10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to ___________________

Commission File Number: 1-8122

GRUBB & ELLIS COMPANY

(Exact name of registrant as specified in its charter)

Delaware	94-1424307
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2215 Sanders Road, Suite 400,
Northbrook, IL 60062

(Address of principal executive offices)
(Zip Code)

(847) 753-7500

(Registrant’s telephone number, including area code)

No Change

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X]  No  [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  [  ]  No  [X]

15,097,371

(Number of shares outstanding of the registrant’s
common stock at November 3, 2003)

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT INDEX
Employment Agreement for Brian D. Parker
Section 302 Certifications
Section 906 Certification

PART I

FINANCIAL INFORMATION

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Item 1. Financial Statements

GRUBB & ELLIS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

					September 30,			June 30,
					2003			2003
ASSETS
Current assets:
	Cash and cash equivalents, including restricted deposits of $3,126 and $3,315 at September 30, 2003 and June 30, 2003, respectively				$	19,414		$	13,938
	Services fees receivable, net					9,663			11,452
	Other receivables					2,620			2,726
	Professional service contracts, net					1,146			1,159
	Prepaid income taxes					562			669
	Prepaid and other current assets					1,976			557
			Total current assets			35,381			30,501
Noncurrent assets:
	Equipment, software and leasehold improvements, net					12,685			13,959
	Goodwill, net					26,958			26,958
	Other assets					3,662			3,684
				Total assets	$	78,686		$	75,102
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
		Accounts payable			$	3,810		$	4,107
		Commissions payable				5,214			3,465
		Credit facility debt – affiliate				7,000			5,000
		Note payable – affiliate				4,000			—
		Accrued compensation and employee benefits				14,823			14,889
		Deferred commissions payable				1,284			163
		Other accrued expenses				6,536			5,600
				Total current liabilities		42,667			33,224
Long-term liabilities:
		Credit facility debt – affiliate				25,300			27,300
		Note payable – affiliate				—			4,000
		Accrued claims and settlements				7,566			7,374
		Other liabilities				2,592			2,949
				Total liabilities		78,125			74,847
Stockholders’ equity:
		Preferred stock: 1,000,000 shares authorized; 11,725 Series A shares issued and outstanding at $1,000 stated value at September 30, 2003				11,725			11,725
		Common stock, $.01 par value: 50,000,000 shares authorized; 15,097,371 shares issued and outstanding at September 30, 2003 and June 30, 2003				151			151
		Additional paid-in-capital				71,410			71,410
		Accumulated other comprehensive loss				(107	)		(174	)
		Retained deficit				(82,618	)		(82,857	)
				Total stockholders’ equity		561			255
				Total liabilities and stockholders’ equity	$	78,686		$	75,102

See notes to condensed consolidated financial statements.

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GRUBB & ELLIS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)

				For the three months ended
				September 30,
				2003			2002
Services revenue:
	Transaction fees			$	55,562		$	64,651
	Management fees, including reimbursed salaries, wages and benefits				46,322			43,159
			Total services revenue		101,884			107,810
Costs of services:
	Transaction commissions				33,808			38,960
	Reimbursable salaries, wages and benefits				33,311			30,960
	Salaries, wages, benefits and other direct costs				8,735			7,807
		Total costs of services			75,854			77,727
Costs and expenses:
	Salaries, wages and benefits				12,299			16,830
	Selling, general and administrative				11,132			13,113
	Depreciation and amortization				1,729			2,002
	Severance and other special charges				—			900
		Total costs			101,014			110,572
			Total operating income (loss)		870			(2,762	)
Other income and expenses:
	Interest income				41			93
	Interest expense				(127	)		(626	)
	Interest expense - affiliate				(545	)		(308	)
		Income (loss) before income taxes			239			(3,603	)
Benefit for income taxes					—			1,369
Net income (loss)					239			(2,234	)
Preferred stock dividends accrued					(389	)		(42	)
Net loss to common stockholders				$	(150	)	$	(2,276	)
Net loss per weighted average common share outstanding:
			Basic -	$	(0.01	)	$	(0.15	)
			Diluted -	$	(0.01	)	$	(0.15	)
Weighted average common shares outstanding:
			Basic -		15,097,371			15,071,848
			Diluted -		15,097,371			15,071,848

See notes to condensed consolidated financial statements.

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GRUBB & ELLIS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

				For the three months ended
				September 30,
				2003			2002
Cash Flows from Operating Activities:
	Net income (loss)			$	239		$	(2,234	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Deferral of payment of services commissions expense			1,121			873
		Depreciation and amortization expense			1,729			2,002
		Accrued severance and other special charges			—			(900	)
		Payment of accrued severance			(1,446	)		(71	)
		Payment of office closure costs			(292	)		(206	)
		Accrued compensation and employee benefits			1,380			908
		Other adjustments			2,885			(1,917	)
			Net cash provided by (used in) operating activities		5,616			(1,545	)
Cash Flows from Investing Activities:
	Purchases of equipment, software and leasehold improvements				(140	)		(915	)
			Cash used in investing activities		(140	)		(915	)
Cash Flows from Financing Activities:
	Repayment of credit facility debt				—			(450	)
	Other financing sources				—			27
			Net cash used in financing activities		—			(423	)
Net increase (decrease) in cash and cash equivalents					5,476			(2,883	)
Cash and cash equivalents at beginning of period					13,938			14,085
Cash and cash equivalents at end of period, including restricted deposits of $3,126 at September 30, 2003				$	19,414		$	11,202

See notes to condensed consolidated financial statements.

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GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements

1.     Interim Period Reporting

The accompanying unaudited condensed consolidated financial statements include the accounts of Grubb & Ellis Company and its wholly owned subsidiaries (collectively, the “Company”) and are prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and, therefore, should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2003.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States that require management to make estimates and assumptions that affect the reported amounts of assets and liabilities (including disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented have been included in these financial statements and are of a normal and recurring nature. Recent accounting pronouncements and subsequent interpretations have provided further clarification regarding reimbursements of expenses on third party service contracts. As a result, the Company believes that it is no longer appropriate to net the reimbursements received from property owners against the related salary, wages and benefit expense. Accordingly, reimbursements received on third party service contracts are characterized as revenue in the Condensed Statement of Operations rather than as a reduction of expenses incurred. The Company has reclassified the reimbursements received during the quarter ended September 30, 2002 as revenue to conform to the current year presentation. This reclassification has not changed the previously reported results of operations or cash flow of the Company.

