December 31, 2009, Grubb & Ellis had in excess of 1,800 brokers at its owned and
affiliate offices, of which 824 brokers were at its owned offices, up from 805 at December 31,
2008.
Investment Management
The Company and its subsidiaries are leading sponsors of real estate investment programs that
provide individuals and institutions the opportunity to invest in a broad range of real estate
investment vehicles, including public non-traded REITs, TIC investments, mutual funds and other
real estate investment funds. The Company brands its investment programs as Grubb & Ellis in order
to capitalize on the strength of the Grubb & Ellis brand name and to leverage the Companys various
platforms. During the year ended December 31, 2009, more than $554.7 million in investor equity was
raised for these sponsored investment programs. As of
29
December 31, 2009, the Company has more than $5.7 billion of assets under management related
to the various programs that it sponsors. The Company has completed transaction acquisition and
disposition volume totaling approximately $12.3 billion on behalf of more than 55,000 program
investors since 1998.
Investment management products are distributed through the Companys broker-dealer subsidiary,
Grubb & Ellis Securities Inc. (GBE Securities). GBE Securities is registered with the Securities
and Exchange Commission (the SEC), the Financial Industry Regulatory Authority (FINRA) and all
50 states. GBE Securities has agreements with an extensive network of broker dealers with selling
relationships providing access to thousands of licensed registered representatives. Part of the
Companys strategy is to expand its network of broker-dealers to increase the amount of equity that
it raises in its various investment programs.
The Company and Grubb & Ellis Equity Advisors, LLC, (GEEA) a subsidiary of the Company,
sponsor and advise public non-traded REITs that are registered with the SEC but are not listed on a
national securities exchange like a traded REIT. According to the published Stanger Report, Winter
2010, by Robert A. Stanger and Co., an independent investment banking firm, approximately
$6.7 billion was raised in the non-traded REIT sector in 2009. As of December 31, 2009, the Company
sponsors two demographically focused programs that are actively raising capital, Grubb & Ellis
Healthcare REIT II, Inc. and Grubb & Ellis Apartment REIT, Inc. In addition, the Company raised
equity for and provided advisory services to Grubb & Ellis Healthcare REIT, Inc. (now Healthcare
Trust of America, Inc.) until August 28, 2009 and September 20, 2009, respectively. Public
non-traded REITs sponsored or advised by the Company and its affiliates raised $536.9 million in
combined capital in 2009.
In 2008, the Company started a family of U.S. and global open end mutual funds that focus on
real estate securities and manage private investment funds exclusively for qualified investors
through its 51% ownership in Grubb & Ellis Alesco Global Advisors, LLC (Alesco). The Company,
through its subsidiary, Alesco, serves as general partner and investment advisor to one limited
partnership and as investment advisor to three mutual funds as of December 31, 2009. One of the
limited partnerships, Grubb & Ellis AGA Real Estate Investment Fund LP, is required to be
consolidated in accordance with the Consolidation Topic. As of December 31, 2009, Alesco had
$8.0 million of investment funds under management.
In mid-2009, the Company formed Energy & Infrastructure Advisors, LLC, a joint venture between
Grubb & Ellis and the Meridian Companies that intends to sponsor retail and institutional products
focused on investment opportunities in the energy and infrastructure sector.
Grubb & Ellis Realty Investors, LLC (GERI) (formerly Triple Net Properties, LLC), a
subsidiary of the Company, had 146 sponsored TIC programs under management and has taken more than
60 programs full cycle (from acquisition through disposition) as of December 31, 2009.
Through its multi-family platform, the Company provides investment management services for
REIT and TIC apartment vehicles and currently manages in excess of 13,000 apartment units through
Grubb & Ellis Residential Management, Inc., the Companys multi-family management services
subsidiary.
Company Strategy
As one of the oldest and most recognized brands in the commercial real estate industry,
Grubb & Ellis is known for its broad geographic reach, long-term client relationships and
full-range of product and service offerings. The Companys strategy is to leverage these attributes
to become a larger, more robust real estate services and investment firm. The Companys growth plan
is focused on the achievement of four primary goals: increasing the scale and productivity of its
leasing and investment sales brokerage operations; expanding its owner and occupier property and
facilities management portfolio; growing its position in the sponsorship of public non-traded REITs
and private investment programs to include institutional real estate investment management by
utilizing the Companys full-service platform, proprietary real estate research, specialty practice
groups and local market knowledge; and entering related businesses in which the Company does not
currently have a presence but which represent a natural extension of its strategy to provide best
in class service and comprehensive solutions to clients.
Appointment of President, Chief Executive Officer and Director
Effective November 16, 2009, the Board of Directors appointed Thomas P. DArcy as the
Companys president, chief executive officer and a member of the board of directors. Mr. DArcy
replaced Gary H. Hunt, who had been serving as the Companys interim president and chief executive
officer.
30
Prior to joining the Company, Mr. DArcy served in leadership positions at various public and
private real estate companies for more than 27 years. He is currently the non-executive chairman of
Inland Real Estate Corporation (NYSE:IRC), a $1.5 billion REIT where he has served as an
independent director since 2005. Most recently, he was a principal in Bayside Realty Partners, a
private real estate company focusing on acquiring, renovating and developing land and
income-producing real estate. From 2001 to 2004, he was president and chief executive officer of
Equity Investment Group, a private REIT and from 1989 to 2000 he served as chairman and chief
executive officer of Bradley Real Estate, Inc. a NYSE-listed real estate investment trust. During
his tenure at Bradley, Mr. DArcy significantly grew the company through restructuring and mergers
and acquisitions, which led to its sale to Heritage Investment Trust in 2000, creating substantial
value for its shareowners.
Private Placement of 12% Preferred Stock
In the fourth quarter of 2009, the Company consummated the issuance and sale of an aggregate
of 965,700 shares of 12% Cumulative Participating Perpetual Preferred Stock, par value $0.01 per
share (the 12% Preferred Stock). The Preferred Stock was sold to qualified institutional buyers
and accredited investors in a private placement exempt from the registration requirements of the
Securities Act of 1933, as amended (the Securities Act) that apply to offers and sales of
securities that do not involve a public offering. Accordingly, the 12% Preferred Stock was offered
and sold only to (i) qualified institutional buyers (as defined in Rule 144A under the Securities
Act), (ii) to a limited number of institutional accredited investors (as defined in
Rule 501(a)(1), (2), (3) or (7) of the Securities Act), and (iii) to a limited number of individual
accredited investors (as defined in Rule 501(a)(4), (5) or (6) of the Securities Act).
Each share of 12% Preferred Stock is convertible into 60.606 shares of common stock of the
Company, which represents a conversion price of approximately $1.65 per share of common stock. The
Company received net proceeds from the private placement of approximately $90.1 million after
deducting the initial purchasers discounts and certain offering expenses and after giving effect
to the conversion of $5.0 million of subordinated debt previously provided by an affiliate of the
Companys largest shareowner. The Company used the net proceeds to pay transaction costs and repay
in full the Companys Credit Facility (as defined below) at the agreed reduced principal amount
equal to approximately 65% of the principal amount outstanding under such facility (as more fully
discussed in the section immediately following Amendment and Repayment of Senior Secured Credit
Facility). The balance of the net proceeds from the offering will be used for general corporate
purposes.
Amendment and Repayment of Senior Secured Credit Facility
On December 7, 2007, the Company entered into a $75.0 million credit agreement (which was
subsequently amended and restated) by and among the Company, the guarantors named therein, and the
financial institutions defined therein as lender parties, with Deutsche Bank Trust Company
Americas, as lender and administrative agent (the Credit Facility). The Company entered into a
further amendment and limited waiver to its Credit Facility, effective as of September 30, 2009
(the Credit Facility Amendment), that extended the time previously afforded the Company in
May 2009, to effect a recapitalization under its Credit Facility from September 30, 2009 to
November 30, 2009. Pursuant to the Credit Facility Amendment, the Company also received the right
to prepay its Credit Facility in full at any time on or prior to November 30, 2009 at a discounted
amount equal to 65% of the aggregate principal amount outstanding. On November 6, 2009,
concurrently with the initial closing of the private placement of its 12% Preferred Stock, the
Company repaid its Credit Facility in full at the discounted amount and the Credit Facility was
terminated in accordance with its terms. (See Note 19 of Notes to Consolidated Financial Statements
in Item 8 of this Report for additional information)
As a condition to entering into the Credit Facility Amendment, the lenders to the Companys
Credit Facility required that Kojaian Management Corporation, an affiliate of the Companys largest
shareowner, effect a $5.0 million subordinated financing of the Company. On October 2, 2009, the
Company completed the shareowner subordinated financing in the form of a senior subordinated
convertible note bearing an interest rate of 12% per annum. Concurrently with the initial closing
of the private placement of 12% Preferred Stock, the principal amount of the senior subordinated
convertible note was converted into 50,000 shares of 12% Preferred Stock.
Property Acquisitions and Dispositions
During 2007, the Company acquired three commercial properties the Danbury Corporate Center
in Danbury, Connecticut (the Danbury Property), Abrams Center in Dallas, Texas (the Abrams
Property) and 6400 Shafer Court in Rosemont, Illinois (the Shafer Property) for an aggregate
contract price of $122.2 million, along with acquisition costs of approximately $1.3 million, and
assumed obligations of approximately $0.5 million. On June 3, 2009, the Company sold the Danbury
Property to an unaffiliated entity for a sales price of $72.4 million.
31
On December 29, 2009, GERA Abrams Centre LLC (Abrams) and GERA 6400 Shafer LLC (Shafer and
together with Abrams, collectively, the Borrower), each a subsidiary of Company, modified the
terms (the Amendment) of its $42.5 million loan initially due on July 9, 2009 (the Loan) by and
among the Borrower and Tremont Net Funding II, LLC (the Lender).
The Amendment to the Loan provided, among other things, for an extension of the term of the
Loan until March 31, 2010 (the Loan Extension Date). In addition, the principal balance of the
Loan was reduced from $42.5 million to $11.0 million in connection with the transfer of the Shafer
Property from the Borrower to an affiliate of Lender for nominal consideration pursuant to a
special warranty deed (the Special Warranty Deed) that was recorded on December 29, 2009.
Pursuant to the Amendment, the Lender remains obligated under the Loan, in its reasonable
discretion, to fund any shortfalls relating to tenant improvements and leasing commission expenses
and to fund any operational shortfalls and debt service, provided that there is no event of default
existing with respect to the Loan. The Amendment also granted the Lender a call option, and the
Borrower a put option, with respect to the Abrams Property through the Loan Extension Date. Each of
the Lenders call option and the Borrowers put option requires 10 business days prior written
notice and provides for the transfer of the Abrams Property pursuant to a deed identical in all
material respects to the Special Warranty Deed that was executed with respect to the Shafer
Property. If neither the put option nor the call option is exercised by March 30, 2010, the
Borrower has the right to file a deed conveying the Abrams Property to the Lender or its designee
on March 31, 2010. The Amendment also released the Borrower and the guarantor under the Loan, from
and against any claims, obligations and/or liabilities that the Lender or any of party related to
or affiliated with the Lender, whether known or unknown, that such party had, has or may have in
the future, arising from or related to the Loan.
Pursuant to the Consolidation Topic, Management determined that control of the Abrams and
Shafer properties did not rest with the Company, but rather the Lender, and thus, the Company
deconsolidated these properties in the fourth quarter of 2009.
Industry and Competition
The U.S. commercial real estate services industry is large and highly fragmented, with
thousands of companies providing asset management, investment management and brokerage sales and
leasing transaction services. In recent years the industry has experienced substantial
consolidation, a trend that is expected to continue.
The Company competes in a variety of service businesses 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 regional and national service providers, but also
from global real estate providers, boutique real estate advisory firms and appraisal firms.
Although many of the Companys competitors are local or regional firms that are substantially
smaller than the Company, some competitors are substantially larger than the Company on a local,
regional, national and/or international basis. The Companys significant competitors include CB
Richard Ellis, Jones Lang LaSalle and Cushman & Wakefield, all of which have global platforms. The
Company believes that it needs to expand its platform in order to more effectively compete for the
business of large multi-national corporations that are increasingly seeking a single real estate
services provider.
The top 25 brokerage companies collectively completed nearly $644.5 billion in investment
sales and leasing transactions globally in 2008, according to the latest available survey published
by National Real Estate Investor. The Company ranked 12th in this survey, including transactions in
its affiliate offices.
Within the management services business, according to a recent survey published in 2009 by
National Real Estate Investor, the top 25 companies in the industry manage over 9.1 billion square
feet of commercial property. The Company ranks as the seventh largest property management company
in this survey with 246.9 million square feet under management at year end 2008, including property
under management in its affiliate offices. The largest company in the survey had 2.2 billion square
feet under management.
The Companys investment management business is subject to competition on a number of
different levels. The Company competes with both large and small investment sponsors and faces
threats from new entrants or entrants that pivot to focus on raising capital through the same
channels as the Company. With regard to fundraising in the retail securities arena, GBE Securities
faces competition to acquire limited shelf space in selling group firms and faces fundraising
challenges from an industry-wide oversupply of product seeking limited investor dollars. As it
increases its involvement in fundraising for institutional investments funds, the Company will face
competition from a different group of well-financed institutional managers. Separate from
fundraising competition, the investment programs themselves face competition generally from REITs,
institutional pension plans and other public and private real
32
estate companies and private real estate investors for the acquisition of properties and for
the limited financing available to real estate investors.
While there can be no assurances that the Company will be able to continue to compete
effectively, maintain current fee levels or margins, or maintain or increase its market share,
based on its competitive strengths, the Company believes that it has the infrastructure and
personnel to continue to operate in this highly competitive industry. The ability to do so,
however, depends upon the Companys ability to, among other things, successfully manage through the
disruption and dislocation of the credit markets and the weak national and global economies.
Specifically, as our business involves the acquisition, disposition, and financing of commercial
properties, many of such activities are dependent, either directly or indirectly, and in whole or
in part, on the availability and cost of credit. The disruption in the global capital market which
began in 2008 has adversely affected our businesses and will continue to do so until such time as
credit is once again available at reasonable costs. In addition, the health of real estate
investment and leasing markets is dependent on the level of economic activity on a regional and
local basis. The significant slowdown in overall economic activity in 2009 has adversely affected
many sectors of our business and will continue to do so until economic conditions change.
Environmental Regulation
Federal, state and local laws and regulations impose environmental zoning restrictions, use
controls, disclosure obligations and other restrictions that impact the management, development,
use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing
activities, as well as the willingness of mortgage lenders to provide financing, with respect to
some properties. If transactions in which the Company is involved are delayed or abandoned as a
result of these restrictions, the brokerage business could be adversely affected. In addition, a
failure by the Company to disclose known environmental concerns in connection with a real estate
transaction may subject the Company to liability to a buyer or lessee of property.
The Company generally undertakes a third-party Phase I investigation of potential
environmental risks when evaluating an acquisition for a sponsored program. A Phase I investigation
is an investigation for the presence or likely presence of hazardous substances or petroleum
products under conditions that indicate an existing release, a post release or a material threat of
a release. A Phase I investigation does not typically include any sampling. The Companys programs
may acquire a property with environmental contamination, subject to a determination of the level of
risk and potential cost of remediation.
Various environmental laws and regulations also can impose liability for the costs of
investigating or remediation of hazardous or toxic substances at sites currently or formerly owned
or operated by a party, or at off-site locations to which such party sent wastes for disposal. In
addition, an increasing number of federal, state, local and foreign governments have enacted
various treaties, laws and regulations that apply to environmental and climate change, in
particular seeking to limit or penalize the discharge of materials such as green house gas into the
environment or otherwise relating to the protection of the environment. As a property manager, the
Company could be held liable as an operator for any such contamination or discharges, even if the
original activity was legal and the Company had no knowledge of, or did not cause, the release or
contamination. Further, because liability under some of these laws is joint and several, the
Company could be held responsible for more than its share, or even all, of the costs for such
contaminated site if the other responsible parties are unable to pay. The Company could also incur
liability for property damage or personal injury claims alleged to result from environmental
contamination or discharges, or from asbestos-containing materials or lead-based paint present at
the properties that it manages. Insurance for such matters may not always be available, or
sufficient to cover the Companys losses. Certain requirements governing the removal or
encapsulation of asbestos-containing materials, as well as recently enacted local ordinances
obligating property managers to inspect for and remove lead-based paint in certain buildings, could
increase the Companys costs of legal compliance and potentially subject the Company to violations
or claims. Although such costs have not had a material impact on the Companys financial results or
competitive position in 2009, the enactment of additional regulations, or more stringent
enforcement of existing regulations, could cause the Company to incur significant costs in the
future, and/or adversely impact the brokerage and management services businesses.
Seasonality
A substantial portion of the Companys revenues are derived from brokerage transaction
services, which are seasonal in nature. As a consequence, the Companys revenue stream and the
related commission expense are also subject to seasonal fluctuations. However, the Companys
non-variable operating expenses, which are treated as expenses when incurred during the year, are
relatively constant in total dollars on a quarterly basis. The Company has typically experienced
its lowest quarterly revenue from transaction services 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.
Transaction services revenue represented 32.4% of total revenue for 2009.
33
Regulation
Transaction and Property Management Services
The Company and its brokers, salespersons and, in some instances, property managers are
regulated by the states in which it does business. These regulations may include licensing
procedures, prescribed professional responsibilities and anti-fraud provisions. The Companys
activities are also subject to various local, state, national and international jurisdictions fair
advertising, trade, housing and real estate settlement laws and regulations and are affected bylaws
and regulations relating to real estate and real estate finance and development. Because of the
size and scope of real estate sales transactions there is difficulty of ensuring compliance with
the numerous state statutory requirements and licensing regimes and there is possible liability
resulting from non-compliance.
Dealer-Manager Services
The securities industry is subject to extensive regulation under federal and state law.
Broker-dealers are subject to regulations covering all aspects of the securities business. In
general, broker-dealers are required to register with the SEC and to be members of FINRA. As a
member of FINRA, GBE Securities broker-dealer business is subject to the requirements of the
Securities Exchange Act of 1934 as amended (the Exchange Act) and the rules promulgated
thereunder and to applicable FINRA rules. These regulations establish, among other things, the
minimum net capital requirements for GBE Securities broker-dealer business. Such business is also
subject to regulation under various state laws in all 50 states and the District of Columbia,
including registration requirements.
Service Marks
The Company has registered trade names and service marks for the Grubb & Ellis name and logo
and certain other trade names. The Grubb & Ellis brand name is considered an important asset of
the Company, and the Company actively defends and enforces such trade names and service marks.
Real Estate Markets
The Companys business is highly dependent on the commercial real estate markets, which in
turn are impacted by numerous factors, including but not limited to the general economy,
availability and terms of credit and demand for real estate in local markets. Changes in one or
more of these factors could either favorably or unfavorably impact the volume of transactions,
demand for real estate investments and prices or lease terms for real estate. Consequently, the
Companys revenue from transaction services, investment management operations and property
management fees, operating results, cash flow and financial condition are impacted by these
factors, among others.
Employees
As of December 31, 2009, the Company had over 5,000 employees including more than 800
transaction professionals working in 53 owned offices as well as over 1,000 independent contractors
working in 73 affiliate offices. Nearly 3,000 employees serve as property and facilities management
staff at the Companys client-owned properties and the Companys clients reimburse the Company
fully for their salaries and benefits. The Company considers its relationship with its employees to
be good and has not experienced any interruptions of its operations as a result of labor
disagreements.
Properties
The Company leases all of its office space through non-cancelable operating leases. The terms
of the leases vary depending on the size and location of the office. As of December 31, 2009, the
Company leased over 755,000 square feet of office space in 75 locations under leases which expire
at various dates through June 30, 2020. For those leases that are not renewable, the Company
believes that there are adequate alternatives available at acceptable rental rates to meet its
needs, although there can be no assurances in this regard. Many of our offices that contain
employees of the Transaction Services, Investment Management or Management Services segments also
contain employees of other segments. The Companys Corporate Headquarters are in Santa Ana,
California. See Note 20 to the consolidated financial statements included in this prospectus for
additional information.
As of December 31, 2009, the Company owned two commercial office properties comprising
754,000 square feet of gross leasable area for an aggregate purchase price of $140.5 million, in
two states. As of December 31, 2009, the mortgage debt related to these two properties totaled
$107.0 million.
34
Legal Proceedings
General
Grubb & Ellis and its subsidiaries are involved in various claims and lawsuits arising out of
the ordinary conduct of its business, as well as in connection with its participation in various
joint ventures and partnerships, many of which may not be covered by the Companys 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 Companys financial position or results of
operations.
Corporate Information
Our principal executive offices are located at 1551 N. Tustin Avenue, Suite 300, Santa Ana,
California 92705 and our telephone number is (714) 667-8252.
35
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents our historical ratios of earnings to fixed charges for the
periods indicated.
The ratios are based solely on historical financial information and no pro forma adjustments
have been made.
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Year ended December 31, |
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2009 |
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2008 |
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2007 |
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2006 |
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2005 |
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Fixed Charges |
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Interest and related amortization of borrowing costs |
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15,446 |
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14,207 |
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|
|
10,818 |
|
|
|
6,765 |
|
|
|
1,969 |
|
Estimate of the interest portion of rental expense |
|
|
7,165 |
|
|
|
6,965 |
|
|
|
1,374 |
|
|
|
970 |
|
|
|
510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges |
|
|
22,611 |
|
|
|
21,172 |
|
|
|
12,192 |
|
|
|
7,735 |
|
|
|
2,479 |
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before taxes |
|
|
(84,160 |
) |
|
|
(319,495 |
) |
|
|
38,494 |
|
|
|
13,571 |
|
|
|
13,679 |
|
Less: Equity in (losses) earnings of unconsolidated entities |
|
|
(1,148 |
) |
|
|
(13,311 |
) |
|
|
2,029 |
|
|
|
1,948 |
|
|
|
292 |
|
Plus: Distributions from unconsolidated entities |
|
|
185 |
|
|
|
50 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
Non-controlling interest in subsidiaries with earnings and
no fixed charges |
|
|
|
|
|
|
(629 |
) |
|
|
(839 |
) |
|
|
(308 |
) |
|
|
|
|
Plus: Fixed charges |
|
|
22,611 |
|
|
|
21,172 |
|
|
|
12,192 |
|
|
|
7,735 |
|
|
|
2,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (1) |
|
|
(60,216 |
) |
|
|
(285,591 |
) |
|
|
47,893 |
|
|
|
19,050 |
|
|
|
15,866 |
|
Ratio of earnings to fixed charges |
|
|
|
|
|
|
|
|
|
|
3.9 |
|
|
|
2.5 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of coverage deficiency |
|
|
82,827 |
|
|
|
306,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For purposes of calculating the ratio of earnings to fixed charges, earnings include net
income before taxes, less non-controlling interest in subsidiaries with earnings and no fixed
charges, less equity in earnings of 50% or less owned subsidiaries, plus distributions from
50% or less owned subsidiaries, plus total fixed charges. Fixed charges represent interest,
borrowing costs and estimates of interest within rental expenses. |
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table presents our historical ratios of earnings to combined fixed charges and
preferred stock dividends for the periods indicated.
The ratios are based solely on historical financial information and no pro forma adjustments
have been made.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Fixed Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and related amortization
of borrowing costs |
|
|
15,446 |
|
|
|
14,207 |
|
|
|
10,818 |
|
|
|
6,765 |
|
|
|
1,969 |
|
Estimate of the interest portion
of rental expense |
|
|
7,165 |
|
|
|
6,965 |
|
|
|
1,374 |
|
|
|
970 |
|
|
|
510 |
|
Preferred stock dividends |
|
|
1,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges |
|
|
24,381 |
|
|
|
21,172 |
|
|
|
12,192 |
|
|
|
7,735 |
|
|
|
2,479 |
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing
operations before taxes |
|
|
(84,160 |
) |
|
|
(319,495 |
) |
|
|
38,494 |
|
|
|
13,571 |
|
|
|
13,679 |
|
Less: Equity in (losses) earnings
of unconsolidated entities |
|
|
(1,148 |
) |
|
|
(13,311 |
) |
|
|
2,029 |
|
|
|
1,948 |
|
|
|
292 |
|
Plus: Distributions from
unconsolidated entities |
|
|
185 |
|
|
|
50 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
Non-controlling interest in
subsidiaries with earnings and no
fixed charges |
|
|
|
|
|
|
(629 |
) |
|
|
(839 |
) |
|
|
(308 |
) |
|
|
|
|
Plus: Fixed charges |
|
|
24,381 |
|
|
|
21,172 |
|
|
|
12,192 |
|
|
|
7,735 |
|
|
|
2,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (1) |
|
|
(58,446 |
) |
|
|
(285,591 |
) |
|
|
47,893 |
|
|
|
19,050 |
|
|
|
15,866 |
|
Ratio of earnings to fixed charges |
|
|
|
|
|
|
|
|
|
|
3.9 |
|
|
|
2.5 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of coverage deficiency |
|
|
82,827 |
|
|
|
306,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For purposes of calculating the ratio of earnings to combined fixed charges and preferred
stock dividends, earnings include net income before taxes, less non-controlling interest in
subsidiaries with earnings and no fixed charges, less equity in earnings of 50% or less owned
subsidiaries, plus distributions from 50% or less owned subsidiaries, plus total fixed
charges. Fixed charges represent interest, borrowing costs, estimates of interest within
rental expenses and preferred stock dividends. |
36
USE OF PROCEEDS
The proceeds from the sale of each of the selling shareowners common stock and 12% Preferred
Stock will belong to that selling shareowner. We will not receive any proceeds from such sales.
PRICE AND RELATED INFORMATION CONCERNING REGISTERED SHARES
Market and Price Information
The principal market for the Companys common stock is the NYSE. The following table sets
forth the high and low sales prices of the Companys common stock on the NYSE for each quarter of
the years ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
High |
|
Low |
|
High |
|
Low |
First Quarter |
|
$ |
1.29 |
|
|
$ |
0.25 |
|
|
$ |
7.50 |
|
|
$ |
3.80 |
|
Second Quarter |
|
$ |
1.31 |
|
|
$ |
0.50 |
|
|
$ |
7.50 |
|
|
$ |
3.61 |
|
Third Quarter |
|
$ |
1.96 |
|
|
$ |
0.55 |
|
|
$ |
5.00 |
|
|
$ |
2.70 |
|
Fourth Quarter |
|
$ |
2.17 |
|
|
$ |
1.15 |
|
|
$ |
2.88 |
|
|
$ |
0.81 |
|
On March 19, 2010, the closing sale price of our common stock was $2.04.
As of March 19, 2010, there were 1,035 registered holders of the Companys common stock and
69,313,092 shares of common stock outstanding. Sales of substantial amounts of common stock,
including shares issued upon the exercise of warrants or options or upon the conversion of
preferred stock, or the perception that such sales might occur, could adversely affect prevailing
market prices for the common stock.
DIVIDEND POLICY
The Company declared first and second quarter cash dividends in 2008 for an aggregate of
$0.2050 per common share for the year. On July 11, 2008, the Companys Board of Directors approved
the suspension of future dividend payments, and therefore does not anticipate paying cash dividends
to common shareowners in the foreseeable future.
The 12% Preferred Stock are entitled to cumulative annual dividends of $12.00 per share
payable quarterly on each of March 31, June 30, September 30 and December 31, commencing on
December 31, 2009, when, as and if declared by the Board of Directors. Such dividends will
accumulate and be paid in arrears on the basis of a 360-day year consisting of twelve 30-day
months. Dividends on the 12% Preferred Stock will be paid in cash and accumulate and be cumulative
from the most recent date to which dividends have been paid, or if no dividends have been paid,
from and including November 6, 2009. Accumulated dividends on the 12% Preferred Stock will not bear
interest. In addition, in the event of any cash distribution to holders of common stock, holders of
12% Preferred Stock will be entitled to participate in such distribution as if such holders of 12%
Preferred Stock had converted their shares of 12% Preferred Stock into common stock. See
Description of Preferred StockDividends.
On December 11, 2009, the Companys Board of Directors declared a dividend of $1.8333 per
share on the 12% Preferred Stock to shareowners of record as of December 21, 2009, which was paid
on December 31, 2009.
On March 4, 2010, the Companys Board of Directors declared a dividend of $3.00 per share on
the 12% Preferred Stock to shareowners of record as of March 19, 2010, to be paid on March 31,
2010.
37
Selected Consolidated Financial Data
The following tables set forth the selected historical consolidated financial data for Grubb &
Ellis Company and its subsidiaries, as of and for the years ended, December 31, 2009, 2008, 2007,
2006, and 2005. The selected historical consolidated balance sheet data set forth below as of
December 31, 2009 and 2008 and the selected consolidated operating and cash flow data for the three
years in the period ending December 31, 2009 has been derived from the audited financial statements
beginning on page F-2 of this prospectus. The selected consolidated operating and cash flow data
set forth below as of and for the year ended December 31, 2006, and the selected consolidated
balance sheet data as of December 31, 2007, has been derived from audited consolidated financial
statements not included in this prospectus as adjusted for reclassifications required by the
Property, Plant and Equipment Topic for discontinued operations. The selected historical financial
data set forth below as of and for the year ended December 31, 2005 has been derived from unaudited
consolidated financial statements not included in this prospectus. Historical results are not
necessarily indicative of the results that may be expected for any future period. The selected
historical consolidated financial data set forth below should be read in conjunction with the
consolidated financial statements beginning on page F-2 of this prospectus and Managements
Discussion and Analysis of Financial Condition and Results of Operation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
(In thousands, except per share data) |
|
2009 |
|
2008 |
|
2007(1) |
|
2006(2) |
|
2005(3) |
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services revenue |
|
$ |
505,360 |
|
|
$ |
595,495 |
|
|
$ |
201,538 |
|
|
$ |
99,599 |
|
|
$ |
80,817 |
|
Total revenue |
|
|
535,645 |
|
|
|
628,779 |
|
|
|
229,657 |
|
|
|
108,543 |
|
|
|
84,423 |
|
Total compensation costs |
|
|
469,538 |
|
|
|
503,004 |
|
|
|
104,109 |
|
|
|
49,449 |
|
|
|
29,873 |
|
Total operating expense |
|
|
641,551 |
|
|
|
929,407 |
|
|
|
195,723 |
|
|
|
97,633 |
|
|
|
71,035 |
|
Operating (loss) income |
|
|
(105,906 |
) |
|
|
(300,628 |
) |
|
|
33,934 |
|
|
|
10,910 |
|
|
|
13,388 |
|
(Loss) income from continuing operations |
|
|
(82,985 |
) |
|
|
(318,668 |
) |
|
|
23,741 |
|
|
|
21,012 |
|
|
|
13,679 |
|
Net (loss) income |
|
|
(80,499 |
) |
|
|
(342,589 |
) |
|
|
23,033 |
|
|
|
20,049 |
|
|
|
10,288 |
|
Net (loss) income attributable to Grubb & Ellis Company |
|
|
(78,838 |
) |
|
|
(330,870 |
) |
|
|
21,072 |
|
|
|
19,971 |
|
|
|
10,047 |
|
Basic (loss) earnings per share attributable to
Grubb & Ellis Company |
|
$ |
(1.27 |
) |
|
$ |
(5.21 |
) |
|
$ |
0.53 |
|
|
$ |
1.01 |
|
|
$ |
0.58 |
|
(Loss) income from continuing operations per share
attributable to Grubb & Ellis Company |
|
$ |
(1.31 |
) |
|
$ |
(4.83 |
) |
|
$ |
0.55 |
|
|
$ |
1.06 |
|
|
$ |
0.80 |
|
Diluted (loss) earnings per share attributable to
Grubb & Ellis Company |
|
$ |
(1.27 |
) |
|
$ |
(5.21 |
) |
|
$ |
0.53 |
|
|
$ |
1.01 |
|
|
$ |
0.58 |
|
Basic weighted average shares outstanding |
|
|
63,645 |
|
|
|
63,515 |
|
|
|
38,652 |
|
|
|
19,681 |
|
|
|
17,200 |
|
Diluted weighted average shares outstanding |
|
|
63,645 |
|
|
|
63,515 |
|
|
|
38,653 |
|
|
|
19,694 |
|
|
|
17,200 |
|
Dividends declared per common share |
|
$ |
|
|
|
$ |
0.205 |
|
|
$ |
0.36 |
|
|
$ |
0.10 |
|
|
$ |
|
|
Dividends declared per preferred share |
|
$ |
1.8333 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Consolidated Statement of Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
$ |
(61,965 |
) |
|
$ |
(33,629 |
) |
|
$ |
33,543 |
|
|
$ |
17,356 |
|
|
$ |
23,536 |
|
Net cash provided by (used in) investing activities |
|
|
97,214 |
|
|
|
(76,330 |
) |
|
|
(486,909 |
) |
|
|
(56,203 |
) |
|
|
(35,183 |
) |
Net cash (used in) provided by financing activities |
|
|
(29,133 |
) |
|
|
93,616 |
|
|
|
400,468 |
|
|
|
140,525 |
|
|
|
10,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
Consolidated Balance Sheet Data (at end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
357,324 |
|
|
$ |
520,277 |
|
|
$ |
988,542 |
|
|
$ |
347,709 |
|
|
$ |
126,057 |
|
Long Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit |
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
|
|
|
|
8,500 |
|
Notes payable and capital lease obligations |
|
|
107,755 |
|
|
|
107,203 |
|
|
|
107,343 |
|
|
|
843 |
|
|
|
887 |
|
Senior notes |
|
|
16,277 |
|
|
|
16,277 |
|
|
|
16,277 |
|
|
|
10,263 |
|
|
|
2,300 |
|
Redeemable preferred liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,077 |
|
Preferred stock (12% cumulative participating perpetual convertible) |
|
|
90,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Grubb & Ellis shareowners equity |
|
|
1,327 |
|
|
|
70,171 |
|
|
|
404,056 |
|
|
|
217,125 |
|
|
|
20,081 |
|
|
|
|
(1) |
|
Based on Generally Accepted Accounting Principles (GAAP), the
operating results for the year ended December 31, 2007 includes the
results of legacy NNN Realty Advisors, Inc. prior to the Merger for
the full periods presented and the results of the legacy Grubb & Ellis
Company for the period from December 8, 2007 through December 31,
2007. |
|
(2) |
|
Includes a full year of operating results of GERI (formerly Triple Net
Properties, LLC), one and one-half months of Triple Net Properties
Realty, Inc. (Realty) (acquired on November 16, 2006) and one-half
month of GBE Securities (formerly NNN Capital Corp.) (acquired on
December 14, 2006). GERI was treated as the acquirer in connection
with these transactions. |
38
|
|
|
(3) |
|
Based on GAAP, reflects operating results of GERI. |
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA are non-GAAP measures of performance. EBITDA provides an indicator
of economic performance that is unaffected by debt structure, changes in interest rates, changes in
effective tax rates or the accounting effects of capital expenditures and acquisitions because
EBITDA excludes net interest expense, interest income, income taxes, depreciation, amortization,
discontinued operations and impairments related to goodwill and intangible assets.
The Company uses Adjusted EBITDA as an internal management measure for evaluating performance
and as a significant component when measuring performance under employee incentive programs.
Management considers Adjusted EBITDA an important supplemental measure of the Companys performance
and believes that it is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry, some of which present Adjusted EBITDA when
reporting their results. Management also believes that Adjusted EBITDA is a useful tool for
measuring the Companys ability to meet its future capital expenditures and working capital
requirements.
EBITDA and Adjusted EBITDA are not a substitute for GAAP net income or cash flow and do not
provide a measure of the Companys ability to fund future cash requirements. Other companies may
calculate EBITDA and Adjusted EBITDA differently than the Company has and, therefore, EBITDA and
Adjusted EBITDA have material limitations as a comparative performance measure. The following table
reconciles EBITDA and Adjusted EBITDA with the net loss attributable to Grubb & Ellis Company for
the years ended December 31, 2009 and 2008. As a result of the Merger on December 7, 2007, the year
ended December 31, 2007 is not comparable to the year ended December 31, 2008. Therefore, a
reconciliation of EBITDA and Adjusted EBITDA for the year ended December 31, 2008 compared to the
year ended December 31, 2007 has not been provided as it would not be meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
Net loss attributable to Grubb & Ellis Company |
|
$ |
(78,838 |
) |
|
$ |
(330,870 |
) |
|
$ |
252,032 |
|
|
|
76.2 |
% |
Discontinued operations |
|
|
(2,486 |
) |
|
|
23,921 |
|
|
|
(26,407 |
) |
|
|
(110.4 |
) |
Interest expense |
|
|
15,446 |
|
|
|
14,207 |
|
|
|
1,239 |
|
|
|
8.7 |
|
Interest income |
|
|
(555 |
) |
|
|
(902 |
) |
|
|
347 |
|
|
|
38.5 |
|
Depreciation and amortization |
|
|
12,324 |
|
|
|
16,028 |
|
|
|
(3,704 |
) |
|
|
(23.1 |
) |
Goodwill and intangible assets impairment |
|
|
738 |
|
|
|
181,285 |
|
|
|
(180,547 |
) |
|
|
(99.6 |
) |
Taxes |
|
|
(1,175 |
) |
|
|
(827 |
) |
|
|
(348 |
) |
|
|
(42.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
|
(54,546 |
) |
|
|
(97,158 |
) |
|
|
42,612 |
|
|
|
43.9 |
|
Gain related to the repayment of the credit facility, net |
|
|
(21,935 |
) |
|
|
|
|
|
|
(21,935 |
) |
|
|
|
|
Charges related to sponsored programs |
|
|
23,348 |
|
|
|
27,771 |
|
|
|
(4,423 |
) |
|
|
(15.9 |
) |
Real estate related impairment |
|
|
17,372 |
|
|
|
59,114 |
|
|
|
(41,742 |
) |
|
|
(70.6 |
) |
Write off of investment in Grubb & Ellis Realty Advisors, net |
|
|
|
|
|
|
5,828 |
|
|
|
(5,828 |
) |
|
|
(100.0 |
) |
Share-based based compensation |
|
|
10,876 |
|
|
|
11,907 |
|
|
|
(1,031 |
) |
|
|
(8.7 |
) |
Amortization of signing bonuses |
|
|
7,535 |
|
|
|
7,603 |
|
|
|
(68 |
) |
|
|
(0.9 |
) |
Loss on marketable securities |
|
|
|
|
|
|
1,783 |
|
|
|
(1,783 |
) |
|
|
(100.0 |
) |
Merger related costs |
|
|
|
|
|
|
14,732 |
|
|
|
(14,732 |
) |
|
|
(100.0 |
) |
Amortization of contract rights |
|
|
|
|
|
|
1,179 |
|
|
|
(1,179 |
) |
|
|
(100.0 |
) |
Real estate operations |
|
|
(7,959 |
) |
|
|
(9,993 |
) |
|
|
2,034 |
|
|
|
20.4 |
|
Other |
|
|
1,319 |
|
|
|
163 |
|
|
|
1,156 |
|
|
|
709.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
|
$ |
(23,990 |
) |
|
$ |
22,929 |
|
|
$ |
(46,919 |
) |
|
|
(204.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA represents earnings before net interest expense, interest
income, realized gains or losses on sales of marketable securities,
income taxes, depreciation, amortization, discontinued operations and
impairments related to goodwill and intangible assets. Management
believes EBITDA is useful in evaluating our performance compared to
that of other companies in our industry because the calculation of
EBITDA generally eliminates the effects of financing and income taxes
and the accounting effects of capital spending and acquisition, which
items may vary for different companies for reasons unrelated to
overall operating performance. As a result, management uses EBITDA as
an operating measure to evaluate the operating performance of the
Company and for other discretionary purposes, including as a
significant component when measuring performance under employee
incentive programs. |
|
|
|
However, EBITDA is not a recognized measurement under U.S. generally
accepted accounting principles, or GAAP, and when analyzing the
Companys operating performance, readers should use EBITDA in addition
to, and not as an alternative for, net income as determined in
accordance with GAAP. Because not all companies use identical
calculations, our presentation of EBITDA may not be comparable to
similarly titled measures of other companies. Furthermore, EBITDA is
not intended to be a measure of free cash flow for managements
discretionary use, as it does not consider certain cash requirements
such as tax and debt service payments. |
39
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of operations
should be read together with its financial statements and the related notes included elsewhere in
this prospectus. The following discussion reflects Grubb & Ellis performance for the periods listed
and may not be indicative of our future financial performance. In addition, some of the information
contained in this discussion and analysis or set forth elsewhere in this prospectus, including
information with respect to Grubb & Ellis plans and strategy for its business, includes
forward-looking statements that involve risks, uncertainties and assumptions. Actual results could
differ materially from the results described in or implied by the forward-looking statements
contained in the following discussion and analysis as a result of many factors, including those
discussed in the Risk Factors section of this prospectus.
Note Regarding Forward-Looking Statements
The accompanying Managements Discussion and Analysis of Financial Condition and Results of
Operations reflects the restatement of previously issued financial statements, as discussed in Note
3 to the consolidated financial statements included in this prospectus.
This prospectus and the registration statement of which it forms a part contains statements
that are forward-looking and as such are not historical facts. Rather, these statements constitute
projections, forecasts or forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. You should not place undue reliance on these statements.
Forward-looking statements include information concerning the Companys liquidity and possible or
assumed future results of operations, including descriptions of the Companys business strategies.
These statements often include words such as believe, expect, anticipate, intend, plan,
estimate seek, will, may or similar expressions. These statements are based on certain
assumptions that the Company has made in light of its experience in the industry as well as its
perceptions of the historical trends, current conditions, expected future developments and other
factors the Company believes are appropriate under these circumstances.
All such forward-looking statements speak only as of the date of this prospectus. The Company
expressly disclaims any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements contained herein to reflect any change in the Companys expectations
with regard thereto or any change in events, conditions or circumstances on which any such
statement is based.
Overview and Background
The Company is a commercial real estate services and investment management firm. The Merger
was accounted for using the purchase method of accounting based on accounting principles generally
accepted in the United States (GAAP) and as such, although structured as a reverse merger, NNN is
considered the acquirer of legacy Grubb & Ellis. As a consequence, the operating results for the
twelve months ended December 31, 2009 and 2008 reflect the consolidated results of the Company as a
result of the Merger, while the twelve months ended December 31, 2007 includes the full year
operating results of legacy NNN and the operating results of legacy Grubb & Ellis for the period
from December 8, 2007 through December 31, 2007.
Unless otherwise indicated, all pre-Merger legacy NNN share data have been adjusted to reflect
the 0.88 conversion rate as a result of the Merger (see Note 10 to the consolidated financial
statements included in this prospectus for additional information).
Critical Accounting Policies
The Companys consolidated financial statements have been prepared in accordance with GAAP.
Certain accounting policies are considered to be critical accounting policies, as they require
management to make assumptions about matters that are highly uncertain at the time the estimate is
made and changes in the accounting estimate are reasonably likely to occur from period to period.
The Company believes that the following critical accounting policies reflect the more significant
judgments and estimates used in the preparation of its consolidated financial statements.
40
Revenue Recognition
Management Services
Management fees are recognized at the time the related services have been performed by the
Company, unless future contingencies exist. In addition, in regard to management and facility
service contracts, the owner of the property will typically reimburse the Company for certain
expenses that are incurred on behalf of the owner, which are comprised primarily of on-site
employee salaries and related benefit costs. The amounts which are to be reimbursed per the terms
of the services contract are recognized as revenue by the Company in the same period as the related
expenses are incurred. In certain instances, the Company subcontracts its property management
services to independent property managers, in which case the Company passes a portion of their
property management fee on to the subcontractor, and the Company retains the balance. Accordingly,
the Company records these fees net of the amounts paid to its subcontractors.
Transaction Services
Real estate sales commissions are recognized when earned which is typically the close of
escrow. Receipt of payment occurs at the point at which all Company services have been performed,
and title to real property has passed from seller to buyer, if applicable. Real estate leasing
commissions are recognized upon execution of appropriate lease and commission agreements and
receipt of full or partial payment, and, when payable upon certain events such as tenant occupancy
or rent commencement, upon occurrence of such events. All other commissions and fees are recognized
at the time the related services have been performed and delivered by the Company to the client,
unless future contingencies exist.
Investment Management
The Company earns fees associated with its transactions by structuring, negotiating and
closing acquisitions of real estate properties to third-party investors. Such fees include
acquisition fees for locating and acquiring the property on behalf of its various REITs, TIC
investors and the Companys various sponsored real estate funds. The Company accounts for
acquisition and loan fees in accordance with the requirements of the Real Estate General Topic
and the Real Estate Retail Land Topic. In general, the Company records the acquisition and loan
fees upon the close of sale to the buyer if the buyer is independent of the seller, collection of
the sales price, including the acquisition fees and loan fees, is reasonably assured, and the
Company is not responsible for supporting operations of the property. Organizational marketing
expense allowance (OMEA) fees are earned and recognized from gross proceeds of equity raised in
connection with TIC offerings and are used to pay formation costs, as well as organizational and
marketing costs. When the Company does not meet the criteria for revenue recognition under the Real
Estate Retail Land Topic and the Real Estate General Topic, revenue is deferred until revenue
can be reasonably estimated or until the Company defers revenue up to its maximum exposure to loss.
The Company earns disposition fees for disposing of the property on behalf of the REIT, investment
fund or TIC. The Company recognizes the disposition fee when the sale of the property closes. In
certain circumstances, the Company is entitled to loan advisory fees for arranging financing
related to properties under management.
The Company earns asset and property management fees primarily for managing the operations of
real estate properties owned by the real estate programs, REITs and limited liability companies the
Company sponsors. Such fees are based on pre-established formulas and contractual arrangements and
are earned as such services are performed. The Company is entitled to receive reimbursement for
expenses associated with managing the properties; these expenses include salaries for property
managers and other personnel providing services to the property. Each property in the Companys TIC
programs may also be charged an accounting fee for costs associated with preparing financial
reports. The Company is also entitled to leasing commissions when a new tenant is secured and upon
tenant renewals. Leasing commissions are recognized upon execution of leases.
Through its dealer-manager, GBE Securities, the Company facilitates capital raising
transactions for its sponsored programs. The Companys wholesale dealer-manager services are
comprised of raising capital for its programs through its selling broker-dealer relationships. Most
of the commissions, fees and allowances earned for its dealer-manager services are passed on to the
selling broker-dealers as commissions and to cover offering expenses, and the Company retains the
balance. Accordingly, the Company records these fees net of the amounts paid to its selling
broker-dealer relationships.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
and majority-owned controlled subsidiaries variable interest entities (VIEs) in which the
Company is the primary beneficiary and partnerships/LLCs in which the
41
Company is the managing member or general partner and the other partners/members lack
substantive rights (hereinafter collectively referred to as the Company). All significant
intercompany accounts and transactions have been eliminated in consolidation. For acquisitions of
an interest in an entity or newly formed joint venture or limited liability company, the Company
evaluates the entity to determine if the entity is deemed a VIE, and if the Company is deemed to be
the primary beneficiary, in accordance with the requirements of the Consolidation Topic.
The Company consolidates entities that are VIEs when the Company is deemed to be the primary
beneficiary of the VIE. For entities in which (i) the Company is not deemed to be the primary
beneficiary, (ii) the Companys ownership is 50.0% or less and (iii) the Company has the ability to
exercise significant influence, the Company uses the equity accounting method (i.e. at cost,
increased or decreased by the Companys share of earnings or losses, plus contributions less
distributions). The Company also uses the equity method of accounting for jointly-controlled
tenant-in-common interests. As events occur, the Company will reconsider its determination of
whether an entity is a VIE and who the primary beneficiary is to determine if there is a change in
the original determinations and will report such changes on a quarterly basis.
Purchase Price Allocation
In accordance with the requirements of the Business Combinations Topic, the purchase price of
acquired properties is allocated to tangible and identified intangible assets and liabilities based
on their respective fair values. The allocation to tangible assets (building and land) is based
upon determination of the value of the property as if it were vacant using discounted cash flow
models similar to those used by independent appraisers. Factors considered include an estimate of
carrying costs during the expected lease-up periods considering current market conditions and costs
to execute similar leases. Additionally, the purchase price of the applicable property is allocated
to the above or below market value of in-place leases and the value of in-place leases and related
tenant relationships.
The value allocable to the above or below market component of the acquired in-place leases is
determined based upon the present value (using a discount rate which reflects the risks associated
with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant
to the lease over its remaining term, and (ii) the Companys estimate of the amounts that would be
paid using fair market rates over the remaining term of the lease. The amounts allocated to above
market leases are included in identified intangible assets, net in the accompanying consolidated
balance sheets and are amortized to rental income over the remaining non-cancelable lease term of
the acquired leases with each property. The amounts allocated to below market lease values are
included in liabilities in the accompanying consolidated balance sheets and are amortized to rental
income over the remaining non-cancelable lease term plus any below market renewal options of the
acquired leases with each property.
The total amount of identified intangible assets acquired is further allocated to in-place
lease costs and the value of tenant relationships based on managements evaluation of the specific
characteristics of each tenants lease and the Companys overall relationship with that respective
tenant. Characteristics considered in allocating these values include the nature and extent of the
credit quality and expectations of lease renewals, among other factors. These allocations are
subject to change within one year of the date of purchase based on information related to one or
more events identified at the date of purchase that confirm the value of an asset or liability of
an acquired property.
Impairment of Long-Lived Assets
In accordance with the requirements of the Property, Plant, and Equipment Topic, long-lived
assets are periodically evaluated for potential impairment whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. In the event that
periodic assessments reflect that the carrying amount of the asset exceeds the sum of the
undiscounted cash flows (excluding interest) that are expected to result from the use and eventual
disposition of the asset, the Company would recognize an impairment loss to the extent the carrying
amount exceeded the fair value of the property. The Company estimates the fair value using
available market information or other industry valuation techniques such as present value
calculations. This valuation review resulted in the recognition of an impairment charge of
approximately $24.0 million and $90.4 million against the carrying value of the properties and real
estate investments during the years ended December 31, 2009 and 2008, respectively. No impairment
losses were recognized for the year ended December 31, 2007.
The Company recognizes goodwill and other non-amortizing intangible assets in accordance with
the requirements of the Intangibles Goodwill and Other Topic. Under this Topic, goodwill is
recorded at its carrying value and is tested for impairment at least annually or more frequently if
impairment indicators exist at a level of reporting referred to as a reporting unit. The Company
recognizes goodwill in accordance with the Topic and tests the carrying value for impairment during
the fourth quarter of each year. The goodwill impairment analysis is a two-step process. The first
step used to identify potential impairment involves comparing each
42
reporting units estimated fair value to its carrying value, including goodwill. To estimate
the fair value of its reporting units, the Company used a discounted cash flow model and market
comparable data. Significant judgment is required by management in developing the assumptions for
the discounted cash flow model. These assumptions include cash flow projections utilizing revenue
growth rates, profit margin percentages, discount rates, market/economic conditions, etc. If the
estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered to not
be impaired. If the carrying value exceeds estimated fair value, there is an indication of
potential impairment and the second step is performed to measure the amount of impairment. The
second step of the process involves the calculation of an implied fair value of goodwill for each
reporting unit for which step one indicated a potential impairment. The implied fair value of
goodwill is determined by measuring the excess of the estimated fair value of the reporting unit as
calculated in step one, over the estimated fair values of the individual assets, liabilities and
identified intangibles. During the fourth quarter of 2008, the Company identified the uncertainty
surrounding the global economy and the volatility of the Companys market capitalization as
goodwill impairment indicators. The Companys goodwill impairment analysis resulted in the
recognition of an impairment charge of approximately $172.7 million during the year ended
December 31, 2008. The Company also analyzed its trade name for impairment pursuant to the
requirements of the Topic and determined that the trade name was not impaired as of December 31,
2009 and 2008. Accordingly, no impairment charge was recorded related to the trade name during the
years ended December 31, 2009 and 2008. In addition to testing goodwill and its trade name for
impairment, the Company tested the intangible contract rights for impairment during the fourth
quarter of 2009 and 2008. The intangible contract rights represent the legal right to future
disposition fees of a portfolio of real estate properties under contract. As a result of the
current economic environment, a portion of these disposition fees may not be recoverable. Based on
the Companys analysis for the current and projected property values, condition of the properties
and status of mortgage loans payable, the Company determined that there are certain properties for
which receipt of disposition fees was improbable. As a result, the Company recorded an impairment
charge of approximately $0.7 million and $8.6 million related to the impaired intangible contract
rights as of December 31, 2009 and 2008, respectively.
Insurance and Claim Reserves
The Company has maintained partially self-insured and deductible programs for, general
liability, workers compensation and certain employee health care costs. In addition, the Company
assumed liabilities at the date of the Merger representing reserves related to a self insured
errors and omissions program of the acquired company. Reserves for all such programs are included
in accrued claims and settlements and compensation and employee benefits payable, as appropriate.
Reserves are based on the aggregate of the liability for reported claims and an actuarially-based
estimate of incurred but not reported claims. As of the date of the Merger, the Company entered
into a premium based insurance policy for all error and omission coverage on claims arising after
the date of the Merger. Claims arising prior to the date of the Merger continue to be applied
against the previously mentioned liability reserves assumed relative to the acquired company.
The Company is also subject to various proceedings, lawsuits and other claims related to
commission disputes and environmental, labor and other matters, and is required to assess the
likelihood of any adverse judgments or outcomes to these matters. A determination of the amount of
reserves, if any, for these contingencies is made after careful analysis of each individual issue.
New developments in each matter, or changes in approach such as a change in settlement strategy in
dealing with these matters, may warrant an increase or decrease in the amount of these reserves.
Recently Issued Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, see Note 2, Summary of
Significant Accounting Policies Recently Issued Accounting Pronouncements, to the Consolidated
Financial Statements that are a part of this prospectus.
RESULTS OF OPERATIONS
Results of Operations for the year ended December 31, 2009
Overview
The Company reported revenue of $535.6 million for the year ended December 31, 2009, compared
with revenue of $628.8 million for the same period of 2008. The decrease was primarily the result
of decreases in Transaction Services and Investment Management revenue of $66.9 million and
$44.3 million, respectively, partially offset by increases in Management Services revenue of
$21.0 million. The decrease in revenue as compared to the prior year period can be attributed to
fewer sales and leasing transactions, lower acquisition fees as a result of less TIC equity raise
and lower disposition fees, only partially offset by an increase in Management Services revenue as
a result of an increase in square feet under management. The decrease in net acquisitions from the
43
Investment Management business and the transition to self-management in 2009 and the
termination of advisory and property management agreements with the Company by Healthcare Trust of
America, Inc., formerly Grubb & Ellis Healthcare REIT, Inc., in September 2009 resulted in a
reduction of the Companys assets under management by approximately 15.0% from $6.8 billion as of
December 31, 2008 to $5.8 billion as of December 31, 2009.
The net loss attributable to Grubb & Ellis Company common shareowners for the year ended
December 31, 2009 was $80.6 million, or $1.27 per diluted share, and included a non-cash charge of
$0.7 million for intangible assets impairment, a non-cash charge of $24.0 million for real estate
related impairments (of which $7.6 million was recorded in the fourth quarter) and a $24.8 million
charge, which includes an allowance for bad debt primarily on related party receivables and
advances. In addition, the year-to-date results include approximately $10.9 million of share-based
compensation and $0.3 million for amortization of other identified intangible assets.
As a result of the Merger in December 2007, the newly combined Companys operating segments
were evaluated for reportable segments. The legacy NNN reportable segments were realigned into a
single operating and reportable segment called Investment Management. This realignment had no
impact on the Companys consolidated balance sheet, results of operations or cash flows.
The Company reports its revenue by three operating business segments in accordance with the
provisions of the Segment Reporting Topic. Management Services, which includes property management,
corporate facilities management, project management, client accounting, business services and
engineering services for unrelated third parties and the properties owned by the programs it
sponsors; Transaction Services, which comprises its real estate brokerage operations; and
Investment Management which includes providing acquisition, financing and disposition services with
respect to its sponsored programs, asset management services related to its programs, and
dealer-manager services by its securities broker-dealer, which facilitates capital raising
transactions for its real estate investment programs. Additional information on these business
segments can be found in Note 25 of Notes to Consolidated Financial Statements in this prospectus.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
The following summarizes comparative results of operations for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management services |
|
$ |
274,684 |
|
|
$ |
253,664 |
|
|
$ |
21,020 |
|
|
|
8.3 |
% |
Transaction services |
|
|
173,394 |
|
|
|
240,250 |
|
|
|
(66,856 |
) |
|
|
(27.8 |
) |
Investment management |
|
|
57,282 |
|
|
|
101,581 |
|
|
|
(44,299 |
) |
|
|
(43.6 |
) |
Rental related |
|
|
30,285 |
|
|
|
33,284 |
|
|
|
(2,999 |
) |
|
|
(9.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
535,645 |
|
|
|
628,779 |
|
|
|
(93,134 |
) |
|
|
(14.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs |
|
|
469,538 |
|
|
|
503,004 |
|
|
|
(33,466 |
) |
|
|
(6.7 |
) |
General and administrative |
|
|
80,078 |
|
|
|
99,829 |
|
|
|
(19,751 |
) |
|
|
(19.8 |
) |
Provision for doubtful accounts |
|
|
24,768 |
|
|
|
19,831 |
|
|
|
4,937 |
|
|
|
24.9 |
|
Depreciation and amortization |
|
|
12,324 |
|
|
|
16,028 |
|
|
|
(3,704 |
) |
|
|
(23.1 |
) |
Rental related |
|
|
21,287 |
|
|
|
21,377 |
|
|
|
(90 |
) |
|
|
(0.4 |
) |
Interest |
|
|
15,446 |
|
|
|
14,207 |
|
|
|
1,239 |
|
|
|
8.7 |
|
Merger related costs |
|
|
|
|
|
|
14,732 |
|
|
|
(14,732 |
) |
|
|
(100.0 |
) |
Real estate related impairments |
|
|
17,372 |
|
|
|
59,114 |
|
|
|
(41,742 |
) |
|
|
(70.6 |
) |
Goodwill and intangible asset impairment |
|
|
738 |
|
|
|
181,285 |
|
|
|
(180,547 |
) |
|
|
(99.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
641,551 |
|
|
|
929,407 |
|
|
|
(287,856 |
) |
|
|
(31.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(105,906 |
) |
|
|
(300,628 |
) |
|
|
194,722 |
|
|
|
64.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in losses of unconsolidated entities |
|
|
(1,148 |
) |
|
|
(13,311 |
) |
|
|
12,163 |
|
|
|
91.4 |
|
Interest income |
|
|
555 |
|
|
|
902 |
|
|
|
(347 |
) |
|
|
(38.5 |
) |
Gain on extinguishment of debt |
|
|
21,935 |
|
|
|
|
|
|
|
21,935 |
|
|
|
|
|
Other |
|
|
404 |
|
|
|
(6,458 |
) |
|
|
6 862 |
|
|
|
106.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
21,746 |
|
|
|
(18,867 |
) |
|
|
40,613 |
|
|
|
215.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax provision |
|
|
(84,160 |
) |
|
|
(319,495 |
) |
|
|
235,335 |
|
|
|
73.7 |
|
Income tax benefit |
|
|
1,175 |
|
|
|
827 |
|
|
|
348 |
|
|
|
42.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
Loss from continuing operations |
|
|
(82,985 |
) |
|
|
(318,668 |
) |
|
|
235,683 |
|
|
|
74.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes |
|
|
(4,956 |
) |
|
|
(24,278 |
) |
|
|
19,322 |
|
|
|
79.6 |
|
Gain on disposal of discontinued operations net of taxes |
|
|
7,442 |
|
|
|
357 |
|
|
|
7,085 |
|
|
|
1,984.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations |
|
|
2,486 |
|
|
|
(23,921 |
) |
|
|
26,407 |
|
|
|
110.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
(80,499 |
) |
|
|
(342,589 |
) |
|
|
262,090 |
|
|
|
76.5 |
|
Net loss attributable to noncontrolling interests |
|
|
(1,661 |
) |
|
|
(11,719 |
) |
|
|
10,058 |
|
|
|
85.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company |
|
|
(78,838 |
) |
|
|
(330,870 |
) |
|
|
252,032 |
|
|
|
76.2 |
|
Preferred stock dividends |
|
|
(1,770 |
) |
|
|
|
|
|
|
(1,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis Company
common shareowners |
|
$ |
(80,608 |
) |
|
$ |
(330,870 |
) |
|
$ |
250,262 |
|
|
|
75.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Management Services Revenue
Management Services revenue increased $21.0 million, or 8.3% to $274.7 million for the year
ended December 31, 2009, compared to approximately $253.7 million for the same period in 2008 due
to an increase in the square feet under management. As of December 31, 2009, the Company managed
approximately 240.7 million square feet of commercial real estate and multi-family property,
including 24.3 million square feet of the Companys Investment Management portfolio compared to
231.0 million square feet of property as of December 31, 2008.
Transaction Services Revenue
Transaction Services revenue decreased $66.9 million or 27.8% to $173.4 million for the year
ended December 31, 2009, compared to approximately $240.3 million for the same period in 2008 due
to reduced sales and leasing transaction volume and values as a result of the declining real estate
market. Leasing activity represented approximately 80% of the total Transaction Services revenue in
2009, while investment sales accounted for 20% of total revenue. In 2008, the revenue breakdown was
77% leasing and 23% investment sales. As of December 31, 2009, Grubb & Ellis had 824 brokers, up
from 805 as of December 31, 2008.
Investment Management Revenue
Investment Management revenue decreased $44.3 million or 43.6% to $57.3 million for the year
ended December 31, 2009, compared to approximately $101.6 million for the same period in 2008.
Investment Management revenue reflects revenue generated through the fee structure of the various
investment products which includes acquisition and loan fees of approximately $12.8 million and
management fees from sponsored programs of $31.2 million. Key drivers of this business are the
dollar value of equity raised, the amount of transactions that are generated in the investment
product platforms and the amount of assets under management.
In total, $554.7 million in equity was raised for the Companys investment programs for the
year ended December 31, 2009, compared with $984.3 million in the same period in 2008. The decrease
was driven by a decrease in TIC equity raised and Private Client Management equity raised. During
the year ended December 31, 2009, the Companys public non-traded REIT programs raised
$536.9 million, a decrease of 9.4% from the $592.7 million equity raised in the same period in
2008. The Companys TIC programs raised $15.5 million in equity during the year ended December 31,
2009, compared with $176.9 million in the same period in 2008. The decrease in TIC equity raised
for the year ended December 31, 2009 reflects the continued decline in current market conditions.
The decrease in equity raised by the Companys public non-traded REITs is a result of the
termination of the dealer-manager agreement of the Companys first sponsored healthcare REIT in
August 2009 and the start-up of the Companys new Healthcare REIT II program which commenced sales
on September 21, 2009. No equity was raised by Private Client Management in 2009 compared with
$193.3 million in equity raised in 2008.
Acquisition and loan fees decreased approximately $20.3 million, or 61.3%, to $12.8 million
for the year ended December 31, 2009, compared to approximately $33.1 million for the same period
in 2008. The year-over-year decrease in acquisition and loan fees was primarily attributed to a
decrease of approximately $7.4 million in fees earned from the Companys TIC programs, a decrease
of approximately $8.6 million in fees earned from the Companys non-traded REIT programs and a
decrease of approximately $4.2 million in fees earned from Private Client Management.
Disposition fees decreased approximately $4.6 million, or 100.0%, to zero for the year ended
December 31, 2009, compared to approximately $4.6 million for the same period in 2008. Offsetting
the disposition fees during the year ended December 31, 2008 was
45
$1.2 million of amortization of identified intangible contract rights associated with the
acquisition of Realty as they represent the right to future disposition fees of a portfolio of real
properties under contract.
Management fees from sponsored programs decreased approximately $6.8 million or 17.9% to
$31.2 million for the year ended December 31, 2009 which primarily reflects lower average fees on
TIC programs and the termination of management services for the Companys first sponsored
healthcare REIT in September 2009.
Rental Revenue
Rental revenue includes pass-through revenue for the master lease accommodations related to
the Companys TIC programs. Rental revenue also includes revenue from two properties held for
investment.
Operating Expense Overview
Operating expenses decreased $287.9 million, or 31.0%, to $641.6 million for the year ended
December 31, 2009, compared to $929.4 million for the same period in 2008. This decrease reflects
decreases in compensation costs from lower commissions paid and synergies created as a result of
the Merger of $33.5 million and decreases of merger related costs of $14.7 million and general and
administrative expense of $19.8 million offset by an increase in provision for doubtful accounts of
$4.9 million. The Company recognized real estate impairments of $17.4 million during the year ended
December 31, 2009, a decrease of $41.7 million over the same period last year. In addition, the
Company recognized goodwill and intangible asset impairment of $0.7 million during the year ended
December 31, 2009, a decrease of $180.5 million over the same period last year as the Company
wrote off all of its goodwill during the year ended December 31, 2008. Partially offsetting the
overall decrease was an increase in interest expense of $1.2 million for the year ended
December 31, 2009 related to the Companys line of credit.
Compensation Costs
Compensation costs decreased approximately $33.5 million, or 6.7%, to $469.5 million for the
year ended December 31, 2009, compared to approximately $503.0 million for the same period in 2008
due to a decrease in transaction commissions and related costs of $39.2 million as a result of a
decrease in sales and leasing activity and a decrease in other compensation costs of $12.9 million
related to a reduction in headcount and decreases in salaries partially offset by an increase in
reimbursable salaries, wages and benefits of $18.6 million as a result of the growth in square feet
under management. The following table summarizes compensation costs by segment for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
|
|
2009 |
|
|
2008 |
|
|
$ |
|
MANAGEMENT SERVICES |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs |
|
$ |
36,701 |
|
|
$ |
39,125 |
|
|
$ |
(2,424 |
) |
Transaction commissions and related costs |
|
|
12,623 |
|
|
|
8,581 |
|
|
|
4,042 |
|
Reimbursable salaries, wages and benefits |
|
|
193,682 |
|
|
|
178,058 |
|
|
|
15,624 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
243,006 |
|
|
|
225,764 |
|
|
|
17,242 |
|
TRANSACTION SERVICES |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs |
|
|
44,274 |
|
|
|
50,272 |
|
|
|
(5,998 |
) |
Transaction commissions and related costs |
|
|
112,398 |
|
|
|
155,668 |
|
|
|
(43,270 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
156,672 |
|
|
|
205,940 |
|
|
|
(49,268 |
) |
INVESTMENT MANAGEMENT |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs |
|
|
26,275 |
|
|
|
30,254 |
|
|
|
(3,979 |
) |
Transaction commissions and related costs |
|
|
84 |
|
|
|
18 |
|
|
|
66 |
|
Reimbursable salaries, wages and benefits |
|
|
9,430 |
|
|
|
6,458 |
|
|
|
2,972 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
35,789 |
|
|
|
36,730 |
|
|
|
(941 |
) |
Compensation costs related to corporate overhead |
|
|
34,071 |
|
|
|
34,570 |
|
|
|
(499 |
) |
|
|
|
|
|
|
|
|
|
|
Total compensation costs |
|
$ |
469,538 |
|
|
$ |
503,004 |
|
|
$ |
(33,466 |
) |
46
General and Administrative
General and administrative expense decreased approximately $19.7 million, or 19.8%, to
$80.1 million for the year ended December 31, 2009, compared to $99.8 million for the same period
in 2008 due to a decrease of $9.1 million related to an estimate of probable loss recorded during
the year ended December 31, 2008 related to recourse guarantees of debt of properties under
management and various decreases related to managements cost saving efforts.
General and administrative expense was 14.9% of total revenue for the year ended December 31,
2009, compared with 15.9% for the same period in 2008.
Provision for Doubtful Accounts
Provision for doubtful accounts increased approximately $4.9 million, or 24.9%, to
$24.8 million for the year ended December 31, 2009, compared to $19.8 million for the same period
in 2008 primarily due to an increase in reserves on related party receivables and advances to
sponsored investment programs.
Depreciation and Amortization
Depreciation and amortization expense decreased approximately $3.7 million, or 23.1%, to
$12.3 million for the year ended December 31, 2009, compared to approximately $16.0 million for the
same period in 2008. The decrease is primarily due to two properties the Company held for
investment as of December 31, 2009. One of these properties was held for sale through June 30, 2009
and the other was held for sale through September 30, 2009. In accordance with the provisions of
Property, Plant, and Equipment Topic, management determined that the carrying value of each
property, before each property was classified as held for investment (adjusted for any depreciation
and amortization expense and impairment losses that would have been recognized had the asset been
continuously classified as held for investment) was greater than the carrying value net of selling
costs, of the property at the date of the subsequent decision not to sell. Therefore, the Company
made no additional adjustments to the carrying value of the assets as of December 31, 2009 and no
depreciation expense was recorded during the period each property was held for sale. Included in
depreciation and amortization expense was $4.2 million for amortization of other identified
intangible assets.
Rental Expense
Rental expense includes pass-through expenses for master lease accommodations related to the
Companys TIC programs. Rental expense also includes expense from two properties held for
investment.
Interest Expense
Interest expense increased approximately $1.2 million, or 8.7%, to $15.4 million for the year
ended December 31, 2009, compared to $14.2 million for the same period in 2008. The increase in
interest expense includes increases related to the Credit Facility due to additional borrowings in
2009, an increase in the interest rate to LIBOR plus 800 basis points from LIBOR plus 300 basis
points as a result of the 3 rd amendment to the Credit Facility and the write off of
loan fees related to the Credit Facility.
Merger Related Costs
Merger related costs include transaction costs related to the Merger, facilities and systems
consolidation costs and employment-related costs. The Company incurred $14.7 million of Merger
related transaction costs during the year ended December 31, 2008 as a result of completing the
Merger transaction on December 7, 2007.
