GBE Grubb & Ellis Company Common Stock

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

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Grubb & Ellis Company

(Name of Registrant as Specified In Its Charter)

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November 20, 2009

 

To the Stockholders of

Grubb & Ellis Company:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Grubb & Ellis Company to be held on Thursday, December 17, 2009, at 8:30 a.m. Eastern Standard Time, at Le Parker Meridien, 119 West 56th Street, New York, New York 10019.

 

At the Annual Meeting you will be asked to:

 

(i) To adopt an amendment to the restated certificate of incorporation of Grubb & Ellis Company (the “ Certificate of Incorporation ”) to increase the authorized number of common and preferred shares;

 

(ii) (A) adopt an amendment to the Certificate of Incorporation (1) to declassify the Board of Directors and (2) to fix the number of directors at no less than three nor more than eight, as determined solely by the Board of Directors from time to time, and (B) elect six directors to such declassified Board of Directors, each to serve for a one-year term;

 

(iii) elect three Class B directors, each to serve for a three-year term;

 

(iv) adopt an amendment to the Certificate of Incorporation to increase the number of directors by two in the event that dividends with respect to the Company’s newly issued preferred stock are in arrears for six or more quarters, whether or not consecutive, subject to certain conditions;

 

(v) ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2009; and

 

(vi) transact such other business as may properly come before the Annual Meeting or any postponements or adjournments.

 

The Board of Directors unanimously recommends that you vote FOR the proposals set forth in (i), (ii), (iii), (iv) and (v) above. In addition, in the event Proposal No. 2 is approved, Proposal No. 3 and Proposal No. 4 will not be necessary, as they are superseded by Proposal No. 2, and they will not be adopted, even if they receive the requisite stockholder approvals. We encourage you to read the accompanying Proxy Statement, which provides information about Grubb & Ellis Company, certain amendments to our certificate of incorporation, election of directors and other matters to be considered at the Annual Meeting.

 

It is important that your shares be represented at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, you are requested to submit a proxy via mail, the Internet or by telephone by following the Instructions included with the enclosed proxy card. Returning the enclosed proxy card, or voting via the Internet or telephone, will not deprive you of your right to attend the Annual Meeting and to vote your shares in person. If you attend the Annual Meeting and prefer to vote in person, you may do so.

 

Sincerely,

 

Thomas D’Arcy
President and Chief Executive Officer

TABLE OF CONTENTS

 

 

GRUBB & ELLIS COMPANY
1551 N. Tustin Avenue, Suite 300
Santa Ana, CA 92705
(714) 667-8252

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD DECEMBER 17, 2009

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Grubb & Ellis Company will be held on Thursday, December 17, 2009, at 8:30 a.m. Eastern Standard Time, at Le Parker Meridien, 119 West 56th Street, New York, New York 10019 for the following purposes, all of which are more completely set forth in the accompanying Proxy Statement:

 

1. To adopt an amendment to the restated certificate of incorporation of Grubb & Ellis Company (the “ Certificate of Incorporation ”) to increase the authorized number of common and preferred shares;

 

2. (A) To adopt an amendment to the Certificate of Incorporation (1) to declassify the Board of Directors and (2) to fix the number of directors at no less than three nor more than eight, as determined solely by the Board of Directors from time to time, and (B) to elect six directors to such declassified Board of Directors, each to serve for a one-year term;

 

3. To elect three Class B directors, each to serve for a three-year term in the event that Proposal No. 2 is not approved;

 

4. To adopt an amendment to the Certificate of Incorporation to increase the number of directors by two in the event that dividends with respect to the Company’s newly issued preferred stock are in arrears for six or more quarters, whether or not consecutive, subject to certain conditions, in the event that Proposal No. 2 is not approved;

 

5. To ratify the appointment by the Board of Directors of Grubb & Ellis Company of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009; and

 

6. To transact such other business as may properly come before the Annual Meeting and any adjournments of the meeting.

 

Stockholders of record at the close of business on November 20, 2009 are entitled to notice of and to vote at the Annual Meeting and at any postponements or adjournments of the meeting.

 

By Order of the Board of Directors

 

Thomas D’Arcy
President and Chief Executive Officer

 

Santa Ana, CA

November 20, 2009

 

This Proxy Statement and accompanying enclosed proxy card are being mailed beginning November 23, 2009 in connection with the solicitation of proxies by the Board of Directors of Grubb & Ellis Company, a Delaware corporation, for use at the 2009 Annual Meeting of Stockholders, which we may refer to alternatively as the “Annual Meeting” or the “Annual Meeting of Stockholders.” We may refer to ourselves in this Proxy Statement alternatively as “Grubb & Ellis,” the “Company,” “we,” “us” or “our” and we may refer to our Board of Directors as the “Board.”

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

 

 

Unless you give other instructions on your enclosed proxy card, the persons named as proxy holders on the enclosed proxy card will vote in accordance with the recommendations of the Board.

 

 

 

 

 

Where a proxy card has been voted “abstain,” “withhold authority,” or “broker non-vote,” the shares are counted for quorum purposes, but are not considered cast for voting on a proposal or an election. “Broker non-vote” means that shares are held by a broker or in nominee name and the broker or nominee has signed and returned the enclosed proxy card to us, but for which the broker has no authority to vote because no instructions have been received from its customer.

 

 

On November 4, 2009, the Board of Directors unanimously approved an amendment to the Company’s Restated Certificate of Incorporation (the “ Certificate of Incorporation ”) to increase the authorized number of shares of the Company’s capital stock from 110,000,000 shares to 220,000,000 shares, of which 200,000,000 shares with a par value of $0.01 per share shall be designated common stock, and of which 20,000,000 shares with a par value of $0.01 per share shall be designated preferred stock (the “ Authorized Capital Amendment ”).

 

The Board of Directors approved the Authorized Capital Amendment in connection with the Company’s issuance and sale of up to 1,000,000 shares of a newly issued 12% Cumulative Participating Perpetual Convertible Preferred Stock, par value $0.01 per share (“ Preferred Stock ”). As previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “ SEC ”) on each of October 26, 2009 and November 12, 2009 (each, a “ Form 8K ”), 900,000 shares of Preferred Stock were sold for an aggregate purchase price of $90 million in a private offering to a limited number of institutional accredited investors and individual accredited investors and JMP Securities, as initial purchaser, who sold the Preferred Stock to qualified institutional buyers, in a transaction exempt from registration requirements of the Securities Act of 1933, as amended (the “ Offering ”). As previously disclosed in the Company’s Form 10-Q/A for the quarter ended September 30, 2009 (the “ Form 10-Q/A ”), 14,350 additional shares of Preferred Stock were sold for an aggregate purchase price of $1,435,000 pursuant to the overallotment option of 100,000 shares of Preferred Stock granted to JMP Securities, as initial purchaser. A copy of each Form 8K is being delivered to stockholders along with this Proxy Statement. A copy of the Form 10-Q/A (excluding the exhibits thereto) is included in this Proxy Statement as Annex A hereto.

 

The Company received net proceeds from the Offering of approximately $86.4 million after deducting expenses and after giving effect to the conversion of $5 million of subordinated debt previously provided by an affiliate of the Company’s largest stockholder. The Company used the net proceeds to repay in full its credit facility at the agreed reduced principal amount equal to approximately 65% of the principal amount outstanding under such facility. The balance of the net proceeds from the Offering will be used for general working capital purposes.

 

In order to complete the Offering, the Company had to offer the purchasers of the Preferred Stock a conversion price of $1.65 per share, which can only be achieved if the Company increased its authorized capital. Accordingly, the Authorized Capital Amendment is necessary in order for the purchasers of the Preferred Stock in the Offering to receive their bargained for conversion rate with respect to the Preferred Stock.

 

Prior to the adoption of the Authorized Capital Amendment, subject to adjustments in accordance with the terms of the Certificate of Powers, Designations, Preferences and Rights of the 12% Cumulative Participating Perpetual Convertible Preferred Stock (the “ Certificate of Designations ”) the conversion rate of the Preferred Stock is 31.322 shares of Common Stock per share of Preferred Stock, which represents a conversion price of approximately $3.19 per share. Except as provided by applicable law, the Preferred Stock votes on an as converted basis along with the Common Stock on all matters subject to the vote of common stockholders, and as a separate class with respect to certain matters. Accordingly, each share of Preferred stock as of the date hereof is entitled to 31.322 votes. The full terms of the Preferred Stock are set forth in the Certificate of Designations, which is attached to this Proxy Statement as Annex B.

 

If the Authorized Capital Amendment is adopted, the Preferred Stock will be convertible, at the holder’s option, into Common Stock at a conversion rate of 60.606 shares of Common Stock per share of Preferred Stock, which represents a conversion price of approximately $1.65 per share of Common Stock. As such, each share of Preferred Stock will also, upon the adoption of the Authorized Capital Amendment, be entitled to 60.606 votes.

 

In connection with the Offering, the Company agreed to seek the Authorized Capital Amendment by way of a stockholder meeting to be held as promptly as practical, but no later than 120 days after the date we first issue the Preferred Stock. If the Authorized Capital Amendment is not effective prior to the expiration of such 120-day period, (i) holders of Preferred Stock may, in accordance with the terms of the Certificate of Designations, require

the Company to repurchase all, or a specified whole number, of their Preferred Stock at a repurchase price equal to 110% of the sum of the initial liquidation preference plus accumulated but unpaid dividends to, but excluding, the date on which the stockholders failed to approve the Authorized Capital Amendment, and (ii) the dividend rate on the Preferred Stock will automatically increase from 12% to 14% per annum; provided , however , that holders of Preferred Stock as of the record date or their transferees who do not approve the Authorized Capital Amendment will not be able to exercise such repurchase right or have the dividend rate with respect to their Preferred Stock increased. The Company may not have sufficient funds to repurchase the Preferred Stock, and may not have the ability to arrange necessary financing on acceptable terms, if at all, in the event holders of the Preferred Stock exercise their right to require the Company to repurchase all, or a specified whole number, of their Preferred Stock. A failure to repurchase the Preferred Stock may also constitute an event of default, and result in the acceleration of the maturity of, any then existing indebtedness of the Company, under any indenture, credit agreement or other agreement outstanding at that time, which could further restrict the Company’s ability to make such payments.

 

The Company has further agreed that until the Authorized Capital Amendment has been approved and becomes effective, it will not enter into any agreement, including agreements related to our indebtedness or any future series of preferred stock, that would restrict or prevent our ability to pay cash upon any exercise of the right of the holders of Preferred Stock to have their shares repurchased in the event the Authorized Capital Amendment is not approved.

