UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1996
Commission file number 1-11533
PARKWAY PROPERTIES, INC.
(Name of small business issuer in its charter)
Maryland 74-2123597
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 One Jackson Place 39201-2195
188 East Capitol Street (Zip Code)
Jackson, Mississippi
(Address of principal executive offices)
Issuer's telephone number: (601)948-4091
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB ( X )
Revenues for the year ended December 31, 1996 were
$34,537,000.
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 25, 1997 was
$149,566,000.
The number of shares outstanding in the issuer's class of
common stock as of March 25, 1997 was 6,287,130.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting
of Shareholders are incorporated by reference into Part III.
- -----------------------------------------------------------------
PART I
Item 1. Description of Business
General
Parkway Properties, Inc. ("Parkway" or the "Company") is a
self-administered real estate investment trust specializing in
the acquisition, ownership, management and leasing of office
properties in the Southeastern United States and Texas. At March
25, 1997, Parkway owned or had an interest in 21 office
properties located in nine states with an aggregate of
approximately 2,595,224 square feet of leasable space.
Since July 1995, Parkway has pursued a strategy of
aggressively acquiring office properties. Parkway seeks to
invest in markets characterized by positive employment and
population growth with attractive real estate market dynamics and
investment conditions. Parkway also seeks to invest in office
properties where management can add value through direct asset
and property management, a "hands-on" operating strategy and
Parkway's financial flexibility. Concurrently with its recent
office property acquisitions, Parkway has strategically disposed
of selected non-core assets which no longer fit into its
investment strategy and has redeployed the proceeds from such
dispositions into office property investments.
Through its predecessors, Parkway has been a public company
engaged in the real estate business since 1971. A fundamental
component of Parkway's business strategy over the years has been
the investigation of possible mergers or acquisitions of other
real estate companies to increase its asset base and, thereby,
its ability to compete with larger real estate investors for
attractive real estate opportunities. The most recent activity
in this area included the mergers of First Continental Real
Estate Investment Trust effective May 10, 1994, Congress Street
Properties, Inc. effective November 29, 1994 and EB, Inc.
effective April 27, 1995.
Since January 1996, the capital structure of Parkway has
changed substantially.
A 3 for 2 stock split effected in the form of a stock
dividend was completed on April 30, 1996 ("Stock
Split").
The private placement of 1,140,000 shares of common
stock to seven institutional investors was completed on
June 14, 1996 with net proceeds to the Company of
$16,612,000.
The Company was reorganized as a Maryland corporation
effective August 2, 1996 through the merger of its
predecessor, The Parkway Company, a Texas corporation,
with and into Parkway Properties, Inc., a wholly-owned
subsidiary formed as a Maryland corporation.
On August 22, 1996, Parkway listed its shares of common
stock for trading on the New York Stock Exchange under
the symbol "PKY". Prior to this date, the shares were
quoted on the NASDAQ National Market under the symbol
"PKWY".
On January 22, 1997, the Company completed the sale of
2,012,500 shares of common stock under its existing
shelf registration to a combination of retail and
institutional investors with net proceeds to the
Company of approximately $51,400,000.
Effective January 1, 1997, the Company elected to be
taxed as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986 ("Code"), as amended.
Through Parkway Realty Services (formerly Eastover Realty)
("Parkway Realty"), a wholly-owned subsidiary, Parkway is also
involved in the management of commercial properties for which it
receives management fees. Parkway Realty currently manages
and/or leases a portfolio of 984,000 square feet of commercial
property, primarily office properties, for third parties.
Additionally, Parkway Realty manages and leases three office
properties owned by the Company in Jackson, Mississippi. Parkway
Realty also performs brokerage services on a commission basis.
Until December 31, 1996, Parkway operated as a real estate
operating company. For the taxable years 1996 and 1995, Parkway
paid virtually no federal income taxes ($64,000 in 1995 and none
in 1996) primarily because Parkway has certain net operating
losses ("NOLs") to shelter most of Parkway's income from such
taxes. However, the increase in the number of outstanding common
shares which resulted from the completion of the private
placement of common shares in June 1996 and Parkway's recent
mergers have caused the use of Parkway's NOLs to be significantly
limited in any one year. Accordingly, Parkway's board of
directors determined that it was in the best interests of Parkway
and its shareholders to elect to qualify Parkway as a REIT under
the Code for the taxable year beginning January 1, 1997, which
allows Parkway to be generally exempt from federal income taxes
even if its NOLs are limited or exhausted, provided it meets
various REIT requirements.
Business Objectives and Strategy of the Company
Parkway's business objective is to maximize total return to
stockholders primarily through increases in dividend
distributions and share price appreciation. During 1996, Parkway
increased its quarterly dividend from $.1133 (as adjusted for
Stock Split) in the first quarter to $.25 in the fourth quarter,
a 121% increase. The Company anticipates that its dividend
payout ratio will approximate 50% of its funds from operations
("FFO") for 1997, subject to compliance with the REIT
distribution requirements.
Parkway's management team consists of experienced office
property specialists with proven capabilities in office property
acquisition, operation, management, leasing, development and
sales. In addition, management has extensive experience in
acquiring other real estate companies through mergers and
acquisitions. Management believes that these capabilities should
allow Parkway to continue to create property value in all phases
of the real estate cycle. Parkway is actively seeking new
investments that meet the criteria set forth in its investment
strategy. In pursuing this strategy, Parkway purchased 16 office
building investments from July 31, 1995 through March 25, 1997,
totaling 2,203,137 square feet of net rentable area. These new
investments are discussed in greater detail elsewhere in this
report.
Parkway generally seeks to acquire well-located Class A, A-
or B+ multi-story office buildings in primary or secondary
markets in the Southeastern region of the United States and
Texas. Parkway generally targets for acquisition office
buildings ranging in size from 50,000 to 300,000 square feet with
current and projected occupancy levels in excess of 70% and with
adequate parking to accommodate full occupancy. Parkway targets
buildings which are occupied by a major tenant (or tenants)
(e.g., a tenant that accounts for at least 30% of the building's
total rental revenue and has at least five years remaining on its
lease). Parkway attempts to purchase office buildings such that
the initial unleveraged yield on its total investment (including
purchase price, related acquisition costs and capital
expenditures generally anticipated for the 12 to 24 months
following purchase) will be in the range of 9% to 12% per annum.
Parkway defines initial yield as net operating income (revenues
less property operating expenses, before interest expense and
depreciation) for the calendar year of or following acquisition
divided by total investment. Parkway also generally seeks to
acquire properties whose total cost per square foot is at least
25% below estimated replacement cost and whose current rental
rates are at or below market rental rates. While the Company
seeks to acquire properties which meet all of the acquisition
criteria, specific property acquisitions are evaluated
individually and may fail to meet one or more of the acquisition
criteria at the date of purchase.
Parkway believes that its focus on its existing and targeted
high growth markets in the Southeastern United States and Texas
should provide further opportunities to enhance stockholder
value. Parkway is presently focusing its resources on
acquisitions in both its existing markets and several additional
markets in the Southeastern United States. Parkway has targeted
these expansion markets based on positive economic indicators
such as higher than average job growth and strong real estate
market fundamentals such as increasing occupancy levels, strong
net absorption and rising rental rates.
Administration
Since January 1, 1995, Parkway has self-managed and self-
administered its operations. Prior to 1995, the Company operated
under an expense sharing agreement with certain affiliated
companies. Leland R. Speed serves as the Chairman of the Board
and Chief Executive Officer of Parkway and EastGroup Properties
("EastGroup"), a former participant in the expense sharing
agreement. The administrative costs associated with Mr. Speed are
shared equally by the two companies.
Parkway currently has 37 employees, including its 9 salaried
officers. This includes 12 employees which are reimbursed by
office buildings managed directly by Parkway Realty Services.
The operations of the Company are conducted from
approximately 12,100 square feet of office space located at 188
East Capitol Street, 300 One Jackson Place, Jackson, Mississippi.
The building is owned 78.125% by Parkway and is leased by Parkway
at market rental rates. The other 21.875% of the building is
owned by an unrelated third party. Approximately 40% of the
space leased by the Company is occupied by EastGroup and the
Company is reimbursed by EastGroup for its pro rata share of the
expenses related to the lease of office space. Effective April
1997, the corporate offices of Parkway Properties, Inc. will
relocate to approximately 7,075 square feet on the 10th floor of
One Jackson Place. The Company's address will be 188 East
Capitol Street, One Jackson Place Suite 1000, Jackson,
Mississippi.
Item 2. Description of Property
General
The Company invests principally in office buildings in the
Southeastern United States and Texas, but is not limited to any
specific geographical region or property type. Including the
office building acquisitions made through March 25, 1997, the
Company has 21 office buildings comprising 2,600,568 square feet
of office space located in nine states. As of March 25, 1997,
the Company's office investments are located in the following
markets:
% of Total Properties
Market Square Feet Based on Square Feet
----------------- ----------- ----------------------
Houston, TX 663,086 25.55%
Jackson, MS 572,695 22.07%
Atlanta, GA 255,970 9.86%
Winston-Salem, NC 238,919 9.21%
Dallas, TX 200,726 7.73%
Charlotte, NC 187,207 7.21%
Memphis, TN 177,250 6.83%
Northern VA 146,767 5.66%
Other 152,604 5.88%
Property acquisitions in 1996 and 1995 were funded through a
variety of sources, including:
Cash reserves
Sales of non-core assets, including real estate,
mortgage loans and securities
Fixed rate, non-recourse mortgage financing at fully-
amortizing terms ranging from 12 to 15 years
Sale of Parkway common stock
Advances on bank lines of credit
Office Buildings
The Company intends to hold its portfolio of office
buildings for investment purposes. The Company does not propose
any program for the renovation, improvement or development of any
of the office buildings, except as called for under the renewal
of existing leases or the signing of new leases or improvements
necessary to upgrade recent acquisitions to the Company's
operating standards. All such improvements are expected to be
financed by cash flow from the portfolio of office properties and
advances on bank lines of credit.
In the opinion of management, all properties are adequately
covered by insurance.
All office building investments compete for tenants with
similar properties located within the same market primarily on
the basis of location, rent charged, services provided and the
design and condition of the improvements. The Company also
competes with other REITs, financial institutions, pension funds,
partnerships, individual investors and others when attempting to
acquire office properties.
The following table sets forth certain information about office properties
owned by the Company as of December 31, 1996 (in thousands, except square foot
data):
<TABLE>
<CAPTION>
Percentage % of
Total Leased Leases Market Mortgage
Square as of Expiring Date Rental Notes
Property (1) Feet 2/28/97 in 1997(4) Acquired Rate(5) Payable
----------------------- -------- ---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Houston, TX
400 North Belt 220,934 95% 8.7% 04/96 $12.50 $6,634
One Park 10 Plaza 161,243 99% 3.9% 03/96 13.00 4,620
Woodbranch 109,481 97% 12.2% 04/96 13.00 3,194
Tensor 92,017 100% - 10/96 12.00 -
West Office(6) 20,900 100% - 05/94 6.60 -
Jackson, MS
Mtel Centre 261,361 97% 3.7% 07/95 16.50 10,422
One Jackson Place(2) 218,583 98% 10.2% 11/86 18.50 17,934
IBM Building 92,751 100% 11.6% 10/95 16.25 4,653
Atlanta, GA
Falls Pointe 105,655 96% - 08/96 17.00 6,450
Waterstone 92,600 100% 27.3% 12/95 17.50 5,521
Roswell North 57,715 85% 20.8% 08/96 16.00 3,400
Winston-Salem, NC
BB&T Financial Center 238,919 99% 6.6% 09/96 19.00 -
Northern Virginia
8381 and 8391
Courthouse Road 92,929 92% 17.0% 07/96 19.50 -
Cherokee Business
Center 53,838 100% 6.5% 07/96 16.00 -
Other Markets
Corporate Square 96,011 94% 40.0% 04/90 13.00 -
Wink Building (3) 32,325 100% 4.3% 06/94 8.31 -
Cascade III 24,268 86% 37.1% 04/90 16.50 -
-
(1)Ownership is 100% unless noted otherwise. The statistics shown for all
properties represent 100% ownership even though the Company may own less
than 100% of the property.
(2)Parkway owns 78.125% of One Jackson Place and an unrelated party owns the
remaining 21.875% interest.
(3)Parkway holds a 50% interest in a partnership that owns the Wink Building.
The remaining 50% interest is owned by Wink Engineering, an unrelated party
that leases and occupies 95% of the building.
(4)The percentage of leases expiring in 1997 represents the ratio of square feet
under leases expiring in 1997 divided by total square feet.
(5)Current rental rate per square foot quoted by the Company to prospective
tenants at the property.
(6)West Office includes approximately 7,000 square feet of office space and
13,900 square feet of warehouse space. The market rental rate shown is an
average rate for the entire building leased to a single tenant. The current
tenant pays all operating expenses, other than property taxes and insurance.
</TABLE>
The following table sets forth certain information about
office properties purchased by the Company subsequent to December
31, 1996:
Percent % of
Total Leased Leases
Square as of Expiring Date
Property Feet 2/28/97 in 1997 Acquired
- ----------------------- --------- ------- --------- ---------
Dallas, TX
Courtyard at Arapaho 200,726 97% 5.7% 03/97
Charlotte, NC
Charlotte Park
Executive Center 187,207 92% 4.2% 03/97
Memphis, TN
Forum II & III 177,250 97% 7.9% 01/97
Houston, TX
Ashford II 58,511 100% 4.9% 01/97
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623,694
=======
The following table sets forth scheduled lease expirations
for properties owned as of March 25, 1997 for leases executed as
of December 31, 1996, assuming no tenant exercises renewal
options:
Percentage of
Year of Total Rentable Leased Square
Lease Number of Square Feet Footage Represented
Expiration Leases Expiring by Expiring Leases
- ------------ ----------- --------------- ---------------------
1997 77 239,172 9.2%
1998 72 439,012 16.9%
1999 60 423,397 16.3%
2000 37 268,702 10.4%
2001 52 456,150 17.6%
--- --------- -----
298 1,826,433 70.4%
=== ========= =====
Tenants
The office properties are leased to approximately 350 tenants, which
engage in a wide variety of industries including banking, professional services
including legal, accounting, and consulting), energy, financial services and
telecommunications. The following table sets forth information concerning the
10 largest tenants of the properties owned as of March 25, 1997 (in thousands,
except square foot data):
<TABLE>
<CAPTION>
Annualized Lease
Square Rental Expiration
Tenant Feet Revenue(2) Office Building Date
---------------------------- --------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Mtel(1) 181,472 $ 2,512 (1) (1)
Burlington Resources 118,274 1,417 400 North Belt 12/31/98
American Medical Electronic 96,166 1,058 Courtyard 12/31/01
Premier Health Systems 92,523 1,554 Charlotte Park 11/30/99
Womble Carlyle Sandridge & Rice 91,968 1,545 BB&T Financial 06/30/05
PGS Tensor 89,009 816 Tensor 12/31/01
BB&T Bank 84,168 1,440 BB&T Financial 12/31/07
Northern Telecommunications 82,415 1,007 Courtyard 10/31/99
PSI Process Systems 52,249 766 Forum II & III 12/31/00
Federal Express 43,738 564 Forum II & III 09/30/03
------- -------
931,982 $12,679
======= =======
</TABLE>
(1) Mobile Telecommunications Technologies Corporation (Mtel), a service
provider in the telecommunications industry, occupies 154,038 net rentable
square feet in Mtel Centre' which represents 58.9% of the total net
rentable square feet of the building. This lease is non-cancelable,
expires in July 2005 and includes a contractual rental increase in the 61st
month of the lease term based on the corresponding increase in the Consumer
Price Index since the inception of the lease. In addition, Mtel occupies
27,434 net rentable square feet in One Jackson Place which represents 12.6%
of the total net rentable square feet of the building. This lease expires
in June 2002.
