Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

Operating Leases — We have non-cancelable operating lease obligations for office space and certain equipment ranging from one to ten years, and sublease agreements under which we act 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 $5.8 million and $5.4 million for the three months ended June 30, 2011 and 2010, respectively, and approximately $11.9 million and $11.6 million for the six months ended June 30, 2011 and 2010, respectively. Rent expense is included in general and administrative expense in the accompanying consolidated statements of operations.

TIC Program Exchange Provision — Prior to the merger, Triple Net Properties, LLC (now known as GERI), a subsidiary of Daymark, entered into agreements providing certain investors the right to exchange their investments in certain TIC programs for investments in a different TIC program or in substitute replacement properties. The agreements containing such rights of exchange and repurchase rights pertain to initial investments in TIC programs totaling $31.6 million. In the fourth quarter of 2010, GERI was released from certain obligations relating to $6.2 million in initial investments. In addition, we were released from certain obligations totaling $2.0 million as a result of the sale of a TIC program’s property during the year ended December 31, 2010. In July 2009, we received notice on behalf of certain investors stating their intent to exercise rights under one of those agreements with respect to an initial investment totaling $4.5 million. Subsequently, in February 2011, an action was filed in the Superior Court of Orange County, California on behalf of those same investors against GERI alleging breach of contract and breach of the implied covenant of good faith and fair dealing, and seeking damages of $26.5 million with respect to initial cash investments totaling $22.3 million, which is inclusive of the $4.5 million for which we received the notice in July 2009. While the outcome of that action is uncertain, GERI will vigorously defend those claims. See TIC Program Exchange Litigation disclosure under Claims and Lawsuits below for further information.

We deferred revenues relating to these agreements of $0 and $0.1 million for the three months ended June 30, 2011 and 2010, respectively. We deferred revenues relating to these agreements of $0 and $0.1 million for the six months ended June 30, 2011 and 2010, respectively. During the six months ended June 30, 2011, pursuant to the Real Estate — General Topic, we reduced an obligation by $9.0 million related to the re-measurement of our maximum exposure to loss related to certain obligations at the time the February 2011 action was filed. No additional potential losses related to these agreements were incurred during the three months ended June 30, 2011 and 2010, and additional potential losses of $0 and $0.2 million related to these agreements were incurred during the six months ended June 30, 2011 and 2010, respectively, to record a liability underlying the agreements with investors. As of June 30, 2011, we had recorded liabilities totaling $10.9 million related to such agreements, which is included in other current liabilities, consisting of $3.6 million of cumulative deferred revenues and $7.3 million of additional potential losses related to these agreements as a result of estimated declines in the value of the properties. In addition, we are joint and severally liable on the non-recourse mortgage debt related to these TIC programs with exchange provisions totaling $276.1 million as of June 30, 2011 and December 31, 2010. This mortgage debt is not consolidated as the LLCs account for the interests in our 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. We consider the third-party TIC holders’ ability and intent to repay their share of the joint and several liability in evaluating the recoverability of our investment in the TIC program.

Capital Lease Obligations — We lease computers, copiers and postage equipment that are accounted for as capital leases.

Claims and Lawsuits — We and our Daymark affiliate have been named as defendants in multiple lawsuits relating to certain of its investment management offerings, in particular, its TIC programs. These lawsuits allege a variety of claims in connection with these offerings, including mismanagement, breach of contract, negligence, fraud, breach of fiduciary duty and violations of state and federal securities laws, among other claims. Plaintiffs in these suits seek a variety of remedies, including rescission, actual and punitive damages, injunctive relief, and attorneys’ fees and costs. In many instances, the damages being sought are unspecified and to be determined at trial. It is difficult to predict the ultimate disposition of these lawsuits and our ultimate liability with respect to such claims and lawsuits. It is also difficult to predict the cost of defending these matters and to what extent claims will be covered by our existing insurance policies. In the event of an unfavorable outcome, the amounts we may be required to pay in the discharge of liabilities or settlements could have a material adverse effect on our cash flows, financial position and results of operations.

