<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1998
REGISTRATION NO. 333-48161
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
PARKWAY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 74-2123597
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
ONE JACKSON PLACE SUITE 1000
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
(601) 948-4091
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
STEVEN G. ROGERS, DIRECTOR, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
ONE JACKSON PLACE SUITE 1000
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
(601) 948-4091
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
JOSEPH P. KUBAREK, ESQ.
JAECKLE FLEISCHMANN & MUGEL, LLP
800 FLEET BANK BUILDING
TWELVE FOUNTAIN PLAZA
BUFFALO, NEW YORK 14202
(716) 856-0600
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than the securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
constituting a part of this Registration Statement is a combined Prospectus and
relates to equity securities of Parkway Properties, Inc. registered pursuant to
two other Registration Statements on Form S-3 (Nos. 333-16479 and 333-29259).
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement relates to securities which may be offered from
time to time by Parkway Properties, Inc. ("Parkway"). This Registration
Statement contains a form of basic prospectus (the "Basic Prospectus") relating
to Parkway which will be used in connection with an offering of securities by
Parkway. The specific terms of the securities to be offered will be set forth in
a prospectus supplement relating to such securities (the "Prospectus
Supplement"). This Registration Statement also contains a form of a Preliminary
Prospectus Supplement which is not part of the Basic Prospectus and relates to a
proposed offering of preferred stock of the Company.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION; DATED APRIL 8, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL , 1998)
2,400,000 SHARES
PARKWAY PROPERTIES, INC. [LOGO]
% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
------------------------
Dividends on the % Series A Cumulative Redeemable Preferred Stock,
$0.001 par value per share (the "Series A Preferred Stock"), of Parkway
Properties, Inc. ("Parkway" or the "Company") are cumulative from the date of
original issue and are payable quarterly in arrears on the fifteenth day of
January, April, July and October of each year, commencing on July 15, 1998, at
the rate of % per annum of the $25.00 liquidation preference (the
"Liquidation Preference") per share (equivalent to a fixed annual amount of
$ per share). See "Description of Series A Preferred
Stock -- Dividends."
The Series A Preferred Stock is not redeemable prior to April , 2003. On
and after such date, the Series A Preferred Stock may be redeemed for cash at
the option of the Company, in whole or in part, at a redemption price of $25.00
per share, plus accrued and unpaid dividends thereon, if any, up to the
redemption date. The redemption price (other than the portion thereof consisting
of accrued and unpaid dividends) shall be payable solely out of the sale
proceeds of other capital stock of the Company, which may include other series
of preferred stock, and from no other source. The Series A Preferred Stock has
no stated maturity, will not be subject to any sinking fund or mandatory
redemption and will not be convertible into any other securities of the Company.
See "Description of Series A Preferred Stock -- Maturity" and "-- Redemption."
In order to ensure that the Company continues to meet the requirements for
qualification as a REIT for federal income tax purposes, a holder of shares of
Series A Preferred Stock shall be deemed to violate the ownership limit in the
Company's articles of incorporation, as amended (the "Charter"), if such holder
owns 9.8% or more (in value or in number, whichever is more restrictive) of the
Company's outstanding common stock, $0.001 par value per share (the "Common
Stock") or Series A Preferred Stock. Shares held in violation of the ownership
limit will be converted into Excess Stock, as defined herein. See "Description
of Series A Preferred Stock -- Restrictions on Ownership and Transfer."
The Company has applied to list the Series A Preferred Stock on the New York
Stock Exchange, Inc. (the "NYSE") under the symbol "PKY PrA." If approved,
trading of the Series A Preferred Stock on the NYSE is expected to commence
within a 30-day period after the initial delivery of the Series A Preferred
Stock. The Underwriters may advise the Company that each intends to make a
market in the Series A Preferred Stock prior to the commencement of trading on
the NYSE, but is not obligated to do so and may discontinue market making at any
time without notice. See "Underwriting."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT FOR
A DISCUSSION OF CERTAIN RISK FACTORS RELEVANT TO AN INVESTMENT IN THE SERIES A
PREFERRED STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
<S> <C> <C> <C>
Underwriting
Price to Discounts and Proceeds to
Public (1) Commissions (2) Company (1)(3)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total................................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-Allotment Option
(4)................................................... $ $ $
=======================================================================================================================
</TABLE>
(1) Plus accrued dividends, if any, from the date of original issuance.
(2) The Company and the Operating Partnership (as defined herein) have agreed to
indemnify the Underwriters (the "Underwriters") against certain liabilities
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(3) Before deducting expenses estimated at $ , which are payable by the
Company.
(4) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 360,000 additional shares of Series A
Preferred Stock, on the same terms, solely to cover over-allotments. If such
option is exercised in full, the total price to public, underwriting
discounts and commissions and proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Series A Preferred Stock are offered (the "Offering") by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to their right to reject orders in whole or in
part. It is expected that delivery of the shares of Series A Preferred Stock
will be made in New York City on or about , 1998.
------------------------
PAINEWEBBER INCORPORATED
J.C. BRADFORD & CO.
RAYMOND JAMES & ASSOCIATES, INC.
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL , 1998.
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus Supplement and the
accompanying Prospectus and in documents incorporated herein or therein by
reference. Unless the context otherwise requires, all references in this
Prospectus Supplement to "Parkway" or the "Company" shall mean Parkway
Properties, Inc., a Maryland corporation, and its subsidiaries, including
Parkway Properties LP, a Delaware limited partnership the sole partner of which
is the Company (the "Operating Partnership"), on a consolidated basis and, as
the context may require, their predecessors. Unless otherwise indicated, all
information presented in this Prospectus Supplement assumes no exercise of the
Underwriters' over-allotment option.
This Prospectus Supplement contains and the accompanying Prospectus
contains or incorporates by reference forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company's actual
results could differ materially from those set forth in the forward-looking
statements. See "Risk Factors" for a discussion of certain factors that might
cause such a difference.
THE COMPANY
Parkway is a self-administered REIT specializing in the acquisition,
ownership, management, financing and leasing of office properties in the
Southeastern United States and Texas. Parkway and its predecessors have been
public companies engaged in the real estate business since 1971, and have
successfully operated and grown through several major real estate cycles. As of
April 6, 1998, Parkway owned or had an interest in 47 office properties in 12
states encompassing approximately 6.5 million net rentable square feet (the
"Properties"). The Company seeks to acquire Class A, A- or B+ office properties
ranging in size from 50,000 to 500,000 net rentable square feet in markets
characterized by above-average employment and population growth.
The purchase of the Mtel Centre in Jackson, Mississippi in July 1995 marked
the implementation of the Company's business strategy of focused investment in
office properties. As part of this strategy, the Company has (i) completed the
acquisition of 43 office properties, encompassing approximately 6.1 million net
rentable square feet, for a total investment (as defined herein) of more than
$535.1 million; and (ii) sold substantially all of its non-office assets.
Parkway generally seeks to purchase office properties at significant
discounts to replacement cost, and whose current rental rates are at or below
market rental rates. Since January 1, 1998, the Company has acquired 15 office
properties aggregating approximately 1.8 million net rentable square feet (the
"Recent Acquisitions") for a total investment of approximately $195.8 million,
or approximately $107.61 per net rentable square foot, at initial unleveraged
yields averaging 8.7%. The Company defines initial unleveraged yield as net
operating income divided by total investment, where net operating income
represents budgeted cash operating income for the current year at current
occupancy rates and at rental rates currently in place with no adjustments for
anticipated expense savings, increases in rental rates, additional leasing or
straight line rent. Leases that expire during the year are assumed to renew at
market rates unless interviews with tenants during pre-purchase due diligence
indicate a likelihood that a tenant will not renew. For properties that the
Company self-manages or will self-manage, net operating income also includes the
management fee expected to be earned during the year. Total investment is
defined as purchase price plus estimated closing costs plus anticipated capital
expenditures during the first 12 to 24 months of ownership for tenant
improvements, commissions, upgrades and capital improvements to bring the
building up to the Company's standards.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A PREFERRED
STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE SERIES A PREFERRED
STOCK TO STABILIZE ITS MARKET PRICE, THE PURCHASE OF THE SERIES A PREFERRED
STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE> 5
The Company believes that the strength of its management team provides a
significant competitive advantage in the ownership, acquisition and management
of office properties. Parkway's management team of office property specialists
has proven capabilities in office property (i) acquisition; (ii) ownership;
(iii) management; (iv) leasing; (v) financing; and (vi) re-positioning. The
Company believes these capabilities will allow Parkway to continue to create
office property value in all phases of the real estate cycle. Parkway's nine
senior officers have an average of approximately 16 years of real estate
industry experience, and have worked together at Parkway or its predecessors for
an average of approximately ten years. Management has developed a highly
service-oriented management culture and believes that its proactive leasing,
property management and asset management activities will result in higher
retention and rental rates and will continue to translate into enhanced
stockholder value.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
Since January 1, 1998, Parkway has completed the acquisition of 15 office
properties aggregating approximately 1.8 million net rentable square feet for a
total investment of approximately $195.8 million, or approximately $107.61 per
net rentable square foot, at initial unleveraged yields averaging 8.7%.
The following table provides an overview of the Recent Acquisitions as of
April 6, 1998 and the states, cities and submarkets in which they are located.
For information concerning the Properties owned by the Company, see
"Properties."
<TABLE>
<CAPTION>
NET
RENTABLE TOTAL
STATE, CITY, SUBMARKET, SQUARE INVESTMENT SIGNIFICANT
PROPERTY NAME FEET (IN THOUSANDS) TENANTS (1)
- ------------------------------------- --------- -------------- ---------------------------------
<S> <C> <C> <C>
FLORIDA
FORT LAUDERDALE
Deerfield Beach
Hillsboro Center I-IV (2)..... 99,533 (3) National Lending Center
Hillsboro Center V (2)........ 115,885 (3) Dart Container
Smith, Seckman & Reid
ST. PETERSBURG
Central Business District
SouthTrust Bank Building...... 195,627 $ 17,750 SouthTrust Bank
Harris, Barrett, Mann & Dew
First American Real Estate
SOUTH CAROLINA
GREENVILLE
East Greenville
HealthSource (2).............. 46,047 (3) HealthSource of S.C. Webster
University
TENNESSEE
KNOXVILLE
West County
Executive Tower I (2)......... 88,220 (3) Dial Call, Inc.
Electrotek Concept
Eastern Tennessee Human Resources
</TABLE>
S-3
<PAGE> 6
<TABLE>
<CAPTION>
NET
RENTABLE TOTAL
STATE, CITY, SUBMARKET, SQUARE INVESTMENT SIGNIFICANT
PROPERTY NAME FEET (IN THOUSANDS) TENANTS (1)
- ------------------------------------- --------- -------------- ---------------------------------
<S> <C> <C> <C>
TEXAS
DALLAS
Far North/Tollway
Atrium at Bent Tree (2)....... 112,560 (3) Gleason/22 Calisle & Associates
Gaffney, Cline & Associates
Campbell Sales
The Belvedere (2)............. 138,836 (3) VeriFone
Moore Business Forms
HOUSTON
Energy Corridor
Schlumberger (formerly 155,324 12,500 GECO-PRAKLA (Schlumberger)
Veritas)...................
Northbelt
One Commerce Green (2)........ 339,171 (3) DHL Airways
Nabors Industries
Paracelus Healthcare
Southwest Freeway
Comerica Bank Building (2).... 195,689 (3) Comerica Bank
VIRGINIA
RICHMOND
Northwest
Glen Forest (2)............... 80,842 (3) Trigon Blue Cross/Blue Shield
Hanover Insurance Company
MCI Telecommunication
Southwest
Moorefield II (2)............. 47,203 (3) Virginia Department of State
Police
Shaw Systems
Moorefield III (2)............ 50,230 (3) Philip Morris USA
Seasons Mortgage
Central Virginia Rehabilitation
STERLING
Loudoun County
Loudoun Plaza (2)............. 71,750 (3) LFC Nationwide
British Aerospace
Schnabel Foundation
VIRGINIA BEACH
Lynnhaven Corridor
Lynwood Plaza (2)............. 82,172 (3) Priority Healthcare
--------- --------
Total................................ 1,819,089 $195,750
========= ========
</TABLE>
- ---------------
(1) Identifies tenants with leases that occupy 10% or more of the total net
rentable square feet at the property.
(2) Property contained in the Brookdale Portfolio. See "--Brookdale
Acquisition."
(3) The total investment for the Brookdale Portfolio was approximately $165.5
million.
S-4
<PAGE> 7
BROOKDALE ACQUISITION
In February 1998, the Company purchased a portfolio of 13 office buildings
(the "Brookdale Portfolio") with an aggregate of approximately 1.5 million net
rentable square feet for a total investment of approximately $165.5 million, or
approximately $113 per net rentable square foot. The properties included in this
portfolio are located in Fort Lauderdale, Florida; Greenville, South Carolina;
Knoxville, Tennessee; Dallas and Houston, Texas; and Northern Virginia, Richmond
and Virginia Beach, Virginia.
OTHER OFFICE ACQUISITIONS
Parkway is currently evaluating more than $200 million of potential office
property acquisitions. The Company has entered into a contract to purchase two
properties containing approximately 181,000 net rentable square feet for a
purchase price of approximately $12.8 million. These investments, which are
expected to close in April and May 1998, are subject to the completion of
Parkway's due diligence review and to customary closing conditions. The Company
also has non-binding letters of intent with respect to two properties,
containing approximately 638,000 net rentable square feet, whose aggregate
proposed purchase price would be approximately $55 million. While there can be
no assurance that Parkway will acquire any of such properties or that a large
percentage of any of such properties will ultimately be acquired by Parkway,
management expects to continue its aggressive acquisition pace while maintaining
Parkway's strict acquisition criteria.
UPREIT STRUCTURE
In January 1998, Parkway completed its reorganization into an umbrella
partnership REIT ("UPREIT") structure under which all of Parkway's office
building real estate assets are owned by the Operating Partnership. The Company
anticipates that the UPREIT structure will enable it to pursue new investment
opportunities by giving Parkway the ability to offer units in the Operating
Partnership to property owners in exchange for office properties in transactions
that may have preferable tax characteristics.
FINANCING ACTIVITIES
In connection with the purchase of the Brookdale Portfolio, Parkway
increased its secured acquisition revolving credit facility (the "Acquisition
Facility") with a group of commercial banks from $55 million to $85 million and
reduced the interest rate on the Acquisition Facility from LIBOR plus 1.75% to
LIBOR plus 1.40% (7.0875% as of April 6, 1998). The Acquisition Facility matures
on June 30, 1998. Also in connection with the purchase of the Brookdale
Portfolio, Parkway obtained a $75 million unsecured line of credit with a
commercial bank which is accompanied by negative pledges (i.e., the Company has
agreed not to grant any other party a security interest in these assets) with
respect to the 13 properties in the Brookdale Portfolio (the "February
Facility"). The February Facility has an interest rate of 7.025% until April 24,
1998 and thereafter will have an interest rate of LIBOR plus 1.40% and matures
on August 25, 1998. Parkway also has a secondary capital revolving credit
facility with a maximum principal amount of $15 million (the "Working Capital
Facility") which has an interest rate of LIBOR plus 1.40% (7.0875% as of April
6, 1998). The Working Capital Facility matures on June 30, 1998. As of December
31, 1997, on a pro forma as adjusted basis assuming completion of the Offering
and the application of the net proceeds therefrom, there was approximately
$187.0 million of total debt outstanding including approximately $0.3 million
under the Acquisition Facility, approximately $75.0 million outstanding under
the February Facility and approximately $6.5 million outstanding under the
Working Capital Facility.
EQUITY OFFERINGS
On February 23, 1998, Parkway completed the offering of 451,128 shares of
Common Stock to a newly-formed unit investment trust. The offering resulted in
net proceeds to Parkway of approximately $14.2 million, all of which were used
in the purchase of the Brookdale Portfolio. On March 11, 1998, Parkway completed
the offering of 855,900 shares of Common Stock to certain institutional
investors. The offering resulted in net proceeds to Parkway of approximately
$26.9 million, all of which were used to repay outstanding indebtedness under
the Acquisition Facility.
S-5
<PAGE> 8
THE OFFERING
Securities Offered............... 2,400,000 shares of % Series A
Cumulative Redeemable Preferred Stock.
Ranking.......................... With respect to the payment of dividends
and amounts upon liquidation, the Series A
Preferred Stock will rank senior to the
Common Stock which is the only capital
stock of the Company currently outstanding.
See "Description of Series A Preferred
Stock -- Rank," "-- Dividends" and
"-- Liquidation Preference."
Use of Proceeds.................. The net proceeds from the sale of the
Series A Preferred Stock will be used to
reduce borrowings under the Acquisition
Facility. See "Use of Proceeds."
Dividends........................ Dividends on the Series A Preferred Stock
are cumulative from the date of original
issuance and are payable quarterly in
arrears on or about the fifteenth day of
each January, April, July and October to
stockholders of record on the last business
day of March, June, September and December,
respectively, commencing on July 15, 1998,
at the fixed rate of % per annum of the
Liquidation Preference (equivalent to a
fixed annual rate of $ per share).
The first dividend will be for less than a
full quarter. Dividends on the Series A
Preferred Stock will accrue whether or not
the Company's credit facilities at any time
prohibit the current payment of dividends,
whether or not the Company has earnings,
whether or not there are funds legally
available for the payment of such dividends
and whether or not such dividends are
declared. See "Description of Series A
Preferred Stock -- Dividends."
Liquidation Preference........... The liquidation preference for each share
of Series A Preferred Stock is $25.00, plus
an amount equal to all accrued and unpaid
dividends (whether or not declared). See
"Description of Series A Preferred
Stock -- Liquidation Preference."
Redemption.......................
The Series A Preferred Stock is not
redeemable prior to April , 2003. On and
after such date, the Series A Preferred
Stock may be redeemed for cash at the
option of the Company, in whole or in part,
at a redemption price of $25.00 per share,
plus all accrued and unpaid dividends
thereon, if any, to the date fixed for
redemption. The redemption price (other
than the portion thereof consisting of
accrued and unpaid dividends) shall be
payable solely out of the sale proceeds of
other capital stock of the Company, which
may include other series of preferred
stock, and from no other source. In order
to ensure that the Company continues to
meet the requirements for qualification as
a REIT for federal income tax purposes, a
holder of shares of Series A Preferred
Stock shall be deemed to violate the
ownership limit in the Company's Charter,
if such holder owns 9.8% or more (in value
or in number, whichever is more
restrictive) of the Company's outstanding
Common Stock or Series A Preferred Stock.
Shares held in violation of the ownership
limit will be converted into Excess Stock.
See "Description of Series A Preferred
Stock -- Redemption" and "-- Restrictions
on Ownership and Transfer."
S-6
<PAGE> 9
Voting Rights.................... Holders of Series A Preferred Stock
generally will have no voting rights except
as required by law. However, whenever
dividends on any shares of Series A
Preferred Stock shall be in arrears for six
or more quarterly periods (whether
consecutive or not), the holders of such
shares (voting separately as a class with
all other series of preferred stock upon
which like voting rights have been
conferred and are exercisable) will be
entitled to vote for the election of a
total of two directors of the Company until
all dividends accumulated on such shares of
Series A Preferred Stock have been fully
paid or declared and a sum sufficient for
the payment thereof set aside for payment.
In addition, certain changes to the terms
of the Series A Preferred Stock that would
be materially adverse to the rights of
holders of the Series A Preferred Stock
cannot be made without the affirmative vote
of the holders of at least two-thirds of
the outstanding shares of Series A
Preferred Stock. Holders of Series A
Preferred Stock will have certain other
voting rights under Maryland law. See
"Description of Series A Preferred
Stock -- Voting Rights."
Conversion....................... The Series A Preferred Stock is not
convertible into or exchangeable for any
other property or securities of the
Company, except that the shares of Series A
Preferred Stock may be exchanged by the
Company for shares of Excess Stock in order
to ensure that the Company remains a
qualified REIT for federal income tax
purposes. See "Description of Series A
Preferred Stock -- Restrictions on
Ownership and Transfer."
Restrictions on Ownership........ Ownership by a single holder of more than
9.8% of any class or series of the capital
stock of the Company, including the Series
A Preferred Stock, is restricted in order
to ensure that the Company remains a
qualified REIT for federal income tax
purposes. See "Description of Series A
Preferred Stock -- Restrictions on
Ownership and Transfer."
Maturity......................... The Series A Preferred Stock has no stated
maturity and will not be subject to any
sinking fund or mandatory redemption. See
"Description of Series A Preferred
Stock -- Maturity."
Trading.......................... Application has been made to list the
Series A Preferred Stock on the NYSE under
the symbol "PKY PrA." If approved, trading
of the Series A Preferred Stock on the NYSE
is expected to commence within a 30-day
period after the initial delivery of the
shares of Series A Preferred Stock.
S-7
<PAGE> 10
RISK FACTORS
An investment in the Series A Preferred Stock involves various risks.
Prospective investors should carefully consider the following information in
conjunction with the other information contained or incorporated by reference in
this Prospectus Supplement and the accompanying Prospectus before making a
decision to purchase the Series A Preferred Stock.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS
Parkway is currently experiencing a period of rapid growth. Parkway has
acquired 15 office properties with approximately 1.8 million net rentable square
feet since January 1, 1998. The integration of the Recent Acquisitions into
existing management and operating structures presents a significant management
challenge. Although Parkway believes it has sufficient management depth to lead
Parkway through this period of rapid growth, there can be no assurance that
Parkway will be able to assimilate the Recent Acquisitions or any further
acquisitions into its portfolio without certain operating disruptions and
unanticipated costs. The failure to successfully integrate the Recent
Acquisitions could have a material adverse effect on the results of operations
and financial condition of Parkway and its ability to pay expected distributions
to stockholders. Also, Parkway is evaluating many potential acquisitions, the
process of which involves costs which are non-recoverable. There can be no
assurance that properties which are acquired will perform in accordance with
expectations or that cost estimates for improvements to the acquired properties
in order to bring them up to the Company's standards will be accurate. In
addition, beginning November 1, 1997, Parkway began to expand its current
self-management for office properties it owns or may acquire in Houston,
Atlanta, Dallas, Charlotte, Winston-Salem, Columbia, Knoxville, Memphis and Ft.
Lauderdale. Parkway has managed its Properties in Jackson, Mississippi since
1992. There can be no assurance that the cost benefits anticipated in connection
with such self-management will be achieved or that Parkway will successfully
integrate the operational structure necessary for the self-management of such
properties.
REAL ESTATE FINANCING RISKS
The required repayment of debt or interest thereon could adversely affect
Parkway's financial condition. Parkway is subject to the risks normally
associated with debt financing, including the risk that Parkway's cash flow will
be insufficient to meet required payments of principal and interest, the risk of
violating loan covenants, the risk of rising interest rates on Parkway's
variable rate debt and the risk that Parkway will not be able to repay or
refinance existing indebtedness on its Properties at maturity (which generally
will not have been fully amortized at maturity) or that the terms of such
refinancing will not be as favorable as the terms of existing indebtedness.
There can be no assurance that Parkway will be able to refinance any
indebtedness it may incur or otherwise obtain funds by selling assets or raising
equity to make required payments on indebtedness.
As of April 6, 1998, 13 of the Properties secured non-recourse mortgage
indebtedness totaling approximately $104.2 million, seven of the Properties
secured the Acquisition Facility, a building owned by a partnership in which
Parkway is a 50% partner secured mortgage indebtedness of approximately
$812,000, and negative pledges (i.e., the Company has agreed not to grant any
other party a security interest in these assets) with respect to 13 of the
Recent Acquisitions were in place for the February Facility. In addition,
properties which Parkway may acquire in the future could be mortgaged to secure
payment of indebtedness. If Parkway is unable to generate funds to cover
required payments of principal and interest on borrowings secured by any of
these properties, the mortgage securing such properties could be foreclosed upon
by, or such properties could otherwise be transferred to, the mortgagee with a
consequent loss of income and asset value to Parkway.
