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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-11631
PROSPECTUS
1,140,000 SHARES OF COMMON STOCK,
$0.001 PAR VALUE PER SHARE,
OF PARKWAY PROPERTIES, INC.
The 1,140,000 shares of common stock, $0.001 par value per share (the
"Common Stock"), of Parkway Properties, Inc. ("Parkway"), to which this
Prospectus relates are offered for the stockholders identified in this
Prospectus under the heading "Selling Stockholders," or for the account of
pledgees, donees, transferees or other successors in interest of the Selling
Stockholders. Such sales may be made to or through one or more brokers or
dealers on the New York Stock Exchange, Inc. (the "NYSE") at prices and at terms
then prevailing or at prices related to the then-current market price, or in
negotiated transactions. Such transactions may include, but are not limited to,
one or more of the following: (i) a block trade in which the broker or dealer so
engaged will attempt to sell the Common Stock as an agent, but may position and
resell a portion of the block as principal to facilitate the transaction; (ii)
purchases by a broker or dealer for its account pursuant to this Prospectus; and
(iii) ordinary brokerage transactions and transactions in which the broker
solicits purchasers. In effecting sales, brokers or dealers engaged by the
Selling Stockholders may arrange for other brokers or dealers to participate. In
the event of a transaction hereunder in which a broker or dealer acts as a
principal (other than to facilitate an installment sale transaction, or to a
market maker acting as such in routine transactions in the over-the-counter
market), this Prospectus will be supplemented to provide material facts with
respect to such transaction.
Brokers or dealers involved in sales hereunder will receive commissions
or discounts in amounts to be negotiated prior to the sale. Such brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), in connection with such sales, and any profits or commissions
earned by them in such transactions may be deemed to be underwriting discounts
or commissions under the Securities Act.
THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 3.
Parkway will receive no portion of the proceeds of the sale of the
Common Stock hereunder. Parkway will incur the costs of preparation,
reproduction and distribution for this Registration Statement. The Selling
Stockholders will pay any brokerage discounts or commissions.
Sales of Common Stock may also be made for the account of the Selling
Stockholders or for the account of donees, transferees or other successors in
interest of the Selling Stockholders pursuant to Rule 144 under the Securities
Act. The securities offered herein are "restricted securities" as defined by
Rule 144 under the Securities Act and investors of such securities are required
by Rule 144 to hold the restricted securities for a minimum of two years from
the date of purchase for full consideration. The Common Stock became listed on
the
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NYSE under the symbol "PKY" on August 22, 1996. On November 7, 1996, the closing
sale price was reported to be $21.50 per share of Common Stock.
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by Parkway.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of Parkway since such date or, in
the case of information incorporated herein by reference, the date of filing
with the Securities and Exchange Commission (the "SEC").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THE SHARES OF COMMON STOCK HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SHARES OF COMMON STOCK MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SHARES OF COMMON STOCK IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
The date of this Prospectus is November 8, 1996.
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AVAILABLE INFORMATION
Parkway is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed by Parkway may be
inspected at, and, upon payment of the SEC's customary charges, copies obtained
from, the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, DC 20549. Such reports, proxy statements and other information are
also available for inspection and copying at prescribed rates at the SEC's
regional offices in New York, New York (Seven World Trade Center, 13th Floor,
New York, New York 10048) and in Chicago, Illinois (Suite 1400, Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661-2511). The SEC maintains a Web
site (http://www.sec.gov) that also contains reports, proxy statements and other
information concerning Parkway. In addition, the Common Stock is traded on the
NYSE under the symbol "PKY" and reports, proxy statements and other information
concerning Parkway can be inspected and copied at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
Parkway has filed with the SEC a Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act and the rules and
regulations promulgated thereunder, with respect to the Common Stock. This
Prospectus constitutes the Prospectus of Parkway, filed as part of the
Registration Statement. As permitted by the rules and regulations of the SEC,
this Prospectus omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement and the exhibits
listed therein, which can be inspected at the public reference facilities of the
SEC noted above, and copies of which can be obtained from the SEC at prescribed
rates as indicated above.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PARKWAY. NEITHER THE DELIVERY
HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY
THIS PROSPECTUS IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated into this Prospectus by reference are the documents listed
below filed by Parkway or its predecessor, The Parkway Company, under the
Exchange Act. Copies of any such documents, other than exhibits to such
documents, are available without charge to each person to whom a copy of this
Prospectus has been delivered upon written or oral request of such person from
Parkway, 300 One Jackson Place, 188 East Capitol Street, Jackson, Mississippi
39201-2195, Attention: Chief Financial Officer, telephone number (601) 948-4091.
The following documents or portions thereof are hereby incorporated
into this Prospectus by reference:
1. The Parkway Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995 (Commission File No. 0-12505).
2. The Parkway Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1996 (Commission File No. 0-12505).
3. The Parkway Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1996 (Commission File No. 0-12505), as
amended by Form 10-QSB/A dated August 30, 1996.
4. The Parkway Company's Current Report on Form 8-K/A dated
March 1, 1996 (Commission File No. 0-12505).
5. The Parkway Company's Current Report on Form 8-K dated
April 15, 1996 (Commission File No. 0-12505).
6. The Parkway Company's Current Report on Form 8-K dated
May 31, 1996 (Commission File No. 0-12505).
7. The Parkway Company's Current Report on Form 8-K dated
June 14, 1996 (Commission File No. 0-12505).
8. The Parkway Company's Proxy Material for its Annual Meeting
of Shareholders held on July 18, 1996 (Commission File
No. 0-12505).
9. The Parkway Company's Current Report on Form 8-K/A dated
June 28, 1996 (Commission File No. 0-12505).
10. The Parkway Company's Current Report on Form 8-K dated
July 9, 1996 (Commission File No. 0-12505).
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11. Parkway Properties, Inc.'s Current Report on Form 8-K dated
August 2, 1996 (Commission File No. 1-11533).
12. Parkway Properties, Inc.'s Current Report on Form 8-K dated
August 9, 1996 (Commission File No. 1-11533).
13. Parkway Properties, Inc.'s Current Report on Form 8-K/A dated
August 30, 1996 (Commission File No. 1-11533).
