UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
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[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________________ to _____________________
Commission File Number 0-18274
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VANTAS Incorporated (f/k/a Executive Office Group, Inc.)
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(Exact name of registrant as specified in its charter)
Nevada 13-3353508
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
90 Park Avenue, Suite 3100, New York, New York 10016
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(Address of principal executive offices - Zip code)
(212) 907-6400
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[ ] Yes [ x ] No
As of May 15, 2000, 7,627,582 shares of the registrant's Class A Common Stock,
par value $ .01 per share, were outstanding.
VANTAS INCORPORATED AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
(unaudited)and December 31, 1999 ............................... 2
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 (unaudited)....................... 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited)....................... 4
Notes to the Consolidated Financial Statements (unaudited)........ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 10
Item 2. Changes in Securities and Use of Proceeds..................... 10
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders........... 11
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.............................. 11
SIGNATURES
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
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VANTAS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
2000 1999
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ASSETS: (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $10,648,671 $3,807,417
Restricted cash 18,471,872 21,571,590
Accounts receivable, net of allowance for doubtful accounts of
$1,106,000 and $861,000 at March 31, 2000 and December 31, 1999,
respectively 9,335,376 8,425,968
Prepaid expenses and other current assets 11,480,295 10,853,205
Deferred income taxes 5,155,000 5,155,000
Deferred financing costs 908,602 908,602
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Total current assets 55,999,816 50,721,782
Intangibles, net 186,849,484 187,115,028
Property and equipment, net 92,164,275 80,064,180
Deferred financing costs, net 4,326,366 4,516,557
Security deposits 4,309,620 4,400,898
Other assets, net 2,772,039 5,638,755
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Total assets $346,421,600 $332,457,200
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LIABILITIES and STOCKHOLDERS' DEFICIENCY:
Current liabilities:
Accounts payable and accrued expenses $28,291,121 $38,010,112
Capital lease obligations 1,037,554 1,139,219
Deferred rent payable 2,426,569 2,164,969
Notes payable - bank 13,075,000 12,500,000
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Total current liabilities 44,830,244 53,814,300
Notes payable - bank 119,125,000 108,125,000
Tenants' security deposits 21,253,742 20,163,962
Deferred rent payable 25,990,449 22,794,388
Deferred income taxes 3,024,000 3,024,000
Capital lease obligations 464,495 625,805
Other liabilities 4,574,744 4,361,721
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Total liabilities 219,262,674 212,909,176
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Redeemable convertible preferred stock, authorized 33,500,000 shares:
Series A Convertible, $.01 par value, issued and outstanding
7,574,711 shares (liquidation preference $12,900,000) 37,949,302 37,949,302
Series B Convertible, $.01 par value, issued and outstanding
3,222,851 (liquidation preference $15,309,000) 17,436,954 17,081,007
Series C Convertible, $.01 par value, issued and outstanding
13,325,424 shares (liquidation preference $63,296,000) 69,726,618 68,359,428
Series D Convertible, $.01 par value, issued and outstanding
5,109,873 shares (liquidation preference $26,827,000) 28,042,347 27,474,987
Series E Convertible, $.01 par value, issued and outstanding
2,677,158 shares (liquidation preference $14,055,000) 14,313,233 3,176,860
Note receivable from issuance of redeemable preferred stock (950,000) (950,000)
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Total redeemable convertible preferred stock 166,518,454 153,091,584
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Stockholders' deficiency:
Class A Common stock, $.01 par value, authorized 41,000,000 shares,
issued and outstanding 7,605,524 shares 76,055 70,642
Class B Common stock, $.01 par value, authorized 22,500,000 shares - -
Additional paid-in capital 20,458,191 19,392,736
Accumulated deficit (58,961,906) (52,061,866)
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(38,427,660) (32,598,488)
Notes receivable from issuance of stock (931,868) (945,072)
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Total stockholders' deficiency (39,359,528) (33,543,560)
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Total liabilities and stockholders' deficiency $346,421,600 $332,457,200
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</TABLE>
<TABLE>
<CAPTION>
VANTAS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three months ended March 31,
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2000 1999
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Business Center Operations:
Revenues:
<S> <C> <C>
Office rentals $36,070,995 $27,065,298
Support services 26,418,778 19,709,708
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62,489,773 46,775,006
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Expenses:
Rent 24,789,094 17,362,946
Support services 9,610,227 6,782,151
Center general and administrative 15,379,821 10,269,664
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49,779,142 34,414,761
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Contribution from operation of busininess centers 12,710,631 12,360,245
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Other Expenses:
Corporate general and administrative (7,098,425) (5,334,306)
Merger and integration charges (826,000) (744,454)
Depreciation and amortization (5,459,958) (2,900,903)
Interest expense, net (3,382,070) (1,904,719)
Other expenses (69,181) -
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(16,835,634) (10,884,382)
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(Loss) income before provision for income tax (4,125,003) 1,475,863
Provision for income taxes (190,000) (750,000)
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Net (loss) income ($4,315,003) $725,863
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Accretion of preferred stock (2,585,037) (1,748,862)
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Net loss applicable to common stock ($6,900,040) ($1,022,999)
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Share information:
Basic earnings:
Net loss per common share ($0.93) ($0.21)
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Weighted average number of common
shares outstanding 7,427,412 4,901,868
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Diluted earnings:
Net loss per common share ($0.93) ($0.21)
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Weighted average number of common
shares outstanding 7,427,412 4,901,868
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</TABLE>
VANTAS INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($4,315,003) $ 725,863
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization 5,459,958 2,900,903
Amortization of deferred financing costs 227,151 144,694
Provision for doubtful accounts 358,141 203,261
Deferred rent payable 1,363,016 996,930
Deferred credits (464,017) (144,224)
Broker referral fees 87,657 --
Changes in operating assets and liabilities:
Accounts receivable (1,230,908) (1,818,051)
Prepaid expenses and other current assets (1,076,573) 545,959
Security deposits and other assets 896,164 (105,647)
Accounts payable and accrued expenses (10,491,693) (2,525,246)
Income taxes payable 104,241 759,819
Tenants' security deposits 1,017,498 2,044,970
Other liabilities 213,023 --
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Net cash (used in) provided by operating activities (7,851,345) 3,729,231
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Cash flows from investing activities:
Acquisition of net assets of business centers, net of cash proceeds 466,670 (13,662,663)
Purchases of property and equipment (12,074,759) (5,961,316)
Restricted cash 3,099,718 10,000,000
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Net cash used in investing activities (8,508,371) (9,623,979)
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Cash flows from financing activities:
Proceeds from borrowings 15,700,000 15,950,000
Payments on borrowings (4,125,000) (7,062,500)
Deferred financing costs (36,960) (787,441)
Payments of capital leases (262,975) (691,230)
Proceeds from exercise of common stock options and warrants 1,084,072 --
Proceeds from issuance of preferred stock,
net of issuance costs 10,841,833 --
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Net cash provided by financing activities 23,200,970 7,408,829
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Net increase in cash 6,841,254 1,514,081
Cash at beginning of period 3,807,417 3,615,087
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Cash at end of period $ 10,648,671 $ 5,129,168
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</TABLE>
VANTAS Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for the three month periods
ended March 31, 2000 and 1999 have been prepared by VANTAS Incorporated and
Subsidiaries (the "Company") (formerly ALLIANCE NATIONAL Incorporated, and,
prior to that, Executive Office Group, Inc.) and, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position,
operating results and cash flows for each period presented. The December 31,
1999 consolidated balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's audited financial statements at December 31, 1999. Results
for interim periods are not necessarily indicative of results for a full year.
Certain prior period amounts have been reclassified to conform to
the current year presentation.
2. MERGER
On January 20, 2000, the Company executed an agreement and plan of
merger (the "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 Company's
Class A Common Stock ("Common Stock") will be converted into the right to
receive $8.00 per share in cash; (ii) each share of the Company's 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 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 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 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. In connection with an extension of
the outside closing date for the Merger, the deposit was increased from $35
million to $47.5 million and the stockholders of HQ who are to receive cash
pursuant to the Merger received an aggregate payment of $2.5 million
subsequent to March 31, 2000.
As part of the HQ Merger, the Company entered into incentive bonus
agreements with certain key executives and employees, which bonuses will be
earned as long as such executives and employees remain with the Company
through a specified date, which, in each case, is subsequent to March 31,
2000.
3. ACQUISITION
On January 3, 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. The acquisition was recorded under the purchase
method of accounting and is included in operations from the date of
acquisition.
4. PER SHARE INFORMATION
Options and warrants to purchase 3,477,050 and 1,633,456 shares of
common stock were outstanding for the three months ended March 31, 2000 and
1999, respectively, but were not included in the computation of diluted
earnings per share because their effect would have been anti-dilutive.
Additionally, 2,042,000 and 24,122,986 shares of Convertible Preferred Stock
were outstanding for the three months ended March 31, 2000 and 1999,
respectively, but were not included in the computation of diluted earnings per
share because their effect would also be anti-dilutive.
5. REDEEMABLE PREFERRED STOCK
During the three months ended March 31, 2000, the Company issued
2,072,745 shares of Series E Convertible Preferred Stock ("Series E Preferred
Stock") at $5.25 per share for net proceeds of approximately $10.9 million.
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
Convertible Preferred Stock ("Series D Preferred Stock"), and senior to the
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock,
Series C Convertible 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.
6. NOTE PAYABLE -- BANK
The Company's credit agreement (the "Credit Facility") contains
certain financial covenants, one of which requires the Company not to exceed a
maximum ratio of consolidated indebtedness to consolidated earnings before
interest, income taxes, depreciation and amortization. There are also other
covenants pertaining to additional financial ratios and limitations on capital
expenditures. At March 31, 2000, the Company did not meet certain of its
financial covenants. The Company is currently negotiating with its lenders for
an increase in the amount of the Credit Facility and/or waiver of those
covenants in connection with the proposed HQ Merger. The Company has obtained
a commitment letter for the provision of a new credit facility, subject to
satisfaction of various conditions, which would provide a portion of the
financing necessary to consummate the HQ Merger, including funds necessary to
refinance the Credit Facility. Accordingly, $119.1 million of this debt has
been classified as long-term as of March 31, 2000. There can be no assurance
that the Company will meet the conditions required to satisfy the existing
commitment, that the HQ Merger will occur or that, if the HQ Merger does not
occur, the Company will be able to obtain a waiver with respect to the
financial covenants contained in the Credit Facility for the fiscal quarter
ended March 31, 2000 and satisfy such covenants or obtain a waiver thereafter.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements and Notes thereto. As of March
31, 2000, VANTAS Incorporated ("VANTAS" or the "Company") owned and operated
206 business centers in 27 states, the District of Columbia, France and
Mexico. This included 10 business centers under development and 18 business
centers open for nine months or less (collectively "Developing Centers").
