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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
Commission File Number 0-18274
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VANTAS INCORPORATED
(F/K/A EXECUTIVE OFFICE GROUP, INC.)
(Exact name of registrant as specified in its charter)
NEVADA 13-3353508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 PARK AVENUE, SUITE 3100 10016
NEW YORK, NY (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (212) 907-6400
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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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 | | No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. |X|
The number of the Registrant's shares of Class A common stock, par value
$.01 per share, outstanding was 7,064,222 as of December 31, 1999. There is no
established trading market for the Class A common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
ITEM FORM 10-K
NO. REPORT PAGE
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PART I.
<S> <C> <C>
ITEM 1. BUSINESS ........................................................................................I-1
ITEM 2. PROPERTIES ......................................................................................I-8
ITEM 3. LEGAL PROCEEDINGS ...............................................................................I-9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............................................I-9
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ..........................II-1
ITEM 6. SELECTED FINANCIAL DATA ........................................................................II-1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..........II-3
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ....................................II-16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................................................II-16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ..........II-52
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............................................III-1
ITEM 11. EXECUTIVE COMPENSATION ........................................................................III-4
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ................................III-7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................................III-8
PART IV.
ITEM 14. FINANCIAL STATEMENTS AND SCHEDULES,
EXHIBITS AND REPORTS ON FORM 8-K ..............................................................IV-1
</TABLE>
<PAGE>
PART I.
ITEM 1. BUSINESS
GENERAL
VANTAS Incorporated ("VANTAS" or the "Company"), previously known as
ALLIANCE NATIONAL INCORPORATED, and prior to that, Executive Office Group,
Inc., is the largest owner-operator of business centers and provider of
related business support services in North America with, as of December 31,
1999, 196 operating business centers (including 5 centers that are managed for
third party owners). As of December 31, 1999, VANTAS also had entered into
leases with respect to the development of an additional 10 business centers
that are not yet opened for occupancy. VANTAS's operating business centers are
located in 27 states, the District of Columbia, France and Mexico and total
over 3.7 million square feet and approximately 13,000 rentable offices.
Business center location is a key consideration in VANTAS's business plan.
VANTAS leases a large percentage of its business centers in Class A office
buildings. VANTAS does not own any real estate. VANTAS was organized in 1986
as a Nevada corporation.
VANTAS provides a complete outsourced office solution through furnished
and equipped individual offices and multi-office suites available on short
notice with flexible contracts. VANTAS 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. VANTAS also provides similar
services for those businesses and individuals that do not require offices on a
full-time basis. Such products and services enhance the professional
appearance of clients and allow them to immediately focus on their respective
businesses while avoiding the costs and distractions of establishing and
managing their own fully-equipped facility. In most cases, equipment and
services provided by VANTAS are superior to those which clients would
otherwise use due to the ability of VANTAS to spread the expense of acquiring
and maintaining such equipment and services over a larger base of users.
Since 1996, VANTAS has grown through an aggressive acquisition strategy.
As of December 31, 1999, VANTAS had acquired or merged with 36 entities, which
were comprised of 181 business centers at a total cost of approximately $204.4
million.
In January 1999, two newly formed subsidiaries of VANTAS were merged (the
"Mergers") with and into Interoffice Superholdings Corporation ("Interoffice")
and Reckson Executive Centers, Inc. ("REC"), respectively. Interoffice and REC
collectively owned 45 business centers. As a result of the Mergers,
Interoffice and REC became wholly-owned subsidiaries of VANTAS and the
shareholders of Interoffice and REC received 13,325,424 shares of VANTAS's
Series C Convertible Preferred Stock ("Series C Preferred Stock"), and VANTAS
received $8.4 million in cash.
Prior to the Mergers, REC and Interoffice were majority-owned
subsidiaries of Reckson Service Industries, Inc., now known as FrontLine
Capital Group ("FrontLine"). Pursuant to the terms of the Mergers, FrontLine
received an approximate 24% equity interest in VANTAS in the form of Series C
Preferred Stock, which it holds through two limited liability companies (the
"FrontLine LLC's").
VANTAS and FrontLine also entered into an intercompany agreement pursuant
to which FrontLine has the opportunity to be the exclusive provider of certain
business services to VANTAS, provided certain third party and "most-favored
nation" conditions are satisfied.
In connection with the Mergers, certain of the stockholders of VANTAS,
including the FrontLine LLC's, entered into a stockholders' agreement (the
"Stockholders' Agreement") pursuant to which holders of Series C Preferred
Stock have the right to nominate four of the ten members of the board of
directors of VANTAS (the "Board"), including the Chairman of the Board. A
significant number of items presented to the Board will require the separate
approval of a majority of the representatives of the Series C Preferred Stock
on the Board, including significant acquisitions, sale or leasing of assets,
approval of VANTAS's annual operating budget, certain borrowings and capital
expenditures by VANTAS, the hiring or termination of certain executives and
other matters. The holders of Series C Preferred Stock also have the right to
appoint half of the members of the executive and audit committees of the
Board. The preferred stockholders of VANTAS were granted super-majority voting
rights with respect to certain corporate actions, including the issuance of
equity securities, mergers, changes to the charter documents of VANTAS and
other matters.
Subsequent to the Mergers, FrontLine increased its ownership in VANTAS
through the purchase of additional capital stock issued by VANTAS as well as
the purchase of all or, in the case of members of senior management, a portion
of VANTAS capital stock owned by members of VANTAS's senior management, former
members of the Board and other preferred stockholders. The capital stock
acquired included stock related to the exercise of vested stock options by
members of senior management. Under the terms of the agreements with senior
management, VANTAS remitted applicable withholding taxes related to the
compensation expense associated with the exercise of such options on behalf of
such individuals, subject to certain qualifications relating to those
individuals remaining in the employ of VANTAS.
As of December 31, 1999, FrontLine owned, directly or indirectly,
approximately 63% of the outstanding capital stock of VANTAS. As of the date
of filing of this report, FrontLine owned, directly or indirectly,
approximately 83% of VANTAS's outstanding capital stock.
As of the date of filing of this report, the Board was comprised of David
Beale, Scott Rechler, Daniel DiSano, Christopher George, Jon Halpern, Jeffrey
Neumann and Stephen M. Rathkopf. Messrs. Rechler, DiSano, George, Neumann and
Rathkopf are officers of FrontLine.
SUBSEQUENT DEVELOPMENTS
On January 20, 2000, VANTAS executed an agreement and plan of merger (the
"Merger Agreement") pursuant to which VANTAS will be merged (the "HQ Merger")
with and into HQ Global Workplaces, Inc. ("HQ"), at an agreed enterprise value
of approximately $1 billion. The surviving corporation will do business as HQ
Global Workplaces, Inc. (the "Surviving Corporation"). CarrAmerica Realty
Corporation ("CarrAmerica") currently owns approximately 93% of the equity
interests of HQ.
Upon consummation of the HQ Merger and the transactions contemplated
thereby, current holders of VANTAS convertible preferred stock will own
approximately 81% of the Surviving Corporation and current holders of the
stock of HQ ("HQ Holders") will own approximately 19%. FrontLine anticipates
that one or more third-party investors will purchase an equity interest in the
Surviving Corporation, which will decrease FrontLine's percentage ownership.
It is presently anticipated that FrontLine's ownership percentage in the
Surviving Corporation will not be reduced below 50%. FrontLine will control a
majority of the board of directors and the Surviving Corporation's executive
management team will be led by the current chief executive officer of HQ.
VANTAS has obtained a commitment letter for $350 million in debt financing
necessary to complete the HQ Merger, subject to satisfaction of various
conditions.
In connection with the HQ Merger, (i) each share of VANTAS common stock
will be converted into the right to receive $8.00 per share in cash, (ii) each
share of VANTAS convertible preferred stock outstanding will be converted into
the right to receive that number of shares of the Surviving Corporation that
equals the product of the number of shares of VANTAS common stock that such
stockholder would have been entitled to receive had it converted its shares
immediately prior to the HQ Merger and the Conversion Ratio (as defined in the
Merger Agreement which is incorporated herein by reference), and (iii) each
option and warrant to purchase common stock of the Company, other than options
under the 1996 Plan, will be converted into the right to receive a per share
cash amount equal to $8.00, less the exercise price for such options or
warrants, as the case may be, subject, in each case, to adjustment as provided
in the Merger Agreement.
Subsequent to the execution of the Merger Agreement, VANTAS obtained a
$35 million letter of credit which was collateralized by 15,057,487 shares of
VANTAS stock owned by FrontLine (the "Collateral Shares"). Such letter of
credit may be drawn upon by HQ if the HQ Merger fails to close, except under
certain limited circumstances. In the event the letter of credit is drawn upon
and the lender forecloses upon the Collateral Shares, VANTAS is obligated to
reimburse FrontLine in the form of additional shares of VANTAS for any loss of
the Collateral Shares, provided that such loss was not a result of FrontLine's
gross negligence.
Simultaneously with the execution of the Merger Agreement, FrontLine,
CarrAmerica and certain others executed two stock purchase agreements pursuant
to which (a) FrontLine will purchase from HQ Holders certain of their
securities in the Surviving Corporation and (b) the Surviving Corporation will
purchase from CarrAmerica all of the stock in two companies engaged in the
executive office suites business outside the United States that is not already
owned by the Surviving Corporation. As a result of the foregoing transactions,
HQ Holders will receive cash in an amount equal to $380 million less any
amounts necessary to pay-off indebtedness of HQ existing at the time of the HQ
Merger and an approximately 19% interest in the Surviving Corporation.
FrontLine has also agreed to enter into a stockholders agreement (the "HQ
Stockholders Agreement") with certain of the HQ Holders which will provide the
HQ Holders with a right to put their shares of the Surviving Corporation (the
"Surviving Corporation Shares") to FrontLine at various times during the two
years subsequent to the HQ Merger. The put right provides that up to $20
million of the HQ Holders' Surviving Corporation Shares may be put to
FrontLine in November 2000. If an initial public offering of the Surviving
Corporation has not occurred during the two years subsequent to the HQ Merger,
up to 50% of the HQ Holders' remaining Surviving Corporation Shares may be put
to FrontLine in December 2001 and any remaining Surviving Corporation Shares
of the HQ Holders may be put to FrontLine in July 2002. The put is payable in
cash or FrontLine common stock (valued at the time of closing under the put)
at FrontLine's option.
The HQ Stockholders Agreement also provides for participation rights,
tag-along rights, board representation and a limited right of first offer to
the HQ Holders and contains certain tax-related provisions. The HQ
Stockholders Agreement also grants FrontLine a right of first offer with
respect to the HQ Holders' Surviving Corporation Shares.
OFFICE OPERATIONS
VANTAS offers its clients various customized office solution plans based
on their particular needs and preferences. The two most popular plans are
OfficePlus(TM) (full-time program) and OfficeAccess(TM) (part-time program).
Details of these services are described below:
OFFICEPLUS(TM) : VANTAS's full-service office program provides clients
with fully furnished and equipped individual offices and suites and a full
array of business support services without substantial investment of time and
money, enabling companies to allocate resources more effectively. In addition
to a fully furnished office and access to such business support services,
clients receive the following additional amenities and benefits:
o Convenient location with a prestigious address and building directory
lobby listing;
o Reception area with a receptionist to greet and announce guests;
o Personalized telephone answering, message services and voice mail;
o Incoming mail and package handling;
o Access to conference rooms equipped with audio visual equipment;
o Kitchen facilities with complimentary coffee and tea service; and
o Specified complimentary use at any of the almost 200 VANTAS affiliated
business center locations worldwide.
OFFICEACCESS(TM): Certain of VANTAS's clients prefer to maintain a local
presence in a particular market or to access VANTAS's worldwide network and to
utilize many of the services offered by VANTAS, but do not need a full-time
office. As a result, VANTAS offers a part-time plan called the
OfficeAccess(TM) program. Clients receive a prestigious address, building
directory lobby listing, personalized telephone answering, message and voice
mail services, facsimile capabilities, incoming mail handling and limited use
of conference rooms and/or offices on an availability basis. Certain clients
may have needs that are more limited and may use only a portion of these
services.
The OfficeAccess(TM) program provides flexibility for VANTAS's clients.
For example, as a client grows, it can transfer into an OfficePlus(TM)
program. Similarly, should an OfficePlus(TM) client need to downsize, it can
adjust its overhead and participate as an OfficeAccess(TM) client in a
seamless manner.
SUPPORT SERVICES
VANTAS offers a variety of additional services to its OfficePlus(TM) and
OfficeAccess(TM) clients on an as-needed basis and charges for these services
according to a price schedule. The most widely used services offered by VANTAS
include the following:
TELEPHONE SERVICES AND EQUIPMENT: VANTAS offers a variety of telephone
services and provides related equipment.
SECRETARIAL AND OTHER ADMINISTRATIVE SERVICES: VANTAS offers a variety of
administrative services to its clients who are charged on an hourly basis.
Such services, which are a key determinant in a client's decision to choose a
business center, include word processing and secretarial services, desktop
publishing/graphics design, clerical services (i.e., photocopying, filing,
labeling, concierge services, etc.), and technical support services
(hardware/software).
PHOTOCOPYING SERVICES: VANTAS provides on-site high-speed copying
capabilities to its clients for a base charge per page.
FACSIMILE SERVICES: Incoming and outgoing facsimile services are provided
to clients at per page rates.
BROADBAND INTERNET ACCESS: The Internet has become a powerful medium of
information and communication and has been widely adopted by business people.
VANTAS provides clients with high-speed broadband access to the Internet.
In addition, VANTAS offers additional services such as conference room
rentals, video conferencing services, office supplies, parking and other
various services.
CLIENTS
As of December 31, 1999, VANTAS had approximately 6,000 full-time
clients, representing approximately 17,000 people, and 5,000 part-time clients
for a total of 11,000 clients across all of its business centers.
Approximately 60% of its OfficePlus(TM) clients are regional or national
companies, often purchasing VANTAS services at multiple locations. National
and regional firms generally prefer doing business with a larger,
well-capitalized business center operator, such as VANTAS, in order to ensure
longevity and consistency of service, as well as the ability to contract for
multiple locations in multiple markets with a single provider. In return, the
largest business center operators typically obtain more favorable terms than
single site operators who are unable to provide this level of service. Some of
VANTAS's clients include 3Com Corporation, Microsoft Corp., Gateway, Inc.,
Netscape Communications Corporation, John Hancock Mutual Life Insurance
Company, Hyperion Solutions Corporation, Fidelity Investments, Lucent
Technologies, Inc., Novell, Inc., GE Capital Corporation, and Northpoint
Communications. No single client accounts for more than 1% of VANTAS revenues.
SUPPLIERS AND VENDORS
VANTAS's main vendors are its landlords from whom it leases office space.
These landlords include primarily large real estate companies from which
VANTAS leases space at multiple locations. On average, the initial lease terms
are approximately 10 years. VANTAS's landlords include Principal Mutual Life
Insurance Company, Reckson Operating Partnership, L.P., Boston Properties,
Inc., Duke-Weeks Realty Corporation, Blue Cross and Blue Shield Association,
and BankAmerica. No single landlord accounts for more than 3.0% of the
aggregate annual rental payments made by VANTAS.
VANTAS also contracts with highly reputable suppliers such as Federal
Express Corporation, Dell Computer Corporation, Staples, Inc., Qwest
Communications International, Inc., and PeopleSoft, Inc. for services
including shipping, computer equipment, office supplies, long distance and
software. Given VANTAS's scale and international reach, it typically receives
favorable treatment and generally is able to negotiate volume discounts from
suppliers.
LEASES AND CLIENT OFFICE SERVICE AGREEMENTS
The initial terms of the agreements pursuant to which VANTAS leases
office space from landlords average approximately 10 years and, in most cases,
carry lease renewal options at 95% to 100% of fair market value. In any given
year, a portion of the leases held in VANTAS's portfolio of leases will be
eligible for renewal. This lease expiration diversity enables VANTAS to manage
lease rates on a portfolio basis. In the years ending December 31, 2000, 2001
and 2002, 4.4%, 11.8% and 11.3% of the leases are scheduled to expire,
respectively.
VANTAS provides furnished office space to tenants on short-term notice
with flexible terms. A number of a business center's clients leave a facility
during the course of a year and, therefore, maintaining high occupancy
requires ongoing sales efforts. Despite the short-term nature of the office
service agreements, however, many clients have elected to renew their office
service agreements and have remained clients for longer periods of time.
VANTAS estimates that the historical average length of stay of its clients is
approximately two to three years. At December 31, 1999, VANTAS's average
annual occupancy rate for business centers owned and operated by VANTAS was
approximately 85%. Although VANTAS's occupancy rates vary from one period to
another and is not the only determinant in VANTAS's ability to generate
revenues and profits, the continued profitability of VANTAS is dependent upon
sufficiently high occupancy rates.
COMPUTER SYSTEMS
VANTAS has nearly completed the process of upgrading its information
technology system to enhance functionality and centralize information and
reporting capabilities. The newly developed infrastructure supports future
growth objectives and provides an enhanced organizational structure.
THE INDUSTRY
The Executive Suite Association, the industry's trade association,
estimates that there are currently approximately 4,000 business center
locations in the U.S. generating in excess of $3.0 billion of annual revenues,
and 1,500 locations internationally. The industry is highly fragmented with
approximately 10% of total business centers owned by the three largest
participants, including VANTAS.
Several trends are driving the increased acceptance and usage of business
centers, including:
o the increasingly widespread use of business centers facilities by
national and regional corporations to support mobile employees;
o the growth in the number of small businesses nationwide requiring more
flexible office space and related services;
o the growth in the number of home-based businesses and free agents
utilizing part-time office facilities for meetings and support
services;
o the continuing trend of corporate downsizing which often results in
the need for temporary office space for former employees seeking new
jobs and/or starting new businesses;
o the growing use and acceptance of enhanced telecommunication and
computer technologies which can help businesses create "virtual
offices" without fixed space requirements; and
o the increased awareness by commercial real estate owners that business
centers can enhance their building's occupancy and efficiency, provide
amenities to existing tenants (such as conference facilities and
offices for visiting executives) and act as an incubator for future
tenants.
Furthermore, the emergence of certain communications technologies has
played an important role in the growth of the industry. Improved telephony
services and Internet applications have become more frequently utilized and
integrated into business centers' service offerings. As the industry continues
to expand, office equipment and communications technology will become an
increasingly competitive factor. Business center operators are likely to face
pressure to invest in technology in order to offer services such as E-mail and
LANs as well as video conferencing. It is believed that higher levels of
investment and technological sophistication will lead to further industry
consolidation. Operators with access to capital and economies of scale, such
as VANTAS, are well positioned to lead this consolidation by providing this
sophisticated technological support to their clients.
COMPETITION
VANTAS's largest competitors are Regus Business Corp., a business center
company with a large international presence and a smaller but expanding
presence in the United States, and HQ (See "-- Subsequent Developments - HQ
Merger" above). VANTAS may compete with these and other entities in both the
search for attractive business center locations and in attracting and
retaining clients in its business centers as well as skilled managers.
EMPLOYEES
As of December 31, 1999, VANTAS employed approximately 1,200 people. None
of VANTAS's employees is covered by collective bargaining agreements and
management believes its relations with its employees are good. VANTAS is
continually implementing and improving its operating systems, and expanding,
training and managing its employees.
Management compensation consists of base salaries, incentive compensation
based upon Company performance and qualitative discretionary bonuses. In
addition, officers and managers participate in a stock option plan designed to
motivate long-term contribution to VANTAS.
ITEM 2. PROPERTIES
VANTAS corporate headquarters is located at 90 Park Avenue, New York, New
York 10016. Management believes that such office space is sufficient to meet
its present needs and does not anticipate any difficulty in securing
additional office space, as needed, on terms acceptable to VANTAS.
CURRENT BUSINESS CENTERS
As of December 31, 1999, VANTAS owns or operates 185 business centers
(including 5 managed centers) in 27 states and the District of Columbia. In
addition, VANTAS owns five business centers in France and six business centers
in Mexico. For the twelve-month period ended December 31, 1999, no business
center accounted for more than 2% of VANTAS's revenues. Further, for the
twelve-month period ended December 31, 1999, less than 5% of VANTAS's total
revenues were generated from business centers located outside of the United
States. Business center location is a key consideration in VANTAS's expansion
plan given that convenient locations attract more clients and thus lead to
higher occupancy rates. VANTAS leases all of its facilities and does not own
any real estate.
VANTAS business centers by location owned or operated as of December 31,
1999:
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# 0F BUSINESS RENTABLE
Location CENTERS OFFICES
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UNITED STATES
Alabama 2 133
Arizona 5 377
California 45 3,292
Colorado 6 403
District of Columbia 7 501
Florida 4 393
Georgia 10 566
Illinois 11 740
Indiana 1 66
Kansas 1 84
Massachusetts 6 404
Maryland 4 320
Michigan 6 455
Minnesota 3 237
Missouri 2 137
Nevada 1 83
New Jersey 4 187
New York 19 1,269
North Carolina 3 225
Ohio 9 540
Oklahoma 1 53
Oregon 1 20
Pennsylvania 3 195
Tennessee 2 138
Texas 15 1,055
Virginia 10 728
Washington 3 218
Wisconsin 1 51
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Total United States 185 12,870
INTERNATIONAL
France 5 167
Mexico 6 228
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Total International 11 395
GRAND TOTAL WORLDWIDE 196 13,265
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ITEM 3. LEGAL PROCEEDINGS
VANTAS is not presently subject to any material litigation nor, to
VANTAS's knowledge, is any litigation threatened against VANTAS, other than
claims and administrative proceedings arising in the ordinary course of
business, some of which are expected to be covered by liability insurance 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
VANTAS.
ITEM 4. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 24, 1999, an action by written consent was executed by
holders of 29,440,883 shares of VANTAS's outstanding voting capital stock,
representing 84.8% of such outstanding voting capital stock, approving certain
amendments to VANTAS's Fifth Amended and Restated Stockholders' Agreement,
dated as of July 29, 1999, by and among VANTAS and certain of its
securityholders.
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
VANTAS is owned primarily by FrontLine and certain officers, directors
and employees of VANTAS. An established public market for the common equity of
VANTAS does not currently exist. Therefore, accurate information as to the
market value of the common equity of VANTAS at any given date is not
available. Please see "Item 1. Business - Subsequent Developments - HQ Merger"
above for a description of the proposed HQ Merger. As of the date of the
filing of this report, the VANTAS common stock was held by approximately 310
record holders.
VANTAS has not paid and does not anticipate the payment of any dividends
on its common stock in the foreseeable future. Payment of dividends on
VANTAS's common stock is prohibited under VANTAS's credit facilities unless
approved by the requisite banks thereunder. The payment of dividends will also
be subject to any limitations imposed by other credit facilities and debt
securities that VANTAS may obtain or issue in the future.
During VANTAS's fiscal quarter ended December, 1999, certain directors,
officers and shareholders of VANTAS exercised previously issued options and
warrants to acquire, in the aggregate, 2,162,354 shares of the Class A Common
Stock, at prices ranging from $.50 to $4.75 per share for total consideration
of $3,788,380. VANTAS received $2,843,308 in cash proceeds and $945,072 in
promissory notes in connection with such exercises. VANTAS issued and sold all
of the above-referenced securities pursuant to Section 4(2) of the Securities
Act of 1933, as amended (the "Act").
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
Set forth below are selected historical consolidated statement of
operations data of VANTAS as of the dates and for the periods presented. The
selected historical consolidated statement of operations data for the years
ended June 30, 1997, 1998, the six months ended December 31, 1998 and the year
ended December 31, 1999 and the selected historical consolidated balance sheet
data as of December 31, 1998 and 1999 were derived from the audited
consolidated financial statements of VANTAS, which are included herein. The
selected historical consolidated statement of operations data for the six
months ended December 31, 1997 and the year ended December 31, 1998 and the
selected consolidated balance sheet as of December 31, 1997 were derived from
the unaudited consolidated financial statements which are not included herein.
The selected historical consolidated statements of operations data for the
years ended June 30, 1995, 1996, 1997 and 1998 and the selected historical
consolidated balance sheet data as of June 30, 1995, 1996, 1997 and 1998 were
derived from the audited consolidated financial statements of VANTAS, which
are not included herein. The information contained in this table and
accompanying notes should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and the accompanying notes thereto appearing
elsewhere herein.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31, Year Ended December 31,
1995 1996(1) 1997(2) 1998(3) 1997(4) 1998(5) 1998(6) 1999(7)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 8.9 $ 12.0 $ 29.1 $ 66.5 $ 27.2 $ 54.1 $ 93.4 $ 213.9
Net Income (loss) (.3) 0.6 2.9 4.1 2.0 1.9 4.1 (21.4)
Net Income (loss) applicable
to common stock (.3) 0.6 2.0 (10.2) 1.3 (5.4) (16.9) (33.7)
Basic earnings (loss) per
share $ (0.07) $ 0.12 $ 0.42 $ (2.06) $ 0.27 $(1.08) $ (3.35) $ (6.55)
Diluted earnings (loss) per
share $ (0.07) $ 0.12 $ 0.30 $ (2.06) $ 0.16 $(1.08) $ (3.35) $ (6.55)
Other Operating Data:
Cash flows provided by (used
in) operating activities $ 0.5 (0.1) 4.0 11.5 4.8 7.1 13.8 24.6
Cash flows used in investing
activities (0.8) (1.6) (22.5) (38.8) (14.8) (44.2) (68.2) (99.2)
Cash flows provided by
financing activities 0.4 1.8 19.4 31.8 10.8 34.7 55.8 74.8
</TABLE>
<TABLE>
<CAPTION>
As of June 30, As of December 31,
1995 1996 1997 1998 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) $ (1.3) $ (1.0) $ 0.5 $ 4.6 $ 1.5 $ 4.3 $ (3.1)
Total assets 4.4 6.0 36.1 92.7 52.1 134.1 332.5
Long-term debt - - 11.5 38.0 23.0 65.1 108.1
Other long-term liabilities 2.8 2.9 5.7 21.6 7.6 17.3 51.0
Redeemable convertible preferred
stock - - 12.3 34.5 11.5 47.9 153.1
</TABLE>
(1) For the year ended June 30, 1996, in 1 acquisition, VANTAS acquired 3
business centers for an aggregate purchase price of $ .8 million.
(2) For the year ended June 30, 1997, in 3 unrelated acquisitions, VANTAS
acquired 25 business centers for an aggregate purchase price of $22.8
million.
(3) For the year ended June 30, 1998, in 14 unrelated acquisitions, VANTAS
acquired 44 business centers for an aggregate purchase price of $42.8
million.
(4) For the six months ended December 31, 1997, in 4 unrelated acquisitions,
VANTAS acquired 12 business centers for an aggregate purchase price of
$13.5 million.
(5) For the six months ended December 31, 1998, in 6 unrelated acquisitions,
VANTAS acquired 16 business centers for an aggregate purchase price of
$16.5 million. Additionally, VANTAS was the General Partner and manager
for seven limited partnerships (the "Partnerships"), which owned and
operated 9 business centers. These business centers were either acquired
or developed by VANTAS on behalf of the Partnerships. Effective July 1,
1998, VANTAS acquired the remaining interest in these Partnerships for
817,353 shares of Series B Convertible Preferred Stock and cash of
approximately $2.0 million.
(6) For the year ended December 31, 1998, in 16 unrelated acquisitions,
VANTAS acquired 48 business centers for an aggregate purchase price of
$45.8 million. This includes the acquisition of Partnership interests
referred to in footnote 5 above.
(7) For the year ended December 31, 1999, in 12 unrelated acquisitions,
VANTAS acquired 87 business centers for an aggregate purchase price of
$115.3 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, together with other statements and
information publicly disseminated by VANTAS contain certain "forward-looking"
statements, as that statement is defined in the Private Securities Litigation
Reform Act of 1995. VANTAS cautions investors that there can be no assurance
that the actual results or business conditions will not differ materially from
those projected or suggested in such forward-looking statements as a result of
various factors. These factors are subject to risks and uncertainties, many of
which are outside the control of VANTAS, including but not limited to, (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 VANTAS and (vi) increases in operating costs.
Accordingly, there is no assurance that VANTAS's expectations will be
realized.
GENERAL
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
On October 1998, the Board of Directors approved a change in VANTAS's
fiscal year from June 30 to December 31, commencing December 31,1998.
As of December 31, 1999, VANTAS owned and operated 201 business centers
throughout the United States, France and Mexico. This included 23 business
centers, ten of which were currently under development, and 13 business
centers that had been open for nine months or less (collectively "Developing
Centers"). Additionally, VANTAS manages five business centers for unrelated
third parties.
The following table represents certain information relating to
business centers under management as of:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1999
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Owned and operating 35 80 47 92 178
Developing Centers 2 3 2 6 23
Managed for unrelated third parties 3 5 3 5 5
Total business centers under management 40 88 52 103 206
</TABLE>
VANTAS has grown through an aggressive acquisition strategy beginning in
1996. As of December 31, 1999, VANTAS had acquired or merged with 36 entities,
which were comprised of 181 business centers with a total purchase price of
approximately $204.4 million.
The following table represents a summary of information regarding the
acquisitions of business centers by VANTAS:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER DECEMBER DECEMBER
1997 1998 31, 1998 31, 1998 31, 1999
<S> <C> <C> <C> <C> <C>
Number of business centers acquired 25 44 16 48 87
Purchase price $ 22.8 $ 42.8 $16.5 $ 45.8 $115.3
Number of acquisitions 3 14 6 16 12
</TABLE>
Additionally, through June 30, 1998, VANTAS had been the General Partner
and manager for seven limited partnerships (the "Partnerships") which owned
and operated 9 business centers. These business centers were either acquired
or developed by VANTAS on behalf of the Partnerships. Effective July 1, 1998,
VANTAS acquired the remaining interest in these partnerships for 817,353
shares of Series B Preferred Stock and cash of approximately $2.0 million.
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 operations, it is expected to have a positive impact on the financial
results of operations of VANTAS.
These activities have had a material impact on the results of operations
and financial position of VANTAS and significantly affect the comparability of
the respective prior periods.
RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Total business center revenues for the year ended December 31,
1999 were $213.9 million, representing an increase of $120.5 million, or
129.0% from the corresponding period in 1998.
Business centers that were acquired after January 1, 1998 ("Acquired
Centers") had revenues for the years ended December 31, 1999 and 1998 of
$140.6 million and $26.5 million, respectively, representing an increase of
$114.1 million, or 430.6% from the corresponding period in 1998. This increase
in revenues resulted primarily from an increase in the number and timing of
business centers acquired as compared to those acquired in the comparable
period of the prior year.
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 year ended December 31, 1999 of $67.5 million, an
increase of $3.5 million, or 5.5% from the corresponding period in 1998. The
increase in Same Center revenues is attributable to an increase in office
rental revenues of $1.9 million, or 5.1%, and an increase in support service
revenues of $1.6 million, or 6.0% from 1998. Office rental revenues increased
due to more favorable office pricing as well as an increase in occupancy
levels. The increase in support services is primarily attributable to an
increase in broadband Internet access, information technology support services
and administrative support services.
Developing Center revenues were $5.8 million for the year ended December
31, 1999, an increase of $2.9 million from the corresponding period in 1998.
At December 31, 1999 and 1998, there were 13 and 6 Developing Centers that
were opened, respectively.