Met Center 10 — One such matter relates to a TIC property known as Met Center 10, located in Austin, Texas. The Company and its subsidiaries have been involved in multiple legal proceedings relating to Met Center 10, including three actions pending in state court in Austin, Texas and an arbitration proceeding being conducted in California. The arbitration proceeding involves Grubb & Ellis Realty Investors, LLC (“GERI”), a subsidiary of Daymark, and is pending before the American Arbitration Association in Orange County, California captioned NNN Met Center 10 1, LLC, et al. v. Grubb & Ellis Realty Investors, LLC, No. 73 115 Y 00140 HLT (the “Met 10 Arbitration”). A state court action involving GERI is pending in the District Court of Travis County, Texas captioned NNN Met Center 10, LLC v. Met Center Partners-6, Ltd., et al., No. D-1-GN-08-002104 (the “Met 10 Main Action”). Two additional state court actions involving the Company, GERI, and Grubb & Ellis Management Services, Inc. are pending in the District Court for Travis County, Texas captioned NNN Met Center 10-1, LLC v. Lexington Insurance Company, et al., No. D-1-GN-10-004495 and NNN Met Center 10, LLC v. Lexington Insurance Company, et al., No. D-1-GN-11-000848 (together, the “Met 10 Lexington Actions”).

In the Met 10 Arbitration, TIC investors asserted, among other things, that GERI should bear responsibility for alleged diminution in the value of the property and their investments as a result of ground movement. The Met 10 Arbitration was bifurcated into two phases. In the first phase, the arbitrator ruled in favor of the TIC investors, finding, among other things, that the TIC investors had properly terminated the property management agreement for cause. In Phase 2 of the arbitration, the TICs asserted claims for damages against GERI arising from alleged breaches of the management agreement and other alleged wrongful acts in connection with the management of the Met Center 10 property and other alleged breaches of duty.

Before the beginning of the Phase 2 hearing, the TICs, GERI, and Lexington Insurance Company reached a settlement, which has been documented and executed by the parties, and which is awaiting court approval. The settlement is for $0.1 million, net of insurance recoveries. Among other things, under the terms of the settlement, GERI must pay $0.1 million to the TICs shortly after the settlement is approved by the court, and may be obligated to subsequently pay up to approximately $0.6 million in addition to the initial $0.1 million payment, depending upon the resolution of claims relating to Met Center 10 against parties other than GERI and its affiliates. The TICs are releasing all claims relating to Met Center 10 against, among others, GERI and its affiliates.

In the Met 10 Texas Action, GERI and NNN Met Center 10, LLC were pursuing claims against the developers and sellers of the property (the “Sellers”), the due diligence firm retained by GERI in connection with the purchase of the Met Center 10 property, and the engineering, construction, and design professionals who performed work relating to the Met Center 10 property (together with the due diligence firm, the “Professionals”) to recover damages arising from, among other things, ground movement. The Sellers and the Professionals were asserting counterclaims against GERI and NNN Met Center 10, LLC. GERI and NNN Met Center 10, LLC, on the one hand, and the Sellers, on the other, have reached a settlement resolving all claims between them, which has been documented and executed by the parties. Under that settlement, GERI, its affiliates, and NNN Met Center 10, LLC are being released from all claims by the Sellers relating to Met Center 10. Neither GERI nor its affiliates (or NNN Met Center 10, LLC) are required to make any payments pursuant to the settlement with the Sellers. In addition, GERI and NNN Met Center 10, LLC, on the one hand, and the Professionals, on the other hand, have reached a tentative settlement resolving all claims between them, which is in the process of being documented and approved. Under that settlement, GERI, its affiliates, and NNN Met Center 10, LLC are being released from all claims by the Professionals relating to Met Center 10. Neither GERI nor its affiliates (or NNN Met Center 10, LLC) are required to make any payments pursuant to the tentative settlement with the Professionals.

In the Met 10 Lexington Actions, the TIC investors were asserting claims against former officers and employees of the Company and other defendants in connection with the negotiation and documentation of an insurance settlement relating to the Met Center 10 property, and an alleged misallocation and/or misappropriation of the proceeds of that settlement. In addition, Lexington Insurance Company asserted claims against NNN Met Center 10, LLC, the Company, GERI, and GEMS arising of the insurance settlement. Pursuant to the settlement of the Met 10 Arbitration described above, the TICs are releasing and dismissing certain claims against the former officers and employees of the Company, including claims that were being asserted in the Met 10 Lexington Actions, and Lexington is releasing and dismissing its claims against the Company, GERI, GEMS, and NNN Met Center 10, LLC, including the claims Lexington was asserting in the Met 10 Lexington Actions.