 

If the Authorized Capital Amendment is adopted, the conversion rate of 31.322 shares of Common Stock per share of Preferred Stock would increase to 60.606 and the Preferred Stock holders would constitute approximately 44.9% of the combined voting power of the Common Stock and Preferred Stock (on an as converted basis) voting as a single class. As a result, depending on the number of shares of Common Stock outstanding at any time, the Company’s existing common stockholders will incur substantial dilution of their voting power and will own a significantly smaller percentage of outstanding Common Stock after giving effect to the Preferred Stock on an as converted basis.

 

The Board of Directors approved the Authorized Capital Amendment, as agreeing to seek stockholder approval to increase the Company’s authorized capital was necessary in order to effect the Offering. Furthermore, the Board does not want the Company to be required to repurchase any Preferred Stock or increase the dividend rate with respect to the Preferred Stock in the event the requisite stockholder approval is not obtained with respect to the Authorized Capital Amendment. Furthermore, the Board also believes that increasing the authorized number of shares of Common Stock and Preferred Stock will give the Company greater flexibility in the future and will allow the Company to issue such shares, in most cases, without the expense or delay of seeking stockholder approval, except as may be required by applicable law or stock exchange regulations. To the extent that additional authorized shares of Common Stock are issued in the future, they will decrease the existing stockholders’ percentage equity ownership and, depending upon the price at which they are issued, could be dilutive to the Company’s existing stockholders.

 

The increase in the authorized number of shares of Common Stock and the subsequent issuance of such shares could have the effect of delaying or preventing a change in control of the Company without further action by the stockholders. Shares of authorized and unissued Common Stock could be issued (within limits imposed by applicable law) in one or more transactions. Any such issuance of additional stock could have the effect of diluting the earnings per share and book value per share of outstanding shares of Common Stock, and such additional shares could be used to dilute the stock ownership or voting rights of a person seeking to obtain control of the Company.

 

In order for this Proposal No. 1 (or any of the other Proposals set forth in this Proxy) to be voted upon, a quorum with respect to the Annual Meeting must be present. A quorum will exist for the Annual Meeting if at least a majority of the combined voting power of all of the outstanding shares of Common Stock and Preferred Stock (the Preferred Stock voting on an as converted basis) are represented at the Annual Meeting in person and/or by proxy. Cumulative voting is not permitted.

 

Assuming the presence of a quorum in person or by proxy at the Annual Meeting, in order for the Authorized Capital Amendment to be adopted (i) a majority of the combined voting power of the outstanding shares of Common Stock and Preferred Stock voting together as a single class (the Preferred Stock voting on an as converted basis), (ii) a majority of the outstanding shares of Common Stock voting as a separate class (excluding the Preferred

Stock) and (iii) a majority of the outstanding shares of the Preferred Stock voting as a separate class (excluding the Common Stock) is required.

 

If the Authorized Capital Amendment is adopted, our Certificate of Incorporation would be amended in the form of Section 2B of Annex C attached to this Proxy Statement.

 

If the stockholders adopt the Authorized Capital Amendment, it will become effective upon the filing of a Certificate of Amendment to the Certificate of Incorporation with the Delaware Secretary of the State. The Company plans to file a Certificate of Amendment to the Certificate of Incorporation immediately after the requisite stockholder vote is obtained.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ADOPTION OF AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED CAPITAL OF THE COMPANY, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY.

 

(Proposal No. 2)

 

Amendments to the Certificate of Incorporation

 

On November 4, 2009, the Board of Directors unanimously approved, and is submitting to a vote of the stockholders, (A) an amendment to the Certificate of Incorporation which provides for (i) the declassification of the Board of Directors and (ii) fixing the number of directors at no less than three nor more than eight, as determined solely by the Board of Directors from time to time (clauses (i) and (ii) collectively referred to herein as the “ Declassification Amendment ”) and (B) a proposed slate of six nominees for such declassified Board of Directors, each to serve a one-year term (the “ Declassified Board Nominees ”).

 

The Board believes that stockholders should have the opportunity to vote on all Directors each year and that elimination of the classified board structure will both enhance the Company’s corporate governance practices and be an effective way to maintain and enhance the accountability of the Board. In making this determination, the Board has considered that removing the classified board structure will have the effect of reducing the time required for a majority stockholder or group of stockholders to replace a majority of the Board. Under our current classified board structure, a majority of the Board may be replaced only after two annual elections. Under a declassified board structure, the entire Board may be replaced each year. If the stockholders approve the Declassification Amendment, all Directors who are elected at the 2009 annual meeting will be elected for a one-year term that will expire at the 2010 annual meeting.

 

The Board also determined that the number of directors should be no less than three nor more than eight, as determined solely by the Board from time to time. The Board determined that a range provides greater flexibility than having a fixed number, as the Company’s Certificate of Incorporation currently requires that there be nine Board members. The Board believes that providing the flexibility to reduce the size of the Board from time to time will enable the Company to be more efficient and fiscally responsive to the needs of the Company. Furthermore, one of the eight Board seats will be reserved for the Company’s Chief Executive Officer and the Board presently intends that two of the eight Board seats shall be reserved for election of two directors by the holders of the Company’s Preferred Stock in the event dividends on the Preferred Stock are in arrears for six or more quarters, whether or not consecutive, subject to certain conditions. See discussion below under Proposal No. 4 below “ADOPTION OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF DIRECTORS IN THE EVENT THAT PREFERRED DIVIDENDS ARE IN ARREARS”.

 

The Declassification Amendment has unanimously been approved by the members of the Board. Assuming the presence of a quorum in person or by proxy at the Annual Meeting, the adoption of the Declassification Amendment requires the affirmative vote by the holders of a majority of the combined voting power of all of the outstanding shares of Common Stock and Preferred Stock voting together as a single class (the Preferred Stock voting on an as converted basis).

 

If the Declassification Amendment is adopted, our Certificate of Incorporation would be amended as set forth in Section 3 , Alternative A of Annex C hereto.

 

If the stockholders adopt the Declassification Amendment, it will become effective upon the filing of a Certificate of Amendment to the Certificate of Incorporation with the Delaware Secretary of the State. The Company plans to file a Certificate of Amendment to the Certificate of Incorporation immediately after the requisite stockholder vote is obtained.

 

A corresponding amendment to the Bylaws has been approved by the Board subject to the adoption by the stockholders of the Declassification Amendment and does not require separate approval by the stockholders. The amendment to the Bylaws will become effective concurrently with the effectiveness of the Declassification

Amendment. Upon the effectiveness of such Bylaw amendment, the Company will file a Current Report on Form 8-K with respect thereto.

 

Declassified Board Nominees

 

On November 4, 2009, the Board of Directors unanimously voted to nominate Thomas D’Arcy, C. Michael Kojaian, Robert J. McLaughlin, Devin I. Murphy, D. Fleet Wallace and Rodger D. Young for election at the Annual Meeting, provided that Proposal No. 2 is approved.

 

Information as to Declassified Board Nominees

 

The following table lists the Declassified Board Nominees for election as the new Directors of a declassified Board of Directors. Also in the table is each person’s age as of November 1, 2009, the periods during which that person has served as one of our directors, and positions currently held with us. More detailed biographic information is provided below for each of the director nominees.

 

 

Unless authority to vote for any of these nominees is withheld, the shares represented by the enclosed proxy will be voted FOR the election of Thomas D’Arcy, C. Michael Kojaian, Robert J. McLaughlin, Devin I. Murphy, D. Fleet Wallace and Rodger D. Young as directors. In the event that any nominee becomes unable or unwilling to serve, the shares represented by the enclosed proxy will be voted for the election of such other person as the Board of Directors may recommend in his or her place. We have no reason to believe that any nominee will be unable or unwilling to serve as a director.

 

A vote by a plurality of the votes cast by holders of Common Stock and Preferred Stock (on an as converted basis) voting as a single class where a quorum is present is needed to elect a director. Cumulative voting is not permitted.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” (A) THE ADOPTION OF AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION (I) TO ELIMINATE THE CLASSIFIED BOARD STRUCTURE (II) TO FIX THE NUMBER OF DIRECTORS AT NO LESS THAN THREE NOR MORE THAN EIGHT, AS SOLELY DETERMINED BY THE BOARD OF DIRECTORS FROM TIME TO TIME, AND (B) THE ELECTION OF THE PROPOSED SLATE OF SIX NOMINEES FOR SUCH DECLASSIFIED BOARD OF DIRECTORS, EACH TO SERVE A ONE-YEAR TERM, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY.

 

Biographical Information of Declassified Board Directors

 

Provided below is a brief description of the principal occupation for the past five years of each of the Declassified Board Nominees, under Proposal No. 2.

 

Thomas D’Arcy has served as the President and Chief Executive Officer and as a director of the Company since November 16, 2009. Mr. D’Arcy has been since April 2008 and is currently the non-executive chairman of the board of directors of Inland Real Estate Corporation (NYSE: IRC), where he has also been an independent director since 2005. Mr. D’Arcy has over 20 years of experience acquiring, developing and financing all forms of commercial and residential real estate. He is currently a principal in Bayside Realty Partners, a private real estate company focused on acquiring, renovating and developing land and income producing real estate primarily in the New England area. From 2001 to 2003, Mr. D’Arcy was president and chief executive officer of Equity Investment Group, a private real

estate company owned by an investor group which included The Government of Singapore, The Carlyle Group and Northwestern Mutual Life Insurance Company. Prior to his tenure with Equity Investment Group, Mr. D’Arcy was the chairman of the board, president and chief executive officer of Bradley Real Estate, Inc., a Boston-based real estate investment trust traded on the NYSE, from 1989 to 2000. Mr. D’Arcy is a graduate of Bates College.

 

C. Michael Kojaian has served as a director of the Company since December 1996. He served as the Chairman of the Board of Directors of the Company from June 2002 until December 7, 2007 and has served as the Chairman of the Board of Directors of the Company since January 6, 2009. He has been the President of Kojaian Ventures, L.L.C. and also Executive Vice President, a director and a shareholder of Kojaian Management Corporation, both of which are investment firms headquartered in Bloomfield Hills, Michigan, since 2000 and 1985, respectively. He is also a director of Arbor Realty Trust, Inc. Mr. Kojaian has also served as the Chairman of the Board of Directors of Grubb & Ellis Realty Advisors, Inc., an affiliate of the Company, from its inception in September 2005 until April 2008, and as its Chief Executive Officer from December 13, 2007 until April 2008.