(2) Annualized Rental Revenue represents the rental rate per square foot at
December 31, 1996 multiplied by the number of square feet leased by the
tenant.
In addition to the information given above, the Company has
two properties whose book value at December 31, 1996 exceed ten
percent of total assets, One Jackson Place and BB&T Financial
Center.
One Jackson Place is a 14-story Class A office building
built in 1986. The building was 98% leased at February 28, 1997
with an average effective annual rental rate per square foot of
$17.42. In addition to the tenant listed on the previous
schedule, One Jackson Place has one tenant that occupies 10.53%
of the rentable square footage of the building. The tenant
provides legal services primarily to corporate clients and the
lease expires in February, 2000.
BB&T Financial Center is a 19-story Class A office building
built in 1986. The building was 99% leased at February 28, 1997
with an average effective annual rental per square foot of
$17.50.
For tax purposes, depreciation is calculated over 40 years
for building and improvements, 10 years for tenant improvements
and 5 years for equipment, furniture and fixtures. The federal
tax basis of One Jackson Place and BB&T Financial Center is as
follows (in thousands):
One BB&T
Jackson Financial
Place Center
-------- ----------
Land................................ $1,799 $ 1,018
Building and Improvements........... 6,217 23,343
Equipment, Furniture and Fixtures... 20 -
Tenant Improvements................. 2,809 41
Real estate taxes paid for 1996 and 1995 for One Jackson
Place were $386,000 and $362,000. Real estate taxes paid for
BB&T Financial Center in 1996 were $282,000.
Non-Core Assets
Since January 1, 1995, Parkway has pursued a strategy of
liquidating its non-core assets and using the proceeds from such
sales to acquire office properties. The Company defines non-core
assets as all assets other than office properties which at
December 31, 1996 consisted of land, mortgage loans and other
real estate properties. In accordance with this strategy,
Parkway sold non-core assets with a book value of approximately
$37,300,000 for cash proceeds of approximately $56,700,000 during
1996 and 1995. Aggregate gains for financial reporting purposes
from sales, write-downs and deferred gains recognized on non-core
assets during 1996 and 1995 were $21,324,000. The book value of
all remaining non-office building real estate assets and mortgage
loans, all of which are for sale, was approximately $10,070,000
as of December 31, 1996. Of this amount, $5,664,000 represents
undeveloped land with a carrying cost of approximately $119,000
annually.
Two of Parkway's major dispositions of non-core assets
during 1996 involved the sale of mortgage loans. On May 31,
1996, Parkway sold 157 of the loans in its mortgage loan
portfolio for approximately $9,888,000 in cash, net of estimated
expenses. These loans had a book value of $5,128,000, and the
sale resulted in a book gain of approximately $4,760,000. On
December 24, 1996, Parkway sold its interest in the second
mortgage secured by the Pembroke Office Park in Virginia Beach,
Virginia (the "Virginia Beach Mortgage") for approximately
$9,573,000 in cash. A portion of the proceeds of the sale were
used to repay the underlying first mortgages with an aggregate
principal amount of $4,415,000, with the remaining proceeds of
$5,158,000 being retained by Parkway. The sale of the Virginia
Beach Mortgage resulted in a book gain of approximately
$3,562,000.
Item 3. Legal Proceedings
The Company and its subsidiaries are, from time to time,
parties to litigation arising from the ordinary course of their
business. Management of Parkway does not believe that any such
litigation will materially effect the financial position or
operations of Parkway.
Item 4. Submission of Matters to a Vote of Security Holders
On October 18, 1996, the Company held a Special Meeting of
Stockholders at which stockholders voted as follows on the
proposal described below:
(1) Approval of the Company entering into an agreement
with two institutional investors which agreement
allowed such investors to exchange 576,000 shares of
the Company's Class A Preferred Stock, $.001 par value
per share, for 576,000 shares of the Company's Common
Stock, $.001 par value per share, on a share-for-share
basis.
FOR 2,270,948
AGAINST 27,532
ABSTAIN 28,704
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Effective August 22, 1996, the Company's common stock ($.001
par value) was listed and began trading on the New York Stock
Exchange under the symbol "PKY". Prior to that date, the stock
was traded in the over-the-counter market and was listed on the
NASDAQ National Market System under the symbol "PKWY". The
number of record holders of the Company's common stock at March
25, 1997, was 3,603.
The following table sets forth, for the periods indicated,
the high and low last reported sales prices per share of the
Company's common stock and the per share cash distributions paid
by Parkway during each quarter.
* Year Ended * Year Ended
December 31, 1996 December 31, 1995
------------------------ ------------------------
Distri- Distri-
Qtr. Ended High Low butions High Low butions
- ---------- -------- ------- ------- -------- ------- -------
March 31 $16.672 $12.828 $.113 $10.172 $ 8.67 $ .107
June 30 17.00 14.75 .12 11.50 9.50 .107
Sept. 30 20.875 15.50 .14 13.328 10.422 .113
Dec. 31 26.00 20.375 .25 13.672 12.328 .113
----- -----
$.623 $.440
===== =====
*On April 30, 1996, the Company completed a 3 for 2 common stock
split, effected in the form of a stock dividend of one share for
every two shares outstanding. All per share information prior to
the stock split has been restated to reflect the stock split.
Item 6. Management's Discussion and Analysis or Plan of
Operation
Financial Condition
Comments are for the balance sheet dated December 31, 1996
compared to the balance sheet dated December 31, 1995.
For Parkway, 1996 was a year of great change as the Company
implemented its strategy of aggressively acquiring office
properties, as well as liquidating non-core assets and
redeploying the proceeds into office properties. Parkway defines
non-core assets as being non-office building assets including
land, mortgage loans and other real estate properties. Total
assets of the Company increased $58,992,000 from 1995 with office
buildings (before depreciation) increasing $72,903,000 or 123%.
Parkway's investment in office buildings increased to
$70,518,000 net of depreciation to a carrying amount of
$122,802,000 at December 31, 1996 which consisted of 16
properties in seven states. This growth was due to the focused
effort of purchasing Class A, A- or B+ office properties located
in markets with high growth potential in the Southeastern United
States and Texas. During 1996, Parkway purchased nine office
buildings from insurance companies and pension funds as follows
(in thousands):
Purchase Purchase
Office Building Location Price Date
- --------------- ---------------- -------- --------
One Park 10 Plaza Houston, TX $ 6,700 03/07/96
400 North Belt Houston, TX 10,000 04/15/96
Woodbranch Houston, TX 3,900 04/15/96
8381 & 8391 Courthouse
Road Bldgs. Tysons Corner, VA 7,559 07/09/96
Cherokee Business Center Springfield, VA 3,491 07/09/96
Falls Pointe Atlanta, GA 9,060 08/09/96
Roswell North Atlanta, GA 4,640 08/09/96
BB&T Financial Center Winston-Salem, NC 24,500 09/30/96
Tensor Houston, TX 2,820 10/31/96
--------
$ 72,670
========
In addition to the above, the Company purchased an
additional 5% ownership interest in the One Jackson Place office
building increasing its ownership to 78.125%. The purchase price
for the additional interest was $5,000 plus the assumption of a
pro rata share of liabilities. Other changes in office building
investments include capitalized improvements and purchase costs
of $2,190,000 and depreciation expense of $2,385,000.
During 1996, non-core assets held by the Company decreased
$16,756,000. This reflects the Company's strategy that was
implemented in 1995 of liquidating its non-core assets and
redeploying the proceeds into office properties. Sales of non-
core assets contributed $27,816,000 of net proceeds during 1996
and resulted in gains for financial reporting purposes of
$10,856,000. The sales of non-core assets in 1996 included the
sales of 158 mortgage loans, operating properties
(including one apartment complex and 21 townhomes/condominiums)
and various real estate securities. The book value of the
remaining non-core assets at December 31, 1996 was $10,070,000.
The Company expects to continue its efforts to liquidate these
assets.
Other changes in non-core assets held by the Company during
1996 include decreases from writedowns of $540,000 to reflect
current market prices on properties held for sale, principal
payments received on mortgage loans of $400,000, decreases in
unrealized gains on securities of $592,000, and $142,000 in
reductions of valuation allowances on mortgage loans.
The Company was also able to implement its investment
strategy of purchasing office properties by using funds received
in a private placement of common stock in June, 1996 and the
placement of fixed rate, non-recourse financings on certain
office building investments purchased in 1996 and 1995. These
transactions are detailed below.
During 1996, the Company completed the placement of
$34,970,000 of fixed rate, non-recourse mortgage debt on seven
office buildings purchased in 1996 and 1995. All of the debt is
fully amortizing over fifteen years. At December 31, 1996,
Parkway's balance of non-recourse debt totaled $62,828,000 and
has a weighted average interest rate of 8.01% with a weighted
average remaining term of approximately 14 years. The schedule
below details the debt placed during 1996 (in thousands):
Non-Recourse Interest Maturity
Office Building Debt Rate Date
------------------ ------------ -------- -----------
IBM Building $ 4,800 7.700% 03/01/11
Waterstone 5,620 8.000% 07/01/11
One Park 10 Plaza 4,700 8.350% 08/01/11
400 North Belt 6,750 8.250% 08/01/11
Woodbranch 3,250 8.250% 08/01/11
Falls Pointe 6,450 8.375% 01/01/12
Roswell North 3,400 8.375% 01/01/12
-------
$34,970
=======
Scheduled principal payments of $1,478,000 were made in 1996
on existing notes payable without recourse. The Company expects
to continue seeking fixed rate, non-recourse mortgage financing
at fully-amortizing terms ranging from twelve to fifteen years on
select office building investments as additional capital is
needed. The Company plans to maintain a ratio of debt to total
market capitalization from 25% to 40%.
Mortgage notes payable on wrap mortgages decreased during
1996 due to scheduled principal payments of $255,000 and the
payoff of underlying wrap mortgages totaling $5,113,000 in
connection with the sale of one mortgage loan receivable in
December of 1996.
Shareholders' equity increased $28,697,000 in 1996 as
a result of the following factors (in thousands):
Increase (Decrease)
-------------------
Net Income $ 14,371
Dividends declared and paid (2,552)
Decrease in unrealized gains (592)
Exercise of stock options 858
Shares issued-private placement 16,612
--------
$ 28,697
========
The capital structure of Parkway experienced significant
changes during 1996, as explained below.
On April 30, 1996, the Company completed a 3 for 2
common stock split, effected in the form of a stock
dividend of one share for every two shares outstanding.
On June 14, 1996, the Company sold an aggregate of
1,140,000 shares of common stock at $15.25 per share in
a private placement transaction to seven institutional
investors for an aggregate cash purchase price of
$17,385,000. Expenses of the transaction totaled
$773,000 and resulted in net cash proceeds of
$16,612,000.
Effective August 2, 1996, The Parkway Company, a Texas
corporation, merged with and into its recently
organized, wholly-owned subsidiary, Parkway
Properties, Inc., a Maryland corporation, pursuant to
the Agreement and Plan of Merger dated as of July 17,
1996. As a result of the merger, each stockholder
received one share of common stock of Parkway
Properties, Inc. in exchange for one share of common
stock of The Parkway Company. Additionally, Parkway
Properties, Inc. succeeded to all the rights and
properties and became subject to all the obligations
and liabilities of The Parkway Company.
In addition, on January 22, 1997, the Company completed the
sale of 2,012,500 shares of common stock under its existing shelf
registration to a combination of retail and institutional
investors with net proceeds to the Company of approximately
$51,400,000.
RESULTS OF OPERATIONS
Comments are for the year ended December 31, 1996 compared to the
year ended December 31, 1995.
Net income increased to $14,371,000 for the year ended
December 31, 1996 as compared to $11,820,000 for the year ended
December 31, 1995 primarily as a result of significant increases
in income from office buildings to $18,840,000 in 1996 from
$6,918,000 in 1995 net of related expenses of $14,408,000 in 1996
and $6,243,000 in 1995. These increases are reflective of
increases in the Company's office building portfolio due to
acquisitions made during 1996 and 1995. The portfolio of office
properties increased from 392,087 square feet at December 31,
1994 to 838,799 square feet at December 31, 1995 and increased
further to 1,971,530 square feet at December 31, 1996.
Subsequent to December 31, 1996, the Company purchased an
additional 623,694 square feet bringing the portfolio to a total
2,595,224 at March 25, 1997. Included in net income were gains
on real estate held for sale, mortgage loans and securities of
$10,458,000 in 1996 and $10,866,000 in 1995, reflecting primarily
sales of the Company's non-office building assets.
Operations of office building properties are summarized
below (in thousands):
Year Ended
December 31
-------------------
1996 1995
-------- --------
Income from real estate properties...$18,840 $ 6,918
Real estate operating expense........(8,466) (2,960)
------- -------
10,374 3,958
Interest expense on real estate
properties.........................(3,526) (2,204)
Depreciation and amortization........(2,444) (1,179)
Minority interest....................28 100
------- -------
$ 4,432 $ 675
======= =======
The Company's operations for 1996 and 1995 reflect the
operations of the following office buildings subsequent to the
date purchased:
Building Purchase Date Sq. Feet
---------------------- ------------- --------
Mtel Centre' 07/31/95 261,361
IBM Building 10/02/95 92,751
Waterstone 12/18/95 92,600
One Park 10 Plaza 03/07/96 161,243
400 North Belt 04/15/96 220,934
Woodbranch 04/15/96 109,481
Cherokee Business Center 07/09/96 53,838
8381 and 8391 Courthouse Road 07/09/96 92,929
Falls Pointe 08/09/96 105,655
Roswell North 08/09/96 57,715
BB&T Financial Center 09/30/96 238,919
Tensor 10/31/96 92,017
In addition to the office properties owned directly, the
Company owns the Wink Office Building in New Orleans, Louisiana
through a 50% ownership in the Wink-Parkway Partnership. Income
from the partnership of $49,000 and $47,000 was recorded on the
equity method of accounting during the years ended December 31,
1996 and 1995, respectively.