Certain expenses related to salaries, wages and benefits, and selling, general and administrative costs are direct costs incurred to generate services revenues. The Company has reclassified those costs incurred during the fiscal year ended September 30, 2002 to salaries, wages, benefits and other direct costs to conform to the current year presentation. This reclassification has not changed the previously reported results of operations or cash flow of the Company.

Certain other amounts in prior periods have been reclassified to conform to the current presentation. Such reclassifications have not changed previously reported results of operations or cash flows.

Operating results for the three months ended September 30, 2003 are not necessarily indicative of the results that may be achieved in future periods.

2.     Total Comprehensive Loss

The Company is a party to two interest rate swap agreements that effectively fix the interest rate on a portion of the Company’s outstanding term loan obligations. The Company has determined that these agreements are to be characterized as effective under the definitions included within Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities.”

The change in value of these instruments during a reporting period is characterized as Other Comprehensive Income or Loss, and totaled approximately $67,000 of unrealized income and $49,000 of unrealized loss during the three months ended September 30, 2003 and 2002, respectively. This gain and loss, along with

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GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements

2.     Total Comprehensive Loss (Continued)

the Company’s net income of $239,000 and net loss of $2,234,000 for the three months ended September 30, 2003 and 2002, results in Total Comprehensive Income of $306,000 and a Total Comprehensive Loss of $2,283,000 for the periods, respectively.

3.     Income Taxes

The benefit (provision) for income taxes for the three months ended September 30, 2003 and 2002 is as follows (in thousands):

	For the three months ended
	September 30,
	2003			2002
Current	$	(96	)	$	1,218
Deferred		96			151
	$	—		$	1,369

The Company recorded prepaid taxes totaling approximately $562,000 and $669,000 as of September 30, 2003 and June 30, 2003, respectively. Included in these assets are tax refund receivables resulting from filed federal and state returns totaling approximately $369,000 and $476,000 at September 30, 2003 and June 30, 2003, respectively. Also included are tax effected operating loss carrybacks totaling approximately $193,000 at September 30, 2003 and June 30, 2003, respectively, which the Company will realize or has realized primarily against federal or state tax liability payments made in prior tax years. The Company also received net tax refunds of approximately $127,000 and $1,175,000 during the quarters ended September 30, 2003 and 2002, respectively, primarily related to its federal and state tax carrybacks.

4.     Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share from continuing operations (in thousands, except per share data):

		For the three months ended
		September 30,
		2003			2002
Net loss to common stockholders		$	(150	)	$	(2,276	)
Basic earnings per common share:
Weighted average common shares outstanding			15,097			15,072
Net loss per common share – basic		$	(0.01	)	$	(0.15	)
Diluted earnings per common share:
Weighted average common shares outstanding			15,097			15,072
Effect of dilutive securities:
	Stock options and warrants		—			—
Weighted average dilutive common shares outstanding			15,097			15,072
Net loss per common share – diluted		$	(0.01	)	$	(0.15	)

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GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements

4.     Earnings Per Common Share (Continued)

Additionally, options outstanding to purchase shares of common stock, the effect of which would be anti-dilutive, were approximately 1,526,000 and 2,532,000 at September 30, 2003 and 2002, respectively, and were not included in the computation of diluted earnings per share either because the option exercise price was greater than the average market price of the common shares for the three months or an operating loss was reported for the quarter ending September 30, 2002.

5.     Segment Information

The Company has two reportable segments – Transaction Services and Management Services, and evaluates segment performance and allocates resources based on earnings before interest, taxes, depreciation and amortization, and other special charges (“EBITDA”) that include an allocation (primarily based on segment revenue) of certain corporate level administrative expenses (amounts in thousands).

		Transaction		Management			Segment
		Services		Services			Totals
Three months ended September 30, 2003
	Total revenue	$	55,562	$	46,322		$	101,884
	EBITDA		2,325		274			2,599
	Total assets as of September 30, 2003		60,743		17,381			78,124
Three months ended September 30, 2002
	Total revenue	$	64,651	$	43,159		$	107,810
	EBITDA		663		(523	)		140
	Total assets as of September 30, 2002		56,108		22,562			78,670

Reconciliation of Segment EBITDA to Loss Before Income Taxes

		Three Months Ended September 30
		2003			2002
Total segment EBITDA		$	2,599		$	140
Less:
Depreciation & amortization			(1,729	)		(2,002	)
Special charges			—			(900	)
Net interest expense			(631	)		(841	)
	Income (loss) before income taxes	$	239		$	(3,603	)

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GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements

5.     Segment Information (Continued)

Reconciliation of Segment Assets to Balance Sheet (in thousands):

		As of September 30,
		2003		2002
Total segment assets		$	78,124	$	78,670
Current tax assets			562		6,950
Deferred tax assets			—		2,661
	Total assets	$	78,686	$	88,281

In evaluating segment performance, the Company’s management utilizes EBITDA as a measure of the segment’s ability to generate cash flow from its operations. Other items contained within the measurement of net income, such as interest and taxes, and special charges, are generated and managed at the corporate administration level rather than the segment level. In addition, net income measures also include non-cash amounts such as depreciation and amortization expense.

Management believes that EBITDA as presented with respect to the Company’s reportable segments is an important measure of cash generated by the Company’s operating activities. EBITDA is similar to net cash flow from operations because it excludes certain non-cash items, however, it also excludes interest and income taxes. Management believes that EBITDA is relevant because it assists investors in evaluating the Company’s ability to service its debt by providing a commonly used measure of cash available to pay interest. EBITDA should not be considered as an alternative to net income (loss) or cash flows from operating activities (which are determined in accordance with GAAP), as an indicator of operating performance or a measure of liquidity. EBITDA also facilitates comparison of the Company’s results of operations with those companies having different capital structures. Other companies may define EBITDA differently, and, as a result, such measures may not be comparable to the Company’s EBITDA.

6.     Commitments and Contingencies

Environmental:

A corporate subsidiary of the Company owns a 33% interest in a general partnership, which in turn owns property in the State of Texas which is the subject of an environmental assessment and remediation effort, due to the discovery of certain chemicals related to a release of dry cleaning solvent in the soil and groundwater of the partnership’s property and adjacent properties. Prior assessments had determined that minimal costs would be incurred to remediate the release. However, subsequent findings at and around the partnership’s property have increased the probability that additional remediation costs will be necessary. The partnership is working with the Texas Natural Resource Conservation Commission and the local municipality to implement a multi-faceted plan, which includes both remediation and ongoing monitoring of the affected properties. Although the partnership’s other partners have made all past contributions and are expected to make all future required contributions, there can be no assurances to this effect. The Company’s share of anticipated costs to remediate and monitor this situation is estimated at approximately $1,024,000, based upon a comprehensive project plan prepared by an independent third party environmental remediation firm. As of September 30, 2003, approximately $723,000 of this amount has been paid and the remaining $301,000 has been reflected as a loss reserve for such matters in the consolidated balance sheet. The Company’s management believes that the outcome of these events will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

9

GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements

6.     Commitments and Contingencies (Continued)

Insolvent Insurance Provider:

In fiscal years 1999 and 2000, the Company’s primary errors and omissions insurance carrier was Reliance Insurance Company (of Illinois and California, collectively “Reliance”). The Company had six open claims that were covered by Reliance policies upon the exhaustion of a self-insured retention.