Real Estate Related Impairments
The Company recognized impairment charges of approximately $17.4 million during the year ended
December 31, 2009, which includes $10.3 million related to certain unconsolidated real estate
investments and funding commitments for obligations related to certain of the Companys sponsored
real estate programs and $7.1 million related to two properties held for investment as of
December 31, 2009. The Company recognized an impairment charge of approximately $59.2 million
during the year ended December 31, 2008, which includes $18.0 million related to certain
unconsolidated real estate investments and $41.2 million related to two properties held for
investment. In addition, the Company recognized impairment charges of approximately $6.6 million
and $31.2 million during the year ended December 31, 2009 and 2008, respectively, related to two
properties sold and two properties effectively abandoned under the accounting standards during the
year ended December 31, 2009, for which the net income (loss) of the properties are classified as
discontinued operations. See Discontinued Operations discussion below.
47
Goodwill and Intangible Assets Impairment
The Company recognized a goodwill and intangible assets impairment charge of approximately
$181.3 million during the year ended December 31, 2008. The total impairment charge of
$181.3 million is comprised of $172.7 million related to goodwill impairment and $8.6 million
related to the impairment of intangible contract rights. During the fourth quarter of 2008, the
Company identified the uncertainty surrounding the global economy and the volatility of the
Companys market capitalization as goodwill impairment indicators. The Companys goodwill
impairment analysis resulted in the recognition of an impairment charge of approximately
$172.7 million during the year ended December 31, 2008. The Company also analyzed its trade name
for impairment pursuant to the requirements of the Intangibles Goodwill and Other Topic and
determined that the trade name was not impaired as of December 31, 2009 and 2008. Accordingly, no
impairment charge was recorded related to the trade name during the years ended December 31, 2009
and 2008. In addition to testing goodwill and its trade name for impairment, the Company tested the
intangible contract rights for impairment during the fourth quarter of 2008 and during the year
ended December 31, 2009. The intangible contract rights represent the legal right to future
disposition fees of a portfolio of real estate properties under contract. As a result of the
current economic environment, a portion of these disposition fees may not be recoverable. Based on
managements analysis for the current and projected property values, condition of the properties
and status of mortgage loans payable associated with these contract rights, the Company determined
that there are certain properties for which receipt of disposition fees was improbable. As a
result, the Company recorded an impairment charge of approximately $0.7 million and $8.6 million
related to the impaired intangible contract rights during the years ended December 31, 2009 and
2008, respectively.
Equity in Earnings (Losses) of Unconsolidated Real Estate
Equity in losses includes $1.1 million and $13.3 million for the years ended December 31, 2009
and 2008, respectively. Equity in losses of $1.1 million and $7.5 million were recorded during the
years ended December 31, 2009 and 2008, respectively, related to the Companys investment in five
joint ventures and seven LLCs that are consolidated pursuant to the requirements of the
Consolidation Topic. Equity in earnings (losses) are recorded based on the pro rata ownership
interest in the underlying unconsolidated properties. In addition, equity in losses for the year
ended December 31, 2008 includes a $5.8 million write off of the Companys investment in GERA in
the first quarter of 2008, which includes $4.5 million related to stock and warrant purchases and
$1.3 million related to operating advances and third party costs.
Gain on Extinguishment of Debt
Gain on extinguishment of debt includes a $21.9 million gain on forgiveness of debt related to
the repayment of the Credit Facility in full at a discounted amount and termination of the Credit
Facility on November 6, 2009.
Other Income (Expense)
Other income of $0.4 million for the year ended December 31, 2009 includes investment income
related to Alesco. Other expense of $6.5 million for the year ended December 31, 2008, includes
$4.6 million of investment losses related to Alesco and a $1.8 million loss on sale of marketable
equity securities.
Discontinued Operations
In accordance with the requirements of the Property, Plant and Equipment Topic, discontinued
operations includes the net income (loss) of two properties that were sold and two properties that
were effectively abandoned under the accounting standards during the year ended December 31, 2009.
The net income of $2.5 million for the year ended December 31, 2009 includes a $7.4 million gain on
sale, net of taxes, related to the sale of the Danbury Property on June 3, 2009 and the
deconsolidation of the Abrams and Shafer properties during the fourth quarter of 2009 and a
$5.0 million loss from discontinued operations, net of taxes, which includes $6.6 million of real
estate related impairments. The net loss of $23.9 million for the year ended December 31, 2008
includes a $0.4 million gain on sale, net of taxes, and a $24.3 million loss from discontinued
operations, net of taxes, which includes $31.2 million of real estate related impairments.
Income Tax
The Company recognized a tax benefit from continuing operations of approximately $1.2 million
for the year ended December 31, 2009, compared to a tax benefit of $0.8 million for the same period
in 2008. In 2009 and 2008, the reported effective income tax rates
48
were 1.40% and 0.3%, respectively. The 2009 effective income tax rate reflects the adoption of
the requirements of the amended Consolidation Topic. The 2009 and 2008 effective tax rates include
the effect of valuation allowances recorded against deferred tax assets to reflect our assessment
that it is more likely than not that some portion of the deferred tax assets will not be realized.
The Companys deferred tax assets are primarily attributable to impairments of various real estate
holdings, net operating losses and share-based compensation. (See Note 24 of the Notes to
Consolidated Financial Statements in this prospectus for additional information.)
Net Loss Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests decreased by $10.1 million, or 85.8%, to
$1.7 million during the year ended December 31, 2009, compared to net loss attributable to
noncontrolling interests of $11.7 million for the same period in 2008. Net loss attributable to
noncontrolling interests includes $3.7 million and $8.6 million in real estate related impairments
recorded at the underlying properties during the years ended December 31, 2009 and 2008,
respectively.
Net Loss Attributable to Grubb & Ellis Company
As a result of the above items, the Company recognized a net loss of $78.8 million for the
year ended December 31, 2009, compared to a net loss of $330.9 million for the same period in 2008.
Net Loss Attributable to Grubb & Ellis Company Common Shareowners
The Company paid $1.8 million in preferred stock dividends during the year ended December 31,
2009 resulting in a net loss attributable to the Companys common shareowners of $80.6 million, or
$1.27 per diluted share, for the year ended December 31, 2009, compared to a net loss attributable
to the Companys common shareowners of $330.9 million, or $5.21 per diluted share, for the same
period in 2008.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
As a result of the Merger on December 7, 2007, the operating results for the twelve months
ended December 31, 2007 includes the full year operating results of legacy NNN and the operating
results of legacy Grubb & Ellis for the period from December 8, 2007 through December 31, 2007. The
following summarizes comparative results of operations for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
(In thousands) |
|
2008 |
|
|
2007(1) |
|
|
$ |
|
|
% |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management services |
|
$ |
253,664 |
|
|
$ |
16,365 |
|
|
$ |
237,299 |
|
|
|
1,450.0 |
% |
Transaction services |
|
|
240,250 |
|
|
|
35,522 |
|
|
|
204,728 |
|
|
|
576.3 |
|
Investment management |
|
|
101,581 |
|
|
|
149,651 |
|
|
|
(48,070 |
) |
|
|
(32.1 |
) |
Rental related |
|
|
33,284 |
|
|
|
28,119 |
|
|
|
5,165 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
628,779 |
|
|
|
229,657 |
|
|
|
399,122 |
|
|
|
173.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs |
|
|
503,004 |
|
|
|
104,109 |
|
|
|
398,895 |
|
|
|
383.2 |
|
General and administrative |
|
|
99,829 |
|
|
|
42,860 |
|
|
|
56,969 |
|
|
|
132.9 |
|
Provision for doubtful accounts |
|
|
19,831 |
|
|
|
1,391 |
|
|
|
18,440 |
|
|
|
1,325.7 |
|
Depreciation and amortization |
|
|
16,028 |
|
|
|
9,321 |
|
|
|
6,707 |
|
|
|
72.0 |
|
Rental related |
|
|
21,377 |
|
|
|
20,839 |
|
|
|
538 |
|
|
|
2.6 |
|
Interest |
|
|
14,207 |
|
|
|
10,818 |
|
|
|
3,389 |
|
|
|
31.3 |
|
Merger related costs |
|
|
14,732 |
|
|
|
6,385 |
|
|
|
8,347 |
|
|
|
130.7 |
|
Real estate related impairments |
|
|
59,114 |
|
|
|
|
|
|
|
59,114 |
|
|
|
|
|
Goodwill and intangible asset impairment |
|
|
181,285 |
|
|
|
|
|
|
|
181,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
929,407 |
|
|
|
195,723 |
|
|
|
733,684 |
|
|
|
374.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income |
|
|
(300,628 |
) |
|
|
33,934 |
|
|
|
(334,562 |
) |
|
|
(985.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (losses) earnings of unconsolidated entities |
|
|
(13,311 |
) |
|
|
2,029 |
|
|
|
(15,340 |
) |
|
|
(756.0 |
) |
Interest income |
|
|
902 |
|
|
|
2,996 |
|
|
|
(2,094 |
) |
|
|
(69.9 |
) |
Other |
|
|
(6,458 |
) |
|
|
(465 |
) |
|
|
(5,993 |
) |
|
|
(1,288.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income |
|
|
(18,867 |
) |
|
|
4,560 |
|
|
|
(23,427 |
) |
|
|
(513.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax provision |
|
|
(319,495 |
) |
|
|
38,494 |
|
|
|
(357,989 |
) |
|
|
(930.0 |
) |
Income tax benefit (provision) |
|
|
827 |
|
|
|
(14,753 |
) |
|
|
15,580 |
|
|
|
105.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(318,668 |
) |
|
|
23,741 |
|
|
|
(342,409 |
) |
|
|
(1,442.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
(In thousands) |
|
2008 |
|
|
2007(1) |
|
|
$ |
|
|
% |
|
Loss from discontinued operations net of taxes |
|
|
(24,278 |
) |
|
|
(960 |
) |
|
|
(23,318 |
) |
|
|
(2,429.0 |
) |
Gain on disposal of discontinued operations net of taxes |
|
|
357 |
|
|
|
252 |
|
|
|
105 |
|
|
|
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss from discontinued operations |
|
|
(23,921 |
) |
|
|
(708 |
) |
|
|
(23,213 |
) |
|
|
(3,278.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income |
|
|
(342,589 |
) |
|
|
23,033 |
|
|
|
(365,622 |
) |
|
|
(1,587.4 |
) |
Net (loss) income attributable to noncontrolling interests |
|
|
(11,719 |
) |
|
|
1,961 |
|
|
|
(13,680 |
) |
|
|
(697.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis Company |
|
$ |
(330,870 |
) |
|
$ |
21,072 |
|
|
$ |
(351,942 |
) |
|
|
(1,670.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on GAAP, the operating results for twelve months ended
December 31, 2007 includes the results of NNN for the full periods
presented and the results of the legacy Grubb & Ellis business for the
period from December 8, 2007 through December 31, 2007. |
Revenue
Management Services Revenue
Management Services revenue was $253.7 million for the year ended December 31, 2008 and
$16.4 million from December 8, 2007 through December 31, 2007. Following the closing of the merger,
Grubb & Ellis Management Services assumed management of nearly 27.1 million square feet of NNNs
46.9 million-square-foot Investment Management portfolio. As of December 31, 2008, the Company
managed 231.0 million square feet of property.
Transaction Services Revenue
Transaction Services revenue was $240.3 million for the year ended December 31, 2008 and
$35.5 million from December 8, 2007 through December 31, 2007. As of December 31, 2008, legacy
Grubb & Ellis had 805 brokers, down from 927 as of December 31, 2007.
Investment Management Revenue
Investment management revenue of $101.6 million for the year ended December 31, 2008 was
comprised primarily of transaction fees of $43.4 million, asset and property management fees of
$38.0 million and dealer-manager fees of $15.1 million.
Transaction related fees decreased $39.8 million, or 47.8%, to $43.4 million for the year
ended December 31, 2008, compared to approximately $83.2 million for the same period in 2007. The
year-over-year decrease in transaction fees was primarily due to decreases of $14.6 million in real
estate acquisition fees, $13.5 million in real estate disposition fees, $5.0 million in OMEA fees,
and $6.6 million in other transaction related fees.
Acquisition fees decreased approximately $14.6 million, or 31.3%, to $32.1 million for the
year ended December 31, 2008, compared to approximately $46.7 million for the same period in 2007.
The year-over-year decrease in acquisition fees was primarily attributed to a decrease of
approximately $19.1 million in fees earned from the Companys TIC programs and a decrease of
approximately $2.8 million in fees earned from the Companys other real estate funds and joint
ventures, partially offset by an increase of $3.1 million from the non-traded REIT programs and
$4.2 million from Private Client Management.
Disposition fees decreased approximately $13.5 million, or 74.5%, to approximately
$4.6 million for the year ended December 31, 2008, compared to approximately $18.2 million for the
same period in 2007. The decrease reflects lower sales volume and lower sales values due to current
market conditions. Offsetting the disposition fees during the year ended December 31, 2008 and 2007
was $1.2 million and $3.2 million, respectively, of amortization of identified intangible contract
rights associated with the acquisition of Realty as they represent the right to future disposition
fees of a portfolio of real properties under contract.
OMEA fees decreased approximately $5.0 million, or 54.3%, to $4.2 million for the year ended
December 31, 2008, compared to approximately $9.1 million for the same period in 2007. The decrease
in OMEA fees earned was primarily due to a decline in TIC equity raised, declining to
$176.9 million in TIC equity raised in 2008, compared to $452.2 million in TIC equity raised in
2007.
Management fees from sponsored programs decreased approximately 7.5% year-over-year and
include the movement of approximately $6.8 million of revenue to the Companys management services
segment. Exclusive of this transfer of revenue, management fees from sponsored programs increased
approximately 9.1% year-over-year.
50
Rental Revenue
Rental revenue includes pass-through revenue for the master lease accommodations related to
the Companys TIC programs. Rental revenue also includes revenue from two properties held for
investment.
Operating Expense Overview
Operating expenses increased $733.7 million, or 374.9%, to $929.4 million for the year ended
December 31, 2008, compared to $195.7 million for the same period in 2007. The increase includes
approximately $455.6 million due to the legacy Grubb & Ellis business, $59.2 million in real estate
related impairments, $181.3 million in goodwill and intangible asset impairments, a $28.0 million
charge which includes an allowance for bad debt on related party receivables and advances and an
expected loss on the sale of two properties under management for which the Company has a recourse
obligation, $8.3 million due to additional merger related costs and $4.2 million in additional
non-cash stock based compensation.
Compensation costs
Compensation costs increased $398.9 million, or 383.2%, to $503.0 million for the year ended
December 31, 2008, compared to $104.1 million for the same period in 2007 due to approximately
$406.3 million of compensation costs attributed to legacy Grubb & Ellis operations. Compensation
costs related to the investment management business decreased approximately 9.4% to $56.6 million,
for the year ended December 31, 2008, compared to $62.5 million for the same period in 2007.
Included in the compensation cost was non-cash share-based compensation expense which increased by
$4.2 million to $11.7 million for the year ended December 31, 2008 compared to $7.5 million for the
same period in 2007.
General and Administrative
General and administrative expense increased approximately $56.9 million, or 132.9%, to
$99.8 million for the year ended December 31, 2008, compared to $42.9 million for the same period
in 2007 due to approximately $48.4 million of general and administration expenses attributed to
legacy Grubb & Ellis operations and a $9.1 million charge related to an estimate of probable loss
recorded during the year ended December 31, 2008 related to recourse guarantees of debt of
properties under management.
General and administrative expense was 15.9% of total revenue for the year ended December 31,
2008, compared with 18.7% for the same period in 2007.
Provision for Doubtful Accounts
Provision for doubtful accounts increased approximately $18.4 million, or 1,325.7%, to
$19.8 million for the year ended December 31, 2008, compared to $1.4 million for the same period in
2007 primarily due to an increase in reserves on related party receivables and advances to
sponsored investment programs.
Depreciation and Amortization
Depreciation and amortization increased approximately $6.7 million, or 72.0%, to $16.0 million
for the year ended December 31, 2008, compared to $9.3 million for the same period in 2007. The
increase includes approximately $6.3 million due to the legacy Grubb & Ellis business. Included in
depreciation and amortization expense for the year ended December 31, 2008 was approximately
$3.5 million for amortization of other identified intangible assets.
Rental Expense
Rental expense includes pass-through expenses for master lease accommodations related to the
Companys TIC programs. Rental expense also includes expense from two properties held for
investment.
Interest Expense
Interest expense increased approximately $3.4 million, or 31.3%, to $14.2 million for the year
ended December 31, 2008, compared to $10.8 million for the same period in 2007. Interest expense is
primarily comprised of interest expense related to the Companys Line of Credit and two properties
held for investment.
51
Merger Related Costs
Merger related costs include costs transaction costs related to the Merger, facilities and
systems consolidation costs and employment-related costs. The Company incurred $14.7 million and
$6.4 million of Merger related transaction costs during the years ended December 31, 2008 and 2007,
respectively, as a result of completing the Merger transaction on December 7, 2007.
Real Estate Related Impairments
The Company recognized an impairment charge of approximately $59.2 million during the year
ended December 31, 2008, which includes $18.0 million related to certain unconsolidated real estate
investments and $41.2 million related to two properties held for investment. In addition, the
Company recognized impairment charges of approximately $31.2 million related to four properties
sold during the year ended December 31, 2009, for which the net income (loss) of the properties are
classified as discontinued operations for the year ended December 31, 2008. See Discontinued
Operations discussion below.
Goodwill and Intangible Assets Impairment
The Company recognized a goodwill and intangible assets impairment charge of approximately
$181.3 million during the year ended December 31, 2008. The total impairment charge of
$181.3 million is comprised of $172.7 million related to goodwill impairment and $8.6 million
related to the impairment of intangible contract rights. During the fourth quarter of 2008, the
Company identified the uncertainty surrounding the global economy and the volatility of the
Companys market capitalization as goodwill impairment indicators. The Companys goodwill
impairment analysis resulted in the recognition of an impairment charge of approximately
$172.7 million during the year ended December 31, 2008. The Company also analyzed its trade name
for impairment pursuant to the requirements of the Intangibles Goodwill and Other Topic and
determined that the trade name was not impaired as of December 31, 2008. Accordingly, no impairment
charge was recorded related to the trade name during the year ended December 31, 2008. In addition
to testing goodwill and its trade name for impairment, the Company tested the intangible contract
rights for impairment during the fourth quarter of 2008. The intangible contract rights represent
the legal right to future disposition fees of a portfolio of real estate properties under contract.
As a result of the current economic environment, a portion of these disposition fees may not be
recoverable. Based on managements analysis for the current and projected property values,
condition of the properties and status of mortgage loans payable associated with these contract
rights, the Company determined that there are certain properties for which receipt of disposition
fees was improbable. As a result, the Company recorded an impairment charge of approximately
$8.6 million related to the impaired intangible contract rights as of December 31, 2008.
Equity in Earnings (Losses) of Unconsolidated Real Estate
In the first quarter of 2008, the Company wrote off its investment in GERA, which resulted in
a net impact of approximately $5.8 million, including $4.5 million related to stock and warrant
purchases and $1.3 million related to operating advances and third party costs. In addition, equity
in losses for the year ended December 31, 2008 includes a $7.5 million loss related to the
Companys investment in five joint ventures and seven LLCs that are consolidated pursuant to the
requirements of the Consolidation Topic. Equity in earnings (losses) are recorded based on the pro
rata ownership interest in the underlying unconsolidated properties.
Other expense of $6.5 million for the year ended December 31, 2008, includes $4.6 million of
investment losses related to Alesco and a $1.8 million loss on sale of marketable equity
securities.
Discontinued Operations
In accordance with the requirements of the Property, Plant, and Equipment Topic, for the year
ended December 31, 2008, discontinued operations primarily includes the net income (loss) of two
properties that were sold and two properties that were effectively abandoned under the accounting
standards during the year ended December 31, 2009. The net loss of $23.9 million for the year ended
December 31, 2008 includes a $0.4 million gain on sale, net of taxes, and a $24.3 million loss from
discontinued operations, net of taxes, which includes $31.2 million of real estate related
impairments. The net loss of $0.7 million for the year ended December 31, 2007 includes a
$0.3 million gain on sale, net of taxes, and a $1.0 million loss from discontinued operations, net
of taxes.
52
Income Tax
The Company recognized a tax benefit from continuing operations of approximately $0.8 million
for the year ended December 31, 2008, compared to a tax expense of $14.8 million for the same
period in 2007. In 2008 and 2007, the reported effective income tax rates were 0.3% and 38.3%,
respectively. The 2008 effective tax rate was negatively impacted by impairments of Goodwill and
the recording of a valuation allowance against deferred tax assets to the extent the realization of
the associated tax benefit is not more-likely-than-not. Based on managements evaluation of the
Companys tax position, it is believed the amounts related to the valuation allowances are
appropriately accrued. The Companys deferred tax assets are primarily attributable to impairments
of various real estate holdings. (See Note 24 of the Notes to Consolidated Financial Statements in
this prospectus for additional information.)
Net (Loss) Income Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests increased by $13.7 million, or 697.6%, to
$11.7 million during the year ended December 31, 2008, compared to net income attributable to
noncontrolling interests of $2.0 million for the same period in 2007. Net loss attributable to
noncontrolling interests includes $8.6 million in real estate related impairments recorded at the
underlying properties during the year ended December 31, 2008.
Net (Loss) Income Attributable to Grubb & Ellis Company
As a result of the above items, the Company recognized a net loss of approximately
$330.9 million, or $5.21 per diluted share for the year ended December 31, 2008, compared to net
income of $21.1 million, or $0.53 per diluted share, for the same period in 2007.
Liquidity and Capital Resources
Current Sources of Capital and Liquidity
The Company believes that it will have sufficient capital resources to satisfy its liquidity
needs over the next twelve-month period. The Company expects to meet its short-term liquidity
needs, which may include principal repayments of mortgage debt in connection with recourse
guarantee obligations, investments in various real estate investor programs and institutional funds
and capital expenditures, through current and retained cash flow earnings, and proceeds from the
potential issuance of equity securities and the potential sale of other assets.
During 2008 and 2009, the Company entered into four amendments to its Credit Facility on
August 5, 2008, November 4, 2008, May 20, 2009 and September 30, 2009. The final amendment, among
other things, extended the time to effect a recapitalization under its Credit Facility from
September 30, 2009 to November 30, 2009. Pursuant to the final amendment, the Company also received
the right to prepay its Credit Facility in full at any time on or prior to November 30, 2009 at a
discounted amount equal to 65% of the aggregate principal amount outstanding. On November 6, 2009,
concurrently with the closing of the private placement of 12% Preferred Stock, the Company repaid
its Credit Facility in full at the discounted amount and the Credit Facility was terminated in
accordance with its terms.
Long-Term Liquidity Needs
The Company expects to meet its long-term liquidity needs, which may include principal
repayments of debt obligations, investments in various real estate investor programs and
institutional funds and capital expenditures, through current and retained cash flow earnings, the
sale of real estate properties and proceeds from the potential issuance of debt or equity
securities and the potential sale of other assets. The Company may seek to obtain new secured or
unsecured lines of credit in the future, although the Company can provide no assurance that it will
find financing on favorable terms or at all.
Factors That May Influence Future Sources of Capital and Liquidity
On November 16, 2007, the Company completed the acquisition of a 51% membership interest in
Grubb & Ellis Alesco Global Advisors, LLC (Alesco). Pursuant to the Intercompany Agreement
between the Company and Alesco, dated as of November 16, 2007, the Company committed to invest
$20.0 million in seed capital into the open and closed end real estate funds that Alesco expects to
launch. Additionally, upon achievement of certain earn-out targets, the Company would be required
to purchase up to an additional 27% interest in Alesco for $15.0 million. The Company is allowed to
use $15.0 million of seed capital to fund the earn-out payments. As of December 31, 2009, the
Company has invested $0.5 million in seed capital into the open and closed end real estate
53
funds that Alesco launched during 2008. In 2010, the Company projects to have cash outflows of
approximately $2.8 million related to investments and working capital contributions. In addition,
the Company may launch, subject to the agreement and control of the operating partners, two
additional closed end funds which could require seed capital up to $5.0 million. The Company
anticipates that such amounts will only be funded to the extent the Company has available cash to
contribute into the Alesco funds.
Cash Flow
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Net cash used in operating activities increased $28.4 million to $62.0 million for the year
ended December 31, 2009, compared to net cash used in operating activities of $33.6 million for the
same period in 2008. Net cash used in operating activities included a decrease in net loss of
$262.1 million adjusted for decreases in non-cash reconciling items, the most significant of which
included $180.5 million in goodwill impairment, $66.4 million in real estate related impairments,
$11.0 million in depreciation and amortization, $0.9 million as a result of amortizing the
identified intangible contract rights associated with the acquisition of Realty, partially offset
by a $4.9 million increase in deferred taxes. Also contributing to this increase in net cash used
in operating activities were net changes in other operating assets and liabilities of
$36.3 million.
Net cash provided by (used in) investing activities was $97.2 million and ($76.3) million for
the years ended December 31, 2009 and 2008, respectively. For the year ended December 31, 2009, net
cash provided by investing activities related primarily to proceeds from the sale of properties of
$93.5 million. For the year ended December 31, 2008, net cash used in investing activities related
primarily to the acquisition of properties of $122.2 million and investments in unconsolidated
entities of $29.2 million offset by proceeds from repayment of advances to related parties net of
advances to related parties of $6.9 million and proceeds from collection of real estate deposits
and pre-acquisition costs net of payment of real estate deposits and pre-acquisition costs of
$59.1 million.
Net cash (used in) provided by financing activities was ($29.1) million and $93.6 million for
the years ended December 31, 2009 and 2008, respectively. For the year ended December 31, 2009, net
cash used in financing activities related primarily to repayment of advances on the line of credit
of $56.3 million and repayment of notes payable and capital lease obligations of $79.4 million
offset by advances on the line of credit of $15.2 million, proceeds from the issuance of senior
notes of $5.0 million and proceeds from the issuance of preferred stock of $85.1 million. For the
year ended December 31, 2008, net cash provided by financing activities related primarily to
advances on the line of credit of $55.0 million and borrowings on notes payable and capital lease
obligations of $103.3 million offset by repayments of notes payable and capital lease obligations
of $56.4 million.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Net cash used in operating activities increased $67.2 million to $33.6 million for the year
ended December 31, 2008, compared to net cash provided by operating activities of $33.5 million for
the same period in 2007. Net cash used in operating activities included a decrease in net income of
$365.6 million adjusted for an increase in non-cash reconciling items, the most significant of
which was $181.3 million in goodwill impairment, $90.4 million in real estate related impairments,
$11.7 million in share-based compensation, $29.0 million in depreciation and amortization primarily
related to five properties held for sale, $1.2 million as a result of amortizing the identified
intangible contract rights associated with the acquisition of Realty, partially offset by a
$3.3 million increase in deferred taxes. Also contributing to this increase was cash used in net
changes in other operating assets and liabilities of $36.3 million.
Net cash used in investing activities decreased $410.6 million to $76.3 million for the year
ended December 31, 2008, compared to $486.9 million for the same period in 2007. This decrease in
cash used in investing activities was primarily related to a decrease of $483.0 million of cash
used in the acquisition and related improvements of office properties and asset purchases for
sponsored TIC programs, partially offset by $92.9 million in proceeds from the sales of certain
real estate assets in 2007.
Net cash provided by financing activities decreased $306.9 million to $93.6 million for the
year ended December 31, 2008, compared to $400.5 million for the same period in 2007. The decrease
was primarily due to a decrease of $443.7 million in borrowings on notes payable related to
properties purchased for sponsored TIC programs in 2008, a decrease of $27.0 million in
contributions from noncontrolling interests in 2008 offset by a decrease of $87.5 million in
repayments of notes payable and capital lease obligations and an increase in advances on the line
of credit of $55.0 million in 2008.
54
Commitments, Contingencies and Other Contractual Obligations
Contractual Obligations
The Company leases office space throughout the country through non-cancelable operating
leases, which expire at various dates through June 30, 2020.
The following table summarizes contractual obligations as of December 31, 2009 and the effect
that such obligations are expected to have on the Companys liquidity and cash flow in future
periods. This table does not reflect any available extension options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
More Than |
|
|
|
|
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
|
|
(In thousands) |
|
2010 |
|
|
(2011-2012) |
|
|
(2013-2014) |
|
|
(After 2014) |
|
|
Total |
|
Principal properties held for investment |
|
$ |
|
|
|
$ |
|
|
|
$ |
37,000 |
|
|
$ |
70,000 |
|
|
$ |
107,000 |
|
Interest properties held for investment |
|
|
6,061 |
|
|
|
12,804 |
|
|
|
12,698 |
|
|
|
10,048 |
|
|
|
41,611 |
|
Principal senior notes |
|
|
|
|
|
|
16,277 |
|
|
|
|
|
|
|
|
|
|
|
16,277 |
|
Interest senior notes |
|
|
1,424 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
|
2,267 |
|
Operating lease obligations others |
|
|
15,240 |
|
|
|
30,832 |
|
|
|
30,763 |
|
|
|
8,965 |
|
|
|
85,800 |
|
Operating lease obligations general |
|
|
22,703 |
|
|
|
37,991 |
|
|
|
19,909 |
|
|
|
12,458 |
|
|
|
93,061 |
|
Capital lease obligations |
|
|
939 |
|
|
|
755 |
|
|
|
|
|
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
46,367 |
|
|
$ |
99,502 |
|
|
$ |
100,370 |
|
|
$ |
101,471 |
|
|
$ |
347,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TIC Program Exchange Provisions. Prior to the Merger, NNN entered into agreements in which
NNN agreed to provide certain investors with a right to exchange their investment in certain TIC
programs for an investment in a different TIC program. NNN also entered into an agreement with
another investor that provided the investor with certain repurchase rights under certain
circumstances with respect to their investment. The agreements containing such rights of exchange
and repurchase rights pertain to initial investments in TIC programs totaling $31.6 million. In
July 2009 the Company received notice from an investor of their intent to exercise such rights of
exchange and repurchase with respect to an initial investment totaling $4.5 million. The Company is
currently evaluating such notice to determine the nature and extent of the right of such exchange
and repurchase, if any.
The Company deferred revenues relating to these agreements of $0.3 million, $1.0 million and
$0.4 million for the years ended December 31, 2009, 2008 and 2007, respectively. Additional losses
of $4.7 million and $14.3 million related to these agreements were recorded during the years ended
December 31, 2009 and 2008, respectively, to reflect the impairment in value of properties
underlying the agreements with investors. As of December 31, 2009 the Company had recorded
liabilities totaling $22.8 million related to such agreements, consisting of $3.8 million of
cumulative deferred revenues and $19.0 million of additional losses related to these agreements.
Off-Balance Sheet Arrangements. From time to time the Company provides guarantees of loans
for properties under management. As of December 31, 2009, there were 146 properties under
management with loan guarantees of approximately $3.6 billion in total principal outstanding with
terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of
approximately $4.8 billion. As of December 31, 2008, there were 151 properties under management
with loan guarantees of approximately $3.5 billion in total principal outstanding with terms
ranging from one to 10 years, secured by properties with a total aggregate purchase price of
approximately $4.8 billion. In addition, the consolidated VIEs and unconsolidated VIEs are jointly
and severally liable on the non-recourse mortgage debt related to the interests in the Companys
TIC investments totaling $277.0 million and $154.8 million as of December 31, 2009, respectively.
The Companys guarantees consisted of the following as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Non-recourse/carve-out guarantees of debt of properties under management(1) |
|
$ |
3,416,849 |
|
|
$ |
3,372,007 |
|
Non-recourse/carve-out guarantees of the Companys debt(1) |
|
$ |
97,000 |
|
|
$ |
97,000 |
|
Recourse guarantees of debt of properties under management |
|
$ |
33,898 |
|
|
$ |
42,426 |
|
Recourse guarantees of the Companys debt(2) |
|
$ |
10,000 |
|
|
$ |
10,000 |
|
|
|
|
(1) |
|
A non-recourse/carve-out guarantee imposes personal liability on the
guarantor in the event the borrower engages in certain acts prohibited
by the loan documents. Each non-recourse carve-out guarantee is an
individual document entered into with the mortgage lender in
connection with the purchase or refinance of an individual property.
While there is not a standard document evidencing these guarantees,
liability under the non-recourse carve-out guarantees generally may be
triggered by, among other things, any or all of the following: |
55
|
|
|
a voluntary bankruptcy or similar insolvency proceeding of any borrower; |
|
|
|
|
a transfer of the property or any interest therein in violation of the loan documents; |
|
|
|
|
a violation by any borrower of the special purpose entity requirements set forth in the
loan documents; |
|
|
|
|
any fraud or material misrepresentation by any borrower or any guarantor in connection with
the loan; |
|
|
|
|
the gross negligence or willful misconduct by any borrower in connection with the property,
the loan or any obligation under the loan documents; |
|
|
|
|
the misapplication, misappropriation or conversion of (i) any rents, security deposits,
proceeds or other funds, (ii) any insurance proceeds paid by reason of any loss, damage or
destruction to the property, and (iii) any awards or other amounts received in connection
with the condemnation of all or a portion of the property; |
|
|
|
|
any waste of the property caused by acts or omissions of borrower of the removal or
disposal of any portion of the property after an event of default under the loan documents;
and |
|
|
|
|
the breach of any obligations set forth in an environmental or hazardous substances
indemnification agreement from borrower. |
Certain violations (typically the first three listed above) render the entire debt balance
recourse to the guarantor regardless of the actual damage incurred by lender, while the
liability for other violations is limited to the damages incurred by the lender. Notice and cure
provisions vary between guarantees. Generally the guarantor irrevocably and unconditionally
guarantees to the lender the payment and performance of the guaranteed obligations as and when
the same shall be due and payable, whether by lapse of time, by acceleration or maturity or
otherwise, and the guarantor covenants and agrees that it is liable for the guaranteed
obligations as a primary obligor. As of December 31, 2009, to the best of the Companys
knowledge, there is no amount of debt owed by the Company as a result of the borrowers engaging
in prohibited acts. |
|
(2) |
|
In addition to the $10.0 million principal guarantee, the Company has
guaranteed any shortfall in the payment of interest on the unpaid
principal amount of the mortgage debt on one owned property. |
Management initially evaluates these guarantees to determine if the guarantee meets the
criteria required to record a liability in accordance with the requirements of the Guarantees
Topic. Any such liabilities were insignificant as of December 31, 2009 and 2008. In addition, on an
ongoing basis, the Company evaluates the need to record additional liability in accordance with the
requirements of the Contingencies Topic. As of December 31, 2009 and 2008, the Company had recourse
guarantees of $33.9 million and $42.4 million, respectively, relating to debt of properties under
management. As of December 31, 2009, approximately $9.8 million of these recourse guarantees relate
to debt that has matured or is not currently in compliance with certain loan covenants. In
evaluating the potential liability relating to such guarantees, the Company considers factors such
as the value of the properties secured by the debt, the likelihood that the lender will call the
guarantee in light of the current debt service and other factors. As of December 31, 2009 and 2008,
the Company recorded a liability of $3.8 million and $9.1 million, respectively, related to its
estimate of probable loss related to recourse guarantees of debt of properties under management
which matured in January and April 2009.
Quantitative and Qualitative Disclosures About Market Risk.
Market risks include risks that arise from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices and other market changes that affect market
sensitive instruments. Management believes that the primary market risk to which the Company would
be exposed would be interest rate risk. As of December 31, 2009, the Company had no outstanding
variable rate debt; therefore Management believes the Company has no interest rate risk. The
interest rate risk management objective is to limit the impact of interest rate changes on earnings
and cash flows and to lower the overall borrowing costs. To achieve this objective, in the past the
Company has entered into derivative financial instruments such as interest rate swap and cap
agreements when appropriate and may do so in the future. The Company had no such agreements
outstanding as of December 31, 2009.
In addition to interest rate risk, the value of the Companys real estate investments is
subject to fluctuations based on changes in local and regional economic conditions and changes in
the creditworthiness of tenants, which may affect the Companys ability to refinance its
outstanding mortgage debt, if necessary.
56
Except for the acquisition of Grubb & Ellis Alesco Global Advisors, LLC, as previously
described, the Company does not utilize financial instruments for trading or other speculative
purposes, nor does it utilize leveraged financial instruments.
The table below presents, as of December 31, 2009, the principal amounts and weighted average
interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to
interest rate changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date |
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
|
Fair Value |
|
Fixed rate debt principal payments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
37,000 |
|
|
$ |
70,000 |
|
|
$ |
107,000 |
|
|
$ |
94,453 |
|
Weighted average interest rate on maturing debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.32 |
% |
|
|
6.29 |
% |
|
|
6.30 |
% |
|
|
|
|
Notes payable were $107.0 million as of December 31, 2009. As of December 31, 2009, the
Company had fixed rate mortgage loans with effective interest rates ranging from 6.29% to 6.32% and
a weighted average effective interest rate of 6.30% per annum.
In addition, as of December 31, 2009, the Company had $16.3 million in senior notes
outstanding at a fixed interest rate of 8.75% per annum and a fair value of $15.8 million.
As of December 31, 2008, the outstanding principal balance on the Credit Facility and mortgage
loan debt obligations totaled $63.0 million and $216.0 million, respectively. As of December 31,
2008 the outstanding principal balance on these variable rate debt obligations was $108.7 million,
with a weighted average interest rate of 3.78% per annum. During the year ended December 31, 2009,
the Credit Facility was repaid in full at the discounted amount and the properties with variable
rate mortgage debt were deconsolidated.
57
MANAGEMENT
Executive Officers and Directors
The following table and discussion sets forth, as of the date of this prospectus, the names
and ages of our current directors and our executive officers. Executive officers are appointed by
our Board of Directors and shall serve until the expiration of their contracts, their death,
resignation or removal by our Board of Directors. Our directors serve one year terms or until their
successors are elected and qualified or until their death, resignation or removal in the manner
provided in our certificate of incorporation, bylaws or other relevant operating documents. The
present term of each of our directors will expire at the next annual meeting of our shareowners.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position with Company |
Thomas DArcy
|
|
|
50 |
|
|
Chief Executive Officer, President and Director |
Richard W. Pehlke
|
|
|
56 |
|
|
Executive Vice President and Chief Financial Officer |
Andrea R. Biller
|
|
|
60 |
|
|
General Counsel, Executive Vice President and Corporate Secretary |
Jeffrey T. Hanson
|
|
|
39 |
|
|
Chief Investment Officer |
Jacob Van Berkel
|
|
|
49 |
|
|
Executive Vice President and Chief Operating Officer |
Stanley J. Olander, Jr.
|
|
|
55 |
|
|
Executive Vice PresidentMultifamily |
C. Michael Kojaian
|
|
|
48 |
|
|
Director |
Robert J. McLaughlin
|
|
|
76 |
|
|
Director |
Devin I. Murphy
|
|
|
49 |
|
|
Director |
D. Fleet Wallace
|
|
|
42 |
|
|
Director |
Rodger D. Young
|
|
|
63 |
|
|
Director |
Thomas DArcy has served as the President and Chief Executive Officer and as a director of the
Company since November 16, 2009. Mr. DArcy has been since April 2008 and is currently the
non-executive chairman of the board of directors of Inland Real Estate Corporation (NYSE: IRC),
where he has also been an independent director since 2005. Mr. DArcy has over 20 years of
experience acquiring, developing and financing all forms of commercial and residential real estate.
He is currently a principal in Bayside Realty Partners, a private real estate company focused on
acquiring, renovating and developing land and income producing real estate primarily in the New
England area. From 2001 to 2003, Mr. DArcy was president and chief executive officer of Equity
Investment Group, a private real estate company owned by an investor group which included The
Government of Singapore, The Carlyle Group and Northwestern Mutual Life Insurance Company. Prior to
his tenure with Equity Investment Group, Mr. DArcy was the chairman of the board, president and
chief executive officer of Bradley Real Estate, Inc., a Boston-based real estate investment trust
traded on the NYSE, from 1989 to 2000. Mr. DArcy is a graduate of Bates College.
Richard W. Pehlke has served as the Executive Vice President and Chief Financial Officer of
the Company since February 2007. Prior to joining the Company, Mr. Pehlke served as Executive Vice
President and Chief Financial Officer and a member of the board of directors of Hudson Highland
Group, a publicly held global professional staffing and recruiting business, from 2003 to December
2005 and served as a consultant during 2006. From 2001 to 2003, Mr. Pehlke operated his own
consulting business specializing in financial strategy and leadership development. In 2000, he was
the Executive Vice President and Chief Financial Officer of ONE, Inc. a privately held software
implementation business. Prior to 2000, Mr. Pehlke held senior financial positions in the
telecommunications, financial services and food and consumer products industries.
Andrea R. Biller has served as Executive Vice President, General Counsel and Corporate
Secretary of the Company since December 2007. She joined Grubb & Ellis Realty Investors, LLC in
March 2003 as General Counsel and served as NNNs General Counsel, Executive Vice President and
Corporate Secretary since November 2006 and director since December 2007. Ms. Biller also has
served as Executive Vice President and Corporate Secretary of Grubb & Ellis Healthcare REIT II,
Inc. since January 2009 and Corporate Secretary of Grubb & Ellis Apartment REIT, Inc. since April
2009 and from December 2005 to February 2009. Ms. Biller also has served as a director of Grubb &
Ellis Apartment REIT, Inc. since June 2008. Ms. Biller has served as Executive Vice President and
Secretary for Grubb & Ellis Equity Advisors since June 2009. Ms. Biller served as an Attorney at
the Securities and Exchange Commission, Division of Corporate Finance, in Washington D.C. from
1995-2000, including two years as Special Counsel, and as a private attorney specializing in
corporate and securities law from 1990-1995 and 2000-2002. Ms. Biller is licensed to practice law
in California, Virginia, and Washington, D.C.
Jeffrey T. Hanson has served as Chief Investment Officer of the Company since December 2007.
He has served as Chief Investment Officer of NNN since November 2006 and as a director since
November 2008 and joined Grub & Ellis Realty Investors in July 2006 and has served as its President
and Chief Investment Officer since November 2007. Mr. Hanson has also served as the President and
Chief Executive Officer of Realty since July 2006 and as Chairman since April 2007. Mr. Hanson also
has served as
58
Chief Executive Officer and Chairman of the Board of Grubb & Ellis Healthcare REIT II, Inc.
since January 2009. Mr. Hanson has served as President and Chief Executive Officer for Grubb &
Ellis Equity Advisors since June 2009. From December 1997 to July 2006, Mr. Hanson was a Senior
Vice President with the Grubb and Ellis Institutional Investment Group in Grubb & Ellis Newport
Beach office. Mr. Hanson served as a real estate broker with CB Richard Ellis from 1996 to December
1997. Mr. Hanson formerly served as a member of the Grubb & Ellis Presidents Counsel and
Institutional Investment Group Board of Advisors.
Jacob Van Berkel has served as Executive Vice President and Chief Operating Officer of the
Company since February 2008 and President, Real Estate Services since May 2008. Mr. Van Berkel
oversees operations and business integration for Grubb & Ellis, having joined NNN in August 2007 to
assist with the merger of the two companies. He is responsible for the strategic direction of all
Grubb & Ellis brokerage operations, marketing and communications, research and other day-to-day
operational activities. He has 25 years of experience, including more than four years at CB Richard
Ellis as senior vice president, human resources as well as in senior global human resources,
operations and sales positions with First Data Corporation, Gateway Inc. and Western Digital.
Stanley J. Olander, Jr. has served as an Executive Vice President Multifamily of the Company
since December 2007. He has also served as Chief Executive Officer and a director of Grubb & Ellis
Apartment REIT, Inc. and Chief Executive Officer of Grubb & Ellis Apartment REIT Advisors, LLC
since December 2005. Mr. Olander has also served as Grubb & Ellis Apartment REIT, Inc.s Chairman
of the Board since December 2006 and has also served as President of Grubb & Ellis Apartment REIT,
Inc. from April 2007 until March 2010 and as President of Grubb & Ellis Apartment REIT Advisors,
LLC since April 2007. Mr. Olander has also been a Managing Member of ROC REIT Advisors, LLC since
2006 and a Managing Member of ROC Realty Advisors since 2005. Additionally, since July 2007,
Mr. Olander has also served as Chief Executive Officer, President and Chairman of the Board of
Grubb & Ellis Residential Management, Inc. He served as President and Chief Financial Officer and a
member of the board of directors of Cornerstone Realty Income Trust, Inc. from 1996 until April
2005.
C. Michael Kojaian has served as a director of the Company since December 1996. He served as
the Chairman of the Board of Directors of the Company from June 2002 until December 7, 2007 and has
served as the Chairman of the Board of Directors of the Company since January 6, 2009. He has been
the President of Kojaian Ventures, L.L.C. and also Executive Vice President, a director and a
shareholder of Kojaian Management Corporation, both of which are investment firms headquartered in
Bloomfield Hills, Michigan, since 2000 and 1985, respectively. He is also a director of Arbor
Realty Trust, Inc. Mr. Kojaian has also served as the Chairman of the Board of Directors of Grubb &
Ellis Realty Advisors, Inc., an affiliate of the Company, from its inception in September 2005
until April 2008, and as its Chief Executive Officer from December 13, 2007 until April 2008.
Robert J. McLaughlin has served as a director of the Company since July 2004. Mr. McLaughlin
previously served as a director of the Company from September 1994 to March 2001. He founded The
Sutter Group in 1982, a management consulting company that focuses on enhancing shareowner value,
and currently serves as its President. Previously, Mr. McLaughlin served as President and Chief
Executive Officer of Tru-Circle Corporation, an aerospace subcontractor, from November 2003 to
April 2004, and as Chairman of the Board of Directors from August 2001 to February 2003, and as
Chairman and Chief Executive Officer from October 2001 to April 2002 of Imperial Sugar Company.
Devin I. Murphy has served as a director of the Company since July 2008. Mr. Murphy is
currently a Vice Chairman in Investment Banking for Morgan Stanley. Prior to joining Morgan Stanley
in November 2009, Mr. Murphy was a Managing Partner of Coventry Real Estate Advisors, a real estate
private equity firm founded in 1998 which sponsors institutional investment funds. Prior to joining
Coventry Real Estate Advisors, LLC in March 2008, Mr. Murphy was the Global Head of Real Estate
Investment Banking at Deutsche Bank Securities, Inc. from 2004 to 2007. Prior to joining Deutsche
Bank, he was at Morgan Stanley & Company for 14 years in a variety of roles, including as Co-Head
North American Real Estate Investment Banking and Global Head of the firms Real Estate Private
Capital Markets Group.
D. Fleet Wallace has served as a director of the Company since December 2007. Mr. Wallace also
had served as a director of NNN Realty Advisors, Inc. (NNN) from November 2006 to December 2007.
Mr. Wallace is a principal and co-founder of McCann Realty Partners, LLC, an apartment investment
company focusing on garden apartment properties in the Southeast formed in 2004. From April 1998 to
August 2001, Mr. Wallace served as corporate counsel and assistant secretary of United Dominion
Realty Trust, Inc., a publicly-traded real estate investment trust. From September 1994 to April
1998, Mr. Wallace was in the private practice of law with McGuire Woods in Richmond, Virginia.
Mr. Wallace has also served as a Trustee of G REIT Liquidating Trust since January 2008.
Rodger D. Young has served as a director of the Company since April 2003. Mr. Young has been a
name partner of the law firm of Young & Susser, P.C. since its founding in 1991, a boutique firm
specializing in commercial litigation with offices in Southfield, Michigan and New York City. In
2001, Mr. Young was named Chairman of the Bush Administrations Federal Judge and U.S. Attorney
Qualification Committee by Governor John Engler and Michigans Republican Congressional Delegation.
Mr. Young is a member of the American College of Trial Lawyers and was listed in the 2007 edition
of Best Lawyers of America. Mr. Young was
59
named by Chambers International and by Best Lawyers in America as one of the top commercial
litigators in the United States.
Communications with the Directors
Shareowners, employees and others interested in communicating with the Chairman of the Board
may do so by writing to C. Michael Kojaian, c/o Corporate Secretary, Grubb & Ellis Company, 1551
North Tustin Avenue, Suite 300, Santa Ana, California 92705. Shareowners, employees and others
interested in communicating with any of the other directors of the Company may do so by writing to
such director, c/o Corporate Secretary, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300,
Santa Ana, California 92705.
60
CORPORATE GOVERNANCE
Meetings
For the year ended December 31, 2009, our Board of Directors held 17 meetings. Each incumbent
director attended at least 75% of the aggregate of (i) the total number of meetings of the Board of
Directors held during the period that the individual served and (ii) the total number of meetings
held by all committees of the Board on which the director served during the period that the
individual served.
Independent Directors
The Board determined that seven of the nine directors serving in 2009, Messrs. Carpenter,
Greene, Kojaian, McLaughlin, Murphy, Wallace and Young were independent. For the year ended
December 31, 2009, Mr. DArcy and Mr. Hunt were not considered independent under NYSE listing
requirements because Mr. DArcy was serving as Chief Executive Officer as of November 16, 2009 and
Mr. Hunt had been serving as the Companys Interim Chief Executive Officer commencing in July 2008
until November 16, 2009.
For purposes of determining the independence of its directors, the Board applies the following
criteria:
No Material Relationship
The director must not have any material relationship with the Company. In making this
determination, the Board considers all relevant facts and circumstances, including commercial,
charitable and familial relationships that exist, either directly or indirectly, between the
director and the Company.
Employment
The director must not have been an employee of the Company at any time during the past three
years. In addition, a member of the directors immediate family (including the directors spouse;
parents; children; siblings; mothers-, fathers-, brothers-, sisters-, sons- and daughters-in-law;
and anyone who shares the directors home, other than household employees) must not have been an
executive officer of the Company in the prior three years.
Other Compensation
The director or an immediate family member must not have received more than $100,000 per year
in direct compensation from the Company, other than in the form of director fees, pension or other
forms of deferred compensation during the past three years.
Auditor Affiliation
The director must not be a current partner or employee of the Companys internal or external
auditor. An immediate family member of the director must not be a current partner of the Companys
internal or external auditor, or an employee of such auditor who participates in the auditors
audit, assurance or tax compliance (but not tax planning) practice. In addition, the director or an
immediate family member must not have been within the last three years a partner or employee of the
Companys internal or external auditor who personally worked on the Companys audit.
Interlocking Directorships
During the past three years, the director or an immediate family member must not have been
employed as an executive officer by another entity where one of the Companys current executive
officers served at the same time on the compensation committee.
Business Transactions
The director must not be an employee of another entity that, during any one of the past three
years, received payments from the Company, or made payments to the Company, for property or
services that exceed the greater of $1.0 million or 2% of the other entitys annual consolidated
gross revenues. In addition, a member of the directors immediate family must not have been an
executive officer of another entity that, during any one of the past three years, received payments
from the Company, or made payments to the
61
Company, for property or services that exceed the greater of $1.0 million or 2% of the other
entitys annual consolidated gross revenues.
Audit Committee
The Audit Committee of the Board is a separately designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 as
amended (the Exchange Act) and the rules thereunder. The Audit Committee operates under a written
charter adopted by the Board of Directors. The charter of the Audit Committee was last revised
effective January 28, 2008 and is available on the Companys website at www.grubb-ellis.com and
printed copies of which may be obtained upon request by contacting Investor Relations, Grubb &
Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705. The members of the
Audit Committee as of December 31, 2009 are Robert J. McLaughlin, Chair, D. Fleet Wallace and
Rodger D. Young. The Board has determined that the members of the Audit Committee are independent
under the NYSE listing requirements and the Exchange Act and the rules thereunder, and that
Mr. McLaughlin is an audit committee financial expert in accordance with rules established by the
SEC. For the year ended December 31, 2009, the Audit Committee held 9 meetings.
Compensation Committee
The Board of Directors has delegated to the Compensation Committee, a separately designated
standing committee, oversight responsibilities for the Companys executive compensation programs.
The Compensation Committee determines the policy and strategies of the Company with respect to
executive compensation taking into account certain factors that the Compensation Committee deems
appropriate such as (a) compensation elements that will enable the Company to attract and retain
executive officers who are in a position to achieve the strategic goals of the Company which are in
turn designed to enhance shareowner value, and (b) the Companys ability to compensate its
executives in relation to its profitability and liquidity.
The Compensation Committee approves, subject to further, final approval by the full Board of
Directors, (a) all compensation arrangements and terms of employment, and any material changes to
the compensation arrangements or terms of employment, for the NEOs (as defined below) and certain
other key employees (including employment agreements and severance arrangements), and (b) the
establishment of, and changes to, equity-based awards programs. In addition, each calendar year,
the Compensation Committee approves the annual incentive goals and objectives of each NEO and
certain other key employees, evaluates the performance of each NEO and certain other key employees
against the approved performance goals and objectives applicable to him or her, determines whether
and to what extent any incentive awards have been earned by each NEO, and makes recommendations to
the Companys Board of Directors regarding the approval of incentive awards. Consistent with the
Compensation Committees objectives, the Companys overall compensation program is structured to
attract, motivate and retain highly qualified executives by paying them competitively and tying
their compensation to the Companys success as a whole and their contribution to the Companys
success. The Compensation Committee also provides general oversight of the Companys employee
benefit and retirement plans.
The members of the Compensation Committee as of December 31, 2009 are D. Fleet Wallace, Chair,
Robert J. McLaughlin and Rodger D. Young. The Board has determined that Messrs. Wallace, McLaughlin
and Rodgers are independent under the NYSE listing requirements and the Exchange Act and the rules
there under. For the year ended December 31, 2009, the Compensation Committee held 4 meetings.
The Compensation Committee operates under a written charter adopted by the full Board and
revised effective December 10, 2007, which is available on the Companys website at
www.grubb-ellis.com. Printed copies may be obtained upon request by contacting Investor
Relations, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705.
Corporate Governance and Nominating Committee
The functions of the Companys Corporate Governance and Nominating Committee are to assist the
Board with respect to: (i) director qualification, identification, nomination, independence and
evaluation; (ii) committee structure, composition, leadership and evaluation; (iii) succession
planning for the CEO and other senior executives; and (iv) corporate governance matters. The
Corporate Governance and Nominating Committee operates under a written charter adopted by the
Board, which is available on the Companys website at www.grubb-ellis.com and printed copies of
which may be obtained upon request by contacting Investor Relations, Grubb & Ellis Company, 1551
North Tustin Avenue, Suite 300, Santa Ana, California 92705. The members of the Corporate
Governance and Nominating Committee as of December 31, 2009, are Rodger D. Young, Chair, and Devin
I. Murphy. The Board has determined that Messrs. Young and Murphy are independent under the NYSE
listing requirements and the Exchange Act
62
and the rules thereunder. For the year ended December 31, 2009, the Corporate Governance and
Nominating Committee held 5 meetings.
Director Nominations
The Corporate Governance and Nominating Committee considers candidates for director who are
recommended by its members, by other Board members, by shareowners and by management. The Corporate
Governance and Nominating Committee evaluates director candidates recommended by shareowners in the
same way that it evaluates candidates recommended by its members, other members of the Board, or
other persons. The Corporate Governance and Nominating Committee considers all aspects of a
candidates qualifications in the context of the Companys needs at that point in time with a view
to creating a Board with a diversity of experience and perspectives. Among the qualifications,
qualities and skills of a candidate considered important by the Corporate Governance and Nominating
Committee are a commitment to representing the long-term interests of the shareowners; an
inquisitive and objective perspective; the willingness to take appropriate risks; leadership
ability; personal and professional ethics, integrity and values; practical wisdom and sound
judgment; business and professional experience in fields such as real estate, finance and
accounting; and geographic, gender, age and ethnic diversity.
Nominations by shareowners of persons for election to the Board of Directors must be made
pursuant to timely notice in writing to our Secretary. To be timely, a shareowners notice shall be
delivered or mailed to and received at our principal executive offices not later than the close of
business on the 90th day, nor earlier than the close of business on the 120th day prior to the
first anniversary of last years annual meeting; provided, however, that if the date of the annual
meeting is more than 30 days before or more than 70 days after such anniversary date, notice must
be delivered not earlier than the close of business on the 120th day prior to the annual meeting
and not later than the close of business on the later of the 90th day prior to the annual meeting
or the tenth day following the day on which public announcement of the date of the meeting is first
made. Such shareowners notice shall set forth: (1) the name, age, business address or, if known,
residence address of each proposed nominee; (2) the principal occupation or employment of each
proposed nominee; (3) the name and residence of the Chairman of the Board for notice by the Board
of Directors, or the name and residence address of the notifying shareowner for notice by said
shareowner; and (4) the total number of shares that to the best of the knowledge and belief of the
person giving the notice will be voted for each of the proposed nominees.
Corporate Governance Guidelines
Effective July 6, 2006, the Board adopted corporate governance guidelines to assist the Board
in the performance of its duties and the exercise of its responsibilities. The Companys Corporate
Governance Guidelines are available on the Companys website at www.grubb-ellis.com and printed
copies may be obtained upon request by contacting Investor Relations, Grubb & Ellis Company, 1551
North Tustin Avenue, Suite 300, Santa Ana, California 92705.
Director Attendance at Annual Meetings
Our Board has adopted a policy under which each member of the Board is strongly encouraged to
attend each Annual Meeting of our shareowners. All directors then in office who were elected at the
Companys 2009 Annual Meeting attended the Companys 2009 Annual Meeting.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and shareowners
holding ten percent (10%) or more of our voting securities (Insiders) to file with the SEC
reports showing their ownership and changes in ownership of Company securities, and to send copies
of these filings to us. To our knowledge, based upon review of copies of such reports furnished to
us and upon written representations that the Company has received to the effect that no other
reports were required during the year ended December 31, 2009, the Insiders complied with all
Section 16(a) filing requirements applicable to them.
Board Leadership Structure, Executive Sessions of Non-Management Directors
Mr. DArcy currently serves as the chief executive officer of the Company and Mr. Kojaian, a
non-management director, serves as Chairman of the Board. The Board has chosen to separate the
principal executive officer and Board chair positions because it believes that independent
oversight of management is an important component of an effective Board and this structure benefits
the interests of all shareowners.
63
The Companys non-management directors meet without management present at each of the Boards
regularly scheduled in-person meetings. If the Board convenes for a special meeting, the
non-management directors will meet in executive session if circumstances warrant. The Chairman of
the Board, Mr. Kojaian, who is a non-management director, presides over executive sessions of the
Board.
Risk Oversight
The Board oversees the business of the Company and considers the risks associated with the
Companys business strategy and decisions. The Board implements its risk oversight function both as
a whole and through its Committees. In particular:
|
|
The Audit Committee oversees risks related to the Companys financial statements, the
financial reporting process, accounting and legal matters. The Audit Committee meets in executive
session with each of the Companys Chief Financial Officer, Vice President of Internal Audit and
with representatives of our independent registered public accounting firm. |
|
|
The Compensation Committee manages risks related to the Companys compensation philosophy and
programs. The Compensation Committee reviews and approves compensation programs and engages the
services of compensation consultants to ensure that it adopts appropriate levels of compensation
commensurate with industry standards. |
|
|
The Governance and Nominating Committee oversees risks related to corporate governance and
the selection of Board nominees. |
Each of the Committee Chairs reports to the full Board regarding materials risks as deemed
appropriate.
EXECUTIVE COMPENSATION
This compensation discussion and analysis describes the governance and oversight of the
Companys executive compensation programs and the material elements of compensation paid or awarded
to those who served as the Companys principal executive officer, the Companys principal financial
officer, and the three other most highly compensated executive officers of the Company during the
period from January 1, 2009 through December 31, 2009 (collectively, the named executive officers
or NEOs and individually, a named executive officer or NEO). The specific amounts and
material terms of such compensation paid, payable or awarded are disclosed in the tables and
narrative included in this prospectus. The compensation disclosure provided with respect to the
Companys NEOs and directors with respect to calendar year s 2009, 2008 and 2007 represent their
full years compensation incurred by the Company with respect to each calendar year.
Use of Consultants
Under its charter, the Compensation Committee has the power to select, retain, compensate and
terminate any compensation consultant it determines is useful in the fulfillment of the Committees
responsibilities. The committee also has the authority to seek advice from internal or external
legal, accounting or other advisors.
During 2009, Equinox Partners, an executive search firm engaged by the Board in 2008,
continued to manage the search for a permanent Chief Executive Officer. Pursuant to that search, on
November 16, 2009, Mr. DArcy became the Companys Chief Executive Officer.
In June 2009, the Compensation Committee engaged Mercer (US), Inc. to develop recommendations
for the compensation packages and key features of the ongoing compensation packages for the
Companys Section 16(b) executive officers. The Compensation Committee directed Mercer to collect
and review documentation on existing compensation programs, determine overall objectives for the
16(b) compensation packages, analyze relevant market information, outline a mix of salary, annual
and long-term incentives, and develop proposals for the design and implementation of a recommended
compensation program.
During 2008, the Special Committee of the Board of Directors appointed to direct the search
for a permanent Chief Executive Officer engaged the services of Steven Hall & Partners to develop
and recommend a compensation package for the Chief Executive Officer position. The Special
Committee utilized the services of Steven Hall Partners in connection with its search for a
permanent Chief Executive Officer in 2009, which culminated in the hiring of Mr. DArcy in November
2009.
64
Role of Executives in Establishing Compensation
In advance of each Compensation Committee meeting, the Chief Executive Officer and the Chief
Operating Officer work with the Compensation Committee Chairman to set the meeting agenda. The
Compensation Committee periodically consults with the Chief Executive of the Company with respect
to the hiring and the compensation of the other NEOs and certain other key employees.
Certain Compensation Committee Activity
The Compensation Committee met four times during the year ended December 31, 2009 and in
fulfillment of its obligations, among other things, determined on December 3, 2008, based upon a
recommendation of Christenson Advisors, LLC, that the cash retainer for independent, non-management
directors of $50,000 per annum would remain the same as would the Board Meeting and Committee
Meeting fees of $1,500 per meeting. Similarly, the Compensation Committee determined that the Audit
Chair retainer, the Compensation Chair retainer and the Governance Chair retainer would remain
constant at $15,000, $10,000 and $7,500 per annum, respectively.
Compensation Philosophy, Goals and Objectives
As a commercial real estate services company, the Company is a people oriented business which
strives to create an environment that supports its employees in order to achieve its growth
strategy and other goals established by the board so as to increase shareowner value over the long
term.
The primary goals and objectives of the Companys compensation programs are to:
|
|
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Compensate management, key employees, independent contractors and consultants on a
competitive basis in order to attract, motivate and retain high quality, high performance
individuals who will achieve the Companys short-term and long term goals; |
|
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Motivate and reward executive officers whose knowledge, skill and performance are critical
to the Companys success; |
|
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|
|
Align the interests of the Companys executive officers and shareowners through
equity-based long-term incentive awards that motivate executive officers to increase
shareowner value and reward executive officers when shareowner value increases; and |
|
|
|
|
Ensure fairness among the executive management team by recognizing contributions each
executive officer makes to the Companys success. |
The Compensation Committee established these goals in order to enhance shareowner value.
The Company believes that it is important for variable compensation, i.e., where an NEO has a
significant portion of his or her total cash compensation at risk, to constitute a significant
portion of total compensation and that such variable compensation be designed so as to reward
effective team work (through the achievement of Company-wide financial goals) as well as the
achievement of individual goals (through the achievement of business unit/functional goals and
individual performance goals and objectives). The Company believes that this dual approach best
aligns the individual NEOs interest with the interests of the shareowners.
Compensation During Term of Employment
The Companys compensation program for NEOs is currently comprised of four key elements base
salary, annual bonus incentive compensation, share-based compensation and a retirement plan that
are intended to balance the goals of achieving both short-term and long-term results which the
Company believes will effectively align management with shareowners.
Base Salary
Amounts paid to NEOs as base salaries are included in the column captioned Salary in the
Summary Compensation Table below. The base salary of each NEO is determined based upon their
position, responsibility, qualifications and experience, and reflects consideration of both
external comparison to available market data and internal comparison to other executive officers.
The base salary for an NEO is typically established by the Compensation Committee at the time
of an NEOs initial employment and may be modified during the course of employment. In the case of
the Companys Chief Executive Officer and President, Thomas P. DArcy, his base salary of $650,000
was determined by the Compensation Committee after reviewing advice from its outside consultant
regarding market comparisons of peer group companies and other relevant factors. In the case of the
Companys General
65
Counsel Executive Vice President and Corporate Secretary, Andrea R. Biller, her compensation
has not been adjusted since the inception of her former employment agreement. In the case of the
Companys Chief Financial Officer and Executive Vice President, Richard W. Pehlke, his base salary
was increased on January 1, 2008 from $350,000 to $375,000. With respect to the Companys Chief
Investment Officer, Jeffrey T. Hansons base salary was increased on August 1, 2008 from $350,000
to $450,000. As a result of Jacob Van Berkel being promoted to Chief Operating Officer and
Executive Vice President on March 1, 2008, Mr. Van Berkels base salary was increased from $280,000
to $400,000. Effective March 1, 2009, the base salary for each of Ms. Biller and Messrs. Hanson,
Pehlke and Van Berkel was reduced by 10.0%.
The base salary component is designed to constitute between 40% and 50% of total annual
compensation a target for the NEOs based upon each individuals position in the organization and
the Compensation Committees determination of each positions ability to directly impact the
Companys financial results.
Annual Bonus Incentive Compensation
Amounts paid to NEOs under the annual bonus plan are included in the column captioned Bonus
in the Summary Compensation Table below. In addition to earning base salaries, each of the
Companys NEOs is eligible to receive an annual cash bonus, the target amount of which is set by
the individual employment agreement and/or Compensation Committee with each NEO. The annual bonus
incentive of each NEO is determined based upon his or her position, responsibility, qualifications
and experience, and reflects consideration of both external comparison to available market data and
internal comparison to other executive officers.
The annual cash bonus plan target for NEOs is between 50% and 200% of base salary and is
designed to constitute from 20% to 50% of an NEOs total annual target compensation. The bonus plan
component is based on each individuals role and responsibilities in the company and the
Committees determination of each NEOs ability to directly impact the Companys financial results.
The 2009 annual cash bonus plan target was 150% of base salary for Ms. Biller and Messrs. Pehlke
and Hanson and 100% of base salary for Mr. Van Berkel. If the highest level of performance
conditions with respect to the 2009 annual cash bonus is satisfied, then the value of the 2009
annual cash bonuses would be $540,000 for Ms. Biller, $506,250 for Mr. Pehlke, $607,500 for
Mr. Hanson and $360,000 for Mr. Van Berkel. There is no 2009 annual cash bonus for Mr. DArcy with
respect to the period commencing on November 16, 2009 and continuing up to and through December 31,
2009. No annual cash bonus plan payments were made to the NEOs for fiscal year 2009. On March 10,
2010, the Compensation Committee awarded to each of Messrs. Pehlke, Hanson and Van Berkel a cash
bonus of $400,000 (which is inclusive of any other bonuses that would otherwise be payable to any
of them with respect to 2009) for 2009 performance and retention through the first quarter of 2010.
Such bonuses will be paid to each of Messrs. Pehlke, Hanson and Van Berkel during 2010.
The Compensation Committee reviews each NEOs bonus plan annually. Annual Company EBITDA
targets are determined in connection with the annual calendar-year based budget process. A minimum
threshold of 80% of Company EBITDA must be achieved before any payment is awarded with respect to
this component of bonus compensation. At the end of each calendar year, the Chief Executive Officer
reviews the performance of each of the other NEOs and certain other key employees against the
financial objectives and against their personal goals and objectives and makes recommendations to
the Compensation Committee for payments on the annual cash bonus plan. The Compensation Committee
reviews the recommendations and forwards these to the Board for final approval of payments under
the plan.
Share-based Compensation and Incentives
The compensation associated with stock awards granted to NEOs is included in the Summary
Compensation Table and other tables below (including the charts that show outstanding equity
awards). Except for the November 16, 2009 grant of 2,000,000 restricted shares of common stock to
Thomas P. DArcy, no other grants were made to NEOs during the year ended December 31, 2009.
In February of 2009, each of Messrs. Pehlke and Van Berkel, on their own initiative,
voluntarily returned an aggregate of 131,000 and 130,000 restricted shares, respectively, to the
Company for re-allocation of such restricted shares, on the same terms and conditions, to various
employees in their respective business units. The returned shares were part of a grant of
250,000 shares made to each of Messrs. Pehlke and Van Berkel in December 2008.
On March 10, 2010, the Compensation Committee granted 1,000,000 restricted shares of common
stock to each of Jeffrey T. Hanson and Jacob Van Berkel. Equity grants to NEOs are intended to
align management with the long-term interests of the Companys shareowners and to have a retentive
effect upon the Companys NEOs. The Compensation Committee and the Board of Directors approve all
equity grants to NEOs.
66
Profit Sharing Plan
NNN established a profit sharing plan for its employees; pursuant to which NNN provided
matching contributions. Generally, all employees were eligible to participate following one year of
service with NNN. Matching contributions were made in NNNs sole discretion. Participants
interests in their respective contribution account vest over 4 years, with 0.0% vested in the first
year of service, 25.0% in the second year, 50.0% in the third year and 100.0% in the fourth year.
The Profit Sharing Plan was terminated on December 31, 2007.
Retirement Plans
The amounts paid to the Companys NEOs under the retirement plan are included in the column
captioned All Other Compensation in the Summary Compensation Table directly below. The Company
has established and maintains a retirement savings plan under Section 401(k) of the Internal
Revenue Code of 1986 (the Code) to cover the Companys eligible employees including the Companys
NEOs. The Code allows eligible employees to defer a portion of their compensation, within
prescribed limits, on a tax deferred basis through contributions to the Companys 401(k) plan. The
Companys 401(k) plan is intended to constitute a qualified plan under Section 401(k) of the Code
and its associated trust is intended to be exempt from federal income taxation under Section 501(a)
of the Code. The Company makes discretionary Company matching contributions to the 401(k) plan for
the benefit of the Companys employees including the Companys NEOs. In April 2009, the Companys
matching contributions to the 401(k) plan were suspended.