Rising interest rates could adversely affect Parkway's cash flow. Advances
under the Acquisition Facility, the Working Capital Facility and the February
Facility will bear interest at variable rates. In addition, Parkway may incur
indebtedness in the future that also bears interest at a variable rate or may be
required to refinance its debt at higher rates. Accordingly, increases in
interest rates could increase Parkway's interest expense, which could adversely
affect Parkway's financial condition and ability to pay expected distributions
to stockholders.
Parkway's organizational documents contain no limitation on debt which
could adversely affect Parkway's cash flow. Parkway currently has a policy of
maintaining what the Company believes to be conservative leverage.
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As of December 31, 1997, on a pro forma as adjusted basis assuming the
completion of the Offering and the application of the proceeds therefrom,
Parkway's ratio of debt to total market capitalization (based on the closing
stock price on April 6, 1998 of $33.1875 per share of Common Stock) was
approximately 30.4%. Also as of December 31, 1997, on a pro forma as adjusted
basis assuming the completion of the Offering and the application of the
proceeds therefrom, Parkway had outstanding consolidated indebtedness of
approximately $187.0 million, all of which is secured and approximately $105.2
million of which is fixed rate mortgage indebtedness. As of December 31, 1997,
on a pro forma as adjusted basis assuming the completion of the Offering and the
application of the proceeds therefrom, there was approximately $0.3 million
outstanding under the Acquisition Facility, approximately $6.5 million
outstanding under the Working Capital Facility and approximately $75.0 million
outstanding under the February Facility. Parkway's organizational documents do
not contain any limitation on the amount of indebtedness it may incur.
Accordingly, the Board of Directors could alter or eliminate its current debt
policy and would do so, for example, if it were necessary in order for Parkway
to continue to qualify as a REIT. If this policy were changed, Parkway could
become more highly leveraged, resulting in an increase in debt service that
could adversely affect Parkway's financial condition and cash available for
distribution to stockholders and could increase the risk of default on Parkway's
indebtedness.
REAL ESTATE INVESTMENT RISKS
General Risks. Parkway's investments generally consist of investments in
office buildings and as such will be subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
Parkway's real estate investments and Parkway's financial condition and ability
to make expected distributions to its stockholders will be dependent upon its
ability to operate the Properties in a manner sufficient to maintain or increase
revenues and to generate sufficient income in excess of operating expenses.
Income from the Properties may be adversely affected by changes in national
economic conditions, changes in local market conditions due to changes in
general or local economic conditions and neighborhood characteristics, changes
in interest rates and in the availability, cost and terms of mortgage
financings, the impact of present or future environmental legislation and
compliance with environmental laws, the ongoing need for capital improvements,
particularly in older structures, changes in real estate tax rates and other
operating expenses, adverse changes in governmental rules and fiscal policies,
adverse changes in zoning laws, civil unrest, acts of God, including earthquakes
and other natural disasters (which may result in uninsured losses), acts of war
and other factors which are beyond the control of Parkway.
Dependence on Primary Markets. Substantially all of the Properties are
located in the Southeastern United States and Texas and, therefore, Parkway's
financial condition and its ability to make expected distributions to
stockholders will be linked to economic conditions in these markets as well as
the market for office space generally. To the extent that these conditions
impact the market rents for office space, they could have an adverse effect on
Parkway's financial condition and ability to make expected distributions to
stockholders.
Acquisition Risks. Parkway intends to pursue acquisitions of additional
properties and, under appropriate circumstances, may pursue development
opportunities. Acquisitions entail risks that such properties will fail to
perform in accordance with expectations and that estimates of the cost of
improvements necessary to market, acquire and operate the properties will prove
inaccurate as well as general risks associated with any new real estate or
operating company acquisitions. The fact that Parkway generally must distribute
95% of its ordinary taxable income in order to maintain its qualification as a
REIT may limit Parkway's ability to rely upon lease income from its Properties
or subsequently acquired properties to finance acquisitions. As a result, if
debt or equity financing were not available on acceptable terms, further
acquisitions might be curtailed or Parkway's financial condition and cash
available for distribution to stockholders might be adversely affected.
Tenant Defaults. A substantial part of Parkway's revenues and income is
derived from rental income from real property. Consequently, Parkway's financial
condition and ability to make expected distributions to stockholders and to use
its Properties as collateral for its borrowings would be adversely affected if a
significant number of tenants failed to meet their lease obligations. In the
event of a default by a tenant, Parkway may experience delays in enforcing its
rights as lessor and may incur substantial costs in protecting its investment.
At any time, a tenant may also seek protection under the bankruptcy laws, which
could result in the rejection and termination of such tenant's lease and thereby
adversely affect Parkway's financial condition and ability to make
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expected distributions to stockholders. If a tenant rejects its lease pursuant
to applicable bankruptcy laws, Parkway's claim for breach of the lease in excess
of any applicable security deposit would (absent collateral securing the claim)
be treated as a general unsecured claim. The amount of the claim would be capped
at the amount owed for unpaid pre-petition lease payments unrelated to the
rejection, plus the greater of one year's lease payment or 15% of the remaining
lease payments payable under the lease (but not to exceed the amount of three
years' lease payments).
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. Parkway's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If Parkway
must sell an investment, there can be no assurance that it will be able to
dispose of the investment in the time period it desires or that the sales price
of the investment will recoup or exceed the amount of Parkway's cost for the
investment.
Environmental Matters. Parkway's operating costs may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with future
legislation. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow by using such real
property as collateral. Persons who arrange for the transportation, disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is or ever was owned or operated, by such person.
Certain environmental laws and common law principles could be used to impose
liability for releases of hazardous materials, including asbestos-containing
materials ("ACMs"), into the environment, and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. Parkway is not aware of
any material ACM problems at its Properties. However, there can be no assurance
that ACMs do not exist at Properties owned by Parkway. If there are ACMs at the
Properties that require removal or other remediation, the cost thereof could be
substantial. This fact could have an adverse effect on the value of such
Property.
Environmental laws may also impose restrictions on the manner in which a
property may be used or transferred or in which businesses may be operated, and
these restrictions may require expenditures. In connection with the ownership
and operation of its Properties, Parkway may be potentially liable for any such
costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect Parkway's results of operations and financial
condition and ability to make expected distributions to stockholders. Phase I
environmental site assessments ("ESAs") have been conducted at all but one of
the office Properties by qualified independent environmental engineers. The
purpose of Phase I ESAs is to identify potential sources of contamination for
which any of the Properties may be responsible and to assess the status of
environmental regulatory compliance. The ESAs have not revealed any
environmental liability or compliance concerns that Parkway believes would have
a material adverse effect on its business, assets, results of operations or
liquidity. With the exception of Schlumberger (formerly Veritas Technology
Center)("Schlumberger"), which is adjacent to a Texaco-branded service station,
Parkway is not aware of any such liability or concerns. Nevertheless, it is
possible that these ESAs did not reveal all environmental liabilities or
compliance concerns or that material environmental liabilities or compliance
concerns exist of which Parkway is currently unaware. Parkway has not been
notified by any governmental authority, and has no other knowledge of, any
material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental substances in connection with any of the
Properties. Parkway intends to perform additional Phase I ESAs with respect to
properties acquired in the future.
Environmental due diligence performed in connection with the purchase of
the Schlumberger property disclosed that the Texaco-branded service station
located on the neighboring property has released certain petroleum products
which may have migrated from the station to the Schlumberger property. The owner
of the neighboring property, Star Enterprise ("Star"), pursuant to an indemnity
agreement (the "Indemnity Agreement") dated January 1998 between Star and
Veritas Real Estate (U.S.A.), Inc. (the prior owner of the
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Schlumberger property), has agreed to indemnify and hold harmless all future
owners of the Schlumberger property from all losses incurred in connection with
the presence of petroleum hydrocarbons on the Schlumberger property from the
station. Parkway believes that Star has sufficient financial resources to
indemnify Parkway for any potential costs related to the clean up of the
petroleum hydrocarbons. However, if Star is unable to fully comply with its
indemnity obligation, Parkway may be subject to liability and costs associated
with any clean up of the petroleum hydrocarbons.
Competition. All of the Properties owned by Parkway are located in
developed areas. There are numerous other office properties and real estate
companies within the market area of each such Property which will compete with
Parkway for tenants and acquisition and development opportunities. The number of
competitive office properties and real estate companies in such areas could have
a material effect on (i) Parkway's ability to rent space at the Properties; (ii)
the amount of rents currently charged and to be charged upon expiration of
leases; (iii) the amount of tenant improvements and other tenant concessions
required to lease the Properties; and (iv) acquisition and development
opportunities. Parkway will compete for tenants and acquisitions with other
competitors who may have greater resources than Parkway.
Uninsured and Underinsured Losses. Parkway has obtained or has caused its
tenants to obtain commercial general liability, fire and extended coverage
insurance with respect to its Properties of the types and in the amounts which
Parkway believes is of the type and amount customarily obtained for or by an
owner of office properties. Parkway plans to obtain similar coverage for any
properties acquired in the future. However, there are certain types of losses,
generally of a catastrophic nature, such as earthquakes and floods, that may be
uninsurable or not economically insurable. The Board of Directors and management
of Parkway will use their discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining appropriate
insurance coverage on the investments of Parkway, as the case may be, at a
reasonable cost and on suitable terms. This may result in insurance coverage
that, in the event of a substantial loss, would not be sufficient to pay the
full current market value or current replacement cost of the lost investment of
Parkway. Inflation, changes in building codes and ordinances, environmental
considerations, and other factors also might make it infeasible to use insurance
proceeds to replace the property after such property has been damaged or
destroyed. Under such circumstances, the insurance proceeds received by Parkway
might not be adequate to restore its economic position with respect to such
property.
Property Taxes. The Properties are subject to real property taxes. The real
property taxes on the Properties may increase or decrease as property tax rates
change and as the value of the Properties are assessed or reassessed by taxing
authorities. If property taxes increase, Parkway's ability to make distributions
to its stockholders could be adversely affected.
Cost of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990, as amended (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Compliance with the public accommodations
provision of the ADA could require the removal of access barriers, and
noncompliance could result in the imposition of fines or awards of damages.
Additional legislation may impose further burdens or restrictions on owners with
respect to access by disabled persons. In many instances, the applicability and
requirements of the ADA are not clear. Accordingly, the cost of compliance with
the ADA or such legislation is not currently ascertainable, and, while such
costs are not expected to have a material adverse effect on Parkway's financial
condition, such costs could be substantial. Parkway has not undertaken ADA
studies of all of its Properties and, as to those Properties with respect to
which Parkway has not undertaken ADA studies, possible costs of compliance could
arise.
CONFLICTS OF INTEREST
Leland R. Speed serves as Chairman of both Parkway and EastGroup
Properties, Inc., a REIT with a focus on industrial properties in sunbelt states
and California. As both companies carry out their strategic plans, management of
each company has stated its intention not to transfer properties between the two
entities, and each company intends to pursue its distinct corporate plan. There
can be no assurance that conflicts of interest will not arise between the two
companies in the future.
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LIMITS ON CHANGES IN CONTROL
Certain provisions contained in the Charter and in Parkway's Bylaws,
certain of Parkway's agreements and certain provisions of Maryland law may have
the effect of discouraging a third party from making an acquisition proposal for
Parkway and may thereby inhibit a change in control of Parkway. These include
provisions of the Maryland General Corporation Law relating to certain "business
combinations" and "control share" acquisitions involving Maryland corporations,
Parkway's Rights Agreement (described under "Description of Common Stock" in the
accompanying Prospectus), Parkway's Change in Control Agreements with certain
executive officers, and certain provisions of the Charter intended to protect
Parkway's status as a REIT described below under "-- Possible Adverse
Consequences of Limits on Ownership of Shares." Such provisions may (i) deter
tender offers for the capital stock of the Company, which may be attractive to
the stockholders; or (ii) deter purchases of large blocks of the capital stock
of the Company, thereby limiting the opportunity for stockholders to receive a
premium for their shares over then-prevailing market prices.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
Certain provisions of the Charter provide that if a transfer of stock of
Parkway or a change in the capital structure of Parkway would result in (i) any
person (as defined in the Charter) directly or indirectly acquiring beneficial
ownership of more than 9.8% (in value or in number, whichever is more
restrictive) of the outstanding capital stock of Parkway excluding Excess Stock;
(ii) the outstanding shares of Parkway being constructively or beneficially
owned by fewer than 100 persons; (iii) Parkway being "closely held" within the
meaning of Section 856 of the Internal Revenue Code of 1986, as amended (the
"Code"), then: (A) any proposed transfer will be void ab initio and will not be
recognized by Parkway; (B) Parkway will have the right to redeem the shares
proposed to be transferred; and (C) the shares proposed to be transferred will
be automatically converted into and exchanged for shares of a separate class of
stock, the excess stock, par value $0.001 per share, of Parkway ("Excess
Stock"), having no dividend or voting rights. Holders of Excess Stock do have
certain rights in the event of any liquidation, dissolution or winding up of the
Company. The Charter further provides that the Excess Stock will be held by
Parkway as trustee for the person or persons to whom the shares are ultimately
transferred, until such time as the shares are retransferred to a person or
persons in whose hands the shares would not be Excess Stock and certain
price-related restrictions are satisfied. These provisions are designed to
enable Parkway to meet the share ownership requirements applicable to REITs
under the Code, but may also have the effect of discouraging tender offers or
purchases of large blocks of stock, thereby limiting the opportunity for
stockholders to receive a premium for their shares over then-prevailing market
prices.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the Series A Preferred Stock could be substantially
affected by general market conditions, including changes in interest rates,
government regulatory action and changes in tax laws. An increase in market
interest rates may lead purchasers of the Series A Preferred Stock to demand a
higher annual dividend yield on the Series A Preferred Stock, which could
adversely affect the market price of the Series A Preferred Stock. Moreover,
numerous other factors, such as government regulatory action and changes in tax
laws, could have a significant impact on the future market price of the Series A
Preferred Stock or other securities.
REIT ELECTION TAX RISKS
Parkway intends to elect and qualify to be taxed as a REIT under the Code,
commencing with its taxable year beginning January 1, 1997. Although management
of Parkway believes that Parkway has been organized and operated and will
continue to operate in such a manner so as to qualify to be taxed as a REIT, no
assurance can be given that Parkway has operated or will be able to continue to
operate in a manner so as to qualify or remain so qualified. Qualification as a
REIT depends upon Parkway's ability to meet, on a continuing basis, the various
highly technical and complex Code provisions and REIT qualification rules, which
include (i) maintaining ownership of specified minimum levels of real estate
related assets; (ii) generating specified minimum levels of real estate related
income; (iii) maintaining certain diversity of ownership requirements with
respect to Parkway shares; (iv) having no positive earnings and profits account
from years in which Parkway was not qualified as a REIT; and (v) distributing at
least 95% of all real estate investment trust taxable income on an annual basis.
There
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are only limited judicial and administrative interpretations of such rules.
Furthermore, the determination of various factual matters and circumstances not
entirely within Parkway's control may affect Parkway's ability to qualify as a
REIT.
If Parkway fails to qualify as a REIT, Parkway will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at corporate rates. In addition, unless entitled to relief under certain
statutory provisions, Parkway will be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification is lost.
This treatment would reduce the net earnings of Parkway available for investment
or distribution to stockholders because of the additional tax liability to
Parkway for the year or years involved. In addition, distributions would no
longer be required to be made. To the extent that distributions to stockholders
had been made in anticipation of Parkway's qualifying as a REIT, Parkway might
be required to borrow funds or to liquidate certain of its investments to pay
the applicable tax. See "Federal Income Tax Considerations -- Taxation of the
Company" in the Prospectus attached hereto.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Prospectus Supplement, the
accompanying Prospectus and other materials filed or to be filed by the Company
with the Securities and Exchange Commission (the "Commission") under the
Exchange Act and incorporated by reference in the accompanying Prospectus
contain or will contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Such statements
include information relating to acquisitions and other business development
activities, future capital expenditures, estimates of market rental rates,
financing sources and availability and the effects of regulations (including
environmental regulation) and competition. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements contained in this Prospectus
Supplement or the accompanying Prospectus or incorporated by reference in such
Prospectus. These risks and uncertainties include, but are not limited to,
uncertainties affecting real estate businesses generally (such as entry into new
leases, renewals of leases and dependence on tenants' business operations),
risks relating to acquisition and development activities, possible environmental
liabilities, risks relating to leverage, debt service and obligations with
respect to the payment of dividends (including availability of financing terms
acceptable to the Company and sensitivity of the Company's operations to
fluctuations in interest rates), the potential for the need to use borrowings to
make distributions necessary for the Company to qualify as a REIT or to fund the
payment of dividends, dependence on the primary markets in which the Properties
are located, the existence of complex regulations relating to the Company's
status as a REIT and the adverse consequences of the failure of the Company to
qualify as a REIT and the potential adverse impact of market interest rates on
the market price for the Company's securities.
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THE COMPANY
GENERAL
Parkway is a self-administered REIT specializing in the acquisition,
ownership, management, financing and leasing of office properties in the
Southeastern United States and Texas. Parkway and its predecessors have been
public companies engaged in the real estate business since 1971, and have
successfully operated and grown through several real estate cycles. As of April
6, 1998, Parkway owned or had an interest in 47 office properties in 12 states
encompassing approximately 6.5 million net rentable square feet. The Company
seeks to acquire Class A, A- or B+ office properties ranging in size from 50,000
to 500,000 net rentable square feet in markets characterized by above average
employment and population growth.
Parkway generally seeks to purchase office properties at significant
discounts to replacement cost, and whose current rental rates are at or below
market rental rates. Since January 1, 1998, the Company has acquired 15 office
properties aggregating approximately 1.8 million net rentable square feet for a
total investment of approximately $195.8 million, or approximately $107.61 per
net rentable square foot, at initial unleveraged yields averaging 8.7%. Total
investment is defined as purchase price plus estimated closing costs plus
anticipated capital expenditures during the first 12 to 24 months of ownership
for tenant improvements, commissions, upgrades and capital improvements to bring
the building up to the Company's standards.
In January 1998, Parkway completed its reorganization into an UPREIT
structure under which all of Parkway's office building real estate assets are
owned by the Partnership. The Company anticipates that the UPREIT structure will
enable it to pursue new investment opportunities by giving Parkway the ability
to offer units in the Partnership to property owners in exchange for office
properties in transactions that may have preferable tax characteristics.
Parkway's principal office is located at One Jackson Place, Suite 1000, 188
East Capitol Street, Jackson, Mississippi 39201-2195. Its telephone number is
(601) 948-4091 and the Company maintains a web site at http://www.parkwayco.com.
MANAGEMENT TEAM
The Company believes that the strength of its management team provides a
significant competitive advantage in the ownership, acquisition and management
of office properties. Parkway's management team of office property specialists
has proven capabilities in office property (i) acquisition; (ii) ownership;
(iii) management; (iv) leasing; (v) financing; and (vi) re-positioning. The
Company believes these capabilities will allow Parkway to continue to create
office property value in all phases of the real estate cycle. Parkway's nine
senior officers have an average of approximately 16 years of real estate
industry experience, and have worked together at Parkway or its predecessors for
an average of approximately ten years. Management has developed a highly
service-oriented management culture and believes that its proactive leasing,
property management and asset management activities will result in higher
retention rates and higher rental rates and will continue to translate into
enhanced stockholder value.
INVESTMENT STRATEGY
The purchase of the Mtel Centre in Jackson, Mississippi in July 1995 marked
the implementation of the Company's business strategy of focused investment in
office properties, located in markets characterized by employment and population
growth above the United States average. As part of this strategy, the Company
has (i) completed the acquisition of 43 office properties, encompassing
approximately 6.1 million net rentable square feet, for a total investment of in
excess of $535.1 million; and (ii) sold substantially all of its non-office
assets. Management believes that it will be able to further identify substantial
opportunities for office property investments that satisfy its strict
acquisition criteria.
Parkway generally seeks to acquire well-located Class A, A- or B+ (as
classified within their respective markets) multi-story office buildings which
are located in primary or secondary markets in the Southeastern United States
and Texas, ranging in size from 50,000 to 500,000 net rentable square feet and
which have current and projected occupancy levels in excess of 70% and adequate
parking to accommodate full occupancy. The Company targets buildings which are
occupied by a major tenant (or tenants) (e.g., a tenant that accounts for at
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least 30% of the building's total rental revenue and has at least five years
remaining on its lease). Parkway strives to purchase office buildings at initial
unleveraged yields on its total investment in the range of 9% to 11% per annum.
The Company defines initial unleveraged yield as net operating income divided by
total investment, where net operating income represents budgeted cash operating
income for the current year at current occupancy rates and at rental rates
currently in place with no adjustments for anticipated expense savings,
increases in rental rates, additional leasing or straight line rent. Leases that
expire during the year are assumed to renew at market rates unless interviews
with tenants during pre-purchase due diligence indicate a likelihood that a
tenant will not renew. For properties that the Company self-manages or will
self-manage, net operating income also includes the management fee expected to
be earned during the year. Total investment is defined as purchase price plus
estimated closing costs plus anticipated capital expenditures during the first
12 to 24 months of ownership for tenant improvements, commissions, upgrades and
capital improvements to bring the building up to the Company's standards. The
Company also generally seeks to acquire properties whose total investment per
net rentable 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 not 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 targeted markets
including, but not limited to, Columbia, Nashville and Tampa. The Company has
targeted these expansion markets based on positive economic indicators such as
above average employment and population growth and strong real estate market
conditions. The Company believes that its successful track record for creating
value for stockholders through selective acquisitions is a result of
management's extensive real estate and public company experience and disciplined
acquisition philosophy.
In addition to direct real estate acquisitions, Parkway's investment
strategy has also historically included the consummation of business combination
transactions with other public real estate and financial companies which Parkway
deemed to be undervalued. Since 1979, Parkway has completed eight such business
combinations. Management may pursue similar business transactions on a selected
basis in order to enhance stockholder value.
OPERATING STRATEGY
Parkway has developed a service-oriented operating strategy structured to
preserve and enhance the value of the Properties. Parkway's operating strategy
is focused on maximizing tenant retention through personalized programs and a
high level of interaction with its tenants. In order to strengthen its
relationships with its tenants, the Company promoted one of its asset managers
to the position of full-time tenant advocate. Parkway's tenant advocate is
responsible for maintaining a continuous dialogue with tenants at all of the
Properties. The Company believes that fostering such relationships with its
tenants will lead to higher tenant satisfaction, resulting in improved operating
results and consistent increases in property cash flows. Also, as part of its
operating strategy, Parkway adheres to strict guidelines in selecting tenants
for its Properties, generally based on credit quality, long-term business
prospects and contribution to the Property's existing tenant mix, among other
criteria.
To further this operating strategy, Parkway strives to create a
service-oriented management culture where all managers are trained and focused
on providing quality service to the Company's tenants. Parkway's employees are
trained in all areas of office property operations. Parkway relies on in-house
training and development of its senior employees, and each potential executive
is required to oversee the management of one of the Properties for a period of
two years, during which period the potential executive is expected to oversee
all aspects of office property management.
The Company's service-oriented management culture is further exemplified by
its "4F Program," which refers to "Flags, Flowers, Fixtures and Fellowship."
This program provides a guideline for property enhancements and national
performance standards for each Property. As part of the "4F Program," Parkway
seeks to build tenant satisfaction through many incentives, including (i) the
installation of the Flag of the United States of America and appropriate state
flags in front of the Property; (ii) high-quality landscaping and placement of
fresh flowers throughout the Property; (iii) selectively commissioning art work
and coordinating with local museums to
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arrange exhibits in the lobby area; and (iv) organizing regular tenant
appreciation gatherings, lunches and breakfasts. The Company believes such
proactive Property management has resulted in increased tenant satisfaction and
higher retention rates. Since October 1, 1997, this program has been monitored
by a full time tenant advocate whose duties are to ensure the highest standards
of customer service.