Additionally, the Company managed 5 business centers for unrelated third
parties. The Company provides a complete outsourced office solution through
furnished and equipped individual offices and multi-office suites available on
short notice with flexible contracts. The Company also provides business
support and information services including: telecommunications; broadband
internet access; mail room and reception services; high-speed copying, faxing
and printing services; secretarial, desktop publishing and IT support services
and various size conference facilities, with multi-media presentation and, in
certain cases, video teleconferencing capabilities. The Company also provides
similar services for those businesses and individuals that do not require
offices on a full-time basis.
The Company has grown through an aggressive acquisition strategy
beginning in 1996, whereby it has acquired or merged with 37 entities, which
were comprised of 182 business centers with a total cost of approximately
$205.2 million. During the three months ended March 31, 2000 and 1999, the
Company acquired 1 and 61 business centers, with a cost of approximately $.8
million and $81.4 million, respectively.
In the early stages of development of a Developing Center, expenses are
incurred with minimal corresponding revenues. Once a Developing Center reaches
occupancy levels above 70%, generally within nine to twelve months of its
initial start, it is expected to have a positive impact on the results of the
Company. For the three months ended March 31, 2000, there were 28 Developing
Centers as compared to 13 for the same period in 1999.
These activities have had a material impact on the results of operations
and financial position of the Company and significantly affect the
comparability of the respective prior periods.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES. Total business center revenues for the three months ended March 31,
2000 were $62.5 million, an increase of $15.7 million or 33.6% from the
corresponding period in 1999. Included in revenues was $.2 million of
management fees for both three month periods ended on March 31, 2000 and
1999.
Business centers that were acquired with effective dates after January 1,
1999 ("Acquired Centers") had revenues for the three months ended March 31,
2000 of $10.9 million, an increase of $9.5 million from the corresponding
period in 1999. This increase in revenues resulted primarily from the
acquisition of business centers during the 12 months ended March 31, 2000.
Business centers, excluding Acquired and Developing Centers, that were
operating for the entire comparable period of the prior year ("Same Centers"),
had revenues for the three months ended March 31, 2000 of $48.5 million, an
increase of $4.1 million, or 9.2% from the corresponding period in 1999. While
office occupancy levels remained relatively stable at approximately 89% for
the comparable periods, the increase in office rental revenue of $2.1 million,
or 8.6%, was due to more favorable office pricing. The increase in support
service revenues of $2.0 million, or 9.8% from 1999 is partially attributable
to an increase in broadband Internet access, information technology support
services and administrative support services.
Developing Center revenues were $3.0 million for the three months ended
March 31, 2000, an increase of $2.1 million from the corresponding period in
1999. For the three months ended March 31, 2000 and 1999, there were 18 and 7
Developing Centers that were open, respectively. This increase is primarily
due to the greater number of Developing Centers open during the three months
ended March 31, 2000.
EXPENSES. Total business center expenses for the three months ended March 31,
2000 were $49.8 million, representing an increase of $15.4 million or 44.6%
from the corresponding period in 1999.
Acquired Center expenses for the three months ended March 31, 2000 and
1999 were $9.0 million and $.8 million respectively, representing an increase
of $8.2 million from the corresponding period in 1999. This increase resulted
primarily from an increase in the number of business centers acquired as
compared to those acquired in the comparable period of the prior year.
Same Center expenses for the three months ended March 31, 2000 were $36.3
million, an increase of $3.9 million or 12.1% from the corresponding period in
1999. 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 three months ended March 31, 2000 were
$4.5 million, an increase of $3.3 million from the corresponding period in
1999. This increase is due to a total of 28 Developing Centers during the
three months ended March 31, 2000 as compared to 13 Developing Centers during
the three months ended March 31, 1999.
CONTRIBUTION FROM OPERATION OF BUSINESS CENTERS ("COBC"). For the three months
ended March 31, 2000, COBC was $12.7 million as compared to $12.4 million for
the same period in 1999. The COBC as a percentage of total revenues ("COBC
Margin") was 20.3% for the three months ended March 31, 2000 as compared to
26.4% for the corresponding period in 1999. The decrease in overall business
center COBC Margin of 6.1% from 1999 is primarily attributable to the
significant increase in Acquired Center revenue and its associated lower COBC
Margin as well as the increase in Developing Center losses in 2000 as compared
to the corresponding period in 1999.
Acquired Center COBC was $2.0 million for the three months ended March
31, 2000, an increase of $1.3 million from the corresponding period in 1999.
The COBC Margin from Acquired Centers for the three months ended March 31,
2000 and 1999 was 17.3% and 38.4%, respectively. There were minimal
acquisitions completed during the three months ended March 31, 1999, and, as a
result, the COBC Margin from Acquired Centers during this period had no
material impact on COBC.
Same Center COBC was $12.2 million for the three months ended March 31,
2000 as compared to $12.0 million, an increase of 1.3% over the corresponding
period in 1999. The COBC Margin from Same Centers for the three months ended
March 31, 2000 was 25.0% as compared to 26.9% for the corresponding period in
1999. The decrease in Same Centers COBC Margin is primarily attributable to
lower margin percentage in support services and an increase in general and
administrative expenses as a percentage of revenue.
Developing Centers generated a loss from operations for the three months
ended March 31, 2000 of $1.5 million, an increase in losses of $1.2 million
from the corresponding period in 1999. This increase in losses is primarily
due to a total of 28 Developing Centers during the three months ended March
31, 2000 as compared to 13 Developing Centers during the three months ended
March 31, 1999. Of these, only 18 and 7 centers were open for occupancy as of
March 31, 2000 and 1999, respectively. Losses are generally incurred from
Developing Centers during their first nine to twelve months of operation.
OTHER EXPENSES. For the three months ended March 31, 2000, other expenses were
$16.8 million, representing an increase of $6.0 million or 54.7% from the
corresponding period in 1999. This increase is primarily attributable to
greater corporate general and administrative expenses, depreciation and
amortization and interest expense of $1.8 million, $2.6 million and $1.6
million or 33.1%, 88.2% and 77.6%, respectively.
The increase in corporate general and administrative expenses was
attributable to increases in the corporate personnel infrastructure and its
associated travel and related expenses, related office expansion, and
professional and consulting fees associated with the Company's growth. The
increase in depreciation and amortization relates to fixed assets acquired and
goodwill associated with the mergers with Interoffice Superholdings
Corporation and Reckson Executive Centers and the Company's other
acquisitions. It is also attributable to an increase in capital expenditures
associated with technology infrastructure additions and leasehold improvements
for Developing and Same Centers. Interest expense is primarily related to the
Company's Credit Facility. This increase resulted from interest expense on
borrowings related to the Company's acquisitions as well as increases in
interest rates.
INCOME TAXES. The Company's effective income tax rate for the three months
ended March 31, 2000 was 4.6% as compared to 50.8% for the three months ended
March 31, 1999. The decrease in the Company's effective income tax rate for
the three months ended March 31, 2000 is primarily attributable to the impact
of increased non-deductible goodwill amortization, a valuation reserve
established on the Company's net operating loss tax benefit, offset by a
reduction in state income taxes. The Company's underlying statutory income tax
rates for the three months ended March 31, 2000 and 1999 are 38.3% and 42.0%,
respectively. The reduction in the statutory income tax rate is primarily due
to a reduction in the overall state income tax rate for the group.
NET (LOSS) INCOME. The Company incurred a net loss for the three months ended
March 31, 2000 of ($4.3) million compared to net income of $ .7 million for
the same period in 1999 primarily attributable to greater other expenses of
$5.9 million described above.
Accretion of the stated return on investment ("Accretion") on VANTAS's
redeemable convertible preferred stock for the three months ended March 31,
2000 was $2.6 million, representing an increase of $.8 million from the
corresponding period in 1999. This increase is primarily the result of the
issuance of Series E convertible preferred stock during the period.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has primarily relied upon cash flows generated
from operations, borrowings from its lenders and sales of its securities to
satisfy its liquidity and capital requirements. Principal liquidity needs have
included the acquisition and development of new business centers, debt service
requirements and other capital expenditures necessary to maintain existing
business centers as well as upgrade and build the corporate infrastructure to
manage the Company's operations effectively.
On August 3, 1999, the Company 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% (9.1875% at May 8, 2000) to LIBOR plus
3.75% (9.9375% at May 8, 2000) for a one, three or nine month period at the
election of the Company. The Company 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. As of May 8, 2000, there were $129.1 million in
borrowings and $10.2 million in standby letters of credit outstanding under
the Credit Facility. As of May 8, 2000, the Company had $.1 million and $5.0
million available from its revolving and acquisition loan portion of the
Credit Facility, respectively. The Credit Facility contains certain financial
covenants, one of which requires the Company not to exceed a maximum ratio of
consolidated indebtedness to consolidated earnings before interest, income
taxes, depreciation and amortization. There are also other covenants
pertaining to additional financial ratios and limitations on capital
expenditures. At March 31, 2000, the Company did not meet certain of its
financial covenants. The Company is currently negotiating with its lenders for
an increase in the amount of the Credit Facility and/or waiver of those
covenants in connection with the proposed merger with HQ Global Workplaces,
Inc. (the "HQ Merger"). The Company has obtained a commitment letter for the
provision of a new credit facility, subject to satisfaction of various
conditions, which would provide a portion of the financing necessary to
consummate the HQ Merger, including funds necessary to refinance the Credit
Facility. There can be no assurance that the Company will meet the conditions
required to satisfy the existing commitment, that the HQ Merger will occur or
that, if the HQ Merger does not occur, the Company will be able to obtain a
waiver with respect to the financial covenants contained in the Credit
Facility for the fiscal quarter ended March 31, 2000 and satisfy such
covenants or obtain a waiver thereafter.