The effect on the Company's operations related to One
Jackson Place included in the operations of office buildings is
as follows (in thousands):
Year Ended
December 31
--------------------
1996 1995
-------- --------
Revenue......................... $ 3,656 $ 3,789
Operating expenses.............. (1,506) (1,439)
Interest expense................ (1,454) (1,931)
Depreciation.................... (866) (896)
Minority interest income........ 28 100
------- -------
Net loss........................ $ (142) $ (377)
======= =======
The effect on the Company's operations related to Mtel
Centre' included in the operations of office buildings since its
acquisition on July 31, 1995 is as follows (in thousands):
Year Ended
December 31
--------------------
1996 1995(1)
-------- --------
Revenue ........................ $ 3,891 $ 1,464
Operating expenses.............. (1,643) (722)
Interest expense................ (844) (252)
Depreciation.................... (329) (130)
------- -------
Net income...................... $ 1,075 $ 360
======= =======
(1) 1995 includes operations from the date of purchase
through December 31, 1995.
Operations of other real estate properties held for sale are
summarized below (in thousands):
Year Ended
December 31
-------------------
1996 1995
-------- --------
Income from real estate properties.. $ 1,773 $ 2,023
Real estate operating expense....... (1,379) (1,916)
------- -------
394 107
Interest expense on real estate
properties........................ - (26)
Depreciation and amortization....... - (152)
------- -------
$ 394 $ (71)
======= =======
The decrease in revenue from other real estate properties
held for sale for the year ended December 31, 1996 compared to
1995 is primarily due to the June 1996 sale of the Oak Creek
Apartments and the August 1995 sale of the American Inn North
Motel. The decrease also reflects sales in 1996 of 21 townhomes
located in Corpus Christi and Houston, Texas, seven residential
lots and approximately 71 acres of land. In 1995, the Company
sold four townhomes in Corpus Christi, Texas, six foreclosed
homes in San Antonio, Texas and various residential lots and
parcels of real estate. These decreases were offset by increases
in revenue and operating expense due to the acquisition of the
minority interest holder's interest in the Club at Winter Park
during 1996 to facilitate the sale of the property. At December
31, 1996, the Company owned two operating properties that were
held for sale as shown below (in thousands).
Property Location Description Book Value
- ----------- ---------------- ------------------ -----------
Club at 180 unit apartment
Winter Winter Park, FL complex $2,183
Park
Plantation 57,000 square foot
Village Lake Jackson, TX shopping center 1,492
------
$3,675
======
Subsequent to December 31, 1996, the Club at Winter Park was
sold for approximately $3,700,000 resulting in a gain of
approximately $1,500,000 for financial reporting purposes that
will be recognized in the first quarter of 1997.
The Company also owned the following parcels of undeveloped
land that were held for sale (in thousands).
Description Location Size Book Value
- ------------------- --------------- --------- -----------
Bullard Road New Orleans, LA 80 acres $3,799
Sugar Land Triangle Sugar Land, TX 7 acres 868
Sugar Creek Center Sugar Land, TX 4 acres 520
Green-Busch Road Houston, TX 162 acres 477
------
$5,664
======
The net increase in interest on mortgage loans during the
year ended December 31, 1996 compared to 1995 reflects many
changes in the investment in mortgage loans over the past two
years. Increases in interest income from mortgages are due to
the loans received in the April 27, 1995 merger with EB, Inc.,
loans made to facilitate sales in 1995 and loans purchased during
1996. Decreases in interest income from mortgage loans are
primarily due to payoffs of loans received in 1995 and the May
1996 sale of 157 mortgage loans. In addition, the Company sold
one mortgage loan in December 1996 with a principal balance of
$16,529,000 and 8.58% interest rate. At December 31, 1996, the
Company's investment in mortgage loans totaled $350,000 and
included 3 loans with an average rate of 10%.
Gains on sales of securities, real estate and mortgage loans
for 1996 were the result of implementing the Company's investment
strategy discussed previously. Cash proceeds from the sale of
securities totaled $2,834,000 and resulted in gains of $549,000.
Gains on real estate and mortgage loans were a result of the sale
of 158 mortgage loans in two separate transactions, gains
recognized on the collection of mortgage loans, writedowns to
land and the sale of other non-core assets. Cash proceeds from
these sales totaled $24,982,000 and resulted in gains of
$10,307,000.
The increase in interest on investments reflects higher cash
balances invested in interest bearing accounts during 1996 as
compared to 1995.
Decreases in dividend income for the year ended December 31,
1996 compared to 1995 reflect the sales of dividend-paying
securities held by the Company during 1996 and 1995.
Interest expense on notes payable on wrap mortgages reflects
interest expense on debt received in the April 1995 merger of EB,
Inc. Notes payable on wrap mortgages were paid off in 1996
following the sale of the corresponding mortgage loan receivable.
The increase in general and administrative expenses from
$2,299,000 in 1995 to $2,982,000 in 1996 is primarily due to an
increase in costs as a result of recent mergers and acquisitions
and the cost associated with the Company's move to the New York
Stock Exchange from the NASDAQ National Market System. Effective
August 1996, the Company was listed on the New York Stock
Exchange (NYSE). Included in general and administrative expenses
is a one-time listing fee of $78,000. The EB, Inc. merger was
effective April 27, 1995, therefore, general and administrative
expenses of EB, Inc. for only eight months have been included in
1995 compared to twelve months of expenses included in 1996.
Professional fees also increased compared to 1995,
reflecting primarily the $65,000 cost of conducting an odd-lot
tender program to reduce the number of shareholders owning less
than 100 shares of stock as a result of the recent mergers. The
EB, Inc. merger, resulted in over 4,000 new shareholders for the
Company which also contributed to an $92,000 increase in
shareholder reporting expenses. Other increases in general and
administrative expenses are the result of additional overhead to
manage the Company's significant growth through property
acquisitions during 1996 and 1995.
The Company's income tax expense of $103,000 in 1996 and
$82,000 in 1995 consists principally of state income taxes. The
Company utilized net operating loss carryforwards in 1996 and
1995 to reduce federal and state income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Cash and cash equivalents were $8,053,000 and $6,044,000 at
December 31, 1996 and 1995, respectively. The Company generated
$7,370,000 in cash flows from operating activities in 1996
compared to $2,655,000 in 1995, an increase primarily
attributable to the significant increase in the number of office
properties owned by the Company. The Company experienced
significant investing activity during 1996 with a net of
$48,522,000 being invested. In implementing its investment
strategy, the Company used $72,670,000, not including closing
costs and certain capitalized expenses, to purchase office
properties while receiving net cash proceeds from the sale of non-
core assets of $27,817,000. The Company also spent $2,037,000 to
make capital improvements at its office properties and non-core
operating real estate properties. The Company received
$34,970,000 from the placement of fixed rate, non-recourse
mortgage debt on seven office properties. The Company also
generated a net $16,612,000 from the private placement of
1,140,000 shares of common stock. Cash dividends of $2,552,000
were paid to shareholders and principal payments and payoffs of
$6,727,000 were made on mortgage notes payable during 1996.
Capitalization
At December 31, 1996, the Company had available $45,000,000
on its acquisition line of credit and $10,000,000 on its working
capital line of credit with Deposit Guaranty National Bank in
Jackson, Mississippi. The Company plans to continue actively
pursuing the purchase of office building investments that meet
the Company's investment criteria and intends to use these lines
of credit and cash balances to fund those acquisitions. At
December 31, 1996, the lines of credit had an interest rate equal
to the 90-day LIBOR rate plus 2.35% (adjusted quarterly),
interest due monthly and annual commitment fees of .125%. In
addition, both lines of credit have fees of .125% on the unused
balances due quarterly. Effective March 27, 1997, the interest
rates on both lines of credit were decreased to a rate equal to
the 90-day LIBOR rate plus 1.75% adjusted quarterly with no
increase in fees. The interest rate on the notes was 7.3125% as
of March 25, 1997. The acquisition line of credit matures June
30, 1998 and the working capital line of credit matures June 30,
1997.
Subsequent to year end, the Company completed the sale of
2,012,500 shares of common stock under its existing shelf
registration statement at a price of $27.00 per share.
Approximately $7,400,000 of the net proceeds from the stock
offering were used to repay advances on the Deposit Guaranty line
of credit and the remainder of the net proceeds of approximately
$44,000,000 was used to fund purchases of office properties
subsequent to that date.
At December 31, 1996, the Company had $62,828,000 of non-
recourse fixed rate mortgage notes payable with an average
interest rate of 8.01% secured by office properties. Based on
the Company's total market capitalization of approximately
$173,500,000 at December 31, 1996 (using the December 31, 1996
closing price of $26.00 per share) the Company's debt represented
approximately 36.2% of its total market capitalization.
Following the January stock offering, the Company's ratio of debt
to total market capitalization decreased to 27.5%. The Company
plans to maintain a ratio of debt to total market capitalization
from 25% to 40%.
Purchases of office buildings subsequent to year-end include
the following (in thousands):
Purchase Purchase
Office Building Location Price Date
- ------------------ ------------- -------- --------
Forum II & III Memphis, TN $ 16,425 01/07/97
Ashford II Houston, TX 2,207 01/28/97
Courtyard at Arapaho Dallas, TX 15,125 03/06/97
Charlotte Park Executive
Center Charlotte, NC 14,350 03/18/97
--------
$ 48,107
========
In connection with the Charlotte Park Executive Center purchase, the
Company also purchased 17.64 acres of development land in the same office
park for $1,721,000. The Company currently has no plans to begin develop-
ment on ths site.
The Company has contracts to purchase two additional office
properties for approximately $15,000,000, consisting of a total
of 177,000 square feet. The contracts are expected to close
before April 15, 1997.
The Company presently has plans to make capital improvements
at its office properties in 1997 of approximately $6,000,000.
These expenses included tenant improvements, capitalized
acquisition costs and capitalized building improvements.
Approximately $2,500,000 of these improvements relate to upgrades
on properties acquired in 1996 and 1997. All such improvements
are expected to be financed by cash flow from the properties and
advances on bank lines of credit.
The Company anticipates that its current cash balance,
operating cash flows and borrowings (including borrowings under
the working capital line of credit) will be adequate to pay the
Company's (i) operating and administrative expenses, (ii) debt
service obligations, (iii) distributions to shareholders, (iv)
capital improvements, and (v) normal repair and maintenance
expenses at its properties both in the short and long term.
Funds From Operations
Management believes that funds from operations ("FFO") is an
appropriate measure of performance for equity REITs. Funds from
operations is defined by the National Association of Real Estate
Investment Trusts (NAREIT) as net income or loss, excluding gains
or losses from debt restructuring and sales of properties, plus
depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. In March 1995,
NAREIT issued a clarification of the definition of FFO. The
clarification provides that amortization of deferred financing
costs and depreciation of non-real estate assets are not to be
added back to net income to arrive at FFO. Funds from operations
does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is
not an indication of cash available to fund cash needs. Funds
from operations should not be considered an alternative to net
income as an indicator of the Company's operating performance or
as an alternative to cash flow as a measure of liquidity.
The following table presents the Company's FFO for 1996 and
1995.
Year Ended
December 31
-------------------
1996 1995
-------- --------
Net income........................ $14,371 $11,820
Adjustments to derive
funds from operations:
Equity in earnings.............. (132) (251)
Dividends received.............. - 76
Distributions from
unconsolidated subsidiaries... 358 318
Depreciation & amortization..... 2,444 1,301
Amortization of discounts,
deferred gains and other...... (23) (141)
Gain on real estate & mortgages. (9,909) (6,552)
Gain on securities.............. (549) (4,314)
Minority interest depreciation.. (181) (206)
------- -------
Funds from operations........... $ 6,379 $ 2,051
======= =======
During 1996, rental income from office properties was
reduced by straight line rent adjustments of $165,000.
Amortization of deferred financing costs was $59,000 in 1996.
Inflation
In the last five years, inflation has not had a significant
impact on the Company because of the relatively low inflation
rate in the Company's geographic areas of operation. Most of the
leases require the tenants to pay their pro rata share of
operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's
exposure to increases in operating expenses resulting from
inflation. In addition, the Company's leases typically have
three to five year terms, which may enable the Company to replace
existing leases with new leases at a higher base if rents on the
existing leases are below the then-existing market rate.
Item 7. Consolidated Financial Statements
Index to Consolidated Financial Statements Page
Report of Independent Auditors . . . . . . . . . . . . . . . .24
Consolidated Balance Sheets-
as of December 31, 1996 and 1995 . . . . . . . . . . . . . .25
Consolidated Statements of Income--
for the years ended December 31, 1996 and 1995 . . . . . . .26
Consolidated Statements of Cash Flows--
for the years ended December 31, 1996 and 1995 . . . . . . .27
Consolidated Statements of Shareholders' Equity--
for the years ended December 31, 1996 and 1995 . . . . . . .29
Notes to Consolidated Financial Statements . . . . . . . . . .30
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Parkway Properties, Inc.
