SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
-------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 1, 2000
HQ GLOBAL HOLDINGS, INC.
(as successor to VANTAS Incorporated)
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
0-18274 75-2880509
(Commission File Number) (IRS Employer Id. Number)
15950 N. Dallas Parkway, Suite 350
Dallas, TX 75248
(Address of principal executive offices) (Zip Code)
(972) 361-8100
(Registrant's telephone number, including area code)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant hereby amends the following items, financial statements, exhibits
or other portions of its Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on July 16, 2000, as set forth in the pages
attached hereto.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information of the Company
Pro Forma Condensed Consolidating Statement of Operations
for the year ended December 31, 1999 (unaudited)
Pro Forma Condensed Consolidating Statement of Operations
for the six months ended June 30, 2000 (unaudited)
Notes to Unaudited Pro Forma Consolidated Financial Statements (unaudited)
Schedule I - VANTAS Incorporated and Subsidiaries - Pro Forma
Condensed Consolidating Statement of Operations
for the year ended December 31, 1999 (unaudited)
Schedule II - HQ Global Workplaces, Inc. and Subsidiaries - Pro Forma
Condensed Consolidating Statement
of Operations for the year ended December 31, 1999 (unaudited)
<PAGE>
HQ Global Holdings, Inc.
Unaudited Pro Forma Consolidated Statements of Operations
On June 1, 2000, VANTAS Incorporated ("VANTAS"), a majority-owned
subsidiary of FrontLine Capital Group ("FrontLine"), merged with HQ Global
Workplaces, Inc.("HQ"), an affiliate of CarrAmerica Realty Corporation
("CarrAmerica"), in a two step merger ("HQ Merger"). As a result of the HQ
Merger, the combined company became a wholly owned subsidiary of a newly
formed parent corporation, HQ Global Holdings, Inc. ("HQ Global" or the
"Company"), under the name HQ Global Workplaces, Inc. ("HQ").
In connection with the HQ Merger, (i) each share of the Class A
Common Stock of VANTAS ("VANTAS Common Stock") was converted into the right to
receive $8.00 per share in cash; (ii) each option and warrant to purchase the
common stock of VANTAS, were converted into the right to receive a per share
cash amount equal to $8.00, less the exercise price for such options or
warrants, except for certain VANTAS options which were converted into options
to purchase 12,310 shares of Voting Common Stock of HQ Global ("Voting
Common Stock"), and (iii) each share of the convertible preferred stock of
VANTAS outstanding was converted into .2569 shares of Voting Common Stock. The
payment to cancel the outstanding options held by officers and employees was
charged to merger and integration expenses in the three months ended June 30,
2000. The holders of the VANTAS preferred stock received an aggregate of
8,663,315 shares of Voting Common Stock upon conversion of the preferred
stock.
In the HQ Merger, CarrAmerica and certain other stockholders of
HQ received approximately $151.1 million in cash and 1,076,009 shares of Voting
Common Stock and 2,152,988 shares of Nonvoting Common Stock of HQ Global in
exchange for the 7,359,527 shares of HQ they held. In addition, options to
purchase shares of HQ common stock and stock units were cancelled for
approximately $10.8 million in cash, warrants to purchase 101,000 shares of
HQ common stock at an exercise price of $20 per share were converted into
warrants to purchase an equal number of shares of Common Stock with the same
terms, and options to purchase 14,000 shares of HQ common stock were
converted into 6,344 shares of Voting Common Stock.
Because the former VANTAS shareholders received approximately 66% of
the outstanding shares of common stock of HQ Global, the HQ Merger has been
accounted for as a purchase of HQ by VANTAS. As a result, the consolidated
financial statements of HQ Global include the assets and liabilities of
VANTAS at their respective historical carrying amounts and include the results
of its operations for all periods presented. All historical share and per
share information have been retroactively adjusted based on an effective
conversion rate of one share of VANTAS Common Stock into .2569 shares of
Common Stock.
HQ Global also acquired the interests of CarrAmerica in OmniOffices
(UK) Limited and OmniOffices (Lux) 1929 Holding Company S.A. (collectively
"OmniOffices UK"), two companies engaged in the executive office suites business
outside of the United States, for approximately $90.2 million in cash.
The following unaudited pro forma statements of operations of HQ
Global give effect to the HQ Merger and the acquisition of OmniOffices UK as if
such transactions had occurred as of January 1, 1999. The pro forma statements
of operations are based on the historical financial statements and the notes
thereto of HQ Global, VANTAS, HQ and OmniOffices UK. The unaudited pro forma
condensed combined financial statements are based on the estimates and
assumptions set forth in the notes, including management's estimates of the
value of the tangible and intangible assets acquired. These estimates and
assumptions are preliminary and have been made solely for purposes of
developing this pro forma information. The pro forma statements of operations
are presented for illustrative purposes only and are not indicative of the
actual results of operations which would have been achieved had the HQ Merger
and acquisition of OmniOffices UK occurred on January 1, 1999, nor are they
indicative of the future results of operations of HQ Global.
