<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
-------------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------------- -----------------------
COMMISSION FILE NUMBER 0-18274
---------------------------------------------------------
HQ GLOBAL HOLDINGS, INC. (AS SUCCESSOR TO VANTAS INCORPORATED)
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2880509
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
15950 NORTH DALLAS PARKWAY, SUITE 350 DALLAS, TX 75248
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(Address of principal executive offices - Zip code)
(972) 361-8100
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ ] Yes [X] No
AS OF AUGUST 14, 2000, 9,902,065 SHARES OF THE REGISTRANT'S VOTING COMMON
STOCK, PAR VALUE $.01, AND 2,152,988 SHARES OF THE REGISTRANT'S CLASS C
NON-VOTING COMMON STOCK, PAR VALUE $.01 WERE OUTSTANDING.
1
<PAGE> 2
HQ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 (unaudited).......................................................... 3
Consolidated Statements of Operations for the three months and six months ended
June 30, 2000 and 1999 (unaudited)..................................................... 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 (unaudited)..................................................... 5
Consolidated Statement of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficiency) for the six months ended June 30,
2000 (unaudited)....................................................................... 6
Notes to the Consolidated Financial Statements (unaudited)................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................... 22
Item 2. Changes in Securities and Use of Proceeds........................................... 22
Item 6. Exhibits and Reports on Form 8-K.................................................... 23
SIGNATURES ................................................................................... 26
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HQ GLOBAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,464,334 $ 3,807,417
Restricted cash 7,525,060 21,571,590
Accounts receivable, net of allowance for doubtful accounts of $2,949,000
and $861,000 at June 30, 2000 and December 31, 1999, respectively 22,970,207 8,425,968
Prepaid expenses and other current assets 19,615,831 10,853,205
Deferred income taxes -- 5,155,000
Deferred financing costs 7,797,643 908,602
-------------- --------------
Total current assets 66,373,075 50,721,782
Intangibles, net 604,097,775 187,115,028
Property and equipment, net 207,263,156 80,064,180
Deferred financing costs, net 36,228,812 4,516,557
Security deposits 6,381,196 4,400,898
Other assets, net 33,773,886 5,638,755
-------------- --------------
Total assets $ 954,117,900 $ 332,457,200
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses $ 43,528,921 $ 38,010,112
Capital lease obligations 1,313,872 1,139,219
Deferred rent payable 4,654,489 2,164,969
Notes payable - Credit Facility 35,475,000 12,500,000
Other liabilities 1,415,000 --
-------------- --------------
Total current liabilities 86,387,282 53,814,300
Notes payable - Credit Facility 204,025,000 108,125,000
Notes payable - Bridge Loan 125,000,000 --
Tenants' security deposits 55,945,543 20,163,962
Deferred rent payable 29,845,054 22,794,388
Deferred income taxes -- 3,024,000
Capital lease obligations 1,310,758 625,805
Other liabilities 5,942,214 4,361,721
-------------- --------------
Total liabilities 508,455,851 212,909,176
-------------- --------------
Redeemable convertible preferred stock:
Series A Convertible Cumulative Preferred Stock, $.01 par value; issued
and outstanding 4,782,692 shares (aggregate liquidation preference $197,377,455) 144,491,805 --
Series A through E Convertible Preferred Stock of VANTAS,
$.01 par value; issued and outstanding 29,837,272 shares at December 31, 1999
(aggregate liquidation preference $121,505,000) -- 154,041,584
Note receivable from issuance of redeemable preferred stock -- (950,000)
-------------- --------------
Total redeemable convertible preferred stock 144,491,805 153,091,584
-------------- --------------
Stockholders' equity (deficiency):
Voting common stock, $.01 par value; authorized 75,000,000 shares; issued
and outstanding 9,902,065 shares at June 30, 2000 and 1,814,799 shares
at December 31, 1999 99,021 18,148
Nonvoting Class C common stock, $.01 par value; authorized 25,000,000 shares;
issued and outstanding 2,152,988 shares 21,530 --
Additional paid-in capital 362,137,218 52,494
Unearned stock compensation (5,594,033) --
Notes receivable from issuance of common stock -- (945,072)
Accumulated deficit (55,493,492) (32,669,130)
-------------- --------------
Total stockholders' equity (deficiency) 301,170,244 (33,543,560)
-------------- --------------
Total liabilities and stockholders' equity (deficiency) $ 954,117,900 $ 332,457,200
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
HQ GLOBAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BUSINESS CENTER OPERATIONS:
REVENUES:
Office rentals $ 58,085,232 $ 30,571,559 $ 94,156,227 $ 57,636,857
Support services 40,612,303 21,981,819 67,031,081 41,691,527
------------ ------------ ------------ ------------
98,697,535 52,553,378 161,187,308 99,328,384
------------ ------------ ------------ ------------
EXPENSES:
Rent 34,933,792 20,111,485 59,722,886 37,474,431
Support services 14,260,435 7,611,480 23,870,662 14,393,631
Center general and administrative 19,897,212 11,808,038 35,277,033 22,077,702
------------ ------------ ------------ ------------
69,091,439 39,531,003 118,870,581 73,945,764
------------ ------------ ------------ ------------
Contribution from operation of business centers 29,606,096 13,022,375 42,316,727 25,382,620
------------ ------------ ------------ ------------
OTHER (EXPENSES) INCOME:
Corporate general and administrative (10,265,561) (5,591,757) (17,363,986) (10,926,063)
Merger and integration charges (18,615,417) (640,527) (19,441,417) (1,384,981)
Depreciation and amortization (9,486,506) (3,352,770) (14,946,464) (6,253,673)
Interest expense, net (6,845,296) (2,340,570) (10,227,366) (4,245,289)
Other income 147,460 34,684 78,279 34,684
------------ ------------ ------------ ------------
(45,065,320) (11,890,940) (61,900,954) (22,775,322)
------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes (15,459,224) 1,131,435 (19,584,227) 2,607,298
Provision for income taxes (280,116) (581,000) (470,116) (1,331,000)
------------ ------------ ------------ ------------
Net income (loss) (15,739,340) 550,435 (20,054,343) 1,276,298
------------ ------------ ------------ ------------
Accretion of preferred stock (4,101,349) (2,519,440) (6,686,386) (4,268,303)
------------ ------------ ------------ ------------
Net loss applicable to common stock $(19,840,689) $ (1,969,005) $(26,740,729) $ (2,992,005)
============ ============ ============ ============
Per share information:
Basic earnings (loss):
Net loss per common share $ (3.36) $ (1.56) $ (6.82) $ (2.38)
============ ============ ============ ============
Weighted average number of common
shares outstanding 5,903,921 1,259,290 3,921,630 1,259,290
============ ============ ============ ============
Diluted earnings (loss):
Net loss per common share $ (3.36) $ (1.56) $ (6.82) $ (2.38)
============ ============ ============ ============
Weighted average number of common
shares outstanding 5,903,921 1,259,290 3,921,630 1,259,290
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
HQ GLOBAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (20,054,343) $ 1,276,298
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization 14,946,464 6,253,673
Amortization of deferred financing costs 1,062,049 290,553
Deferred income taxes (603,329) --
Provision for doubtful accounts 1,202,725 211,358
Deferred rent payable 3,011,621 2,469,589
Deferred credits (1,016,484) 53,742
Broker referral fees 188,679 --
Non-cash compensation expense 125,405 --
Changes in operating assets and liabilities:
Accounts receivable (8,065,421) (1,026,730)
Prepaid expenses and other current assets 1,208,134 (684,312)
Security deposits and other assets 686,603 61,672
Accounts payable and accrued expenses (29,427,377) (35,747)
Income taxes payable 735,828 591,695
Tenants' security deposits 4,399,713 1,930,155
Other liabilities 1,712,266 --
-------------- --------------
Net cash (used in) provided by operating activities (29,887,467) 11,391,946
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of net assets of business centers, net of cash proceeds (254,025,200) (32,056,146)
Purchases of property and equipment (23,144,667) (13,310,664)
Restricted cash 23,311,145 10,000,000
-------------- --------------
Net cash used in investing activities (253,858,722) (35,366,810)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 276,325,000 35,200,000
Payments on borrowings (171,142,655) (10,525,000)
Deferred financing costs (17,798,912) (904,862)
Payments of capital leases (938,343) (1,294,630)
Proceeds from issuance of preferred stock,
net of issuance costs 167,432,124 (113,215)
Proceeds from issuance of common stock warrants 52,885,650 --
Proceeds from exercise of common stock options and warrants 1,070,868 --
Purchase and retirement of common stock (21,742,695) --
Proceeds from repayment of stock related notes receivable 1,939,188 --
Capital contribution from shareholder 372,881 --
-------------- --------------
Net cash provided by financing activities 288,403,106 22,362,293