In October 2001, Reliance was placed in liquidation by order of the Commonwealth of Pennsylvania, which casts doubt on the recovery from Reliance of the Company’s open claims. The Company has established loss reserves for the estimated settlement costs of the claims. The Company is seeking reimbursement for the costs of defense, settlement and/or judgment on these claims both from appropriate state insurance guaranty associations and from the liquidator. The Company is unable to estimate the probability and timing of any potential reimbursement at this time, and therefore, has not assumed any potential recoveries in establishing its reserves.

Sales Tax on Client Purchases:

Grubb & Ellis Management Services, Inc. v. Connecticut Department of Revenue Services, was filed in the Connecticut Superior Court, Tax Session, Judicial District of New Britain, in October 2002 to appeal an assessment of sales tax against the Company related to purchases made on behalf of the Company’s clients from 1993 through 1996. The Company filed this judicial appeal after exhausting its administrative appeal remedy within the Department of Revenue Services. There is no dispute that the state collected all appropriate sales tax when the vendors initially provided goods or services to the properties managed by the Company. The Company claims that no additional sales tax is owed where the property owners later replenished the operating accounts that were managed by the Company and used to pay the vendors.

The Company has, and intends to continue to, vigorously pursue its appeal of the sales tax assessment. The Company believes it has a meritorious basis to contest the assessment, and any future assessment arising out of a recent notice that the Connecticut Department of Revenue also intends to audit the 2000-2003 time period. Based upon available information, the Company believes that the outcome of this appeal will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

General:

The Company is involved in various claims and lawsuits arising out of the conduct of its business, as well as in connection with its participation in various joint ventures and partnerships, many of which may not be covered by the Company’s insurance policies. In the opinion of management, the eventual outcome of such claims and lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.

7.     Severance and Other Special Charges

A special charge consisting of severance and other costs totaling $900,000 was incurred during the quarter ended September 30, 2002 in connection with the termination of employment of the Company’s former Chief Operating Officer.

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GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements

8.     Stock Options and Stock Purchase Plans

The Company accounts for its stock-based employee compensation plan under the intrinsic value method in accordance with APB 25. The Company has adopted the disclosure-only provisions of Statement 123, as amended by FASB Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure (“FAS 148”). Had the Company elected to adopt the fair value recognition provisions of FAS 123, pro forma net income and net income per share would be as follows (in thousands):

		For the three months ended September 30,
		2003			2002
Net loss to common stockholders, as reported		$	(150	)	$	(2,276	)
Add: Total stock-based employee compensation expense determined under the intrinsic value method for all awards, net of related tax effects			—			—
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects			(118	)		(279	)
Pro forma net income to common stockholders		$	(268	)	$	(2,555	)
Net earnings per weighted average common share outstanding:
	Basic – as reported	$	(0.01	)	$	(0.15	)
	Basic – pro forma	$	(0.02	)	$	(0.17	)
	Diluted – as reported	$	(0.01	)	$	(0.15	)
	Diluted – pro forma	$	(0.02	)	$	(0.17	)

9.     Subsequent Event

As of September 30, 2003, the Company had fully utilized its revolving credit facility through borrowings of $5.0 million. Borrowings under the revolver are ultimately due upon termination or maturity of the credit agreement, December 31, 2005. In addition, the Company must repay all outstanding amounts on the revolver and not re-borrow such funds for a period of 30 consecutive days each December. In October 2003, the Company repaid all amounts outstanding under the revolver from working capital reserves.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report contains statements that are not historical facts and constitute projections, forecasts or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements are not guarantees of performance. They involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company in future periods to be materially different from any future results, performance or achievements expressed or suggested by these statements. You can identify such statements by the fact that they do not relate strictly to historical or current facts. These statements use words such as “believe,” “expect,” “should,” “strive,” “plan,” “intend,” “estimate” and “anticipate” or similar expressions. When we discuss strategy or plans, we are making projections, forecasts or forward-looking statements. Actual results and stockholder’s value will be affected by a variety of risks and factors, including, without limitation, international, national and local economic conditions and real estate risks and financing risks and acts of terror or war. Many of the risks and factors that will determine these results and values are beyond the Company’s ability to control or predict. These statements are necessarily based upon various assumptions involving judgment with respect to the future. All such forward-looking statements speak only as of the date of this Report. The Company expressly disclaims any obligation or undertaking to release publicly any updates of revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Factors that could adversely affect the Company’s ability to obtain these results and value include, among other things: (i) the volume of transactions and prices for real estate in the real estate markets generally, (ii) a general or regional economic downturn that could create a recession in the real estate markets, (iii) the Company’s debt level and its ability to make interest and principal payments, (iv) an increase in expenses related to new initiatives, investments in people, technology, and service improvements, (v) the Company’s ability to implement, and the success of, new initiatives and investments, including expansion into new specialty areas and integration of the Company’s business units, (vi) the ability of the Company to consummate acquisitions and integrate acquired companies and assets, and (vii) other factors described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003, filed on October 10, 2003.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A discussion of the Company’s critical accounting policies, which include revenue recognition, impairment of goodwill, deferred taxes and insurance and claims reserves, can be found in the Annual Report on Form 10-K for the fiscal year ended June 30, 2003. There have been no material changes to these policies in fiscal 2004.

RESULTS OF OPERATIONS

Services Revenue

The Company’s services revenue is derived principally from transaction fees related to commercial real estate, which include commissions from leasing, acquisition and disposition, and agency leasing assignments as well as fees from appraisal and consulting services. Management fees, which include reimbursed salaries, wages and benefits, comprise the remainder of the Company’s services revenues, and include fees related to both property and facilities management outsourcing and business services.