 

Robert J. McLaughlin has served as a director of the Company since July 2004. Mr. McLaughlin previously served as a director of the Company from September 1994 to March 2001. He founded The Sutter Group in 1982, a management consulting company that focuses on enhancing stockholder value, and currently serves as its President. Previously, Mr. McLaughlin served as President and Chief Executive Officer of Tru-Circle Corporation, an aerospace subcontractor, from November 2003 to April 2004, and as Chairman of the Board of Directors from August 2001 to February 2003, and as Chairman and Chief Executive Officer from October 2001 to April 2002 of Imperial Sugar Company.

 

Devin I. Murphy has served as a director of the Company since July 2008. Mr. Murphy is presently a private investor. Previously, he was a Managing Partner of Coventry Real Estate Advisors, a real estate private equity firm founded in 1998 which sponsors institutional investment funds. Prior to joining Coventry Real Estate Advisors, LLC in 2008, Mr. Murphy was the Global Head of Real Estate Investment Banking at Deutsche Bank Securities, Inc. from 2004 to 2007. Prior to joining Deutsche Bank, he was at Morgan Stanley & Company for 14 years in a variety of roles, including as Co-Head North American Real Estate Investment Banking and Global Head of the firm’s Real Estate Private Capital Markets Group.

 

D. Fleet Wallace has served as a director of the Company since December 2007. Mr. Wallace also had served as a director of NNN Realty Advisors, Inc. (“ NNN ”) from November 2006 to December 2007. Mr. Wallace is a principal and co-founder of McCann Realty Partners, LLC, an apartment investment company focusing on garden apartment properties in the Southeast formed in 2004. From April 1998 to August 2001, Mr. Wallace served as corporate counsel and assistant secretary of United Dominion Realty Trust, Inc., a publicly-traded real estate investment trust. From September 1994 to April 1998, Mr. Wallace was in the private practice of law with McGuire Woods in Richmond, Virginia. Mr. Wallace has also served as a Trustee of G REIT Liquidating Trust since January 2008.

 

Rodger D. Young has served as a director of the Company since April 2003. Mr. Young has been a name partner of the law firm of Young & Susser, P.C. since its founding in 1991, a boutique firm specializing in commercial litigation with offices in Southfield, Michigan and New York City. In 2001, Mr. Young was named Chairman of the Bush Administration’s Federal Judge and U.S. Attorney Qualification Committee by Governor John Engler and Michigan’s Republican Congressional Delegation. Mr. Young is a member of the American College of Trial Lawyers and was listed in the 2007 edition of Best Lawyers of America . Mr. Young was named by Chambers International and by Best Lawyers in America as one of the top commercial litigators in the United States.

ELECTION OF CLASS B DIRECTORS
ONLY IF PROPOSAL NO. 2 IS NOT APPROVED

 

(Proposal No. 3)

 

PROPOSAL NO. 3 WILL NOT BE ADOPTED IF STOCKHOLDERS APPROVE PROPOSAL NO. 2.

 

On November 4, 2009, the Board of Directors unanimously voted to nominate — ONLY in the event Proposal No. 2 is NOT APPROVED and the Board remains classified — Glenn L. Carpenter, Gary H. Hunt and Robert J. McLaughlin for election at the Annual Meeting. Our board of directors is currently divided into three classes, with each director in each class serving for a three-year, staggered term. The Board of Directors currently consists of nine members, classified into three classes as follows: Harold H. Greene, Devin I. Murphy and D. Fleet Wallace constitute a class with a term ending in 2012 (the “ Class A directors ”); Thomas D’Arcy, C. Michael Kojaian and Rodger D. Young constitute a class with a term ending in 2011 (the “ Class C directors ”); and Glenn L. Carpenter, Gary H. Hunt and Robert J. McLaughlin constitute a class with a term ending at the upcoming Annual Meeting (the “ Class B directors ”).

 

As nominees to serve as Class B directors, each of Glenn L. Carpenter, Gary H. Hunt and Robert J. McLaughlin, if elected at the Annual Meeting, will serve for a term of three years until the 2013 Annual Meeting of Stockholders and until their respective successors are elected and qualified. The Class A directors (Harold H. Greene, Devin I. Murphy and D. Fleet Wallace) and the Class C directors (Thomas D’Arcy, C. Michael Kojaian and Rodger D. Young) will serve until the Annual Meetings of Stockholders to be held in 2010 and 2011, respectively, and until their respective successors have been elected and qualified.

 

Unless authority to vote for any of these nominees is withheld, the shares represented by the enclosed proxy will be voted FOR the election of Glenn L. Carpenter, Gary H. Hunt and Robert J. McLaughlin as directors. In the event that any nominee becomes unable or unwilling to serve, the shares represented by the enclosed proxy will be voted for the election of such other person as the Board of Directors may recommend in his or her place. We have no reason to believe that any nominee will be unable or unwilling to serve as a director.

 

A vote by a plurality of the votes cast by holders of Common Stock and Preferred Stock (on an as converted basis) voting as a single class where a quorum is present is needed to elect a director. Cumulative voting is not permitted.

 

THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF GLENN L. CARPENTER, GARY H. HUNT AND ROBERT J. MCLAUGHLIN AS CLASS B DIRECTORS, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.

 

IF PROPOSAL NO.  2 IS APPROVED BY STOCKHOLDERS, THIS PROPOSAL NO. 3 WILL NOT BE ADOPTED, NOTWITHSTANDING ITS STOCKHOLDER APPROVAL, AS IT WILL BE SUPERCEDED BY PROPOSAL NO. 2 AND WILL NOT BE NECESSARY.

 

Information as to Nominees and Other Directors.

 

The following table lists our Board of Directors’ nominees for election as Class B directors and our current directors. Also in the table is each person’s age as of November 1, 2009, the periods during which that person has served as one of our directors, and positions currently held with us.

 

Biographical Information of Directors

 

Provided below is a brief description of the principal occupation for the past five years of each of our director nominees and continuing directors, under Proposal No. 3.

 

Director Nominees :

 

Glenn L. Carpenter has served as a director of the Company since December 2007 and served as Chairman of the Board of the Company from February 2008 until he voluntarily stepped down as Chairman in January 2009. Mr. Carpenter also served as a director of NNN from November 2006 to December 2007. Since August 2001, Mr. Carpenter has served as the Chief Executive Officer, President and Chairman of FountainGlen Properties, LP, a privately held company in Newport Beach, California, that develops, owns and operates apartment communities for active seniors. Prior to serving with FountainGlen, from 1994 to 2001, Mr. Carpenter was the Chief Executive Officer and founder of Pacific Gulf Properties Inc., a publicly traded REIT that developed and operated industrial business parks and various types of apartment communities. From 1970 to 1994, Mr. Carpenter served as Chief Executive Officer and President, and other officer positions of Santa Anita Realty Enterprises Inc., a publicly traded REIT that owned and managed industrial office buildings, apartments and shopping centers. He has received numerous honors in the real estate field including the 2000 Real Estate Man of the Year Award and was voted the 1999 Orange County Entrepreneur of the Year for real estate. Mr. Carpenter sits on the board of councilors of the School of Gerontology at the University of Southern California and is a council and executive board member of the American Seniors Housing Association.

 

Gary H. Hunt has served as a director of the Company since December 2007 and as the Company’s Interim Chief Executive Officer from July 2008 until November 16, 2009. Mr. Hunt also served as a director of NNN from November 2006 to December 2007. Mr. Hunt has served as the managing partner of California Strategies, LLC, a privately held consulting firm in Irvine, California that works with large homebuilders, real estate companies and government entities since 2001. Prior to serving with California Strategies, Mr. Hunt was the executive vice president and served on the board of directors and on the Executive Committee of the Board of The Irvine Company, a 110-year-old privately held company that plans, develops and invests in real estate primarily in Orange County, California for 25 years. He also serves on the board of directors of Glenair Inc. and William Lyon Homes. Mr. Hunt has also served as a Trustee of G REIT Liquidating Trust since January 2008.

 

Robert J. McLaughlin has served as a director of the Company since July 2004. Mr. McLaughlin previously served as a director of the Company from September 1994 to March 2001. He founded The Sutter Group in 1982, a management consulting company that focuses on enhancing shareholder value, and currently serves as its President. Previously, Mr. McLaughlin served as President and Chief Executive Officer of Tru-Circle Corporation, an aerospace subcontractor, from November 2003 to April 2004, and as Chairman of the Board of Directors from August 2001 to February 2003, and as Chairman and Chief Executive Officer from October 2001 to April 2002 of Imperial Sugar Company.

 

Continuing Directors :

 

Thomas D’Arcy has served as the President and Chief Executive Officer and as a director of the Company since November 16, 2009. Mr. D’Arcy has been since April 2008 and is currently the non-executive chairman of the board of directors of Inland Real Estate Corporation (NYSE: IRC), where he has also been an independent director since 2005. Mr. D’Arcy has over 20 years of experience acquiring, developing and financing all forms of commercial and residential real estate. He is currently a principal in Bayside Realty Partners, a private real estate company focused on acquiring, renovating and developing land and income producing real estate primarily in the New England area. From 2001 to 2003, Mr. D’Arcy was president and chief executive officer of Equity Investment Group, a private real estate company owned by an investor group which included The Government of Singapore, The Carlyle Group and Northwestern Mutual Life Insurance Company. Prior to his tenure with Equity Investment Group, Mr. D’Arcy was the chairman of the board, president and chief executive officer of Bradley Real Estate, Inc., a Boston-based real estate investment trust traded on the NYSE, from 1989 to 2000. Mr. D’Arcy is a graduate of Bates College.

 

Harold H. Greene has served as a director of the Company since December 2007. Mr. Greene also served as a director of NNN from November 2006 to December 2007. Mr. Greene is a 40-year veteran of the commercial and

residential real estate lending industry. He most recently served as the Managing Director for Bank of America’s California Commercial Real Estate Division from 1998 to his retirement in 2001, where he was responsible for lending to commercial real estate developers in California and managed an investment portfolio of approximately $2.6 billion. From 1990 to 1998, Mr. Greene was the Executive Vice President of SeaFirst Bank in Seattle, Washington and prior to that he served as the Vice Chairman of MetroBank from 1989 to 1990 and in various positions, including Senior Vice President in charge of the Asset Based Finance Group, with Union Bank, where he worked for 27 years. Mr. Greene currently serves as a director of Gary’s and Company (men’s clothing retailer), as a director and member of the audit committee of Paladin Realty Income Properties, Inc., and as a director and member of the audit, compensation and nominating and corporate governance committees of William Lyon Homes.