We have audited the accompanying consolidated balance sheets
of Parkway Properties, Inc. and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
shareholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Parkway Properties, Inc. and subsidiaries
at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------------
Ernst & Young LLP
Jackson, Mississippi
March 27, 1997
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31
1996 1995
----------- -----------
Assets
Real estate related investments
Office buildings....................... $132,309 $ 59,406
Accumulated depreciation............... (9,507) (7,122)
-------- --------
122,802 52,284
Real estate held for sale
Land................................. 5,664 8,441
Operating properties................. 3,675 3,990
Other non-core real estate assets.... 381 368
Mortgage loans......................... 350 11,161
Real estate securities................. - 2,866
Real estate partnership................ 319 317
-------- --------
133,191 79,427
Interest, rents receivable and other
assets................................. 5,791 2,572
Cash and cash equivalents................ 8,053 6,044
-------- --------
$147,035 $ 88,043
======== ========
Liabilities
Mortgage notes payable without recourse.. $ 62,828 $ 29,336
Mortgage notes payable on wrap mortgages. - 5,368
Accounts payable and other liabilities... 6,299 4,128
-------- --------
69,127 38,832
-------- --------
Shareholders' Equity
Common stock, $.001 par value, 69,424,000
shares authorized and 4,257,534 shares
issued in 1996; $1.00 par value,
10,000,000 shares authorized and
2,007,658 shares issued in 1995........ 4 2,008
Additional paid-in capital............... 52,356 32,882
Retained earnings........................ 25,548 13,729
-------- --------
77,908 48,619
Unrealized gain on securities............ - 592
-------- --------
77,908 49,211
-------- --------
$147,035 $ 88,043
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended
December 31
---------------------
1996 1995
--------- --------
Revenues
Income from office properties...... $ 18,840 $ 6,918
Income from other real estate
properties....................... 1,773 2,023
Interest on mortgage loans......... 1,740 1,421
Management company income.......... 784 1,041
Interest on investments............ 500 167
Dividend income.................... 118 601
Deferred gains and other income.... 324 596
Gains on real estate held
for sale and mortgage loans...... 9,909 6,552
Gains on securities................ 549 4,314
-------- --------
34,537 23,633
-------- --------
Expenses
Office properties
Operating expense................ 8,466 2,960
Interest expense................. 3,526 2,204
Depreciation and amortization.... 2,444 1,179
Minority interest................ (28) (100)
Other real estate properties
Operating expense................ 1,379 1,916
Interest expense................. - 26
Depreciation and amortization.... - 152
Interest expense
Notes payable to banks........... 185 156
Notes payable on wrap mortgages.. 436 135
Management company expense......... 673 804
General and administrative......... 2,982 2,299
-------- --------
20,063 11,731
-------- --------
Income before income taxes......... 14,474 11,902
Income tax expense................. 103 82
-------- --------
Net income......................... $ 14,371 $ 11,820
======== ========
Net income per share............... $ 3.92 $ 4.24
======== ========
Weighted average shares
outstanding...................... 3,662 2,787
======== ========
Dividends paid per share........... $ .623 $ .44
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
December 31
---------------------
1996 1995
-------- --------
Operating Activities
Net income............................ $14,371 $11,820
Adjustments to reconcile net
income to net cash provided by
operating activities:
Equity in earnings.................. (132) (251)
Dividends received.................. - 76
Distributions from operations of
unconsolidated subsidiaries....... 358 318
Depreciation and amortization....... 2,444 1,301
Amortization of discounts,
deferred gains and other.......... (23) (141)
Gains on real estate held for
sale and mortgage loans........... (9,909) (6,552)
Gains on securities................. (549) (4,314)
Changes in operating assets
and liabilities:
Increase in receivables.......... . (1,467) (370)
Increase in accounts payable
and accrued expenses............ 2,277 768
-------- --------
Cash provided by operating
activities........................ 7,370 2,655
-------- --------
Investing Activities
Payments received on mortgage loans.. 400 3,038
Purchase of real estate securities.... - (992)
Purchase of real estate related
investments......................... (73,777) (29,568)
Investment in unconsolidated
subsidiary.......................... (325) -
Purchase of mortgage loans............ (600) (1,420)
Proceeds from sale of real estate
held for sale and mortgage loan..... 24,983 8,789
Proceeds from sale of real estate
securities.......................... 2,834 20,100
Improvements to real estate related
investments......................... (2,037) (728)
Proceeds from merger of EB, Inc....... - 2,702
-------- --------
Cash provided by (used in)
investing activities............... . (48,522) 1,921
-------- --------
Financing Activities
Principal payments on mortgage
notes payable....................... (6,727) (4,559)
Proceeds from borrowings on
mortgage notes payable.............. 34,970 11,000
Proceeds from bank borrowings......... 11,805 19,344
Principal payments on bank borrowings. (11,805) (23,498)
Stock options exercised............... 858 110
Dividends paid........................ (2,552) (1,249)
Proceeds from private placement
of stock............................ 16,612 -
-------- --------
Cash provided by financing activities. 43,161 1,148
-------- --------
Increase in cash and cash equivalents. 2,009 5,724
Cash and cash equivalents at
beginning of year................... 6,044 320
-------- --------
Cash and cash equivalents at
end of year......................... $ 8,053 $ 6,044
======== ========
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
Unrealized
Additional Gain (Loss)
Common Paid-In Retained On
Stock Capital Earnings Securities Total
-------- ---------- --------- ----------- ------
<S> <C> <C> <C> <C> > <C>
Balance, December 31, 1994.... $ 1,563 $26,847 $ 3,158 $ 670 $32,238
Net income.................... - - 11,820 - 11,820
Cash dividends declared
($.44 per share).. - - (1,249) - (1,249)
Shares issued in EB merger.... 429 5,941 - - 6,370
Unrealized loss on securities. - - - (78) (78)
Stock options exercised....... 16 94 - - 110
------- ------- ------- ------- -------
Balance, December 31, 1995.... 2,008 32,882 13,729 592 49,211
Net income.................... - - 14,371 - 14,371
Cash dividends declared
($.623 per share)............. - - (2,552) - (2,552)
Unrealized gain on securities. - - - (592) (592)
Shares issued-stock dividend.. 1,006 (1,006) - - -
Stock options exercised....... 37 821 - - 858
Shares issued-private
placement.................... 1,140 15,472 - - 16,612
Reincorporation in Maryland... (4,187) 4,187 - - -
------- -------- ------- ------- -------
Balance, December 31, 1996.... $ 4 $52,356 $25,548 $ - $77,908
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts
of Parkway Properties, Inc.("Parkway" or "the Company) and its
100% owned subsidiaries as well as One Jackson Place. All
significant intercompany transactions and accounts have been
eliminated.
Business
The Company's operations are exclusively in the real estate
industry, principally with acquisition, operation and management
of office buildings.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash equivalents
The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be
cash equivalents.
Investments in unconsolidated subsidiaries
The Company shares voting control in the Wink-
Parkway Partnership with a partner and, accordingly, accounts for
its investment using the equity method of accounting. The
Company has a non-voting interest in Golf Properties, Inc. and
accordingly accounts for its investment using the cost method of
accounting.
Real estate properties
Gains from sales of real estate are recognized based on the
provisions of Statement of Financial Accounting Standards
("SFAS") No. 66 which require upon closing, the transfer of
rights of ownership to the purchaser, receipt from the purchaser
of an adequate cash down payment and adequate continuing
investment by the purchaser. If the requirements for recognizing
gains have not been met, the sale and related costs are recorded,
but the gain is deferred and recognized generally on the
installment method of accounting as collections are received.
Real estate properties are carried at cost less accumulated
depreciation. Cost includes the carrying amount of the Company's
investment plus any additional consideration paid, liabilities
assumed, costs of securing title (not to exceed fair market value
in the aggregate) and improvements made subsequent to
acquisition. Depreciation of buildings is computed using the
straight line method over their estimated useful lives of 40
years. Depreciation of tenant improvements including personal
property is computed using the straight line method over the term
of the lease involved. Maintenance and repair expenses are
charged to expense as incurred, while improvements are
capitalized and depreciated in accordance with the useful lives
outlined above. Geographically, the Company's properties are
concentrated in the Southeastern United States and Texas.
Revenue from real estate rentals is recognized and accrued
as earned on a pro rata basis over the term of the lease.
Management fee income and leasing and brokerage commissions
are recorded in income as earned. Such fees on Company-owned
properties are eliminated in consolidation.
Non-core assets (see Note C) are carried at the lower of
fair value minus estimated costs to sell or cost. Operating real
estate held for investment is stated at the lower of cost or net
realizable value.
Effective January 1, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of". SFAS No. 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the
assets' carrying amount. The effect of this adoption was not
material to the Company's financial position or results of its
operations.
Interest income recognition
Interest is generally accrued monthly based on the
outstanding loan balances. Recognition of interest income is
discontinued whenever, in the opinion of management, the
collectibility of such income becomes doubtful. After a loan is
classified as non-earning, interest is recognized as income when
received in cash.
Amortization
Debt origination costs are deferred and amortized using
the straight-line method over the term of the loan.
Leasing commissions are deferred and amortized using the straight-
line method over the term of the respective lease.
Stock based compensation
The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to or above the
fair value of the shares at the date of grant. The Company
accounts for stock option grants in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes no compensation expense for the stock
option grants.
Income taxes
Income taxes have been provided using the liability
method with SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes and (b) operating loss and tax credit
carryforwards.
Net Income Per Share
On April 30, 1996, the Company completed a 3 for 2 common
stock split, effected in the form of a stock dividend of one
share for every two shares outstanding.
Net income per share is computed by dividing net income
applicable to common stock based on the weighted average number
of shares outstanding during each year presented (3,662,000 in
1996 and 2,787,000 in 1995) adjusted retroactively for stock
dividends and splits. Common equivalent shares relating to the
stock options outstanding during the years ended December 31,
1996 and 1995, when dilutive, have been calculated using the
treasury stock method.
Reclassifications
Certain reclassifications have been made in the 1995
financial statements to conform to the 1996 classifications.
NOTE B - Investment in Office Properties
At December 31, 1996, Parkway owned or had a direct interest in 16 office
properties located in seven states with an aggregate of 1,939,205 square feet of
leasable space as shown below (in thousands):
<TABLE>
<CAPTION>
Net Mortgage
Accumulated Date Year
Property (1) Investment Deprecation Acquired Built
Accumulated Carrying Notes Date Year
Property (1) Cost Depreciation Amount Payable Acquired Built
- -------------------- ---------------------- -------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Houston, TX
400 North Belt $ 10,383 $ 183 $ 10,200 $ 6,634 04/96 1982
One Park 10 6,953 129 6,824 4,620 03/96 1982
Woodbranch 4,122 69 4,053 3,194 04/96 1982
Tensor 2,884 12 2,872 - 10/96 1983
West Office 469 34 435 - 05/94 1986
Jackson, MS
Mtel Centre' 14,005 460 13,545 10,422 07/95 1987(2)
One Jackson Place(3) 24,480 7,297 17,183 17,934 11/86 1987
Place (3)
IBM Building 6,790 177 6,613 4,653 10/95 1986
Atlanta, GA
Falls Pointe 9,133 76 9,057 6,450 08/96 1990
Waterstone 8,150 186 7,964 5,521 12/95 1987
Roswell North 4,723 40 4,683 3,400 08/96 1986
Winston-Salem, NC
BB&T 24,551 149 24,402 - 09/96 1988
Northern VA
Courthouse Road 7,659 82 7,577 - 07/96 1984
Cherokee 3,563 38 3,525 - 07/96 1985
Other
Corporate Square 2,795 355 2,440 - 04/90 1968
Cascade III 1,649 220 1,429 - 04/90 1978
-------- -------- -------- --------
Total Property Owned $132,309 $ 9,507 $122,802 $ 62,828
======== ======== ======== ========
</TABLE>
(1)Ownership is 100% unless noted otherwise.
(2)Mtel Centre' was completely renovated in 1987.
(3)Parkway owns 78.125% of One Jackson Place.
In addition to the properties shown in the preceding table,
the Company also owns a 50% interest in one office property in
New Orleans, Louisiana through an investment in a real estate
partnership. The building is 32,325 net rentable square feet and
95% of the building is leased and occupied by the other 50%
partner, an unrelated party. The carrying amount of the
partnership interest at December 31, 1996 and 1995 was $319,000
and $317,000, respectively.
The Company owns a 78.125% interest in One Jackson Place and
has majority voting control over the building, therefore it has
consolidated One Jackson Place in its consolidated financial
statements. The Company records a reduction in real estate
owned expenses for the minority owner's interest in the losses of
One Jackson Place.
The following is a schedule by year of future
approximate minimum rental receipts under noncancelable leases
for office buildings owned as of December 31, 1996 (in
thousands):
1997 $ 24,242
1998 20,183
1999 17,537
2000 14,515
2001 12,243
Subsequently 37,558
--------
$126,278
========
NOTE C - Non-Core Assets
At December 31, 1996, Parkway's investment in non-core
assets consisted of the following (in thousands):
Apartment Complex Orlando, FL $ 2,183
Retail Center Lake Jackson, TX 1,492
11 Acres Sugar Land, TX 1,388
162 Acres Katy, TX 477
80 Acres New Orleans, LA 3,799
Lots/Memberships Highlands Falls, NC 381
3 Mortgage Loans Texas 350
-------
$10,070
=======
There were three mortgage loans outstanding at December 31,
1996 secured by land and residential real estate. Loans
outstanding at December 31, 1995 totaled $11,161,000 and were
principally secured by residential real estate, motels and
apartments.
NOTE D - EB Inc. Merger
On April 27, 1995, the merger of Parkway
Acquisition Corporation ("PAC"), a wholly-owned subsidiary of
Parkway, with and into EB, Inc. ("EB") was completed. The
increase in net assets resulting from the merger was as follows
(in thousands):
Union Planters Corporation stock
(637,705 shares)............................ $15,069
Cash.......................................... 8,603
Mortgages..................................... 3,698
Operating real estate properties.............. 307
Real estate held for sale..................... 96
Interest receivable and other assets.......... 392
Mortgage notes payable on wrap mortgages...... (1,945)
Accounts payable and other liabilities........ (1,496)
-------
$24,724
=======
The Company's purchase price of the net assets
acquired consisted of (in thousands):
Common stock issued (428,955 shares) $ 6,370
Cash 5,534
Cash in lieu of fractional shares 14
Merger expenses 353
Investment in EB 12,453
-------
$24,724
=======
The Company's investment in the stock of EB of $12,453,000
at the date of the merger was eliminated through the recording of
the merger. Accordingly, the Company's consolidated results
of operations include EB from the date of acquisition. The
Company recorded equity in earnings of EB of $135,000 for the
four months ended April 27, 1995. The following unaudited pro
forma results reflect the increases to the Company's operations
assuming the EB acquisition took place at the beginning of the
period presented (in thousands, except per share data):
Year Ended
December 31,
1995
------------
Revenues $ 473
Net income $ 201
Net income per share $ .10
The pro forma results do not purport to be indicative
of actual results had the acquisition been made at the beginning
of the respective period, or of results which may occur in
the future. Revenues for EB for the period April 27, 1995
through December 31, 1995 totaled $3,625,000. During the period
from April 27, 1995 through December 31, 1995, the Company sold
its investment in Union Planters Corporation for $19,244,000
and recognized a gain of $4,175,000.
NOTE E - Notes Payable
Notes payable to banks
At December 31, 1996, the Company had a $45,000,000
acquisition line of credit and a $10,000,000 working capital
line of credit with Deposit Guaranty National Bank in Jackson,
Mississippi. At December 31, 1996, the lines of credit had an
interest rate equal to the 90-day LIBOR rate plus 2.35% (adjusted
quarterly), interest due monthly and annual commitment fees of
.125%. In addition, both lines of credit have fees of .125% on
the unused balances due quarterly. Effective March 27, 1997, the
interest rates on both lines were decreased to a rate equal to
the 90-day LIBOR rate plus 1.75% adjusted quarterly with no
increase in fees. The interest rate on the note was 7.3125% as
of March 25, 1997. The acquisition line of credit matures June
30, 1998 and the working capital line of credit matures June 30,
1997.