14. Parkway Properties, Inc.'s Current Report on Form 8-K dated
September 30, 1996 (Commission File No. 1-11533).
15. Parkway Properties, Inc.'s Current Report on Form 8-K/A dated
October 22, 1996 (Commission File No. 1-11533).
All documents filed by Parkway pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the respective dates of the filing thereof.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
THE COMPANY..................................................................................................... 1
Organization........................................................................................... 1
Operating Strategy..................................................................................... 1
Possible Election of REIT Status....................................................................... 2
RISK FACTORS.................................................................................................... 3
Risks Associated with Indebtedness..................................................................... 3
Risks of Real Estate Ownership......................................................................... 3
Tax Risks Associated with Potential REIT Election...................................................... 4
Limitation on Net Operating Loss Carryforwards......................................................... 5
Tenant Defaults........................................................................................ 5
Americans with Disabilities Act........................................................................ 6
Risk of Catastrophic Loss.............................................................................. 6
Possible Environmental Liabilities..................................................................... 6
Competition............................................................................................ 7
Risk of Acquisitions................................................................................... 7
Possible Ownership Restrictions........................................................................ 7
SELLING STOCKHOLDERS............................................................................................ 8
USE OF PROCEEDS................................................................................................. 8
PLAN OF DISTRIBUTION............................................................................................ 9
DESCRIPTION OF SECURITIES....................................................................................... 9
Common Stock........................................................................................... 10
Restrictions on Transfer............................................................................... 10
Right of Board of Directors to Classify or Reclassify Shares........................................... 10
Excess Stock........................................................................................... 11
Class A Preferred Stock................................................................................ 12
Anti-Takeover Provisions............................................................................... 12
FEDERAL INCOME TAX CONSIDERATIONS............................................................................... 15
Introductory Notes..................................................................................... 15
Taxation of the Company................................................................................ 15
Taxation of Stockholders............................................................................... 19
LEGAL MATTERS................................................................................................... 21
EXPERTS ....................................................................................................... 21
INDEMNIFICATION OF DIRECTORS AND OFFICERS....................................................................... 21
</TABLE>
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THE COMPANY
ORGANIZATION
Parkway Properties, Inc. ("Parkway") was incorporated under the laws
of the State of Maryland on May 17, 1996. Formed as a wholly-owned subsidiary of
The Parkway Company, a Texas corporation, Parkway merged with The Parkway
Company on August 2, 1996 (the "Merger") pursuant to the Agreement and Plan of
Merger dated July 17, 1996 by and between Parkway and The Parkway Company. As a
result of the Merger, Parkway succeeded to the business and operations of The
Parkway Company. This reincorporation in Maryland allows Parkway to avail itself
of the benefits of the Maryland General Corporation Law, something management of
Parkway believes to be beneficial should Parkway elect to be taxed as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"). See "--Possible Election of REIT Status."
Additionally, on August 22, 1996 shares of common stock, par value
$0.001 per share of Parkway ("Common Stock") became listed on the New York Stock
Exchange, Inc. ("NYSE") under the symbol "PKY." Prior to this date, the Common
Stock had been listed on the NASDAQ National Market under the symbol "PKWY."
OPERATING STRATEGY
Parkway is a full service, self-managed real estate investment company
specializing primarily in the ownership, management and leasing of office
properties in the southeast and southwest United States (particularly the states
of Mississippi, North Carolina, Georgia, Texas and Virginia). Parkway seeks
investments where the expertise of Parkway's management can add value through
direct asset and/or property management, a "hands-on" operating philosophy and
Parkway's liquidity and financial strength. Parkway owns a portfolio of income
producing real estate properties. At September 30, 1996, Parkway owned or had an
interest in 16 office buildings in eight states with an aggregate of
approximately 1,877,000 square feet of leasable space.
Through its wholly-owned subsidiary, Eastover Realty Corporation
("Eastover Realty"), Parkway is also involved in the management of commercial
properties for which it receives management fees. Eastover Realty currently
manages and leases a portfolio of approximately 1,560,000 square feet of office
and industrial space. Eastover Realty also performs brokerage services to third
parties on a commission basis. Eastover Realty manages Parkway's office
buildings in Jackson, Mississippi.
In addition to direct real estate acquisitions, Parkway's investment
strategy has also historically included the consummation of business combination
transactions with other public real estate and financial companies which Parkway
deemed to be undervalued. Since 1979, Parkway has completed eight such business
combinations. Most recently, Parkway acquired First Continental Real Estate
Investment Trust effective May 10, 1994, Congress Street
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Properties, Inc. effective November 29, 1994 and EB, Inc. effective April 27,
1995. As a result of these various business combinations, Parkway has acquired a
portfolio of non-core real estate assets, securities and mortgage loans, which
it is proceeding to liquidate.
POSSIBLE ELECTION OF REIT STATUS
Parkway presently pays virtually no federal income taxes ($64,000 in
1995) because net operating losses ("NOLs") shelter most of Parkway's income
from such taxes. However, the increase in the number of outstanding shares of
Common Stock which resulted from the completion of the private placement of
shares of Common Stock in June 1996 (the "Private Placement") and Parkway's
recent mergers caused the use of Parkway's NOLs to be significantly limited in
any one year. Accordingly, subject to further analysis, Parkway intends to elect
to qualify as a REIT for the taxable year beginning January 1, 1997, which will
allow Parkway to be generally exempt from federal income taxes even if its NOLs
are limited or exhausted providing it makes sufficient distributions to its
stockholders. Parkway and its advisors are presently examining Parkway's assets,
sources of revenue and operating history to determine if Parkway will be
eligible to be taxed as a REIT and the steps that need to be taken for Parkway
to qualify as a REIT under the Code. However, the examination is ongoing and
there can be no assurance whether a REIT election can or will be made. See "Risk
Factors--Tax Risks Associated with Potential REIT Election."
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RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained or incorporated by reference in this
Prospectus before making a decision to purchase any Common Stock.
RISKS ASSOCIATED WITH INDEBTEDNESS
Although Parkway intends to maintain what it believes to be acceptable
leverage, there are no formal limits on the amount of indebtedness that Parkway
may incur. Furthermore, certain of Parkway's indebtedness have variable interest
rates which may rise if the level of interest rates in general increases.