 

C. Michael Kojaian has served as a director of the Company since December 1996. He served as the Chairman of the Board of Directors of the Company from June 2002 until December 7, 2007 and has served as the Chairman of the Board of Directors of the Company since January 6, 2009. He has been the President of Kojaian Ventures, L.L.C. and also Executive Vice President, a director and a shareholder of Kojaian Management Corporation, both of which are investment firms headquartered in Bloomfield Hills, Michigan, since 2000 and 1985, respectively. He is also a director of Arbor Realty Trust, Inc. Mr. Kojaian has also served as the Chairman of the Board of Directors of Grubb & Ellis Realty Advisors, Inc., an affiliate of the Company, from its inception in September 2005 until April 2008, and as its Chief Executive Officer from December 13, 2007 until April 2008.

 

Devin I. Murphy has served as a director of the Company since July 2008. Mr. Murphy is presently a private investor. Previously, he was a Managing Partner of Coventry Real Estate Advisors, a real estate private equity firm founded in 1998 which sponsors institutional investment funds. Prior to joining Coventry Real Estate Advisors, LLC in 2008, Mr. Murphy was the Global Head of Real Estate Investment Banking at Deutsche Bank Securities, Inc. from 2004 to 2007. Prior to joining Deutsche Bank, he was at Morgan Stanley & Company for 14 years in a variety of roles, including as Co-Head North American Real Estate Investment Banking and Global Head of the firm’s Real Estate Private Capital Markets Group.

 

D. Fleet Wallace has served as a director of the Company since December 2007. Mr. Wallace also had served as a director of NNN from November 2006 to December 2007. Mr. Wallace is a principal and co-founder of McCann Realty Partners, LLC, an apartment investment company focusing on garden apartment properties in the Southeast formed in 2004. From April 1998 to August 2001, Mr. Wallace served as corporate counsel and assistant secretary of United Dominion Realty Trust, Inc., a publicly-traded real estate investment trust. From September 1994 to April 1998, Mr. Wallace was in the private practice of law with McGuire Woods in Richmond, Virginia. Mr. Wallace has also served as a Trustee of G REIT Liquidating Trust since January 2008.

 

Rodger D. Young has served as a director of the Company since April 2003. Mr. Young has been a name partner of the law firm of Young & Susser, P.C. since its founding in 1991, a boutique firm specializing in commercial litigation with offices in Southfield, Michigan and New York City. In 2001, Mr. Young was named Chairman of the Bush Administration’s Federal Judge and U.S. Attorney Qualification Committee by Governor John Engler and Michigan’s Republican Congressional Delegation. Mr. Young is a member of the American College of Trial Lawyers and was listed in the 2007 edition of Best Lawyers of America . Mr. Young was named by Chambers International and by Best Lawyers in America as one of the top commercial litigators in the United States.

 

Meetings

 

For the year ended December 31, 2008, our Board of Directors held 27 meetings. Each incumbent director attended at least 75% of the aggregate of (i) the total number of meetings of the Board of Directors held during the period that the individual served and (ii) the total number of meetings held by all committees of the Board on which the director served during the period that the individual served.

 

Independent Directors

 

The Board determined that seven of the eight directors serving in 2008, Messrs. Carpenter, Greene, Kojaian, McLaughlin, Murphy, Wallace and Young are independent. For the year ended December 31, 2008, Mr. Hunt was not considered independent under New York Stock Exchange (“ NYSE ”) listing requirements because he had been serving as the Company’s interim Chief Executive Officer commencing in July 2008.

 

For purposes of determining the independence of its directors, the Board applies the following criteria:

 

No Material Relationship

 

The director must not have any material relationship with the Company. In making this determination, the Board considers all relevant facts and circumstances, including commercial, charitable and familial relationships that exist, either directly or indirectly, between the director and the Company.

 

Employment

 

The director must not have been an employee of the Company at any time during the past three years. In addition, a member of the director’s immediate family (including the director’s spouse; parents; children; siblings; mothers-, fathers-, brothers-, sisters-, sons- and daughters-in-law; and anyone who shares the director’s home, other than household employees) must not have been an executive officer of the Company in the prior three years.

 

Other Compensation

 

The director or an immediate family member must not have received more than $100,000 per year in direct compensation from the Company, other than in the form of director fees, pension or other forms of deferred compensation during the past three years.

 

Auditor Affiliation

 

The director must not be a current partner or employee of the Company’s internal or external auditor. An immediate family member of the director must not be a current partner of the Company’s internal or external auditor, or an employee of such auditor who participates in the auditor’s audit, assurance or tax compliance (but not tax planning) practice. In addition, the director or an immediate family member must not have been within the last three years a partner or employee of the Company’s internal or external auditor who personally worked on the Company’s audit.

 

Interlocking Directorships

 

During the past three years, the director or an immediate family member must not have been employed as an executive officer by another entity where one of the Company’s current executive officers served at the same time on the compensation committee.

 

Business Transactions

 

The director must not be an employee of another entity that, during any one of the past three years, received payments from the Company, or made payments to the Company, for property or services that exceed the greater of $1 million or 2% of the other entity’s annual consolidated gross revenues. In addition, a member of the director’s

immediate family must not have been an executive officer of another entity that, during any one of the past three years, received payments from the Company, or made payments to the Company, for property or services that exceed the greater of $1.0 million or 2% of the other entity’s annual consolidated gross revenues.

 

Audit Committee

 

The Audit Committee of the Board is a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 as amended (the “ Exchange Act ”) and the rules thereunder. The Audit Committee operates under a written charter adopted by the Board of Directors. The charter of the Audit Committee was last revised effective January 28, 2008 and is available on the Company’s website at www.grubb-ellis.com . Printed copies of the charter of the Audit Committee may be obtained upon request by contacting Investor Relations, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705. The current members of the Audit Committee are Robert McLaughlin, Chair, Harold H. Greene and D. Fleet Wallace. The Board has determined that the members of the Audit Committee are independent under the NYSE listing requirements and the Exchange Act and the rules thereunder, and that Mr. McLaughlin is an audit committee financial expert in accordance with rules established by the SEC. For the year ended December 31, 2008, the Audit Committee held 10 meetings.

 

Compensation Committee

 

The Board of Directors has delegated to the Compensation Committee, a separately designated standing committee, oversight responsibilities for the Company’s executive compensation programs.

 

The Compensation Committee determines the policy and strategies of the Company with respect to executive compensation taking into account certain factors that the Compensation Committee deems appropriate such as (a) compensation elements that will enable the Company to attract and retain executive officers who are in a position to achieve the strategic goals of the Company which are in turn designed to enhance stockholder value, and (b) the Company’s ability to compensate its executives in relation to its profitability and liquidity.

 

The Compensation Committee approves, subject to further, final approval by the full Board of Directors, (a) all compensation, arrangements and terms of employment, and any material changes to the compensation arrangements or terms of employment, for the NEOs (as defined below) and certain other key employees (including employment agreements and severance arrangements), and (b) the establishment of, and changes to, equity-based awards programs. In addition, each calendar year, the Compensation Committee approves the annual incentive goals and objectives of each named NEO and certain other key employees, evaluates the performance of each NEO and certain other key employees against the approved performance goals and objectives applicable to him or her, determines whether and to what extent any incentive awards have been earned by each NEO, and makes recommendations to the Company’s Board of Directors regarding the approval of incentive awards.

 

Consistent with the Compensation Committee’s objectives, the Company’s overall compensation program is structured to attract, motivate and retain highly qualified executives by paying them competitively and tying their compensation to the Company’s success as a whole and their contribution to the Company’s success.

 

The Compensation Committee also provides general oversight of the Company’s employee benefit and retirement plans.

 

The members of the Compensation Committee for the year ended December 31, 2008 were D. Fleet Wallace, Chair, Glenn L. Carpenter, Gary H. Hunt, Robert J. Mclaughlin and Rodger D. Young. The Board has determined that the members of the Compensation Committee are independent under the NYSE listing requirements and the Exchange Act and the rules thereunder. For the year ended December 31, 2008, the Compensation Committee held ten meetings. The Compensation Committee operates under a written charter adopted by the full Board and revised effective December 10, 2007, which is available on the Company’s website at www.grubb-ellis.com . Printed copies may be obtained upon request by contacting Investor Relations, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705.

Corporate Governance and Nominating Committee

 

The functions of the Company’s Corporate Governance and Nominating Committee, a separately designated standing committee, are to assist the Board with respect to: (i) director qualification, identification, nomination, independence and evaluation; (ii) committee structure, composition, leadership and evaluation; (iii) succession planning for the CEO and other senior executives; and (iv) corporate governance matters. The members of the Corporate Governance and Nominating Committee for the year ended December 31, 2008, were Rodger D. Young, Chair, Harold H. Greene and C. Michael Kojaian. On February 9, 2009, Devin I. Murphy was appointed to serve as a member of the Corporate

 

Governance and Nominating Committee and Mr. Kojaian resigned as a member of the Corporate Governance and Nominating Committee. Accordingly, the current members of the Corporate Governance and Nominating Committee are Mr. Young, Chair, Mr. Greene and Mr. Murphy. The Board has determined that Messrs. Young, Greene and Murphy are independent under the NYSE listing requirements and the Exchange Act and the rules thereunder. For the year ended December 31, 2008, the Corporate Governance and Nominating Committee held 9 meetings. The Corporate Governance and Nominating Committee operates under a written charter adopted by the Board, which is available on the Company’s website at www.grubb-ellis.com access and printed copies of which may be obtained upon request by contacting Investor Relations, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705.

 

Director Nominations

 

Nominations by stockholders of persons for election to the Board of Directors must be made pursuant to timely notice in writing to our Secretary. To be timely, a stockholder’s notice shall be delivered or mailed to and received at our principal executive offices not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day prior to the first anniversary of last year’s annual meeting; provided, however, that if the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, notice must be delivered not earlier than the close of business on the 120th day prior to the annual meeting and not later than the close of business on the later of the 90th day prior to the annual meeting or the tenth day following the day on which public announcement of the date of the meeting is first made. Such stockholder’s notice shall set forth: (1) the name, age, business address or, if known, residence address of each proposed nominee; (2) the principal occupation or employment of each proposed nominee; (3) the name and residence of the Chairman of the Board for notice by the Board of Directors, or the name and residence address of the notifying stockholder for notice by said stockholder; and (4) the total number of shares that to the best of the knowledge and belief of the person giving the notice will be voted for each of the proposed nominees.