-------------- --------------
Net increase (decrease) in cash 4,656,917 (1,612,571)
Cash at beginning of period 3,807,417 3,615,087
-------------- --------------
Cash at end of period $ 8,464,334 $ 2,002,516
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
HQ GLOBAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIENCY) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Redeemable Convertible Preferred Stock
-----------------------------------------------
VANTAS
-----------------------------------------------
Note
Shares Amount Receivable
------------- ------------- -------------
<S> <C> <C> <C>
Balances, December 31, 1999 29,837,272 $ 154,041,585 $ (950,000)
Adjustments to retroactively reflect the exchange
ratio in the HQ Merger -- -- --
------------- ------------- -------------
Balances December 31, 1999, as adjusted 29,837,272 154,041,585 (950,000)
Exercise of common stock options and warrants -- -- --
Contribution of capital from shareholder -- -- --
Issuance of preferred stock of VANTAS 3,885,245 25,317,774 --
Accretion of Series B through Series E
Convertible Preferred Stock of VANTAS -- 4,308,931 --
Transactions relating to the HQ Merger:
Repurchase and cancellation of common stock
held by former stockholders of VANTAS -- -- 950,000
Conversion of Series A through Series E
Redeemable Convertible Preferred Stock of VANTAS (33,722,517) (183,668,290) --
Issuance of Series A Convertible Preferred Stock 4,782,692 142,114,350
Capital contributions by FrontLine Capital Group -- -- --
Issuance of common stock, warrants and options
in the HQ Merger -- -- --
Issuance of warrants to purchase common stock
in connection with the issuance of the Series A
Redeemable Convertible Preferred Stock -- -- --
Issuance of warrants to purchase common stock
in connection with the issuance of notes payable -- -- --
Issuance of restricted stock -- -- --
Amortization of unearned stock compensation -- -- --
Accretion of Series A Convertible Preferred Stock -- 2,377,455 --
Net loss -- -- --
------------- ------------- -------------
Balances, June 30, 2000 4,782,692 $ 144,491,805 $ --
============= ============= =============
<CAPTION>
Redeemable Convertible Preferred Stock
---------------------------------------------
HQ Global
-----------------------------
Shares Amount Total
------------- ------------- -------------
<S> <C> <C> <C>
Balances, December 31, 1999 -- -- $ 153,091,585
Adjustments to retroactively reflect the exchange
ratio in the HQ Merger -- -- --
------------- ------------- -------------
Balances December 31, 1999, as adjusted -- -- 153,091,585
Exercise of common stock options and warrants
Contribution of capital from shareholder -- -- --
Issuance of preferred stock of VANTAS -- -- 25,317,774
Accretion of Series B through Series E
Convertible Preferred Stock of VANTAS -- -- 4,308,931
Transactions relating to the HQ Merger:
Repurchase and cancellation of common stock
held by former stockholders of VANTAS -- -- 950,000
Conversion of Series A through Series E
Redeemable Convertible Preferred Stock of VANTAS -- -- (183,668,290)
Issuance of Series A Convertible Preferred Stock
Capital contributions by FrontLine Capital Group -- -- 142,114,350
Issuance of common stock, warrants and options
in the HQ Merger -- -- --
Issuance of warrants to purchase common stock
in connection with the issuance of the Series A
Redeemable Convertible Preferred Stock -- -- --
Issuance of warrants to purchase common stock
in connection with the issuance of notes payable -- -- --
Issuance of restricted stock -- -- --
Amortization of unearned stock compensation -- -- --
Accretion of Series A Convertible Preferred Stock -- -- 2,377,455
Net loss -- -- --
------------- ------------- -------------
Balances, June 30, 2000 -- $ -- $ 144,491,805
============= ============= =============
<CAPTION>
Stockholders' Equity
---------------------------------------------------------------
Voting Common Stock Nonvoting Common Stock
------------------------------ -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1999 7,064,222 $ 70,642 -- $ --
Adjustments to retroactively reflect the exchange
ratio in the HQ Merger (5,249,423) (52,494) -- --
------------- ------------- ------------- -------------
Balances December 31, 1999, as adjusted 1,814,799 18,148 -- --
Exercise of common stock options and warrants 144,727 1,447 -- --
Contribution of capital from shareholder -- -- -- --
Issuance of preferred stock of VANTAS -- -- -- --
Accretion of Series B through Series E
Convertible Preferred Stock of VANTAS -- -- -- --
Transactions relating to the HQ Merger:
Repurchase and cancellation of common stock
held by former stockholders of VANTAS (1,959,526) (19,595) -- --
Conversion of Series A through Series E
Redeemable Convertible Preferred Stock of VANTAS 8,663,315 86,633 -- --
Issuance of Series A Convertible Preferred Stock -- -- -- --
Capital contributions by FrontLine Capital Group -- -- -- --
Issuance of common stock, warrants and options
in the HQ Merger 1,082,353 10,824 2,152,988 21,530
Issuance of warrants to purchase common stock
in connection with the issuance of the Series A
Redeemable Convertible Preferred Stock -- -- -- --
Issuance of warrants to purchase common stock
in connection with the issuance of notes payable -- -- -- --
Issuance of restricted stock 156,397 1,564 -- --
Amortization of unearned stock compensation -- -- -- --
Accretion of Series A Convertible Preferred Stock -- -- -- --
Net loss -- -- -- --
------------- ------------- ------------- -------------
Balances, June 30, 2000 9,902,065 $ 99,021 2,152,988 $ 21,530
============= ============= ============= =============
<CAPTION>
Stockholders' Equity
------------------------------------------------
Additional Unearned
Paid-in Stock Note
Capital Compensation Receivable
------------- ------------- -------------
<S> <C> <C> <C>
Balances, December 31, 1999 $ -- $ -- $ (945,072)
Adjustments to retroactively reflect the exchange
ratio in the HQ Merger 52,494 -- --
------------- ------------- -------------
Balances December 31, 1999, as adjusted 52,494 -- (945,072)
Exercise of common stock options and warrants 1,113,537 (30,912)
Contribution of capital from shareholder 372,881 -- --
Issuance of preferred stock of VANTAS -- -- --
Accretion of Series B through Series E
Convertible Preferred Stock of VANTAS (1,538,912) -- --
Transactions relating to the HQ Merger:
Repurchase and cancellation of common stock
held by former stockholders of VANTAS (21,723,101) -- 975,984
Conversion of Series A through Series E
Redeemable Convertible Preferred Stock of VANTAS 183,581,656 -- --
Issuance of Series A Convertible Preferred Stock -- -- --
Capital contributions by FrontLine Capital Group 5,603,646 -- --
Issuance of common stock, warrants and options
in the HQ Merger 120,024,237
Issuance of warrants to purchase common stock
in connection with the issuance of the Series A
Redeemable Convertible Preferred Stock 52,885,650 -- --
Issuance of warrants to purchase common stock
in connection with the issuance of notes payable 18,424,711 -- --
Issuance of restricted stock 5,717,874 (5,719,438) --
Amortization of unearned stock compensation -- 125,405 --
Accretion of Series A Convertible Preferred Stock (2,377,455) -- --
Net loss -- -- --
------------- ------------- -------------
Balances, June 30, 2000 $ 362,137,218 $ (5,594,033) $ --
============= ============= =============
<CAPTION>
Stockholders' Equity
------------------------------
Accumulated
Deficit Total
------------- -------------
<S> <C> <C>
Balances, December 31, 1999 $ (32,669,130) $ (33,543,560)
Adjustments to retroactively reflect the exchange
ratio in the HQ Merger -- --
------------- -------------
Balances December 31, 1999, as adjusted (32,669,130) (33,543,560)
Exercise of common stock options and warrants 1,084,072
Contribution of capital from shareholder -- 372,881
Issuance of preferred stock of VANTAS -- --
Accretion of Series B through Series E
Convertible Preferred Stock of VANTAS (2,770,019) (4,308,931)
Transactions relating to the HQ Merger:
Repurchase and cancellation of common stock
held by former stockholders of VANTAS -- (20,766,712)
Conversion of Series A through Series E
Redeemable Convertible Preferred Stock of VANTAS -- 183,668,290
Issuance of Series A Convertible Preferred Stock -- --
Capital contributions by FrontLine Capital Group -- 5,603,646
Issuance of common stock, warrants and options
in the HQ Merger 120,056,590
Issuance of warrants to purchase common stock
in connection with the issuance of the Series A
Redeemable Convertible Preferred Stock -- 52,885,650
Issuance of warrants to purchase common stock
in connection with the issuance of notes payable -- 18,424,711
Issuance of restricted stock -- --
Amortization of unearned stock compensation -- 125,405
Accretion of Series A Convertible Preferred Stock -- (2,377,455)
Net loss (20,054,343) (20,054,343)
------------- -------------
Balances, June 30, 2000 $ (55,493,492) $ 301,170,244
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
HQ GLOBAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
On June 1, 2000, VANTAS Incorporated ("VANTAS", formerly ALLIANCE
NATIONAL Incorporated, and, prior to that, Executive Office Group, Inc.), a
majority-owned subsidiary of FrontLine Capital Group ("FLCG"), merged with HQ
Global Workplaces, Inc. ("Old HQ"), an affiliate of CarrAmerica Realty
Corporation ("CarrAmerica"), in a two step merger (the "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"). See Note 2.