Mortgage notes payable without recourse
A summary of mortgage notes payable at December 31, 1996, which are non-
recourse to the Company, is as follows (in thousands):
<TABLE>
<CAPTION>
Carrying
Amount December
Office Interest Monthly Maturity of ------------------
Building Rate Payment Date Collateral 1996 1995
- ------------- -------- -------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
One Jackson
Place 7.850% $152 11/10 $17,183 $17,934 $18,336
Mtel Centre' 7.750% 118 10/08 13,545 10,422 11,000
400 North Belt 8.250% 65 08/11 10,200 6,634 -
Falls Pointe 8.375% 63 01/12 9,057 6,450 -
Waterstone 8.000% 54 07/11 7,964 5,521 -
One Park 10
Plaza 8.350% 46 08/11 6,824 4,620 -
IBM Building 7.700% 45 03/11 6,613 4,653 -
Roswell North 8.375% 33 01/12 4,683 3,400 -
Woodbranch 8.250% 32 08/11 4,053 3,194 -
-------- -------- -------
$80,122 $62,828 $29,336
======= ======= =======
</TABLE>
The aggregate annual maturities of notes payable at December
31, 1996 are as follows (in thousands):
1997 $ 2,340
1998 2,534
1999 2,744
2000 2,972
2001 3,219
Subsequently 49,019
--------
$ 62,828
========
NOTE F - Income Taxes
The components of the provision for income taxes are
as follows (in thousands):
Year Ended
December 31
-------------------
1996 1995
-------- --------
Current:
Federal $ - $ 70
State 103 12
---- ----
103 82
Deferred - -
---- ----
$103 $ 82
==== ====
The tax effects of significant items comprising the
Company's net deferred tax asset are as follows (in thousands):
December 31
-------------------
1996 1995
-------- --------
Deferred tax assets:
Differences in book and tax
basis of assets....................... $ 675 $ 1,613
Operating loss carryforwards............ 3,527 3,180
------- -------
4,202 4,793
Valuation allowance..................... (4,202) (4,793)
------- -------
Net deferred tax asset.................. $ - $ -
======= =======
The Company's income differs for income tax and
financial reporting purposes principally because (1) the timing
of the deduction for the provision for possible losses or
writedowns, (2) the timing of the recognition of gains or losses
from the sale of investments, (3) real estate owned has a
different basis for tax and financial reporting purposes,
producing different gains upon disposition, and (4) mortgage
loans have a different basis for tax and financial reporting
purposes, producing different gains upon collection of these
receivables.
The net decrease in the total valuation allowance for
the year ended December 31, 1996 was $591,000 and
relates primarily to differences in book and tax basis of
securities and real estate sold and mortgage loans sold. At
December 31, 1996 and 1995, the net deferred tax asset is
entirely offset by a valuation allowance because realization of
the net deferred tax asset is not assured.
The following is a reconciliation between the amount
reported for income taxes and the amount computed by multiplying
income before income tax by the statutory federal tax rate (in
thousands):
Year Ended
December 31
--------------------
1996 1995
--------- ---------
Taxes at statutory rate............. $ 4,921 $ 4,066
Operating loss carry forwards....... (4,876) (3,993)
Other............................... (45) (73)
Federal alternative minimum tax..... - 70
State income tax expense............ 103 12
------- -------
Income tax expense.................. $ 103 $ 82
======= =======
At December 31, 1996, the Company has net operating loss
("NOL") carryforwards for federal income tax purposes of
approximately $18,000,000 which expire at various dates through
2012. These carryforwards are limited to a maximum of
approximately $2,700,000 in any given year, subject to increases
for built-in gains recognized.
The Company has qualified under Sections 856 - 860 of the
Internal Revenue Code, as a Real Estate Investment Trust,
("REIT") effective January 1, 1997. In anticipation of
converting to a REIT, the Company reincorporated in Maryland
during 1996. If the Company distributes to its share holders at
least 95% of its REIT taxable income, it generally will not be
subject to federal corporate income tax on that portion of its
ordinary income or capital gain that is timely distributed to its
shareholders. The Company will utilize the NOL carryforwards as
a REIT to the extent that it has taxable income prior to the
carryforward expiration dates, subject to the limitation as
described above. The Company intends to continue to qualify as a
REIT, although the Company will be subject to a number of
organizational and operational requirements. If the Company
fails to qualify as a REIT in any taxable year, the Company will
be subject to federal income tax on its taxable income at the
prevailing corporate rates and would be ineligible to requalify
as a REIT for four years.
NOTE G - Stock Option Plans
The Company has elected to follow APB No. 25 and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123, Accounting for Stock-
Based Compensation, requires use of option valuation models that
were not developed for use in valuing employee stock options.
The 1994 Stock Option Plan provides for the issuance of an
aggregate of 150,000 Parkway shares ("Shares") to key employees
or officers of the Company and its subsidiaries upon the exercise
of options and upon incentive grants pursuant to the Stock Option
Plan. On July 1 of each year, the number of Shares available for
grant shall automatically increase by one percent (1%) of the
Shares outstanding on such date, provided that the number of
Shares available for grant shall never exceed 12.5% of the Shares
outstanding. Under the 1991 Directors Stock Option Plan, as
amended, options for up to 100,000 shares may be granted to non-
employee directors. Both plans have ten-year terms.
Pro forma information regarding net income and net income
per share is required by SFAS No. 123, and has been determined as
if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995: risk-free interest of 6.0%;
dividend yield of 5%; volatility factor of the expected market
price of the Company's common stock of .493 and .583,
respectively; and a weighted-average expected life of the options
of 3 years for the 1994 Stock Option Plan and 5 years for the
1991 Directors Stock Option Plan. Because the Company's employee
stock options have characteristics significantly different from
those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate,
in management's opinion, the existing model does not necessarily
provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options granted in 1996 and 1995 is amortized to
expense over the options' vesting period. The Company's pro
forma follows (in thousands, except per share information):
Year Ending
December 31
-------------------
1996 1995
-------- --------
Pro forma net income $ 14,087 $ 11,578
Pro forma net income per share $ 3.85 $ 4.15
A summary of the Company's stock option activity and related
information is as follows:
1991 Directors
1994 Stock Option Stock
Plan Option Plan
----------------- -----------------
Weighted Weighted
Average Average
Shares Price Shares Price
----------------- -----------------
Outstanding at
December 31, 1994 205,875 $ 9.92 85,500 $ 6.36
Granted 55,010 13.29 27,750 10.21
Exercised (11,613) 9.19 (21,000) 5.81
Forfeited (6,000) 9.19 - -
------- ------ ------- ------
Outstanding at
December 31, 1995 243,272 10.73 92,250 7.64
Granted 44,291 18.80 13,500 16.00
Exercised (105,563) 10.00 (27,750) 8.12
Forfeited (6,562) 13.14 - -
------- ------ ------- ------
Outstanding at
December 31, 1996 175,438 $13.12 78,000 $ 8.92
======= ====== ====== ======
The weighted average fair value of options granted during
1996 and 1995 was $4.52 and $4.39, respectively.
Following is a summary of the status of options outstanding
at December 31, 1996:
Outstanding Options Exercisable Options
---------------------------- -------------------
Weighted-
Average Weighted Weighted-
Remaining Average Average
Exercise Price Contract- Exercise Exercise
Range Number ual Life Price Number Price
- ----------------- ------- --------- --------- ------- -----------
1994 Stock Option Plan
$9.19-$12.22 88,133 7.8 years $10.21 88,133 $10.21
$12.67-$15.75 64,680 9.1 years $14.10 19,254 $13.33
$21.00-$25.63 22,625 9.6 years $21.72 - -
1991 Directors Stock Option Plan
$4.00 22,500 4.7 years $ 4.00 22,500 $ 4.00
$8.00-$10.17 42,000 8.0 years $ 9.28 42,000 $ 9.28
$16.00 13,500 9.5 years $16.00 13,500 $16.00
NOTE H - Other Matters
The Company issued 576,000 shares of its Class A Preferred Stock,
$.001 par value per share ("Preferred Stock"), and in turn
exchanged 576,000 shares of it's Common Stock for the Preferred
Stock outstanding during 1996. The Company paid a quarterly
dividend of $138,000, or $.17 per share, on the Preferred Stock.
The net proceeds from the sale of the Preferred Stock and the
dividend paid are included in the shares issued-private placement
and cash dividends, respectively, in the accompanying
consolidated statements of shareholders' equity.
Supplemental Profit and Loss Information
Included in operating expenses are taxes, principally
property taxes, of $2,169,000 and $1,301,000 for the years
ended December 31, 1996 and 1995, respectively.
Supplemental Cash Flow Information
Year Ended
December 31
--------------------
1996 1995
--------- ---------
(In thousands)
Loans to facilitate
sales of real estate and
real estate securities........... $ 350 $ 410
Loan foreclosures
added to real estate
held for sale.................... 80 443
Interest paid...................... 3,468 2,341
Income taxes paid.................. 23 77
Litigation
The Company is not presently engaged in any litigation
other than ordinary routine litigation incidental to its
business. Management believes such litigation will not
materially affect the financial position, operations or liquidity
of the Company.
NOTE I - Subsequent Events
On January 22, 1997, the Company completed the sale of
2,012,500 shares of common stock under its existing shelf
registration to a combination of retail and institutional
investors with net proceeds to the Company of approximately
$51,400,000.
Purchases of office buildings subsequent to year-end include
the following (in thousands):
Purchase Purchase
Office Building Location Price Date
- ------------------ ------------- --------- --------
Forum II & III Memphis, TN $16,425 01/07/97
Ashford II Houston, TX 2,207 01/28/97
Courtyard at Arapaho Dallas, TX 15,125 03/06/97
Charlotte Park Executive
Center Charlotte, NC 14,350 03/18/97
-------
$48,107
=======
In connection with the Charlotte Park Executive Center purchase, the
Company also purchased 17.64 acres of development land in the same office
park for $1,721,000. The Company currently has no plans to begin develop-
ment on the site.
These purchases were funded with cash reserves, borrowings
under existing lines of credits and the proceeds of the January
1997 stock offering.
NOTE J - Fair Values of Financial Instruments
Cash and cash equivalents
The carrying amounts for cash and cash equivalents
approximated fair value at December 31, 1996 and 1995.
Mortgage loans
The fair values for mortgage loans are estimated based on
net realizable value and discounted cash flow analyses, using
interest rates currently being offered on loans with similar
terms to borrowers of similar credit quality. The aggregate fair
value of the mortgage loans at December 31, 1996 was $622,000 as
compared to its carrying amount of $350,000. The aggregate fair
value of the mortgage loans at December 31, 1995 was $21,049,000
as compared to its carrying amount of $11,161,000.
The fair values of the mortgage notes payable without
recourse are estimated using discounted cash flow analysis, based
on the Company's current incremental borrowing rates for similar
types of borrowing arrangements. The aggregate fair value of the
mortgage notes payable without recourse at December 31, 1996 is
$63,496,000 as compared to its carrying amount of $62,828,000.
At December 31, 1995, the aggregate fair value of the mortgage
notes payable without recourse approximated the carrying amounts.
NOTE K - Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended
December 31, 1996 and 1995 are as follows (in thousands, except
per share data):
1996
---------------------------------------
First Second Third Fourth
------------------- --------- ---------
Revenues
(other than gains).. $ 4,534 $ 5,507 $ 6,291 $ 7,747
Expenses.................. (3,750) (4,663) (5,265) (6,488)
Gain on real estate and
mortgage loans.......... 193 5,507 163 4,046
Gain (loss) on sale of
securities.............. (190) 62 432 245
------- ------- ------- -------
Net income................ $ 787 $ 6,413 $ 1,621 $ 5,550
======= ======= ======= =======
Per share data (as
adjusted for stock split):
Net income.............. $ 0.260 $ 2.00 $ 0.39 $ 1.31
Dividends paid.......... $ 0.113 $ 0.12 $ 0.14 $ 0.25
Weighted average shares
outstanding............. 3,012 3,213 4,193 4,222
1995
---------------------------------------
First Second Third Fourth
------------------- --------- ---------
Revenues
(other than gains).. $ 2,430 $ 2,968 $ 3,515 $ 3,854
Expenses.................. (2,456) (2,601) (3,298) (3,458)
Gain on real estate and
mortgage loans.......... 123 713 3,342 2,374
Gain (loss) on sale of
securities.............. (24) 125 1,292 2,921
------- ------- ------- -------
Net income................ $ 73 $ 1,205 $ 4,851 $ 5,691
======= ======= ======= =======
Per share data (as
adjusted for stock split):
Net income.............. $ 0.030 $ 0.430 $ 1.620 $ 1.900
Dividends paid.......... $ 0.107 $ 0.107 $ 0.113 $ 0.113
Weighted average shares
outstanding............. 2,345 2,790 2,994 2,994
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons, Compliance with Section 16(a) of the Exchange
Act
The Registrant's definitive proxy statement which will
be filed with the Commission pursuant to Regulation 14A within
120 days of the end of Registrant's fiscal year is incorporated
herein by reference.
Item 10. Executive Compensation
The Registrant's definitive proxy statement which will
be filed with the Commission pursuant to Regulation 14A within
120 days of the end of Registrant's fiscal year is incorporated
herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners
and Management
The Registrant's definitive proxy statement which will be
filed with the Commission pursuant to Regulation 14A within 120
days of the end of Registrant's fiscal year is incorporated
herein by reference.
Item 12. Certain Relationships and Related Transactions
The Registrant's definitive proxy statement which will be
filed with the Commission pursuant to Regulation 14A within 120
days of the end of Registrant's fiscal year is incorporated
herein by reference.
Forward-Looking Statements
In addition to historical information, certain sections of
this Annual Report contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, such as those
pertaining to the Company's capital resources, profitability and
portfolio performance. Forward-looking statements involve
numerous risks and uncertainties. The following factors, among
others discussed herein, could cause actual results and future
events to differ materially from those set forth or contemplated
in the forward-looking statements: defaults or non-renewal of
leases, increased interest rates and operating costs, failure to
obtain necessary outside financing, difficulties in identifying
properties to acquire and in effecting acquisitions, failure to
qualify as a real estate investment trust under the Internal
Revenue Code of 1986, as amended (the "Code"), environmental
uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws and
increases in real property tax rates. The success of the Company
also depends upon the trends of the economy, including interest
rates, income tax laws, governmental regulation, legislation,
population changes and those risk factors discussed elsewhere in
this Annual Report. Readers are cautioned not to place undue
reliance on forward-looking statements, which reflect
management's analysis only as the date hereof. The Company
assumes no obligation to update forward-looking statements. See
also the Company's reports to be filed from time to time with the
Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
Item 13. Exhibits and Reports on Form 8-K
(a)Exhibits required by Item 601 of Regulation S-B:
(3)(a)Articles of Incorporation, as amended, of Parkway
(incorporated by reference to Exhibit B to The Parkway
Company's Proxy Material for its Annual Meeting of
Stockholders held on July 18, 1996).
(b)Bylaws of Parkway (incorporated by reference to Exhibit C
to The Parkway Company's Proxy Material for its
Annual Meeting of Stockholders held on July 18, 1996).
(c)Amendments to Bylaws, filed herewith.
(10)(a)Registrant's 1994 Stock Option Plan (incorporated by
reference to Registrant's Proxy Statement dated November
8, 1994).
(b)Registrant's 1991 Directors Stock Option Plan, as
amended (incorporated by reference to the Registrant's
proxy statement dated November 8, 1994).