 

The Corporate Governance and Nominating Committee considers candidates for director who are recommended by its members, by other Board members, by Stockholders and by management. The Corporate Governance and Nominating Committee evaluates director candidates recommended by stockholders in the same way that it evaluates candidates recommended by its members, other members of the Board, or other persons. The Corporate Governance and Nominating Committee considers all aspects of a candidate’s qualifications in the context of our needs at that point in time with a view to creating a Board with a diversity of experience and perspectives. Among the qualifications, qualities and skills of a candidate considered important by the Corporate Governance and Nominating Committee are a commitment to representing the long-term interests of the stockholders; an inquisitive and objective perspective; the willingness to take appropriate risks; leadership ability; personal and professional ethics, integrity and values; practical wisdom and sound judgment; and business and professional experience in fields such as finance and accounting.

 

Communications to the Board

 

Stockholders, employees and others interested in communicating with any of the directors of the Company may do so by writing to such director, c/o Andrea R. Biller, Corporate Secretary, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705.

Corporate Governance Guidelines

 

Effective July 6, 2006, the Board adopted corporate governance guidelines to assist the Board in the performance of its duties and the exercise of its responsibilities. The Company’s Corporate Governance Guidelines are available on the Company’s website at www.grubb-ellis.com and printed copies may be obtained upon request by contacting Investor Relations, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705.

 

Director Attendance at Annual Meetings

 

Our Board has adopted a policy under which each member of the Board is strongly encouraged to attend each Annual Meeting of our Stockholders. All directors then in office attended the Company’s 2008 Annual Meeting.

 

Executive Officers of Grubb & Ellis Company

 

Gary H. Hunt served as the Company’s Interim Chief Executive Officer from July 2008 until November 16, 2009, when Thomas D’Arcy became the President and Chief Executive Officer. For information on Mr. Hunt see “Information about the Directors” above.

 

The following are the current executive officers of the Company:

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires Grubb & Ellis’ directors, certain officers and persons who own more than 10% of its Common Stock, to file with the SEC initial reports of ownership of Grubb & Ellis’ equity securities and to file subsequent reports when there are changes in such ownership. Based on a review of reports submitted to Grubb & Ellis, we believe that during the fiscal year ended December 31, 2008 all Section 16(a) filing requirements applicable to our officers, directors, and more than 10% owners were complied with on a timely basis, except as noted below.

 

On November 17, 2008, Rodger D. Young, a director of the Company, purchased 14,000 shares of the Company’s common stock on the open market. As a result of this transaction, a Form 4 was due to be filed on November 19, 2008 for Mr. Young, but was not filed until November 21, 2008. In addition, on December 10, 2008,

the Company awarded each of its outside directors 20,000 restricted shares of the Company’s common stock, pursuant to the Company’s 2006 Omnibus Equity Plan which vest in equal 33 1 / 3 portions on each of the first, second, and third anniversaries of the grant date (December 10, 2008). As a result of this award, a Form 4 was due to be filed on December 12, 2008 for each of the following directors: Glenn L. Carpenter, Harold H. Greene, C. Michael Kojaian, Robert J. McLaughlin, Devin I. Murphy, D. Fleet Wallace and Rodger D. Young. However, the required Form 4s for each of the aforementioned outside directors of the Company were not filed until December 16, 2008.

 

Executive Compensation Discussion And Analysis

 

This compensation discussion and analysis describes the governance and oversight of the Company’s executive compensation programs and the material elements of compensation paid or awarded to those who served as the Company’s principal executive officer, the Company’s principal financial officer, and the three other most highly compensated executive officers of the Company during the period from January 1, 2008 through December 31, 2008 (collectively, the “ named executive officers ” or “ NEOs ” and individually, a “ named executive officer ” or “ NEO ”). The specific amounts and material terms of such compensation paid, payable or awarded are disclosed in the tables and narrative included in this Proxy Statement.

 

The compensation disclosure provided with respect to the Company’s NEOs and directors with respect to calendar year 2008 represent their full year’s compensation for such year, incurred by the Company with respect to calendar year 2008. The compensation disclosure provided with respect to the Company’s NEOs and directors with respect to calendar years 2007 and 2006 represent their full year’s compensation for each of those years, incurred by either NNN or the Company, as applicable, with respect to calendar year 2006, and incurred by either NNN or the Company, as applicable with respect to the entire 2007 calendar year, except for the period December 8, 2007 through December 31, 2007, during this three week stub period the Company incurred the entire compensation to all NEOs and directors.

 

Compensation Committee Overview

 

The Board of Directors has delegated to the Compensation Committee oversight responsibilities for the Company’s executive compensation programs.

 

The Compensation Committee determines the policy and strategies of the Company with respect to executive compensation taking into account certain factors that the Compensation Committee deems appropriate such as (a) compensation elements that will enable the Company to attract and retain executive officers who are in a position to achieve the strategic goals of the Company which are in turn designed to enhance stockholder value, and (b) the Company’s ability to compensate its executives in relation to its profitability and liquidity.

 

The Compensation Committee approves, subject to further, final approval by the full Board of Directors, (a) all compensation arrangements and terms of employment, and any material changes to the compensation arrangements or terms of employment, for the NEOs and certain other key employees (including employment agreements and severance arrangements), and (b) the establishment of, and changes to, equity-based awards programs. In addition, each calendar year, the Compensation Committee approves the annual incentive goals and objectives of each NEO and certain other key employees, evaluates the performance of each NEO and certain other key employees against the approved performance goals and objectives applicable to him or her, determines whether and to what extent any incentive awards have been earned by each NEO, and makes recommendations to the Company’s Board of Directors regarding the approval of incentive awards.

 

Consistent with the Compensation Committee’s objectives, the Company’s overall compensation program is structured to attract, motivate and retain highly qualified executives by paying them competitively and tying their compensation to the Company’s success as a whole and their contribution to the Company’s success.

 

The Compensation Committee also provides general oversight of the Company’s employee benefit and retirement plans.

 

The Compensation Committee operates under a written charter adopted by the full Board and revised effective December 10, 2007, which is available on the Company’s website at www.grubb-ellis.com . Printed copies may be

obtained upon request by contacting Investor Relations, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705.

 

Use of Consultants

 

Under its charter, the Compensation Committee has the power to select, retain, compensate and terminate any compensation consultant it determines is useful in the fulfillment of the Committee’s responsibilities. The Committee also has the authority to seek advice from internal or external legal, accounting or other advisors.

 

In the fourth quarter of 2007, and in anticipation of the closing of the Company’s stock merger (the “ Merger ”) with NNN, the Company engaged the services of FPL Associations Compensation, an outside consulting firm, to provide a comprehensive compensation study of the merged companies for the Compensation Committee and the board of directors with respect to an analysis of, and proposed designs and recommendations for, compensation arrangements primarily for the NEO’s, other lay service executives, directors, brokers and the board.

 

The Company has previously engaged the services of Ferguson Partners, an affiliate of FPL Associates Compensation. In February 2007, Ferguson Partners managed the search for the Company’s Chief Financial Officer which resulted in the hiring of the Company’s Chief Financial Officer, Richard W. Pehlke in February 2007. In conjunction with the search, Ferguson Partners advised the Committee with respect to Mr. Pehlke’s compensation arrangements and terms of employment. Similarly, the Compensation Committee has used the services of Ferguson Partners in the past in connection with the search and establishment of the compensation arrangements and terms of employment for the other executive officers. In each instance, and in connection with the study conducted by its affiliate, FPL Associates Compensation in the fourth quarter of 2007, Ferguson Partners and FPL Associates Compensation provided to the Compensation Committee and the board with information regarding comparative market compensation arrangements.

 

In March 2008, the Company engaged Christenson Advisors, LLC to provide an array of compensation and human resource related services across the Company.

 

The Company engaged the services of Equinox Partners in July 2008 to manage the search for the Company’s Chief Executive Officer following Scott D. Peters’ resignation in July 2008. Mr. D’Arcy became the Company’s President and Chief Executive Officer on November 16, 2009.

 

Role of Executives in Establishing Compensation

 

In advance of each Compensation Committee meeting, the Chief Executive Officer and the Chief Operating Officer work with the Compensation Committee Chairman to set the meeting agenda. The Compensation Committee periodically consults with the Chief Executive Officer of the Company with respect to the hiring and the compensation of the other NEOs and certain other key employees. Members of management, typically the Chief Executive Officer, the Chief Financial Officer and General Counsel, regularly participate in non-executive portions of Compensation Committee meetings.

 

Certain Compensation Committee Activity

 

The Compensation Committee met ten times during the year ended December 31, 2008 and in fulfillment of its obligations, among other things, determined on December 3, 2008, based upon a recommendation of Christenson Advisors, LLC, that the cash retainer for independent, outside directors of $50,000 per annum would remain the same as would the Board Meeting and Committee Meeting fees of $1,500 per meeting. Similarly, the Compensation Committee determined that the Audit Chair retainer, the Compensation Chair retainer and the Governance Chair retainer would remain constant at $15,000, $10,000 and $7,500 per annum, respectively. The Compensation Committee also decided, based upon a recommendation of Christenson Advisors, LLC, that the $60,000 annual equity award for independent, outside directors, with respect to 2009 only, be capped at 20,000 shares due to decline in the stock market in 2008, which adversely affected the price of the Company’s shares.

Compensation Philosophy, Goals and Objectives

 

As a commercial real estate services company, the Company is a people oriented business which strives to create an environment that supports its employees in order to achieve its growth strategy and other goals established by the board so as to increase stockholder value over the long term.

 

The primary goals and objectives of the Company’s compensation programs are to:

 

 

The Compensation Committee established these goals in order to enhance stockholder value.

 

The Company believes that it is important for variable compensation, i.e., where an NEO has a significant portion of his or her total “cash compensation” as risk, to constitute a significant portion of total compensation and that such variable compensation be designed so as to reward effective team work (through the achievement of Company-wide financial goals) as well as the achievement of individual goals (through the achievement of business unit/functional goals and individual performance goals and objectives). The Company believes that this dual approach best aligns the individual NEO’s interest with the interests of the stockholders.

 

Compensation During Term of Employment

 

The Company’s compensation program for NEOs is comprised of four key elements — base salary, annual bonus incentive compensation, stock-based compensation and incentives and a retirement plan — that are intended to balance the goals of achieving both short-term and long-term results which the Company believes will effectively align management with stockholders.