The Company had working capital of $11.2 million at March 31, 2000 as
compared to a working capital deficit of $3.1 million at December 31, 1999.
This increase in working capital of $14.3 million arose principally from $10.8
million provided by the issuance of preferred stock and $15.7 million provided
by long-term borrowings which were partially offset by fixed asset
acquisitions of $12.1 million and $3.7 million in current maturities of notes
payable.
Cash flows used in operating activities for the three months ended March
31, 2000 were $7.9 million, representing a decrease of $11.6 million from the
corresponding period in 1999. This decrease is primarily attributable to the
cash used to reduce accrued expenses and the increase in net loss as compared
to the corresponding period in 1999.
Cash used in investing activities for the three months ended March 31,
2000 was $8.5 million, a decrease of $1.1 million from the corresponding
period in 1999. This decrease is attributable to a reduction in the Company's
acquisitions of business centers, an increase in purchases of property and
equipment and a reduction in restricted cash which was used to fund certain
acquisitions and make certain debt and interest payments.
Cash provided by financing activities for the three months ended March
31, 2000 was $23.2 million, an increase of $15.8 million from the
corresponding period in 1999. During the three months ended March 31, 2000,
the Company completed equity transactions whereby it raised $11.9 million in
net proceeds from the exercise of options and warrants and the issuance of the
Company's convertible preferred stock to accredited investors. Also, the
Company increased borrowings under its credit facility by $11.6 million during
such period.
The Company 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, the Company anticipates that
cash on hand, availability under its Credit Facility, issuance of equity, as
well as other debt alternatives, will provide the necessary capital required
by the Company to continue its growth strategy, through the acquisition and
development of business centers.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the three months ended March 31,
2000, together with other statements and information publicly disseminated by
the Company contain certain "forward-looking" statements, as that statement is
defined in the Private Securities Litigation Reform Act of 1995. The Company
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 the Company, 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 the Company and (vi) increases in operating costs. Accordingly, there is no
assurance that the Company's expectations will be realized.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
The primary market risk facing the Company is interest rate risk on its
Credit Facility. As of March 31, 2000, the Company hedged interest rate risk
using financial instruments for a limited amount of its outstanding debt. 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 the Company. 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. A
significant increase in interest rates may have a negative impact on the
earnings of the Company due to the variable interest under the Credit
Facility.
Based on variable rate debt levels, a 10% change in market interest rates
(59 basis points on a weighted-average) would have an approximate 2.8% impact
on the Company's interest expense, net.
The Company has not, and does not plan to, enter into any derivative
financial instruments for trading or speculative purposes. As of March 31,
2000, the Company had no other material exposure to market risk.
PART II
OTHER INFORMATION
Item 1. 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
(subject to policy deductibles and limitations of liability) and all of which
collectively are not expected to have a material adverse effect on the
liquidity, results of operations or business or financial condition of VANTAS.
Item 2. Changes in Securities and Use of Proceeds
(a) On January 4, 2000, VANTAS increased the authorized shares of its
common stock from 61 million to 63.5 million, of which 43.5 million and 20
million are designated Class A Common Stock and Class B Common Stock,
respectively.
(b) None.
(c) On January 5, 2000, the Company issued and sold 2,072,745 shares of
Series E Convertible Preferred Stock (the "Series E Preferred Stock"), at a
price of $5.25 per share, for an aggregate cash purchase price of
approximately $10.9 million. The Company issued and sold these securities
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Act"), and Rule 506 promulgated thereunder. The offering was made to a single
accredited investor (as defined in Rule 501 promulgated under the Act). The
terms of the Series E Preferred Stock provide for (1) automatic conversion
into shares of the Company's Class A Common Stock in the event of an initial
public offering of the Company's capital stock and (2) conversion at the
option of the holder, in whole or in part, at any time into Class A Common
Stock. The conversion rate is currently one to one, but such rate is subject
to adjustment in the event of certain dilutive events.
In addition, VANTAS's fiscal quarter ended March 31, 2000, certain
officers and shareholders of VANTAS exercised previously issued options and
warrants to acquire, in the aggregate, 541,302 shares of Class A Common Stock,
at prices ranging from $1.70 to $2.00 per share for total cash consideration
of approximately $1.07 million. VANTAS issued and sold all of the
above-referenced securities pursuant to Section 4(2) of Act.
(d) None.
Item 4. Submission of Matters to a Vote of Security Holders
On January 20, 2000, an action by written consent was executed by holders
of 26,707,011 shares of VANTAS's outstanding voting capital stock,
representing 68.5% of such outstanding voting capital stock, pursuant to which
the merger agreement with HQ Global Workplaces, Inc. was approved.
On January 3, 2000, an action by written consent was executed by holders
of 31,666,329 shares of VANTAS's outstanding voting capital stock,
representing 85.7% of such outstanding voting capital stock, pursuant to which
VANTAS's Amended and Restated Articles of Incorporation were approved and
adopted. The Amendment and Restatement related to an increase in VANTAS's
authorized capital stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
10.1* Subscription Agreement, dated as of February 7, 2000, by and
between Reckson Service Industries, Inc. and VANTAS
10.2 Agreement among David Beale, VANTAS and Frontline Capital Group
(f/k/a Reckson Service Industries, Inc.), dated as of March 29,
2000.
10.3 Agreement among Alan Langer, VANTAS and Frontline Capital Group
(f/k/a Reckson Service Industries, Inc.), dated as of March 29,
2000.
10.4** Agreement and Plan of Merger by and among HQ Global Workplaces, Inc.,
CarrAmerica Realty Corporation, VANTAS Incorporated and Reckson
Service Industries, Inc., dated as of January 20, 2000
10.5** Form of Stockholders Agreement among Reckson Service Industries,
Inc., HQ Global Workplaces, Inc., CarrAmerica Realty Corporation
and the other parties named therein
10.6** Stock Purchase Agreement between CarrAmerica Realty Corporation and
Reckson Service Industries, Inc., dated as of January 20, 2000.
10.7** Stock Purchase Agreement among CarrAmerica Realty Corporation,
OmniOffices (UK) Limited, OmniOffices (Lux) 1929 Holding Company
S.A., VANTAS Incorporated and Reckson Service Industries, Inc.,
dated as of January 20, 2000
10.8** Form of Indemnification and Escrow Agreement by and among Reckson
Service Industries, Inc., CarrAmerica Realty Corporation and the
other parties named therein
27 Financial Data Schedules
- ---------
* Previously filed as an Exhibit to VANTAS's Annual Report on Form 10-K
filed with the SEC on March 30, 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.
(b) Reports on Form 8-K
Vantas filed a report on Form 8-K containing Item 5 information on
February 4, 2000 and two reports on Form 8-K, one containing Item 5 and Item 7
information and one containing Item 7 information, on March 2, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VANTAS Incorporated
May 15, 2000 /s/ David Rupert
- ------------------------- ----------------------------------
Date David Rupert
President, Chief Executive Officer and
Chief Operating Officer
May 15, 2000 /s/ Gary Klein
- ------------------------- ----------------------------------
Date Gary Klein
Senior Vice President, Finance
(Principal Financial Officer)
May 15, 2000 /s/ Edward Caravalho
- ------------------------- ----------------------------------
Date Edward Caravalho
Vice President, Controller
(Principal Accounting Officer)
Exhibit 10.2
VANTAS Incorporated
90 Park Avenue
New York, New York 10016
March 29, 2000
David W. Beale
3230 Hewlett Avenue
Merrick, New York 11566
Dear David:
This letter agreement (this "Agreement") sets forth the agreement of
the parties hereto with respect to the (i) disposition of the equity holdings
of David W. Beale (the "Employee") in VANTAS Incorporated, a Nevada
corporation (the "Company"), (ii) further amendment of the Employee's
employment agreement with the Company dated November 15, 1996, as amended by
an Agreement dated as of October 29, 1999 (the "October Agreement") among the
Employee, the Company and FrontLine Capital Group (f/k/a Reckson Service
Industries, Inc.), a Delaware corporation ("FrontLine"), and an Agreement
dated December 30, 1999 (the "December Agreement") among the Company,
FrontLine, the Employee and certain other executive officers of the Company
(as so amended by the October Agreement and the December Agreement, the
"Employment Agreement"; the October Agreement and the December Agreement are
hereinafter collectively referred to as the "Exchange Agreement"), (iii)
further amendment of the Fifth Amended and Restated Stockholders' Agreement
dated as of July 29, 1999, as amended by amendments thereto dated as of
November 22, 1999 and January 26, 2000, by and among the Company and the
Securityholders named therein (as so amended, the "Stockholders' Agreement")
and (iv) certain other matters set forth herein.
The parties hereto, in exchange for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, hereby agree as
follows:
1. Disposition of Employee's Equity Securities.
(a) The Employee hereby represents and warrants to each of the
Company and FrontLine that as of the date hereof he is the sole beneficial (as
such term is defined in Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended, or otherwise) and record owner of the following
equity securities of the Company: (i) Nine Hundred Eighty-Eight Thousand and
Twelve (988,012) shares (the "Employee Shares") of Class A Common Stock, par
value $.01 per share ("Common Stock"), (ii) option granted under the Company's
1996 Stock Option Plan to purchase Two Hundred Ninety-One Thousand and
Forty-Five (291,045) shares of Common Stock at Two Dollars ($2) per share,
(iii) option (the "1999 Plan Option") granted under the Company's 1999 Stock
Option Plan to purchase Two Hundred and Fifty Thousand (250,000) shares of
Common Stock at Six Dollars ($6) per share, (iv) options to purchase an
aggregate of Three Hundred Seventy-Five Thousand (375,000) shares of Common
Stock at Two Dollars ($2) per share and (v) option to purchase Two Hundred
Thousand (200,000) shares of Common Stock at Six Dollars ($6) per share. The
options covered by clauses (ii) through (v) of the immediately preceding
sentence are hereinafter collectively referred to as the "Options".