(c)Agreement and Plan of Merger among Parkway, Parkway
Acquisition Corp. and EB dated as of October 28, 1994
(as amended by the First Amendment to the Agreement and
Plan of Merger dated January 26, 1995), incorporated by
reference to Appendix B of the Joint Proxy
Statement/Prospectus filed with the Registration
Statement on Form S-4 of The Parkway Company
(No. 33-85950).
(d)Form of Change-in-Control Agreement that Registrant has
entered into with Leland R. Speed, Steven G. Rogers and
Sarah P. Clark, filed herewith.
(e)Form of Change-in-Control Agreement that the Registrant
has entered into with David R. Fowler, G. Mitchel
Mattingly and James M. Ingram, filed herewith.
Parkway agrees to furnish supplementally to the
Commission upon request a copy of any omitted schedule
or exhibit to the Merger Agreement.
(11)Statement re: Computation of earnings per share, filed
herewith.
(21)Subsidiaries of the small business issuer, filed herewith.
(23)Consent of Ernst & Young LLP, filed herewith.
(27)Financial Data Schedule
(28)Agreement of Registrant to furnish the Commission with
copies of instruments defining the rights of holders of
long-term debt (incorporated by reference to Exhibit 28E of
the Registrant's Form S-4 (No. 33-2960) filed with the
Commission on February 3, 1986).
(99)The Company Shareholder Rights Plan dated September 7, 1995
(incorporated by reference to the Registrant's Form 8-A
filed September 8, 1995).
(b)Reports on Form 8-K.
(1)Filed October 15, 1996
Reporting the September 30, 1996 purchase of the BB&T
Financial Center from AETNA Life Insurance Company for
$24,500,000.
(2)Filed October 22, 1996
Amendment to Form 8-K filed August 9, 1996 reporting
"Item 7. Financial Statements and Exhibits".
(3)Filed December 13, 1996
Amendment to Form 8-K filed October 15, 1996 reporting
"Item 7. Financial Statements and Exhibits".
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PARKWAY PROPERTIES, INC.
Registrant
/s/ Leland R. Speed
Leland R. Speed
Chief Executive Officer
March 28, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ Daniel C. Arnold /s/ W. Lincoln Mossop, Jr.
Daniel C. Arnold, Director W. Lincoln Mossop, Jr.
March 28, 1997 Director
March 28, 1997
/s/ George R. Farish /s/ Leland R. Speed
George R. Farish, Director Leland R. Speed, Director
March 28, 1997 March 28, 1997
/s/ Roger P. Friou /s/ Steven G. Rogers
Roger P. Friou, Director Steven G. Rogers
March 28, 1997 President and Director
March 28, 1997
/s/ Joe F. Lynch /s/ Sarah P. Clark
Joe F. Lynch, Director Sarah P. Clark
March 28, 1997 Chief Financial Officer
March 28, 1997
/s/ C. Herbert Magruder /s/ Regina P. Shows
C. Herbert Magruder, M.D. Regina P. Shows, Controller
Director March 28, 1997
March 28, 1997
Exhibit (11) Statement Re: Computation of Per Share Earnings
Year Ended
December 31
--------------------
1996 1995
--------- ---------
(In thousands)
Fully diluted
Average shares
outstanding.............. 3,662 2,787
Net effect of
dilutive stock
options- Based
on the treasury
stock method
using year-end
market price............. 93 33
-------- --------
Total...................... 3,755 $ 2,820
======== ========
Net income................. $ 14,371 $ 11,820
======== ========
Per share amount........... $ 3.83 $ 4.19
======== ========
Note:
The above dilution is less than 3% or anti-dilutive, thus
earnings per share are based on the average shares outstanding.
Exhibit (21) List of Subsidiaries
Name State
Corporations:
------------
Sugar Creek Center Corporation Texas
Parkway Texas Corporation Texas
Parkway Congress Corporation Texas
Parkway Ridgewood, Inc. Mississippi
Parkway Lamar, Inc. Mississippi
Parkway Atlanta, Inc. Georgia
Parkway Houston, Inc. Texas
Parkway Virginia, Inc. Virginia
Parkway Carolina, Inc. North Carolina
Parkway Ridgewood, Inc. Mississippi
Club at Winter Park Corporation Delaware
Parkway Properties General Partners, Inc. Delaware
Parkway Realty Services, Inc. Mississippi
Parkway Capitol, Inc. Mississippi
Partnerships:
------------
Club at Winter Park LP Delaware
Parkway Properties LP Delaware
Parkway Ashford LP Texas
Exhibit 23
Consent of Independent Auditors
Board of Directors and Stockholders
Parkway Properties, Inc.
We consent to the incorporation by reference in the
Registration Statement (Form S-8 on Form S-3 No. 333-00311
pertaining to The Parkway Company 1994 Stock Option Plan,
The Parkway Company 1991 Incentive Plan, and The Parkway Company
1991 Directors Stock Option Plan and the Registration Statement
(Form S-3 No. 333-16479) of Parkway Properties, Inc. and
related Prospectus and Prospectus Supplement of our report
dated March 27, 1997, with respect to the consolidated
financial statements of Parkway Properties, Inc. included in
this Annual Report (Form 10-KSB) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
Jackson, Mississippi
March 27, 1997
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8053
<SECURITIES> 0
<RECEIVABLES> 5791
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 147035
<CURRENT-LIABILITIES> 69127
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 77904
<TOTAL-LIABILITY-AND-EQUITY> 147035
<SALES> 0
<TOTAL-REVENUES> 34537
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4147
<INCOME-PRETAX> 14474
<INCOME-TAX> 103
<INCOME-CONTINUING> 14371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14371
<EPS-PRIMARY> 3.92
<EPS-DILUTED> 3.83
</TABLE>
EXHIBIT 3(c)
AMENDMENTS TO THE BYLAWS
OF
PARKWAY PROPERTIES, INC.
Article IV, Sections 1 and 2 of the Company's Bylaws
are amended to read in their entirety as follows:
Section 1. NUMBER, TENURE AND QUALIFICATIONS.
The Board of Directors may appoint from among its
members an Executive Committee, an Audit Committee and other
committees, composed of one or more directors, to serve at the
pleasure of the Board of Directors.
Section 2. POWERS.
The Board of Directors may delegate to committees
appointed under Section 1 of this Article IV any of the powers of
the Board of Directors, except the power to authorize dividends
on stock, elect directors, issue stock other than as provided
below, recommend to the stockholders any action which requires
stockholder approval, amend these Bylaws, or approve any merger
or share exchange which does not require stockholder approval. If
the Board of Directors has given general authorization for the
issuance of stock providing for or establishing a method or
procedure for determining the maximum number of shares to be
issued, a committee of the board, in accordance with that general
authorization or any stock option or other plan or program
adopted by the Board of Directors, may authorize or fix the terms
of stock subject to classification or reclassification and the
terms on which any stock may be issued, including all terms and
conditions required or permitted to be established or authorized
by the Board of Directors.
Article II, Section 2 of the Company's Bylaws is
amended to read in its entirety as follows:
Section 2. SPECIAL MEETING.
At any time in the interval between annual meetings, a
special meeting of the stockholders may be called by the
President, the Chief Executive Officer, the Chairman of the Board
or by a majority of the Board of Directors by vote at a meeting
or in writing (addressed to the Secretary of the corporation)
with or without a meeting. Special meetings of the stockholders
shall also be called by the Secretary at the request of
stockholders only on the written request of stockholders entitled
to cast at least a majority of all the votes entitled to be cast
at the meeting or a majority of the Board of Directors. A
request for a special meeting shall state the purpose of such
meeting and the matters proposed to be acted on at such meeting.
The Secretary shall inform the stockholders making the request of
the reasonably estimated costs of preparing and mailing a notice
of the meeting and, upon such stockholders' payment to the
Corporation of such costs, the Secretary shall give notice to
each stockholder entitled to notice of the meeting.
The following sentence is added to the end of Article
II, Section 12:
Stockholders may not participate in meetings by means of a
conference telephone or similar communications equipment.
Exhibit (10)(d)
CHANGE IN CONTROL AGREEMENT
AGREEMENT by and between Parkway Properties, Inc.,
a Maryland corporation (the "Company"), with offices at 300
One Jackson Place, 188 East Capitol Street, Jackson,
Mississippi 39201-2195, and ________________ (the
"Executive"), an individual residing at
__________________________________________, dated as of the
6th of December, 1996.
WHEREAS, the Company recognizes that the current
business environment makes it difficult to attract and
retain highly qualified executives unless a certain degree
of security can be offered to such individuals against
organizational and personnel changes which frequently follow
changes in control of a corporation; and
WHEREAS, even rumors of acquisitions or mergers
may cause executives to consider major career changes in an
effort to assure financial security for themselves and their
families; and
WHEREAS, the Company desires to assure fair
treatment of its executives in the event of a Change in
Control (as defined below) and to allow them to make
critical career decisions without undue time pressure and
financial uncertainty, thereby increasing their willingness
to remain with the Company notwithstanding the outcome of a
possible Change in Control transaction; and
WHEREAS, the Company recognizes that its
executives will be involved in evaluating or negotiating any
offers, proposals or other transactions which could result
in Changes in Control of the Company and believes that it is
in the best interest of the Company and its stockholders for
such executives to be in a position, free from personal
financial and employment considerations, to be able to
assess objectively and pursue aggressively the interests of
the Company's stockholders in making these evaluations and
carrying on such negotiations; and
WHEREAS, the Board of Directors (the "Board") of
the Company believes it is essential to provide the
Executive with compensation arrangements upon a Change in
Control which provide the Executive with individual
financial security and which are competitive with those of
other corporations, and in order to accomplish these
objectives, the Board has caused the Company to enter into
this Agreement.
NOW THEREFORE, the parties, for good and valuable
consideration and intending to be legally bound, agree as
follows:
1. Operation and Term of Agreement. This
Agreement shall be effective immediately upon its execution.
This Agreement may be terminated by the Company upon 24
months' advance written notice to the Executive; provided,
however, that after a Change in Control of the Company
during the term of this Agreement, this Agreement shall
remain in effect until all of the obligations of the parties
under the Agreement are satisfied and the Protection Period
has expired. Prior to a Change in Control this Agreement
shall immediately terminate upon termination of the
Executive's employment or upon the Executive's ceasing to be
an elected officer of the Company.
2. Certain Definitions. For purposes of this
Agreement, the following words and phrases shall have the
following meanings:
(a) "Cause" shall mean (i) the
continued failure by the Executive to perform his material
responsibilities and duties toward the Company (other than
any such failure resulting from the Executive's incapacity
due to physical or mental illness), (ii) the engaging by the
Executive in willful or reckless conduct that is
demonstrably injurious to the Company monetarily or
otherwise, (iii) the conviction of the Executive of a
felony, or (iv) the commission or omission of any act by the
Executive that is materially inimical to the best interests
of the Company and that constitutes on the part of the
Executive common law fraud or malfeasance, misfeasance, or
nonfeasance of duty; provided, however, that "cause" shall
not include the Executive's lack of professional
qualifications. For purposes of this Agreement, an act, or
failure to act, on the Executive's part shall be considered
"willful" or "reckless" only if done, or omitted, by him not
in good faith and without reasonable belief that his action
or omission was in the best interest of the Company. The
Executive's employment shall not be deemed to have been
terminated for "cause" unless the Company shall have given
or delivered to the Executive (A) reasonable notice setting
forth the reasons for the Company's intention to terminate
the Executive's employment for "cause," (B) a reasonable
opportunity, at any time during the 30-day period after the
Executive's receipt of such notice, for the Executive,
together with his counsel, to be heard before the Board, and
(C) a Notice of Termination (as defined in Section 10 below)
stating that, in the good faith opinion of not less than a
majority of the entire membership of the Board, the
Executive was guilty of the conduct set forth in clauses
(i), (ii), (iii) or (iv) of the first sentence of this
Section 2(a).
(b) "Change in Control" shall mean a change
in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities and Exchange Act of
1934, as amended (the Exchange Act), whether or not the
Company is then subject to such reporting requirements;
provided that, without limitation, such a Change in Control
shall be deemed to have occurred if (a) any person (as such
term is used in section 13(d) and 14(d) of the Exchange Act)
is or becomes beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of the Company representing 30 percent or more of
the combined voting power of the Company's then outstanding
securities; or (B) during any period of two consecutive
years, the following persons (the Continuing Directors)
cease for any reason to constitute a majority of the Board:
individuals who at the beginning of such period constitute
the Board and new Directors each of whose election to the
Board or nomination for election to the Board by the
Company's security holders was approved by a vote of at
least two-thirds of the Directors then still in office who
either were Directors at the beginning of the period or
whose election or nomination for election was previously so
approved; or (C) the security holders of the Company approve
a merger or consolidation of the Company with any other
corporation, other than (i) a merger or consolidation that
would result in the voting securities of the Company
outstanding immediately before the merger or consolidation
continuing to represent (either by remaining outstanding or
by being converted into voting securities of the Company or
of such surviving entity outstanding immediately after such
merger or consolidation or (ii) a merger of consolidation
that is approved by a Board having a majority of its members
persons who are Continuing Directors, of which Continuing
Directors not less than two-thirds have approved the merger
or consolidation; or (D) the security holders of the Company
approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(c) "Code" shall mean the Internal Revenue
Code of 1986, as amended.
(d) "Disability," for purposes of this
Agreement, shall mean total disability as defined in any
long-term disability plan sponsored by the Company in which
the Executive participates, or, if there is no such plan or
it does not define such term, then it shall mean the
physical or mental incapacity of the Executive that prevents
him from substantially performing the duties of the office
or position to which he was elected or appointed by the
Board for a period of at least 180 days and the incapacity
is expected to be permanent and continuous through the
Executive's 65th birthday.
(e) The "Change in Control Date" shall be
any date during the term of this Agreement on which a Change
in Control occurs. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment or
status as an elected officer with the Company is terminated
within six months before the date on which a Change in
Control occurs, and it is reasonably demonstrated that such
termination (i) was at the request of a third party who has
taken steps reasonably calculated or intended to effect a
Change in Control or (ii) otherwise arose in connection with
or anticipation of a Change in Control, then for all
purposes of this Agreement the "Change in Control Date"
shall mean the date immediately before the date of such
termination.