The pro forma financial statements, including the notes thereto, are
qualified in their entirety by reference to, and should be read in conjunction
with, (i) the historical financial statements of HQ Global as filed in its
Form 10-Q for the six months ended June 30, 2000, (ii) the historical
financial statements of VANTAS as filed in its Form 10-K for the year ended
December 31, 1999, and (iii) the historical financial statements of HQ and
OmniOffices UK as filed in the Form 8-K of VANTAS dated February 28, 2000.
HQ GLOBAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
VANTAS HQ PRO FORMA COMBINED
PRO FORMA (1) PRO FORMA (2) ADJUSTMENTS PRO FORMA
------------- --------------- ------------- ------------
REVENUES
<S> <C> <C> <C> <C>
Executive office suite income $132,081 $155,508 $- $287,589
Support services 95,452 90,219 - 185,671
------------- --------------- ------------- ------------
227,533 245,727 - 473,260
------------- --------------- ------------- ------------
EXPENSES
Cost of revenue 119,748 129,378 2,400 (4) 251,526
Center general and administrative 51,660 44,086 (16,780) (5) 78,966
------------- --------------- ------------- ------------
171,408 173,464 (14,380) 330,492
------------- --------------- ------------- ------------
Contribution from operations of
business centers 56,125 72,263 14,380 142,768
------------- --------------- ------------- ------------
OTHER (EXPENSES) INCOME
Corporate general and administrative
expense (25,659) (52,763) (1,512) (6) (79,934)
Merger and integration (26,730) - 26,730 (7) -
Depreciation and amortization (15,487) (20,632) (29,820) (8) (65,939)
Interest expense, net (11,263) (12,228) (26,462) (9) (49,953)
-
------------- --------------- ------------- ------------
(79,139) (85,623) (31,064) (195,826)
------------- --------------- ------------- ------------
loss before benefit for income taxes (23,014) (13,360) (16,684) (53,056)
Benefit for income taxes 2,333 1,117 (4,164) (10) (714)
------------- --------------- ------------- ------------
Net loss (20,681) (12,243) (20,848) (53,772)
Accretion of preferred stock (12,252) - (16,277) (11) (28,529)
------------- --------------- ------------- ------------
Net loss applicable to common stock $(32,933) $(12,243) $(37,125) $(82,301)
============= =============== ============= ============
Basic and diluted net loss per weighted
average common share ($24.93) ($5.87)
============= ============
Basic and diluted weighted average
common shares outstanding 1,321 12,708 (12) 14,029
============= ==================== ============
</TABLE>
See accompanying notes
HQ GLOBAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HQ HISTORICAL
HQ GLOBAL FIVE MONTHS ENDED PRO FORMA PRO FORMA
HISTORICAL MAY 31, 2000 (3) ADJUSTMENTS COMBINED
--------------- ------------------ ------------- ----------------
REVENUES:
<S> <C> <C> <C> <C>
Executive office suite income $94,156 $81,897 $- $176,053
Support services 67,031 46,303 - 113,334
--------------- ------------ ----------- --------------
161,187 128,200 - 289,387
--------------- ------------ ----------- --------------
EXPENSES:
Rent 59,723 44,168 1,000 (4) 104,891
Support services 23,871 23,485 - 47,356
Center general and administrative 35,277 21,127 (8,390) (5) 48,014
--------------- ------------ ----------- --------------
118,871 88,780 (7,390) 200,261
--------------- ------------ ----------- --------------
Contribution from operation of
business centers 42,316 39,420 7,390 89,126
--------------- ------------ ----------- --------------
OTHER (EXPENSES) INCOME
-----------------------
Corporate general and administrative (17,364) (18,462) (630) (6) (36,456)
Merger and integration (19,441) (5,149) 24,590 (7) -
Depreciation and amortization (14,946) (10,755) (12,425) (8) (38,126)
Interest expense, net (10,227) (6,207) (8,007) (9) (24,441)
Other income 78 - - 78
--------------- ------------ ----------- --------------
(61,900) (40,573) 3,528 (98,945)
--------------- ------------ ----------- --------------
Income (loss) before provision for
income taxes (19,584) (1,153) 10,918 (9,819)
Provision for income taxes (470) (99) - (569)
--------------- ------------ ----------- --------------
Net loss (20,054) (1,252) 10,918 (10,388)
Accretion of preferred stock (6,687) - (7,578) (11) (14,265)
--------------- ------------ ----------- --------------
Net loss applicable to common stock ($26,741) ($1,252) 3,340 ($24,653)
=============== ============ =========== ==============
Basic and diluted net loss per weighted
average common share ($6.82) ($1.76)
=============== ==============
Basic and diluted weighted average
common shares outstanding 3,922 10,107 (12) 14,029
=============== =========== ==============
</TABLE>
See accompanying notes
HQ Global Holdings, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
(1) The VANTAS pro forma results of operations for the year ended
December 31, 1999 were based on the historical results of operations
of VANTAS as adjusted for acquisitions. See Schedule I for more
detail.