EXPENSES. Total business center expenses for the year ended December 31,
1999 were $175.5 million, representing an increase of $104.4 million, or
147.1% from the corresponding period in 1998.
Acquired Center expenses for the year ended December 31, 1999 and 1998
were $118.3 million and $22.0 million respectively, an increase of $96.3
million, or 437.7% from the corresponding period in 1998. This increase
resulted primarily from an increase in the number of business centers acquired
as compared to those acquired in the comparable period.
Same Center expenses for the year ended December 31, 1999 were $47.9
million, an increase of $2.0 million, or 4.4% from the corresponding period in
1998. This increase is primarily attributable to higher rent expense resulting
from inflation adjusted rental increases and support service expenses
associated with increased support service revenues.
Developing Center expenses for the year ended December 31, 1999 were $9.3
million, an increase of $6.2 million from the corresponding period in 1998.
This increase is due to the fact that there were 23 Developing Centers, of
which 10 did not generate revenues, during the year ended December 31, 1999
compared to only 6 Developing Centers during the year ended December 31, 1998.
CONTRIBUTION FROM OPERATION OF BUSINESS CENTERS ("COBC"). For the year
ended December 31, 1999, COBC was $38.5 million as compared to $22.4 million
for the same period in 1998. The COBC as a percentage of total revenues ("COBC
Margin") was 18.0% for the year ended December 31, 1999 as compared to 24.0%
for 1998. The decrease in overall business center COBC Margin of 6.0% from
1998, is primarily attributable to the significant increase in Acquired Center
revenue and its associated lower COBC Margin as well as the decrease in
Development Center COBC Margin.
Acquired Center COBC was $22.3 million for the year ended December 31,
1999, an increase of $17.8 million from $4.5 million in the corresponding
period in 1998. The COBC Margin from Acquired Centers for the year ended
December 31, 1999 was 15.9% as compared to 17.0% in the corresponding period
in 1998. This decrease of 1.1% in COBC Margin is primarily attributable to
lower occupancy levels associated with the greater number of recently
developed centers acquired during the year ended December 31, 1999 as compared
to the same period in 1998.
Same Center COBC was $19.6 million for the year ended December 31, 1999
as compared to $18.1 million, an increase of $1.5 million, or 8.3% from the
corresponding period in 1998. The COBC Margin from Same Centers for the year
ended December 31, 1999 remained relatively consistent at 29.0% as compared to
28.3% for 1998.
In general, COBC Margins from Acquired Centers are initially lower than
Same Centers. It may take several months for the Company to integrate these
Acquired Centers into its existing operations and apply the Company's
management philosophy, policies and procedures and maximize the Company's
marketing efforts which should produce greater occupancy and support services
revenue.
Developing Centers generated a loss from operations for the year ended
December 31, 1999 of $3.5 million, an increase of $3.3 million from the
corresponding period in 1998. This increase reflects greater Developing Center
activity than in the prior year. Losses are generally incurred from Developing
Centers during their first nine to twelve months of operation.
OTHER (EXPENSES) INCOME. For the year ended December 31, 1999, other
(expenses) income, were $62.7 million, representing an increase of $47.5
million or 312.9% from the corresponding period in 1998. The increase is
primarily attributable to merger and integration charges incurred in 1999 of
$26.7 million, an increase in corporate general and administrative expenses,
depreciation and amortization and interest expense of $5.8 million, $10.3
million and $4.9 million or 93.7%, 227.6% and 90.7%, respectively.
The merger and integration charges relate primarily to certain
transactions with FrontLine, the Company's principal shareholder. Such charges
consisted primarily of $23.7 million in compensation expense pursuant to the
FrontLine transactions (see Note 4 to the Consolidated Financial Statements)
and professional fees, business process reengineering and other integration
costs related to the Mergers, which aggregated approximately $3.0 million.
The increase in corporate general and administrative expenses was related
to the increase in corporate office staff and related office space associated
with the Company's growth. The increase in depreciation and amortization
relates to fixed assets acquired and goodwill associated with mergers and
acquisitions in addition to an increase in capital expenditures associated
with technology infrastructure additions and leasehold improvements to
Developing and Same Centers. Interest expense is primarily related to
borrowings under the Company's Credit Facility. This increase resulted from
interest expense incurred as the Company continued to fund its acquisitions.
MINORITY INTEREST. Prior to July 1, 1998, the Company acted as general
partner and manager for seven partnerships that collectively owned nine
business centers. Effective July 1, 1998, the Company acquired the remaining
interest in such partnerships. Prior to this acquisition, the Company
consolidated the partnerships' results of operations and recorded minority
interest net income. Minority interest in the net income of the consolidated
partnerships for the year ended December 31, 1998 was $.3 million.
INCOME TAXES. The Company's rate on its provision (benefit) for income
taxes on income (loss) before taxes for the years ended December 31, 1999 and
1998 was 11.7% and 40.8%, respectively. The decrease in the income tax rate is
primarily attributable to the impact of increased non-deductible goodwill, a
valuation reserve established on a portion of the NOL tax benefit, offset by a
reduction in state income taxes. The Company's underlying statutory income tax
rates for the years ended December 31, 1999 and 1998 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. Net loss for the year ended December 31, 1999 was
$21.4 million as compared to net income of $4.1 million for the same period in
1998.
Accretion of the stated return on investment ("Accretion") on VANTAS's
redeemable convertible preferred stock for the year ended December 31, 1999
was $12.3 million, representing a decrease of $8.7 million from the
corresponding period in 1998. This decrease resulted from a significant
increase in accretion in the prior year associated with the Company's Series A
Redeemable Convertible Preferred Stock as a result of a significant increase
in the appraised value of the Company's common stock partially offset by
accretion from issuances of the Company's Series C, D and E Redeemable
Convertible Preferred Stock during 1999.
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (THE "TRANSITION PERIOD") AND 1997
REVENUES. Total business center revenues for the Transition Period in
1998 were $54.1 million, an increase of $26.9 million or 98.9% from the
corresponding period in 1997.
Business centers that were acquired after July 1, 1997 ("Acquired
Centers") had revenues for the Transition Period and 1997 of $28.6 million and
$4.2 million, respectively, representing an increase of $24.4 million from the
corresponding period in 1997. This increase in revenues resulted primarily
from an increase in the number of and timing of business centers acquired as
compared to those acquired in the comparable period of the prior year.
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 Transition Period of $24.6 million, an increase of $2.1
million, or 9.3% from the corresponding period in 1997. The increase in Same
Center revenues is attributable to an increase in office rental revenues of
$1.1 million, or 8.1%, and an increase in support service revenues of $1.0
million, or 11.2% from 1997. Office rental revenues increased due to more
favorable office pricing as well as an increase in occupancy levels. The
increase in support services is primarily attributable to an increase in
OfficeAccess(TM) and telecommunication revenues.
Developing Center revenues were $ .9 million for the Transition Period,
an increase of $ .4 million, or 80%, from the corresponding period in 1997 is
principally due to an increase in the number of developing centers, from 2 to
6.
EXPENSES. Total business center expenses for the Transition Period were
$42.1 million, representing an increase of $21.5 million, or 104.6% from the
corresponding period in 1997.
Acquired Center expenses for the Transition Period and the corresponding
period in 1997 were $23.0 million and $3.0 million, respectively, representing
an increase of $20.0 million from the corresponding period in 1997. This
increase resulted primarily from an increase in the number of and timing of
business centers acquired as compared to those acquired in the comparable
period of the prior year.
Same Center expenses for the Transition Period were $17.8 million, an
increase of $ .8 million, or 4.7% from the corresponding period in 1997. This
increase is primarily attributable to higher payroll and related expenses
associated with building a regional infrastructure to accommodate a greater
number of business centers and increased marketing and advertising costs.
Developing Center expenses for the Transition Period were $1.3 million,
an increase of $ .7 million from the corresponding period in 1997 principally
due to an increase in the number of developing centers, from 2 to 6.
CONTRIBUTION FROM OPERATION OF BUSINESS CENTERS ("COBC"). For the
Transition Period, COBC was $12.0 million as compared to $6.6 million for the
same period in 1997. The COBC as a percentage of total revenues ("COBC
Margin") was 22.1% for the Transition Period as compared to 24.3% for the
corresponding period in 1997. The decrease in overall business center COBC
Margin of 2.2% from 1997 is primarily attributable to the significant increase
in Acquired Centers and its associated lower COBC Margin. COBC Margin from
Acquired Centers was 19.6% as compared to Same Center COBC Margin of 27.6% in
1997.
Acquired Center COBC was $5.6 million for the Transition Period, an
increase of $4.4 million from the corresponding period in 1997. The COBC
Margin from Acquired Centers for the Transition Period was 19.6% as compared
to 28.6% for the corresponding period. The decrease in Acquired Center COBC
Margin of 9.0% is primarily attributable to 1997 acquisitions of business
centers that were more mature and better managed at the time of acquisitions
than those acquired in 1998. In addition, some of the business centers
acquired in 1998 were more strategic to our business plan and had lower COBC
margins as a result of their desirable geographic locations.
Same Center COBC was $6.8 million for the Transition Period as compared
to $5.5 million for the corresponding period in 1997. The COBC Margin from
Same Centers for the Transition Period was 27.6% as compared to 24.4% for the
corresponding period in 1997. The increase in Same Center COBC Margin is
primarily attributable to greater occupancy levels and higher office rental
pricing.
In general, COBC Margins from Acquired Centers are initially lower than
Same Centers. It may take several months for VANTAS to integrate these
Acquired Centers into its existing operations and apply VANTAS's management
philosophy, policies and procedures and maximize VANTAS's concentrated
marketing efforts which are expected to produce greater occupancy and support
services revenue.
Developing Centers generated a loss from operations for the Transition
Period of $ .4 million, an increase in losses of $ .3 million from the
corresponding period in 1997.
OTHER (EXPENSES) INCOME. For the Transition Period, other (expenses)
income were $8.6 million, representing an increase of $5.2 million, or 154.2%
from the corresponding period in 1997. This increase is primarily attributable
to greater corporate general and administrative expenses, depreciation and
amortization expense and interest expense of $1.7 million, $1.9 million and
$1.8 million or 96.5%, 213.4% and 163.5%, respectively.
The increase in corporate general and administrative expenses was
attributable to increases in corporate office personnel and associated travel
and rent expense due to increased space requirements. These increases were
related to the expansion of the corporate offices associated with VANTAS's
growth. The increase in depreciation and amortization relates to fixed assets
acquired and goodwill associated with VANTAS's acquisitions. It is also
attributable to an increase in capital expenditures associated with technology
and telecommunication infrastructure additions and leasehold improvements for
business centers. Interest expense is primarily related to VANTAS's Credit
Facility. This increase resulted from increased borrowings related to VANTAS's
acquisitions.
INCOME TAXES. VANTAS's effective income tax rate was 42.1% and 40.0% for
the Transition Period and the corresponding period in 1997, respectively.
VANTAS's effective income tax rate for the Transition Period increased
primarily as a result of the impact of state income taxes.
NET INCOME. VANTAS had net income for the Transition Period and the
corresponding period in 1997 of $1.9 million and $2.0 million, respectively.
Accretion of the stated return on investment ("Accretion") on VANTAS's
redeemable convertible preferred stock for the Transition Period was $7.3
million, representing an increase of $6.6 million from the corresponding
period in 1997. This increase is primarily the result of the Accretion
associated with the Series A Redeemable Convertible Preferred Stock, which was
adjusted for the increase in the estimated market value of VANTAS's common
stock over the corresponding period in 1997.
FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
REVENUES. Total business center revenues for the year ended June 30, 1998
were $66.5 million, an increase of $37.4 million or 128.7% from the
corresponding period in 1997.
Business centers that were acquired after July 1, 1996 ("Acquired
Centers") had revenues for the years ended June 30, 1998 and 1997 of $49.5
million and $14.3 million, respectively, representing an increase of $35.2
million from the corresponding period in 1997. This increase in revenues
resulted primarily from an increase in the number of and timing of business
centers acquired as compared to those acquired in the comparable period of the
prior year.
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 year ended June 30, 1998 of $15.7 million, an increase of
$1.5 million, or 10.6% from the corresponding period in 1997. The increase in
Same Center revenues is attributable to an increase in office rental revenues
of $ .8, or 9.1%, and an increase in support service revenues of $ .7 million,
or 13.0% from 1997. The increase in office rental revenue was due to more
favorable office pricing partially offset by a small reduction in occupancy
levels. The increase in support services is primarily attributable to an
increase in OfficeAccess(TM) and telecommunication revenues.
Developing Center revenues were $1.3 million for the years ended June 30,
1998, an increase of $.7 million from the corresponding period in 1997.
EXPENSES. Total business center expenses for the year ended June 30, 1998
were $49.5 million, representing an increase of $26.4 million, or 114.1% from
the corresponding period in 1997.
Acquired Center expenses for the years ended June 30, 1998 and 1997 were
$35.9 million and $10.7 million respectively, representing an increase of
$25.2 million from the corresponding period in 1997. This increase resulted
primarily from an increase in the number of and timing of business centers
acquired as compared to those acquired in the comparable period of the prior
year.
Same Center expenses for the year ended June 30, 1998 were $12.0 million,
an increase of $.5 million, or 4.3% from the corresponding period in 1997.
This increase is primarily attributable to higher payroll and related expenses
associated with building a regional infrastructure to accommodate a greater
number of business centers and increased marketing and advertising costs.
Developing Center expenses for the year ended June 30, 1998 were $1.5
million, an increase of $.6 million from the corresponding period in 1997.
CONTRIBUTION FROM OPERATION OF BUSINESS CENTERS ("COBC"). For the year
ended June 30, 1998, COBC was $17.1 million as compared to $6.0 million for
the same period in 1997. The COBC Margin was 25.6% for the year ended June 30,
1998 as compared to 20.6% for the corresponding period in 1997. The increase
in overall business center COBC Margin of 5.1% from 1997 is primarily
attributable to an increase in COBC Margin from Acquired Centers and Same
Centers of 2.3% and 4.5%, respectively.
Acquired Center COBC was $13.6 million for the year ended June 30, 1998,
an increase of $10.0 million from the corresponding period 1997. The COBC
Margin from Acquired Centers for the years ended June 30, 1998 and 1997 was
27.5% and 25.2%, respectively. The increase in Acquired Centers COBC Margin is
primarily attributable to higher office rental pricing.
Same Center COBC was $3.7 million for the year ended June 30, 1998 as
compared to $2.7 million for the corresponding period in 1997. The COBC Margin
from Same Centers for the year ended June 30, 1998 was 23.6% as compared to
19.0% for the corresponding period in 1997. The increase in Same Centers COBC
Margin is primarily attributable to higher office rental pricing.
Developing Centers generated a loss from operations for the year ended
June 30, 1998 of $ .2 million, a decrease of $ .1 million from the
corresponding period in 1997.
OTHER (EXPENSES) INCOME. For the year ended June 30, 1998, other
(expenses) income, were $10.0 million, representing an increase of $5.6
million, or 128.1% from the corresponding period in 1997. This increase is
primarily attributable to greater corporate general and administrative
expenses, depreciation and amortization expense and interest expense of $1.7
million, $1.9 million and $2.3 million or 62.5%, 160.9% and 242.6%,
respectively. This was partially offset by an increase in managed center
income of $ .3 from the corresponding period in 1997.
The increase in corporate general and administrative expenses was
attributable to increases in corporate office personnel and associated travel,
related office expansion, and consulting fees associated with VANTAS's growth.
The increase in depreciation and amortization relates to fixed assets acquired
and goodwill associated with VANTAS's acquisitions. It is also attributable to
an increase in capital expenditures associated with technology and
telecommunication infrastructure additions and leasehold improvements for
business centers. Interest expense is primarily related to VANTAS's Credit
Facility. This increase resulted from interest expense on borrowings related
to VANTAS's acquisitions.
INCOME TAXES. VANTAS's effective income tax rate was 39.8% and (93.1%)
for the years ended June 30, 1998 and 1997, respectively. VANTAS's effective
income tax rate in 1997 resulted primarily from the income tax benefit
associated with the reversal of the valuation allowance on net deferred tax
assets established in prior years during 1997. VANTAS did not record a
valuation allowance as of June 30, 1997 based upon management's projection of
taxable income in future periods.
NET INCOME. VANTAS had net income for the years ended June 30, 1998 and
1997 of $4.1 million and $2.9 million, respectively.
Accretion of the stated return on investment ("Accretion") on VANTAS's
redeemable convertible preferred stock for the year ended June 30, 1998 was
$14.3 million, representing an increase of $13.5 million from the
corresponding period in 1997. This increase is primarily the result of the
Accretion associated with the Series A Redeemable Convertible Preferred Stock,
which was adjusted for the increase in the estimated market value of VANTAS's
common stock over the corresponding period in 1997.
FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
REVENUES. Total business center revenues for the year ended June 30, 1997
were $29.1 million, an increase of $17.1 million, or 143.2% from the
corresponding period in 1996.
Business centers that were acquired after July 1, 1995 ("Acquired
Centers") had revenues for the years ended June 30, 1997 and 1996 of $18.2
million and $1.1 million, respectively, representing an increase of $17.1
million from the corresponding period in 1996. This increase in revenues
resulted primarily from an increase in the number of and timing of business
centers acquired as compared to those acquired in the comparable period of the
prior year.
Business centers, excluding Acquired Centers, that were operating for the
entire comparable period of the prior year ("Same Centers") had revenues for
the year ended June 30, 1997 of $10.3 million, an increase of $0.6 million, or
6.2% from the corresponding period in 1996. The increase in Same Center
revenues is attributable to an increase in office rental revenues of $ .4, or
6.9%, and an increase in support service revenues of $ .2 million, or 5.1%
from the corresponding period in 1996. Office rental revenues increased due to
more favorable office pricing as well as an increase occupancy levels. The
increase in support services is primarily attributable to an increase in
OfficeAccess(TM) and telecommunication revenues.
Developing Center revenues were $ .6 million for the years ended June 30,
1997, a decrease of $ .6 million from the corresponding period in 1996.
EXPENSES. Total business center expenses for the year ended June 30, 1997
were $23.1 million, representing an increase of $13.0 million or 129.3% from
the corresponding period in 1996.
Acquired Center expenses for the years ended June 30, 1997 and 1996 were
$14.0 million and $ .9 million, respectively, representing an increase of
$13.1 million from the corresponding period in 1996. This increase resulted
primarily from an increase in the number of and timing of business centers
acquired as compared to those acquired in the comparable period of the prior
year.
Same Center expenses for the year ended June 30, 1997 were $8.2 million,
an increase of $ .4 million or 5.1% from the corresponding period in 1996.
This increase is primarily attributable to higher rent expense resulting from
inflation adjusted rental increases and annual operating rental passthroughs.
Developing Center expenses for the year ended June 30, 1997 were $ .9
million, a decrease of $ .5 million from the corresponding period in 1996.
CONTRIBUTION FROM OPERATION OF BUSINESS CENTERS ("COBC"). For the year
ended June 30, 1997, COBC was $6.0 million as compared to $1.9 million for the
same period in 1996. The COBC Margin was 20.6% for the year ended June 30,
1997 as compared to 15.7% for the corresponding period in 1996. The increase
in overall business center COBC Margin of 4.8% from 1996 is primarily
attributable to the significant increase in Acquired Center COBC Margin over
the corresponding period.
Acquired Center COBC was $4.2 million for the year ended June 30, 1997,
an increase of $4.0 million from the corresponding period in 1996. The COBC
Margin from Acquired Centers for the year ended June 30, 1997 were 23.1%.
There were minimal acquisitions completed during the year ended June 30, 1996.
Same Center COBC was $2.1 million for the year ended June 30, 1997 as
compared to $1.9 million for the corresponding period in 1996. The COBC Margin
from Same Centers for the year ended June 30, 1997 was 20.4% as compared to
19.6% for the corresponding period in 1996.
OTHER EXPENSES, NET. For the year ended June 30, 1997, other expenses,
net, were $4.4 million, representing an increase of $3.2 million or 258.2%
from the corresponding period in 1996. This increase is primarily attributable
to greater corporate general and administrative expenses, depreciation and
amortization expense and interest expense of $1.8 million, $ .6 million and $
.9 million or 181.0%, 106.0% and 1,602.9%, respectively.
The increase in corporate general and administrative expenses was
attributable to increases in corporate office personnel and related placement
fees and consulting fees associated with VANTAS's growth. The increase in
depreciation and amortization expense relates to fixed assets acquired and
goodwill associated with VANTAS's acquisitions. It is also attributable to an
increase in capital expenditures associated with technology and
telecommunication infrastructure additions and leasehold improvements for
Developing and Same Centers. Interest expense is primarily related to VANTAS's
Credit Facility. This increase resulted from increased borrowings related to
VANTAS's acquisitions.
INCOME TAXES. VANTAS's effective income tax rate was (93.1%) and 33.2%
for the years ended June 30, 1997 and 1996, respectively. VANTAS's effective
income tax rate in 1997 resulted primarily from the income tax benefit
associated with the reversal of a the valuation allowance on net deferred tax
assets established in prior years during 1997. VANTAS did not record a
valuation allowance as of June 30, 1997 based upon management's projection of
taxable income in future periods.
NET INCOME. VANTAS had net income for the years ended June 30, 1997 and
1996 of $2.9 million and $ .6 million, respectively.
Accretion of the stated return on investment on VANTAS's redeemable
preferred stock for the year ended June 30, 1997 was $ .8 million,
representing an increase of $ .8 million from the corresponding period in
1996. This increase is the result of VANTAS's issuance of Series A Reedeemable
Convertible Preferred Stock in the fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, VANTAS 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 and upgrade and build the corporate infrastructure to manage
VANTAS's operations effectively.
On August 3, 1999, VANTAS completed a transaction, which increased its
$100.0 million credit facility (the amended and restated "Credit Facility") to
$157.9 million. Borrowings under the Credit Facility bear interest ranging
from LIBOR plus 3.0% (9.50% at December 31, 1999) to LIBOR plus 3.75% (10.25%
at December 31, 1999) for a one, three or nine month period at the election of
VANTAS. VANTAS pays a commitment fee of 1/2 of 1.0% per annum on the unused
portion of the Credit Facility. Borrowings under the Credit Facility are
formula based and available up to the maximum amount of the Credit Facility.
On February 22, 2000, VANTAS and the lenders entered into an amendment to
the Credit Facility whereby certain of the financial covenants contained in
the Credit Facility were amended.
The Company has obtained a commitment letter for the provision of a new
credit facility, subject to satisfaction of various conditions, which would
replace the Credit Facility upon consummation of the HQ Merger. There can be
no assurance that the HQ Merger will occur or that, if the HQ Merger does not
occur, the Company will be able to meet certain of the financial covenants
contained in the Credit Facility for fiscal quarters subsequent to December
31, 1999.
As of March 30, 2000, VANTAS had borrowed $135.3 million against its
Credit Facility. In addition, VANTAS had outstanding letters of credit of
approximately $10.3 million (not including the $35 Million letter of credit
issued in connection with the HQ Merger). Outstanding letters of credit are a
reduction in the amount available for borrowings under the Credit Facility.
Interest on the Facility ranged from LIBOR plus 3.00% (8.94% at March 15,
2000) to LIBOR plus 3.75% (9.69% at March 15, 2000).
As of March 30, 2000, VANTAS had on deposit approximately $21.9 million
in a cash collateral account. These funds, which were a part of borrowings
from the Credit Facility, can be used towards permitted acquisitions of
business centers and certain scheduled interest and principal payments
relating to its Credit Facility.
Cash flows generated from operating activities for the year ended
December 31, 1999 were $24.6 million, representing an increase of $10.8
million from the corresponding period in 1998. This increase is attributable
to VANTAS's growth through acquisitions during the period.
Cash used in investing activities for the year ended December 31, 1999
was $99.2 million, an increase of $31.0 million from the corresponding period
in 1998. The increase is attributable to VANTAS's acquisition and development
of business centers, and the deployment of resources to expand the technology
base at its business centers and its corporate offices. In addition, as noted
above, VANTAS was required to deposit the funded portion of its Credit
Facility into a restricted cash account.
Cash provided by financing activities for the year ended December 31,
1999 was $74.8 million, representing an increase of $19.0 million from the
corresponding period in 1998. This increase is primarily attributable to the
completion of various equity transactions whereby it raised $29.6 million in
net proceeds by selling shares of VANTAS's redeemable convertible preferred
stock to accredited investors as compared to $10.1 million in 1998. Net
proceeds from borrowings and repayments of borrowings during the year ended
December 31, 1999 amounted to $47.6 million as compared to $49.5 million for
the corresponding period in 1998.
VANTAS anticipates that cash flows from operations will continue to
provide adequate capital to fund its operating and administrative expenses and
regular debt service obligations. In addition, VANTAS anticipates that cash on
hand, availability under its Credit Facility, sales of its securities, as well
as other debt alternatives, will provide the necessary capital required by
VANTAS to continue its growth strategy, through the merger, acquisition and
development of business centers.
EFFECTS OF INFLATION
Certain of the Company's leases include increases in annual rent based on
changes in the consumer price index or similar inflation indices. The
Company's contracts with its clients generally range from six to twelve months
in duration. Accordingly, the Company has the ability to pass on its increased
costs at the time of renewal of such contracts.
Interest on the Company's borrowings under the Credit Facility is based
on floating interest rates. The Company periodically evaluates its exposure to
short-term interest rates and will, from time to time, enter into interest
rate protection agreements, that mitigate, but do not eliminate, the effect of
changes in interest rates on its floating-rate indebtedness under the Credit
Facility. These rates of interest will be influenced by changes in short-term
rates and are sensitive to inflation and other factors.
A significant increase in interest rates may have a negative impact on
the earnings of the Company due to the variable interest rates under the
Credit Facility.
IMPACT OF YEAR 2000
The Year 2000 issue concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000.
As of the date of this filing, total costs related to the Year 2000 issue
were approximately $3.7 million.
As of the date of this filing, VANTAS has not experienced any material
adverse effects to its business or operations as a result of the Year 2000
issue.
SUBSEQUENT EVENTS
On January 5, 2000, the Company issued 2,072,745 shares of Series E
Redeemable Convertible Preferred Stock to FrontLine at a price of $5.25 per
share. In connection with the offering, the Company increased the authorized
preferred stock to 33.5 million shares and the authorized common stock to 63.5
million shares, of which 41.0 million shares are designated as Class A Common
Stock and 22.5 million shares are designated as Class B Common Stock.
Please see "Item 1. - Business - Subsequent Developments - HQ Merger"
above for a discussion of the proposed HQ Merger.
Effective January 2000, a wholly-owned subsidiary of the Company acquired
the stock of an entity that owned a business center for a cash purchase price
of $779,000.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing VANTAS is interest rate risk on its Credit
Facility. The Credit Facility bears interest ranging from LIBOR plus 3.0% to
LIBOR plus 3.75% for a one, three or six month period at the election of
VANTAS. The rate of interest on the Credit Facility will be influenced by
changes in short term rates and is sensitive to inflation and other economic
factors. As significant increase in interest rates may have a negative impact
on the earnings of VANTAS due to the variable interest under the Credit
Facility.
Based on variable rate debt levels, a 10% increase in market interest
rates throughout 1999 (approximately 50 basis points on a weighted average
basis) would have an approximate 5.3% impact on VANTAS' interest expense, net
for the year ended December 31, 1999.
VANTAS has not, and does not plan to, enter into any derivative financial
instruments for trading or speculative purposes. As of December 31, 1999,
VANTAS had no other material exposure to market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
VANTAS Incorporated
We have audited the consolidated balance sheet of VANTAS Incorporated and
Subsidiaries as of December 31, 1999, and the related consolidated statements
of operations, redeemable convertible preferred stock and stockholders' equity
(deficiency), and cash flows for the year then ended. We have also audited the
financial statement schedule listed in the index at Item 14(a). These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of VANTAS
Incorporated and Subsidiaries at December 31, 1999, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. Also, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
. /s/ Ernst & Young LLP
New York, New York
February 22, 2000
<PAGE>
Report of Independent Accountants
The Board of Directors and Stockholders of VANTAS Incorporated:
In our opinion, the consolidated balance sheet as of December 31, 1998, and
the related consolidated statements of operations, of redeemable convertible
preferred stock and stockholders' equity (deficit) and of cash flows for each
of the two years in the period ended June 30, 1998 and for the period July 1,
1998 to December 31, 1998 (appearing in this Current Report of VANTAS
Incorporated on Form 8-K) present fairly, in all material respects, the
financial position, results of operations and cash flows of VANTAS
Incorporated and its subsidiaries at December 31, 1998 and for each of the two
years in the period ended June 30, 1998 and for the period July 1, 1998 to
December 31, 1998, in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the supplemental schedule
of valuation and qualifying accounts for each of the two years in the period
ended June 30, 1998 and for the period July 1, 1998 to December 31, 1998
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and the supplemental schedule are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and the supplemental schedule based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above. We have not audited the consolidated
financial statements of VANTAS Incorporated for any period subsequent to
December 31, 1998.