Parkway intends to repay amounts drawn under its line of credit with Deposit
Guaranty National Bank which can be used only to purchase income producing real
property (the "Acquisition Line of Credit"), with funds obtained from fixed rate
financing secured by the buildings purchased with the Acquisition Line of Credit
or with cash available from operations and proceeds from the sale of non-core
assets. There can be no assurance that such fixed rate financing will be
available or available on acceptable terms, or that non-core assets will be sold
to purchase office properties or repay debt, and in the event variable rate debt
remains outstanding, any increase in interest rates could have a material
adverse impact on Parkway's financial results.
RISKS OF REAL ESTATE OWNERSHIP
Parkway's assets primarily consist of equity investments in various
types of real property. As a result, stockholders of Parkway are subject to the
risks inherent in the ownership and management of real property owned by
Parkway. These risks include, among others: adverse changes in general or local
economic conditions; adverse changes in interest rates and in the availability
of permanent mortgage financing which may render the acquisition, sale or
refinancing of properties difficult or unattractive; existing law, rules and
regulations and judicial decisions regarding liability for a variety of
potential problems related to real estate generally; adverse changes in real
estate, zoning, environmental or land-use laws; increases in real property taxes
and federal or local economic or rent controls; other governmental rules;
increases in operating costs and the need for additional capital and tenant
improvements; the cash demands of tenant improvements and leasing commission
obligations; the supply of and demand for properties; possible insolvencies and
other material defaults by tenants; overbuilding in certain markets; ability to
obtain or maintain full occupancy of properties or to provide for adequate
maintenance or insurance; the presence of hazardous waste materials; mechanics
liens resulting from construction; property related claims and litigation;
fiscal policies; and acts of God. The illiquidity of real estate investments
generally impairs the ability of real estate owners to respond quickly to
changed circumstances.
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Additionally, a substantial percentage of Parkway's properties are
located in the southeast and southwest United States (particularly the states of
Mississippi, North Carolina, Georgia, Texas and Virginia) and such properties
consist predominantly of office properties. Parkway's performance, therefore,
will be linked to economic conditions in the southeast and southwest United
States as well as the market for office space generally. To the extent that
these conditions impact the market rents for office space, they could result in
a reduction of net income, funds from operations and cash available for
distribution and thus affect the financial performance of Parkway.
Certain significant expenditures associated with investments in real
estate (such as mortgage payments, real estate taxes, insurance and maintenance
costs and the cash demands of tenant improvements and leasing commission
obligations) are generally not reduced when circumstances cause a reduction in
rental revenues from the property. In addition, real estate values and yields
from investments in properties may also be affected by such factors as
conditions in financial markets, environmental conditions and compliance with
laws. If large numbers of vacancies occur in Parkway's office properties,
Parkway may be required to make significant expenditures for marketing, tenant
improvements and leasing commissions in connection with attracting new tenants
for such vacant space. Any of these factors may adversely affect Parkway's net
income, funds from operations and cash available for distribution.
TAX RISKS ASSOCIATED WITH POTENTIAL REIT ELECTION
Subject to its eligibility to do so, Parkway intends to elect to
qualify as a REIT under the Code in order to qualify for the tax benefits of
such a classification. No assurance can be given that Parkway will be eligible
to make such election, and, if it does, that all benefits potentially arising
from such an election will be realized. Among the risk factors to be considered
in this context are the following:
Earnings and Profits Calculation. In order to elect REIT status,
Parkway cannot have earnings and profits which have been generated during years
in which Parkway was not qualified as a REIT. For this purpose, under the Code,
earnings and profits of companies which have been acquired by Parkway and the
earnings and profits of any of Parkway's subsidiaries are included in
calculating Parkway's earnings and profits account. The determination of the
earnings and profits account of a company is a highly technical and complex
undertaking. Parkway's predecessor, The Parkway Company, was organized in 1971
and over the years has acquired several companies. In calculating the earnings
and profits account, studies have been undertaken of not only Parkway's earnings
and profits history, but also the history of all acquired companies. Although
these studies have not been finalized, Parkway believes that a reasonably
accurate determination of Parkway's earnings and profits account is possible. To
the extent such account is positive, Parkway will be required to distribute
dividends sufficient to reduce that account to zero prior to the end of the
first taxable year in which Parkway's election of REIT status under the Code
becomes effective. Any determination made by Parkway with respect to its
earnings and profits account is not binding on the Internal Revenue Service (the
"Service"). In the event the Service were to successfully challenge Parkway's
calculation of
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earnings and profits, a possible outcome of such challenge could be the
termination of Parkway's status as a REIT in the event of its future election to
be qualified as a REIT.
Possible Restructuring. In order to qualify as a REIT, Parkway must
restructure both the manner in which it owns certain of its assets and its
active business operations. Because no assurance can be given that REIT status
will be obtained, it is possible that the substantial costs incurred and the
operating structures adopted in anticipation of such election will not result in
the benefits intended.
LIMITATION ON NET OPERATING LOSS CARRYFORWARDS
For federal income tax purposes, Parkway has approximately $9,688,000
of NOLs as of June 30, 1996. In addition to the NOLs, two of Parkway's
subsidiaries have NOLs of approximately $23,500,000 in the aggregate. Parkway
estimates that approximately $10,440,000 of these NOLs will be available, on a
limited basis, for use by Parkway after application of certain restrictions
under the Code. As a consequence of the issuances of shares in business
combination transactions and for cash, the ability of Parkway to apply NOLs to
offset its taxable income is significantly limited, and Parkway may be required
to pay federal income tax on a portion of its income unless it is able to elect
to qualify as a REIT, in which case the rules relating to taxation of REITs
would apply.
TENANT DEFAULTS
A substantial part of Parkway's income is expected to be derived from
rental income from real property. Consequently, Parkway's ability to make
expected distributions to stockholders would be adversely affected if a
significant number of tenants failed to meet their lease obligations. In the
event of a default by a tenant, Parkway may experience delays in enforcing its
rights as lessor and may incur substantial costs in protecting its investment.