Parkway has managed its Properties in Jackson, Mississippi since 1992.
Beginning November 1, 1997, Parkway began to expand its self-management to
office properties that it owns or may acquire in Houston, Atlanta, Dallas,
Charlotte, Winston-Salem, Columbia, Knoxville, Memphis and Ft. Lauderdale.
Parkway self-manages in excess of 80% of its current portfolio on a net rentable
square footage basis. The Company benefits from a fully integrated management
infrastructure, provided by its wholly-owned management subsidiary, Parkway
Realty Services, LLC, a Delaware limited liability company ("Parkway Realty").
In addition to certain of the Properties, Parkway Realty currently manages
and/or leases approximately one million net rentable square feet for third
parties. The Company is in the process of expanding its management efforts
through plans to expand the self-management of its Properties to all markets as
its presence in those markets reaches the minimum net rentable square footage in
those markets necessary to make it cost efficient to self-manage. The Company
believes self-management results in higher tenant retention and allows the
Company to enhance stockholder value through the application of its proactive
management style. As of April 6, 1998, the Company had 120 employees.
FINANCING STRATEGY
Parkway intends to maintain a conservative capital structure with a total
debt to total market capitalization ratio ranging between 25% and 40%. As of
April 6, 1998, the Company's ratio of debt to total market capitalization was
40.9% and as of December 31, 1997, on a pro forma as adjusted basis, was 30.4%.
The Company intends to optimize its financial flexibility through the
utilization of both secured and unsecured debt, as well as through a variety of
equity and equity-linked financial instruments, including preferred stock, in
order to finance its investment and operational strategies to maximize
stockholder returns. The Company does not anticipate that its 1998 dividend
payout ratio will exceed 50% of its FFO, which should allow Parkway to generate
a significant amount of retained cash for use in the acquisition of office
properties. However, there can be no assurance that the Company will maintain
this ratio.
ELECTION OF REIT STATUS
Until December 31, 1996 Parkway operated as a real estate operating
company. For the taxable years 1995 and 1996 Parkway paid virtually no federal
income taxes ($64,000 in 1995 and none in 1996) primarily because Parkway
utilized certain net operating losses ("NOLs") to shelter most of Parkway's
income from such taxes. However, the increase in the number of outstanding
shares of Common Stock which resulted from the completion of a private placement
of shares of Common Stock in June 1996 and certain business combination
transactions in 1994 and 1995 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 stockholders to
elect to qualify Parkway as a REIT under the Code for the taxable year beginning
January 1, 1997, which allows Parkway to not be subject to federal income tax on
its net income distributed to stockholders even if its NOLs are limited or
exhausted, provided it meets various REIT requirements. See "Federal Income Tax
Considerations" in the accompanying Prospectus and "Certain Federal Income Tax
Considerations" herein.
DISPOSITIONS
Since January 1, 1995, Parkway has pursued a strategy of liquidating its
non-office assets and office building investments outside its area of geographic
focus, and using the proceeds from such sales to acquire office properties in
the Southeastern United States and Texas. In accordance with this strategy,
since January 1, 1995, Parkway has sold assets with a book value of
approximately $41 million for approximately $62 million, resulting in an
aggregate gain for financial reporting purposes of approximately $21 million.
The book value of all remaining non-office building real estate assets and
mortgage loans, all of which are for sale, was approximately $5.4 million as of
December 31, 1997. Parkway also will consider liquidating office assets located
in areas of the country where the Company's investment criteria cannot be met
and/or the market is showing signs of significant over-building.
S-16
<PAGE> 19
PROPERTIES
OFFICE PROPERTIES
Properties. The following table contains certain information with respect
to the Properties, including the Recent Acquisitions:
<TABLE>
<CAPTION>
PERCENT PERCENT
TOTAL NET OF TOTAL LEASED
TOTAL RENTABLE NET RENTABLE AS OF
STATE, CITY, SUBMARKET, PROPERTY NAME INVESTMENT (1) SQUARE FEET SQUARE FEET 2/28/98 YEAR BUILT
- ------------------------------------- -------------- ----------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
ALABAMA
BIRMINGHAM
Hoover/Riverchase
Vestavia Center................. $ 5,050,000 75,880 1.17% 98% 1988
ARKANSAS
LITTLE ROCK
West Little Rock
Little Rock Plaza............... 10,425,000 116,596 1.80 83 1986
FLORIDA
FORT LAUDERDALE
Deerfield Beach
Hillsboro Center I-IV (3)....... (4) 99,533 1.54 91 1981-85
Hillsboro Center V (3).......... (4) 115,885 1.79 99 1985
ST. PETERSBURG
Central Business District
SouthTrust Bank Building (3).... 17,750,000 195,627 3.03 93 1985
GEORGIA
ATLANTA
Airport/South Atlanta
Waterstone...................... 8,390,000 92,747 1.43 100 1987
Central Perimeter
Falls Pointe.................... 9,249,000 105,655 1.63 99 1990
Hightower Centre................ 7,100,000 78,229 1.21 97 1983
Roswell North................... 4,921,000 57,719 0.89 94 1986
Northwest/I-75
Meridian........................ 10,650,000 100,932 1.56 100 1985
Lakewood II..................... 11,650,000 118,750 1.84 100 1986
INDIANA
INDIANAPOLIS
Speedway
Corporate Square West........... 2,892,000 95,989 1.48 94 1968
LOUISIANA
NEW ORLEANS
East
Wink Building (5)............... 1,542,000 32,325 0.50 100 1987
<CAPTION>
SIGNIFICANT
STATE, CITY, SUBMARKET, PROPERTY NAME TENANTS (2)
- ------------------------------------- ------------------------------------------------------------
<S> <C>
ALABAMA
BIRMINGHAM
Hoover/Riverchase
Vestavia Center................. Sprint PCS
Primerica Financial Services
Baptist Health Systems
ARKANSAS
LITTLE ROCK
West Little Rock
Little Rock Plaza............... Fireman's Fund
American Express
FLORIDA
FORT LAUDERDALE
Deerfield Beach
Hillsboro Center I-IV (3)....... National Lending Center
Hillsboro Center V (3).......... Dart Container
Smith, Seckman & Reid
ST. PETERSBURG
Central Business District
SouthTrust Bank Building (3).... SouthTrust Bank
Harris, Barrett, Mann & Dew
First American Real Estate
GEORGIA
ATLANTA
Airport/South Atlanta
Waterstone...................... Aeronomics
The Hertz Corporation
Central Perimeter
Falls Pointe.................... Lynk
Cigna
The Industrial Company
Hightower Centre................ Sybra, Inc.
Municipal Waste Management
Roswell North................... Thyssen Haniel Logistics
Roberts Properties
Northwest/I-75
Meridian........................ Technical Service Solutions
Lakewood II..................... Colgate Palmolive
Magnus Software
Facility Holdings
INDIANA
INDIANAPOLIS
Speedway
Corporate Square West........... Metro Health
LOUISIANA
NEW ORLEANS
East
Wink Building (5)............... Wink Engineering, Inc.
</TABLE>
S-17
<PAGE> 20
<TABLE>
<CAPTION>
PERCENT PERCENT
TOTAL NET OF TOTAL LEASED
TOTAL RENTABLE NET RENTABLE AS OF
STATE, CITY, SUBMARKET, PROPERTY NAME INVESTMENT (1) SQUARE FEET SQUARE FEET 2/28/98 YEAR BUILT
- ------------------------------------- -------------- ----------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
MISSISSIPPI
JACKSON
Central Business District
One Jackson Place............... 26,028,000 218,582 3.38 100 1986
Mtel Centre..................... 14,189,000 261,215 4.04 99 1987(6)
I-55 North
IBM Building.................... 7,143,000 93,563 1.45 100 1986
NORTH CAROLINA
CHARLOTTE
I-77/Southwest
Charlotte Park Executive Center... 15,195,000 186,996 2.89 93 1982/(7)
1984/
1986
WINSTON-SALEM
Central Business District
BB&T Financial Center........... 25,316,000 238,919 3.69 99 1988
SOUTH CAROLINA
COLUMBIA
Central Business District
NationsBank Tower............... 21,675,000 296,929 4.59 97 1973
GREENVILLE
East Greenville
Healthsource (3)................ (4) 46,047 0.71 100 1986
TENNESSEE
KNOXVILLE
Central Business District
First Tennessee Plaza........... 32,623,000 425,748 6.58 89 1978
West County
Executive Tower I (3)........... (4) 88,220 1.36 93 1982
MEMPHIS
Central Business District
Morgan Keegan Tower............. 37,100,000 334,668 5.18 88 1985
East
Forum II & Forum III............ 16,864,000 177,250 2.74 100 1985
TEXAS
DALLAS
Far North/Tollway
Atrium At Bent Tree (3)......... (4) 112,560 1.74 93 1982
The Belvedere (3)............... (4) 138,836 2.15 85 1984
<CAPTION>
SIGNIFICANT
STATE, CITY, SUBMARKET, PROPERTY NAME TENANTS (2)
- ------------------------------------- ------------------------------------------------------------
<S> <C>
MISSISSIPPI
JACKSON
Central Business District
One Jackson Place............... Mtel
Forman Perry Watkins Krutz & Tardy, PLLC
Mtel Centre..................... Mtel
Phelps Dunbar
I-55 North
IBM Building.................... Nichols Research
IBM
GMAC
NORTH CAROLINA
CHARLOTTE
I-77/Southwest
Charlotte Park Executive Center... Premier Health Systems, Inc.
Bell South Business Systems
WINSTON-SALEM
Central Business District
BB&T Financial Center........... Womble, Carlyle, Sandridge & Rice
BB&T Southern Financial
SOUTH CAROLINA
COLUMBIA
Central Business District
NationsBank Tower............... NationsBank
Wilbur Smith and Associates
McNair Law Firm
GREENVILLE
East Greenville
Healthsource (3)................ HealthSource of S.C.
Webster University
TENNESSEE
KNOXVILLE
Central Business District
First Tennessee Plaza........... First Tennessee Bank
West County
Executive Tower I (3)........... Dial Call, Inc.
Electrotek Concept
Eastern Tennessee Human Resources
MEMPHIS
Central Business District
Morgan Keegan Tower............. Morgan Keegan
East
Forum II & Forum III............ Process Systems, Inc.
Federal Express
Insituform Technologies, Inc.
TEXAS
DALLAS
Far North/Tollway
Atrium At Bent Tree (3)......... Gleason/Calisle & Associates
Gaffney, Cline & Associates
Campbell Sales
The Belvedere (3)............... VeriFone
Moore Business Forms
</TABLE>
S-18
<PAGE> 21
<TABLE>
<CAPTION>
PERCENT PERCENT
TOTAL NET OF TOTAL LEASED
TOTAL RENTABLE NET RENTABLE AS OF
STATE, CITY, SUBMARKET, PROPERTY NAME INVESTMENT (1) SQUARE FEET SQUARE FEET 2/28/98 YEAR BUILT
- ------------------------------------- -------------- ----------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Las Colinas
Fairway......................... 7,205,000 82,268 1.27 100 1980
Telecom Corridor
Courtyard at Arapaho............ 15,425,000 200,726 3.10 98 1986
HOUSTON
Energy Corridor
One Park 10..................... 7,259,000 161,220 2.49 96 1982
Woodbranch...................... 4,195,000 109,291 1.69 99 1982
Ashford II...................... 2,627,000 58,511 0.90 92 1977
Schlumberger (formerly Veritas)
(3)............................ 12,500,000 155,324 2.40 100 1983
Northbelt
400 North Belt.................. 11,010,000 221,372 3.42 99 1982
One Commerce Green (3).......... (4) 339,171 5.24 99 1983
Southwest Freeway
Comerica Bank Building (3)...... (4) 195,689 3.03 98 1983
Sugar Grove..................... 8,630,000 121,953 1.89 99 1982
Westchase
West Office Building............ 469,000 20,900 0.32 100 1986
Tensor Building................. 3,050,000 91,960 1.42 100 1983
West Houston
Raytheon........................ 16,060,000 148,175 2.29 100 1983
VIRGINIA
ALEXANDRIA
395 Corridor
Cherokee Business Center........ 3,691,000 53,838 0.83 96 1985
CHESAPEAKE
Hampton Roads
Greenbrier Towers............... 16,294,000 173,835 2.69 97 1985/1987(8)
RICHMOND
Northwest
Glen Forest (3)................. (4) 80,842 1.25 100 1985
Southwest
Moorefield II (3)............... (4) 47,203 0.73 98 1985
Moorefield III (3).............. (4) 50,230 0.78 100 1986
STERLING
Loudoun County
Loudoun Plaza (3)............... (4) 71,750 1.11 100 1989
<CAPTION>
SIGNIFICANT
STATE, CITY, SUBMARKET, PROPERTY NAME TENANTS (2)
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Las Colinas
Fairway......................... Associates First Capital Corp.
Don and Carol Campbell
Telecom Corridor
Courtyard at Arapaho............ Northern Telecommunications, Inc.
American Medical Electronics
HOUSTON
Energy Corridor
One Park 10..................... Prime Equipment
Healthsource
American Student Travel
Woodbranch...................... Future Soft
Exxon Corporation
Ashford II...................... Consumer Credit Associates
Operational Services, Inc.
Schlumberger (formerly Veritas)
(3)............................ GECO-PRAKLA (Schlumberger)
Northbelt
400 North Belt.................. Burlington Resources
Cal Dive International
One Commerce Green (3).......... DHL Airways
Nabors Industries
Paracelus Healthcare
Southwest Freeway
Comerica Bank Building (3)...... Comerica Bank
Sugar Grove..................... BKW Eagleton
Sugar Grove Executive Suite
Westchase
West Office Building............ Assembletech, Inc.
Tensor Building................. PGS Tensor
West Houston
Raytheon........................ Raytheon Engineers and Consultants, Inc.
VIRGINIA
ALEXANDRIA
395 Corridor
Cherokee Business Center........ J.G. VanDyke
CHESAPEAKE
Hampton Roads
Greenbrier Towers............... Consumer Portfolio Services
Inter-National Research
RICHMOND
Northwest
Glen Forest (3)................. Trigon Blue Cross/Blue Shield
Hanover Insurance Company
MCI Telecommunications
Southwest
Moorefield II (3)............... Virginia Department of State Police
Shaw Systems
Moorefield III (3).............. Philip Morris USA
Seasons Mortgage
Central Virginia Rehabilitation
STERLING
Loudoun County
Loudoun Plaza (3)............... LFC Nationwide
British Aerospace
Schnabel Foundation
</TABLE>
S-19
<PAGE> 22
<TABLE>
<CAPTION>
PERCENT PERCENT
TOTAL NET OF TOTAL LEASED
TOTAL RENTABLE NET RENTABLE AS OF
STATE, CITY, SUBMARKET, PROPERTY NAME INVESTMENT (1) SQUARE FEET SQUARE FEET 2/28/98 YEAR BUILT
- ------------------------------------- -------------- ----------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
TYSONS CORNER
Route 7 Corridor
8381 and 8391 Courthouse Road... 7,839,000 94,931 1.47 100 1984
VIRGINIA BEACH
Lynnhaven Corridor
Lynwood Plaza (3)............... (4) 82,172 1.27 96 1986
------------ --------- ------ ----
TOTAL/WEIGHTED AVERAGE............ $567,506,000 6,466,761 100% 96%
============ ========= ====== ====
<CAPTION>
SIGNIFICANT
STATE, CITY, SUBMARKET, PROPERTY NAME TENANTS (2)
- ------------------------------------- ------------------------------------------------------------
<S> <C>
TYSONS CORNER
Route 7 Corridor
8381 and 8391 Courthouse Road... Cap Gemini
Ellsworth Associates
VIRGINIA BEACH
Lynnhaven Corridor
Lynwood Plaza (3)............... Priority Health
TOTAL/WEIGHTED AVERAGE............
</TABLE>
- ---------------
(1) Total investment represents the greater of capitalized cost as of December
31, 1997 or acquisition price plus the costs of capital improvements that
Parkway expects to complete at such property during the 12 to 24 month
period following acquisition.
(2) Identifies tenants with leases that occupy 10% or more of total net
rentable square feet at the Property.
(3) Recent Acquisitions.
(4) The total investment for the Brookdale Portfolio was approximately $165.5
million.
(5) Parkway owns a 50% interest in the Wink Building.
(6) For Mtel Centre, this is the date of a major renovation.
(7) Charlotte Park Executive Center contains three office buildings, one built
in 1982, one built in 1984 and one built in 1986.
(8) Greenbrier Towers contains two office buildings, one built in 1985 and one
built in 1987.
S-20
<PAGE> 23
SIGNIFICANT TENANTS
The Properties are leased to approximately 870 tenants. No tenant currently
accounts for more than 3.3% of the total annualized rental revenue. The Company
seeks high-quality tenants with a national, regional and local mix, high credit
quality and diversified cash flows. The following table sets forth certain
information regarding the ten largest tenants of the Properties based upon
leased net rentable square feet as of April 6, 1998:
<TABLE>
<CAPTION>
TENANT'S PERCENT
PERCENT OF OF TOTAL
TOTAL NET ANNUALIZED ANNUALIZED LEASE
LEASED RENTABLE RENTAL RENTAL EXPIRATION
TENANT SQUARE FEET SQUARE FEET REVENUE(1) REVENUE DATE
------ ----------- ----------- ---------- ---------- ----------
<C> <S> <C> <C> <C> <C> <C>
1. Mtel............................. 184,559(2) 2.9% $ 2,817 3.0% (2)
2. Morgan Keegan.................... 159,910 2.5 3,048 3.3 09/07
3. GECO-PRAKLA (Schlumberger)....... 152,917 2.4 2,202 2.4 04/02
4. Raytheon Engineers and
Constructors, Inc.............. 147,075 2.3 2,924 3.1 12/05
5. Burlington Resources............. 107,646 1.7 1,440 1.5 (3)
6. First Tennessee Bank............. 100,845 1.6 1,425 1.5 09/04
7. DHL Airways...................... 98,649 1.5 1,539 1.6 10/04
8. American Medical Electronics..... 96,166 1.5 1,156 1.2 12/01
9. NationsBank...................... 93,786 1.4 1,121 1.2 06/06
10. Premier Health Systems, Inc...... 92,523 1.4 1,447 1.6 11/99
--------- ---- ------- ----
Total/Weighted Average........... 1,234,076 19.1% $19,119 20.4%
========= ==== ======= ====
</TABLE>
- ---------------
(1) Annualized Rental Revenue is defined as total net rentable square feet
multiplied by the effective gross rental rate per net rentable square foot
as of February 28, 1998.
(2) 154,640 net rentable square feet are leased at Mtel Centre under a lease
that expires in July 2005 and 29,919 net rentable square feet are leased at
One Jackson Place under a lease that expires in June 2002.
(3) Net rentable square feet under multiple leases that expire as follows:
<TABLE>
<CAPTION>
LEASE EXPIRATION DATE LEASED SQUARE FEET EXPIRING
- --------------------- ---------------------------
<S> <C>
12/06 86,096
09/04 8,180
09/02 7,172
03/02 3,866
08/00 2,332
-------
107,646
=======
</TABLE>
S-21
<PAGE> 24
LEASE EXPIRATION CHART
The following table sets forth a schedule of lease expirations for leases
in place as of February 28, 1998, for each of the five years beginning with
1998, for the Properties, assuming that none of the tenants exercises renewal
options.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
NET PERCENT EXPIRING ESTIMATED
RENTABLE OF TOTAL ANNUALIZED GROSS AVERAGE
SQUARE NET RENTAL RENTAL RATE/NET MARKET RENT/NET
FEET RENTABLE AMOUNT NUMBER RENTABLE RENTABLE
EXPIRING SQUARE FEET EXPIRING(1) OF LEASES SQUARE FOOT(2) SQUARE FOOT(3)
--------- ----------- ----------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1998..................... 661,000 10.2% $ 9,349,000 212 $14.15 $16.47
1999..................... 1,000,000 15.5 14,077,000 186 14.09 16.21
2000..................... 847,000 13.1 13,135,000 180 15.51 17.49
2001..................... 833,000 12.9 12,254,000 113 14.71 16.93
2002..................... 821,000 12.7 12,353,000 91 15.04 16.77
</TABLE>
- ---------------
(1) Annualized Rental Amount Expiring is defined as net rentable square feet
expiring multiplied by the weighted average expiring annual rental rate per
net rentable square foot.
(2) Weighted Average Expiring Gross Rental Rate is the weighted average rental
rate including escalations for office space.
(3) Estimated Average Market Rent is based upon information obtained from (i)
the Company's own experience in leasing space at the Properties; (ii)
leasing agents in the relevant markets with respect to quoted rental rates
and completed leasing transactions for comparable properties in the relevant
markets; and (iii) publicly available data with respect thereto. Estimated
Average Market Rent is weighted by the net rentable square feet expiring in
each Property.
S-22
<PAGE> 25
USE OF PROCEEDS
The net proceeds to Parkway from the Offering, after payment of expenses
incurred in connection with the Offering, are estimated to be approximately
$57.8 million (approximately $66.5 if the Underwriters' over-allotment is
exercised in full). Parkway intends to use all of the net proceeds from the
Offering to repay outstanding indebtedness under the Acquisition Facility. The
Acquisition Facility bears interest at LIBOR plus 1.40% which translated into a
7.0875% interest rate as of April 6, 1998. After the application of the net
proceeds from the Offering, the outstanding balance on the Acquisition Facility
will be approximately $0.3 million.
Pending application of the net proceeds, Parkway will invest such proceeds
in interest-bearing accounts and short-term, interest-bearing securities, which
is consistent with Parkway's intention to qualify for taxation as a REIT. Such
investments may include certificates of deposit, interest-bearing bank deposits
and money market investments.
DEBT STRUCTURE
Parkway had an aggregate of approximately $254.5 million of outstanding
debt as of April 6, 1998. Included in this amount is a $73.0 million principal
balance under the Acquisition Facility, a $2.4 million principal balance under
the Working Capital Facility, a $75.0 million balance under the February
Facility and certain short term borrowings. A portion of the Acquisition
Facility will be repaid with the net proceeds of this Offering. On a pro forma
as adjusted basis as of December 31, 1997, Parkway will have approximately $81.8
million outstanding under its credit facilities. On a pro forma as adjusted
basis as of December 31, 1997, the Company's total market capitalization (based
on the closing stock price on April 6, 1998 of $33.1875 per share of Common
Stock and including total indebtedness) will be approximately $614.5 million and
Parkway's debt will represent approximately 30.4% of its total market
capitalization.
As of April 6, 1998, 13 of the Properties secure non-recourse mortgage
indebtedness totaling approximately $104.2 million, seven of the Properties
secure the Acquisition Facility, a building owned by a partnership in which
Parkway is a 50% partner secures mortgage indebtedness of approximately $812,000
and negative pledges (i.e. the Company has agreed not to grant any other party a
security interest in these assets) with respect to 13 of the Recent Acquisitions
were in place for the February Facility. Parkway's non-recourse mortgage
indebtedness has a weighted average remaining term of approximately 12.8 years
and a weighted average interest rate of 7.807% per annum.
Parkway intends to maintain a conservative capital structure with a total
debt to total market capitalization ratio ranging between 25% and 40%. Parkway,
however, consistently seeks to optimize its use of debt and other sources of
financing to create a flexible capital structure that will allow Parkway to
continue its disciplined investment strategy and maximize the returns to its
stockholders.
MORTGAGE FINANCING
The Recent Acquisitions have been purchased with existing cash reserves,
bank borrowings and funds made available by the sale of non-office real estate
assets, office building investments outside its area of geographic focus and
securities, and the collection of mortgage notes receivable. Following the
acquisition of office building investments, Parkway has obtained, and may
continue to seek to obtain, fixed rate, non-recourse financing at terms ranging
from 10 to 15 years on certain of its Properties on a selective basis.