Services revenue in any given quarter during the three fiscal year period ended June 30, 2003, as a percentage of total annual services revenue, ranged from a high of 32.5% to a low of 20.8%, with services revenue earned in the first quarters of each of the last three fiscal years ranging from 24.1% to 25.6%. The Company has typically experienced its lowest quarterly services revenue in the quarter ending March 31 of each year with higher and more consistent services revenue in the quarters ending June 30 and September 30, and its highest

12

quarterly services revenue in the quarter ending December 31, due to increased activity caused by the desire of clients to complete transactions by calendar year-end.

Total services revenue of $101.9 million was recognized for the three months ended September 30, 2003 as compared to revenue of $107.8 million for the same period last year. Transaction fees decreased by $9.1 million in the current fiscal quarter over the same quarter in 2002 due to the weak general economy and its impact on the real estate industry, along with increased turnover in the Company’s transaction professional workforce. Management fees increased by $3.2 million, or 7.3%, during that same period due to increased reimbursed revenues, related to salaries, wages and benefits, as described below.

Costs of Services

Transaction commissions expense is the Company’s largest expense and is a direct function of gross transaction services revenue levels, which include transaction services commissions and other fees. Professionals receive transaction commissions at rates that increase upon achievement of certain levels of production. As a percentage of gross transaction revenue, related commission expense increased slightly to 60.9% for the quarter ended September 30, 2003 as compared to 60.3% for the same period in 2002.

Reimbursable expenses, related to salaries, wages and benefits, increased by $2.4 million, or 7.6%, primarily due to the staffing requirements of new facility management assignments.

Salaries and other direct costs increased by $928,000, or 11.9%, also primarily due to the staffing requirements of new facility management assignments.

Costs and Expenses

Salaries, wages and benefits decreased by $4.5 million, or 26.9%, during the quarter ended September 30, 2003 as compared to September 30, 2002. The decrease resulted primarily from a reduction in workforce in March 2003, along with the reduction of incentive compensation expense. Selling, general and administrative expenses decreased by $2.0 million or 15.1%, for the same period, as the Company decreased its discretionary spending beginning in the fourth quarter of fiscal year 2003.

Depreciation and amortization expense for the quarter ended September 30, 2003 decreased to $1.7 million from $2.0 million in the comparable period last year as the Company tightened its investment in equipment, software and leasehold improvements. The Company holds multi-year service contracts with certain key professionals, the costs of which are amortized over the lives of the respective contracts, which are generally two to three years. Amortization expense relating to these contracts of $367,000 was recognized in the quarter ended September 30, 2003 compared to $366,000 for the same period in the prior year.

A non-recurring expense consisting of severance and other costs totaling $900,000 was incurred during the quarter ended September 30, 2002 in connection with the termination of employment of the Company’s former Chief Operating Officer.

Interest income decreased during the quarter ended September 30, 2003 as compared to the same period in the prior year as a result of lower available invested cash.

Interest expense incurred during the quarters ended September 30, 2003 and 2002 was due primarily to the Company’s term loan borrowings under the credit facility. Interest expense was also incurred due to the note payable-affiliate funded in March 2002 and subsequently converted to preferred stock in September 2002 and a second note payable-affiliate that was funded in May 2003.

Net Income (Loss)

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The net loss to common stockholders for the three months ended September 30, 2003 was $150,000, or $0.01 per common share on a diluted basis, as compared to $2,276,000, or $0.15 per common share, for the same period in the prior fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended September 30, 2003, the Company generated cash flow from operating activities of $5.6 million and used $140,000 in investing activities for purchases of equipment, software and leasehold improvements. The Company did not participate in any financing activity during this period.

The cash flow activities described in the preceding paragraph, along with the classification of $7.0 million and $4.0 million of the amounts outstanding under the Company’s credit facility and note payable-affiliate, respectively, as current debt obligations, have resulted in a negative working capital position of approximately $7.3 million as of September 30, 2003. Strengthening of the Company’s working capital position will require improvements in its cash flow from operations, modifications of payment terms related to its outstanding debt obligations, all of which are currently held by related parties, or additional working capital infusions, as to all of which there can be no assurances.

See Note 5 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report for information concerning earnings before interest, taxes, depreciation and amortization.

In the event of adverse economic conditions or other unfavorable events, and to the extent that the Company’s cash requirements are not met by operating cash flow or available debt or equity proceeds, the Company may find it necessary to reduce expenditure levels or undertake other actions as may be appropriate under the circumstances. The Company has principal payment obligations under the term portion of its Credit Facility of $27.3 million as of September 30, 2003, of which $2.0 million becomes due over the twelve months ending September 30, 2004. The Company has also entered into a $4.0 million subordinated loan with a related party, which is due on July 15, 2004.

As of September 30, 2003, the Company had fully utilized its revolving credit facility through borrowings of $5.0 million. Borrowings under the revolver are ultimately due upon termination or maturity of the credit agreement, December 31, 2005. In addition, the Company must repay all outstanding amounts on the revolver and not re-borrow such funds for a period of 30 consecutive days each December. In October 2003, the Company repaid all amounts outstanding under the revolver from working capital reserves.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s bank debt obligations are floating rate obligations whose interest rate and related monthly interest payments vary with the movement in LIBOR. As of September 30, 2003, the outstanding principal balances on these debt obligations totaled $27.3 million, of which $2.0 million is due over the next twelve months. Since interest payments on these obligations will increase if interest rate markets rise, or decrease if interest rate markets decline, the Company is subject to cash flow risk related to these debt instruments. In order to mitigate this risk, terms of the credit agreement required the Company to enter into interest rate swap agreements to effectively convert a portion of its floating rate term debt obligations to fixed rate debt obligations through March, 2004. Interest rate swaps generally involve the exchange of fixed and floating rate interest payments on an underlying notional amount. As of September 30, 2003, the Company had $9.5 million in notional amount interest rate swaps outstanding in which the Company pays a fixed rate of 5.18% and receives a three-month LIBOR based rate from the counter-parties. The notional amount of the interest rate swap agreements is scheduled to decline as follows:

Notional Amount	Date
$8,000,000	March 31, 2004

When interest rates rise the interest rate swap agreements increase in fair value to the Company and when interest rates fall the interest rate swap agreements decline in value to the Company. As of September 30, 2003, there was a net decline in interest rates since the Company had entered into the agreements, and the interest rate swap agreements were in an unrealized loss position to the Company of approximately $107,000, net of taxes.

To highlight the sensitivity of the interest rate swap agreements to changes in interest rates, the following summary shows the effects of a hypothetical instantaneous change of 100 basis points (BPS) in interest rates as of September 30, 2003 (in thousands):

Notional Amount		$	9,500
Fair Value to the Company			(107	)
Change in Fair Value to the Company
	Reflecting Change in Interest Rates
	- 100 BPS		(13	)
	+ 100 BPS		12

The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments.