At any time, a tenant may also seek protection under the bankruptcy laws, which
could result in the rejection and termination of such tenant's lease and thereby
cause a reduction in the net income, funds from operations and cash available
for distribution of Parkway. If a tenant rejects its lease pursuant to
applicable bankruptcy laws, Parkway's claim for breach of the lease in excess of
any applicable security deposit would (absent collateral securing the claim) be
treated as a general unsecured claim. The amount of the claim would be capped at
the amount owed for unpaid prepetition lease payments unrelated to the
rejection, plus the greater of one year's lease payment or 15% of the remaining
lease payments payable under the lease (but not to exceed the amount of three
years' lease payments).
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AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990, as amended (the
"ADA"), all public accommodations are required to meet certain federal
requirements related to access and use by disabled persons. Compliance with the
public accommodations provision of the ADA could require the removal of access
barriers, and noncompliance could result in the imposition of fines or awards of
damages. Additional legislation may impose further burdens or restrictions on
owners with respect to access by disabled persons. The ultimate amount of the
cost of compliance with the ADA or such legislation is not currently
ascertainable, and, while such costs are not expected to have a material effect
on Parkway, such costs could be substantial. Parkway has not undertaken ADA
studies of all of its properties and, as to those properties with respect to
which Parkway has not undertaken ADA studies, possible costs of compliance could
arise.
RISK OF CATASTROPHIC LOSS
Parkway has obtained or has caused its tenants to obtain, commercial
general liability, fire and extended coverage insurance with respect to its
properties, of the types and in the amounts which management believes are
customarily obtained for similar properties. There are, however, certain types
of losses (generally of a catastrophic nature, such as earthquakes, floods and
wars) that may be either uninsurable or not economically insurable. Should such
an uninsured loss occur, Parkway could lose both its invested capital and
anticipated profits relating to such property.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and
regulations, an owner of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose liability without regard to whether the owner knew of, or
was responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to use such property as collateral in its borrowings. Management of
Parkway is not aware of any environmental liability with respect to the
properties that management believes would have a material adverse effect on
Parkway's business, assets or results of operations. Phase I environmental
audits have been conducted at each of the properties acquired by Parkway since
June 1, 1995 and Parkway will perform such audits with respect to properties
acquired in the future. No assurance can be given that there are no existing
environmental liabilities with respect to any of Parkway's properties or that
any prior owner of any such property did not create any material environmental
condition not known to Parkway.
Asbestos was formerly used in commercial construction as a
fireproofing and insulation material. Under certain circumstances, asbestos can
become a hazard to the health of the occupants of buildings and it must be
regularly monitored to ensure that it has not become a health hazard. Parkway is
not aware of any material asbestos problems at the properties owned
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by Parkway, but is aware of asbestos at certain properties which secure mortgage
loans owned by Parkway. The fact that asbestos is present in properties which
are collateral for Parkway's loans could have an adverse effect on the value of
Parkway's collateral. Further, there can be no assurance that asbestos problems
do not exist at properties owned by Parkway. If there is asbestos in Parkway's
properties (or in a property upon which Parkway forecloses) that requires
removal or other remediation, the costs thereof could be substantial.
COMPETITION
All of the properties owned by Parkway are located in developed areas.
There are numerous other office properties and real estate companies within the
market area of each such property which will compete with Parkway for tenants
and development and acquisition opportunities. The number of competitive office
properties and real estate companies in such areas could have a material effect
on (i) Parkway's ability to rent space at the properties, the amount of rents
currently charged and tenant improvements and other tenant concessions required
to lease the property; and (ii) development and acquisition opportunities.
Parkway will compete for tenants and acquisitions with others who may have
greater resources than Parkway. Furthermore, Parkway has more than one office
building in certain markets (e.g., Jackson, Mississippi) and those buildings may
compete against one another for the same tenants.
RISK OF ACQUISITIONS
Parkway has acquired 11 office properties since July 31, 1995 and is
in the process of acquiring additional properties. Although Parkway believes it
has sufficient management depth to take Parkway through this period of asset
growth, there can be no assurance that Parkway will be able to assimilate the
acquisitions into its portfolio without certain operating disruptions and
unanticipated costs.
POSSIBLE OWNERSHIP RESTRICTIONS
The provisions of the Charter of Parkway (the "Charter") provide that
if a transfer of stock of Parkway or a change in the capital structure of
Parkway would result in (i) any person (as defined in the Charter) directly or
indirectly acquiring beneficial ownership of more than 9.8% of the equity
securities of Parkway; (ii) the outstanding Common Stock and preferred stock of
Parkway being constructively or beneficially owned by fewer than 100 persons; or
(iii) Parkway being "closely held" within the meaning of Section 856 of the
Code, then: (A) any proposed transfer will be void ab initio and will not be
recognized by Parkway; (B) Parkway will have the right to redeem the shares
proposed to be transferred; and (C) the shares proposed to be transferred will
be automatically converted into and exchanged for shares of a separate class of
stock, the Excess Stock (as hereinafter defined), having no dividend or voting
rights. Holders of Excess Stock do have certain rights in the event of any
liquidation, dissolution or winding up of the corporation. The Charter further
provides that the Excess Stock will be held by Parkway as trustee for the person
or persons to whom the shares are ultimately transferred, until such
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time as the shares are retransferred to a person or persons in whose hands the
shares would not be Excess Stock and certain price-related restrictions are
satisfied. These provisions are designed to enable Parkway to meet the share
ownership requirements applicable to REITs under the Code, but may also have an
anti-takeover effect.
SELLING STOCKHOLDERS
All of the Common Stock offered hereby is to be offered for the
account of the security holders (the "Selling Stockholders") set forth in the
table below. Each of the Selling Stockholders acquired its securities from the
Company in transactions that were exempt from the registration requirements of
the Securities Act.