The Company has a commitment from an institutional lender for a $97 million
fixed rate loan which is expected to bear interest at a rate of 6.945% and is
expected to amortize over a 15-year term and is expected to mature 10 years from
the date the loan closes. This loan is expected to be secured by the Brookdale
Portfolio and is expected to be partially used to repay the February Facility.
The loan is also expected to contain a conversion feature that will give the
Company an option to unsecure all or part of the loan upon receipt of an
investment grade rating from two of the major rating agencies during the first
24 months of the loan.
S-23
<PAGE> 26
The existing mortgage indebtedness on the Properties that were owned by
Parkway as of April 6, 1998 is set forth in the table below:
<TABLE>
<CAPTION>
BALANCE
ORIGINAL INTEREST MATURITY OUTSTANDING AT
PROPERTY PRINCIPAL RATE DATE APRIL 6, 1998
-------- -------------- -------- -------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
One Jackson Place............................ $ 18,400 7.850% 11/2010 $ 17,387
BB&T Financial Center........................ 15,000 7.300 10/2012 14,861
First Tennessee Plaza........................ 15,000 7.170 10/2012 14,859
Mtel Centre.................................. 11,000 7.750 01/2008 9,632
Raytheon..................................... 7,958(1) 8.125 09/2008 7,816
Lakewood II.................................. 6,910(1) 8.080 08/2006 6,747
400 North Belt............................... 6,750 8.250 08/2011 6,321
Falls Pointe................................. 6,450 8.375 01/2012 6,166
Waterstone................................... 5,620 8.000 07/2011 5,255
IBM Building................................. 4,800 7.700 03/2011 4,415
One Park 10 Plaza............................ 4,700 8.350 08/2011 4,403
Roswell North................................ 3,400 8.375 01/2012 3,250
Woodbranch................................... 3,250 8.250 08/2011 3,043
-------- ------ --------
Total/Weighted Average....................... $109,238 7.807% $104,155
======== ====== ========
</TABLE>
- ---------------
(1) Original principal represents outstanding principal assumed as of the date
of closing of the purchase of this property.
S-24
<PAGE> 27
CAPITALIZATION
The following table sets forth the capitalization of Parkway as of December
31, 1997 on (i) a historical basis; (ii) a pro forma basis giving effect to the
purchase of the Recent Acquisitions completed after December 31, 1997 (except
for the SouthTrust Bank Building) and to the consummation of the equity
offerings completed in February 1998 and March 1998; and (iii) a pro forma as
adjusted basis giving effect to the purchase of the Recent Acquisitions
completed after December 31, 1997 (except for the SouthTrust Bank Building),
consummation of the equity offerings completed in February 1998 and March 1998
and the consummation of the Offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------
PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Indebtedness
Notes Payable to Banks (1)................................ $ 6,473 $139,549 $ 81,799
Mortgage Notes Payable Without Recourse................... 105,220 105,220 105,220
Stockholder's equity
Series A Preferred Stock, $0.001 par value, 2,760,000
shares authorized, no shares issued and outstanding on
a historical and pro forma basis and 2,400,000
outstanding on a pro forma as adjusted basis (2)....... 0 0 2
Common Stock, $0.001 par value, 67,240,000 shares
authorized, 9,765,176 issued and outstanding on a
historical basis and 11,072,204 issued and outstanding
on a pro forma basis (3)............................... 10 11 11
Excess Stock, $0.001 par value, 30,000,000 shares
authorized, no shares issued........................... 0 0 0
Additional Paid-In Capital................................ 213,461 254,639 312,387
Retained Earnings......................................... 31,270 31,270 31,270
-------- -------- --------
Total Capitalization................................... $356,434 $530,689 $530,689
======== ======== ========
</TABLE>
- ---------------
(1) The Company's purchase of the SouthTrust Bank Building on March 31, 1998 for
$17,440,000 obtained from an advance under the Acquisition Facility is not
included.
(2) Assumes the Underwriters' over-allotment option to purchase up to 360,000
shares of Series A Preferred Stock is not exercised. See "Underwriting."
(3) Based on the number of shares of Common Stock outstanding on April 6, 1998.
Does not include 282,553 shares of Common Stock reserved for issuance upon
the exercise of outstanding options granted pursuant to Parkway's option
plans.
S-25
<PAGE> 28
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company on a consolidated pro forma and historical basis. Such information
should be read in conjunction with, and is qualified in its entirety by, the
financial consolidated statements and notes thereto included or incorporated by
reference into the accompanying Prospectus. The selected historical financial
information of the Company as of December 31, 1997, 1996 and 1995, and for the
years ended December 31, 1997, 1996 and 1995, has been derived from the
historical consolidated financial statements of the Company audited by Ernst &
Young LLP, independent auditors.
The unaudited pro forma information as of December 31, 1997 gives effect to
the purchase of the Recent Acquisitions completed after December 31, 1997
(except for the SouthTrust Bank Building), the consummation of the equity
offerings completed in February 1998 and March 1998 and additional borrowings,
as if they had occurred at December 31, 1997 for the pro forma balance sheet.
See "Pro Forma Consolidated Financial Statements" contained in this Prospectus
Supplement. The pro forma consolidated statements of income for the year ended
December 31, 1997 gives effect to the purchase of the Recent Acquisitions
completed after December 31, 1997 (except for the SouthTrust Bank Building) and
all acquisitions completed during 1997, the consummation of all equity offerings
completed during 1997 and 1998 and additional borrowings, as if all the
transactions had occurred on January 1, 1997. See "Pro Forma Consolidated
Financial Statements" contained in this Prospectus Supplement.
The pro forma information is not necessarily indicative of what the actual
financial position or results of operations of the Company that actually would
have occurred if the purchases, sales and/or financings had been in effect on
the dates indicated, nor does it purport to represent the Company's future
financial position or results of operations.
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<PAGE> 29
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1997 1996 1995
(PRO FORMA) (HISTORICAL) (HISTORICAL) (HISTORICAL)
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Office Properties................................ $ 88,699 $ 45,799 $ 18,840 $ 6,918
Other Real Estate Properties..................... 722 722 1,773 2,023
Other Income..................................... 1,193 1,566 3,466 3,826
Expenses:
Office Properties:
Operating Expense............................. 38,741 19,697 8,466 2,960
Interest Expense.............................. 8,430 5,581 3,526 2,204
Depreciation and Amortization................. 12,773 6,033 2,444 1,179
Minority Interest............................. 59 59 (28) (100)
Other Real Estate Properties:
Operating Expense............................. 462 462 1,379 1,916
Interest Expense.............................. 0 0 0 26
Depreciation and Amortization................. 0 0 0 152
Interest Expense -- Bank Notes................... 8,531 997 353 156
Interest Expense -- Wrap Mortgages............... 0 0 340 135
Management Company Expenses...................... 362 362 673 804
General and Administrative and Other............. 3,312 3,312 3,013 2,381
-------- --------- --------- --------
Income Before Gains................................ 17,944 11,584 3,913 954
Gain on the Sale of Real Estate Held for Sale and
Mortgage Loans................................... 2,907 2,907 9,909 6,552
Gain on the Sale of Securities..................... 0 0 549 4,314
-------- --------- --------- --------
Net Income......................................... $ 20,851 $ 14,491 $ 14,371 $ 11,820
-------- --------- --------- --------
BASIC PER SHARE DATA (1):
Net Income....................................... $ 1.88 $ 2.05 $ 3.92 $ 4.24
Book Value (at end of period).................... 25.82 25.06 18.30 16.34
Cash Distributions Declared...................... 1.20 1.20 0.62 0.44
Cash Distributions Paid.......................... 1.20 1.20 0.62 0.44
Weighted Average Shares Outstanding.............. 11,072 7,078 3,662 2,787
OTHER DATA:
Funds from Operations (2)........................ -- $ 17,556 $ 6,379 $ 2,051
Ratio of Earnings to Fixed Charges (3)........... 2.1 2.8 1.9 1.4
Cash Flow Provided By (Used In):
Operating Activities.......................... -- $ 17,554 $ 7,370 $ 2,655
Investing Activities.......................... -- (210,933) (48,522) 1,921
Financing Activities.......................... -- 186,285 43,161 1,148
Number of Properties (at end of period).......... -- 32 17 8
Square Footage of the Properties (at end of
period)....................................... -- 4,646 1,974 839
BALANCE SHEET DATA (at end of period):
Office Investments, Net of Depreciation.......... $523,145 $ 347,931 $ 122,802 $ 52,284
Total Assets..................................... 542,847 368,592 147,035 88,043
Mortgage Notes Payable........................... 105,220 105,220 62,828 34,704
Notes Payable to Banks........................... 139,549 6,473 0 0
Total Liabilities................................ 256,927 123,851 69,127 38,832
Stockholders' Equity............................. 285,920 244,741 77,908 49,211
</TABLE>
- ---------------
(1) The per share information set forth herein gives retroactive effect to a
three-for-two stock split effected by the Company on April 30, 1996.
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<PAGE> 30
(2) Parkway defines FFO, consistent with NAREIT's definition, as net income
(loss) (computed in accordance with generally accepted accounting principles
("GAAP")), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes FFO is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. The Company computes FFO in accordance with
standards established by Parkway, which may differ from the methodology for
calculating FFO utilized by other equity REITs, and, accordingly, may not be
comparable to such other REITs. Further, FFO does not represent amounts
available for management's discretionary use because of needed capital
replacement or expansion, debt service obligations, or other commitments and
uncertainties. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flows from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions.
(3) For purposes of computing these ratios, earnings have been calculated by
adding fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations (net income or loss). Fixed charges consist of
interest costs, whether expensed or capitalized, the interest component of
rental expense and amortization of debt issuance costs.
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<PAGE> 31
MANAGEMENT
Set forth below is information with respect to the members of the Board of
Directors and the nine senior officers of the Company. Directors are elected
annually by the stockholders for a one year term.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Leland R. Speed................................. 65 Chairman of the Board
Steven G. Rogers................................ 43 President, Chief Executive Officer and Director
Sarah P. Clark.................................. 38 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
James M. Ingram................................. 41 Senior Vice President
David R. Fowler................................. 40 Senior Vice President
Jack R. Sullenberger............................ 44 Senior Vice President of Technical Services
G. Mitch Mattingly.............................. 42 Senior Vice President
Lisa L. McCary.................................. 34 Vice President
Regina P. Shows................................. 31 Vice President and Controller
Daniel C. Arnold................................ 68 Director
George R. Farish................................ 44 Director
Roger P. Friou.................................. 63 Director
Michael J. Lipsey............................... 48 Director
Joe F. Lynch.................................... 65 Director
C. Herbert Magruder............................. 65 Director
W. Lincoln Mossop, Jr........................... 63 Director
</TABLE>
LELAND R. SPEED has been the Chairman of the Board of Directors of Parkway
from 1978 and served as the Chief Executive Officer of Parkway from 1980 to
1997. Mr. Speed has also been the Chairman of the Board of Directors of
EastGroup Properties, Inc. since 1983. Mr. Speed served as Chief Executive
Officer of EastGroup Properties, Inc. until 1997 and currently serves as a
Director of ChemFirst, KLLM Transport Services, Inc. and Friede Goldman
International Inc. Prior to assuming these duties, Mr. Speed was in the general
securities and real estate development business. He received his B.S. in
Industrial Management from Georgia Institute of Technology and his M.B.A. from
Harvard Business School.
STEVEN G. ROGERS has been President of Parkway since 1993, Chief Executive
Officer since 1997 and a Director since 1996. He previously served as Chief
Operating Officer from 1993 to 1997 and as Senior Vice President from 1988 to
1993. Prior to joining the Company, Mr. Rogers was Vice President and Project
Manager with Joseph C. Canizaro Interests, a developer of office buildings. His
principal duties in this capacity included large office development planning,
leasing and sales and coordination of financing for office projects. Mr. Rogers
received his B.A. in History from the University of Mississippi and his M.B.A.
from Harvard Business School. Mr. Rogers currently serves as Vice Chairman of
the Board of Trustees for the Mississippi Museum of Art and serves on the Board
of Directors of Goodwill Industries. Mr. Rogers also serves as the State
Membership Chairman for Young President's Organization.
SARAH P. CLARK has served Parkway as Senior Vice President since 1997, Vice
President since 1992, Chief Financial Officer and Secretary of the Company since
1994 and Treasurer since 1996. She previously served as Controller from 1986 to
1992. Prior to joining the Company, Ms. Clark served in both the audit and tax
departments of Arthur Andersen LLP in Jackson, Mississippi. In that capacity she
served clients in the oil and gas, real estate, banking and mortgage banking
industries. Ms. Clark received her B.S. in Business Administration with an
emphasis in accounting from the University of Southern Mississippi and is a
Certified Public Accountant. She is also a member of the American Institute of
Certified Public Accountants and the Institute of Management Accountants.
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<PAGE> 32
JAMES M. INGRAM has been a Senior Vice President since 1997, Vice President
of Parkway since 1996 and an Asset Manager of the Company since 1989. He has
also served as President of Parkway Realty since 1997 and as a Vice President of
Parkway Realty from 1992 to 1997. Mr. Ingram's current responsibilities with
Parkway include Project Manager for office building acquisitions, the asset
management of twelve office buildings totalling approximately 1.4 million net
rentable square feet and the supervision of all leasing, management and sales
responsibilities for Parkway Realty. During his tenure with the Company, he has
been instrumental in the successful leasing of over 1.0 million net rentable
square feet and the sale of various income-producing real estate assets and
land. Mr. Ingram received his B.A. in Public Administration from the University
of Mississippi.
DAVID R. FOWLER has been a Senior Vice President since 1997, Vice President
of Parkway since 1996 and an Asset Manager since 1985. He has also served as a
Vice President of Parkway Realty since 1992. Mr. Fowler's current
responsibilities with the Company include serving as Project Manager for office
building acquisitions and serving as Asset Manager for six office buildings
totalling approximately 1.3 million net rentable square feet owned by the
Company. Prior to assuming these duties, Mr. Fowler was Project Manager for the
Company's residential development in Highlands, North Carolina. Prior to joining
the Company in 1983, Mr. Fowler was a staff accountant in the audit division of
Arthur Andersen LLP in Memphis, Tennessee. He received his B.P.A. in
Professional Accountancy from Mississippi State University and is a Certified
Public Accountant.
JACK R. SULLENBERGER has been with Parkway since 1986 and has been Vice
President of Parkway Realty since 1992. He was promoted to Senior Vice President
of Technical Services of Parkway in 1997. Mr. Sullenberger's current
responsibilities with the Company include technical and construction supervision
for all of the Properties, office building acquisitions, due diligence and asset
management. Mr. Sullenberger also serves as Asset Manager for eight Properties
totalling approximately 685,000 net rentable square feet. Prior to joining the
Company, Mr. Sullenberger was the Senior Construction Manager for Joseph C.
Canizaro Interests in New Orleans, Louisiana. He received his B.S. in
Construction Technology from Auburn University and his M.B.A. from the
University of New Orleans.
G. MITCH MATTINGLY has been a Senior Vice President since 1997 and Vice
President of Parkway since 1996. Mr. Mattingly's current responsibilities with
Parkway include Project Manager for office building acquisitions and the asset
management of 15 office buildings totalling approximately 2.2 million net
rentable square feet in Texas. Mr. Mattingly was President of First Continental
Real Estate Investment Trust from 1990 to 1994, when it was merged into Parkway.
He received his B.S. in Landscape Architecture from Texas A&M University.
LISA L. MCCARY has served as Vice President of Parkway since 1997. She has
also served as a Vice President of Parkway Realty since 1995. Ms. McCary's
current responsibilities with Parkway include serving as Asset Manager for six
office buildings totalling approximately 989,000 net rentable square feet and
serving as Project Manager for office building acquisitions. Prior to assuming
her position with the Company, Ms. McCary was employed as a Property Manager for
Trammell Crow Company in Jackson, Mississippi. She received a B.S. in Business
Administration from the University of Memphis. She holds a Certified Property
Manager designation and a Certified Commercial Investment Member designation and
was the 1997 Mississippi Chapter Vice President for the Institute of Real Estate
Management.
REGINA P. SHOWS has served as Vice President of Parkway since 1997,
Controller since 1992 and Accountant since joining the Company in 1989. Ms.
Shows received her B.S. in Business Administration with an emphasis in
accounting from the University of Southern Mississippi and is a Certified Public
Accountant. She is also a member of the American Institute of Certified Public
Accountants and the Mississippi Society of Certified Public Accountants.
DANIEL C. ARNOLD has served as a Director of the Company since 1994. He is
a private investor. He also served as a Director of Farm & Home Savings
Association from 1989 to 1994.
GEORGE R. FARISH has served as a Director of the Company since 1981. He is
also the Chief Executive Officer of Houston Savings Association.
ROGER P. FRIOU has served as a Director of the Company since 1995. He is a
private investor. Mr. Friou served as a Director of Jitney Jungle Stores of
America, Inc. (a regional supermarket chain) from 1991 to 1997, its President
from 1996 to 1997, and its Vice Chairman and Chief Financial Officer from 1991
to 1996.
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<PAGE> 33
MICHAEL J. LIPSEY has served as a Director of the Company since 1997. He is
the President of The Lipsey Company which provides training and consulting
services for national and international clients, encompassing all aspects of the
commercial real estate industry.
JOE F. LYNCH has served as a Director of the Company since 1994. He has
served as Chairman of the Board and Chief Executive Officer of First Continental
Corporation (a real estate company) since 1994. He also served as Chairman of
the Board and Chief Executive Officer of First Continental Real Estate
Investment Trust from 1989 to 1994 and Vice Chairman of the Board of Farm & Home
Financial Corporation and of Farm & Home Savings Association from 1991 to 1994.
C. HERBERT MAGRUDER has served as a Director of the Company since 1988. He
is a physician and a partner in the medical firm of Carolina Pathology
Associates.
W. LINCOLN MOSSOP, JR. has served as a Director of the Company since 1986.
He was a general partner, the President and Chief Executive Officer until 1997
of Barrett & Co. (securities brokers and dealers and a member firm of the Boston
Stock Exchange, Inc.).
DESCRIPTION OF SERIES A PREFERRED STOCK
The description of the particular terms of the Series A Preferred Stock
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Series A Preferred Stock set forth in
the accompanying Prospectus, to which description reference is hereby made.
GENERAL
The Company presently is authorized to issue up to 70,000,000 shares of
Common Stock and 30,000,000 shares of Excess Stock. Under Maryland law and the
Charter, the Board of Directors has the power to classify or reclassify any
unissued shares by setting any features of such stock without the vote of the
Company's stockholders. In accordance with such power, the Board has used its
power to create 2,760,000 shares of Series A Preferred Stock. As of the date of
this Prospectus Supplement, no shares of Series A Preferred Stock are
outstanding.
The Company intends to contribute or otherwise transfer the net proceeds of
the sale of the Series A Preferred Stock to the Partnership in exchange
for % Series A Preferred Units in the Partnership, the economic terms of
which will be substantially identical to the Series A Preferred Stock. The
Partnership will be required to make all required distributions on the Series A
Preferred Units (which will mirror the payments of distributions, including
accrued and unpaid distributions upon redemption, and of the liquidation
preference amount of, the Series A Preferred Stock) prior to any distribution of
cash or assets to the holders of the Units or to the holders of any other
interests in the Partnership, except for any other series of preference units
ranking on a parity with the Series A Preferred Units as to distributions and/or
liquidation rights and except for distributions required to enable the Company
to maintain its qualification as a REIT.
None of the terms of the Series A Preferred Stock, the Partnership
Agreement of the Partnership or, subject to limited exceptions, any of the debt
agreements of the Company contain any provisions affording holders of the Series
A Preferred Stock protection in the event of a highly leveraged or other
transaction that might adversely affect holders of the Series A Preferred Stock.
The following summary of the terms and provisions of the Series A Preferred
Stock does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the Charter and Articles Supplementary to
the Charter creating the Series A Preferred Stock (the "Designating Amendment"),
each of which is available from the Company.
MATURITY
The Series A Preferred Stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption.
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<PAGE> 34
RANK
The Series A Preferred Stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the Company, rank (i)
senior to all classes or series of Common Stock of the Company, and to all
equity securities ranking junior to the Series A Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company; (ii) on a parity with all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank on a parity
with the Series A Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; and (iii) junior to all
existing and future indebtedness of the Company.
DIVIDENDS
Holders of shares of the Series A Preferred Stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of % per annum of the Liquidation Preference per share (equivalent to a
fixed annual amount of $ per share).
Dividends on the Series A Preferred Stock shall be cumulative from the date
of original issue and shall be payable quarterly in arrears on or before the
fifteenth day of January, April, July and October of each year, or, if not a
business day, the next succeeding business day (each, a "Dividend Payment
Date"). The first dividend will be paid on or before July 15, 1998 and will be
for less than a full quarter. Such dividend and any dividends payable on the
Series A Preferred Stock for any partial dividend period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. Dividends will be
payable to holders of record as they appear in the stock records of the Company
at the close of business on the applicable record date, which shall be the last
business day of March, June, September and December, respectively, or on such
other date designated by the Board of Directors of the Company for the payment
of dividends that is not more than 30 nor less than 10 days prior to the
applicable Dividend Payment Date (each, a "Dividend Record Date"). The first
Dividend Record Date for determination of stockholders entitled to receive
dividends on the Series A Preferred Stock is expected to be June 30, 1998.
No dividends on shares of Series A Preferred Stock shall be declared by the
Board of Directors or paid or set apart for payment by the Company at such time
as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series A Preferred Stock
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends and whether or not
such dividends are declared. Accrued but unpaid dividends on the Series A
Preferred Stock will accumulate as of the Dividend Payment Date on which they
became payable.
If for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (as determined for federal income tax purposes)
paid or made available for the year to holders of all classes of stock (the
"Total Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to the holders of Series A Preferred Stock shall be the amount that
the total dividends (as determined for federal income tax purposes) paid or made
available to the holders of the Series A Preferred Stock for the year bears to
the Total Dividends. The Company may elect to retain and pay income tax on its
net long-term capital gains. In such a case, the holders of Series A Preferred
Stock would include in income their proportionate share of the Company's
undistributed long-term capital gains, as designated by the Company.
Except as set forth in the next sentence, no dividends will be declared or
paid or set apart for payment on any capital stock of the Company or any other
series of Preferred Stock ranking, as to dividends, on a parity with or junior
to the Series A Preferred Stock (other than a dividend in shares of the
Company's Common Stock or in shares of any other class of stock ranking junior
to the Series A Preferred Stock as to dividends and upon liquidation) for any
period unless full cumulative dividends have been or contemporaneously are
declared and
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<PAGE> 35
paid or declared and a sum sufficient for the payment thereof is set apart for
such payment on the Series A Preferred Stock for all past dividend periods and
the then current dividend period. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series A
Preferred Stock and the shares of any other series of preferred stock ranking on
a parity as to dividends with the Series A Preferred Stock, all dividends
declared upon the Series A Preferred Stock and any other series of Preferred
Stock ranking on a parity as to dividends with the Series A Preferred Stock
shall be declared pro rata so that the amount of dividends declared per share of
Series A Preferred Stock and such other series of preferred stock shall in all
cases bear to each other the same ratio that accrued dividends per share on the
Series A Preferred Stock and such other series of preferred stock (which shall
not include any accrual in respect of unpaid dividends for prior dividend
periods if such preferred stock does not have a cumulative dividend) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Series A Preferred Stock
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in shares of Common Stock
or other shares of capital stock ranking junior to the Series A Preferred Stock
as to dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock or any other capital stock of the Company ranking junior to or on a parity
with the Series A Preferred Stock as to dividends or upon liquidation, nor shall
any shares of Common Stock, or any other shares of capital stock of the Company
ranking junior to or on a parity with the Series A Preferred Stock as to
dividends or upon liquidation, be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion into
or exchange for other capital stock of the Company ranking junior to the Series
A Preferred Stock as to dividends and upon liquidation). Holders of shares of
the Series A Preferred Stock shall not be entitled to any dividend, whether
payable in cash, property or stock, in excess of full cumulative dividends on
the Series A Preferred Stock as provided above. Any dividend payment made on
shares of the Series A Preferred Stock shall first be credited against the
earliest accrued but unpaid dividend due with respect to such shares which
remains payable.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of shares of Series A Preferred Stock
are entitled to be paid out of the assets of the Company legally available for
distribution to its stockholders the Liquidation Preference of $25.00 per share,
plus an amount equal to any accrued and unpaid dividends to the date of payment,
before any distribution of assets is made to holders of Common Stock or any
other class or series of capital stock of the Company that ranks junior to the
Series A Preferred Stock as to liquidation rights. Holders of Series A Preferred
Stock will be entitled to written notice of any event triggering the right to
receive such Liquidation Preference. After payment of the full amount of the
Liquidation Preference, plus any accrued and unpaid dividends to which they are
entitled, the holders of Series A Preferred Stock will have no right or claim to
any of the remaining assets of the Company. The consolidation or merger of the
Company with or into any other trust or entity or of any other corporation with
or into the Company, or the sale, lease or consolidation, conveyance of all or
substantially all of the property or business of the Company, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Company.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the available assets of
the Company are insufficient to pay the amount of the liquidation distributions
on all outstanding shares of Series A Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with Series A Preferred Stock in the distribution of
assets upon any liquidation, dissolution or winding up of the affairs of the
Company ("Parity Stock"), then the holders of shares of Series A Preferred Stock
and Parity Stock shall share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
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<PAGE> 36
REDEMPTION
The Series A Preferred Stock is not redeemable prior to April , 2003.