(b) The Employee Shares shall be subject to and purchased in
accordance with the terms and provisions of the Merger Agreement (as
hereinafter defined) applicable to shares of Common Stock. For purposes of
this Agreement, the term "Merger Agreement" means that certain Agreement and
Plan of Merger dated as of January 20, 2000 by and among the Company and
FrontLine (solely for purposes of certain sections thereof), on the one hand,
and HQ Global Workplaces, Inc., a Delaware corporation, and CarrAmerica Realty
Corporation, a Maryland corporation (solely for purposes of certain sections
thereof), on the other hand.
(c) Immediately prior to the Effective Time of the HQ Merger (as
such terms are defined in the Merger Agreement), the Employee shall deliver
the execution originals of the agreements evidencing the Options to the
Company and effect a cashless exercise (the "Cashless Exercise") of all (but
not less than all) of the Options to be calculated based on the price being
paid for each share of Common Stock in the HQ Merger. Assuming that the amount
to be paid for each share of Common Stock pursuant to the Merger Agreement is
Eight Dollars ($8), a Cashless Exercise of all of the Options pursuant to this
Section 1(c) will result in the issuance of 612,034 shares of Common Stock
(the "Cashless Exercise Shares") which will be purchased under the Merger
Agreement for Four Million Eight Hundred Ninety-Six Thousand Two Hundred
Seventy-Two Dollars ($4,896,272). The methodology utilized for calculating the
number of Cashless Exercise Shares and the payment due under the Merger
Agreement on account thereof based on an Eight Dollar ($8) per share purchase
price is set forth on Schedule I attached hereto. The number of and the dollar
amount to be paid for the Cashless Exercise Shares set forth on Schedule I
attached hereto is calculated as follows: First, calculate the amount required
to exercise the Options in their entirety. Second, subtract such exercise
price amount from the amount which would be payable under the Merger Agreement
for the shares of Common Stock underlying all of the Options. Finally, divide
the amount resulting from such subtraction by the amount to be paid for each
share of Common Stock pursuant to the Merger Agreement. The amount resulting
from such division (which if not a whole number shall be rounded up to the
nearest whole number) represents the number of Cashless Exercise Shares the
Employee shall receive as a result of the Cashless Exercise. The Cashless
Exercise Shares shall be subject to and purchased in accordance with the terms
and provisions of the Merger Agreement applicable to shares of Common Stock.
(d) Concurrently with the Employee's receipt of the cash payment due
under the Merger Agreement on account of the Employee Shares and Cashless
Exercise Shares, the Employee shall repay all unpaid principal and accrued and
unpaid interest due under the following two (2) instruments: (i) Amended and
Restated Promissory Note and Pledge Agreement dated as of August 4, 1998 (the
"1998 Note") in the principal amount of Nine Hundred and Fifty Thousand
Dollars ($950,000) by and between the Employee, as maker, and ALLIANCE
National Incorporated, as payee, and (ii) Secured Term Promissory Note dated
December 30, 1999 (the "1999 Note") in the principal amount of Six Hundred
Sixty-Seven Thousand Nine Hundred and Ten Dollars ($667,910) by and between
the Employee, as maker, and the Company, as payee.
(e) The Employee hereby represents and warrants to each of the
Company and FrontLine that (i) as of the date of this Agreement, the Employee
Shares and the Options constitute all of the equity securities of, or other
equity in, the Company owned beneficially or of record by the Employee and
(ii) in the event the HQ Merger is effected and the transactions covered by
Sections 1(b), 1(c) and 1(d) of this Agreement are consummated, the Employee,
upon the consummation of such transactions, shall not own beneficially or of
record equity or debt interests in or of the Company (or its successor) of any
kind or nature.
(f) In the event that the Merger Agreement is terminated, (i)
Sections 1(b), 1(c) and 1(d) of this Agreement shall be of no further force
and effect, (ii) the 1998 Note shall be repaid by the Employee when due in
accordance with its terms and provisions, (iii) the 1999 Note shall be repaid
by the Employee upon the effective date of the termination of his employment
with the Company and (iv) the Employee shall continue to have (A) with respect
to the Employee Shares and the Options, his rights set forth under paragraph 2
of Schedule B (the provisions of such Schedule B being hereinafter referred to
as the "VANTAS Long Term Incentive Plan") to the October Agreement, as such
VANTAS Long Term Incentive Plan has been approved by the Company's senior
lenders or as may in the future be approved by the Company's then existing
senior lenders (as of the date of this Agreement, the Company is permitted by
its senior lenders to spend up to Two Million Dollars ($2,000,000) per quarter
and Eight Million Dollars ($8,000,000) in the aggregate under the VANTAS Long
Term Incentive Plan) and (B) with respect to the 1999 Plan Option, the put
right provided for in Section 2(d)(ii) of the October Agreement and Section
4.7 of the Stockholders' Agreement.
2. Employment Agreement.
(a) The Employment Agreement is hereby further amended as follows:
(i) The first, second, third and fourth WHEREAS clauses of the
Employment Agreement are deleted in their entirety.
(ii) Paragraph 1 of the Employment Agreement is amended and
restated in its entirety as follows:
"Employment. The Company hereby agrees to employ the Employee and
the Employee hereby accepts said employment upon the terms and
conditions hereinafter set forth."
(iii) Paragraph 2 of the Employment Agreement is amended and
restated in its entirety as follows:
"Position, Other Activities. The Employee shall report and be
responsible to the Board of Directors of the Company and the
Chairman of the Board.
During the period prior to the HQ Merger (as such term is defined in
that certain Agreement and Plan of Merger dated as of January 20,
2000 (the "Merger Agreement") by and among the Company and FrontLine
Capital Group (f/k/a Reckson Service Industries, Inc.), a Delaware
corporation ("FrontLine") (solely for purposes of certain sections
thereof), on the one hand, and HQ Global Workplaces, Inc., a
Delaware corporation, and CarrAmerica Realty Corporation, a Maryland
corporation (solely for purposes of certain sections thereof), on
the other hand), the Employee's primary duties shall consist of
serving on the Company's Board of Directors and the HQ Merger
transition team, and assisting in the orderly transition of the
Company's operations to the corporation surviving the HQ Merger, all
in such manner as shall be reasonably requested by the Company.
During the period prior to the HQ Merger, subject to the Employee's
approval (which shall not be unreasonably withheld, conditioned or
delayed), the Employee shall also perform such other duties as the
Board of Directors of the Company or the Chairman of the Board from
time to time may reasonably request.
In the event that the Merger Agreement is terminated, subject to the
Employee's approval (which shall not be unreasonably withheld,
conditioned or delayed), the Employee shall perform such duties as
the Board of Directors of the Company or the Chairman of the Board
from time to time may reasonably request.
The Employee shall not be required to report to the Company's
executive offices, except as may reasonably be requested by the
Company with reasonable advance notice."
(iv) Paragraph 3 of the Employment Agreement is amended and
restated in its entirety as follows:
"Term of Employment. The Company hereby employs the Employee to
perform the duties described in Paragraph 2, and the Employee hereby
accepts employment with the Company, for a term (the "Employment
Term") continuing until the earliest to occur of the date on which
the HQ Merger is effected, April 30, 2001 or the date on which the
Employee's employment is terminated pursuant to either Paragraph 7
or 10 (the earliest of such dates, the "Termination Date")."
(v) Paragraph 4 of the Employment Agreement is amended and
restated in its entirety as follows:
"Performance of Duties. During the period of the Employee's
employment, he shall perform faithfully the duties required of him.
Subject to the other terms and provisions of this Agreement
including, without limitation, Paragraph 19, the Employee shall not
be precluded from engaging in other business activities prior to the
Termination Date including, but not limited to, serving on the board
of directors of other companies, making personal investments and
providing consulting services, in each case, so long as the Employee
remains reasonably available to the Company to perform the duties
described above in Paragraph 2."
(vi) Paragraph 5(a) of the Employment Agreement is amended and
restated in its entirety as follows:
"Salary. During the period commencing on January 1, 2000 and ending
on the Termination Date, the Company shall pay to the Employee as
compensation for his services hereunder salary at the rate of Five
Hundred Eleven Thousand Seven Hundred and Fifty Dollars ($511,750)
per annum, payable pursuant to the Company's salary payment
practices."
(vii) Paragraph 5(b) of the Employment Agreement is amended and
restated in its entirety as follows:
"Bonus. In addition to the salary set forth in Paragraph 5(a) of
this Agreement, the Employee shall receive a bonus of Two Hundred
and Fifty Thousand Dollars ($250,000) on account of the fiscal year
1999 and a bonus of Twenty Thousand Eight Hundred and Thirty-Three
Dollars ($20,833) on account of the fiscal year 2000. Such bonus
amounts shall be paid to the Employee on the Termination Date and
there shall be no other bonus paid to the Employee."
(viii) Paragraph 5(c) of the Employment Agreement is
amended and restated in its entirety as follows:
"Deferred Compensation. The Company shall make a deferred
compensation payment of Five Hundred Sixty-Nine Thousand Eight
Hundred Ninety-Six Dollars ($569,896) to the Employee on the
Termination Date."
(ix) Paragraph 5(d) of the Employment Agreement is amended
and restated in its entirety as follows:
"No Further Compensation. Upon the Employee's receipt of the
payments contemplated by Paragraphs 5(a), 5(b), 5(c) and, if
applicable, 7(b), the Employee shall not be entitled to any
further payments from the Company under this Agreement, except
as may be required under Paragraph 9."
(x) Paragraph 6(a) of the Employment Agreement is amended
and restated in its entirety as follows:
"[Intentionally Omitted.]"
(xi) Paragraph 6 of the Employment Agreement is amended by
adding the following paragraph after Paragraph 6(e):
"f. No Further Benefits. From and after the Termination Date,
the Employee shall not be entitled to benefits provided for in
Paragraphs 6(b), 6(c), 6(d) and 6(e), other than reimbursement
for expenses covered by Paragraph 6(b) which were incurred by
the Employee prior to the Termination Date, and except as may
be required by law, including COBRA if required by law."