(f) "Good Reason" means:
(i) the assignment to the Executive
within the Protection Period of any duties inconsistent in
any respect with the Executive's position (including status,
offices, titles and reporting requirements, authority,
duties or responsibilities), or any other action that
results in a diminution in such position, authority, duties,
or responsibilities excluding for this purpose an isolated,
insubstantial, and inadvertent action not taken in bad faith
and that is remedied by the Company promptly after receipt
of notice given by the Executive;
(ii) a reduction by the Company in the
Executive's base salary in effect immediately before the
beginning of the Protection Period or as increased from time
to time after the beginning of the Protection Period;
(iii) a failure by the Company to
maintain plans providing benefits at least as beneficial as
those provided by any benefit or compensation plan
(including, without limitation, any incentive compensation
plan, bonus plan or program, retirement, pension or savings
plan, life insurance plan, health and dental plan or
disability plan) in which the Executive is participating
immediately before the beginning of the Protection Period,
or any action taken by the Company that would adversely
affect the Executive's participation in or reduce the
Executive's opportunity to benefit under any of such plans
or deprive the Executive of any material fringe benefit
enjoyed by him immediately before the beginning of the
Protection Period; provided, however, that a reduction in
benefits under the Company's tax-qualified retirement,
pension, or savings plans or its life insurance plan, health
and dental plan, disability plans or other insurance plans,
which reduction applies generally to participants in the
plans and has a de minimis effect on the Executive shall not
constitute "Good Reason" for termination by the Executive;
(iv) the Company's requiring the
Executive, without the Executive's written consent, to be
based at any office or location in excess of 50 miles from
his office location immediately before the beginning of the
Protection Period, except for travel reasonably required in
the performance of the Executive's responsibilities;
(v) any purported termination by the
Company of the Executive's employment for Cause otherwise
than as referred to in Section 10 of this Agreement; or
(vi) any failure by the Company to
obtain the assumption of the obligations contained in this
Agreement by any successor as contemplated in Section 9(c)
of this Agreement.
(g) "Parent" means any entity that directly
or indirectly through one or more other entities owns or
controls more than 50 percent of the voting stock or common
stock of the Company.
(h) "Protection Period" means the period
beginning on the Change in Control Date and ending on the
last day of the 20th calendar month following the Change in
Control Date.
(i) "Subsidiary" means a company 50 percent
or more of the voting securities of which are owned,
directly or indirectly, by the Company.
3. Benefits Upon Termination Within a Protection
Period. If, during a Protection Period, the Executive's
employment is terminated by the Company other than for Cause
or Disability or other than as a result of the Executive's
death or if the Executive terminates his employment for Good
Reason, the Company shall, subject to Section 7, pay to the
Executive in a lump sum in cash within 10 days after the
date of termination the aggregate of the following amounts:
(a) The Executive's full base salary and
vacation pay (for vacation not taken) accrued but unpaid
through the date of termination at the rate in effect at the
time of the termination; and
(b) A lump sum severance payment in an
amount equal to 1.667 times the Executive's "Annual
Compensation." For purposes of this Agreement, "Annual
Compensation" shall be an amount equal to the average for
the three year period ending on the December 31 prior to the
Change in Control Date of (i) the Executive's annual base
salary from the Company and its Subsidiaries plus (ii) the
amount of bonus accrued by the Company for the Executive;
and
(c) Within 30 days of the date of
termination, upon surrender by the Executive of his
outstanding options to purchase common shares of the Company
("Common Shares") granted to the Executive by the Company
(the "Outstanding Options") and any stock appreciation
rights ("SARs"), an amount in respect of each Outstanding
Option and SAR (whether vested or not) equal to the
difference between the exercise price of such Outstanding
Options and SARs and the higher of (x) the fair market value
of the Common Shares at the time of such termination (but
not less than the closing price for the Common Shares on the
New York Stock Exchange, or such other national stock
exchange on which such shares may be listed, on the last
trading day such shares traded prior to the date of
termination), and (y) the highest price paid for Common
Shares or, in the cases of securities convertible into
Common Shares or carrying a right to acquire Common Shares,
the highest effective price (based on the prices paid for
such securities) at which such securities are convertible
into Common Shares or at which Common Shares may be
acquired, by any person or group whose acquisition of voting
securities has resulted in a Change in Control of the
Company; provided, however, that this Section 3(c) shall not
apply to the surrender of any Outstanding Option that is an
incentive stock option (within the meaning of section 422 of
the Code).
4. Executive's Right to Leave Employment. At
any time during the six month period following a Change in
Control Date, the Executive shall have the right to
terminate the Executive's employment with the Company at the
Executive's sole discretion (the "Executive Termination
Right"). In the event the Executive exercises the Executive
Termination Right, the Company shall pay the Executive in a
lump sum in cash within 10 days after the date of
termination the aggregate of the following amounts:
(a) The amounts set forth in Sections 3(a)
and 3(c); and
(b) 0.8335 times the Executive's Annual
Compensation.
5. Non-exclusivity of Rights. Nothing in this
Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive, or
other plans, practices, policies, or programs provided by
the Company or any of its Subsidiaries and for which the
Executive may qualify, nor shall anything in this Agreement
limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the
Company or any of its Subsidiaries. Amounts that are vested
benefits or that the Executive is otherwise entitled to
receive under any plan, practice, policy, or program of the
Company or any of its Subsidiaries at or subsequent to the
date of termination shall be payable in accordance with such
plan, practice, policy, or program; provided, however, that
the Executive shall not be entitled to severance pay, or
benefits similar to severance pay, under any plan, practice,
policy, or program generally applicable to employees of the
Company or any of its Subsidiaries.
6. Full Settlement; No Obligation to Seek Other
Employment; Legal Expenses. The Company's obligation to
make the payments provided for in this Agreement and
otherwise to perform its obligations under this Agreement
shall not be affected by any set-off, counterclaim,
recoupment, defense, or other claim, right, or action that
the Company may have against the Executive or others. The
Executive shall not be obligated to seek other employment or
take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement. The Company agrees to pay, upon written demand
by the Executive, all legal fees and expenses the Executive
may reasonably incur as a result of any dispute or contest
(regardless of outcome) by or with the Company or others
regarding the validity or enforceability of, or liability
under, any provision of this Agreement. In any such action
brought by the Executive for damages or to enforce any
provisions of this Agreement, he shall be entitled to seek
both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's
obligations under this Agreement, in his sole discretion.
7. Cut Back in Benefits. Notwithstanding any
other provision of this Agreement, the cash lump sum payment
and other benefits otherwise to be provided pursuant to
Sections 3 and 4 of this Agreement (the "Severance Benefit")
shall be reduced as described below if the Company would, by
reason of section 280G of the Code, not be entitled to
deduct for federal income tax purposes any part of the
Severance Benefit or any part of any other payment or
benefit to which Executive is entitled under any plan,
practice, policy, or program. For the purposes of this
Agreement, the Company's independent auditors shall
determine the value of any deferred payments or benefits in
accordance with the principles of section 280G of the Code,
and tax counsel selected by the Company's independent
auditors and acceptable to the Company shall determine the
deductibility of payments and benefits to which the
Executive is entitled. The Severance Benefit shall be
reduced only to the extent required, in the opinion of such
tax counsel, to prevent such nondeductibility of any part of
the remaining Severance Benefit and other payments and
benefits to which the Executive is entitled. The Company
shall determine which elements of the Severance Benefit
shall be reduced to conform to the provisions of this
Section. Any determination made by the Company's
independent auditors or by tax counsel pursuant to this
Section shall be conclusive and binding on the Executive.
8. Confidential Information. The Executive
shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge,
or data relating to the Company or any of its Subsidiaries,
and their respective businesses, obtained by the Executive
during the Executive's employment by the Company or any of
its Subsidiaries and that has not become public knowledge
(other than by acts of the Executive or his representatives
in violation of this Agreement). After the date of
termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent
of the Company, communicate or divulge any such information,
knowledge, or data to anyone other than the Company and
those designated by it. In no event shall an asserted
violation of the provisions of this Section 8 constitute a
basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
9. Successors.
(a) This Agreement is personal to the
Executive and without the prior written consent of the
Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives or successor(s) in
interest. The Executive may designate a successor (or
successors) in interest to receive any and all amounts due
the Executive in accordance with this Agreement should the
Executive be deceased at any time of payment. Such
designation of successor(s) in interest shall be made in
writing and signed by the Executive, and delivered to the
Company pursuant to Section 13(b). This Section 9(a) shall
not supersede any designation of beneficiary or successor in
interest made by the Executive, or separately covered, under
any other plan, practice, policy, or program of the Company.
(b) This Agreement shall inure to the
benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of
the business or assets of the Company and any Parent of the
Company or any successor and without regard to the form of
transaction utilized to acquire the business or assets of
the Company, to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such
succession or parentage had taken place. As used in this
Agreement, "Company" shall mean the Company as defined above
and any successor to its business or assets as aforesaid
(and any Parent of the Company or any successor) that is
required by this clause to assume and agree to perform this
Agreement or which otherwise assumes and agrees to perform
this Agreement.
10. Notice of Termination. Any termination of
the Executive's employment by the Company for Cause or by
the Executive for Good Reason shall be communicated by
Notice of Termination to the other party given in accordance
with Section 13(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice
that (i) indicates the specific termination provision in
this Agreement relied upon, (ii) sets forth in reasonable
detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under
the provision so indicated, and (iii) if the date of
termination is other than the date of receipt of such
notice, specifies the termination date (which date shall be
not more than 15 days after the giving of such notice). The
failure by the Executive to set forth in the Notice of
Termination any fact or circumstance that contributes to a
showing of Good Reason shall not waive any right of the
Executive under this Agreement or preclude the Executive
from asserting such fact or circumstance in enforcing his
rights.
11. Requirements and Benefits if Executive Is
Employee of Subsidiary of Company. If the Executive is an
employee of any Subsidiary of the Company, he shall be
entitled to all of the rights and benefits of this Agreement
as though he were an employee of the Company and the term
"Company" shall be deemed to include the Subsidiary by whom
the Executive is employed. The Company guarantees the
performance of its Subsidiary under this Agreement.
12. Arbitration. The Company and the Executive
shall attempt to resolve between them any dispute that
arises under this Agreement. If they cannot agree within
ten days after either party submits a demand for arbitration
to the other party, then the issue shall be submitted to
arbitration with each party having the right to appoint one
arbitrator and those two arbitrators mutually selecting a
third arbitrator. The rules of the American Arbitration
Association for the arbitration of commercial disputes shall
apply and the decision of two of the three arbitrators shall
be final. The arbitrators must reach a decision within 60
days after the selection of the third arbitrator. The
arbitration shall take place in Jackson, Mississippi. The
arbitrators shall apply Mississippi law.
13. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of
Mississippi, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties or their
respective successors and legal representatives.
(b) All notices and other communications
under this Agreement shall be in writing and shall be given
by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid,
to the addresses for each party as first written above or to
such other address as either party shall have furnished to
the other in writing in accordance with this Section.
Notices and communications to the Company shall be addressed
to the attention of the Company's Corporate Secretary.
Notice and communications shall be effective when actually
received by the addressee.
(c) Whenever reference is made in this
Agreement to any specific plan or program of the Company, to
the extent that the Executive is not a participant in the
plan or program or has no benefit accrued under it, whether
vested or contingent, as of the Change in Control Date, then
such reference shall be null and void, and the Executive
shall acquire no additional benefit as a result of such
reference.
(d) The invalidity or unenforceability of
any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this
Agreement.
(e) The Company may withhold from any
amounts payable under this Agreement such Federal, state, or
local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
(f) The Executive's failure to insist upon
strict compliance with any provision of this Agreement shall
not be deemed to be a waiver of such provision or any other
provision.
(g) Upon a termination of the Executive's
employment or upon the Executive's ceasing to be an elected
officer of the Company, in each case, prior to the Change in
Control Date, there shall be no further rights under this
Agreement.
IN WITNESS WHEREOF, the Executive has set his hand
to this Agreement and, pursuant to the authorization from
the Board, the Company has caused this Agreement to be
executed as of the day and year first above written.
PARKWAY PROPERTIES, INC.
By___________________________
EXECUTIVE
_____________________________
Exhibit (10)(e)
CHANGE IN CONTROL AGREEMENT
AGREEMENT by and between Parkway Properties, Inc.,
a Maryland corporation (the "Company"), with offices at 300
One Jackson Place, 188 East Capitol Street, Jackson,
Mississippi 39201-2195, and ________________ (the
"Executive"), an individual residing at
__________________________________________, dated as of the
6th of December, 1996.
WHEREAS, the Company recognizes that the current
business environment makes it difficult to attract and
retain highly qualified executives unless a certain degree
of security can be offered to such individuals against
organizational and personnel changes which frequently follow
changes in control of a corporation; and
WHEREAS, even rumors of acquisitions or mergers
may cause executives to consider major career changes in an
effort to assure financial security for themselves and their
families; and
WHEREAS, the Company desires to assure fair
treatment of its executives in the event of a Change in
Control (as defined below) and to allow them to make
critical career decisions without undue time pressure and
financial uncertainty, thereby increasing their willingness
to remain with the Company notwithstanding the outcome of a
possible Change in Control transaction; and
WHEREAS, the Company recognizes that its
executives will be involved in evaluating or negotiating any
offers, proposals or other transactions which could result
in Changes in Control of the Company and believes that it is
in the best interest of the Company and its stockholders for
such executives to be in a position, free from personal
financial and employment considerations, to be able to
assess objectively and pursue aggressively the interests of
the Company's stockholders in making these evaluations and
carrying on such negotiations; and
WHEREAS, the Board of Directors (the "Board") of
the Company believes it is essential to provide the
Executive with compensation arrangements upon a Change in
Control which provide the Executive with individual
financial security and which are competitive with those of
other corporations, and in order to accomplish these
objectives, the Board has caused the Company to enter into
this Agreement.
NOW THEREFORE, the parties, for good and valuable
consideration and intending to be legally bound, agree as
follows:
1. Operation and Term of Agreement. This
Agreement shall be effective immediately upon its execution.
This Agreement may be terminated by the Company upon 24
months' advance written notice to the Executive; provided,
however, that after a Change in Control of the Company
during the term of this Agreement, this Agreement shall
remain in effect until all of the obligations of the parties
under the Agreement are satisfied and the Protection Period
has expired. Prior to a Change in Control this Agreement
shall immediately terminate upon termination of the
Executive's employment or upon the Executive's ceasing to be
an elected officer of the Company.
2. Certain Definitions. For purposes of this
Agreement, the following words and phrases shall have the
following meanings:
(a) "Cause" shall mean (i) the
continued failure by the Executive to perform his material
responsibilities and duties toward the Company (other than
any such failure resulting from the Executive's incapacity
due to physical or mental illness), (ii) the engaging by the
Executive in willful or reckless conduct that is
demonstrably injurious to the Company monetarily or
otherwise, (iii) the conviction of the Executive of a
felony, or (iv) the commission or omission of any act by the
Executive that is materially inimical to the best interests
of the Company and that constitutes on the part of the
Executive common law fraud or malfeasance, misfeasance, or
nonfeasance of duty; provided, however, that "cause" shall
not include the Executive's lack of professional
qualifications. For purposes of this Agreement, an act, or
failure to act, on the Executive's part shall be considered
"willful" or "reckless" only if done, or omitted, by him not
in good faith and without reasonable belief that his action
or omission was in the best interest of the Company. The
Executive's employment shall not be deemed to have been
terminated for "cause" unless the Company shall have given
or delivered to the Executive (A) reasonable notice setting
forth the reasons for the Company's intention to terminate
the Executive's employment for "cause," (B) a reasonable
opportunity, at any time during the 30-day period after the
Executive's receipt of such notice, for the Executive,
together with his counsel, to be heard before the Board, and
(C) a Notice of Termination (as defined in Section 10 below)
stating that, in the good faith opinion of not less than a
majority of the entire membership of the Board, the
Executive was guilty of the conduct set forth in clauses
(i), (ii), (iii) or (iv) of the first sentence of this
Section 2(a).