 

Base Salary

 

Amounts paid to NEOs as base salaries are included in the column captioned “Salary” in the Summary Compensation Table below. The base salary of each NEO is determined based upon their position, responsibility, qualifications and experience, and reflects consideration of both external comparison to available market data and internal comparison to other executive officers.

 

The base salary for an NEO is typically established at the time of the negotiation of his or her respective employment agreement. In the case of the Company’s General Counsel Executive Vice President and Corporate Secretary, Andrea R. Biller, her compensation has not been adjusted since the inception of her current employment agreement. In the case of the Company’s Chief Financial Officer and Executive Vice President, Richard W. Pehlke, his base salary was increased on January 1, 2008 from $350,000 to $375,000. Chief Investment Officer, Jeffrey T. Hanson’s base salary was increased on August 1, 2008 from $350,000 to $450,000. As a result of Jacob Van Berkel being promoted to Chief Operating Officer and Executive Vice President on March 1, 2008, Mr. Van Berkel’s base salary was increased from $280,000 to $400,000.

 

The base salary component is designed to constitute between 20% and 50% of total annual compensation target for the NEOs based upon each individual’s position in the organization and the Committee’s determination of each position’s ability to directly impact the Company’s financial results.

Annual Bonus Incentive Compensation

 

Amounts paid to NEOs under the annual bonus plan are included in the column captioned “Bonus” in the Summary Compensation Table below. In addition to earning base salaries, each of the Company’s NEOs is eligible to receive an annual cash bonus, the target amount of which is set by the individual employment agreement with each NEO. The annual bonus incentive of each NEO is determined based upon his or her position, responsibility, qualifications and experience, and reflects consideration of both external comparison to available market data and internal comparison to other executive officers.

 

Jeffrey T. Hanson, Chief Investment Officer, had his annual bonus incentive target increase from 100% to 150% effective August 1, 2008. Richard W. Pehlke, Chief Financial Officer and Executive Vice President, had his annual bonus incentive target increase from 50% to 150% effective January 1, 2008.

 

In 2007, the bonus plan with respect to those NEOs who were executive officers of the Company had a formulaic component based on achievement of specified Company earnings before interest and taxes (“EBIT”) and business unit/function EBIT goals and also a component based on the achievement of personal goals and objectives designed to enhance the overall performance of the Company. The bonus plan of those NEOs, who were executive officers of the NNN, while taking into account NNN’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) , as well as personal goals and objectives, was not formulaic, but rather, more discretionary in nature. Beginning in 2008, the bonus plan for all NEOs has been standardized and will be tied to the specified targets based on the Company’s EBITDA as discussed below.

 

The annual cash bonus plan target for NEOs is between 50% and 200% of base salary and is designed to constitute from 20% to 50% of an NEO’s total annual target compensation. The bonus plan component is based on each individual’s role and responsibilities in the Company and the Compensation Committee’s determination of each NEO’s ability to directly impact the Company’s financial results.

 

The Compensation Committee reviews each NEO’s bonus plan annually. Annual Company EBITDA targets are determined in connection with the annual calendar-year based budget process. A minimum threshold of 80% of Company EBITDA must be achieved before any payment is awarded with respect to this component of bonus compensation. At the end of each calendar year, the Chief Executive Officer reviews the performance of each of the other NEOs and certain other key employees against the financial objectives and against their personal goals and objectives and makes recommendations to the Compensation Committee for payments on the annual cash bonus plan. The Compensation Committee reviews the recommendations and forwards these to the Board for final approval of payments under the plan.

 

For fiscal year 2008, no annual incentive bonus plan payments were made to the NEOs.

 

During 2007, the Compensation Committee revised the calendar 2007 bonus plans for the Company’s NEOs to increase the percentage of bonus tied to the Company’s EBIT performance in order to more closely link the annual bonus to the Company’s overall financial performance. The chart directly below captioned “Annual Bonus Incentive Compensation” provides the details of the calendar 2006, calendar 2007 plans and calendar 2008 plans.

 

In addition to the annual bonus program, from time to time the Board may establish one-time cash bonuses related to the satisfactory performance of identified special projects. Upon the closing of the Merger, Scott D. Peters, the Company’s former Chief Executive Officer and President received (i) a special one-time transaction success fee of $1,000,000, (ii) 528,000 shares of common stock of the Company from Anthony W. Thompson, the former Chairman of the Board of the Company, and (iii) the right to receive up to $1,000,000 for a second residence in California, which right Mr. Peters irrevocably waived in January , 2008. The 528,000 shares of common stock received from Anthony W. Thompson were forfeited by Mr. Peters upon his departure from the Company in July 2008 and returned to Mr. Thompson.

Annual Bonus Incentive Compensation

 

 

 

 

Stock-Based Compensation and Incentives

 

The compensation associated with stock awards granted to NEOs is included in the Summary Compensation Table and other tables below (including the charts that show outstanding equity awards). Except for the January 24, 2008 grant of 75,000 and 80,000 restricted shares of common stock to Richard W. Pehlke and Jacob Van Berkel respectively, and the December 3, 2008 grant of 250,000 restricted shares of common stock to each of Richard W. Pehlke and Jacob Van Berkel, no other grants were made to NEOs during the year ended December 31, 2008.

 

In February of 2009, each of Messrs. Pehlke and Van Berkel, on their own initiative, voluntarily returned an aggregate of 131,000 and 130,000 restricted shares, respectively, to the Company for re-allocation of such restricted shares, on the same terms and conditions, to various employees in their respective business units.

 

The equity grants are intended to align management with the long-term interests of the Company’s stockholders and to have a retentive effect upon the Company’s NEOs. The Compensation Committee and the Board of Directors approve all equity grants to NEOs.

 

Profit Sharing Plan

 

NNN has established a profit sharing plan for its employees, pursuant to which NNN provides matching contributions. Generally, all employees are eligible to participate following one year of service with NNN. Matching contributions are made in NNN’s sole discretion. Participants’ interests in their respective contribution account vests over 4 years, with 0.0% vested in the first year of service, 25.0% in the second year, 50.0% in the third year and 100.0% in the fourth year.

Retirement Plans

 

The amounts paid to the Company’s NEOs under the retirement plan are included in the column captioned “All Other Compensation” in the Summary Compensation Table below. The Company has established and maintains a retirement savings plan under Section 401(k) of the Internal Revenue Code of 1986 (the “ Code”) to cover the Company’s eligible employees including the Company’s NEOs. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a tax deferred basis through contributions to the 401(k) Plan. The Company’s 401(k) Plan is intended to constitute a qualified plan under Section 401(k) of the Code and its associated trust is intended to be exempt from federal income taxation under Section 501(a) of the Code. The Company makes Company matching contributions to the 401(k) Plan for the benefit of the Company’s employees including the Company’s NEOs. In April 2009, the Company’s matching contributions to the 401(k) plan were suspended.

 

Personal Benefits and Perquisites

 

The amounts paid to the Company’s NEOs for personal benefits and perquisites are included in the column captioned “All Other Compensation” in the Summary Compensation Table below. Perquisites to which all of the Company’s NEOs are entitled include health, dental, life insurance, long-term disability, profit-sharing and a 401(k) savings plan, and 100% of the premium cost of health insurance for certain NEOs is paid for by the Company. Upon the closing of the Merger, Scott D. Peters, the Company’s then Chief Executive Officer and President had the right to receive up to $1,000,000 for a second residence in California, which right Mr. Peters irrevocably waived in January, 2008.

 

Long Term Incentive Plan

 

On May 1, 2008, the Compensation Committee adopted the Long Term Incentive Plan (“LTIP”) of Grubb & Ellis Company, effective January 1, 2008, designed to reward the efforts of the executive officers of the Company to successfully attain the Company’s long-term goals by directly tying the executive officers’ compensation to the Company and individual results. During fiscal year 2008, no NEO received an award under the LTIP.

 

The LTIP is divided into two components: (i) annual long-term incentive target which comprises 50% of the overall target, and (ii) multi-year annual incentive target which comprises the other 50%.

 

Awards under the LTIP are earned by performance during a fiscal year and by remaining employed by the Company through the date awards are granted, usually in March for annual long-term incentive awards or though the conclusion of the three-year performance period for multi-year long term incentive awards (“Grant Date”) .

 

All awards are paid in shares of the Company’s common stock, subject to the rights of the Company to distribute cash or other non-equity forms of compensation in lieu of the Company’s common stock.

 

The annual long-term incentive target is broken down into three components: (i) absolute stockholder return (30%); corporate EBITDA (35%); and individual performance priorities (35%). Vesting of awards upon achievement of the annual long-term incentive targets is as follows: (i) 33.33% of the restricted shares of the Company’s common stock will vest on the Grant Date; (ii) 33.33% will vest in the first anniversary of the Grant Date; and (iii) the remaining 33.33% will vest on the second anniversary of the Grant Date.

 

The multi-year long-term incentive target is broken down into two components: (i) absolute stockholder return (50%); and relative total stockholder return (50%). Vesting of wards upon achievement of the multi-year long-term incentive awards is as follows: (i) 50% of the restricted shares of the Company’s common stock will be paid on the Grant Date; and (ii) 50% on the first year anniversary of the Grant Date.

Summary Compensation Table

 

The following table sets forth certain information with respect to compensation for the calendar years ended December 31, 2008, 2007 and 2006 earned by or paid to the Company’s named executive officers for such full calendar years (by either NNN or legacy Grubb & Ellis, as applicable, prior to the Merger, and by the Company subsequent to the Merger). In certain instances throughout this Proxy Statement, phrases such as “legacy Grubb & Ellis” or similar descriptions are used to reference, when appropriate, Grubb & Ellis prior to the Merger; similarly, the term NNN, “legacy NNN” or similar phrases are used to reference, when appropriate, NNN prior to the Merger.

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth information regarding the grants of plan-based awards made to its NEOs for the fiscal year ended December 31, 2008.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth summary information regarding the outstanding equity awards held by the Company’s named executive officers at December 31, 2008:

 

 

 

 

Options Exercises and Stock Vested

 

The following table sets forth summary information regarding exercise of stock options and vesting of restricted stock held by the Company’s named executive officers at December 31, 2008:

 

 

 

 

Non-Qualified Deferred Compensation

 

During fiscal year 2008, no named executive officer was a participant in the Deferred Compensation Plan (“ DCP ”) in 2008.

 

Contributions.

 

Under the DCP, the participants designated by the committee administering the DCP (the “ Committee ”) may elect to defer up to 80% of their base salary and commissions, and up to 100% of their bonus compensation. In addition, the Company may make discretionary Company contributions to the DCP at any time on behalf of the participants. Unless otherwise specified by the Company, Company contributions shall be deemed to be invested in the Company’s common stock.