Personal Benefits and Perquisites
The amounts paid to the Companys NEOs for personal benefits and perquisites are included in
the column captioned All Other Compensation in the Summary Compensation Table below. Perquisites
to which all of the Companys NEOs are entitled include health, dental, life insurance, long-term
disability, profit-sharing and a 401(k) savings plan, and 100% of the premium cost of health
insurance for certain NEOs is paid for by the Company.
Long Term Incentive Plan
On May 1, 2008, the Compensation Committee adopted the Long Term Incentive Plan (LTIP) of
Grubb & Ellis Company, effective January 1, 2008, designed to reward the efforts of the executive
officers of the Company to successfully attain the Companys long-term goals by directly tying the
executive officers compensation to the Company and individual results. During fiscal year 2009, no
named executive officer received an award under the LTIP.
The LTIP is divided into two components: (i) annual long-term incentive target which comprises
50% of the overall target, and (ii) multi-year annual incentive target which comprises the other
50%.
Awards under the LTIP are earned by performance during a fiscal year and by remaining employed
by the Company through the date awards are granted, usually in March for annual long-term incentive
awards or though the conclusion of the three-year performance period for multi-year long term
incentive awards (Grant Date). All awards are paid in shares of the Companys common stock,
subject to the rights of the Company to distribute cash or other non-equity forms of compensation
in lieu of the Companys common stock.
The annual long-term incentive target is broken down into three components: (i) absolute
shareowner return (30%); corporate EBITDA (35%); and individual performance priorities (35%).
Vesting of awards upon achievement of the annual long-term incentive targets is as follows:
(i) 33.33% of the restricted shares of the Companys common stock will vest on the Grant Date;
(ii) 33.33% will vest in the first anniversary of the Grant Date; and (iii) the remaining 33.33%
will vest on the second anniversary of the Grant Date.
The multi-year long-term incentive target is broken down into two components: (i) absolute
shareowner return (50%); and relative total shareowner return (50%). Vesting of wards upon
achievement of the multi-year long-term incentive awards is as follows: (i) 50% of the restricted
shares of the Companys common stock will be paid on the Grant Date; and (ii) 50% on the first year
anniversary of the Grant Date.
67
Summary Compensation Table
The following table sets forth certain information with respect to compensation for the
calendar years ended December 31, 2009, 2008 and 2007 earned by or paid to the Companys named
executive officers for such full calendar years.
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Change in |
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|
Pension Value |
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|
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|
Non-Equity |
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|
And |
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|
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|
Incentive |
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|
Nonqualified |
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|
Name and |
|
Year |
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|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Plan |
|
|
Deferred |
|
|
All other |
|
|
|
|
Principal |
|
Ended |
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Compensation |
|
|
|
|
Position |
|
December |
|
($) |
|
|
($)(5) |
|
|
($)(10) |
|
|
($)(11) |
|
|
($) |
|
|
Earnings |
|
|
($)(8)(12)(13) |
|
|
Total |
|
|
Thomas P. DArcy(1) |
|
2009 |
|
$ |
81,250 |
|
|
$ |
|
|
|
$ |
2,720,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
35,058 |
|
|
$ |
2,836,308 |
|
Chief Executive Officer |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary H. Hunt(2) |
|
2009 |
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|
560,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560,000 |
|
Former Interim Chief Executive Officer |
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2008 |
|
|
300,000 |
(6) |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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Richard W. Pehlke(3) |
|
2009 |
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|
343,750 |
|
|
|
200,000 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,759 |
|
|
|
551,509 |
|
Executive Vice |
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2008 |
|
|
375,000 |
|
|
|
|
|
|
|
642,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,017,750 |
|
President, and
Chief Financial Officer |
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2007 |
|
|
299,500 |
|
|
|
200,000 |
|
|
|
|
|
|
|
198,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller |
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2009 |
|
|
366,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387,391 |
|
|
|
754,058 |
|
Executive Vice |
|
2008 |
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688,565 |
|
|
|
1,088,565 |
|
President, General
Counsel and Corporate Secretary |
|
2007 |
|
|
400,000 |
|
|
|
451,000 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
592,134 |
|
|
|
1,743,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Hanson |
|
2009 |
|
|
412,500 |
|
|
|
200,000 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,758 |
|
|
|
1,009,258 |
|
Chief |
|
2008 |
|
|
391,667 |
|
|
|
250,000 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556,727 |
|
|
|
1,198,394 |
|
Investment
Officer |
|
2007 |
|
|
350,000 |
|
|
|
500,350 |
(9) |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425,106 |
|
|
|
1,475,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel(4) |
|
2009 |
|
|
366,667 |
|
|
|
200,000 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,383 |
|
|
|
569,050 |
|
Chief Operating |
|
2008 |
|
|
380,000 |
|
|
|
|
|
|
|
664,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,816 |
|
|
|
1,049,416 |
|
Officer and
Executive Vice President |
|
2007 |
|
|
115,096 |
|
|
|
225,000 |
|
|
|
88,880 |
|
|
|
|
|
|
|
|
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|
|
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|
|
30 |
|
|
|
429,006 |
|
|
|
|
(1) |
|
Mr. DArcy has served as the Chief Executive Officer since November 16, 2009. Mr. DArcy is entitled to
receive target bonus cash compensation of up to 200% of his base salary based upon annual performance
goals to be established by the Compensation Committee of the Company. Mr. DArcy is guaranteed a cash
bonus with respect to the 2010 calendar year of 200% of base salary, but there is no guaranteed bonus with
respect to any subsequent year. In addition, there is no cash bonus compensation with respect to the
period commencing on November 16, 2009 and continuing up to and through December 31, 2009. |
|
(2) |
|
Mr. Hunt served as the Interim Chief Executive Officer from July 2008 to November 16, 2009. |
|
(3) |
|
Mr. Pehlke has served as the Chief Financial Officer since February 2007. Mr. Pehlke had a minimum
guaranteed bonus of $125,000 for calendar 2007, prorated based on his hire date in February 2007 (equal to
$110,577). |
|
(4) |
|
Mr. Van Berkel joined the Company in August 2007. |
|
(5) |
|
2009 and 2008 bonuses calculated based on Company EBITDA and 2007 bonuses calculated based on Company EBIT. |
|
(6) |
|
Amounts paid to Mr. Hunt represent a consulting fee as Mr. Hunt consulted as the Interim Chief Executive
Officer and was not an employee of the Company. |
|
(7) |
|
Amount includes a portion of the special bonus of $400,000 that was awarded to each of Messrs. Pehlke,
Hanson and Van Berkel on March 10, 2010. Specifically, fifty percent (50%) of such special bonus was in
recognition of 2009 performance and fifty percent (50%) was in connection with the retention of such
executives services through the first quarter of 2010. The entire special bonus is payable in 2010. Such
amount is inclusive of any other bonus compensation that might otherwise be payable to any of them with
respect to 2009. |
|
(8) |
|
All other compensation also includes: (i) cash distributions based on membership interests of $0,
$121,804, and $159,418 earned by Ms. Biller from Grubb & Ellis Apartment Management, LLC for each of the
calendar years ended December 31, 2009, 2008 and 2007, respectively; and (ii) cash distributions based on
membership interests of $380,486, $547,519, and $413,546 earned by each of Mr. Hanson and Ms. Biller from
Grubb & Ellis Healthcare Management, LLC for each of the calendar years ended December 31, 2009, 2008 and
2007, respectively. |
|
(9) |
|
Amount includes a special bonus of $250,000. The 2008 special bonus was paid in January 2010. |
68
|
|
|
(10) |
|
The amounts shown are the aggregate grant date fair value related to the grants of restricted stock. |
|
(11) |
|
The amounts shown are the aggregate grant date fair value related to the grants of stock options. |
|
(12) |
|
The amounts shown include the Companys incremental cost for the provision to the named executive officers
of certain specified perquisites in fiscal 2009, 2008 and 2007, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Living |
|
Travel |
|
Tax Gross Up |
|
Medical & Dental |
|
|
|
|
|
|
|
|
Expenses |
|
Expenses |
|
Payment |
|
Premiums |
|
Total |
Named Executive Officer |
|
Year |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Thomas P. DArcy |
|
|
2009 |
|
|
$ |
35,000 |
(13) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
35,000 |
|
|
|
|
|
|
Gary H. Hunt |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,469 |
|
|
|
6,469 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,287 |
|
|
|
7,287 |
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,925 |
|
|
|
4,925 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,621 |
|
|
|
4,621 |
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,740 |
|
|
|
1,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Hanson |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,176 |
|
|
|
14,176 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,179 |
|
|
|
13,179 |
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,340 |
|
|
|
8,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13) |
|
Mr. DArcy received a one-time cash payment as reimbursement for all of his out-of-pocket transitory
relocation expenses, including transitory housing and travel expenses for six months. |
|
(14) |
|
The amounts shown also include the following 401(k) matching contributions made by the Company,
income attributable to life insurance coverage and contributions to the profit-sharing plan in fiscal
2009, 2008 and 2007, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) Plan |
|
|
|
Profit-Sharing Plan |
|
|
|
|
|
|
|
|
Company |
|
Life Insurance |
|
Company |
|
|
|
|
|
|
|
|
Contributions |
|
Coverage |
|
Contributions |
|
Total |
Named Executive Officer |
|
Year |
|
($) |
|
($) |
|
($) |
|
($) |
Thomas P. DArcy |
|
|
2009 |
|
|
$ |
|
|
|
$ |
58 |
|
|
$ |
|
|
|
$ |
58 |
|
|
Gary H. Hunt |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke |
|
|
2009 |
|
|
|
|
|
|
|
1,290 |
|
|
|
|
|
|
|
1,290 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
1,290 |
|
|
|
|
|
|
|
1,290 |
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller |
|
|
2009 |
|
|
|
|
|
|
|
1,980 |
|
|
|
|
|
|
|
1,980 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
1,290 |
|
|
|
|
|
|
|
1,290 |
|
|
|
|
2007 |
|
|
|
3,100 |
|
|
|
120 |
|
|
|
14,210 |
|
|
|
17,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Hanson |
|
|
2009 |
|
|
|
1,826 |
|
|
|
270 |
|
|
|
|
|
|
|
2,096 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
270 |
|
|
|
|
|
|
|
270 |
|
|
|
|
2007 |
|
|
|
3,100 |
|
|
|
120 |
|
|
|
|
|
|
|
3,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel |
|
|
2009 |
|
|
|
1,933 |
|
|
|
450 |
|
|
|
|
|
|
|
2,383 |
|
|
|
|
2008 |
|
|
|
4,600 |
|
|
|
450 |
|
|
|
|
|
|
|
5,050 |
|
|
|
|
2007 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
30 |
|
Grants of Plan-Based Awards
The following table sets forth information regarding the grants of plan-based awards made to
its NEOs for the fiscal year ended December 31, 2009.
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
All Other |
|
Option Awards: |
|
Exercise or |
|
|
|
|
|
|
|
|
Stock Awards: |
|
Number of |
|
Base Price |
|
Grant Date |
|
|
|
|
|
|
Number of |
|
Securities |
|
of Option |
|
Fair Value of Stock |
|
|
|
|
|
|
Shares of |
|
Underlying |
|
Awards |
|
and Option |
Name |
|
Grant Date |
|
Stock or Units |
|
Options |
|
($/Share) |
|
Awards($)(1) |
Thomas P. DArcy |
|
|
11/16/09 |
|
|
|
2,000,000 |
(2) |
|
|
|
|
|
$ |
|
|
|
$ |
2,720,000 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary H. Hunt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Hanson |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The grant date fair value of the shares of restricted stock and stock
options granted were computed in accordance with the requirements of
the Compensation Stock Compensation Topic. |
|
(2) |
|
Amounts shown with respect to Mr. DArcy represent restricted stock
awarded. 1,000,000 of the restricted shares awarded to Mr. DArcy are
subject to vesting over 3 years in equal annual increments of 1/3
each, commencing on the day immediately preceding the 1 year
anniversary of the grant date (November 16, 2009) and which have a
grant date fair value of $1.52 per share. The other 1,000,000
restricted shares are subject to vesting based upon the market price
of the Companys common stock during the 3 year period beginning
November 16, 2009, 500,000 restricted shares of which have a grant
date fair value of $1.28 per share and the other 500,000 restricted
shares have a grant date fair value of $1.12 per share. Specifically,
(i) in the event that for any 30 consecutive trading days during the
3 year period commencing November 16, 2009 the volume weighted average
closing price per share of the Companys common stock is at least
$3.50, then 50% of such restricted shares shall vest, and (ii) in the
event that for any 30 consecutive trading days during the 3 year
period commencing November 16, 2009 the volume weighted average
closing price per share of the Companys common stock is at least
$6.00, then the remaining 50% of such restricted shares shall vest. |
|
(3) |
|
In March 2010, each of Messrs. Hanson and Van Berkel were awarded
1,000,000 shares of restricted stock. 500,000 of the restricted shares
awarded to each of Mr. Hanson and Mr. Van Berkel are subject to
vesting over 3 years in equal annual increments of 1/3 each,
commencing on the one year anniversary of the March 10, 2010 grant
date and which have a grant date fair value of $1.87 per share. The
other 500,000 restricted shares are subject to vesting based on the
market price of the Companys common stock during the 3 year period
beginning March 10, 2010, 250,000 restricted shares of which have a
grant date fair value of approximately $1.57 per share and the other
250,000 restricted shares have a grant date fair value of
approximately $1.38 per share. Specifically, (i) in the event that for
any 30 consecutive trading days during the 3 year period following the
March 10, 2010 grant date the volume weighted average closing price
per share of the Companys common stock is at least $3.50, then 50% of
such restricted shares shall vest, and (ii) in the event that for any
30 consecutive trading days during the 3 year period following the
March 10, 2010 grant date the volume weighted average closing price
per share of the Companys common stock is at least $6.00, then the
remaining 50% of such restricted shares shall vest. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth summary information regarding the outstanding equity awards
held by the Companys named executive officers at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Number of |
|
Market Value |
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
Shares or |
|
of Shares |
|
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
Units of |
|
or Units |
|
|
Unexercised |
|
Unexercised |
|
Option |
|
Option |
|
Stock that |
|
of Stock That |
|
|
Options |
|
Options |
|
Exercise |
|
Expiration |
|
Have Not |
|
Have Not |
Name |
|
Exercisable |
|
Unexercisable |
|
Price |
|
Date |
|
Vested |
|
Vested(1) |
Thomas P. DArcy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
(2) |
|
$ |
2,720,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary H. Hunt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,667 |
(3) |
|
$ |
41,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,999 |
(4) |
|
$ |
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke |
|
|
25,000 |
(5) |
|
|
|
|
|
$ |
11.75 |
|
|
|
02/14/2017 |
|
|
|
50,000 |
(6) |
|
$ |
220,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,333 |
(7) |
|
$ |
99,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller |
|
|
35,200 |
(9) |
|
|
|
|
|
$ |
11.36 |
|
|
|
11/16/2016 |
|
|
|
8,800 |
(10) |
|
$ |
99,968 |
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Number of |
|
Market Value |
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
Shares or |
|
of Shares |
|
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
Units of |
|
or Units |
|
|
Unexercised |
|
Unexercised |
|
Option |
|
Option |
|
Stock that |
|
of Stock That |
|
|
Options |
|
Options |
|
Exercise |
|
Expiration |
|
Have Not |
|
Have Not |
Name |
|
Exercisable |
|
Unexercisable |
|
Price |
|
Date |
|
Vested |
|
Vested(1) |
Jeffrey T. Hanson |
|
|
22,000 |
(11) |
|
|
|
|
|
$ |
11.36 |
|
|
|
11/16/2016 |
|
|
|
5,867 |
(12)(14) |
|
$ |
66,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,867 |
(13) |
|
$ |
29,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,333 |
(6) |
|
$ |
235,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
(8)(14) |
|
$ |
100,800 |
|
|
|
|
(1) |
|
The grant date fair value of the shares of restricted stock is computed in accordance with the requirements of the
Compensation Stock Compensation Topic, is reflected in the Grants of Plan-Based Awards table. Grants of restricted
stock were made pursuant to either the Companys 2006 Omnibus Equity Plan or NNNs 2006 Long Term Incentive Plan,
except for grants made to Mr. DArcy. |
|
(2) |
|
Amounts shown represent 2,000,000 restricted shares of the Companys common stock that were awarded on November 16,
2009. 1,000,000 of the restricted shares awarded to Mr. DArcy are subject to vesting over 3 years in equal annual
increments of 1/3 each, commencing on the day immediately preceding the 1 year anniversary of the grant date
(November 16, 2009). The other 1,000,000 restricted shares are subject to vesting based upon the market price of the
Companys common stock during the 3 year period beginning November 16, 2009. Specifically, (i) in the event that for
any 30 consecutive trading days during the 3 year period commencing November 16, 2009 the volume weighted average
closing price per share of the Companys common stock is at least $3.50, then 50% of such restricted shares shall
vest, and (ii) in the event that for any 30 consecutive trading days during the 3 year period commencing November 16,
2009 the volume weighted average closing price per share of the Companys common stock is at least $6.00, then the
remaining 50% of such restricted shares shall vest. |
|
(3) |
|
Includes 3,667 restricted shares of the Companys common stock that will vest on June 27, 2010, subject to continued
service with the Company. On January 7, 2010, the Compensation Committee determined to accelerate the vesting of these
shares following the termination of Mr. Hunts directorship on December 17, 2010. |
|
(4) |
|
Includes 2,999 shares of the Companys common stock that will vest on December 10, 2010, subject to continued service
with the Company. On January 7, 2010, the Compensation Committee determined to accelerate the vesting of these shares
following the termination of Mr. Hunts directorship on December 17, 2010. |
|
(5) |
|
Amounts shown represent options granted on February 15, 2007. The full 25,000 options vested on the date of the Merger. |
|
(6) |
|
Includes 25,000 and 26,667 restricted shares of the Companys common stock that were awarded to Messrs. Pehlke and Van
Berkel, respectively, on January 23, 2008 which will vest in equal 1/3 installments in each of the first, second and
third anniversaries of the grant date, subject to continued service with the Company. |
|
(7) |
|
Includes 39,667 and 39,666 restricted shares of the Companys common stock that will vest on December 3, 2010 and
December 3, 2011, respectively, subject to continued service. |
|
(8) |
|
Includes 40,000 and 40,000 restricted shares of the Companys common stock that will vest on December 3, 2010 and
December 3, 2011, respectively, subject to continued service. |
|
(9) |
|
Includes stock options to acquire 35,200 shares of the common stock for $11.36 per share. These options vested and
became exercisable with respect to one-third of the underlying shares of the Companys common stock on each of
November 16, 2006, November 16, 2007 and November 16, 2008 and have a maximum term of ten years. |
|
(10) |
|
Includes 8,800 restricted shares of the Companys common stock that will vest on June 27, 2010, subject to continued
service with the Company. |
|
(11) |
|
Includes stock options to acquire 22,000 shares of the common stock for $11.36 per share. These options vested and
became exercisable with respect to one-third of the underlying shares of the Companys common stock on each of
November 16, 2006, November 16, 2007 and November 16, 2008 and have a maximum term of ten years. |
|
(12) |
|
Includes 5,867 restricted shares of the Companys common stock that will vest on June 27, 2010, subject to continued
service with the Company. |
|
(13) |
|
Includes 5,867 restricted shares of the Companys common stock that will vest on December 4, 2010, subject to
continued service with the Company. |
71
|
|
|
(14) |
|
Does not include the restricted stock grant of 1,000,000 shares awarded to each of Messrs. Hanson and Van Berkel on
March 10, 2010. |
Options Exercises and Stock Vested
The following table sets forth summary information regarding exercise of stock options and
vesting of restricted stock held by the Companys named executive officers at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of Shares |
|
|
|
|
|
Number of Shares |
|
|
|
|
Acquired on |
|
Value Realized on |
|
Acquired on |
|
Value realized on |
Name |
|
Exercise |
|
Exercise ($) |
|
Vesting |
|
Vesting ($) |
Thomas P. DArcy |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary H. Hunt |
|
|
|
|
|
|
|
|
|
|
3,666 |
(1) |
|
$ |
2,566 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
2,998 |
(3) |
|
|
4,107 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke |
|
|
|
|
|
|
|
|
|
|
25,000 |
(5) |
|
|
22,500 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
39,667 |
(8) |
|
|
59,104 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller |
|
|
|
|
|
|
|
|
|
|
8,800 |
(11) |
|
|
6,160 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Hanson |
|
|
|
|
|
|
|
|
|
|
5,866 |
(12) |
|
|
4,106 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel |
|
|
|
|
|
|
|
|
|
|
5,866 |
(13) |
|
|
8,682 |
(14) |
|
|
|
|
|
|
|
|
|
|
|
26,667 |
(6) |
|
|
24,000 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
40,000 |
(9) |
|
|
59,600 |
(10) |
|
|
|
(1) |
|
Amount shown represents 3,666 restricted shares of the Companys common stock that vested on June 27, 2009. |
|
(2) |
|
On June 26, 2009, the closing price of a share of common stock on the NYSE was $0.70. |
|
(3) |
|
Amount shown represents 2,998 restricted shares of the Companys common stock that vested on December 10,
2009. |
|
(4) |
|
On December 9, 2009, the closing price of a share of common stock on the NYSE was $1.37. |
|
(5) |
|
Amount shown represents 25,000 restricted shares of the Companys common stock that vested on January 23,
2009. |
|
(6) |
|
Amount shown represents 26,667 restricted shares of the Companys common stock that vested on January 23,
2009. |
|
(7) |
|
On January 22, 2009, the closing price of a share of common stock on the NYSE was $0.90. |
|
(8) |
|
Amount shown represents 39,667 restricted shares of the Companys common stock that vested on December 3,
2009. |
|
(9) |
|
Amount shown represents 40,000 restricted shares of the Companys common stock that vested on December 3,
2009. |
|
(10) |
|
On December 2, 2009, the closing price of a share of common stock on the NYSE was $1.49. |
|
(11) |
|
Amount shown represents 8,800 restricted shares of the Companys common stock that vested on June 27, 2009. |
|
(12) |
|
Amount shown represents 5,886 restricted shares of the Companys common stock that vested on June 27, 2009. |
|
(13) |
|
Amount shown represents 5,886 restricted shares of the Companys common stock that vested on December 3,
2009. |
|
(14) |
|
On December 3, 2009, the closing price of a share of common stock on the NYSE was $1.48. |
Non-Qualified Deferred Compensation
During fiscal year 2009, no NEO was a participant in the Deferred Compensation Plan (DCP).
Contributions
Under the DCP, the participants designated by the committee administering the DCP (the
Committee) may elect to defer up to 80% of their base salary and commissions, and up to 100% of
their bonus compensation. In addition, the Company may make
72
discretionary Company contributions to the DCP at any time on behalf of the participants.
Unless otherwise specified by the Company, Company contributions shall be deemed to be invested in
the Companys common stock.
Investment Elections
Participants designate the investment funds selected by the Committee in which the
participants deferral accounts shall be deemed to be invested for purposes of determining the
amount of earnings and losses to be credited to such accounts.
Vesting
The participants are fully vested at all times in amounts credited to the participants
deferral accounts. A participant shall vest in his or her Company contribution account as provided
by the Committee, but not earlier than 12 months from the date the Company contribution is credited
to a participants Company contribution account. Except as otherwise provided by the Company in
writing, all vesting of Company contributions shall cease upon a participant termination of
service with the Company and any portion of a participants Company contribution account which is
unvested as of such date shall be forfeited; provided, however, that if a participants termination
of service is the result of his or her death, the participant shall be 100% vested in his or her
Company contribution account(s).
Distributions
Scheduled distributions elected by the participants shall be no earlier than two years from
the last day of the fiscal year in which the deferrals are credited to the participants account,
or, if later, the last day of the fiscal year in which the Company contributions vest. The
participant may elect to receive the scheduled distribution in a lump sum or in equal installments
over a period of up to five years. Company contributions are only distributable in a lump sum.
In the event of a participants retirement (termination of service after attaining age 60, or
age 55 with at least 10 years of service) or disability (as defined in the DCP), the participants
vested deferral accounts shall be paid to the participant in a single lump sum on a date that is
not prior to the end of the six month period following the participants retirement or disability,
unless the participant has made an alternative election to receive the retirement or disability
benefits in equal installments over a period of up to 15 years, in which event payments shall be
made as elected.
In the event of a participants death, the Company shall pay to the participants beneficiary
a death benefit equal to the participants vested accounts in a single lump sum within 30 days
after the end of the month during which the participants death occurred. The Company may
accelerate payment in the event of a participants financial hardship.
Employment Contracts and Compensation Arrangements
Thomas P. DArcy
Effective November 16, 2009, Thomas P. DArcy entered into a three-year employment agreement
with the Company, pursuant to which Mr. DArcy serves as president, chief executive officer and a
member of the Board. The term of the employment agreement is subject to successive one (1) year
extensions unless either party advises the other to the contrary at least ninety (90) days prior to
the then expiration of the then current term. Pursuant to the employment agreement, Mr. DArcy was
appointed to serve on the Companys Board of Directors as a Class C Director until the 2010 annual
meeting of shareowners, unless prior to such meeting, the Company eliminates its staggered Board,
in which event Mr. DArcys appointment to the Board shall be voted on at the next annual meeting
of shareowners. Mr. DArcy will be a nominee for election to the Companys Board of Directors at
each subsequent annual meeting of the shareowners for so long as the employment agreement remains
in effect.
Mr. DArcy will receive a base salary of $650,000 per annum. Mr. DArcy is entitled to receive
target bonus cash compensation of up to 200% of his base salary based upon annual performance goals
to be established by the Compensation Committee of the Company. Mr. DArcy is guaranteed a cash
bonus with respect to the 2010 calendar year of 200% of base salary, but there is no guaranteed
bonus with respect to any subsequent year. In addition, there is no cash bonus compensation with
respect to the period commencing on November 16, 2009 and continuing up to and through December 31,
2009.
Commencing with calendar year 2010, at the discretion of the Board, Mr. DArcy is also
eligible to participate in a performance-based long term incentive plan, consisting of an annual
award payable either in cash, restricted shares of common stock, or stock
73
options exercisable for shares of common stock, as determined by the Compensation Committee.
The target for any such long-term incentive award will be $1.2 million per year, subject to
ratable, annual vesting over three years. Subject to the provisions of Mr. DArcys employment
agreement, an initial long-term incentive award with respect to calendar year 2010 will be granted
in the first quarter of 2011 and will vest in equal tranches of 1/3 each commencing on December 31,
2011. In addition, in connection with the entering into of the employment agreement, Mr. DArcy
purchased $500,000 of Preferred Stock.
Mr. DArcy received a restricted stock award of 2,000,000 restricted shares of common stock,
of which 1,000,000 of such restricted shares are subject to vesting over three years in equal
annual increments of one-third each, commencing on the day immediately preceding the one-year
anniversary of November 16, 2009. The remaining 1,000,000 such restricted shares are subject to the
vesting based upon the market price of the Companys common stock during the initial three-year
term of the employment agreement. Specifically, (i) in the event that for any 30 consecutive
trading days during the 3 year period commencing November 16, 2009 the volume weighted average
closing price per share of the Companys common stock on the exchange or market on which the
Companys shares are publically listed or quoted for trading is at least $3.50, then 50% of such
restricted shares shall vest, and (ii) in the event that for any thirty (30) consecutive trading
days during the 3 year period commencing November 16, 2009 the volume weighted average closing
price per share of the Companys common stock on the exchange or market on which the Companys
shares of common stock are publically listed or quoted for trading is at least $6.00, then the
remaining 50% percent of such restricted shares shall vest. Vesting with respect to all
Mr. DArcys restricted shares is subject to Mr. DArcys continued employment by the Company,
subject to the terms of a Restricted Share Agreement entered into by Mr. DArcy and the Company on
November 16, 2009, and other terms and conditions set forth in the employment agreement.
Mr. DArcy will receive from the Company a one-time cash payment of $35,000 as reimbursement
for all of his out-of-pocket transitory relocation expenses. Mr. DArcy is also entitled to
reimbursement expenses of $100,000 incurred in relocating to the Companys principal executive
offices.
Mr. DArcy is also entitled to a professional fee reimbursement of up to $15,000 incurred by
Mr. DArcy for legal and tax advice in connection with the negotiation and entering into the
employment agreement.
Mr. DArcy is entitled to participate in the Companys health and other benefit plans
generally afforded to executive employees and is reimbursed for reasonable travel, entertainment
and other reasonable expenses incurred in connection with his duties. The employment agreement
contains confidentiality, non-competition, no raid, non-solicitation, non-disparagement and
indemnification provisions.
The employment agreement is terminable by the Company upon Mr. DArcys death or incapacity or
for Cause (as defined in the employment agreement), without any additional compensation other than
what has accrued to Mr. DArcy as of the date of any such termination.
In the event that Mr. DArcy is terminated without Cause, or if Mr. DArcy terminates the
agreement for Good Reason (as defined in the employment agreement), Mr. DArcy is entitled to
receive: (i) all monies due to him which right to payment or reimbursement accrued prior to such
discharge; (ii) his annual base salary, payable in accordance with the Companys customary payroll
practices for 24 months; (iii) in lieu of any bonus cash compensation for the calendar year of
termination, an amount equal to two times Mr. DArcys bonus cash compensation earned in the
calendar year prior to termination, subject to Mr. DArcys right to receive the guaranteed bonus
with respect to the 2010 calendar year regardless when the termination without Cause occurs;
(iv) an amount payable monthly, equal to the amount Mr. DArcy paid for continuation of health
insurance coverage for such month under the Consolidated Omnibus Budget Reconciliation Act of 1986
(COBRA) until the earlier of 18 months from the termination date or when Mr. DArcy obtains
replacement health coverage from another source; (v) the number of shares of common stock or
unvested options with respect to any long-term incentive awards granted prior to termination shall
immediately vest; and (vi) all Mr. DArcys restricted shares shall automatically vest.
In the event that Mr. DArcy is terminated without Cause or resigns for Good Reason (i) within
one year after a Change of Control (as defined in the employment agreement) or (ii) within three
months prior to a Change of Control, in contemplation thereof, Mr. DArcy is entitled to receive
(a) all monies due to him which right to payment or reimbursement accrued prior to such discharge,
(b) two times his base salary payable in accordance with the Companys customary payroll practices,
over a 24-month period, (c) in lieu of any bonus cash compensation for the calendar year of
termination, an amount equal to two times his target annual cash bonus earned in the calendar year
prior to termination, subject to Mr. DArcys right to receive the guaranteed bonus with respect to
the 2010 calendar year regardless when the termination in connection with a Change of Control
occurs, (d) an amount payable monthly, equal to the amount Mr. DArcy paid for continuation of
health insurance coverage for such month under the COBRA until the earlier of
74
18 months from the termination date or when Mr. DArcy obtains replacement health coverage
from another source; (e) the number of shares of common stock or unvested options with respect to
any long-term incentive awards granted prior to termination shall immediately vest; and
(f) Mr. DArcys restricted shares will automatically vest.
The Companys payment of any amounts to Mr. DArcy upon his termination without Cause, for
Good Reason or upon a Change of Control is contingent upon Mr. DArcy executing the Companys then
standard form of release.
Potential Payments upon Termination or Change of Control
Thomas P. DArcy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not for |
|
|
Involuntary |
|
|
Resignation |
|
|
|
|
|
|
|
Executive Payments |
|
Voluntary |
|
|
Cause |
|
|
for Cause |
|
|
for Good |
|
|
Change of |
|
|
Death and |
|
Upon Termination |
|
Termination |
|
|
Termination |
|
|
Termination |
|
|
Reason |
|
|
Control |
|
|
Disability |
|
Severance Payments |
|
$ |
|
|
|
$ |
1,300,000 |
|
|
$ |
|
|
|
$ |
1,300,000 |
|
|
$ |
1,300,000 |
|
|
$ |
|
|
Bonus Incentive Compensation |
|
|
|
|
|
|
2,600,000 |
|
|
|
|
|
|
|
2,600,000 |
|
|
|
2,600,000 |
|
|
|
|
|
Long Term Incentive Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (unvested and accelerated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock (unvested and
accelerated) |
|
|
|
|
|
|
1,280,000 |
|
|
|
|
|
|
|
1,280,000 |
|
|
|
1,280,000 |
|
|
|
|
|
Performance Shares (unvested and
accelerated) |
|
|
|
|
|
|
1,280,000 |
|
|
|
|
|
|
|
1,280,000 |
|
|
|
1,280,000 |
|
|
|
|
|
Benefit Continuation |
|
|
|
|
|
|
23,944 |
|
|
|
|
|
|
|
23,944 |
|
|
|
23,944 |
|
|
|
|
|
Tax Gross-Up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value |
|
$ |
|
|
|
$ |
6,483,944 |
|
|
$ |
|
|
|
$ |
6,483,944 |
|
|
$ |
6,483,944 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary H. Hunt
Mr. Hunt served as Interim Chief Executive Officer of the Company from July 2008 until
November 16, 2009, when Thomas P. DArcy became the Companys President and Chief Executive
Officer. The following is a description of Mr. Hunts arrangement with the Company while he served
as Interim Chief Executive Officer of the Company.
In July 2008, Mr. Hunt became Interim Chief Executive Officer of the Company. Mr. Hunt served
as a consultant and did not have an employment agreement with the Company. On August 28, 2008, the
Compensation Committee of the Board of Directors determined that until the appointment of a
permanent Chief Executive Officer and President, Mr. Hunt will be paid a monthly fee of $50,000. On
January 6, 2009, the Board of Directors determined that commencing on January 1, 2009, and until
the appointment of a permanent Chief Executive Officer, Mr. Hunts compensation was to be increased
from $50,000 to $100,000 a month. On February 6, 2009, Mr. Hunt advised the Board of Directors
that, effective immediately, he was voluntarily reducing his compensation as Interim Chief
Executive Officer of the Company from $100,000 per month to $50,000 per month. Beginning April 1,
2009 Mr. Hunts compensation was reduced by 10.0% to $45,000 per month in connection with the
reduction by 10.0% of NEO salaries. Mr. Hunt did not receive a bonus or any directors fees for his
service as a member of the Companys Board of Directors while he served as Interim Chief Executive
Officer.
Richard W. Pehlke
Effective February 15, 2007, Mr. Pehlke and the Company entered into a three-year employment
agreement pursuant to which Mr. Pehlke serves as the Companys Executive Vice President and Chief
Financial Officer at an annual base salary of $350,000. In addition, Mr. Pehlke is entitled to
receive target bonus cash compensation of up to 50% of his base salary based upon annual
performance goals to be established by the Compensation Committee of the Company. Mr. Pehlke is
also eligible to receive a target annual performance based equity bonus of 65% of his base salary
based upon annual performance goals to be established by the Compensation Committee. The equity
bonus is payable in restricted shares that vest on the third anniversary of the date of the grant.
Mr. Pehlke was also granted stock options to purchase 25,000 shares of the Companys common stock
which have a term of 10 years, are exercisable at $11.75 per share (equal to the market price of
the Companys common stock on the date immediately preceding the grant date) and vest ratably over
three years.
The term of Mr. Pehlkes employment agreement expired on February 15, 2010. Mr. Pehlke is
currently employed on an at-will basis.
75
Mr. Pehlkes annual base salary was increased from $350,000 to $375,000 on January 1, 2008.
Similarly, Mr. Pehlkes target bonus compensation was increased from 50% to 150% of his base salary
on January 1, 2008. On March 10, 2010, Mr. Pehlke was awarded a $400,000 cash bonus for 2009
performance and retention through the first quarter of 2010 (and is inclusive of any other bonus
otherwise payable with respect to Mr. Pehlke with respect to 2009) which is payable to Mr. Pehlke
during 2010.
Mr. Pehlke is also entitled to participate in the Companys health and other benefit plans
generally afforded to executive employees and is reimbursed for reasonable travel, entertainment
and other reasonable expenses incurred in connection with his duties.
Andrea R. Biller
In November 2006, Ms. Biller entered into an executive employment agreement with the Company
pursuant to which Ms. Biller serves as the Companys General Counsel, Executive Vice President and
Corporate Secretary. The agreement provides for an annual base salary of $400,000 per annum.
Ms. Biller is eligible to receive an annual discretionary bonus of up to 150% of her base salary.
The executive employment agreement has an initial term of three (3) years, and on the final day of
the original term, and on each anniversary thereafter, the term of the agreement is extended
automatically for an additional year unless the Company or Ms. Biller provides at least one years
written notice that the term will not be extended. On October 23, 2008, the Company provided a
notice not to extend the term of the executive employment agreement beyond its initial term and the
agreement expired on November 15, 2009. Ms. Biller is currently employed on an at-will basis. In
connection with the entering into of her executive employment agreement in November 2006,
Ms. Biller received 114,400 shares of restricted stock and 35,200 stock options at an exercise
price of $11.36 per share, one-third of which options vested on the grant date, and the remaining
options vest in equal installments on the first and second anniversary date of the option grant.
Ms. Biller is also entitled to participate in the Companys health and other benefit plans
generally afforded to executive employees and is reimbursed for reasonable travel, entertainment
and other reasonable expenses incurred in connection with her duties.
Jeffrey T. Hanson
In November, 2006, Mr. Hanson entered into an executive employment agreement with the Company
pursuant to which Mr. Hanson serves as the Companys Chief Investment Officer. The agreement
provides for an annual base salary of $350,000 per annum. Mr. Hanson is eligible to receive an
annual discretionary bonus of up to 100% of his base salary. The executive employment agreement has
an initial term of three (3) years, and on the final day of the original term, and on each
anniversary thereafter, the term of the Agreement is extended automatically for an additional year
unless the Company or Mr. Hanson provides at least one years written notice that the term will not
be extended. On October 23, 2008, the Company provided a notice not to extend the term of the
executive employment agreement beyond its initial term and the agreement expired on November 15,
2009. Mr. Hanson is currently employed on an at-will basis.
In connection with the entering into of his executive employment agreement in November, 2006,
Mr. Hanson received 44,000 shares of restricted stock and 22,000 stock options at an exercise price
of $11.36 per share, one-third of which options vest on the grant date, and the remaining options
vest in equal installments on the first and second anniversary date of the option grant. Mr. Hanson
is entitled to receive a special bonus of $250,000 if, during the applicable fiscal year,
(x) Mr. Hanson is the procuring cause of at least $25 million of equity from new sources, which
equity is actually received by the Company during such fiscal year, for real estate investments
sourced by the Company, and (y) Mr. Hanson is employed by the Company on the last day of such
fiscal year.
Mr. Hansons annual base salary was increased from $350,000 to $450,000 on August 1, 2008.
Mr. Hansons target bonus compensation was increased from 100% to 150% of his base salary on
August 1, 2008. On March 10, 2010, Mr. Hanson was awarded a $400,000 cash bonus for 2009
performance and retention through the first quarter of 2010 (and is inclusive of any other bonus
otherwise payable with respect to Mr. Hanson with respect to 2009), which is payable to Mr. Hanson
during 2010.
On March 10, 2010, Mr. Hanson received a restricted stock award of 1,000,000 restricted shares
of common stock, of which 500,000 restricted shares are subject to vesting over three years in
equal annual installments of one-third each, commencing on the one year anniversary of March 10,
2010. The remaining 500,000 of such restricted shares are subject to vesting based upon the market
price of the Companys common stock during the three year period commencing March 10, 2010.
Specifically, (i) in the event that for any 30 consecutive trading days during the three year
period commencing March 10, 2010 the volume weighted average closing price per share of the
Companys common stock on the exchange or market on which the Companys shares are publically
listed or quoted for trading is at least $3.50, then 50% of such restricted shares shall vest, and
(ii) in the event that for any 30 consecutive trading days during the three year period commencing
March 10, 2010 the volume weighted average closing price per share of the Companys common stock on
the exchange or market on which the Companys shares of common stock are publically listed or
quoted for trading is at least $6.00, then the remaining 50% of such restricted shares shall vest.
Vesting with respect to all of Mr. Hansons restricted
76
shares is subject to Mr. Hansons continued employment by the Company, subject to the terms
and conditions of the Restricted Stock Award Grant Notice and Restricted Stock Award Agreement
dated March 10, 2010.
Mr. Hanson is also entitled to participate in the Companys health and other benefit plans
generally afforded to executive employees and is reimbursed for reasonable travel, entertainment
and other reasonable expenses incurred in connection with his duties.
Jacob Van Berkel
Mr. Van Berkel was promoted to Chief Operating Officer and Executive Vice President on
March 1, 2008 and his annual base salary was increased to $400,000 per annum. Mr. Van Berkel is
eligible to receive an annual discretionary bonus of up to 100% of his base salary. On March 10,
2010, Mr. Van Berkel was awarded a $400,000 cash bonus for 2009 performance and retention through
the first quarter of 2010 (and is inclusive of any other bonus otherwise payable with respect to
Mr. Van Berkel with respect to 2009), which is payable to Mr. Van Berkel in 2010. On March 10,
2010, Mr. Van Berkel received a restricted stock award of 1,000,000 restricted shares of common
stock, of which 500,000 restricted shares are subject to vesting over three years in equal annual
installments of one-third each, commencing on the one year anniversary of March 10, 2010. The
remaining 500,000 of such restricted shares are subject to vesting based upon the market price of
the Companys common stock during the three year period commencing March 10, 2010. Specifically,
(i) in the event that for any 30 consecutive trading days during the three year period commencing
March 10, 2010 the volume weighted average closing price per share of the Companys common stock on
the exchange or market on which the Companys shares are publically listed or quoted for trading is
at least $3.50, then 50% of such restricted shares shall vest, and (ii) in the event that for any
30 consecutive trading days during the three year period commencing March 10, 2010 the volume
weighted average closing price per share of the Companys common stock on the exchange or market on
which the Companys shares of common stock are publically listed or quoted for trading is at least
$6.00, then the remaining 50% of such restricted shares shall vest. Vesting with respect to all of
Mr. Van Berkels restricted shares is subject to Mr. Van Berkels continued employment by the
Company, subject to the terms and conditions of the Restricted Stock Award Grant Notice and
Restricted Stock Award Agreement dated March 10, 2010.
Effective December 23, 2008, Mr. Van Berkel and the Company entered into a change of control
agreement pursuant to which in the event that Mr. Van Berkel is terminated without Cause or resigns
for Good Reason upon a Change of Control (as defined in the change of control agreement) or within
six months thereafter or is terminated without Cause or resigns for Good Reason within three months
prior to a Change of Control, in contemplation thereof, Mr. Van Berkel is entitled to receive two
times his base salary payable in accordance with the Companys customary payroll practices, over a
twelve month period (subject to the provisions of Section 409A of the Code) plus an amount equal to
one time his target annual cash bonus payable in cash on the next immediately following date when
similar annual cash bonus compensation is paid to other executive officers of the Company (but in
no event later than March 15th of the calendar year following the calendar year to which such bonus
payment relates). In addition, upon a Change of Control, all then unvested restricted shares
automatically vest. The Companys payment of any amounts to Mr. Van Berkel upon his termination
upon a Change of Control is contingent upon his executing the Companys then standard form of
release.
Potential Payments upon Termination or Change of Control
Jacob Van Berkel
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not for |
|
|
Involuntary |
|
|
Resignation |
|
|
|
|
|
|
|
Executive Payments |
|
Voluntary |
|
|
Cause |
|
|
for Cause |
|
|
for Good |
|
|
Change of |
|
|
Death and |
|
Upon Termination |
|
Termination |
|
|
Termination |
|
|
Termination |
|
|
Reason |
|
|
Control |
|
|
Disability |
|
Severance Payments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,200,000 |
|
|
$ |
|
|
Bonus Incentive Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Incentive Plan |
|
|
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|
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|
|
|
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|
|
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|
|
|
|
|
|
Stock Options (unvested and accelerated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock (unvested and accelerated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,176 |
|
|
|
|
|
Performance Shares (unvested and
accelerated) |
|
|
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|
|
|
|
|
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Benefit Continuation |
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Tax Gross-Up |
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|
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|
|
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|
|
Total Value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,378,176 |
|
|
$ |
|
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77
Compensation of Directors
Only individuals who serve as non-management directors and are otherwise unaffiliated with the
Company receive compensation for serving on the Board and on its committees. Non-management
directors are compensated for serving on the Board with a combination of cash and equity based
compensation which includes annual grants of restricted stock, an annual retainer fee, meeting fees
and chairperson fees. Directors are also reimbursed for out-of-pocket travel and lodging expenses
incurred in attending Board and committee meetings.
Board compensation consists of the following: (i) an annual retainer fee of $50,000 per annum;
(ii) a fee of $1,500 for each regular meeting of the Board of Directors attended in person or
telephonically; (iii) a fee of $1,500 for each meeting of a standing committee of the Board of
Directors attended in person or telephonically; and (iv) $60,000 worth of restricted shares of
common stock issued at the then current market price of the common stock. Prior to the 2009 annual
restricted stock grant, such restricted shares vested ratably in equal annual installments over
three years, except in the event of a change of control, in which event vesting was accelerated. On
March 10, 2010, the Compensation Committee amended the terms and conditions of the directors
annual restricted stock awards to provide that all annual restricted share awards granted
thereafter would vest, in full, immediately upon being granted, subject to forfeiture in the event
a director was terminated for cause. In addition, the Compensation Committee also accelerated the
vesting of the annual restricted stock award granted in December 2009, such that the December 2009
restricted stock award was fully vested as of March 10, 2010. Any stock grants awarded prior to
2009 remain subject to the three (3) year ratable vesting schedule. In addition, an annual retainer
fee is paid to the Chair of each of the Boards standing committees as follows: (i) Audit Committee
Chair $15,000; (ii) Compensation Committee Chair $10,000; and (iii) Corporate Governance and
Nominating Committee Chair $7,500. If the Board forms any additional committees, it will
determine the fees to be paid to the Chair and/or members of such committees.
Director Compensation Table
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
or Paid in |
|
Stock |
|
|
Director |
|
Cash(1) |
|
Awards(2)(3) |
|
Total |
Glenn L. Carpenter |
|
$ |
78,500 |
|
|
$ |
|
|
|
$ |
78,500 |
|
Harold H. Greene |
|
$ |
95,000 |
|
|
$ |
|
|
|
$ |
95,000 |
|
Gary H. Hunt(4) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
C. Michael Kojaian(5) |
|
$ |
|
|
|
$ |
60,000 |
|
|
$ |
60,000 |
|
Robert J. McLaughlin |
|
$ |
119,000 |
|
|
$ |
60,000 |
|
|
$ |
179,000 |
|
Devin I. Murphy |
|
$ |
91,125 |
|
|
$ |
60,000 |
|
|
$ |
151,125 |
|
D. Fleet Wallace |
|
$ |
106,500 |
|
|
$ |
60,000 |
|
|
$ |
166,500 |
|
Rodger D. Young |
|
$ |
99,500 |
|
|
$ |
60,000 |
|
|
$ |
159,500 |
|
|
|
|
(1) |
|
Represents annual retainers plus all meeting and committee attendance fees earned by non-employee directors in 2009. |
|
(2) |
|
The amounts shown are the aggregate grant date fair value related to the grants of restricted stock. Each of the
current non-management directors (Messrs. Kojaian, McLaughlin, Murphy, Wallace and Young) received a grant of
45,113 shares on December 17, 2009 which vest in three equal increments on each of the next three annual
anniversary dates of the grant. The grant date fair value of the 45,113 shares of restricted stock was $60,000,
which is based upon the closing price of the Companys common stock on the grant date of $1.33 per share. Those
shares represent the Companys annual grant to its non-management directors which, pursuant to the Companys 2006
Omnibus Equity Plan, is set at $60,000 worth of restricted shares of the Companys common stock based upon the
closing price of such common stock on the date of the grant. |
|
(3) |
|
The following table shows the aggregate number of unvested stock awards and option awards granted to non-employee
directors and outstanding as of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards |
|
|
Options Outstanding |
|
Outstanding at |
Director |
|
at Fiscal Year End |
|
Fiscal Year End |
Glenn L. Carpenter |
|
|
0 |
|
|
|
27,971 |
|
Harold H. Greene |
|
|
0 |
|
|
|
19,999 |
|
Gary H. Hunt |
|
|
0 |
|
|
|
6,666 |
|
C. Michael Kojaian |
|
|
0 |
|
|
|
61,445 |
|
Robert J. McLaughlin |
|
|
0 |
|
|
|
61,445 |
|
Devin I. Murphy |
|
|
0 |
|
|
|
71,432 |
|
D. Fleet Wallace |
|
|
0 |
|
|
|
65,112 |
|
Rodger D. Young |
|
|
10,000 |
|
|
|
61,445 |
|
78
|
|
|
(4) |
|
Mr. Hunt was not paid any annual retainers or committee attendance
fees while he served as the Companys Interim Chief Executive Officer
from July 2008 to November 16, 2009. |
|
(5) |
|
Mr. Kojaian waived his right to payment of all annual retainers and
committee attendance fees during the year ended December 31, 2009. |
Stock Ownership Policy for Non-Management Directors
Under the current stock ownership policy, non-management directors are required to accumulate
an equity position in the Company over five years in an amount equal to $250,000 worth of common
stock (the previous policy required an accumulation of $200,000 worth of common stock over a five
year period). Shares of common stock acquired by non-management directors pursuant to the
restricted stock grants can be applied toward this equity accumulation requirement.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee as of December 31, 2009 are D. Fleet Wallace, Chair,
Robert J. McLaughlin and Rodger D. Young. In addition, Messrs. Kojaian and Carpenter served on the
Compensation Committee during 2009.
During the year ended December 31, 2009, none of the current or former members of the
Compensation Committee is or was a current or former officer or employee of the Company or any of
its subsidiaries or had any relationship requiring disclosure by the Company under any paragraph of
Item 404 of Regulation S-K of the SECs Rules and Regulations. During the year ended December 31,
2009, none of the executive officers of the Company served as a member of the board of directors or
compensation committee of any other company that had one or more of its executive officers serving
as a member of the Companys Board of Directors or Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transaction Review Policy
The Company recognizes that transactions between the Company and any of its directors,
officers or principal shareowners or an immediate family member of any director, executive officer
or principal shareowner can present potential or actual conflicts of interest and create the
appearance that Company decisions are based on considerations other than the best interests of the
Company and its shareowners. The Company also recognizes, however, that there may be situations in
which such transactions may be in, or may not be inconsistent with, the best interests of the
Company.
The review and approval of related party transactions are governed by the Code of Business
Conduct and Ethics. The Code of Business Conduct and Ethics is a part of the Companys Employee
Handbook, a copy of which is distributed to each of the Companys employees at the time that they
begin working for the Company, and the Companys Salespersons Manual, a copy of which is
distributed to each of the Companys brokerage professionals at the time that they begin working
for the Company. The Code of Business Conduct and Ethics is also available on the Companys website
at www.grubb-ellis.com. In addition, within 60 days after he or she begins working for the
Company and once per year thereafter, the Company requires that each employee and brokerage
professional to complete an on-line Business Ethics training class and certify to the Company
that he or she has read and understands the Code of Business Conduct and Ethics and is not aware of
any violation of the Code of Business Conduct and Ethics that he or she has not reported to
management.
In order to ensure that related party transactions are fair to the Company and no worse than
could have been obtained through arms-length negotiations with unrelated parties, such
transactions are monitored by the Companys management and regularly reviewed by the Audit
Committee, which independently evaluates the benefit of such transactions to the Companys
shareowners. Pursuant to the Audit Committees charter, on a quarterly basis, management provides
the Audit Committee with information regarding related party transactions for review and discussion
by the Audit Committee and, if appropriate, the Board of Directors. The Audit Committee, in its
discretion, may approve, ratify, rescind or take other action with respect to a related party
transaction or, if necessary or appropriate, recommend that the Board of Directors approve, ratify,
rescind or take other action with respect to a related party transaction.
79
In addition, each director and executive officer annually delivers to the Company a
questionnaire that includes, among other things, a request for information relating to any
transactions in which both the director, executive officer, or their respective family members, and
the Company participates, and in which the director, executive officer, or such family member, has
a material interest.
Related Party Transactions
The following are descriptions of certain transactions commencing in fiscal year 2007 through
the date of this prospectus, in which the Company was a participant and in which any of the
Companys directors, executive officers, principal shareowners or any immediate family member of
any director, executive officer or principal shareowner had or may have had direct or indirect
material interest.
Grubb & Ellis Realty Advisors, Inc.
On March 3, 2006, the registration statement with respect to an initial public offering for
Grubb & Ellis Realty Advisors, Inc. (GERA), an affiliate of the Company, was declared effective.
GERA was a special purpose acquisition company organized by the Company to acquire one or more
United States commercial real estate properties and/or assets, principally industrial and office
properties.
On June 18, 2007, the Company entered into, along with its wholly owned subsidiary, GERA
Property Acquisition, LLC, a Membership Interest Purchase Agreement (the Purchase Agreement) with
GERA which contemplated the transfer of the three (3) commercial office properties from the Company
to GERA and, if consummated, would have constituted GERAs business combination. Pursuant to the
Purchase Agreement, the Company was to sell the properties to GERA, on a cost neutral basis, and
reimbursement for the actual costs and expenses paid by the Company with respect to the purchase of
the properties and imputed interest on cash advanced by the Company with respect to the properties.
Under the terms of the Purchase Agreement, the Purchase Agreement was subject to termination
under certain circumstances, including but not limited to if GERA failed to obtain the requisite
shareowner consents required under the laws of the State of Delaware and Realty Advisors charter
to approve the transactions contemplated by the Purchase Agreement.
Effective January 25, 2008, the Company entered into a letter agreement (the Letter
Agreement) with GERA pursuant to which the Company agreed, subject to and simultaneously upon the
closing of the Purchase Agreement, that GERA would have had the right to redeem an aggregate of
4,395,788 shares of common stock, par value $.0001 per share, of GERA stock currently owned by the
Company (the Redemption). The per share purchase price of each share that would have been
redeemed is the par value thereof, which would have resulted in an aggregate purchase price with
respect to the Redemption of $439.58. As noted above, the Company owned approximately 19% of the
issued and outstanding shares of GERA upon the completion of GERAs initial public offering.
Subsequent to the Redemption, the Company would have still owned 1,271,931 shares of common stock
of GERA, which would have represented approximately 5% of the then issued and outstanding shares of
GERA.
On February 28, 2008, a special meeting of the shareowners of GERA was held to vote on, among
other things, the proposed transaction with the Company, GERA failed to obtain the requisite
consents of its shareowners to approve its proposed business combination (i.e. the transactions
contemplated by the Purchase Agreement).
As a result thereof, GERA, in accordance with Section 8.1(f) of the Purchase Agreement,
advised the Company in a letter effective February 28, 2008, that it was terminating the Purchase
Agreement in accordance with its terms.
As a result of its failure to obtain the requisite shareowner approvals, GERA was unable to
effect a business combination within the proscribed deadline of March 3, 2008 in accordance with
its charter. Consequently, GERA filed a proxy statement with the SEC on March 11, 2008 with respect
to a special meeting of its shareowners to vote on the dissolution and liquidation of GERA. The
Company wrote-off in the first quarter of 2008 its investment in GERA of approximately $5.6
million, including its stock and warrant purchases, operating advances and third party costs. The
Company also paid any third-party legal, accounting, printing and other costs (other than monies to
be paid to shareowners of GERA on liquidation) associated with the dissolution and liquidation of
GERA. In addition, the various exclusive service agreements that the Company had previously entered
into with GERA for transaction services, property and facilities management, and project
management, never took effect due to GERAs failure to effect its business combination.
Commencing on February 27, 2006 and continuing through the eventual liquidation by GERA, the
Company made available to GERA office space, utilities and secretarial support for general and
administrative purposes as GERA required from time to time.
80
GERA agreed to pay the Company $7,500 per month for these services.
Osbrink Transaction
As of August 28, 2006, the Company entered into a written agreement with 1up Design Studios,
Inc. (1up), of which Ryan Osbrink, the son of Robert H. Osbrink, Former Executive Vice President
and President, Transaction Services of the Company, was a principal shareholder, to procure graphic
design and consulting services on assignments provided by brokerage professionals and/or employees
of the Company. The term of the agreement was for a period beginning September 1, 2006 ending on
August 31, 2007 and was terminable by either party upon 60 days prior notice. The agreement
provided that the Company would pay 1up a monthly retainer of $25,000, from which 1up would deduct
the cost of its design services. The pricing for 1ups design services was fixed pursuant to a
price schedule attached as an exhibit to the agreement. In addition, at the inception of the
agreement, the Company sold certain computer hardware and software to 1up for a price of $6,500
which was the approximate net book value of such items. The written agreement with 1up was
terminated effective as of March 1, 2007 at the request of the Audit Committee which believed that,
although the agreement did not violate the Companys related party transaction policy, termination
of the agreement was appropriate in order to avoid any appearance of impropriety that might result
from the agreement to pay 1up a fixed monthly retainer. While the Company was no longer obligated
to pay the monthly retainer to 1up, the Company continued to use 1up to provide design and
consulting services on an ad hoc basis. During the 2007 fiscal year, 1up was paid approximately
$239,000 in fees for its services. The Company believes that amounts paid to 1up for services are
comparable to the amounts that the Company would have paid to unaffiliated third parties.
Certain Thompson Transactions
The Company made advances totaling $1.0 million as of December 31, 2007 to Colony Canyon, a
property 30.0% owned and solely managed by Mr. Thompson. The advances bore interest at 10.0% per
annum and were required to be repaid within one year (although the repayments were extended from
time to time). These amounts were repaid in full during the nine months ended September 30, 2008,
and as of September 30, 2008 there were no outstanding advances with respect to Colony Canyon.
However, as of September 30, 2008, an accounts receivable totaling $321,000 was due with respect to
Colony Canyon. On November 4, 2008, the Company made a formal written demand to Mr. Thompson for
these monies. As of December 31, 2009, the accounts receivable with respect to Colony Canyon
totaled $310,000 and has been reserved for and included in the allowance for uncollectible
accounts.
As of December 31, 2009, advances to a program 40.0% owned and, as of April 1, 2008, managed
by Mr. Thompson totaled $983,000, which included $61,000 in accrued interest. As of December 31,
2009, the total outstanding balance of $983,000 was past due. The total past due amount of $983,000
has been reserved for and is included in the allowance for uncollectible advances. On November 4,
2008 and April 3, 2009, the Company made a formal written demand to Mr. Thompson for these monies.
In connection with the SEC investigation, referred to as In the Matter of Triple Net
Properties, LLC, to the extent that the Company was obligated to pay the SEC an amount in excess
of $1.0 million in connection with any settlement or other resolution of this matter, Mr. Thompson
agreed to forfeit to the Company up to 1,064,800 shares of its common stock. In connection with
this arrangement, NNN entered into an escrow agreement with Mr. Thompson and an independent escrow
agent, pursuant to which the escrow agent held 1,064,800 shares of the Companys common stock. On
June 2, 2008, the SEC informed the Company that the SEC was closing the investigation without any
enforcement action against Triple Net Properties, LLC (currently GERI) or NNN Capital Corp.
(currently GBE Securities). Since no fine was assessed by the SEC, the 1,064,800 shares were
released to Mr. Thompson during the second quarter of 2008.
Mr. Thompson has routinely provided personal guarantees to various lending institutions that
provided financing for the acquisition of many properties by the Companys programs. These
guarantees covered certain covenant payments, environmental and hazardous substance indemnification
and indemnification for any liability arising from the SEC investigation of Triple Net Properties,
LLC (currently GERI). In connection with the Formation Transactions, the Company indemnified Mr.
Thompson for amounts he may have been required to pay under all of the guarantees to which Triple
Net Properties, LLC (currently GERI), Realty or NNN Capital Corp. (currently GBE Securities) was an
obligor to the extent such indemnification would not require the Company to book additional
liabilities on the Companys balance sheet. In September 2007, NNN acquired Cunningham Lending
Group LLC (Cunningham), a company that was wholly-owned by Mr. Thompson, for $255,000 in cash.
Prior to the acquisition, Cunningham made unsecured loans to some of the properties under
management by Triple Net Properties, LLC (currently GERI). The loans, which bore interest at rates
ranging from 8.0% to 12.0% per annum were reflected in advances to related parties on the Companys
balance sheet and were serviced by the cash flows from the programs. The Company consolidated
Cunningham in its financial statements beginning in 2005.
81
Offering Costs and Other Expenses Related to Public Non-Traded REITs
The Company, through its consolidated subsidiaries Grubb & Ellis Apartment REIT Advisor, LLC
and Grubb & Ellis Healthcare REIT II Advisor, LLC, bears certain general and administrative
expenses in its capacity as advisor of Apartment REIT and Healthcare REIT II, respectively, and is
reimbursed for these expenses. However, Apartment REIT and Healthcare REIT II will not reimburse
the Company for any operating expenses that, in any four consecutive fiscal quarters, exceed the
greater of 2.0% of average invested assets (as defined in their respective advisory agreements) or
25.0% of the respective REITs net income for such year, unless the board of directors of the
respective REITs approve such excess as justified based on unusual or nonrecurring factors. All
unreimbursable amounts are expensed by the Company. The Company, through its consolidated
subsidiaries Grubb & Ellis Healthcare REIT Advisor, LLC, until August 28, 2009, bore certain
general and administrative expenses in its capacity as advisor of Healthcare REIT and was
reimbursed for those expenses.
In addition, the Company, through a former subsidiary, Grubb & Ellis Healthcare REIT Advisor,
LLC, bore certain general and administrative expenses in its capacity as advisor of Healthcare
REIT, and was reimbursed for these expenses. However, Healthcare REIT did not reimburse the Company
for any operating expenses that, in any four consecutive fiscal quarters, exceeded the greater of
2.0% of average invested assets (as defined in their respective advisory agreements) or 25.0% of
Healthcare REITs net income for such year, unless the board of directors of the Healthcare REIT
approved such excess as justified based on unusual or nonrecurring factors. All unreimbursable
amounts were expensed by the Company.
The Company also paid for the organizational, offering and related expenses on behalf of
Apartment REIT for its initial offering that ended July 17, 2009 and Healthcare REIT for its
initial offering through August 28, 2009. These organizational, offering and related expenses
include all expenses (other than selling commissions and the marketing support fee which generally
represent 7.0% and 2.5% of the gross offering proceeds, respectively) to be paid by Apartment REIT
and Healthcare REIT in connection with their initial offerings. These expenses only become the
liability of Apartment REIT and Healthcare REIT to the extent other organizational and offering
expenses do not exceed 1.5% of the gross proceeds of the initial offerings. As of December 31, 2009
and 2008, the Company has incurred expenses of $4.3 million and $3.8 million, respectively, in
excess of 1.5% of the gross proceeds of the Apartment REIT offering. During the year ended
December 31, 2009, the additional $0.5 million of expenses incurred in connection with the
Apartment REIT offering were fully reserved for and as of December 31, 2009, the $4.3 million in
total expenses incurred were written off. As of December 31, 2008, the Company had recorded an
allowance for bad debt of approximately $3.6 million, related to the Apartment REIT offering costs
incurred as the Company believed that such amounts would not be reimbursed.
The Company also pays for the organizational, offering and related expenses on behalf of
Apartment REITs follow-on offering and Healthcare REIT IIs initial offering. These organizational
and offering expenses include all expenses (other than selling commissions and a dealer manager fee
which represent 7.0% and 3.0% of the gross offering proceeds, respectively) to be paid by Apartment
REIT and Healthcare REIT II in connection with these offerings. These expenses only become a
liability of Apartment REIT and Healthcare REIT II to the extent other organizational and offering
expenses do not exceed 1.0% of the gross proceeds of the offerings. As of December 31, 2009 and
2008, the Company has incurred expenses of $1.6 million and $0, respectively, in excess of 1.0% of
the gross proceeds of the Apartment REIT follow-on offering. As of December 31, 2009 and 2008, the
Company has incurred expenses of $2.0 million and $0.1 million, respectively, in excess of 1.0% of
the gross proceeds of the Healthcare REIT II initial offering. The Company anticipates that such
amount will be reimbursed in the future from the offering proceeds of Apartment REIT and Healthcare
REIT II.
Management Fees
The Company provides both transaction and management services to parties which are related to
an affiliate of a principal shareowner and the Chairman of the Board of the Company (collectively,
Kojaian Companies). In addition, the Company also pays asset management fees to the Kojaian
Companies related to properties the Company manages on their behalf. Revenue, including
reimbursable expenses related to salaries, wages and benefits, earned by the Company for services
rendered to Kojaian Companies, including joint ventures, officers and directors and their
affiliates, was $6.7 million for the year ended December 31, 2009. In August 2009, the Kojaian
Management Corporation prepaid $0.6 million of property management fees to the company which was
repaid in September 2009 upon collection of management fees from parties related to the Kojaian
Companies to which the Company provides management services.
During the 2009 calendar year, the Kojaian Companies paid the Company and its subsidiaries the
following approximate amounts in connection with real estate services rendered: $8.6 million for
management services, which include reimbursed salaries, wages and benefits of $3.7 million;
$0.7 million in real estate sale and leasing commissions; and $0.2 million for other real estate
and business
82
services. The Company also paid the Kojaian Companies approximately $2.7 million, which
reflected fees paid by the Kojaian Companies asset management clients for asset management
services performed by the Kojaian Companies, but for which the Company billed the clients.
During the 2008 calendar year, the Kojaian Companies paid the Company and its subsidiaries the
following approximate amounts in connection with real estate services rendered: $9.3 million for
management services, which include reimbursed salaries, wages and benefits of $4.0 million; $0.8
million in real estate sale and leasing commissions; and $0.1 million for other real estate and
business services. The Company also paid the Kojaian Companies approximately $3.0 million, which
reflected fees paid by the Kojaian Companies asset management clients for asset management
services performed by the Kojaian Companies, but for which the Company billed the clients.
During the 2007 calendar year, the Kojaian Companies paid the Company and its subsidiaries the
following approximate amounts in connection with real estate services rendered: $9.4 million for
management services, which include reimbursed salaries, wages and benefits of $4.0 million; $0.8
million in real estate sale and leasing commissions; and $0.1 million for other real estate and
business services. The Company also paid the Kojaian Companies approximately $3.1 million, which
reflected fees paid by the Kojaian Companies asset management clients for asset management
services performed by the Kojaian Companies, but for which the Company billed the clients.
The Company believes that the fees and commissions paid to and by the Company as described
above were comparable to those that would have been paid to or received from unaffiliated third
parties in connection with similar transactions.
In August 2002, the Company entered into an office lease with a landlord related to the
Kojaian Companies, providing for an annual average base rent of $365,400 over the ten-year term of
the lease.
Other Related Party Transactions
GERI, which is wholly owned by the Company, owns a 50.0% managing member interest in Grubb &
Ellis Apartment REIT Advisor, LLC and each of Grubb & Ellis Apartment Management, LLC and ROC REIT
Advisors, LLC own a 25.0% equity interest in Grubb & Ellis Apartment REIT Advisor, LLC. As of
December 31, 2009 and 2008, Andrea R. Biller, the Companys General Counsel, Executive Vice
President and Secretary, owned an equity interest of 18.0% of Grubb & Ellis Apartment Management,
LLC. On August 8, 2008, in accordance with the terms of the operating agreement of Grubb & Ellis
Apartment Management, LLC, Grubb & Ellis Apartment Management LLC tendered settlement for the
purchase of the 18.0% equity interest in Grubb & Ellis Apartment Management LLC that was previously
owned by Mr. Scott D. Peters, former chief executive officer of the Company. As a consequence,
through a wholly owned subsidiary, the Companys equity interest in Grubb & Ellis Apartment
Management, LLC increased from 64.0% to 82.0% after giving effect to this purchase from Mr. Peters.
As of December 31, 2009, 2008 and 2007, Stanley J. Olander, the Companys Executive Vice
PresidentMultifamily, owned an equity interest of 33.3% of ROC REIT Advisors, LLC. As of December
31, 2009, 2008 and 2007, the remaining 82.0%, 82.0% and 64.0%, respectively, equity interest in
Grubb & Ellis Apartment Management, LLC were owned by GERI. Any allocable earnings attributable to
GERIs ownership interests are paid to GERI on a quarterly basis.
GERI owns a 75.0% managing member interest in Grubb & Ellis Healthcare REIT Advisor, LLC and,
therefore, consolidates Grubb & Ellis Healthcare REIT Advisor, LLC. Grubb & Ellis Healthcare
Management, LLC owns a 25.0% equity interest in Grubb & Ellis Healthcare REIT Advisor, LLC. As of
December 31, 2009, 2008 and 2007, each of Ms. Biller and Mr. Hanson, the Companys Chief Investment
Officer and GERIs President, owned an equity interest of 18.0% of Grubb & Ellis Healthcare
Management, LLC. On August 8, 2008, in accordance with the terms of the operating agreement of
Grubb & Ellis Healthcare Management, LLC, Grubb & Ellis Healthcare Management, LLC tendered
settlement for the purchase of 18.0% equity interest in Grubb & Ellis Healthcare Management, LLC
that was previously owned by Mr. Peters. As a consequence, through a wholly owned subsidiary, the
Companys equity interest in Grubb & Ellis Healthcare Management, LLC increased from 46.0% to 64.0%
after giving effect to this purchase from Mr. Peters. As of December 31, 2009, 2008 and 2007, the
remaining 64.0%, 64.0% and 46.0% equity interest in Grubb & Ellis Healthcare Management, LLC were
owned by GERI. Any allocable earnings attributable to GERIs ownership interests are paid to GERI
on a quarterly basis.