However, in order to ensure that the Company will remain qualified as a REIT for
federal tax purposes, the Series A Preferred Stock owned by a stockholder in
excess of the Ownership Limit, as defined herein, may automatically be exchanged
for shares of Excess Stock and the Company will have the right to purchase
Excess Stock from the holder. See "-- Restrictions on Ownership and Transfer."
On and after April , 2003, the Company, at its option upon not less than 30
nor more than 60 days' written notice, may redeem shares of the Series A
Preferred Stock, in whole or in part, at any time or from time to time, for cash
at a redemption price of $25.00 per share, plus all accrued and unpaid dividends
thereon to the date fixed for redemption (except as provided below), without
interest. The redemption price of the Series A Preferred Stock (other than the
portion thereof consisting of accrued and unpaid dividends) is payable solely
out of the sale proceeds of other capital stock of the Company, which may
include other series of preferred stock, and from no other source. For purposes
of the preceding sentence, "capital stock" means any equity securities
(including Common Stock and preferred stock), shares, interest, participation or
other ownership interests (however designated) and any rights (other than debt
securities convertible into or exchangeable for equity securities) or options to
purchase any of the foregoing.
PROCEDURES FOR REDEMPTION
Holders of Series A Preferred Stock to be redeemed shall surrender such
Series A Preferred Stock at the place designated in such notice and shall be
entitled to the redemption price and any accrued and unpaid dividends payable
upon such redemption following such surrender. If notice of redemption of any
shares of Series A Preferred Stock has been given and if the funds necessary for
such redemption have been set aside by the Company in trust for the benefit of
the holders of any shares of Series A Preferred Stock so called for redemption,
then from and after the redemption date dividends will cease to accrue on such
shares of Series A Preferred Stock, such shares of Series A Preferred Stock
shall no longer be deemed outstanding and all rights of the holders of such
shares will terminate, except the right to receive the redemption price. If less
than all of the outstanding Series A Preferred Stock is to be redeemed, the
Series A Preferred Stock to be redeemed shall be selected pro rata (as nearly as
may be practicable without creating fractional shares) or by any other equitable
method determined by the Company. The Company's ability to redeem Series A
Preferred Stock is subject to the limitations on distributions in the Maryland
General Corporation Law.
Unless full cumulative dividends on all shares of Series A Preferred Stock
shall have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no shares of Series A Preferred
Stock shall be redeemed unless all outstanding shares of Series A Preferred
Stock are simultaneously redeemed and the Company shall not purchase or
otherwise acquire directly or indirectly any shares of Series A Preferred Stock
(except by exchange for capital stock of the Company ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase by the Company of
shares of Excess Stock in order to ensure that the Company continues to meet the
requirements for qualification as a REIT for federal income tax purposes, or the
purchase or acquisition of shares of Series A Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Series A Preferred Stock.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice will be mailed by the Company, postage
prepaid, not less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of the Series A Preferred Stock to
be redeemed at their respective addresses as they appear on the stock transfer
records of the Company. No failure to give such notice or any defect therein or
in the mailing thereof shall affect the validity of the proceedings for the
redemption of any shares of Series A Preferred Stock except as to the holder to
whom notice was defective or not given. Each notice shall state: (i) the
redemption date; (ii) the redemption price; (iii) the number of shares of Series
A Preferred Stock to be redeemed; (iv) the place or places where the Series A
Preferred Stock is to be surrendered for payment of the redemption price; and
(v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date. If less than all of the
S-34
<PAGE> 37
Series A Preferred Stock held by any holder is to be redeemed, the notice mailed
to such holder shall also specify the number of shares of Series A Preferred
Stock held by such holder to be redeemed.
Immediately prior to any redemption of Series A Preferred Stock, the
Company shall pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a Dividend Record Date and
prior to the corresponding Dividend Payment Date, in which case each holder of
Series A Preferred Stock at the close of business on such Dividend Record Date
shall be entitled to the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the redemption of such shares before such
Dividend Payment Date or the Company's default in the payment of the dividend
due. Except as provided above, the Company will make no payment or allowance for
unpaid dividends, whether or not in arrears, on called Series A Preferred Stock.
The Series A Preferred Stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption. However, in order to ensure that
the Company continues to meet the requirements for qualification as a REIT for
federal income tax purposes, Series A Preferred Stock acquired by a stockholder
in excess of the ownership limitation will automatically be exchanged for shares
of Excess Stock and the Company will have the right to purchase Excess Stock
from the holder.
VOTING RIGHTS
Holders of the Series A Preferred Stock will not have any voting rights,
except as set forth below or as otherwise from time to time required by law.
Whenever dividends on any shares of Series A Preferred Stock shall be in
arrears for six or more quarters (whether consecutive or not) (a "Preferred
Dividend Default"), the holders of such shares of Series A Preferred Stock
(voting separately as a voting group with all other series of Preferred Stock
ranking on a parity with the Series A Preferred Stock as to dividends or upon
liquidation ("Parity Preferred") upon which like voting rights have been
conferred and are exercisable) will be entitled to vote separately as a voting
group for the election of a total of two additional directors to serve on the
Board of Directors of the Company (the "Preferred Stock Directors") at a special
meeting called by the holders of record of at least 20% of the Series A
Preferred Stock and the holders of record of at least 20% of any series of
Parity Preferred so in arrears (unless such request is received less than 90
days before the date fixed for the next annual or special meeting of
stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until all dividends accumulated on such shares of
Series A Preferred Stock for the past dividend periods and the dividend for the
then current dividend period shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. A quorum for any such
meeting shall exist if at least a majority of the outstanding shares of Series A
Preferred Stock and shares of Parity Preferred upon which like voting rights
have been conferred and are exercisable are represented in person or by proxy at
such meeting. Such Preferred Stock Directors shall be elected upon the
affirmative vote of a plurality of the shares of Series A Preferred Stock and
such Parity Preferred present and voting in person or by proxy at a duly called
and held meeting at which a quorum is present. If and when all accumulated
dividends and the dividend for the then current dividend period on the Series A
Preferred Stock shall have been paid in full or set aside for payment in full,
the holders thereof shall be divested of the foregoing voting rights (subject to
revesting in the event of each and every Preferred Dividend Default) and, if all
accumulated dividends and the dividend for the then current dividend period have
been paid in full or declared and set aside for payment in full on all series of
Parity Preferred upon which like voting rights have been conferred and are
exercisable, the term of office of each Preferred Stock Director so elected
shall terminate. The Preferred Stock Directors shall each be entitled to one
vote per director on any matter.
So long as any shares of Series A Preferred Stock remain outstanding, the
Company will not without the affirmative vote or consent of the holders of at
least two-thirds of the shares of the Series A Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting (voting
separately as a class), (a) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking senior to the
Series A Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the Company into such shares, or create,
authorize, or issue any obligation or security convertible into or evidencing
the right to purchase
S-35
<PAGE> 38
any such shares; or (b) amend, alter or repeal the provisions of the Company's
Charter and Articles Supplementary, whether by merger, consolidation or
otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of the Series A Preferred Stock or the
holders thereof provided, however, with respect to the occurrence of any Event
set forth in (b) above, so long as the Series A Preferred Stock remains
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event the Company may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of the Series A Preferred Stock and provided further that (i) any increase in
the amount of the authorized preferred stock or the creation or issuance of any
other series of preferred stock; or (ii) any increase in the amount of
authorized shares of such series, in each case ranking on a parity with or
junior to the Series A Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up, shall
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
In addition to the above, under Maryland law, the holders of Series A
Preferred Stock will be entitled to vote as a separate voting group to approve a
dividend payable in shares of Series A Preferred Stock to the holders of another
class of the Company's stock or to approve a dividend payable in shares of the
Company's stock other than Series A Preferred Stock to the holders of Series A
Preferred Stock.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Series A Preferred Stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
CONVERSION
The Series A Preferred Stock is not convertible into or exchangeable for
any other property or securities of the Company, except that the shares of
Series A Preferred Stock may be exchanged for shares of Excess Stock in order to
ensure that the Company remains qualified as a REIT for federal income tax
purposes.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, certain restrictions
apply to the ownership of shares of capital stock. See the accompanying
Prospectus under "Federal Income Tax Considerations -- Requirements for
Qualification." Because the Board of Directors believes it is essential for the
Company to continue to qualify as a REIT, the Charter restricts the ownership,
acquisition and transfer of the Company's capital stock, including shares of
Series A Preferred Stock.
Parkway's Charter provides that if, at any time when Parkway is qualified
as a REIT, a transfer of any capital stock of Parkway (either Common Stock or
Series A Preferred Stock), would result in (i) any person acquiring directly or
indirectly beneficial ownership of more than 9.8% of the total number of
outstanding shares of Parkway's capitalized stock (by value or by number,
whichever is more restrictive) (the "Ownership Limit"); (ii) the outstanding
capital stock of Parkway being constructively or beneficially owned by fewer
than 100 persons; or (iii) Parkway being "closely held" within the meaning of
Section 856 of the Code, then: (A) any proposed transfer will be void ab initio
and will not be recognized by Parkway; (B) Parkway will have the right to redeem
the shares proposed to be transferred; and (C) the shares proposed to be
transferred will be automatically converted into and exchanged for shares of a
separate class of stock, Excess Stock, having no dividend or voting rights.
Holders of Excess Stock do have certain rights in the event of any liquidation,
dissolution or winding up of Parkway. The Charter further provides that the
Excess Stock will be held by Parkway as trustee for the person or persons to
whom the shares are ultimately transferred, until such time as the shares are
re-transferred to a person or persons in whose hands the shares would not be
Excess Stock and certain price-related restrictions are satisfied.
TRANSFER AND DIVIDEND PAYING AGENT
Harris Trust and Savings Bank will act as the transfer and dividend payment
agent in respect of the Series A Preferred Stock.
S-36
<PAGE> 39
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
For a discussion of certain material federal income tax consequences of the
current taxation of Parkway, the current impact on Parkway of its election to be
treated as a REIT, and the current taxation of prospective stockholders of
Parkway, see "Federal Income Tax Considerations" in the accompanying Prospectus.
Dividends and Other Distributions. As long as the Company qualifies as a
REIT, distributions made to holders of Series A Preferred Stock out of current
or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income and will not be
eligible for the dividends received deduction for corporations. For purposes of
determining whether distributions on the Series A Preferred Stock are out of
current or accumulated earnings and profits, the earnings and profits of the
Company will be allocated first to the Company's outstanding Series A Preferred
Stock and then allocated to the Company's Common Stock.
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (as determined for federal income tax purposes)
paid or made available for the year to holders of all classes of stock (the
"Total Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to the holders of Series A Preferred Stock shall be the amount that
the total dividends (as determined for federal income tax purposes) paid or made
available to the holders of the Series A Preferred Stock for the year bears to
the Total Dividends. The Company may elect to retain and pay income tax on its
net long-term capital gains. In such a case, the holders of Series A Preferred
Stock would include in income their proportionate share of the Company's
undistributed long-term capital gains, as designated by the Company.
Sale or Redemption of the Series A Preferred Stock. On the sale of shares
of the Series A Preferred Stock, gain or loss will be recognized by the holder
in an amount equal to the difference between (i) the amount of cash and fair
market value of any property received on such sale, and (ii) the holder's
adjusted basis in the Series A Preferred Stock. See "Federal Income Tax
Considerations -- Taxation of Stockholders" in the accompanying Prospectus.
A redemption of the Series A Preferred Stock will be treated under Section
302 of the Code as a dividend taxable at ordinary income tax rates (to the
extent of the Company's current or accumulated earnings and profits), unless the
redemption satisfies certain tests set forth in Section 302(b) of the Code
enabling the redemption to be treated as a sale of the Series A Preferred Stock.
The redemption will satisfy such tests if it (i) is "substantially
disproportionate" with respect to the holder (which will not be the case if only
the Series A Preferred Stock is redeemed, since it generally does not have
voting rights), (ii) results in a "complete termination" of the holder's stock
interest in the Company, or (iii) is "not essentially equivalent to a dividend"
with respect to the holder, all within the meaning of Section 302(b) of the
Code. In determining whether any of these tests have been met, shares considered
to be owned by the holder by reason of certain constructive ownership rules set
forth in the Code, as well as shares actually owned, must generally be taken
into account. Because the determination as to whether any of the alternative
tests of Section 302(b) of the Code will be satisfied with respect to any
particular holder of the Series A Preferred Stock depends upon the facts and
circumstances at the time the determination must be made, prospective investors
are advised to consult their own tax advisors to determine such tax treatment.
Redemption Premium. Section 305(c) of the Code and the regulations
thereunder provide in certain cases for the accrual of a redemption premium on
preferred stock on a constant yield-to-maturity basis and for the treatment of
such accrual as a distribution with respect to such preferred stock. For such
accrual to apply to the redemption premium on the Series A Preferred Stock, a
determination, as of the issue date, would be required that it is more likely
than not that the Company would exercise its redemption option with respect to
the Series A Preferred Stock. However, the regulations provide a safe harbor
that is generally applicable to most public offerings of preferred stock
callable by the issuer, under which an issuer will not be considered to be more
likely than not to exercise its redemption option. Accordingly, the redemption
premium on the Series A Preferred Stock should not be subject to accrual under
Section 305(c).
If a redemption of the Series A Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash and the fair market value of any property
S-37
<PAGE> 40
received by the stockholders. The stockholder's adjusted tax basis in such
redeemed Series A Preferred Stock will be transferred to the holder's remaining
stockholdings in the Company. If, however, the stockholder has no remaining
stockholdings in the Company, such basis may, under certain circumstances, be
transferred to a related person or it may be lost entirely.
Potential Legislative Action Regarding REITs. On February 2, 1998, the
Clinton Administration released a summary of its proposed budget plan which
contained several proposals affecting REITs. One such proposal, if enacted in
its present form, would prohibit a REIT from holding securities representing
more than 10% of the value of all classes of stock of a corporation, other than
a qualified REIT subsidiary or another REIT. If enacted in its present form, the
proposal may limit Parkway's ability to perform certain third party management
or other non-real estate related activities in the future. No prediction can be
made as to whether such proposal or any other proposal affecting REITs will be
enacted into legislation and the impact of any such legislation on Parkway.
S-38
<PAGE> 41
UNDERWRITING
Subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement"), Parkway has agreed to sell to each of the
Underwriters, for whom PaineWebber Incorporated, J.C. Bradford & Co. and Raymond
James & Associates, Inc. are acting as representative (the "Representative"),
named below, and each of such Underwriters has severally agreed to purchase from
Parkway the respective number of shares of Series A Preferred Stock set forth
opposite their names. Pursuant to the terms of the Underwriting Agreement, the
Underwriters are obligated to purchase all such shares of Series A Preferred
Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
SERIES A
UNDERWRITER PREFERRED STOCK
- ----------- ---------------
<S> <C>
PaineWebber Incorporated....................................
J.C. Bradford & Co..........................................
Raymond James & Associates, Inc. ...........................
---------
Total............................................. 2,400,000
=========
</TABLE>
The Underwriters have advised Parkway that the Underwriters propose to
offer the Series A Preferred Stock to the public at the Offering price set forth
on the cover page of this Prospectus Supplement and to certain dealers at such
price less a concession not in excess of $ per share of Series A
Preferred Stock. The Underwriters may allow, and such dealers may re-allow, a
discount not in excess of $ per share of Series A Preferred Stock on
sales to certain other brokers and dealers. After the Offering, the public
offering price, concession and discount may be changed.
Parkway has granted to the Underwriters an option, exercisable for 30 days
after the date of this Prospectus Supplement, to purchase up to 360,000
additional shares of Series A Preferred Stock to cover over-allotments, if any,
at the Offering price, less the underwriting discounts and commissions set forth
on the cover page of this Prospectus Supplement. If the Underwriters exercise
this option, each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares of Series A Preferred Stock to be purchased by it shown in
the foregoing table bears to the Series A Preferred Stock initially offered
hereby.
In the Underwriting Agreement, Parkway and the Operating Partnership have
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the federal securities laws, or to contribute to payments that
the Underwriters may be required to make in respect thereof.
Parkway has agreed not to offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of any shares of Series A Preferred Stock, or
any securities convertible into, or exercisable, exchangeable or redeemable for,
shares of Series A Preferred Stock for a period of 90 days from the date hereof
without the prior consent of PaineWebber Incorporated.
The Underwriters do not intend to exercise discretion in confirming sales
to any account over which they otherwise have discretionary authority.
Application has been made to list the Series A Preferred Stock on the NYSE
under the symbol "PKY PrA."
In connection with the Offering, the rules of the Commission permit the
Underwriters to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Series A Preferred Stock.
If the Underwriters create a short position in the Series A Preferred Stock
in connection with the Offering (i.e., if they sell more shares of Series A
Preferred Stock than are set forth on the cover page of this Prospectus
Supplement) the Underwriters may reduce that short position by purchasing Series
A Preferred Stock in the open market. The Underwriters may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above.
S-39
<PAGE> 42
PaineWebber Incorporated, on behalf of the Underwriters, may also impose a
penalty bid on certain of the Underwriters. This means that if PaineWebber
Incorporated, on behalf of the Underwriters, purchases shares of Series A
Preferred Stock in the open market to reduce the Underwriters' short position or
to stabilize the price of the Series A Preferred Stock, it may reclaim the
amount of the selling concession from the Underwriters who sold those shares as
part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither Parkway nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the Series A Preferred Stock. In
addition, neither Parkway nor any of the Underwriters makes any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
In the ordinary course of their business, certain of the Underwriters
and/or their affiliates have engaged and may in the future engage in financial
advisory, investment banking and other transactions with Parkway for which
customary compensation has been, and will be, received.
LEGAL MATTERS
Certain legal matters, including the legality of the Series A Preferred
Stock, will be passed upon for Parkway by Jaeckle Fleischmann & Mugel, LLP,
Buffalo, New York and for the Underwriters by Rogers & Wells LLP, New York, New
York. As to matters of Maryland law contained in these opinions, Jaeckle
Fleischmann & Mugel, LLP and Rogers & Wells LLP will rely upon the opinion of
Piper & Marbury L.L.P., Baltimore, Maryland.
S-40
<PAGE> 43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF PARKWAY
PROPERTIES, INC........................................... F-2
Pro Forma Consolidated Balance Sheet as of December 31,
1997 (unaudited)....................................... F-3
Pro Forma Consolidated Statement of Income for the year
ended December 31, 1997 (unaudited).................... F-4
Notes to Pro Forma Consolidated Financial Statements
(unaudited)............................................ F-5
</TABLE>
F-1
<PAGE> 44
PARKWAY PROPERTIES, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidated balance sheet as of December
31, 1997 and pro forma consolidated statement of income of Parkway Properties,
Inc. ("Parkway") for the year ended December 31, 1997 give effect to the recent
purchases of Parkway listed below for the periods stated. The pro forma
consolidated financial statements have been prepared by management of Parkway
based upon the historical financial statements of Parkway and the adjustments
and assumptions in the accompanying notes to the pro forma consolidated
financial statements.
The pro forma consolidated balance sheet sets forth the effect of Parkway's
purchases since December 31, 1997 as if they had been consummated on December
31, 1997.
The pro forma consolidated statement of income sets forth the effects of
Parkway's purchases of the buildings listed below as if they had been
consummated on January 1, 1997.
<TABLE>
<CAPTION>
BUILDING DATE OF PURCHASE
-------- ----------------
<S> <C>
Brookdale Portfolio......................................... 02/25/98
Schlumberger Building....................................... 01/21/98
Greenbrier Towers........................................... 11/25/97
Raytheon Building........................................... 11/17/97
First Little Rock Plaza..................................... 11/07/97
Hightower Centre............................................ 10/01/97
Morgan Keegan Tower......................................... 09/30/97
First Tennessee Plaza....................................... 09/18/97
Fairway Plaza............................................... 08/12/97
NationsBank Tower........................................... 07/31/97
Lakewood II................................................. 07/10/97
Sugar Grove................................................. 05/01/97
Vestavia Centre............................................. 04/04/97
Meridian.................................................... 03/31/97
Charlotte Park Executive Center............................. 03/18/97
Courtyard at Arapaho........................................ 03/06/97
Ashford II.................................................. 01/28/97
Forum II & III.............................................. 01/07/97
</TABLE>
In addition to the purchases listed above, the pro forma consolidated
statement of income sets forth the effect of the sale of 1,750,000 shares of
Common Stock on January 22, 1997, 262,500 shares of Common Stock on February 19,
1997, 3,000,000 shares of Common Stock on September 24, 1997, 450,000 shares of
Common Stock on October 6, 1997, 451,128 shares of Common Stock on February 23,
1998 and 855,900 shares of Common Stock on March 11, 1998 as if the transactions
had occurred January 1, 1997.
These pro forma consolidated financial statements may not be indicative of
the results that actually would have occurred if the purchases, sales and/or
financings had been in effect on the dates indicated or which may be obtained in
the future. The pro forma consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes of Parkway
included in its annual report on Form 10-K for the year ended December 31, 1997.