HQ is the largest provider of flexible officing solutions in the world.
As of June 30, 2000, HQ owned and operated 400 business centers in 29 states,
the District of Columbia, and 8 additional countries. This included 7 business
centers under development and 15 business centers open for nine months or less.
Also included are 6 business centers managed by the Company for unrelated third
parties and 9 international joint-venture business centers with which the
Company, through its European subsidiary, HQ Holdings Limited, is a joint
venture partner with Mercury Asset Management. The Company's wholly owned
subsidiary, HQ Network Systems, Inc., is the franchiser of 45 domestic and 33
international business centers for unrelated franchisees. The Company provides a
complete outsourced office solution through furnished and equipped individual
offices and multi-office suites available on short notice with flexible
contracts. The Company also provides business support and information services
including: telecommunications; broadband Internet access; mail room and
reception services; high-speed copying, faxing and printing services;
secretarial, desktop publishing and IT support services and various size
conference facilities, with multi-media presentation and, in certain cases,
video teleconferencing capabilities. The Company also provides similar services
for those businesses and individuals that do not require offices on a full-time
basis.
FLCG currently owns approximately 57% of the outstanding shares of
common stock of HQ Global ("Common Stock"), assuming the exercise of outstanding
warrants to purchase Common Stock at a nominal exercise price. See Note 6. Such
ownership percentage does not take into account (i) warrants to purchase
approximately 2.1 million shares (subject to increase for anti-dilution) of
Common Stock issued to the purchasers of Series A Preferred Stock described
below, (ii) any shares of Common Stock issuable upon conversion of the Series A
Preferred Stock (due to the fact that the number of such shares is dependent
upon the timing of the conversion and other factors) or (iii) outstanding
options to purchase shares of Common Stock. On a fully diluted basis and
assuming the Series A Preferred Stock converts at the merger conversion price,
FLCG currently owns approximately 42% of the common stock of HQ Global.
The consolidated financial statements include the accounts of HQ
Global and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. In the opinion
of management, the consolidated financial statements for the three- and
six-month periods ended June 30, 2000 and 1999, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position, operating results and cash flows for
each period presented. Results for interim periods are not necessarily
indicative of results for a full year. The December 31, 1999 consolidated
balance sheet was derived from audited financial statements
7
<PAGE> 8
of VANTAS, but does not include all disclosures required by generally accepted
accounting principles. These consolidated financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in the Annual Report on Form 10-K of VANTAS for the year ended December 31,
1999.
The accompanying financial statements have been prepared using the
local currency as the functional currency. Foreign currency exchange gains and
losses resulting from the translation of financial statements denominated in
local currencies into U.S. dollars are included as a component of stockholders'
equity. As of June 30, 2000, accumulated unrealized foreign currency
translation gains and losses were not significant.
Certain prior period amounts have been reclassified to conform to the
current year presentation.
2. MERGER OF VANTAS INCORPORATED AND HQ GLOBAL WORKPLACES, INC.
As described in Note 1, on June 1, 2000, VANTAS merged with Old HQ
pursuant to the HQ Merger. As a result of the HQ Merger, the combined company
became a wholly owned subsidiary of HQ Global, under the name HQ Global
Workplaces, Inc.
During the three months ended March 31, 2000, VANTAS issued
2,072,745 shares of Series E Convertible Preferred Stock ("Series E Preferred
Stock") at $5.25 per share for net proceeds of approximately $10.9 million.
Immediately prior to the HQ Merger, VANTAS issued 1,812,500 shares of Series E
Convertible Preferred Stock to FLCG at $8.00 per share for net proceeds of
approximately $14.5 million.
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 Common Stock, and (iii) each share of the convertible
preferred stock of VANTAS outstanding was converted into .2569 shares of Voting
Common Stock of HQ Global ("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 Old 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 Old HQ they held. In addition, options to
purchase shares of Old HQ common stock and stock units were cancelled for
approximately $10.8 million in cash, warrants to purchase 101,000 shares of Old
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 Old HQ common stock were
converted into 6,344 shares of Common Stock.
Because the former VANTAS stockholders received approximately 66% of
the outstanding shares of Common Stock, the HQ Merger has been accounted for
as a purchase of Old 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 has been
8
<PAGE> 9
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
aggregate cost of the HQ Merger and the acquisition of OmniOffices UK consisted
of the following (in thousands):
<TABLE>
<S> <C>
Cash paid to former Old HQ shareholders $151,058
Cash paid to former Old HQ option, and stock unit holders 10,754
Cash paid to acquire OmniOffices 90,176
3,235,341 shares of Common Stock issued to Old HQ
shareholders and option holders 118,381
Warrants to purchase 101,000 shares of Common
Stock issued to Old HQ warrant holders 1,676
Investment advisor, legal, accounting, and other professional fees
and other expenses 20,076
--------
$392,121
========
</TABLE>
The costs of the HQ Merger and the acquisition of OmniOffices have been
allocated to the respective assets acquired and liabilities assumed of Old HQ
and OmniOffices, with the remainder recorded as goodwill, based on preliminary
estimates of fair values as follows (in thousands):
<TABLE>
<S> <C>
Working capital $ (14,841)
Favorable operating leases 22,900
Property and equipment 107,047
Goodwill 396,404
Other assets 32,504
Other liabilities (13,200)
Notes payable repaid (138,693)
---------
$ 392,121
=========
</TABLE>
The estimates of fair value were determined by the Company's management
based on information furnished by the management of Old HQ and OmniOffices. The
goodwill recorded in the HQ Merger is being amortized over a 20-year period
based on management'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
Company engages in lease commitments ranging from 10-15 years, typically with 5
year renewal options. The results of operations of Old HQ and OmniOffices are
included in the consolidated results of HQ Global for periods subsequent to June
1, 2000.
In connection with the HQ Merger, HQ Global issued 4,782,692 shares of
Series A Convertible Cumulative Preferred Stock ("Series A Preferred"), warrants
to purchase up to 1,445,358 shares of Common Stock exercisable at a price of
$.01 per share (the "Series A Warrants"), and warrants to purchase up to 697,964
shares of Common Stock exercisable at a price of $.01 per share under certain
conditions (the "Series B Warrants") for a total consideration of $195 million.
See Notes 5 and 6.
Merger and integration costs related to the HQ Merger incurred and
charged to expense during the six-month period ended June 30, 2000 include the
following (in thousands):
9
<PAGE> 10
<TABLE>
<S> <C>
Payments to cancel options to purchase VANTAS common stock
held by officers and employees $ 11,382
Severance, retention incentives and other benefits 6,225
Professional fees and other expenses 1,834
--------
$ 19,441
========
</TABLE>
Of the total merger and integration costs incurred through June 30,
2000 of $19.4 million, approximately $15.9 million required cash outlays. At
June 30, 2000, the remaining balance to be paid totaled approximately $3.5
million, relating to employee severance, retention incentives, and other
benefits, and relocation costs.
In connection with the HQ Merger, HQ Global is consolidating and
relocating the former headquarters of VANTAS and Old HQ in New York, New York
and Atlanta, Georgia, respectively, into a new corporate headquarters in
Dallas, Texas. Due to the HQ Merger and pending relocations, VANTAS and Old HQ
entered into incentive bonus agreements with certain key executives and
employees, which bonuses will be earned as long as such executives and
employees remain with the Company through a specified date. Relocation costs
and retention incentives are being charged to expense as incurred.
3. EARNINGS (LOSS) PER SHARE INFORMATION
Basic earnings (loss) per common share is computed by dividing income
(loss) applicable to common stockholders by the weighted average number of
common shares outstanding during each period. Diluted earnings (loss)
applicable to common stockholders is computed by dividing income (loss)
applicable to common stockholders by the weighted average number of common
shares outstanding during each period and common equivalent shares consisting
of preferred stock, stock options and warrants, if dilutive.
4. NOTES PAYABLE
On May 31, 2000, the Company completed a transaction which increased
its $157.9 million credit facility (the amended and restated "Credit Facility")
to $275.0 million. The Credit Facility provides for $219.4 million under four
term loans, all of which are repayable in various quarterly installments
through November 2005. The Credit Facility also provides for borrowings up to
$55.6 million in two revolving loan commitments. Availabilities under the
revolving portion of the Credit Facility are formula based. As of June 30,
2000, there was $219.4 million in outstanding borrowings under the term loans
and $20.1 million in borrowings outstanding under one revolver. At June 30,
2000, $10.5 million was available for additional borrowings under the revolving
loan commitments.
Borrowings under the Credit Facility bear interest ranging from LIBOR
plus 3.25% to 4.0% or PRIME plus 2.25% to 3.00% for a one, three or nine month
period at the election of the Company. The Company's weighted average interest
rate on borrowings under the term loans at June 30, 2000 was approximately
11.48%. The Company converted to a LIBOR option on July 5, 2000. The Company
pays a commitment fee of 1/2 of 1.0% per annum on the unused portion of the
Credit Facility. As of June 30, 2000, the Company had hedged the interest rate
on approximately $46 million of borrowings under the Credit Facility using
various instruments with various expiration dates through July 31, 2002. These
instruments lock in the maximum underlying 30 day LIBOR rate at 7.93%. The
Credit Facility contains certain financial covenants related to interest
coverage, leverage ratios and other limitations. At June 30, 2000, the Company
was in compliance with all of its covenants.