(xii) Paragraph 7(b) of the Employment Agreement is
amended and restated in its entirety as follows:
"Termination by the Company. The Company may at any time
terminate the employment of the Employee. In the event that the
employment of the Employee is terminated by the Company, other
than for Cause, or the Employee has remained in the employ of
the Company through the earliest to occur of the date on which
the HQ Merger is effected, April 30, 2001 or the date on which
the Employee resigns for the reason set forth in Paragraph
7(a), the Company shall pay to the Employee on the Termination
Date, in addition to the amounts required to be paid under
Paragraphs 5(b) and 5(c), an amount (without discount for
present value) equal to the salary (computed at the rate of
Five Hundred Eleven Thousand Seven Hundred and Fifty Dollars
($511,750) per annum) the Employee would have received had he
continued to be employed by the Company during the period
commencing on the Termination Date and ending on June 30,
2002."
(xiii) Paragraph 7(c) of the Employment Agreement is
amended and restated in its entirety as follows:
"Termination for Cause; Resignation Without Good Reason. If the
Company terminates the Employee's employment for Cause, as
defined in Paragraph 7(c) hereof, or if the Employee resigns
from his employment hereunder, other than for the reason set
out in Paragraph 7(a) hereof, the Employee shall be entitled to
no compensation in any form after the date of his termination,
except for those amounts specified in Paragraphs 5(b) and
5(c)."
(xiv) Paragraph 8 of the Employment Agreement is deleted
in its entirety.
(xv) Paragraph 10(c) of the Employment Agreement is
amended and restated in its entirety as follows:
"All unpaid amounts covered by Paragraphs 5(b) and 5(c) shall
immediately be payable to the Employee's estate or the disabled
Employee as applicable."
(xvi) The second sentence of Paragraph 11 of the
Employment Agreement is amended and restated in its
entirety as follows:
"The Company may assign this Agreement only to its successors
and assigns, and in the event this Agreement is so assigned,
the Employee shall be entitled to enforce the provisions of
this Agreement."
(xvii) The first sentence of Paragraph 13 of the
Employment Agreement is amended and restated in its
entirety as follows:
"This Agreement, the Agreement dated as of October 29, 1999
among the Employee, the Company and FrontLine, the Agreement
dated December 30, 1999 among the Company, FrontLine, the
Employee and certain other executive officers of the Company
and the letter agreement dated March 29, 2000 among the
Employee, the Company and FrontLine, sets forth the entire
understanding of the parties with respect to the employment of
the Employee by the Company and supersede any and all other
agreements, arrangements and understandings relating to the
subject matter hereof, including, without limitation, that
certain Employment Agreement dated April 1, 1994 by and between
the Employee and Executive Office Group, Inc."
(xviii) Paragraph 18(a) of the Employment Agreement is
amended and restated in its entirety as follows:
"a. If to the Company:
VANTAS Incorporated
90 Park Avenue
New York, New York 10016
Attn: David J. Rupert
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attn: Irwin A. Kishner"
(xix) Paragraph 18(b) of the Employment Agreement is
amended and restated in its entirety as follows:
"b. If to the Employee:
David W. Beale
3230 Hewlett Avenue
Merrick, New York 11566
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attn: Frank A. Daniele"
(xx) The first sentence of Paragraph 19(f) of the
Employment Agreement is deleted in its entirety.
(xxi) The last sentence of Paragraph 19(f) of the
Employment Agreement is amended and restated in its
entirety as follows:
"This Paragraph 19(f) shall be construed and interpreted in
light of the duration of the applicable restrictive covenants."
(xxii) Appendix I of the Employment Agreement is deleted
in its entirety.
(b) Except as expressly modified by Section 2(a) of this Agreement,
all of the terms and provisions of the Employment Agreement shall remain in
full force and effect. In the event of any inconsistency or conflict between
the terms and provisions of this Agreement and the Employment Agreement, this
Agreement shall prevail.
(c) Notwithstanding the terms and provisions of the Exchange
Agreement to the contrary, but subject to Section 5 of this Agreement, in the
event that the employment of the Employee is terminated by the Company, other
than for "cause" (as such term is defined in the Company's 1999 Stock Option
Plan), or if the Employee has remained in the employ of the Company through
the earlier to occur of the date on which the HQ Merger is effected or April
30, 2001, the Employee shall be relieved of his contingent obligation under
the Exchange Agreement to repay the Additional Compensation (as such term is
defined in the October Agreement).
(d) Upon the termination of the Employee's employment with the
Company or the corporation surviving the HQ Merger, the Employee shall be
provided with a Drake Beam package as shall be reasonably agreed upon by the
Employee and the Company or the corporation surviving the HQ Merger.
(e) In the event that the HQ Merger is effected, the Employee hereby
covenants that he shall not thereafter cause any third party (including,
without limitation any governmental authority) to bring, or assist (except
where such assistance is required by law) any such third party in bringing,
any legal proceeding of any kind or nature (whether by means of litigation,
arbitration, governmental proceeding or otherwise) against the corporation
surviving the HQ Merger, the Company, FrontLine and/or their respective
affiliates for any reason (other than the Company's breach of this Agreement
or the Employment Agreement (as amended by this Agreement)). In the event that
the Employee shall breach such covenant, he shall indemnify and hold harmless
each of the corporation surviving the HQ Merger, FrontLine and their
respective affiliates from and against any and all losses, liabilities,
damages and expenses (including, without limitation, reasonable attorneys'
fees and disbursements) incurred as a result of the claim brought by such
third party.
(f) The Employee hereby acknowledges that, upon the termination of
his employment with the Company and the receipt of all payments to which he is
entitled pursuant to this Agreement, he shall, except as provided in Section
1(f) of the Agreement, have no further rights under the VANTAS Long Term
Incentive Plan or to any other compensation or benefits from the Company
(other than those he is entitled to under the Company's health, disability,
life insurance and pension plans which are payable by the providers of such
plans and not the Company).
(g) To the extent that the Company and/or the corporation surviving
the HQ Merger is or are required to withhold any income or employment taxes
from any payment made to the Employee under this Agreement or the Employment
Agreement (as amended by this Agreement), such taxes shall be withheld at the
minimum rate required by law.
3. Stockholders' Agreement. Subject to the last sentence of this
Section 3, the Employee hereby relinquishes all of his rights existing under
the Stockholders' Agreement and the terms and provisions of the Stockholders'
Agreement as they pertain to the Employee shall be deemed terminated and of no
further force and effect. The Employee shall execute all documents and take
such other action as may be requested by FrontLine, VANTAS and/or the
corporation surviving the HQ Merger in order to further evidence his agreement
to the terms and provisions of the immediately preceding sentence.
Notwithstanding the foregoing, in the event that the Merger Agreement is
terminated, all rights under the Stockholders' Agreement so relinquished by
the Employee shall be reinstated thereunder retroactively to the date of this
Agreement as if such relinquishment had not occurred insofar as concerns any
rights under the Stockholders' Agreement on a going forward basis from and
after the date of the termination of the Merger Agreement.
4. Releases. In the event that the HQ Merger is effected, then on
the effective date of the HQ Merger (i) the Employee shall execute and deliver
to FrontLine and the corporation surviving the HQ Merger the general release
attached hereto as Exhibit A-1, (ii) the Employee shall deliver the Age
Discrimination in Employment Act release attached hereto as Exhibit B-1, which
release shall be executed with a date of April 19, 2000 and delivered in
escrow to the Employee's attorney no later than April 20, 2000 and (iii)
FrontLine and the corporation surviving the HQ Merger shall execute and
deliver to the Employee the general release attached hereto as Exhibit C-1. In
the event that the Merger Agreement is terminated, then on the effective date
of the termination of the Employee's employment with the Company under
circumstances which entitle him to the payments described in Paragraph 7(b) of
the Employment Agreement (as amended by this Agreement), (a) the Employee, in
consideration for such payments, shall execute and deliver to FrontLine and
the Company the general release attached hereto as Exhibit A-2, (b) the
Employee, in consideration for such payments, shall deliver the Age
Discrimination in Employment Act release attached hereto as Exhibit B-2, which
release shall be executed with a date of April 19, 2000 and delivered in
escrow to the Employee's attorney no later than April 20, 2000 and (c)
FrontLine and the Company shall execute and deliver to the Employee the
general release attached hereto as Exhibit C-2.
5. Termination. Notwithstanding any other term or provision of this
Agreement to the contrary, in the event that (i) the employment of the
Employee is terminated for "cause" (as such term is defined in the Company's
1999 Stock Option Plan) or (ii) the Employee and/or Alan M. Langer seek(s)
appraisal rights in connection with the HQ Merger or otherwise oppose,
challenge, initiate or affirmatively join in or assist (except where such
assistance is required by law) any shareholder or other person in bringing any
action opposing, or seeking to alter any of the terms and provisions of, the
HQ Merger, then, in either case, (a) this Agreement shall automatically
terminate and become null and void for all purposes, (b) any amounts paid to
the Employee pursuant to this Agreement shall be repaid to the Company
immediately upon demand and (c) the Employee shall repay the Additional
Compensation to FrontLine immediately upon demand; provided, however, that if
another shareholder of the Company perfects appraisal rights and obtains a
higher per share price (the "Appraisal Price") for his shares of Common Stock
than the per share price to be paid for Common Stock under the Merger
Agreement, then the price to be paid to the Employee for his shares of Common
Stock shall be increased to the Appraisal Price.
6. Resignation. The Employee hereby irrevocably and unconditionally
agrees for the benefit of FrontLine to resign from his position as a director
of the corporation surviving the HQ Merger immediately upon the written
request of FrontLine. In connection with the foregoing, the Employee,
concurrently with his execution and delivery of this Agreement, shall execute
and deliver to FrontLine the undated resignation letter (the "Resignation
Letter"), in the form attached hereto as Exhibit D, which provides for the
Employee's resignation from his position as a director of the corporation
surviving the HQ Merger. FrontLine shall have the right to deliver the
Resignation Letter concurrently with or at any time after the Effective Time
of the HQ Merger. If FrontLine shall have the right and elects to deliver the
Resignation Letter, (i) the Employee hereby irrevocably and unconditionally
authorizes FrontLine to date the Resignation Letter the date on which it is
delivered by FrontLine to the corporation surviving the HQ Merger and (ii)
FrontLine shall promptly provide the Employee with written notice that the
Resignation Letter has been so delivered. In the event the Merger Agreement is
terminated, the Resignation Letter shall immediately become null and void.