F-2
<PAGE> 45
PARKWAY PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS (1-4) PRO FORMA
---------- ----------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Real estate related investments:
Office buildings..................................... $362,074 $175,214 $537,288
Land held for development............................ 1,721 -- 1,721
Accumulated depreciation............................. (14,143) -- (14,143)
-------- -------- --------
349,652.. 175,214 524,866
Land held for sale..................................... 4,309.... -- 4,309
Mortgage loans......................................... 1,117 -- 1,117
Real estate partnership................................ 323 -- 323
-------- -------- --------
355,401 175,214 530,615
Interest, rents receivable and other assets............ 12,232 -- 12,232
Cash and cash equivalents.............................. 959 (959) --
-------- -------- --------
3$68,592.. $174,255 $542,847
======== ======== ========
LIABILITIES
Notes payable to banks................................. $ 6,473 $133,076 $139,549
Mortgage notes payable without recourse................ 105,220 -- 105,220
Accounts payable and other liabilities................. 12,158 -- 12,158
-------- -------- --------
123,851 133,076 256,927
-------- -------- --------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 70,000,000 shares
authorized, 9,765,176 shares issued and outstanding
on a historical basis and 11,072,204 shares issued
and outstanding on a pro forma basis................. 10 1 11
Additional paid-in capital............................. 213,461 41,178 254,639
Retained earnings...................................... 31,270 -- 31,270
-------- -------- --------
244,741 41,179 285,920
-------- -------- --------
$368,592 $174,255 $542,847
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 46
PARKWAY PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(5) PRO FORMA
---------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Income from office properties............................ $ 45,799 $ 42,900(a) $ 88,699
Income from other real estate properties................. 722 -- 722
Interest on mortgage loans............................... 63 -- 63
Management company income................................ 539 -- 539
Interest on investments.................................. 373 (373) --
Dividend income.......................................... 388 -- 388
Deferred gains and other income.......................... 203 -- 203
-------- -------- --------
48,087 42,527 90,614
-------- -------- --------
EXPENSES
Office properties:
Operating expense...................................... 19,697 19,044(a) 38,741
Interest expense:
Contractual......................................... 5,486 2,849(b) 8,335
Amortization of loan cost........................... 95 -- 95
Depreciation and amortization.......................... 6,033 6,740(a) 12,773
Minority interest...................................... 59 -- 59
Other real estate properties:
Operating expense...................................... 462 -- 462
Interest expense on bank notes:
Contractual............................................ 810 7,534(c) 8,344
Amortization of loan costs............................. 187 -- 187
Management company expense............................... 362 -- 362
General and administrative............................... 3,312 -- 3,312
-------- -------- --------
36,503 36,167 72,670
-------- -------- --------
INCOME BEFORE GAINS...................................... 11,584 6,360 17,944
-------- -------- --------
GAIN ON SALES
Gain on real estate held for
sale and mortgage loans................................ 2,907 -- 2,907
-------- -------- --------
NET INCOME............................................... $ 14,491 $ 6,360 $ 20,851
======== ======== ========
NET INCOME PER SHARE:
Basic............................................... $ 2.05 $ 1.88(6)
Diluted............................................. $ 2.01 $ 1.86(6)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic............................................... 7,078 11,072(6)
Diluted............................................. 7,214 11,208(6)
</TABLE>
See accompanying notes.
F-4
<PAGE> 47
PARKWAY PROPERTIES, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. On January 21, 1998, the Company purchased the Schlumberger Building
(formerly known as Veritas Technology Center) (Schlumberger) in Houston, Texas
for $12,200,000. Schlumberger is a five-story office building comprising
approximately 155,324 net rentable square feet located in the Energy Corridor
submarket of West Houston. The purchase was funded with advances under bank
lines of credit.
2. On February 23, 1998, the Company completed the sale of 451,128 shares
of Common Stock to a unit investment trust under its existing shelf registration
with net proceeds to the Company of $14,231,000.
3. On February 25, 1998, the Company purchased the 13-building Brookdale
Portfolio for $163,014,000. The portfolio consists of approximately 1,468,138
net rentable square feet.
4. On March 11, 1998, the Company completed the placement of 855,900 shares
of Common Stock in a public offering with net proceeds to the Company of
$26,948,000.
5. The pro forma adjustments to the historical consolidated statement of
income for the year ended December 31, 1997 set forth the effects of Parkway's
purchases of the following buildings as if they had been consummated on January
1, 1997.
<TABLE>
<CAPTION>
BUILDING DATE OF PURCHASE
-------- ----------------
<S> <C>
Brookdale Portfolio....................................... 02/25/98
Schlumberger Building..................................... 01/21/98
Greenbrier Towers......................................... 11/25/97
Raytheon Building......................................... 11/17/97
First Little Rock Plaza................................... 11/07/97
Hightower Centre.......................................... 10/01/97
Morgan Keegan Tower....................................... 09/30/97
First Tennessee Plaza..................................... 09/18/97
Fairway Plaza............................................. 08/12/97
NationsBank Tower......................................... 07/31/97
Lakewood II............................................... 07/10/97
Sugar Grove............................................... 05/01/97
Vestavia Centre........................................... 04/04/97
Meridian.................................................. 03/31/97
Charlotte Park Executive Center........................... 03/18/97
Courtyard at Arapaho...................................... 03/06/97
Ashford II................................................ 01/28/97
Forum II & III............................................ 01/07/97
</TABLE>
F-5
<PAGE> 48
PARKWAY PROPERTIES, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(a) The pro forma adjustments to the historical consolidated statement of
income are detailed below by property for the year ended December 31,
1997.
<TABLE>
<CAPTION>
REVENUE EXPENSES
----------- --------------------------
INCOME FROM REAL ESTATE OWNED
REAL ESTATE OPERATING DEPRECIATION
PROPERTIES EXPENSE EXPENSE*
----------- ----------- ------------
<S> <C> <C> <C>
Charlotte Park.......................... $ 505,000 $ 208,000 $ 69,000
Ashford II.............................. 54,000 37,000 4,000
Courtyard at Arapaho.................... 366,000 164,000 58,000
Meridian................................ 354,000 123,000 59,000
Vestavia................................ 240,000 91,000 26,000
Sugar Grove............................. 309,000 165,000 43,000
Lakewood II............................. 977,000 447,000 129,000
NationsBank Tower....................... 2,392,000 1,003,000 271,000
Fairway Plaza........................... 859,000 379,000 94,000
First Tennessee Plaza................... 4,253,000 2,080,000 477,000
Morgan Keegan Tower..................... 3,327,000 1,665,000 618,000
Hightower Centre........................ 833,000 333,000 113,000
Raytheon Building....................... 2,417,000 1,072,000 315,000
First Little Rock....................... 1,298,000 517,000 191,000
Greenbrier Towers....................... 1,913,000 835,000 330,000
Schlumberger............................ 2,260,000 817,000 275,000
Brookdale Portfolio..................... 20,543,000 9,108,000 3,668,000
----------- ----------- ----------
$42,900,000 $19,044,000 $6,740,000
=========== =========== ==========
</TABLE>
*Depreciation is provided by the straight-line method over the estimated
useful lives of the buildings (40 years).
(b) Pro forma interest expense on real estate owned reflects the non-recourse
debt placed on certain buildings acquired in 1996 and 1997 and debt
assumed upon purchase at the actual amounts and rates by property as if in
place on January 1, 1997 and is detailed below.
<TABLE>
<CAPTION>
PROPERTY/PLACEMENT YEAR ENDED
DATE/RATE DEBT 12/31/97
------------------ ----------- ----------
<S> <C> <C>
Lakewood II*
7/97 8.08%......................................... $ 6,910,000 $ 294,000
BB&T
11/97 7.3%......................................... 15,000,000 958,000
Raytheon Building*
11/97 8.125%....................................... 7,958,000 566,000
First Tennessee Plaza
12/97 7.17%........................................ 15,000,000 1,031,000
----------
$2,849,000
==========
</TABLE>
*Assumed in purchase.
(c) The pro forma effect of the building purchases, the placement of
non-recourse debt and the sale of Common Stock on interest expense on
notes payable to banks was $7,534,000 for the year ended December 31,
1997.
F-6
<PAGE> 49
PARKWAY PROPERTIES, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
6. The pro forma basic and diluted earnings per share for the year ended
December 31, 1997 reflect the sale of 1,750,000 shares of Common Stock on
January 22, 1997, 262,500 shares of Common Stock on February 19, 1997, 3,000,000
shares of Common Stock on September 24, 1997, 450,000 shares of Common Stock on
October 6, 1997, 451,128 shares of Common Stock on February 23, 1998 and 855,900
shares of Common Stock on March 11, 1998.
7. No income tax expenses were provided because of the Company's net
operating loss carryover and status as a REIT.
8. On March 31, 1998, the Company purchased the SouthTrust Bank Building in
St. Petersburg, Florida for $17,440,000. The SouthTrust Bank Building is a
seventeen-story, 195,627 net rentable square foot office building overlooking
Tampa Bay in downtown St. Petersburg. The purchase was funded with advances
under bank lines of credit. None of the pro forma information contained in this
Prospectus Supplement gives effect to the purchase of the SouthTrust Bank
Building or the indebtedness incurred in connection with such purchase.
F-7
<PAGE> 50
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION
DATED APRIL 8, 1998
$250,000,000
PARKWAY PROPERTIES, INC.
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
------------------------
Parkway Properties, Inc. ("Parkway") may from time to time offer in one or
more series or classes (i) shares of its common stock, par value $0.001 per
share (the "Common Stock"); (ii) shares of its preferred stock, par value $0.001
per share (the "Preferred Stock"); and (iii) Preferred Stock represented by
depositary shares (the "Depositary Shares"); with an aggregate public offering
price of up to $250,000,000 in amounts, at prices and on terms to be determined
at the time of offering. The Common Stock, Preferred Stock and Depositary Shares
(collectively, the "Securities") may be offered, separately or together, in one
or more supplements to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable (i) in the case of Common Stock, any initial
public offering price; (ii) in the case of Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price; and
(iii) in the case of Depositary Shares, the fractional share of Preferred Stock
represented by each such Depository Share. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Securities, in each case as may be consistent with Parkway's
Articles of Incorporation, as amended (the "Charter"), or as otherwise
appropriate to preserve the status of Parkway as a real estate investment trust
("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by Parkway, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the Securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth, or will be calculable from the information set
forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 51
AVAILABLE INFORMATION
Parkway is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Parkway may be inspected at, and, upon
payment of the Commission's customary charges, copies obtained from, the Public
Reference Section maintained by the Commission, 450 Fifth Street, N.W.,
Washington, DC 20549. Such reports, proxy statements and other information are
also available for inspection and copying at prescribed rates at the
Commission's regional offices in New York, New York (7 World Trade Center, 13th
Floor, New York, New York 10048) and in Chicago, Illinois (Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661-2511). The Commission
maintains a Web site (http://www.sec.gov) that also contains reports, proxy
statements and other information concerning Parkway. In addition, the Common
Stock is traded on the New York Stock Exchange, Inc. ("NYSE") under the symbol
"PKY" and reports and other information can be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
Parkway has filed with the Commission a Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, with
respect to the Securities. This Prospectus constitutes the Prospectus of
Parkway, filed as part of the Registration Statement. As permitted by the rules
and regulations of the Commission, this Prospectus omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement and the exhibits listed therein, which can be inspected
at the public reference facilities of the Commission noted above, and copies of
which can be obtained from the Commission at prescribed rates as indicated
above. Statements contained in this Prospectus as to the contents of any
contract or other documents are not necessarily complete, and in each instance,
reference is made to the copy of such contract or documents filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
2
<PAGE> 52
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated into this Prospectus by reference are the documents listed
below filed by Parkway under the Exchange Act. Copies of any such documents,
other than exhibits to such documents, are available without charge to each
person to whom a copy of this Prospectus has been delivered upon written or oral
request of such person from Parkway, One Jackson Place, Suite 1000, 188 East
Capitol Street, Jackson, Mississippi 39201-2195, Attention: Chief Financial
Officer, telephone number (601) 948-4091.
The following documents are hereby incorporated into this Prospectus by
reference and are made a part hereof:
(1) Parkway Properties, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997 (Commission File No. 1-11533).
(2) Parkway Properties, Inc.'s Current Report on Form 8-K dated
February 18, 1998 (Commission File No. 1-11533).
(3) Parkway Properties, Inc.'s Current Report on Form 8-K/A dated
February 19, 1998 (Commission File No. 1-11533).
(4) Parkway Properties, Inc.'s Current Report on Form 8-K dated
February 23, 1998 (Commission File No. 1-11533).
(5) Parkway Properties, Inc.'s Current Report on Form 8-K dated
February 25, 1998 (Commission File No. 1-11533).
(6) Parkway Properties, Inc.'s Current Report on Form 8-K dated March
5, 1998 (Commission File No. 1-11533).
Each document filed by Parkway subsequent to the date of this Prospectus
pursuant to Sections 13(a), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering of all Securities to which this Prospectus relates
shall be deemed to be incorporated by reference in this Prospectus and shall be
part hereof from the date of filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus (in the
case of a previously filed document incorporated or deemed to be incorporated by
reference herein) in any accompanying Prospectus Supplement relating to a
specific offering of Securities or in any other subsequently filed document that
is also incorporated or deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any accompanying Prospectus Supplement. Subject to the foregoing,
all information appearing in this Prospectus and each accompanying Prospectus
Supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
3
<PAGE> 53
Unless the context otherwise requires, all references in this Prospectus to
"Parkway" shall mean Parkway Properties, Inc. and its subsidiaries on a
consolidated basis or, where the context so requires, Parkway Properties, Inc.
only, and, as the context may require, their predecessors.
THE COMPANY
Parkway is a self-administered real estate investment trust ("REIT")
specializing in the acquisition, ownership, management, financing and leasing of
office properties in the Southeastern United States and Texas. Parkway will
elect to qualify as a REIT under the Internal Revenue Code of 1986, as amended
(the "Code") for the taxable year which began January 1, 1997. As of April 6,
1998, Parkway owned or had an interest in 47 office properties in twelve states
encompassing approximately 6.5 million net rentable square feet.
Parkway was incorporated under the laws of the State of Maryland on May 17,
1996. Formed as a wholly-owned subsidiary of The Parkway Company, a Texas
corporation, Parkway merged with The Parkway Company on August 2, 1996 (the
"Merger") pursuant to the Agreement and Plan of Merger dated July 17, 1996 by
and between Parkway and The Parkway Company. Parkway and its predecessors have
been engaged in the real estate business since 1971. As a result of the Merger,
Parkway succeeded to the business and operations of The Parkway Company.
Additionally, on August 22, 1996 the shares of common stock, par value $0.001
per share, of Parkway (the "Common Stock") became listed on the New York Stock
Exchange, Inc. ("NYSE") under the symbol "PKY." Prior to this date, the Common
Stock had been quoted on the NASDAQ National Market under the symbol "PKWY."
Parkway has managed its office properties in Jackson, Mississippi since
1992. Beginning November 1, 1997, Parkway began to expand its self-management to
office properties that it owns or may acquire in Houston, Atlanta, Dallas,
Charlotte, Winston-Salem, Columbia, Knoxville, Memphis, and Ft. Lauderdale.
Parkway benefits from a fully integrated management infrastructure, provided by
its wholly-owned management subsidiary, Parkway Realty Services, LLC ("Parkway
Realty"). In addition to certain of Parkway's office properties, Parkway Realty
currently manages and/or leases approximately 1.0 million net rentable square
feet for third parties.
Parkway's principal executive offices are located at One Jackson Place,
Suite 1000, 188 East Capitol Street, Jackson, Mississippi 39201-2195. Its
telephone number is (601) 948-4091 and Parkway maintains a web site
(http://www.parkwayco.com).
RATIO OF EARNINGS TO FIXED CHARGES
Parkway's ratio of earnings to fixed charges for the year ended December
31, 1997 was 2.8, for the year ended December 31, 1996 was 1.9, for the year
ended December 31, 1995 was 1.4, for the six months ended December 31, 1994 was
1.4, for the year ended June 30, 1994 was 1.4 and for the year ended June 30,
1993 was 1.1. There was Preferred Stock outstanding only for a portion of the
three months ended September 30, 1996. Accordingly, the ratio of earnings to
fixed charges and Preferred Stock dividends are identical to the ratio of
earnings to fixed charges for all periods other than that ending September 30,
1996. For the three months ended September 30, 1996, the ratio of earnings to
combined fixed charges and Preferred Stock dividends was 1.8.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations (net income or loss). Fixed charges consist of interest
costs, whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, Parkway
intends to use the net proceeds from the offering for general corporate purposes
including, without limitation, the acquisition of real estate properties,
whether by acquisition of properties directly or through potential business
combination transactions, development of new real estate properties, the
repayment of debt and to fund working capital requirements.
4
<PAGE> 54
DESCRIPTION OF PREFERRED STOCK
GENERAL
Parkway is authorized to issue Preferred Stock. The Board of Directors of
Parkway may classify or reclassify any unissued shares of its capital stock from
time to time by setting, altering or voiding the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
distributions, qualifications, or terms or conditions of redemption of such
shares. As of February 28, 1998 there was no Preferred Stock outstanding.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Charter and Bylaws and any applicable articles
supplementing the Charter designating terms of a series of Preferred Stock (a
"Designating Amendment").
TERMS
Subject to the limitations prescribed by the Charter, the Board of
Directors is authorized to fix the number of shares constituting each series of
Preferred Stock and the preference, conversion or other rights, voting powers,
restrictions, limitation as to dividends, qualifications, or terms or conditions
of redemption of the Preferred Stock. The Preferred Stock will, when issued, be
fully paid and nonassessable by Parkway (except as described under
"-- Stockholder Liability" below) and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms thereof, including:
(i) The title and stated value of such Preferred Stock;
(ii) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(iii) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(iv) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(v) The procedures for any auction or remarketing, if any, for such
Preferred Stock;
(vi) The provision for a sinking fund, if any, for such Preferred
Stock;
(vii) The provision for redemption, if applicable, of such Preferred
Stock;
(viii) Any listing of such Preferred Stock on any securities exchange;
(ix) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock, including the
conversion price (or manner of calculation thereof);
(x) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(xi) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(xii) A discussion of U.S. federal income tax considerations
applicable to such Preferred Stock;
(xiii) The relative ranking of preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of Parkway;
(xiv) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of Parkway; and
5
<PAGE> 55
(xv) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of Parkway as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of Parkway, rank (i) senior to all classes or series
of Common Stock of Parkway, and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by Parkway
the terms of which specifically provide that such equity securities rank on a
parity with the Preferred Stock; and (iii) junior to all equity securities
issued by Parkway the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. The term "equity securities" does
not include debt securities.
DIVIDENDS
Holders of Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of Parkway, out of assets of
Parkway legally available for payment, cash dividends at such rates and on such
dates as will be set forth in the applicable Prospectus Supplement. Each such
dividend shall be payable to holders of record as they appear on the share
transfer books of Parkway on such record dates as shall be fixed by the Board of
Directors of Parkway.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of Parkway fails to
declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and Parkway
will have no obligation to pay the dividend accrued for such period, whether or
not dividends on such series are declared payable on any future dividend payment
date.
If Preferred Stock of any series are outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of Parkway of any
other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period; and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then
6
<PAGE> 56
current dividend period, no dividends (other than in shares of Common Stock or
other capital shares ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common Stock,
or any other capital shares of Parkway ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any shares of Common Stock, or any other capital shares of Parkway ranking
junior to or on a parity with the Preferred Stock of such series as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by Parkway (except by conversion into or
exchange for other capital shares of Parkway ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation). Any dividend payment
made on a series of Preferred Stock shall first be credited against the earliest
accrued but unpaid dividend due with respect to shares of such series which
remain payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of Parkway,
as a whole or in part, in each case upon the terms, at the times and at the
redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of such shares of
Preferred Stock that shall be redeemed by Parkway in each year commencing after
a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such shares of Preferred Stock do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital shares of Parkway, the terms of such
Preferred Stock may provide that, if no such capital shares have been issued or
to the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital shares of
Parkway pursuant to conversion provisions specified in the applicable Prospectus
Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period; and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
Preferred Stock shall be redeemed unless all outstanding Preferred Stock of such
series is simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of Parkway or pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding Preferred Stock of such
series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period; and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, Parkway shall not
purchase or otherwise acquire directly or indirectly any Preferred Stock of such
series (except by conversion into or exchange for capital stock of Parkway
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of Parkway or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding Preferred Stock of any series are to
be redeemed, the number of shares to be redeemed will be determined by Parkway
and such shares may be redeemed pro rata from the holders of
7
<PAGE> 57
record of such shares in proportion to the number of such shares held or for
which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by Parkway.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
Parkway. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the Preferred Stock of any series are to be
redeemed, the notice mailed to each such holder thereof shall also specify the
number of Preferred Stock to be redeemed from each such holder. If notice of
redemption of any Preferred Stock has been given and if the funds necessary for
such redemption have been set aside by Parkway in trust for the benefit of the
holders of any Preferred Stock so called for redemption, then from and after the
redemption date dividends will cease to accrue on such Preferred Stock, and all
rights of the holders of such shares will terminate, except the right to receive
the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Parkway, then, before any distribution or payment shall be made
to the holders of any shares of Common Stock or any other class or series of
capital shares of Parkway ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of
Parkway, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of Parkway legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of Parkway. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of
Parkway are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of Preferred Stock and the corresponding amounts payable
on all shares of other classes or series of capital shares of Parkway ranking on
a parity with the Preferred Stock in the distribution of assets, then the
holders of the Preferred Stock and all other such classes or series of capital
shares shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of Parkway shall be distributed among the
holders of any other classes or series of capital shares ranking junior to the
Preferred Stock upon liquidation, dissolution or winding up, according to their
respective rights and preferences and in each case according to their respective
number of shares. For such purposes, the consolidation or merger of Parkway with
or into any other corporation, trust or entity, or the sale, lease or conveyance
of all or substantially all of the property or business of Parkway, shall not be
deemed to constitute a liquidation, dissolution or winding up of Parkway.
VOTING RIGHTS
Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Whenever dividends on any Preferred Stock shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of Parkway at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date
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fixed for the next annual or special meeting of the stockholders) or at the next
annual meeting of stockholders, and at each subsequent annual meeting until (i)
if such series of Preferred Stock has a cumulative dividend, all dividends
accumulated on such Preferred Stock for the past dividend periods and the then
current dividend period shall have been declared and fully paid or declared and
a sum sufficient for the payment thereof set aside for payment; or (ii) if such
series of Preferred Stock does not have a cumulative dividend, four consecutive
quarterly dividends shall have been declared and fully paid or declared and a
sum sufficient for the payment thereof set aside for payment. In such case, the
number of persons constituting the entire Board of Directors of Parkway will be
increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, Parkway will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
stock of Parkway into such shares, or create, authorize or issue any obligation
or security convertible into or evidencing the right to purchase any such
shares; or (ii) amend, alter or repeal the provisions of the Charter or the
Designating Amendment for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holder thereof; provided, however, as to the occurrence
of any of the Events set forth in (ii) above, so long as the Preferred Stock
remains outstanding with the terms thereof materially unchanged, taking into
account that upon the occurrence of an Event, Parkway may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of Preferred Stock and provided further that (a) any increase in the amount of
the authorized Preferred Stock or the creation or issuance of any other series
of Preferred Stock; or (b) any increase in the amount of authorized shares of
such series or any other series of Preferred Stock, in each case ranking on a
parity with or junior to the Preferred Stock of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
Under Maryland law, notwithstanding anything to the contrary set forth
above, holders of each series of Preferred Stock will be entitled to vote upon
any proposed amendment to the Charter if the amendment would change the contract
rights of such shares as expressly set forth in the Charter.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
are convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the shares of Preferred Stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversions will be at the option of the holders of the
Preferred Stock or Parkway, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
series of Preferred Stock.
STOCKHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no stockholder, including holders of
Preferred Stock, will be personally liable for the acts and obligations of
Parkway and that the funds and property of Parkway will be the only recourse for
such acts or obligations.
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RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Restrictions on
Transfer," for Parkway to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital shares may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist Parkway in meeting this
requirement, Parkway may take certain actions to limit the beneficial ownership,
directly or indirectly, by a single person of Parkway's outstanding equity
securities, including any Preferred Stock of Parkway. Therefore, the Designating
Amendment for each series of Preferred Stock may contain provisions restricting
the ownership and transfer of the Preferred Stock. The applicable Prospectus
Supplement will specify any additional ownership limitation relating to a series
of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
Parkway may issue receipts ("Depositary Receipts") for Depositary Shares,
each of which will represent a fractional interest of a share of a particular
series of Preferred Stock, as specified in the applicable Prospectus Supplement.