<TABLE>
<CAPTION>
Shares of Shares of
Common Stock Shares of Common Stock
Selling Stockholders (1) Owned Prior Common Stock Owned After
------------------------ to the Offering Offered for Sale the Offering
--------------- ---------------- --------------
<S> <C> <C> <C>
Morgan Stanley U.S. Real Estate (Retail)............ 14,000 14,000 0
MS SICAV REAL ESTATE................................ 253,000 253,000 0
Morgan Stanley Institutional Fund
Real Estate Portfolio............................. 323,000 323,000 0
Delaware Group Dividend and Income
Fund, Inc......................................... 120,500 120,500 0
Delaware Pooled Trust, Inc. for The Real
Estate Investment Trust Portfolio................. 29,500 29,500 0
Charter Oak Partners................................ 200,000 200,000 0
Pennsylvania Public School
Employees' Retirement System...................... 200,000 200,000 0
<FN>
(1) None of the Selling Stockholders had any material relationship with
Parkway, its predecessor or any affiliates of Parkway, within the past
three years.
</TABLE>
USE OF PROCEEDS
Parkway will not receive any proceeds from this offering of Common
Stock by the Selling Stockholders.
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<PAGE> 15
PLAN OF DISTRIBUTION
Parkway has been advised by the Selling Stockholders that the Selling
Stockholders may sell all or a portion of the securities offered by it hereby
from time to time on the NYSE at prices prevailing at the time of such sales.
The Selling Stockholders may also make private sales directly to or through a
broker or brokers. Alternatively, the Selling Stockholders may from time to time
offer the securities through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, commissions or concessions
from the Selling Stockholders and/or the purchasers of the securities for whom
they may act as agent. To the extent required, the number of securities to be
sold, the purchase price, the name of any such agent, dealer or underwriter and
any applicable commissions with respect to a particular offer will be set forth
in an accompanying Prospectus Supplement. The aggregate net proceeds to the
Selling Stockholders from the sale of the securities sold by the Selling
Stockholders hereby will be the purchase price of such securities less any
broker's commissions.
No determination has been made whether the Selling Stockholders will
sell any of the securities offered hereby.
In order to comply with the securities laws of certain states, if
applicable, the securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, the securities may not
be sold in certain states unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and complied with.
The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the distribution
of the securities may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any commissions received by such broker-dealers,
agents or underwriters and any profit on the resale of the securities purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act.
DESCRIPTION OF SECURITIES
The total number of shares of capital stock of all classes that
Parkway is authorized to issue is 100,000,000. The capital stock is currently
classified as (i) 69,424,000 shares of Common Stock, 4,211,896 of which are
currently issued and outstanding; (ii) 576,000 shares of Class A Preferred
Stock, none of which are currently issued or outstanding; and (iii) 30,000,000
shares of excess stock, par value $0.001 per share ("Excess Stock"), none of
which are currently issued or outstanding.
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<PAGE> 16
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. The holders of shares
of Common Stock have no cumulative voting rights. Additionally, subject to the
rights of holders of preferred stock, holders of shares of Common Stock are
entitled to receive, pro rata in relation to the number of shares of Common
Stock held by them, such dividends as may be declared from time to time by the
directors out of funds legally available therefor.
In the event of the voluntary or involuntary liquidation, dissolution
or winding-up of Parkway, after distribution in full of the preferential
amounts, if any, to be distributed to the holders of any then outstanding
preferred stock, and subject to the right, if any, of the holders of any
outstanding preferred stock to participate further in any liquidating
distributions, all of the assets of Parkway, if any, remaining, of whatever kind
available for distribution to stockholders after the foregoing distributions
have been made shall be distributed to the holders of the Common Stock, ratably
in proportion to the number of shares of Common Stock held by them.
RESTRICTIONS ON TRANSFER
Pursuant to the provisions of the Charter, if a transfer of stock
occurs whereby any person would own, beneficially or constructively, in excess
of 9.8 percent of the outstanding capital stock of Parkway (excluding shares of
Excess Stock) ("Transfer"), then such amount in excess of the 9.8 percent limit
shall automatically be converted into shares of Excess Stock and any such
Transfer will be void ab initio. However, such restrictions will not prevent the
settlement of a transaction entered into through the facilities of any
interdealer quotation system or national securities exchange upon which shares
of capital stock of Parkway are traded, provided that certain transactions may
be settled by providing shares of Excess Stock.
RIGHT OF BOARD OF DIRECTORS TO CLASSIFY OR RECLASSIFY SHARES
The Board of Directors of Parkway is authorized by the Charter to
classify or reclassify any unissued shares of the capital stock of Parkway, by
setting, altering or eliminating the designation, preferences, conversion or
other rights, voting powers, qualifications and terms and conditions of
redemption of, limitations as to dividends and any other restrictions on, such
capital stock. The power of the Board of Directors to classify and reclassify
any of the shares of capital stock includes the authority to classify or
reclassify such shares into a class of preferred stock. The Board of Directors,
without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the rights of holders of shares
of Common Stock. This could create an impediment to a future tender or exchange
offer for Parkway by, among other things, increasing the number of shares
necessary to gain control of Parkway.
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<PAGE> 17
EXCESS STOCK
Holders of shares of Excess Stock have no voting rights except as
required by law, and are not entitled to any dividends. Any dividend or
distribution paid prior to the discovery by Parkway that shares of capital stock
have been converted into Excess Stock shall be repaid to Parkway upon demand.
Upon any purported Transfer resulting in Excess Stock, Excess Stock shall not be
issued in certificated form but shall be held by Parkway, in book entry form, as
trustee in trust (the "Trust") for the exclusive benefit of the beneficiary or
beneficiaries to whom an interest in such Excess Stock may later be transferred.
The purported record transferee in such a case may freely designate a
beneficiary of an interest in the Trust (representing the number of shares of
Excess Stock held by the Trust attributable to a purported Transfer that
resulted in Excess Stock), if the Excess Stock held in the Trust would not be
Excess Stock in the hands of such beneficiary and the purported record
transferee does not receive a price for designating such beneficiary that
reflects a price per share of Excess Stock that exceeds (i) the price per share
such purported record transferee paid for the shares in the purported Transfer
that resulted in the Excess Stock; or (ii) if the purported record transferee
did not give value for such Excess Stock (through a gift, devise or other
transaction), a price per share equal to the market price on the date of the
purported Transfer that resulted in the Excess Stock. Upon such transfer of an
interest in the Trust, the corresponding Excess Stock in the Trust shall
automatically be exchanged for an equal number of shares of capital stock, and
such shares shall be transferred of record to the transferee of the interest in
the Trust. Prior to any transfer of any interest in the Trust, the purported
record transferee must give advance notice to Parkway of the intended transfer
and must have waived in writing its redemption rights under the Charter.