/s/ PricewaterhouseCoopers LLP
New York, New York
January 6, 2000
<PAGE>
VANTAS Incorporated and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,615,087 $ 3,807,417
Restricted cash 10,000,000 21,571,590
Accounts receivable, net of allowance for doubtful accounts of
$401,000 and $861,000, respectively 3,821,175 8,425,968
Prepaid expenses and other current assets 5,145,682 10,853,205
Deferred income taxes 174,000 5,155,000
Deferred financing costs 466,727 908,602
------------------------------------
Total current assets 23,222,671 50,721,782
Intangibles, net 81,605,181 187,115,028
Property and equipment, net 23,124,702 80,064,180
Deferred financing costs, net 2,584,418 4,516,557
Security deposits 2,110,952 4,400,898
Other assets, net 1,426,526 5,638,755
------------------------------------
Total assets $ 134,074,450 $ 332,457,200
====================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 9,578,807 $ 38,010,112
Capital lease obligations 731,510 1,139,219
Deferred rent payable 727,619 2,164,969
Notes payable 7,875,000 12,500,000
------------------------------------
Total current liabilities 18,912,936 53,814,300
Notes payable 65,125,000 108,125,000
Tenants' security deposits 8,592,948 20,163,962
Deferred rent payable 6,607,771 22,794,388
Deferred income taxes 1,514,000 3,024,000
Capital lease obligations 602,153 625,805
Other liabilities - 4,361,721
------------------------------------
Total liabilities 101,354,808 212,909,176
------------------------------------
</TABLE>
<PAGE>
VANTAS Incorporated and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
Commitments and contingencies
Redeemable convertible preferred stock, authorized 15,000,000
and 31,000,000 shares, respectively:
Series A Convertible, $.01 par value, issued and outstanding
7,574,711 shares (liquidation preference $12,900,000) 33,177,234 37,949,302
Series B Convertible, $.01 par value, issued and outstanding
3,222,851 (liquidation preference $15,309,000) 15,700,638 17,081,007
Series C Convertible, $.01 par value, issued and outstanding
13,325,424 shares (liquidation preference $63,296,000) - 68,359,428
Series D Convertible, $.01 par value, issued and outstanding
5,109,873 shares (liquidation preference $26,827,000) - 27,474,987
Series E Convertible, $.01 par value, issued and outstanding
604,413 shares (liquidation preference $3,173,000) - 3,176,860
Note receivable from issuance of redeemable preferred stock (950,000) (950,000)
------------------------------------
Total redeemable convertible preferred stock 47,927,872 153,091,584
------------------------------------
Stockholders' deficiency:
Class A common stock, $.01 par value, authorized 35,000,000 and
41,000,000 shares, respectively, issued and outstanding
4,901,868 and 7,064,222 shares, respectively 49,019 70,642
Class B common stock, $.01 par value, authorized 20,000,000
shares - -
Additional paid-in capital 3,133,608 19,392,736
Accumulated deficit (18,390,857) (52,061,866)
------------------------------------
(15,208,230) (32,598,488)
Notes receivable from issuance of common stock - (945,072)
------------------------------------
Total stockholders' deficiency (15,208,230) (33,543,560)
------------------------------------
Total liabilities and stockholders' deficiency $ 134,074,450 $ 332,457,200
====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
VANTAS Incorporated and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED YEAR ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Business center operations:
Revenues:
Office rentals $ 17,474,724 $ 39,390,571 $ 31,897,310 $124,564,219
Support services 11,622,891 27,147,060 22,159,876 89,359,785
-----------------------------------------------------------------
29,097,615 66,537,631 54,057,186 213,924,004
-----------------------------------------------------------------
Expenses:
Rent 10,394,622 21,737,973 18,765,386 82,664,161
Support services 4,846,502 8,998,258 7,788,189 31,060,745
Center general and administrative 7,871,511 18,743,683 15,556,730 61,728,648
-----------------------------------------------------------------
23,112,635 49,479,914 42,110,305 175,453,554
-----------------------------------------------------------------
Contribution from operation of business 5,984,980 17,057,717 11,946,881 38,470,450
centers
Other (expenses) income:
Corporate general and administrative (2,769,544) (4,501,361) (3,452,021) (11,995,937)
Merger and integration charges - - - (26,730,312)
Depreciation and amortization (1,172,594) (3,058,729) (2,762,348) (14,857,760)
Interest expense, net (930,598) (3,188,126) (2,884,300) (10,264,996)
Managed center income 377,743 692,408 454,105 947,313
Other income 121,405 78,604 47,106 171,458
-----------------------------------------------------------------
(Loss) income before minority interest and
income taxes 1,611,392 7,080,513 3,349,423 (24,259,784)
Minority interest in net income of
consolidated partnerships (118,880) (290,985) - -
-----------------------------------------------------------------
(Loss) income before benefit (provision)
for income taxes 1,492,512 6,789,528 3,349,423 (24,259,784)
Benefit (provision) for income taxes 1,389,100 (2,700,000) (1,410,000) 2,840,638
-----------------------------------------------------------------
Net (loss) income 2,881,612 4,089,528 1,939,423 (21,419,146)
Accretion of preferred stock (846,437) (14,300,008) (7,303,669) (12,251,863)
-----------------------------------------------------------------
Net (loss) income applicable to common stock $ 2,035,175 $(10,210,480) $ (5,364,246) $(33,671,009)
=================================================================
Share information:
Basic earnings:
Net (loss) income per common share $ 0.42 $ (2.06) $ (1.08) $ (6.55)
=================================================================
Weighted average number of common
shares outstanding 4,835,029 4,954,035 4,951,325 5,141,996
=================================================================
Diluted earnings (loss):
Net (loss) income per common share and
common equivalent share $ 0.30 $ (2.06) $ (1.08) $ (6.55)
=================================================================
Weighted average number of common and
common equivalent shares outstanding 9,498,068 4,954,035 4,951,325 5,141,996
=================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
VANTAS Incorporated and Subsidiaries
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficiency)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
-----------------------------------------------------------------------------------
SERIES A SERIES B SERIES C
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 - - - - - -
Issuance of common stock - - - - - -
Issuance of Series A preferred 7,574,711 $11,477,610 - - - -
stock, net
Accretion of preferred stock - 846,437 - - - -
Net income - - - - - -
-----------------------------------------------------------------------------------
Balance, June 30, 1997 7,574,711 12,324,047 - - - -
Exercise of common stock options - - - - - -
Tax benefit from exercise of common
stock options - - - - - -
Purchase and retirement of common
stock - - - - - -
Issuance of Series B preferred - - 1,730,062 $ 7,874,400 - -
stock, net
Accretion of preferred stock - 14,111,694 - 188,314 - -
Net income - - - - - -
-----------------------------------------------------------------------------------
Balance, June 30, 1998 7,574,711 26,435,741 1,730,062 8,062,714 - -
Purchase and retirement of common
stock - - - - - -
Purchase and retirement of Series B
preferred stock - - (5,300) (25,175) - -
Issuance of Series B preferred - - 1,298,089 6,150,923 - -
stock, net
Note receivable from stockholder
for the issuance of Series B - - 200,000 950,000 - -
preferred stock
Accretion of preferred stock - 6,741,493 - 562,176 - -
Net income - - - - - -
-----------------------------------------------------------------------------------
Balance, December 31, 1998 7,574,711 33,177,234 3,222,851 15,700,638 - -
Exercise of common stock options - - - - - -
Tax benefits from exercise of
common stock options - - - - - -
Exercise of common stock warrants - - - - - -
Issuance of Series C preferred - - - - 13,325,424 $63,295,764
stock, net
Issuance of Series D preferred - - - - - -
stock, net
Issuance of Series E preferred - - - - - -
stock, net
Accretion of preferred stock - 4,772,068 - 1,380,369 - 5,063,664
Net loss - - - - - -
-----------------------------------------------------------------------------------
Balance, December 31, 1999 7,574,711 $37,949,302 3,222,851 $17,081,007 13,325,424 $68,359,428
===================================================================================
(table continued)
-----------------------------------------------------------------------------------
NOTE TOTAL
RECEIVABLE REDEEMABLE
SERIES D SERIES E FROM PREFERRED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER STOCK
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 - - - -
Issuance of common stock - - - -
Issuance of Series A preferred - - - $11,477,610
stock, net
Accretion of preferred stock - - - 846,437
Net income - - - -
-----------------------------------------------------------------------------------
Balance, June 30, 1997 - - - 12,324,047
Exercise of common stock options - - - -
Tax benefit from exercise of common
stock options - - - - - -
Purchase and retirement of common
stock - - - - - -
Issuance of Series B preferred - - - 7,874,400
stock, net
Accretion of preferred stock - - - 14,300,008
Net income - - - -
-----------------------------------------------------------------------------------
Balance, June 30, 1998 - - - 34,498,455
Purchase and retirement of common
stock - - - - - -
Purchase and retirement of Series B
preferred stock - - - - - (25,175)
Issuance of Series B preferred - - - 6,150,923
stock, net
Note receivable from stockholder
for the issuance of Series B - - - - $ (950,000) -
preferred stock
Accretion of preferred stock - - - 7,303,669
Net income - - - -
-----------------------------------------------------------------------------------
Balance, December 31, 1998 - - - - (950,000) 47,927,872
Exercise of common stock options - - - - - -
Tax benefits from exercise of
common stock options - - - - - -
Exercise of common stock warrants - - - - - -
Issuance of Series C preferred - - - - - 63,295,764
stock, net
Issuance of Series D preferred 5,109,873 $26,542,384 - - - 26,542,384
stock, net
Issuance of Series E preferred - - 604,413 $ 3,073,701 - 3,073,701
stock, net
Accretion of preferred stock - 932,603 - 103,159 - 12,251,863
Net loss - - - - - -
-----------------------------------------------------------------------------------
Balance, December 31, 1999 5,109,873 $27,474,987 604,413 $ 3,176,860 $ (950,000)$ 153,091,584
===================================================================================
(table continued) STOCKHOLDERS' EQUITY (DEFICIENCY)
------------------------------------------------------------------------------------
NOTES TOTAL
ADDITIONAL RECEIVABLE STOCKHOLDERS'
COMMON STOCK PAID-IN ACCUMULATED FROM EQUITY
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS (DEFICIENCY)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 4,808,468 $ 48,085 $ 3,265,759 $(4,851,306) - $(1,537,462)
Issuance of common stock 35,000 350 109,850 - - 110,200
Issuance of Series A preferred - - - - - -
stock, net
Accretion of preferred stock - - - (846,437) - (846,437)
Net income - - - 2,881,612 - 2,881,612
------------------------------------------------------------------------------------
Balance, June 30, 1997 4,843,468 48,435 3,375,609 (2,816,131) - 607,913
Exercise of common stock options 420,000 4,200 205,800 - - 210,000
Tax benefit from exercise of common
stock options - - 202,000 - - 202,000
Purchase and retirement of common
stock (311,600) (3,116) (412,801) - - (415,917)
Issuance of Series B preferred - - - - - -
stock, net
Accretion of preferred stock - - - (14,300,008) - (14,300,008)
Net income - - - 4,089,528 - 4,089,528
------------------------------------------------------------------------------------
Balance, June 30, 1998 4,951,868 49,519 3,370,608 (13,026,611) - (9,606,484)
Purchase and retirement of common
stock (50,000) (500) (237,000) - - (237,500)
Purchase and retirement of Series B
preferred stock - - - - -
Issuance of Series B preferred - - - - -
stock, net
Note receivable from stockholder
for the issuance of Series B - - - - -
preferred stock
Accretion of preferred stock - - - (7,303,669) (7,303,669)
Net income - - - 1,939,423 1,939,423
------------------------------------------------------------------------------------
Balance, December 31, 1998 4,901,868 49,019 3,133,608 (18,390,857) (15,208,230)
Exercise of common stock options 597,994 5,980 999,092 - $ (945,072) 60,000
Tax benefits from exercise of
common stock options - - 12,492,372 - - 12,492,372
Exercise of common stock warrants 1,564,360 15,643 2,767,664 - - 2,783,307
Issuance of Series C preferred - - - - - -
stock, net
Issuance of Series D preferred - - - - - -
stock, net
Issuance of Series E preferred - - - - - -
stock, net
Accretion of preferred stock - - - (12,251,863) - (12,251,863)
Net loss - - - (21,419,146) - (21,419,146)
------------------------------------------------------------------------------------
Balance, December 31, 1999 7,064,222 $ 70,642 $19,392,736 $(52,061,866) $ (945,072)$ (33,543,560)
====================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
VANTAS Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED YEAR ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ 2,881,612 $ 4,089,528 $ 1,939,423 $ (21,419,146)
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 1,172,594 3,058,729 2,762,348 14,857,760
Amortization of deferred financing
costs 145,845 404,144 175,505 719,115
Deferred income taxes (1,494,100) 2,109,100 725,000 (3,540,638)
Provision for doubtful accounts 203,200 387,900 250,672 1,291,485
Minority interest in net income of
consolidated partnerships 118,880 290,985 - -
Deferred rent payable 527,835 823,170 491,047 6,023,573
Deferred credits - (213,940) (211,675) (1,134,576)
Broker referral fees - - - 909,988
Non-cash compensation expense - - - 12,492,372
Non-cash interest expense 110,200 118,133 62,522 161,609
Changes in operating assets and
liabilities:
Accounts receivable (221,538) (1,708,163) (555,361) (2,619,683)
Prepaid expenses and other
current assets (393,572) (893,165) (776,122) (3,582,533)
Security deposits and other assets (141,569) (167,531) (767,581) (1,890,018)
Accounts payable and accrued
expenses 1,127,311 1,972,993 2,467,215 21,266,384
Income taxes payable (179,882) (1,822) (847,942) (1,448,265)
Other liabilities - - - 88,359
Tenants' security deposits 132,002 1,195,375 1,420,640 2,439,072
--------------------------------------------------------------------
Net cash provided by operating
activities 3,988,818 11,465,436 7,135,691 24,614,858
--------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of net assets of business
centers, net of cash proceeds (20,496,983) (33,901,325) (28,397,887) (47,329,087)
Purchases of property and equipment (1,960,313) (4,860,373) (5,781,922) (41,540,642)
Restricted cash - - (10,000,000) (10,318,219)
--------------------------------------------------------------------
Net cash used in investing activities (22,457,296) (38,761,698) (44,179,809) (99,187,948)
--------------------------------------------------------------------
</TABLE>
<PAGE>
VANTAS Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED YEAR ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
--------------------------------------------------------------------
FINANCING ACTIVITIES
<S> <C> <C> <C> <C>
Proceeds from borrowings 12,912,500 33,229,000 34,665,000 68,400,000
Repayments on borrowings (1,846,005) (6,801,099) (125,000) (20,775,000)
Deferred financing costs (1,963,654) (561,898) (1,251,087) (3,093,129)
Payments of capital leases (356,714) (609,083) (543,108) (2,225,843)
Distributions to minority partners (642,276) (1,151,491) - -
Proceeds from exercise of common stock
options and warrants - 210,000 - 2,843,307
Purchase and retirement of common and
preferred stock - (415,917) (262,675) -
Proceeds from issuance of preferred
stock, net of issuance costs 11,257,610 7,874,400 2,266,121 29,616,085
--------------------------------------------------------------------
Net cash provided by financing
activities 19,361,461 31,773,912 34,749,251 74,765,420
--------------------------------------------------------------------
Net increase (decrease) in cash 892,983 4,477,650 (2,294,867) 192,330
Cash and cash equivalents at
beginning of period 539,321 1,432,304 5,909,954 3,615,087
--------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 1,432,304 $ 5,909,954 $ 3,615,087 $ 3,807,417
====================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for $ 653,000 $ 2,457,000 $ 2,865,000 $ 9,639,000
interest
====================================================================
Cash paid during the period for income
taxes $ 285,000 $ 561,000 $ 1,425,200 $ 2,009,000
====================================================================
</TABLE>
<PAGE>
VANTAS Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
During the year ended December 31, 1999, the Company, through a merger, obtained
forty-five business centers and received cash of $8,400,000 in exchange for the
issuance of 13,325,424 shares of Series C Convertible Preferred Stock,
$1,589,627 in cash and the assumption of $4,624,897 in transaction related
liabilities, $2,104,829 of capital lease obligations, $5,517,979 in tenants'
security deposits, $3,850,747 in other long term liabilities. Net assets
acquired included net accounts receivable of $2,283,473, prepaid expenses and
other assets of $565,513, security deposits of $544,309, deferred income taxes
of $972,816 and restricted cash of $1,253,371.
During the year ended December 31, 1999, the Company acquired forty-two business
centers for $44,905,906 in cash and the assumption of $2,462,548 in transaction
related liabilities, $552,375 of capital lease obligations, $3,613,963 in
tenants' security deposits and $422,615 in other long term liabilities. Net
assets acquired included net accounts receivable of $993,122, prepaid expenses
and other assets of $776,922 and security deposits and other assets of
$1,186,664.
During the year ended December 31, 1999, the Company recorded compensation
expense of $12,492,372 related to an agreement with certain employees of the
Company and a principal shareholder, whereby such principal shareholder
purchased a portion of such employees' securities in the Company. In connection
with this agreement, certain shareholders exercised vested stock options for
which the Company received promissory notes in the amount of $945,072, in
respect of the aggregate exercise price for such options.
During the year ended December 31, 1999, the Company recorded deferred credits
of $11,825,000 related to tenant improvements, which are reimbursed by landlords
and amortized against rent expense over the life of the leases.
During the Transition Period, the Company acquired twenty-five business centers
(including the remaining interests in all of its seven controlled partnerships),
for $22,471,168 in cash and issued 817,853 shares of Series B Convertible
Preferred Stock and the assumption of $993,277 in transaction related
liabilities, $572,368 of capital lease obligations, and $541,775 in tenants'
security deposit liabilities. Net assets acquired included net accounts
receivable of $217,052, prepaid expenses and other assets of $102,704 and
security deposits of $85,523.
During the Transition Period, the Company capitalized $1,076,328 in transaction
costs relating to mergers which occurred on January 8, 1999, of which $536,964
is included in accounts payable at December 31, 1998.
During the Transition Period, the Company recorded deferred credits of
approximately $1,243,000 related to tenant improvements which are reimbursed by
landlords and amortized against rent expense over the life of the leases.
During the Transition Period, the Company issued 200,000 shares of Series B
Convertible Preferred Stock to a key executive, for a note receivable of
$950,000.
During fiscal 1998, the Company acquired forty-three business centers for
$42,159,702 in cash and related acquisitions payable and the assumption of
$571,517 in transaction related liabilities, $583,479 of capital lease
obligations, and $2,452,638 in tenants' security deposit liabilities. Net assets
acquired included net accounts receivable of $892,379, prepaid expenses and
other assets of $255,672 and security deposits of $225,655.
<PAGE>
VANTAS Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES (CONTINUED)
During fiscal 1998, options for shares of common stock were exercised by certain
directors and an officer. A tax benefit of $202,000 was recorded as an increase
in additional paid-in capital and a reduction to income taxes payable.
During fiscal 1998, the Company recorded deferred credits of approximately
$2,940,000 related to tenant improvements, which are reimbursed by landlords and
amortized against rent expense over the life of the leases.
During fiscal 1998, the Company entered into capital lease obligations
approximating $352,000.
During fiscal 1997, the Company acquired twenty-five business centers for
$20,496,983 in cash and the assumption of a $308,508 interest bearing note,
$925,468 in transaction related liabilities, $756,357 of capital lease
obligations and $1,630,673 in tenants' security deposit liabilities. Net assets
acquired included net accounts receivable of $690,574, prepaid expenses of
$142,647 and security deposits of $138,095.
During fiscal 1997, notes payable to directors of $220,000 were converted to
approximately 129,100 shares of Series A convertible preferred stock, $.01 par
value.
During fiscal 1997, the Company recorded interest expense of $110,200 related to
the issuance of 65,000 shares of common stock, 30,000 of which were issued on
June 30, 1996, to a financial institution.
During fiscal 1997, the Company entered into capital lease obligations
approximating $380,490.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. BASIS OF PRESENTATION
BUSINESS
VANTAS Incorporated and Subsidiaries (the "Company"), previously known as
ALLIANCE NATIONAL Incorporated, operate 201 business centers in 27 states and
the District of Columbia, Mexico and France, and manage 5 others for unrelated
property owners, as of December 31, 1999. The Company provides fully furnished
individual offices and suites and a full range of telecommunication and
business support services to its clients that generally require 2,000 square
feet or less of traditional office space. The Company does not own the real
estate in which the business centers are located. The Company, through its
OfficeAccess(TM) plan, also provides full-time telephone answering and mail
room services with access to conference room facilities for businesses and
individuals that do not require offices on a full-time basis.
In 1998, the Company changed its fiscal year end from June 30 to December 31.
For clarity of presentation herein, the period from July 1, 1998 to December 31,
1998 is referred to as the "Transition Period Ended December 31, 1998" or
"Transition Period."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of VANTAS
Incorporated and its wholly-owned subsidiaries. The minority interest
represented the minority partners' proportionate share of the net equity of the
Company's consolidated partnerships as of June 30, 1997 and 1998. All
significant intercompany balances and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
Office rental revenue and support services revenue are recognized as the related
services are provided.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets, which range
from 5-7 years. The Enterprise Resource System is being amortized over 7 years.
Leasehold improvements are amortized over the lesser of the term of the related
lease or the estimated useful lives of the assets.
In March 1998, the Accounting Standards Executive Committee of the AICPA issued
Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. The SOP, which was adopted by the
Company as of January 1, 1999 in connection with the development of their
Enterprise Resource System, requires the capitalization of certain costs
incurred in connection with developing or obtaining internal use software.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill which is the excess of the
purchase price over the net assets of acquired companies and is being amortized
on the straight-line method primarily over 30 years.
IMPAIRMENT OF LONG-LIVED ASSETS
If there is an event or change in circumstances that indicates that the basis of
the Company's long-lived assets or intangibles may not be recoverable, the
Company's policy is to assess any impairment in value by making a comparison of
the current and projected operating cash flows of the asset or the business
center for which the intangible relates over its remaining useful life, on an
undiscounted basis, to the carrying amount of the asset or intangible. Such
carrying amount would be adjusted, if necessary, to reflect an impairment in the
value of the assets or intangibles.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
The Company amortizes deferred financing costs over the term of the related
debt. As of December 31, 1998 and 1999, accumulated amortization was
approximately $675,000 and $1,394,000, respectively.
RECEIVABLES AND CONCENTRATION OF CREDIT RISK
The Company leases office space and provides support services to clients in
various industries, ranging in size from small entrepreneurial entities to local
offices of international corporations. The Company performs credit evaluations
of its clients and generally requires at least two months' rent as a security
deposit. The Company's facilities are primarily located throughout the United
States which limits the Company's exposure to certain economic risks, based upon
local economic conditions.
Cash balances are held primarily at one financial institution and may, at times,
exceed insurable amounts. The Company believes it mitigates its risk by
investing in or through a major financial institution. Recoverability is
dependent upon the performance of the institution.
RENT EXPENSE
Generally accepted accounting principles require that rent expense be recognized
on a straight-line basis over the term of the related lease. The difference
between the rent expense recognized for financial reporting purposes and the
actual payments made in accordance with the lease agreement is recognized as a
deferred rent liability.
Rent expense charged to operations for the years ended June 30, 1997, 1998, the
Transition Period and the year ended December 31, 1999 exceeded actual rental
payments by approximately $528,000, $823,000, $491,000 and $5,969,000,
respectively.
As of December 31, 1998 and 1999, the deferred rent liability includes
approximately $3,709,000 and $14,400,000, respectively, of deferred credits
relating to tenant improvements, which are reimbursed or paid by landlords and
amortized against rent expense over the life of the leases.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method which requires
recognition of deferred tax assets and liabilities based upon the expected
future tax consequences of events included in the Company's financial statements
and tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share," basic earnings per share are computed by dividing net
income applicable to common stock by the weighted average number of common
shares outstanding. Diluted earnings per share are computed by dividing net
income by the sum of the weighted average number of common shares outstanding
and the dilutive effects of options, warrants and convertible securities.
RECENTLY ISSUED PRONOUNCEMENTS
In fiscal 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
The Company has no significant "other comprehensive income" to report for any of
the periods presented.
In fiscal 1998, the Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. The Company operates and manages its
business in one segment, providing business outsourcing services.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. The most significant assumptions and estimates
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES (CONTINUED)
relate to depreciable lives and recoverability of long-lived assets and
intangibles. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
period presentation.
3. ACQUISITIONS
Effective January 1, 1999, two newly formed subsidiaries of the Company were
merged (the "Mergers") with and into InterOffice Superholding Corporation
("InterOffice") and Reckson Executive Centers, Inc. ("REC"), respectively.
InterOffice and REC collectively owned forty-five business centers. As a result
of the Mergers, InterOffice and REC became wholly-owned subsidiaries of the
Company and the former shareholders of such entities received 13,325,424 shares
of the Company's Series C Convertible Preferred Stock ("Series C Preferred
Stock"), and the Company received $8.4 million in cash.
In addition to the Mergers described above, the Company acquired 42 business
centers, in 11 acquisitions, for an aggregate purchase price of $43.6 million
during the year ended December 31, 1999.
All acquisitions are recorded under the purchase method of accounting and are
included in operations from the date of acquisition.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information set forth below is based upon the Company's
historical consolidated statements of income for the years ended December 31,
1998 and 1999, adjusted to give effect to these acquisitions as of January 1,
1998.
The pro forma financial information is presented for informational purposes only
and may not be indicative of what actual results of operations would have been
had the acquisitions occurred on January 1, 1998, nor does it purport to
represent the results of operations for future periods.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. ACQUISITIONS (CONTINUED)
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1999
--------------------------------------
<S> <C> <C>
Revenues $ 210,053,788 $ 224,350,663
Net (loss) income 13,342,557 (14,453,823)
Net loss applicable to common stock (40,598,976) (26,705,686)
Basic loss per common share (8.20) (5.19)
Diluted loss per common share (8.20) (5.19)
</TABLE>
4. MERGER AND INTEGRATION CHARGES
The Company incurred merger and integration charges of approximately $26.7
million during the year ended December 31, 1999, in connection with the Mergers
and certain transactions with Reckson Service Industries ("RSI"), the Company's
principal shareholder. Such charges consisted primarily of compensation expense
pursuant to the RSI transactions of $23.7 million (see below) and professional
fees, business process reengineering and other integration costs related to the
Mergers, which aggregated approximately $3.0 million.
On October 29, 1999, RSI entered into agreements with certain shareholders of
the Company, including members of the Company's senior management and former
members of the Board, relating to the purchase of a portion of such
shareholders' securities in the Company, including common stock related to the
exercise of vested stock options by members of senior management.
The employee shares were sold simultaneously with the exercise of options by
senior management and RSI satisfied its purchase obligation with shares of its
common stock. The Company received promissory notes from each of the employees
in the aggregate amount of $945,072 in respect of the exercise price of their
options. These notes are included as a reduction to stockholders' equity. The
difference between the fair market value of the RSI shares received by the
employees and the cost of the Company's common stock amounted to approximately
$12.5 million and was recorded as compensation expense and an increase to
additional paid-in capital. In addition, under the terms of the agreements, the
Company was obligated to pay applicable income taxes of approximately $339,000
related to the compensation expense associated with the exercise
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. MERGER AND INTEGRATION CHARGES (CONTINUED)
of such options, subject to certain qualifications relating to those individuals
remaining in the employ of the Company. The Company recorded approximately $10.9
million in compensation expense for income taxes to be paid on behalf of the
employees. These charges are included in accrued expenses as of December 31,
1999 and in Merger and Integration charges for the year ended December 31, 1999.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
Office equipment, furniture and fixtures $ 21,649,976 $ 63,351,649
Enterprise Resource System - 5,510,469
Leasehold improvements 6,663,780 25,129,065
------------------------------------
28,313,756 93,991,183
Less: accumulated depreciation and amortization (5,189,054) (13,927,003)
------------------------------------
$ 23,124,702 $ 80,064,180
====================================
</TABLE>
Office equipment, furniture and fixtures include approximately $3,003,680 and
$5,649,710 of office equipment under capital leases, net of accumulated
depreciation of $824,664 and $1,240,410 as of December 31, 1998 and 1999,
respectively.
6. INTANGIBLES
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
Goodwill and other intangibles $ 84,295,771 $ 195,944,403
Less: accumulated amortization (2,690,590) (8,829,375)
--------------------------------------
$ 81,605,181 $ 187,115,028
======================================
</TABLE>
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. NOTES PAYABLE
On January 16, 1997, the Company entered into a $20 million credit agreement
with a lending institution, which was amended on June 24, 1997 to increase the
amount of the facility to $40 million and to add additional lending
institutions. The credit agreement provided for a $26 million acquisition loan
commitment, a $12 million term loan, and a $2 million revolving loan commitment,
including letters of credit. The Company also issued 90,958 warrants to the
lenders to acquire the Company's common stock at $1.70 per share during the year
ended June 30, 1997. All of these warrants were exercised during 1999.
Effective April 15, 1998, the Company increased its existing $40 million credit
agreement with various lending institutions to $55 million. The credit agreement
provided for a $38 million acquisition loan commitment, a $12 million term loan,
and a $5 million revolving loan commitment, including letters of credit.
Effective November 6, 1998, the Company increased the $55 million credit
agreement with various lending institutions to $100 million. The credit
agreement provided for a $23 million acquisition loan commitment, $70 million
term loans, and a $7 million revolving loan commitment, including letters of
credit.
Effective August 3, 1999, the Company increased the $100 million credit
agreement with various lending institutions to $157.9 million. The credit
agreement provides for a $5 million acquisition loan commitment, $127.9 million
term loans, and a $25 million revolving loan commitment, including letters of
credit.
During 1999, interest on each commitment ranged from LIBOR plus 3.00% (9.5% at
December 31, 1999) to LIBOR plus 3.75% (10.25% at December 31, 1999) for a one,
three or six month period, at the election of the Company. During 1998, interest
on each commitment ranged from LIBOR plus 3.00% (8.56% at December 31, 1998) to
LIBOR plus 3.5% (9.06% at December 31, 1998) for a one, three or six month
period, at the election of the Company.
The credit agreement contains certain covenants, one of which requires the
Company to not exceed a defined maximum ratio of consolidated indebtedness to
consolidated earnings before interest, income taxes, depreciation and
amortization. In addition, there are also other covenants pertaining to
financial ratios and limitations on capital expenditures. Certain of the
covenants were amended for the quarter ended December 31, 1999.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. NOTES PAYABLE (CONTINUED)
Pursuant to the credit agreement, the lending institutions have an assignment of
leases and rents associated with the Company's business centers to collateralize
the notes payable.
On January 20, 2000, the Company executed an agreement and plan of merger
pursuant to which the Company will merge with and into HQ Global Workplaces,
Inc. ("HQ") and has obtained long-term financing from an investment group to
finance the merger. As part of this financing, the $157.9 million credit
agreement will be replaced with this new facility.
ACQUISITION LOAN COMMITMENT
The credit agreement provides the Company with an acquisition loan commitment
which allows the Company to make acquisitions subject to certain terms and
conditions. As of December 31, 1999, the Company had no borrowings outstanding
under the acquisition loan commitment. In accordance with the credit agreement,
the Company cannot borrow under the acquisition loan commitment after November
6, 2000. Principal repayments under the acquisition loan commitment shall
commence on December 31, 2001 and are based upon percentages of the amount
borrowed as follows:
REPAYMENT
PERIOD PERCENTAGE
--------------------------------- ---------------------------
December 2001 - September 2002 2.5% quarterly
December 2002 - September 2003 10% quarterly
November 2003 50%
TERM LOANS
The $38,000,000 Term Loan A had $31,000,000 outstanding at December 31, 1999
which requires quarterly principal payments. The final principal payment is due
on June 30, 2002.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. NOTES PAYABLE (CONTINUED)
TERM LOANS (CONTINUED)
The $89,875,000 Term Loan B had $89,625,000 outstanding at December 31, 1999
which requires quarterly principal payments. The final principal payment is due
on November 6, 2005.
At December 31, 1999, $21,571,590 of the Term Loan was funded into a cash
collateral account that the Company will be permitted to utilize in connection
with permitted acquisitions.
The total future principal repayments as of December 31, 1999, for the Term
Loans for each of the next five fiscal years are as follows:
<TABLE>
<CAPTION>
TERM A TERM B TOTAL
-----------------------------------------------------------
<S> <C> <C> <C> <C>
2000 $ 12,000,000 $ 500,000 $ 12,500,000
2001 14,300,000 500,000 14,800,000
2002 4,700,000 15,250,000 19,950,000
2003 - 19,500,000 19,500,000
2004 - 23,751,000 23,751,000
Thereafter - 30,124,000 30,124,000
-----------------------------------------------------------
$ 31,000,000 $ 89,625,000 $ 120,625,000
===========================================================
</TABLE>
REVOLVING LOAN COMMITMENT
The $25,000,000 revolving loan commitment, which expires on November 6, 2003,
had no outstanding balance at December 31, 1999.
At December 31, 1999, the Company had outstanding letters of credit of
approximately $10,125,000 for landlord security deposits which reduced the
borrowings available under the revolving loan commitment.
The carrying value of the notes payable approximates its fair value as of
December 31, 1998 and 1999.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. CAPITAL LEASES
The Company is the lessee of office equipment under a number of capital leases
expiring at various dates through 2003.