Item 4. Controls and Procedures

Effective as of September 30, 2003, the Company carried out an evaluation, under the supervision and with the participation of management, including the Co-Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a - 15e under the Exchange Act). Based upon the evaluation, the Company’s Co-Chief Executive Officers and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to timely alert them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act filings. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the date of the evaluation.

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PART II

OTHER INFORMATION

(Items 2, 3, 4 and 5 are not applicable
for the quarter ended September 30, 2003)

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Item 1. Legal Proceedings

The disclosure called for by Item 1 is incorporated by reference to Note 6 of Notes to Condensed Consolidated Financial Statements.

Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits
(3)	Articles of Incorporation and Bylaws
3.1	Certificate of Incorporation of the Registrant, as restated November 1, 1994, incorporated herein by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K filed on March 31, 1995.
3.2	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 Registrant’s Statement on Form S-8 filed on December 19, 1997 (File No. 333-42741).
3.3	Bylaws of the Registrant, as amended and restated effective May 31, 2000, incorporated herein by reference to Exhibit 3.5 to the Registrant’s Annual Report on Form 10-K filed on September 28, 2000.
(10)	Material Contracts
10.1*	Employment Agreement entered into on October 27, 2003, between Brian D. Parker and the Registrant, effective September 30, 2003.

*Management contract or compensatory plan or arrangement.

(31)	Section 302 Certifications
(32)	Section 906 Certification
(b)	Reports on Form 8-K
	None.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GRUBB & ELLIS COMPANY
	(Registrant)
Date: November 14, 2003	/s/ Brian D. Parker
	Brian D. Parker
	Chief Financial Officer and
	acting in capacity of co-Chief Executive Officer

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Grubb & Ellis Company

EXHIBIT INDEX

for the quarter ended September 30, 2003

Exhibit

(10)	Material Contracts
10.1	Employment Agreement entered into on October 27, 2003, between Brian D. Parker and the Registrant, effective September 30, 2003
(31)	Section 302 Certifications
(32)	Section 906 Certification

19 EX-10.1 3 c80957exv10w1.htm EMPLOYMENT AGREEMENT FOR BRIAN D. PARKER

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”), is made and entered into as of September 30, 2003, between GRUBB & ELLIS COMPANY, a Delaware corporation (the “Company”), and BRIAN D. PARKER (the “Executive”).

     1.     POSITION AND DUTIES. The Executive shall have the title and position of Executive Vice President and Chief Financial Officer of the Company. Subject to control of the Board of Directors of the Company (the “Board”), the Executive shall have such duties and responsibilities commensurate with his title and position, and shall report to the Chief Executive Officer of the Company, or to the Board of Directors or one of its Committees, or to the Chairman of the Board, as the Company may determine from time to time. Executive’s employment is on a full-time basis, provided however, that Executive may participate from time to time in civic, charitable and educational activities, and may continue to be a member of the board of directors of Joplin Advisors, Inc. (“Joplin”), and if approved in advance by the Board, may become a member of one other for-profit board of directors, so long as such activities do not materially interfere with his duties and responsibilities to the Company.

     2.     LOCATION OF EMPLOYMENT. Executive’s principal place of employment shall be Northbrook, Illinois.

     3.     PERIOD OF CONTRACT EMPLOYMENT. The term “Period of Contract Employment,” as used in this Agreement, means the period beginning on October 1, 2003 and ending on the earlier of September 30, 2006 or, subject to the terms hereof, upon termination of the Executive’s employment with the Company.

     4.     MONTHLY BASE SALARY. During the Period of Contract Employment, the Company agrees to pay the Executive an annual base salary (the “Base Salary”) in the amount of Three Hundred Twenty Four Thousand ($324,000) Dollars. The Base Salary shall be payable as current salary, in installments (not less frequently than monthly) subject to all applicable withholding and deductions, in accordance with the Company’s customary payroll practices. The Company shall review the Executive’s Base Salary annually and, if appropriate, increase it in the Company’s discretion. The Company is currently engaged in a study of the compensation of its senior management (the “Compensation Study”). The Company agrees following completion of the Compensation Study to review the Executive’s compensation and consider, in its sole discretion, adjusting same, if appropriate.

     5.     BONUS COMPENSATION. During the Period of Contract Employment, the Executive shall be eligible to receive target bonus compensation (“Bonus Compensation”) of up to fifty percent (50%) of Base Salary. Bonus Compensation shall be based upon the performance of both the Executive and the Company of goals to be established by the Chief Executive Officer of the Company, in consultation with the Executive, in December of each year (commencing in December 2003) during the Period of Contract Employment in respect of the applicable succeeding calendar year. Bonus Compensation for calendar year 2003 shall be

payable as follows: (a) fifty percent (50%) of the Bonus Compensation shall be guaranteed and shall be payable as current salary (at the rate of $6,750 per month through February 2004), in installments (not less frequently than monthly) subject to all applicable withholding and deductions, in accordance with the Company’s customary payroll practices. The Executive acknowledges receipt of guaranteed Bonus Compensation in respect of calendar year 2003 for the period from March 1, 2003 to date; and (b) the remainder of the Bonus Compensation for calendar year 2003, which is in the discretion of the Company, shall be payable promptly after February 28, 2004 in one lump sum, subject to all applicable withholding and deductions, in accordance with the Company’s customary payroll and bonus payment practices. Bonus Compensation in respect of calendar year 2004 and thereafter shall be payable entirely at the discretion of the Company, and shall be payable promptly after February 28 of the year following the calendar year in respect of which Bonus Compensation is payable in one lump sum, subject to all applicable withholding and deductions, in accordance with the Company’s customary bonus practices. All Bonus Compensation shall be prorated, as applicable, by reference to the period within such applicable calendar year that the Executive was employed by the Company, except as otherwise provided herein.