10
<PAGE> 11
Maturities of borrowings outstanding under the Credit Facility subsequent to
June 30, 2000 are as follows:
Twelve months ending June 30 (in millions):
<TABLE>
<S> <C>
2001 $ 35.4
2002 23.6
2003 23.5
2004 47.1
2005 70.9
Thereafter 39.0
------
Total $239.5
======
</TABLE>
On May 31, 2000, the Company entered into a Senior Subordinated Credit
Facility (the "Bridge Loan") of $125.0 million provided by UBS Warburg LLC. The
Bridge Loan bears interest at LIBOR plus 6.5% and matures on May 31, 2007.
On August 11, 2000, the Company replaced the Bridge Loan with a $125.0
million Senior Subordinated Note Agreement (the "Mezzanine Loan"). The
Mezzanine Loan bears interest at 13.5% per annum and matures on May 31, 2007.
The Mezzanine lenders received 503,545 Class A warrants and 227,163 Class B
warrants.
The terms of the Class A warrants and Class B warrants are identical
except that Class A warrants are exercisable at the option of the holder at any
time and Class B warrants are exercisable on or after March 1, 2002, but only in
the event that a Qualified Initial Public Offering (as defined in the Purchase
Agreements) has not occurred prior to that date.
As of June 30, 2000, the Company had letters of credit outstanding in
the aggregate amount of $26.9 million, of which the Company pledged $5.5
million and $21.4 million were supported by FrontLine Capital Group.
The fair value of the warrants to purchase Common Stock issued to the
lenders was recorded as debt issuance costs and is being amortized over the
terms of the related loan. Such amortization is included as a component of
interest expense in the accompanying statements of operations.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the HQ Merger, all issued and outstanding shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock,
Series C Convertible Preferred Stock, Series D Convertible Preferred Stock and
Series E Convertible Preferred Stock of VANTAS were converted into an aggregate
of 8,663,315 shares of Voting Common Stock on June 1, 2000 (Note 2).
The Company has authorized 7,500,000 shares of $0.01 par value
preferred stock, of which 5,395,858 shares have been designated as Series A
Convertible Cumulative Preferred Stock.
11
<PAGE> 12
To finance a portion of the cash requirements of the HQ Merger, the
Company issued 4,782,692 shares Series A Preferred, Series A Warrants and
Series B Warrants to new investors for a total consideration of $195.0 million.
Holders of the shares of Series A Preferred are entitled to receive
dividends, when, as and if authorized by the Board of Directors, equal to the
dividend rate, as defined, multiplied by the liquidation amount per share of
Series A Preferred. The initial dividend rate is 13.5% per annum, increasing by
0.50% per annum on May 31, 2001 and on each annual anniversary date thereafter
until November 30, 2007 or earlier redemption, conversion or liquidation.
Dividends on the Series A Preferred are cumulative from May 31, 2000 and are
payable semiannually in arrears on May 31 and November 30 of each year,
commencing November 30, 2000. Payment of all such dividends occurs on each
dividend payment date through an increase in the liquidation preference of each
share. Holders of the Series A Preferred are also entitled to additional
dividends if dividends in the form of cash or other consideration are declared
on the Common Stock or other equity securities junior to the Series A
Preferred.
On or after May 31, 2004, HQ Global may redeem shares of the Series
A Preferred, in whole or in part, from time to time, for cash at a redemption
price per share which is initially equal to 105% of the liquidation preference,
declining ratably on each anniversary of May 31, 2004 until reaching 100% of
the liquidation preference on May 31, 2007. All of the outstanding shares of
Series A Preferred must be redeemed in cash on November 30, 2007 ("Mandatory
Redemption Date"), at a redemption price equal to 100% of the liquidation
preference per share.
Upon the consummation of a Qualified Initial Public Offering or
Qualified Merger, as defined, each share of Series A Preferred automatically
converts into shares of Common Stock at the Conversion Rate (the liquidation
preference divided by the applicable conversion price). Upon the occurrence of
certain other events (Conversion Option Event), holders of the Series A
Preferred have the option to convert shares of Series A Preferred into Common
Stock at the Conversion Rate. In the event that a Qualified Merger, a Qualified
Initial Public Offering or a Conversion Option Event has not occurred prior to
the close of business on the last business day immediately preceding the
Mandatory Redemption Date, holders of the Series A Preferred have the right to
convert their shares into shares of Common Stock on the Mandatory Redemption
Date at the Conversion Rate. Assuming the conversion price was equal to the
value of the Common Stock utilized to record the Mergers, the Series A
Preferred Stock would be convertible into 5,329,324 shares of Common Stock at
June 30, 2000.
In general, holders of the Series A Preferred vote together with the
holders of Common Stock as a single class on an as converted basis. In
addition, prior to a Qualified IPO or a Qualified Merger, the consent of the
holders of at least 62.5% of the outstanding shares of Series A Preferred are
required for certain corporate actions, including sales or purchases of certain
assets or businesses, mergers, liquidation, and the incurrence of certain
indebtedness.
The fair value of the Series A Warrants has been recorded as an
increase in additional paid-in capital with on offsetting reduction in the
carrying value of the Series A Preferred Stock. No value will be assigned to
the Series B Warrants until such time as it becomes probable the Series B
Warrants will become exercisable by the holders.
The carrying value of the Series A Preferred Stock is being accreted
to its liquidation value on November 30, 2007, including accrued dividends,
using the effective interest rate method, resulting in an effective dividend
rate of 20.08%.
On August 11, 2000, the Company issued 613,166 additional shares of
Series A Preferred in the amount of $25.0 million. In connection with this sale,
the Company issued 312,274 Class A warrants and 164,902 Class B warrants.
12
<PAGE> 13
6. COMMON STOCKHOLDERS' EQUITY
General
The Company has authorized 100 million shares of $0.01 common stock of
which 75 million shares have been designated as Voting Common Stock and 25
million shares have been designated as Nonvoting Class C Common Stock
("Nonvoting Common Stock"). Each share of Voting Common Stock has one vote on
each matter submitted to a vote of the stockholders. Each share of Nonvoting
Common Stock does not have any vote on such matters, except as required by law.
The Nonvoting Common Stock will convert into Voting Common Stock upon i) the
transfer by the holder to another person or entity (other than an entity in
which such holder directly or indirectly owns more than 9.9% of the voting
securities) or ii) January 1, 2001.
Warrants
At June 30, 2000, the Series A Warrants can be exercised at any time
up to and including May 31, 2010 to purchase 1,445,358 shares of Common Stock
at an exercise price of $0.01 per share. The Series B Warrants only become
exercisable on or after March 31, 2001 if a Qualified Initial Public Offering
has not occurred prior to that date. If exercisable, the Series B Warrants
could be exercised to purchase 697,964 shares of Common Stock at an exercise
price of $0.01 per share. The Series B Warrants expire May 31, 2010.
The Mezzanine lenders received 503,545 Class A warrants and 227,163
Class B warrants to purchase common stock. In addition, on August 11, 2000 the
Company issued 312,274 Class A warrants and 164,902 Class B warrants to the
purchasers of the additional shares of Series A Preferred. These warrants expire
August 11, 2010.
In the HQ Merger, the Company assumed warrants to purchase 101,000
shares of common stock at an exercise price of $20 per share.
Stock Plans
In the HQ Merger, all existing options to purchase the common stock of
VANTAS were converted to the right to receive cash, except for certain VANTAS
options, which were converted into options to purchase 12,310 shares of Common
Stock. All existing options to purchase the common stock of Old HQ were
cancelled in exchange for cash payments except for 14,000 options, which were
converted to 6,344 shares of Common Stock of HQ Global. See Note 2.
Effective June 1, 2000, the Company adopted the HQ Global Holdings,
Inc. 2000 Stock Option and Restricted Stock Plan (the "Plan") which provides
for grants of incentive stock options, nonqualified stock options, and
restricted stock to be granted to officers and key employees. HQ has reserved
800,000 shares of Common Stock for issuance upon exercise of options granted
pursuant to the Plan. The Board of Directors establishes the terms of each
option granted under the Plan. In June 2000, options to purchase 510,269 shares
of Common Stock at an exercise price of $ 36.57 were granted to officers and
employees. The options vest over 4 years and expire 10 years from date of grant.
Effective June 1, 2000, the Company also granted 156,397 shares of Common Stock
to certain officers and employees which vest over a four year period, with 37.5%
vesting 18 months from the date of grant and 12.5% vesting each six months
thereafter. The grants of restricted common stock resulted in aggregate deferred
stock option compensation expense of $5.7 million, which is being recognized
over the vesting period.
13
<PAGE> 14
7. CHANGE IN ACCOUNTING ESTIMATE
In connection with the HQ Merger, the Company reassessed the estimated
life of goodwill resulting from acquisitions of businesses and business centers.