Notwithstanding the foregoing, if a purported record transferee receives a price
for designating a beneficiary of an interest in the Trust that exceeds the
allowable amounts, such purported record transferee shall pay, or cause such
beneficiary to pay, such excess to Parkway. Excess Stock so held in Trust shall
be issued and outstanding capital stock of Parkway. The purported record
transferee shall have no rights in such Excess Stock except the right to
designate a transferee upon the terms specified above. The purported beneficial
transferee shall have no rights in such Excess Stock except as provided above.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of, or any distribution of the assets of, Parkway, each holder of
Excess Stock shall be entitled to receive that portion of the assets of Parkway
that would have been distributed to the shares of capital stock in respect of
which the Excess Stock was issued. Parkway, as holder of the Excess Stock in
Trust or, if Parkway has been dissolved, any trustee appointed by Parkway prior
to its dissolution, shall distribute ratably to the beneficiaries of the Trust,
when determined, any such assets received in respect of the Excess Stock in any
liquidation, dissolution or winding up of, or any distribution of the assets of,
Parkway. Except as provided above, Excess Stock is not transferable.
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<PAGE> 18
CLASS A PREFERRED STOCK
The holders of Class A Preferred Stock have no voting rights and,
except as provided above, such shares are not convertible. Dividends on shares
of Class A Preferred Stock will be declared and paid simultaneously with any
dividends payable on the Common Stock and, for all dividends paid and declared
on or before December 31, 1996, such dividend will be paid at a per share
dividend rate of the greater of (i) twenty-four cents ($0.24) per share per
quarter or (ii) the per share dividend declared and paid on Common Stock for the
same quarter, as adjusted for stock dividends, stock splits or similar capital
changes. For all dividends paid and declared on Class A Preferred Stock after
December 31, 1996, such dividends will be paid at a per share dividend rate of
the greater of (i) thirty-eight cents ($0.38) per share per quarter or (ii) the
per share dividend declared and paid on Common Stock for the same quarter, as
adjusted for stock dividends, stock splits or similar capital changes. No
dividend will be paid or declared, nor any distribution made on any other class
of stock (other than a dividend payable in stock of the same class) nor will any
shares of Common Stock be acquired for consideration by Parkway unless all
accrued dividends on the Class A Preferred Stock for all past dividend periods
have been paid.
In the event of the voluntary or involuntary liquidation, dissolution
or winding up of Parkway, each holder of Class A Preferred Stock will be
entitled to receive out of Parkway's assets, before any distribution or payment
shall be made to the holders of any other class of stock, an amount equal to
$15.25 per share of Class A Preferred Stock plus any accrued dividends not paid,
without interest. If the amounts payable on liquidation, dissolution or winding
up in respect to the shares of Class A Preferred Stock are not paid in full, the
shares of such class will share ratably in any distribution of assets in
accordance with the sums which would be payable in such distribution if all sums
payable were discharged in full. If such payment has been made in full to the
holders of all shares of Class A Preferred Stock on voluntary or involuntary
liquidation, dissolution or winding up, the remaining assets of Parkway shall be
distributed among the holders of preferred stock and the remaining stock of
Parkway in accordance with their respective rights.
ANTI-TAKEOVER PROVISIONS
Special Voting Requirements for Certain Business Combinations.
Pursuant to Maryland law, Parkway is governed by special procedures that apply
to certain business combinations between a corporation and interested
stockholders. The purpose of such provisions is to protect the corporation and
its stockholders against hostile takeovers by requiring that certain criteria
are satisfied. These criteria include prior approval by the board of directors,
prior approval by a majority or supermajority vote of disinterested stockholders
and requirements that a "fair price" be paid to the disinterested stockholders.
Maryland law provides that a Maryland corporation may not engage in
any "business combination" with any "interested stockholder." An "interested
stockholder" is defined, in essence, as any person owning beneficially, directly
or indirectly, ten percent or more of the outstanding voting stock of a Maryland
corporation. Unless an exemption applies, Parkway may
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<PAGE> 19
not engage in any business combination with an interested stockholder for a
period of five years after the interested stockholder became an interested
stockholder, and thereafter may not engage in a business combination unless it
is recommended by the Board of Directors and approved by the affirmative vote of
at least (i) eighty percent of the votes entitled to be cast by the holders of
all outstanding voting stock of Parkway, voting together as a single voting
group and (ii) two-thirds of the votes entitled to be cast by all holders of
outstanding shares of voting stock other than voting stock held by the
interested stockholder. The voting requirements do not apply at any time to
business combinations with an interested stockholder or its affiliates if
approved by the Board of Directors of the corporation prior to the time the
interested stockholder first became an interested stockholder. Additionally, if
the business combination involves the receipt of consideration by the
stockholders in exchange for the corporation's stock, the voting requirements do
not apply if certain "fair price" conditions are met.
Control Share Acquisitions. Maryland law provides for the elimination
of the voting rights of shares held by any person who makes a "control share
acquisition" except to the extent that such acquisition is exempt or is approved
by at least two-thirds of all votes entitled to be cast on the matter, excluding
shares of capital stock owned by the acquirer or by officers or directors who
are employees of the corporation whose shares were acquired. A "control share
acquisition" is the direct or indirect acquisition by any person of ownership
of, or the power to direct the exercise of voting power with respect to, shares
of voting stock ("control shares") that would, if aggregated with all other
voting stock owned by such person, entitle such person to exercise voting power
in electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority; or (iii) a majority or more of voting power.
A person who has made or proposes to make a control share acquisition,
upon the satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of Directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as permitted by the statute, then, subject to certain
conditions and limitations, the corporation may redeem any or all of the control
shares (except those for which voting rights have previously been approved) for
fair value determined, without regard to voting rights, as of the date of the
last control share acquisition or as of the date of any meeting of stockholders
at which the voting rights of such shares are considered and not approved.