7. Fees and Expenses. Each of the parties hereto shall pay his or
its own (and his or its representatives') fees and advances incurred in
connection with the negotiation, preparation, execution and delivery of this
Agreement and any other agreements or documents contemplated hereby or
thereby.
8. Binding Agreement. This Agreement constitutes a binding agreement
among the parties hereto and supercedes all prior agreements or
understandings, written or oral, concerning the subject matter of this
Agreement. In connection with the execution and delivery of this Agreement,
none of the parties hereto has relied on any promise, statement,
understanding, representation, warranty, undertaking or other inducement of
any kind or nature, except as expressly set forth in this Agreement.
9. Remedies. The parties hereto agree that damages may not be an
adequate remedy in the event of a breach or threatened breach of Section 3,
Section 4 or Section 5 of this Agreement. In the event of any such breach or
threatened breach by any party hereto, the other parties hereto shall be
entitled to equitable relief, including injunction and specific performance in
addition to all other remedies available at law or in equity.
10. Severability. Wherever possible, each term and provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any term or provision of this Agreement shall be
prohibited by or invalid under such law, such term or provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such term or provision or the remaining terms
and provisions of this Agreement.
11. Further Assurances. At any time, and from time to time after the
date hereof, each party shall, without further consideration and at its own
cost and expense, execute and deliver such additional agreements, instruments,
documents or certificates and take such further action as shall reasonably be
requested by any other party to this Agreement in order to carry out the
provisions of this Agreement.
12. Assigns. Neither this Agreement nor any of the rights or
obligations of any party shall be assignable or transferable by such party
without the prior written consent of the other parties hereto. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns of each party.
13. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely in the State of New York.
14. Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures
from the provisions of this Agreement may not be given without the written
consent of the parties hereto.
15. Sophistication of Parties. Each of the parties to this Agreement
hereby represents and warrants to the other parties hereto that it has (i)
such knowledge and experience in financial and business matters such that it
is capable of evaluating the terms and provisions of this Agreement and (ii)
been represented by counsel of its choosing in connection with the negotiation
and execution of this Agreement.
16. Construction. The parties hereto acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of this
Agreement.
17. Notices. All notices, requests, demands and other communications
which are required to be given under this Agreement shall be in writing and
shall be deemed to have been duly given: (i) upon receipt if personally
delivered; (ii) one business day after being transmitted with confirmation of
transmission, if transmitted by telecopy or facsimile; (iii) one business day
after it is sent, if sent for next day delivery by a recognized overnight
courier service with signed receipt; and (iv) upon receipt, if sent by
certified or registered mail, return receipt requested. In each case notice
shall be sent to the address set forth on the signature page of this Agreement
or to such other address provided by a party by delivering appropriate notice.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
This Agreement may be executed and delivered via facsimile machine by the
parties, which shall be deemed for all purposes as original.
[SIGNATURE PAGE FOLLOWS]
If the foregoing terms and conditions are satisfactory to you,
please signify your agreement thereto by signing and returning the enclosed
copy of this Agreement.
Very truly yours,
VANTAS Incorporated
90 Park Avenue
New York, New York 10016
Tel: 212.907.6400
Fax: 212.907.6533
By:________________________________
Name:
Title:
Accepted and agreed to this
29th day of March 2000:
David W. Beale
3230 Hewlett Avenue
Merrick, New York 11566
Tel: 516.862.6240
Fax: 516.867.3613
By:________________________________
Agreed and accepted to solely for purposes
of Sections 3, 4 and 6 hereof this
29th day of March 2000:
FrontLine Capital Group
1350 Avenue of the Americas
New York, New York 10019
Tel: 212.931.8000
Fax: 212.931.8001
By:_______________________________
Name:
Title:
Exhibit 10.3
VANTAS Incorporated
90 Park Avenue
New York, New York 10016
March 29, 2000
Alan M. Langer
Strawberry Lane
Irvington, New York 10533
Dear Alan:
This letter agreement (this "Agreement") sets forth the agreement of
the parties hereto with respect to the (i) disposition of the equity holdings
of Alan M. Langer (the "Employee") in VANTAS Incorporated, a Nevada
corporation (the "Company"), (ii) further amendment of the Employee's
employment agreement with the Company dated as of October 29, 1999, as amended
by an Agreement dated as of October 29, 1999 (the "October Agreement") among
the Employee, the Company and FrontLine Capital Group (f/k/a Reckson Service
Industries, Inc.), a Delaware corporation ("FrontLine"), and an Agreement
dated December 30, 1999 (the "December Agreement") among the Company,
FrontLine, the Employee and certain other executive officers of the Company
(as so amended by the October Agreement and the December Agreement, the
"Employment Agreement"; the October Agreement and the December Agreement are
hereinafter collectively referred to as the "Exchange Agreement"), (iii)
further amendment of the Fifth Amended and Restated Stockholders' Agreement
dated as of July 29, 1999, as amended by amendments thereto dated as of
November 22, 1999 and January 26, 2000, by and among the Company and the
Securityholders named therein (as so amended, the "Stockholders' Agreement")
and (iv) certain other matters set forth herein.
The parties hereto, in exchange for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, hereby agree as
follows:
1. Disposition of Employee's Equity Securities.
(a) The Employee hereby represents and warrants to each of the
Company and FrontLine that as of the date hereof he is the sole beneficial (as
such term is defined in Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended, or otherwise) and record owner of the following
equity securities of the Company: (i) Eighty Thousand (80,000) shares of Class
A Common Stock, par value $.01 per share ("Common Stock"), (ii) Seventy-Six
Thousand Two Hundred and Eighty-Seven (76,287) shares of Series A Convertible
Preferred Stock, par value $.01 per share ("Series A Stock"), (iii)
Twenty-Eight Thousand One Hundred and Fifty-Nine (28,159) shares of Series B
Convertible Preferred Stock, par value $.01 per share ("Series B Stock" and
collectively with the shares of Common Stock covered by clause (i) and the
shares of Series A Stock covered by clause (ii), the "Employee Shares"), (iv)
warrants (the "Warrants") to purchase in the aggregate Seven Thousand Six
Hundred and Twenty-Eight (7,628) shares of Common Stock at $1.7014 per share,
(v) options granted under the Company's 1996 Stock Option Plan to purchase in
the aggregate One Hundred Thirty-Three Thousand Two Hundred and Forty-Four
(133,244) shares of Common Stock at Two Dollars ($2) per share and (vi) option
granted under the Company's 1999 Stock Option Plan to purchase One Hundred
Thousand (100,000) shares of Common Stock at Six Dollars ($6) per share
(collectively with the options covered by clause (v), the "Options").
(b) The Employee shall take all necessary action prior to the
Effective Time of the HQ Merger (as such terms are defined in the Merger
Agreement (as hereinafter defined)) to fully convert the shares of Series A
Stock and Series B Stock included within the Employee Shares into shares of
Common Stock. The Employee Shares, after giving effect to the conversion
contemplated by the immediately preceding sentence, shall be subject to and
purchased in accordance with the terms and provisions of the Merger Agreement
applicable to shares of Common Stock. For purposes of this Agreement, the term
"Merger Agreement" means that certain Agreement and Plan of Merger dated as of
January 20, 2000 by and among the Company and FrontLine (solely for purposes
of certain sections thereof), on the one hand, and HQ Global Workplaces, Inc.,
a Delaware corporation, and CarrAmerica Realty Corporation, a Maryland
corporation (solely for purposes of certain sections thereof), on the other
hand.
(c) Immediately prior to the Effective Time of the HQ Merger, the
Employee shall deliver the execution originals of the agreements evidencing
the Warrants and Options to the Company and effect a cashless exercise (the
"Cashless Exercise") of all (but not less than all) of the Warrants and
Options to be calculated based on the price being paid for each share of
Common Stock in the HQ Merger. Assuming that the amount to be paid for each
share of Common Stock pursuant to the Merger Agreement is Eight Dollars ($8),
a Cashless Exercise of all of the Warrants and Options pursuant to this
Section 1(c) will result in the issuance of 130,937 shares of Common Stock
(the "Cashless Exercise Shares") which will be purchased under the Merger
Agreement for One Million Forty-Seven Thousand Four Hundred Ninety-Six Dollars
($1,047,496). The methodology utilized for calculating the number of Cashless
Exercise Shares and the payment due under the Merger Agreement on account
thereof based on an Eight Dollar ($8) per share purchase price is set forth on
Schedule I attached hereto. The number of and dollar amount to be paid for the
Cashless Exercise Shares set forth on Schedule I attached hereto is calculated
as follows: First, calculate the amount required to exercise the Warrants and
the Options in their entirety. Second, subtract such exercise price amount
from the amount which would be payable under the Merger Agreement for the
shares of Common Stock underlying all of the Warrants and the Options.
Finally, divide the amount resulting from such subtraction by the amount to be
paid for each share of Common Stock pursuant to the Merger Agreement. The
amount resulting from such division (which if not a whole number shall be
rounded up to the nearest whole number) represents the number of Cashless
Exercise Shares the Employee shall receive as a result of the Cashless
Exercise. The Cashless Exercise Shares shall be subject to and purchased in
accordance with the terms and provisions of the Merger Agreement applicable to
shares of Common Stock.
(d) Concurrently with the Employee's receipt of the cash payment due
under the Merger Agreement on account of the Employee Shares and Cashless
Exercise Shares, the Employee shall repay all unpaid principal and accrued and
unpaid interest due under the Secured Term Promissory Note dated December 30,
1999 (the "1999 Note") in the principal amount of One Hundred Forty-Three
Thousand Five Hundred and Twelve Dollars ($143,512) by and between the
Employee, as maker, and the Company, as payee.