As a result, the amortization period for goodwill was reduced from 30 years to
20 years resulting in a pre-tax charge of $305,095.
8. INCOME TAXES
The tax provision for the three and six months ended June 30, 2000
consists principally of state and foreign income taxes. 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.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements and Notes thereto. As of June 30,
2000, HQ Global Holdings, Inc. ("HQ Global" or the "Company") as successor to
VANTAS Incorporated ("VANTAS") from the two step merger (the "HQ Merger") with
the HQ Global Workplaces, Inc. ("Old HQ") and an affiliate of Carr America
Realty Corporation effective June 1, 2000, owned and operated 400 business
centers in 29 states, the District of Columbia, and 8 additional countries. This
included 7 business centers under development and 15 business centers open for
nine months or less. Also included are 6 business centers managed by the Company
for unrelated third parties and 9 international joint-venture business centers
that the Company, through its European subsidiary HQ Holdings Limited, is a
partner with Mercury Asset Management. The Company's wholly owned subsidiary, HQ
Network Systems, Inc., is the franchiser of 45 domestic and 33 international
business centers for unrelated franchisees. The Company provides a complete
outsourced office solution through furnished and equipped individual offices and
multi-office suites available on short notice with flexible contracts. The
Company also provides business support and information services including:
telecommunications; broadband Internet access; mail room and reception services;
high-speed copying, faxing and printing services; secretarial, desktop
publishing and IT support services and various size conference facilities, with
multi-media presentation and, in certain cases, video teleconferencing
capabilities. The Company also provides similar services for those businesses
and individuals that do not require offices on a full-time basis.
The Company has grown through an aggressive acquisition strategy
beginning in 1996, whereby it has acquired or merged with 38 entities, which
were comprised of 363 business centers with a total cost of approximately
$609.6 million. During the three months ended June 30, 2000 and 1999, the
Company acquired 181 and 25 business centers, with a cost of approximately
$392.1 million and $27.8 million, respectively. During the six months ended
June 30, 2000 and 1999, the Company acquired 182 and 86 business centers, with
a cost of approximately $392.9 million and $114.2 million, respectively.
In the early stages of development of a Developing Center, expenses
are incurred with minimal corresponding revenues. Once a Developing Center
reaches occupancy levels above 70%, generally within nine to twelve months of
its initial start, it is expected to have a positive impact on the results of
the Company. For the six months ended June 30, 2000, there were 28 VANTAS
Developing Centers as compared to 13 for the same period in 1999.
15
<PAGE> 16
These activities have had a material impact on the results of
operations and financial position of the Company and significantly affect the
comparability of the respective prior periods.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Total business center revenues for the three months ended June 30,
2000 were $98.7 million, an increase of $46.1 million or 87.8% from the
corresponding period in 1999. Included in revenues was $1.3 and $.2 million of
management, franchise, and joint venture fees for the three month periods ended
on June 30, 2000 and 1999, respectively.
Business centers that were acquired with effective dates after April
1, 1999 ("Acquired Centers") had revenues for the three months ended June 30,
2000 of $36.2 million, an increase of $32.1 million from the corresponding
period in 1999. This increase in revenues resulted primarily from the
acquisition of business centers during the 12 months ended June 30, 2000. The
Acquired Centers include all the Old HQ business centers.
Business centers, excluding Acquired and Developing Centers, that were
operating for the entire comparable period of the prior year ("Same Centers"),
had revenues for the three months ended June 30, 2000 of $55.1 million, an
increase of $8.0 million, or 17.0% from the corresponding period in 1999. While
average office occupancy levels have elevated to 91%, an increase of 2% from
the corresponding period in 1999, the increase in office rental revenue of $3.6
million, or 13.2%, was primarily due to more favorable office pricing. The
increase in support service revenues of $4.4 million, or 22.3% from 1999 is
partially attributable to an increase in broadband Internet access, information
technology support services and administrative support services.
Developing Center revenues were $6.1 million for the three months
ended June 30, 2000, an increase of $4.9 million from the corresponding period
in 1999. For the three months ended June 30, 2000 and 1999, there were 22 and
9 Developing Centers that were open, respectively. This increase is primarily
due to the greater number of Developing Centers open during the three months
ended June 30, 2000.
EXPENSES. Total business center expenses for the three months ended June 30,
2000 were $69.1 million, representing an increase of $29.5 million or 74.8%
from the corresponding period in 1999.
Acquired Center expenses for the three months ended June 30, 2000 and
1999 were $24.8 million and $3.1 million respectively, representing an increase
of $21.7 million from the corresponding period in 1999. This increase resulted
primarily from the acquisition of business centers during the 12 months ended
June 30, 2000. The Acquired Centers include all the Old HQ business centers.
Same Center expenses for the three months ended June 30, 2000 were
$38.4 million, an increase of $3.8 million or 11.0% from the corresponding
period in 1999. This increase is primarily attributable to higher rent expense
and support service expenses associated with increased support service
revenues.
Developing Center expenses for the three months ended June 30, 2000
were $5.9 million, an increase of $4.0 million from the corresponding period in
1999. This increase is due to a total of 28 Developing Centers during the three
months ended June 30, 2000 as compared to 13 Developing Centers during the
three months ended June 30, 1999.
CONTRIBUTION FROM OPERATION OF BUSINESS CENTERS ("COBC"). For the three months
ended June 30, 2000, COBC was $29.6 million as compared to $13.0 million for
the same period in 1999. The COBC as a percentage of total revenues ("COBC
Margin") was 30.0% for the three months ended June 30, 2000 as compared to
24.8% for the corresponding period in 1999.
Acquired Center COBC was $11.4 million for the three months ended June
30, 2000, an increase of $10.4 million from the corresponding period in 1999.
The COBC Margin from Acquired Centers for the three months
16
<PAGE> 17
ended June 30, 2000 and 1999 was 31.3% and 23.1%, respectively. The Acquired
Centers include all the Old HQ business centers which contributed to the
increase in the COBC margin, as a result of more favorable office pricing.
Same Center COBC was $16.7 million for the three months ended June 30,
2000 as compared to $12.6 million, an increase of 33.5% over the corresponding
period in 1999. The COBC Margin from Same Centers for the three months ended
June 30, 2000 was 30.4% as compared to 26.6% for the corresponding period in
1999.
Developing Centers COBC for the three months ended June 30, 2000 was
$.2 million, an increase of $.9 million from the corresponding period in 1999.
This increase is due to the increase in developing centers and the maturity of
those centers for the three months ended June 30, 2000 as compared to the
developing centers during the three months ended June 30, 1999. Of these, 22
and 9 centers were open for occupancy as of June 30, 2000 and 1999,
respectively.
OTHER EXPENSES. For the three months ended June 30, 2000, other expenses were
$45.1 million, representing an increase of $33.2 million or 279.0% from the
corresponding period in 1999. This increase is primarily attributable to
greater corporate general and administrative expenses, depreciation and
amortization and interest expense of $4.7 million, $6.1 million and $4.5
million or 83.6%, 182.9% and 192.5%, respectively. Other expenses also include
merger and integration charges of $18.6 million, related primarily to the June
1, 2000 HQ Merger.
The increase in corporate general and administrative expenses was
attributable to increases in the corporate personnel infrastructure and its
associated travel and related expenses, related office expansion, and
professional and consulting fees associated with the Company's growth. The
increase in corporate general and administration expenses were also attributed
to the corporate general and administration expenses of Old HQ. The increase in
depreciation and amortization relates to fixed assets acquired and goodwill
associated with the Company's acquisitions. It is also attributable to an
increase in capital expenditures associated with leasehold improvements for
Developing Centers and technology infrastructure additions. Interest expense is
primarily related to the Company's Credit Facility. This increase resulted from
interest expense on borrowings related to the Company's acquisitions as well as
increases in interest rates.
INCOME TAXES. The Company's effective income tax rate for the three months
ended June 30, 2000 was 1.8% as compared to 51.4% for the three months ended
June 30, 1999. The decrease in the Company's effective income tax rate for the
three months ended June 30, 2000 is primarily attributable to the impact of the
valuation reserve established on the Company's net operating loss tax benefit,
non-deductible goodwill amortization and a reduction in state income taxes. The
Company's underlying statutory income tax rates for the three months ended June
30, 2000 and 1999 are 38.3% and 42.0%, respectively. The reduction in the
statutory income tax rate is primarily due to a reduction in the overall state
income tax rate for the group.
NET (LOSS) INCOME. The Company incurred a net loss for the three months ended
June 30, 2000 of ($15.7) million compared to net income of $ .6 million for the
same period in 1999 primarily attributable to merger and integration charges of
$18.6 million discussed above.