Minimum future lease payments under capital leases as of December 31, 1999 for
each of the next four years are approximately:
2000 $ 1,298,480
2001 458,563
2002 195,453
2003 29,388
------------------
Total minimum lease payments 1,981,884
Less: amount representing interest (216,860)
------------------
Present value of minimum lease payments $ 1,765,024
==================
9. TRANSACTIONS WITH AFFILIATES
In addition to the RSI transaction described in Note 4, the Company also is a
tenant under nine leases with Reckson Operating Partnership, L.P., an affiliate
of RSI. For the year ended December 31, 1999, the Company paid approximately
$3.4 million, in the aggregate, for rent and other charges under such leases.
For the year ended December 31, 1999, the Company paid OnSite Access, Inc., an
affiliate of RSI, approximately $346,000 for providing internet access and
telecommunication services.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company and its subsidiaries lease certain business center facilities and
their corporate offices under noncancellable operating leases expiring at
various dates through 2014. Certain of these noncancellable operating leases
provide for renewal options.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASES (CONTINUED)
Minimum future rental payments under these noncancellable operating leases for
each of the next five years and in the aggregate as of December 31, 1999, are
approximately:
2000 $ 87,933,000
2001 86,677,000
2002 79,617,000
2003 75,162,000
2004 67,324,000
Thereafter 215,484,000
--------------------
$ 612,197,000
====================
The Company is also generally obligated to reimburse the lessor for its
proportionate share of operating expenses, which are not included in the above
amounts.
EMPLOYMENT CONTRACTS
The Company has employment contracts with several executive and non-executive
employees which expire at various times through 2002 and include in some cases
automatic renewal options. These contracts provide for minimum annual base
salaries with annual increases and performance bonuses. The minimum annual base
salary under the employment contracts in the aggregate are as follows:
2000 $ 1,678,802
2001 1,402,894
2002 543,598
--------------------
$ 3,625,294
====================
CUSTODIAL ACCOUNTS
The Company acts as a trustee in connection with business centers that it
manages for unrelated property owners. The cash held in trust and not reflected
on the accompanying consolidated balance sheets approximated $1,036,000 and
$1,910,000 as of December 31, 1998 and 1999, respectively.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER
There are pending claims and litigation against the Company arising in the
ordinary course of business. Management believes, after consultation with
counsel, that these actions will not have a material adverse effect on the
Company's results of operations.
11. INCOME TAXES
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED YEAR ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 65,000 $ 260,000 $ 521,000 $ -
Foreign - - - 100,000
State and local 40,000 330,900 164,000 600,000
------------------------------------------------------------------------------
105,000 590,900 685,000 700,000
Deferred:
Federal (1,269,985) 1,792,735 566,000 (3,291,289)
State and local (224,115) 316,365 159,000 (249,349)
------------------------------------------------------------------------------
(1,494,100) 2,109,100 725,000 (3,540,638)
------------------------------------------------------------------------------
Total (benefit) provision $ (1,389,100) $ 2,700,000 $ 1,410,000 $ (2,840,638)
==============================================================================
</TABLE>
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
The following is a reconciliation of the income tax (benefit) expense computed
using the statutory federal income tax rate to the actual income tax (benefit)
expense and its effective income tax rate:
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED YEAR ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax (benefit) expense at
federal statutory rate $ 507,454 $ 2,308,440 $ 1,138,804 $ (8,248,119)
State and local income taxes, net
of federal income tax benefit 26,400 427,195 213,393 (35,870)
Valuation allowance - - - 4,515,000
Nondeductible goodwill - 17,074 62,222 928,428
Reduction in valuation
allowance (2,001,200) - - -
Impact of tax settlement 56,000 - - -
Other, net 22,246 (52,709) (4,419) (77)
--------------------------------------------------------------------------
$ (1,389,100) $ 2,700,000 $ 1,410,000 $ (2,840,638)
==========================================================================
</TABLE>
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
The deferred tax effects of temporary differences as of December 31, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowance $ 174,000 $ 332,000
AMT credit carryforward - 252,000
Deferred rent payable 969,000 3,532,000
Net operating losses - 10,302,000
------------------------------------
1,143,000 14,418,000
Less: valuation allowance - (4,515,000)
------------------------------------
1,143,000 9,903,000
------------------------------------
Deferred tax liabilities:
Fixed assets (429,000) (4,665,000)
Intangibles (2,054,000) (2,966,000)
Other - (141,000)
------------------------------------
(2,483,000) (7,772,000)
------------------------------------
Net deferred tax asset (liability)
after valuation allowance $ (1,340,000) $ 2,131,000
====================================
</TABLE>
FAS Statement 109 requires a valuation allowance to be recorded to reduce the
deferred tax assets reported if, based on the weight of the evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Accordingly, a $4,515,000 valuation allowance is required at December
31, 1999.
At December 31, 1999, the Company has available unused net operating loss
carryforwards of approximately $26 million, which principally expire in fiscal
year 2019.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
common share:
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED YEAR ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
-----------------------------------------------------------------
Numerator:
<S> <C> <C> <C> <C>
Net income (loss) $ 2,881,612 $ 4,089,528 $ 1,939,423 $ (21,419,146)
Accretion of preferred stock (846,437) (14,300,008) (7,303,669) (12,251,863)
-----------------------------------------------------------------
Numerator for basic earnings per share-
income (loss) applicable to common stock $ 2,035,175 $(10,210,480) $ (5,364,246) $ (33,671,009)
Effect of dilutive securities:
Accretion of preferred stock 846,437 - - -
-----------------------------------------------------------------
Numerator for diluted earnings per
share-income (loss) applicable to common
stock after assumed conversions $ 2,881,612 $(10,210,480) $ (5,364,246) $ (33,671,009)
=================================================================
Denominator:
Denominator for basic earnings per
share-weighted average shares 4,835,029 4,954,035 4,951,325 5,141,996
Effect of dilutive securities:
Stock options 314,170 - - -
Warrants - - - -
Convertible preferred stock 4,348,869 - - -
-----------------------------------------------------------------
Dilutive potential common shares 4,663,039 - - -
-----------------------------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted average shares
and assumed conversions 9,498,068 4,954,035 4,951,325 5,141,996
=================================================================
</TABLE>
Options and warrants to purchase 3,653,119, 4,158,706, 4,288,706 and 4,050,352
shares of common stock were outstanding as of June 30, 1997, June 30, 1998,
December 31, 1998 and December 31, 1999, respectively, but were not included in
the computation of diluted earnings per share because their effect would have
been anti-dilutive. Additionally, 10,797,562 and 29,837,272 shares of
convertible preferred stock were outstanding as of December 31, 1998 and 1999,
respectively, but were not included in the computation of diluted earnings per
share because their effect would also have been anti-dilutive.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. STOCK OPTION PLANS
During the year ended December 31, 1999, the Company's Board of Directors
approved the adoption of the 1999 Stock Option Plan ("1999 Plan"). The 1999 Plan
provides for the issuance of either incentive or non-qualified stock options to
key employees, directors and consultants. Under the 1999 Plan, options may be
granted at prices, terms and vesting to be determined by the Company's Board of
Directors. Incentive stock options shall not have an exercise price less than
the fair market value of the Company's common stock on the date of the grant.
Options granted under this plan expire ten years from the date of grant and vest
over a three-year period. Under certain conditions, these options may vest on an
accelerated basis. The maximum aggregate number of shares of Class A Common
Stock available for award under the 1999 Plan shall be 2,851,000, subject to
adjustment for stock splits, dividends or otherwise. During 1999, non-qualified
stock options to purchase 2,214,000 shares were granted under this plan. There
were no incentive stock options granted in 1999. At December 31, 1999,
non-qualified options to purchase 2,075,000 shares were outstanding under the
plan after the reduction of 139,000 forfeitures during 1999. None of such shares
were vested at December 31, 1999. There were 776,000 option shares available for
grant at December 31, 1999.
During the Transition Period, options were granted by the Company's Board of
Directors to a key executive, to acquire 200,000 shares of common stock. The
options vested immediately and expire five years from the date of grant.
During fiscal 1997, the Company's Board of Directors approved the adoption of
the 1996 Stock Option Plan ("1996 Plan"). The 1996 Plan provided for the
issuance of non-qualified stock options to key employees, directors and
consultants. Under the 1996 Plan, options were granted at prices determined by
the Company's Board of Directors, but in no case were priced less than $2.00 per
share. Options granted under this plan expire ten years from the date of grant
and vest over a ten-year period. As a result of certain transactions during
1999, all of the Company's outstanding stock options issued under the 1996 Stock
Option Plan became fully vested. Options granted during fiscal 1997 and 1998 to
acquire 1,225,000 and 220,750 shares of common stock, respectively, were granted
under this plan. At December 31, 1999, 766,256 options were outstanding and
fully vested under the 1996 Plan and no further options were available for
grant.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. STOCK OPTION PLANS (CONTINUED)
Certain options, granted in 1996 and 1997, prior to the adoption of the 1996
Plan, generally vested immediately, expire five years from the date of grant and
are exercisable at prices that in the Board's opinion were equal to or exceeded
the fair market value of the Company's common stock on the date of grant.
Certain options granted in 1996, to acquire 440,000 shares of common stock
expire seven years from the date of grant and vest over a three-year period. At
December 31, 1999, 940,000 of such options were outstanding and fully vested.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. STOCK OPTION PLANS (CONTINUED)
The following is a summary of the non-qualified stock options activity for the
years ended June 30, 1997 and 1998, the Transition Period Ended December 31,
1998 and the year ended December 31, 1999:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, TRANSITION PERIOD ENDED YEAR ENDED
1997 1998 DECEMBER 31, 1998 DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISED EXERCISED EXERCISED EXERCISED
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 1,000,000 $ 1.16 2,725,000 $ 1.68 2,525,250 $ 1.98 2,655,250 $ 2.26
Granted 1,725,000 2.00 220,750 2.86 200,000 6.00 2,214,000 6.00
Exercised - - (420,000) 0.50 - - (597,994) 1.68
Forfeited - - - - - - (139,000) 6.00
Retired - - (500) 2.00 (70,000) 2.98 (151,000) 2.02
------------- ------------ ----------- ------------
Options outstanding, end of period 2,725,000 $ 1.68 2,525,250 $ 1.98 2,655,250 $ 2.26 3,981,256 $ 4.30
============= ============ =========== ============
Options exercisable, end of period 1,280,000 $ 1.34 1,092,500 $ 1.81 1,186,583 $ 1.82 1,906,256 $ 2.46
============= ============ =========== ============
Options available for grant, end of
period 245,000 24,250 - 776,000
============= ============ =========== ============
Weighted-average fair value of
options granted during the period $ 0.22 $ 0.61 $ 0.11 $ 0.02
============== ============ ============= =========
</TABLE>
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. STOCK OPTION PLANS (CONTINUED)
The exercise prices for options outstanding as of December 31, 1999 range from
$2.00 to $6.00 per share. The weighted average remaining contractual life for
options outstanding as of December 31, 1999 is approximately 7 years.
The Company has elected to adopt the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized with regard
to options granted under the Plan in the accompanying consolidated financial
statements. If stock-based compensation costs had been recognized based on the
estimated fair values at the dates of grant for options awarded during the years
ended June 30, 1997 and 1998, the Transition Period Ended December 31, 1998 and
the year ended December 31, 1999, the Company's net income and earnings per
share would have been as follows :
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED YEAR ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net (loss) income as reported $ 2,881,612 $ 4,089,528 $ 1,939,423 $ (21,419,146)
Net (loss) income - pro forma 2,752,612 4,049,598 1,909,131 (21,547,146)
Basic (loss) earnings per
common share - as reported 0.42 (2.06) (1.08) (6.55)
Basic (loss) earnings per
common share - pro forma 0.39 (2.07) (1.09) (6.57)
Diluted (loss) earnings per
common share - as reported 0.30 (2.06) (1.08) (6.55)
Diluted (loss) earnings per
common share - pro forma 0.29 (2.07) (1.09) (6.57)
</TABLE>
The weighted average fair value of each option has been estimated on the date of
grant using the Black-Scholes options pricing model with the following weighted
average assumptions used for grants for the years ended June 30, 1997 and 1998,
the Transition Period Ended December 31, 1998 and the year ended December 31,
1999, respectively: no dividend yield; expected volatility of 0%, risk free
interest rates of 6.2%, 5.7%, 5.3% and 5.4%, respectively; and expected lives
approximating 5 years.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. BENEFIT PLAN
The Company has a 401(k) voluntary savings and investment plan (the "Plan") open
to all employees who meet certain minimum requirements. The Company can make
voluntary contributions to the Plan not to exceed 6% of eligible participant
compensation. Participants vest 100% in Company contributions after 3 years of
service. The Company contributed approximately $21,000, $95,000, $86,000 and
$507,000 to the Plan for the years ended June 30, 1997 and 1998, the Transition
Period Ended December 31, 1998 and the year ended December 31, 1999,
respectively.
15. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the Mergers, the Company authorized 15,000,000 shares of
Series C Preferred Stock, which ranks on parity with the Company's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock ("Series A
Preferred Stock" and "Series B Preferred Stock", respectively). Except for
certain class voting rights and except for the conversion feature described
below, the Series C Preferred Stock has substantially identical terms as the
Series A Preferred Stock and Series B Preferred Stock. If the original holders
of the Series C Preferred Stock or certain of their permitted transferees are
the holders of the Series C Preferred Stock at the time of conversion thereof,
the Series C Preferred Stock will be converted into Class B Common Stock ("Class
B Common Stock") which will have identical terms and conditions as the Company's
Class A Common Stock ("Class A Common Stock") (formerly the Common Stock),
except that such Class B Common Stock will carry the right to elect a specified
number of directors, not to exceed four, following an initial public offering.
During the year ended December 31, 1999, the Company authorized 5,200,000 shares
and issued 5,109,873 shares of Series D Convertible Preferred Stock ("Series D
Preferred Stock") at $5.25 per share for net proceeds of approximately $26.5
million (net of issuance costs of $284,450). The Series D Preferred Stock has a
liquidation preference of $5.25 per share.
The Series D Preferred Stock ranks pari passu with the Company's Series E
Convertible Preferred Stock ("Series E Preferred Stock"), and senior to the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Common Stock, with respect to liquidation. The Series D Preferred Stock is
convertible into the Company's Class B Common Stock on a one-for-one basis, or
at the election of the shareholder into the Company's Class A Common Stock.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
During the year ended December 31, 1999, the Company authorized 1,000,000 shares
and issued 604,413 shares of Series E Preferred Stock at $5.25 per share for net
proceeds of approximately $3.1 million (net of issuance costs of $99,467). The
Series E Preferred Stock has a liquidation preference of $5.25 per share. The
Series E Preferred Stock ranks pari passu with the Company's Series D Preferred
Stock, and senior to the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock with respect to liquidation. The
Series E Preferred Stock is convertible into the Company's Class A Common Stock
on a one-for-one basis.
During the Transition Period, the Company issued 817,853 shares of Series B
Preferred Stock to acquire the remaining interests in all of its seven
controlled partnerships. Concurrent with this transaction, the Company issued
480,236 shares of Series B Preferred Stock for net proceeds of $2,266,121 (net
of issuance costs of $15,000). The Company also issued 200,000 shares of
Series B Preferred Stock to a key executive in exchange for a recourse note of
$950,000, due on August 4, 2001, bearing interest at the rate of 5.48%,
payable annually.
During fiscal 1998, the Company authorized 3,500,000 shares and issued 1,730,062
shares of Series B Preferred Stock for net proceeds of $7,874,400 (net of
issuance costs of $343,395). In connection with the Series B Preferred Stock
offering, the Company issued 54,380 warrants to purchase the Company's common
stock. The warrants are exercisable at $4.75 per share and the 15,810 remaining
outstanding warrants expire on April 30, 2003.
During fiscal 1997, the Company authorized and issued 7,574,711 shares of Series
A Preferred Stock for net proceeds of $11,257,610 (net of issuance costs of
$1,430,455) and the conversion of $220,000 in notes payable to directors. In
connection with the Series A Preferred Stock offering, the Company issued
1,488,119 warrants to purchase the Company's common stock.
The Series A and Series B Preferred Stock rank on a parity with each other and
with the Series C Preferred Stock and senior to the Company's common stock with
respect to payment of dividends and liquidation preferences. The holders of
Preferred Stock are entitled to non-cumulative cash dividends when and as
declared by the Company's Board of Directors in an amount equal to any
equivalent per share cash dividend declared on the common stock. The shares of
the Series A Preferred Stock and Series B Preferred Stock
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
are convertible, in whole or in part, at any time prior to November 15, 2004, at
the option of the holder, into an equivalent number of shares of Class A Common
Stock (subject to adjustments for certain dilutive events). Mandatory conversion
of such shares into Class A Common Stock will occur at the conversion rate
described in the preceding sentence upon an initial public offering meeting
certain quantitative standards.
Upon the occurrence of certain liquidation events, the holders of Preferred
Stock shall be entitled to receive an amount per share equal to $1.7041 (in
the case of the Series A Preferred Stock), $4.75 (in the case of the Series B
Preferred Stock and Series C Preferred Stock) or $5.25 (in the case of Series
D Preferred Stock and Series E Preferred Stock), plus a cumulative return
computed on each such amount at the rate of 8% per annum for the period for
which such shares were outstanding less the aggregate amount of all declared
and paid cash dividends on such shares, if any. The holders of Preferred Stock
are entitled to vote, on any matter requiring shareholder vote, equivalent to
the number of shares of common stock into which such shares are convertible.
In the event that there has not been an initial public offering or a merger
involving the Company, in each case meeting certain standards, by November 15,
2001, the holders of the outstanding shares of the preferred stock may require
the Company to repurchase (the "Put") such shares at a price per share equal
to the greater of (i) $1.7041 (in the case of the Series A Preferred Stock),
$4.75 (in the case of the Series B Preferred Stock and Series C Preferred
Stock), and $5.25 (in the case of Series D Preferred Stock and Series E
Preferred Stock) plus a cumulative return computed on each such amount at the
rate of 8% per annum for the period for which such shares were outstanding
less the aggregate amount of all declared and paid cash dividends on such
shares, if any, or (ii) the appraised value of the common stock into which the
Preferred Stock is then convertible. The exercise of the Put requires
participation by 66-2/3% of the then outstanding series of Preferred Stock and
is subject to the consent of the Company's senior lender.
In connection with the Put, at each balance sheet date the Company is
accreting the difference between the carrying value of the preferred stock and
the estimated maximum repurchase price as a reduction in retained earnings.
The aggregate reduction as of December 31, 1999, was $34,701,977.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. TRANSITION PERIOD COMPARATIVE DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
-------------------------------
(UNAUDITED)
<S> <C> <C>
Revenues $ 54,057,186 $ 27,179,231
===============================
Contribution from operation of business centers $ 11,946,881 $ 6,605,804
===============================
Income before income taxes $ 3,349,423 $ 3,266,256
Provision for income taxes 1,410,000 1,305,000
-------------------------------
Net income $ 1,939,423 $ 1,961,256
===============================
Net (loss) income applicable to
common stock $ (5,364,246) $ 1,290,736
===============================
Share information:
Basic earnings:
Net (loss) income per common share $ (1.08) $ 0.27
===============================
Average shares outstanding 4,951,325 4,843,468
===============================
Diluted earnings:
Net (loss) income per common share $ (1.08) $ 0.16
===============================
Average shares outstanding 4,951,325 12,591,972
===============================
</TABLE>
17. SUBSEQUENT EVENTS
On January 5, 2000, the Company issued 2,072,745 shares of Series E Convertible
Preferred Stock to RSI at a price of $5.25 per share. In connection with the
offering, the Company increased the authorized preferred stock to 33.5 million
shares and the authorized common stock to 63.5 million shares, of which 41.0
million shares are designated as Class A Common Stock and 22.5 million shares
are designated as Class B Common Stock.
<PAGE>
VANTAS Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SUBSEQUENT EVENTS (CONTINUED)
On January 20, 2000, the Company executed an agreement and plan of merger (the
"HQ Merger Agreement") pursuant to which the Company will be merged (the "HQ
Merger") with and into HQ Global Workplaces, Inc. ("HQ").
In connection with the HQ Merger, (i) each share of the common stock of the
Company will be converted into the right to receive $8.00 per share in cash;
(ii) each share of the convertible preferred stock of the Company that is
outstanding will be converted into the right to receive that number of shares of
the surviving corporation that equal to the product of the number of shares of
the common stock of the Company that such shareholder would have been entitled
to receive had it converted its shares immediately prior to the HQ Merger and
the Conversion Ratio (as defined in the HQ Merger Agreement); and (iii) each
option and warrant to purchase the common stock of the Company, other than
options under the 1996 Plan, will be converted into the right to receive a per
share cash amount equal to $8.00, less the exercise price for such options or
warrants, as the case may be, subject, in each case, to adjustment as provided
in the HQ Merger Agreement. In connection with the HQ Merger, the Company
established a $35 million letter of credit as a deposit to HQ in the event the
HQ Merger is not consummated under certain circumstances.
Effective January 2000, a wholly-owned subsidiary of the Company acquired the
stock of an entity that owned a business center for a cash purchase price of
$779,000.
<PAGE>
Supplemental Schedule
<PAGE>
VANTAS Incorporated And Subsidiaries
Schedule II - Valuation And Qualifying Accounts
<TABLE>
<CAPTION>
ADDITIONS
------------------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS DEDUCTIONS - END OF
DESCRIPTION PERIOD EXPENSES RECEIVABLE DESCRIBE (1) PERIOD
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 $ 401,000 $ 1,291,485 $ - $ 831,485 $ 861,000
================================================================================
Transition period ended December 31, 1998
Allowance for doubtful accounts $ 266,000 $ 250,672 $ - $ 115,672 $ 401,000
================================================================================
Year ended June 30, 1998
Allowance for doubtful accounts $ 257,000 $ 387,900 $ - $ 378,900 $ 266,000
================================================================================
Year ended June 30, 1997
Allowance for doubtful accounts $ 55,000 $ 205,688 $ - $ 3,688 $ 257,000
================================================================================
(1) Accounts written off.
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 3, 1999, VANTAS discharged PricewaterhouseCoopers LLP as
its independent accountants and retained Ernst & Young LLP. For further
information see VANTAS's Form 8-K filed on December 10, 1999.
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors of VANTAS consists of ten members elected
annually. Currently, there are seven directors and three vacant board seats.
The following table sets forth certain information with respect to the
executive officers and directors of VANTAS, based upon information furnished
to VANTAS by each director and executive officer.
<TABLE>
<CAPTION>
TERM AS OFFICER/
DIRECTOR DIRECTOR
NAME TITLE AGE EXPIRES SINCE
<S> <C> <C> <C> <C>
David Rupert Acting President, Chief Executive
Officer and Chief Operating Officer 51 1999
T.J. Tison Executive Vice President and Chief
Investment Officer 51 1999
David W. Beale Director 39 2000 1986
Daniel DiSano Director 31 2000 1999
Christopher George Director 32 2000 1999
Jon Halpern Director 37 2000 1999
Jeffrey D. Neumann Director 37 2000 1999
Stephen M. Rathkopf Director 56 2000 1999
Scott H. Rechler Chairman of the Board 32 2000 1999
</TABLE>
Following execution of the Merger Agreement relating to the proposed HQ
Merger, David Beale and Alan Langer, current employees of the Company,
relinquished their titles of President and Chief Executive Officer and
Executive Vice President and Chief Financial Officer, respectively.
DAVID RUPERT, ACTING PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF
OPERATING OFFICER. Mr. Rupert joined VANTAS in September 1999. Previously, Mr.
Rupert was President of Pitney Bowes Business Services, a division of Pitney
Bowes, Inc. This $600 million global unit serves clients in more than 1,000
locations. Under Mr. Rupert's leadership, the Business Services unit was the
fastest growing division of the company, providing a variety of outsourced
services, among them mail, copy center and fax management, records and
information management and document services. Mr. Rupert earned a Bachelor of
Arts Degree from Georgetown University and a Masters Degree in Management from
Yale University.
T.J. TISON, EXECUTIVE VICE PRESIDENT AND CHIEF INVESTMENT OFFICER. Prior
to the Mergers, Mr. Tison served as Chief Investment Officer of InterOffice,
where he led the expansion and acquisition team in the U.S. and abroad. Before
joining InterOffice in September 1998, Mr. Tison was President and Chief
Executive Officer of HQ Business Centers Network, a company he served for
fourteen years. Mr. Tison is credited with building HQ from 21 executive suite
centers in 1984 to 202 centers in 1997, operating in 20 countries, with $200
million in revenues. Before joining HQ, he was with United Technologies
Corporation, serving as Chief Operating Officer of its executive suite
division. McDonald's Corporation employed Mr. Tison for nine years, where he
had regional responsibility for domestic and international sales development
and management. Mr. Tison received both a BS and a MBA from the University of
Illinois. He is a decorated Vietnam veteran.
DAVID W. BEALE, DIRECTOR. Mr. Beale was a founder and Director of
Corporate Planning Services, Inc. ("CPS") from 1984 to 1990. CPS was a holding
company that operated an NASD registered broker-dealer and a financial
software company as well as owned a controlling interest in VANTAS. From March
1983 to June 1984, Mr. Beale was a Director for Marketing of COAP Planning
Corp., a wholesaler of financial products and services. Prior to March 1983,
Bristol-Myers & Co. employed him in various marketing capacities. Mr. Beale
holds a BS degree in both management and marketing from CW Post College/Long
Island University. From 1989 to 1994, Mr. Beale was a member of the Board of
Directors and the Financial Standards Committee of the Executive Suite
Association, the business center's industry trade association.
DANIEL DISANO, DIRECTOR. Mr. DiSano serves as a Director on VANTAS's
Strategic Steering Committee. He is Senior Vice President of Operations of
FrontLine. Mr. DiSano was the first full-time employee of FrontLine, helping
spin off the company from Reckson Associates Realty Corp., and significantly
grow FrontLine's market value in its first year as a public company. Prior to
joining FrontLine, Mr. DiSano was a consultant with Booz-Allen Hamilton, a
leading management consulting firm. Mr. DiSano worked on several strategic and
operational issues including several growth strategy engagements. Prior to
joining Booz-Allen Hamilton, Mr. DiSano was a consultant and Staff Manager
with Charles River Associates, a leading economic consulting firm. Mr. DiSano
has founded the Lorraine I. DiSano Cancer Foundation to raise funds for
innovative cancer research. Mr. DiSano graduated from Clark University with a
BA in Economics and earned an MBA from MIT Sloan School of Management.
CHRISTOPHER GEORGE, DIRECTOR. Mr. George serves as a Director of VANTAS.
He is Senior Vice President of Strategic Investments at FrontLine. Prior to
joining FrontLine in 1999, Mr. George was a Managing Director in the Equity
Research Department of Bear, Stearns & Co. Inc. where he was involved in
building a top-tier real estate research and investment banking franchise, and
published the Bear, Stearns US Real Estate Almanac. Mr. George holds a
Bachelor of Arts degree from the University of Michigan and an MBA in Finance
from New York University Stern School of Business.
JON HALPERN, DIRECTOR. Mr. Halpern serves as a Director of VANTAS, and
serves on the Board's Executive and Strategic Steering Committees. Pursuant to
a letter agreement dated September 23, 1999, FrontLine has agreed, for a
period of three years after the closing of the sale to FrontLine of JAH I/O
LLC, an entity that owned interests in VANTAS, to cause Mr. Halpern to be
elected a director and named Vice Chairman of the board of directors of
VANTAS. He is the sole stockholder, Chairman & CEO of JLH Realty Management
Service, Inc., the General Partner of JAH Realties, L.P., a partnership with
investments in telecommunications, the Internet, and real estate. In
connection with these investments, Mr. Halpern serves as a board observer of
onsite Access, Inc. ("onsite") a leader in building-centric Internet service
and telephony. He is also Co-Chairman of Summit Aviation, a high-end executive
jet charter and transportation company. In addition, Mr. Halpern is the
Managing Director of Halpern Real Estate Development, LLC, a full-service real
estate organization. He serves as a Member of the Board of Directors and
Executive Committee of the Westchester Medical Center. From 1997 through 1998,
Mr. Halpern was a Director and Executive Vice President of Reckson Associates
Realty Corp. and President of its Westchester Division. Mr. Halpern has a
Bachelor of Science Degree from the School of Business at the University of
Colorado.
JEFFREY D. NEUMANN, DIRECTOR. Mr. Neumann serves as a Director of VANTAS.
He is Executive Vice President of Investments at FrontLine and is responsible
for all investments and acquisitions for the company. Prior to joining RSI in
1998, Mr. Neumann was a Vice President in GE Capital's private equity
investment subsidiary. While at GE Capital, Mr. Neumann participated in
numerous investments in both public and private companies. Previously, Mr.
Neumann was the President of a manufacturing company and of a health care
company. He started his career with the investment banking firm of Bear,
Stearns & Co. Inc. in New York. Mr. Neumann is a Director of OnSite and
eSourceOne, Inc. ("eSourceOne"). Mr. Neumann holds an MBA in Finance from New
York University Stern School of Business and a Bachelor of Arts from Ithaca
College.
STEPHEN M. RATHKOPF, DIRECTOR. Mr. Rathkopf serves as a Director of
VANTAS. He is Senior Vice President and Legal Counsel at FrontLine, where he
is involved in the structuring and negotiation of FrontLine's investments as
well as assisting partner companies. Prior to joining FrontLine, Mr. Rathkopf
was a Managing Partner of Herrick, Feinstein LLP, a 100 attorney New York City
law firm, where he was also the Chairman of the Corporate Department and head
of the firm's Business Development Committee. While at Herrick, Mr. Rathkopf
headed up the corporate team in a wide variety of corporate transactions,
mergers, acquisitions, joint ventures and private equity investments and also
originated numerous transactions for the firm's clients. He holds a Juris
Doctor from New York University School of Law and a Bachelor of Arts from City
College of New York.
SCOTT H. RECHLER, CHAIRMAN OF THE BOARD. Mr. Rechler is Chairman of the
Board of Directors and serves on the Board's Executive, Audit and Compensation
Committee. He is President and Co-Chief Executive Officer of Reckson
Associates Realty Corp. (NYSE), one of the premier commercial real estate
operating companies in the Northeast. Mr. Rechler was the architect of
Reckson's successful initial public offering in June 1995. He has overseen
over $1.3 billion in acquisitions and developments since joining Reckson in
1989. Subsequent to Reckson's initial public offering, its size quadrupled to
over 21 million square feet with a total market capitalization in excess of
$1.0 billion. Mr. Rechler also serves as President, Chief Executive Officer
and a director of FrontLine and serves on the boards of OnSite and eSourceOne.