The grants of membership interests in Grubb & Ellis Apartment Management, LLC and Grubb &
Ellis Healthcare Management, LLC to certain executives are being accounted for by the Company as a
profit sharing arrangement. Compensation expense is recorded
83
by the Company when the likelihood of payment is probable and the amount of such payment is
estimable, which generally coincides with Grubb & Ellis Apartment REIT Advisor, LLC and Grubb &
Ellis Healthcare REIT Advisor, LLC recording its revenue. There was no compensation expense related
to the profit sharing arrangement with Grubb & Ellis Apartment Management, LLC, and therefore no
distributions to any members, for the year ended December 31, 2009. Compensation expense related to
this profit sharing arrangement associated with Grubb & Ellis Apartment Management, LLC includes
distributions of $88,000 and $175,000, respectively, to Mr. Thompson, $85,000 and $159,000,
respectively, to Scott D. Peters, the Companys former President and Chief Executive Officer, and
$122,000 and $159,000, respectively, to Ms. Biller for the years ended December 31, 2008 and 2007,
respectively. Compensation expense related to this profit sharing arrangement associated with
Grubb & Ellis Healthcare Management, LLC includes distributions of $44,000, $175,000 and $175,000
to Mr. Thompson, $0, $387,000 and $414,000 to Mr. Peters and $380,000, $548,000 and $414,000, to
each of Ms. Biller and Mr. Hanson for the years ended December 31, 2009, 2008 and 2007,
respectively.
The Companys directors and officers, as well as officers, managers and employees have
purchased, and may continue to purchase, interests in offerings made by the Companys programs at a
discount. The purchase price for these interests reflects the fact that selling commissions and
marketing allowances will not be paid in connection with these sales. The net proceeds to the
Company from these sales made net of commissions will be substantially the same as the net proceeds
received from other sales.
G REIT, Inc., a public non-traded REIT sponsored by NNN, agreed to pay Mr. Peters and Ms.
Biller, retention bonuses in connection with its stockholder approved liquidation, upon the filing
of each of G REITs annual and quarterly reports with the SEC during the period of the liquidation
process. These retention bonuses were agreed to by the independent directors of G REIT and approved
by the stockholders of G REIT in connection with G REITs stockholder approved liquidation. As of
December 31, 2007, Mr. Peters and Ms. Biller received retention bonuses of $200,000 from G REIT,
respectively. On January 28, 2008, G REITs remaining assets and liabilities were transferred to G
REIT Liquidating Trust. Effective January 30, 2008, and March 4, 2008, respectively, Mr. Peters and
Ms. Biller irrevocably waived their rights to receive all future retention bonuses from G REIT
Liquidating Trust. Additionally, Mr. Peters and Ms. Biller, each were entitled to a
performance-based bonus of $100,000 upon the receipt by GERI of net commissions aggregating
$5,000,000 or more from the sale of G REIT properties. As of December 31, 2007, Mr. Peters and Ms.
Biller have received their performance-based bonuses of $100,000 each from GERI.
On October 2, 2009, the Company sold $5.0 million of subordinated debt or equity securities of
the Company (the Permitted Placement) to an affiliate of Mr. Kojaian, the Companys largest
shareowner and Chairman of the Board of Directors of the Company, and issued a $5.0 million senior
subordinated convertible note (the Note) to Kojaian Management Corporation. The Note (i) bore
interest at twelve percent (12%) per annum, (ii) was co-terminous with the term of the Credit
Facility (including if the Credit Facility was terminated pursuant to the Discount Prepayment
Option), (iii) was unsecured and fully subordinate to the Credit Facility, and (iv) in the event
the Company issued or sold equity securities in connection with or pursuant to a transaction with a
non-affiliate of the Company while the Note was outstanding, at the option of the holder of the
Note, the principal amount of the Note then outstanding was convertible into those equity
securities of the Company issued or sold in such non-affiliate transaction. In connection with the
issuance of the Note, Kojaian Management Corporation, the lenders to the Credit Facility and the
Company entered into a subordination agreement (the Subordination Agreement). The Permitted
Placement was a transaction by the Company not involving a public offering in accordance with
Section 4(2) of the Securities Act.
In the fourth quarter of 2009, the Company effected the private placement of an aggregate of
965,700 shares of its 12% Preferred Stock, to qualified institutional buyers and other accredited
investors in a transaction exempt from the registration requirements of the Securities Act. In
conjunction with the offering, the entire $5.0 million principal balance of the Note was converted
into the 12% Preferred Stock at the offering price and the holder of the Note, Kojaian Management
Corporation, received accrued interest of approximately $57,000. In addition, the holder of the
Note also purchased an additional $5.0 million of 12% Preferred Stock at the offering price. In
addition to Kojaian Management Corporations acquisition of $10.0 million of 12% Preferred Stock
(including conversion of the $5.0 million Note as described above), certain of the Companys other
directors, executive officers and employees also purchased 12% Preferred Stock in the private
placement at the offering price as follows:
|
|
|
Thomas P. DArcy purchased $500,000 of 12% Preferred Stock |
|
|
|
|
Devin I. Murphy purchased $100,000 of 12% Preferred Stock |
|
|
|
|
Rodger D. Young purchased $50,000 of 12% Preferred Stock |
|
|
|
|
Andrea R. Biller purchased $100,000 of 12% Preferred Stock |
84
|
|
|
Jeffrey T. Hanson purchased $25,000 of 12% Preferred Stock |
|
|
|
|
Richard W. Pehlke purchased $50,000 of 12% Preferred Stock |
|
|
|
|
Jacob Van Berkel purchased $25,000 of 12% Preferred Stock |
|
|
|
|
other employees who are not NEOs purchased an aggregate of $1,135,000 of 12% Preferred
Stock |
85
PRINCIPAL SHAREOWNERS
The following table shows the share ownership as of March 19, 2010 by persons known by the
Company to be beneficial holders of more than 5% of any class of the Companys outstanding capital
stock, directors, named executive officers, and all current directors and executive officers as a
group. Unless otherwise noted, the persons listed have sole voting and disposition powers over the
shares held in their names, subject to community property laws if applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
Name and Address |
|
Number of |
|
|
Percentage |
|
|
Number of |
|
|
Percentage |
|
of Beneficial Owner(1) |
|
Shares |
|
|
of Class |
|
|
Shares(2) |
|
|
of Class(3) |
|
FMR LLC(4) |
|
|
189,800 |
|
|
|
19.7 |
% |
|
|
11,503,018 |
|
|
|
16.6 |
% |
Persons affiliated with Kojaian Holdings LLC(5) |
|
|
|
|
|
|
|
|
|
|
4,316,326 |
|
|
|
6.2 |
% |
Persons affiliated with Kojaian Ventures, L.L.C.(6) |
|
|
|
|
|
|
|
|
|
|
11,700,000 |
|
|
|
16.9 |
% |
Persons affiliated with Kojaian Management Corporation(7) |
|
|
100,000 |
|
|
|
10.4 |
% |
|
|
6,060,600 |
|
|
|
8.7 |
% |
Lions Gate Capital |
|
|
55,500 |
|
|
|
5.7 |
% |
|
|
3,363,633 |
|
|
|
4.9 |
% |
Wellington Management Company, LLP(8) |
|
|
125,000 |
|
|
|
12.9 |
% |
|
|
15,609,501 |
|
|
|
22.5 |
% |
Named Executive Officers and Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas P. DArcy |
|
|
5,000 |
|
|
|
* |
|
|
|
2,303,030 |
(12) |
|
|
3.3 |
% |
C. Michael Kojaian |
|
|
100,000 |
(13) |
|
|
10.4 |
% |
|
|
22,151,035 |
(10)(11)(13) |
|
|
32.0 |
% |
Robert J. McLaughlin |
|
|
|
|
|
|
|
|
|
|
259,664 |
(10)(11)(14) |
|
|
* |
|
Devin I. Murphy |
|
|
1,000 |
|
|
|
* |
|
|
|
165,200 |
(11)(15) |
|
|
* |
|
D. Fleet Wallace |
|
|
|
|
|
|
|
|
|
|
93,909 |
(9)(10)(11) |
|
|
* |
|
Rodger D. Young |
|
|
500 |
|
|
|
* |
|
|
|
146,657 |
(10)(11)(16) |
|
|
* |
|
Andrea R. Biller |
|
|
1,000 |
|
|
|
* |
|
|
|
398,416 |
(17) |
|
|
* |
|
Jeffrey T. Hanson |
|
|
250 |
(18) |
|
|
* |
|
|
|
1,731,335 |
(19)(23) |
|
|
2.5 |
% |
Richard W. Pehlke |
|
|
500 |
|
|
|
* |
|
|
|
256,803 |
(20) |
|
|
* |
|
Jacob Van Berkel |
|
|
250 |
|
|
|
* |
|
|
|
1,232,752 |
(21)(23) |
|
|
1.8 |
% |
All Current Directors and Executive Officers as a Group
(10 persons) |
|
|
108,500 |
|
|
|
11.2 |
% |
|
|
28,738,801 |
(22) |
|
|
41.5 |
% |
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
Unless otherwise indicated, the address for each of the individuals listed below is c/o Grubb & Ellis
Company, 1551 Tustin Avenue, Suite 300, Santa Ana, California 92705. |
|
(2) |
|
Each share of Preferred Stock currently converts into 60.606 shares of common stock, and all common
stock share numbers include, where applicable, the number of shares of common stock into which any
Preferred Stock held by the beneficial owner is convertible at such rate of conversion. |
|
(3) |
|
The percentage of shares of capital stock shown for each person in this column and in this footnote
assumes that such person, and no one else, has exercised or converted any outstanding warrants,
options or convertible securities held by him or her exercisable or convertible on March 19, 2010 or
within 60 days thereafter. |
|
(4) |
|
Pursuant to a Schedule 13G filed with the SEC by FMR LLC on February 16, 2010, FMR is deemed to be
the beneficial owner of 189,800 shares of Preferred Stock, or 11,503,018, shares of common stock. |
|
(5) |
|
Kojaian Holdings LLC is affiliated with each of C. Michael Kojaian, a director of the Company,
Kojaian Ventures, L.L.C. and Kojaian Management Corporation (see footnote 13 below). The address for
Kojaian Holdings LLC is 39400 Woodward Avenue, Suite 250, Bloomfield Hills, Michigan 48304. |
|
(6) |
|
Kojaian Ventures, L.L.C. is affiliated with each of C. Michael Kojaian, a director of the Company,
Kojaian Holdings LLC and Kojaian Management Corporation (see footnote 13 below). The address of
Kojaian Ventures, L.L.C. is 39400 Woodward Ave., Suite 250, Bloomfield Hills, Michigan 48304. |
|
(7) |
|
Kojaian Management Corporation is affiliated with each of C. Michael Kojaian, a director of the
Company, Kojaian Holdings LLC and Kojaian Ventures, L.L.C. (see footnote 13 below). The address of
Kojaian Management Corporation is 39400 Woodward Ave., Suite 250, Bloomfield Hills, Michigan 48304. |
86
|
|
|
(8) |
|
Wellington Management Company, LLP (Wellington Management) is an investment adviser registered
under the Investment Advisers Act of 1940, as amended. Wellington Management, in such capacity, may
be deemed to share beneficial ownership over the shares held by its client accounts. Wellingtons
address is 75 State Street, Boston, Massachusetts 02109. |
|
(9) |
|
Beneficially owned shares include 3,666 restricted shares of common stock which vest on June 27, 2010. |
|
(10) |
|
Beneficially owned shares include 2,999 restricted shares of common stock that vest on the first
business day following December 10, 2010, such 2,999 shares granted pursuant to the Companys 2006
Omnibus Equity Plan. |
|
(11) |
|
Beneficially owned shares include (i) 13,333 restricted shares of common stock which vest in 1/2
portions on each of the second and third anniversaries of December 10, 2008 and (ii) 45,113
restricted shares of common stock all of which vested on March 10, 2010; in each case, such shares
granted pursuant to the Companys 2006 Omnibus Equity Plan. |
|
(12) |
|
Beneficially owned shares include (i) 1,000,000 restricted shares of common stock which vest in equal
33 1/3 portions on each of the first, second, and third anniversaries of November 16, 2009, and
(ii) 1,000,000 restricted shares of common stock which vest based upon the market price of the
Companys common stock during the initial three-year term of Mr. DArcys employment agreement.
Specifically, (i) in the event that for any 30 consecutive trading days during the initial three year
term of Mr. DArcys employment agreement the volume weighted average closing price per share of the
common stock on the exchange or market on which the Companys shares are publically listed or quoted
for trading is at least $3.50, then 50% of such restricted shares shall vest, and (ii) in the event
that for any 30 consecutive trading days during the initial three year term of Mr. DArcys
employment agreement the volume weighted average closing price per share of the Companys common
stock on the exchange or market on which the Companys shares of common stock are publically listed
or quoted for trading is at least $6.00, then the remaining 50% percent of such restricted shares
shall vest. Vesting with respect to all restricted shares is subject to Mr. DArcys continued
employment by the Company, subject to the terms of a Restricted Share Agreement entered into by
Mr. DArcy and the Company on November 16, 2009, and other terms and conditions set forth in
Mr. DArcys employment agreement. |
|
(13) |
|
Beneficially owned shares include shares directly held by Kojaian Holdings LLC, Kojaian Ventures,
L.L.C. and Kojaian Management Corporation. C. Michael Kojaian, a director of the Company, is
affiliated with Kojaian Ventures, L.L.C., Kojaian Holdings LLC and Kojaian Management Corporation.
Pursuant to rules established by the SEC, the foregoing parties may be deemed to be a group, as
defined in Section 13(d) of the Exchange Act, and C. Michael Kojaian is deemed to have beneficial
ownership of the shares directly held by each of Kojaian Ventures, L.L.C., Kojaian Holdings LLC and
Kojaian Management Corporation. |
|
(14) |
|
Beneficially owned shares include 89,310 shares of common stock held directly by: (i) Katherine
McLaughlins IRA (Mr. McLaughlin wifes IRA of which Mr. McLaughlin disclaims beneficial ownership);
(ii) Robert J. and Katherine McLaughlin Trust; and (iii) Louise H. McLaughlin Trust. |
|
(15) |
|
Beneficially owned shares include 12,986 restricted shares of common stock which vest in equal
portions on each first business day following July 10, 2010 and 2011 granted pursuant to the
Companys 2006 Omnibus Equity Plan. |
|
(16) |
|
Beneficially owned shares include 10,000 shares of common stock issuable upon exercise of fully
vested outstanding options. |
|
(17) |
|
Beneficially owned shares include 35,200 shares of common stock issuable upon exercise of fully
vested outstanding options. Beneficially owned shares include 8,800 shares of restricted stock that
vest on June 27, 2010. |
|
(18) |
|
Mr. Hansons beneficially owned shares include 250 shares of Preferred Stock which are indirectly
held through Jeffrey T. Hanson and April L. Hanson, as Trustees of the Hanson Family Trust. |
|
(19) |
|
Beneficially owned shares include 22,000 shares of common stock issuable upon exercise of fully
vested options. Beneficially owned shares include 5,867 restricted shares of common stock that vest
on June 27, 2010. |
|
(20) |
|
Beneficially owned shares include 25,000 shares of common stock issuable upon exercise of fully
vested options. Beneficially owned shares include 25,000 restricted shares of common stock that vest
on the first business day after January 24, 2010 and 25,000 restricted shares of common stock that
vest on the first business day after January 24, 2011, all of these 50,000 shares are subject to
certain terms and conditions contained in that certain Restricted Stock Agreement between the Company
and Mr. Pehlke dated January 24, 2008. In addition, beneficially owned shares include 79,333
restricted shares of common stock |
87
|
|
|
|
|
awarded to Mr. Pehlke pursuant to the Companys 2006 Omnibus Equity
Plan which will vest in 1/2 installments on each first business day after the second and third
anniversaries of the grant date (December 3, 2008) and are subject to acceleration under certain
conditions. |
|
(21) |
|
Beneficially owned shares include 120,000 restricted shares of common stock awarded to Mr. Van Berkel
pursuant to the Companys 2006 Omnibus Equity Plan which will vest in equal 33 1/3% installments on
each first business day after the first, second and third anniversaries of the grant date
(December 3, 2008) and are subject to acceleration under certain conditions. Beneficially owned
shares also include 26,667 restricted shares of common stock which vest on the first business day
following January 24, 2010 and 26,666 restricted shares of common stock which vest on the first
business day following January 24, 2011. Furthermore, beneficially owned shares include 5,867 shares
of restricted common stock which vest on the first business day after December 4, 2009 and
5,866 shares of restricted common stock which vest on the first business day after December 4, 2010. |
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Beneficially owned shares include the following shares of common stock issuable upon exercise of
outstanding options which are exercisable on March 19, 2010 or within 60 days thereafter under the
Companys various stock option plans: Mr. Young 10,000 shares, Ms. Biller 35,200 shares,
Mr. Hanson 22,000 shares, Mr. Pehlke 25,000 shares, and all current directors and executive
officers as a group 92,200 shares. |
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Beneficially owned shares include restricted stock award of 1,000,000 shares of restricted stock
received by each of Messrs. Hanson and Berkel on March 10, 2010, of which 500,000 restricted shares
are subject to vesting over three years in equal annual installments of one-third each commencing on
the one year anniversary of March 10, 2010. The remaining 500,000 of such restricted shares are
subject to vesting based upon the market price of the Companys common stock during the three year
period commencing March 10, 2010. Specifically, (i) in the event that for any 30 consecutive trading
days during the three year period commencing March 10, 2010 the volume weighted average closing price
per share of the Companys common stock on the exchange or market on which the Companys shares are
publically listed or quoted for trading is at least $3.50, then 50% of such restricted shares shall
vest, and (ii) in the event that for any 30 consecutive trading days during the three year period
commencing March 10, 2010 the volume weighted average closing price per share of the Companys common
stock on the exchange or market on which the Companys shares of common stock are publically listed
or quoted for trading is at least $6.00, then the remaining 50% of such restricted shares shall vest.
Vesting with respect to all such restricted shares is subject to Messrs. Hansons and Van Berkels
continued employment, respectively, by the Company, subject to the terms and conditions of the
Restricted Stock Award Grant Notices and Restricted Stock Award Agreements dated March 10, 2010 for
each of Mr. Van Berkel and Mr. Hanson. |
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DESCRIPTION OF CAPITAL STOCK
As of the date of this prospectus, the authorized capital stock of our company consists of
220,000,000 shares of capital stock, 200,000,000 of such shares being common stock, par value $0.01
per share, and 20,000,000 of such shares being preferred stock, par value $0.01 per share, issuable
in one or more series or classes.
Selected provisions of our organizational documents are summarized below. In addition, you
should be aware that the summary below does not describe or give full effect to the provisions of
statutory or common law which may affect your rights as a shareowner.
Common Stock
We have one existing class of common stock. As of March 19, 2010, there were 69,313,092 shares
of our common stock outstanding. Holders of shares of our existing common stock are entitled to one
vote per share on all matters to be voted upon by our shareowners and are not entitled to
cumulative voting for the election of directors.
The holders of shares of our existing common stock are entitled to receive ratably dividends
as may be declared from time to time by our Board of Directors out of funds legally available for
dividend payments, subject to any dividend preferences of any holders of any other series of common
stock and preferred stock. In the event of our liquidation, dissolution or winding-up, after full
payment of all debts and other liabilities and liquidation preferences of any other series of
common stock and any preferred stock, the holders of shares of our existing common stock are
entitled to share ratably in all remaining assets. Our existing common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or sinking fund provisions
applicable to the shares of our existing common stock.
All issued and outstanding shares of common stock are fully paid and nonassessable.
Our common stock is listed under the symbol GBE on the New York Stock Exchange.
Computershare Investor Services, L.L.C. is the transfer agent and registrar for our common stock.
Preferred Stock
The Board of Directors has the authority to issue up to 20,000,000 shares of our preferred
stock in one or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rates, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares constituting any
series or the designation of that series, which may be superior to those of our common stock,
without further vote or action by the shareowners. The Board of Directors has designated up to
1,000,000 shares of our preferred stock as 12% Preferred Stock. As of the date of this prospectus,
the Company has issued an aggregate of 965,700 shares of 12% Preferred Stock.
One of the effects of undesignated preferred stock may be to enable our Board of Directors to
render it more difficult to or to discourage an attempt to obtain control of us by means of a
tender offer, proxy contest, merger or otherwise, and as a result to protect the continuity of our
management. The issuance of shares of the preferred stock by our Board of Directors as described
above may adversely affect the rights of the holders of common stock. For example, preferred stock
issued by us may rank prior to our common stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights, and may be convertible into shares of common stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for our common stock or
may otherwise adversely affect the market price of our common stock.
On November 6, 2009, we issued and sold of 900,000 shares of our 12% Preferred Stock in a
private placement exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 of Regulation D promulgated thereunder. Each share of 12% Preferred Stock is
convertible into shares of our common stock. JMP Securities, Inc. acted as initial purchaser and
placement agent with this private placement. We also granted a 45-day over-allotment option to the
initial purchaser and placement agent for the offering, and pursuant to such over-allotment option,
we sold an additional 65,700 shares of Preferred Stock for gross proceeds of $6.6 million, all of
which will be used for working capital purposes. The rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion rates, voting rights,
terms of redemption, redemption prices, liquidation preferences are described more fully in
Description of 12% Preferred Stock below.
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Possible Anti-Takeover Effects of Delaware Law and Relevant Provisions of our Certificate of
Incorporation and Bylaws
Provisions of Delaware law and our certificate of incorporation and bylaws may make it more
difficult to acquire control of our company by tender offer, a proxy contest or otherwise or the
removal of our officers and directors. For example:
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As discussed above, our certificate of incorporation permits our Board of Directors to
issue a new series of preferred stock with terms that may make an acquisition by a third
party more difficult or less attractive (subject to the consent of holders representing at
least a majority of the outstanding shares of the 12% Preferred Stock, in the case of
preferred stock that ranks senior to or, to the extent that 225,000 shares of 12% Preferred
Stock remains outstanding, on a parity with, the 12% Preferred Stock). |
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Our bylaws provide time limitations on shareowners that desire to present nominations for
election to our Board of Directors or propose matters that can be acted upon at shareowners
meetings. |
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Our certificate of incorporation and bylaws permit our Board to adopt, amend or repeal
our bylaws. |
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Our bylaws provide that special meetings of shareowners can be called only by our Board
of Directors or by holders of at least a majority of our outstanding capital stock. |
Copies of our certificate of incorporation and bylaws, as amended through the date of this
prospectus, have been filed with and are publicly available at or from the SEC as described under
the heading Where You Can Find More Information.
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DESCRIPTION OF 12% PREFERRED STOCK
The following is a summary of the material terms of the 12% Preferred Stock. You should refer
to the actual terms of the 12% Preferred Stock contained in the Certificate of Designation filed
with the Secretary of State of the State of Delaware and incorporated by reference as an exhibit to
the registration statement in which this prospectus is a part. You may obtain a copy of the
Certificate of Designation governing the 12% Preferred Stock from us at our website address set
forth under Where You Can Find More Information. As used in this description, unless otherwise
indicated or the context otherwise requires, the words we, us, our and our company do not
include any current or future subsidiary of Grubb & Ellis Company. We also describe below the
registration rights agreement that we entered into only with one of the lead investors.
General
As of March 19, 2010, there were 965,700 shares of our 12% Preferred Stock outstanding. The
rights, preferences, privileges, and restrictions on different series of preferred stock may differ
with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights,
redemption provisions, sinking fund provisions, and purchase funds and other matters.
Other than a lead investors right to purchase securities in a subsequent offering for the
six-month period after November 6, 2009, investors will not have any preemptive rights if we issue
other series of preferred stock. The 12% Preferred Stock is not subject to any sinking fund. We
have no obligation to retire the 12% Preferred Stock. The 12% Preferred Stock has a perpetual
maturity, subject to the holders right to convert the 12% Preferred Stock and our right to redeem
the 12% Preferred Stock at our option on or after November 15, 2014. Any 12% Preferred Stock
converted or redeemed or acquired by us will, upon cancellation, have the status of authorized but
unissued shares of 12% Preferred Stock. We will be able to reissue these canceled shares of 12%
Preferred Stock in any series of preferred stock.
The 12% Preferred Stock is not listed on any securities exchange.
Dividends
When and if declared by our Board of Directors out of legally available funds, holders of the
12% Preferred Stock are entitled to receive cash dividends at an annual rate of $12.00 per share of
the 12% Preferred Stock, subject to adjustment as described below. Dividends are payable quarterly
on each March 31, June 30, September 30 and December 31, beginning December 31, 2009, or, if such
date is not a business day, the next succeeding business day. In the case of any accrued but unpaid
dividends, we may pay dividends at additional times and for interim periods, if any, as determined
by our Board of Directors. Dividends on the 12% Preferred Stock are payable in cash and will
accumulate and be cumulative from the most recent date to which dividends have been paid, or if no
dividends have been paid, from November 6, 2009. Upon conversion of the 12% Preferred Stock,
accrued and unpaid dividends on those shares will be paid in cash or, at our election, exchanged
for a number of shares of our common stock equal to the dollar value of such accrued and unpaid
dividends divided by the conversion price then in effect at the time of conversion. Dividends will
be payable to holders of record as they appear on our stock books at the close of business on the
applicable record date not more than 30 days nor less than 10 days preceding the payment dates, as
fixed by our Board of Directors. If the 12% Preferred Stock is called for redemption on a
redemption date between the dividend record date and the dividend payment date and holders do not
convert the 12% Preferred Stock (as described below), holders will receive the dividend payment
together with all other accrued and unpaid dividends (at 110% of such dividends) on the redemption
date instead of receiving the dividend on the dividend date. Dividends payable on the 12% Preferred
Stock for any period greater or less than a full dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
In addition, in the event of any cash distribution to all holders of common stock, holders of
12% Preferred Stock will be entitled to participate in such distribution as if such holders of 12%
Preferred Stock had converted their shares of 12% Preferred Stock into common stock calculated on
the record date for determination of holders entitled to receive such distribution.
If we do not pay or set aside dividends in full on the 12% Preferred Stock and any other
preferred stock ranking on the same basis as to dividends, all dividends declared upon shares of
the 12% Preferred Stock and any other such preferred stock will be declared on a pro rata basis.
For these purposes, pro rata means that the amount of dividends declared per share on the 12%
Preferred Stock and any other preferred stock will bear the same ratio to each other that the
accrued and unpaid dividends per share on the shares of the 12% Preferred Stock and such other
preferred stock bear to each other.
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Unless we have paid or set aside full cumulative dividends, if any, accrued on all outstanding
shares of 12% Preferred Stock and any other of our preferred stock ranking on the same basis as to
dividends:
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we may not declare or pay or set aside dividends on common stock or any other stock ranking
junior to the 12% Preferred Stock as to dividends or liquidation preferences, excluding
dividends or distributions of shares, options, warrants or rights to purchase common stock or
other stock ranking junior to the 12% Preferred Stock as to dividends; and |
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we will not be able to redeem, purchase or otherwise acquire for consideration (or pay or
make available any monies for a sinking fund for the redemption of any such stock) any of our
other stock ranking junior to the 12% Preferred Stock as to dividends or liquidation
preferences, except (A) by conversion of such junior stock into or exchange for our stock
ranking junior to the 12% Preferred Stock as to dividends and upon liquidation, dissolution
or winding up, (B) repurchases of unvested shares of our capital stock at cost upon
termination of employment or consultancy of the holder thereof, provided such repurchases are
approved by our Board of Directors in good faith, or (C) with respect to any withholding in
connection with the payment of exercise prices or withholding taxes relating to employee
equity awards. |
Under Delaware law, we may only make dividends or distributions to our shareowners from:
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our surplus; or |
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the net profits for the fiscal year in which the dividend or distribution is declared
and/or the preceding fiscal year. |
Dividends on the 12% Preferred Stock will accrue whether or not:
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there are funds legally available for the payment of those dividends; or |
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those dividends are authorized or declared. |
If our Board of Directors or an authorized committee of our Board does not declare a dividend
in respect of any dividend payment date, the Board of Directors or an authorized committee of our
Board may declare and pay the dividend on any other date, whether or not a dividend payment date.
The persons entitled to receive the dividend will be the holders of our 12% Preferred Stock as they
appear on our stock register on a record date selected by the Board of Directors or an authorized
committee of our Board. That date must not (1) precede the date our Board of Directors or an
authorized committee of our Board declares the dividend payable, and (2) be more than 30 days prior
to the date the dividend is paid.
So long as any shares of the 12% Preferred Stock are outstanding, no other stock of the
Company ranking on a parity with the 12% Preferred Stock as to dividends or upon liquidation,
dissolution or winding up shall be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund or otherwise for the purchase or
redemption of any shares of any such stock) by the Company or any Subsidiary unless (i) the full
cumulative dividends, if any, accrued on all outstanding shares of 12% Preferred Stock shall have
been paid or set apart for payment for all past dividend periods and (ii) sufficient funds shall
have been set apart for the payment of the dividend for the current dividend period with respect to
the 12% Preferred Stock.
We will not authorize or pay any distributions on the 12% Preferred Stock or set aside funds
for the payment of distributions if restricted or prohibited by law, or if the terms of any of our
agreements, including agreements relating to indebtedness or any future series of preferred stock,
prohibit that authorization, payment or setting aside of funds or provide that the authorization,
payment or setting aside of funds is a breach of or a default under that agreement. We may in the
future become a party to agreements that restrict or prevent the payment of distributions on, or
the purchase of, the 12% Preferred Stock. These restrictions may include indirect covenants which
require us to maintain specified levels of net worth or assets.
Our ability to pay dividends and make any other distributions in the future will depend upon
our financial results, liquidity, and financial condition.
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Dividend Rate AdjustmentFailure to Pay Dividends
If we fail to pay the quarterly 12% Preferred Stock dividend in full for two (2) consecutive
quarters, the dividend rate will automatically increase by 0.50% of the initial liquidation
preference per share of the 12% Preferred Stock per quarter (up to a maximum aggregate increase of
two percent (2%) of the initial liquidation preference per annum per share of the 12% Preferred
Stock) until cumulative dividends have been paid in full.
Ranking
The 12% Preferred Stock ranks, with respect to distribution rights and rights upon our
liquidation, winding-up or dissolution:
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junior to all of our existing and future debt obligations, including convertible or
exchangeable debt securities; |
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senior to our common stock and to any other capital stock issued in the future that by its
terms ranks junior to the 12% Preferred Stock with respect to dividend rights or payments
upon our liquidation, winding-up or dissolution; |
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on a parity with any of our capital stock issued in the future that by its terms ranks on a
parity with 12% Preferred Stock; and |
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junior to any equity securities issued in the future and that by their terms rank senior to
the 12% Preferred Stock. |
While any shares of 12% Preferred Stock are outstanding, we may not authorize or issue any
equity securities that rank senior to the 12% Preferred Stock without the affirmative vote of
holders representing at least a majority of the outstanding 12% Preferred Stock. In addition, so
long as 225,000 shares of 12% Preferred Stock are outstanding, we may not authorize or issue any
equity securities that rank on a parity with the 12% Preferred Stock without the affirmative vote
of holders representing at least a majority of the outstanding 12% Preferred Stock. See Voting
Rights below.
Maturity
Our 12% Preferred Stock has no maturity date, and we are not required to redeem or repurchase
our 12% Preferred Stock at any time, except if a holder of shares of our 12% Preferred Stock causes
us to repurchase such shares in connection with certain change in control events. Accordingly, our
12% Preferred Stock will remain outstanding indefinitely unless a holder of shares of our 12%
Preferred Stock decides to convert it or to cause us to repurchase it in connection with certain
change of control events, or we decide to offer to repurchase it. See Conversion Rights,
Repurchase at Option of Holders upon a Fundamental Change and Optional Redemption.
Conversion Rights
General
Holders may convert their shares of 12% Preferred Stock at any time at the conversion rate of
60.606 shares of common stock per share of 12% Preferred Stock. This conversion rate is equivalent
to a conversion price of approximately $1.65 per share of common stock. We will not issue
fractional shares of common stock upon conversion. However, we will instead pay cash for each
fractional share based upon the market price of the common stock on the last business day prior to
the conversion date.
A holder of any shares of 12% Preferred Stock shall have the right, at such holders option
(except that, with respect to any shares of 12% Preferred Stock which shall be called for
redemption, such right shall terminate at the close of business on the trading day immediately
preceding the date fixed for redemption of such shares of 12% Preferred Stock unless we default in
payment due upon redemption thereof), to convert such shares at any time at the conversion rate of
60.606 fully paid and non-assessable shares of common stock (as such shares shall then be
constituted) per share of 12% Preferred Stock, as adjusted in accordance with the terms hereof, by
surrender of the certificate or certificates representing such share of 12% Preferred Stock so to
be converted in accordance with the terms of the Certificate of Designations.
In no event may we issue shares of common stock upon conversion of the 12% Preferred Stock if
such issuance would cause the aggregate outstanding shares of our common stock to exceed the total
authorized number of shares of our common stock.
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In order to convert shares of 12% Preferred Stock, the holder must either:
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deliver the 12% Preferred Stock certificate at the transfer agent office together with a
duly signed and completed notice of conversion, or |
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if the 12% Preferred Stock is held in global form, follow the procedures of The Depository
Trust Company, or DTC. |
The conversion date will be the date the holder delivers the 12% Preferred Stock certificate
and the duly signed and completed notice of conversion to the transfer agent or complies with the
procedures of DTC.
The holders of 12% Preferred Stock at the close of business on a record date will be entitled
to receive the dividend payment, if declared and paid, on those shares on the corresponding
dividend payment date notwithstanding the conversion of such shares following that record date.
Upon conversion of shares of 12% Preferred Stock, accrued and unpaid dividends on those shares will
be paid in cash or, at our election, exchanged for a number of shares of our common stock equal to
the dollar value of such accrued and unpaid dividends divided by the conversion price in effect at
the time of conversion.
Conversion Procedures
If the shares of 12% Preferred Stock are held in global certificate form, holders must comply
with the procedures of DTC to convert their beneficial interest in respect of the preferred stock
evidenced by a global stock certificate of the 12% Preferred Stock.
Holders may convert some or all of their shares of 12% Preferred Stock by surrendering to us
at our principal office or at the office of the transfer agent, the certificate or certificates for
the 12% Preferred Stock to be converted accompanied by a written notice stating that they elect to
convert all or a specified whole number of those shares in accordance with the provisions described
in this the Certificate of Designations and specifying the name or names in which they wish the
certificate or certificates for the shares of common stock to be issued. In case the notice
specifies a name or names other than the holders name, the notice must be accompanied by payment
of all transfer taxes payable upon the issuance of shares of common stock in that name or names.
Other than those taxes, we will pay any documentary, stamp or similar issue or transfer taxes that
may be payable in respect of any issuance or delivery of shares of common stock upon conversion of
the 12% Preferred Stock. As promptly as practicable after the surrender of that certificate or
certificates and the receipt of the notice relating to the conversion and payment of all required
transfer taxes, if any, or the demonstration to our satisfaction that those taxes have been paid,
we will deliver or cause to be delivered (a) certificates representing the number of validly
issued, fully paid and non-assessable full shares of common stock to which the holder, or the
holders transferee, will be entitled, and (b) if less than the full number of shares of 12%
Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new
certificate or certificates, of like tenor, for the number of shares evidenced by the surrendered
certificate or certificates, less the number of shares being converted. This conversion will be
deemed to have been made at the close of business on the date of giving the notice and of
surrendering the certificate or certificates representing the shares of the 12% Preferred Stock to
be converted, or the conversion date, so that the holders rights as to the shares being
converted will cease except for the right to receive the conversion value, and, if applicable, the
person entitled to receive common shares will be treated for all purposes as having become the
record holder of those shares of common stock at that time.
If more than one share of 12% Preferred Stock is surrendered for conversion at the same time,
the number of shares of full common stock issuable on conversion of those shares of 12% Preferred
Stock will be computed on the basis of the total number of shares of 12% Preferred Stock so
surrendered.
Before the delivery of any securities upon conversion of the 12% Preferred Stock, we will
comply with all applicable federal and state laws and regulations. All common stock delivered upon
conversion of the 12% Preferred Stock will upon delivery be duly authorized, validly issued, fully
paid and non-assessable, free of all liens and charges and not subject to any preemptive rights.
Conversion Rate AdjustmentGeneral
We will adjust the conversion rate from time to time as follows:
(1) If we issue shares of our common stock as a dividend or distribution on shares of our
common stock to all holders of our common stock, or if we effect a share split or share
combination, the conversion rate shall be adjusted based on the following formula:
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CR1 = CR 0 x OS1/0S0
where
CR0 = the conversion rate in effect immediately prior to the ex-dividend date for such
dividend or distribution, or the effective date of such share split or share combination;
CR1 = the new conversion rate in effect immediately on and after the ex-dividend date for
such dividend or distribution, or the effective date of such share split or share combination;
OS1 = the number of shares of our common stock outstanding immediately after such dividend or
distribution, or the effective date of such share split or share combination; and
OS0 = the number of shares of our common stock outstanding immediately prior to such dividend
or distribution, or the effective date of such share split or share combination.
Any adjustment made pursuant to this paragraph (1) will become effective at the open of
business on (x) the ex-dividend date for such dividend or other distribution or (y) the date on
which such split or combination becomes effective, as applicable. If any dividend or distribution
described in this paragraph (1) is declared but not so paid or made, the new conversion rate will
be readjusted to the conversion rate that would then be in effect if such dividend or distribution
had not been declared.
(2) If we distribute to all holders of our common stock any rights, warrants or options
entitling them, for a period expiring not more than 60 days after the date of issuance of such
rights, warrants or options, to subscribe for or purchase shares of our common stock at a price per
share that is less than the closing sale price per share of our common stock on the business day
immediately preceding the time of announcement of such distribution, we will adjust the conversion
rate based on the following formula:
CR1 = CR0 x (OS0+X)/(0S0+Y)
where
CR0 = the conversion rate in effect immediately prior to the ex-dividend date for such
distribution;
CR1 = the new conversion rate in effect immediately on and after the ex-dividend date for
such distribution;
OS0 = the number of shares of our common stock outstanding immediately prior to the
ex-dividend date for such distribution;
X = the aggregate number of shares of our common stock issuable pursuant to such rights,
warrants or options; and
Y = the number of shares of our common stock equal to the quotient of (A) the aggregate price
payable to exercise such rights, warrants or options and (B) the closing sale price per share
of our common stock on the business day immediately preceding the time of announcement for the
issuance of such rights, warrants or options.
For purposes of this paragraph (2), in determining whether any rights, warrants or options
entitle the holders of shares of our common stock to subscribe for or purchase shares of our common
stock at less than the applicable closing sale price per share of our common stock, and in
determining the aggregate exercise or conversion price payable for such shares of common stock,
there shall be taken into account any consideration we receive for such rights, warrants or options
and any amount payable on exercise or conversion thereof, with the value of such consideration, if
other than cash, to be determined by our Board of Directors. If any right, warrant or option
described in this paragraph (2) is not exercised or converted prior to the expiration of the
exercisability or convertibility thereof, we will adjust the new conversion rate to the conversion
rate that would then be in effect if such right, warrant or option had not been so issued.
(3) If we distribute shares of our capital stock, evidence of indebtedness or assets or
property to all holders of our common stock, excluding:
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dividends, distributions, rights, warrants or options referred to in paragraph (1) or (2)
above; |
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dividends or distributions paid exclusively in cash; and |
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spin-offs, as described below in this paragraph (3); |
then we will adjust the conversion rate based on the following formula:
CR1 = CR0 x SP0/(SP0 FMV)
where
CR0 = the conversion rate in effect immediately prior to the ex-dividend date for such
distribution;
CR1 = the new conversion rate in effect immediately on and after the ex-dividend date for
such distribution;
SP0 = the average of the closing sale price per share of our common stock for the 10
consecutive trading days ending on the business day immediately preceding the ex-dividend date
for such distribution; and
FMV = the fair market value (as determined in good faith by our Board of Directors) of the shares of capital stock, evidences of indebtedness, assets or property distributed with respect
to each outstanding share of our common stock on the earlier of the record date or the
ex-dividend date for such distribution.
An adjustment to the conversion rate made pursuant to the immediately preceding paragraph will
become effective on the ex-dividend date for such distribution; provided, however, that if FMV
with respect to any distribution of shares of capital stock, evidences of indebtedness or other
assets or property of ours is equal to or greater than SP (0) with respect to such distribution,
then in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of
12% Preferred Stock shall have the right to receive on the date such shares of capital stock,
evidences of indebtedness or other assets or property of ours are distributed to holders of our
common stock, for each share of 12% Preferred Stock, the amount of shares of capital stock,
evidences of indebtedness or other assets or property of ours such holder of 12% Preferred Stock
would have received had such holder of 12% Preferred Stock owned a number of shares of common stock
into which such 12% Preferred Stock is then convertible at the conversion rate in effect on the
ex-dividend date for such distribution.
If we distribute to all of our common shareowners capital stock of any class or series, or
similar equity interest, of or relating to one of our subsidiaries or other business unit, which we
refer to as a spin-off, the conversion rate in effect immediately before the 10th trading day from
and including the effective date of the spin-off will be adjusted based on the following formula:
CR1 = CR0 x (FMV0+MP 0)/MP0
where
CR0 = the conversion rate in effect immediately prior to the 10th trading day immediately
following, and including, the effective date of the spin-off;
CR1 = the new conversion rate in effect immediately on and after the 10th trading day
immediately following, and including, the effective date of the spin-off;
FMV0 = the average of the closing sale prices per share of the capital stock or similar
equity interest distributed to our common shareowners applicable to one share of our common
stock over the first 10 consecutive trading days after the effective date of the spin-off; and
MP0 = the average of the closing sale prices per share of our common stock over the first 10
consecutive trading days after the effective date of the spin-off.
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An adjustment to the conversion rate made pursuant to the immediately preceding paragraph will
occur on the 10th trading day from and including the effective date of the spin-off; provided that
in respect of any conversion within the 10 trading days following the effective date of any
spin-off, references within this paragraph (3) to 10 trading days will be deemed replaced with such
lesser number of trading days as have elapsed between the effective date of such spin-off and the
conversion date in determining the applicable conversion rate.
If any such dividend or distribution described in this paragraph (3) is declared but not paid
or made, the new conversion rate will be re-adjusted to be the conversion rate that would then be
in effect if such dividend or distribution had not been declared.
(4) If we or any of our subsidiaries make a payment in respect of a tender offer or exchange
offer for shares of our common stock to the extent that the cash and value of any other
consideration included in the payment per share of our common stock exceeds the closing sale price
per share of our common stock on the trading day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender offer or exchange offer, the conversion rate will be
adjusted based on the following formula:
CR1 = CR0 x (AC + (SP1 x OS1))/(SP x OS°)
where
CR 0 = the conversion rate in effect on the day immediately following the date such tender or
exchange offer expires;
CR1 = the conversion rate in effect on the second day immediately following the date such
tender or exchange offer expires;
AC = the aggregate value of all cash and any other consideration (as determined by our Board of
Directors) paid or payable for shares of our common stock purchased in such tender or exchange
offer;
OS0 = the number of shares of our common stock outstanding immediately prior to the date such
tender or exchange offer expires;
OS1 = the number of shares of our common stock outstanding immediately after the date such
tender or exchange offer expires (after giving effect to the purchase or exchange of shares
pursuant to such tender or exchange offer); and
SP1 = the closing sale price per share of our common stock for the trading day immediately
following the date such tender or exchange offer expires.
If the application of the foregoing formula would result in a decrease in the conversion rate,
no adjustment to the conversion rate will be made.
Any adjustment to the conversion rate made pursuant to this paragraph (4) will become
effective on the second day immediately following the date such tender offer or exchange offer
expires. If we or one of our subsidiaries is obligated to purchase shares of our common stock
pursuant to any such tender or exchange offer but is permanently prevented by applicable law from
effecting any such purchase or all such purchases are rescinded, we will re-adjust the new
conversion rate to be the conversion rate that would be in effect if such tender or exchange offer
had not been made.
If we have in effect a rights plan while any shares of our 12% Preferred Stock remain
outstanding, holders of shares of our 12% Preferred Stock will receive, upon a conversion of such
shares, in addition to the shares of our common stock, rights under our shareowner rights agreement
unless, prior to conversion, the rights have expired, terminated or been redeemed or unless the
rights have separated from our common stock. If the rights provided for in any rights plan that our
Board of Directors may adopt have separated from the common stock in accordance with the provisions
of the rights plan so that holders of shares of our 12% Preferred Stock would not be entitled to
receive any rights in respect of our common stock that we elect to deliver upon conversion of
shares of our 12% Preferred Stock, we will adjust the conversion rate at the time of separation as
if we had distributed to all holders of our capital stock, evidences of indebtedness or other
assets or property pursuant to paragraph (3) above, subject to readjustment upon the subsequent
expiration, termination or redemption of the rights.
In no event will the conversion price be reduced below $0.01, subject to adjustment for share
splits and combinations and similar events.
97
We will not make any adjustment to the conversion rate if holders of shares of our 12%
Preferred Stock are permitted to participate, on an as-converted basis, in the transactions
described above.
Without limiting the foregoing or subsequent sections of this prospectus, the conversion rate
will not be adjusted for:
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the issuance of any shares of our common stock pursuant to any present or future plan
providing for the reinvestment of dividends or interest payable on our securities and the
investment of additional optional amounts in shares of our common stock under any plan; |
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the issuance of any shares of our common stock or options or rights to purchase such shares
pursuant to any of our present or future employee, director, trustee or consultant benefit
plans, employee agreements or arrangements or programs; |
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the issuance of any shares of our common stock pursuant to any option, warrant, right, or
exercisable, exchangeable or convertible security outstanding as of the date shares of our
12% Preferred Stock were first issued; |
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a change in the par value of our common stock; |
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accumulated and unpaid dividends or distributions on our 12% Preferred Stock, except as
otherwise provided in the Certificate of Designations; or |
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the issuance of shares of our common stock or any securities convertible into or
exchangeable or exercisable for shares of our common stock or the payment of cash upon the
repurchase or redemption thereof, except as otherwise provided in the Certificate of
Designations. |
No adjustment in the conversion rate will be required unless the adjustment would require an
increase or decrease of at least 1% of the conversion rate. If the adjustment is not made because
the adjustment does not change the conversion rate by at least 1%, then the adjustment that is not
made will be carried forward and taken into account in any future adjustment. In addition, we will
make any carryforward adjustments not otherwise effected on each anniversary of the original
issuance date of the 12% Preferred Stock, upon conversion of any shares of 12% Preferred Stock (but
only with respect to such converted 12% Preferred Stock) and if the shares of our 12% Preferred
Stock are called for redemption. All required calculations will be made to the nearest cent or
1/10,000th of a share, as the case may be.
We may make a temporary reduction in the conversion price of the 12% Preferred Stock if our
Board of Directors determines that this decrease would be in the best interests of our company. We
may, at our option, reduce the conversion price if our Board of Directors deems it advisable to
avoid or diminish any income tax to holders of common stock resulting from any dividend or
distribution of stock or rights to acquire stock or from any event treated as such for income tax
purposes. See the section entitled Certain U.S. Federal Income Tax Considerations below for more
information.
To the extent permitted by law, we may, from time to time, increase the conversion rate for a
period of at least 20 days if our Board of Directors determines that such an increase would be in
our best interests. Any such determination by our Board of Directors will be conclusive. In
addition, we may increase the conversion rate if our Board of Directors deems it advisable to avoid
or diminish any income tax to common shareowners resulting from any distribution of common stock or
similar event. We will give holders of shares of our 12% Preferred Stock at least 15 business days
notice of any increase in the conversion rate.
The closing sale price of our common stock on any date means the closing sale price per
share (or if no closing sale price is reported, the average of the closing bid and ask prices or,
if more than one in either case, the average of the average closing bid and the average closing ask
prices) on such date as reported on the New York Stock Exchange (or such other principal national
securities exchange on which the common stock is then listed or authorized for quotation or, if not
so listed or authorized for quotation, the average of the mid-point of the last bid and ask prices
for our common stock on the relevant date from each of at least three nationally recognized
independent investment banking firms selected by us for this purpose).
98
Conversion Price AdjustmentDilutive Issuances
For six (6) months following November 6, 2009, if we issue any common stock at a price that is
less than the then current conversion price of the 12% Preferred Stock, or any securities
convertible into or exchangeable for, directly or indirectly, our common stock (we refer to such
securities as convertible securities) or any rights, warrants or options to purchase any such
common stock or convertible securities with a conversion price or exercise price that is less than
the then current conversion price of the 12% Preferred Stock (we refer to all such issuances of
securities as dilutive issuances), then the conversion price will be reduced concurrently with
such issue or sale, according to the following formula:
CP1 = CP0 × (A + B) ÷ (A + C)
where
CP1 = the conversion price in effect immediately after such dilutive issuances;
CP0 = the conversion price in effect immediately prior to such dilutive issuances;
A = the number of shares of common stock outstanding immediately prior to such dilutive
issuances, treating for this purpose as outstanding all shares of common stock issuable upon
exercise of options outstanding immediately prior to such issue or upon conversion or exchange
of convertible securities outstanding immediately prior to such issue;
B = the number of shares of common stock that would have been issued if such dilutive issuances
had been at a price per share of common stock (or equivalent) equal to CP 0 ; and
C = the number of shares of common stock issued (or the number of shares of common stock
issuable upon the exercise of rights, warrants or options to purchase common stock or
convertible securities and/or upon the conversion or exchange of convertible securities, as the
case may be) in such dilutive issuances.
Notwithstanding anything to the contrary set forth above with respect to conversion price
adjustments for dilutive issuances, no adjustment will be made to the conversion price of the 12%
Preferred Stock with regard to:
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securities issued (other than for cash) in connection with a strategic merger, alliance,
joint venture, acquisition, consolidation, licensing or partnering agreement; |
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common stock issued in connection with any credit facility obtained by us; or |
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common stock issued and grants of options to purchase common stock pursuant to an
employment agreement or arrangement or an equity compensation plan approved by our Board of
Directors. |
If the conversion price is adjusted as described above, then the conversion rate shall be
adjusted based on the following formula:
CR1 = CR0 × CP0/CP1
where
CR0 = the conversion rate in effect immediately prior to conversion price adjustment;
CR1 = the conversion rate in effect immediately following the conversion price adjustment;
CP0 = the conversion price in effect immediately prior to such adjustment; and
CP1 = the conversion price in effect immediately after such adjustment.
99
Conversion Rate AdjustmentMerger, Consolidation or Sale of Assets
In the case of the following events, each of which we refer to as a business combination:
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any recapitalization, reclassification or change of our common stock (other than changes
resulting from a subdivision or combination); |
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a consolidation, merger or combination involving us into any other person, or any merger of
another person into us, except for a merger that does not result in a reclassification,
conversion, exchange or cancellation of common stock; |
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a sale, transfer, conveyance or lease to another person of all or substantially all of our
property and assets (other than to one or more of our subsidiaries); or |
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a statutory share exchange; |
in each case, as a result of which our common shareowners are entitled to receive stock, other
securities, other property or assets (including cash or any combination thereof) with respect to or
in exchange for our common stock, a holder of shares of our 12% Preferred Stock will be entitled
thereafter to convert such shares of our 12% Preferred Stock into the kind and amount of stock,
other securities or other property or assets (including cash or any combination thereof) that the
holder of shares of our 12% Preferred Stock would have owned or been entitled to receive upon such
business combination as if such holder of shares of our 12% Preferred Stock held a number of shares
of our common stock equal to the conversion rate in effect on the effective date for such business
combination, multiplied by the number of shares of our 12% Preferred Stock held by such holder of
shares of our 12% Preferred Stock. If such business combination also constitutes a specified change
in control, a holder of shares of our 12% Preferred Stock converting such shares will not receive
additional shares if such holder does not convert its shares of our 12% Preferred Stock in
connection with (as described in Adjustment to Conversion Rate upon Certain Change in Control
Events) the relevant change in control. In the event that our common shareowners have the
opportunity to elect the form of consideration to be received in such business combination, we will
make adequate provision whereby the holders of shares of our 12% Preferred Stock will have a
reasonable opportunity to determine the form of consideration into which all of the shares of our
12% Preferred Stock, treated as a single class, will be convertible from and after the effective
date of such business combination. Such determination will be based on the weighted average of
elections made by the holders of shares of our 12% Preferred Stock that participate in such
determination, will be subject to any limitations to which all of our common shareowners are
subject, such as pro rata reductions applicable to any portion of the consideration payable in such
business combination, and will be conducted in such a manner as to be completed by the date that is
the earliest of (1) the deadline for elections to be made by our common shareowners and (2) two
business days prior to the anticipated effective date of the business combination.
We will provide notice of the opportunity to determine the form of such consideration, as well
as notice of the determination made by the holders of shares of our 12% Preferred Stock (and the
weighted average of elections), by posting such notice with DTC and providing a copy of such notice
to the transfer agent. If the effective date of a business combination is delayed beyond the
initially anticipated effective date, the holders of shares of our 12% Preferred Stock will be
given the opportunity to make subsequent similar determinations in regard to such delayed effective
date. We may not become a party to any such transaction unless its terms are consistent with the
preceding. None of the foregoing provisions will affect the right of a holder of shares of our 12%
Preferred Stock to convert such holders shares of our 12% Preferred Stock into shares of our
common stock prior to the effective date.
Repurchase at Option of Holders upon a Fundamental Change
Each holder of our 12% Preferred Stock will have the right to require us to repurchase for
cash all, or a specified whole number, of such holders 12% Preferred Stock upon the occurrence of
a fundamental change (i) prior to November 15, 2014, at a repurchase price equal to 110% of the sum
of the initial liquidation preference plus accumulated but unpaid dividends to but excluding the
fundamental change repurchase date and (ii) from November 15, 2014 until prior to November 15, 2019
at a repurchase price equal to 100% of the sum of the initial liquidation preference plus
accumulated but unpaid dividends to but excluding the fundamental change repurchase date.
100
We will give notice by mail or by publication (with subsequent prompt notice by mail) to
holders of our 12% Preferred Stock and will post such notice with DTC and provide a copy of such
notice to the transfer agent of the anticipated effective date of any proposed fundamental change
that will occur prior to November 15, 2019. We must make this mailing or publication at least 15
days before the anticipated effective date of the fundamental change. In addition, no later than
the third business day after the completion of such fundamental change, we must make an additional
notice announcing such completion.
A holder of 12% Preferred Stock that has elected to convert its shares of 12% Preferred Stock
rather than require us to repurchase its shares of 12% Preferred Stock pursuant to the fundamental
change repurchase right will not be able to exercise the fundamental change repurchase right.
Within 15 days after the occurrence of a fundamental change, we will provide to the holders of
our 12% Preferred Stock and the transfer agent a notice of the occurrence of the fundamental change
and of the resulting conversion right. Such notice will state:
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the events constituting the fundamental change; |
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the date of the fundamental change; |
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the last date on which the holders of our 12% Preferred Stock may exercise the fundamental
change repurchase right; |
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the fundamental change repurchase date; |
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the name and address of the paying agent and the repurchase agent; |
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that 12% Preferred Stock as to which the fundamental change repurchase right has been
exercised will be repurchased only if the notice of exercise of the fundamental change
repurchase right has not been properly withdrawn; and |
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the procedures that the holders of 12% Preferred Stock must follow to exercise the
fundamental change repurchase right. |
We will also issue a press release for publication on the Dow Jones & Company, Inc., Business
Wire or Bloomberg Business News (or, if such organizations are not in existence at the time of
issuance of such press release, such other news or press organization as is reasonably calculated
to broadly disseminate the relevant information to the public), or post notice on our website, in
any event prior to the opening of business on the first trading day following any date on which we
provide such notice to the holders of our 12% Preferred Stock.
The fundamental change repurchase date will be a date not less than 20 days nor more than 35
days after the date on which we give the above notice. To exercise the fundamental change
repurchase right, each holder of 12% Preferred Stock must deliver, on or before the close of
business on the fundamental change repurchase date, the 12% Preferred Stock to be converted, duly
endorsed for transfer, together with a completed written repurchase notice, to our transfer agent.
The repurchase notice will state:
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the relevant fundamental change repurchase date; |
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the number of shares of 12% Preferred Stock to be repurchased; and |
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that the 12% Preferred Stock is to be repurchased pursuant to the applicable provisions of
the 12% Preferred Stock. |
If the 12% Preferred Stock is held in global form, the repurchase notice must comply with
applicable DTC procedures.
Holders of 12% Preferred Stock may withdraw any notice of exercise of their fundamental change
repurchase right (in whole or in part) by a written notice of withdrawal delivered to our transfer
agent prior to the close of business on the business day prior to the fundamental change repurchase
date. The notice of withdrawal must state:
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the number of withdrawn shares of our 12% Preferred Stock; |
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if certificated shares of our 12% Preferred Stock have been issued, the certificate numbers
of the withdrawn shares of our 12% Preferred Stock; and |
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the number of shares of our 12% Preferred Stock, if any, which remain subject to the
repurchase notice. |
If the 12% Preferred Stock is held in global form, the notice of withdrawal must comply with
applicable DTC procedures.
Preferred stock as to which the fundamental change repurchase right has been properly
exercised and for which the repurchase notice has not been properly withdrawn will be repurchased
in accordance with the fundamental change repurchase right on the fundamental change repurchase
date. Payment of the fundamental change repurchase price is conditioned upon delivery of the
certificate or certificates for the 12% Preferred Stock to be repurchased. If less than the full
number of shares of 12% Preferred Stock evidenced by the surrendered certificate or certificates is
being repurchased, a new certificate or certificates, of like tenor, for the number of shares
evidenced by the surrendered certificate or certificates, less the number of shares being
repurchased, will be issued promptly to the holder.
In connection with any repurchase offer in the event of a fundamental change, we will comply
with all applicable federal and state laws and regulations.
A fundamental change will be deemed to occur upon a change in control or a termination of
trading prior to November 15, 2019. A change in control will be deemed to have occurred when:
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any person or group (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act or any successor provisions to either of the
foregoing), including any group acting for the purpose of acquiring,
holding, voting or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act, becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act, except that a person
will be deemed to have beneficial ownership of all shares that any
such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly
or indirectly, of 50% or more of the total voting power of our Voting
Stock (other than as a result of any merger, share exchange, transfer
of assets or similar transaction solely for the purpose of changing
our jurisdiction of incorporation and resulting in a reclassification,
conversion or exchange of outstanding shares of common stock solely
into shares of common stock of the surviving entity); or |
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(A) any person or group (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act or any successor provisions to either of
the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the
meaning of Rule 13d-5(b)(1) under the Exchange Act becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act,
except that a person will be deemed to have beneficial ownership of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of a majority of the total voting power of our
Voting Stock (other than as a result of any merger, share exchange,
transfer of assets or similar transaction solely for the purpose of
changing our jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares of
common stock solely into shares of common stock of the surviving
entity), and (B) a termination of trading shall have occurred; or |
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our consolidation or merger with or into any other person, any merger
of another person into us, or any sale, transfer, assignment, lease,
conveyance or other disposition, directly or indirectly, of all or
substantially all our assets and the assets of our subsidiaries,
considered as a whole (other than a disposition of such assets as an
entirety or virtually as an entirety to a wholly-owned subsidiary)
shall have occurred, other than: |
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any transaction (a) that does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of our
capital stock, and (b) pursuant to which holders of our capital stock
immediately prior to the transaction are entitled to exercise,
directly or indirectly, 50% or more of the total voting power of all shares of capital stock entitled to vote generally in the election of
directors of the continuing or surviving person immediately after the
transaction; or |
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any merger, share exchange, transfer of assets or similar transaction
solely for the purpose of changing our jurisdiction of incorporation
and resulting in a reclassification, conversion or exchange of
outstanding shares of common stock solely into shares of common stock
of the surviving entity; or |
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during any period of two consecutive years, individuals who at the
beginning of such period constituted our Board of Directors (together with
any new directors whose nomination, election or appointment by such Board
or whose nomination for election by our shareowners was approved by a vote
of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election, nomination or
appointment was previously so approved) cease for any reason to constitute
50% or more of our Board of Directors then in office; or |
102
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our shareowners shall have approved any plan of liquidation or dissolution. |
Capital Stock of any person means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock or other equity participations, including
partnership interests, whether general or limited, of such person and any rights (other than debt
securities convertible and exchangeable into an equity interest), warrants or options to acquire an
equity interest in such person.
A termination of trading will be deemed to have occurred if our common stock is not listed
for trading on a U.S. national securities exchange or market, including, but not limited to, the
over-the-counter market or bulletin board.
Voting Stock of any person means Capital Stock of such person which ordinarily has voting
power for the election of directors (or persons performing similar functions) of such person,
whether at all times or only for so long as no senior class of securities has such voting power by
reason of any contingency.
The definition of change in control includes a phrase relating to the sale, assignment, lease,
transfer or conveyance of all or substantially all of our assets or our assets and those of our
subsidiaries taken as a whole. Although there is a developing body of case law interpreting the
phrase substantially all, there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a holder of shares of our 12% Preferred Stock to
require us to repurchase their shares of 12% Preferred Stock as a result of a sale, assignment,
transfer, lease, or conveyance of less than all of our assets and those of our subsidiaries may be
uncertain.
This fundamental change repurchase feature may make more difficult or discourage a party from
taking over our company and removing incumbent management. We are not aware, however, of any
specific effort to accumulate our capital stock with the intent to obtain control of our company by
means of a merger, tender offer, solicitation or otherwise. Instead, the fundamental change
repurchase feature was a result of negotiations between us and the initial purchasers in the
offering of the 12% Preferred Stock.
We could, in the future, enter into certain transactions, including recapitalizations, which
would not constitute a fundamental change but would increase the amount of debt outstanding or
otherwise adversely affect the holders of 12% Preferred Stock. The incurrence of significant
amounts of additional debt could adversely affect our ability to service our debt.
Adjustment to Conversion Rate upon Certain Change in Control Events
If a change in control described in the clauses (2) or (3) of the definition of change in
control set forth above under Repurchase at Option of Holders upon a Fundamental Change occurs
prior to November 15, 2014, we will increase the conversion rate, to the extent described below, by
a number of additional shares if a holder elects to convert shares of our 12% Preferred Stock in
connection with any such transaction by increasing the conversion rate applicable to such shares if
and as required below; provided, however, that we will not adjust the conversion rate if a change
in control described in clause (3) of the definition of change in control occurs and 90% of the
consideration (excluding cash payments for fractional shares) in the transaction or transactions
constituting the change in control consists of shares of common stock that are, or upon issuance
will be, traded on the New York Stock Exchange or approved for trading on a Nasdaq market and, as a
result of such transaction or transactions, the 12% Preferred Stock becomes convertible solely into
such common stock and other consideration payable in such transaction or transactions.
A conversion of shares of our 12% Preferred Stock by a holder will be deemed for these
purposes to be in connection with a change in control if the holders written notice is received
by us at our principal office or by the transfer agent on or subsequent to the date 10 trading days
prior to the date announced by us as the anticipated effective date of the change in control but
before the close of business on the business day immediately preceding the related change in
control effective date. Any adjustment to the conversion rate will have the effect of increasing
the amount of any cash, securities or other assets otherwise due to holders of shares of our 12%
Preferred Stock upon conversion.
Any increase in the applicable conversion rate will be determined by reference to the table
below and is based on the date on which the change in control becomes effective (the effective
date) and the price (the stock price) paid per share of our common stock in the transaction
constituting the change in control. If holders of our common stock receive only cash in the
transaction, the stock price shall be the cash amount paid per share of our common stock.
Otherwise, the stock price shall be equal to the average closing sale price per share of our common
stock over the five trading-day period ending on the trading day immediately preceding the
effective date.
103
The following table sets forth the additional number of shares, if any, of our common stock
issuable upon conversion of each share of our 12% Preferred Stock in connection with such a change
in control, as specified above.
Additional Shares Upon a Change in Control
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Effective Date |
Stock Price on |
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November 1, |
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November 1, |
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November 1, |
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November 1, |
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November 1, |
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November 1, |
Effective Date |
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2009 |
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2010 |
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2011 |
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2012 |
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2013 |
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2014 |
$1.50 |
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11.112 |
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10.365 |
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9.477 |
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8.589 |
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7.701 |
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6.813 |
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$2.00 |
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7.284 |
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6.768 |
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5.686 |
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4.604 |
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3.522 |
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2.440 |
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$2.50 |
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5.093 |
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4.722 |
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3.571 |
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2.420 |
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1.268 |
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0.117 |
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$3.00 |
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3.700 |
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3.426 |
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2.570 |
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1.713 |
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0.857 |
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0.000 |
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$3.50 |
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2.755 |
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2.547 |
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1.910 |
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1.274 |
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0.637 |
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0.000 |
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$4.00 |
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2.083 |
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1.923 |
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1.442 |
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0.962 |
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0.481 |
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0.000 |
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$4.50 |
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1.586 |
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1.462 |
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1.097 |
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0.731 |
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0.366 |
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0.000 |
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$5.00 |
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1.213 |
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1.118 |
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0.839 |
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0.559 |
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0.280 |
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0.000 |
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The actual stock price and effective date may not be set forth in the foregoing table, in
which case:
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if the actual stock price on the effective date is between two stock prices in the table or
the actual effective date is between two effective dates in the table, the amount of the
conversion rate adjustment will be determined by a straight-line interpolation between the
adjustment amounts set forth for such two stock prices or such two effective dates on the
table based on a 360-day year, as applicable. |
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if the stock price on the effective date equals or exceeds $5.00 per share (subject to
adjustment as described below), no adjustment in the applicable conversion rate will be made. |
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if the stock price on the effective date is less than $1.50 per share (subject to
adjustment as described below), no adjustment in the applicable conversion rate will be made. |
The stock prices set forth in the first column of the table above will be adjusted as of any
date on which the conversion rate of our shares of 12% Preferred Stock is adjusted. The adjusted
stock prices will equal the stock prices applicable immediately prior to such adjustment multiplied
by a fraction, the numerator of which is the conversion rate immediately prior to the adjustment
giving rise to the stock price adjustment and the denominator of which is the conversion rate as so
adjusted. The conversion rate adjustment amounts set forth in the table above will be adjusted in
the same manner as the conversion rate other than by operation of an adjustment to the conversion
rate by virtue of the adjustment to the conversion rate as described above.
The additional shares, if any, or any cash delivered to satisfy our obligations to holders
that convert their shares of our 12% Preferred Stock in connection with a change in control will be
delivered upon the later of the settlement date for the conversion and promptly following the
effective date of the change in control transaction.
Our obligation to deliver the additional shares, or cash to satisfy our obligations, to
holders that convert their shares of 12% Preferred Stock in connection with a change in control
could be considered a penalty, in which case the enforceability thereof would be subject to general
principles of reasonableness of economic remedies.
Notwithstanding the foregoing, in no event will the conversion rate exceed 71.718 shares of
common stock per share of our 12% Preferred Stock, which maximum amount is subject to adjustments
in the same manner as the conversion rate as set forth under Conversion Rights.
Liquidation Rights
In the event of our voluntary or involuntary liquidation, winding-up or dissolution, each
holder of 12% Preferred Stock will be entitled to receive and to be paid out of our assets legally
available for distribution to our shareowners, prior to any payment or distribution is made to
holders of any securities ranking junior to the 12% Preferred Stock (including common stock), but
after payment of or provision for our debts and other liabilities or securities ranking senior to
the 12% Preferred Stock, and on a pro-rata basis with other preferred stock of equal ranking, a
cash liquidation preference equal to the greater of (i) 110% of the sum of the initial
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liquidation preference per share plus accrued and unpaid dividends thereon, if any, from
November 6, 2009 through the date of distribution of the assets, and (ii) an amount equal to the
distribution amount such holder of 12% Preferred Stock would have received had all shares of 12%
Preferred Stock been converted into common stock. Holders of any class or series of preferred stock
ranking on parity with the 12% Preferred Stock as to liquidation, winding-up or dissolution must
also be entitled to receive the full respective liquidation preferences and any accrued and unpaid
dividends through the date of distribution of the assets. If upon liquidation we do not have enough
assets to pay in full the amounts due on the 12% Preferred Stock and any other preferred stock
ranking on parity with the holders 12% Preferred Stock as to liquidation, winding-up or
dissolution, holders of the 12% Preferred Stock and the holders of such other preferred stock will
share ratably in any such distributions of our assets in proportion to the full respective
liquidating distributions to which they would otherwise be respectively entitled.
Only after the holders of 12% Preferred Stock have received their liquidation preference and
any accrued and unpaid dividends will we distribute assets to holders of common stock or any of our
other securities ranking junior to the shares of 12% Preferred Stock upon liquidation.
Holders of shares of our 12% Preferred Stock will be entitled to written notice of any
distribution in connection with any voluntary or involuntary liquidation, winding-up or dissolution
of our affairs not less than 30 days and not more than 60 days prior to the distribution payment
date. After payment of the full amount of the liquidating distributions to which they are entitled,
holders of shares of our 12% Preferred Stock will have no right or claim to participate in any
further distribution of our remaining assets.
The following events will not be deemed to be a liquidation, winding-up or dissolution of our
company:
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the voluntary sale, lease, transfer, conveyance or other disposition of all or
substantially all of our assets (other than in connection with our liquidation, winding-up
or dissolution); or |
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our merger or consolidation with or into any other person, corporation, trust or other
entity. |
Optional Redemption
On or after November 15, 2014, upon the affirmative vote of the disinterested members of the
Board of Directors, we may redeem the 12% Preferred Stock, out of legally available funds, in whole
or in part, at our option, at a per share redemption price equal to 110% of the sum of the initial
liquidation preference per share plus all accrued and unpaid dividends to and including the
redemption date, if the following conditions are satisfied as of the date of the redemption notice
and on the redemption date:
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the number of authorized, but unissued and otherwise unreserved, shares of our common
stock are sufficient to allow for conversion of all of the 12% Preferred Stock outstanding
as of such date; |
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the shares of common stock issuable upon conversion of the 12% Preferred Stock
outstanding as of such date are freely tradable for non-affiliates of our company; |
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our common stock is listed on a national stock exchange; |
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the issuance of common stock issuable upon conversion of all of the 12% Preferred Stock
outstanding as of such date would be not be in violation of the rules and regulations of the
NYSE; and |
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no pending or proposed fundamental change described under Conversion RightsAdjustment
to Conversion Rate upon a Fundamental Change above has been publicly announced prior to
such date that has not been consummated or terminated. |
We are required to give notice of redemption not more than 45 and not less than 15 days before
the redemption date. We may only exercise this optional redemption right to the extent we are not
prohibited by law or the terms of any agreement relating to our indebtedness or any future series
of preferred stock from making the cash payment required to redeem such 12% Preferred Stock.