(2) The HQ pro forma results of operations for the year ended
December 31, 1999 were based on historical results of operations of
HQ and OmniOffices as adjusted for acquisitions and other costs. See
Schedule II for more detail.
(3) Represents the adjustment to reflect the historical results of
operations of HQ for the five months ended May 31, 2000, which were
not included in the historical results of operations of HQ Global for
the six months ended June 30, 2000.
(4) Represents amortization of the costs allocated to favorable operating
leases recorded under purchase accounting.
(5) Adjustment reflects a reduction in general and administrative
expenses. As a result of the HQ Merger HQ Global management believes
it will realize cost savings related to (a) a reduction in the number
of (i) VANTAS corporate administrative and support employees, (ii)
termination of duplicate area district managers and client service
specialists, (b) the combination of overlapping support and
administrative systems as well as the elimination of rent, marketing,
travel and entertainment expenses.
A summarization of these savings is outlined below for the year ended December
31, 1999 (in thousands):
HQ Global
Employees Cost Pro Forma
Terminated Savings Adjustment
------------- --------- -------------
Salaries and related
benefits $ (12,150) $ - $ (12,150)
Rent expense - (1,840) (1,840)
Marketing and promotion - (1,490) (1,490)
Travel and entertainment - (1,300) (1,300)
------------- ----------- ------------
$ (12,150) $ (4,630) $ (16,780)
============= =========== ============
A summarization of these savings is outlined below for the six months
ended June 30, 2000 (in thousands)
HQ Global
Employees Cost Pro Forma
Terminated Savings Adjustment
------------- --------- -------------
Salaries and related
benefits $ (6,075) $ - $ (6,075)
Rent expense - (920) (920)
Marketing and promotion - (745) (745)
Travel and entertainment - (650) (650)
------------- ----------- ------------
$ (6,075) $ (2,315) $ (8,390)
============= =========== ============
(6) Represents amortization of unearned stock compensation related
to 164,601 shares of restricted common stock granted to certain
officers and employees on June 1, 2000. These grants resulted in
aggregate deferred stock option compensation expense of $5.7 million,
which is being recognized over the vesting period.
(7) Represents merger and integration costs and expenses associated
with all acquisitions in the period, as these costs are incremental
non-recurring costs directly attributable to such acquisitions.
(8) Represents amortization expense on goodwill computed as if
the HQ Merger occurred on January 1,1999. Goodwill is being amortized
over a 20 year period based on HQ Global's assessment of the
significant barriers to entry due to the rapid consolidation in the
executive suites business and the lack of exposure to technological
obsolescence in the global officing solutions business. The goodwill
adjustment represents amortization which was not included in the
historical results.
(9) Represents additional interest expense on borrowings under
credit facilities used to fund a portion of cash requirement of the
HQ Merger. Interest expense was calculated on the outstanding
indebtedness as follows: (i) $189.375 million at an interest rate of
LIBOR +4% (10.7%), (ii) $30 million at an interest rate of LIBOR
+3.25% (9.95%), (iii) $5.625 million at an interest rate of LIBOR
+3.5% (10.2%) and, (iv) $125 million at an interest rate of 13.5%.
Additionally as part of the obtaining debt financing the HQ Global
issued warrants valued at approximately $18.4 million, which are
being amortized into interest expense term of the related debt.
(10) Represents elimination of the federal deferred tax benefit for
the period. As of June 30, 2000, the Company's deferred tax assets
have been fully reserved because of the uncertainty of the timing and
amount of future taxable income.
(11) Reflects the accretion of the HQ Global Series A redeemable
convertible preferred stock issued in the HQ Merger to its
liquidation value on November 30, 2007, including accrued dividends.
The accretion was computed using the effective interest rate method,
resulting in an effective dividend rate of 20.08%. Also reflects the
elimination of the accretion of the carrying value of the VANTAS
convertible preferred stock which was converted into common stock in
the HQ Merger.