Mr. Rechler is a frequent lecturer among his peers, addressing organizations
such as the Real Estate Lenders Association, New York Society of Security
Analysts, and National Association of Industrial and Office Properties. He has
spoken at the nation's leading universities, among them the University of
Pennsylvania's Wharton School of Business and New York University. Mr. Rechler
is an active fund-raiser for a number of charities, including the Long Island
Children's Museum, where he is a chairman of the Corporate Committee and a
member of the Board of Directors. Mr. Rechler is a graduate of Clark
University. He received a Master of Finance Degree from New York University.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation
awarded for services rendered during the twelve months ended December 31, 1999
("Fiscal 1999"), the six months ended December 31, 1998 ("Fiscal-December
1998") and the fiscal year ended June 30, 1998 ("Fiscal-June 1998") to the
Chief Executive Officer, two other executive officers of VANTAS and two
additional employees of the Company (collectively, the "Named Executive
Officers") whose base salary, on an annualized basis, exceeded $100,000 during
the twelve months ended December 31, 1999. In October 1998, the Board of
Directors approved the change in VANTAS's fiscal year from June 30 to December
31, commencing December 31, 1998. As a result, the information in the table
for Fiscal-December 1998 reflects only the six month period of July 1, 1998
through December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Other Restricted Long
Name and Principal Base Annual Stock Term All
Position Period Salary(s) Bonuses(s) Compensation Grants Options Other(s)
<S> <C> <C> <C> <C> <C> <C> <C>
David W. Beale
Former President and Chief
Executive Officer (1) Fiscal - 1999 500,000 765,500 16,839,530(2) -- 250,000 --
Fiscal -
December 1998 137,812 232,500 -- -- 200,000 --
Fiscal -
June 1998 262,500 533,000 -- -- -- --
Alan M. Langer
Former Executive Vice
President and Chief
Financial Officer (1) Fiscal - 1999 200,000 183,125 2,918,060(3) -- 100,000 --
Fiscal -
December 1998 100,000 58,125 -- -- -- --
Fiscal -
June 1998 150,000 125,000 -- -- -- --
T.J. Tison
Executive Vice President
and Chief Investment Officer Fiscal - 1999 179,688 87,500 -- -- 50,000 --
Fiscal -
December 1998 n/a n/a n/a n/a n/a n/a
Fiscal -
June 1998 n/a n/a n/a n/a n/a n/a
Mitchell Knecht
Senior Vice President,
Chief Information Officer Fiscal - 1999 199,162 38,973 -- -- 50,000 --
Fiscal -
December 1998 88,750 13,973 -- -- -- --
Fiscal -
June 1998 93,750 22,917 -- -- -- --
Laura Kozelouzek
Senior Vice President,
Eastern Region Fiscal - 1999 139,167 63,312 1,528,174(4) -- 25,000 --
Fiscal -
December 1998 59,167 39,736 -- -- -- --
Fiscal -
June 1998 99,583 47,317 -- -- -- --
</TABLE>
(1) Following execution of Merger Agreement relating to the proposed HQ
Merger, David Beale and Alan Langer, current employees of the Company,
relinquished their titles of President and Chief Executive Officer and
Executive Vice President and Chief Financial Officer, respectively.
(2) Of this amount, $16,796,442 represented reimbursement for taxes
associated with the exercise of non-qualified stock options.
(3) Of this amount, $2,898,060 represented reimbursement for taxes associated
with the exercise of non-qualified stock options.
(4) This amount represented reimbursement for taxes associated with the
exercise of non-qualified stock options.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Percent of Total Value at Assumed Annual
Options Granted to Exercise Price Per Rates of Common Stock
Employees for Share of Common Expiration Price Appreciation For
Name Options Granted Fiscal Year Stock (1) Date Option Term(2)
<S> <C> <C> <C> <C> <C>
David W. Beale 250,000 11.3% $6.00 5/7/09 $ 943,342 $ 2,390,614
Alan M. Langer 100,000 4.5% $6.00 5/7/09 $ 377,337 $ 956,245
T.J. Tison 50,000 2.3% $6.00 5/7/09 $ 188,668 $ 478,123
Mitchell Knecht 50,000 2.3% $6.00 5/7/09 $ 188,668 $ 478,123
Laura Kozelouzek 25,000 1.1% $6.00 5/7/09 $ 94,334 $ 239,061
</TABLE>
- ------------
(1) All options are granted with an exercise price equal to or in excess of
the fair market value of the Common Stock on the date of grant and have a
term of ten years from the date of grant. The options granted have a
three year vesting schedule, subject to acceleration upon the occurrence
of certain events. Upon consummation of the HQ Merger, all options will
be vested.
(2) In accordance with the rules of the Securities and Exchange Commission,
these amounts are the hypothetical gains of "option spreads" that would
exist for the respective options based on assumed rates of annual
compound share price appreciation of 5% and 10% from the date the options
were granted over the full option term. No gain to the option is possible
without an increase in the price of Common Stock, which would benefit all
shareholders.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Number of Shares Value of Unexercised
Underlying Unexercised In-The-Money Options at
Shares Options at Fiscal 1999 Fiscal 1999 Year-End
Acquired Value Year End (#) ($)(1)
Name on Exercise Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
David W. Beale....... 408,955 $ 18,275,546(2) 866,045/250,000 $ 2,004,795/0
Alan M. Langer....... 71,756 3,131,267(2) 133,244/100,000 $ 401,064/0
T.J. Tison........... 0 0 0/50,000 $ 0/0
Mitchell Knecht...... 0 0 25,000/50,000 $ 75,250/0
Laura Kozelouzek..... 34,822 1,671,346(2) 125,178/25,000 $ 376,786/0
</TABLE>
(1) The value of unexercised in-the-money options at Fiscal-1999 year-end,
based on the fair market value for Common Stock of $5.01 per share, as of
December 31, 1999.
(2) These amounts include amounts paid to reimburse the employees for taxes
associated with the exercise of options. See "- - Summary Compensation
Table."
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has an employment contract with Mr. Beale that expires on
June 30, 2002. Pursuant to the contract and separate negotiations with the
Company, Mr. Beale is currently receiving an annual salary of $500,000. The
contract also provides for a performance bonus and an incentive plan. In
addition, the contract provides that if Mr. Beale is terminated without Cause
(as defined therein) or resigns in the event of certain substantial management
changes, then Mr. Beale is entitled to severance benefits including lump sum
payments of salary and bonus for the periods specified in the contract and the
vesting and/or repurchase of certain equity interests in the Company. The
contract also contains non-competition and non-disclosure provisions
applicable to Mr. Beale. Messrs. Langer, Rupert and Tison have entered into
similar agreements with the Company providing for differing compensation
levels and expiring on December 31, 2001 (including automatic six month
renewal options), September 7, 2002 (including automatic six month renewal
options), and May 13, 2001, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Scott Rechler, the Chairman of Vantas, serves on the Compensation
Committee. Mr. Rechler is President and Co-Chief Executive Officer of Reckson
Associates Realty Corp., the parent of Reckson Operating Partnership, L.P.
(see Item 13 below). Mr. Rechler also serves on the Board of OnSite (see Item
13 below).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock
for (i) each stockholder of VANTAS holding more than a 5% beneficial interest
in VANTAS, (ii) each executive officer and director of VANTAS and (iii) the
directors and executive officers of VANTAS as a group. Unless otherwise noted,
the address of the holder is the address of VANTAS.
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially
Owned as of December 31, 1999(1)
Name of Beneficial Owners Number Percent of Total (2)
<S> <C> <C>
FrontLine Capital Group (3).................... 29,689,589 85.8%
David W. Beale (4)............................. 2,239,698 27.5%
Alan M. Langer (5)............................. 392,984 5.3%
David Rupert................................... 0 0
T.J. Tison..................................... * *
Daniel DiSano.................................. 0 0
Christopher George............................. 0 0
Jon Halpern.................................... 0 0
Jeffrey D. Neumann............................. 0 0
Stephen M. Rathkopf............................ 0 0
Scott H. Rechler............................... 0 0
All directors and executive officers
as a group (10 persons)........................ 2,632,682 31.2%
</TABLE>
- -----------
* Less than one percent.
(1) All information has been determined as of December 31, 1999. For purposes
of this table a person is deemed to have "beneficial ownership" of the
number of shares of Common Stock that person has the right to acquire
pursuant to the exercise of stock options or warrants or the conversion
of a security within 60 days. See "Executive Compensation" for a
discussion of the vesting of stock options granted to directors and
officers.
(2) For purposes of computing the percentage of outstanding shares of Common
Stock held by each person, any shares of Common Stock which such person
has the right to acquire pursuant to the exercise of stock options or
warrants or the conversion of a security within 60 days is deemed to be
outstanding, but is not deemed to be outstanding for the purposes of
computing the percent ownership of any other person.
(3) The address of this holder is 1350 Avenue of the Americas, New York, New
York 10019. In addition to shares held directly by FrontLine, these
shares include the interests of Arnold Widder, RSI I/O Holdings, Inc.,
Reckson Office Centers LLC and Interoffice Superholdings LLC attributable
to FrontLine pursuant to Rule 13d-3 under the Securities Exchange Act of
1934. The shares deemed to be owned by this holder include 2,164,354
shares of common stock, 7,041,840 shares of Series A Preferred Stock,
1,667,051 shares of Series B Preferred Stock, 13,325,424 shares of Series
C Preferred Stock, 5,109,873 shares of Series D Preferred Stock, and
381,047 shares of Series E Preferred Stock held directly and through the
other entities named above.
(4) Includes 1,173,653 shares of Common Stock, 200,000 shares of Series B
Preferred Stock and options to purchase 866,045 shares of Common Stock.
(5) Includes 80,000 shares of Common Stock, 76,287 shares of Series A
Preferred Stock, 95,825 shares of Series B Preferred Stock, options to
purchase 133,244 shares of Common Stock and warrants to purchase 7,628
shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
VANTAS is tenant under nine leases with Reckson Operating Partnership,
L.P., an affiliate of FrontLine. For the twelve month period ended December
31, 1999, VANTAS paid approximately $3.4 million, in the aggregate, for rent
and other charges under such leases.
For the twelve month period ended December 31, 1999, VANTAS paid OnSite,
an affiliate of FrontLine, approximately $346,000 in respect of the provision
of internet access and telephony services.
David Beale, a Director of VANTAS and the former President and Chief
Executive Officer, is indebted to VANTAS in the amount of $1,617,910. The
indebtedness is represented by two promissory notes in the principal amount of
$950,000 and $667,910. The $950,000 promissory note bears interest at the rate
of 5.48% per annum and is secured by a pledge of 200,000 shares of VANTAS
Common Stock. The principal amount of the note is due and payable on August 4,
2001. The indebtedness was incurred in connection with the issuance and sale
to Mr. Beale of 200,000 shares of Series B Convertible Preferred Stock on
August 4, 1998. The $667,910 promissory note bears interest at the rate of
5.74% per annum and is secured by a pledge of Mr. Beale's remaining ownership
in VANTAS securities. The principal amount of the note is due and payable on
December 30, 2002 or upon termination of his employment with the Company. The
indebtedness was incurred in connection with the exercise of stock options on
December 30, 1999.
Alan Langer, the former Executive Vice President and Chief Financial
Officer of VANTAS, is indebted to VANTAS in the amount of $143,512. The
indebtedness is represented by a promissory note, which bears interest at the
rate of 5.74% per annum and is secured by a pledge of Mr. Langer's ownership
in VANTAS securities. The principal amount of the note is due and payable on
December 30, 2002 or upon termination of his employment with the Company. The
indebtedness was incurred in connection with the exercise of stock options on
December 30, 1999.
On July 29, 1999, the Company issued and sold 3,347,961 shares of Series
D Convertible Preferred Stock, at a price of $5.25 per share, for an aggregate
cash purchase price of approximately $17.6 million. On August 4, 1999, the
Company issued and sold 1,486,921 shares of Series D Preferred Stock and
352,380 shares of Series E Convertible Preferred Stock, in each case at a
price of $5.25 per share, for an aggregate cash purchase price of
approximately $9.7 million. On September 14, 1999, the Company issued and sold
274,991 shares of Series D Preferred Stock and 252,033 shares of Series E
Preferred Stock, in each case at a price of $5.25 per share, for an aggregate
cash purchase price of approximately $2.8 million. The Company issued and sold
these securities pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder. The offerings were made to a limited number of offerees, all of
whom were accredited investors (as defined in Rule 501 promulgated under the
Act), including FrontLine and certain of its affiliates.
See "Item 1. Business - General" above for a discussion of the
transactions in connection with the Mergers. See "Item 1. Business -
Subsequent Developments - HQ Mergers" above for a discussion of the proposed
HQ Merger and related transactions.
<PAGE>
PART IV.
ITEM 14. FINANCIAL STATEMENTS AND SCHEDULES, EXHIBITS AND REPORTS
ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
The financial statements, financial statement schedule and exhibits are listed
below and are filed as part of this report.
(1) FINANCIAL STATEMENTS
Included in Part II of this report:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors - Ernst & Young LLP................................................... II-16
Report of Independent Auditors - PricewaterhouseCoopers LLP.......................................... II-17
Consolidated Balance Sheets as of December 31, 1999
and December 31, 1998......................................................................... II-18
Consolidated Statements of Operations for the years
ended December 31, 1999 and June 30, 1998
and 1997 and for the period July 1, 1998 to December 31, 1998................................. II-20
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficiency) for the years ended December 31, 1999
and June 30, 1998 and
1997 and for the period July 1, 1998 to December 31, 1998..................................... II-21
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and June 30, 1998 and 1997 and
for the period July 1, 1998 to December 31, 1998.............................................. II-22
Notes to Consolidated Financial Statements........................................................... II-24
</TABLE>
(2) FINANCIAL STATEMENTS SCHEDULES
Included in Part II of this report:
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules are omitted because they
are not required, or the information is presented in the consolidated
financial statements or notes thereto.
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
3.1* Amended and Restated Articles of Incorporation
3.2** Certificate of Amendment/Designation to Amended and Restated Articles of Incorporation
3.3* By-laws and Amendments
4.1* Fifth Amended and Restated Certificate of Designation of Series A Convertible Preferred
Stock
4.2* Seconded Amended and Restated Certificate of Designation of Series B Convertible Preferred
Stock
4.3* Amended and Restated Certificate of Designation of Series C Convertible Preferred Stock
4.4* Certificate of Designation of Series D Convertible Preferred Stock
4.5* Amended and Restated Certificate of Designation of Series E Convertible Preferred
Stock
4.6** Certificate of Amendment/Designation to Amended and Restated Certificate of Designation of
Series E Convertible Preferred Stock
4.7* Fifth Amended and Restated Stockholders Agreement
4.8 Amendment to Fifth Amended and Restated Stockholders Agreement
10.1* Amended and Restated Credit Agreement by and among VANTAS, Various Banks and Paribas
10.2 Amendment, Consent and Waiver to Credit Agreement
10.3 Amendment to Credit Agreement
10.4 Consent and Waiver to Credit Agreement
10.5* Employment Agreement with David Beale
10.6* Employment Agreement with Alan Langer
10.7** Employment Agreement with David Rupert
10.8* Employment Agreement with T.J. Tison
10.9* Employment Agreement with Stephen Fowler
10.10* Agreement, dated as of October 29, 1999, by and among David Beale, Reckson Service
Industries, Inc. and VANTAS
10.11* Agreement, dated as of October 29, 1999, by and among Alan Langer, Reckson Service
Industries, Inc. and VANTAS
10.12* Agreement, dated as of October 29, 1999, by and among Mitchell Knecht, Reckson Service
Industries, Inc. and VANTAS
10.13 Agreement, dated as of October 29, 1999, by and among Laura Kozelouzek, Reckson Service
Industries, Inc. and VANTAS
10.14 Amended and Restated Promissory Note of David Beale
10.15 Promissory Note of David Beale
10.16 Promissory Note of Alan Langer
10.17 Promissory Note of Laura Kozelouzek
10.18* 1999 Stock Option Plan
10.19* 1996 Stock Option Plan
10.20** Intercompany Agreement dated as of January 8, 1999 by
and between VANTAS (then known as Alliance National
Incorporated) and Reckson Service Industries, Inc.
10.21* Agreement dated December 30, 1999 among VANTAS, Reckson Service Industries, Inc. and the
VANTAS employees listed as signatories thereto.
10.22*** Agreement and Plan of Merger, by and among HQ Global Workplaces, Inc., Carr America Realty
Corporation, VANTAS Incorporated and Reckson Service Industries, Inc., dated as of January
20, 2000
10.23*** Stock Purchase Agreement, dated as of January 20, 2000,
among CarrAmerica Realty Corporation, OmniOffice (UK)
Limited (as to certain sections) and OmniOffices (Lux)
1929 Holding Company S.A. (as to certain sections), on
the one hand and VANTAS Incorporated and Reckson
Services Industries, Inc. (as to certain sections), on
the other hand.
10.24 Subscription Agreement, dated as of February 7, 2000, by and between Reckson Service
Industries, Inc. and VANTAS
21 List of Subsidiaries
27 Financial Data Schedules
- ------------
* Previously filed as an exhibit to VANTAS's Form 10-Q
report filed with the SEC on November 15, 1999 and
incorporated herein by reference.
** Previously filed as a an exhibit to VANTAS's Annual
Report and Transition Report on Form 10-K filed with
the SEC on January 18, 2000 and incorporated herein by
reference.
*** Previously filed as an exhibit to VANTAS's Form 8-K
report filed with the SEC on February 4, 2000 and
incorporated herein by reference.
</TABLE>
(B) REPORTS ON FORM 8-K
VANTAS filed a report on Form 8-K on December 10, 1999 which reported a
change in VANTAS's certifying accountant.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 on March 30, 2000.
VANTAS INCORPORATED
By: /s/ David Rupert
----------------------------------
David Rupert
President, Chief Executive Officer
and Chief Operating Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of VANTAS Incorporated, hereby severally constitute David Rupert,
our true and lawful attorney with full power to him to sign for us and in our
names in the capacities indicated below, the Form 10-K filed herewith and any
and all amendments to said Form 10-K, and generally to do all such things in
our names and in our capacities as officers and directors to enable VANTAS
Incorporated to comply with the provisions of the Securities Exchange Act of
1934, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ David Rupert President, Chief Executive Officer and Chief March 30, 2000
- ---------------------------
(David Rupert) Operating Officer (Principal Executive Officer)
/s/ Gary Klein Senior Vice President, Finance (Principal March 30, 2000
- --------------------------- Financial Officer)
(Gary Klein)
/s/ Edward Caravalho Vice President, Controller (Principal March 30, 2000
- --------------------------- Accounting Officer
(Edward Caravalho)
Director
- ---------------------------
(David W. Beale)
/s/ Daniel DiSano Director March 30, 2000
- ---------------------------
(Daniel DiSano)
/s/ Christopher George Director March 30, 2000
- ---------------------------
Christopher George)
/s/ Jon Halpern Director March 30, 2000
- ---------------------------
(Jon Halpern)
/s/ Jeffrey D. Neumann Director March 30, 2000
- ---------------------------
(Jeffrey D. Neumann)
/s/ Stephen M. Rathkopf Director March 30, 2000
- ---------------------------
(Stephen M. Rathkopf)
Director
- ---------------------------
(Scott H. Rechler)
</TABLE>
Exhibit 4.8
AMENDMENT
Amendment dated as of January 26, 2000 to the Fifth Amended and
Restated Stockholders' Agreement dated as of July 29, 1999 by and among VANTAS
Incorporated, a Nevada corporation (the "Company"), and the Securityholders
identified therein, as further amended by an amendment thereto dated as of
November 22, 1999 (collectively, the "Agreement"). Unless otherwise defined,
all capitalized terms used herein shall have the meaning ascribed to them in
the Agreement.
The undersigned, acting in accordance with Section 9.13 of the
Agreement, hereby further amend the Agreement as follows:
1. Section 1.1(ww) is amended and restated in its entirety to read
as follows:
"(ww) "Series A, B and E Preferred Directors" shall mean the
Series C and D Preferred Directors."
2. The first sentence of Section 2.1(a) is amended and restated in
its entirety to read as follows:
"(a) The Board shall consist of ten Directors, (i) one
Director nominated by David W. Beale (which nominee shall be David
W. Beale) (the "Company Director") and (ii) nine Directors
(collectively, the "Series C and D Preferred Directors") nominated
by holders of a Majority of the Shares of Series C and D Preferred
Stock."
3. The second sentence of Section 2.1(a) is amended and restated in
its entirety to read as follows:
"The Chairman of the Board shall be a Series C and D
Preferred Director nominated by the holders of a Majority of the
Shares of Series C and D Preferred Stock."
4. Section 2.1(b) is amended and restated in its entirety to read as
follows:
"(b) [Intentionally omitted.]"
<PAGE>
5. The first sentence of Section 2.1(c) is amended and restated in
its entirety to read as follows:
"(c) Notwithstanding anything to the contrary
contained herein, (i) David W. Beale shall have the rights set
forth herein to nominate the Company Director only so long as he
maintains Beneficial Ownership of at least 50% of the Common Stock
Equivalents held by him as of July 29, 1999 and the Beale
Employment Agreement has not been terminated by the Company for
Cause (as defined therein); provided, however, that so long as
David W. Beale is the Chief Executive Officer of the Company he
shall serve as a Director and (ii) the holders of a Majority of the
Shares of Series C and D Preferred Stock shall have the rights set
forth herein to nominate the Series C and D Preferred Directors and
to designate the Chairman of the Board, and the Series C and D
Preferred Directors shall have the right to nominate members of the
Committees described in Section 2.3 hereof, only so long as the
Qualifying Series C and D Beneficial Holders maintain Beneficial
Ownership of at least 20% of the Series C and D Adjusted Fully
Diluted Capitalization."
6. The second sentence of Section 2.1(c) is amended and restated in
its entirety to read as follows:
"If either David W. Beale or the Series C and D Holders loses
the right to designate Director(s), the Director(s) which such
Securityholder had been entitled to designate shall promptly resign
and the vacancy or vacancies, as the case may be, created by such
resignation(s) shall be filled by the stockholders of the Company
voting at a special or general meeting or by written consent in
lieu of any such meeting at any time after the consummation of the
transaction or occurrence of the event in which either David W.
Beale or the Series C and D Holders lost the right to designate
Director(s)."
7. Section 2.1(d) is amended and restated in its entirety to read as
follows:
"(d) [Intentionally omitted.]"
8. Section 2.1(e) is amended and restated in its entirety to read as
follows:
"(e) [Intentionally omitted.]"
9. Section 2.1(g) is amended and restated in its entirety to read as
follows:
<PAGE>
"(g) Term. Each of the Company Director and the Series C and
----
D Preferred Directors shall hold office as a Director of the
Company for a term of one year."
10. The language preceding clause (i) contained in Section 2.2 is
amended and restated in its entirety to read as follows:
"No Securityholder shall vote any Shares, and no Director
shall vote, in favor of the removal of a Director designated by
David W. Beale or the Series C and D Holders unless"
11. The first sentence of Section 2.3(a) is amended and restated in
its entirety to read as follows:
"(a) The Executive Committee of the Board shall consist of
the following five Directors: (i) the Company Director and (ii)
four Directors nominated by the Series C and D Preferred
Directors."
12. The first sentence of Section 2.3(b) is amended and restated in
its entirety to read as follows:
"(b) The Audit Committee of the Board shall consist of four
Directors nominated by the Series C and D Preferred Directors, at
least two of whom shall not be officers or employees of the
Company."
13. The first sentence of Section 2.3(c) is amended and restated in
its entirety to read as follows:
"(c) The Compensation Committee of the Board shall consist of
the four Directors nominated by the Series C and D Preferred
Directors, at least two of whom shall not be officers or employees
of the Company."
14. The last sentence of Section 2.6 is deleted in its entirety.
<PAGE>
15. The first sentence of Section 3.1 is amended and restated in its
entirety to read as follows:
"None of the following actions shall be taken by the Company
or any of its Controlled Affiliates without Super-Majority Approval
(provided that if at the time of the proposed action the Qualifying
Series C and D Beneficial Holders do not have aggregate Beneficial
Ownership of at least 20% of the Series C and D Adjusted Fully
Diluted Capitalization, then the approval of a majority of the
Series C and D Preferred Directors shall not be required as part of
the Super-Majority Approval):"
16. Notwithstanding the terms and provisions of Section 4.7
including, without limitation, Section 4.7(a), the Beale Put (i) shall apply
solely to Options granted to Beale under the Company's 1999 Stock Option Plan
which remain unvested on the effective date of the termination of Beale's
employment with the Company and (ii) shall be of no further force and effect
with respect to any other Beale Securities.
17. The terms and provisions of Section 9.17 shall no longer apply
to the JAH Beneficial Holders.
Except as expressly amended hereby, all of the terms, conditions and
provisions of the Agreement shall remain in full force and effect.
[SIGNATURE PAGES FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed or caused the
execution of this Agreement in one or more counterparts as of the date first
above written.
/s/ David W. Beale
----------------------------------
David W. Beale
RSI I/O HOLDINGS, INC.
By: /s/ Jason M. Barnett
-------------------------------
Name: Jason M. Barnett
Title: Vice President
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Jason M. Barnett
-------------------------------
Name: Jason M. Barnett
Title: Executive Vice President
RECKSON OFFICE CENTERS LLC
By: RSI I/O HOLDINGS, INC.
Managing Member
By: /s/ Jason M. Barnett
-------------------------------
Name: Jason M. Barnett
Title: Vice President
<PAGE>
INTEROFFICE SUPERHOLDINGS LLC
By: RSI I/O HOLDINGS, INC.
Managing Member
By: /s/ Jason M. Barnett
-------------------------------
Name: Jason M. Barnett
Title: Vice President
VANTAS INCORPORATED
By: /s/ David W. Beale
--------------------------------
Name: David W. Beale
Title: President,
Chief Executive Officer
<PAGE>
/s/ Louis Perlman
------------------------------------
Louis Perlman
/s/ Wilma Perlman
------------------------------------
Wilma Perlman
LOUIS PERLMAN IRA ROLLOVER
By:_________________________________
Name:
Title:
Exhibit 10.2
AMENDMENT, CONSENT AND WAIVER
AMENDMENT, CONSENT AND WAIVER (this "Amendment"), dated as of January
19, 2000, among VANTAS INCORPORATED, a corporation organized and existing
under the laws of the State of Nevada (the "Borrower"), the financial
institutions party to the Credit Agreement referred to below (the "Banks"),
and PARIBAS, as agent (the "Agent").
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Banks and the Agent are parties to an
Amended and Restated Credit Agreement, dated as of January 16, 1997, amended
and restated as of November 6, 1998, and further amended and restated as of
August 3, 1999 (as amended, modified and supplemented to the date hereof, the
"Credit Agreement");
WHEREAS, certain members of the management of the Borrower,
including David W. Beale, have exchanged (the "Exchange") shares of the
Borrower's capital stock for shares of common stock of Reckson Service
Industries, Inc. (d/b/a Frontline Capital Group, Inc.) ("Frontline");
WHEREAS, in connection with the Exchange, the Borrower has incurred
$10.9 million in cash compensation expense to compensate such members of
management for taxes incurred by them as a result of the exercise of options
surrendered in connection with the Exchange (the "Gross-Up") and $12,577,030
million in non-cash compensation expense (the "Non-Cash Expense");
WHEREAS, the Borrower funded the Gross-Up by issuing to Frontline
$10.9 million aggregate amount of shares of Series E Convertible Preferred
Stock of the Borrower (the "Series E Preferred Stock");
WHEREAS, the Borrower desires to use up to $4 million borrowed under
the Credit Agreement to make full recourse (subject to certain exceptions)
loans to its employees and to repurchase from its employees shares of its
capital stock under a long-term incentive program (the "Long-Term Incentive
Program);
WHEREAS, the Borrower desires to enter into an Agreement and Plan of
Merger by and among the Borrower and Frontline, on the one hand, and HQ Global
Workplaces, Inc. ("HQ") and Carr America Realty Corporation ("Carr") on the
other hand (the "Merger Agreement"), pursuant to which, inter alia, the
Borrower shall be merged with and into HQ and the separate existence of
Borrower shall cease (the "Merger");
WHEREAS, in connection with the Borrower entering into the Merger
Agreement, David W. Beale will resign as President and Chief Executive Officer
of the Borrower and will be appointed to the Merger transition team of the
Borrower;
WHEREAS, the Banks and the Agent wish to waive certain
provisions of the Credit Agreement to permit the Exchange, the Gross Up, the
Non-Cash Expense, the issuance of the shares of Series E Preferred Stock, the
Long-Term Incentive Program and the execution of the Merger Agreement and to
amend certain provisions of the Credit Agreement in connection with the
Long-Term Incentive Program and the resignation of David W. Beale;
NOW, THEREFORE, IT IS AGREED:
Section 1. Interpretation.
1.01 Defined Terms. In this Amendment, unless something in
the subject matter or context is inconsistent:
(i) terms defined in the description of the parties or
in the recitals have the meanings given to them in the description or
recitals, as applicable; and
(ii) all other capitalized terms have the respective
meanings given to them in the Credit Agreement.
1.02 References. All references to Sections, unless
otherwise specified, are to Sections of the Credit Agreement.
Section 2. Amendment.
2.01 Conditions Precedent to All Credit Events. Section
5.01 shall be amended by adding at the end thereof:
"and (iii) the Total Unutilized Revolving Loan Commitment
shall not be less than 50% of the balance of the amount that the Borrower
could be become obligated to spend on cash loans and repurchases of its
capital stock under its Long-Term Incentive Program and the Employee Loan
Program thereunder."
2.02 Change in Control. The definition of Change in Control
in Section 10.01 shall be deleted and replaced in its entirety with the
following definition:
"Change in Control" means the occurrence of one or more of
the following: (i) the Investor Group and their Affiliates shall cease to have
the power to elect a majority of the Board of Directors of the Borrower, (ii)
the Investor Group and their Affiliates shall cease to have record and
beneficial ownership of more than 50% of the voting stock of the Borrower on a
fully diluted basis, (iii) except for Interoffice Superholding LLC, Reckson
Office Centers LLC, RSI I/O Holdings, Inc., Vantas LLC, RSI or any of its
Affiliates (so long as there shall not otherwise exist a Change in Control
under clause (vii)) (a) if any Person, entity or "group" (within the meaning
of Section 13(d) and 14(d) of the Securities Exchange Act) shall become the
"beneficial owner" (as defined in Rules 13(d) and 13(d)-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of
all securities that such Person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time) of 20% or more
of any outstanding class of capital stock of the Borrower having ordinary
voting power in the election of directors of the Borrower or (b) the directors
of the Borrower shall cease to consist of Continuing Directors (it being
understood that all directors of the Borrower on January 16, 2000 shall be
deemed to be Continuing Directors), (iv) the Borrower shall cease to own 100%
of the outstanding capital stock of each Subsidiary; (v) David W. Beale shall
cease to serve on the Board of Directors or shall cease to serve on the merger
transition team of the Borrower during the period prior to the merger of the
Borrower and HQ Global Workplaces, Inc. or the termination of the Agreement
and Plan of Merger by and among HQ Global Workplaces, Inc., CarrAmerica Realty
Corporation, the Borrower and RSI, (vi) (a) if at any time while RSI and its
Affiliates shall be the "beneficial owner" of 20% or more of the aggregate
voting power of all classes of capital stock of the Borrower having ordinary
voting power in the election of directors of the Borrower, any Person, entity
or "group" (other than Reckson Associates Realty Corp., any if its
Subsidiaries or any of its officers or directors on December 30, 1998 or any
of their Affiliates) shall become the "beneficial owner" of 20% or more of the
aggregate voting power of all classes of capital stock of RSI having ordinary
voting power in the election of directors of RSI or (b) the directors of RSI
shall cease to consist of Continuing Directors; provided, however, for
purposes of clauses (i) and (ii) above, the initial public offering of
Borrower Common Stock shall not constitute a Change in Control so long as
following such initial public offering (i) the Investor Group, their
Affiliates and the Persons who are members of the Board of Directors of the
Borrower on January 16, 2000 (A) continue to have record and beneficial
ownership of more than 50% of voting stock of the Borrower on a fully diluted
basis, and (B) shall continue to have the power to elect a majority of the
Board of Directors of the Borrower, and (ii) the Investor Group and their
Affiliates continue to have record and beneficial ownership of more than 45%
of the voting stock of the Borrower on a fully diluted basis."
