Prospectus Supplement No. 2 Filed pursuant to Rule 424(b)(3)
(To Prospectus Dated April 19, 2000) File No. 333-34246
FrontLine Capital Group
Common Stock
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This prospectus supplement supplements and amends the prospectus,
dated April 19, 2000, relating to the sale by certain selling stockholders of
up to 3,038,388 shares of our common stock. The selling stockholders acquired
their shares in prior transactions in which the Company agreed to register
such shares for resale. Neither the Company nor any of its officers or
directors is selling any of the shares covered by this prospectus and none
will receive any proceeds from sales hereunder. This prospectus supplement
should be read in conjunction with, and may not be delivered or utilized
without, the prospectus. This prospectus supplement is qualified by reference
to the prospectus, except to the extent that information contained herein
supersedes the information contained in the prospectus.
You should read this prospectus supplement and the accompanying
prospectus carefully before you invest. Both documents contain information you
should consider when making your investment decision.
RECENT DEVELOPMENTS
On October 18, 2000, we announced a refinement to our business
strategy in order to highlight our holdings in HQ Global Holdings, Inc. ("HQ
Global") and to maximize the value of our other holdings. In order to achieve
this, we have segmented our operations into two distinct operating units. One
unit represents our interest in HQ Global and the other represents all of the
interests in our other partner companies. We also announced that we would be
substantially reducing our staff and corporate overhead and did not currently
anticipate pursuing any new investment opportunities.
Since that announcement the following has occurred:
o We have reduced our staff from 46 employees to 17 employees.
o We sold our interest in EmployeeMatters, Inc., a partner company,
to Intuit, Inc. in exchange for 556,027 shares of Intuit common
stock.
o We reported that HQ Global (and its predecessor entities) had
revenues for the three months ended September 30, 2000 of
$160.3 million, an increase of 175.9% from the corresponding
period in 1999, and operating income of $34.8 million, an increase
of 360% from the corresponding period in 1999.
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The date of this prospectus supplement is January 4, 2001.
o We completed a private placement of $15 million of Series B
convertible redeemable preferred stock and obtained a
commitment for the purchase of an additional $10 million of
such preferred stock. The Series B preferred stock may be
redeemed at our option at a premium prior to December 13, 2001.
Holders of such preferred stock have consent rights for certain
significant transactions.
o RealtyIQ Corp., a partner company, announced that it was
reducing its staff from 194 employees to 80 employees.
The market value of securities of many publicly-traded
Internet-related companies decreased significantly during 2000. This
development has resulted in a reduced number of initial public offerings of
Internet-related companies, reduced access to capital and a more difficult
business environment for such companies. As a result of the foregoing, the
business prospects and value of our partner companies with Internet-related
business models have been significantly reduced.
On December 18, 2000, we relocated our principal executive offices.
Our principal executive offices are now located at 90 Park Avenue, New York,
New York 10016. Our telephone number continues to be (212) 931-8000.
In connection with an investment in our common stock, investors
should consider the risk factors set forth under the caption "Risk Factors" in
the accompanying prospectus. In addition, in light of our refined business
strategy and focus on our holdings of HQ Global, investors should consider the
following risks which update and supersede the information contained under the
heading "Risk Factors--Our holdings in VANTAS Incorporated expose us to real
estate and operational risks" in the accompanying prospectus:
Our holdings in HQ Global Workplaces, Inc. expose us to real estate,
operational and financial risks
Our largest holding is common stock of HQ Global, the parent company
of HQ Global Workplaces, Inc. ("HQ"). HQ is the largest provider of flexible
officing solutions in the world, with more than 2,500 employees, 65,000
clients and over 470 business centers in 17 countries. HQ was formed in June
2000 in the merger of our partner company, VANTAS Incorporated ("VANTAS"), and
HQ Global Workplaces, Inc. ("Old HQ"). HQ provides furnished office suites and
a range of services (including secretarial services, telecommunication
services and conference facilities) to its clients under agreements with
generally shorter terms than the leases HQ enters into with the owners of the
buildings in which HQ centers are located. As a result, the amounts that HQ is
able to charge for executive office suites upon the expiration of current
contracts may be reduced as a result of market or other factors while HQ's
costs under its leases with building owners are not reduced. The executive
office suites industry is also subject to other risks comparable to those of
the real estate industry. Supply and demand and the location of office
buildings are all factors that directly affect the office suites industry. HQ
faces increased competition, in both the U.S. markets and abroad. A
significant downturn in the real estate market could adversely affect the
value of our holdings in HQ. Investors should review the section captioned
"Risk Factors - Real estate risks may affect our earnings" in the accompanying
prospectus.
Our holdings in HQ are also subject to the additional risks that the
combined company may not perform as we anticipate and VANTAS' and Old HQ's
operations may not be effectively integrated.
HQ Global has issued an aggregate of $220 million of convertible
preferred stock which it is required to redeem in November 2007. As of
September 30, 2000, HQ has borrowed approximately $216 million in senior debt
which has a final maturity date in November 2005. HQ also has $125 million of
mezzanine debt outstanding that is due in May 2007.
In addition, we have a $25 million line of credit from a commercial
lender that is secured by shares that we hold in HQ Global. The terms of our
recent Series B preferred stock issuance restrict us from using our other HQ
shares as collateral for future financings.