If we redeem less than all of the shares of 12% Preferred Stock, we will select the shares to
be redeemed by lot or pro rata or in some other equitable manner in our sole discretion.
If the redemption date falls after a record date and on or prior to the corresponding dividend
payment date, (a) we will pay 110% of the full amount of accrued and unpaid dividends payable on
such dividend payment date only to the holder of record at the close of business on the
corresponding record date and (b) the redemption price payable on the redemption date will include
only 110% of the initial liquidation preference per share of the 12% Preferred Stock, excluding any
amount in respect of dividends declared and payable on such corresponding dividend payment date.
With respect to any shares of 12% Preferred Stock that are redeemed, on and after the
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applicable redemption date, dividends will cease to accumulate on such 12% Preferred
Stock, all rights of holders of such 12% Preferred Stock will terminate (except the right to
receive the cash payable upon such redemption) and such shares will no longer be deemed to be
outstanding.
Notice of redemption of the 12% Preferred Stock shall be mailed to each holder of record of
the shares to be redeemed by first class mail, postage prepaid at such holders address as the same
appears on our stock records. Any notice, which was mailed as described above, shall be
conclusively presumed to have been duly given on the date mailed whether or not the holder receives
the notice. In addition to any information required by law, each notice will state: (i) the
redemption date; (ii) the redemption price; (iii) the number of shares of 12% Preferred Stock to be
redeemed; (iv) the place or places where certificates for such shares of 12% Preferred Stock are to
be surrendered for cash; (v) that unpaid dividends accrued to, but excluding, the redemption date
will be paid as specified in the notice; (vi) that on and after such date, dividends thereon will
cease to accrue; and (vii) the then current conversion rate and conversion price and the date on
which the conversion right will expire.
Voting Rights
Holders of shares of our 12% Preferred Stock have the voting rights set forth below.
Holders of shares of our 12% Preferred Stock vote on an as if converted basis with the
holders of common stock as a single class on all matters subject to a vote by the holders of common
stock to the extent permitted by law. Certain actions, including amendment of our certificate of
incorporation, require approval by holders of a majority of common stock voting as a separate class
(excluding the 12% Preferred Stock on an as if converted basis).
If dividends on our 12% Preferred Stock are in arrears for six or more quarters, whether or
not consecutive (which we refer to as a preferred dividend default), holders representing a
majority of shares of our 12% Preferred Stock (voting together as a class with the holders of all
other classes or series of preferred stock upon which like voting rights have been conferred and
are exercisable) will be entitled to nominate and vote for the election of two additional directors
to serve on our Board of Directors (which we refer to as 12% Preferred Stock directors), until all
unpaid dividends with respect to our 12% Preferred Stock and any other class or series of preferred
stock upon which like voting rights have been conferred and are exercisable have been paid or
declared and a sum sufficient for payment is set aside for such payment; provided that the election
of any such directors will not cause us to violate the corporate governance requirements of the New
York Stock Exchange (or any other exchange or automated quotation system on which our securities
may be listed or quoted) that requires listed or quoted companies to have a majority of independent
directors; and provided further that our Board of Directors will, at no time, include more than two
12% Preferred Stock directors. In such a case, the number of directors serving on our Board of
Directors will be increased by two. The 12% Preferred Stock directors will be elected by holders
representing a majority of shares of our 12% Preferred Stock for a one-year term and each 12%
Preferred Stock director will serve until his or her successor is duly elected and qualifies or
until the directors right to hold the office terminates, whichever occurs earlier. The election
will take place at:
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a special meeting called by holders of at least 15% of the outstanding shares of 12%
Preferred Stock together with any other class or series of preferred stock upon which like
voting rights have been conferred and are exercisable, if this request is received more than
75 days before the date fixed for our next annual or special meeting of shareowners or, if we
receive the request for a special meeting within 75 days before the date fixed for our next
annual or special meeting of shareowners, at our annual or special meeting of shareowners;
and |
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each subsequent annual meeting (or special meeting held in its place) until all dividends
accumulated on our 12% Preferred Stock and on any other class or series of preferred stock
upon which like voting rights have been conferred and are exercisable have been paid in full
for all past dividend periods. |
If and when all accumulated dividends on our 12% Preferred Stock and all other classes or
series of preferred stock upon which like voting rights have been conferred and are exercisable
have been paid in full or a sum sufficient for such payment in full is set aside for payment,
holders of shares of our 12% Preferred Stock will be divested of the voting rights set forth above
(subject to re-vesting in the event of each and every preferred dividend default) and the term and
office of such 12% Preferred Stock directors so elected will immediately terminate and the entire
Board of Directors will be reduced accordingly.
Any 12% Preferred Stock director elected by holders of shares of our 12% Preferred Stock and
other holders of 12% Preferred Stock upon which like voting rights have been conferred and are
exercisable may be removed at any time with or without cause by the vote of, and may not be removed
otherwise than by the vote of, the holders of record of a majority of the outstanding shares of our
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12% Preferred Stock and other parity preferred stock entitled to vote thereon when they have
the voting rights described above (voting as a single class). So long as a preferred dividend
default continues, any vacancy in the office of a 12% Preferred Stock director may be filled by
written consent of the 12% Preferred Stock director remaining in office, or if none remains in
office, by a vote of the holders of record of a majority of the outstanding shares of our 12%
Preferred Stock when they have the voting rights described above (voting as a single class with all
other classes or series of preferred stock upon which like voting rights have been conferred and
are exercisable); provided that the filling of each vacancy will not cause us to violate the
corporate governance requirements of the New York Stock Exchange (or any other exchange or
automated quotation system on which our securities may be listed or quoted) that requires listed or
quoted companies to have a majority of independent directors. The 12% Preferred Stock directors
will each be entitled to one vote on any matter.
In addition, so long as any shares of the 12% Preferred Stock issued in the initial offering
thereof remain outstanding, we will not, without the consent or the affirmative vote of holders
representing at least a majority of the outstanding shares of our 12% Preferred Stock voting as a
separate class:
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authorize, create or issue, or increase the number of authorized or issued shares of, any
class or series of stock ranking senior to such 12% Preferred Stock with respect to payment
of dividends, or the distribution of assets upon the liquidation, winding-up or dissolution
of our affairs, or reclassify any of our authorized capital stock into any such shares, or
create, authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or |
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amend, alter or repeal the provisions of our charter, including the terms of our 12%
Preferred Stock, whether by merger, consolidation, transfer or conveyance of substantially
all of our assets or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of our 12% Preferred Stock, |
except that with respect to the occurrence of any of the events described in the second bullet
point immediately above, so long as our 12% Preferred Stock remains outstanding with the terms of
our 12% Preferred Stock materially unchanged, taking into account that, upon the occurrence of an
event described in the second bullet point above, we may not be the surviving entity, the
occurrence of such event will not be deemed to materially and adversely affect the rights,
preferences, privileges or voting power of our 12% Preferred Stock, and in such case such holders
shall not have any voting rights with respect to the events described in the second bullet point
immediately above. Furthermore, holders of shares of our 12% Preferred Stock will not have any
voting rights with respect to the events described in the second bullet point immediately above if
such holders receive the greater of (i) the full trading price of the 12% Preferred Stock on the
date of an event described in the second bullet point immediately above, or (ii) 110% of the sum of
the initial liquidation preference per share of 12% Preferred Stock plus accrued and unpaid
dividends thereon pursuant to the occurrence of any of the events described in the second bullet
point immediately above. So long as 225,000 of the shares of the 12% Preferred Stock remain
outstanding, we will not, without the consent or the affirmative vote of holders representing at
least a majority of the outstanding shares of our 12% Preferred Stock voting as a separate class,
authorize, create or issue, or increase the number of authorized or issued shares of, any class or
series of stock ranking on a parity with such 12% Preferred Stock with respect to payment of
dividends, or the distribution of assets upon the liquidation, winding-up or dissolution of our
affairs, or reclassify any of our authorized capital stock into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the right to purchase
any such shares.
The voting provisions above will not apply if, at or prior to the time when the act with
respect to which the vote would otherwise be required would occur, we have redeemed or called for
redemption upon proper procedures all outstanding shares of our 12% Preferred Stock.
In all cases in which only the holders of 12% Preferred Stock will be entitled to vote, each
share of 12% Preferred Stock will be entitled to one vote. Where the holders of 12% Preferred Stock
are entitled to vote as a class with holders of any other class or series of preferred stock having
similar voting rights that are exercisable, each class or series will have the number of votes
proportionate to the aggregate liquidation preference of its outstanding shares. Where the holders
of 12% Preferred Stock are entitled to vote as a class with the holders of common stock, the
holders of 12% Preferred Stock will have the number of votes proportionate with the number of
common shares into which the 12% Preferred Stock is then convertible.
Without the consent of the holders of 12% Preferred Stock, so long as such action does not
adversely affect the special rights, preferences, privileges and voting powers of the 12% Preferred
Stock, taken as a whole, we may amend, alter, supplement, or repeal any terms of the 12% Preferred
Stock for the following purposes:
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to cure any ambiguity, or to cure, correct, or supplement any provision contained in the
Certificate of Designations for the 12% Preferred Stock that may be ambiguous, defective, or
inconsistent, so long as such change does not adversely affect the rights of any holder of
12% Preferred Stock; or |
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to make any provision with respect to matters or questions relating to the 12% Preferred
Stock that is not inconsistent with the provisions of the Certificate of Designations for the
12% Preferred Stock, so long as such change does not adversely affect the rights of any
holder of 12% Preferred Stock. |
Registration Rights
Holders of the 12% Preferred Stock (other than one of the lead investors with whom we entered
into a registration rights agreement as discussed below), will not have any right to require us to
register the resale of the 12% Preferred Stock or the shares of our common stock issuable upon
conversion of the 12% Preferred Stock.
The following summary of the registration rights provided in the registration rights
agreement, as amended, is not complete and is qualified in its entirety by reference to the
registration rights agreement, as amended, filed as an Exhibit to the registration statement of
which this prospectus is a part.
In connection with the purchase of 12% Preferred Stock by certain lead investors, we entered
into a registration rights agreement with respect to 125,000 shares of the 12% Preferred Stock
purchased by such purchasers. Pursuant to that registration rights agreement, we are obligated to
file a shelf registration statement on Form S-1 under the Securities Act not later than 30 days
after the first date of original issuance of the 12% Preferred Stock to register the resale by the
above-referenced purchaser or its affiliates of the maximum number of shares of 12% Preferred Stock
purchased by such purchaser and shares of our common stock issuable upon conversion of those shares
of 12% Preferred Stock purchased as permitted by the SEC. We sometimes refer to the shares 12%
Preferred Stock and the underlying shares of common stock that are to be registered as described in
the immediately preceding sentence as the registrable securities.
We are obligated to keep the shelf registration statement of which this prospectus forms a
part effective until the earliest of:
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one year from the latest date of original issuance of the 12% Preferred Stock; |
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the date on which all registrable securities shall have been registered under the
Securities Act and disposed of; |
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the date on which the registrable securities cease to be outstanding; |
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the date on which all registrable securities shall have been transferred in accordance with
Rule 144; or |
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the date on which the lead investor and its affiliates cease to hold registrable
securities. |
A holder of registrable securities that sells registrable securities pursuant to the shelf
registration statement generally will be required to provide information about itself and the
specifics of the sale, be named as a selling securityholder in the related prospectus, deliver a
prospectus to purchasers, be subject to relevant civil liability provisions under the Securities
Act in connection with such sales, and be bound by the provisions of the registration rights
agreement that are applicable to such holder.
If we notify the holders of registrable securities in accordance with the registration rights
agreement to suspend the use of the prospectus upon the occurrence of certain events, then such
holders will be obligated to suspend the use of the prospectus until the requisite changes have
been made.
If, after the shelf registration statement has become effective and while our obligation to
maintain an effective shelf registration statement remains in effect, the aggregate duration of any
periods during which the availability of the shelf registration statement and any related
prospectus is suspended (as described above) exceeds 60 days in any 12-month period, then we are
obligated to pay to holders of shares of 12% Preferred Stock then subject to the registration
rights agreement, liquidated damages in cash in an amount that shall accrue at a rate of 0.50% of
the initial liquidation preference per share of 12% Preferred Stock per month, from and including
the date on which the resale registration default shall occur to but excluding the date on which
all such resale registration defaults have been cured. If a beneficiary of the registration rights
agreement has converted some or all of its shares of 12% Preferred Stock into shares of our common
stock, that holder will not be entitled to receive any liquidated damages with respect to those
shares of converted 12% Preferred Stock or common stock.
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We will pay all expenses incident to our performance of and compliance with the registration
rights agreement, provide each holder that is selling registrable securities pursuant to the shelf
registration statement copies of the related prospectus as reasonably requested, and take certain
other actions as are required under the terms of the registration rights agreement to permit,
subject to the foregoing, unrestricted resales of the registrable securities.
Pursuant to the registration rights agreement, we will grant the holders of the registrable
securities certain customary indemnification rights in connection with the shelf registration
statement and each holder of registrable securities will indemnify us for certain losses in
connection with the shelf registration statement.
Our largest shareowner and an affiliate of Kojaian Management Corporation, along with its
other affiliated persons and entities, have agreed not to exercise any registration rights to which
they may be entitled in connection with the registration of their registrable securities under a
registration rights agreement entered into in 2006.
Preemptive Rights
For 180 days following November 6, 2009, if we issue for cash consideration any common stock
or any securities convertible into or exchangeable for, directly or indirectly, our common stock or
any rights, warrants or options to purchase any such common stock or convertible securities (which
we refer to collectively as common equity, and the issuance of any such common equity during such
180 day period, we refer to as the common equity sale), then a lead investor in the offering holder
of our 12% Preferred Stock that was granted registration rights and its affiliates shall also have
the right, subsequent to the consummation of the common equity sale, to purchase up to an amount of
common equity, on the identical terms and conditions as the common equity was issued in the common
equity sale, so as to maintain such holders as converted pro rata ownership of 12% Preferred
Stock prior to the common equity sale. Notwithstanding anything to the contrary set forth above,
such purchase rights shall not apply to any (i) securities issued (other than for cash) in
connection with a strategic merger, alliance, joint venture, acquisition, consolidation, licensing
or partnering agreement; (ii) any common equity issued in connection with any credit facility
obtained by the Company; or (iii) common equity issued pursuant to an employment agreement or
arrangement or an equity compensation plan approved by our Board of Directors.
Reservation of Shares for Issuance
We will at all times reserve and keep available out of our authorized and unissued common
stock, solely for issuance upon the conversion of the 12% Preferred Stock, that number of shares of
common stock as shall from time to time then be issuable upon the conversion of all the shares of
the 12% Preferred Stock then outstanding. The 12% Preferred Stock converted into our common stock
or otherwise reacquired by us will resume the status of authorized and unissued shares of our 12%
Preferred Stock, undesignated as to series, and will be available for subsequent issuance.
Global Preferred Stock
The 12% Preferred Stock issued to QIBs is evidenced by a global certificate that has been
deposited with, or on behalf of, DTC and registered in the name of Cede & Co. as DTCs nominee.
Except as set forth below, the global certificate may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee.
Purchasers may hold their interests in the global certificate directly through DTC or
indirectly through organizations that are participants in DTC. Transfers between participants will
be effected in the ordinary way in accordance with DTC rules and will be settled in clearing house
funds. The laws of some states require that certain persons take physical delivery of securities in
definitive form. Consequently, the ability to transfer beneficial interests in the global
certificate to such persons may be limited.
Purchasers may beneficially own interests in the global certificate held by DTC only through
participants, or certain banks, brokers, dealers, trust companies and other parties that clear
through or maintain a custodial relationship, with a participant, either directly or indirectly
through indirect participants. So long as Cede & Co., as the nominee of DTC, is the registered
owner of the global certificate, Cede & Co. for all purposes will be considered the sole holder of
the global certificate. Except as provided below, owners of beneficial interests in the global
certificate will not be entitled to have certificates registered in their names, will not receive
or be entitled to receive physical delivery of certificates in definitive form, and will not be
considered the holders.
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Payment of dividends on and the redemption price of the global certificate will be made to
Cede & Co. by wire transfer of immediately available funds. Neither we, the trustee nor any paying
agent will have any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global certificate or for
maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
We have been informed by DTC that, with respect to any payment of dividends or of the
redemption price of the global certificate, DTCs practice is to credit participants accounts on
the payment date with payments in amounts proportionate to their respective beneficial interests in
the 12% Preferred Stock represented by the global certificate as shown on the records of DTC,
unless DTC has reason to believe that it will not receive payment on such payment date. Payments by
participants to owners of beneficial interests in 12% Preferred Stock represented by the global
certificate held through such participants will be the responsibility of such participants, as is
the case with securities held for the accounts of customers registered in street name.
Because DTC can only act on behalf of participants, who in turn act on behalf of indirect
participants and certain banks, the ability of a person having a beneficial interest in 12%
Preferred Stock represented by the global certificate to pledge such interest to persons or
entities that do not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such interest.
Neither we, the transfer agent, registrar, paying agent nor conversion agent will have any
responsibility for the performance by DTC or its participants or indirect participants under the
rules and procedures governing their operations. DTC has advised us that it will take any action
permitted to be taken by a holder of 12% Preferred Stock only at the direction of one or more
participants to whose account with DTC interests in the global certificate are credited and only in
respect of the amount of shares of the 12% Preferred Stock represented by the global certificate as
to which the participant has given this direction.
DTC is a limited purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a clearing corporation within the meaning of the Uniform
Commercial Code and a clearing agency registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between participants through electronic
book-entry changes to accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations. Certain
participants, together with other entities, own DTC. Indirect access to the DTC system is available
to others such as banks, brokers, dealers, and trust companies that clear through, or maintain a
custodial relationship with, a participant, either directly or indirectly.
If DTC is at any time unwilling or unable to continue as depository and a successor depository
is not appointed by us within 90 days, we will cause 12% Preferred Stock to be issued in definitive
form in exchange for the global certificate.
Certificated Preferred Stock
The 12% Preferred Stock issued to accredited investors who are not QIBs were issued in
certificated form.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock and the 12% Preferred Stock is
Computershare Investor Services, L.L.C.
Liability and Indemnification of Officers and Directors
Our certificate of incorporation contains certain provisions permitted under the Delaware
General Corporation Law relating to the liability of our directors. These provisions eliminate a
directors personal liability for monetary damages resulting from a breach of fiduciary duty,
except that a director will be personally liable:
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for any breach of the directors duty of loyalty to us or our shareowners; |
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for acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; |
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under Section 174 of the Delaware General Corporation Law relating to unlawful stock
repurchases or dividends; or |
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for any transaction from which the director derives an improper personal benefit. |
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These provisions do not limit or eliminate our rights or those of any shareowner to seek
non-monetary relief, such as an injunction or rescission, in the event of a breach of a directors
fiduciary duty. These provisions will not alter a directors liability under federal securities
laws.
Our certificate of incorporation and bylaws also provide that we must indemnify our directors
and officers to the fullest extent permitted by Delaware law and advance expenses, as incurred, to
our directors and officers in connection with a legal proceeding to the fullest extent permitted by
Delaware law, subject to very limited exceptions.
We have entered into separate indemnification agreements with our directors and executive
officers that will, in some cases, be broader than the specific indemnification provisions
contained in our certificate of incorporation, bylaws or the Delaware General Corporation Law.
The indemnification agreements require us, among other things, to indemnify executive officers
and directors against certain liabilities, other than liabilities arising from willful misconduct
that may arise by reason of their status or service as directors or officers. We are also be
required to advance amounts to or on behalf of our officers and directors in the event of claims or
actions against them. We believe that these indemnification arrangements are necessary to attract
and retain qualified individuals to serve as our directors and executive officers.
Anti-Takeover Effects of Provisions of Delaware Law, Our Certificate of Incorporation and Bylaws
Our certificate of incorporation, bylaws and the Delaware General Corporation Law contain
certain provisions that could discourage potential takeover attempts and make it more difficult for
our shareowners to change management or receive a premium for their shares.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover
provision. In general, the provision prohibits a publicly-held Delaware corporation from engaging
in a business combination with an interested shareowner for a period of three years after the
date of the transaction in which the person became an interested shareowner. A business
combination includes a merger, sale of 10.0% or more of our assets and certain other transactions
resulting in a financial benefit to the shareowner. For purposes of Section 203, an interested
shareowner is defined to include any person that is:
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the owner of 15.0% or more of the outstanding voting stock of the corporation; |
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an affiliate or associate of the corporation and was the owner of 15.0% or more of the
voting stock outstanding of the corporation, at any time within three years immediately prior
to the relevant date; or |
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an affiliate or associate of the persons described in the foregoing bullet points. |
However, the above provisions of Section 203 do not apply if:
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our Board of Directors approves the transaction that made the shareowner an interested
shareowner prior to the date of that transaction; |
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after the completion of the transaction that resulted in the shareowner becoming an
interested shareowner, that shareowner owned at least 85.0% of our voting stock outstanding
at the time the transaction commenced, excluding shares owned by our officers and directors;
or |
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on or subsequent to the date of the transaction, the business combination is approved by
our Board of Directors and authorized at a meeting of our shareowners by an affirmative vote
of at least two-thirds of the outstanding voting stock not owned by the interested
shareowner. |
Our shareowners may, by adopting an amendment to the corporations certificate of
incorporation or bylaws, elect for us not to be governed by Section 203, effective 12 months after
adoption. Currently, neither our certificate of incorporation nor our bylaws exempt us from the
restrictions imposed under Section 203. It is anticipated that the provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our Board of Directors.
111
Charter and Bylaw Provisions
Special meetings of our shareowners may be called at any time only (i) by the Board of
Directors, or by a majority of the members of the Board of Directors or by a committee of the Board
which has been duly designated by the Board, whose powers and authority, as provided in a
resolution of the Board of Directors or in the bylaws of the Company, include the power to call
such meetings or (ii) by the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock of the Company entitled to vote generally in the election of
directors (considered for this purpose as one class).
Members of our Board of Directors may be removed with the approval of the holders of a
majority of the shares then entitled to vote at an election of directors, with or without cause.
Vacancies and newly-created directorships resulting from any increase in the number of directors,
other than an increase in respect of the 12% Preferred Directors, may be filled by a majority of
our directors then in office, though less than a quorum. If there are no directors in office, then
an election of directors may be held in the manner provided by law.
SELLING SHAREOWNERS
We are registering the shares of 12% Preferred Stock and shares of common stock issuable upon
conversion of the 12% Preferred Stock in order to permit the selling shareowners to offer the
shares for resale from time to time. Except for the ownership of the 12% Preferred Stock and shares
of common stock issuable upon conversion of the 12% Preferred Stock, the selling shareowners have
not had any material relationship with us within the past three years.
The table below lists the selling shareowners and other information regarding the beneficial
ownership of the shares of common stock by each of the selling shareowners. The second column lists
the number of shares of 12% Preferred Stock beneficially owned by each selling shareowner as of
March 19, 2010. The third column lists the number of shares of common stock beneficially owned by
each selling shareowner, based on its ownership of the 12% Preferred Stock, as of March 19, 2010,
assuming conversion of all shares of 12% Preferred Stock held by the selling shareowners on that
date, without regard to any limitations on conversions or exercise.
The fourth column lists the shares of 12% Preferred Stock being offered under this prospectus
by each selling shareowner. The fifth column lists the shares of common stock being offered under
this prospectus by each selling shareowner.
Because the conversion price of the 12% Preferred Stock may be adjusted, we may issue a number
of shares of common stock that may be more or less than the number of shares being offered under
this prospectus. The sixth and seventh columns assume the sale of all of the shares offered by the
selling shareowners under this prospectus.
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Maximum |
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Maximum |
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Number of |
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Number of |
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Shares of |
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Shares of |
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Number of |
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Number of |
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12% |
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Common |
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Number of |
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Number of |
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|
Shares of 12% |
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Shares of |
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|
Preferred |
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|
Stock |
|
|
Shares of |
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|
Shares |
|
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Preferred |
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Common |
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Stock to be |
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to be Sold |
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Preferred |
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of Common |
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|
Stock Owned |
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|
Stock |
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Sold Pursuant |
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Pursuant to |
|
|
Stock |
|
|
Stock |
|
Name of Selling |
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Prior to |
|
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Owned Prior |
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to this |
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this |
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Owned After |
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Owned After |
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Shareowner |
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Offering |
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to Offering |
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Prospectus |
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Prospectus(1) |
|
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Offering |
|
|
Offering |
|
The SEI U.S. Small Companies Fund
(Nominee: SEI U.S. Small Companies
Fund C/O BBH & Co.) |
|
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3,600 |
|
|
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320,963 |
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3,600 |
|
|
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218,182 |
|
|
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0 |
|
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102,781 |
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Radian Group Inc. (Nominee: Ell & Co.) |
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2,700 |
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|
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293,136 |
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2,700 |
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163,636 |
|
|
|
0 |
|
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129,500 |
|
Wellington Trust Company, National
Association Multiple Common Trust
Funds Trust, Smaller Companies
Portfolio
(Nominee: Finwell & Co) |
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800 |
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|
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103,845 |
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|
|
800 |
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|
|
48,485 |
|
|
|
0 |
|
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55,360 |
|
Wellington Trust Company, National
Association Multiple Collective
Investment Funds Trust, Emerging
Companies Portfolio
(Nominee: Finwell
& Co) |
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19,200 |
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2,287,635 |
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|
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19,200 |
|
|
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1,163,635 |
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|
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0 |
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1,124,000 |
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Dow Employees Pension Plan
(Nominee: Kane & Co.) |
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5,900 |
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795,875 |
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5,900 |
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357,575 |
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|
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0 |
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438,300 |
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Wellington Trust Company, National
Association Multiple Common Trust
Funds Trust, Emerging Companies
Portfolio
(Nominee: Landwatch & Co) |
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4,300 |
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673,815 |
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4,300 |
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260,606 |
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0 |
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413,209 |
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Oregon Public Employees Retirement
Fund (Nominee: Westcoast & Co) |
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13,100 |
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1,481,339 |
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13,100 |
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793,939 |
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|
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0 |
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687,400 |
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112
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Maximum |
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Maximum |
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Number of |
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Number of |
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Shares of |
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Shares of |
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|
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|
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Number of |
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Number of |
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12% |
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Common |
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Number of |
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Number of |
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|
Shares of 12% |
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Shares of |
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Preferred |
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Stock |
|
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Shares of |
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|
Shares |
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Preferred |
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Common |
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Stock to be |
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to be Sold |
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Preferred |
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of Common |
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Stock Owned |
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|
Stock |
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Sold Pursuant |
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Pursuant to |
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|
Stock |
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|
Stock |
|
Name of Selling |
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Prior to |
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Owned Prior |
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to this |
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this |
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Owned After |
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|
Owned After |
|
Shareowner |
|
Offering |
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to Offering |
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Prospectus |
|
|
Prospectus(1) |
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Offering |
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|
Offering |
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New York State Nurses Association
Pension Plan
(Nominee: Ell & Co.) |
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3,400 |
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|
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379,595 |
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|
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3,400 |
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|
|
206,060 |
|
|
|
0 |
|
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173,535 |
|
Goldman Sachs JBWere Small Companies
Pooled Fund
(Nominee: Hare & Co) |
|
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4,600 |
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|
|
502,436 |
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|
|
4,600 |
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|
|
278,788 |
|
|
|
0 |
|
|
|
223,648 |
|
Wellington Management Portfolios
(Dublin) Global Smaller Companies
Equity Portfolio
(Nominee: Squidlake
& Co) |
|
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4,300 |
|
|
|
282,766 |
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|
|
4,300 |
|
|
|
260,606 |
|
|
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0 |
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22,160 |
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Retirement Plan for Employees of
Union Carbide Corporation and its
Participating Subsidiary Companies
(Nominee: Kane & Co.) |
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1,000 |
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290,753 |
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|
|
1,000 |
|
|
|
60,606 |
|
|
|
0 |
|
|
|
230,147 |
|
TELUS Foreign Equity
Active Alpha
Pool
(Nominee: Mac & Co) |
|
|
1,600 |
|
|
|
131,250 |
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|
|
1,600 |
|
|
|
96,970 |
|
|
|
0 |
|
|
|
34,280 |
|
TELUS Foreign Equity
Active Beta Pool
(Nominee: Mac & Co) |
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|
800 |
|
|
|
64,165 |
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|
|
800 |
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|
|
48,485 |
|
|
|
0 |
|
|
|
15,680 |
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Telstra Superannuation Scheme
(Nominee: Hare & Co) |
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|
2,600 |
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|
|
213,376 |
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|
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2,600 |
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|
|
157,576 |
|
|
|
0 |
|
|
|
55,800 |
|
SEI Institutional Investments Trust
Small Cap Fund
(Nominee: Hare &
Co) |
|
|
6,600 |
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|
|
974,460 |
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|
6,600 |
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|
|
400,000 |
|
|
|
0 |
|
|
|
574,460 |
|
Talvest Global Small Cap Fund
(Nominee: Mac & Co) |
|
|
400 |
|
|
|
43,622 |
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|
|
400 |
|
|
|
24,242 |
|
|
|
0 |
|
|
|
19,380 |
|
Seligman Global Smaller Companies
Fund
(Nominee: Cudd & Co) |
|
|
2,200 |
|
|
|
183,833 |
|
|
|
2,200 |
|
|
|
133,333 |
|
|
|
0 |
|
|
|
50,500 |
|
SEI Institutional Investments Trust
Small/Mid Cap Fund
(Nominee: Hare
& Co) |
|
|
14,400 |
|
|
|
1,266,286 |
|
|
|
14,400 |
|
|
|
872,726 |
|
|
|
0 |
|
|
|
393,560 |
|
JBWere Global Small Companies
Pooled
Fund
(Nominee: Gerlach & Co) |
|
|
4,400 |
|
|
|
390,806 |
|
|
|
4,400 |
|
|
|
266,666 |
|
|
|
0 |
|
|
|
124,140 |
|
Fonds voor Gemene
Rekening
Beroepsvervoer
(Nominee: Ell & Co.) |
|
|
3,700 |
|
|
|
488,882 |
|
|
|
3,700 |
|
|
|
224,242 |
|
|
|
0 |
|
|
|
264,640 |
|
UBS Multi Manager Access Global
Smaller Companies
(Nominee: UBS
Luxembourg SA C/O BBH & Co.) |
|
|
1,200 |
|
|
|
111,947 |
|
|
|
1,200 |
|
|
|
72,727 |
|
|
|
0 |
|
|
|
39,220 |
|
Vantagepoint Discovery Fund
(Nominee: Cudd & Co) |
|
|
3,500 |
|
|
|
550,321 |
|
|
|
3,500 |
|
|
|
212,121 |
|
|
|
0 |
|
|
|
338,200 |
|
WMP (Australia) Global Smaller
Companies Equity Portfolio
(Nominee: Cudd & Co) |
|
|
1,200 |
|
|
|
100,427 |
|
|
|
1,200 |
|
|
|
72,727 |
|
|
|
0 |
|
|
|
27,700 |
|
Lockheed Martin
Corporation Master
Retirement
Trust
(Nominee: Ell & Co.) |
|
|
13,700 |
|
|
|
1,355,953 |
|
|
|
13,700 |
|
|
|
830,302 |
|
|
|
0 |
|
|
|
525,651 |
|
SEI Institutional Managed Trust Small
Cap Fund
(Nominee: Hare & Co) |
|
|
5,800 |
|
|
|
351,515 |
|
|
|
5,800 |
|
|
|
351,515 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
125,000 |
|
|
|
13,639,001 |
|
|
|
125,000 |
|
|
|
7,575,750 |
|
|
|
0 |
|
|
|
6,063,251 |
|
|
|
|
(1) |
|
Estimated based on the total number of shares of common stock issuable
upon conversion of the preferred stock. Each share of preferred stock
is initially convertible into common stock, at the option of the
holder, at a conversion rate of 60.606 shares of common stock per
share of preferred stock. |
|
(2) |
|
Wellington Management Company, LLP (Wellington Management) is an
investment adviser registered under the Investment Advisers Act of
1940, as amended. Wellington Management, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
113
PLAN OF DISTRIBUTION
We are registering shares of 12% Preferred Stock and common stock issuable upon conversion of
the shares of 12% Preferred Stock to permit the resale of such shares of 12% Preferred Stock and
common stock by the selling shareowners, from time to time after the date of this prospectus. We
will not receive any of the proceeds from the sale by the selling shareowners of such shares of 12%
Preferred Stock or common stock. We will bear all fees and expenses incident to our obligation to
register such shares of 12% Preferred Stock and common stock.
The selling shareowners may sell all or a portion of the shares of 12% Preferred Stock or
common stock beneficially owned by them and offered hereby from time to time directly or through
one or more underwriters, broker-dealers or agents. If the shares of 12% Preferred Stock or common
stock are sold through underwriters or broker-dealers, the selling shareowners will be responsible
for underwriting discounts or commissions or agents commissions. The shares of 12% Preferred Stock
or common stock may be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of the sale, at varying prices determined at the time of sale or at negotiated
prices. These sales may be effected in transactions, which may involve crosses or block
transactions, in any one or more of the following methods:
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on any national securities exchange or quotation service on which the securities may be
listed or quoted at the time of sale; |
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in the over-the-counter market; |
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|
|
in transactions otherwise than on these exchanges or systems or in the over-the-counter
market; |
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|
|
through the writing of options, whether such options are listed on an options exchange or
otherwise; |
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|
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers; |
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|
block trades in which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the transaction; |
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purchases by a broker-dealer as principal and resale by the broker-dealer for its
account; |
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an exchange distribution in accordance with the rules of the applicable exchange; |
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privately negotiated transactions; |
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sales pursuant to Rule 144; |
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|
|
broker-dealers which have agreed with the selling securityholders to sell a specified
number of such shares at a stipulated price per share; |
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|
|
a combination of any such methods of sale; and |
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|
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any other method permitted pursuant to applicable law. |
If the selling shareowners effect such transactions by selling shares of 12% Preferred Stock
or common stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts, concessions or
commissions from the selling shareowners or commissions from purchasers of the shares of 12%
Preferred Stock or common stock for whom they may act as agent or to whom they may sell as
principal (which discounts, concessions or commissions as to particular underwriters,
broker-dealers or agents may be in excess of those customary in the types of transactions
involved). In connection with sales of the shares of 12% Preferred Stock, common stock or
otherwise, the selling shareowners may enter into hedging transactions with broker-dealers, which
may in turn engage in short sales of the shares of 12% Preferred Stock or common stock in the
course of hedging in positions they assume. The selling shareowners may also sell shares of 12%
Preferred Stock or common stock short and deliver shares of 12% Preferred Stock or common stock
covered by this prospectus to close out short positions and to return borrowed shares in connection
with such short sales. The selling shareowners may also loan or pledge shares of 12% Preferred
Stock or common stock to broker-dealers that in turn may sell such shares.
114
The selling shareowners may pledge or grant a security interest in some or all of the shares
of 12% Preferred Stock or common stock owned by them and, if they default in the performance of
their secured obligations, the pledgees or secured parties may offer and sell the shares of 12%
Preferred Stock or common stock from time to time pursuant to this prospectus or any amendment to
this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933,
as amended, amending, if necessary, the list of selling shareowners to include the pledgee,
transferee or other successors in interest as selling shareowners under this prospectus. The
selling shareowners also may transfer and donate the shares of 12% Preferred Stock or common stock
in other circumstances in which case the transferees, donees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
The selling shareowners and any broker-dealer participating in the distribution of the shares
of 12% Preferred Stock or common stock may be deemed to be underwriters within the meaning of the
Securities Act, and any commission paid, or any discounts or concessions allowed to, any such
broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act.
At the time a particular offering of the shares of 12% Preferred Stock or common stock is made, a
prospectus supplement, if required, will be distributed which will set forth the aggregate amount
of shares of 12% Preferred Stock or common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts, commissions and other
terms constituting compensation from the selling shareowners and any discounts, commissions or
concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the shares of 12% Preferred Stock or common stock
may be sold in such states only through registered or licensed brokers or dealers. In addition, in
some states the shares of 12% Preferred Stock or common stock may not be sold unless such shares
have been registered or qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
There can be no assurance that any selling shareowner will sell any or all of the shares of
common stock registered pursuant to the registration statement, of which this prospectus forms a
part.
The selling shareowners and any other person participating in such distribution will be
subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which
may limit the timing of purchases and sales of any of the shares of 12% Preferred Stock or the
shares of common stock by the selling shareowners and any other participating person. Regulation M
may also restrict the ability of any person engaged in the distribution of the shares of 12%
Preferred Stock or the shares of common stock to engage in market-making activities with respect to
the shares of common stock. All of the foregoing may affect the marketability of the shares of 12%
Preferred Stock or the shares of common stock and the ability of any person or entity to engage in
market-making activities with respect to the shares of 12% Preferred Stock or the shares of common
stock.
We will pay all expenses of the registration of the shares of 12% Preferred Stock or the
shares of common stock pursuant to the registration rights agreement; provided,
however, that a selling shareowner will pay all underwriting discounts and selling
commissions, if any. We will indemnify the selling shareowners against liabilities, including some
liabilities under the Securities Act, in accordance with the registration rights agreements, or the
selling shareowners will be entitled to contribution. We may be indemnified by the selling
shareowners against civil liabilities, including liabilities under the Securities Act, that may
arise from any written information furnished to us by the selling shareowners specifically for use
in this prospectus, in accordance with the related registration rights agreement, or we may be
entitled to contribution.
The selling shareowners have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding the sale of the
shares, nor is there an underwriter or coordinating broker acting in connection with the proposed
sale of the shares by the selling shareowners. If we are notified by any one or more selling
shareowners that any material arrangement has been entered into with a broker-dealer for the sale
of shares through a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, we will file, or cause to be filed, a supplement to this
prospectus, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name
of each such selling shareowner and of the participating broker-dealer(s), (ii) the number of
shares involved, (iii) the price at which such shares were sold, (iv) the commissions paid or
discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set out or
incorporated by reference in this prospectus and (vi) other facts material to the transaction.
115
Once sold under the registration statement, of which this prospectus forms a part, the shares
of 12% Preferred Stock or the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
The selling shareowners are not restricted as to the price or prices at which they may sell
their shares. Sales of the shares may have an adverse effect on the market price of the 12%
Preferred Stock or the common stock. Moreover, the selling shareowners are not restricted as to the
number of shares that may be sold at any time, and it is possible that a significant number of
shares could be sold at the same time, which may have an adverse effect on the market price of the
12% Preferred Stock or the common stock.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of certain U.S. federal income tax consequences relevant to the
purchase, ownership, and disposition of our 12% Preferred Stock and common stock received upon
conversion of the 12% Preferred Stock. This discussion is based on the Internal Revenue Code of
1986, as amended (the Code), Treasury regulations thereunder, published rulings, and court
decisions, all as currently in effect as of the date of this prospectus. These laws are subject to
change, possibly on a retroactive basis. Other U.S. federal tax consequences (such as estate, gift
and alternative minimum tax consequences) and state, local and non-U.S. tax consequences are not
summarized, nor are tax consequences to persons subject to special rules, including, but not
limited to, tax-exempt organizations, insurance companies, banks or other financial institutions,
partnerships or other pass-through entities (and persons holding preferred or common stock through
a partnership or other pass-through entity), dealers in securities, traders in securities that
elect to use a mark-to-market method of accounting for their securities holdings, persons that will
hold the 12% Preferred Stock or common stock as a position in a hedging, integrated, straddle or
conversion or other risk reduction transaction, holders of our convertible notes who convert
their convertible notes into our 12% Preferred Stock, U.S. Holders (as defined below) whose
functional currency for tax purposes is not the U.S. dollar, passive foreign investment companies
and controlled foreign corporations. Tax consequences may vary depending upon the particular
circumstances of an investor. This discussion is limited to taxpayers who will hold the 12%
Preferred Stock and the common stock received in respect thereof as capital assets.
THE DISCUSSIONS OF U.S. FEDERAL INCOME TAX CONSEQUENCES HEREIN ARE NOT INTENDED OR WRITTEN TO
BE USED, AND CANNOT BE USED BY ANY TAXPAYER, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE
IMPOSED ON A TAXPAYER. ALL TAXPAYERS SHOULD SEEK ADVICE FROM AN INDEPENDENT TAX ADVISOR BASED ON
THEIR OWN PARTICULAR CIRCUMSTANCES.
For purposes of this summary, a U.S. Holder is a beneficial owner of the 12% Preferred Stock
and/or common stock received in respect thereof that is for U.S. federal income tax purposes (a) an
individual citizen or resident of the United States, (b) a corporation (or other entity treated as
a corporation for U.S. federal income tax purposes) created or organized in or under the laws of
the United States, any state thereof or the District of Columbia, (c) an estate whose income is
subject to U.S. federal income tax regardless of its source, or (d) a trust if either (i) a U.S.
court can exercise primary supervision over the trusts administration and one or more United
States persons are authorized to control all substantial decisions of the trust or (b) it has a
valid election in effect to be treated as a United States person. A non-U.S. Holder is a
beneficial owner of the 12% Preferred Stock and/or common stock received in respect thereof, other
than a partnership (including any entity or arrangement treated as a partnership for U.S. federal
income tax purposes), that is not a U.S. Holder.
If a partnership (including any entity or arrangement treated as a partnership for U.S.
federal income tax purposes) holds the 12% Preferred Stock or common stock, the tax treatment of a
partner will generally depend upon the status of the partner and the activities of the partnership.
If you are a partner of a partnership purchasing the 12% Preferred Stock, we urge you to consult
your own tax advisor.
Prospective purchasers should consult their tax advisors to determine the U.S. federal, state,
local, foreign, and other tax consequences that may be relevant to them in light of their
particular circumstances.
Distributions
U.S. Holders. If you are a U.S. Holder, distributions with respect to the 12% Preferred Stock
and distributions with respect to our common stock (other than certain stock distributions) will be
taxable as dividend income when actually or constructively received to the extent of our current or
accumulated earnings and profits as determined for U.S. federal income tax purposes. To the extent
that
116
the amount of a distribution with respect to 12% Preferred Stock or common stock exceeds both
our current and accumulated earnings and profits, such distribution will be treated first as a
tax-free return of capital to the extent of your adjusted tax basis in such 12% Preferred Stock or
common stock, as the case may be, and thereafter as capital gain. Distributions constituting
dividends received by certain non-corporate U.S. Holders, including individuals, in respect of the
12% Preferred Stock and common stock in taxable years beginning before January 1, 2011 may be
subject to reduced rates of taxation so long as certain holding period requirements are satisfied.
Dividends received by corporate U.S. Holders may be eligible for a dividends-received deduction,
subject to applicable limitations. You should consult your own tax advisor regarding the
availability of the reduced dividend tax rate or the dividends received deduction in light of your
particular circumstances.
In certain circumstances, investors may receive a dividend with respect to the 12% Preferred
Stock or our common stock that constitutes an extraordinary dividend (as defined in Section 1059
of the Codegenerally a dividend extraordinarily large in relation to the taxpayers adjusted tax
basis in the underlying stock where such stock has not been held for a required period of time).
Corporate U.S. Holders that receive an extraordinary dividend paid in respect of the 12%
Preferred Stock or our common stock are required to (i) reduce their applicable stock basis (but
not below zero) by the portion of such a dividend that is not taxed because of the dividends
received deduction and (ii) to the extent that the non-taxed portion of such dividend exceeds such
corporate U.S. Holders adjusted tax basis in the applicable shares, treat the non-taxed portion of
such dividend as gain from the sale or exchange of the 12% Preferred Stock or our common stock, as
the case may be, for the taxable year in which such dividend is received. Non-corporate U.S.
Holders who receive an extraordinary dividend would be required to treat any losses on the sale
of the 12% Preferred Stock or our common stock, as the case may be, as long-term capital losses to
the extent of dividends received by them that qualify for a reduced rate of taxation as discussed
above.
Non-U.S. Holders. Except as described below with respect to dividends that are effectively
connected with the conduct of a trade or business within the United States, if you are a non-U.S.
Holder, dividends paid to you on the 12% Preferred Stock or common stock, as applicable, will
generally be subject to withholding of U.S. federal income tax at a 30% rate or at a lower (or
zero) rate if you are eligible for the benefits of an income tax treaty that provides for a lower
rate. For purposes of obtaining a reduced rate of withholding under an income tax treaty, you
generally will be required to provide a valid Internal Revenue Service Form W-8BEN or an acceptable
substitute form, claiming the benefits of an applicable treaty.
If dividends paid to you are effectively connected with your conduct of a trade or business
within the United States (and, if an income tax treaty requires, are attributable to a U.S.
permanent establishment or fixed base maintained by you), we generally are not required to withhold
tax from the dividends, provided that you have timely furnished to us a valid Internal Revenue
Service Form W-8ECI. Instead, you will be subject to U.S. federal income taxation on a net income
basis in the same manner as if you were a U.S. Holder.
In addition, if you are a corporate non-U.S. Holder, effectively connected dividends that
you receive may, under certain circumstances, be subject to an additional branch profits tax at a
30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that
provides for a lower rate. As discussed below, you may be treated as having received a constructive
dividend, which will not give rise to any cash from which any applicable withholding tax could be
satisfied. If we pay withholding taxes on your behalf, at our option, we may set-off any such
payment against payments on our 12% Preferred Stock. You may, however, obtain a refund or credit
against your U.S. federal income tax liability of any excess amounts withheld by timely providing
the required information to the Internal Revenue Service.
Adjustment of conversion rate
The conversion rate of the 12% Preferred Stock is subject to adjustment under certain
circumstances. Treasury regulations promulgated under Section 305 of the Code treat a beneficial
owner of 12% Preferred Stock as having received a constructive distribution includible in such
beneficial owners U.S. income in the manner described under Distributions above, if and to the
extent that certain adjustments (or failures to make adjustments) in the conversion rate increase
the beneficial owners proportionate interest in our earnings and profits. Adjustments to the
conversion rate made pursuant to a bona fide reasonable adjustment formula that has the effect of
preventing dilution in the interests of the beneficial owners of the 12% Preferred Stock will
generally not be considered to result in a constructive dividend distribution. However, certain of
the possible conversion rate adjustments provided in the 12% Preferred Stock (including, without
limitation, an increase in the conversion rate as a result of the failure to pay dividends and an
increase in the conversion rate following a fundamental change) may give rise to a deemed taxable
distribution to the beneficial owners of the 12% Preferred Stock to the extent of our current and
accumulated earnings and profits. Thus, under certain circumstances in the event of a deemed
distribution, you may recognize income even though you may not receive any cash or property.
Non-U.S. beneficial owners of the 12% Preferred Stock may under such circumstances be deemed to
have received a
117
distribution subject to U.S. federal income tax withholding. A constructive dividend deemed
received by a non-U.S. Holder would not result in a payment of any cash from which any applicable
U.S. federal withholding tax could be satisfied. Accordingly, if we pay withholding taxes on behalf
of a non-U.S. holder we may at our option set-off any such payment against subsequent payments
under the 12% Preferred Stock, including cash distributions and common stock deliverable on
conversion.
Sale or other Taxable Dispositions
U.S. Holders. If you are a U.S. Holder and you sell or otherwise dispose of the 12% Preferred
Stock or common stock in a taxable transaction, you will generally recognize capital gain or loss
equal to the difference between the amount you realize and your adjusted tax basis in the stock.
Such capital gain or loss will be long-term capital gain or loss if your holding period for the
shares is more than one year. Long-term capital gain of a non-corporate U.S. Holder that is
recognized in taxable years beginning before January 1, 2011, is generally taxed at a maximum rate
of 15%. The deductibility of net capital losses is subject to limitations.
Non-U.S. Holders. Non-U.S. Holders are generally only subject to U.S. federal income tax on
the disposition of capital stock if:
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the gain is effectively connected with your conduct of a trade or business in the United
States, and if required by an applicable income tax treaty as a condition for subjecting you
to U.S. federal income taxation on a net income basis, the gain is attributable to a
permanent establishment or fixed base that you maintain in the United States, |
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you are an individual, are present in the United States for 183 or more days in the taxable
year of the sale, and certain other conditions exist, or |
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we are or have been a U.S. real property holding corporation for federal income tax
purposes at any time within the shorter of the five-year period preceding such disposition or
your holding period. |
If your situation is described in the first bullet point above, you generally will be subject
to tax on the net gain derived from the sale, redemption or other taxable disposition at regular
graduated U.S. federal income tax rates and in the same manner as if you were a U.S. Holder, and,
if you are a corporate non-U.S. Holder, effectively connected gains that you recognize may also,
under certain circumstances, be subject to an additional branch profits tax at a 30% rate or at a
lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower
rate. If you are described in the second bullet point above, you will be subject to a flat 30% tax
on the gain derived from the sale or other taxable disposition, which may be offset by U.S. source
capital losses, even though you are not considered a resident of the United States.
It is unclear whether we are, or will be, a U.S. real property holding corporation during the
relevant period described in the third bullet point above. Under U.S. federal income tax laws, we
will be a United States real property holding corporation if at least 50% of the fair market value
of our assets has consisted of United States real property interests. If we were treated as a
U.S. real property holding corporation during the relevant period described in the third bullet
point above, any gains recognized by a non-U.S. holder on the sale or other taxable disposition of
our 12% Preferred Stock or common stock would be subject to tax as if the gain were effectively
connected with the conduct of the non-U.S. holders trade or business in the United States. In
addition, the transferee of the 12% Preferred Stock or common stock would be required to withhold
tax under U.S. federal income tax laws in an amount equal to 10% of the amount realized by the
non-U.S. holder on the sale or other taxable disposition of the 12% Preferred Stock or common
stock, as applicable.
Conversion into common stockU.S. Holders
U.S. Holders generally will not recognize any gain or loss in respect of the receipt solely of
common stock upon the conversion of the 12% Preferred Stock. The adjusted tax basis of shares of
common stock received on conversion generally will equal the adjusted tax basis of the 12%
Preferred Stock converted, and the holding period of such common stock received on conversion will
generally include your holding period for the converted 12% Preferred Stock.
Cash received in lieu of a fractional share of common stock generally will be treated as a
payment in exchange for the fractional share, and you generally will recognize gain or loss on the
receipt of such cash in an amount equal to the difference between the amount of cash received and
the amount of adjusted tax basis allocable to the fractional shares.
118
Conversion into common stockNon-U.S. Holders
A non-U.S. Holder who converts 12% Preferred Stock solely for common stock generally will not
recognize any gain or loss in respect of the conversion. To the extent, however, that you receive
cash in lieu of a fractional share upon conversion, you would be subject to the rules described
above regarding the sale or other taxable disposition of the common stock in respect of such
fractional share.
Optional redemption and repurchase of option upon a fundamental change
Subject to certain conditions, on or after November 15, 2014, upon the affirmative vote of the
disinterested members of the Board of Directors, we may redeem the 12% Preferred Stock for cash. In
addition, upon the occurrence of a fundamental change, certain holders of our preferred shares will
have the right, subject to certain exceptions and conditions, to require us to repurchase all, or a
specified whole number, of their 12% Preferred Stock. Treasury regulations promulgated under
Section 305 of the Code treat a beneficial owner of 12% Preferred Stock as having received a
constructive distribution includible in such beneficial owners U.S. income in the manner described
under Distributions above in respect of certain redemption premiums (of more than a de minimis
amount) on 12% Preferred Stock if (a) the issuer has the right to redeem the 12% Preferred Stock,
but only if, based on all the facts and circumstances as of the date of issuance, the redemption is
more likely than not to occur, or (b) the holder has the right to put the 12% Preferred Stock to
the company for repurchase and such right is not subject to remote contingencies. A redemption
premium exists on 12% Preferred Stock to the extent that the redemption price on the 12% Preferred
Stock is in excess of the issue price. We intend to take the position that the optional redemption
is not more likely than not to occur and the likelihood of the occurrence of an event allowing a
holder to exercise a put right is remote, and that therefore the existence of a redemption premium
(if any) would not be treated as a constructive distribution. It is possible that the IRS and a
court would disagree with this position. As mentioned above, a constructive dividend deemed
received by a non-U.S. Holder would not result in a payment of any cash from which any applicable
U.S. federal withholding tax could be satisfied. Accordingly, if we pay withholding taxes on behalf
of a non-U.S. holder we may at our option set-off any such payment against subsequent payments
under the 12% Preferred Stock, including cash distributions and common stock deliverable on
conversion. The remainder of this discussion assumes that any redemption premium would not be
treated as a constructive distribution to beneficial owners of the 12% Preferred Stock.
U.S. Holders who exchange their 12% Preferred Stock for cash in connection with such
redemption will recognize gain or loss on the redemption in the manner described above under
"Sale or other Taxable DispositionsU.S. Holders provided that at least one of the following
requirements (as determined under U.S. federal income tax principles) is met: (a) the redemption is
not essentially equivalent to a dividend, (b) the redemption results in a complete termination of
the U.S. Holders interest in the preferred and common stock, or (c) the redemption is
substantially disproportionate with respect to the U.S. Holder. In determining whether any of the
above requirements applies, 12% Preferred Stock and common stock considered to be owned by you by
reason of certain attribution rules must be taken into account. If the redemption does not satisfy
any of the above requirements, the entire amount received (without offset for your tax basis in the
12% Preferred Stock redeemed) will be treated as a distribution as described under
"DistributionsU.S. Holders above and your tax basis in the redeemed 12% Preferred Stock will
be allocated to any remaining 12% Preferred Stock and common stock.
Non-U.S. Holders who exchange their 12% Preferred Stock for cash in connection with the
redemption will generally be treated in the manner described above under Sale or other Taxable
DispositionsNon-U.S. Holders so long as at least one of the requirements described in the
preceding paragraph is met. If the redemption does not satisfy any of the above requirements, the
entire amount received (without offset for your tax basis in the 12% Preferred Stock redeemed) will
be treated as a distribution as described under DistributionsNon-U.S. Holders above and your
tax basis in the redeemed 12% Preferred Stock will be allocated to any remaining 12% Preferred
Stock and common stock.
Information reporting and backup withholding
U.S. Holders. Information reporting requirements generally will apply to payments qualifying
as dividends on the 12% Preferred Stock or common stock and, unless the U.S. Holder receiving such
amounts is an exempt recipient such as a corporation, to the proceeds of a sale or redemption of
shares. Additionally, backup withholding will apply to such amounts if a U.S. Holder subject to the
backup withholding rules fails to provide an accurate taxpayer identification number, is notified
by the Internal Revenue Service that it has failed to report all dividends required to be shown on
its federal income tax returns, or in certain circumstances, fails to comply with applicable
certification requirements.
119
Any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against a U.S. Holders U.S. federal income tax liability provided the required information
is properly furnished to the Internal Revenue Service.
Non-U.S. Holders. Information reporting will generally apply to dividend payments. Copies of
these information reports may be made available to tax authorities in the country in which the
non-U.S. Holder resides. A non-U.S. Holder will be subject to backup withholding with respect to
dividends paid to such non-U.S. Holder unless such non-U.S. Holder certifies under penalty of
perjury that it is not a U.S. person (and the payor does not have actual knowledge or reason to
know that such non-U.S. Holder is a United States person), or such non-U.S. Holder otherwise
establishes an exemption. Information reporting and, depending on the circumstances, backup
withholding will apply to the proceeds of a sale of 12% Preferred Stock or common stock within the
United States or conducted through certain U.S.-related financial intermediaries, unless the
beneficial owner certifies under penalty of perjury that it is not a U.S. person (and the payor
does not have actual knowledge or reason to know that the beneficial owner is a United States
person) or such owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against a non-U.S. Holders U.S. federal income tax liability provided the required
information is properly furnished to the Internal Revenue Service.
LEGAL MATTERS
The validity of the 12% Preferred Stock and common stock offered hereby will be passed upon
for us by Zukerman, Gore, Brandeis & Crossman, LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedules of Grubb & Ellis Company as of December
31, 2009 and 2008, and for each of the three years in the period ended December 31, 2009, appearing
in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their
report thereon appearing herein which, as to the years 2008 and 2007, are based in part on the
reports of PKF Certified Public Accountants A Professional Corporation, independent registered
public accounting firm. The financial statements and schedules referred to above are included in
reliance upon such reports given on the authority of such firms as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1
(including the exhibits, schedules and amendments thereto) under the Securities Act of 1933 with
respect to the shares of 12% Preferred Stock and common stock to be sold pursuant to this
prospectus. This prospectus, which constitutes a part of the registration statement, does not
contain all the information set forth in the registration statement or the exhibits and schedules
filed therewith. For further information regarding us and the shares of 12% Preferred Stock and
common stock to be sold pursuant to this prospectus, please refer to the registration statement.
Statements contained in this prospectus regarding the contents of any contract or any other
document that is filed as an exhibit to the registration statement are not necessarily complete,
and each such statement is qualified in all respects by reference to the full text of such contract
or other document filed as an exhibit to the registration statement.
We are subject to the informational requirements of the Exchange Act and, in accordance with
these requirements, we file reports, proxy statements and other information relating to our
business, financial condition and other matters with the SEC. Reports, proxy statements, and other
information filed by us can be inspected and copied at the public reference facilities maintained
by the SEC at 100 F Street, N.E., Washington, D.C. 20549 and at the SECs regional offices. You may
obtain information on the operation of the public reference rooms by calling 1-800-SEC-0330. The
SEC also maintains a website that contains reports, proxy statements and other information
regarding registrants, like us, that file electronically with the SEC. The address of that website
is: http://www.sec.gov. You can also obtain access to our reports and proxy statements, free of
charge, on our website at http://www.grubb-ellis.com as soon as reasonably practicable after such
filings are electronically filed with the SEC. The information on our website is not part of this
prospectus. Our common stock is listed on the NYSE under the symbol GBE.
120
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Grubb & Ellis Company |
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Page |
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F-2 |
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F-4 |
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F-5 |
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F-6 |
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F-8 |
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F-10 |
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F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Grubb & Ellis Company
We have audited the accompanying consolidated balance sheets of Grubb & Ellis Company as of
December 31, 2009 and 2008, and the related consolidated statements of operations, shareowners
equity, and cash flows for each of the three years in the period ended December 31, 2009. Our
audits also included the financial statement schedules listed in the Index at Item 15(a). These
financial statements and schedules are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and schedules based on our
audits. We did not audit the financial statements of Grubb & Ellis Securities, Inc. (f.k.a. NNN
Capital Corp.), a wholly owned subsidiary as of December 31, 2008 and for the years ended December
31, 2008 and 2007, which statements reflect total assets of $6,264,000 as of December 31, 2008, and
total revenues of $15,224,000 and $18,315,000 for the years ended December 31, 2008 and 2007,
respectively. Those statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for Grubb & Ellis Securities,
Inc. (f.k.a. NNN Capital Corp.), is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal control over
financial reporting. Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our audits and the report
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements
referred to above present fairly, in all material respects, the consolidated financial position of
Grubb & Ellis Company at December 31, 2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Irvine, California
March 16, 2010
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Grubb & Ellis Securities, Inc. (f.k.a. NNN Capital Corp.)
Santa Ana, California
We have audited the statements of financial condition of Grubb & Ellis Securities, Inc.
(f.k.a. NNN Capital Corp.) (the Company) (not separately included herein) as of December 31,
2008, and the related statements of operations, changes in stockholders equity, and cash flows for
the years ended December 31, 2008 and 2007. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We have conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal controls over
financial reporting. Our audits included consideration of internal controls over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstance, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Grubb & Ellis Securities, Inc. (f.k.a. NNN Capital Corp.) as of
December 31, 2008 and the results of its operations and its cash flows for the years ended December
31, 2008 and 2007, in conformity with accounting principles generally accepted in the United States
of America.