Section 3. Waiver.
3.01 Consolidated EBITDA. (a) The undersigned hereby consent
to the Borrower excluding from its computation of Consolidated EBITDA one time
charges of $10.9 million for cash costs and expenses related to the Gross Up
(and accrued in accordance with generally accepted accounting principles) and
$12,577,030 million for non-cash costs and expenses related to the Non-Cash
Expense (and accrued in accordance with generally accepted accounting
principles), notwithstanding the definition of Consolidated EBITDA for all
purposes under the Credit Agreement. The foregoing consent shall not affect
any other merger or integration charges previously approved by the Required
Banks.
3.02 Series E Preferred Stock. The undersigned hereby
consent to the Borrower issuing 2,072,745 shares (plus any additional shares
issued or issuable in respect of any applicable preemptive rights) of Series E
Preferred Stock and utilizing the proceeds thereof in connection with the
Gross-Up, notwithstanding the following sections of the Credit Agreement which
are hereby waived with respect to the issuance of such shares of Series E
Preferred Stock:
(a) Section 3.02(A)(e)(i) (Mandatory Repayments);
(b) Section 8.07 (Transactions with Affiliates); and
(c) Section 8.15(b) (Limitation on Issuance of Capital Stock);
provided, that the issuance of such shares of Series E Preferred Stock is on
the same terms and conditions as the issuance of shares of Series E Preferred
Stock in the third quarter of 1999.
3.03 Long-Term Incentive Program. The undersigned hereby
consent to the Borrower (a) spending up to $2 million per quarter and $8
million total under the Long-Term Incentive Program (i) to make full recourse
(subject to certain exceptions) cash loans to the Borrower's employees and
(ii) to repurchase shares of the Borrower's capital stock from employees of
the Borrower and (b) making non-cash loans to its employees to buy shares of
the Borrower's capital stock, in each case, notwithstanding the following
sections of the Credit Agreement which are hereby waived with respect to the
Long-Term Incentive Program:
(a) Section 3.02(A)(e)(i) (Mandatory Repayments), to the
extent that such section would otherwise require the Borrower to use the
proceeds of equity issuances under the Long-Term Incentive Program to make
repayments under the Credit Agreement;
(b) Section 8.03 (Dividends), to the extent that the
repurchase of the Borrower's capital stock under the Long-Term Incentive
Program is a dividend;
(c) Section 8.06 (Advances, Investments and Loans);
(d) Section 8.07 (Transactions with Affiliates);
(e) Section 8.13(iv) (Limitation on Modification of Certain
Agreements), to the extent that the Long-Term Incentive Program is a new
agreement with respect to the Borrower's equity interests; and
(f) Section 8.13(vi) (Limitation on Modification of Certain
Agreements), to the extent that the Long-Term Incentive Program is a new
Employee Benefit Plan;
provided, that: (i) the Borrower shall pledge to the Agent all promissory
notes evidencing loans under the Long-Term Incentive Program, (ii) the
Borrower shall pledge or assign to the Agent all of its security interest in
collateral for such loans, (iii) the Borrower shall not issue any Borrower
Common Stock, make any loans to employees or repurchase any shares of its
capital stock if a Default or Event of Default occurs, (iv) cash loans and
repurchases shall be funded not more than 50% from Revolving Loans and not
less than 50% from issuances of Borrower Common Stock and (v) all actions of
the Borrower in connection with the Long-Term Incentive Plan shall be in
accordance with the terms of the Long-Term Incentive Program and the Employee
Loan Program thereunder attached hereto as Exhibit A.
Notwithstanding anything to the contrary contained herein or
in the Credit Agreement and without limiting the proviso set forth in the last
sentence of Section 3.02(A)(e), the undersigned hereby waive the provisions of
Section 3.02(A)(e)(i) with respect to the receipt by the Borrower of
$2,917,385 in respect of the exercise of options and warrants of the Company
and agree that such amounts, plus any additional amounts received by the
Borrower in respect of additional exercises of options and warrants by the
Company's officers, employees, directors and former officers, employees and
directors, may be applied by Borrower to satisfy its obligations hereunder to
fund the cash portion of the Employee Loan Plan and Long Term Incentive
Program through the issuance of additional equity.
3.04 Merger Agreement; Letter of Credit. (a) Notwithstanding
anything to the contrary contained in Section 8.02, the undersigned hereby
consent to the Borrower entering into the Merger Agreement (but do not consent
to the Merger); provided, that (i) the Merger Agreement shall explicitly
provide that (A) the Borrower has not obtained the requisite consents under
the Credit Agreement to the Merger and (B) in the event the Borrower does not
consummate the Merger because it is unable to obtain the requisite consents
under the Credit Agreement to effect the Merger and is unable to repay all
Obligations owing pursuant to the Credit Documents, the Borrower has the right
to terminate the Merger Agreement and all related documents and upon such
termination the aggregate liability of the Borrower and its Subsidiaries under
the Merger Agreement and all related documents shall be limited to no more
than $35 million; provided, that the only security or other credit support
provided by the Borrower or any of its Subsidiaries for such liability shall
be the Letter of Credit (as defined in Section 3.04(b) of this Amendment) or
the Initial Cash Deposit (as defined in the Merger Agreement) of $35 million
made by Frontline pursuant to the Merger Agreement; and (ii) the Merger is
consummated on or before July 31, 2000.
(b) Notwithstanding anything to the contrary contained in
Section 8.05, the undersigned hereby consent to the Borrower incurring a
reimbursement obligation with respect to the Initial Cash Deposit or a letter
of credit in the amount of not more than $35 million in support of the
Borrower's obligations under the Merger Agreement (the "Letter of Credit");
provided that (i) the reimbursement obligation of the Borrower with respect to
the Initial Cash Deposit shall be unsecured except that Frontline shall be
entitled to be secured solely by an equity purchase agreement, subscription
agreement or similar agreement from Frontline to the Borrower pursuant to
which Frontline agrees to purchase common stock or preferred stock of the
Borrower so long as any such common or preferred stock has the same terms and
conditions as any common or preferred stock outstanding on the date hereof and
so long as such capital stock has no mandatory cash pay provisions or
mandatory prepayment or redemption provisions of any type while any
Obligations under the Credit Agreement or any refinancings thereof remain
outstanding, (ii) the reimbursement obligation of the Borrower with respect to
the Letter of Credit shall be unsecured except that the issuer of the Letter
of Credit shall be entitled to be secured solely by a pledge of up to
15,840,469 shares of the Borrower owned by Frontline and (iii) the Letter of
Credit and any reimbursement agreement, equity purchase agreement,
subscription agreement, pledge agreement or similar agreement related to the
Letter of Credit or the Initial Cash Deposit shall be in form and substance
reasonably satisfactory to the Agent. Any proceeds received from the issuance
of such stock in accordance with this paragraph shall not be required to be
used to mandatorily repay Loans under Section 3.02(A)(e)(i) of the Credit
Agreement and the issuance of such stock shall not breach Section 8.07 or
8.15(b) of the Credit Agreement.
Section 4. General
4.01 Confirmation. In order to induce the Agent and the
Banks to enter into this Amendment, the Borrower hereby represents and
warrants that on the Amendment Effective Date, both before and after giving
effect to this Amendment and the transactions contemplated hereby, (i) no
Default or Event of Default shall exist, (ii) all of the representations and
warranties contained in the Credit Agreement shall be true and correct in all
material respects, with the same effect as though such representations and
warranties had been made on and as of the Amendment Effective Date and (iii)
the Merger Agreement and related documents conform to the requirements of
Section 3.04.
4.02 Amendment Effective Date. This Amendment shall become
effective on the date (the "Amendment Effective Date") when each of the
following conditions have been met:
(i) The Borrower and the Required Banks shall have executed
a copy hereof (whether the same or different copies) and shall have delivered
the same to the Agent and
(ii) The Borrower shall have paid to the Agent all cost and
expenses (including reasonable legal fees and expenses) then due and payable.
4.03 Conflicts. This Amendment is limited as specified and
shall not constitute a modification, acceptance or waiver of any other
provision of the Credit Agreement.
4.04 Counterpart. This Amendment may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts when executed and delivered shall be
an original, but all of which shall together constitute one and the same
instrument. A complete set of counterparts shall be lodged with the Borrower
and the Agent.
4.05 Governing Law. THIS CONSENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment as of the date first above
written.
VANTAS INCORPORATED
(formerly known as Alliance National
Incorporated)
By: /s/ David Rupert
----------------------------
Name: David Rupert
Title: EVP and COO
<PAGE>
PARIBAS, Individually and as Agent
By: /s/ Donald J. Ercole
-------------------------------
Name: Donald J. Ercole
Title: Managing Director
By: /s/ Darryl M. Monasebian
-------------------------------
Name: Darryl M. Monasebian
Title: Director/Merchant Banking
Group
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.,
its Agent/Manager
By: /s/ David C. Wagner
-------------------------------
Name: David C. Wagner
Title: Vice President
<PAGE>
IBJ WHITEHALL BANK & TRUST
COMPANY
(formerly, IBJ Schroder Bank & Trust
Company)
By:
---------------------------
Name:
Title:
<PAGE>
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc.,
as its investment manager
By: /s/ Jeffrey A. Bakalar
--------------------------
Name: Jeffrey A. Bakalar
Title: Senior Vice President
<PAGE>
PARIBAS CAPITAL FUNDING LLC
By:_________________________
Name:
Title:
<PAGE>
EUROPEAN AMERICAN BANK
By:
---------------------
Name:
Title:
<PAGE>
BHF (USA) CAPITAL CORPORATION
By: /s/ Michael Pellerito
----------------------------
Name: Michael Pellerito
Title: Assistant Vice President
By: /s/ Chris Yu
-----------------------------
Name: Chris Yu
Title: Associate
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE INC.
By:____________________
Name:
Title:
By:_____________________
Name:
Title:
<PAGE>
HELLER-FINANCIAL, INC.
By: /s/ Sheila C. Weimer
---------------------------
Name: Sheila C. Weimer
Title: Vice President
<PAGE>
BALANCED HIGH-YIELD FUND II
LIMITED
By: BHF (USA) Capital Corporation,
as attorney-in-fact
By: /s/ Michael Pellerito
-----------------------------
Name: Michael Pellerito
Title: Assistant Vice President
By: /s/ Chris Yu
-----------------------------
Name: Chris Yu
Title: Associate
<PAGE>
SRF TRADING, INC.
By: /s/ Kelly C. Walker
----------------------------
Name: Kelly C. Walker
Title: Vice President
<PAGE>
KZH ING-2 LLC
By: /s/ Peter Chin
----------------------
Name: Peter Chin
Title: Authorized Agent
<PAGE>
THE ING CAPITAL SENIOR SECURED HIGH
INCOME FUND, L.P.
By: ING Capital Advisors LLC
as Investment Advisor
By: /s/ Michael D. Hatley
------------------------
Name: Michael D. Hatley
Title: Managing Director
<PAGE>
PACIFICA PARTNERS I, L.P.
By: Imperial Credit Management, Inc.
as Investment Manager
By: /s/ Sean R. Walker
----------------------------------
Name: Sean R. Walker
Title: Vice President
<PAGE>
STEIN ROE & FARNHAM CLO I, LTD.
By: Stein Roe & Farnham Incorporated
as Portfolio Manager
By: /s/ James R. Fellows
-------------------------
--------------------------
Name: James R. Fellows
Title: Vice President
Exhibit 10.3
AMENDMENT
AMENDMENT (this "Amendment"), dated as of February 22, 2000, among
VANTAS INCORPORATED, a corporation organized and existing under the laws of
the State of Nevada (the "Borrower"), the financial institutions party to the
Credit Agreement referred to below (the "Banks"), and PARIBAS, as agent (the
"Agent").
W I T N E S S E T H:
---------------------
WHEREAS, the Borrower, the Banks and the Agent are parties to an
Amended and Restated Credit Agreement, dated as of January 16, 1997, amended
and restated as of November 6, 1998, further amended and restated as of August
3, 1999, and amended as of January 19, 2000 (as amended, modified and
supplemented to the date hereof, the "Credit Agreement");
WHEREAS, the Banks and the Agent wish to amend certain financial
covenants in the Credit Agreement;
NOW, THEREFORE, IT IS AGREED:
Section 1. Defined Terms. In this Amendment, unless
something in the subject matter or context is inconsistent:
(i) terms defined in the description of the parties or in
the recitals have the meanings given to them in the description or recitals,
as applicable; and
(ii) all other capitalized terms have the respective
meanings given to them in the Credit Agreement.
Section 2. Amendment.
2.01 Fixed Charge Coverage Ratio. Section 8.09 of the Credit
Agreement shall be amended by deleting such section in its entirety and
replacing it with the following:
"The Borrower will not permit the Fixed Charge Coverage
Ratio for any fiscal quarter (other than the fiscal quarter ended December 31,
1999) to be less than 1.00 to 1.00, and shall not permit the Fixed Charge
Coverage Ratio for the fiscal quarter ended December 31, 1999 to be less than
0.30 to 1.00."
2.02 Interest Coverage Ratio. Section 8.10 of the Credit
Agreement shall be amended by deleting the ratio 3.15:1.00 for the fiscal
quarter ended December 31, 1999 and replacing it with the ratio 2.35:1.00.
2.03 Consolidated Indebtedness to Consolidated EBITDA.
Section 8.11 of the Credit Agreement shall be amended by deleting the ratio
2.95:1.00 for the fiscal quarter ended December 31, 1999 and replacing it with
the ratio 3.80:1.00.
Section 3. General
3.01 Confirmation. In order to induce the Agent and the
Banks to enter into this Amendment, the Borrower hereby represents and
warrants that on the Amendment Effective Date, after giving effect to this
Amendment and the transactions contemplated hereby, (i) no Default or Event of
Default shall exist and (ii) all of the representations and warranties
contained in the Credit Agreement shall be true and correct in all material
respects, with the same effect as though such representations and warranties
had been made on and as of the Amendment Effective Date.
3.02 Fee. In order to induce the Banks to enter into this
Amendment, the Borrower hereby agrees to pay to each Bank which executes and
delivers a counterpart of this Amendment to the Agent on or before 5:00pm (New
York time) on February 22, 2000, a fee equal to .15 of 1% of the sum of (i)
such Bank's Revolving Loan Commitment on the Amendment Effective Date and (ii)
the aggregate outstanding principal amount of such Bank's Term Loans and
Acquisition Loans on the Amendment Effective Date, with such fee to be earned
on the Amendment Effective Date and payable on the Business Day immediately
thereafter.
3.03 Amendment Effective Date. This Amendment shall
become effective on the date (the "Amendment Effective Date") when each of
the following conditions have been met:
(i) The Borrower and the Required Banks shall have executed
a copy hereof (whether the same or different copies) and shall have delivered
the same to the Agent and
(ii) The Borrower shall have paid to the Agent all cost and
expenses (including reasonable legal fees and expenses) then due and payable.
3.04 Conflicts. This Amendment is limited as specified and
shall not constitute a modification, acceptance or waiver of any other
provision of the Credit Agreement.
3.05 Counterpart. This Amendment may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts when executed and delivered shall be
an original, but all of which shall together constitute one and the same
instrument. A complete set of counterparts shall be lodged with the Borrower
and the Agent.
3.06 Governing Law. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment as of the date first above
written.
VANTAS INCORPORATED
(formerly known as Alliance National
Incorporated)
By: /s/ David Rupert
-------------------------
Name: David Rupert
Title: President and Chief Operating
Officer
<PAGE>
PARIBAS, Individually and as Agent
By: Donald J. Ercole
-------------------------------
Name: Donald J. Ercole
Title: Managing Director
By: /s/ Darryl M. Monasebian
--------------------------------
Name: Darryl M. Monasebian
Title: Director/Merchant Banking
Group
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.,
its Agent/Manager
By: /s/ David C. Wagner
---------------------------
Name: David C. Wagner
Title: Vice President
<PAGE>
IBJ WHITEHALL BANK & TRUST
COMPANY
(formerly, IBJ Schroder Bank
& Trust Company)
By: /s/ David Krivine
--------------------
Name: David Krivine
Title: Associate
<PAGE>
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc.,
as its investment manager
By: /s/ Robert L. Wilson
------------------------
Name: Robert L. Wilson
Title: Vice President
<PAGE>
PARIBAS CAPITAL FUNDING LLC
By: /s/ M. Steven Alexander
-----------------------
Name: M. Steven Alexander
Title: Director
<PAGE>
EUROPEAN AMERICAN BANK
By: /s/ Tony Tomich
---------------------
Name: Tony Tomich
Title: Assistant Vice President
<PAGE>
BHF (USA) CAPITAL CORPORATION
By: /s/ Perry Forman
----------------------------
Name: Perry Forman
Title: Vice President
By: /s/ Chris Yu
----------------------------
Name: Chris Yu
Title: Associate
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE INC.
By: /s/ Christina T. Schoen
--------------------------
Name: Christina T. Schoen
Title: Executive Vice President
By: /s/ Christopher J. Ruzzi
---------------------------
Name: Christopher J. Ruzzi
Title: Senior Associate
<PAGE>
HELLER-FINANCIAL, INC.
By: /s/ David R. Campbell
------------------------
Name: David R. Campbell
Title: Vice President
<PAGE>
BALANCED HIGH-YIELD FUND II
LIMITED
By: BHF (USA) Capital Corporation,
as attorney-in-fact
By: /s/ Perry Forman
------------------------------
Name: Perry Forman
Title: Vice President
By: /s/ Chris Yu
------------------------------
Name: Chris Yu
Title: Associate
<PAGE>
SRF TRADING, INC.
By: /s/ Allen D. Shifflet
-------------------------
Name: Allen D. Shifflet
Title: President
<PAGE>
KZH ING-2 LLC
By:___________________
Name:
Title:
<PAGE>
THE ING CAPITAL SENIOR SECURED HIGH
INCOME FUND, L.P.
By: ING Capital Advisors LLC
as Investment Advisor
By: /s/ Michael J. Campbell
-------------------------
Name: Michael J. Campbell
Title: Senior Vice President &
Portfolio Manager
<PAGE>
PACIFICA PARTNERS I, L.P.
By: Imperial Credit Management, Inc.
as Investment Manager
By: /s/ Sean R. Walker
--------------------
Name: Sean R. Walker
Title: Vice President
<PAGE>
STEIN ROE & FARNHAM CLO I, LTD.
By: Stein Roe & Farnham Incorporated
as Portfolio Manager
By: /s/ James R. Fellows
-------------------------
Name: James R. Fellows
Title: Vice President
<PAGE>
PROVIDENT BANK
By:___________________
Name:
Title:
Exhibit 10.4
CONSENT AND WAIVER
CONSENT AND WAIVER (this "Consent"), dated as of March 22, 2000,
among VANTAS INCORPORATED, a corporation organized and existing under the laws
of the State of Nevada (the "Borrower"), the financial institutions party to
the Credit Agreement referred to below (the "Banks"), and PARIBAS, as agent
(the "Agent").
W I T N E S S E T H:
---------------------
WHEREAS, the Borrower, the Banks and the Agent are parties to an
Amended and Restated Credit Agreement, dated as of January 16, 1997, amended
and restated as of November 6, 1998, further amended and restated as of August
3, 1999, and amended as of January 19, 2000 and further amended as of February
22, 2000 (as amended, modified and supplemented to the date hereof, the
"Credit Agreement");
WHEREAS, the Borrower wishes to withdraw cash from the Cash
Collateral Account in order to pay the Scheduled Repayments due on March 31,
2000 and June 30, 2000 and the interest payments due under the Credit
Agreement on March 31, 2000 and April 10, 2000;
WHEREAS, the Borrower wishes to make both such Scheduled Repayments
and both such interest payments on March 31, 2000; and
WHEREAS, the Banks and the Agent wish to waive certain provisions of
the Credit Agreement and the Cash Collateral Agreement to permit the
foregoing;
NOW, THEREFORE, IT IS AGREED:
Section 1. Defined Terms. Capitalized terms used herein and
not otherwise defined herein shall have the respective meanings given to them
in the Credit Agreement.
Section 2. Consent.
2.01 Withdrawal. The undersigned hereby consent to the
Borrower withdrawing cash from the Cash Collateral Account in an amount not
greater than the aggregate amount of the Scheduled Repayments due on March 31,
2000 and June 30, 2000 and the interest payments due under the Credit
Agreement on March 31, 2000 and April 10, 2000, notwithstanding Section
6.08(a) of the Credit Agreement (Use of Proceeds) and Section 3.01 of the Cash
Collateral Agreement (Withdrawals by Assignor), which are hereby waived with
respect to such withdrawal; provided, that the cash withdrawn is used solely
to pay the Scheduled Repayments due on March 31, 2000 and June 30, 2000 and
the interest payments due under the Credit Agreement on March 31, 2000 and
April 10, 2000 and that both such Scheduled Repayments and both such interest
payments are paid on March 31, 2000.
2.02 Prepayment. The undersigned hereby consent to the
Borrower prepaying on March 31, 2000 (a) the Scheduled Repayment otherwise due
on June 30, 2000 and (b) the interest payment under the Credit Agreement
otherwise due on April 10, 2000, notwithstanding Section 1.08(d) of the Credit
Agreement (Interest) and Section 3.01(a) of the Credit Agreement (Voluntary
Prepayments) which are hereby waived with respect to such prepayment.
Section 3. General
3.01 Confirmation. In order to induce the Agent and the
Banks to enter into this Consent, the Borrower hereby represents and warrants
that on the Consent Effective Date, both before and after giving effect to
this Consent and the transactions contemplated hereby, (i) no Default or Event
of Default shall exist and (ii) all of the representations and warranties
contained in the Credit Agreement shall be true and correct in all material
respects, with the same effect as though such representations and warranties
had been made on and as of the Consent Effective Date.
3.02 Consent Effective Date. This Consent shall become
effective on the date (the "Consent Effective Date") when each of the
following conditions have been met:
(i) The Borrower and the Required Banks shall have executed
a copy hereof (whether the same or different copies) and shall have delivered
the same to the Agent and
(ii) The Borrower shall have paid to the Agent all cost and
expenses (including reasonable legal fees and expenses) then due and payable.
3.03 Conflicts. This Consent is limited as specified and
shall not constitute a modification, acceptance or waiver of any other
provision of the Credit Agreement.
3.04 Counterpart. This Consent may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but
all of which shall together constitute one and the same instrument. A complete
set of counterparts shall be lodged with the Borrower and the Agent.
3.05 Governing Law. THIS CONSENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Consent as of the date first above
written.
VANTAS INCORPORATED
(formerly known as Alliance National
Incorporated)
By: /s/ David Rupert
-------------------------
Name: David Rupert
Title: President and
Chief Operating Officer
<PAGE>
PARIBAS, Individually and as Agent
By: /s/ Darryl M. Monasebian
------------------------------
Name: Darryl M. Monasebian
Title: Director
By: /s/ PJ de Filippis
-----------------------------
Name: PJ de Filippis
Title: Managing Director
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.,
its Agent/Manager
By: /s/ David C. Wagner
------------------------------
Name: David C. Wagner
Title: Vice President
<PAGE>
IBJ WHITEHALL BANK & TRUST
COMPANY
(formerly, IBJ Schroder Bank & Trust
Company)
By: /s/ David Andrew Krivine
-------------------------------
Name: David Andrew Krivine
Title: Associate
<PAGE>
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc.,
as its investment manager
By: /s/ Mark F. Haak
------------------------------
Name: Mark F. Haak
Title: Assistant Vice President
<PAGE>
PARIBAS CAPITAL FUNDING LLC
By: /s/
--------------------------
Name:
Title:
<PAGE>
EUROPEAN AMERICAN BANK
By: /s/
----------------------------
Name:
Title:
<PAGE>
BHF (USA) CAPITAL CORPORATION
By: /s/
----------------------------
Name:
Title:
By: /s/
----------------------------
Name:
Title:
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE INC.
By: /s/
----------------------------
Name:
Title:
By: /s/
----------------------------
Name:
Title:
<PAGE>
HELLER-FINANCIAL, INC.
By: /s/ David R. Campbell
---------------------------
Name: David R. Campbell
Title: Vice President
<PAGE>
BALANCED HIGH-YIELD FUND II
LIMITED
By: BHF (USA) Capital Corporation,
as attorney-in-fact
By: /s/
-------------------------------
Name:
Title:
By: /s/
-------------------------------
Name:
Title:
<PAGE>
SRF TRADING, INC.
By: /s/ Kelly C. Walker
-------------------------
Name: Kelly C. Walker
Title: Vice President
<PAGE>
KZH ING-2 LLC
By: /s/ Susan Len
-------------------------
Name: Susan Len
Title: Authorized Agent
<PAGE>
THE ING CAPITAL SENIOR SECURED HIGH
INCOME FUND, L.P.
By: ING Capital Advisors LLC
as Investment Advisor
By: /s/ Mitchel J. Campbell
------------------------
Name: Mitchel J. Campbell
Title: Managing Director
<PAGE>
PACIFICA PARTNERS I, L.P.
By: Imperial Credit Management, Inc.
as Investment Manager
By: /s/ Sean R. Walker
---------------------------
Name: Sean R. Walker
Title: Vice President
<PAGE>
STEIN ROE & FARNHAM CLO I, LTD.
By: Stein Roe & Farnham Incorporated
as Portfolio Manager
By: /s/ James R. Fellows
--------------------------------
--------------------------------
Name: James R. Fellows
Title: Vice President
<PAGE>
PROVIDENT BANK
By: /s/
---------------------
Name:
Title:
Exhibit 10.13
AGREEMENT
Agreement dated as of October 29, 1999 ("Agreement") among Laura
Kozelouzek, an individual residing at 50 West 72nd Street, Apartment 712, New
York, New York 10023 (the "Employee"), Reckson Service Industries, Inc., a
Delaware corporation ("RSI"), and VANTAS Incorporated, a Nevada corporation
("VANTAS"). Unless otherwise defined, capitalized terms used herein shall have
the meaning ascribed to such terms in the Stockholders' Agreement (as
hereinafter defined).
W I T N E S S E T H :
WHEREAS, the Employee is a stockholder of VANTAS and party to a
Fifth Amended and Restated Stockholders' Agreement dated as of July 29, 1999
(the "Stockholders' Agreement") by and among VANTAS and the other
Securityholders identified therein;
WHEREAS, the Employee is an "at will" employee of VANTAS;
WHEREAS, the Employee has requested that RSI and VANTAS enter into
this Agreement in order to encourage the Employee to maintain her equity
position in, and continue her employment with, VANTAS; and
WHEREAS, each of RSI and VANTAS is willing to enter into this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and undertakings contained
in this Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Ownership of VANTAS Equity Securities.
--------------------------------------
(1) Schedule A to this Agreement sets forth the number of (i)
shares of Common Stock and Preferred Stock (the "Outstanding Shares"), (ii)
shares of Common Stock issuable under Warrants (the "Warrant Shares") and
(iii) shares of Common Stock issuable under vested and unvested Options
granted under the VANTAS 1996 Stock Option Plan beneficially owned (as such
term is defined under Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended) by the Employee as of October 14, 1999 (collectively, the
"Employee Securities"). The Employee hereby represents to RSI that the
information set forth on Schedule A to this Agreement is true, correct and
complete. The Employee hereby further represents and warrants to RSI that she
has not made any Transfer of any of her Shares, Warrants or Options to a
Permitted Transferee or otherwise.
<PAGE>
(2) The Employee hereby acknowledges that in the event she
shall Transfer any of the Employee Securities to one or more Permitted
Transferees, the Employee Securities so Transferred shall continue to be
subject to the terms and conditions of this Agreement. The Employee hereby
covenants, for the benefit of RSI and VANTAS, that she shall cause each of her
Permitted Transferees to take all such action as shall be necessary in order
to enable the Employee to fully perform her obligations with respect to the
Employee Securities hereunder.
2. Exchange Transaction.
---------------------
(1) At the Exchange Closing (as hereinafter defined), RSI
shall issue the RSI Shares (as hereinafter defined) to the Employee in
exchange (the "Exchange Transaction") for the Exchange Securities (as
hereinafter defined). For purposes of this Agreement, the term "Exchange
Securities" means that number (which if not a whole number shall be rounded up
to the nearest whole number) of Option Shares (as hereinafter defined) equal
to the product obtained by multiplying (i) the number of shares of the
Employee Securities by (ii) thirty percent (30%); provided, however, that in
the event the number of Option Shares is insufficient to constitute all of the
Exchange Securities, the balance (but only the balance) of the Exchange
Securities shall be comprised of Outstanding Shares. For purposes of this
Agreement, the term "Option Shares" means shares of Common Stock issued as a
result of the exercise, at or prior to the effective time of the Exchange
Closing, of Options included within the Employee Securities. For purposes of
this Agreement, the term "RSI Shares" means that number (which if not a whole
number shall be rounded up to the nearest whole number) of shares of RSI's
common stock, $0.01 par value per share ("RSI Common Stock"), equal to the
quotient obtained by dividing (i) the Exchange Amount (as hereinafter defined)
by (ii) $19.00. For purposes of this Agreement, the term "Exchange Amount"
means thirty percent (30%) of the sum of the (i) product obtained by
multiplying (A) $8.00 by (B) the number of Outstanding Shares and Option
Shares and (ii) difference between the (A) product obtained by multiplying (1)
$8.00 by (2) the number of Warrant Shares and shares of Common Stock issuable
under Options included within the Employee Securities, if any, which have not
been exercised at or prior to the effective time of the Exchange Closing and
(B) aggregate exercise price of the Warrants included within the Employee
Securities and Options, if any, included within the Employee Securities which
have not been exercised at or prior to the effective time of the Exchange
Closing. The Employee hereby acknowledges that in order to receive the RSI
Shares at the Exchange Closing, she must first take all necessary action
(including, without limitation, delivery of the exercise price therefor and
all required exercise documentation to VANTAS) to exercise all or a portion of
her Options included within the Employee Securities at or prior to the
effective time of the Exchange Closing.
<PAGE>
(2) Subject to the closing of the purchase of the equity
securities of VANTAS covered by the Transfer Offer (as such term is defined in
the Stockholders' Agreement) made by Cahill, Warnock Strategic Partners Fund
L.P., Strategic Associates L.P. and David L. Warnock, the closing (the
"Exchange Closing") for the Exchange Transaction shall be held at the offices
of Herrick, Feinstein LLP, 2 Park Avenue, New York, New York 10016 at 11:00
a.m. (New York City time) on such date (which shall in no event be later than
December 31, 1999) as shall be designated in writing by RSI to the Employee.
At the Exchange Closing, RSI shall deliver to the Employee the stock
certificate evidencing the RSI Shares registered in the name of the Employee,
which shares shall have been duly authorized and validly issued, and shall be
fully paid and non-assessable and free of preemptive rights. At the Exchange
Closing, the Employee shall deliver to RSI the stock certificate(s) evidencing
the Exchange Securities, duly endorsed in blank or accompanied by stock powers
duly executed in blank in proper form for transfer and with all required stock
transfer stamps attached, free and clear of any title defect, objection,
security interest, pledge, encumbrance, mortgage, lien, charge, claim, option,
preferential arrangement or restriction of any kind, including, but not
limited to, any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership (collectively, "Liens"), other
than those Liens, if any, existing under the Stockholders' Agreement. At the
Exchange Closing, VANTAS, subject to (i) the proviso contained in Section 3(a)
hereof and (ii) Section 3(c) hereof, shall deliver to the Employee a check
payable to the order of the Employee in an amount equal to the Additional
Compensation (as hereinafter defined).