     6.     STOCK OPTIONS. Pursuant to the Company’s 2000 Stock Option Plan (referred to herein as the “Plan”), the Company, subject to the approval of the Board of Directors of the Company (the “Board”), to be obtained on the date of the next most practicable meeting of the Board (or by written consent), shall grant the Executive a stock option (the “Option” or “Options”) to purchase an aggregate of one hundred fifty thousand (150,000) shares of the Company’s common stock, $.01 par value per share (the “Common Stock”), at a per share exercise price equal to the Fair Market Value (as such term is defined in the Plan) of the Common Stock at the close of trading day immediately preceding the date of the grant (the “Exercise Price”). The terms of the Options shall be set forth in the Company’s standard form of option agreement to be entered into between the Company and the Executive, and which shall reflect the terms set forth herein (the “Option Agreement”). The Options shall become exercisable as follows: Options to purchase up to 50,000 shares shall become exercisable on the date of the grant; Options to purchase up to 50,000 shares shall become exercisable on the first anniversary of the grant; and, Options to purchase up to 50,000 shares shall become exercisable two years from the anniversary of the grant. Subject to the terms of the Plan, the Option shall expire ten (10) years after the date of grant.

     7.     BENEFITS. During the Period of Contract Employment, and as otherwise provided in Section 8 hereof, the Executive shall be entitled to participate in or receive benefits and perquisites equivalent to any employee benefit plan or other arrangement, including but not limited to any medical, dental, retirement, disability, life insurance, sick leave and vacation plans or arrangements, and expense reimbursement policies generally made available by the Company to its senior executives, subject to or on a basis consistent with the terms, conditions and overall administration of such plans or arrangements; PROVIDED, that such plans and arrangements are made available at the discretion of the Company and nothing in this Agreement establishes any right of the Executive to the availability or continuance of any such plan or arrangement. The Company shall reimburse the Executive for up to five thousand dollars ($5,000) in attorneys’ fees reasonably expended in the negotiation of this Agreement. To the extent permitted by law, Executive shall receive service credit for his prior employment with the Company for purposes of future vesting or accrual of benefits. Executive shall accrue vacation at the rate of three (3)

2

weeks per year and may carryover up to two (2) weeks per year of vacation. Executive shall be indemnified by the Company in accordance with the Company’s Bylaws, as amended from time to time, and the parties have, in furtherance thereof, executed an indemnification agreement dated March 1, 2003 (the “Indemnification Agreement”). Within ten (10) business days of the execution and delivery of this Agreement, the Company shall reimburse Joplin for expenses incurred by it in the amount of $16,000.00.

     8.     TERMINATION. The following termination provisions and benefits are in lieu of the benefits available under the Company’s written policies and procedures, as amended, and the Company’s Executive Change of Control Plan, as amended, and the Company’s Executive Incentive Bonus and Severance Plan, as amended. Executive agrees that his termination provisions and benefits shall not be governed by such policies and plans.

     (a) Termination by the Company Without Cause. The Company may terminate the Executive’s employment under this Agreement without Cause at any time by giving written notice to the Executive. Such termination will become effective upon the date specified in such notice (the “Effective Date”), provided that such date is at least ninety (90) days after the date of such notice. Upon any such termination, the Company will pay the Executive, within seven (7) days of the Effective Date of termination and subject to the Executive’s execution and delivery of such documents of mutual release as the parties may reasonably request and the Executive’s continuing compliance with the provisions of Sections 9 and 10 hereof (the “Release”): (i) all earned but unpaid Base Salary, guaranteed Bonus Compensation and any unused but accrued vacation through the Effective Date, payable in a lump sum within seven (7) days after the Effective Date (the “Earned Sums”); and (ii) all Base Salary payable in accordance with the Company’s customary payroll practices, and benefits provided for in Section 7 hereof for a period (the “Severance Period”) of either twelve (12) months following the Effective Date if such termination occurs prior to October 1, 2005 or six (6) months following the Effective Date if such termination occurs on or after October 1, 2005 (the “Severance Benefit”). The Severance Benefit shall not be reduced in the event the Executive obtains other employment or consulting work.

     (b) Termination by the Company for Cause. The Company may immediately terminate the Executive’s employment at any time for Cause by giving written notice to the Executive. Upon any such termination for Cause, the Executive shall have no right to compensation under Section 8(a)(ii), including, without limitation, and except as required by law, to participate in any employee benefit programs under Section 7 for any period subsequent to the date of termination. For purposes of this Section 8(b), “Cause” shall mean: (i) the Executive is convicted of or pleads guilty or nolo contendere to a felony; (ii) the Executive, in carrying out his duties hereunder, commits acts involving dishonesty or fraud or is guilty of gross negligence or willful misconduct; (iii) the Executive refuses to comply with any lawful directive of the Board that is commensurate with the Executive’s titles within 15 days after written notice has been given to the Executive by the Company; or (iv) there is a material breach by the Executive of this Agreement that, to the extent curable, is not cured by the Executive within 15 days of written notice to the Executive thereof by the Company.

3

     (c) Death or Disability. This Agreement and the obligations of the Company hereunder will, upon the Company’s election in writing to the Executive within thirty (30) days thereafter, terminate upon the death or disability of the Executive. For purposes of this Section 8(c), “disability” shall mean that for a period of more than three (3) months the Executive is unable to perform the essential functions of his duties because of physical, mental or emotional incapacity resulting from injury, sickness or disease. Upon the Executive’s death or in the event that the Company elects to terminate the Executive’s employment in the event of his disability, in addition to the payments and/or rights set forth in Section 8(g) hereof, the Executive or his personal representatives shall be paid in a lump sum within seven (7) days of the execution and delivery of a Release a prorated portion of his targeted Bonus Compensation as though the same were guaranteed for the calendar year during which the Executive shall die or become disabled.

     (d) Termination by the Executive for Good Reason. The Executive may terminate his employment under this Agreement at any time for Good Reason by giving sixty (60) days written notice to the Company. For purposes of this Section 8(d), “Good Reason” shall mean: (i) the Executive’s principal place of employment is moved to a location other than in the Chicago, Illinois metropolitan area; (ii) the Executive suffers a reduction in title or is required to report to other than one of the following: the Chief Executive Officer of the Company, the Chairman of the Board of Directors of the Company or the Board of Directors of the Company or one of its committees; or (iii) a material breach of the Agreement by the Company that is not cured fifteen (15) days after written notice of the breach has been given to the Company by the Executive. In the event of such a termination, the Executive shall be entitled to the Severance Benefit set forth in Section 8(a) and benefits set forth in Section 7 during the Severance Period.

     (e) Termination by the Executive Without Good Reason. The Executive may terminate his employment under this Agreement at any time by giving written notice to the Company. Such termination will become effective upon the date specified in such notice, provided that such date is at least ninety (90) days after the date of delivery of the notice. Upon any such termination, the Company shall be relieved of all of its obligations under this Agreement, except for the payments and the provision of benefits set forth in Section 8(g) hereof.