/s/ PKF
PKF
Certified Public Accountants
A Professional Corporation
San Diego, California
November 19, 2009
F-3
GRUBB & ELLIS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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December 31, |
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2009 |
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2008 |
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ASSETS |
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Current assets: |
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|
|
|
|
|
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Cash and cash equivalents |
|
$ |
39,101 |
|
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$ |
32,985 |
|
Restricted cash |
|
|
13,875 |
|
|
|
36,047 |
|
Investment in marketable equity securities |
|
|
690 |
|
|
|
1,510 |
|
Accounts receivable from related parties net |
|
|
9,169 |
|
|
|
22,630 |
|
Notes and advances to related parties net |
|
|
1,019 |
|
|
|
12,082 |
|
Service fees receivable net |
|
|
30,293 |
|
|
|
26,987 |
|
Current portion of professional service contracts net |
|
|
3,626 |
|
|
|
4,326 |
|
Real estate deposits and pre-acquisition costs |
|
|
1,321 |
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5,961 |
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Properties held for sale |
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|
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78,708 |
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Identified intangible assets and other assets held for sale net |
|
|
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25,747 |
|
Prepaid expenses and other assets |
|
|
16,497 |
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|
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23,620 |
|
Refundable income taxes |
|
|
4,992 |
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|
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|
|
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|
|
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Total current assets |
|
|
120,583 |
|
|
|
270,603 |
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Accounts receivable from related parties net |
|
|
15,609 |
|
|
|
11,072 |
|
Advances to related parties net |
|
|
14,607 |
|
|
|
11,499 |
|
Professional service contracts net |
|
|
7,271 |
|
|
|
10,320 |
|
Investments in unconsolidated entities |
|
|
3,783 |
|
|
|
8,733 |
|
Properties held for investment net |
|
|
82,189 |
|
|
|
88,699 |
|
Property, equipment and leasehold improvements net |
|
|
13,190 |
|
|
|
14,020 |
|
Identified intangible assets net |
|
|
94,952 |
|
|
|
100,631 |
|
Other assets net |
|
|
5,140 |
|
|
|
4,700 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
357,324 |
|
|
$ |
520,277 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREOWNERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
62,867 |
|
|
$ |
70,222 |
|
Due to related parties |
|
|
2,267 |
|
|
|
2,447 |
|
Line of credit |
|
|
|
|
|
|
63,000 |
|
Current portion of capital lease obligations |
|
|
939 |
|
|
|
333 |
|
Notes payable of properties held for sale |
|
|
|
|
|
|
108,959 |
|
Liabilities of properties held for sale net |
|
|
|
|
|
|
9,257 |
|
Other liabilities |
|
|
38,864 |
|
|
|
37,550 |
|
Deferred tax liabilities |
|
|
|
|
|
|
2,080 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
104,937 |
|
|
|
293,848 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Senior notes |
|
|
16,277 |
|
|
|
16,277 |
|
Notes payable and capital lease obligations |
|
|
107,755 |
|
|
|
107,203 |
|
Other long-term liabilities |
|
|
11,622 |
|
|
|
11,875 |
|
Deferred tax liabilities |
|
|
25,477 |
|
|
|
17,298 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
266,068 |
|
|
|
446,501 |
|
Commitment and contingencies (Note 20) |
|
|
|
|
|
|
|
|
Preferred stock: 12% cumulative participating perpetual
convertible; $0.01 par value; 1,000,000 and 0 shares authorized
as of December 31, 2009 and 2008, respectively; 965,700 and 0
shares issued and outstanding as of December 31, 2009 and 2008,
respectively |
|
|
90,080 |
|
|
|
|
|
Shareowners equity: |
|
|
|
|
|
|
|
|
Preferred stock: $0.01 par value; 19,000,000 and 10,000,000,
shares authorized as of December 31, 2009 and 2008, respectively;
no shares issued and outstanding as of December 31, 2009 and 2008 |
|
|
|
|
|
|
|
|
Common stock: $0.01 par value; 200,000,000 and 100,000,000 shares
authorized as of December 31, 2009 and 2008, respectively;
67,352,440 and 65,382,601 shares issued and outstanding as of
December 31, 2009 and 2008, respectively |
|
|
674 |
|
|
|
654 |
|
Additional paid-in capital |
|
|
412,754 |
|
|
|
402,780 |
|
Accumulated deficit |
|
|
(412,101 |
) |
|
|
(333,263 |
) |
|
|
|
|
|
|
|
Total Grubb & Ellis Company shareowners equity |
|
|
1,327 |
|
|
|
70,171 |
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
(151 |
) |
|
|
3,605 |
|
|
|
|
|
|
|
|
Total equity |
|
|
1,176 |
|
|
|
73,776 |
|
|
|
|
|
|
|
|
Total liabilities and shareowners equity |
|
$ |
357,324 |
|
|
$ |
520,277 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
GRUBB & ELLIS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
Management services |
|
$ |
274,684 |
|
|
$ |
253,664 |
|
|
$ |
16,365 |
|
Transaction services |
|
|
173,394 |
|
|
|
240,250 |
|
|
|
35,522 |
|
Investment management |
|
|
57,282 |
|
|
|
101,581 |
|
|
|
149,651 |
|
Rental related |
|
|
30,285 |
|
|
|
33,284 |
|
|
|
28,119 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
535,645 |
|
|
|
628,779 |
|
|
|
229,657 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs |
|
|
469,538 |
|
|
|
503,004 |
|
|
|
104,109 |
|
General and administrative |
|
|
80,078 |
|
|
|
99,829 |
|
|
|
42,860 |
|
Provision for doubtful accounts |
|
|
24,768 |
|
|
|
19,831 |
|
|
|
1,391 |
|
Depreciation and amortization |
|
|
12,324 |
|
|
|
16,028 |
|
|
|
9,321 |
|
Rental related |
|
|
21,287 |
|
|
|
21,377 |
|
|
|
20,839 |
|
Interest |
|
|
15,446 |
|
|
|
14,207 |
|
|
|
10,818 |
|
Merger related costs |
|
|
|
|
|
|
14,732 |
|
|
|
6,385 |
|
Real estate related impairments |
|
|
17,372 |
|
|
|
59,114 |
|
|
|
|
|
Goodwill and intangible asset impairment |
|
|
738 |
|
|
|
181,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
641,551 |
|
|
|
929,407 |
|
|
|
195,723 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME |
|
|
(105,906 |
) |
|
|
(300,628 |
) |
|
|
33,934 |
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE) INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (losses) earnings of unconsolidated entities |
|
|
(1,148 |
) |
|
|
(13,311 |
) |
|
|
2,029 |
|
Interest income |
|
|
555 |
|
|
|
902 |
|
|
|
2,996 |
|
Gain on extinguishment of debt |
|
|
21,935 |
|
|
|
|
|
|
|
|
|
Other |
|
|
404 |
|
|
|
(6,458 |
) |
|
|
(465 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
21,746 |
|
|
|
(18,867 |
) |
|
|
4,560 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax (provision) benefit |
|
|
(84,160 |
) |
|
|
(319,495 |
) |
|
|
38,494 |
|
Income tax benefit (provision) |
|
|
1,175 |
|
|
|
827 |
|
|
|
(14,753 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(82,985 |
) |
|
|
(318,668 |
) |
|
|
23,741 |
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes |
|
|
(4,956 |
) |
|
|
(24,278 |
) |
|
|
(960 |
) |
Gain on disposal of discontinued operations net of taxes |
|
|
7,442 |
|
|
|
357 |
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations |
|
|
2,486 |
|
|
|
(23,921 |
) |
|
|
(708 |
) |
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME |
|
|
(80,499 |
) |
|
|
(342,589 |
) |
|
|
23,033 |
|
Net (loss) income attributable to non-controlling interests |
|
|
(1,661 |
) |
|
|
(11,719 |
) |
|
|
1,961 |
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME ATTRIBUTABLE TO GRUBB & ELLIS COMPANY |
|
|
(78,838 |
) |
|
|
(330,870 |
) |
|
|
21,072 |
|
Preferred stock dividends |
|
|
(1,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis Company common shareowners |
|
$ |
(80,608 |
) |
|
$ |
(330,870 |
) |
|
$ |
21,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Grubb & Ellis
Company common shareowners |
|
$ |
(1.31 |
) |
|
$ |
(4.83 |
) |
|
$ |
0.55 |
|
Income (loss) from discontinued operations attributable to Grubb & Ellis
Company common shareowners |
|
|
0.04 |
|
|
|
(0.38 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share attributable to Grubb & Ellis Company common
shareowners |
|
$ |
(1.27 |
) |
|
$ |
(5.21 |
) |
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Grubb & Ellis
Company common shareowners |
|
$ |
(1.31 |
) |
|
$ |
(4.83 |
) |
|
$ |
0.55 |
|
Income (loss) from discontinued operations attributable to Grubb & Ellis
Company common shareowners |
|
|
0.04 |
|
|
|
(0.38 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share attributable to Grubb & Ellis Company common
shareowners |
|
$ |
(1.27 |
) |
|
$ |
(5.21 |
) |
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
63,645 |
|
|
|
63,515 |
|
|
|
38,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
63,645 |
|
|
|
63,515 |
|
|
|
38,653 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
GRUBB & ELLIS COMPANY
CONSOLIDATED STATEMENTS OF SHAREOWNERS EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Grubb & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Accumulated Other |
|
|
(Accumulated |
|
|
Ellis Company |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Deficit) Retained |
|
|
Shareowners |
|
|
Non-Controlling |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Earnings |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
Balance as of December 31, 2006 |
|
|
37,282 |
|
|
$ |
373 |
|
|
$ |
212,685 |
|
|
$ |
(26 |
) |
|
$ |
4,093 |
|
|
$ |
217,125 |
|
|
$ |
7,551 |
|
|
$ |
224,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,373 |
) |
|
|
(14,373 |
) |
|
|
|
|
|
|
(14,373 |
) |
Vesting of share-based compensation |
|
|
|
|
|
|
|
|
|
|
9,027 |
|
|
|
|
|
|
|
|
|
|
|
9,027 |
|
|
|
|
|
|
|
9,027 |
|
Common stock for merger transaction |
|
|
26,196 |
|
|
|
262 |
|
|
|
171,953 |
|
|
|
|
|
|
|
|
|
|
|
172,215 |
|
|
|
|
|
|
|
172,215 |
|
Issuance of restricted shares to
directors, officers and employees |
|
|
1,450 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
Cancellation of non-vested restricted
shares |
|
|
(103 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Contributions from noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,061 |
|
|
|
42,061 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,866 |
) |
|
|
(2,866 |
) |
Deconsolidation of sponsored programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,419 |
) |
|
|
(19,419 |
) |
Compensation expense on profit sharing
arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,999 |
|
|
|
1,999 |
|
Distribution to a noncontrolling
interest in consolidated entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,391 |
) |
|
|
(1,391 |
) |
Change in unrealized loss on marketable
securities, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,023 |
) |
|
|
|
|
|
|
(1,023 |
) |
|
|
|
|
|
|
(1,023 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,072 |
|
|
|
21,072 |
|
|
|
1,961 |
|
|
|
23,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,049 |
|
|
|
1,961 |
|
|
|
22,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007 |
|
|
64,825 |
|
|
$ |
648 |
|
|
$ |
393,665 |
|
|
$ |
(1,049 |
) |
|
$ |
10,792 |
|
|
$ |
404,056 |
|
|
$ |
29,896 |
|
|
$ |
433,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,395 |
) |
|
|
(13,395 |
) |
|
|
|
|
|
|
(13,395 |
) |
Vesting of share-based compensation |
|
|
|
|
|
|
|
|
|
|
11,248 |
|
|
|
|
|
|
|
210 |
|
|
|
11,458 |
|
|
|
|
|
|
|
11,458 |
|
Repurchase of common stock |
|
|
(532 |
) |
|
|
(5 |
) |
|
|
(1,835 |
) |
|
|
|
|
|
|
|
|
|
|
(1,840 |
) |
|
|
|
|
|
|
(1,840 |
) |
Issuance of restricted shares to
directors, officers and employees |
|
|
1,552 |
|
|
|
15 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock to directors, officers
and employees related to equity
compensation awards |
|
|
77 |
|
|
|
1 |
|
|
|
378 |
|
|
|
|
|
|
|
|
|
|
|
379 |
|
|
|
|
|
|
|
379 |
|
Cancellation of non-vested restricted
shares |
|
|
(539 |
) |
|
|
(5 |
) |
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
(80 |
) |
|
|
|
|
|
|
(80 |
) |
Contributions from noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,084 |
|
|
|
15,084 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,093 |
) |
|
|
(4,093 |
) |
Deconsolidation of sponsored programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,441 |
) |
|
|
(27,441 |
) |
Compensation expense on profit sharing
arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,878 |
|
|
|
1,878 |
|
Change in unrealized loss on marketable
securities, net of taxes |
|
|
|
|
|
|
|
|
|
|
(586 |
) |
|
|
1,049 |
|
|
|
|
|
|
|
463 |
|
|
|
|
|
|
|
463 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330,870 |
) |
|
|
(330,870 |
) |
|
|
(11,719 |
) |
|
|
(342,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330,407 |
) |
|
|
(11,719 |
) |
|
|
(342,126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
GRUBB & ELLIS COMPANY
CONSOLIDATED STATEMENTS OF SHAREOWNERS EQUITY (Continued)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Grubb & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Accumulated Other |
|
|
(Accumulated |
|
|
Ellis Company |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Deficit) Retained |
|
|
Shareowners |
|
|
Non-Controlling |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Earnings |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
Balance as of December 31, 2008 |
|
|
65,383 |
|
|
$ |
654 |
|
|
$ |
402,780 |
|
|
|
|
|
|
$ |
(333,263 |
) |
|
$ |
70,171 |
|
|
$ |
3,605 |
|
|
$ |
73,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of share-based compensation |
|
|
|
|
|
|
|
|
|
|
10,878 |
|
|
|
|
|
|
|
|
|
|
|
10,878 |
|
|
|
|
|
|
|
10,878 |
|
Issuance of warrants |
|
|
|
|
|
|
|
|
|
|
534 |
|
|
|
|
|
|
|
|
|
|
|
534 |
|
|
|
|
|
|
|
534 |
|
Preferred dividend declared |
|
|
|
|
|
|
|
|
|
|
(1,770 |
) |
|
|
|
|
|
|
|
|
|
|
(1,770 |
) |
|
|
|
|
|
|
(1,770 |
) |
Issuance of restricted shares to
directors, officers and employees |
|
|
2,712 |
|
|
|
27 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of non-vested restricted
shares |
|
|
(743 |
) |
|
|
(7 |
) |
|
|
(191 |
) |
|
|
|
|
|
|
|
|
|
|
(198 |
) |
|
|
|
|
|
|
(198 |
) |
Contributions from noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,559 |
|
|
|
5,559 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,689 |
) |
|
|
(1,689 |
) |
Deconsolidation of sponsored programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,517 |
) |
|
|
(5,517 |
) |
Compensation expense on profit sharing
arrangements |
|
|
|
|
|
|
|
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
550 |
|
|
|
(448 |
) |
|
|
102 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,838 |
) |
|
|
(78,838 |
) |
|
|
(1,661 |
) |
|
|
(80,499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,838 |
) |
|
|
(1,661 |
) |
|
|
(80,499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009 |
|
|
67,352 |
|
|
$ |
674 |
|
|
$ |
412,754 |
|
|
$ |
|
|
|
$ |
(412,101 |
) |
|
$ |
1,327 |
|
|
$ |
(151 |
) |
|
$ |
1,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
GRUBB & ELLIS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(80,499 |
) |
|
$ |
(342,589 |
) |
|
$ |
23,033 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate |
|
|
(12,245 |
) |
|
|
|
|
|
|
|
|
Equity in (earnings) losses of unconsolidated entities |
|
|
1,148 |
|
|
|
13,311 |
|
|
|
(2,029 |
) |
Depreciation and amortization (including amortization of signing bonuses) |
|
|
17,999 |
|
|
|
28,961 |
|
|
|
8,652 |
|
Loss on disposal of property, equipment and leasehold improvements |
|
|
80 |
|
|
|
494 |
|
|
|
861 |
|
Goodwill and intangible asset impairment |
|
|
738 |
|
|
|
181,285 |
|
|
|
|
|
Impairment of real estate |
|
|
23,984 |
|
|
|
90,351 |
|
|
|
|
|
Share-based compensation |
|
|
10,878 |
|
|
|
11,705 |
|
|
|
9,041 |
|
Compensation expense on profit sharing arrangements |
|
|
102 |
|
|
|
1,878 |
|
|
|
1,999 |
|
Amortization/write-off of intangible contractual rights |
|
|
251 |
|
|
|
1,179 |
|
|
|
3,133 |
|
Amortization of deferred financing costs |
|
|
2,213 |
|
|
|
1,006 |
|
|
|
1,713 |
|
Gain on extinguishment of debt |
|
|
(32,111 |
) |
|
|
|
|
|
|
|
|
(Gain) loss on sale of marketable equity securities |
|
|
(460 |
) |
|
|
7,215 |
|
|
|
(184 |
) |
Deferred income taxes |
|
|
1,107 |
|
|
|
(3,784 |
) |
|
|
(7,109 |
) |
Allowance for uncollectible accounts |
|
|
10,714 |
|
|
|
13,319 |
|
|
|
806 |
|
Loss on write-off of real estate deposits, pre-acquisition costs and
advances to related parties |
|
|
446 |
|
|
|
2,415 |
|
|
|
|
|
Other operating noncash gains (losses) |
|
|
|
|
|
|
2,267 |
|
|
|
8 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable from related parties |
|
|
7,596 |
|
|
|
6,481 |
|
|
|
6,018 |
|
Prepaid expenses and other assets |
|
|
(1,603 |
) |
|
|
(28,945 |
) |
|
|
(36,295 |
) |
Accounts payable and accrued expenses |
|
|
(5,479 |
) |
|
|
(19,915 |
) |
|
|
15,884 |
|
Other liabilities |
|
|
(6,824 |
) |
|
|
(263 |
) |
|
|
8,012 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(61,965 |
) |
|
|
(33,629 |
) |
|
|
33,543 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(2,881 |
) |
|
|
(4,407 |
) |
|
|
(3,331 |
) |
Tenant improvements and capital expenditures |
|
|
(2,531 |
) |
|
|
|
|
|
|
|
|
Purchases of marketable equity securities |
|
|
(3,860 |
) |
|
|
(997 |
) |
|
|
(30,732 |
) |
Proceeds from sale of marketable equity securities |
|
|
|
|
|
|
2,653 |
|
|
|
22,870 |
|
Advances to related parties |
|
|
(4,171 |
) |
|
|
(13,173 |
) |
|
|
(39,112 |
) |
Proceeds from repayment of advances to related parties |
|
|
2,323 |
|
|
|
20,043 |
|
|
|
117,496 |
|
Payments to related parties |
|
|
(180 |
) |
|
|
(882 |
) |
|
|
(2,704 |
) |
Origination of notes receivable from related parties |
|
|
|
|
|
|
(15,100 |
) |
|
|
(39,300 |
) |
Proceeds from repayment of notes receivable from related parties |
|
|
|
|
|
|
13,600 |
|
|
|
41,700 |
|
Investments in unconsolidated entities |
|
|
(566 |
) |
|
|
(29,163 |
) |
|
|
(9,076 |
) |
Sale of tenant-in-common interests in unconsolidated entities |
|
|
|
|
|
|
|
|
|
|
20,466 |
|
Distributions of capital from unconsolidated entities |
|
|
752 |
|
|
|
914 |
|
|
|
1,256 |
|
Acquisition of businesses net of cash acquired |
|
|
|
|
|
|
|
|
|
|
339 |
|
Acquisition of properties |
|
|
|
|
|
|
(122,163 |
) |
|
|
(605,126 |
) |
Proceeds from sale of properties |
|
|
93,471 |
|
|
|
|
|
|
|
92,945 |
|
Real estate deposits and pre-acquisition costs |
|
|
(199 |
) |
|
|
(59,780 |
) |
|
|
(50,202 |
) |
Proceeds from collection of real estate deposits and pre-acquisition costs |
|
|
4,717 |
|
|
|
118,835 |
|
|
|
49,427 |
|
Change in restricted cash |
|
|
10,339 |
|
|
|
13,290 |
|
|
|
(53,825 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
97,214 |
|
|
|
(76,330 |
) |
|
|
(486,909 |
) |
|
|
|
|
|
|
|
|
|
|
F-8
GRUBB & ELLIS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Advances on line of credit |
|
|
15,206 |
|
|
|
55,000 |
|
|
|
|
|
Repayment of advances on line of credit |
|
|
(56,271 |
) |
|
|
|
|
|
|
(30,000 |
) |
Borrowings on notes payable and capital lease obligations |
|
|
936 |
|
|
|
103,339 |
|
|
|
547,015 |
|
Repayments of notes payable and capital lease obligations |
|
|
(79,394 |
) |
|
|
(56,386 |
) |
|
|
(143,848 |
) |
Financing costs |
|
|
(1,801 |
) |
|
|
(2,412 |
) |
|
|
(1,460 |
) |
Proceeds from issuance of senior notes |
|
|
5,000 |
|
|
|
|
|
|
|
6,015 |
|
Net proceeds from issuance of preferred stock |
|
|
85,080 |
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
|
|
|
|
|
52 |
|
|
|
|
|
Repurchase of common stock |
|
|
|
|
|
|
(1,840 |
) |
|
|
|
|
Dividends paid to common shareowners |
|
|
|
|
|
|
(15,128 |
) |
|
|
(16,449 |
) |
Dividends paid to preferred shareowners |
|
|
(1,770 |
) |
|
|
|
|
|
|
|
|
Contributions from noncontrolling interests |
|
|
5,959 |
|
|
|
15,084 |
|
|
|
42,061 |
|
Distributions to noncontrolling interests |
|
|
(2,078 |
) |
|
|
(4,093 |
) |
|
|
(2,866 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(29,133 |
) |
|
|
93,616 |
|
|
|
400,468 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
6,116 |
|
|
|
(16,343 |
) |
|
|
(52,898 |
) |
Cash and cash equivalents beginning of year |
|
|
32,985 |
|
|
|
49,328 |
|
|
|
102,226 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of year |
|
$ |
39,101 |
|
|
$ |
32,985 |
|
|
$ |
49,328 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
15,431 |
|
|
$ |
21,089 |
|
|
$ |
10,148 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
1,298 |
|
|
$ |
2,151 |
|
|
$ |
22,622 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants |
|
$ |
534 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for tenant improvements, lease commissions and capital expenditures |
|
$ |
236 |
|
|
$ |
739 |
|
|
$ |
814 |
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired with capital lease obligations |
|
$ |
2,270 |
|
|
$ |
52 |
|
|
$ |
541 |
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,733 |
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of assets related to properties or properties held by
variable interest entities |
|
$ |
9,699 |
|
|
$ |
301,656 |
|
|
$ |
372,674 |
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of liabilities related to properties or properties held by
variable interest entities |
|
$ |
23,017 |
|
|
$ |
222,448 |
|
|
$ |
269,732 |
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of sponsored mutual fund |
|
$ |
5,141 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired in acquisition |
|
$ |
|
|
|
$ |
|
|
|
$ |
462,730 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed in acquisition |
|
$ |
|
|
|
$ |
|
|
|
$ |
259,659 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-9
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
1. ORGANIZATION
Grubb & Ellis Company and its consolidated subsidiaries are referred to herein as the
Company, Grubb & Ellis, we, us, and our. Grubb & Ellis, a Delaware corporation founded
over 50 years ago, is a commercial real estate services and investment company. Our 6,000
professionals in 126 company-owned and affiliate offices draw from a unique platform of real estate
services, practice groups and investment products to deliver comprehensive, integrated solutions to
real estate owners, tenants and investors. The firms transaction, management, consulting and
investment services are supported by proprietary market research and extensive local expertise.
The Company offers property owners, corporate occupants and program investors comprehensive
integrated real estate solutions, including management, transactions, consulting and investment
advisory services supported by market research and local market expertise. Through its investment
subsidiaries, the Company sponsors real estate investment programs that provide individuals and
institutions the opportunity to invest in a broad range of real estate investment vehicles,
including public non-traded real estate investment trusts (REITs), tenant-in-common (TIC)
investments suitable for tax-deferred 1031 exchanges, mutual funds and other real estate investment
funds.
In certain instances throughout these Financial Statements phrases such as legacy Grubb &
Ellis or similar descriptions are used to reference, when appropriate, Grubb & Ellis prior to the
Merger of Grubb & Ellis with NNN (see Note 10). Similarly, in certain instances throughout these
Financial Statements the term NNN, legacy NNN or similar phrases are used to reference, when
appropriate, NNN Realty Advisors, Inc. prior to the Merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation The consolidated financial statements
include the accounts of the Company and its wholly owned and majority-owned controlled
subsidiaries, variable interest entities (VIEs) in which the Company is the primary beneficiary,
and partnerships/limited liability companies (LLCs) in which the Company is the managing member
or general partner and the other partners/members lack substantive rights (hereinafter collectively
referred to as the Company). All significant intercompany accounts and transactions have been
eliminated in consolidation. For acquisitions of an interest in an entity or newly formed joint
venture or limited liability company, the Company evaluates the entity to determine if the entity
is deemed a VIE, and if the Company is deemed to be the primary beneficiary, in accordance with the
requirements of the Consolidation Topic of the Financial Accounting Standards Board (FASB)
Accounting Standards Codification (Codification).
The Company consolidates entities that are VIEs when the Company is deemed to be the primary
beneficiary of the VIE. For entities in which (i) the Company is not deemed to be the primary
beneficiary, (ii) the Companys ownership is 50.0% or less and (iii) the Company has the ability to
exercise significant influence, the Company uses the equity accounting method (i.e. at cost,
increased or decreased by the Companys share of earnings or losses, plus contributions less
distributions). The Company also uses the equity method of accounting for jointly controlled TIC
interests. As reconsideration events occur, the Company will reconsider its determination of
whether an entity is a VIE and who the primary beneficiary is to determine if there is a change in
the original determinations and will report such changes on a quarterly basis.
Use of Estimates The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States (GAAP), which requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities (including
disclosure of contingent assets and liabilities) as of 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.
Reclassifications Certain reclassifications have been made to prior year and prior interim
period amounts in order to conform to the current period presentation. These reclassifications have
no effect on reported net income.
Cash and cash equivalents Cash and cash equivalents consist of all highly liquid
investments with a maturity of three months or less when purchased. Short-term investments with
remaining maturities of three months or less when acquired are considered cash equivalents.
F-10
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Cash Restricted cash is comprised primarily of cash and loan impound reserve
accounts for property taxes, insurance, capital improvements, and tenant improvements related to
consolidated properties as well as cash reserve accounts held for the benefit of various insurance
providers. As of December 31, 2009 and 2008, the restricted cash was $13.9 million and $36.0
million, respectively.
Marketable Securities The Company accounts for investments in marketable debt and equity
securities in accordance with the requirements of the Investments Debt and Equity Securities
Topic of the Codification Topic. The Company determines the appropriate classification of debt
and equity securities at the time of purchase and re-evaluates such designation as of each balance
sheet date. Marketable securities acquired are classified with the intent to generate a profit from
short-term movements in market prices as trading securities. Debt securities are classified as held
to maturity when there is a positive intent and ability to hold the securities to maturity.
Marketable equity and debt securities not classified as trading or held to maturity are classified
as available for sale.
In accordance with the requirements of the Topic, trading securities are carried at their fair
value with realized and unrealized gains and losses included in the statement of operations. The
available for sale securities are carried at their fair market value and any difference between
cost and market value is recorded as unrealized gain or loss, net of income taxes, and is reported
as accumulated other comprehensive income in the consolidated statement of shareowners equity.
Premiums and discounts are recognized in interest income using the effective interest method.
Realized gains and losses and declines in value expected to be other-than-temporary on available
for sale securities are included in other income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities classified as available for
sale are included in interest income.
Accounts Receivable from Related Parties Accounts receivable from related parties consists
of fees earned from syndicated entities and properties under management related to the Companys
sponsored programs, including property and asset management fees. Property and asset management
fees are collected from the operations of the underlying real estate properties.
Allowance for Uncollectible Receivables Receivables are carried net of managements
estimate of uncollectible receivables. Managements determination of the adequacy of these
allowances is based upon evaluations of historical loss experience, operating performance of the
underlying properties, current economic conditions, and other relevant factors.
Real Estate Deposits and Pre-acquisition Costs Real estate deposits and pre-acquisition
costs are incurred when the Company evaluates properties for purchase and syndication.
Pre-acquisition costs are capitalized as incurred. Real estate deposits may become nonrefundable
under certain circumstances. The majority of the real estate deposits outstanding as of December
31, 2009 and 2008, were either refunded to the Company during the subsequent year or used to
purchase property and subsequently reimbursed from the syndicated equity. Costs of abandoned
projects represent pre-acquisition costs associated with properties no longer sought for
acquisition by the Company and are included in general and administrative expense in the Companys
consolidated statement of operations.
Payments to obtain an option to acquire real property are capitalized as incurred. All other
costs related to a property that are incurred before the property is acquired, or before an option
to acquire it is obtained, are capitalized if all of the following conditions are met and otherwise
are charged to expense as incurred:
|
|
|
the costs are directly identifiable with the specific property; |
|
|
|
the costs would be capitalized if the property were already acquired; and |
|
|
|
acquisition of the property or an option to acquire the property is probable. This
condition requires that the Company is actively seeking to acquire the property and have the
ability to finance or obtain financing for the acquisition and that there is no indication
that the property is not available for sale. |
Purchase Price Allocation In accordance with the requirements of the Business Combinations
Topic, the purchase price of acquired businesses or properties is allocated to tangible and
identified intangible assets and liabilities based on their respective fair values. In the case of
real estate acquisitions, the allocation to tangible assets (building and land) is based upon
determination of the value of the property as if it were vacant using discounted cash flow models
similar to those used by independent appraisers. Factors considered include an estimate of carrying
costs during the expected lease-up periods considering current market conditions and costs to
execute similar leases. Additionally, the purchase price of the applicable property is allocated to
the above or below market value of in-place leases and the value of in-place leases and related
tenant relationships.
F-11
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The value allocable to the above or below market component of the acquired in-place leases is
determined based upon the present value (using a discount rate which reflects the risks associated
with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant
to the lease over its remaining term, and (ii) our estimate of the amounts that would be paid using
fair market rates over the remaining term of the lease. The amounts allocated to above market
leases are included in identified intangible assets, net in the accompanying consolidated balance
sheets and are amortized to rental income over the remaining non-cancelable lease term of the
acquired leases with each property. The amounts allocated to below market lease values are included
in liabilities in the accompanying consolidated balance sheets and are amortized to rental income
over the remaining non-cancelable lease term plus any below market renewal options of the acquired
leases with each property.
Identified Intangible Assets The Companys acquisitions require the application of purchase
accounting in accordance with the requirements of the Business Combinations Topic. Identified
intangible assets include a trade name, which is not being amortized and has an indefinite
estimated useful life. Other identified intangible assets acquired includes in-place lease costs
and the value of tenant relationships based on managements evaluation of the specific
characteristics of each tenants lease and our overall relationship with that respective tenant.
Characteristics considered in allocating these values include the nature and extent of the credit
quality and expectations of lease renewals, among other factors. These allocations are subject to
change within one year of the date of purchase based on information related to one or more events
identified at the date of purchase that confirm the value of an asset or liability of an acquired
property. The remaining other intangible assets primarily include contract rights, affiliate
agreements and internally developed software, which are all being amortized over estimated useful
lives ranging from 1 to 20 years.
Properties Held for Investment Properties held for investment are carried at historical
cost less accumulated depreciation, net of any impairments. The cost of these properties includes
the cost of land, completed buildings, and related improvements. Expenditures that increase the
service life of properties are capitalized; the cost of maintenance and repairs is charged to
expense as incurred. The cost of buildings and improvements is depreciated on a straight-line basis
over the estimated useful lives of the buildings and improvements, ranging primarily from 15 to 39
years, and the shorter of the lease term or useful life, ranging from one to ten years for tenant
improvements.
Properties Held for Sale In accordance with the requirements of the Property, Plant, and
Equipment Topic, at the time a property is held for sale, such property is carried at the lower of
(i) its carrying amount or (ii) fair value less costs to sell. In addition, no depreciation or
amortization of tenant origination cost is recorded for a property classified as held for sale. The
Company classifies operating properties as properties held for sale in the period in which all of
the required criteria are met.
The Topic requires, in many instances, that the balance sheet and income statements for both
current and prior periods report the assets, liabilities and results of operations of any component
of an entity which has either been disposed of, or is classified as held for sale, as discontinued
operations. In instances when a company expects to have significant continuing involvement in the
component beyond the date of sale, the operations of the component instead continue to be fully
recorded within the continuing operations of the Company through the date of sale. In accordance
with this requirement, the Company records any results of operations related to its real estate
held for sale as discontinued operations only when the Company expects not to have significant
continuing involvement in the real estate after the date of sale.
Property, Equipment and Leasehold Improvements Property and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization expense is recorded
on a straight-line basis over the estimated useful lives of the related assets, which range from
three to seven years. Leasehold improvements are amortized on a straight-line basis over the life
of the related lease or the estimated service life of the improvements, whichever is shorter.
Maintenance and repairs are expensed as incurred, while betterments are capitalized. Upon the sale
or retirement of depreciable assets, the related accounts are relieved, with any resulting gain or
loss included in operations.
Impairment of Long-Lived Assets In accordance with the requirements of the Property, Plant,
and Equipment Topic, long-lived assets are periodically evaluated for potential impairment whenever
events or changes in circumstances indicate that their carrying amount may not be recoverable. In
the event that periodic assessments reflect that the carrying amount of the asset exceeds the sum
of the undiscounted cash flows (excluding interest) that are expected to result from the use and
eventual disposition of the asset, the Company would recognize an impairment loss to the extent the
carrying amount exceeded the fair value of the property. If an impairment indicator exists, the
Company generally uses a discounted cash flow model to estimate the fair value of the property and
measure the impairment. Management uses its best estimate in determining the key assumptions,
including the expected holding period, future occupancy levels, capitalization rates, discount
rates, rental rates, lease-up periods and capital expenditure requirements. As of December 31,
2009, capitalization rates used in these measurements generally fell within a range of 8.4% to
9.4%. The Company recorded real estate impairments related to property held for investment of $7.1
million and $41.2 million during the years ended December 31, 2009 and 2008, respectively. There
were no real estate related impairments related to properties held for
F-12
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
investment recognized during the year ended December 31, 2007. The Company recorded real
estate related impairments related to investments in unconsolidated entities and funding
commitments for obligations related to certain of the Companys sponsored real estate programs of
$10.3 million and $18.0 million during the years ended December 31, 2009 and 2008, respectively.
There were no real estate related impairments related to investments in unconsolidated entities
recognized during the year ended December 31, 2007. The Company recorded real estate impairments
related to two properties sold and two properties effectively abandoned under the accounting
standards during the year ended December 31, 2009 of approximately $6.6 million and $31.2 million
during the years ended December 31, 2009 and 2008, respectively, which are included in discontinued
operations. There were no real estate related impairments related to properties held for sale
recognized during the year ended December 31, 2007.
The Company recognizes goodwill and other non-amortizing intangible assets in accordance with
the requirements of the Intangibles Goodwill and Other Topic. Under the Topic, goodwill is
recorded at its carrying value and is tested for impairment at least annually or more frequently if
impairment indicators exist, at a level of reporting referred to as a reporting unit. The Company
recognizes goodwill in accordance with the requirements of the Topic and tests the carrying value
for impairment during the fourth quarter of each year. The goodwill impairment analysis is a
two-step process. The first step used to identify potential impairment involves comparing each
reporting units estimated fair value to its carrying value, including goodwill. To estimate the
fair value of its reporting units, the Company used a discounted cash flow model and market
comparable data. Significant judgment is required by management in developing the assumptions for
the discounted cash flow model. These assumptions include cash flow projections utilizing revenue
growth rates, profit margin percentages, discount rates, market/economic conditions, etc. If the
estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered to not
be impaired. If the carrying value exceeds estimated fair value, there is an indication of
potential impairment and the second step is performed to measure the amount of impairment. The
second step of the process involves the calculation of an implied fair value of goodwill for each
reporting unit for which step one indicated a potential impairment. The implied fair value of
goodwill is determined by measuring the excess of the estimated fair value of the reporting unit as
calculated in step one, over the estimated fair values of the individual assets, liabilities and
identified intangibles. The Company also tests its trade name for impairment during the fourth
quarter of each year. The Company estimates the fair value of its trade name by using a discounted
cash flow model. Assumptions used in the discounted cash flow model include revenue projections,
royalty rates and discount rates. If the estimated fair value of the trade name exceeds the
carrying value, the trade name is considered to not be impaired. If the carrying value exceeds the
estimated fair value, an impairment charge is recorded for the excess of the carrying value over
the estimated fair value of the trade name. In addition to testing goodwill and its trade name for
impairment, the Company tests the intangible contract rights for impairment during the fourth
quarter of each year, or more frequently if events or circumstances indicate the asset might be
impaired. The intangible contract rights represent the legal right to future disposition fees of a
portfolio of real estate properties under contract. The Company analyzes the current and projected
property values, condition of the properties and status of mortgage loans payable, to determine if
there are certain properties for which receipt of disposition fees are improbable. If the Company
determines that certain disposition fees are improbable, the Company records an impairment charge
for such contract rights.
Revenue Recognition
Management Services
Management fees are recognized at the time the related services have been performed by the
Company, unless future contingencies exist. In addition, in regard to management and facility
service contracts, the owner of the property will typically reimburse the Company for certain
expenses that are incurred on behalf of the owner, which are comprised primarily of on-site
employee salaries and related benefit costs. The amounts which are to be reimbursed per the terms
of the services contract are recognized as revenue by the Company in the same period as the related
expenses are incurred. In certain instances, the Company subcontracts its property management
services to independent property managers, in which case the Company passes a portion of their
property management fee on to the subcontractor, and the Company retains the balance. Accordingly,
the Company records these fees net of the amounts paid to its subcontractors.
Transaction Services
Real estate commissions are recognized when earned, which is typically the close of escrow.
Receipt of payment occurs at the point at which all Company services have been performed, and title
to real property has passed from seller to buyer, if applicable. Real estate leasing commissions
are recognized upon execution of appropriate lease and commission agreements and receipt of full or
partial payment, and, when payable upon certain events such as tenant occupancy or rent
commencement, upon occurrence of such events. All other commissions and fees are recognized at the
time the related services have been performed and delivered by the Company to the client, unless
future contingencies exist.
F-13
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investment Management
The Company earns fees associated with its transactions by structuring, negotiating and
closing acquisitions of real estate properties to third-party investors. Such fees include
acquisition fees for locating and acquiring the property and selling it to various TIC investors,
REITs and the Companys various sponsored real estate funds. The Company accounts for acquisition
and loan fees in accordance with the requirements of the Real Estate General Topic, and the Real
Estate Sales Topic. In general, the Company records the acquisition and loan fees upon the close
of sale to the buyer if the buyer is independent of the seller, collection of the sales price,
including the acquisition fees and loan fees, is reasonably assured, and the Company is not
responsible for supporting operations of the property. Organizational marketing expense allowance
(OMEA) fees are earned and recognized from gross proceeds of equity raised in connection with TIC
offerings and are used to pay formation costs, as well as organizational and marketing costs. When
the Company does not meet the criteria for revenue recognition under Real Estate Sales Topic and
the Real Estate General Topic, revenue is deferred until revenue can be reasonably estimated or
until the Company defers revenue up to its maximum exposure to loss. The Company earns disposition
fees for disposing of the property on behalf of the REIT, investment fund or TIC. The Company
recognizes the disposition fee when the sale of the property closes. The Company is entitled to
loan advisory fees for arranging financing related to properties under management.
The Company earns asset and property management fees primarily for managing the operations of
real estate properties owned by the real estate programs, REITs and LLCs the Company sponsors. Such
fees are based on pre-established formulas and contractual arrangements and are earned as such
services are performed. The Company is entitled to receive reimbursement for expenses associated
with managing the properties; these expenses include salaries for property managers and other
personnel providing services to the property. The Company is also entitled to leasing commissions
when a new tenant is secured and upon tenant renewals. Leasing commissions are recognized upon
execution of leases.
Through its dealer-manager, the Company facilitates capital raising transactions for its
programs. The Companys wholesale dealer-manager services are comprised of raising capital for its
programs through its selling broker-dealer relationships. Most of the commissions, fees and
allowances earned for its dealer-manager services are passed on to the selling broker-dealers as
commissions and to cover offering expenses, and the Company retains the balance. Accordingly, the
Company records these fees net of the amounts paid to its selling broker-dealer relationships.
Professional Service Contracts The Company holds multi-year service contracts with certain
key transaction professionals for which cash payments were made to the professionals upon signing,
the costs of which are being amortized over the lives of the respective contracts, which are
generally two to five years. Amortization expense relating to these contracts of approximately $7.9
million, $9.2 million and $0.4 million was recorded for the years ended December 31, 2009, 2008 and
2007, respectively, and is included in compensation costs in the Companys consolidated statement
of operations.
Fair Value of Financial Instruments The Financial Instruments Topic, requires disclosure of
fair value of financial instruments, whether or not recognized on the face of the balance sheet,
for which it is practical to estimate that value. The Topic defines fair value as the quoted market
prices for those instruments that are actively traded in financial markets. In cases where quoted
market prices are not available, fair values are estimated using present value or other valuation
techniques. The fair value estimates are made at the end of each reporting period based on
available market information and judgments about the financial instrument, such as estimates of
timing and amount of expected future cash flows. Such estimates do not reflect any premium or
discount that could result from offering for sale at one time the Companys entire holdings of a
particular financial instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in immediate settlement
of the instrument.
As of December 31, 2009, the fair values of the Companys notes payable and senior notes were
approximately $94.5 million, $15.8 million, respectively, compared to the carrying values of $107.0
million and $16.3 million, respectively. As of December 31, 2008, the fair values of the Companys
notes payable, senior notes and lines of credit were approximately $202.5 million, $15.5 million
and $60.0 million, respectively, compared to the carrying values of $216.0 million, $16.3 million
and $63.0 million, respectively. The amounts recorded for accounts receivable, notes receivable,
advances and accounts payable and accrued liabilities approximate fair value due to their
short-term nature.
Fair Value Measurements Effective January 1, 2008, the Company adopted the requirements of
the Fair Value Measurements and Disclosures Topic. The Topic defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements. The
Topic applies to reported balances that are required or permitted to be measured at fair value
under existing accounting pronouncements; accordingly, the standard does not require any new fair
value measurements of reported balances.
F-14
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Fair Value Measurements and Disclosures Topic emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in pricing the asset or
liability. As a basis for considering market participant assumptions in fair value measurements,
the Topic establishes a fair value hierarchy that distinguishes between market participant
assumptions based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting
entitys own assumptions about market participant assumptions (unobservable inputs classified
within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or
liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as
well as inputs that are observable for the asset or liability (other than quoted prices), such as
interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically
based on an entitys own assumptions, as there is little, if any, related market activity. In
instances where the determination of the fair value measurement is based on inputs from different
levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire
fair value measurement falls is based on the lowest level input that is significant to the fair
value measurement in its entirety. The Companys assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment, and considers factors
specific to the asset or liability.
The following table presents changes in financial and nonfinancial assets measured at fair
value on either a recurring or nonrecurring basis for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
Significant Other |
|
Significant |
|
|
|
|
|
|
|
|
for Identical |
|
Observable |
|
Unobservable |
|
Total |
|
|
December 31, |
|
Assets |
|
Inputs |
|
Inputs |
|
Impairment |
(In thousands) |
|
2009 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Losses |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable equity securities |
|
$ |
690 |
|
|
$ |
690 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Properties held for investment |
|
$ |
82,189 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
82,189 |
|
|
$ |
(7,050 |
) |
Investments in unconsolidated entities |
|
$ |
3,783 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,783 |
|
|
$ |
(3,201 |
) |
Life insurance contracts |
|
$ |
1,044 |
|
|
$ |
|
|
|
$ |
1,044 |
|
|
$ |
|
|
|
$ |
|
|
The following table presents changes in financial and nonfinancial assets measured at fair
value on either a recurring or nonrecurring basis for the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
Significant Other |
|
Significant |
|
|
|
|
|
|
|
|
for Identical |
|
Observable |
|
Unobservable |
|
Total |
|
|
December 31, |
|
Assets |
|
Inputs |
|
Inputs |
|
Impairment |
(In thousands) |
|
2008 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Losses |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable equity securities |
|
$ |
1,510 |
|
|
$ |
1,510 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Properties held for investment |
|
$ |
88,699 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
88,699 |
|
|
$ |
(41,160 |
) |
Investments in unconsolidated entities |
|
$ |
8,733 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,733 |
|
|
$ |
(982 |
) |
Life insurance contracts |
|
$ |
1,085 |
|
|
$ |
|
|
|
$ |
1,085 |
|
|
$ |
|
|
|
$ |
|
|
Share-based Compensation Effective January 1, 2006, the Company adopted the requirements of
the Compensation Stock Compensation Topic under the modified prospective transition method. The
Topic requires the measurement of compensation cost at the grant date, based upon the estimated
fair value of the award, and requires amortization of the related expense over the employees
requisite service period.
(Loss) earnings per share The Company applies the two-class method when computing its
earnings per share as required by the Earnings Per Share Topic, which requires the net income per
share for each class of stock (common stock and convertible preferred stock) to be calculated
assuming 100% of the Companys net income is distributed as dividends to each class of stock based
on their contractual rights. To the extent the Company has undistributed earnings in any calendar
quarter, the Company will follow the two-class method of computing earnings per share. Basic (loss)
earnings per share is computed by dividing net (loss) income attributable to common shareowners by
the weighted average number of common shares outstanding during each period. The computation of
diluted (loss) earnings per share further assumes the dilutive effect of stock options, stock
warrants and contingently issuable shares.
F-15
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contingently issuable shares represent non-vested stock awards and unvested stock fund units
in the deferred compensation plan. In accordance with the requirements of the Earnings Per Share
Topic, these shares are included in the dilutive earnings per share calculation under the treasury
stock method, unless the effect of inclusion would be anti-dilutive. Unless otherwise indicated,
all pre-merger NNN share data have been adjusted to reflect the conversion as a result of the
Merger (see Note 10 for additional information).
Concentration of Credit Risk Financial instruments that potentially subject the Company to
a concentration of credit risk are primarily cash investments and accounts receivable. The Company
currently maintains substantially all of its cash with several major financial institutions. The
Company has cash in financial institutions which are insured by the Federal Deposit Insurance
Corporation, or FDIC, up to $250,000 per depositor per insured bank. As of December 31, 2009, the
Company had cash accounts in excess of FDIC insured limits. The Company believes this risk is not
significant.
Accrued Claims and Settlements The Company has maintained partially self-insured and
deductible programs for errors and omissions, general liability, workers compensation and certain
employee health care costs. Reserves for all such programs are included in accrued claims and
settlements and compensation and employee benefits payable, as appropriate. Reserves are based on
the aggregate of the liability for reported claims and an actuarially-based estimate of incurred
but not reported claims.
Guarantees The Company accounts for its guarantees in accordance with the requirements of
the Guarantees Topic. The Topic elaborates on the disclosures to be made by the guarantor in its
interim and annual financial statements about its obligations under certain guarantees that it has
issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. Management evaluates
these guarantees to determine if the guarantee meets the criteria required to record a liability.
Income Taxes Income taxes are accounted for under the asset and liability method in
accordance with the requirements of the Income Taxes Topic. Deferred tax assets and liabilities are
determined based on temporary differences between the financial reporting and the tax basis of
assets and liabilities and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured by applying enacted tax rates and laws and are released in the years in
which the temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are provided against deferred tax assets when it is more
likely than not that some portion or all of the deferred tax asset will not be realized. During the
years ended December 31, 2009 and 2008, the Company recorded a valuation allowance of $30.5 million
and $49.7 million, respectively. The Topic further requires a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return.
Accounting for tax positions requires judgments, including estimating reserves for potential
uncertainties. The Company also assesses its ability to utilize tax attributes, including those in
the form of carryforwards, for which the benefits have already been reflected in the financial
statements. The Company does not record valuation allowances for deferred tax assets that it
believes will be realized in future periods. While the Company believe the resulting tax balances
as of December 31, 2009 and 2008 are appropriately accounted for in accordance with the Income
Taxes Topic, as applicable, the ultimate outcome of such matters could result in favorable or
unfavorable adjustments to the Companys consolidated financial statements and such adjustments
could be material. See Note 24 for further information regarding income taxes.
Comprehensive Income (Loss) Pursuant to the requirements of the Comprehensive Income Topic,
the Company has included a calculation of comprehensive (loss) income in its accompanying
consolidated statements of shareowners equity for the years ended December 31, 2009, 2008 and
2007. Comprehensive (loss) income includes net (loss) income adjusted for certain revenues,
expenses, gains and losses that are excluded from net (loss) income.
Segment Disclosure In accordance with the requirements of the Segment Reporting Topic, the
Company divides its services into three primary business segments: management services, transaction
services and investment management.
Derivative Instruments and Hedging Activities The Company applies the requirements of the
Derivatives and Hedging Topic. The Topic requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value, while changes in that fair value may
increase or decrease reported net (loss) income or shareowners equity, depending on interest rate
levels and computed effectiveness of the derivatives, as that term is defined by the requirements
of the Topic, but will have no effect on cash flows. The Company does not have any derivative
instruments as of December 31, 2009. As of December 31, 2008, the Companys derivatives consisted
solely of four interest rate cap agreements with third parties, which were executed in relation to
its credit agreement or notes payable obligations. These cap agreements were accounted for as
ineffective cash flow hedges as of December 31, 2008.
F-16
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recently Issued Accounting Pronouncements
On January 1, 2009, the Company adopted an amendment to the requirements of the Consolidation
Topic which require noncontrolling interests to be reported within the equity section of the
consolidated balance sheets, and amounts attributable to controlling and noncontrolling interests
to be reported separately in the consolidated income statements and consolidated statement of
shareowners equity. The adoption of these provisions did not impact earnings (loss) per share
attributable to the Companys common shareowners.
On January 1, 2009, the Company adopted an amendment to the Earnings Per Share Topic which
requires that the two-class method of computing basic earnings per share be applied when there are
unvested share-based payment awards that contain rights to nonforfeitable dividends outstanding
during a reporting period. These participating securities share in undistributed earnings with
common shareowners for purposes of calculating basic earnings per share. Upon adoption, the
presentation of all prior period EPS data was adjusted retrospectively with no material impact.
In June 2009, the FASB issued an amendment to the requirements of the Consolidation Topic,
which amends the consolidation guidance applicable to VIEs. The amendments to the overall
consolidation guidance affect all entities currently defined as VIEs, as well as qualifying
special-purpose entities that are currently excluded from the definition of VIEs by the
Consolidation Topic. Specifically, an enterprise will need to reconsider its conclusion regarding
whether an entity is a VIE, whether the enterprise is the VIEs primary beneficiary and what type
of financial statement disclosures are required. The requirements of the amended Topic are
effective as of the beginning of the first fiscal year that begins after November 15, 2009. Early
adoption is prohibited. The Company is reviewing any impact this may have on the consolidated
financial statements.
The Company has adopted the requirements of the Subsequent Events Topic effective beginning
with the year ended December 31, 2009 and has evaluated for disclosure subsequent events that have
occurred up through the date of issuance of these financial statements.
3. MARKETABLE SECURITIES
The Company applies the provisions of the Fair Value Measurements and Disclosures Topic to its
financial assets recorded at fair value, which consists of available-for-sale marketable
securities. Level 1 inputs, the highest priority, are quoted prices in active markets for identical
assets are used by the Company to estimate the fair value of its available-for-sale marketable
securities.
The historical cost and estimated fair value of the available-for-sale marketable securities
held by the Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
|
|
|
|
Gross Unrealized |
|
|
|
|
(In thousands) |
|
Historical Cost |
|
|
Gains |
|
|
Losses |
|
|
Market Value |
|
Marketable equity securities |
|
$ |
543 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of equity securities, or other than temporary impairments recorded, for
the year ended December 31, 2009. Sales of marketable equity securities resulted in realized losses
of approximately $1.8 million during 2008, of which the Company recognized $1.6 million of these
losses during the second quarter, prior to the sale of all the securities, as the Company believed
that the decline in the value of these securities was other than temporary. Sales of equity
securities resulted in realized gains of $1.2 million and realized losses of $1.0 million for the
year ended December 31, 2007.
Investments in Limited Partnerships
The Company serves as general partner and investment advisor to one limited partnership and as
investment advisor to three mutual funds as of December 31, 2009. The limited partnership, Grubb &
Ellis AGA Real Estate Investment Fund LP, is required to be consolidated in accordance with the
Consolidation Topic. As of December 31, 2008, Alesco served as general partner and investment
advisor to five limited partnerships and as investment advisor to one mutual fund. During the year
ended December 31, 2009, Alesco added two mutual funds to its portfolio and now serves as
investment advisor to three mutual funds, and four of the five limited partnerships were
liquidated.
F-17
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the years ended December 31, 2009, 2008 and 2007 Alesco recorded investment income
(loss) of approximately $0.6 million, ($4.6) million and $(0.7) million, respectively, related to
the limited partnerships which is reflected in other income (expense) and offset in non-controlling
interest in income (loss) of consolidated entities on the statement of operations. As of December
31, 2009 and 2008, these limited partnerships had assets of approximately $0.1 million and $1.5
million, respectively, primarily consisting of exchange traded marketable securities, including
equity securities and foreign currencies.
The following table reflects trading securities. The original cost, estimated market value and
gross unrealized gains and losses of equity securities are presented in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
Historical |
|
|
Unrealized |
|
|
Market |
|
|
Historical |
|
|
Gross Unrealized |
|
|
Market |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Equity securities |
|
$ |
170 |
|
|
$ |
|
|
|
$ |
(23 |
) |
|
$ |
147 |
|
|
$ |
1,933 |
|
|
$ |
12 |
|
|
$ |
(435 |
) |
|
$ |
1,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended |
|
|
For The Year Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
Investment |
|
|
Gains |
|
|
Gains |
|
|
|
|
|
|
Investment |
|
|
Gains |
|
|
Gains |
|
|
|
|
(In thousands) |
|
Income |
|
|
(Losses) |
|
|
(Losses) |
|
|
Total |
|
|
Income |
|
|
(Losses) |
|
|
(Losses) |
|
|
Total |
|
Equity securities |
|
$ |
206 |
|
|
$ |
(191 |
) |
|
$ |
651 |
|
|
$ |
666 |
|
|
$ |
307 |
|
|
$ |
(5,454 |
) |
|
$ |
841 |
|
|
$ |
(4,306 |
) |
Less investment expenses |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
180 |
|
|
$ |
(191 |
) |
|
$ |
651 |
|
|
$ |
640 |
|
|
$ |
24 |
|
|
$ |
(5,454 |
) |
|
$ |
841 |
|
|
$ |
(4,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended |
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
Investment |
|
|
Gains |
|
|
Gains |
|
|
|
|
(In thousands) |
|
Income |
|
|
(Losses) |
|
|
(Losses) |
|
|
Total |
|
Equity securities |
|
$ |
163 |
|
|
$ |
(185 |
) |
|
$ |
(618 |
) |
|
$ |
(640 |
) |
Less investment expenses |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
123 |
|
|
$ |
(185 |
) |
|
$ |
(618 |
) |
|
$ |
(680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
4. RELATED PARTIES
Related party transactions as of December 31, 2009 and 2008 are summarized below:
Accounts Receivable
Accounts receivable from related parties consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Accrued property and asset management fees |
|
$ |
21,564 |
|
|
$ |
25,023 |
|
Accrued lease commissions |
|
|
7,449 |
|
|
|
7,720 |
|
Other accrued fees |
|
|
2,200 |
|
|
|
3,372 |
|
Accounts receivable from sponsored REITs |
|
|
3,696 |
|
|
|
4,768 |
|
Accrued real estate acquisition fees |
|
|
697 |
|
|
|
1,834 |
|
Other receivables |
|
|
162 |
|
|
|
647 |
|
|
|
|
|
|
|
|
Total |
|
|
35,768 |
|
|
|
43,364 |
|
Allowance for uncollectible receivables |
|
|
(10,990 |
) |
|
|
(9,662 |
) |
|
|
|
|
|
|
|
Accounts receivable from related parties net |
|
|
24,778 |
|
|
|
33,702 |
|
Less portion classified as current |
|
|
(9,169 |
) |
|
|
(22,630 |
) |
|
|
|
|
|
|
|
Non-current portion |
|
$ |
15,609 |
|
|
$ |
11,072 |
|
|
|
|
|
|
|
|
Advances to Related Parties
The Company makes advances to affiliated real estate entities under management in the normal
course of business. Such advances are uncollateralized, generally have payment terms of one year or
less and bear interest at 6.0% to 12.0% per annum. The advances consisted of the following:
F-18
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Advances to properties of related parties |
|
$ |
16,022 |
|
|
$ |
14,714 |
|
Advances to related parties |
|
|
12,280 |
|
|
|
12,037 |
|
|
|
|
|
|
|
|
Total |
|
|
28,302 |
|
|
|
26,751 |
|
Allowance for uncollectible advances |
|
|
(12,676 |
) |
|
|
(3,170 |
) |
|
|
|
|
|
|
|
Advances to related parties net |
|
|
15,626 |
|
|
|
23,581 |
|
Less portion classified as current |
|
|
(1,019 |
) |
|
|
(12,082 |
) |
|
|
|
|
|
|
|
Non-current portion |
|
$ |
14,607 |
|
|
$ |
11,499 |
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, accounts receivable totaling $310,000 is due from a program
30.0% owned and managed by Anthony W. Thompson, the Companys former Chairman who subsequently
resigned in February 2008. The receivable of $310,000 has been reserved for and is included in the
allowance for uncollectible advances as of December 31, 2009. On November 4, 2008, the Company made
a formal written demand to Mr. Thompson for these monies.
As of December 31, 2009, advances to a program 40.0% owned and, as of April 1, 2008, managed
by Mr. Thompson, totaled $983,000, which includes $61,000 in accrued interest, were past due. The
total amount of $983,000 has been reserved for and is included in the allowance for uncollectible
advances. As of December 31, 2008, the total outstanding balance was $963,000, inclusive of $61,000
in accrued interest. On November 4, 2008 and April 3, 2009, the Company made a formal written
demand to Mr. Thompson for these monies.
In December 2007, the Company advanced $10.0 million to Grubb & Ellis Apartment REIT, Inc.
(Apartment REIT) on an unsecured basis. The unsecured note required monthly interest-only
payments which began on January 1, 2008. The balance owed to the Company as of December 31, 2007
which consisted of $7.6 million in principal was repaid in full in the first quarter of 2008.
In June 2008, the Company advanced $6.0 million to Grubb & Ellis Healthcare REIT, Inc.
(Healthcare REIT) on an unsecured basis. The unsecured note had a maturity date of December 30,
2008 and bore interest at a fixed rate of 4.96% per annum, however, Healthcare REIT repaid in full
the $6.0 million note in the third quarter of 2008. The note required monthly interest-only
payments beginning on August 1, 2008 and provided for a default interest rate in an event of
default equal to 2.00% per annum in excess of the stated interest rate.
In June 2008, the Company advanced $3.7 million to Apartment REIT on an unsecured basis. The
unsecured note originally had an original maturity date of December 27, 2008 and bore interest at a
fixed rate of 4.95% per annum. On November 10, 2008, the Company extended the maturity date to May
10, 2009 and adjusted the interest rate to a fixed rate of 5.26% per annum. The note required
monthly interest-only payments beginning on August 1, 2008 and provided for a default interest rate
in an event of default equal to 2.00% per annum in excess of the stated interest rate. Effective
May 10, 2009 the Company entered into a second extension agreement with Apartment REIT, extending
the maturity date to November 10, 2009. The new terms of the extension continued to require monthly
interest-only payments beginning May 1, 2009, bore interest at a fixed rate of 8.43% and provided
for a default interest rate in an event of default equal to 2.00% per annum in excess of the stated
interest rate.
In September 2008, the Company advanced an additional $5.4 million to Apartment REIT on an
unsecured basis. The unsecured note originally had a maturity date of March 15, 2009 and bore
interest at a fixed rate of 4.99% per annum. Effective March 9, 2009, the Company extended the
maturity date to September 15, 2009 and adjusted the interest rate to a fixed rate of 5.00% per
annum. The note required monthly interest-only payments beginning on October 1, 2008 and provided
for a default interest rate in an event of default equal to 2.00% per annum in excess of the stated
interest rate.
On November 10, 2009, the Company consolidated the aforementioned $3.7 million and $5.4
million unsecured notes with Apartment REIT into a consolidated note (the Consolidated Promissory
Note) whereby the two unsecured promissory notes receivable were cancelled and consolidated the
promissory notes into the Consolidated Promissory Note. The Consolidated Promissory Note has an
outstanding principal amount of $9.1 million, an interest rate of 4.5% per annum, a default
interest rate of 2.0% in excess of the interest rate then in effect, and a maturity date of January
1, 2011. The interest rate payable under the Consolidated Promissory Note is subject to a one-time
adjustment to a maximum rate of 6.0% per annum, which will be evaluated and may be adjusted by the
Company, in its sole discretion, on July 1, 2010.
F-19
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were no advances to or repayments made by Apartment REIT during the year ended December
31, 2009. As of December 31, 2009, the balance owed by Apartment REIT to the Company on the
Consolidated Promissory Note was $9.1 million in principal with no interest outstanding.
5. SERVICE FEES RECEIVABLE, NET
Service fees receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Management services fees receivable |
|
$ |
14,729 |
|
|
$ |
12,794 |
|
Transaction services fees receivable |
|
|
11,436 |
|
|
|
15,239 |
|
Investment management fees receivable |
|
|
5,275 |
|
|
|
|
|
Allowance for uncollectible accounts |
|
|
(751 |
) |
|
|
(871 |
) |
|
|
|
|
|
|
|
Total |
|
|
30,689 |
|
|
|
27,162 |
|
Less portion classified as current |
|
|
(30,293 |
) |
|
|
(26,987 |
) |
|
|
|
|
|
|
|
Non-current portion (included in other assets) |
|
$ |
396 |
|
|
$ |
175 |
|
|
|
|
|
|
|
|
6. PROFESSIONAL SERVICE CONTRACTS
As part of the transaction services business, the Company has entered into service contracts
with various employee real estate brokers. These service contracts generally have terms ranging
from 12 to 60 months. The Company recorded assets, net of amortization, of approximately $10.9
million and $14.6 million related to these contracts as of December 31, 2009 and 2008,
respectively. In addition, the Company has approximately $2.9 million of additional commitments and
expects to incur amortization expense of approximately $6.6 million, $4.6 million, $1.7 million,
$0.8 million and $0.1 million related to these contracts in the years ended 2010, 2011, 2012, 2013
and 2014, respectively.
7. VARIABLE INTEREST ENTITIES
The determination of the appropriate accounting method with respect to the Companys variable
interest entities (VIEs), including joint ventures, is based on the requirements of the
Consolidation Topic. The Company consolidates any VIE for which it is the primary beneficiary.
The Company determines if an entity is a VIE under the Topic based on several factors,
including whether the entitys total equity investment at risk upon inception is sufficient to
finance the entitys activities without additional subordinated financial support. The Company
makes judgments regarding the sufficiency of the equity at risk based first on a qualitative
analysis, then a quantitative analysis, if necessary. In a quantitative analysis, the Company
incorporates various estimates, including estimated future cash flows, asset hold periods and
discount rates, as well as estimates of the probabilities of various scenarios occurring. If the
entity is a VIE, the Company then determines whether to consolidate the entity as the primary
beneficiary. The Company is deemed to be the primary beneficiary of the VIE and consolidates the
entity if the Company will absorb a majority of the entitys expected losses, receive a majority of
the entitys expected residual returns or both. As reconsideration events occur, the Company will
reconsider its determination of whether an entity is a VIE and who the primary beneficiary is to
determine if there is a change in the original determinations and will report such changes on a
quarterly basis.
The Companys Investment Management segment is a sponsor of TIC programs and related formation
LLCs. As of December 31, 2009 and 2008, the Company had investments in seven LLCs that are VIEs in
which the Company is the primary beneficiary. These seven LLCs hold interests in the Companys TIC
investments. The carrying value of the assets and liabilities for these consolidated VIEs as of
December 31, 2009 was $2.3 million and $25,000, respectively. The carrying value of the assets and
liabilities for these consolidated VIEs as of December 31, 2008 was $3.7 million and $0.3 million,
respectively. In addition, these consolidated VIEs are joint and severally liable on the
non-recourse mortgage debt related to the interests in the Companys TIC investments totaling
$277.0 million and $277.8 million as of December 31, 2009 and 2008, respectively. This mortgage
debt is not consolidated as the LLCs account for the interests in the Companys TIC investments
under the equity method and the non-recourse mortgage debt does not meet the criteria under the
requirements of the Transfers and Servicing Topic for recognizing the share of the debt assumed by
the other TIC interest holders for consolidation. The Company considers the third party TIC
holders ability and intent to repay their share of the joint and several liability in evaluating
the recovery of its investments. Six LLCs were deconsolidated during the year ended December 31,
2008 as a result of the Company selling interests in certain real estate properties that it held
through these consolidated LLCs which resulted in the Company no longer being the primary
beneficiary of these LLCs.
F-20
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If the interest in the entity is determined to not be a VIE under the requirements of the
Consolidation Topic, then the entity is evaluated for consolidation under the requirements of the
Real Estate General Topic, as amended by the requirements of the Consolidation Topic.
As of December 31, 2009 and 2008, the Company had a number of entities that were determined to
be VIEs that did not meet the consolidation requirements of the Consolidation Topic. The
unconsolidated VIEs are accounted for under the equity method. The aggregate investment carrying
value of the unconsolidated VIEs was $0.9 million and $1.3 million as of December 31, 2009 and
2008, respectively, and was classified under Investments in Unconsolidated Entities in the
consolidated balance sheet. The Companys maximum exposure to loss as a result of its interests in
unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment
or the outstanding deposits and advances to the unconsolidated VIE and future funding commitments.
There were no future funding commitments as of December 31, 2009 and 2008 related to these
unconsolidated VIEs. In addition, as of December 31, 2009 and 2008, these unconsolidated VIEs are
joint and severally liable on non-recourse mortgage debt totaling $154.8 million and $190.5
million, respectively. This mortgage debt is not consolidated as the LLCs account for the interests
in the Companys TIC investments under the equity method and the non-recourse mortgage debt does
not meet the criteria under the Transfers and Servicing Topic for recognizing the share of the debt
assumed by the other TIC interest holders for consolidation. The Company considers the third party
TIC holders ability and intent to repay their share of the joint and several liability in
evaluating the recovery of its investment or outstanding deposits and advances. In evaluating the
recovery of the TIC investment, the Company evaluated the likelihood that the lender would
foreclose on the VIEs interest in the TIC to satisfy the obligation.
8. INVESTMENTS IN UNCONSOLIDATED ENTITIES
As of December 31, 2009 and 2008, the Company held investments in five joint ventures totaling
$0.4 million and $3.8 million, respectively, which represent a range of 5.0% to 10.0% ownership
interest in each property. In addition, pursuant to the requirements of the Consolidation Topic,
the Company has consolidated seven LLCs with investments in unconsolidated entities totaling $2.2
million and $3.7 million as of December 31, 2009 and 2008, respectively. The remaining amounts
within investments in unconsolidated entities are related to various LLCs, which represent
ownership interests of less than 1.0%.
As of December 31, 2007, the Company had a $4.1 million investment in GERA. On April 14, 2008,
the shareowners of GERA approved the dissolution and plan of liquidation of GERA. As a consequence,
the Company wrote off its investment in GERA and other advances to that entity in the first quarter
of 2008 and recognized a loss of approximately $5.8 million which is recorded in equity in losses
on the consolidated statement of operations and is comprised of $4.5 million related to stock and
warrant purchases and $1.3 million related to operating advances and third party costs, which
included an unrealized loss previously reflected in accumulated other comprehensive loss.
9. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
Useful Life |
|
|
2009 |
|
|
2008 |
|
Computer equipment |
|
3-5 years |
|
|
$ |
30,161 |
|
|
$ |
31,115 |
|
Capital leases |
|
1-5 years |
|
|
|
3,836 |
|
|
|
1,566 |
|
Furniture and fixtures |
|
7 years |
|
|
|
26,060 |
|
|
|
25,094 |
|
Leasehold improvements |
|
1-5 years |
|
|
|
8,921 |
|
|
|
7,834 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
68,978 |
|
|
|
65,609 |
|
Accumulated depreciation and amortization |
|
|
|
|
|
|
(55,788 |
) |
|
|
(51,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment net |
|
|
|
|
|
$ |
13,190 |
|
|
$ |
14,020 |
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized $5.9 million, $6.8 million and $1.8 million of depreciation expense for
the years ended December 31, 2009, 2008 and 2007, respectively.
F-21
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. BUSINESS COMBINATIONS AND GOODWILL
Merger of Grubb & Ellis Company with NNN
On December 7, 2007, the Company effected the Merger with NNN, a real estate asset management
company and sponsor of TIC programs as well as a sponsor of non-traded REITs and other investment
programs.
On December 7, 2007, pursuant to the Merger Agreement (i) each issued and outstanding share of
common stock of NNN was automatically converted into 0.88 of a share of common stock of the
Company, and (ii) each issued and outstanding stock option of NNN, exercisable for common stock of
NNN, was automatically converted into the right to receive stock options exercisable for common
stock of the Company based on the same 0.88 share conversion ratio. Therefore, 43,779,740 shares of
common stock of NNN that were issued and outstanding immediately prior to the Merger were
automatically converted into 38,526,171 shares of common stock of the Company, and the 739,850 NNN
stock options that were issued and outstanding immediately prior to the Merger were automatically
converted into 651,068 stock options of the Company.
Under the purchase method of accounting, NNN was the accounting acquirer. The Merger
consideration of $172.2 million was determined based on the closing price of the Companys common
stock of $6.43 per share on the date the merger closed, applied to the 26,195,655 shares of the
Companys common stock outstanding plus the fair value of vested options outstanding of
approximately $3.8 million. The fair value of these vested options was calculated using the
Black-Scholes option-pricing model which incorporated the following assumptions: weighted average
exercise price of $7.02 per option, volatility of 105.11%, a 5-year expected life of the awards,
risk-free interest rate of 3.51% and no expected dividend yield.
The results of operations of legacy Grubb & Ellis have been included in the consolidated
results of operations since December 8, 2007 and the results of operations of NNN have been
included in the consolidated results of operations for the full year ended December 31, 2007.
The purchase price was allocated to the assets acquired and liabilities assumed based on the
estimated fair value of net assets as of the acquisition date as follows (in thousands):
|
|
|
|
|
Current assets |
|
$ |
189,214 |
|
Other assets |
|
|
29,797 |
|
Identified intangible assets acquired |
|
|
86,600 |
|
Goodwill |
|
|
107,507 |
|
|
|
|
|
Total assets |
|
|
413,118 |
|
|
|
|
|
Current liabilities |
|
|
233,894 |
|
Other liabilities |
|
|
7,022 |
|
|
|
|
|
Total liabilities |
|
|
240,916 |
|
|
|
|
|
Total purchase price |
|
$ |
172,202 |
|
|
|
|
|
As a result of the merger, the Company incurred $14.7 million and $6.4 million in merger
related expenses during 2008 and 2007, respectively, as reflected on the Companys consolidated
statement of operations. Additionally, as a result of the Merger, the Company recorded $1.6 million
and $3.6 million as a purchase accounting liability for severance for certain executives in 2008
and 2007, respectively, as part of a change in control provision in the related employment
agreements.
As part of its Merger transition, the Company completed its personnel reorganization plan, and
recorded additional severance liabilities totaling approximately $2.3 million during the year ended
December 31, 2008, which increased the goodwill recorded from the acquisition. These liabilities
related primarily to severance and other benefits paid to involuntarily terminated employees of the
acquired company. Such liabilities, totaling approximately $7.4 million, have been recorded related
to the personnel reorganization plan, of which approximately $6.7 million has been paid to
terminated employees as of December 31, 2008. As a result of the Merger, approximately $110.9
million has been recorded to goodwill as of December 31, 2008, which was subsequently written off
as an impairment charge during the year ended December 31, 2008.
F-22
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition of NNN/ROC Apartment Holdings, LLC
On July 1, 2007, the Company completed the acquisition of the remaining 50.0% membership
interest in NNN/ROC Apartment Holdings, LLC (ROC). ROC holds contract rights associated with a
fee sharing agreement between ROC Realty Advisors and NNN with respect to certain fee streams
(including an interest in net cash flows associated with subtenant leases (as Landlord) in excess
of expenses from the Master Lease Agreement (as tenant) and related multi family property
acquisitions where ROC Realty Advisors, LLC sourced the deals for placement into the TIC investment
programs. The aggregate purchase price for the acquisition of 50.0% membership interest of ROC was
approximately $1.7 million in cash.
Acquisition of Alesco Global Advisors, LLC
On November 16, 2007, the Company completed the acquisition of the 51.0% membership interest
in Alesco. Alesco is a registered investment advisor focused on real estate securities and manages
private investment funds exclusively for qualified investors. Alesco holds several investment
advisory contract rights and is the general partner of several domestic mutual fund investment
limited partnerships. The Companys purpose of acquiring Alesco was to create a global leader in
real estate securities management within open and closed end mutual funds. The aggregate purchase
price was approximately $3.0 million in cash. Additionally, upon achievement of certain earn-out
targets, the Company would be required to purchase up to an additional 27% interest in Alesco for
$15.0 million.
Supplemental information (unaudited)
Unaudited pro forma results, assuming the above mentioned 2007 acquisitions had occurred as of
January 1, 2007, are presented below. The unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what operating results would have
been had all acquisitions occurred on January 1, 2007, and may not be indicative of future
operating results.
|
|
|
|
|
|
|
Unaudited Pro Forma Results |
|
|
For The Year Ended |
(In thousands, except per share data) |
|
December 31, 2007 |
Revenue |
|
$ |
733,095 |
|
Loss from continuing operations |
|
$ |
(790 |
) |
Net income |
|
$ |
18,930 |
|
Basic earnings per share |
|
$ |
0.29 |
|
Weighted average shares outstanding for basic earnings per share |
|
|
63,393 |
|
Diluted earnings per share |
|
$ |
0.29 |
|
Weighted average shares outstanding for diluted earnings per share |
|
|
64,785 |
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction |
|
|
Management |
|
|
Investment |
|
|
Goodwill |
|
|
|
|
(In thousands) |
|
Services |
|
|
Services |
|
|
Management |
|
|
Unassigned |
|
|
Total |
|
Balance as of December 31, 2006 |
|
$ |
|
|
|
$ |
|
|
|
$ |
60,183 |
|
|
$ |
|
|
|
$ |
60,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired |
|
|
|
|
|
|
|
|
|
|
1,627 |
|
|
|
|
|
|
|
1,627 |
|
Goodwill acquired unassigned(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,507 |
|
|
|
107,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
61,810 |
|
|
|
107,507 |
|
|
|
169,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill assigned |
|
|
41,098 |
|
|
|
6,902 |
|
|
|
59,507 |
|
|
|
(107,507 |
) |
|
|
|
|
Goodwill acquired |
|
|
1,533 |
|
|
|
98 |
|
|
|
1,724 |
|
|
|
|
|
|
|
3,355 |
|
Impairment charge off |
|
|
(42,631 |
) |
|
|
(7,000 |
) |
|
|
(123,041 |
) |
|
|
|
|
|
|
(172,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The fair values of the assets and liabilities recorded on the date of
acquisition related to the Merger were preliminary and subject to
refinement as additional valuation information was received. The
goodwill recorded in connection with the acquisition was assigned to
the individual reporting units pursuant to the requirements of the
Intangibles Goodwill and Other Topic during the year ended December
31, 2008. As of December 31, 2009, approximately $6.9 million of
goodwill is expected to be deductible for tax purposes. |
F-23
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the fourth quarter of 2008, the Company identified the uncertainty surrounding the
global economy and the volatility of the Companys market capitalization as goodwill impairment
indicators. The Companys goodwill impairment analysis resulted in the recognition of an impairment
charge of approximately $172.7 million during the year ended December 31, 2008.
11. PROPERTY ACQUISITIONS
Acquisition of Properties for TIC Sponsored Programs
During the year ended December 31, 2008, the Company completed the acquisition of two office
properties and two multifamily residential properties on behalf of TIC sponsored programs, all of
which were sold to the respective programs during the same period. The aggregate purchase price
including the closing costs of these four properties was $111.7 million, of which $69.0 million was
financed with mortgage debt. During the year ended December 31, 2009, the Company did not complete
any acquisitions on behalf of TIC sponsored programs.
12. IDENTIFIED INTANGIBLE ASSETS
Identified intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
Useful Life |
|
2009 |
|
|
2008 |
|
Non-amortizing intangible assets: |
|
|
|
|
|
|
|
|
|
|
Trade name |
|
Indefinite |
|
$ |
64,100 |
|
|
$ |
64,100 |
|
Amortizing intangible assets: |
|
|
|
|
|
|
|
|
|
|
Contract rights |
|
|
|
|
|
|
|
|
|
|
Contract rights, established for the legal right to future
disposition fees of a portfolio of real estate properties under contract |
|
Amortize per
disposition
transactions |
|
|
11,186 |
|
|
|
11,924 |
|
Accumulated amortization contract rights |
|
|
|
|
(4,701 |
) |
|
|
(4,700 |
) |
|
|
|
|
|
|
|
|
|
Contract rights, net |
|
|
|
|
6,485 |
|
|
|
7,224 |
|
Other identified intangible assets |
|
|
|
|
|
|
|
|
|
|
Affiliate agreements |
|
20 years |
|
|
10,600 |
|
|
|
10,600 |
|
Customer relationships |
|
5 to 7 years |
|
|
5,400 |
|
|
|
5,436 |
|
Internally developed software |
|
4 years |
|
|
6,200 |
|
|
|
6,200 |
|
Customer backlog |
|
1 year |
|
|
|
|
|
|
300 |
|
Other contract rights |
|
5 to 7 years |
|
|
1,164 |
|
|
|
1,418 |
|
Non-compete and employment agreements |
|
3 to 4 years |
|
|
97 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,461 |
|
|
|
24,051 |
|
Accumulated amortization |
|
|
|
|
(6,686 |
) |
|
|
(3,848 |
) |
|
|
|
|
|
|
|
|
|
Other identified intangible assets, net |
|
|
|
|
16,775 |
|
|
|
20,203 |
|
|
|
|
|
|
|
|
|
|
Identified intangible assets of properties held for investment: |
|
|
|
|
|
|
|
|
|
|
In place leases and tenant relationships |
|
1 to 104 months |
|
|
11,510 |
|
|
|
11,807 |
|
Above market leases |
|
1 to 92 months |
|
|
2,364 |
|
|
|
2,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,874 |
|
|
|
14,171 |
|
Accumulated amortization |
|
|
|
|
(6,282 |
) |
|
|
(5,067 |
) |
|
|
|
|
|
|
|
|
|
Identified intangible assets of properties held for investment, net |
|
|
|
|
7,592 |
|
|
|
9,104 |
|
|
|
|
|
|
|
|
|
|
Total identified intangible assets, net |
|
|
|
$ |
94,952 |
|
|
$ |
100,631 |
|
|
|
|
|
|
|
|
|
|
Amortization expense recorded for the contract rights was $0.3 million, $1.2 million and $3.1
million for the years ended December 31, 2009, 2008 and 2007, respectively. Amortization expense
was charged as a reduction to investment management revenue in each respective period. The
amortization of the contract rights for intangible assets will be applied based on the net relative
value of disposition fees realized when the properties are sold. The Company tested the intangible
contract rights for impairment during 2009 and 2008. The intangible contract rights represent the
legal right to future disposition fees of a portfolio of real estate properties under contract. As
a result of the current economic environment, a portion of these disposition fees may not be
recoverable. Based on our analysis for the current and projected property values, condition of the
properties and status of mortgage loans payable associated with these contract rights, the Company
determined that there are certain properties for which receipt of disposition fees was improbable.