 

Investment Elections.

 

Participants designate the investment funds selected by the Committee in which the participants’ deferral accounts shall be deemed to be invested for purposes of determining the amount of earnings and losses to be credited to such accounts.

 

Vesting.

 

The participants are fully vested at all times in amounts credited to the participants’ deferral accounts. A participant shall vest in his or her Company contribution account as provided by the Committee, but not earlier than 12 months from the date the Company contribution is credited to a participant’s Company contribution account. Except as otherwise provided by the Company in writing, all vesting of Company contributions shall cease upon a participant’ termination of service with the Company and any portion of a participant’s Company contribution account which is unvested as of such date shall be forfeited; provided, however, that if a participant’s termination of service is the result of his or her death, the participant shall be 100% vested in his or her Company contribution account(s).

 

Distributions.

 

Scheduled distributions elected by the participants shall be no earlier than two years from the last day of the fiscal year in which the deferrals are credited to the participant’s account, or, if later, the last day of the fiscal year in which the Company contributions vest. The participant may elect to receive the scheduled distribution in a lump sum or in equal installments over a period of up to five years. Company contributions are only distributable in a lump sum.

In the event of a participant’s retirement (termination of service after attaining age 60, or age 55 with at least 10 years of service) or disability (as defined in the DCP), the participant’s vested deferral accounts shall be paid to the participant in a single lump sum on a date that is not prior to the end of the six month period following the participant’s retirement or disability, unless the participant has made an alternative election to receive the retirement or disability benefits in equal installments over a period of up to 15 years, in which event payments shall be made as elected.

 

In the event of a participant’s death, the Company shall pay to the participant’s beneficiary a death benefit equal to the participant’s vested accounts in a single lump sum within 30 days after the end of the month during which the participant’s death occurred.

 

The Company may accelerate payment in the event of a participant’s “financial hardship.”

 

Employment Contracts and Compensation Arrangements

 

Gary H. Hunt

 

*Mr. Hunt served as Interim Chief Executive Officer of the Company from July 2008 until November 16, 2009, when Thomas D’Arcy became the Company’s President and Chief Executive Officer. The following is a description of Mr. Hunt’s arrangement with the Company while he served as Interim Chief Executive Officer of the Company.

 

In July 2008, Mr. Hunt became Interim Chief Executive Officer of the Company. Mr. Hunt does not have an employment agreement with the Company. On August 28, 2008, the Compensation Committee of the Board of Directors determined that until the appointment of a permanent Chief Executive Officer and President, Mr. Hunt will be paid a monthly fee of $50,000. Mr. Hunt did not receive a bonus nor did he receive any additional compensation for his service as a member of the Company’s Board of Directors.

 

Scott D. Peters

 

*In July 2008, Mr. Peters resigned from the Company. The following is a description of the employment agreement under which Mr. Peters was employed during calendar year 2008.

 

In November, 2006, Mr. Peters entered into an executive employment agreement with the Company pursuant to which Mr. Peters served as the Chief Executive Officer and President of the Company. The agreement provided for an annual base salary of $550,000 per annum. His base salary was increased to $600,000 per annum upon the closing of the Merger. Mr. Peters was eligible to receive an annual discretionary bonus of up to 200% of his base salary. The executive employment agreement had an initial term of three years, and on the final day of the original term, and on each anniversary thereafter, the term of the agreement could have been extended automatically for an additional year unless the Company or Mr. Peters provided at least one year’s written notice that the term would not be extended. In connection with the entering into of his Employment Agreement in November, 2006, Mr. Peters received 154,000 shares of restricted stock and 44,000 stock options at an exercise price of $11.36 per share, one-third of which options vest on the grant date, and the remaining options vest in equal installments on the first and second anniversary date of the option grant.

 

Mr. Peters was also entitled to participate in the Company’s health and other benefit plans generally afforded to executive employees and was reimbursed for reasonable travel, entertainment and other reasonable expenses incurred in connection with his duties. The employment agreement contained confidentiality, non-competition, no raid, non-solicitation, non-disparagement and indemnification provisions.

 

In the event the Company had terminated Mr. Peters’ employment for Cause (as defined in the executive employment agreement) or if he had voluntarily resigned without Good Reason (as defined in the executive employment agreement), Mr. Peters would have been entitled to accrued salary and any unreimbursed business expenses. In the event that Mr. Peters’ employment terminated because of the expiration of his term, death or disability, the Company would have paid any accrued salary, any unreimbursed business expenses, and a prorated performance bonus equal to the performance bonus (and in the case of termination for reason of death or disability, equal to the maximum target) that otherwise would have been payable to Mr. Peters in the fiscal year in which the termination occurred had he continued employment through the last day of such fiscal year, prorated for the number of

calendar months he was employed by the Company in such fiscal year. The prorated performance bonus would have been paid within 60 days after Mr. Peters’ date of termination, provided that he executes and delivers to the Company a general release and was not in material breach of any of the provisions of the executive employment agreement.

 

In the event of termination of employment without Cause, or voluntary resignation with Good Reason, the Company would have paid any accrued salary, any unreimbursed business expenses and a severance benefit, in a lump sum cash payment, equal to Mr. Peters’ annual salary plus the target bonus in the year of the termination, the sum of which will be multiplied by a “severance benefit factor.” The “severance benefit factor” would have been determined as follows: (a) if the date of termination occurred during the original three year employment term, the “severance benefit factor” will be the greater of one, and the number of months from the date of termination to the last day of the original three year employment term, divided by 12, or (b) if the date of termination was after the original three year employment term, the “severance benefit factor” will equal one. Also, all options become fully vested.

 

In the event of a termination by the Company without Cause at any time within 90 days before, or 12 months after, a Change in Control (as defined in the executive employment agreement), or in the event of resignation for Good Reason within 12 months after a change in control, or if without good reason during the period commencing six months after a change in control and ending 12 months after a change in control, then the Company would have paid any accrued salary, any unreimbursed business expenses, and a severance benefit. The severance benefit would have been in a lump sum cash payment, equal to the annual salary plus the target bonus in the year of the termination, the sum of which will be multiplied by three. Mr. Peters would have also received 100% of the Company’s paid health insurance coverage as provided immediately prior to the termination. The health insurance coverage would have continued for two years following termination of employment, or until Mr. Peters became covered under another employer’s group health insurance plan, whichever came first. Also, Mr. Peters would have become fully vested in his options. These severance benefits upon a change of control would have been paid 60 days after the date of termination, provided the execution and delivery to the Company of a general release and Mr. Peters was not in material breach of any of the provisions of his employment agreement. Any payment and benefits discussed in this paragraph regarding a termination associated with a change in control would have been in lieu of any payments and benefits that would otherwise be awarded in an executive’s termination.

 

If payments or other amounts had become due to Mr. Peters under his executive employment agreement or otherwise, and the excise tax imposed by Section 4999 of the Code had been applicable to such payments, the Company would have been required to pay a gross up payment in the amount of such excise tax plus the amount of income, excise and other taxes due as a result of the gross up payment. All determinations required to be made and the assumptions to be utilized in arriving at such determinations, with certain exceptions, would have been made by the Company’s independent certified public accountants serving immediately prior to the Change in Control.

 

In July 2008, Mr. Peters resigned from the Company and no payments are due to him under his executive employment agreement.

 

Richard W. Pehlke

 

Effective February 15, 2007, Mr. Pehlke and the Company entered into a three-year employment agreement pursuant to which Mr. Pehlke serves as the Company’s Executive Vice President and Chief Financial Officer at an annual base salary of $350,000. In addition, Mr. Pehlke is entitled to receive target bonus cash compensation of up to 50% of his base salary based upon annual performance goals to be established by the Compensation Committee of the Company. Mr. Pehlke is also eligible to receive a target annual performance based equity bonus of 65% of his base salary based upon annual performance goals to be established by the Compensation Committee. The equity bonus is payable in restricted shares that vest on the third anniversary of the date of the grant. Mr. Pehlke was also granted stock options to purchase 25,000 shares of the Company’s common stock which have a term of 10 years, are exercisable at $11.75 per share (equal to the market price of the Company’s common stock on the date immediately preceding the grant date) and vest ratably over three years.

 

Mr. Pehlke’s annual base salary was increased from $350,000 to $375,000 on January 1, 2008. Similarly, Mr. Pehlke’s target bonus compensation was increased from 50% to 150% of his base salary on January 1, 2008.

Mr. Pehlke is also entitled to participate in the Company’s health and other benefit plans generally afforded to executive employees and is reimbursed for reasonable travel, entertainment and other reasonable expenses incurred in connection with his duties. The employment agreement contains confidentiality, non-competition, no raid, non-solicitation, non-disparagement and indemnification provisions.

 

The employment agreement is terminable by the Company upon Mr. Pehlke’s death or incapacity or for Cause (as defined in the employment agreement), without any additional compensation other than what has accrued to Mr. Pehlke as of the date of any such termination, except that in the case of death or incapacity, any unvested restricted shares automatically vest.

 

In the event that Mr. Pehlke is terminated without Cause, or if Mr. Pehlke terminates the agreement for Good Reason (as defined in the employment agreement), Mr. Pehlke is entitled to receive his annual base salary, payable in accordance with the Company’s customary payroll practices, for the balance of the term of the agreement or 24 months, whichever is less (subject to the provisions of Section 409A of the Internal Revenue Code of 1986, as amended) and all then unvested options shall automatically vest. The Company’s payment of any amounts to Mr. Pehlke upon his termination without Cause or for Good Reason is contingent upon him executing the Company’s then standard form of release.

 

Effective December 23, 2008, Mr. Pehlke and the Company entered into a change of control agreement pursuant to which in the event that Mr. Pehlke is terminated without Cause or resigns for Good Reason upon a Change of Control (as defined in the employment agreement) or within six months thereafter or is terminated without Cause or resigns for Good Reason within three months prior to a Change of Control, in contemplation thereof, Mr. Pehlke is entitled to receive two times his base salary payable in accordance with the Company’s customary payroll practices, over a twelve month period (subject to the provisions of Section 409A of the Code) plus an amount equal to one time his target annual cash bonus payable in cash on the next immediately following date when similar annual cash bonus compensation is paid to other executive officers of the Company (but in no event later than March 15th of the calendar year following the calendar year to which such bonus payment relates). In addition, upon a Change of Control, all then unvested options and restricted shares automatically vest. The Company’s payment of any amounts to Mr. Pehlke upon his termination upon a Change of Control is contingent upon his executing the Company’s then standard form of release.