If voting rights for control shares are approved at a stockholders
meeting and the acquirer becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the stock as determined for purposes of such appraisal rights may not
be less than the highest price per share paid in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction. Thus, Maryland law makes it difficult for a
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<PAGE> 20
change in control to occur, even though such change in control may be in the
best interests of the corporation's stockholders.
Supermajority Votes. The Charter provides that certain provisions of
the Charter may not be repealed or amended except upon the affirmative vote of
holders of not less than eighty percent of all votes entitled to be cast on the
matter. The Charter provisions to which this supermajority vote applies include
the following: (i) certain provisions the amendment or repeal of which would
threaten Parkway's status as a REIT; (ii) the removal of directors; (iii) the
provision giving the Board of Directors the authority to adopt, amend or repeal
Parkway's Bylaws; (iv) the provision regarding the indemnification of agents and
limitation of liability of officers and directors; (v) the provision concerning
cumulative voting in the election of directors; and (vi) the vote required to
amend that part of the Charter requiring a supermajority vote for the above
provisions.
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<PAGE> 21
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTORY NOTES
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a prospective stockholder. This
discussion is based on current law. The discussion is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations. It also does not discuss all of the
aspects of Federal income taxation that may be relevant to a prospective
stockholder in light of his or her particular circumstances or to certain types
of stockholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS
A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN,
AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. Subject to its eligibility to do so, Parkway intends to elect
to be taxed as a REIT under Sections 856 through 860 of the Code effective
January 1, 1997. Parkway's qualification and taxation as a REIT depends upon its
ability to meet on a continuing basis, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests and organizational requirements imposed under the Code, as discussed
below. No assurances, however, can be given that Parkway will be eligible to
make such election, and, if it does, that all benefits potentially arising from
such an election will be realized. See "--Failure to Qualify" below.
The following is a general summary of the Code provisions that govern
the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the regulations
promulgated thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
If Parkway qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on net income that it currently
distributes to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. Notwithstanding its REIT election, however, Parkway
will be subject to Federal income tax in the following circumstances. First,
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<PAGE> 22
Parkway will be taxed at regular corporate rates on any undistributed taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the company may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if Parkway has (i) net income from the sale
or other disposition of "foreclosure property" (which is, in general, property
acquired by foreclosure or otherwise on default of a loan secured by the
property) which is held primarily for sale to customers in the ordinary course
of business or (ii) other non-qualifying income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth, if
Parkway has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property (other than foreclosure
property) held primarily for sale to customers in the ordinary course of
business), such income will be subject to a 100% tax. Fifth, if Parkway should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), and has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which it
fails the 75% or 95% test, multiplied by a fraction intended to reflect its
profitability. Sixth, if Parkway should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year; (ii)
95% of its REIT capital gain net income for such year; and (iii) any
undistributed taxable income from prior years, Parkway would be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed. Seventh, if Parkway acquires any asset from a C corporation (i.e.,
a corporation generally subject to full corporate level tax) in a transaction in
which the basis of the asset in Parkway's hands is determined by reference to
the basis of the asset (or any other property) in the hands of the C
corporation, and Parkway recognizes gain on the disposition of such asset during
the 10-year period beginning on the date on which such asset was acquired by it,
then, to the extent of such property's built-in gain (the excess of the fair
market value of such property at the time of acquisition by Parkway over the
adjusted basis of such property at such time), such gain will be subject to tax
at the highest regular corporate rate applicable (as provided in Treasury
Regulations that have not yet been promulgated). This tax will also apply to
built-in gain on the disposition of assets owned by Parkway at the time of its
election of REIT status, for the ten year period following such election.
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (i) which is managed by one or more trustees
or directors; (ii) the beneficial ownership of which is evidenced by
transferable shares or by transferable certificates of beneficial interest;
(iii) which would be taxable as a domestic corporation but for Sections 856
through 860 of the Code; (iv) which is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half of
each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities); and (vii) which meets certain other
tests, described below, regarding the nature of its income and assets. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. Conditions (v) and (vi) will not apply until after the
first taxable year for which an election is made to be taxed as a REIT.
Parkway's Charter contains restrictions regarding the transfer of its shares
that are intended to
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assist it in satisfying the share ownership requirements described in (v) and
(vi) above. See "Risk Factors--Possible Ownership Restrictions."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. Parkway's taxable year is the calendar year.
Income Tests. In order to maintain qualification as a REIT, three
gross income requirements must be satisfied annually. First, at least 75% of the
REIT's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments described above, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received by Parkway will qualify as "rents from real property"
in satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, amounts received or accrued generally will not
be excluded from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, rents received
from a tenant will not qualify as "rents from real property" if Parkway, or an
owner of 10% or more of Parkway, directly or constructively owns 10% or more of
such tenant (a "Related Party Tenant"). Third, if rent attributable to personal
property that is leased in connection with a lease of real property is greater
than 15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
Parkway generally must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor" from whom
Parkway derives no revenue. The "independent contractor" requirement, however,
does not apply to the extent the services provided by Parkway are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant." Parkway believes
that all services that are provided to its tenants will be considered "usually
or customarily" rendered in connection with the rental of comparable properties.
Further, any noncustomary services will be provided only through qualifying
independent contractors.
If Parkway fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if its failure to meet such tests was due
to reasonable cause and not due to willful neglect, Parkway attaches a schedule
of the sources of its income to its return, and any income information on the
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schedules was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances Parkway would be entitled to the
benefit of these relief provisions. As discussed above in "General," even if
these relief provisions were to apply, a tax would be imposed with respect to
the excess net income.
Asset Tests. At the close of each quarter of its taxable year, Parkway
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of Parkway's total assets must be represented by real
estate assets (including stock or debt instruments held for not more than one
year purchased with the proceeds of a stock or debt offering of the company),
cash, cash items and government securities. Second, not more than 25% of
Parkway's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by Parkway may not exceed 5% of the
value of Parkway's total assets, and Parkway may not own more than 10% of any
one issuer's outstanding voting securities. The 5% test must generally be met
for any quarter in which a REIT acquires securities of an issuer.