As a result, the Company recorded an impairment charge of approximately $0.7 million and $8.6
million related to the impaired intangible contract rights during 2009 and 2008, respectively. The
Company also analyzed its trade name for impairment pursuant to the requirements of the Intangibles
Goodwill and Other Topic and determined that the trade name was not impaired as of December 31,
2009 and 2008. Accordingly, no impairment charge was recorded related to the trade name during the
years ended December 31, 2009 and 2008.
F-24
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortization expense recorded for the other identified intangible assets was $4.2 million,
$3.5 million and $0.3 million for the years ended December 31, 2009, 2008 and 2007, respectively.
Amortization expense was included as part of operating expense in the accompanying consolidated
statements of operations.
Amortization expense for the other identified intangible assets, which excludes non-amortizing
trade name asset and non date-certain amortizing contract rights, for each of the next five years
ended December 31 is as follows:
|
|
|
|
|
|
|
(In thousands) |
|
2010 |
|
$ |
4,982 |
|
2011 |
|
|
4,458 |
|
2012 |
|
|
2,520 |
|
2013 |
|
|
2,014 |
|
2014 |
|
|
1,611 |
|
Thereafter |
|
|
8,782 |
|
|
|
|
|
|
|
$ |
24,367 |
|
|
|
|
|
13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Accrued liabilities |
|
$ |
11,744 |
|
|
$ |
11,502 |
|
Salaries and related costs |
|
|
14,592 |
|
|
|
13,643 |
|
Accounts payable |
|
|
17,864 |
|
|
|
14,323 |
|
Broker commissions |
|
|
8,807 |
|
|
|
14,002 |
|
Bonuses |
|
|
7,797 |
|
|
|
9,741 |
|
Property management fees and commissions
due to third parties |
|
|
2,063 |
|
|
|
2,940 |
|
Severance |
|
|
|
|
|
|
2,957 |
|
Interest |
|
|
|
|
|
|
651 |
|
Other |
|
|
|
|
|
|
463 |
|
|
|
|
|
|
|
|
Total |
|
$ |
62,867 |
|
|
$ |
70,222 |
|
|
|
|
|
|
|
|
14. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Mortgage debt payable to a financial
institution collateralized by real estate
held for investment. Fixed interest rate
of 6.29% per annum as of December 31,
2009. The note is non-recourse up to $60
million with a $10 million recourse
guarantee and matures in February 2017. As
of December 31, 2009, note requires
monthly interest-only payments |
|
$ |
70,000 |
|
|
$ |
70,000 |
|
Mortgage debt payable to financial
institution collateralized by real estate
held for investment. Fixed interest rate
of 6.32% per annum as of December 31,
2009. The non-recourse note matures in
August 2014. As of December 31, 2009, note
requires monthly interest-only payments |
|
|
37,000 |
|
|
|
37,000 |
|
Capital lease obligations |
|
|
1,694 |
|
|
|
536 |
|
|
|
|
|
|
|
|
Total |
|
|
108,694 |
|
|
|
107,536 |
|
Less portion classified as current |
|
|
(939 |
) |
|
|
(333 |
) |
|
|
|
|
|
|
|
Non-current portion |
|
$ |
107,755 |
|
|
$ |
107,203 |
|
|
|
|
|
|
|
|
F-25
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The future minimum payments due related to notes payable and capital lease obligations for
each of the next five years ending December 31 and thereafter are summarized as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
2010 |
|
$ |
1,043 |
|
2011 |
|
|
751 |
|
2012 |
|
|
63 |
|
2013 |
|
|
|
|
2014 |
|
|
37,000 |
|
Thereafter |
|
|
70,000 |
|
|
|
|
|
Less imputed interest attributed to capital lease obligations |
|
|
(163 |
) |
|
|
|
|
|
|
$ |
108,694 |
|
|
|
|
|
On December 10, 2009, the loan agreement for the $37.0 million in principal outstanding was
modified to reduce the interest pay rate from 6.32% to 4.25% for the first 24 months following the
modification and provide for a 6.32% interest rate on the accrued but unpaid interest which will
begin to fully amortize beginning in the 25th month following the modification. The August 1, 2014
maturity date of the loan and the 6.32% interest accrual rate on the outstanding principal balance
of the loan were not changed.
15. NOTES PAYABLE OF PROPERTIES HELD FOR SALE
Notes payable of properties held for sale consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Mortgage debt payable to a financial
institution collateralized by real estate held
for sale. The non-recourse mortgage note
charged variable interest rate based on the
higher of LIBOR plus 3.00% or 6.00%. The notes
required monthly interest-only payments and
matured on July 9, 2009. On December 21, 2009
the Company entered into a loan modification
agreement regarding these notes pursuant to
which the notes were deconsolidated from these
financial statements as further described in
Note 18 |
|
$ |
|
|
|
$ |
108,677 |
|
Unsecured notes payable to third-party
investors with fixed interest at 6.00% per
annum and matured in December 2011. Principal
and interest payments were due quarterly. The
notes were repaid in April 2009 |
|
|
|
|
|
|
282 |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
108,959 |
|
|
|
|
|
|
|
|
The Company historically had entered into several interest rate lock agreements with
commercial banks. All rate locks were cancelled and all deposits in connection with these
agreements were refunded to the Company in April 2008.
16. LINE OF CREDIT
On December 7, 2007, the Company entered into a $75.0 million credit agreement by and among
the Company, the guarantors named therein, and the financial institutions defined therein as lender
parties, with Deutsche Bank Trust Company Americas, as lender and administrative agent (the Credit
Facility). The Company was restricted to solely use the line of credit for investments,
acquisitions, working capital, equity interest repurchase or exchange, and other general corporate
purposes. The line bore interest at either the prime rate or LIBOR based rates, as the Company may
choose on each of its borrowings, plus an applicable margin ranging from 1.50% to 2.50% based on
the Companys Debt/Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) ratio
as defined in the credit agreement.
The Company entered into four amendments to its Credit Facility on August 5, 2008, November 4,
2008, May 20, 2009 and September 30, 2009. In conjunction with the third amendment, the Company
issued warrants to the lenders giving them the right, commencing October 1, 2009, to purchase
common stock of the Company equal to 15% of the common stock of the Company on a fully diluted
basis as of such date. The Company calculated the fair value of the warrants to be $534,000 and
recorded such amount in shareowners equity with a corresponding debt discount to the line of
credit balance. Such debt discount amount was fully amortized into interest expense as of December
31, 2009 as a result of the repayment of the Credit Facility as discussed below. The final
amendment, among other things, extended the time to effect a recapitalization under its Credit
Facility from September 30, 2009 to November 30, 2009. Pursuant to the final amendment, the Company
also received the right to prepay its Credit Facility in full at any time on or prior to November
30, 2009 at a discounted amount equal to 65% of the aggregate principal amount outstanding. On
November 6, 2009, concurrently with the closing of the private placement of 12% Preferred Stock
(see Note 19), the Company repaid its Credit Facility in full at the discounted amount equal to
$43.4 million and the Credit Facility was terminated in accordance with its terms. As a result of
the early repayment of the Credit Facility, the Company recorded a gain on early extinguishment of
debt of $21.9 million, or $0.35 per common share, net of expenses.
F-26
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SENIOR NOTES
From August 2006 to January 2007, NNN Collateralized Senior Notes, LLC (the Senior Notes
Program), a wholly owned subsidiary of the Company, issued $16.3 million of notes which mature in
2011 and bear interest at a rate of 8.75% per annum. Interest on the notes is payable monthly in
arrears on the first day of each month, commencing on the first day of the month occurring after
issuance. The notes mature five years from the date of first issuance of any of such notes, with
two one-year options to extend the maturity date of the notes at the Senior Notes Programs option.
The interest rate will increase to 9.25% per annum during any extension. The Senior Notes Program
has the right to redeem the notes, in whole or in part, at: (1) 102.0% of their principal amount
plus accrued interest any time after January 1, 2008; (2) 101.0% of their principal amount plus
accrued interest any time after July 1, 2008; and (3) par value after January 1, 2009. The notes
are the Senior Notes Programs senior obligations, ranking pari passu in right of payment with all
other senior debt incurred and ranking senior to any subordinated debt it may incur. The notes are
effectively subordinated to all present or future debt secured by real or personal property to the
extent of the value of the collateral securing such debt. The notes are secured by a pledge of the
Senior Notes Programs membership interest in NNN Series A Holdings, LLC, which is the Senior Notes
Programs wholly owned subsidiary for the sole purpose of making the investments. Each note is
guaranteed by Grubb & Ellis Realty Investors, LLC (GERI). The guarantee is secured by a pledge of
GERI membership interest in the Senior Notes Program.
As of December 31, 2009 and 2008, the Senior Notes Programs balance is reflected in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
Ownership |
|
Subsidiary |
|
Date Issued |
|
Maturity Date |
|
2009 |
|
2009 |
|
Current Rate |
|
Call Date |
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
100%
|
|
Senior Notes Program
|
|
08/01/2006
|
|
08/01/2011
|
|
$16,277
|
|
$16,277
|
|
8.75%
|
|
N/A |
18. PROPERTIES HELD FOR SALE AND DISCONTINUED OPERATIONS
A summary of the balance sheet information for properties held for sale is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Restricted cash |
|
$ |
|
|
|
$ |
23,459 |
|
Properties held for sale including investments in unconsolidated entities |
|
|
|
|
|
|
78,708 |
|
Identified intangible assets and other assets |
|
|
|
|
|
|
25,747 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
127,914 |
|
|
|
|
|
|
|
|
Notes payable of properties held for sale including investments in unconsolidated entities |
|
$ |
|
|
|
$ |
108,959 |
|
Liabilities of properties held for sale |
|
|
|
|
|
|
9,257 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
118,216 |
|
|
|
|
|
|
|
|
Pursuant to the requirements of the Property, Plant, and Equipment Topic, the Company assessed
the value of the properties held for sale. The Company generally uses a discounted cash flow model
to estimate the fair value of its properties held for sale unless better market comparable data is
available. Management uses its best estimate in determining the key assumptions, including the
expected holding period, future occupancy levels, capitalization rates, discount rates, rental
rates, lease-up periods and capital expenditure requirements. The estimated fair value is further
adjusted for anticipated selling expenses. This valuation review resulted in the Company
recognizing real estate related impairments of approximately $28.9 million during the year ended
December 31, 2008 which is included in discontinued operations as of December 31, 2008. There were
no real estate related impairments related to properties held for sale recognized during the years
ended December 31, 2009 or December 31, 2007.
On June 3, 2009, the Company completed the sale of Danbury Corporate Center for $72.4 million.
The Company recognized a loss on sale of $1.1 million.
On December 29, 2009, GERA Abrams Centre LLC (Abrams) and GERA 6400 Shafer LLC (Shafer)
modified the terms of its $42.5 million loan initially due on July 9, 2009. The amendment to the
loan provided, among other things, for an extension of the term of the loan until March 31, 2010.
In addition, the principal balance of the Loan was reduced from $42.5 million to $11.0 million in
connection with the transfer of the Shafer Property to an affiliate of the lender for nominal
consideration pursuant to a special warranty deed that was recorded on December 29, 2009.
F-27
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pursuant to the amendment, the lender remains obligated under the loan, in its reasonable
discretion, to fund any shortfalls relating to tenant improvements and leasing commission expenses
and to fund any operational shortfalls and debt service, provided that there is no event of default
existing with respect to the Loan. The Amendment also grants the lender a call option, and the
borrower a put option, with respect to the Abrams Property through the Loan Extension Date. Each of
the Lenders call option and the Borrowers put option requires 10 business days prior written
notice and provides for the transfer of the Abrams Property pursuant to a deed identical in all
material respects to the Special Warranty Deed that was executed with respect to the Shafer
Property. If neither the put option nor the call option is exercised by March 30, 2010, the
Borrower has the right to file a deed conveying the Abrams Property to the Lender or its designee
on March 31, 2010. The Amendment also released the borrower and the guarantor under the Loan, from
and against any claims, obligations and/or liabilities that the Lender or any of party related to
or affiliated with the Lender, whether known or unknown, that such party had, has or may have in
the future, arising from or related to the Loan.
In connection with the completion of the deed in lieu of foreclosure on the Shafer property
prior to December 31, 2009, the Company deconsolidated the property and related assets and
liabilities. Additionally, the Abrams property and related assets and liabilities were
deconsolidated pursuant to the Consolidation Topic due to the loss of control over this property,
of which the fair value of the assets and liabilities totaled $6.7 million as of December 31, 2009.
The Company recognized a gain on extinguishment of debt of $13.3 million, or $0.21 per common
share, during the year ended December 31, 2009 related to the deconsolidation of the Shafer and
Abrams properties. As the Shafer and Abrams properties were effectively abandoned under the
accounting standards, the results of operations were reclassified to discontinued operations.
The investments in unconsolidated entities held for sale represent the Companys interest in
certain real estate properties that it holds through various limited liability companies. In
accordance with the requirements of the Real Estate Sales Topic, and the Property, Plant and
Equipment Topic, the Company treats the disposition of these interests similar to the disposition
of real estate it holds directly. In addition, pursuant to the requirements of the Consolidation
Topic, when the Company is no longer the primary beneficiary of the LLC, the Company deconsolidates
the LLC.
During the year ended December 31, 2008, the Company sold interests in certain real estate
properties that it holds through various consolidated LLCs resulting in the deconsolidation of the
LLCs and a decrease of approximately $198.0 million in properties held for sale including
investments in unconsolidated entities. These non-cash transactions concurrently resulted in a
decrease in restricted cash of approximately $20.7 million, a decrease in other assets, identified
intangible assets and other assets held for sale of approximately $48.4 million, a decrease in
investments in unconsolidated entities of approximately $34.6 million, a decrease in accounts
payable and accrued expenses of approximately $13.5 million, a decrease in notes payable of
properties held for sale including investments in unconsolidated entities of approximately $180.2
million, a decrease in noncontrolling interest liability of approximately $27.6 million, a decrease
in other liabilities of approximately $1.3 million and an increase in proceeds from related parties
of approximately $79.1 million.
During the year ended December 31, 2007, the Company sold interests in certain real estate
properties that it holds through various consolidated LLCs resulting in the deconsolidation of the
LLCs and a decrease of approximately $290.3 million in properties held for sale including
investments in unconsolidated entities. These non-cash transactions concurrently resulted in a
decrease in restricted cash of approximately $33.5 million, a decrease in other assets, identified
intangible assets and other assets held for sale of approximately $48.9 million, a decrease in
accounts payable and accrued expenses of approximately $8.6 million, a decrease in notes payable of
properties held for sale including investments in unconsolidated entities of approximately $238.1
million, a decrease in noncontrolling interest liability of approximately $19.4 million, a decrease
in other liabilities of approximately $3.7 million and an increase in proceeds from related parties
of approximately $102.9 million.
In instances when the Company expects to have significant ongoing cash flows or significant
continuing involvement in the component beyond the date of sale, the income (loss) from certain
properties held for sale continue to be fully recorded within the continuing operations of the
Company through the date of sale. The net results of discontinued operations and the net gain on
dispositions of properties sold or classified as held for sale as of December 31, 2009, in which
the Company has no significant ongoing cash flows or significant continuing involvement, are
reflected in the consolidated statements of operations as discontinued operations. The Company will
receive certain fee income from these properties on an ongoing basis that is not considered
significant when compared to the operating results of such properties.
F-28
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the income (loss) and expense components net of taxes that
comprised discontinued operations for the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Rental income |
|
$ |
10,103 |
|
|
$ |
23,325 |
|
|
$ |
10,471 |
|
Rental expense |
|
|
(8,779 |
) |
|
|
(16,182 |
) |
|
|
(5,210 |
) |
Depreciation and amortization |
|
|
|
|
|
|
(8,030 |
) |
|
|
(417 |
) |
Interest expense (including amortization of deferred financing costs) |
|
|
(2,867 |
) |
|
|
(7,522 |
) |
|
|
(6,442 |
) |
Real estate related impairments |
|
|
(6,612 |
) |
|
|
(31,237 |
) |
|
|
|
|
Tax benefit |
|
|
3,199 |
|
|
|
15,368 |
|
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes |
|
|
(4,956 |
) |
|
|
(24,278 |
) |
|
|
(960 |
) |
Gain on disposal of discontinued operations net of taxes ($4.8
million, $0.2 million and $0.2 million for the years ended December
31, 2009, 2008 and 2007, respectively) |
|
|
7,442 |
|
|
|
357 |
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations |
|
$ |
2,486 |
|
|
$ |
(23,921 |
) |
|
$ |
(708 |
) |
|
|
|
|
|
|
|
|
|
|
19. PREFERRED STOCK
On October 2, 2009, the Company issued a $5.0 million senior subordinated convertible note
(the Note) to Kojaian Management Corporation. Kojaian Management Corporation is an affiliate of a
director of the Company. The Note (i) bore interest at twelve percent (12%) per annum, (ii) was
co-terminus with the term of the Credit Facility (including if the Credit Facility was terminated
pursuant to the Discount Prepayment Option), (iii) was unsecured and fully subordinate to the
Credit Facility, and (iv) in the event the Company issues or sells equity securities in connection
with or pursuant to a transaction with a non-affiliate of the Company while the Note was
outstanding, at the option of the holder of the Note, the principal amount of the Note then
outstanding was convertible into those equity securities of the Company issued or sold in such
non-affiliate transaction. In connection with the issuance of the Note, Kojaian Management
Corporation, the lenders to the Credit Facility and the Company entered into a subordination
agreement.
During the fourth quarter of 2009, the Company completed a private placement of 965,700 shares
of 12% cumulative participating perpetual convertible preferred stock, par value $0.01 per share
(Preferred Stock), to qualified institutional buyers and other accredited investors, including
directors, executive officers and employees of the Company. In conjunction with the offering, the
entire $5.0 million principal balance of the Note was converted into Preferred Stock at the
offering price and the holder of the Note received accrued interest of approximately $57,000. In
addition, the holder of the Note also purchased an additional $5.0 million of Preferred Stock at
the offering price.
Each share of Preferred Stock is convertible, at the holders option, into the Companys
common stock, par value $.01 per share at a conversion rate of 60.606 shares of common stock for
each share of Preferred Stock, which represents a conversion price of approximately $1.65 per share
of common stock, a 10.0% premium to the closing price of the common stock on October 22, 2009.
Upon the closing of the sale of the Preferred Stock, the Company received net cash proceeds of
approximately $90.1 million after deducting the initial purchasers discounts and certain offering
expenses and after giving effect to the conversion of the $5.0 million subordinated note. A portion
of proceeds were used to pay in full borrowings under the Credit Facility then outstanding of $66.8
million for a reduced amount equal to $43.4 million, with the balance of the proceeds to be used
for general corporate purposes.
The terms of the Preferred Stock provide for cumulative dividends from and including the date
of original issuance in the amount of $12.00 per share each year. Dividends on the Preferred Stock
will be payable when, as and if declared, quarterly in arrears, on March 31, June 30, September 30
and December 31, beginning on December 31, 2009. In addition, in the event of any cash distribution
to holders of the Common Stock, holders of Preferred Stock will be entitled to participate in such
distribution as if such holders had converted their shares of Preferred Stock into Common Stock.
If the Company fails to pay the quarterly Preferred Stock dividend in full for two consecutive
quarters, the dividend rate will automatically be increased by .50% of the initial liquidation
preference per share per quarter (up to a maximum amount of increase of 2% of the initial
liquidation preference per share) until cumulative dividends have been paid in full. In addition,
subject to certain limitations, in the event the dividends on the Preferred Stock are in arrears
for six or more quarters, whether or not consecutive, holders representing a majority of the shares
of Preferred Stock voting together as a class with holders of any other class or series of
preferred stock upon which like voting rights have been conferred and are exercisable will be
entitled to nominate and vote for the election of two additional directors to serve on the board of
directors until all unpaid dividends with respect to the Preferred Stock and any other class or
series of preferred stock upon which like voting rights have been conferred or are exercisable have
been paid or declared and a sum sufficient for payment has been set aside therefore.
F-29
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the six-month period following November 6, 2009, if the Company issues any securities,
other than certain permitted issuances, and the price per share of the Common Stock (or the
equivalent for securities convertible into or exchangeable for Common Stock) is less than the then
current conversion price of the Preferred Stock, the conversion price will be reduced pursuant to a
weighted average anti-dilution formula.
Holders of Preferred Stock may require the Company to repurchase all, or a specified whole
number, of their Preferred Stock upon the occurrence of a Fundamental Change (as defined in the
Certificate of Designations) with respect to any Fundamental Change that occurs (i) prior to
November 15, 2014, at a repurchase price equal to 110% of the sum of the initial liquidation
preference plus accumulated but unpaid dividends, and (ii) from November 15, 2014 until prior to
November 15, 2019, at a repurchase price equal to 100% of the sum of the initial liquidation
preference plus accumulated but unpaid dividends. On or after November 15, 2014, the Company may,
at its option, redeem the Preferred Stock, in whole or in part, by paying an amount equal to 110%
of the sum of the initial liquidation preference per share plus any accrued and unpaid dividends to
and including the date of redemption.
In the event of certain events that constitute a Change in Control (as defined in the
Certificate of Designations) prior to November 15, 2014, the conversion rate of the Preferred Stock
will be subject to increase. The amount of the increase in the applicable conversion rate, if any,
will be based on the date in which the Change in Control becomes effective, the price to be paid
per share with respect to the Common Stock and the transaction constituting the Change in Control.
The Company entered into a registration rights agreement with one of the lead investors (and
its affiliates) with respect to 125,000 of such shares of Preferred Stock, and the Common Stock
issuable upon the conversion of such Preferred Stock, that was acquired by such lead investor (and
affiliates) in the Offering. The registration of the shares became effective on December 29, 2009.
No other purchasers of the Preferred Stock in the Offering have the right to have their shares of
Preferred Stock, or shares of Common Stock issuable upon conversion of such Preferred Stock,
registered. In addition, subject to certain limitations, the lead investor who acquired the
registration rights also has certain preemptive rights in the event the Company issues for cash
consideration any Common Stock or any securities convertible into or exchangeable for Common Stock
(or any rights, warrants or options to purchase any such Common Stock) during the six-month period
subsequent to the closing of the Offering. Such preemptive right is intended to permit such lead
investor to maintain its pro rata ownership of the Preferred Stock acquired in the Offering.
Except as otherwise provided by law, the holders of the Preferred Stock vote together with the
holders of common stock as one class on all matters on which holders of common stock vote. Holders
of the Preferred Stock when voting as a single class with holders of common stock are entitled to
voting rights equal to the number of shares of Common Stock into which the Preferred Stock is
convertible, on an as if converted basis. Holders of Preferred Stock vote as a separate class
with respect to certain matters.
Upon any liquidation, dissolution or winding up of the Company, holders of the Preferred Stock
will be entitled, prior to any distribution to holders of any securities ranking junior to the
Preferred Stock, including but not limited to the Common Stock, and on a pro rata basis with other
preferred stock of equal ranking, a cash liquidation preference equal to the greater of (i) 110% of
the sum of the initial liquidation preference per share plus accrued and unpaid dividends thereon,
if any, from November 6, 2009, the date of the closing of the Offering, and (ii) an amount equal to
the distribution amount each holder of Preferred Stock would have received had all shares of
Preferred Stock been converted to Common Stock.
On December 11, 2009, the Board of Directors declared a dividend of $1.8333 per share on the
Companys 12% Cumulative Participating Perpetual Convertible Preferred Stock to shareowners of
record as of December 21, 2009, which was paid on December 31, 2009.
Management accounted for the Preferred Stock transaction in accordance with the requirements
of the Derivatives and Hedging Topic and Distinguishing Liabilities and Equity Topic. Pursuant to
those topics, Management determined that the Preferred Stock should be accounted for as a single
instrument as the terms of the Preferred Stock do not include any embedded derivatives that would
require bifurcation from the host instrument. Pursuant to the Distinguishing Liabilities and Equity
Topic, Management determined that the Preferred Stock should not be classified as a liability as
the characteristics of the Preferred Stock are more closely related to equity as there is no
mandatory redemption date. According to the terms of the Preferred Stock, the Preferred Stock will
only become redeemable at the option of the holder upon (i) a fundamental change or (ii) the
Companys failure to amend its Certificate of Incorporation within 120 days of the date of issuance
of the Preferred Stock, which was not considered probable. The Company amended its Certificate of
Incorporation as required by the Preferred Stock articles. In addition, Management determined that
there are various events and circumstances that would allow for redemption of the Preferred Stock
at the option of the holders, however, several of these redemption events are not within the
Companys control and, therefore, the Preferred Stock should be classified outside of permanent
equity in accordance with the Distinguishing Liabilities and Equity Topic as these events were
assessed as not probable of becoming redeemable.
F-30
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. COMMITMENTS AND CONTINGENCIES
Operating Leases The Company has non-cancelable operating lease obligations for office
space and certain equipment ranging from one to ten years, and sublease agreements under which the
Company acts as a sublessor. The office space leases often times provide for annual rent increases,
and typically require payment of property taxes, insurance and maintenance costs.
Rent expense under these operating leases was approximately $24.1 million, $23.2 million and
$4.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. Rent expense is
included in general and administrative expense in the accompanying consolidated statements of
operations.
As of December 31, 2009, future minimum amounts payable under non-cancelable operating leases
are as follows for the years ending December 31:
|
|
|
|
|
(In thousands) |
|
2010 |
|
$ |
24,580 |
|
2011 |
|
|
21,829 |
|
2012 |
|
|
19,494 |
|
2013 |
|
|
13,899 |
|
2014 |
|
|
8,898 |
|
Thereafter |
|
|
15,510 |
|
|
|
|
|
|
|
$ |
104,210 |
|
|
|
|
|
The Company subleases certain office spaces to third parties. The total future minimum rental
income to be received under these non-cancellable subleases is $8.6 million as of December 31,
2009.
Operating Leases Other The Company is a master lessee of seven multi-family residential
properties in various locations under non-cancelable leases. The leases, which commenced in various
months and expire from June 2015 through March 2016, require minimum monthly payments averaging
$795,000 over the 10-year period. Rent expense under these operating leases was approximately $9.2
million, $9.4 million and $8.6 million, for the years ended December 31, 2009, 2008 and 2007,
respectively. As of December 31, 2009, rental related expense, based on contractual amounts due, is
as follows for the years ending December 31:
|
|
|
|
|
|
|
Rental |
|
|
|
Related |
|
(In thousands) |
|
Expense |
|
2010 |
|
$ |
10,766 |
|
2011 |
|
|
10,942 |
|
2012 |
|
|
10,942 |
|
2013 |
|
|
10,942 |
|
2014 |
|
|
10,942 |
|
Thereafter |
|
|
8,852 |
|
|
|
|
|
|
|
$ |
63,386 |
|
|
|
|
|
The Company subleases these multifamily spaces to third parties for no more than one year.
Rental income from these subleases was approximately $15.1 million, $16.4 million and $16.4 million
for the years ended December 31, 2009, 2008 and 2007, respectively.
The Company is also a 50% joint venture partner of four multi family residential properties in
various locations under non-cancelable leases. The leases, which commenced in various months and
expire from November 2014 through January 2015, require minimum monthly payments averaging $372,000
over the 10-year period. Rent expense under these operating leases was approximately $4.5 million,
$4.5 million and $4.3 million, for the years ended December 31, 2009, 2008 and 2007, respectively.
As of December 31, 2009, rental related expense, based on contractual amounts due, is as follows
for the years ending December 31:
F-31
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
(In thousands) |
|
|
|
|
2010 |
|
$ |
4,474 |
|
2011 |
|
|
4,474 |
|
2012 |
|
|
4,474 |
|
2013 |
|
|
4,474 |
|
2014 |
|
|
4,405 |
|
Thereafter |
|
|
113 |
|
|
|
|
|
|
|
$ |
22,414 |
|
|
|
|
|
The Company subleases these multifamily spaces to third parties for no more than one year.
Rental income from these subleases was approximately $8.9 million, $9.0 million and $8.4 million
for the years ended December 31, 2009, 2008 and 2007, respectively.
As of December 31, 2009, the Company had recorded liabilities totaling $9.1 million related to
such master lease arrangements, consisting of $5.2 million of cumulative deferred revenues relating
to acquisition fees and loan fees received from 2004 through 2006 and $3.9 million of additional
loss reserves which were recorded in 2008 and 2009.
TIC Program Exchange Provision Prior to the Merger, NNN entered into agreements in which
NNN agreed to provide certain investors with a right to exchange their investment in certain TIC
programs for an investment in a different TIC program. NNN also entered into an agreement with
another investor that provided the investor with certain repurchase rights under certain
circumstances with respect to their investment. The agreements containing such rights of exchange
and repurchase rights pertain to initial investments in TIC programs totaling $31.6 million. In
July 2009 the Company received notice from an investor of their intent to exercise such rights of
exchange and repurchase with respect to an initial investment totaling $4.5 million. The Company is
currently evaluating such notice to determine the nature and extent of the right of such exchange
and repurchase, if any.
The Company deferred revenues relating to these agreements of $0.3 million, $1.0 million and
$0.4 million for the years ended December 31, 2009, 2008 and 2007, respectively. Additional losses
of $4.7 million and $14.3 million related to these agreements were incurred during the years ended
December 31, 2009 and 2008, respectively, to reflect the impairment in value of properties
underlying the agreements with investors. As of December 31, 2009 the Company had recorded
liabilities totaling $22.8 million related to such agreements, which is included in other current
liabilities, consisting of $3.8 million of cumulative deferred revenues and $19.0 million of
additional losses related to these agreements. In addition, the Company is joint and severally
liable on the non-recourse mortgage debt related to these TIC programs totaling $277.0 million and
$277.8 million as of December 31, 2009 and 2008, respectively. This mortgage debt is not
consolidated as the LLCs account for the interests in the Companys TIC investments under the
equity method and the non-recourse mortgage debt does not meet the criteria under the Transfers and
Servicing Topic for recognizing the share of the debt assumed by the other TIC interest holders for
consolidation. The Company considers the third-party TIC holders ability and intent to repay their
share of the joint and several liability in evaluating the recoverability of the Companys
investment in the TIC program.
Capital Lease Obligations The Company leases computers, copiers, and postage equipment that
are accounted for as capital leases (See Note 14 of for additional information).
General The Company is involved in various claims and lawsuits arising out of the ordinary
conduct of its business, as well as in connection with its participation in various joint ventures
and partnerships, many of which may not be covered by the Companys 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 Companys financial position or results of operations.
Guarantees From time to time the Company provides guarantees of loans for properties under
management. As of December 31, 2009, there were 146 properties under management with loan
guarantees of approximately $3.5 billion in total principal outstanding with terms ranging from one
to 10 years, secured by properties with a total aggregate purchase price of approximately $4.8
billion. As of December 31, 2008, there were 151 properties under management with loan guarantees
of approximately $3.5 billion in total principal outstanding with terms ranging from one to 10
years, secured by properties with a total aggregate purchase price of approximately $4.8 billion.
In addition, the consolidated VIEs and unconsolidated VIEs are jointly and severally liable on the
non-recourse mortgage debt related to the interests in the Companys TIC investments totaling
$277.0 million and $154.8 million as of December 31, 2009, respectively.
F-32
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Companys guarantees consisted of the following as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Non-recourse/carve-out guarantees of debt of properties under management(1) |
|
$ |
3,416,849 |
|
|
$ |
3,372,007 |
|
Non-recourse/carve-out guarantees of the Companys debt(1) |
|
$ |
97,000 |
|
|
$ |
97,000 |
|
Recourse guarantees of debt of properties under management |
|
$ |
33,898 |
|
|
$ |
42,426 |
|
Recourse guarantees of the Companys debt(2) |
|
$ |
10,000 |
|
|
$ |
10,000 |
|
|
|
|
(1) |
|
A non-recourse/carve-out guarantee imposes personal liability on the
guarantor in the event the borrower engages in certain acts prohibited
by the loan documents. Each non-recourse carve-out guarantee is an
individual document entered into with the mortgage lender in
connection with the purchase or refinance of an individual property.
While there is not a standard document evidencing these guarantees,
liability under the non-recourse carve-out guarantees generally may be
triggered by, among other things, any or all of the following: |
|
|
|
a voluntary bankruptcy or similar insolvency proceeding of any borrower; |
|
|
|
a transfer of the property or any interest therein in violation of the loan documents; |
|
|
|
a violation by any borrower of the special purpose entity requirements set forth in the
loan documents; |
|
|
|
any fraud or material misrepresentation by any borrower or any guarantor in connection with
the loan; |
|
|
|
the gross negligence or willful misconduct by any borrower in connection with the property,
the loan or any obligation under the loan documents; |
|
|
|
the misapplication, misappropriation or conversion of (i) any rents, security deposits,
proceeds or other funds, (ii) any insurance proceeds paid by reason of any loss, damage or
destruction to the property, and (iii) any awards or other amounts received in connection
with the condemnation of all or a portion of the property; |
|
|
|
any waste of the property caused by acts or omissions of borrower of the removal or
disposal of any portion of the property after an event of default under the loan documents;
and |
|
|
|
the breach of any obligations set forth in an environmental or hazardous substances
indemnification agreement from borrower. |
Certain violations (typically the first three listed above) render the entire debt balance
recourse to the guarantor regardless of the actual damage incurred by lender, while the liability
for other violations is limited to the damages incurred by the lender. Notice and cure provisions
vary between guarantees. Generally the guarantor irrevocably and unconditionally guarantees to the
lender the payment and performance of the guaranteed obligations as and when the same shall be due
and payable, whether by lapse of time, by acceleration or maturity or otherwise, and the guarantor
covenants and agrees that it is liable for the guaranteed obligations as a primary obligor. As of
December 31, 2009, to the best of the Companys knowledge, there is no amount of debt owed by the
Company as a result of the borrowers engaging in prohibited acts.
|
|
|
(2) |
|
In addition to the $10.0 million principal guarantee, the Company has
guaranteed any shortfall in the payment of interest on the unpaid
principal amount of the mortgage debt on one owned property. |
Management initially evaluates these guarantees to determine if the guarantee meets the
criteria required to record a liability in accordance with the requirements of the Guarantees
Topic. Any such liabilities were insignificant as of December 31, 2009 and 2008. In addition, on an
ongoing basis, the Company evaluates the need to record additional liability in accordance with the
requirements of the Contingencies Topic. As of December 31, 2009 and 2008, the Company had recourse
guarantees of $33.9 million and $42.4 million, respectively, relating to debt of properties under
management. As of December 31, 2009, approximately $9.8 million of these recourse guarantees relate
to debt that has matured or is not currently in compliance with certain loan covenants. In
evaluating the potential liability relating to such guarantees, the Company considers factors such
as the value of the properties secured by the debt, the likelihood that the lender will call the
guarantee in light of the current debt service and other factors. As of December 31, 2009 and 2008,
the Company recorded a liability of $3.8 million and $9.1 million, respectively, which is included
in other current liabilities, related to its estimate of probable loss related to recourse
guarantees of debt of properties under management which matured in January and April 2009.
F-33
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investment Program Commitments During June and July 2009, the Company revised the offering
terms related to certain investment programs which it sponsors, including the commitment to fund
additional property reserves and the waiver or reduction of future management fees and disposition
fees. The Company recorded a liability for future funding commitments as of December 31, 2009 for
these investment programs totaling $1.3 million to fund TIC program reserves.
Environmental Obligations In the Companys role as property manager, it could incur
liabilities for the investigation or remediation of hazardous or toxic substances or wastes at
properties the Company currently or formerly managed or at off-site locations where wastes were
disposed. Similarly, under debt financing arrangements on properties owned by sponsored programs,
the Company has agreed to indemnify the lenders for environmental liabilities and to remediate any
environmental problems that may arise. The Company is not aware of any environmental liability or
unasserted claim or assessment relating to an environmental liability that the Company believes
would require disclosure or the recording of a loss contingency as of December 31, 2009 and 2008.
Real Estate Licensing In connection with NNNs 144A financing transaction in November 2006,
Mr. Thompson, Louis J. Rogers, former President of GERI, and Jeffrey T. Hanson, the Companys Chief
Investment Officer, agreed to forfeit to the Company up to an aggregate of 4,124,120 escrowed
shares of the Companys common stock in the event of any claims or liabilities during the period
November 16, 2006 through November 16, 2009 related to the failure of NNNs subsidiaries to comply
with real estate broker licensing requirements in all states where they conducted business. In
addition, Mr. Thompson agreed to indemnify the Company for an additional $9.4 million in cash to
the extent such claims or liabilities exceeded the deemed $46.9 million value of these shares. As
of November 16, 2009, no claims or liabilities occurred, these obligations terminated and the
shares were released. As of December 31, 2009, there have been no claims, and the Company cannot
assess or estimate whether it will incur any losses as a result of the foregoing.
Alesco Seed Capital On November 16, 2007, the Company completed the acquisition of a 51%
membership interest in Grubb & Ellis Alesco Global Advisors, LLC (Alesco). Pursuant to the
Intercompany Agreement between the Company and Alesco, dated as of November 16, 2007, the Company
committed to invest $20.0 million in seed capital into the open and closed end real estate funds
that Alesco expects to launch. Additionally, upon achievement of certain earn-out targets, the
Company would be required to purchase up to an additional 27% interest in Alesco for $15.0 million.
The Company is allowed to use $15.0 million of seed capital to fund the earn-out payments. As of
December 31, 2009, the Company has invested $0.5 million in seed capital into the open and closed
end real estate funds that Alesco launched during 2008. In January 2010, the Company invested an
additional $1.0 million in seed capital.
Deferred Compensation Plan During 2008, the Company implemented a deferred compensation
plan that permits employees and independent contractors to defer portions of their compensation,
subject to annual deferral limits, and have it credited to one or more investment options in the
plan. As of December 31, 2009 and December 31, 2008, $3.3 million and $1.7 million, respectively,
reflecting the non-stock liability under this plan were included in accounts payable and accrued
expenses. The Company has purchased whole-life insurance contracts on certain employee participants
to recover distributions made or to be made under this plan and as of December 31, 2009 and 2008
have recorded the cash surrender value of the policies of $1.0 million and $1.1 million,
respectively, in prepaid expenses and other assets.
In addition, the Company awards phantom shares of Company stock to participants under the
deferred compensation plan. As of December 31, 2009 and 2008, the Company awarded an aggregate of
6.0 million and 5.4 million phantom shares, respectively, to certain employees with an aggregate
value on the various grant dates of $23.0 million and $22.5 million, respectively. As of December
31, 2009, an aggregate of 5.6 million phantom share grants were outstanding. Generally, upon
vesting, recipients of the grants are entitled to receive the number of phantom shares granted,
regardless of the value of the shares upon the date of vesting; provided, however, grants with
respect to 900,000 phantom shares had a guaranteed minimum share price ($3.1 million in the
aggregate) that will result in the Company paying additional compensation to the participants
should the value of the shares upon vesting be less than the grant date value of the shares. The
Company accounts for additional compensation relating to the guarantee portion of the awards by
measuring at each reporting date the additional payment that would be due to the participant based
on the difference between the then current value of the shares awarded and the guaranteed value.
This award is then amortized on a straight-line basis as compensation expense over the requisite
service (vesting) period, with an offset to deferred compensation liability.
21. EARNINGS (LOSS) PER SHARE
The Company computes earnings per share in accordance with the requirements of the Earnings
Per Share Topic. Under the Topic, basic earnings (loss) per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per
share is computed using the weighted-average number of common and common equivalent shares of stock
outstanding during the periods utilizing the treasury stock method for stock options and unvested
restricted stock.
F-34
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On December 7, 2007, pursuant to the Merger Agreement (i) each issued and outstanding share of
common stock of NNN was automatically converted into 0.88 of a share of common stock of the
Company, and (ii) each issued and outstanding stock option of NNN, exercisable for common stock of
NNN, was automatically converted into the right to receive stock option exercisable for common
stock of the Company based on the same 0.88 share conversion ratio.
Unless otherwise indicated, all pre-merger NNN share data have been adjusted to reflect the
0.88 conversion as a result of the Merger.
The following is a reconciliation between weighted-average shares used in the basic and
diluted earnings (loss) per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Numerator for earnings per share basic: |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(82,985 |
) |
|
$ |
(318,668 |
) |
|
$ |
23,741 |
|
Less: Net loss (income) attributable to noncontrolling interests |
|
|
1,661 |
|
|
|
11,719 |
|
|
|
(1,961 |
) |
Less: Preferred dividends |
|
|
(1,770 |
) |
|
|
|
|
|
|
|
|
Less: Income allocated to participating shareowners |
|
|
|
|
|
|
|
|
|
|
(465 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Grubb & Ellis
Company common shareowners |
|
$ |
(83,094 |
) |
|
$ |
(306,949 |
) |
|
$ |
21,315 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
2,486 |
|
|
$ |
(23,921 |
) |
|
$ |
(708 |
) |
Less: Income allocated to participating security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations attributable to Grubb & Ellis
Company common shareowners |
|
$ |
2,486 |
|
|
$ |
(23,921 |
) |
|
$ |
(708 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to Grubb & Ellis Company |
|
$ |
(78,838 |
) |
|
$ |
(330,870 |
) |
|
$ |
21,072 |
|
Less: Preferred dividends |
|
|
(1,770 |
) |
|
|
|
|
|
|
|
|
Less: Income allocated to participating security holders |
|
|
|
|
|
|
|
|
|
|
(465 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Grubb & Ellis Company common shareowners |
|
$ |
(80,608 |
) |
|
$ |
(330,870 |
) |
|
$ |
20,607 |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for earnings per share basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding |
|
|
63,645 |
|
|
|
63,515 |
|
|
|
38,652 |
|
|
Earnings per share basic: |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Grubb & Ellis Company
common shareowners |
|
$ |
(1.31 |
) |
|
$ |
(4.83 |
) |
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations attributable to Grubb & Ellis
Company common shareowners |
|
$ |
0.04 |
|
|
$ |
(0.38 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income per share attributable to Grubb & Ellis Company common shareowners |
|
$ |
(1.27 |
) |
|
$ |
(5.21 |
) |
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted(1): |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Grubb & Ellis Company
common shareowners |
|
$ |
(1.31 |
) |
|
$ |
(4.83 |
) |
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations attributable to Grubb & Ellis
Company common shareowners |
|
$ |
0.04 |
|
|
$ |
(0.38 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income per share attributable to Grubb & Ellis Company common shareowners |
|
$ |
(1.27 |
) |
|
$ |
(5.21 |
) |
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
Total participating shareowners: |
|
|
|
|
|
|
|
|
|
|
|
|
(as of the end of the period used to allocate earnings) |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares (as if converted to common shares) |
|
|
58,527 |
|
|
|
|
|
|
|
|
|
Unvested restricted stock |
|
|
3,601 |
|
|
|
2,014 |
|
|
|
1,432 |
|
Unvested phantom stock |
|
|
5,523 |
|
|
|
5,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total participating shares |
|
|
67,651 |
|
|
|
7,351 |
|
|
|
1,432 |
|
|
|
|
|
|
|
|
|
|
|
Total common shares outstanding |
|
|
63,784 |
|
|
|
63,369 |
|
|
|
63,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Outstanding non-vested restricted stock and options to purchase shares
of common stock and restricted stock, the effect of which would be
anti-dilutive, were approximately 4.1 million, 3.1 million and 2.0
million shares as of December 31, 2009, 2008 and 2007, respectively.
These shares were not included in the computation of diluted earnings
per share because an operating loss was reported or the option
exercise price was greater than the average market price of the common
shares for the respective periods. In addition, excluded from the
calculation of diluted weighted-average common shares as of December
31, 2009 and 2008 were approximately 5.6 million and 5.2 million
phantom shares, respectively, that may be awarded to employees related
to the deferred compensation plan. |
F-35
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. OTHER RELATED PARTY TRANSACTIONS
Offering Costs and Other Expenses Related to Public Non-traded REITs The Company, through
its consolidated subsidiaries Grubb & Ellis Apartment REIT Advisor, LLC, Grubb & Ellis Healthcare
REIT Advisor, LLC, and Grubb & Ellis Healthcare REIT II Advisor, LLC, bears certain general and
administrative expenses in its capacity as advisor of Apartment REIT, Healthcare REIT (through
September 20, 2009 when its advisory agreement terminated) and Healthcare REIT II, respectively,
and is reimbursed for these expenses. However, Apartment REIT, Healthcare REIT and Healthcare REIT
II will not reimburse the Company for any operating expenses that, in any four consecutive fiscal
quarters, exceed the greater of 2.0% of average invested assets (as defined in their respective
advisory agreements) or 25.0% of the respective REITs net income for such year, unless the board
of directors of the respective REITs approve such excess as justified based on unusual or
nonrecurring factors. All unreimbursable amounts are expensed by the Company.
The Company also paid for the organizational, offering and related expenses on behalf of
Apartment REIT for its initial offering that ended July 17, 2009 and Healthcare REIT for its
initial offering (through August 28, 2009 when its dealer manager agreement terminated). These
organizational, offering and related expenses include all expenses (other than selling commissions
and the marketing support fee which generally represent 7.0% and 2.5% of the gross offering
proceeds, respectively) to be paid by Apartment REIT and Healthcare REIT in connection with their
initial offerings. These expenses only become the liability of Apartment REIT and Healthcare REIT
to the extent other organizational and offering expenses do not exceed 1.5% of the gross proceeds
of the initial offerings. As of December 31, 2009, 2008 and 2007, the Company had incurred expenses
of $4.3 million, $3.8 million and $2.7 million, respectively, in excess of 1.5% of the gross
proceeds of the Apartment REIT offering. During the year ended December 31, 2009, the additional
$0.5 million of expenses incurred in connection with the Apartment REIT offering were fully
reserved for and as of December 31, 2009, the $4.3 million in total expenses incurred were written
off. As of December 31, 2008, the Company had recorded an allowance for bad debt of approximately
$3.6 million, related to the Apartment REIT offering costs incurred as the Company believed that
such amounts would not be reimbursed. As of December 31, 2009 and 2008, the Company did not incur
expenses in excess of 1.5% of the gross proceeds of the Healthcare REIT offering. As of December
31, 2007, the Company had incurred expenses of $1.1 million in excess of 1.5% of the gross proceeds
of the Healthcare REIT offering.
The Company also pays for the organizational, offering and related expenses on behalf of
Apartment REITs follow-on offering and Healthcare REIT IIs initial offering. These organizational
and offering expenses include all expenses (other than selling commissions and a dealer manager fee
which represent 7.0% and 3.0% of the gross offering proceeds, respectively) to be paid by Apartment
REIT and Healthcare REIT II in connection with these offerings. These expenses only become a
liability of Apartment REIT and Healthcare REIT II to the extent other organizational and offering
expenses do not exceed 1.0% of the gross proceeds of the offerings. As of December 31, 2009 and
2008, the Company has incurred expenses of $1.6 million and $0, respectively, in excess of 1.0% of
the gross proceeds of the Apartment REIT follow-on offering. As of December 31, 2009 and 2008, the
Company has incurred expenses of $2.0 million and $0.1 million, respectively, in excess of 1.0% of
the gross proceeds of the Healthcare REIT II initial offering. The Company anticipates that such
amount will be reimbursed in the future from the offering proceeds of Apartment REIT and Healthcare
REIT II.
Management Fees The Company provides both transaction and management services to parties,
which are related to a principal shareowner and director of the Company (collectively, Kojaian
Companies). In addition, the Company also pays asset management fees to the Kojaian Companies
related to properties the Company manages on their behalf. Revenue, including reimbursable expenses
related to salaries, wages and benefits, earned by the Company for services rendered to these
affiliates, including joint ventures, officers and directors and their affiliates, was $6.7
million, $7.3 million and $0.5 million, respectively for the years ended December 31, 2009, 2008
and 2007.
Other Related Party GERI, which is wholly owned by the Company, owns a 50.0% managing
member interest in Grubb & Ellis Apartment REIT Advisor, LLC and each of Grubb & Ellis Apartment
Management, LLC and ROC REIT Advisors, LLC own a 25.0% equity interest in Grubb & Ellis Apartment
REIT Advisor, LLC. As of December 31, 2009 and 2008, Andrea R. Biller, the Companys General
Counsel, Executive Vice President and Secretary, owned an equity interest of 18.0% of Grubb & Ellis
Apartment Management, LLC and GERI owned an 82.0% interest. As of December 31, 2009 and 2008,
Stanley J. Olander, the Companys Executive Vice President Multifamily, owned an equity interest
of 33.3% of ROC REIT Advisors, LLC.
GERI owns a 75.0% managing member interest in Grubb & Ellis Healthcare REIT Advisor, LLC and,
therefore, consolidates Grubb & Ellis Healthcare REIT Advisor, LLC. Grubb & Ellis Healthcare
Management, LLC owns a 25.0% equity interest in Grubb & Ellis Healthcare REIT Advisor, LLC. As of
December 31, 2009 and 2008, each of Ms. Biller and Mr. Hanson, the Companys Chief Investment
Officer and GERIs President, owned an equity interest of 18.0% of Grubb & Ellis Healthcare
Management, LLC and GERI owned a 64.0% interest in Grubb & Ellis Healthcare Management, LLC.
F-36
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The grants of membership interests in Grubb & Ellis Apartment Management, LLC and Grubb &
Ellis Healthcare Management, LLC to certain executives are being accounted for by the Company as a
profit sharing arrangement. Compensation expense is recorded by the Company when the likelihood of
payment is probable and the amount of such payment is estimable, which generally coincides with
Grubb & Ellis Apartment REIT Advisor, LLC and Grubb & Ellis Healthcare REIT Advisor, LLC recording
its revenue. There was no compensation expense related to the profit sharing arrangement with Grubb
& Ellis Apartment Management, LLC, and therefore no distributions to any members, for the year
ended December 31, 2009. Compensation expense related to this profit sharing arrangement associated
with Grubb & Ellis Apartment Management, LLC includes distributions of $88,000 and $175,000,
respectively, to Mr. Thompson, $85,000 and $159,000, respectively, to Scott D. Peters, the
Companys former President and Chief Executive Officer, and $122,000 and $159,000, respectively, to
Ms. Biller for the years ended December 31, 2008 and 2007, respectively. Compensation expense
related to this profit sharing arrangement associated with Grubb & Ellis Healthcare Management, LLC
includes distributions of $44,000, $175,000 and $175,000 to Mr. Thompson, $0, $387,000 and $414,000
to Mr. Peters and $380,000, $548,000 and $414,000, to each of Ms. Biller and Mr. Hanson for the
years ended December 31, 2009, 2008 and 2007, respectively.
As of December 31, 2009 and 2008, respectively, the remaining 82.0% equity interest in Grubb &
Ellis Apartment Management, LLC and the remaining 64.0% equity interest in Grubb & Ellis Healthcare
Management, LLC were owned by GERI. Any allocable earnings attributable to GERIs ownership
interests are paid to GERI on a quarterly basis.
The Companys directors and officers, as well as officers, managers and employees have
purchased, and may continue to purchase, interests in offerings made by the Companys programs at a
discount. The purchase price for these interests reflects the fact that selling commissions and
marketing allowances will not be paid in connection with these sales. The net proceeds to the
Company from these sales made net of commissions will be substantially the same as the net proceeds
received from other sales.
In September 2007, NNN acquired Cunningham Lending Group LLC (Cunningham), a company that
was wholly owned by Mr. Thompson, for $255,000 in cash. Prior to the acquisition, Cunningham made
unsecured loans to some of the properties under management by GERI. The loans, which bear interest
at rates ranging from 8.0% to 12.0% per annum are reflected in advances to related parties on the
Companys balance sheet and are serviced by the cash flows from the programs. In accordance with
the Consolidation Topic, the Company consolidates Cunningham in its financial statements.
On November 6, 2009, the Company effected the private placement of 900,000 shares of its 12%
Preferred Stock, to qualified institutional buyers and other accredited investors. In conjunction
with the offering, the entire $5.0 million principal balance of the Note was converted into the 12%
Preferred Stock at the offering price and the holder of the Note received accrued interest of
approximately $57,000. In addition, certain of the Companys directors, executive officers and
employees also purchased 12% Preferred Stock in the private placement at the offering price as
follows:
|
|
|
Kojaian Management Corporation, an affiliate of C. Michael Kojaian, purchased $10 million
of 12% Preferred Stock (effected by the conversion of the $5.0 million principal balance of
the Note with the Company into 12% Preferred Stock and the purchase of an additional $5.0
million of 12% Preferred Stock) |
|
|
|
Thomas P. DArcy purchased $500,000 of 12% Preferred Stock |
|
|
|
Devin I. Murphy purchased $100,000 of 12% Preferred Stock |
|
|
|
Rodger D. Young purchased $50,000 of 12% Preferred Stock |
|
|
|
Andrea R. Biller purchased $100,000 of 12% Preferred Stock |
|
|
|
Jeffrey T. Hanson purchased $25,000 of 12% Preferred Stock |
|
|
|
Richard W. Pehlke purchased $50,000 of 12% Preferred Stock |
|
|
|
Jacob Van Berkel purchased $25,000 of 12% Preferred Stock |
|
|
|
other employees who are not NEOs purchased an aggregate of $1,135,000 of 12% Preferred
Stock |
F-37
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. EMPLOYEE BENEFIT PLANS
Share-Based Incentive Plans
Unless otherwise indicated, all pre-merger NNN share data have been adjusted to reflect the
conversion as a result of the Merger (see Note 10).
2006 Omnibus Equity Plan In September 2006, NNNs board of directors and then sole
shareowner approved and adopted the 2006 Long-Term Incentive Plan (the 2006 Plan). As a result of
the merger of Grubb & Ellis and NNN, all issued and outstanding stock option awards under the 2006
Plan were merged into and are subject to the general provisions of the 2006 Omnibus Equity Plan
(the Omnibus Plan). Awards previously issued pursuant to the 2006 Plan maintain all of the
specific rights and characteristics as they held when originally issued, except for the number of
shares represented within each award. The numbers of shares contained in awards issued under the
2006 Plan have been multiplied by a conversion factor of 0.88 to calculate a post-merger equivalent
share amount for each award. In addition, the exercise price of any option award originally granted
under the 2006 Plan has been divided by the same conversion factor of 0.88 to achieve a post-merger
equivalent exercise price. All tables contained within this Note 23 of Notes to Consolidated
Financial Statements have been retroactively restated to reflect the above conversion factors,
effective as if the conversion had been calculated as of January 1, 2007, the earliest date
presented.
A total of 2,539,910 shares of common stock (plus restricted shares issuable to non-management
directors pursuant to a formula contained in the plan) remained eligible for future grant under the
Omnibus Plan as of December 31, 2009.
Non-Qualified Stock Options. Non-qualified stock options, or NQSOs, provide for the right to
purchase shares of common stock at a specified price not less than its fair market value on the
date of grant, and usually will become exercisable (in the discretion of the administrator) in one
or more installments after the grant date, subject to the completion of the applicable vesting
service period or the attainment of pre-established performance goals.
In terms of vesting periods, 1,105,219 stock options were granted and vested at the date of
merger. Other stock options granted during the year ended December 31, 2007 vest in equal annual
increments over the three years following the date of grant.
These NQSOs are subject to a maximum term of ten years from the date of grant and are subject
to earlier termination under certain conditions. Because these stock option awards were granted to
the Companys senior executive officers, no forfeiture rate has been assumed.
The following table provides a summary of the Companys stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Weighted-Average |
|
|
|
|
|
|
|
Weighted-Average |
|
|
Contractual Term |
|
|
Grant Date |
|
|
|
Number of Shares |
|
|
Exercise Price per Share |
|
|
(In Years) |
|
|
Fair Value per Share |
|
Options outstanding as of December 31, 2006 |
|
|
180,400 |
|
|
$ |
11.36 |
|
|
|
9.87 |
|
|
$ |
4.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
610,940 |
|
|
$ |
11.36 |
|
|
|
|
|
|
$ |
3.61 |
|
Options forfeited or expired |
|
|
(140,800 |
) |
|
$ |
11.36 |
|
|
|
|
|
|
$ |
3.78 |
|
Options converted and vested related to acquired company |
|
|
1,105,219 |
|
|
$ |
7.06 |
|
|
|
|
|
|
$ |
3.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2007 |
|
|
1,755,759 |
|
|
$ |
8.65 |
|
|
|
6.14 |
|
|
$ |
3.65 |
|
Options exercised |
|
|
(76,666 |
) |
|
$ |
6.53 |
|
|
|
|
|
|
$ |
4.23 |
|
Options forfeited or expired |
|
|
(601,918 |
) |
|
$ |
10.74 |
|
|
|
|
|
|
$ |
2.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2008 |
|
|
1,077,175 |
|
|
$ |
7.76 |
|
|
|
6.79 |
|
|
$ |
4.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited or expired |
|
|
(607,429 |
) |
|
$ |
5.67 |
|
|
|
|
|
|
$ |
3.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2009 |
|
|
469,746 |
|
|
$ |
10.46 |
|
|
|
6.55 |
|
|
$ |
3.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of December 31, 2009 |
|
|
364,470 |
|
|
$ |
10.20 |
|
|
|
6.40 |
|
|
$ |
3.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest as of December 31, 2009 |
|
|
105,276 |
|
|
$ |
11.36 |
|
|
|
7.06 |
|
|
$ |
3.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest as of December 31, 2009 |
|
|
469,746 |
|
|
$ |
10.46 |
|
|
|
6.55 |
|
|
$ |
3.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the strike price for all of the stock options is greater than the
stock price, resulting in an intrinsic value of zero.
F-38
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Compensation Stock Compensation Topic requires companies to estimate the fair value of
its stock option equity awards on the date of grant using an option-pricing model. The Company uses
the Black-Scholes option-pricing model. The determination of the fair value of option-based awards
using the Black-Scholes model incorporates various assumptions including exercise price, fair value
at date of grant, volatility, and expected life of awards, risk-free interest rates and expected
dividend yield. The expected volatility is based on the historical volatility of comparable
publicly traded companies in the real estate sector over the most recent period commensurate with
the estimated expected life of the Companys stock options. The expected life of the Companys
stock options represents the average between the vesting and contractual term, pursuant to the
requirements of the Compensation Stock Compensation Topic. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants during the year ended December 31, 2007. (The Company
did not grant any options during the years ended December 31, 2009 and 2008):
|
|
|
|
|
|
|
Year Ended |
|
|
December 31, |
|
|
2007 |
Exercise price |
|
$ |
8.59 |
|
Expected term (in years) |
|
|
5.0 |
|
Risk-free interest rate |
|
|
3.97 |
% |
Expected volatility |
|
|
81.79 |
% |
Expected dividend yield |
|
|
4.1 |
% |
Fair value at date of grant |
|
$ |
3.61 |
|
Option valuation models require the input of subjective assumptions including the expected
stock price volatility and expected life. For the years ended December 31, 2009, 2008 and 2007, the
Company recognized share-based compensation related to stock option awards of $0.4 million, $0.6
million and $0.6 million, respectively. The related income tax benefit for the years ended December
31, 2009, 2008 and 2007 was $0.1 million, $0.2 million and $0.2 million, respectively. The total
fair value of stock options that vested for the years ended December 31, 2009, 2008 and 2007 was
$0.5 million, $0.8 million and $0.2 million, respectively. As of December 31, 2009, there was
$24,000 in unrecognized compensation expense related to stock option awards that the Company
expects to recognize over a weighted average period of one month.
Restricted Stock. Restricted stock may be issued at such price, if any, and may be made
subject to such restrictions (including time vesting or satisfaction of performance goals), as may
be determined by the administrator. Restricted stock typically may be repurchased by the Company at
the original purchase price, if any, or forfeited, if the vesting conditions and other restrictions
are not met.
The following table provides a summary of the Companys restricted stock activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Number of |
|
|
Fair Value |
|
|
|
Shares |
|
|
per Share |
|
Non vested shares outstanding as of December 31, 2006 |
|
|
541,200 |
|
|
$ |
10.83 |
|
Shares issued upon merger |
|
|
40,000 |
|
|
$ |
12.49 |
|
Shares issued |
|
|
1,409,372 |
|
|
$ |
10.31 |
|
Shares vested |
|
|
(456,133 |
) |
|
$ |
10.78 |
|
Shares forfeited |
|
|
(102,667 |
) |
|
$ |
10.89 |
|
|
|
|
|
|
|
|
|
Non vested shares outstanding as of December 31, 2007 |
|
|
1,431,772 |
|
|
$ |
10.37 |
|
Shares issued |
|
|
1,552,227 |
|
|
$ |
3.06 |
|
Shares vested |
|
|
(455,195 |
) |
|
$ |
10.65 |
|
Shares forfeited |
|
|
(514,792 |
) |
|
$ |
9.79 |
|
|
|
|
|
|
|
|
|
Non vested shares outstanding as of December 31, 2008 |
|
|
2,014,012 |
|
|
$ |
4.95 |
|
Shares issued(1) |
|
|
2,711,565 |
|
|
$ |
1.26 |
|
Shares vested |
|
|
(612,077 |
) |
|
$ |
6.61 |
|
Shares forfeited |
|
|
(512,598 |
) |
|
$ |
2.10 |
|
|
|
|
|
|
|
|
|
Non vested shares outstanding as of December 31, 2009 |
|
|
3,600,902 |
|
|
$ |
2.29 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes 2,000,000 restricted shares of the Companys common
stock that were awarded on November 16, 2009 to Thomas P. DArcy, the
Companys President and Chief Executive Officer. 1,000,000 of the
restricted shares awarded to Mr. DArcy are subject to vesting over 3
years in equal annual increments of 1/3 each, commencing on the day
immediately preceding the 1 year anniversary of the grant date
(November 16, 2009). The other 1,000,000 restricted shares are subject
to vesting based upon the market price of the Companys common stock
during the 3 year period beginning November 16, 2009. Specifically,
(i) in the event that for any 30 consecutive trading days during the 3
year period commencing November 16, 2009 the volume weighted average
closing price per share of the Companys common stock is at least
$3.50, then 50% of such restricted shares shall vest, and (ii) in the
event that for any 30 consecutive trading days during the 3 year
period commencing November 16, 2009 the volume weighted average
closing price per share of the Companys common stock is at least
$6.00, then the remaining 50% of such restricted shares shall vest. |
F-39
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company valued the restricted shares subject to market-based vesting criteria issued in
2009 with the following assumptions:
|
|
|
|
|
Term |
|
Up to 3 years |
Risk free rate |
|
|
1.34 |
% |
Volatility |
|
|
117 |
% |
Dividend yield |
|
|
0.0 |
% |
Stock price on date of grant |
|
$ |
1.52 |
|
The Company determined that the fair value of the restricted shares subject to vesting based
upon the market price of the Companys stock was approximately $1.2 million upon grant date and is
amortizing the components of this award over the derived service period of approximately 245 and
341 days, for the two tranches with market-based vesting criteria.
Total compensation expense recognized for restricted stock awards was $3.8 million, $7.8
million and $5.5 million for the years ended December 31, 2009, 2008 and 2007, respectively. The
related income tax benefit for the years ended December 31, 2009, 2008 and 2007 was $1.4 million,
$2.9 million and $2.2 million, respectively. As of December 31, 2009, there was $2.9 million of
unrecognized compensation expense related to unvested restricted stock awards that the Company
expects to recognize over a weighted average period of 18 months.
Other Equity Awards In accordance with the requirements of the Compensation Stock
Compensation Topic, share-based payments awarded to an employee of the reporting entity by a
related party, or other holder of an economic interest in the entity, as compensation for services
provided to the entity are share-based payment transactions to be accounted for under this Topic
unless the transfer is clearly for a purpose other than compensation for services to the reporting
entity. The economic interest holder is one who either owns 10.0% or more of an entitys common
stock or has the ability, directly or indirectly, to control or significantly influence the entity.
The substance of such a transaction is that the economic interest holder makes a capital
contribution to the reporting entity, and that entity makes a share-based payment to its employee
in exchange for services rendered. The Topic also requires that the fair value of unvested stock
options or awards granted by an acquirer in exchange for stock options or awards held by employees
of the acquiree shall be determined at the consummation date of the acquisition. The incremental
compensation cost shall be (1) the portion of the grant-date fair value of the original award for
which the requisite service is expected to be rendered (or has already been rendered) at that date
plus (2) the incremental cost resulting from the acquisition (the fair market value at the
consummation date of the acquisition over the fair value of the original grant).
On July 29, 2006, Mr. Thompson and Mr. Rogers agreed to transfer up to 15.0% of the
outstanding common stock of Realty to Mr. Hanson, assuming he remained employed by the Company, in
equal increments on July 29, 2007, 2008 and 2009. Due to the acquisition of Realty, the transfers
were settled with 743,160 shares of the Companys common stock (557,370 shares from Mr. Thompson
and 185,790 shares from Mr. Rogers). Since Mr. Thompson and Mr. Rogers were affiliates who owned
more than 10.0% of Realtys common stock and had the ability, directly or indirectly, to control or
significantly influence the entity, and the award was granted to Mr. Hanson in exchange for
services provided to Realty which are vested upon completion of the respective service period, the
fair value of the award was accounted for as share-based compensation in accordance with the
Compensation Stock Compensation Topic. These shares included rights to dividends or other
distributions declared on or prior to July 29, 2009. As a result, the Company recognized $1.6
million, $2.8 million and $2.7 million in share-based compensation and a related income tax benefit
(deferred tax asset) of $0.6 million, $1.1 million and $1.1 million for the years ended December
31, 2009, 2008 and 2007 respectively.
On December 7, 2007, Mr. Thompson transferred 528,000 shares of his own Company common stock
to Mr. Peters, which were to vest in equal annual increments over the five years following the date
of grant. Since Mr. Thompson was an affiliate who owned more than 10.0% of the Companys common
stock and had the ability, directly or indirectly, to control or significantly influence the
entity, and the award was granted to Mr. Peters in exchange for services provided to the Company
which would vest upon completion of the respective service period, the fair value of the award was
accounted for as share-based compensation in accordance with the Compensation Stock Compensation
Topic. These shares included rights to dividends or other distributions declared. As a result, the
Company recognized $48,000 in share-based compensation and a related income tax benefit (deferred
tax asset) of $19,000 for the year ended December 31, 2007.
On July 10, 2008, Scott D. Peters resigned as the Companys Chief Executive Officer and
President, and as a consequence, the employment agreement between the Company and Mr. Peters was
terminated in accordance with its terms. As such, previously recognized share-based compensation
expense related to the transfer of shares, including accrued dividends or distributions declared,
was reversed, along with forfeiture of all rights and interests. Additionally, there will be no
further recognition of share-based compensation related to the unvested portion of the award.
F-40
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
401k Plan The Company adopted a 401(k) plan (the Plan) for the benefit of its employees.
The Plan covers employees of the Company and eligibility begins the first of the month following
the hire date. For the years ended December 31, 2009, 2008 and 2007, the Company contributed $0.8
million, $3.3 million and $0.8 million to the Plan, respectively.
Deferred Compensation Plan
During 2008, the Company implemented a deferred compensation plan that permits employees and
independent contractors to defer portions of their compensation, subject to annual deferral limits,
and have it credited to one or more investment options in the plan. Deferrals made by employees and
independent contractors and earnings thereon are fully accrued and held in a rabbi trust. In
addition, the Company may make discretionary contributions to the plan which vest over one to five
years. Contributions made by the Company and earnings thereon are accrued over the vesting period
and have not been funded to date. Benefits are paid according to elections made by the
participants. As of December 31, 2009 and 2008, $3.3 million and $1.7 million, respectively,
reflecting the non-stock liability under this plan were included in accounts payable and accrued
expenses. The Company has purchased whole-life insurance contracts on certain employee participants
to recover distributions made or to be made under this plan and as of December 31, 2009 and 2008
have recorded the cash surrender value of the policies of $1.0 million and $1.1 million,
respectively, in prepaid expenses and other assets.
In addition, the Company awards phantom shares of Company stock to participants under the
deferred compensation plan. These awards vest over three to five years. Vested phantom stock awards
are also unfunded and paid according to distribution elections made by the participants at the time
of vesting and will be settled by the Company purchasing shares of Company common stock in the open
market from time to time and delivering such shares to the participant. As of December 31, 2009 and
2008, the Company awarded an aggregate of 6.0 million and 5.4 million phantom shares, respectively,
to certain employees with an aggregate value on the various grant dates of $23.0 million and $22.5
million, respectively. As of December 31, 2009, an aggregate of 5.6 million phantom share grants
were outstanding. The Company recorded share-based compensation expense of $4.9 million and $3.1
million during the years ended December 31, 2009 and 2008, respectively, related to phantom stock
awards. Generally, upon vesting, recipients of the grants are entitled to receive the number of
phantom shares granted, regardless of the value of the shares upon the date of vesting; provided,
however, grants with respect to 900,000 phantom shares had a guaranteed minimum share price ($3.1
million in the aggregate) that will result in the Company paying additional compensation to the
participants should the value of the shares upon vesting be less than the grant date value of the
shares. The Company accounts for additional compensation relating to the guarantee portion of the
awards by measuring at each reporting date the additional payment that would be due to the
participant based on the difference between the then current value of the shares awarded and the
guaranteed value. This award is then amortized on a straight-line basis as compensation expense
over the requisite service (vesting) period, with an offset to deferred compensation liability. The
Company recorded compensation expense of $0.5 million and $0.2 million during the years ended
December 31, 2009 and 2008, respectively, related to certain of these grants which provided for a
minimum guaranteed value upon vesting.
Grants of phantom shares are accounted for as equity awards in accordance with the
requirements of the Compensation Stock Compensation Topic, with the award value of the shares on
the grant date being amortized on a straight-line basis over the requisite service period.