Preferred Stock of each series represented by Depositary Shares will be
deposited under a separate deposit agreement (each, a "Deposit Agreement") among
Parkway, the depositary named therein (a "Preferred Stock Depositary"), and the
holders from time to time of the Depositary Receipts. Subject to the terms of
the applicable Deposit Agreement, each owner of a Depositary Receipt will be
entitled, in proportion to the fractional interest of a share of a particular
series of Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, to all the rights and preferences of the Preferred Stock
represented by such Depositary Shares (including dividend, voting, conversion,
redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by Parkway to a Preferred Stock Depositary,
Parkway will cause such Preferred Stock Depositary to issue, on behalf of
Parkway, the Depositary Receipts. Copies of the applicable form of Deposit
Agreement and Depositary Receipt may be obtained from Parkway upon request, and
the statements made hereunder relating to Deposit Agreements and the Depositary
Receipts to be issued thereunder are summaries of certain anticipated provisions
thereof and do not purport to be complete and are subject to, and qualified in
their entirety by reference to, all of the provisions of the applicable Deposit
Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of Parkway,
sell such property and distribute the net proceeds from such sale to such
holders.
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No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which have been converted or
exchanged.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
Preferred Stock will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of Preferred Stock to be withdrawn, the applicable Preferred Stock
Depositary will be required to deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever Parkway redeems Preferred Stock held by a Preferred Stock
Depositary, such Preferred Stock Depositary will be required to redeem as of the
same redemption date the number of Depositary Shares representing the Preferred
Stock so redeemed, provided Parkway shall have paid in full to such Preferred
Stock Depositary the redemption price of the Preferred Stock to be redeemed plus
an amount equal to any accrued and unpaid dividends thereon to the date fixed
for redemption. The redemption price per Depositary Share will be equal to the
redemption price and any other amounts per share payable with respect to the
Preferred Stock. If fewer than all the Depositary Shares are to be redeemed, the
Depositary Shares to be redeemed will be selected pro rata (as nearly as may be
practicable without creating fractional Depositary Shares) or by any other
equitable method determined by Parkway that preserves the REIT status of
Parkway.
From and after the date fixed for redemption, all dividends in respect of
the Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and Parkway will agree to take all reasonable action which may be
deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
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LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of Parkway,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each Preferred
Share represented by the Depositary Share evidenced by such Depositary Receipt,
as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of Parkway. Nevertheless, if so specified in
the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct Parkway to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other Preferred Stock or
other shares of stock, and Parkway will agree that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for delivery
of Preferred Stock to effect such conversion. If the Depositary Shares evidenced
by a Depositary Receipt are to be converted in part only, a new Depositary
Receipt or Receipts will be issued for any Depositary Shares not to be
converted. No fractional shares of Common Stock will be issued upon conversion,
and if such conversion will result in a fractional share being issued, an amount
will be paid in cash by Parkway equal to the value of the fractional interest
based upon the closing price of the Common Stock on the last business day prior
to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between Parkway and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by Parkway upon not
less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve Parkway's status as
a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional Preferred Stock as are represented by
the Depositary Shares evidenced by such Depositary Receipts together with any
other property held by such Preferred Stock Depositary with respect to such
Depositary Receipts. Parkway will agree that if a Deposit Agreement is
terminated to preserve Parkway's status as a REIT, then Parkway will use its
best efforts to list the Preferred Stock issued upon surrender of the related
Depositary Shares on a national securities exchange. In addition, a Deposit
Agreement will automatically terminate if (i) all outstanding Depositary Shares
thereunder shall have been redeemed; (ii) there shall have been a final
distribution in respect of the related Preferred Stock in connection with any
liquidation, dissolution or winding up of Parkway and such distribution shall
have been distributed to the holders of Depositary Receipts evidencing the
Depositary Shares representing such Preferred Stock; or (iii) each share of the
related Preferred Stock shall have been converted into stock of Parkway not so
represented by Depositary Shares.
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CHARGES OF A PREFERRED STOCK DEPOSITARY
Parkway will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, Parkway
will pay the fees and expenses of a Preferred Stock Depositary in connection
with the performance of its duties under a Deposit Agreement. However, holders
of Depositary Receipts will pay the fees and expenses of a Preferred Stock
Depositary for any duties requested by such holders to be performed which are
outside of those expressly provided for in the applicable Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to Parkway notice of its election to do so, and Parkway will be
permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from Parkway which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor Parkway will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of Parkway
and Preferred Stock Depositary under a Deposit Agreement will be limited to
performing their duties thereunder in good faith and without negligence (in the
case of any action or inaction in the voting of Preferred Stock represented by
the applicable Depositary Shares), gross negligence or willful misconduct, and
neither Parkway nor any applicable Preferred Stock Depositary will be obligated
to prosecute or defend any legal proceeding in respect of any Depositary
Receipts, Depositary Shares or Preferred Stock represented thereby unless
satisfactory indemnity is furnished. Parkway and any Preferred Stock Depositary
will be permitted to rely on written advice of counsel or accountants, or
information provided by persons presenting Preferred Stock represented thereby
for deposit, holders of Depositary Receipts or other persons believed in good
faith to be competent to give such information, and on documents believed in
good faith to be genuine and signed by a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and Parkway, on the other hand, such Preferred Stock Depositary shall be
entitled to act on such claims, requests or instructions received from Parkway.
DESCRIPTION OF COMMON STOCK
GENERAL
Parkway is authorized to issue up to 70,000,000 shares of Common Stock. As
of April 6, 1998 there were 11,072,204 shares of Common Stock outstanding and
282,553 shares of Common Stock reserved for issuance upon the exercise of
options granted under Parkway's 1991 Directors Stock Option Plan, Parkway's 1994
Stock Option Plan and Parkway's 1997 Non-Employee Directors' Stock Option Plan.
All of the issued and outstanding shares of Common Stock are fully paid and
non-assessable and have equal voting, distribution and liquidation rights.
Shares of Common Stock are not subject to call or redemption; provided, however,
if the Parkway Board of Directors determines that the direct or indirect
ownership of Common Stock has or may become concentrated to an extent which
threatens Parkway's status as a REIT, the Board of Directors may call for the
redemption of a number of shares of Common Stock.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of Common Stock have
no cumulative voting rights. Additionally, subject to the rights
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of holders of Preferred Stock, holders of Common Stock are entitled to receive
such dividends as may be declared from time to time by the directors out of
funds legally available therefor.
The shares of Common Stock currently outstanding are listed for trading on
the NYSE under the symbol "PKY." Parkway will apply to the NYSE to list the
additional shares of Common Stock to be sold pursuant to any Prospectus
Supplement, and Parkway anticipates that such shares will be so listed.
Under Maryland law, stockholders are generally not liable for Parkway's
debts or obligations. If Parkway is liquidated, subject to the right of any
holders of Preferred Stock, if any, to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of Parkway.
PROVISIONS OF PARKWAY'S CHARTER AND BYLAWS
Parkway's Charter provides that the number of directors will be ten, which
number may be increased or decreased pursuant to Parkway's Bylaws. Currently,
the number of directors is nine and all nine positions on the Board of Directors
are filled by the vote of the stockholders at the annual meeting. Stockholders
do not have cumulative voting rights in the election of directors. Stockholders
are entitled to one vote for each share of Common Stock held by them.
OTHER MATTERS
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
RESTRICTIONS ON TRANSFER
Ownership Limits. For Parkway to qualify as a REIT under the Code, no more
than 50% in value of its outstanding Common Stock may be owned, actually and
constructively under the applicable attribution provisions of the Code, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. The Common Stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year (other than the first year) or during a proportionate part of a shorter
taxable year. Because Parkway intends to elect to be treated as a REIT, the
Charter contains restrictions on the acquisition of Common Stock intended to
ensure compliance with these requirements.
Pursuant to the provisions of the Charter, if a transfer of stock occurs
whereby any person would own, beneficially or constructively, 9.8 percent or
more (in value or in number, whichever is more restrictive) of the outstanding
capital stock of Parkway (excluding Excess Shares, as defined below), then such
amount in excess of the 9.8 percent limit shall automatically be converted into
shares of a separate class of stock, the excess stock, par value $0.001 per
share, of Parkway (the "Excess Shares"), and any such transfer will be void ab
initio. However, such restrictions will not prevent the settlement of a
transaction entered into through the facilities of any interdealer quotation
system or national securities exchange upon which shares of capital stock of
Parkway are traded, provided that certain transactions may be settled by
providing Excess Shares. Although holders of Excess Shares have no dividend or
voting rights, such holders do have certain rights in the event of any
liquidation, dissolution or winding up of the corporation. The Charter further
provides that the Excess Shares will be held by Parkway as trustee for the
person or persons to whom the shares are ultimately transferred, until such time
as the shares are re-transferred to a person or persons in whose hands the
shares would not be Excess Shares and certain price-related restrictions are
satisfied. These provisions are designed to enable Parkway to meet the share
ownership requirements applicable to REITs under the Code, but may also have an
anti-takeover effect. Parkway currently has 30,000,000 Excess Shares authorized
pursuant to its Charter.
Each stockholder shall, upon request by Parkway, furnish such information
that Parkway may reasonably request in order to determine Parkway's status as a
REIT, to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.
The foregoing ownership limitations may have the effect of precluding
acquisition of control of Parkway without the consent of the Board of Directors.
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Special Voting Requirements for Certain Business Combinations. Pursuant to
Maryland law, Parkway is governed by special procedures that apply to certain
business combinations between a corporation and interested stockholders. The
purpose of such provisions is to protect the corporation and its stockholders
against hostile takeovers by requiring that certain criteria are satisfied.
These criteria include prior approval by the board of directors, prior approval
by a majority or supermajority vote of disinterested stockholders and
requirements that a "fair price" be paid to the disinterested stockholders.
Maryland law provides that a Maryland corporation may not engage in any
"business combination" with any "interested stockholder." An "interested
stockholder" is defined, in essence, as any person owning beneficially, directly
or indirectly, ten percent or more of the outstanding voting stock of a Maryland
corporation. Unless an exemption applies, Parkway may not engage in any business
combination with an interested stockholder for a period of five years after the
interested stockholder became an interested stockholder, and thereafter may not
engage in a business combination unless it is recommended by the board of
directors and approved by the affirmative vote of at least (i) eighty percent of
the votes entitled to be cast by the holders of all outstanding voting stock of
Parkway, voting together as a single voting group and (ii) two-thirds of the
votes entitled to be cast by all holders of outstanding shares of voting stock
other than voting stock held by the interested stockholder. The voting
requirements do not apply at any time to business combinations with an
interested stockholder or its affiliates if approved by the board of directors
of the corporation prior to the time the interested stockholder first became an
interested stockholder. Additionally, if the business combination involves the
receipt of consideration by the stockholders in exchange for the corporation's
stock, the voting requirements do not apply if certain "fair price" conditions
are met.
Control Share Acquisitions. Maryland law provides for the elimination of
the voting rights of shares held by any person who makes a "control share
acquisition" except to the extent that such acquisition is exempt or is approved
by at least two-thirds of all votes entitled to be cast on the matter, excluding
shares of capital stock owned by the acquirer or by officers or directors who
are employees of the corporation whose shares were acquired. A "control share
acquisition" is the direct or indirect acquisition by any person of ownership
of, or the power to direct the exercise of voting power with respect to, shares
of voting stock ("control shares") that would, if aggregated with all other
voting stock owned by such person, entitle such person to exercise voting power
in electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority; or (iii) a majority or more of voting power.
A person who has made or proposes to make a control share acquisition, upon
the satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as permitted by the statute, then, subject to certain
conditions and limitations, the corporation may redeem any or all of the control
shares (except those for which voting rights have previously been approved) for
fair value determined, without regard to voting rights, as of the date of the
last control share acquisition or as of the date of any meeting of stockholders
at which the voting rights of such shares are considered and not approved.
If voting rights for control shares are approved at a stockholders meeting
and the acquirer becomes entitled to vote a majority of the shares entitled to
vote, all other stockholders may exercise appraisal rights. The fair value of
the stock as determined for purposes of such appraisal rights may not be less
than the highest price per share paid in the control share acquisition, and
certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction.
Supermajority Votes. The Charter provides that (i) no term or provision of
the Charter may be added, amended or repealed in any respect which, in the
determination of the Board of Directors, causes Parkway not to qualify as a REIT
under the Code; (ii) the sections of the Charter concerning the removal of
directors, amendment of the Bylaws, the indemnification of agents and limitation
of liability of directors and officers and the section concerning special
stockholder vote requirements shall not be amended or repealed; and (iii) no
provision
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imposing cumulative voting in the election of directors may be added to the
Charter, except, in addition to any vote required by the terms of then
outstanding Preferred Stock, upon the affirmative vote of the holders of not
less than eighty percent of all votes entitled to be cast on the matter.
Stockholders Rights Agreement. Stockholders, pursuant to a Rights
Agreement, have the right to purchase Common Stock at a price of $40.00 per
share, subject to adjustment, on a Distribution Date which will occur on the
earliest of (i) the date of Parkway's public announcement that a person or group
of affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding Common Stock (the "Stock Acquisition Date"); (ii) 10 days following
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 30% or more of the outstanding Common Stock;
or (iii) 10 days after the Board of Directors shall declare any person to be an
"Adverse Person," as defined in the Rights Agreement. The Rights are not
exercisable until the Distribution Date and expire at the close of business on
September 6, 2005, unless earlier redeemed by Parkway.
In the event any person becomes an Acquiring Person, each holder of a Right
will have the right to receive, upon exercise of the Right and payment of the
purchase price, Common Stock (or, if sufficient Common Stock is unavailable and
subject to certain limitations, cash, property or other securities of Parkway)
having a value equal to two times the purchase price of the Right (referred to
as the "Subscription Right"). The Subscription Right is exercisable during the
60-day period following the later of the Stock Acquisition Date or the effective
date of a registration statement covering the Common Stock (or other securities,
if applicable) subject to the Subscription Right (referred to as the
"Subscription Period"). Notwithstanding any of the foregoing, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person will be null and void.
In the event that, at any time following the Stock Acquisition Date, (i)
Parkway engages in a merger or other business combination transaction or (ii)
50% or more of Parkway's assets or earning power is sold or transferred, each
holder of a Right (except Rights which previously have been voided pursuant to
the Rights Agreement) shall thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
purchase price of the Right.
The purchase price payable, and the number of shares of Common Stock (or
the number and kind of other securities or property, as the case may be)
issuable upon exercise of the Rights are subject to adjustment from time to time
to prevent dilution.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTORY NOTES
The following discussion summarizes certain federal income tax
considerations that may be relevant to a prospective stockholder of Parkway.
This discussion is based on current law. The discussion is not exhaustive of all
possible tax considerations and does not discuss any state, local or foreign tax
considerations. It also does not discuss all of the aspects of federal income
taxation that may be relevant to a prospective stockholder in light of his or
her particular circumstances or to certain types of stockholders (including
insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
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TAXATION OF THE COMPANY
General. Parkway will elect to be taxed as a REIT under Sections 856
through 860 of the Code effective January 1, 1997. Parkway's qualification and
taxation as a REIT depends upon its ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests and organizational requirements
imposed under the Code, as discussed below. Although management of Parkway
believes that Parkway is organized and operating in a manner that permits it to
qualify as a REIT, and intends to operate in such a manner in the future, no
assurance can be given that Parkway will be able to continue to operate in a
manner so as to qualify or remain qualified as a REIT. See "-- Failure to
Qualify" below.
Jaeckle Fleischmann & Mugel, LLP has acted as counsel to Parkway in
connection with the offering and Parkway's election to be taxed as a REIT. In
the opinion of Jaeckle Fleischmann & Mugel, LLP, assuming that the elections and
other procedural steps described in the following discussion of "Requirements
for Qualification" are completed by Parkway in a timely fashion, Parkway's
organization and proposed method of operation will enable it to qualify to be
taxed as a REIT under the Code commencing with Parkway's taxable year beginning
January 1, 1997, and for its future taxable years. Investors should be aware,
however, that opinions of counsel are not binding upon the Internal Revenue
Service (the "Service") or any court. It must be emphasized that the opinion is
based on various assumptions and is conditioned upon certain representations
made by Parkway as to factual matters, including representations regarding the
nature of Parkway's properties and the future conduct of its business. Such
factual assumptions and representations are described below in this discussion
of "Federal Income Tax Considerations" and are set out in the federal income tax
opinion that will be delivered by Jaeckle Fleischmann & Mugel, LLP at the
closing of the offering. Moreover, such qualification and taxation as a REIT
depends upon Parkway's ability to meet on a continuing basis, through actual
annual operating results, distribution levels and share ownership, the various
qualification tests imposed under the Code discussed below. Jaeckle Fleischmann
& Mugel, LLP will not review Parkway's compliance with those tests on a
continuing basis. Accordingly, no assurance can be given that the actual results
of Parkway's operations for any particular taxable year will satisfy such
requirements. For a discussion of the tax consequences of the failure to qualify
as a REIT, see "-- Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, the regulations promulgated
thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
If Parkway qualifies for taxation as a REIT and distributes to its
stockholders at least 95% of its REIT taxable income, it generally will not be
subject to federal corporate income taxes on the portion of its ordinary or
capital gain income that it currently distributes to stockholders. This
treatment substantially eliminates the "double taxation" (at the corporate and
stockholder levels) that generally results from an investment in a corporation.
Even if Parkway qualifies as a REIT, it will be subject to federal income tax in
the following circumstances. First, Parkway will be taxed at regular corporate
rates on any undistributed taxable income, including undistributed net capital
gains. Second, under certain circumstances, Parkway may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if Parkway has
(i) net income from the sale or other disposition of "foreclosure property"
(which is, in general, property acquired by foreclosure or otherwise on default
of a loan secured by the property) that is held primarily for sale to customers
in the ordinary course of business or (ii) other non-qualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, if Parkway has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property (other
than foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if
Parkway should fail to satisfy the 75% gross income test or the 95% gross income
test (as discussed below), and has nonetheless maintained its qualification as a
REIT because certain other requirements have been met, it will be subject to a
100% tax on the net income attributable to the greater of the amount by which it
fails the 75% or 95% test, multiplied by a fraction intended to reflect its
profitability. Sixth, if Parkway should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year; (ii)
95% of its REIT capital gain net income for such year (for this purpose such
term includes capital gains which Parkway elects to
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retain but which it reports as distributed to its stockholders, see "-- Annual
Distribution Requirements" below); and (iii) any undistributed taxable income
from prior years, Parkway would be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed. Seventh,
Parkway will be subject to tax at the highest corporate rates on built-in gains
recognized within a 10-year period of its election to be taxable as a REIT on
assets it formerly held while it was a C corporation (i.e., a corporation
generally subject to full corporate level tax). In addition, if Parkway acquires
any additional asset from a C corporation in a transaction in which the basis of
the asset in Parkway's hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation, and Parkway
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which such asset was acquired by it, then, to the
extent of such asset's built-in gain (the excess of the fair market value of
such property at the time of acquisition by Parkway over the adjusted basis of
such property at such time), such gain will be subject to tax at the highest
regular corporate rate applicable (as provided in Service regulations that have
not yet been promulgated).
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) which would be taxable
as a domestic corporation, but for Sections 856 through 860 of the Code; (iv)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) through (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT. Parkway satisfies the
requirements (i) through (iv) as of January 1, 1997. Parkway's Charter contains
restrictions regarding the transfer of its shares that are intended to assist it
in satisfying the share ownership requirements described in (v) and (vi) above.
Effective January 1, 1998, substantially all of Parkway's operating assets
have been transferred to Parkway Properties LP (the "Operating Partnership").
Parkway owns a 99% limited partnership interest and Parkway Properties General
Partners, Inc. owns a 1% general partnership interest in the Operating
Partnership. Parkway Properties General Partners, Inc. is a wholly-owned
subsidiary of Parkway and its only remaining operating subsidiary. Code Section
856(i) provides that a corporation that is a "qualified REIT subsidiary" shall
not be treated as a separate corporation, and all assets, liabilities and items
of income, deduction and credit of a "qualified REIT subsidiary" shall be
treated as assets, liabilities and items of income, deduction and credit of the
REIT. A "qualified REIT subsidiary" is a corporation, all of the capital stock
of which is owned by the REIT. In applying the requirements described herein,
any "qualified REIT subsidiary" of Parkway will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiaries will
be treated as assets, liabilities and items of income, deduction and credit of
Parkway. Parkway Properties General Partners, Inc., therefore, will not be
subject to federal corporate income taxation, although it may be subject to
state and local taxation.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of Section 856 of the Code, including satisfying the
gross income and asset tests described below. Thus, Parkway's proportionate
share of the assets, liabilities and items of income of the Operating
Partnership and the noncorporate subsidiaries, which are either limited
liability companies or partnerships, will be treated as assets, liabilities and
items of income of Parkway for purposes of applying the requirements described
herein.
A corporation may not elect to become a REIT unless its taxable year is the
calendar year. Parkway's taxable year is the calendar year. In addition, for tax
years beginning prior to January 1, 1998, pursuant to applicable Treasury
Regulations, to be able to elect to be taxed as a REIT, Parkway must maintain
certain records and request on an annual basis certain information from its
stockholders designed to disclose the actual
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ownership of its outstanding shares. Parkway intends to comply with such
requirements. For tax years beginning January 1, 1998 and beyond, these records
and informational requirements are no longer a condition to REIT election.
Instead, a monetary penalty will be imposed for failure to comply with these
requirements.
Earnings and Profits Calculation. In order to elect REIT status, Parkway
cannot have earnings and profits which have been generated during years in which
Parkway was not qualified as a REIT. For this purpose, under the Code, earnings
and profits of companies which have been acquired by Parkway, and the earnings
and profits of any of Parkway's subsidiaries, are included in calculating
Parkway's earnings and profits account. The determination of the earnings and
profits account of a company is a highly technical and complex undertaking.
Parkway's predecessor, The Parkway Company, was organized in 1971 and over the
years acquired several companies. In calculating the earnings and profits
account, studies have been undertaken of not only Parkway's earnings and profits
history, but also the history of all acquired companies. Based on these studies
Parkway believes that it did not have any positive accumulated earnings and
profits on January 1, 1997, the effective date of its REIT election. Any
determination made by Parkway with respect to its earnings and profits account
is not binding on the Service. In the event the Service were to successfully
challenge Parkway's calculation of its earnings and profits, a possible outcome
of such challenge could be the termination of Parkway's status as a REIT and the
payment of corporate level income tax on its taxable income.
Income Tests. In order for Parkway to maintain qualification as a REIT,
three separate percentage tests relating to the source of its gross income must
be satisfied annually. First, at least 75% of the REIT's gross income (excluding
gross income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments described above, and from dividends, interest and gain from the sale
or disposition of stock or securities, or from any combination of the foregoing.
Third, for tax years beginning prior to January 1, 1998, gain from the sale or
other disposition of (i) stock or securities held for less than one year; (ii)
prohibited transactions; and (iii) certain real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
must represent less than 30% of the REIT's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by Parkway will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, amounts received or accrued generally will not
be excluded from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, rents received
from a tenant will not qualify as "rents from real property" if Parkway, or a
direct or indirect owner of 10% or more of Parkway, actually or constructively
owns 10% or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property that is leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property." Finally, for rents received to qualify as "rents
from real property," Parkway generally must not operate or manage the property,
or furnish or render services to tenants, other than through an "independent
contractor" who is adequately compensated and from whom Parkway derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent the services provided by Parkway are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant."
For taxable years beginning after December 31, 1997, rental income received
by Parkway will not cease to qualify as "rents from real property" merely
because Parkway performs non-customary services for a tenant if the amount that
Parkway receives as a result of performing such services does not exceed 1% of
all amounts received directly or indirectly by Parkway with respect to such
property. In applying this limitation, the amount that Parkway is treated as
having received for performing such services will not be less than 150% of the
direct cost to Parkway of providing those services. Parkway believes that all
services that are provided to its tenants will be considered "usually or
customarily" rendered in connection with the rental of comparable properties.
Further, any noncustomary services will be provided only through qualifying
independent contractors or within the one
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percent safe harbor described above. Parkway believes that the income generated
from its currently owned assets and its proposed method of operations will
permit it to meet the income tests outlined above.