 

Potential Payments upon Termination or Change in Control
Richard W. Pehlke

 

 

 

 

Andrea R. Biller

 

In November 2006, Ms. Biller entered into an executive employment agreement with the Company pursuant to which Ms. Biller serves as the Company’s General Counsel, Executive Vice President and Secretary. The agreement provides for an annual base salary of $400,000 per annum. Ms. Biller is eligible to receive an annual discretionary bonus of up to 150% of her base salary. The executive employment agreement has an initial term of three (3) years, and on the final day of the original term, and on each anniversary thereafter, the term of the agreement is extended automatically for an additional year unless the Company or Ms. Biller provides at least one year’s written notice that the term will not be extended. On October 23, 2008, the Company provided written notice to Ms. Biller that it will not extend the terms and conditions of Ms. Biller’s employment agreement beyond its initial term. In connection with the entering into of her employment agreement in November 2006, Ms. Biller received 114,400 shares of restricted stock and 35,200 stock options at an exercise price of $11.36 per share, one-third of which options vest on the grant date, and the remaining options vest in equal installments on the first and second anniversary date of the option grant.

 

Ms. Biller is also entitled to participate in the Company’s health and other benefit plans generally afforded to executive employees and is reimbursed for reasonable travel, entertainment and other reasonable expenses incurred in connection with her duties. The executive employment agreement contains confidentiality, non-competition, no raid, non-solicitation, non-disparagement and indemnification provisions.

 

In the event the Company terminates Ms. Biller’s employment for Cause (as defined in the executive employment agreement) or if she voluntarily resigns without Good Reason (as defined in the executive employment agreement), Ms. Biller is entitled to accrued salary and any unreimbursed business expenses. In the event that Ms. Biller’s employment terminates because of the expiration of her term, death or disability, the Company will pay an accrued salary, any unreimbursed business expenses, and a prorated performance bonus equal to the performance bonus (and in the case of termination for reason of death or disability, equal to the maximum target) that otherwise would have been payable to Ms. Biller in the fiscal year in which the termination occurs had she continued employment through the last day of such fiscal year, prorated for the number of calendar months she was employed by the Company in such fiscal year. The prorated performance bonus will be paid within 60 days after Ms. Biller’s date of termination, provided that she executes and delivers to the Company a general release and is not in material breach of any of the provisions of the executive employment agreement.

 

In the event of termination of employment without Cause, or voluntary resignation with Good Reason, the Company will pay any accrued salary, any unreimbursed business expenses and a severance benefit, in a lump sum cash payment, equal to Ms. Biller’s annual salary plus the target bonus in the year of the termination, the sum of which will be multiplied by a “severance benefit factor.” The “severance benefit factor” will be determined as follows: (a) if the date of termination occurs during the original three year employment term, the “severance benefit factor” will be the greater of one, and the number of months from the date of termination to the last day of the original three year employment term, divided by 12, or (b) if the date of termination is after the original three year employment term, the “severance benefit factor” will equal one. Also, all options become fully vested.

 

In the event of a termination by the Company without Cause at any time within 90 days before, or 12 months after, a Change in Control (as defined in the executive employment agreement), or in the event of resignation for Good Reason within 12 months after a Change in Control, or if without Good Reason during the period commencing six months after a Change in Control and ending 12 months after a Change in Control, then the Company will pay any accrued salary, any unreimbursed business expenses, and a severance benefit. The severance benefit will be in a lump sum cash payment, equal to the annual salary plus the target bonus in the year of the termination, the sum of which will be multiplied by three. Ms. Biller will also receive 100% of the Company’s paid health insurance coverage as provided immediately prior to the termination. The health insurance coverage will continue for two years following termination of employment, or until Ms. Biller becomes covered under another employer’s group health insurance plan, whichever comes first. Also, Ms. Biller will become fully vested in her options and restricted shares. These severance benefits upon a Change in Control will be paid 60 days after the date of termination, provided the execution and delivery to the Company of a general release and Ms. Biller is not in material breach of any of the provisions of her executive employment agreement. Any payment and benefits discussed in this paragraph regarding a termination associated with a Change in Control will be in lieu of any payments and benefits that would otherwise be awarded in an executive’s termination.

If payments or other amounts become due to Ms. Biller under her executive employment agreement or otherwise, and the excise tax imposed by Section 4999 of the Code applies to such payments, the Company is required to pay a gross up payment in the amount of this excise tax plus the amount of income, excise and other taxes due as a result of the gross up payment. All determinations required to be made and the assumptions to be utilized in arriving at such determinations, with certain exceptions, will be made by the Company’s independent certified public accountants serving immediately prior to the Change in Control.

 

Potential Payments upon Termination or Change in Control
Andrea R. Biller

 

 

Jeffrey T. Hanson

 

In November, 2006, Mr. Hanson entered into an executive employment agreement with the Company pursuant to which Mr. Hanson serves as the Company’s Chief Investment Officer. The agreement provides for an annual base salary of $350,000 per annum. Mr. Hanson is eligible to receive an annual discretionary bonus of up to 100% of his base salary. The executive employment agreement has an initial term of three (3) years, and on the final day of the original term, and on each anniversary thereafter, the term of the Agreement is extended automatically for an additional year unless the Company or Mr. Hanson provides at least one year’s written notice that the term will not be extended. On October 23, 2008, the Company provided written notice to Mr. Hanson that the Company will not extend the terms and conditions of Mr. Hanson’s executive employment agreement beyond its initial term. In connection with the entering into of his executive employment agreement in November, 2006, Mr. Hanson received 44,000 shares of restricted stock and 22,000 stock options at an exercise price of $11.36 per share, one-third of which options vest on the grant date, and the remaining options vest in equal installments on the first and second anniversary date of the option grant. Mr. Hanson is entitled to receive a special bonus of $250,000 if, during the applicable fiscal year, (x) Mr. Hanson is the procuring cause of at least $25 million of equity from new sources, which equity is actually received by the Company during such fiscal year, for real estate investments sourced by the Company, and (y) Mr. Hanson is employed by the Company on the last day of such fiscal year.

 

Mr. Hanson’s annual base salary was increased from $350,000 to $450,000 on August 1, 2008. Similarly, Mr. Hanson’s target bonus compensation was increased from 100% to 150% of his base salary on August 1, 2008.

 

Mr. Hanson is also entitled to participate in the Company’s health and other benefit plans generally afforded to executive employees and is reimbursed for reasonable travel, entertainment and other reasonable expenses incurred in connection with his duties. The executive employment agreement contains confidentiality, non-competition, no raid, non-solicitation, non-disparagement and indemnification provisions.

 

In the event the Company terminates Mr. Hanson’s employment for Cause (as defined in his executive employment agreement) or if he voluntarily resigns without Good Reason (as defined in his executive employment

agreement), Mr. Hanson is entitled to accrued salary and any unreimbursed business expenses. In the event that Mr. Hanson’s employment terminates because of the expiration of his term, death or disability, the Company will pay any accrued salary, any unreimbursed business expenses, and a prorated performance bonus equal to the performance bonus (and in the case of termination for reason of death or disability, equal to the maximum target) that otherwise would have been payable to Mr. Hanson in the fiscal year in which the termination occurs had he continued employment through the last day of such fiscal year, prorated for the number of calendar months he was employed by the Company in such fiscal year. The prorated performance bonus will be paid within 60 days after Mr. Hanson’s date of termination, provided that he executes and delivers to the Company a general release and is not in material breach of any of the provisions of the executive employment agreement.

 

In the event of termination of employment without Cause, or voluntary resignation with Good Reason, the Company will pay any accrued salary, any unreimbursed business expenses and a severance benefit, in a lump sum cash payment, equal to Mr. Hanson’s annual salary plus the target bonus in the year of the termination, the sum of which will be multiplied by a “severance benefit factor.” The “severance benefit factor” will be determined as follows: (a) if the date of termination occurs during the original three year employment term, the “severance benefit factor” will be the greater of one, and the number of months from the date of termination to the last day of the original three year employment term, divided by 12, or (b) if the date of termination is after the original three year employment term, the “severance benefit factor” will equal one. Also, all options become fully vested.

 

In the event of a termination by the Company without Cause at any time within 90 days before, or 12 months after, a Change in Control (as defined in the executive employment agreement), or in the event of resignation for Good Reason within 12 months after a Change in Control, or if without Good Reason during the period commencing six months after a Change in Control and ending 12 months after a Change in Control, then the Company will pay any accrued salary, any unreimbursed business expenses, and a severance benefit. The severance benefit will be in a lump sum cash payment, equal to the annual salary plus the target bonus in the year of the termination, the sum of which will be multiplied by three. Mr. Hanson will also receive 100% of the Company’s paid health insurance coverage as provided immediately prior to the termination. The health insurance coverage will continue for two years following termination of employment, or until Mr. Hanson becomes covered under another employer’s group health insurance plan, whichever comes first. Also, Mr. Hanson will become fully vested in his options and restricted shares. Mr. Hanson’s executive employment agreement further provides for an additional severance benefit equal to the lesser of (a) one percent of the amount of equity from new sources not previously related to the Company or any of its subsidiaries, for which Mr. Hanson is the procuring cause in the Company’s fiscal year in which the date of termination occurs, which equity is actually received by the Company or any of its subsidiaries during such fiscal year, for real estate investments sourced by the Company or any of its subsidiaries, or (b) $250,000, if he is discharged by the Company without Cause, or he voluntarily resigns for Good Reason. The additional severance benefit to Mr. Hanson will be in lieu of the $250,000 special bonus to Mr. Hanson in respect of the fiscal year in which his termination of employment occurs.

 

These severance benefits upon a Change in Control will be paid 60 days after the date of termination, provided the execution and delivery to the Company of a general release and Mr. Hanson is not in material breach of any of the provisions of his executive employment agreement. Any payment and benefits discussed in this paragraph regarding a termination associated with a Change in Control will be in lieu of any payments and benefits that would otherwise be awarded in an executive’s termination.

 

If payments or other amounts become due to Mr. Hanson under his employment agreement or otherwise, and the excise tax imposed by Section 4999 of the Code applies to such payments, the Company is required to pay a gross up payment in the amount of this excise tax plus the amount of income, excise and other taxes due as a result of the gross up payment. All determinations required to be made and the assumptions to be utilized in arriving at such determinations, with certain exceptions, will be made by the Company’s independent certified public accountants serving immediately prior to the Change in Control.

Potential Payments upon Termination or Change in Control
Jeffrey T. Hanson