     (f) Termination of the Executive Upon a Change of Control. Upon a “Change of Control” (as such term is defined herein), (i) the Company may terminate the Executive’s employment simultaneously with such Change of Control or within thirty (30) days thereafter or (ii) the Executive may resign his employment with the Company effective during the thirty (30) day period after the ninetieth (90^th) day after such Change of Control. In the event that the Executive’s employment is terminated or he resigns pursuant to this Section 8(f), in addition to the payments and benefits set forth in Section 8(g) hereof, the Executive shall be paid in a lump sum within seven (7) days following execution of the Release twelve (12) months Base Salary and Bonus Compensation in respect of the succeeding twelve (12) month period at target as though guaranteed, less applicable withholding and deductions, in accordance with the Company’s customary payroll and bonus payment practices. In addition, the Executive shall be provided the

4

benefits set forth in Section 7 hereof, for the succeeding twelve (12) month period, at the active employee contribution rate, if any, in effect at such time. For purposes of this Section 8(f) and the Option Agreement, the term “Change of Control” shall have the meaning given to it on Exhibit A annexed hereto.

     (g) Termination Payment/Benefits. In addition to the payments and benefits otherwise set forth in this Section 8 payable to or to be provided to the Executive following the termination of Executive’s employment with the Company, the Executive shall be entitled to receive: (i) the Earned Sums; (ii) subject to the terms and conditions of the applicable plans, vested benefits under any of the Company’s benefit plans in which the Executive participates; and (iii) subject to the terms and conditions of the applicable plans, such benefit continuation and conversion rights as may be afforded former employees of the Company under plans in which the Executive participates.

     9.     NON-COMPETITION; NON-SOLICITATION

               (a) Executive hereby agrees and covenants that during the period of Executive’s employment with the Company, Executive will not directly or indirectly engage in or become interested (whether as an owner, principal, agent, stockholder, member, partner, trustee, venturer, lender or other investor, director, officer, employee, consultant or through the agency of any corporation, limited liability company, partnership, association or agent or otherwise) in any business or enterprise that shall, at the time, be in whole or in substantial part competitive with any material part of the business conducted by the Company (a “Competitor”) (which, for purposes of this Section 9 shall include the Company’s subsidiaries and affiliates) during the period of Executive’s employment with the Company (except that ownership of not more than 1% of the outstanding securities of any class of any entity that is listed on a national securities exchange or traded in the over-the-counter market shall not be considered a breach of this Section 9(a)). The Company acknowledges that Executive is a principal of Joplin, a management consulting firm. While Executive will work full time for the Company during the Period of Contract Employment, it is acknowledged that Executive may need to address certain issues in respect of Joplin from time to time, provided that (i) it does not interfere with his duties and responsibilities for the Company and (ii) neither Executive nor Joplin will engage in any activities on behalf of a Competitor.

               (b) Executive agrees and covenants that for the period commencing on the date hereof and ending twelve (12) months following the termination of Executive’s employment with the Company (the “Limited Period”), Executive will not (without first obtaining the written permission of the Company) directly or indirectly divert or attempt to divert from the Company any business of any kind in which the Company or its subsidiaries or affiliates is engaged.

               (c) Executive agrees and covenants that for the Limited Period, Executive will not (without first obtaining the written permission of the Company) for himself or any third party, directly or indirectly, recruit for employment, or induce or seek to cause such person to terminate his or her employment or association with the Company, any person who then is an employee, consultant or independent contractor salesperson of the Company.

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     10.     CONFIDENTIALITY. The Executive hereby covenants and agrees, for a period of five (5) years from the date hereof (the “Restricted Period”), he will not, directly or indirectly, make use of or divulge to any other person, firm or corporation any trade or business secret, process, method or means or any other confidential information concerning the business or policies of the Company or any subsidiary thereof. The Executive’s obligations shall not apply to any information which (i) is known publicly; (ii) is in the public domain or hereafter enters the public domain without the fault of the Executive; (iii) is known to the Executive prior to his receipt of such information from the Company or any of its subsidiaries, as evidenced by the Executive’s written records; or (iv) is disclosed to the Executive by a third party not under an obligation of confidence to the Company.

     11.     SEVERABILITY, ENFORCEABILITY. In the event that the provisions of the Section captioned “Non-Competition; Non-Solicitation” or “Confidentiality”, or any portion thereof, should ever be adjudicated by a court of competent jurisdiction in proceedings to which the Company is a proper party to exceed the time or geographic or other limitations permitted by applicable law, then such provisions will be deemed reformed to the maximum time or other limitations permitted by applicable law, as determined by such court in such action, the parties hereby acknowledging their desire that in such event such action be taken. Without limiting the foregoing, the covenants contained herein will be construed as separate covenants covering their respective subject matters, including, without limitation, with respect to (a) each business now conducted by the Company or its successors, and (b) the Company and its successors separately. In addition to the above, all provisions of this Agreements are severable, and the invalidity or unenforceability of any provision or provisions of this Agreement or portions or aspects thereof will not affect the validity or enforceability of any other provision, or portion of this Agreement, which will remain in full force and effect as if executed with the unenforceable or invalid provision or portion or aspect thereof modified, as set forth above.

     12.     GOVERNING LAW. This Agreement is being made and executed in and is intended to be performed in the State of Illinois and shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of Illinois, without regard to the conflict of laws principles thereof.

     13.     ENTIRE AGREEMENT. This Agreement (together with the Indemnification Agreement) comprises the entire agreement between the parties hereto relating to the subject matter hereof and, as of the date hereof, supersede, cancel and annul all previous employment agreements between the Company (and/or its predecessors) and the Executive (including, without limitation, the Employment Agreement dated as of March 1, 2003 between the parties), as the same may have been amended or modified, and any right of the Executive thereunder other than for compensation accrued thereunder as of the date hereof, and supersede, cancel and annul all other prior written and oral agreements between the Executive and the Company or any predecessor to the Company, except that the Indemnification Agreement shall hereafter continue to be in full force and effect. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement.

     14.     DISPUTES. Any dispute or controversy arising under, out of, in connection with or in relation to this Agreement shall be finally determined and settled by arbitration. Arbitration

6

shall be initiated by one party making written demand upon the other party and simultaneously filing the demand together with required fees in the office of the American Arbitration Association in Chicago, Illinois. The arbitration proceeding shall be conducted in Chicago, Illinois by a single arbitrator in accordance with the Expedited Procedures of the Employment Dispute Resolution Rules required by the arbitrator, and the parties shall have no obligation to comply with discovery requests made in the arbitration proceeding. The arbitration award shall be a final and binding determination of the dispute and shall be fully enforceable as an arbitration award in any court having jurisdiction and venue over such parties. Attorneys’ fees and costs shall be awarded to the prevailing party, as determined by the arbitrator. Notwithstanding the foregoing, in the event that hereafter the Company enters into an employment agreement with a Chief Executive Officer of the Company that provides for judicial dispute resolution, then in such event, at the Company’s option, this Agreement shall be deemed to be automatically amended to provide for an identical means of dispute resolution.