TIC Program Exchange Litigation — GERI and Grubb & Ellis Company are defendants in an action filed on or about February 14, 2011 in the Superior Court of Orange County, California captioned S. Sidney Mandel, et al. v. Grubb & Ellis Realty Investors, LLC, et al, Case No. 00449598. The plaintiffs allege that, in order to induce the plaintiffs to purchase $22.3 million in TIC investments that GERI (formerly known as Triple Net Properties, LLC) was syndicating, GERI offered to subsequently “repurchase” those investments and provide certain “put” rights under certain terms and conditions pursuant to a letter agreement executed between GERI and the plaintiffs. The plaintiffs allege that GERI has failed to honor its purported obligations under the letter agreement and have initiated suit for breach of contract, breach of the implied covenant of good faith and fair dealing and declaratory relief as to the rights and obligations of the parties under the letter agreement. By way of a first amended complaint, the plaintiffs are alleging that GERI is merely an inadequately capitalized instrumentality of Grubb & Ellis Company and that Grubb & Ellis Company should be held liable for acts and omissions of GERI. The plaintiffs are seeking damages totaling $26.5 million, attorneys’ fees and costs. We intend to vigorously defend these claims and to assert all applicable defenses. At this time we are unable to predict the likelihood of an unfavorable or adverse award or outcome. At this time it is not possible to estimate a range of possible loss for this matter.

Britannia II Office Park — Various Daymark subsidiaries are defendants in an action filed on or about July 22, 2010 in Superior Court of Alameda County, California captioned NNN Britannia Business Center II — 17, LLC, et al. v. Grubb & Ellis Company, et al., Case No. RG10-527282. Plaintiffs invested more than $14 million for TIC interests in a commercial real estate project in Pleasanton, California, known as Britannia Business Center II, which ultimately was foreclosed upon. Plaintiffs claim that they were induced to invest with misrepresentations concerning the financial projections and risks for the project, and allege various mismanagement claims. Plaintiffs’ current claim is for breach of the implied covenant of good faith and fair dealing. Plaintiffs seek compensatory and exemplary damages in an unspecified amount, along with costs and attorneys’ fees. We intend to vigorously defend these claims and to assert all applicable defenses. At this time we are unable to predict the likelihood of an unfavorable or adverse award or outcome. At this time it is not possible to estimate a range of possible loss for this matter.

Durham Office Park — We and various Daymark subsidiaries are defendants in an action filed on or about July 21, 2010 in North Carolina Business Court, Durham County Superior Court Division, captioned NNN Durham Office Portfolio I, LLC, et al. v. Grubb & Ellis Company, et al., Case No. 10 CVS 4392. Plaintiffs invested more than $11 million for TIC interests in a commercial real estate project in Durham, North Carolina. Plaintiffs claim, among other things, that information regarding the intentions of the property’s anchor tenant to remain in occupancy was withheld and misrepresented. Plaintiffs have asserted claims for breach of contract, negligence, negligent misrepresentation, breach of fiduciary duty, fraud, unfair and deceptive trade practices and conspiracy. We intend to vigorously defend these claims and to assert all applicable defenses. At this time we are unable to predict the likelihood of an unfavorable or adverse award or outcome. At this time it is not possible to estimate a range of possible loss for this matter.

We are involved in various claims and lawsuits arising out of the ordinary conduct of our business, many of which may not be covered by our insurance policies. In the opinion of management, in the event of an unfavorable outcome, the amounts we may be required to pay in the discharge of liabilities or settlements could have a material adverse effect on our cash flows, financial position and results of operations. At this time it is not possible to estimate a range of possible loss for these matters.

Guarantees — Historically our Daymark subsidiary provided non-recourse carve-out guarantees or indemnities with respect to loans for properties now owned or under the management of Daymark. As of June 30, 2011, there were 126 properties under management with non-recourse carve-out loan guarantees or indemnities of approximately $3.0 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.1 billion. As of December 31, 2010, there were 133 properties under management with non-recourse carve-out loan guarantees or indemnities of approximately $3.1 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.3 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 our TIC investments as further described in Note 4.

Our guarantees consisted of the following as of June 30, 2011 and December 31, 2010:

	June 30,		December 31,
(In thousands)	2011		2010
Daymark non-recourse/carve-out guarantees of debt of properties under management(1)	$	2,782,390	$	2,944,311
Grubb & Ellis Company non-recourse/carve-out guarantees of debt of properties under management(1)	$	78,217	$	78,363
Daymark and Grubb & Ellis Company non-recourse/carve-out guarantees of debt of properties under management(2)	$	31,125	$	31,271
Daymark non-recourse/carve-out guarantees of debt of Company owned property(1)	$	60,000	$	60,000
Daymark recourse guarantees of debt of properties under management	$	11,650	$	12,900
Grubb & Ellis Company recourse guarantees of debt of properties under management(3)	$	11,998	$	11,998
Daymark recourse guarantees of debt of Company owned property(4)	$	10,000	$	10,000

(1) A “non-recourse/carve-out” guarantee or indemnity generally imposes liability on the guarantor or indemnitor in the event the borrower engages in certain acts prohibited by the loan documents. Each non-recourse carve-out guarantee or indemnity 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 or indemnities, liability under the non-recourse carve-out guarantees or indemnities 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 indemnity agreement from borrower.