24. INCOME TAXES
The components of income tax (benefit) provision from continuing operations for the years
ended December 31, 2009, 2008 and 2007 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(1,431 |
) |
|
$ |
(10,981 |
) |
|
$ |
16,991 |
|
State |
|
|
163 |
|
|
|
(1,891 |
) |
|
|
3,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,268 |
) |
|
|
(12,872 |
) |
|
|
20,186 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
96 |
|
|
|
17,367 |
|
|
|
(4,886 |
) |
State |
|
|
(3 |
) |
|
|
(5,322 |
) |
|
|
(547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
12,045 |
|
|
|
(5,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,175 |
) |
|
$ |
(827 |
) |
|
$ |
14,753 |
|
|
|
|
|
|
|
|
|
|
|
F-41
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company recorded prepaid taxes totaling approximately $1.2 million and $1.2 million as of
December 31, 2009 and 2008, respectively, comprised primarily of state tax refunds receivable and
state prepaid taxes net of state tax liabilities of approximately $370,000. The Company also
received federal and state tax refunds of approximately $12.0 million and $6.2 million during 2009
and 2008, respectively, comprised primarily of federal net operating loss carryback claims
resulting in refunds of taxes paid in previous years and refunds of state estimated tax
overpayments.
The Company generated a federal net operating loss (NOL) of approximately $9.5 million for
the taxable period of the acquired entity ending on the Merger date December 7, 2007. The Company
carried back $6.6 million of this NOL to 2006 and claimed a refund of taxes paid of $1.7 million.
As of December 31, 2008 the Company generated an ordinary loss of approximately $32.3 million. The
Company carried back the total loss generated in 2008 to 2006 and 2007 and claimed a refund of
taxes paid of $11.5 million in 2009. After the issuance of this Annual Report, the Company intends
to file its 2009 federal income tax return reporting a net operating loss of approximately $72.5
million. The Company intends to file a Form 1139 to carry back approximately $14.3 million of this
NOL to 2007 to claim a refund of taxes paid of $4.9 million. As of December 31, 2009, federal net
operating loss carryforwards in the amount of approximately $60.5 million are available to the
Company, translating to a deferred tax asset before valuation allowance of $21.2 million. These
NOLs will expire between 2027 and 2030. The current year increase in deferred tax assets related to
the federal net operating loss has been offset by an increase in the valuation allowance of $25.3
million as the future utilization of the NOL is uncertain.
The Company also has state net operating loss carryforwards from December 31, 2009 and
previous periods totaling $185.2 million, translating to a deferred tax asset of $13.1 million
before valuation allowances, which will begin to expire in 2017. The current year increase in
deferred tax assets related to state net operating losses has been offset by an increase in the
valuation allowances of $5.2 million as the future utilization of these state NOLs is uncertain.
The Company regularly reviews its deferred tax assets for recoverability and establishes a
valuation allowance based upon historical taxable income, projected future taxable income and the
expected timing of the reversals of existing temporary differences to reduce its deferred tax
assets to the amount that it believes is more likely than not to be realized. Due to the cumulative
pre-tax book loss in the past three years and the inherent volatility of the business in recent
years, the Company believes that this negative evidence supports the position that a valuation
allowance is required pursuant to the Income Taxes Topic. As of December 31, 2009 and 2008, there
is approximately $14.3 million and $32.3 million respectively, of taxable income available in
carryback years that could be used to offset deductible temporary differences. Management
determined that as of December 31, 2009, $85.7 million of deferred tax assets do not satisfy the
recognition criteria set forth in the Income Taxes Topic. Accordingly, a valuation allowance has
been recorded for this amount. If released, the entire amount would result in a benefit to
continuing operations. During the year ended December 31, 2009, our valuation allowances increased
by approximately $30.5 million.
The differences between the total income tax (benefit) provision of the Company from
continuing operations for financial statement purposes and the income taxes computed using the
applicable federal income tax rate of 35.0% for 2009, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Federal income taxes at the statutory rate |
|
$ |
(28,875 |
) |
|
$ |
(107,721 |
) |
|
$ |
12,792 |
|
State income taxes, net of federal benefit |
|
|
(3,182 |
) |
|
|
(5,433 |
) |
|
|
1,923 |
|
Credits |
|
|
(189 |
) |
|
|
(236 |
) |
|
|
(250 |
) |
Other |
|
|
7 |
|
|
|
(235 |
) |
|
|
(251 |
) |
Non-deductible expenses |
|
|
528 |
|
|
|
63,121 |
|
|
|
460 |
|
Change in valuation allowance |
|
|
30,536 |
|
|
|
49,677 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
$ |
(1,175 |
) |
|
$ |
(827 |
) |
|
$ |
14,753 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting and income tax purposes. The
significant components of deferred tax assets and liabilities as of December 31, 2009 and 2008 from
continuing and discontinued operations consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands) |
|
December 31, 2009 |
|
|
December 31, 2008 |
|
Share-based compensation |
|
$ |
9,914 |
|
|
$ |
5,673 |
|
Allowance for bad debts |
|
|
9,990 |
|
|
|
3,764 |
|
Intangible assets |
|
|
(40,233 |
) |
|
|
(41,039 |
) |
Prepaid service contracts |
|
|
(1,020 |
) |
|
|
(1,055 |
) |
F-42
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
Property and equipment |
|
|
3,042 |
|
|
|
3,523 |
|
Insurance and legal reserve |
|
|
1,984 |
|
|
|
1,449 |
|
Real estate impairments |
|
|
32,049 |
|
|
|
40,139 |
|
Put option guarantee |
|
|
6,038 |
|
|
|
5,002 |
|
Other |
|
|
1,479 |
|
|
|
6,642 |
|
Capital losses |
|
|
2,528 |
|
|
|
2,528 |
|
Net operating losses |
|
|
34,492 |
|
|
|
9,200 |
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance |
|
|
60,263 |
|
|
|
35,826 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(85,740 |
) |
|
|
(55,204 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities: |
|
$ |
(25,477 |
) |
|
$ |
(19,378 |
) |
|
|
|
|
|
|
|
The Company classifies estimated interest and penalties related to unrecognized tax benefits
in our provision for income taxes. As of December 31, 2009, the Company remains subject to
examination by certain tax jurisdictions for the tax years ended December 31, 2005 through 2009.
The Company has evaluated its uncertain tax positions in accordance with the Income Taxes Topic and
has concluded that there are no material uncertain tax positions that would disallow the
recognition of a current tax benefit or the derecognition of a previously recognized tax benefit as
of December 31, 2009.
25. SEGMENT DISCLOSURE
In conjunction with the Merger, management re-evaluated its reportable segments and determined
that the Companys reportable segments remain unchanged from the prior year and consist of
Management Services, Transaction Services and Investment Management. The Companys Investment
Management segment includes all of NNNs historical business units and, therefore, all historical
data have been conformed to reflect the reportable segments as a combined company.
Management Services Management services provide property management and related services for
owners of investment properties and facilities management services for corporate owners and
occupiers.
Transaction Services Transaction services advises buyers, sellers, landlords and tenants on
the sale, leasing and valuation of commercial property and includes the Companys national accounts
group and national affiliate program operations.
Investment Management Investment Management includes services for acquisition, financing and
disposition with respect to the Companys investment programs, asset management services related to
the Companys programs, and dealer-manager services by its securities broker-dealer, which
facilitates capital raising transactions for its investment programs.
The Company also has certain corporate-level activities including interest income from notes
and advances, property rental related operations, legal administration, accounting, finance, and
management information systems which are not considered separate operating segments.
The Company evaluates the performance of its segments based upon operating (loss) income.
Operating (loss) income is defined as operating revenue less compensation and general and
administrative costs and excludes other rental related, rental expense, interest expense,
depreciation and amortization and certain other operating and non-operating expenses. The
accounting policies of the reportable segments are the same as those described in the Companys
summary of significant accounting policies (See Note 2). Beginning in 2009, allocations of
corporate compensation and corporate general and administrative costs have been excluded from the
evaluation of segment performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Management Services |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
274,684 |
|
|
$ |
253,664 |
|
|
$ |
16,365 |
|
Compensation costs |
|
|
243,006 |
|
|
|
225,764 |
|
|
|
14,574 |
|
General and administrative |
|
|
9,397 |
|
|
|
8,796 |
|
|
|
869 |
|
Provision for doubtful accounts |
|
|
1,472 |
|
|
|
81 |
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
20,809 |
|
|
|
19,023 |
|
|
|
969 |
|
|
Transaction Services |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
173,394 |
|
|
|
240,250 |
|
|
|
35,522 |
|
Compensation costs |
|
|
156,672 |
|
|
|
205,940 |
|
|
|
27,081 |
|
General and administrative |
|
|
33,339 |
|
|
|
34,727 |
|
|
|
3,791 |
|
Provision for doubtful accounts |
|
|
598 |
|
|
|
846 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
F-43
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Segment operating (loss) income |
|
|
(17,215 |
) |
|
|
(1,263 |
) |
|
|
4,547 |
|
|
Investment Management |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
57,282 |
|
|
|
101,581 |
|
|
|
149,651 |
|
Compensation costs |
|
|
35,789 |
|
|
|
36,730 |
|
|
|
62,454 |
|
General and administrative |
|
|
14,605 |
|
|
|
22,982 |
|
|
|
38,797 |
|
Provision for doubtful accounts |
|
|
22,545 |
|
|
|
14,392 |
|
|
|
738 |
|
|
|
|
|
|
|
|
|
|
|
Segment operating (loss) income |
|
|
(15,657 |
) |
|
|
27,477 |
|
|
|
47,662 |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net loss attributable to Grubb & Ellis Company: |
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating (loss) income |
|
|
(12,063 |
) |
|
|
45,237 |
|
|
|
53,178 |
|
Non-segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations, net of rental related expenses |
|
|
8,245 |
|
|
|
11,964 |
|
|
|
28,119 |
|
Corporate overhead (compensation, general and administrative costs) |
|
|
(56,208 |
) |
|
|
(72,463 |
) |
|
|
(47,363 |
) |
Other operating expenses |
|
|
(45,880 |
) |
|
|
(285,366 |
) |
|
|
|
|
Other income (expense) |
|
|
21,746 |
|
|
|
(18,867 |
) |
|
|
4,560 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax benefit (provision) |
|
|
(84,160 |
) |
|
|
(319,495 |
) |
|
|
38,494 |
|
Income tax benefit (provision) |
|
|
1,175 |
|
|
|
827 |
|
|
|
(14,753 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(82,985 |
) |
|
|
(318,668 |
) |
|
|
23,741 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
2,486 |
|
|
|
(23,921 |
) |
|
|
(708 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(80,499 |
) |
|
$ |
(342,589 |
) |
|
$ |
23,033 |
|
Less: Net (loss) income attributable to noncontrolling interests |
|
|
(1,661 |
) |
|
|
(11,719 |
) |
|
|
1,961 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis Company |
|
$ |
(78,838 |
) |
|
$ |
(330,870 |
) |
|
$ |
21,072 |
|
|
|
|
|
|
|
|
|
|
|
Segment assets and reconciliation to consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
Management Services |
|
$ |
45,723 |
|
|
$ |
50,232 |
|
|
$ |
14,469 |
|
Transaction Services |
|
|
100,662 |
|
|
|
100,606 |
|
|
|
141,348 |
|
Investment Management |
|
|
60,037 |
|
|
|
90,047 |
|
|
|
480,155 |
|
|
|
|
|
|
|
|
|
|
|
Total segment assets |
|
|
206,422 |
|
|
|
240,885 |
|
|
|
635,972 |
|
Corporate assets |
|
|
150,902 |
|
|
|
279,392 |
|
|
|
352,570 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
357,324 |
|
|
$ |
520,277 |
|
|
$ |
988,542 |
|
|
|
|
|
|
|
|
|
|
|
26. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009 |
|
|
|
Quarter Ended |
|
(In thousands, except per share amounts) |
|
March 31, 2009 |
|
|
June 30, 2009 |
|
|
September 30, 2009 |
|
|
December 31, 2009 |
|
Total revenue |
|
$ |
122,153 |
|
|
$ |
126,838 |
|
|
$ |
136,104 |
|
|
$ |
150,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
$ |
(42,279 |
) |
|
$ |
(31,833 |
) |
|
$ |
(20,881 |
) |
|
$ |
(10,913 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(43,280 |
) |
|
$ |
(32,618 |
) |
|
$ |
(21,457 |
) |
|
$ |
16,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis Company |
|
$ |
(41,502 |
) |
|
$ |
(32,808 |
) |
|
$ |
(21,359 |
) |
|
$ |
16,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis
Company common shareowners |
|
$ |
(41,502 |
) |
|
$ |
(32,808 |
) |
|
$ |
(21,359 |
) |
|
$ |
7,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share attributable to Grubb & Ellis
Company common shareowners: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.65 |
) |
|
$ |
(0.52 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
63,525 |
|
|
|
63,587 |
|
|
|
63,628 |
|
|
|
63,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.65 |
) |
|
$ |
(0.52 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
63,525 |
|
|
|
63,587 |
|
|
|
63,628 |
|
|
|
63,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008 |
|
|
|
Quarter Ended |
|
(In thousands, except per share amounts) |
|
March 31, 2008 |
|
|
June 30, 2008 |
|
|
September 30, 2008 |
|
|
December 31, 2008 |
|
Total revenue |
|
$ |
154,427 |
|
|
$ |
161,183 |
|
|
$ |
153,191 |
|
|
$ |
159,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
$ |
(5,014 |
) |
|
$ |
(2,622 |
) |
|
$ |
(57,410 |
) |
|
$ |
(235,582 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(6,294 |
) |
|
$ |
(5,238 |
) |
|
$ |
(62,726 |
) |
|
$ |
(268,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company |
|
$ |
(6,298 |
) |
|
$ |
(5,380 |
) |
|
$ |
(56,282 |
) |
|
$ |
(262,910 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis
Company common shareowners |
|
$ |
(6,298 |
) |
|
$ |
(5,380 |
) |
|
$ |
(56,282 |
) |
|
$ |
(262,910 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to Grubb & Ellis
Company common shareowners: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.10 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.88 |
) |
|
$ |
(4.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
63,521 |
|
|
|
63,600 |
|
|
|
63,601 |
|
|
|
63,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.88 |
) |
|
$ |
(4.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
63,521 |
|
|
|
63,600 |
|
|
|
63,601 |
|
|
|
63,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income attributable to Grubb & Ellis Company and (loss) income per share attributable
to Grubb & Ellis Company common shareowners is computed independently for each of the quarters
presented and therefore may not sum to the annual amount for the year. Previously reported revenues
and operating loss have been adjusted to account for current discontinued operations in accordance
with the Property, Plant and Equipment Topic.
27. SUBSEQUENT EVENTS
On March 4, 2010, the Board of Directors declared a dividend of $3.00 per share on the
Companys 12% Cumulative Participating Perpetual Convertible Preferred Stock to shareowners of
record as of March 19, 2010, to be paid on March 31, 2010.
F-45
You should rely only on the information contained in this prospectus and any prospectus supplement
that may be provided to you in connection with this offering. We have not authorized anyone to
provide you with information that is different. Neither we nor the selling shareowners are making
an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus.
_____________________________
TABLE OF CONTENTS
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Page |
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3 |
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9 |
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27 |
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28 |
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36 |
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37 |
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37 |
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37 |
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38 |
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40 |
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58 |
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61 |
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64 |
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79 |
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|
86 |
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|
89 |
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91 |
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112 |
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114 |
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116 |
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120 |
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120 |
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120 |
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F-1 |
|
Grubb & Ellis Company
7,575,750 Shares of Common Stock
125,000 Shares of 12% Cumulative Participating Perpetual
Convertible Preferred Stock
The date of this prospectus is
March 24, 2010
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting discounts and
commissions, payable in connection with the sale and distribution of the securities being
registered. All amounts are estimated except the SEC registration fee. All of the expenses below
will be paid by us.
|
|
|
|
|
Item |
|
|
|
|
SEC registration fee |
|
$ |
695.50 |
|
Blue sky fees and expenses |
|
|
0 |
|
Printing and engraving expenses |
|
|
15,000 |
|
Legal fees and expenses |
|
|
75,000 |
|
Accounting fees and expenses |
|
|
50,000 |
|
Transfer Agent and Registrar fees |
|
|
5,000 |
|
Miscellaneous |
|
|
5,004.50 |
* |
|
|
|
|
Total |
|
$ |
150,700 |
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and
officers against liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the Securities Act). Our bylaws, as amended (Exhibits
3.123.17 to this registration statement), provide that we shall indemnify our directors and
officers to the fullest extent permitted by law and allow us to advance litigation expenses upon
our receipt of an undertaking by the director or officer to repay such advances if it is ultimately
determined that the director or officer is not entitled to indemnification. Our bylaws further
provide that rights conferred under such bylaws do not exclude any other right such persons may
have or acquire under any bylaw, agreement, vote of shareowners or disinterested directors or
otherwise.
Our certificate of incorporation, as amended (Exhibits 3.13.11 to this registration
statement), provides that, pursuant to Delaware law, our directors shall not be liable for monetary
damages for breach of the directors fiduciary duty of care to us and our shareowners. This
provision in the certificate of incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary
relief will remain available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the directors duty of loyalty to us or our shareowners, for
acts or omissions not in good faith or involving intentional misconduct or knowing violations of
law, for actions leading to improper personal benefit to the director, and for payment of dividends
or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a directors responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
Our certificate of incorporation further provides that we are authorized to indemnify our
directors and officers to the fullest extent permitted by law through the bylaws, agreement, vote
of shareowners or disinterested directors, or otherwise. We have obtained directors and officers
liability prior to this offering.
We have entered into agreements to indemnify our directors and certain of our officers in
addition to the indemnification provided for in the certificate of incorporation and bylaws. These
agreements will, among other things, indemnify our directors and some of our officers for certain
expenses (including attorneys fees), judgments, fines and settlement amounts incurred by such
person in any action or proceeding, including any action by or in our right, on account of services
by that person as a director or officer of Grubb & Ellis or as a director or officer of any of our
subsidiaries, or as a director or officer of any other company or enterprise that the person
provides services to at our request.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions which occurred within the last three years,
involving sales of our securities that were not registered under the Securities Act:
(1) |
|
November 2006, we issued 16 million shares of common stock to various investors in our 144A
private equity offering at an offering price of $10 per share. Friedman, Billings, Ramsey &
Co., Inc. acted as initial purchaser placement agent in connection with respect to such
offering. |
|
(2) |
|
From November 2006 to January 2006, we granted options to purchase an aggregate of 903,000
shares of common stock to our employees (including our executive officers) under our 2006
Long-Term Incentive Plan at an exercise price of $10 per share. In November 2006, we also
granted 615,000 shares of restricted stock to our executive officers and non-employee
directors. |
|
(3) |
|
In November 2006 we acquired Triple Net Properties, LLC and Triple Net Properties Realty,
Inc. and in December 2006 we acquired NNN Capital Corp., each through contribution agreements
that we entered into with the holders of outstanding stock or membership units of each of
these entities. Pursuant to the contribution agreements, we issued shares of our common stock
in exchange for shares of common stock or membership units held by the existing holders,
except that, with respect to Triple Net Properties, LLC, we cashed out the unaccredited
investor members in lieu of issuing shares of our common stock and with respect to one
executive officer, we issued cash in lieu of shares for a portion of his ownership. In
connection with these transactions, we issued an aggregate of 25,751,407 shares of our common
stock. The issuances by the Company and NNN of restricted shares in the transactions described
above were exempt from the registration requirements of Section 5 of the Securities Act, as
such transactions did not involve a public offering by the Company. |
|
(4) |
|
On November 15, 2006, as an inducement for an employee to extend his employment with the
Company and pursuant to a Second Amendment to an Employment Agreement dated November 15, 2006
and a related Second Restricted Share Agreement dated November 15, 2006, the Company granted
to an employee 31,964 restricted shares of the Companys common stock which vest on December
29, 2009 and had a fair value of $350,000 on the trading day immediately preceding the date of
grant. On February 15, 2007, as an inducement for an employee to accept employment with the
Company and pursuant to an Employment Agreement dated February 9, 2007 and a related
Restricted Share Agreement dated February 15, 2007, the Company granted to an employee
restricted shares of the Companys common stock which vest on February 14, 2011 and had a fair
market value of $227,500 on the trading day immediately preceding the date of grant. On March
8, 2007, pursuant to an Employment Agreement dated March 8, 2005 and a Restricted Share
Agreement dated March 8, 2005, the Company granted to its CEO 71,158 restricted shares of the
Companys common stock which vest in equal, annual installments of thirty-three and one-third
percent (331/3%) on each of the first, second and third anniversaries of March 8, 2007 and had
a fair market value of $750,000 on the trading day immediately preceding the date of grant.
The issuances by the Company of restricted shares in the transactions described in this
paragraph were exempt from the registration requirements of Section 5 of the Securities Act of
1933, as amended, as such transactions did not involve a public offering by the Company. |
|
(5) |
|
On March 8, 2007, pursuant to an Employment Agreement dated March 8, 2005 and a Restricted
Share Agreement dated March 8, 2005, the Company granted to its former Chief Executive
Officer, Mark E. Rose, 71,158 restricted shares of the Companys common stock which vest in
equal, annual installments of thirty-three and one-third percent (331/3%) on each of the
first, second and third anniversaries of March 8, 2007 and had a fair market value of $750,000
on the trading day immediately preceding the date of grant. On September 20, 2007, pursuant to
the Companys 2006 Omnibus Equity Plan, the Company granted to its then outside directors an
aggregate of 21,164 restricted shares of the Companys common stock which were scheduled to
vest one-third on each of the first, second and third anniversaries of the date of grant and
had an aggregate fair market value of $200,000 on the trading day immediately preceding the
date of grant. These shares, as well as any unvested restricted shares held by Mr. Rose, fully
vested on December 7, 2007, as a result of a change in control provisions contained in the
awards. Additionally after consummation of the Merger, on December 10, 2007, pursuant to the
Companys 2006 Omnibus Equity Plan, the Company granted to its outside directors an aggregate
of 62,972 restricted shares of the Companys common stock which vest one-third on each of the
first, second and third anniversaries of the date of grant and had an aggregate fair market
value of $420,000 on the date of grant. The issuances by the Company and NNN of restricted
shares in the transactions described above were exempt from the registration requirements of
Section 5 of the Securities Act, as such transactions did not involve a public offering by the
Company. |
|
(6) |
|
On June 27, 2007, pursuant to its 2006 Long-Term Incentive Plan, NNN granted an aggregate of
576,400 restricted shares of its common stock to NNNs independent directors and executive
officers which are scheduled to vest one-third on each of the first, second and third
anniversaries of the date of grant and had an aggregate fair market value of $6,547,904 on the
date of grant. |
II-2
(7) |
|
During 2008, the Company implemented a deferred compensation plan that permits employees and
independent contractors to defer portions of their compensation, subject to annual deferral
limits, and have it credited to one or more investment options in the plan. As of March 31,
2009 and December 31, 2008, $2.1 million and $1.7 million, respectively, reflecting the
non-stock liability under this plan were included in Other Long Term Liabilities. The Company
has purchased whole-life insurance contracts on certain employee participants to recover
distributions made or to be made under this plan and as of March 31, 2009 and December 31,
2008 have recorded the cash surrender value of the policies of $1.2 million and $1.1 million,
respectively, in Other Noncurrent Assets. |
|
(8) |
|
During 2008, we implemented a deferred compensation plan that allows for the granting of
phantom shares of company stock to participants under a deferred compensation plan
arrangement. These awards vest over three to five years. Vested phantom stock awards are paid
according to distribution elections made by the participants at the time of vesting and are
expected to be settled by the Company purchasing shares of our common stock in the open market
from time to time and delivering such shares to the participant. As of September 30, 2009,
$2.6 million reflecting the non-stock liability under this plan were included in Accounts
payable and accrued expenses. The Company has purchased whole-life insurance contracts on
certain employee participants to recover distributions made or to be made under this plan and
as of September 30, 2009 have recorded the cash surrender value of the policies of $1.0
million in Prepaid expenses and other assets. |
|
(9) |
|
The Company awards phantom shares of Company stock to participants under the deferred
compensation plan. As of September 30, 2009, the Company awarded an aggregate of 6.0 million
phantom shares to certain employees with an aggregate value on the various grant dates of
$23.3 million and $22.5 million, respectively. On September 30, 2009, an aggregate of 5.7
million phantom share grants were outstanding. Generally, upon vesting, recipients of the
grants are entitled to receive the number of phantom shares granted, regardless of the value
of the shares upon the date of vesting; provided, however, grants with respect to 900,000
phantom shares had a guaranteed minimum share price ($3.1 million in the aggregate) that will
result in the Company paying additional compensation to the participants should the value of
the shares upon vesting be less than the grant date value of the shares. |
|
(10) |
|
On June 3, 2009, pursuant to the our 2006 Omnibus Equity Plan, we granted to certain of its
executive officers an aggregate of 150,000 restricted shares of our common stock which vest in
equal one-third installments on each of the next three anniversaries of the date of grant and
had an aggregate fair market value of $104,000 on the date of grant |
|
(11) |
|
On November 6, 2009, we completed a $90 million offering of 900,000 shares of our 12%
Preferred Stock to various qualified institutional buyers and accredited investors. In
connection with the initial 12% Preferred Stock offering, we also granted to JMP Securities,
Inc., the initial purchaser and placement agent, a 45-day option to purchase up to an
additional 100,000 shares of 12% Preferred Stock. The 12% Preferred Stock was offered in
reliance on exemptions from the registration requirements of the Securities Act that apply to
offers and sales of securities that do not involve a public offering. Pursuant to the
overallotment option, the Company effected (i) the sale on November 13, 2009 of an aggregate
of 14,350 shares of 12% Preferred Stock for gross proceeds of approximately $1.4 million, (ii)
the sale on November 25, 2009 of an aggregate of 40,800 shares of 12% Preferred Stock for
gross proceeds of approximately $4.1 million, and (iii) the sale on December 9, 2009 of an
aggregate of 10,550 shares of 12% Preferred Stock for gross proceeds of approximately $1.1
million. |
|
(12) |
|
On November 16, 2009, Mr. DArcy received a restricted stock award of 2,000,000 restricted
shares of Common Stock, of which 1,000,000 of such restricted shares are subject to vesting
over three years in equal annual increments of one-third each, commencing on the day
immediately preceding the one-year anniversary of November 16, 2009. The remaining 1,000,000
such restricted shares are subject to the vesting based upon the market price of the Companys
Common Stock during the initial three-year term of the employment agreement. Specifically, (i)
in the event that for any 30 consecutive trading days the volume weighted average closing
price per share of the Companys Common Stock on the exchange or market on which the Companys
shares are publically listed or quoted for trading is at least $3.50, then 50% of such
restricted shares shall vest, and (ii) in the event that for any thirty (30) consecutive
trading days the volume weighted average closing price per share of the Companys Common Stock
on the exchange or market on which the Companys shares of Common Stock are publically listed
or quoted for trading is at least $6.00, then the remaining 50% percent of such restricted
shares shall vest. Vesting with respect to all Mr. DArcys restricted shares is subject to
Mr. DArcys continued employment by the Company, subject to the terms of a Restricted Share
Agreement to be entered into by Mr. DArcy and the Company on November 16, 2009, and other
terms and conditions set forth in the employment agreement. |
II-3
(13) |
|
On December 17, 2009, each of the C. Michael Kojaian, Robert J. McLaughlin, Devin I. Murphy,
D. Fleet Wallace and Rodger D. Young were granted 45,113 restricted shares of the Companys
common stock pursuant to the Companys Omnibus Equity Plan and fully vested as of March 10,
2010. |
|
(14) |
|
On March 10, 2010, each of Messrs. Hanson and Van Berkel were awarded 1,000,000 shares of
restricted stock. 500,000 of the restricted shares awarded to each of Mr. Hanson and Mr. Van
Berkel are subject to vesting over 3 years in equal annual increments of one-third each,
commencing on the one year anniversary of the March 10, 2010 grant date. The other 500,000
restricted shares are subject to vesting based on the market price of the Companys common
stock during the 3 year period beginning March 10, 2010. Specifically, (i) in the event that
for any 30 consecutive trading days during the 3 year period following the March 10, 2010
grant date the volume weighted average closing price per share of the Companys common stock
is at least $3.50, then 50% of such restricted shares shall vest, and (ii) in the event that
for any 30 consecutive trading days during the 3 year period following the March 10, 2010
grant date the volume weighted average closing price per share of the Companys common stock
is at least $6.00, then the remaining 50% of such restricted shares shall vest. |
The issuances of securities in the transactions described in paragraph 1 above were effected
without registration under the Securities Act in reliance on Section 4(2) thereof or Rule 506 of
Regulation D thereunder based on the status of each investor as an accredited investor as defined
under the Securities Act. The issuances of securities in the transactions described in paragraph 2
above were effected without registration under the Securities Act in reliance on Section 4(2)
thereof or Rule 701 thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The issuances of securities in the transactions described in paragraph 3
above were effected without registration under the Securities Act in reliance on Section 3(a)(9) or
Section 4(2) thereof as transactions based on the status of each investor as an accredited investor
as defined under the Securities Act and the fact that the shares were issued in exchange for
existing equity. None of the foregoing transactions was effected using any form of general
advertising or general solicitation as such terms are used in Regulation D under the Securities
Act. The recipients of securities in each such transaction either received adequate information
about us or had access, through their relationships with us, to such information. The issuances by
the Company of the phantom share awards in the transactions described above were exempt from the
registration requirements of Section 5 of the Securities Act pursuant to Section 4(2) of the
Securities Act, as amended, as such transactions did not involve a public offering by the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
(a) Exhibits
The following exhibits are filed herewith pursuant to the requirements of Item 601 of
Regulation S-K:
See exhibit index.
(b) Financial Statements Schedules
The following schedules are filed herewith pursuant to the requirements of Regulation S-X:
II-4
GRUBB & ELLIS COMPANY
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of |
|
|
Costs and |
|
|
Charged to |
|
|
|
|
|
|
Balance at End of |
|
(In thousands) |
|
Period |
|
|
Expenses |
|
|
Other Accounts(1) |
|
|
Deductions(2) |
|
|
Period |
|
Allowance for accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
$ |
10,533 |
|
|
$ |
13,632 |
|
|
|
|
|
|
$ |
(12,424 |
) |
|
$ |
11,741 |
|
Year Ended December 31, 2008 |
|
$ |
1,376 |
|
|
$ |
12,446 |
|
|
|
|
|
|
$ |
(3,289 |
) |
|
$ |
10,533 |
|
Year Ended December 31, 2007 |
|
$ |
723 |
|
|
$ |
709 |
|
|
|
|
|
|
$ |
(56 |
) |
|
$ |
1,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for advances and notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
$ |
3,170 |
|
|
$ |
9,521 |
|
|
|
|
|
|
$ |
(15 |
) |
|
$ |
12,676 |
|
Year Ended December 31, 2008 |
|
$ |
1,839 |
|
|
$ |
1,331 |
|
|
|
|
|
|
$ |
|
|
|
$ |
3,170 |
|
Year Ended December 31, 2007 |
|
$ |
1,400 |
|
|
$ |
451 |
|
|
|
|
|
|
$ |
(12 |
) |
|
$ |
1,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
$ |
55,204 |
|
|
$ |
30,536 |
|
|
|
|
|
|
$ |
|
|
|
$ |
85,740 |
|
Year Ended December 31, 2008 |
|
$ |
3,103 |
|
|
$ |
49,677 |
|
|
|
2,424 |
|
|
$ |
|
|
|
$ |
55,204 |
|
Year Ended December 31, 2007 |
|
$ |
3,024 |
|
|
$ |
79 |
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|
|
|
|
|
$ |
|
|
|
$ |
3,103 |
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|
|
(1) |
|
2007 Pre-merger Grubb & Ellis Company state return true-up charged
against goodwill. |
|
(2) |
|
Uncollectible accounts written off, net of recoveries |
II-5
GRUBB & ELLIS COMPANY
Schedule III REAL ESTATE AND ACCUMULATED DEPRECIATION
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Costs |
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Maximum Life on |
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Capitalized |
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Gross Amount at Which Carried as of |
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Which Depreciation in |
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Initial Costs to Company |
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Subsequent |
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December 31, 2009 |
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Latest Income |
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Buildings and |
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to |
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Buildings and |
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Accumulated |
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Date |
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Date |
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Statement is |
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(In thousands) |
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Encumbrance |
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Land |
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Improvements |
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Acquisition |
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Land |
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Improvements |
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Total(a) |
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Depreciation(b) |
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Constructed |
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Acquired |
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Computed |
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Commercial Office
Properties |
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200 Galleria
Atlanta, GA |
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$ |
70,000 |
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|
$ |
7,440 |
|
|
$ |
64,591 |
|
|
$ |
571 |
|
|
$ |
4,982 |
|
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$ |
46,406 |
|
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$ |
51,388 |
|
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$ |
5,616 |
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1984 |
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1/31/2007 |
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39 years |
The Avallon Complex
Austin, TX |
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37,000 |
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|
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7,748 |
|
|
|
54,771 |
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|
|
|
|
|
|
4,498 |
|
|
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34,261 |
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|
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38,759 |
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2,342 |
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1986-2001 |
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7/10/2007 |
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39 years |
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$ |
107,000 |
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$ |
15,188 |
|
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$ |
119,362 |
|
|
$ |
571 |
|
|
$ |
9,480 |
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$ |
80,667 |
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$ |
90,147 |
|
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$ |
7,958 |
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(a) The changes in real estate for the years ended December 31, 2009, 2008 and 2007 are as
follows:
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(In thousands) |
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|
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Balance as of December 31, 2006 |
|
$ |
44,325 |
|
Acquisitions |
|
|
671,985 |
|
Additions |
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|
266 |
|
Disposals and deconsolidations |
|
|
(380,619 |
) |
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Balance as of December 31, 2007 |
|
|
335,957 |
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Acquisitions |
|
|
144,162 |
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Additions |
|
|
12,813 |
|
Real estate related impairments |
|
|
(71,488 |
) |
Disposals and deconsolidations |
|
|
(242,644 |
) |
|
|
|
|
Balance as of December 31, 2008 |
|
|
178,800 |
|
Additions |
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|
2,970 |
|
Real estate related impairments |
|
|
(6,752 |
) |
Disposals and deconsolidations |
|
|
(84,871 |
) |
|
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|
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Balance as of December 31, 2009 |
|
$ |
90,147 |
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|
(b) The changes in accumulated depreciation for the years ended
December 31, 2009, 2008 and 2007 are as follows:
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|
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(In thousands) |
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|
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Balance as of December 31, 2006 |
|
$ |
230 |
|
Additions |
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|
3,845 |
|
Disposals and deconsolidations |
|
|
(294 |
) |
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Balance as of December 31, 2007 |
|
|
3,781 |
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Additions |
|
|
7,760 |
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Disposals and deconsolidations |
|
|
(149 |
) |
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Balance as of December 31, 2008 |
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|
11,392 |
|
Additions |
|
|
1,534 |
|
Disposals and deconsolidations |
|
|
(4,968 |
) |
|
|
|
|
Balance as of December 31, 2009 |
|
$ |
7,958 |
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|
II-6
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in
the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of
this registration statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the calculation of Registration Fee table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
(4) For the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(i) If the registrant is relying on Rule 430B:
A. Each prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to
be part of the registration statement as of the date the filed prospectus was deemed part of
and included in the registration statement; and
B. Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an offering made
pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information
required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and
included in the registration statement as of the earlier of the date such form of prospectus
is first used after effectiveness or the date of the first contract of sale of securities in
the offering described in the prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter, such date shall be deemed to be
a new effective date of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof. Provided, however,
that no statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement or prospectus that was part
of the registration statement or made in any such document immediately prior to such effective
date; or
II-7
(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall
be deemed to be part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such document immediately
prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act
of 1933 to any purchaser to the initial distribution of the securities, the undersigned registrant
undertakes that in a primary offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the purchasers and will be
considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the
offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided by or on behalf
of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(6) For purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424 (b)(1) or (4) or 497(h) under the Securities Act of 1933, shall be deemed to be part of
this registration statement as of the time it was declared effective.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has
duly caused this registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Santa Ana, State of California, on this 24th day of March, 2010.
|
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GRUBB & ELLIS COMPANY
|
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By: |
/s/ Thomas DArcy
|
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Name: |
Thomas DArcy |
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Title: |
Chief Executive Officer, President and Director |
|
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement
has been signed by the following persons in the capacities indicated:
|
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|
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Signature |
|
Title |
|
Date |
/s/ Thomas DArcy
Thomas DArcy
|
|
Chief Executive Officer,
President and Director
(Principal Executive Officer)
|
|
March 24, 2010 |
|
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|
|
/s/ Richard W. Pehlke
Richard W. Pehlke
|
|
Chief Financial Officer and Executive
Vice President
(Principal Financial and
Accounting Officer)
|
|
March 24, 2010 |
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/s/ C. Michael Kojaian
C. Michael Kojaian
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Director
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|
March 24, 2010 |
|
|
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|
|
/s/ Robert J. McLaughlin
Robert J. McLaughlin
|
|
Director
|
|
March 24, 2010 |
|
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|
|
/s/ Devin I. Murphy
Devin I. Murphy
|
|
Director
|
|
March 24, 2010 |
|
|
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|
|
/s/ D. Fleet Wallace
D. Fleet Wallace
|
|
Director
|
|
March 24, 2010 |
|
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|
|
Director
|
|
March 24, 2010 |
EXHIBIT INDEX
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|
|
Exhibit |
|
|
No. |
|
Description |
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession |
|
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of May 22, 2007, among NNN
Realty Advisors, Inc., B/C Corporate Holdings, Inc. and the
Registrant, incorporated herein by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed on May 23, 2007. |
|
|
|
2.2
|
|
Merger Agreement, dated as of January 22, 2009, by and among the
Registrant, GERA Danbury LLC, GERA Property Acquisition, LLC, Matrix
Connecticut, LLC and Matrix Danbury, LLC, incorporated herein by
reference to Exhibit 2.1 to the Registrants Current Report on Form
8-K filed on January 29, 2009. |
|
|
|
2.3
|
|
First Amendment to Merger Agreement, dated as of January 22, 2009, by
and among the Registrant, GERA Danbury LLC, GERA Property Acquisition,
LLC, Matrix Connecticut, LLC and Matrix Danbury, LLC, incorporated
herein by reference to Exhibit 2.2 to the Registrants Current Report
on Form 8-K filed on January 29, 2009. |
|
|
|
2.4
|
|
Second Amendment to Merger Agreement, dated as of May 19, 2009, by and
among the Registrant, GERA Danbury LLC, GERA Property Acquisition,
LLC, Matrix Connecticut, LLC and Matrix Danbury, LLC, incorporated
herein by reference to Exhibit 2.1 to the Registrants Current Report
on Form 8-K filed on May 26, 2009. |
|
|
|
(3) Articles of Incorporation and Bylaws |
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3.1
|
|
Restated Certificate of Incorporation of the Registrant, incorporated
herein by reference to Exhibit 3.2 to the Registrants Annual Report
on Form 10-K filed on March 31, 1995. |
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|
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 Registrants Quarterly Report on
Form 10-Q filed on February 13, 1997. |
|
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3.3
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|
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 State on January 22, 1997, incorporated herein by reference
to Exhibit 3.4 to the Registrants Quarterly Report on Form 10-Q filed
on February 13, 1997. |
|
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|
3.4
|
|
Amendment to the Restated Certificate of Incorporation of the
Registrant as filed with the Delaware Secretary of State on December
9, 1997, incorporated herein by reference to Exhibit 4.4 to the
Registrants Statement on Form S-8 filed on December 19, 1997 (File
No. 333-42741). |
|
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|
3.5
|
|
Amended and Restated Certificate of Designations, Number, Voting
Powers, Preferences and Rights of Series A Preferred Stock of Grubb &
Ellis Company, as filed with the Secretary of State of Delaware on
September 13, 2002, incorporated herein by reference to Exhibit 3.8 to
the Registrants Annual Report on Form 10-K filed on October 15, 2002. |
|
|
|
3.6
|
|
Certificate of Designations, Number, Voting Powers, Preferences and
Rights of Series A-1 Preferred Stock of Grubb & Ellis Company, as
filed with the Secretary of State of Delaware on January 4, 2005,
incorporated herein by reference to Exhibit 2 to the Registrants
Current Report on Form 8-K filed on January 6, 2005. |
|
|
|
3.7
|
|
Preferred Stock Exchange Agreement, dated as of December 30, 2004,
between the Registrant and Kojaian Ventures, LLC, incorporated herein
by reference to Exhibit 1 to the Registrants Current Report on Form
8-K filed on January 6, 2005. |
|
|
|
3.8
|
|
Certificate of Designations, Number, Voting Powers, Preferences and
Rights of Series A-1 Preferred Stock of Grubb & Ellis Company, as
filed with the Secretary of State of Delaware on January 4, 2005,
incorporated herein by reference to Exhibit 2 to the Registrants
Current Report on Form 8-K filed on January 6, 2005. |
|
|
|
Exhibit |
|
|
No. |
|
Description |
3.9
|
|
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of Grubb & Ellis Company as filed with the Delaware
Secretary of State on December 7, 2007, incorporated herein by
reference to Exhibit 3.1 to the Registrants Current Report on Form
8-K filed on December 13, 2007. |
|
|
|
3.10
|
|
Certificate of the Powers, Designations, Preferences and Rights of the
12% Cumulative Participating Perpetual Convertible Preferred Stock, as
filed with the Secretary of State of Delaware on November 4, 2009,
incorporated herein by reference to Annex A to the Registrants
Schedule 14A filed on November 6, 2009. |
|
|
|
3.11
|
|
Amendment to the Restated Certificate of Incorporation of the
Registrant as filed with the Delaware Secretary of State on December
17, 2009, incorporated herein by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K filed on December 23, 2009. |
|
|
|
3.12
|
|
Bylaws of the Registrant, as amended and restated effective May 31,
2000, incorporated herein by reference to Exhibit 3.5 to the
Registrants Annual Report on Form 10-K filed on September 28, 2000. |
|
|
|
3.13
|
|
Amendment to the Amended and Restated By-laws of the Registrant,
effective as of December 7, 2007, incorporated herein by reference to
Exhibit 3.2 to Registrants Current Report on Form 8-K filed on
December 13, 2007. |
|
|
|
3.14
|
|
Amendment to the Amended and Restated By-laws of the Registrant,
effective as of January 25, 2008, incorporated herein by reference to
Exhibit 3.1 to Registrants Current Report on Form 8-K filed on
January 31, 2008. |
|
|
|
3.15
|
|
Amendment to the Amended and Restated By-laws of the Registrant,
effective as of October 26, 2008, incorporated herein by reference to
Exhibit 3.1 to Registrants Current Report on Form 8-K filed on
October 29, 2008. |
|
|
|
3.16
|
|
Amendment to the Amended and Restated By-laws of the Registrant,
effective as of February 5, 2009, incorporated herein by reference to
Exhibit 3.1 to Registrants Current Report on Form 8-K filed on
February 9, 2009. |
|
|
|
3.17
|
|
Amendment to the Amended and Restated Bylaws of the Registrant,
effective December 17, 2009, incorporated herein by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K filed on
December 23, 2009. |
|
|
|
(4) Instruments Defining the Rights of Security Holders, including Indentures. |
|
|
|
4.1
|
|
Registration Rights Agreement, dated as of April 28, 2006, between the
Registrant, Kojaian Ventures, LLC and Kojaian Holdings, LLC,
incorporated herein by reference to Exhibit 99.2 to the Registrants
Current Report on Form 8-K filed on April 28, 2006. |
|
|
|
4.2
|
|
Warrant Agreement, dated as of May 18, 2009, by and between the
Registrant, Deutsche Bank Trust Company Americas, Fifth Third Bank,
JPMorgan Chase, N.A. and KeyBank, National Association, incorporated
herein by reference to Exhibit 4.2 to the Registrants Annual Report
on Form 10-K filed on May 27, 2009. |
|
|
|
4.3
|
|
Registration Rights Agreement, dated as of October 27, 2009, by and
among the Registrant and each of the persons listed on the Schedule of
Initial Holders attached thereto as Schedule A, incorporated herein by
reference to Exhibit 4.3 to the Registrants Amendment No. 1 to
Registration Statement on Form S-1 Annual Report on Form 10-K filed on
December 28, 2009. |
|
|
|
4.4
|
|
Amendment No. 1 to Registration Rights Agreement, dated as of
November 4, 2009, by and among the Registrant and each of the persons
listed on the Schedule of Initial Holders attached thereto as
Schedule A, incorporated herein by reference to Exhibit 4.3 to the
Registrants Amendment No. 1 to Registration Statement on Form S-1
Annual Report on Form 10-K filed on December 28, 2009. |
|
|
|
Exhibit |
|
|
No. |
|
Description |
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.
|
|
(5) Opinion regarding legality |
|
|
|
5.1
|
|
Opinion of Zukerman Gore Brandeis & Crossman LLP |
|
|
|
(10) Material Contracts |
|
|
|
10.1*
|
|
Employment Agreement entered into on November 9, 2004, between Robert
H. Osbrink and the Registrant, effective January 1, 2004,
incorporated herein by reference to Exhibit 10.1 to the Registrants
Quarterly Report on Form 10-Q filed on November 15, 2004. |
|
|
|
10.2*
|
|
Employment Agreement entered into on March 8, 2005, between Mark E.
Rose and the Registrant, incorporated herein by reference to Exhibit
10.1 to the Registrants Current Report on Form 8-K filed on March
11, 2005. |
|
|
|
10.3*
|
|
Employment Agreement, dated as of January 1, 2005, between Maureen A.
Ehrenberg and the Registrant, incorporated herein by reference to
Exhibit 1 to the Registrants Current Report on Form 8-K filed on
June 10, 2005. |
|
|
|
10.4*
|
|
First Amendment to Employment Agreement entered into between Robert
Osbrink and the Registrant, dated as of September 7, 2005,
incorporated herein by reference to Exhibit 10.6 to the Registrants
Report on Form 10-K filed on September 28, 2005. |
|
|
|
10.5*
|
|
Form of Restricted Stock Agreement between the Registrant and each of
the Registrants Outside Directors, dated as of September 22, 2005,
incorporated herein by reference to Exhibit 10.15 to Amendment No. 1
to the Registrants Registration Statement on Form S-1 filed on June
19, 2006 (File No. 333-133659). |
|
|
|
10.6*
|
|
Employment Agreement entered into on April 1, 2006, between Frances
P. Lewis and the Registrant, incorporated herein by reference to
Exhibit 10.17 to the Registrants Current Report on Form 10-K filed
on September 28, 2006. |
|
|
|
10.7*
|
|
Grubb & Ellis Company 2006 Omnibus Equity Plan effective as of
November 9, 2006, incorporated herein by reference to Appendix A to
the Registrants Proxy Statement for the 2006 Annual Meeting of
Stockholders filed on October 10, 2006. |
|
|
|
10.8
|
|
Purchase and Sale Agreement between Abrams Office Center Ltd and GERA
Property Acquisition LLC, a wholly-owned subsidiary of the
Registrant, dated as of October 24, 2006, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current Report on Form
8-K filed on October 30, 2006. |
|
|
|
10.9*
|
|
Second Amendment to Employment Agreement entered into between Robert
H. Osbrink and the Registrant, dated as of November 15, 2006,
incorporated herein by reference to Exhibit 1 to the Registrants
Current Report on Form 8-K filed on November 21, 2006. |
|
|
|
10.10
|
|
Letter Agreement between Abrams Office Centre and GERA Property
Acquisition LLC, a wholly owned subsidiary of the Registrant, dated
December 8, 2006, incorporated herein by reference to Exhibit 99.1 to
the Registrants Current Report on Form 8-K filed on December 14,
2006. |
|
|
|
10.11
|
|
Second Amendment to the Purchase and Sale Agreement between Abrams
Office Centre, Ltd. and GERA Property Acquisition LLC, a wholly owned
subsidiary of the Registrant, dated December 15, 2006, incorporated
herein by reference to Exhibit 99.1 to the Registrants Current
Report on Form 8-K filed on December 21, 2006. |
|
|
|
10.12
|
|
Letter Agreement between Abrams Office Centre, Ltd. and GERA Property
Acquisition LLC, a wholly owned subsidiary of the Registrant, dated
December 29, 2006, incorporated herein by reference to Exhibit 99.1
to the Registrants Current Report on Form 8-K filed on January 5,
2007. |
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.13
|
|
Letter Agreement between Abrams Office Centre, Ltd. and GERA Property
Acquisition LLC, a wholly owned subsidiary of the Registrant, dated
December 29, 2006, incorporated herein by reference to Exhibit 99.2
to the Registrants Current Report on Form 8-K filed on January 5,
2007. |
|
|
|
10.14
|
|
Letter Agreement between Abrams Office Centre, Ltd. and GERA Property
Acquisition LLC, a wholly owned subsidiary of the Registrant, dated
January 4, 2007, incorporated herein by reference to Exhibit 99.3 to
the Registrants Current Report on Form 8-K filed on January 5, 2007. |
|
|
|
10.15
|
|
Letter Agreement between Abrams Office Centre, Ltd. and GERA Property
Acquisition LLC, a wholly owned subsidiary of the Registrant, dated
January 19, 2007, incorporated herein by reference to Exhibit 99.1 to
the Registrants Current Report on Form 8-K filed on January 25,
2007. |
|
|
|
10.16
|
|
Purchase and Sale Agreement between F/B 6400 Shafer Ct. (Rosemont),
LLC and GERA Property Acquisition LLC, a wholly owned subsidiary of
the Registrant, dated as of February 9, 2007, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current Report on Form
8-K filed on February 9, 2007. |
|
|
|
10.17*
|
|
Employment Agreement between Richard W. Pehlke and the Registrant,
dated as of February 9, 2007, incorporated herein by reference to
Exhibit 99.1 to the Registrants Current Report on Form 8-K filed on
February 15, 2007. |
|
|
|
10.18*
|
|
Amendment No. 1 Employment Agreement between Richard W. Pehlke and
the Registrant, dated as of December 23, 2008, incorporated herein by
reference to Exhibit 10.1 to the Registrants Current Report on Form
8-K filed on December 23, 2008. |
|
|
|
10.19
|
|
Purchase and Sale Agreement between Danbury Buildings Co., L.P.,
Danbury Buildings, Inc. and GERA Property Acquisition LLC, a wholly
owned subsidiary of the Registrant, dated February 20, 2007,
incorporated herein by reference to Exhibit 99.2 to the Registrants
Current Report on Form 8-K filed on February 22, 2007. |
|
|
|
10.20
|
|
Letter Agreement between Danbury Buildings Co., L.P., Danbury
Buildings, Inc. and GERA Property Acquisition LLC, a wholly owned
subsidiary of the Registrant, dated March 16, 2007, incorporated
herein by reference to Exhibit 99.1 to the Registrants Current
Report on Form 8-K filed on March 21, 2007. |
|
|
|
10.21
|
|
Amendment to Purchase and Sale Agreement between Danbury Buildings,
Inc. and Danbury Buildings Co., L.P. and GERA Property Acquisition
LLC, a wholly owned subsidiary of the Registrant, dated February 20,
2007, incorporated herein by reference to Exhibit 99.1 to the
Registrants Current Report on Form 8-K filed on May 3, 2007. |
|
|
|
10.22
|
|
Letter Amendment to Purchase and Sale Agreement between Danbury
Buildings, Inc. and Danbury Buildings Co., L.P. and GERA Property
Acquisition LLC, a wholly owned subsidiary of the Registrant, dated
as of April 30, 2007, incorporated herein by reference to Exhibit
99.2 to the Registrants Current Report on Form 8-K filed on May 3,
2007. |
|
|
|
10.23
|
|
Form of Voting Agreement between Registrant and certain stockholders
or NNN Realty Advisors, Inc., incorporated herein by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on
May 23, 2007. |
|
|
|
10.24
|
|
Form of Voting Agreement between NNN Realty Advisors, Inc. and
certain stockholders of the Registrant, incorporated herein by
reference to Exhibit 10.2 to the Registrants Current Report on Form
8-K filed on May 23, 2007. |
|
|
|
10.25
|
|
Form of Escrow Agreement between NNN Realty Advisors, Inc.,
Wilmington Trust Company and the Registrant, incorporated herein by
reference to Exhibit 10.3 to the Registrants Current Report on Form
8-K filed on May 23, 2007. |
|
|
|
10.26
|
|
Deed of Trust, Security Agreement, Assignment of Rents and Fixture
Filing by and among GERA Abrams Centre LLC, Rebecca S. Conrad, as
Trustee for the benefit of Wachovia Bank, National Association, dated
as of June 15, 2007 incorporated herein by reference to Exhibit 10.1
to the Registrants Current Report on Form 8-K filed on June 19,
2007. |
|
|
|
10.27
|
|
Commercial Offer to purchase by and between Aurora Health Care, Inc.
and Triple Net Properties, LLC, dated |
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
November 21, 2007, incorporated
herein by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K filed on December 28, 2007. |
|
|
|
10.28
|
|
First Amendment to Offer to Purchase by and between Aurora Medical
Group, Inc. and Triple Net Properties, LLC, dated November 29, 2007,
incorporated herein by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on December 28, 2007. |
|
|
|
10.29
|
|
Form of Lease among NNN Eastern Wisconsin Medical Portfolio, LLC and
Aurora Medical Group, Inc., dated as of December 21, 2007,
incorporated herein by reference to Exhibit 10.3 to the Registrants
Current Report on Form 8-K filed on December 28, 2007. |
|
|
|
10.30
|
|
Form of Subordination, Non-Disturbance and Attornment Agreement,
between Aurora Medical Group, Inc. and PNC Bank, National Association
dated as of December 21, 2007, incorporated herein by reference to
Exhibit 10.4 to the Registrants Current Report on Form 8-K filed on
December 28, 2007. |
|
|
|
10.31
|
|
Form of Estoppel Certificate from Aurora Medical Group, Inc. to PNC
Bank, National Association, dated as of December 21, 2007
incorporated herein by reference to Exhibit 10.5 to the Registrants
Current Report on Form 8-K filed on December 28, 2007. |
|
|
|
10.32
|
|
Form of Guaranty executed by Aurora Health Care, Inc. in favor of NNN
Eastern Wisconsin Medical Portfolio, LLC dated December 21, 2007,
incorporated herein by reference to Exhibit 10.6 to the Registrants
Current Report on Form 8-K filed on December 28, 2007. |
|
|
|
10.33
|
|
Promissory Note for $32,300,000 senior loan of NNN Eastern Wisconsin
Medical Portfolio, LLC to the order of PNC Bank, National
Association, dated December 21, 2007, incorporated herein by
reference to Exhibit 10.7 to the Registrants Current Report on Form
8-K filed on December 28, 2007. |
|
|
|
10.34
|
|
Promissory Note for $3,400,000 mezzanine loan by NNN Eastern
Wisconsin Medical Portfolio, LLC to the order of PNC Bank, National
Association, dated December 21, 2007, incorporated herein by
reference to Exhibit 10.8 to the Registrants Current Report on Form
8-K filed on December 28, 2007. |
|
|
|
10.35
|
|
Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Filing by NNN Eastern Wisconsin Medical Portfolio, LLC in
favor of PNC Bank, National Association, dated December 21, 2007,
incorporated herein by reference to Exhibit 10.9 to the Registrants
Current Report on Form 8-K filed on December 28, 2007. |
|
|
|
10.36
|
|
Agreement for Purchase and Sale of Real Property and Escrow
Instructions, dated as of October 31, 2008, by and between GERA
Danbury LLC and Matrix Connecticut, LLC, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current Report on Form
8-K filed on November 5, 2008. |
|
|
|
10.37*
|
|
Employment Agreement between NNN Realty Advisors, Inc. and Scott D.
Peters incorporated herein by reference to Exhibit 10.26 to the
Registrants Annual Report on Form 10-K filed on March 17, 2008. |
|
|
|
10.38*
|
|
Employment Agreement between NNN Realty Advisors, Inc. and Andrea R.
Biller incorporated herein by reference to Exhibit 10.27 to the
Registrants Annual Report on Form 10-K filed on March 17, 2008. |
|
|
|
10.39*
|
|
Employment Agreement between NNN Realty Advisors, Inc. and Francene
LaPoint incorporated herein by reference to Exhibit 10.28 to the
Registrants Annual Report on Form 10-K filed on March 17, 2008. |
|
|
|
10.40
|
|
Employment Agreement between NNN Realty Advisors, Inc. and Jeffrey T.
Hanson incorporated herein by reference to Exhibit 10.29 to the
Registrants Annual Report on Form 10-K filed on March 17, 2008. |
|
|
|
10.41
|
|
Indemnification Agreement dated as of October 23, 2006 between
Anthony W. Thompson and NNN Realty Advisors, Inc., incorporated
herein by reference to Exhibit 10.30 to the Registrants Annual
Report on Form 10-K filed on March 17, 2008. |
|
|
|
10.42
|
|
Indemnification and Escrow Agreement by and among Escrow Agent, NNN
Realty Advisors, Inc., Anthony W. Thompson, Louis J. Rogers and
Jeffrey T. Hanson, together with Certificate as to Authorized
Signatures incorporated herein by reference to Exhibit 10.31 to the
Registrants Annual Report on Form 10-K filed on March 17, 2008. |
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.43*
|
|
Form of Indemnification Agreement executed by Andrea R. Biller, Glenn
C. Carpenter, Howard H. Greene, Jeffrey T. Hanson, Gary H. Hunt, C.
Michael Kojaian, Francene LaPoint, Robert J. McLaughlin, Devin I.
Murphy, Robert H. Osbrink, Richard W. Pehlke, Scott D. Peters, Dylan
Taylor, Jacob Van Berkel, D. Fleet Wallace and Rodger D. Young.
incorporated herein by reference to Exhibit 10.41 to the Registrants
Annual Report on Form 10-K filed on March 17, 2008. |
|
|
|
10.44*
|
|
Change of Control Agreement dated December 23, 2008 by and between
Dylan Taylor and the Registrant, incorporated herein by reference to
Exhibit 10.2 to the Registrants Current Report on Form 8-K filed on
December 24, 2008. |
|
|
|
10.45*
|
|
Change of Control Agreement dated December 23, 2008 by and between
Jacob Van Berkel and the Company, incorporated herein by reference to
Exhibit 10.3 to the Registrants Current Report on Form 8-K filed on
December 24, 2008. |
|
|
|
10.46
|
|
First Amendment to Agreement for Purchase and Sale of Real Property
and Escrow Instructions, dated as of January 8, 2009, by and between
GERA Danbury LLC and Matrix Connecticut, LLC, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current Report on Form
8-K filed on January 14, 2009. |
|
|
|
10.47
|
|
Second Amendment to Agreement for Purchase and Sale of Real Property
and Escrow Instructions, dated as of January 12, 2009, by and between
GERA Danbury LLC and Matrix Connecticut, LLC, incorporated herein by
reference to Exhibit 99.2 to the Registrants Current Report on Form
8-K filed on January 14, 2009. |
|
|
|
10.48
|
|
Third Amendment to Agreement for Purchase and Sale of Real Property
and Escrow Instructions, dated as of January 14, 2009, by and between
GERA Danbury LLC and Matrix Connecticut, LLC, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current Report on Form
8-K filed on January 21, 2009. |
|
|
|
10.49
|
|
Fourth Amendment to Agreement for Purchase and Sale of Real Property
and Escrow Instructions, dated as of January 16, 2009, by and between
GERA Danbury LLC and Matrix Connecticut, LLC, incorporated herein by
reference to Exhibit 99.2 to the Registrants Current Report on Form
8-K filed on January 21, 2009. |
|
|
|
10.50
|
|
Fifth Amendment to Agreement for Purchase and Sale of Real Property
and Escrow Instructions, dated as of January 20, 2009, by and between
GERA Danbury LLC and Matrix Connecticut, LLC, incorporated herein by
reference to Exhibit 99.3 to the Registrants Current Report on Form
8-K filed on January 21, 2009. |
|
|
|
10.51
|
|
Sixth Amendment to Agreement for Purchase and Sale of Real Property
and Escrow Instructions, dated as of January 21, 2009, by and between
GERA Danbury LLC and Matrix Connecticut, LLC, incorporated herein by
reference to Exhibit 99.2 to the Registrants Current Report on Form
8-K filed on January 27, 2009. |
|
|
|
10.52
|
|
Escrow Agreement, dated as of January 22, 2009, by and among Grubb &
Ellis Company, Matrix Connecticut, LLC and First American Title
Insurance Company, incorporated herein by reference to Exhibit 99.1
to the Registrants Current Report on Form 8-K/A filed on January 29,
2009. |
|
|
|
10.53
|
|
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing
between GERA 6400 Shafer LLC to Wachovia Bank, National Association
dated as of June 15, 2007, incorporated herein by reference to
Exhibit 10.2 to the Registrants Current Report on Form 8-K filed on
June 19, 2007. |
|
|
|
10.54
|
|
Open-end Mortgage, Security Agreement, Assignment of Rents and
Fixture Filing between GERA Danbury LLC to Wachovia Bank, National
Association dated as of June 15, 2007, incorporated herein by
reference to Exhibit 10.3 to the Registrants Current Report on Form
8-K filed on June 19, 2007. |
|
|
|
10.55
|
|
Letter Agreement by and among Wachovia Bank, National Association,
GERA Abrams Centre LLC and GERA 6400 Shafer LLC, dated September 28,
2007, incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on October 4, 2007. |
|
|
|
10.56
|
|
Letter Agreement by and between Wachovia Bank, National Association
and GERA Danbury, LLC, dated September 28, 2007, incorporated herein
by reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K filed on October 4, 2007. |
|
|
|
10.57
|
|
Second Amended and Restated Credit Agreement, dated as of December 7,
2007, among the Registrant, certain |
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
of its subsidiaries (the
Guarantors), the Lender (as defined therein), Deutsche Bank
Securities, Inc., as syndication agent, sole book-running manager and
sole lead arranger, and Deutsche Bank Trust Company Americas, as
initial issuing bank, swing line bank and administrative agent,
incorporated herein by reference to Exhibit 10.1 to Registrants
Current Report on Form 8-K filed on December 13, 2007. |
|
|
|
10.58
|
|
Second Amended and Restated Security Agreement, dated as of December
7, 2007, among the Registrant, certain of its subsidiaries and
Deutsche Bank Trust Company Americas, as administrative agent, for
the Secured Parties (as defined therein), incorporated herein by
reference to Exhibit 10.2 to Registrants Current Report on Form 8-K
filed on December 13, 2007. |
|
|
|
10.59
|
|
First Letter Amendment, dated as of August 4, 2008, by and among the
Registrant, the guarantors named therein, Deutsche Bank Trust Company
Americas, as administrative agent, the financial institutions
identified therein as lender parties, Deutsche Bank Trust Company
Americas, as syndication agent, and Deutsche Bank Securities Inc., as
sole book running manager and sole lead arranger, incorporated herein
by reference to Exhibit 99.1 to Registrants Current Report on Form
8-K filed on August 6, 2008. |
|
|
|
10.60
|
|
Second Letter Amendment to the Registrants senior secured revolving
credit facility executed on November 4, 2008, and dated as of
September 30, 2008, incorporated herein by reference to Exhibit 10.2
to the Registrants Quarterly Report on Form 10-Q filed on November
10, 2008. |
|
|
|
10.61
|
|
Third Amended and Restated Credit Agreement, dated as of May 18,
2009, among the Registrant, certain of its subsidiaries (the
Guarantors), the Lender (as defined therein), Deutsche Bank
Securities, Inc., as syndication agent, sole book-running manager and
sole lead arranger, and Deutsche Bank Trust Company Americas, as
initial issuing bank, swing line bank and administrative agent,
incorporated herein by reference to Exhibit 10.61 to the Registrants
Annual Report on Form 10-K filed on May 27, 2009. |
|
|
|
10.62
|
|
Third Amended and Restated Security Agreement, dated as of May 18,
2009, among the Registrant, certain of its subsidiaries and Deutsche
Bank Trust Company Americas, as administrative agent, for the
Secured Parties (as defined therein), incorporated herein by
reference to Exhibit 10.62 to the Registrants Annual Report on Form
10-K filed on May 27, 2009. |
|
|
|
10.63*
|
|
Employment Agreement between Thomas DArcy and the Registrant, dated
as of November 16, 2009, incorporated herein by reference to Exhibit
10.1 to the Registrants Quarterly Report on Form 10-Q/A filed on
November 19, 2009. |
|
|
|
10.64
|
|
First Letter Amendment to Third Amended and Restated Credit
Agreement, dated as of September 30, 2009, by and among Grubb & Ellis
Company, the guarantors named therein, Deutsche Bank Trust Company
Americas, as administrative agent, the financial institutions
identified therein as lender parties, Deutsche Bank Trust Company
Americas, as syndication agent, and Deutsche Bank Securities Inc., as
sole book running manager and sole lead arranger, incorporated herein
by reference to Exhibit 99.1 to the Registrants Current Report on
Form 8-K filed on October 2, 2009. |
|
|
|
10.65
|
|
First Letter Amendment to Warrant Agreement, dated as of September
30, 2009, by and between Grubb & Ellis Company and the holders
identified in Exhibit B thereto, incorporated herein by reference to
Exhibit 99.2 to the Registrants Current Report on Form 8-K filed on
October 2, 2009. |
|
|
|
10.66
|
|
First Letter Amendment to the Third Amended and Restated Security
Agreement, dated as of September 30, 2009, made by the grantors
referred to therein in favor of Deutsche Bank Trust Company Americas,
as administrative agent for the secured parties referred to therein,
incorporated herein by reference to Exhibit 99.3 to the Registrants
Current Report on Form 8-K filed on October 2, 2009. |
|
|
|
10.67
|
|
Senior Subordinated Convertible Note dated October 2, 2009 issued by
Grubb & Ellis Company to Kojaian Management Corporation, incorporated
herein by reference to Exhibit 99.4 to the Registrants Current
Report on Form 8-K filed on October 2, 2009. |
|
|
|
10.68
|
|
Subordination Agreement dated
September 30, 2009 by and among Kojaian
Management Corporation, Grubb & Ellis Company and Deutsche Bank Trust
Company Americas, incorporated herein by reference to Exhibit 99.5 to
the Registrants Current Report on Form 8-K filed on October 2, 2009. |
|
|
|
10.69
|
|
Form of Purchase Agreement by and between Grubb & Ellis Company and
the accredited investors set forth on |
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
Schedule A attached thereto,
incorporated herein by reference to Exhibit 99.1 to the Registrants
Current Report on Form 8-K filed on October 26, 2009. |
|
|
|
10.70
|
|
Agreement regarding Tremont Net Funding II, LLC Loan Arrangement with GERA 6400
Shafer LLC and GERA Abrams Centre LLC, dated as of December 29, 2009, by and among GERA Abrams
Centre LLC and GERA 6400 Shafer LLC, collectively as Borrower, Grubb & Ellis Company, as
Guarantor, Grubb & Ellis Management Services, Inc., as both Abrams Manager and Shafer Manager,
incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on
Form 8-K filed on January 6, 2010 |
|
|
|
10.71
|
|
Form of Assignment of Personal Property, Name, Service Contracts, Warranties and Leases
for GERA Abrams Centre LLC, incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed on January 6, 2010. |
|
|
|
10.72
|
|
Form of Assignment of Personal Property, Name, Service Contracts, Warranties and Leases
for GERA 6400 Shafer LLC, incorporated herein by reference to Exhibit 10.3 to the Registrants
Current Report on Form 8-K filed on January 6, 2010. |
|
|
|
10.73
|
|
Form of Special Warranty Deed for GERA Abrams Centre LLC, incorporated herein by
reference to Exhibit 10.4 to the Registrants Current Report on Form 8-K filed on January 6,
2010. |
|
|
|
10.74
|
|
Form of Special Warranty Deed for GERA 6400 Shafer LLC, incorporated herein by reference
to Exhibit 10.5 to the Registrants Current Report on Form 8-K filed on January 6, 2010. |
|
|
|
10.75
|
|
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement by and
between the Company and Jeffrey T. Hanson dated March 10, 2010, incorporated herein by
reference to Exhibit 10.75 to the Registrants Annual Report on Form 10-K filed on March 16,
2010. |
|
|
|
10.76
|
|
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement by and
between the Company and Jacob Van Berkel dated March 10, 2010, incorporated herein by
reference to Exhibit 10.76 to the Registrants Annual Report on Form 10-K filed on March 16,
2010. |
|
|
|
10.77
|
|
Form of Amended and Restated Restricted Stock Award Grant Notice for Annual Restricted
Stock Award to Non-Management Directors, incorporated herein by reference to Exhibit 10.77 to
the Registrants Annual Report on Form 10-K filed on March 16, 2010. |
|
|
|
(14) Code of Ethics |
|
|
|
14.1
|
|
Amendment to Code of Business Conduct and Ethics of the Registrant, incorporated herein
by reference to Exhibit 14.1 to the Registrants Current Report on Form 8-K filed on
January 31, 2008. |
|
|
|
(21) Subsidiaries of the Registrant, incorporated herein by reference to Exhibit 21 to the Registrants
Annual Report on Form 10-K filed on March 16, 2010. |
|
|
|
(23) Consent of Independent Registered Public Accounting Firm |
|
|
|
23.1
|
|
Consent of Ernst & Young LLP |
|
|
|
23.2
|
|
Consent of PKF Certified Public Accountants A Professional Corporation |
|
|
|
(99) Additional Exhibits |
|
|
|
99.1
|
|
Letter of termination from Grubb & Ellis Realty Advisors, Inc. to the
Registrant dated as of February 28, 2008, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current Report on Form
8-K filed on February 29, 2008. |
|
|
|
|
|
Filed herewith. |
|
* |
|
Management contract or compensatory plan arrangement. |