Accretion of the stated return on investment ("Accretion") on the
Company's redeemable convertible preferred stock for the three months ended
June 30, 2000 was $4.1 million, representing an increase of $1.6 million from
the corresponding period in 1999. This increase is primarily the result of the
issuance of Series E convertible preferred stock during the period from January
1, 2000 through May 31, 2000, and the issuance of Series A convertible
preferred stock at the time of the HQ Merger.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Total business center revenues for the six months ended June 30, 2000
were $161.2 million, an increase of $61.9 million or 62.3% from the
corresponding period in 1999. Included in revenues was $1.5 and $.4 million of
management, franchise, and joint venture fees for the six month periods ended
on June 30, 2000 and 1999, respectively.
17
<PAGE> 18
Business centers that were acquired with effective dates after January
1, 1999 ("Acquired Centers") had revenues for the six months ended June 30,
2000 of $49.4 million, an increase of $42.2 million from the corresponding
period in 1999. This increase in revenues resulted primarily from the
acquisition of business centers during the 12 months ended June 30, 2000. The
Acquired Centers include all the Old HQ business centers.
Business centers, excluding Acquired and Developing Centers, that were
operating for the entire comparable period of the prior year ("Same Centers"),
had revenues for the six months ended June 30, 2000 of $101.1 million, an
increase of $11.5 million, or 12.8% from the corresponding period in 1999.
While average office occupancy levels have grown to 90%, an increase of 1% from
the corresponding period in 1999, the increase in office rental revenue of $5.5
million, or 10.6%, was primarily due to more favorable office pricing. The
increase in support service revenues of $6.0 million, or 15.8% from 1999 is
partially attributable to an increase in broadband Internet access, information
technology support services and administrative support services.
Developing Center revenues were $9.2 million for the six months ended
June 30, 2000, an increase of $7.1 million from the corresponding period in
1999. For the six months ended June 30, 2000 and 1999, there were 22 and 9
Developing Centers that were open, respectively. This increase is primarily due
to the greater number of Developing Centers open during the six months ended
June 30, 2000.
EXPENSES. Total business center expenses for the six months ended June
30, 2000 were $118.9 million, representing an increase of $44.9 million or
60.8% from the corresponding period in 1999.
Acquired Center expenses for the six months ended June 30, 2000 and
1999 were $35.5 million and $5.5 million respectively, representing an increase
of $30.0 million from the corresponding period in 1999. This increase resulted
primarily from the acquisition of business centers during the 12 months ended
June 30, 2000. The Acquired Centers include all the Old HQ business centers.
Same Center expenses for the six months ended June 30, 2000 were $73.0
million, an increase of $7.6 million or 11.6% from the corresponding period in
1999. This increase is primarily attributable to higher rent expense and
support service expenses associated with increased support service revenues.
Developing Center expenses for the six months ended June 30, 2000 were
$10.4 million, an increase of $7.3 million from the corresponding period in
1999. This increase is due to a total of 28 Developing Centers during the six
months ended June 30, 2000 as compared to 13 Developing Centers during the six
months ended June 30, 1999.
CONTRIBUTION FROM OPERATION OF BUSINESS CENTERS ("COBC"). For the six months
ended June 30, 2000, COBC was $42.3 million as compared to $25.4 million for
the same period in 1999. The COBC as a percentage of total revenues ("COBC
Margin") was 26.3% for the six months ended June 30, 2000 as compared to 25.6%
for the corresponding period in 1999.
Acquired Center COBC was $13.9 million for the six months ended June
30, 2000, an increase of $12.2 million from the corresponding period in 1999.
The COBC Margin from Acquired Centers for the six months ended June 30, 2000
and 1999 was 28.2% and 23.8%, respectively. The Acquired Centers include all
the Old HQ business centers which contributed to the increase in the COBC
margin, as a result of more favorable office pricing.
Same Center COBC was $28.1 million for the six months ended June 30,
2000 as compared to $24.2 million, an increase of 15.9% over the corresponding
period in 1999. The COBC Margin from Same Centers for the six months ended June
30, 2000 was 27.8% as compared to 27.0% for the corresponding period in 1999.
Developing Centers generated a loss from operations for the six months
ended June 30, 2000 of $1.2 million, an increase in losses of $.2 million from
the corresponding period in 1999. This increase in losses is primarily due to a
total of 28 Developing Centers during the six months ended June 30, 2000 as
compared to 13 Developing Centers during the six months ended June 30, 1999. Of
these, only 22 and 9 centers were open for occupancy as of June 30, 2000 and
1999, respectively.
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<PAGE> 19
OTHER EXPENSES. For the six months ended June 30, 2000, other expenses were
$61.9 million, representing an increase of $39.1 million or 171.8% from the
corresponding period in 1999. This increase is primarily attributable to
greater corporate general and administrative expenses, depreciation and
amortization and interest expense of $6.4 million, $8.7 million and $6.0
million or 58.9%, 139.0% and 140.9%, respectively. Other expenses also include
merger and integration charges of $19.4 million related primarily to the June
1, 2000 HQ Merger.
The increase in corporate general and administrative expenses was
attributable to increases in the corporate personnel infrastructure and its
associated travel and related expenses, related office expansion, and
professional and consulting fees associated with the Company's growth. The
increase in corporate general and administration expenses were also attributed
to the corporate general and administration expenses of Old HQ. The increase in
depreciation and amortization relates to fixed assets acquired and goodwill
associated with the Company's acquisitions. It is also attributable to an
increase in capital expenditures associated with leasehold improvements for
Developing Centers and technology infrastructure additions. Interest expense is
primarily related to the Company's Credit Facility. This increase resulted from
interest expense on borrowings related to the Company's acquisitions as well as
increases in interest rates.
INCOME TAXES. The Company's effective income tax rate for the six months ended
June 30, 2000 was 2.4% as compared to 51.0% for the six months ended June 30,
1999. The decrease in the Company's effective income tax rate for the six
months ended June 30, 2000 is primarily attributable to the impact of the
valuation reserve established on the Company's net operating loss tax benefit,
non-deductible goodwill amortization and a reduction in state income taxes,
partially offset by an increase in foreign taxes. The Company's underlying
statutory income tax rates for the six months ended June 30, 2000 and 1999 are
38.3% and 42.0%, respectively. The reduction in the statutory income tax rate
is primarily due to a reduction in the overall state income tax rate for the
group.
NET (LOSS) INCOME. The Company incurred a net loss for the six months ended
June 30, 2000 of ($20.1) million compared to net income of $1.3 million for the
same period in 1999 primarily attributable to merger and integration charges of
$19.4 million discussed above.
Accretion of the stated return on investment ("Accretion") on the
Company's redeemable convertible preferred stock for the six months ended June
30, 2000 was $6.7 million, representing an increase of $2.4 million from the
corresponding period in 1999. This increase is primarily the result of the
issuance of Series E convertible preferred stock during the period from January
1, 2000 through May 31, 2000, and the issuance of Series A convertible
preferred stock at the time of the HQ Merger.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has primarily relied upon cash flows
generated from operations, borrowings from its lenders and sales of its
securities to satisfy its liquidity and capital requirements. Principal
liquidity needs have included the acquisition and development of new business
centers, debt service requirements and other capital expenditures necessary to
maintain existing business centers as well as upgrade and build the corporate
infrastructure to manage the Company's operations effectively.
On May 31, 2000, the Company completed a transaction which increased
its $157.9 million credit facility (the amended and restated "Credit Facility")
to $275.0 million. The Credit Facility provides for $219.4 million under four
term loans, all of which are repayable in quarterly installments through
November 2005. The Credit Facility also provides for borrowings up to $55.6
million in two revolving loan commitments. Availabilities under the revolving
portion of the Credit Facility are formula based. As of August 11, 2000, there
was $242.5 million in outstanding borrowings under the term loans and $23.1
million in borrowings outstanding under one revolver. At August 11, 2000, $7.5
million was available for additional borrowings under the revolving loan
commitments.
Borrowings under the Credit Facility bear interest ranging from LIBOR
plus 3.25% to 4.0% or PRIME plus 2.25% to 3.00% for a one, three or nine month
period at the election of the Company. The Company's weighted average interest
rate on borrowings under the term loans at June 30, 2000 was approximately
11.48%. The Company converted to a LIBOR option on July 5, 2000. The Company
pays a commitment fee of 1/2 of 1.0% per annum on the unused portion of the
Credit Facility. As of June 30, 2000, the Company had hedged the interest rate
on approximately $46 million of borrowings under the Credit Facility using
various instruments. These instruments lock in the maximum underlying 30 day
LIBOR rate at levels between 5.95% and 7.93% through July 31, 2002. The Credit
Facility contains certain financial covenants related
19
<PAGE> 20
to interest coverage, leverage ratios and other limitations. At June 30, 2000,
the Company was in compliance with all of its covenants.
On May 31, 2000, the Company entered into a Senior Subordinated Credit
Facility (the "Bridge Loan") of $125.0 million provided by UBS Warburg LLC. The
Bridge Loan bears interest at LIBOR plus 6.5% and matures on May 31, 2007.
On August 11, 2000, the Company replaced the Bridge Loan with a $125.0
million Senior Subordinated Note Agreement (the "Mezzanine Loan"). The Mezzanine
Loan bears interest at 13.5% per annum and matures on May 31, 2007. The
Mezzanine lenders received 503,545 Class A warrants and 227,163 Class B
warrants.