(e) The Employee hereby represents and warrants to each of the
Company and FrontLine that (i) as of the date of this Agreement, the Employee
Shares, the Warrants and the Options constitute all of the equity securities
of, or other equity in, the Company owned beneficially or of record by the
Employee and (ii) in the event the HQ Merger is effected and the transactions
covered by Sections 1(b), 1(c) and 1(d) of this Agreement are consummated, the
Employee, upon the consummation of such transactions, shall not own
beneficially or of record equity or debt interests in or of the Company (or
its successor) of any kind or nature.
(f) In the event that the Merger Agreement is terminated, (i)
Sections 1(b), 1(c) and 1(d) of this Agreement shall be of no further force
and effect, (ii) the 1999 Note shall be repaid by the Employee upon the
effective date of the termination of his employment with the Company and (iii)
the Employee shall continue to have, with respect to the Employee Shares,
Warrants and Options, his rights set forth under paragraph 2 of Schedule B
(the provisions of such Schedule B being hereinafter referred to as the
"VANTAS Long Term Incentive Plan") to the October Agreement, as such VANTAS
Long Term Incentive Plan has been approved by the Company's senior lenders or
as may in the future be approved by the Company's then existing senior lenders
(as of the date of this Agreement, the Company is permitted by its senior
lenders to spend up to Two Million Dollars ($2,000,000) per quarter and Eight
Million Dollars ($8,000,000) in the aggregate under the VANTAS Long Term
Incentive Plan).
2. Employment Agreement.
(a) The Employment Agreement is hereby amended as follows:
(i) Paragraph 1 of the Employment Agreement is amended and
restated in its entirety as follows:
"Term of Employment. The Company hereby employs Executive, and
Executive hereby accepts employment with the Company on the terms
and conditions set forth in this Agreement for a term (the "Term")
continuing until the earliest to occur of (i) the date on which the
HQ Merger (as such term is defined in that certain Agreement and
Plan of Merger dated as of January 20, 2000 (the "Merger Agreement")
by and among the Company and FrontLine Capital Group (f/k/a Reckson
Service Industries, Inc., a Delaware corporation ("FrontLine")
(solely for purposes of certain sections thereof), on the one hand,
and HQ Global Workplaces, Inc., a Delaware corporation, and
CarrAmerica Realty Corporation, a Maryland corporation (solely for
purposes of certain sections thereof), on the other hand) is
effected, (ii) the termination of the Merger Agreement, (iii) June
30, 2000 or (iv) the date on which Executive's employment is
terminated pursuant to Paragraph 6 (the earliest of such dates, the
"Termination Date")."
(ii) Paragraph 2(a) of the Employment Agreement is amended and
restated in its entirety as follows:
"Position. Executive shall report and be responsible to the Board of
Directors of the Company, the Chairman of the Board and the Chief
Executive Officer. During the Term, Executive's primary duties shall
consist of serving on the HQ Merger transition team and assisting in
the orderly transition of the Company's operations to the
corporation surviving the HQ Merger in such manner as shall be
reasonably requested by the Company. During the period prior to the
HQ Merger, subject to the Employee's approval (which shall not be
unreasonably withheld or delayed), the Employee shall also perform
such other duties as the Board of Directors of the Company, the
Chairman of the Board or the Chief Executive Officer from time to
time may reasonably request. The Employee shall not be required to
report to the Company's executive offices, except as may reasonably
be requested by the Company with reasonable advance notice."
(iii) Paragraph 2(b) of the Employment Agreement is amended and
restated in its entirety as follows:
"No Other Employment. Subject to the other terms and provisions of
this Agreement, including, without limitation, Paragraph 7,
Executive shall not be precluded from engaging in other business
activities prior to the Termination Date including, but not limited
to, serving on the board of directors of other companies and on
civic and charitable boards, managing his and his immediate family's
investments and providing consulting services, in each case, so long
as Executive remains reasonably available to the Company to perform
the duties described in Paragraph 2(a)."
(iv) Paragraph 3 of the Employment Agreement is amended and
restated in its entirety as follows:
"Annual Payment. During the period commencing on January 1, 2000 and
ending on the Termination Date, the Company shall, as compensation
for Executive's services hereunder and as consideration for his
covenants and agreements contained in Paragraph 7, make payments
(the "Annual Payment") to Executive at the rate of Two Hundred Four
Thousand Seven Hundred Dollars ($204,700) per annum. The Annual
Payment shall be payable in such installments as is customary for
executives of the Company."
(v) The language in Paragraph 4 of the Employment Agreement
preceding Paragraph 4(a) of the Employment Agreement is
deleted in its entirety.
(vi) Paragraph 4(a) of the Employment Agreement is amended and
restated in its entirety as follows:
"Performance Bonus. Executive shall receive a bonus of Seventy-Five
Thousand Dollars ($75,000) on account of the fiscal year 1999 and a
bonus of Six Thousand Five Hundred and Sixty-Three Dollars ($6,563)
on account of the fiscal year 2000 (each a "Performance Bonus").
Each Performance Bonus shall be paid to Executive on the Termination
Date. In addition, Executive shall be entitled to receive a further
bonus (the "Contingent Bonus") of Seventy-Five Thousand Dollars
($75,000) on account of the fiscal year 1999 in the event that the
penalty of approximately Three Hundred Seventy-Seven Thousand
Dollars ($377,000) assessed against the Company by the Internal
Revenue Service during the first calendar quarter of the year 2000
is reversed to an amount no greater than Seventy-Five Thousand
Dollars ($75,000). If such a reversal occurs, the Contingent Bonus
shall be paid to Executive within five (5) business days after the
effective date of such reversal."
(vii) Paragraph 4(b) of the Employment Agreement is amended and
restated in its entirety as follows:
"No Further Compensation. Upon Executive's receipt of the payments
contemplated by Paragraphs 3, 4(a), and, if applicable, 5(d) and 6,
Executive shall not be entitled to any further payments from the
Company under this Agreement."
(viii) Paragraph 4(c) of the Employment Agreement is deleted in
its entirety.
(ix) Paragraph 5(b) of the Employment Agreement is amended and
restated in its entirety as follows:
"[Intentionally Omitted.]"
(x) Paragraph 6(a)(iii) of the Employment Agreement is amended
and restated in its entirety as follows:
"'Good Reason' means either of the following: (A) the failure
to pay in a timely manner any Annual Payment or Performance
Bonus due to Executive hereunder that the Company fails to
remedy within thirty (30) days after notice thereof by
Executive, (B) a material breach by the Company of any
provision of this Agreement that the Company fails to remedy or
cease within thirty (30) days after notice thereof by Executive
or (C) a reduction in the amount of the Annual Payment."
(xi) Paragraph 6(b)(iv) of the Employment Agreement is amended
and restated in its entirety as follows:
"by the Company at any time without Cause; or"
(xii) Paragraph 6(b)(vi) of the Employment Agreement is deleted
in its entirety.
(xiii) Paragraph 6(c)(i) of the Employment Agreement is amended
and restated in its entirety as follows:
"If Executive's employment is terminated by reason of death or
Disability, Executive (or his legal representative) shall be
entitled (A) to receive any Annual Payment, Performance Bonus
and Car Allowance accrued up to the date of termination which
remains unpaid, (B) in the case of Disability, to continue to
receive payments of Annual Payments for a period of 90 days
following the effective date of termination by reason of
Disability, but in no event beyond the date that payments under
the Company's long-term disability policy commence, and (C) to
be paid such disability or death benefits as are provided under
any Company benefit plans in which Executive is a participant.
Except as set forth in Paragraph 6(d), Executive shall not be
entitled to any other or further compensation after the date of
any such termination of employment."
(xiv) Paragraph 6(c)(iii) of the Employment Agreement is
amended and restated in its entirety as follows:
"If the employment of Executive is terminated by the Company
without Cause, voluntarily terminated by Executive for Good
Reason or Executive has remained in the employ of the Company
through the earlier to occur of the date on which the HQ Merger
is effected and June 30, 2000, Executive shall be entitled to
receive (A) any Annual Payment, Performance Bonus and Car
Allowance accrued up to the date of termination which remains
unpaid and (B) on the Termination Date, an amount (without
discount for present value) equal to the Annual Payment
Executive would be entitled to receive had he continued to be
employed by the Company during the period commencing on the
effective date of the termination of Executive's employment
without Cause or for Good Reason, or the Termination Date, as
the case may be, and ending on December 31, 2001. Except as set
forth in Paragraphs 6(d) and 6(e), Executive shall not be
entitled to any other or further compensation after the date of
any such termination of employment."
(xv) Paragraph 6(c)(iv) of the Employment Agreement is deleted
in its entirety.
(xvi) The penultimate and last paragraphs of Paragraph 8(a) of
the Employment Agreement are amended and restated in their
entirety as follows:
"If to the Company:
VANTAS Incorporated
90 Park Avenue
New York, New York 10016
Attn: David J. Rupert
Fax: 212.907.6533
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attn: Irwin A. Kishner
Fax: 212.889.7577
If to Executive:
Alan M. Langer
Strawberry Lane
Irvington, New York 10533
Fax: 914.591.8347
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attn: Frank A. Daniele
Fax: 212.728.8111"
(xvii) Paragraph 8(d) of the Employment Agreement is amended
and restated in its entirety as follows:
"This Agreement, the Agreement dated as of October 29, 1999
among the Employee, the Company and FrontLine, the Agreement
dated December 30, 1999 among the Company, FrontLine, the
Employee and certain other executive officers of the Company
and the letter agreement dated March 29, 2000 among Executive,
the Company and FrontLine constitutes the entire agreement
between the parties with respect to the subject matter hereof,
and supersedes all other written or oral negotiations or
agreements with respect thereto."
(b) Except as expressly modified by Section 2(a) of this Agreement,
all of the terms and provisions of the Employment Agreement shall remain in
full force and effect. In the event of any inconsistency or conflict between
the terms and provisions of this Agreement and the Employment Agreement, this
Agreement shall prevail.
(c) Notwithstanding the terms and provisions of the Exchange
Agreement to the contrary, but subject to Section 5 of this Agreement, in the
event that the employment of the Employee is terminated by the Company, other
than for "cause" (as such term is defined in the Company's 1999 Stock Option
Plan), or if the Employee has remained in the employ of the Company through
the earlier to occur of the date on which the HQ Merger is effected or June
30, 2000, the Employee shall be relieved of his contingent obligation under
the Exchange Agreement to repay the Additional Compensation (as such term is
defined in the October Agreement).