(3) In connection with each registration statement filed by
RSI under the Securities Act of 1933, as amended (the "Securities Act"), after
the date of the Exchange Closing registering a secondary offering ("Offering")
of equity securities of RSI, RSI shall use commercially reasonable efforts to
afford the Employee "piggy back" registration rights with respect to the RSI
Shares issued to the Employee pursuant to this Agreement. Notwithstanding the
foregoing, in connection with each such Offering effected pursuant to the
terms of a registration rights or underwriting agreement ("Offering
Agreement"), RSI shall not be obligated to provide the aforesaid "piggy back"
registration rights unless the Employee shall have entered into a registration
rights or underwriting agreement with RSI containing terms and conditions
similar to those contained in the Offering Agreement.
3. Additional Compensation.
------------------------
(1) In connection with the Employee's receipt of the Exchange
Securities at the Exchange Closing, VANTAS shall make a cash payment (the
"Additional Compensation") to the Employee, in the manner provided for in
Section 2(b) hereof, in an amount that after reduction for federal, state and
local personal income taxes owed by the Employee with respect to the
Additional Compensation is sufficient to pay the federal, state and local
personal income taxes of the Employee arising from her (i) exercise of the
Options underlying the Option Shares and (ii) receipt of the Exchange
Securities; provided, however, that VANTAS' obligation to pay the Additional
Compensation is expressly conditioned upon the Employee having demonstrated to
VANTAS' reasonable satisfaction (prior to the date of the Exchange Closing)
the basis for the calculation of the Additional Compensation. In the event
that the Employee shall receive a refund ("Refund") from any federal, state or
local taxing authority on account of the taxes associated with the Additional
Compensation, the Employee shall promptly remit the full amount of such Refund
to VANTAS and, following VANTAS' receipt thereof, the amount of the Additional
Compensation for all purposes of this Agreement shall be reduced by the amount
of such Refund.
<PAGE>
(2) In the event that either the (i) employment of the
Employee is terminated for "cause" as such term is defined in the VANTAS 1999
Stock Option Plan or (ii) Employee voluntarily terminates her employment, in
either case, prior to the second anniversary of the date of the Exchange
Closing (each a "Repayment Event"), then the Employee shall be obligated to
repay the Additional Compensation to VANTAS within ninety (90) days after the
date of the Repayment Event. The Employee's obligation to repay the Additional
Compensation pursuant to this Section 3(b) shall be recourse only to the
VANTAS equity securities owned by the Employee and her Permitted Transferees
on the date of the occurrence of the Repayment Event and any proceeds realized
from the sale of any VANTAS equity securities pursuant to any long term
incentive program hereafter adopted by VANTAS, unless the Employee has
transferred such securities in violation of the Company's policy governing the
Employee's right to transfer such securities or in contravention of any
agreement between the Employee and the Company or RSI, in which event(s) the
Employee's obligation to repay the Additional Compensation shall be full
personal recourse against the Employee.
(3) To secure the prompt payment to VANTAS of the Additional
Compensation in the event that a Repayment Event shall occur, the Employee
shall, at the Exchange Closing, execute and deliver to VANTAS UCC-1 financing
statements and a pledge agreement, in each case in form and substance
satisfactory to VANTAS, pursuant to which the Employee shall pledge and
otherwise grant to VANTAS a security interest in all of her right, title and
interest in the Employee Securities (other than the Exchange Securities).
Concurrently with the Employee's execution and delivery of the aforesaid
pledge agreement, the Employee shall also deliver to VANTAS the certificates
and other instruments representing the Employee Securities (other than the
Exchange Securities) required to be pledged thereunder.
4. Accredited Investor. Each of the Employee and RSI
-------------------
represents and warrants to the other that she or it, as the case may be (i) is
an "accredited investor" (as that term is defined in Regulation D promulgated
under the Securities Act); (ii) has requested and received all information she
or it, as the case may be, considers necessary or appropriate for deciding
whether to engage in the Exchange Transaction; (iii) has such knowledge and
experience in financial or business matters that she or it, as the case may
be, is capable of evaluating the merits and risks of engaging in the Exchange
Transaction; (iv) has the ability to protect her or its, as the case may be,
own interests in the Exchange Transaction; and (v) is financially capable of
bearing the total loss of her or its, as the case may be, investment in any
securities acquired pursuant to the Exchange Transaction. Each of the Employee
and RSI shall not transfer or otherwise dispose of any of the securities
subject to the Exchange Transaction, except in accordance with applicable
federal and state securities laws or the rules and regulations promulgated
thereunder.
<PAGE>
5. Adjustments. In the event of any change in the number of
-----------
shares representing the shares of RSI Common Stock or any of the Employee
Securities by reason of any stock dividend, stock split, subdivision, merger,
recapitalization, consolidation, reorganization, combination, conversion or
exchange of shares, or any other change in the corporate or capital structure
of RSI or VANTAS (including, without limitation, the declaration or payment of
an extraordinary dividend of securities) which would have the effect of
increasing or decreasing the number of shares comprising the RSI Common Stock
or the Employee Securities, the number and kind of the shares subject to the
Exchange Transaction and the valuation and consideration payable in respect of
such shares shall be appropriately adjusted to restore to the parties hereto
their rights and privileges under this Agreement.
6. Specific Performance. The Employee recognizes and
--------------------
acknowledges that the market for the Shares of VANTAS is limited and that,
accordingly, in the event of a breach or default by the Employee of the terms
and conditions of this Agreement involving any of the Employee Securities, the
damages to RSI may be impossible to ascertain and RSI will not have an
adequate remedy at law. In the event of any such breach or default, RSI shall
be entitled to institute and prosecute proceedings in any court of competent
jurisdiction, either at law or in equity, to enforce the specific performance
of the terms and conditions of this Agreement, to enjoin further violations of
the provisions of this Agreement and/or to obtain damages. Such remedies shall
however be cumulative and not exclusive and shall be in addition to any other
remedies which RSI may have under this Agreement or at law.
7. Legend. Each certificate, instrument or agreement representing
------
Employee Securities shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS SET FORTH IN AN AGREEMENT DATED AS OF OCTOBER 29, 1999, A
COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER. NO TRANSFER OF SUCH
SECURITIES SHALL BE MADE ON THE BOOKS OF THE ISSUER UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH
AGREEMENT."
8. Covenants of VANTAS and RSI. VANTAS hereby covenants for
---------------------------
the benefit of the Employee that it shall take all such necessary action to
adopt the long term incentive program (the "Program") substantially in the
form described on Schedule B to this Agreement no later than February 28,
2000. RSI hereby covenants for the benefit of the Employee that it shall
recommend to the individuals nominated by RSI and who are serving on the
VANTAS board of directors that they vote in favor of the adoption of the
Program.
9. Miscellaneous.
-------------
(1) This Agreement contains, and is intended as, a complete
statement of all of the terms of the arrangements and understandings among the
parties with respect to the matters provided for herein, and supersedes any
previous agreements and understandings among the parties with respect to those
matters.
<PAGE>
(2) This Agreement shall be governed by, and construed and
enforced in accordance with the laws of the State of New York without regard
to its principles of conflicts of law. All actions and proceedings arising out
of, or relating to, this Agreement shall be heard and determined in any state
or federal court sitting in New York, New York. In the event of any dispute as
to the terms of this Agreement, the prevailing party in any litigation or
other proceeding shall be entitled to its reasonable attorneys' fees, costs
and expenses in connection therewith.
(3) All notices and other communications under this Agreement
shall be in writing and shall be hand delivered, mailed by registered or
certified mail, return receipt requested (with a copy simultaneously by
ordinary mail), or recognized overnight delivery service to the parties at the
following addresses (or to such other address as a party may have specified by
notice given to the other parties pursuant to this provision):
If to RSI, to:
Reckson Service Industries, Inc.
10 East 50th Street
New York, New York 10022
Attention: Jason M. Barnett, Esq.
Stephen M. Rathkopf, Esq.
with a copy to:
Herrick, Feinstein LLP
Two Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
If to VANTAS, to:
VANTAS Incorporated
90 Park Avenue
New York, New York 10016
Attention: Steven M. Cooperman, Esq.
If to the Employee, to the Employee's address
contained in the preamble of this Agreement.
Each such notice shall be deemed given at the time delivered by
hand, if personally delivered; five (5) business days after being deposited in
the mail, postage prepaid, if mailed; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next
business day delivery.
<PAGE>
(4) No provision of this Agreement may be amended or modified
except by an instrument or instruments in writing signed by the parties
hereto. The failure of a party at any time or times to require performance of
any provision hereof shall in no manner be deemed to affect the party's right
at a later time to enforce the same. No waiver by any party of the breach of
any term contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such breach or of the breach of any other term or
provision of this Agreement.
(5) This Agreement shall be binding on, and shall inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns. The rights and obligations of any party hereto may not be assigned or
transferred without the prior written consent of the other parties hereto.
(6) From and after the date hereof, each of the parties hereto
agrees to execute and deliver such further documents and instruments and to do
such other acts and things any of them, as the case may be, may reasonably
request in order to effectuate the transactions contemplated by this
Agreement.
(7) Any word or term used in this Agreement in any form shall
be masculine, feminine, neuter, singular or plural, as proper reading
requires.
(8) Nothing contained in this Agreement shall confer upon the
Employee any right to continue to render services to VANTAS or affect the
right of VANTAS to terminate the employment of the Employee at any time with
or without cause, reason or justification. The Employee hereby acknowledges
for the benefit of VANTAS the "at will" nature of its employment with VANTAS.
(9) Time shall be of the essence with respect to all notices
required to be given, all payments and other deliveries required to be made
and all conditions required to be satisfied under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY OMITTED; SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first written above.
VANTAS INCORPORATED
By: /s/ David W. Beale
----------------------------
Name: David W. Beale
Title: President,
Chief Executive Officer
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Jason Barnett
----------------------------
Name: Jason Barnett
Title: Executive Vice President
By: /s/ Laura Kozelouzek
----------------------------
Name: Laura Kozelouzek
<PAGE>
SCHEDULE A
Number of Shares of Common
Number of Shares of Number of Shares of Stock Issuable Under
Common Stock and Common Stock Issuable Options Granted Under the
Preferred Stock Under Warrants 1996 Stock Option Plan
- ------------------- --------------------- --------------------------
60,526 5,000 160,000
<PAGE>
SCHEDULE B
LONG TERM INCENTIVE PROGRAM
FOR VANTAS EMPLOYEES
10. Loan Facility. The intent of this facility is to provide liquidity
for employees' needs while allowing them to maintain ownership of
VANTAS equity. The loans will be available for any purpose to all
employees. The loans will be administered by the compensation
committee or any subcommittee designated by the compensation
committee. The minimum loan will be $15,000. A maximum aggregate
loan amount shall be set each year by the compensation committee.
The loans will be full recourse (except for the employee's residence
and any assets in a living trust) and be secured by the employee's
equity (including vested options) in VANTAS and other securities
owned by the employee. The loans will not exceed 50% loan to value
at the time made and will be for a term of 3 years but payable in
full, in any event, 60 days after termination of employment for any
reason. If the value of the collateral falls such that the
collateral value is less than 120% of the dollar amount of the loan,
then the loan shall become immediately due and payable unless
additional securities are posted as collateral. Interest will accrue
at the applicable minimum federal rate and be paid with principal in
a balloon payment upon maturity. There will be no prepayment
penalty.
<PAGE>
11. Phased Buyout. After an employee has been employed by the Company
for 12 consecutive months, commencing December 2000, the employee
can liquidate 25% of his vested equity holdings (the "Buyout
Amount") at the end of each calendar year (subject to repayment of
any outstanding loans for which this equity is collateral);
provided, however, an employee may not include within the Buyout
Amount any shares of VANTAS common stock acquired as a result of the
exercise of any option effected within the six-month period
immediately preceding the date on which the employee elects to
engage in a Buyout Amount liquidation. The employee must elect in
December, but can arrange to have this liquidation effectuated in
January. VANTAS will pay the fair market value for such shares as
determined by the last valuation made by the valuation committee.
Except as set forth below, upon termination of employment, VANTAS
will have no obligation to purchase the remaining vested equity in
the Company owned by the employee unless the employment was
terminated by the Company without cause (as defined under common law
or, in the case of an employee with an employment agreement, under
the terms of such employment agreement), in which case the employee
will be entitled, for 60 days thereafter, to sell all his vested
equity to the Company at fair market value as aforesaid.
Additionally, unless an employee's employment was terminated for
cause (as defined under common law or, in the case of an employee
with an employment agreement, under the terms of such employment
agreement), if the employee was employed by the Company for at least
36 consecutive months prior to termination of employment, then the
employee also will be entitled to sell all his vested equity to the
Company as aforesaid. Nothing contained herein shall limit the
rights of VANTAS to repurchase shares acquirable pursuant to the
exercise of options granted under the VANTAS 1999 Option Plan in
accordance with the terms of such plan. Subject to the employee's
right to sell VANTAS equity securities as provided above in this
Section 2, the Company will have the right, for a 6-month period
following the expiration of any period associated with the aforesaid
sale right of the employee, to purchase all of the employee's vested
equity securities at the fair market value as of the effective date
of termination of employment.
12. The Valuation Committee. The Compensation Committee will form a
valuation subcommittee, whose members initially will be: an
investment banker, an accountant, David Beale (who will remain a
member so long as he is a Director and the CEO of the Company),
Scott Rechler and Steve Rathkopf. Every 6 months, the valuation
committee will meet and establish the fair market value of the
Company. The committee will establish fair market value by applying
a multiple to current EBITDA, which multiple will be based on
internal and external conditions at the time the committee meets. If
there is an equity sale to an arms length, bona fide third party,
the price paid would establish then current fair market value.
13. Section 5.4(e) Options and 5.4(e) Shares. Notwithstanding anything
to the contrary set forth in paragraphs 1 and 2 above, in the case
of the 793,075 options ("5.4(e) Options") that became vested in
accordance with Section 5.4(e) of the VANTAS 1996 Option Plan,
neither the net vested equity in the 5.4(e) Options nor the shares
("5.4(e) Shares") acquired by exercise of such options may be (a)
borrowed against under the loan facility, (b) included in the vested
equity holdings for calculation of the Buyout Amount, or (c) sold to
the Company upon termination of employment, except as follows: (i)
in December 2001, 50% of the 5.4(e) Shares will be subject to the
provisions of paragraphs 1 and 2 above; and (ii) in December 2002,
the remaining 50% of the 5.4(e) Shares will be subject to the
provisions of paragraphs 1 and 2 above.
14. Termination of Long Term Incentive Program. Upon a public offering
of VANTAS shares, the foregoing provisions shall all expire except
as to any loans outstanding at the time of such public offering and
the repayment of and security therefor.
Exhibit 10.14
AMENDED AND RESTATED
PROMISSORY NOTE
AND PLEDGE AGREEMENT
$950,000.00 Dated as of
August 4, 1998
New York, New York
David W. Beale ("Maker") promises to pay on August 4, 2001 (the
"Maturity Date"), to the order of ALLIANCE National Incorporated at 90 Park
Avenue, Suite 3100, New York, New York 10016 ("Payee"), the principal amount
of NINE HUNDRED FIFTY THOUSAND DOLLARS ($950,000.00).
This Note shall accrue interest on the principal amount hereof
at a rate of 5.48% per annum, calculated on the basis of a 365 day year. Maker
shall pay accrued interest annually on August 4 of each year and on the
Maturity Date.
This Note may be prepaid in whole or in part without premium or
penalty at any time and from time to time at the option of the Maker. Any
prepayments shall be applied first to accrued and unpaid interest, and then to
outstanding principal.
The rights, duties and obligations of (a) Maker under this Note
may not be assigned without the prior consent of Payee and (b) Payee under
this Note may be assigned without the prior consent of Maker.
In order to secure (i) the due and punctual payment of all
monetary obligations hereunder of Maker to Payee and any reasonable costs and
expenses (including, but not limited to, all legal fees and expenses) of
collection or enforcement of any such obligations and (ii) the due and
punctual payment of any costs and expenses incurred in connection with the
realization of the security for which this Note provides and any reasonable
costs and expenses (including, but not limited to, all legal fees and
expenses) incurred in connection with any proceedings to which this Note may
give rise (collectively referred to herein as "Liabilities"), Maker hereby
transfers, assigns, grants, bestows, sells, conveys and pledges to Payee a
first security interest in the Collateral (as herein defined), which security
interest shall remain in full force and effect until all of the Liabilities
shall have been paid in full to Payee.
For purposes of this Note, "Collateral" shall mean all of
Maker's right, title and interest in and to 200,000 shares of Class A Common
Stock, par value $.01 per share, that Maker owns in Payee; and all proceeds
and products thereof (as the foregoing terms are defined in the Uniform
Commercial Code as in effect in the State of New York). Concurrently with the
Maker's execution and delivery of this Note, Maker has (a) duly executed in
blank a stock power required by the pledge of the Collateral hereunder; (b)
delivered the stock certificate representing the Collateral to Payee to be
held by Payee pending the payment in full of this Note; and (c) irrevocably
appointed Payee as Maker's attorney-in-fact to complete the stock power to
realize upon the Collateral upon nonpayment of principal or interest under
this Note, with such appointment being coupled with an interest.
Except as contemplated by this Note, Maker shall not encumber
or grant a security interest in any of the Collateral, without the prior
written consent of Payee, and Maker hereby represents that he has not done so
heretofore and, other than the grant of the security interest contemplated
hereby, the Collateral pledged by him hereunder is, and will be, owned by him
free and clear of all liens and encumbrances.
This Note shall be governed by, and construed in accordance
with the internal laws of the State of New York without giving effect to the
conflict of laws provisions thereof.
IN WITNESS WHEREOF, Maker has executed and delivered this Note
and Pledge Agreement as of the date first above written.
/s/ David W. Beale
------------------------------
David W. Beale
Exhibit 10.15
SECURED TERM PROMISSORY NOTE
$667,910.00 New York, New York
December 30, 1999
FOR VALUE RECEIVED, David W. Beale ("Maker"), an individual
currently residing at 3230 Hewlett Avenue, Merrick, New York 11566, hereby
promises to pay to VANTAS Incorporated, a Nevada corporation ("Payee"), at 90
Park Avenue, New York, New York or at such other place as may hereafter be
designated in writing by Payee, the principal amount of Six Hundred
Sixty-Seven Thousand Nine Hundred Ten Dollars ($667,910.00), together with
interest on the unpaid balance of such principal amount, as provided below.
This term promissory note (this "Note") is issued pursuant to the VANTAS
Incorporated Employee Loan Plan (the "Plan") and is subject to the terms and
conditions contained therein. Capitalized terms used herein and not defined
have the meaning ascribed to them in the Plan.
1. Payment of Principal. Unless prepaid in full on an earlier date
in accordance with Section 3 hereof, the entire principal balance outstanding
under this Note, together with all accrued and unpaid interest thereon, shall
be due and paid on the third anniversary date of this Note.
2. Payment of Interest. (a) Interest on the unpaid, non-overdue
principal amount hereof shall accrue from and including the date hereof, to
but excluding the date of payment, at the rate per annum equal to the
Applicable Federal Short-Term Rate in effect on the date hereof (i.e., 5.74%,
compounded annually) under Section 1274(d) of the Internal Revenue Code of
1986, as amended. Such interest shall be paid on the maturity date of this
Note (whether by acceleration or otherwise).
(1) Interest on (i) overdue principal hereunder, (ii) to the
extent permitted by applicable law, overdue interest and (iii) any other
amounts payable hereunder by Maker shall accrue from and including the date
such amounts become due, but excluding the date of payment, at the rate of
fourteen percent (14%) per annum; provided, however, in no event shall such
interest rate exceed the maximum rate permitted under applicable law.
(2) All calculations of interest under this Note shall be made
on the basis of the actual number of days elapsed in a 365-day year and
interest shall be compounded annually.
3. Prepayments. Maker may, at his option, at any time, prepay the
outstanding balance of this Note in whole or in part without penalty. All
prepayments of principal hereunder, whether voluntary or otherwise (including,
but not limited to, prepayment following acceleration of the indebtedness
evidenced by this Note upon the occurrence of an Event of Default), shall be
accompanied by accrued and unpaid interest to the date of prepayment on the
principal amount prepaid.
4. Security. The obligations of Maker under this Note are secured by and
Payee is entitled to the benefits of a pledge agreement dated
December 30, 1999 (the "Pledge Agreement") by and between Maker and
Payee. The terms and provisions of the Pledge Agreement are hereby
incorporated by reference.
<PAGE>
5. Event of Default. For purposes of this Note, any of the following
events is an "Event of Default":
(1) failure to make any payment hereunder when due;
(2) failure to pay all amounts due under this Note within
sixty (60) days following the date of Maker's death or the effective date of
the termination for any reason of Maker's employment with Payee;
(3) in the event that the Collateral Value of the Pledged
Property securing this Note is less than one hundred and twenty percent (120%)
of the outstanding principal amount hereunder, the failure of Maker to pledge
additional Collateral within five (5) days following request therefor by Payee
in accordance with the terms and conditions of the Plan and Pledge Agreement;
(4) Maker applies for or consents to the appointment of a
receiver, trustee, custodian or liquidator of any of his property, admits in
writing his inability to pay his debts as they mature, makes a general
assignment as a bankrupt or insolvent or is the subject of an order for relief
under the United States Bankruptcy Code or files a voluntary petition in
bankruptcy or a petition or answer seeking an arrangement with creditors to
take advantage of any bankruptcy, insolvency, readjustment or debt or
liquidation law or statute, or an answer admitting the material allegations of
a petition filed against him in any proceeding under any such law or statute;
(5) a court of competent jurisdiction enters an order,
judgment or decree, without the application, approval or consent of Maker,
approving a petition appointing a receiver, trustee, custodian or liquidator
of all or a substantial part of the assets of Maker, and such order, judgment
or decree continues unstayed and in effect for a period of thirty (30) days;
or
(6) Maker defaults under or breaches any covenant, agreement,
representation or warranty under this Note, the Plan or the Pledge Agreement.
6. Acceleration. Upon the occurrence of an Event of Default, without
further action by Payee, the unpaid principal amount of this Note, all accrued
and unpaid interest thereon and all other amounts owing by Maker to Payee
hereunder shall be immediately due and payable.
7. Recourse and Set-Off. The indebtedness represented by this Note
shall be with full recourse to Maker, except for Maker's primary residence and
any assets of Maker in an amount not exceeding twenty percent (20%) of the
principal amount of this Note deposited in a living trust. Maker hereby agrees
that Payee may, upon an Event of Default, set off any amounts owed by Payee to
Maker, for any reason whatsoever, up to the aggregate amount of unpaid
principal and accrued and unpaid interest hereunder, subject in each case to
applicable law.
8. Manner of Payment. All payments of amounts due hereunder shall be
made in lawful money of the United States of America in immediately available
funds. Whenever any payment hereunder shall be due on a day other than a
Business Day (as hereinafter defined), such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of interest on such amount. For purposes of this Note, the term
"Business Day" means any day of the year other than a Saturday, Sunday or a
holiday on which banks are required or authorized by law to close in New York.
<PAGE>
9. Determination of Amounts. The unpaid principal amount hereof, the
interest rate applicable to such principal amount and the unpaid amount of all
other obligations contained herein shall be ascertained from the records of
Payee, which records shall be conclusive absent manifest error.
10. Application of Payments. All payments hereunder shall be applied
first to costs and expenses of collection, if any, then to accrued and unpaid
interest and then to the principal balance hereof.
11. Waiver and Attorneys' Fees. Maker hereby waives diligence,
presentment, protest and demand, and notice of protest, demand, dishonor,
nonpayment and/or maturity, and all other demands or notices of any sort
whatsoever with respect hereto, and agrees to pay all costs of collection,
including reasonable attorneys fees, which may be incurred in the collection
of this Note or any portion thereof (including the exercise of rights with
respect to any of the Pledged Property).
12. Amendments. This Note may not be amended or modified except by
an instrument in writing signed by the party against whom enforcement of such
amendment or modification is sought.
13. Applicable Law, Venue, Jurisdiction and Service of Process. This
Note shall be governed by and construed in accordance with the laws of the
State of New York, without regard for its conflict of laws rules. Maker hereby
(i) irrevocably submits to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York and of any New York State
court located in the Borough of Manhattan, City of New York, New York for the
purposes of all legal proceedings arising out of or relating to this Note, the
Pledged Property, the Plan or the Pledge Agreement; (ii) irrevocably waives,
to the fullest extent permitted by law, any objection which he may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court
has been brought in an inconvenient forum; (iii) generally appoints, as
attorney-in-fact to receive service of process in all such proceedings, the
individual named in Section 4.2 of the Pledge Agreement to whom copies of
communications given to Maker are to be sent (whose address for purposes of
this Section 13 shall be such individual's address listed in Section 4.2 of
the Pledge Agreement) (the "Agent for Service of Process"); (iv) agrees that
(without prejudice to any other lawful method of service) service of process
upon the Agent for Service of Process shall constitute valid service upon
Maker and (v) agrees that Payee shall be given thirty (30) days' advance
written notice regarding any change related to the Agent for Service of
Process, and so long as any amount remains outstanding and unpaid hereunder to
maintain an agent in New York County for the receipt of process as aforesaid.
14. WAIVER OF JURY TRIAL. MAKER AND PAYEE HEREBY VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN
ANY COURT HAVING JURISDICTION OVER THE MATTER WITH RESPECT TO ANY ACTION,
COUNTERCLAIM OR DEFENSE ARISING OUT OF OR RELATING TO THIS NOTE, THE PLEDGED
PROPERTY, THE PLAN OR THE PLEDGE AGREEMENT.
<PAGE>
15. Assignment and Remedies. This Note shall be binding upon and
inure to the benefit of Maker and his assigns, and Payee and its successors
and assigns; provided, however, Maker shall not transfer any of his
obligations hereunder without the express prior written consent of Payee. The
rights and remedies of Payee hereunder are cumulative and not exclusive of any
other rights or remedies it may have hereunder, pursuant to other agreements
or at law or equity.
16. Gender. All words used herein in the masculine shall be
masculine or feminine as proper reading requires.
<PAGE>
IN WITNESS WHEREOF, Maker has duly executed and delivered this Note
on the date first above written.
By: /s/ David W. Beale
---------------------------
Exhibit 10.16
SECURED TERM PROMISSORY NOTE
$143,512.00 New York, New York
December 30, 1999
FOR VALUE RECEIVED, Alan M. Langer ("Maker"), an individual
currently residing at Strawberry Lane, Irvington, New York 10533, hereby
promises to pay to VANTAS Incorporated, a Nevada corporation ("Payee"), at 90
Park Avenue, New York, New York or at such other place as may hereafter be
designated in writing by Payee, the principal amount of One Hundred
Forty-Three Thousand Five Hundred Twelve Dollars ($143,512.00), together with
interest on the unpaid balance of such principal amount, as provided below.
This term promissory note (this "Note") is issued pursuant to the VANTAS
Incorporated Employee Loan Plan (the "Plan") and is subject to the terms and
conditions contained therein. Capitalized terms used herein and not defined
have the meaning ascribed to them in the Plan.
1. Payment of Principal. Unless prepaid in full on an earlier date
in accordance with Section 3 hereof, the entire principal balance outstanding
under this Note, together with all accrued and unpaid interest thereon, shall
be due and paid on the third anniversary date of this Note.
2. Payment of Interest. (a) Interest on the unpaid, non-overdue
principal amount hereof shall accrue from and including the date hereof, to
but excluding the date of payment, at the rate per annum equal to the
Applicable Federal Short-Term Rate in effect on the date hereof (i.e., 5.74%,
compounded annually) under Section 1274(d) of the Internal Revenue Code of
1986, as amended. Such interest shall be paid on the maturity date of this
Note (whether by acceleration or otherwise).
(1) Interest on (i) overdue principal hereunder, (ii) to the
extent permitted by applicable law, overdue interest and (iii) any other
amounts payable hereunder by Maker shall accrue from and including the date
such amounts become due, but excluding the date of payment, at the rate of
fourteen percent (14%) per annum; provided, however, in no event shall such
interest rate exceed the maximum rate permitted under applicable law.
(2) All calculations of interest under this Note shall be made
on the basis of the actual number of days elapsed in a 365-day year and
interest shall be compounded annually.
3. Prepayments. Maker may, at his option, at any time, prepay the
outstanding balance of this Note in whole or in part without penalty. All
prepayments of principal hereunder, whether voluntary or otherwise (including,
but not limited to, prepayment following acceleration of the indebtedness
evidenced by this Note upon the occurrence of an Event of Default), shall be
accompanied by accrued and unpaid interest to the date of prepayment on the
principal amount prepaid.
4. Security. The obligations of Maker under this Note are secured by and
Payee is entitled to the benefits of a pledge agreement dated December 30,
1999 (the "Pledge Agreement") by and between Maker and Payee. The terms and
provisions of the Pledge Agreement are hereby incorporated by reference.
<PAGE>
5. Event of Default. For purposes of this Note, any of the following
events is an "Event of Default":
<PAGE>
(1) failure to make any payment hereunder when due;
(2) failure to pay all amounts due under this Note within
sixty (60) days following the date of Maker's death or the effective date of
the termination for any reason of Maker's employment with Payee;
(3) in the event that the Collateral Value of the Pledged
Property securing this Note is less than one hundred and twenty percent (120%)
of the outstanding principal amount hereunder, the failure of Maker to pledge
additional Collateral within five (5) days following request therefor by Payee
in accordance with the terms and conditions of the Plan and Pledge Agreement;
(4) Maker applies for or consents to the appointment of a
receiver, trustee, custodian or liquidator of any of his property, admits in
writing his inability to pay his debts as they mature, makes a general
assignment as a bankrupt or insolvent or is the subject of an order for relief
under the United States Bankruptcy Code or files a voluntary petition in
bankruptcy or a petition or answer seeking an arrangement with creditors to
take advantage of any bankruptcy, insolvency, readjustment or debt or
liquidation law or statute, or an answer admitting the material allegations of
a petition filed against him in any proceeding under any such law or statute;
(5) a court of competent jurisdiction enters an order,
judgment or decree, without the application, approval or consent of Maker,
approving a petition appointing a receiver, trustee, custodian or liquidator
of all or a substantial part of the assets of Maker, and such order, judgment
or decree continues unstayed and in effect for a period of thirty (30) days;
or
(6) Maker defaults under or breaches any covenant, agreement,
representation or warranty under this Note, the Plan or the Pledge Agreement.
6. Acceleration. Upon the occurrence of an Event of Default, without
further action by Payee, the unpaid principal amount of this Note, all accrued
and unpaid interest thereon and all other amounts owing by Maker to Payee
hereunder shall be immediately due and payable.
7. Recourse and Set-Off. The indebtedness represented by this Note
shall be with full recourse to Maker, except for Maker's primary residence and
any assets of Maker in an amount not exceeding twenty percent (20%) of the
principal amount of this Note deposited in a living trust. Maker hereby agrees
that Payee may, upon an Event of Default, set off any amounts owed by Payee to
Maker, for any reason whatsoever, up to the aggregate amount of unpaid
principal and accrued and unpaid interest hereunder, subject in each case to
applicable law.