On August 11, 2000, the Company issued 613,166 additional shares of
Series A Cumulative Convertible Preferred Stock in the amount of $25.0 million.
In connection with this sale, the Company issued 312,274 Class A warrants and
164,902 Class B warrants.
The terms Class A warrants and Class B warrants are identical except
that Class A warrants are exercisable at the option of the holder at any time
and Class B warrants are exercisable on or after March 1, 2002, but only in the
event that a Qualified Initial Public Offering (as defined in the Purchase
Agreements) has not occurred prior to that date.
As of August 11, 2000, the Company had letters of credit outstanding in
the aggregate amount of $25.9 million, against which the Company pledged $5.5
million in cash and $20.4 million were supported by a backstop letter of credit
by FrontLine Capital Group.
The Company had a working capital deficit of $20.0 million at June 30,
2000 as compared to a working capital deficit of $3.1 million at December 31,
1999. This decrease in working capital of $16.9 million is primarily
attributable to the increase of $23.0 million in current maturities of notes
payable, including $20.1 million outstanding under the revolving loan portion
of the Credit Facility. The Company anticipates that this revolver balance will
fluctuate based on general working capital requirements.
Cash flows used in operating activities for the six months ended June
30, 2000 were $29.9 million, representing a decrease of $41.3 million from the
corresponding period in 1999. This decrease is primarily attributable to the
cash used to reduce accrued expenses and the net loss as compared to the net
income of the corresponding period in 1999.
Cash used in investing activities for the six months ended June 30,
2000 was $253.9 million, an increase of $218.5 million from the corresponding
period in 1999. This increase is attributable to an increase in the Company's
acquisitions of business centers, an increase in purchases of property and
equipment and a reduction in restricted cash which was used to make certain
debt and interest payments.
Cash provided by financing activities for the six months ended June
30, 2000 was $288.4 million, an increase of $266.0 million from the
corresponding period in 1999. During the six months ended June 30, 2000, the
Company completed equity transactions whereby it raised $167.4 million in net
proceeds from the issuance of the Company's convertible preferred stock to
accredited investors and $52.9 million from the issuance of warrants. Also, in
connection with the HQ Merger, the Company increased borrowings by $105.2
million, and incurred an increase in related deferred financing costs of $17.8
million.
The Company anticipates that cash flows from operations and amounts
available under the revolving loan portion of the Credit Facility, will
continue to provide adequate capital to fund its operating and administrative
expenses and regular debt service obligations. In addition, the Company
anticipates that cash on hand and availability under its Credit Facility, will
provide the necessary capital required to sustain its current operations.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the six months ended June 30,
2000, together with other statements and information publicly disseminated by
the Company includes forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those defined below, which could cause the actual
20
<PAGE> 21
results to differ materially from historical results or those anticipated. The
words "believe," "expect," anticipate" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of their dates. The
Company undertakes no obligation to publicity update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise. The following factors could cause actual results to
differ materially from historical results or those anticipated: (i) general
economic conditions, (ii) financing risks, such as the inability to obtain
equity or debt financing on favorable terms, (iii) changes in governmental laws
and regulations, (iv) the level and volatility of interest rates, (v) the
availability of suitable acquisition and development opportunities and the
effective integration of those business centers within the overall operations
of the Company and (vi) increases in operating costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing the Company is interest rate risk on
the Credit Facility. The Company mitigates this risk by entering into hedging
instruments on a portion of its outstanding balances. In addition, the Company
may elect to enter into LIBOR contracts on portions of the Credit Facility,
which locks in the Company's interest rate on those portions for 30, 60 or 90
day periods. The Credit Facility bears interest ranging from either 3.25% to
4.00% over applicable LIBOR, or alternatively 2.25% to 3.00% over PRIME,
generally at the Company's election. As of August 11, 2000, the Company had
hedged the interest rates on approximately $93.0 million of its credit facility
using various instruments with various expiration dates through July 31, 2002.
These instruments lock in the maximum underlying 30 day LIBOR rate at levels
between 7.93% and 9.00%.
An increase in interest rates will have a negative impact on the net
income of the Company due to the variable interest component of the Credit
Facility. Based on current interest rate levels, a 10% increase in underlying
interest rates will have approximately a 4.8% increase in interest expense,
ignoring the short-term impact of remaining terms under current LIBOR hedge
contracts.
Following the HQ Merger, the Company is conducting more of its
operations in foreign currencies, primarily the British Pound. Due to the
nature of foreign currency markets, there is potential risk for foreign
currency losses as well as gains.
The Company has not, and does not plan to, enter into any derivative
financial instruments for trading or speculative purposes. As of June 30, 2000,
the Company had no other material exposure to market risk.
21
<PAGE> 22
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than as set forth below, the Company is not presently subject to
any material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company, other than claims and administrative
proceedings arising in the ordinary course of business or which are otherwise
subject to indemnification, some of which are expected to be covered by
liability insurance (subject to policy deductibles and limitations of
liability) and all of which collectively are not expected to have a material
adverse effect on the liquidity, results of operations or business or financial
condition of HQ Global Holdings, Inc.
Joseph Kaidanow and Robert Arcoro v. CarrAmerica Realty Corporation, HQ Global
Workplaces, Inc., Thomas A. Carr, Philip L. Hawkins, C. Ronald Blankenship,
Oliver T. Carr, and Gary Kusin. This action, originally brought in Delaware
state Chancery court on April 17, 2000, was removed to the Federal District
Court for the District of Delaware and then remanded on Plaintiffs motion back
to Delaware Chancery Court. The action alleges a breach of fiduciary duty by
CarrAmerica Realty Corporation and the directors of the Company in approving
the HQ Merger transaction. The complaint alleges among other things that
allocation of purchase price between the UK and US companies failed to meet the
standard of entire fairness. The complaint also states that CarrAmerica
breached its obligations under the Tag a Long and Sharing Agreement between
plaintiffs and CarrAmerica. The Company is named because the request for
injunctive and/or recissory damages would affect the Company's interests. The
Company is vigorously defending this action.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On June 1, 2000 and pursuant to the HQ Merger, the Company
amended and restated its Certificate of Incorporation. The
principal changes from the VANTAS charter include:
1) creation of a staggered board with three classes of
directors and each class serves for a three year term
2) creation of Class C non-voting Common Stock
3) increase of the authorized shares of common stock issuable
to 100 million, 75 million of which are voting common stock
and 25 million of which are Class C non-voting common stock.
(b) None.
(c) On June 1, 2000, the Company issued and sold 4,782,692.
shares of Series A Cummulative Convertible Preferred Stock
("Series A Preferred") to institutional investors at a price
of $40.77 per share, for an aggregated cash purchase price of
$195.0 million. The Company issued and sold the Series A
Preferred pursuant to Section 4(2) of the Securities Act of
1933, as amended (the "33 Act"). The terms of the Series A
Preferred provide for: (1) automatic conversion into shares of
the Company's voting common stock in the event of a Qualified
IPO or a Qualified Merger (each as defined) and (2)
conversion at the option of the holder, in whole or in part,
upon the occurrence of a merger or initial public offering
that does not meet the qualifications to require automatic
conversion. The conversion rate is determined in accordance
with a formula whereby the liquidation preference amount
(currently $40.77) is divided by the fair market value of the
Company's voting common stock and is subject to adjustment in
the event of certain dilutive events.
Under the terms of the various Series A Preferred Purchase
Agreements (the "Purchase Agreements") each holder of Series
A Preferred was also issued warrants to purchase the voting
22
<PAGE> 23
common stock of the Company. Accordingly, Class A warrants to
purchase 1,445,358 shares of voting common stock and Class B
warrants to purchase 697,964 shares of voting common stock
have been issued to the Series A Preferred holders. The terms
of the Class A and Class B warrants are identical except that
Class A warrants are exercisable at the option of the holder
at any time and Class B warrants are exercisable on or after
March 1, 2002, but only in the event that a Qualified Initial
Public Offering (as defined in the Purchase Agreements) has
not occurred prior to that date. The exercise price is $.01
per share.
Pursuant to the terms of the HQ Merger, 1,082,353 shares of
voting common stock and 2,152,988 shares of Class C non-voting
common stock were issued to former stockholders of Old HQ and
8,663,315 shares of voting common stock were issued to former
stockholders of VANTAS in exchange for their shares of Old HQ
and VANTAS respectively. In addition, warrants to purchase
101,000 shares of Old HQ voting common stock were converted to
warrants to purchase 101,000 shares of the Company's voting
common stock. These warrants are exercisable at $20.00 per
share. Each of these securities were issued pursuant to
Section 4(2) of the 33 Act.
On June 1, 2000, the Company granted 156,397 shares of
restricted voting common stock to members of its senior
management. In addition, on that same date, the Company
granted to its management level employees 510,269 options to
purchase common stock of the Company. These securities were
issued pursuant to the HQ Global Holdings, Inc. 2000 Stock
Option and Restricted Stock Plan. Pursuant to the Plan,
restricted stock and options vest over a four year period as
follows: 37.5% vest after 18 months with the balance vesting
ratably up to 100%. Vested options are exercisable at $36.57
per share. These securities were issued pursuant to Section
4(2) of the 33 Act.