Certain acts (typically the first three listed above) may render the entire debt balance recourse to the guarantor or indemnitor, while the liability for other acts is typically limited to the damages incurred by the lender. Notice and cure provisions vary between guarantees and indemnities. Generally the guarantor or indemnitor irrevocably and unconditionally guarantees or indemnifies the lender the payment and performance of the guaranteed or indemnified 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 or indemnitor covenants and agrees that it is liable for the guaranteed or indemnified obligations as a primary obligor. As of June 30, 2011, to the best of our knowledge, there was no debt owed by us as a result of the borrowers engaging in prohibited acts, despite the prohibited acts that occurred as more fully described below.

(2) We and Daymark are each joint and severally liable on such non-recourse/carve-out guarantees.

(3) We have $1.0 million held as collateral by a lender related to one of our recourse guarantees that, upon the occurrence of any triggering event or condition under the guarantee, will be used to cover all or a portion of the amounts due under the guarantee.

(4) In addition to the $10.0 million principal guarantee, Daymark has guaranteed any shortfall in the payment of interest on the unpaid principal amount of the mortgage debt on one owned property.

If 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 requirements of ASC Topic 460, Guarantees, (“Guarantees Topic”). Any such liabilities were insignificant upon execution of the guarantees. In addition, on an ongoing basis, we evaluate the need to record an additional liability in accordance with the requirements of ASC Topic 450, Contingencies, (“Contingencies Topic”). As of June 30, 2011 and December 31, 2010, we had recourse guarantees of $23.6 million and $24.9 million, respectively relating to debt of properties under management (of which $12.0 million is recourse back to Grubb & Ellis Company, the remainder of which is recourse to our Daymark subsidiary). As of June 30, 2011 and December 31, 2010, approximately $9.5 million, of these recourse guarantees relate to debt that has matured, is in default, or is not currently in compliance with certain loan covenants (of which $2.0 million is recourse back to Grubb & Ellis Company, the remainder of which is recourse to our Daymark subsidiary). In addition, as of June 30, 2011, and December 31, 2010, we had $8.0 million of recourse guarantees related to debt that will mature in the next twelve months (of which $8.0 million is recourse back to Grubb & Ellis Company). In connection with the sale of Daymark, the purchaser indemnified us up to $7.5 million for liabilities, obligations and claims related to or arising from the business or operations of Daymark or its subsidiaries. Our evaluation of the potential liability under these guarantees 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 of our subsidiaries to pay its debts as they become due would likely have a materially negative impact on our ongoing business, and the investment management operations in particular. 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 June 30, 2011 and December 31, 2010, we recorded a liability of $0 and $0.8 million which is included in other current liabilities, related to our estimate of probable loss related to recourse guarantees of debt of properties under management and previously under management.

Two unaffiliated, individual investor entities (the “TIC debtors”), who are minority owners in two TIC programs located in Texas, Met Center 10 and 2400 West Marshall, which were originally sponsored by GERI, filed chapter 11 bankruptcy petitions in January 2011. The principal balance of the mortgage debt for these two properties was approximately $29.4 million and $6.6 million, respectively, at the time of the bankruptcy filings. On February 1, 2011, the special servicer for each of these loans foreclosed on all of the undivided TIC ownership interests in these properties, except those owned by the unaffiliated investor entities which effected the bankruptcy filings. The automatic stay imposed following the bankruptcy filings by each of these investor entities prevented the special servicer from foreclosing on 100% of the TIC ownership interests. The special servicers for each of the TIC debtors’ loans filed motions for relief from the automatic stay to foreclose upon the remaining TIC ownership interests. In the Met Center 10 case, by order dated May 2, 2011, the bankruptcy court continued the automatic stay, subject to certain conditions, to November 1, 2011. The May 2, 2011 order also established a procedure by which the special servicer would be required to reconvey the foreclosed upon interests to the Met Center 10 debtor and the other investor entities following payment of an “amount due” as that term is defined in the May 2, 2011 Order. In the 2400 West Marshall case, by order dated June 15, 2011, the bankruptcy court continued the automatic stay, subject to certain conditions, to December 1, 2011. The June 15, 2011 order also established a procedure by which the special servicer would be required to reconvey the foreclosed upon interests to the 2400 West Marshall debtor and the other investor entities following payment of an “amount due” as that term is defined in the June 15, 2011 Order.