(b) "Change in Control" shall mean a change
in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities and Exchange Act of
1934, as amended (the Exchange Act), whether or not the
Company is then subject to such reporting requirements;
provided that, without limitation, such a Change in Control
shall be deemed to have occurred if (a) any person (as such
term is used in section 13(d) and 14(d) of the Exchange Act)
is or becomes beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of the Company representing 30 percent or more of
the combined voting power of the Company's then outstanding
securities; or (B) during any period of two consecutive
years, the following persons (the Continuing Directors)
cease for any reason to constitute a majority of the Board:
individuals who at the beginning of such period constitute
the Board and new Directors each of whose election to the
Board or nomination for election to the Board by the
Company's security holders was approved by a vote of at
least two-thirds of the Directors then still in office who
either were Directors at the beginning of the period or
whose election or nomination for election was previously so
approved; or (C) the security holders of the Company approve
a merger or consolidation of the Company with any other
corporation, other than (i) a merger or consolidation that
would result in the voting securities of the Company
outstanding immediately before the merger or consolidation
continuing to represent (either by remaining outstanding or
by being converted into voting securities of the Company or
of such surviving entity outstanding immediately after such
merger or consolidation or (ii) a merger of consolidation
that is approved by a Board having a majority of its members
persons who are Continuing Directors, of which Continuing
Directors not less than two-thirds have approved the merger
or consolidation; or (D) the security holders of the Company
approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(c) "Code" shall mean the Internal Revenue
Code of 1986, as amended.
(d) "Disability," for purposes of this
Agreement, shall mean total disability as defined in any
long-term disability plan sponsored by the Company in which
the Executive participates, or, if there is no such plan or
it does not define such term, then it shall mean the
physical or mental incapacity of the Executive that prevents
him from substantially performing the duties of the office
or position to which he was elected or appointed by the
Board for a period of at least 180 days and the incapacity
is expected to be permanent and continuous through the
Executive's 65th birthday.
(e) The "Change in Control Date" shall be
any date during the term of this Agreement on which a Change
in Control occurs. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment or
status as an elected officer with the Company is terminated
within six months before the date on which a Change in
Control occurs, and it is reasonably demonstrated that such
termination (i) was at the request of a third party who has
taken steps reasonably calculated or intended to effect a
Change in Control or (ii) otherwise arose in connection with
or anticipation of a Change in Control, then for all
purposes of this Agreement the "Change in Control Date"
shall mean the date immediately before the date of such
termination.
(f) "Good Reason" means:
(i) the assignment to the Executive
within the Protection Period of any duties inconsistent in
any respect with the Executive's position (including status,
offices, titles and reporting requirements, authority,
duties or responsibilities), or any other action that
results in a diminution in such position, authority, duties,
or responsibilities excluding for this purpose an isolated,
insubstantial, and inadvertent action not taken in bad faith
and that is remedied by the Company promptly after receipt
of notice given by the Executive;
(ii) a reduction by the Company in the
Executive's base salary in effect immediately before the
beginning of the Protection Period or as increased from time
to time after the beginning of the Protection Period;
(iii) a failure by the Company to
maintain plans providing benefits at least as beneficial as
those provided by any benefit or compensation plan
(including, without limitation, any incentive compensation
plan, bonus plan or program, retirement, pension or savings
plan, life insurance plan, health and dental plan or
disability plan) in which the Executive is participating
immediately before the beginning of the Protection Period,
or any action taken by the Company that would adversely
affect the Executive's participation in or reduce the
Executive's opportunity to benefit under any of such plans
or deprive the Executive of any material fringe benefit
enjoyed by him immediately before the beginning of the
Protection Period; provided, however, that a reduction in
benefits under the Company's tax-qualified retirement,
pension, or savings plans or its life insurance plan, health
and dental plan, disability plans or other insurance plans,
which reduction applies generally to participants in the
plans and has a de minimis effect on the Executive shall not
constitute "Good Reason" for termination by the Executive;
(iv) the Company's requiring the
Executive, without the Executive's written consent, to be
based at any office or location in excess of 50 miles from
his office location immediately before the beginning of the
Protection Period, except for travel reasonably required in
the performance of the Executive's responsibilities;
(v) any purported termination by the
Company of the Executive's employment for Cause otherwise
than as referred to in Section 10 of this Agreement; or
(vi) any failure by the Company to
obtain the assumption of the obligations contained in this
Agreement by any successor as contemplated in Section 9(c)
of this Agreement.
(g) "Parent" means any entity that directly
or indirectly through one or more other entities owns or
controls more than 50 percent of the voting stock or common
stock of the Company.
(h) "Protection Period" means the period
beginning on the Change in Control Date and ending on the
last day of the 30th calendar month following the Change in
Control Date.
(i) "Subsidiary" means a company 50 percent
or more of the voting securities of which are owned,
directly or indirectly, by the Company.
3. Benefits Upon Termination Within a Protection
Period. If, during a Protection Period, the Executive's
employment is terminated by the Company other than for Cause
or Disability or other than as a result of the Executive's
death or if the Executive terminates his employment for Good
Reason, the Company shall, subject to Section 7, pay to the
Executive in a lump sum in cash within 10 days after the
date of termination the aggregate of the following amounts:
(a) The Executive's full base salary and
vacation pay (for vacation not taken) accrued but unpaid
through the date of termination at the rate in effect at the
time of the termination; and
(b) A lump sum severance payment in an
amount equal to 2.5 times the Executive's "Annual
Compensation." For purposes of this Agreement, "Annual
Compensation" shall be an amount equal to the average for
the three year period ending on the December 31 prior to the
Change in Control Date of (i) the Executive's annual base
salary from the Company and its Subsidiaries plus (ii) the
amount of bonus accrued by the Company for the Executive;
and
(c) Within 30 days of the date of
termination, upon surrender by the Executive of his
outstanding options to purchase common shares of the Company
("Common Shares") granted to the Executive by the Company
(the "Outstanding Options") and any stock appreciation
rights ("SARs"), an amount in respect of each Outstanding
Option and SAR (whether vested or not) equal to the
difference between the exercise price of such Outstanding
Options and SARs and the higher of (x) the fair market value
of the Common Shares at the time of such termination (but
not less than the closing price for the Common Shares on the
New York Stock Exchange, or such other national stock
exchange on which such shares may be listed, on the last
trading day such shares traded prior to the date of
termination), and (y) the highest price paid for Common
Shares or, in the cases of securities convertible into
Common Shares or carrying a right to acquire Common Shares,
the highest effective price (based on the prices paid for
such securities) at which such securities are convertible
into Common Shares or at which Common Shares may be
acquired, by any person or group whose acquisition of voting
securities has resulted in a Change in Control of the
Company; provided, however, that this Section 3(c) shall not
apply to the surrender of any Outstanding Option that is an
incentive stock option (within the meaning of section 422 of
the Code).
4. Executive's Right to Leave Employment. At
any time during the six month period following a Change in
Control Date, the Executive shall have the right to
terminate the Executive's employment with the Company at the
Executive's sole discretion (the "Executive Termination
Right"). In the event the Executive exercises the Executive
Termination Right, the Company shall pay the Executive in a
lump sum in cash within 10 days after the date of
termination the aggregate of the following amounts:
(a) The amounts set forth in Sections 3(a)
and 3(c); and
(b) 1.25 times the Executive's Annual
Compensation.
5. Non-exclusivity of Rights. Nothing in this
Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive, or
other plans, practices, policies, or programs provided by
the Company or any of its Subsidiaries and for which the
Executive may qualify, nor shall anything in this Agreement
limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the
Company or any of its Subsidiaries. Amounts that are vested
benefits or that the Executive is otherwise entitled to
receive under any plan, practice, policy, or program of the
Company or any of its Subsidiaries at or subsequent to the
date of termination shall be payable in accordance with such
plan, practice, policy, or program; provided, however, that
the Executive shall not be entitled to severance pay, or
benefits similar to severance pay, under any plan, practice,
policy, or program generally applicable to employees of the
Company or any of its Subsidiaries.
6. Full Settlement; No Obligation to Seek Other
Employment; Legal Expenses. The Company's obligation to
make the payments provided for in this Agreement and
otherwise to perform its obligations under this Agreement
shall not be affected by any set-off, counterclaim,
recoupment, defense, or other claim, right, or action that
the Company may have against the Executive or others. The
Executive shall not be obligated to seek other employment or
take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement. The Company agrees to pay, upon written demand
by the Executive, all legal fees and expenses the Executive
may reasonably incur as a result of any dispute or contest
(regardless of outcome) by or with the Company or others
regarding the validity or enforceability of, or liability
under, any provision of this Agreement. In any such action
brought by the Executive for damages or to enforce any
provisions of this Agreement, he shall be entitled to seek
both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's
obligations under this Agreement, in his sole discretion.
7. Cut Back in Benefits. Notwithstanding any
other provision of this Agreement, the cash lump sum payment
and other benefits otherwise to be provided pursuant to
Sections 3 and 4 of this Agreement (the "Severance Benefit")
shall be reduced as described below if the Company would, by
reason of section 280G of the Code, not be entitled to
deduct for federal income tax purposes any part of the
Severance Benefit or any part of any other payment or
benefit to which Executive is entitled under any plan,
practice, policy, or program. For the purposes of this
Agreement, the Company's independent auditors shall
determine the value of any deferred payments or benefits in
accordance with the principles of section 280G of the Code,
and tax counsel selected by the Company's independent
auditors and acceptable to the Company shall determine the
deductibility of payments and benefits to which the
Executive is entitled. The Severance Benefit shall be
reduced only to the extent required, in the opinion of such
tax counsel, to prevent such nondeductibility of any part of
the remaining Severance Benefit and other payments and
benefits to which the Executive is entitled. The Company
shall determine which elements of the Severance Benefit
shall be reduced to conform to the provisions of this
Section. Any determination made by the Company's
independent auditors or by tax counsel pursuant to this
Section shall be conclusive and binding on the Executive.
8. Confidential Information. The Executive
shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge,
or data relating to the Company or any of its Subsidiaries,
and their respective businesses, obtained by the Executive
during the Executive's employment by the Company or any of
its Subsidiaries and that has not become public knowledge
(other than by acts of the Executive or his representatives
in violation of this Agreement). After the date of
termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent
of the Company, communicate or divulge any such information,
knowledge, or data to anyone other than the Company and
those designated by it. In no event shall an asserted
violation of the provisions of this Section 8 constitute a
basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
9. Successors.
(a) This Agreement is personal to the
Executive and without the prior written consent of the
Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives or successor(s) in
interest. The Executive may designate a successor (or
successors) in interest to receive any and all amounts due
the Executive in accordance with this Agreement should the
Executive be deceased at any time of payment. Such
designation of successor(s) in interest shall be made in
writing and signed by the Executive, and delivered to the
Company pursuant to Section 13(b). This Section 9(a) shall
not supersede any designation of beneficiary or successor in
interest made by the Executive, or separately covered, under
any other plan, practice, policy, or program of the Company.
(b) This Agreement shall inure to the
benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of
the business or assets of the Company and any Parent of the
Company or any successor and without regard to the form of
transaction utilized to acquire the business or assets of
the Company, to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such
succession or parentage had taken place. As used in this
Agreement, "Company" shall mean the Company as defined above
and any successor to its business or assets as aforesaid
(and any Parent of the Company or any successor) that is
required by this clause to assume and agree to perform this
Agreement or which otherwise assumes and agrees to perform
this Agreement.
10. Notice of Termination. Any termination of
the Executive's employment by the Company for Cause or by
the Executive for Good Reason shall be communicated by
Notice of Termination to the other party given in accordance
with Section 13(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice
that (i) indicates the specific termination provision in
this Agreement relied upon, (ii) sets forth in reasonable
detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under
the provision so indicated, and (iii) if the date of
termination is other than the date of receipt of such
notice, specifies the termination date (which date shall be
not more than 15 days after the giving of such notice). The
failure by the Executive to set forth in the Notice of
Termination any fact or circumstance that contributes to a
showing of Good Reason shall not waive any right of the
Executive under this Agreement or preclude the Executive
from asserting such fact or circumstance in enforcing his
rights.
11. Requirements and Benefits if Executive Is
Employee of Subsidiary of Company. If the Executive is an
employee of any Subsidiary of the Company, he shall be
entitled to all of the rights and benefits of this Agreement
as though he were an employee of the Company and the term
"Company" shall be deemed to include the Subsidiary by whom
the Executive is employed. The Company guarantees the
performance of its Subsidiary under this Agreement.
12. Arbitration. The Company and the Executive
shall attempt to resolve between them any dispute that
arises under this Agreement. If they cannot agree within
ten days after either party submits a demand for arbitration
to the other party, then the issue shall be submitted to
arbitration with each party having the right to appoint one
arbitrator and those two arbitrators mutually selecting a
third arbitrator. The rules of the American Arbitration
Association for the arbitration of commercial disputes shall
apply and the decision of two of the three arbitrators shall
be final. The arbitrators must reach a decision within 60
days after the selection of the third arbitrator. The
arbitration shall take place in Jackson, Mississippi. The
arbitrators shall apply Mississippi law.
13. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of
Mississippi, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties or their
respective successors and legal representatives.
(b) All notices and other communications
under this Agreement shall be in writing and shall be given
by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid,
to the addresses for each party as first written above or to
such other address as either party shall have furnished to
the other in writing in accordance with this Section.
Notices and communications to the Company shall be addressed
to the attention of the Company's Corporate Secretary.
Notice and communications shall be effective when actually
received by the addressee.
(c) Whenever reference is made in this
Agreement to any specific plan or program of the Company, to
the extent that the Executive is not a participant in the
plan or program or has no benefit accrued under it, whether
vested or contingent, as of the Change in Control Date, then
such reference shall be null and void, and the Executive
shall acquire no additional benefit as a result of such
reference.
(d) The invalidity or unenforceability of
any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this
Agreement.
(e) The Company may withhold from any
amounts payable under this Agreement such Federal, state, or
local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
(f) The Executive's failure to insist upon
strict compliance with any provision of this Agreement shall
not be deemed to be a waiver of such provision or any other
provision.
(g) Upon a termination of the Executive's
employment or upon the Executive's ceasing to be an elected
officer of the Company, in each case, prior to the Change in
Control Date, there shall be no further rights under this
Agreement.
IN WITNESS WHEREOF, the Executive has set his hand
to this Agreement and, pursuant to the authorization from
the Board, the Company has caused this Agreement to be
executed as of the day and year first above written.
PARKWAY PROPERTIES, INC.
By___________________________
EXECUTIVE
_____________________________