(12) Represents the adjustment to the weighted average shares
outstanding resulting from i) the repurchase of all outstanding
shares of VANTAS common stock, ii) the issuance of 3,235,341 shares
of common stock of HQ Holdings to CarrAmerica and certain other
stockholders of HQ and iii) the conversion of all outstanding shares
of redeemable convertible preferred stock of VANTAS into an aggregate
of 8,663,315 shares of common stock in connection with the HQ Merger.
Schedule I
VANTAS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
VANTAS PRO FORMA VANTAS
HISTORICAL ADJUSTMENTS (1) PRO FORMA
--------------- ------------------ ----------------
REVENUES
<S> <C> <C> <C>
Executive office suite income $124,564 $7,517 $132,081
Support services 90,479 4,973 95,452
--------------- ------------------ ----------------
215,043 12,490 227,533
--------------- ------------------ ----------------
EXPENSES
Cost of revenue 113,725 6,023 119,748
General and administrative expense 48,705 2,955 51,660
--------------- ------------------ ----------------
Total operating expenses 162,430 8,978 171,408
OTHER INCOME (EXPENSES)
-----------------------
Merger and integration (26,730) - (26,730)
Depreciation and amortization (14,858) (629) (15,487)
Interest income (expense) (10,265) (998) (11,263)
Corporate general and administrative
expense (25,020) (639) (25,659)
--------------- ------------------ ----------------
TOTAL EXPENSES 239,303 11,244 250,547
--------------- ------------------ ----------------
Income (loss) before income tax
benefit (expense) (24,260) 1,246 (23,014)
Income tax benefit (expense) 2,841 (508) 2,333
--------------- ------------------ ----------------
NET INCOME (LOSS) (21,419) 738 (20,681)
Accretion of preferred stock (12,252) - (12,252)
--------------- ------------------ ----------------
Net (loss) income applicable
to common stock ($33,671) 738 (32,933)
============== ================== ================
</TABLE>
(1) Pro forma adjustments reflects the results of operations of business
centers acquired for the periods which are not included in the historical
results. These adjustments also include: additional depreciation expense on
fixed assets acquired as well as amortizartion expense on goodwill associated
with the purchase of the business centers by VANTAS as if the acquisitions had
occured on January 1, 1999. Additionally, interest expense relating to
borrowings on VANTAS' loan facility to finance the purchases has also been
reflected.
Schedule II
HQ GLOBAL WORKPLACE , INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(Dollars in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
HQ HQ (UK) PRO FORMA HQ
HISTORICAL HISTORICAL ADJUSTMENTS (1) PRO FORMA
------------------- ---------------- ------------ --------------
REVENUES
<S> <C> <C> <C> <C>
Executive office suite income $135,081 $14,557 $5,870 $155,508
Support services 81,235 5,454 3,530 90,219
------------------- ---------------- ------------ --------------
TOTAL REVENUES 216,316 20,011 9,400 245,727
------------------- ---------------- ------------ --------------
EXPENSES
Cost of revenue 116,585 8,629 4,164 129,378
Center general and administrative 33,688 8,012 2,386 44,086
Corporate general and administrative 43,066 7,832 1,865 52,763
Interest expense, net 7,680 1,541 3,007 12,228
Depreciation and amortization 18,797 2,719 (884) 20,632
------------------- ---------------- ------------ --------------
TOTAL EXPENSES 219,816 28,733 10,538 259,087
------------------- ---------------- ------------ --------------
Loss before
income tax benefit (3,500) (8,722) (1,138) (13,360)
------------------- ---------------- ------------ --------------
Income tax benefit 504 389 224 1,117
------------------- ---------------- ------------ --------------
NET LOSS $(2,996) $(8,333) $(914) $(12,243)
=================== ================ ============ ==============
</TABLE>
(1) Pro forma adjustment represents adjustments to the operations of the
entities acquired during fiscal 1998 and fiscal 1999 and also HQ UK and HQ
Europe to show the operations as if the acquisitions were effective at January
1, 1999. These adjustments include the following: adjustment in rent expense
to conform with Generally Accepted Accounting Principles ("GAAP"), adjustments
in goodwill amortization arising from the allocation of purchase price
(goodwill is amortized straight-line over its estimated useful life of 20
years), adjustment in depreciation expense to conform with GAAP, compensation
expense associated with the vesting of restricted stock units and income tax
effects of pro forma adjustments.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HQ GLOBAL HOLDINGS, INC.
By: /s/ Joseph Wallace
-------------------------------
Name: Joseph Wallace
Title: Senior Vice President
and Chief Financial
Officer
Date: August 15, 2000