     15.     NOTICES. Any notice, request, claim, demand, document and other communication hereunder to any party will be effective upon receipt (or refusal of receipt) and will be in writing and delivered personally or sent by telecopy, overnight delivery service (such as Fed Ex) or certified or registered mail, postage prepaid, as follows: if to the Company, addressed to the attention of its General Counsel at 2215 Sanders Road, Suite 400, Northbrook, IL 60062; and if to the Executive, at:

Brian D. Parker

6513 Lyons Street

Morton Grove, IL 60053

     Either party may change the notice address by notifying the other party in writing.

     16.     AMENDMENTS; WAIVERS. This Agreement may not be modified, amended, or terminated except by an instrument in writing, approved by the Board and signed by the Executive and the Company. By an instrument in writing similarly executed, the Executive or the Company may waive compliance by the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy or power hereunder shall preclude any other or further exercise of any other right, remedy or power provided herein or by law or in equity.

     17.     MISCELLANEOUS. Executive acknowledges that the services to be rendered by Executive are unique and personal and Executive may not assign his rights or delegate his duties or obligations under this Agreement without the prior approval of the Company. The rights and obligations of the Company under this Agreement shall inure and be binding upon its legal representatives, successors and assigns, including without limitation, successors by merger, sale of assets or otherwise, provided however that an assignment to a shell company without a reasonable amount of assets is not permitted.

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     18.     SURVIVAL. The obligations of the parties shall survive the termination of this Agreement to the extent necessary to carry out the intent of the parties.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.

GRUBB & ELLIS COMPANY
By:	/s/ C. Michael Kojaian	/s/ Brian D. Parker
	C. Michael Kojaian	Brian D. Parker

8

Exhibit A

Change of Control

     For purposes of this Agreement and the Option Agreement, a “Change of Control” shall mean the occurrence of any of the following: (a) a majority of the members of the Board are representatives or designees of any “Person” or “Group” (as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), excluding representatives, designees or affiliates of Warburg Pincus Investors, L.P. (“Warburg”), The Goldman Sachs Group, Inc. (“GS Group”) or C. Michael Kojaian and Mike Kojaian (the “Kojaian Investors”); it being understood that it shall not be deemed to be a Change of Control if no Person or Group shall have designated or nominated a majority of the members of the Company Board; (b) any “Person” or “Group”, other than Warburg, the GS Group or the Kojaian Investors is or becomes the “beneficial owner” (as defined in Rule 13D-3 under the Exchange Act as in effect on the date hereof, except that a Person shall be deemed to be the “beneficial owner” of all shares that any such Person or Group has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the sixty (60) day period referred to in such Rule), directly or indirectly, of securities representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities, or (c) the Company shall consolidate, merge or exchange securities with any other entity and the stockholders of the Company immediately before the effective time of such transaction do not beneficially own, immediately after the effective time of such transaction, shares entitling such stockholders to a majority of all votes (without consideration of the rights of any class of stock entitled to elect directors by a separate class vote) to which all stockholders of the corporation issuing cash or securities in the consolidation, merger or share exchange would be entitled for the purpose of electing directors, or d) the sale of all or substantially all of the assets of the Company and its subsidiaries. Notwithstanding anything set forth herein to the contrary, in the event that immediately subsequent to the occurrence of any of the events set forth in subclauses (b) through (d) immediately proceeding, (i) the Company is an entity whose equity securities are registered under Section 12(b) or 12(g) of the Exchange Act, or the Company is a reporting entity under Section 15(d) of the Exchange Act as a result of its outstanding equity securities, and (ii) no Person or Group owns shares of the Company representing more than fifty percent (50%) of all shares entitled to vote for the purpose of electing directors (without consideration of the rights of any class of stock entitled to elect directors by a separate class vote), then for purposes of this Agreement and the Option Agreement, no Change in Control shall be deemed to have occurred. For purposes hereof, the term “affiliate” shall include all Persons controlled by or under common control with any other Person, or any trusts, partnerships or other entity for the benefit of any Person which is an individual or for the benefit of such individual’s family members.

EX-31 4 c80957exv31.htm SECTION 302 CERTIFICATIONS

Exhibit 31

CERTIFICATIONS

I, Maureen A. Ehrenberg, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Grubb & Ellis Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 14, 2003
	/s/ Maureen A. Ehrenberg
	Maureen A. Ehrenberg
	Executive Vice President and
	acting in capacity of co-Chief Executive Officer

CERTIFICATIONS

I, Richard L. Fulton, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Grubb & Ellis Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 14, 2003
	/s/ Richard L. Fulton
	Richard L. Fulton
	Executive Vice President and
	acting in capacity of co-Chief Executive Officer

CERTIFICATIONS

I, Robert Osbrink, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Grubb & Ellis Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 14, 2003
	/s/ Robert Osbrink
	Robert Osbrink
	Executive Vice President and
	acting in capacity of co-Chief Executive Officer

CERTIFICATIONS

I, Brian D. Parker, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Grubb & Ellis Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 14, 2003
	/s/ Brian D. Parker
	Brian D. Parker
	Chief Financial Officer and
	acting in capacity of co-Chief Executive Officer

EX-32 5 c80957exv32.htm SECTION 906 CERTIFICATION

Exhibit 32

Written Statement of Co-Chief Executive Officers and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, the Co-Chief Executive Officers and the Chief Financial Officer of Grubb & Ellis Company (the “Company”), each hereby certifies that to his knowledge, on the date hereof:

(a)	the Form 10-Q of the Company for the period ended September 30, 2003 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
(b)	information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Maureen A. Ehrenberg

Maureen A. Ehrenberg

Executive Vice President

acting in capacity of co-Chief Executive Officer

November 14, 2003

/s/ Richard L. Fulton

Richard L. Fulton

Executive Vice President

acting in capacity of co-Chief Executive Officer

November 14, 2003

/s/ Robert Osbrink

Robert Osbrink

Executive Vice President

acting in capacity of co-Chief Executive Officer

November 14, 2003

/s/ Brian D. Parker

Brian D. Parker

Chief Financial Officer and

acting in capacity of co-Chief Executive Officer

November 14, 2003

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