Annual Distribution Requirements. Parkway, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (a) 95% of its
"REIT taxable income" (computed without regard to the dividends paid deduction
and the REIT's net capital gain) and (b) 95% of the net income (after tax), if
any, from foreclosure property, minus (ii) the sum of certain items of noncash
income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before Parkway timely files
its tax return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that Parkway does not distribute
all of its net capital gain or distributes at least 95%, but less than 100%, of
its "REIT taxable income," as adjusted, it will be subject to tax on the
nondistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if Parkway should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year; (ii) 95% of
its REIT capital gain income for such year; and (iii) any undistributed taxable
income from prior periods, it will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed.
Parkway has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. It is possible,
however, that Parkway, from time to time, may not have sufficient cash or liquid
assets to meet the distribution requirements due to timing differences between
the actual receipt of income and actual payment of deductible expenses and the
inclusion of such income and deduction of such expenses in arriving at Parkway's
taxable income, or if the amount of nondeductible expenses such as principal
amortization or capital expenditures exceed the amount of noncash deductions. In
the event that such timing differences occur, in order to meet the distribution
requirements, Parkway may arrange for short-term, or possible long-term,
borrowing to permit the payment of required dividends. If the amount of
nondeductible expenses exceeds noncash deductions, Parkway may refinance its
indebtedness to reduce principal payments and borrow funds for capital
expenditures.
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Under certain circumstances, Parkway may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year that may be included in Parkway's deduction for
dividends paid for the earlier year. Thus, Parkway may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, Parkway will be
required to pay interest to the Service based upon the amount of any deduction
taken for deficiency dividends.
Failure to Qualify. If Parkway fails to qualify for taxation as a REIT
in any taxable year and no relief provisions apply, Parkway will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
Parkway fails to qualify will not be deductible by it, nor will such
distributions be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, Parkway also will
be disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances Parkway would be entitled to such statutory relief.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as Parkway
qualifies as a REIT, distributions made to its taxable domestic stockholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income, and
corporate stockholders will not be eligible for the dividends received deduction
as to such amounts. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed
Parkway's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held his or her shares. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a stockholder's shares, they will be
included in income as long-term capital gain (or short-term capital gain if the
shares have been held for one year or less), assuming the shares are a capital
asset in the hands of the stockholders. In addition, any dividend declared by
Parkway in October, November or December of any year payable to a stockholder of
record on a specific date in any such month shall be treated as both paid by
Parkway and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by Parkway during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of Parkway.
In general, any loss upon a sale or exchange of shares by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated
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as long-term capital loss to the extent of distributions from Parkway required
to be treated by such stockholder as long-term capital gain.
Backup Withholding. Parkway will report to its domestic stockholders
and the Service the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide Parkway with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, Parkway may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to the company.
Taxation of Foreign Stockholders and Tax-Exempt Stockholders. The
rules governing U.S. Federal income taxation of nonresident alien individuals,
foreign corporations, foreign partnerships and other foreign stockholders, as
well as U.S. tax-exempt stockholders, are complex, and no attempt will be made
herein to review these rules. Prospective stockholders who fall within these
categories should consult with their own tax advisors to determine the impact of
U.S. Federal, state and local income tax laws with regard to an investment in
the shares, including any reporting requirements.
State and Local Taxes. Parkway and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside (although stockholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to Parkway's operations and
distributions). The state and local tax treatment of Parkway and its
stockholders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the shares.
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LEGAL MATTERS
The legality of the issuance of the Common Stock offered hereby has
been passed upon for Parkway by Jaeckle Fleischmann & Mugel, LLP, Buffalo, New
York.
EXPERTS
The consolidated financial statements of The Parkway Company (Parkway
Properties, Inc.'s predecessor) included in The Parkway Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995, have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon and
included therein and incorporated by reference herein. Such financial statements
are incorporated herein by reference in reliance on such reports given upon the
authority of such firm as experts in accounting and auditing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Parkway's Charter contains a provision authorizing Parkway to
indemnify, to the fullest extent permitted by Maryland law, its directors and
officers, whether serving Parkway or, at its request, any other entity.
Additionally, the Charter provides that to the fullest extent permitted by
Maryland law, no director or officer shall be liable to Parkway or its
stockholders for money damages.
Section 2-418 of the Maryland General Corporation Law (the
"Indemnification Statute"), the law of the state in which Parkway is organized,
empowers a company, subject to certain limitations, to indemnify its officers
and directors against expenses, including attorneys' fees, judgments, penalties,
fines, settlements and expenses, actually and reasonably incurred by them in any
suit or proceeding to which they are parties unless the act or omission of the
director was material to the matter giving rise to the proceeding and was
committed in bad faith, or was the result of active and deliberate dishonesty,
or the director received an improper personal benefit or, with respect to a
criminal action or proceeding, the director had no reasonable cause to believe
their conduct was unlawful.
Parkway has entered into an indemnification agreement (the
"Indemnification Agreement") with each of its directors and officers and the
Board of Directors has authorized Parkway to enter into an Indemnification
Agreement with each of the future directors and officers of Parkway. The
Indemnification Statute permits a corporation to indemnify its directors and
officers. However, the protection that is specifically afforded by the
Indemnification Statute authorizes other arrangements for indemnification of
directors and officers, including insurance. The Indemnification Agreement is
intended to provide
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indemnification to the maximum extent allowable by, or not in violation of, or
offensive to, any law of the State of Maryland.
The Indemnification Agreement provides that Parkway shall indemnify a
director or officer who is a party to the agreement (the "Indemnitee") if he or
she was or is a party to or otherwise involved in any proceeding by reason of
the fact that he or she was or is a director or officer of Parkway, or was or is
serving at its request in a certain capacity of another entity, against losses
incurred in connection with the defense or settlement of such proceeding. This
indemnification shall be provided to the fullest extent permitted by the
Indemnification Agreement. This is similar to the indemnification provided by
the Indemnification Statute except that indemnification is not available under
the Indemnification Agreement to the Indemnitee who pays any amount in
settlement of a proceeding without Parkway's written consent.
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