If Parkway fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if its failure to meet such tests was due
to reasonable cause and not due to willful neglect, Parkway attaches a schedule
of the sources of its income to its federal income tax return for such years,
and any incorrect information on the schedules was not due to fraud with intent
to evade tax. It is not possible, however, to state whether in all circumstances
Parkway would be entitled to the benefit of these relief provisions. As
discussed above in "-- General," even if these relief provisions were to apply,
a tax would be imposed with respect to the excess net income.
Asset Tests. At the close of each quarter of its taxable year, Parkway must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of Parkway's total assets must be represented by certain real
estate assets (including temporary investments in stock or debt instruments
purchased with the proceeds of a stock or debt offering of Parkway and held
during the one-year period from Parkway's receipt of capital in connection with
said offering), cash, cash items and government securities. Second, not more
than 25% of Parkway's total assets may be represented by securities other than
those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by Parkway may not
exceed 5% of the value of Parkway's total assets, and Parkway may not own more
than 10% of any one issuer's outstanding voting securities (excluding securities
of a qualified REIT subsidiary or another REIT). Parkway believes that the
assets that it currently owns will permit it to meet the asset tests outlined
above.
If Parkway should fail to satisfy the asset tests at the end of a calendar
quarter, such a failure would not cause it to lose its REIT status if (i) it
satisfied the asset tests at the close of the preceding calendar quarter, and
(ii) the discrepancy between the value of Parkway's assets and the asset tests
either did not exist immediately after the acquisition of any particular asset
or was not wholly or partly caused by such an acquisition (e.g., the discrepancy
arose from changes in the market values of its assets). If the conditions
described in clause (ii) of the preceding sentence were not satisfied, Parkway
still could avoid disqualification by eliminating any discrepancy within 30 days
after the close of the calendar quarter in which it arose.
Annual Distribution Requirements. Parkway, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (a) 95% of its "REIT
taxable income" (computed without regard to the dividends paid deduction and its
net capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before Parkway timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that Parkway does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax on the
nondistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if Parkway should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year; (ii) 95% of
its REIT capital gain income for such year; and (iii) any undistributed taxable
income from prior periods, it will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed.
For taxable years beginning after December 31, 1997, Parkway may elect to
retain and pay tax on net long-term capital gains and require its stockholders
to include their proportionate share of such undistributed net capital gains in
their income. If Parkway makes such election, stockholders would receive a tax
credit attributable to their share of the capital gains tax paid by Parkway, and
would receive an increase in the basis of their shares in Parkway in an amount
equal to the stockholder's share of the undistributed net long-term capital gain
reduced by the amount of the credit. Further, any undistributed net long-term
capital gains that are included in the income of Parkway stockholders pursuant
to this rule, will be treated as distributed for purposes of the 4% excise tax.
Parkway intends to make timely distributions sufficient to satisfy the
annual distribution requirements. It is possible, however, that Parkway, from
time to time, may not have sufficient cash or liquid assets to meet the
distribution requirements due to timing differences between the actual receipt
of income and actual payment of
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deductible expenses, and the inclusion of such income and deduction of such
expenses in arriving at Parkway's REIT taxable income, or if the amount of
nondeductible expenses such as principal amortization or capital expenditures
exceed the amount of noncash deductions. In the event that such timing
differences occur, in order to meet the distribution requirements, Parkway may
arrange for short-term, or possibly long-term, borrowing to permit the payment
of required dividends. If the amount of nondeductible expenses exceeds noncash
deductions, Parkway may refinance its indebtedness to reduce principal payments
and borrow funds for capital expenditures.
Under certain circumstances, Parkway may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in Parkway's deduction for
dividends paid for the earlier year. Thus, Parkway may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, it will be
required to pay interest to the Service based upon the amount of any deduction
taken for deficiency dividends.
Failure to Qualify. If Parkway fails to qualify for taxation as a REIT in
any taxable year and no relief provisions apply, Parkway will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
Parkway fails to qualify will not be deductible by it, nor will such
distributions be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, Parkway also will
be disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances Parkway would be entitled to such statutory relief.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as Parkway qualifies as
a REIT, distributions made to its taxable domestic stockholders out of current
or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income, and corporate
stockholders will not be eligible for the dividends received deduction as to
such amounts. Domestic stockholders generally are stockholders who are (i)
citizens or residents of the United States; (ii) corporations, partnerships or
other entities created or organized in or under the laws of the United States or
any political subdivision thereof; or (iii) estates or trusts the income of
which is subject to United States federal income taxation regardless of its
source. Distributions that are designated as capital gain dividends will be
taxed as long-term capital gains (to the extent they do not exceed Parkway's
actual net capital gain for the taxable year) without regard to the period for
which the stockholder has held his or her shares. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of such stockholder's shares, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a stockholder's shares, they will be
included in income as long-term capital gain (or short-term capital gain if the
shares have been held for one year or less), assuming the shares are a capital
asset in the hands of the stockholder. In addition, any dividend declared by
Parkway in October, November or December of any year payable to a stockholder of
record on a specific date in any such month shall be treated as both paid by
Parkway and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by Parkway during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of Parkway.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a
long-term capital gain or loss if the shares have been held for more than one
year and otherwise a short-term capital gain or loss. However, any loss upon a
sale or exchange of shares by a stockholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
long-term capital loss to the extent of distributions from Parkway required to
be treated by such stockholder as long-term capital gain.
The Taxpayer Relief Act of 1997 reduced the top tax rate for individuals,
estates and trusts on certain long-term capital gains. Generally, long-term
capital gains on property held for more than 18 months will not be taxed
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at a rate greater than 20% and the maximum rate is reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
taxpayers subject to the 15% regular tax bracket, long-term capital gains on
property held for more than 18 months will not be taxed at a rate greater than
10%, and, effective for taxable years beginning after December 31, 2000, the
rate is reduced to 8% for assets held more than five years. Long-term capital
gain from the sale or exchange of certain depreciable real property held for
more than 18 months which would be treated as ordinary income if the real
property was depreciable personal property is subject to a maximum tax rate of
25% rather than 20%. Long-term capital gain (other than certain depreciation
recapture taxable as ordinary income) allocated to a stockholder by Parkway will
be subject to the 25% rate to the extent that the gain does not exceed
depreciation on real property sold by Parkway. The maximum rate of capital gains
tax for capital assets held for more than one year but not more than 18 months
remains at 28%. The taxation of capital gains by corporations was not changed.
In addition, Internal Revenue Notice 97-64 provides temporary guidance with
respect to the taxation of distributions by Parkway designated as capital gain
dividends. Pursuant to Internal Revenue Notice 97-64, forthcoming Temporary
Regulations will provide that capital gains allocated to a stockholder by a REIT
may be designated as a 20% rate gain distribution, an unrecaptured Section 1250
gain distribution (subject to the 25% rate), or a 28% rate gain distribution. In
determining the amounts which may be designated as each class of capital gains
dividends, a REIT must calculate its net capital gains as if it were an
individual subject to a marginal tax rate of 28%. Unless specifically designated
otherwise by Parkway, a distribution designated as a capital gain distribution
is presumed to be a 28% rate gain distribution. If Parkway elects to retain any
net long-term capital gain, as discussed above, the undistributed long-term
capital gains are considered to be designated as capital gain dividends for
purposes of Internal Revenue Notice 97-64.
Backup Withholding. Parkway will report to its domestic stockholders and
the Service the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide Parkway with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, Parkway may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to Parkway. See "-- Taxation of
Non-U.S. Stockholders" below.
Taxation of Tax-Exempt Stockholders. Most tax-exempt entities, including
employees' pension trusts, are not subject to federal income tax except to the
extent of "unrelated business taxable income" ("UBTI"). The Service has ruled
that amounts distributed by a REIT to a tax-exempt employees' pension trust do
not constitute UBTI. Based upon this ruling and the analysis therein, and
subject to the discussion below regarding qualified pension trust investors,
distributions by Parkway to a stockholder that is a tax-exempt entity generally
should not constitute UBTI, provided that the tax-exempt entity has not financed
the acquisition of its shares with "acquisition indebtedness" within the meaning
of the Code and the shares of Common Stock are not otherwise used in an
unrelated trade or business of the tax-exempt entity. Revenue rulings, however,
are interpretative in nature and subject to revocation or modification by the
Service.
A "qualified trust" (defined to be any trust described in section 401(a) of
the Code and exempt from tax under section 501(a) of the Code) that holds more
than 10% of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five or
fewer individuals (the "five or fewer requirement") only by relying on a special
"look-through" rule under which shares held by qualified trust stockholders are
treated as held by the beneficiaries of such trusts in proportion to their
actuarial interests therein; and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is "predominantly held" by qualified trusts if either
(i) a single qualified trust holds more than 25% of the value of the REIT
shares, or (ii) one or more qualified trusts, each owning more than 10% of the
22
<PAGE> 72
value of the REIT shares, hold in the aggregate more than 50% of the value of
the REIT shares. If the foregoing requirements are met, the percentage of any
REIT dividend treated as UBTI to a qualified trust that owns more than 10% of
the value of the REIT shares is equal to the ratio of (i) the UBTI earned by the
REIT (computed as if the REIT were a qualified trust and therefore subject to
tax on its UBTI) to (ii) the total gross income (less certain associated
expenses) of the REIT for the year in which the dividends are paid. A de minimis
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the "look-through" rule. The restrictions
on ownership of Common Stock in Parkway's Charter should prevent application of
the foregoing provisions to qualified trusts purchasing Common Stock of Parkway
pursuant to the offering, absent a waiver of the restrictions by the Board of
Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. federal, state and local income tax
laws with regard to an investment in the Common Stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
Parkway of U.S. real property interests and not designated by Parkway as capital
gain dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of
Parkway. Such distributions, ordinarily, will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces such rate. However, if income from the investment in Common Stock
is treated as effectively connected with the Non-U.S. Stockholder's conduct of a
U.S. trade or business, the Non-U.S. Stockholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such dividends (and may also be subject to a branch profits tax of up
to 30% if the stockholder is a foreign corporation). Parkway expects to withhold
U.S. income tax at the rate of 30% on the gross amount of any dividends paid to
a Non-U.S. Stockholder that are not designated as capital gain dividends unless
(i) a lower treaty rate applies and the required form evidencing eligibility for
that reduced rate is filed with Parkway or (ii) the Non-U.S. Stockholder files
IRS Form 4224 with Parkway claiming that the distribution is income treated as
effectively connected to a U.S. trade or business.
Distributions in excess of current and accumulated earnings and profits of
Parkway will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's Common Stock, but rather will
reduce the adjusted basis of such shares. To the extent that such distributions
exceed the adjusted basis of a Non-U.S. Stockholder's shares, they will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of his or her Common Stock as
described below. If at any time Parkway is not a "domestically controlled REIT,"
as defined below, Parkway must withhold U.S. income tax at the rate of 10% on
distributions to Non-U.S. Stockholders that are not paid out of current or
accumulated earnings and profits unless the Non-U.S. Stockholders provide
Parkway with withholding certificates evidencing their exemption from
withholding tax. If it cannot be determined at the time that such a distribution
is made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S.
Stockholder may seek a refund of such amounts from the Service if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of Parkway.
For any year in which Parkway qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by Parkway of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the
23
<PAGE> 73
case of nonresident alien individuals). Also, distributions subject to FIRPTA
may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Stockholder not entitled to treaty relief or exemption. Parkway is required by
applicable Treasury Regulations to withhold 35% of any distribution that could
be designated by Parkway as a capital gain dividend. This amount is creditable
against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if Parkway is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of its shares was held directly
or indirectly by Non-U.S. Stockholders. Parkway believes that it currently
qualifies as a "domestically controlled REIT," and that the sale of Common Stock
will not therefore be subject to tax under FIRPTA. Because Parkway is publicly
traded, however, no assurance can be given that Parkway will continue to be a
domestically controlled REIT. Even if Parkway is not a "domestically controlled
REIT," a Non-U.S. Stockholder's sale of Common Stock generally will not be
subject to tax under FIRPTA as a sale of U.S. real property interests provided
that (i) Parkway's Common Stock is "regularly traded" on an established
securities market, and (ii) the selling Non-U.S. Stockholder held 5% or less of
Parkway's Common Stock at all times during the specified testing period. In
addition, gain not subject to FIRPTA will be taxable to a Non-U.S. Stockholder
if (i) the investment in Common Stock is treated as effectively connected with
the Non-U.S. Stockholder's trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as the U.S. stockholders with
respect to such gain; or (ii) the Non-U.S. Stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% withholding tax on the
individual's capital gains. If the gain on the sale of Common Stock were to be
subject to tax under FIRPTA, the Non-U.S. Stockholder would be subject to the
same treatment as U.S. stockholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals).
State and Local Taxes. Parkway and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside (although stockholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to Parkway's operations and
distributions). The state and local tax treatment of Parkway and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Securities.
PLAN OF DISTRIBUTION
Parkway may sell Securities to or through underwriters or dealers for
public offering and sale by or through them, and also may sell Securities
directly to other purchasers or agents or through any combination of these
methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from Parkway or for purchasers of Securities, for whom they may act
as agents, in the form of discounts, concessions or commissions. Underwriters
may sell Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters, and any discounts or commissions
they receive from Parkway and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from Parkway will be described, in the applicable
Prospectus Supplement.
24
<PAGE> 74
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the shares of Common Stock which are listed on the NYSE. Any shares
of Common Stock sold pursuant to a Prospectus Supplement will be listed on such
exchange, subject to official notice of issuance. Parkway may elect to list any
series of Preferred Stock or Depositary Shares on an exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the
Securities.
Under agreements Parkway may enter into, underwriters, dealers and agents
who participate in the distribution of Securities may be entitled to
indemnification by Parkway against certain liabilities, including liabilities
under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, Parkway in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, Parkway will
authorize underwriters or other persons acting as Parkway's agents to solicit
offers by certain institutions to purchase Securities from Parkway pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
Parkway. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
EXPERTS
The consolidated financial statements of Parkway appearing in Parkway's
Annual Report on Form 10-K for the year ended December 31, 1997, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
The legality of the Securities will be passed upon for Parkway by Jaeckle
Fleischmann & Mugel, LLP, Buffalo, New York.
25
<PAGE> 75
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PARKWAY OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
PARKWAY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........ S-2
Risk Factors......................... S-8
The Company.......................... S-14
Properties........................... S-17
Use of Proceeds...................... S-23
Debt Structure....................... S-23
Capitalization....................... S-25
Selected Financial Data.............. S-26
Management........................... S-29
Description of Series A Preferred
Stock.............................. S-31
Certain Federal Income Tax
Considerations..................... S-37
Underwriting......................... S-39
Legal Matters........................ S-40
Pro Forma Consolidated Financial
Statements......................... F-1
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 3
The Company.......................... 4
Ratio of Earnings to Fixed Charges... 4
Use of Proceeds...................... 4
Description of Preferred Stock....... 5
Description of Depositary Shares..... 10
Description of Common Stock.......... 13
Federal Income Tax Considerations.... 16
Plan of Distribution................. 24
Experts.............................. 25
Legal Matters........................ 25
</TABLE>
============================================================
============================================================
2,400,000 SHARES
[LOGO]
PARKWAY PROPERTIES, INC.
% SERIES A CUMULATIVE
REDEEMABLE PREFERRED STOCK
----------------------------------
PROSPECTUS SUPPLEMENT
----------------------------------
PAINEWEBBER INCORPORATED
J.C. BRADFORD & CO.
RAYMOND JAMES & ASSOCIATES, INC.
------------------------
, 1998
============================================================
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
issuance and distribution of the Securities, other than underwriting discounts
and commissions. All of the amounts shown are estimated except the Securities
and Exchange Commission ("Commission") registration fee.
<TABLE>
<S> <C>
Commission Registration Fee................................. $ 62,685
New York Stock Exchange, Inc. Listing Fee................... 35,000
Blue Sky fees and expenses.................................. 5,000
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 75,000
Miscellaneous............................................... 17,315
--------
Total.................................................. $395,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Parkway's Articles of Incorporation, as amended (the "Charter"), contain a
provision authorizing Parkway to indemnify, to the fullest extent permitted by
Maryland law, its directors and officers, whether serving Parkway or, at its
request, any other entity. Additionally, the Charter provides that to the
fullest extent permitted by Maryland law, no director or officer shall be liable
to Parkway or its stockholders for money damages.
Section 2-418 of the Maryland General Corporation Law (the "Indemnification
Statute"), the law of the state in which Parkway is organized, empowers a
company, subject to certain limitations, to indemnify its officers and directors
against expenses, including attorneys' fees, judgments, penalties, fines,
settlements and expenses, actually and reasonably incurred by them in any suit
or proceeding to which they are parties unless the act or omission of the
director was material to the matter giving rise to the proceeding and was
committed in bad faith, or was the result of active and deliberate dishonesty,
or the director received an improper personal benefit or, with respect to a
criminal action or proceeding, the director had reasonable cause to believe
their conduct was unlawful.
Parkway has entered into an indemnification agreement (the "Indemnification
Agreement") with each of its directors and officers, and the Board of Directors
has authorized Parkway to enter into an Indemnification Agreement with each of
the future directors and officers of Parkway. The Indemnification Statute
permits a corporation to indemnify its directors and officers. However, the
protection that is specifically afforded by the Indemnification Statute
authorizes other arrangements for indemnification of directors and officers,
including insurance. The Indemnification Agreement is intended to provide
indemnification to the maximum extent allowable by, or not in violation of, or
offensive to, any law of the State of Maryland.
The Indemnification Agreement provides that Parkway shall indemnify a
director or officer who is a party to the agreement (the "Indemnitee") if he or
she was or is a party to or otherwise involved in any proceeding by reason of
the fact that he or she was or is a director or officer of Parkway, or was or is
serving at its request in a certain capacity of another entity, against losses
incurred in connection with the defense or settlement of such proceeding. This
indemnification shall be provided to the fullest extent permitted by the
Indemnification Agreement. This is similar to the indemnification provided by
the Indemnification Statute except that indemnification is not available under
the Indemnification Agreement to the Indemnitee who pays any amount in
settlement of a proceeding without Parkway's written consent.
II-1
<PAGE> 77
ITEM 16. EXHIBITS.
The following exhibits are filed herewith (or incorporated by reference):
<TABLE>
<C> <S>
(1) Form of Underwriting Agreement.*
(3)(a) Articles of Incorporation, as amended, of Parkway.**
(b) Bylaws of Parkway.**
(c) Amended and Restated Agreement of Limited Partnership of
Parkway Properties LP dated as of January 1, 1998.**
(5) Opinion of Jaeckle Fleischmann & Mugel, LLP regarding
legality of securities being registered.*
(8) Opinion of Jaeckle Fleischmann & Mugel, LLP regarding tax
matters.*
(12) Statement regarding computation of ratios.+
(23)(a) Consent of Ernst & Young LLP.+
(b) Consent of Jaeckle Fleischmann & Mugel, LLP (incorporated by
reference to Exhibit 5).
(24) Powers of Attorney.**
</TABLE>
- ---------------
+ Filed herewith.
* To be filed by amendment or to be incorporated by reference herein by a
Current Report on Form 8-K.
** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
do not apply if information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant pursuant to
Sections 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 78
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form or prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Jackson, State of Mississippi as of
the 8th of April 1998.
PARKWAY PROPERTIES, INC.
By: /s/ STEVEN G. ROGERS
------------------------------------
Steven G. Rogers
Director, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following person in
the capacities indicated on April 8, 1998.
<TABLE>
<CAPTION>
NAME AND TITLE TITLE
-------------- -----
<S> <C> <C> <C>
Steven G. Rogers Director, President and
Chief Executive Officer
Sarah P. Clark Vice President, Chief
Financial Officer,
Treasurer and Secretary
Daniel C. Arnold Director
George R. Farish Director
Michael J. Lipsey Director
Joe F. Lynch Director
C. Herbert Magruder Director
W. Lincoln Mossop, Jr. Director
Leland R. Speed Director
Director
- ------------------------------------------
Roger P. Friou
</TABLE>
/s/ SARAH P. CLARK
- --------------------------------------------------------------------------------
Sarah P. Clark
Individually and as
Attorney-in-Fact
II-4
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <S> <C>
(12) Statement regarding computation of ratios.
(23)(a) Consent of Ernst & Young LLP.
</TABLE>
<PAGE> 1
Exhibit 12
Parkway Properties, Inc.
Ratio of earnings to fixed charges
For Parkway S-3 Registration Statement
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended 6 Months Ended Year Ended
12/31/97 12/31/96 12/31/95 12/31/94 6/30/94
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income $ 14,491,087.47 $ 14,371,234.79 $ 11,819,696.12 $ 1,005,727.12 $ 1,303,463.62
Adjustments:
Gains on securities 0.00 (548,660.23) (4,314,452.33) (27,393.11) (579,325.85)
Gains on mortgage loans and REO (2,907,367.66) (9,909,498.34) (6,551,870.73) (529,530.75) 112,899.66
Income tax provision 0.00 102,500.00 82,482.00 313.24 957.16
Fixed charges 6,577,650.27 4,357,533.20 2,521,791.88 1,217,874.66 2,422,549.81
----------------------------------------------------------------------------------------
Total earnings for calculation $ 18,161,370.08 $ 8,373,109.42 $ 3,557,646.94 $ 1,666,991.16 $ 3,260,544.40
Divided by
Fixed charges $ 6,577,650.27 $ 4,357,533.20 $ 2,521,791.88 $ 1,217,874.66 $ 2,422,549.81
----------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.76 1.92 1.41 1.37 1.35
========================================================================================
Fixed charges consist of:
Interest expense on REO properties $ 5,485,581.24 $ 3,525,651.18 $ 2,230,491.59 $ 1,077,945.26 $ 2,391,873.85
Interest expense on bank debt 809,983.04 281,263.93 156,182.33 139,929.40 30,675.96
Interest expense on wrap notes 0.00 340,352.97 135,117.96 0.00 0.00
Amortization of loan costs - REO 95,163.58
Amortization of loan costs - bank lines 186,922.41 72,025.12
Preferred stock dividend ($.24/share) 0.00 138,240.00
----------------------------------------------------------------------------------------
Total fixed charges $ 6,577,650.27 $ 4,357,533.20 $ 2,521,791.88 $ 1,217,874.66 $ 2,422,549.81
========================================================================================
<CAPTION>
Year Ended Year Ended
12/30/93 6/30/92
---------------------------------
<S> <C> <C>
Net Income $ 2,711,658.35 ($ 2,863,425.74)
Adjustments:
Gains on securities (21,759.97) 2,437,011.28
Gains on mortgage loans and REO (2,474,024.07) (590,251.40)
Income tax provision 3,202.71 11,224.83
Fixed charges 2,487,423.62 2,546,980.03
---------------------------------
Total earnings for calculation $ 2,706,500.64 $ 1,541,539.00
Divided by
Fixed charges $ 2,487,423.62 $ 2,546,980.03
---------------------------------
Ratio of earnings to fixed charges 1.09 0.61
=================================
Fixed charges consist of:
Interest expense on REO properties $ 2,487,423.62 $ 2,546,826.86
Interest expense on bank debt 0.00 153.17
Interest expense on wrap notes 0.00 0.00
Amortization of loan costs - REO
Amortization of loan costs - bank lines
Preferred stock dividend ($.24/share)
---------------------------------
Total fixed charges $ 2,487,423.62 $ 2,546,980.03
=================================
</TABLE>
<PAGE> 1
Exhibit 23(a)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Amendment No 1. to Form S-3, No. 333-48161) and related
Prospectus and Prospectus Supplement of Parkway Properties, Inc. and to the
incorporation by reference therein of our report dated February 9, 1998, except
for Note H, as to which the date is February 25, 1998, with respect to the
consolidated financial statements of Parkway Properties, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the
Securities and Exchange Commission. We also consent to the incorporation by
reference in this Registration Statement of our report on the statements of
rental revenue and direct operating expenses included in Parkway Properties,
Inc.'s Current Report on Form 8-K dated February 18, 1998.
Jackson, Mississippi
April 6, 1998