In connection with the Bridge Loan, warrants to purchase up to
7.5% of the Company's voting common stock were issued to UBS
Warburg LLC on June 1, 2000. These warrants became exercisable
June 30, 2000 for an exercise price of $.01 per share. The
Bridge Loan was repaid and these options cancelled on August
11, 2000.
(d) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Amended and Restated Certificate of Designations
4.2* Stockholders Agreement by and among Frontline Capital Group, HQ Global
Holdings, Inc. and CarrAmerica Realty Corporation dated June 1, 2000
4.3* Stockholders Agreement by and among Frontline Capital Group, HQ Global
Holdings, Inc. and certain holders of Series A Preferred Stock of HQ
Global Holdings, Inc. named therein dated as of May 31, 2000
4.4.* Registration Rights Agreement dated as of May 31, 2000, by and among
HQ Global Holdings, Inc and the investors listed on Schedule A
thereto.
4.5* Registration Rights Agreement dated as of May 31, 2000 by and among HQ
Global Holdings, Inc, and the Holders (as defined therein)
23
<PAGE> 24
4.6 Form of Class A Warrant
4.7 Form of Class B Warrant
4.8 HQ Global Holdings, Inc. 2000 Stock Option and Restricted Stock Plan
4.9 Form of Option Agreement
10.4 Amended and Restated Credit Agreement among HQ Global Holdings, Inc.,
VANTAS Incorporated (aka HQ Global Workplaces, Inc.), Various Banks,
ING Capital (U.S.) LLC, Bankers Trust Company, CitiCorp Real Estate,
Inc. and BNP Paribas, as Administrative Agent and Arranger dated as of
January 16, 1997, as amended and restated as of May 31, 2000
10.5** First Amendment to Agreement and Plan of Merger by and among HQ Global
Workplaces, Inc., CarrAmerica Realty Corporation, VANTAS Incorporated
and Reckson Service Industries, Inc., dated as of January 20, 2000 as
amended April 29, 2000.
10.6* Second Amendment to Agreement and Plan of Merger by and among HQ
Global Workplaces, Inc., Carr America Reality Corporation, VANTAS
Incorporated and Reckson Service Industries, Inc., dated as of January
20, 2000, as amended April 29, 2000 and May 31, 2000.
10.7** First Amendment to Stock Purchase Agreement between CarrAmerica Realty
Corporation and Reckson Service Industries, Inc., dated as of January
20, 2000 as amended April 29, 2000
10.8** First Amendment to Stock Purchase Agreement among CarrAmerica Realty
Corporation, OmniOffices (UK) Limited, OmniOffices (Lux) 1929 Holding
Company S.A., VANTAS Incorporated and Reckson Service Industries,
Inc., dated as of January 20, 2000 as amended April 29, 2000
10.9* Amended and Restated Indemnification and Escrow Agreement by and among
Reckson Service Industries, Inc., CarrAmerica Realty Corporation and
the other parties named therein
10.10 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and EOP Operating Limited
Partnership
10.11 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and Fortress HQ LLC
10.12 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and First Union Real Estate
Equity and Mortgage Investments.
10.13 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and CIBC WMC Inc.
24
<PAGE> 25
10.14 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and CIBC Employee Private
Equity Fund Partners
10.15 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and Blackacre Capital
Partners, L.P.
10.16 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and AEW Targeted Securities
Fund, L.P.
10.17 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and AEW Targeted Securities
Fund II, L.P.
10.18 Purchase Agreement dated as of May 31, 2000 by and among FrontLine
Capital Group, HQ Global Holdings, Inc. and Paribas North America,
Inc.
10.19 Purchase Agreement dated as of May 31, 2000 by and among Frontline
Capital Group, HQ Global Holdings, Inc. and Stichting Pensioenfonds
ABP.
10.20 Employment Agreement for Gary Kusin dated September 4, 1998, as
amended effective June 1, 2000.
10.21 Employment Agreement for David Rupert dated September 7, 1999, as
amended effective June 1, 2000.
27 Financial Data Schedules
------------
* Previously filed as an exhibit to VANTAS's Form 8-K report filed with
the SEC on June 16, 2000 and incorporated herein by reference.
** Previously filed as an Exhibit to VANTAS's Report on Form 8-K filed
with the SEC May 12, 2000 and incorporated herein by reference.
(b) Reports on Form 8-K
HQ Global Holdings, Inc. filed a report on Form 8-K on June 16, 2000,
containing Item 2 and Item 7 information.
25
<PAGE> 26
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 Holding, Inc.
August 14, 2000 /s/ Gary Kusin
--------------- -------------------------------------------------
Date Gary Kusin
Chief Executive Officer
August 14, 2000 /s/ Joseph D. Wallace
--------------- -------------------------------------------------
Date Joseph D. Wallace
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
August 14, 2000 /s/ John D. Bailey
--------------- -------------------------------------------------
Date John D. Bailey
Vice President, Accounting
(Principal Accounting Officer)
26
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Amended and Restated Certificate of Designations
4.2* Stockholders Agreement by and among Frontline
Capital Group, HQ Global Holdings, Inc. and
CarrAmerica Realty Corporation dated June 1, 2000
4.3* Stockholders Agreement by and among Frontline
Capital Group, HQ Global Holdings, Inc. and certain
holders of Series A Preferred Stock of HQ Global
Holdings, Inc. named therein dated as of May 31,
2000
4.4* Registration Rights Agreement dated as of May 31,
2000, by and among HQ Global Holdings, Inc and the
investors listed on Schedule A thereto.
4.5* Registration Rights Agreement dated as of May 31,
2000 by and among HQ Global Holdings, Inc, and the
Holders (as defined therein)
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
4.6 Form of Class A Warrant
4.7 Form of Class B Warrant
4.8 HQ Global Holdings, Inc. 2000 Stock Option and
Restricted Stock Plan
4.9 Form of Option Agreement
10.4 Amended and Restated Credit Agreement among HQ
Global Holdings, Inc., VANTAS Incorporated (aka HQ
Global Workplaces, Inc.), Various Banks, ING Capital
(U.S.) LLC, Bankers Trust Company, CitiCorp Real
Estate, Inc. and BNP Paribas, as Adminstrative Agent
and Arranger dated as of January 16, 1997, as
amended and restated as of May 31, 2000
10.5** First Amendment to Agreement and Plan of Merger by
and among HQ Global Workplaces, Inc., CarrAmerica
Realty Corporation, VANTAS Incorporated and Reckson
Service Industries, Inc., dated as of January 20,
2000 as amended April 29, 2000.
10.6* Second Amendment to Agreement and Plan of Merger by
and among HQ Global Workplaces, Inc., Carr America
Reality Corporation, VANTAS Incorporated and Reckson
Service Industries, Inc., dated as of January 20,
2000, as amended April 29, 2000 and May 31, 2000.
10.7** First Amendment to Stock Purchase Agreement between
CarrAmerica Realty Corporation and Reckson Service
Industries, Inc., dated as of January 20, 2000 as
amended April 29, 2000
10.8** First Amendment to Stock Purchase Agreement among
CarrAmerica Realty Corporation, OmniOffices (UK)
Limited, OmniOffices (Lux) 1929 Holding Company
S.A., VANTAS Incorporated and Reckson Service
Industries, Inc., dated as of January 20, 2000 as
amended April 29, 2000
10.9* Amended and Restated Indemnification and Escrow
Agreement by and among Reckson Service Industries,
Inc., CarrAmerica Realty Corporation and the other
parties named therein
10.10 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and EOP Operating Limited Partnership
10.11 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and Fortress HQ LLC
10.12 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and First Union Real Estate Equity and Mortgage
Investments.
10.13 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and CIBC WMC Inc.
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
10.14 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and CIBC Employee Private Equity Fund Partners
10.15 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and Blackacre Capital Partners, L.P.
10.16 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and AEW Targeted Securities Fund, L.P.
10.17 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and AEW Targeted Securities Fund II, L.P.
10.18 Purchase Agreement dated as of May 31, 2000 by and
among FrontLine Capital Group, HQ Global Holdings,
Inc. and Paribas North America, Inc.
10.19 Purchase Agreement dated as of May 31, 2000 by and
among Frontline Capital Group, HQ Global Holdings,
Inc. and Stichting Pensioenfonds ABP.
10.20 Employment Agreement for Gary Kusin dated September
4, 1998, as amended effective June 1, 2000.
10.21 Employment Agreement for David Rupert dated
September 7, 1999, as amended effective June 1,
2000.
27 Financial Data Schedules
</TABLE>
----------
* Previously filed as an exhibit to VANTAS's Form 8-K report filed
with the SEC on June 16, 2000 and incorporated herein by
reference.
** Previously filed as an Exhibit to VANTAS's Report on Form 8-K
filed with the SEC May 12, 2000 and incorporated herein by
reference.