GERI executed a non-recourse carve-out guarantee in connection with the mortgage loan for the Met 10 property, and a non-recourse indemnity for the 2400 West Marshall property. As discussed in the “Guarantees” disclosure above, such “non-recourse carve-out” guarantees and indemnities only impose liability on GERI if certain acts prohibited by the loan documents take place. Liability under these non- recourse carve-out guarantees and indemnities may be triggered by the voluntary bankruptcy filings made by the two unaffiliated, individual investor entities. As a consequence of these bankruptcy filings, the TIC debtors’ mortgage lenders may assert that GERI is liable under the guarantee and indemnity. While GERI’s ultimate liability under these agreements is uncertain as a result of numerous factors, including, without limitation, whether the bankruptcy filings of the TIC debtors triggered GERI’s obligations under the guaranty and the indemnification, the amount of the lender’s credit bids at the time of foreclosure, events in the individual bankruptcy proceedings and the ultimate disposition of those bankruptcy proceedings, and the defenses GERI may raise under the guarantee and indemnity, such liability may be in an amount in excess of the net worth of NNNRA and its subsidiaries, including GERI. NNNRA and GERI intend to vigorously dispute any imposition of any liability under any such guarantee or indemnity obligation. As of June 30, 2011, we did not have any liabilities accrued related to such guarantees or indemnity obligations.

Investment Program Commitments — In 2009, we revised the offering terms related to certain investment programs which we sponsor, including the commitment to fund additional property reserves and the waiver or reduction of future management fees and disposition fees. Such future funding commitments have been made in the form of guaranteeing the collectability of advances that one of our consolidated VIEs has made to these investment programs. As of June 30, 2011 and December 31, 2010, the future funding commitments under the guarantee totaled approximately $1.5 million and $2.0 million, respectively.

Environmental Obligations — In our role as property manager, we could incur liabilities 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 were disposed of. Similarly, under debt financing arrangements on properties owned by sponsored programs, we have agreed to indemnify the lenders for environmental liabilities and to remediate any environmental problems that may arise. We are not aware of any environmental liability or unasserted claim or assessment relating to an environmental liability that we believe would require disclosure or the recording of a loss contingency.

Alesco Seed Capital — On November 16, 2007, we completed the acquisition of a 51.0% membership interest in Alesco from Jay P. Leupp. Pursuant to the Intercompany Agreement between us and Alesco, dated as of November 16, 2007, we committed to invest up to $20.0 million in seed capital into certain real estate funds that Alesco planned to launch. Additionally, upon achievement of certain earn-out targets, we were required to purchase up to an additional 27% interest in Alesco for $15.0 million. To date those earn-out targets have not been achieved. We are allowed to use $15.0 million of seed capital to fund the earn-out payments. As of June 30, 2011, we have invested $1.5 million into the three funds that Alesco has launched to date (the “Existing Alesco Funds”) and our unfunded seed capital commitments with respect to the Existing Alesco Funds totaled $2.5 million. As of February 14, 2011, our obligation to make further seed capital investments under the Intercompany Agreement terminated, except for the remaining commitments under the Existing Alesco Funds. On June 1, 2011, we entered into a definitive agreement for the sale of substantially all of the assets of Alesco to Lazard Asset Management LLC. Closing of the transaction is subject to customary approvals and is expected to occur in the third quarter of 2011.

Deferred Compensation Plan — During 2008, we 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 June 30, 2011 and December 31, 2010, $3.1 million and $3.4 million, respectively, reflecting the non-stock liability under this plan were included in accounts payable and accrued expenses. We have purchased whole-life insurance contracts on certain employee participants to recover distributions made or to be made under this plan and as of June 30, 2011 and December 31, 2010 have recorded the cash surrender value of the policies of $0.4 million and $1.1 million, respectively, in prepaid expenses and other assets.

In addition, we award “phantom” shares of our 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 issuing shares of our common stock from our treasury share account or issuing unregistered shares of our common stock to the participant. As of June 30, 2011 and December 31, 2010, an aggregate of 3.9 million and 4.1 million phantom share grants were outstanding, respectively. 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, as of June 30, 2011 grants with respect to 816,000 phantom shares had a guaranteed minimum share price ($2.8 million in the aggregate) that will result in us paying additional compensation to the participants should the value of the shares upon vesting be less than the grant date value of the shares. We account 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.