8. Manner of Payment. All payments of amounts due hereunder shall be made
in lawful money of the United States of America in immediately available
funds. Whenever any payment hereunder shall be due on a day other than a
Business Day (as hereinafter defined), such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of interest on such amount. For purposes of this Note, the term
"Business Day" means any day of the year other than a Saturday, Sunday or a
holiday on which banks are required or authorized by law to close in New York.
<PAGE>
9. Determination of Amounts. The unpaid principal amount hereof, the
interest rate applicable to such principal amount and the unpaid amount of all
other obligations contained herein shall be ascertained from the records of
Payee, which records shall be conclusive absent manifest error.
10. Application of Payments. All payments hereunder shall be applied
first to costs and expenses of collection, if any, then to accrued and unpaid
interest and then to the principal balance hereof.
11. Waiver and Attorneys' Fees. Maker hereby waives diligence,
presentment, protest and demand, and notice of protest, demand, dishonor,
nonpayment and/or maturity, and all other demands or notices of any sort
whatsoever with respect hereto, and agrees to pay all costs of collection,
including reasonable attorneys fees, which may be incurred in the collection
of this Note or any portion thereof (including the exercise of rights with
respect to any of the Pledged Property).
12. Amendments. This Note may not be amended or modified except by an
instrument in writing signed by the party against whom enforcement of such
amendment or modification is sought.
13. Applicable Law, Venue, Jurisdiction and Service of Process.
This Note shall be governed by and construed in accordance with the laws of
the State of New York, without regard for its conflict of laws rules. Maker
hereby (i) irrevocably submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New
York State court located in the Borough of Manhattan, City of New York, New
York for the purposes of all legal proceedings arising out of or relating to
this Note, the Pledged Property, the Plan or the Pledge Agreement; (ii)
irrevocably waives, to the fullest extent permitted by law, any objection
which he may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum; (iii)
generally appoints, as attorney-in-fact to receive service of process in all
such proceedings, the individual named in Section 4.2 of the Pledge Agreement
to whom copies of communications given to Maker are to be sent (whose address
for purposes of this Section 13 shall be such individual's address listed in
Section 4.2 of the Pledge Agreement) (the "Agent for Service of Process");
(iv) agrees that (without prejudice to any other lawful method of service)
service of process upon the Agent for Service of Process shall constitute
valid service upon Maker and (v) agrees that Payee shall be given thirty (30)
days' advance written notice regarding any change related to the Agent for
Service of Process, and so long as any amount remains outstanding and unpaid
hereunder to maintain an agent in New York County for the receipt of process
as aforesaid.
14. WAIVER OF JURY TRIAL. MAKER AND PAYEE HEREBY VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN
ANY COURT HAVING JURISDICTION OVER THE MATTER WITH RESPECT TO ANY ACTION,
COUNTERCLAIM OR DEFENSE ARISING OUT OF OR RELATING TO THIS NOTE, THE PLEDGED
PROPERTY, THE PLAN OR THE PLEDGE AGREEMENT.
<PAGE>
15. Assignment and Remedies. This Note shall be binding upon and
inure to the benefit of Maker and his assigns, and Payee and its successors
and assigns; provided, however, Maker shall not transfer any of his
obligations hereunder without the express prior written consent of Payee. The
rights and remedies of Payee hereunder are cumulative and not exclusive of any
other rights or remedies it may have hereunder, pursuant to other agreements
or at law or equity.
16. Gender. All words used herein in the masculine shall be masculine or
feminine as proper reading requires.
<PAGE>
IN WITNESS WHEREOF, Maker has duly executed and delivered this Note
on the date first above written.
By: /s/ Alan M. Langer
------------------------------
Exhibit 10.17
SECURED TERM PROMISSORY NOTE
$39,644.00 New York, New York
December 30, 1999
FOR VALUE RECEIVED, Laura Kozelouzek ("Maker"), an individual
currently residing at 50 West 72nd Street, Apartment 712, New York, New York
10023, hereby promises to pay to VANTAS Incorporated, a Nevada corporation
("Payee"), at 90 Park Avenue, New York, New York or at such other place as may
hereafter be designated in writing by Payee, the principal amount of
Thirty-Nine Thousand Six Hundred Forty-Four Dollars ($39,644.00), together
with interest on the unpaid balance of such principal amount, as provided
below. This term promissory note (this "Note") is issued pursuant to the
VANTAS Incorporated Employee Loan Plan (the "Plan") and is subject to the
terms and conditions contained therein. Capitalized terms used herein and not
defined have the meaning ascribed to them in the Plan.
1. Payment of Principal. Unless prepaid in full on an earlier date in
accordance with Section 3 hereof, the entire principal balance outstanding
under this Note, together with all accrued and unpaid interest thereon, shall
be due and paid on the third anniversary date of this Note.
2. Payment of Interest. (a) Interest on the unpaid, non-overdue principal
amount hereof shall accrue from and including the date hereof, to but
excluding the date of payment, at the rate per annum equal to the Applicable
Federal Short-Term Rate in effect on the date hereof (i.e., 5.74%, compounded
annually) under Section 1274(d) of the Internal Revenue Code of 1986, as
amended. Such interest shall be paid on the maturity date of this Note
(whether by acceleration or otherwise).
(1) Interest on (i) overdue principal hereunder, (ii) to the extent
permitted by applicable law, overdue interest and (iii) any other amounts
payable hereunder by Maker shall accrue from and including the date such
amounts become due, but excluding the date of payment, at the rate of fourteen
percent (14%) per annum; provided, however, in no event shall such interest
rate exceed the maximum rate permitted under applicable law.
(2) All calculations of interest under this Note shall be made on
the basis of the actual number of days elapsed in a 365-day year and interest
shall be compounded annually.
3. Prepayments. Maker may, at his option, at any time, prepay the
outstanding balance of this Note in whole or in part without penalty. All
prepayments of principal hereunder, whether voluntary or otherwise (including,
but not limited to, prepayment following acceleration of the indebtedness
evidenced by this Note upon the occurrence of an Event of Default), shall be
accompanied by accrued and unpaid interest to the date of prepayment on the
principal amount prepaid.
4. Security. The obligations of Maker under this Note are secured by and
Payee is entitled to the benefits of a pledge agreement dated December 30,
1999 (the "Pledge Agreement") by and between Maker and Payee. The terms and
provisions of the Pledge Agreement are hereby incorporated by reference.
<PAGE>
5. Event of Default. For purposes of this Note, any of the following
events is an "Event of Default":
(1) failure to make any payment hereunder when due;
(2) failure to pay all amounts due under this Note within sixty (60)
days following the date of Maker's death or the effective date of the
termination for any reason of Maker's employment with Payee;
(3) in the event that the Collateral Value of the Pledged Property
securing this Note is less than one hundred and twenty percent (120%) of the
outstanding principal amount hereunder, the failure of Maker to pledge
additional Collateral within five (5) days following request therefor by Payee
in accordance with the terms and conditions of the Plan and Pledge Agreement;
(4) Maker applies for or consents to the appointment of a receiver,
trustee, custodian or liquidator of any of his property, admits in writing his
inability to pay his debts as they mature, makes a general assignment as a
bankrupt or insolvent or is the subject of an order for relief under the
United States Bankruptcy Code or files a voluntary petition in bankruptcy or a
petition or answer seeking an arrangement with creditors to take advantage of
any bankruptcy, insolvency, readjustment or debt or liquidation law or
statute, or an answer admitting the material allegations of a petition filed
against him in any proceeding under any such law or statute;
(5) a court of competent jurisdiction enters an order, judgment or
decree, without the application, approval or consent of Maker, approving a
petition appointing a receiver, trustee, custodian or liquidator of all or a
substantial part of the assets of Maker, and such order, judgment or decree
continues unstayed and in effect for a period of thirty (30) days; or
(6) Maker defaults under or breaches any covenant, agreement,
representation or warranty under this Note, the Plan or the Pledge Agreement.
6. Acceleration. Upon the occurrence of an Event of Default, without
further action by Payee, the unpaid principal amount of this Note, all accrued
and unpaid interest thereon and all other amounts owing by Maker to Payee
hereunder shall be immediately due and payable.
7. Recourse and Set-Off. The indebtedness represented by this Note shall
be with full recourse to Maker, except for Maker's primary residence and any
assets of Maker in an amount not exceeding twenty percent (20%) of the
principal amount of this Note deposited in a living trust. Maker hereby agrees
that Payee may, upon an Event of Default, set off any amounts owed by Payee to
Maker, for any reason whatsoever, up to the aggregate amount of unpaid
principal and accrued and unpaid interest hereunder, subject in each case to
applicable law.
8. Manner of Payment. All payments of amounts due hereunder shall be made
in lawful money of the United States of America in immediately available
funds. Whenever any payment hereunder shall be due on a day other than a
Business Day (as hereinafter defined), such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of interest on such amount. For purposes of this Note, the term
"Business Day" means any day of the year other than a Saturday, Sunday or a
holiday on which banks are required or authorized by law to close in New York.
<PAGE>
9. Determination of Amounts. The unpaid principal amount hereof, the
interest rate applicable to such principal amount and the unpaid amount of all
other obligations contained herein shall be ascertained from the records of
Payee, which records shall be conclusive absent manifest error.
10. Application of Payments. All payments hereunder shall be applied
first to costs and expenses of collection, if any, then to accrued and unpaid
interest and then to the principal balance hereof.
11. Waiver and Attorneys' Fees. Maker hereby waives diligence,
presentment, protest and demand, and notice of protest, demand, dishonor,
nonpayment and/or maturity, and all other demands or notices of any sort
whatsoever with respect hereto, and agrees to pay all costs of collection,
including reasonable attorneys fees, which may be incurred in the collection
of this Note or any portion thereof (including the exercise of rights with
respect to any of the Pledged Property).
12. Amendments. This Note may not be amended or modified except by an
instrument in writing signed by the party against whom enforcement of such
amendment or modification is sought.
13. Applicable Law, Venue, Jurisdiction and Service of Process. This Note
shall be governed by and construed in accordance with the laws of the State of
New York, without regard for its conflict of laws rules. Maker hereby (i)
irrevocably submits to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York and of any New York State
court located in the Borough of Manhattan, City of New York, New York for the
purposes of all legal proceedings arising out of or relating to this Note, the
Pledged Property, the Plan or the Pledge Agreement; (ii) irrevocably waives,
to the fullest extent permitted by law, any objection which he may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court
has been brought in an inconvenient forum; (iii) generally appoints, as
attorney-in-fact to receive service of process in all such proceedings, the
individual named in Section 4.2 of the Pledge Agreement to whom copies of
communications given to Maker are to be sent (whose address for purposes of
this Section 13 shall be such individual's address listed in Section 4.2 of
the Pledge Agreement) (the "Agent for Service of Process"); (iv) agrees that
(without prejudice to any other lawful method of service) service of process
upon the Agent for Service of Process shall constitute valid service upon
Maker and (v) agrees that Payee shall be given thirty (30) days' advance
written notice regarding any change related to the Agent for Service of
Process, and so long as any amount remains outstanding and unpaid hereunder to
maintain an agent in New York County for the receipt of process as aforesaid.
14. WAIVER OF JURY TRIAL. MAKER AND PAYEE HEREBY VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN
ANY COURT HAVING JURISDICTION OVER THE MATTER WITH RESPECT TO ANY ACTION,
COUNTERCLAIM OR DEFENSE ARISING OUT OF OR RELATING TO THIS NOTE, THE PLEDGED
PROPERTY, THE PLAN OR THE PLEDGE AGREEMENT.
<PAGE>
15. Assignment and Remedies. This Note shall be binding upon and inure to
the benefit of Maker and his assigns, and Payee and its successors and
assigns; provided, however, Maker shall not transfer any of his obligations
hereunder without the express prior written consent of Payee. The rights and
remedies of Payee hereunder are cumulative and not exclusive of any other
rights or remedies it may have hereunder, pursuant to other agreements or at
law or equity.
16. Gender. All words used herein in the masculine shall be masculine or
feminine as proper reading requires.
<PAGE>
IN WITNESS WHEREOF, Maker has duly executed and delivered this Note
on the date first above written.
By: /s/ Laura Kozelouzek
---------------------------
Exhibit 10.24
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is entered into as of
February 7, 2000 by and between Reckson Service Industries, Inc., a Delaware
corporation ("RSI"), and VANTAS Incorporated, a Nevada corporation ("VANTAS").
WHEREAS, RSI and VANTAS have entered into that certain Agreement and Plan
of Merger, dated January 20, 2000, with HQ Global Workplaces, Inc., a Delaware
corporation ("HQ"), and CarrAmerica Realty Corporation, a Maryland
corporation, (the "Merger Agreement") pursuant to which VANTAS is to be merged
(the "Merger") with and into HQ, with HQ being the surviving corporation;
WHEREAS, in accordance with the terms of the Merger Agreement, VANTAS
obtained an irrevocable letter of credit from Bankers Trust Company ("Bankers
Trust") in favor of HQ and guaranteed by RSI in the amount of $35 million (the
"Letter of Credit");
WHEREAS, pursuant to the Equity Interest Pledge and Security Agreement,
dated February 7, 2000, by and between RSI and Bankers Trust (the "Security
Agreement"), RSI has pledged 11,299,072 shares of the capital stock in VANTAS,
as more fully set forth on Schedule A to this Agreement, as collateral (the
"Collateral") securing the Letter of Credit;
WHEREAS, if there is a foreclosure on the Collateral, VANTAS has agreed
to issue to RSI, at RSI's election, shares of the capital stock of VANTAS (the
"Securities") to reimburse RSI for the loss of the Collateral; and
WHEREAS, the parties hereto acknowledge that, notwithstanding anything
contained in this agreement, if there is a foreclosure on the Collateral, RSI
shall maintain its subrogation rights with respect to the Letter of Credit. To
the extent that RSI does not exercise its rights pursuant to this agreement,
RSI may pursue such subrogation rights.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Amount and Consideration. In consideration of RSI securing VANTAS'
obligations under the Letter of Credit, VANTAS agrees that, if, and only to
the extent, Bankers Trust forecloses on the Collateral (other than a
foreclosure resulting from RSI's gross negligence), it shall be obligated to
issue to RSI, at RSI's election, the Securities. Such Securities shall have
the same terms and conditions as the securities comprising the Collateral
which was foreclosed upon and not otherwise returned to RSI by Bankers Trust
pursuant to the terms of the Security Agreement with the value of such
Securities equal to the value ascribed to VANTAS common and preferred stock in
such foreclosure sale;
2. Restrictions on Transferability of Securities. RSI realizes that the
Securities are not, and will not be, registered under the Securities Act of
1933, as amended (the "Securities Act"), or the securities laws of any state.
RSI agrees that the Securities will not be sold, offered for sale,
transferred, pledged, hypothecated, or otherwise disposed of except in
compliance with the Securities Act and applicable state securities laws. RSI
understands that any sale, transfer, pledge, hypothecation, or other
disposition of the Securities may require in some states specific approval by
the appropriate governmental agency or commission in such states. RSI has been
advised that the Company has no obligation, and does not intend, to cause the
Securities to be registered under the Securities Act or to comply with the
requirements for any exemption under the Securities Act, including but not
limited to those provided by Rule 144 and Rule 144A promulgated under the
Securities Act, which would permit the Securities to be sold by RSI. RSI
understands that it is not anticipated that there will be any market for
resale of the Securities and that the transfer of the Securities is
specifically restricted under this Subscription Agreement and the Securities
Act, and may be restricted by applicable state securities laws. RSI
understands the legal consequences of the foregoing to mean that RSI must bear
the economic risk of its investment in VANTAS for an indefinite period of
time. RSI understands that instruments, if any, representing the Securities
may bear legends restricting the transfer thereof.
3. Acceptance of Subscription. VANTAS understands and agrees that RSI, in
its sole discretion, reserves the right to accept or reject this and any other
subscription for the Securities in whole or in part at any time prior to the
acceptance of such Securities, notwithstanding prior receipt by VANTAS of
notice of acceptance. In the event that this subscription is rejected in whole
or in part or, if the offering of the Securities to RSI is not consummated for
any reason, this subscription shall be deemed to be rejected and this
Subscription Agreement shall thereafter have no force or effect to that
extent.
4. Representations and Warranties of VANTAS. In connection with the
transactions contemplated herein, VANTAS warrants and represents to RSI that
(a) VANTAS is a duly organized corporation, validly existing and in good
standing under the laws of the State of Nevada, (b) the execution and delivery
of this Subscription Agreement and the performance of all acts contemplated
hereunder been duly authorized by all necessary actions and, to VANTAS'
knowledge, will not constitute a breach or violation of, or a default under,
any agreement by which VANTAS or any of its properties is bound, nor
constitute a violation of any law, administrative regulation or court decree
applicable VANTAS and (c) the Securities have been duly authorized and shall
be validly issued.
5. Notices. Any consent, request, waiver, notice or other communication
or document required or permitted to be given pursuant to any provision of
this Subscription Agreement ("Notice") shall be deemed duly given only when in
writing, signed by or on behalf of RSI giving such Notice, and (i) personally
delivered (with receipt acknowledged by the recipient or its agent), (ii)
deposited in a designated U.S. mail depositary, registered or certified mail,
return receipt requested, postage prepaid, or (iii) sent by overnight courier
(with receipt acknowledged by the recipient or its agent), addressed to VANTAS
to its principal office at 90 Park Avenue, New York, NY 10016. Any such Notice
shall be deemed received (x) upon personal delivery, (y) five (5) days after
mailing as provided above, or (z) one (1) day after sending by overnight
courier.
6. Counterparts. This Subscription Agreement may be executed through the
use of separate signature pages or in any number of counterparts, and each
such counterpart shall, for all purposes, constitute one agreement binding on
all parties, notwithstanding that all parties are not signatories to the same
counterpart.
7. Entire Agreement. This Subscription Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and there
are no representations, covenants or other agreements except as stated or
referred to herein.
8. Severability. Each provision of this Subscription Agreement is
intended to be severable from every other provision, and the invalidity or
illegality of any portion hereof shall not affect the validity or legality of
the remainder hereof.
9. Assignability. This Subscription Agreement is not transferable or
assignable by either party hereto.
10. Headings and Captions. The headings and captions for the various
sections of this Subscription Agreement are for convenience of reference only
and shall in no way modify or affect the meaning or construction of any of the
terms or provisions hereof.
11. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the conflicts of laws principles thereof.
12. Choice of Jurisdiction. The parties agree that any action or
proceeding arising, directly, indirectly or otherwise, in connection with, out
of or from this Subscription Agreement, any breach hereof or any transaction
covered hereby shall be resolved within the State of New York. Accordingly,
the parties consent and submit to the jurisdiction of the United States
federal and state courts located within the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
VANTAS INCORPORATED
By: /s/ Stephen Rathkopf
--------------------------------------
Name: Stephen Rathkopf
Title: Secretary
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Jason Barnett
--------------------------------------
Name: Jason Barnett
Title: Executive Vice President
Exhibit 21
Subsidiaries of the Registrant
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Vantas Marketing, Inc. NY
Vantas New York, Inc. NY
Vantas Downtown NY, Inc. NY
Vantas Lexington, Inc. NY
Vantas 42nd Street, Inc. NY
Vantas Third Avenue, Inc. NY
Vantas Rye, Inc. NY
Vantas White Plains, Inc. NY
Vantas DC, Inc. DC
Vantas 2000 L St., Inc. DC
Vantas 17th Street, Inc. DC
Vantas Greensboro, Inc. VA
Vantas Reston, Inc. VA
Vantas Virginia, Inc. VA
Vantas Walnut, Inc. MA
Vantas Costa Mesa, Inc. CA
Vantas Costa Mesa Executive Offices, Inc. CA
Vantas Bethesda, Inc. MD
Vantas 7799 Leesburg, Inc. VA
Vantas 8150 Leesburg, Inc. VA
Vantas 2300 M, Inc. DC
Vantas 1655 North Fort Meyer, Inc. VA
Vantas 211 North Union, Inc. VA
Vantas 2 Wisconsin, Inc. MD
Vantas Midwest, Inc. MO
Vantas Atlanta, Inc. DE
Vantas Realty Brokerage, Inc. DE
Vantas Michigan, Inc. DE
Vantas Phoenix, Inc. DE
Vantas Massachusetts, Inc. DE
Vantas Colorado, Inc. DE
Vantas Georgia, Inc. DE
Vantas Illinois, Inc. DE
Vantas 4643 South Ulster Street, Inc. DE
Vantas San Francisco, Inc. DE
Vantas Chicago, Inc. DE
Vantas Cincinnati, Inc. DE
Vantas Cleveland, Inc. DE
Vantas Pittsburgh, Inc. DE
Vantas Northeast Ohio, Inc. OH
Vantas Ohio, Inc. DE
Vantas Dallas, Inc. DE
Vantas New Jersey, Inc. DE
Vantas South Central, Inc. TX
Vantas Los Angeles, Inc. DE
Vantas Avenue of the Stars, Inc. (indirect wholly-owned subsidiary CA
of VANTAS; direct wholly-owned subsidiary of Vantas Los Angeles,
Inc.)
Vantas Carlsbad, Inc. DE
Vantas Portland, Inc. DE
Vantas Alabama, Inc. DE
Vantas Las Colinas, Inc. DE
Vantas Texas, Inc. DE
Vantas Conway Park, Inc. DE
Vantas Williams Square, Inc. (indirect wholly-owned subsidiary of TX
VANTAS; direct wholly-owned subsidiary of Vantas Las Colinas, Inc.)
Vantas Management Texas, Inc. (indirect wholly-owned subsidiary of TX
VANTAS; direct wholly-owned subsidiary of Vantas Texas, Inc.)
Vantas Services Plus, Inc. (indirect wholly-owned subsidiary of TX
VANTAS and Vantas Texas, Inc.; direct wholly-owned subsidiary of
Vantas Management Texas, Inc.)
Vantas 222, Inc. (indirect wholly-owned subsidiary of VANTAS and TX
Vantas Texas, Inc.; direct wholly-owned subsidiary of Vantas
Management Texas, Inc.)
Vantas Boca Raton, Inc. DE
Vantas Holdings Two, Inc. DE
Vantas Holdings One, Inc. DE
Vantas Irvine, Inc. DE
Vantas Cuyahoga, Inc. DE
Vantas Pleasanton, Inc. DE
Vantas Austin, Inc. DE
Vantas Long Beach, Inc. DE
Vantas Durham, Inc. DE
Vantas Tampa Bay, Inc. DE
Vantas Southern California, Inc. (indirect wholly-owned subsidiary CA
of VANTAS; direct wholly-owned subsidiary of Vantas Long Beach,
Inc.)
Vantas California, Inc. DE
Vantas Charlotte Tryon, Inc. DE
Vantas Corporate Centers, Inc. (indirect wholly-owned subsidiary TX
of VANTAS; direct wholly-owned subsidiary of Vantas Austin, Inc.)
Vantas West End, Inc. (indirect wholly-owned subsidiary of VANTAS; TN
direct wholly-owned subsidiary of Vantas Austin, Inc.)
Vantas Perimeter, Inc. (indirect wholly-owned subsidiary of TX
VANTAS; direct wholly-owned subsidiary of Vantas Austin, Inc.)
Vantas Pacific, Inc. (indirect wholly-owned subsidiary of VANTAS; CA
direct wholly-owned subsidiary of Vantas Holdings, Inc.)
Vantas Northern California, Inc. (indirect wholly-owned subsidiary CA
of VANTAS; direct wholly-owned subsidiary of Vantas Pleasanton,
Inc.)
Vantas West Wacker, Inc. DE
Vantas Rosemont, Inc. DE
Vantas Oakbrook Terrace, Inc. DE
Vantas Franklin Park, Inc. DE
Vantas Metro Center, Inc. DE
Vantas Manhattan, Inc. DE
Vantas Penn Plaza, Inc. DE
Vantas Pennsylvania, Inc. DE
Vantas North Michigan, Inc. DE
Vantas Kirkland, Inc. DE
Vantas Addison, Inc. DE
Vantas Charlotte Coliseum, Inc. DE
Vantas Interlocken, Inc. DE
Vantas Chicago (Lisle), Inc. DE
Vantas Highland Oaks, Inc. DE
Vantas Orlando, Inc. DE
Vantas Peachtree Road, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Powers Ferry Road, Inc. (indirect wholly-owned subsidiary VA
of VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Central Parkway, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Bellevue, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas Bethesda Metro, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Boston, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas Century City, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Wacker Drive, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Chicago-Itasca, Inc. (indirect wholly-owned subsidiary of IL
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Dallas Parkway, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Democracy Plaza, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Denver, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas American Center, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Detroit-Novi, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Fair Oaks, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas Houston, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas King Street, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Century Boulevard, Inc. (indirect wholly-owned subsidiary VA
of VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Miami, Inc. (indirect wholly-owned subsidiary of VANTAS and VA
Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas Park Avenue, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Oakbrook, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas Paradise Valley, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Pennsylvania Avenue, Inc. (indirect wholly-owned subsidiary DC
of VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Phoenix Plaza, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Phoenix-Camelback, Inc. (indirect wholly-owned subsidiary VA
of VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Sunset Hills Road, Inc. (indirect wholly-owned subsidiary VA
of VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas California Street, Inc. (indirect wholly-owned subsidiary VA
of VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Seattle, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas Tyson's Corner, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Washington, Inc. (indirect wholly-owned subsidiary of VA
VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Fountainhead, Inc. DE
Vantas Holdings, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and direct wholly-owned subsidiary of Vantas Holdings One, Inc.)
Vantas International Holdings, Inc. (indirect wholly-owned DE
subsidiary of VANTAS and Vantas Holdings One, Inc.; direct
wholly-owned subsidiary of Vantas Holdings, Inc.)
Vantas Management Virginia, Inc. (indirect wholly-owned subsidiary VA
of VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Computer Services, Inc. (indirect wholly-owned subsidiary VA
of VANTAS and Vantas Holdings One, Inc.; direct wholly-owned
subsidiary of Vantas Holdings, Inc.)
Vantas Travel, Inc. (indirect wholly-owned subsidiary of VANTAS VA
and Vantas Holdings One, Inc.; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas Office Concepts, Inc. (indirect wholly owned subsidiary of OH
VANTAS; direct wholly-owned subsidiary of Vantas Northeast Ohio,
Inc.)
Vantas Holdings France SAS (indirect wholly-owned subsidiary of FRANCE
VANTAS; direct wholly-owned subsidiary of Vantas International
Holdings, Inc. (99%) and Vantas Holdings, Inc. (1%))
Vantas La Defense S.A. (indirect 99.84 subsidiary of VANTAS; FRANCE
direct 99.9% subsidiary of Vantas Holdings France SAS (99.76%),
Vantas International Holdings, Inc. (0.04%) and Vantas Holdings,
Inc. (0.04%))
Vantas Montpelier S.A.(indirect 99.98% indirect subsidiary of FRANCE
VANTAS; direct 99.98% direct subsidiary of Vantas Holdings France
SAS (99.96%), Vantas International Holdings, Inc. (0.008%) and
Vantas (0.008%))
Vantas Vendome S.A.R.L. (indirect 99.9168 indirect subsidiary of FRANCE
VANTAS; direct subsidiary of Vantas Holdings France SAS (48%) and
Vantas La Defense S.A. (51.9168))
Vantas Provence S.A. (direct subsidiary of Vantas Holdings France FRANCE
SAS)
Vantas Loop South, L.L.C. (indirect wholly-owned subsidiary of TX
VANTAS; direct wholly-owned subsidiary of Vantas Austin, Inc.)
Vantas MoPac, L.L.C. (indirect wholly- owned subsidiary of VANTAS; TX
direct wholly-owned subsidiary of Vantas Austin, Inc.)
Vantas Skokie, L.L.C. (indirect wholly- owned subsidiary of IL
VANTAS; direct wholly-owned subsidiary of Vantas Austin, Inc.)
Vantas Long Island L.L.C. (indirect wholly owned subsidiary of NY
VANTAS; direct wholly-owned subsidiary of Vantas Holdings Two,
Inc.)
Vantas Sacramento LLC (indirect wholly-owned subsidiary of VANTAS DE
and Vantas Holdings One, Inc; direct wholly-owned subsidiary of
Vantas Holdings, Inc.)
Vantas Embarcadero, Inc. DE
Vantas Meridian, Inc. DE
Vantas Proscenium, Inc. DE
Vantas Redwood Shores, Inc. (unsigned) DE
Vantas Faneuil Hall, Inc. DE
Vantas Mission Valley, Inc. DE
Vantas Miracle Mile, Inc. DE
Vantas San Diego, Inc. DE
Vantas Carlsbad (Pacific), Inc. DE
Vantas Warner, Inc. DE
Vantas Newport, Inc. DE
Vantas Jamboree, Inc. DE
Vantas Las Vegas, Inc. DE
Vantas France Holdings, LLC DE
Vantas France Finance, LLC DE
Vantas Portland Kruseway, Inc. DE
Vantas Deerfield, Inc. DE
Vantas Denver 16th Street, Inc. DE
Vantas Congress, Inc. DE
Vantas Dublin, Inc. DE
Vantas Boston-Waltham, Inc. DE
Vantas Livonia, Inc. DE
Vantas Mexico Holdings LLC DE
Vantas Holdings de Mexico SRL de CV (Mexican holding company) MEXICO
Vantas de la Ciudad Mexico SRL de CV (secondary Mexican holding MEXICO
company; direct subsidiary of Vantas Holdings de Mexico SRL de
CV)
Centro Corporativo de Mexico SA de CV (Mexican operating company; MEXICO
direct subsidiary of Vantas de la Ciudad Mexico SRL de CV)
Centro de Negocios de la Ciudad de Mexico SA de CV (Mexican MEXICO
operating company; direct subsidiary of Vantas de la Ciudad Mexico
SRL de CV)
Centro de Negocios Polanco SA de CV (Mexican operating company; MEXICO
direct subsidiary of Vantas de la Ciudad Mexico SRL de CV)
Centre d'Affaires Sophia-Antipolis, SA FRANCE
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000834935
<NAME> VANTAS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,807,417
<SECURITIES> 0
<RECEIVABLES> 9,286,968
<ALLOWANCES> 861,000
<INVENTORY> 0
<CURRENT-ASSETS> 50,721,782
<PP&E> 93,991,183
<DEPRECIATION> 13,927,003
<TOTAL-ASSETS> 332,457,200
<CURRENT-LIABILITIES> 53,814,300
<BONDS> 0
153,091,584
0
<COMMON> 70,642
<OTHER-SE> 18,447,664
<TOTAL-LIABILITY-AND-EQUITY> 332,457,200
<SALES> 0
<TOTAL-REVENUES> 213,924,004
<CGS> 0
<TOTAL-COSTS> 175,453,554
<OTHER-EXPENSES> 9,585,681
<LOSS-PROVISION> 1,291,485
<INTEREST-EXPENSE> 10,264,996
<INCOME-PRETAX> (24,259,784)
<INCOME-TAX> (2,840,638)
<INCOME-CONTINUING> (21,419,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,419,146)
<EPS-BASIC> (6.55)
<EPS-DILUTED> (6.55)
</TABLE>