(d) The Company hereby confirms that the Employee, following the
termination of his employment with the Company, shall have (i) the
indemnification rights provided for in the Company's Amended and Restated
Articles of Incorporation and By-Laws and (ii) coverage under the Company's
Executive Protection Policy, in each case to the same extent as provided to
former officers of the Company.
(e) Upon the termination of the Employee's employment with the
Company or the corporation surviving the HQ Merger, the Employee shall be
provided with a Drake Beam package as shall reasonably be agreed upon by the
Employee and the Company or the corporation surviving the HQ Merger.
(f) In the event that the HQ Merger is effected, the Employee hereby
covenants that he shall not thereafter cause any third party (including,
without limitation any governmental authority) to bring, or assist (except
where such assistance is required by law) any such third party in bringing,
any legal proceeding of any kind or nature (whether by means of litigation,
arbitration, governmental proceeding or otherwise) against the corporation
surviving the HQ Merger, the Company, FrontLine and/or their respective
affiliates for any reason (other than the Company's breach of this Agreement
or the Employment Agreement (as amended by this Agreement)). In the event that
the Employee shall breach such covenant, he shall indemnify and hold harmless
each of the corporation surviving the HQ Merger, FrontLine and their
respective affiliates from and against any and all losses, liabilities,
damages and expenses (including, without limitation, reasonable attorneys'
fees and disbursements) incurred as a result of the claim brought by such
third party.
(g) The Employee hereby acknowledges that, upon the termination of
his employment with the Company and the receipt of all payments to which he is
entitled pursuant to this Agreement, he shall, except as provided in Section
1(f) of this Agreement, have no further rights under the VANTAS Long Term
Incentive Plan or to any other compensation or benefits from the Company
(other than of those he is entitled to under the Company's health, disability,
life insurance and pension plans which are payable by the providers of such
plans and not the Company).
(h) In the event that the employment of the Employee has been
terminated under Paragraph 6(c)(iii) of Employment Agreement (as amended by
this Agreement), the Company shall pay on the effective date of the
termination of the Employee's employment (i) an amount not to exceed Eleven
Thousand Two Hundred Sixty-One Dollars ($11,261) per calendar year (pro rated
to the effective date of the termination of the Employee's employment for the
calendar year 2000) relating to health insurance coverage through December 31,
2001 for the Employee and his immediate family and (ii) Seven Thousand Dollars
($7,000) in respect of premiums due under the Employee's Four Million Dollar
($4,000,000) individual life insurance policy for the calendar year 2001.
(i) From and after the earlier to occur of (i) the date on which the
HQ Merger is effected or (ii) June 30, 2000, the Employee shall have the
right, at his sole cost and expense, to remove from his office the furniture
that was historically located therein during the course of the Employee's
employment.
(j) To the extent that the Company and/or the corporation surviving
the HQ Merger is or are required to withhold any income or employment taxes
from any payment made to the Employee under this Agreement or the Employment
Agreement (as amended by this Agreement), such taxes shall be withheld at the
minimum rate required by law.
3. Stockholders' Agreement. Subject to the last sentence of this
Section 3, the Employee hereby relinquishes all of his rights existing under
the Stockholders' Agreement and the terms and provisions of the Stockholders'
Agreement as they pertain to the Employee shall be deemed terminated and of no
further force and effect. The Employee shall execute all documents and take
such other action as may be requested by FrontLine, VANTAS and/or the
corporation surviving the HQ Merger in order to further evidence his agreement
to the terms and provisions of the immediately preceding sentence.
Notwithstanding the foregoing, in the event that the Merger Agreement is
terminated, all rights under the Stockholders' Agreement so relinquished by
the Employee shall be reinstated thereunder retroactively to the date of this
Agreement as if such relinquishment had not occurred insofar as concerns any
rights under the Stockholders' Agreement on a going forward basis from and
after the date of the termination of the Merger Agreement.
4. Releases. In the event that the HQ Merger is effected, then on
the effective date of the HQ Merger (i) the Employee shall execute and deliver
to FrontLine and the corporation surviving the HQ Merger the general release
attached hereto as Exhibit A-1, (ii) the Employee shall deliver the Age
Discrimination in Employment Act release attached hereto as Exhibit B-1, which
release shall be executed with a date of April 19, 2000 and delivered in
escrow to the Employee's attorney no later than April 20, 2000 and (iii)
FrontLine and the corporation surviving the HQ Merger shall execute and
deliver to the Employee the general release attached hereto as Exhibit C-1. In
the event that the Merger Agreement is terminated, then on the effective date
of the termination of the Employee's employment with the Company under
circumstances which entitle him to the payments described in Paragraph
6(c)(iii) of the Employment Agreement (as amended by this Agreement) (a) the
Employee, in consideration for such payments, shall execute and deliver to
FrontLine and the Company the general release attached hereto as Exhibit A-2,
(b) the Employee, in consideration for such payments, shall deliver the Age
Discrimination in Employment Act release attached hereto as Exhibit B-2, which
release shall be executed with a date of April 19, 2000 and delivered in
escrow to the Employee's attorney no later than April 20, 2000 and (c)
FrontLine and the Company shall execute and deliver to the Employee the
general release attached hereto as Exhibit C-2.
5. Termination. Notwithstanding any other term or provision of this
Agreement to the contrary, in the event that (i) the employment of the
Employee is terminated for "cause" (as such term is defined in the Company's
1999 Stock Option Plan) or (ii) the Employee and/or David W. Beale seek(s)
appraisal rights in connection with the HQ Merger or otherwise oppose,
challenge, initiate or affirmatively join in or assist (except where such
assistance is required by law) any shareholder or other person in bringing any
action opposing, or seeking to alter any of the terms and provisions of, the
HQ Merger, then, in either case, (a) this Agreement shall automatically
terminate and become null and void for all purposes, (b) any amounts paid to
the Employee pursuant to this Agreement shall be repaid to the Company
immediately upon demand and (c) the Employee shall repay the Additional
Compensation to FrontLine immediately upon demand; provided, however, that if
another shareholder of the Company perfects appraisal rights and obtains a
higher per share price (the "Appraisal Price") for his shares of Common Stock
than the per share price to be paid for Common Stock under the Merger
Agreement, then the price to be paid to the Employee for his shares of Common
Stock, Series A Stock and Series B Stock shall be increased to the Appraisal
Price.
6. Fees and Expenses. Each of the parties hereto shall pay his or
its own (and his or its representatives') fees and advances incurred in
connection with the negotiation, preparation, execution and delivery of this
Agreement and any other agreements or documents contemplated hereby or
thereby.
7. Binding Agreement. This Agreement constitutes a binding agreement
among the parties hereto and supercedes all prior agreements or
understandings, written or oral, concerning the subject matter of this
Agreement. In connection with the execution and delivery of this Agreement,
none of the parties hereto has relied on any promise, statement,
understanding, representation, warranty, undertaking or other inducement of
any kind or nature, except as expressly set forth in this Agreement.
8. Remedies. The parties hereto agree that damages may not be an
adequate remedy in the event of a breach or threatened breach of Section 3,
Section 4 or Section 5 of this Agreement. In the event of any such breach or
threatened breach by any party hereto, the other parties hereto shall be
entitled to equitable relief, including injunction and specific performance in
addition to all other remedies available at law or in equity.
9. Severability. Wherever possible, each term and provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any term or provision of this Agreement shall be
prohibited by or invalid under such law, such term or provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such term or provision or the remaining terms
and provisions of this Agreement.
10. Further Assurances. At any time, and from time to time after the
date hereof, each party shall, without further consideration and at its own
cost and expense, execute and deliver such additional agreements, instruments,
documents or certificates and take such further action as shall reasonably be
requested by any other party to this Agreement in order to carry out the
provisions of this Agreement.
11. Assigns. Neither this Agreement nor any of the rights or
obligations of any party shall be assignable or transferable by such party
without the prior written consent of the other parties hereto. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns of each party.
12. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely in the State of New York.
13. Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures
from the provisions of this Agreement may not be given without the written
consent of the parties hereto.
14. Sophistication of Parties. Each of the parties to this Agreement
hereby represents and warrants to the other parties hereto that it has (i)
such knowledge and experience in financial and business matters such that it
is capable of evaluating the terms and provisions of this Agreement and (ii)
been represented by counsel of its choosing in connection with the negotiation
and execution of this Agreement.
15. Construction. The parties hereto acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of this
Agreement.
16. Notices. All notices, requests, demands and other communications
which are required to be given under this Agreement shall be in writing and
shall be deemed to have been duly given: (i) upon receipt if personally
delivered; (ii) one business day after being transmitted with confirmation of
transmission, if transmitted by telecopy or facsimile; (iii) one business day
after it is sent, if sent for next day delivery by a recognized overnight
courier service with signed receipt; and (iv) upon receipt, if sent by
certified or registered mail, return receipt requested. In each case notice
shall be sent to the address set forth on the signature page of this Agreement
or to such other address provided by a party by delivering appropriate notice.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
This Agreement may be executed and delivered via facsimile machine by the
parties, which shall be deemed for all purposes as original.
[SIGNATURE PAGE FOLLOWS]
If the foregoing terms and conditions are satisfactory to you,
please signify your agreement thereto by signing and returning the enclosed
copy of this Agreement.
Very truly yours,
VANTAS Incorporated
90 Park Avenue
New York, New York 10016
Tel: 212.907.6400
Fax: 212.907.6533
By:____________________________
Name:
Title:
Accepted and agreed to this
29th day of March 2000:
Alan M. Langer
Strawberry Lane
Irvington, New York 10533
Tel: 914.591.8325
Fax: 914.591.8347
By:_____________________________
Agreed and accepted to solely for purposes
of Section 3 and 4 hereof this 29th
day of March 2000:
FrontLine Capital Group
230 Park Avenue
New York, New York 10169
Tel: 212.931.8000
Fax: 212.931.8001
By:_____________________________
Name:
Title:
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