<PAGE>
424B5
333-3890
333-3890-01
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 20, 1996)
250,000 SHARES
HIGHWOODS PROPERTIES, INC.
COMMON STOCK
Highwoods Properties, Inc. (the "Company") offers hereby 250,000 shares
of its common stock (the "Common Stock"), par value $.01 per share (the
"Offering"), to the several underwriters (the "Underwriters") who participated
in the Company's offering of 11,500,000 shares of Common Stock which closed on
June 26, 1996 (the "June Offering"). The shares offered hereby are being sold by
the Company to the Underwriters at a price of $27.375 per share so that they may
cover a portion of their short position resulting from over-allotments in
connection with the June Offering. On July 8, 1996, the last reported sale price
of the Common Stock on the New York Stock Exchange was $27 1/2.
The proceeds to the Company from the Offering will be $6,843,750 before
deducting estimated expenses payable by the Company of $10,000. The Company
intends to use the net cash proceeds of the Offering to fund a portion of the
purchase price of all of the outstanding shares of Crocker Realty Trust, Inc.
Pending such uses, the net proceeds may be invested in short-term
income-producing investments such as commercial paper, government securities or
money market funds that invest in government securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 IN THE ACCOMPANYING PROSPECTUS
FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
It is expected that delivery of the Common Stock offered hereby will be
made in New York, New York on or about July 12, 1996.
The date of this Prospectus Supplement is July 8, 1996.
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PLAN OF DISTRIBUTION
Subject to the terms and conditions contained in the purchase agreement
between the Underwriters and the Company and Highwoods/Forsyth Limited
Partnership (the "Purchase Agreement"), the Company has agreed to sell to each
of the Underwriters named below, and each of the Underwriters, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds Inc., Morgan
Stanley & Co. Incorporated, PaineWebber Incorporated, Prudential Securities
Incorporated, The Robinson-Humphrey Company, Inc. and Scott & Stringfellow, Inc.
are acting as representatives, has severally agreed to purchase from the
Company, the respective number of shares of Common Stock set forth below
opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................... 22,450
Dean Witter Reynolds Inc......................................................................... 22,300
Morgan Stanley & Co. Incorporated................................................................ 22,300
PaineWebber Incorporated......................................................................... 22,300
Prudential Securities Incorporated............................................................... 22,300
The Robinson-Humphrey Company, Inc............................................................... 22,300
Scott & Stringfellow, Inc........................................................................ 22,300
Alex. Brown & Sons Incorporated.................................................................. 3,750
Donaldson, Lufkin & Jenrette Securities Corporation.............................................. 3,750
A.G. Edwards & Sons, Inc......................................................................... 3,750
Oppenheimer & Co., Inc........................................................................... 3,750
Salomon Brothers Inc............................................................................. 3,750
Schroder Wertheim & Co. Incorporated............................................................. 3,750
Smith Barney Inc................................................................................. 3,750
Advest, Inc...................................................................................... 1,875
Robert W. Baird & Co. Incorporated............................................................... 1,875
J.C. Bradford & Co............................................................................... 1,875
Cowen & Company.................................................................................. 1,875
Craigie Incorporated............................................................................. 1,875
Dain Bosworth Incorporated....................................................................... 1,875
Davenport & Co. of Virginia, Inc................................................................. 1,875
Dominick & Dominick, Incorporated................................................................ 1,875
Equitable Securities Corporation................................................................. 1,875
EVEREN Securities, Inc........................................................................... 1,875
Fahnestock & Co. Inc............................................................................. 1,875
First Albany Corporation......................................................................... 1,875
First of Michigan Corporation.................................................................... 1,875
Furman Selz LLC.................................................................................. 1,875
Gruntal & Co., Incorporated...................................................................... 1,875
J.J.B. Hillard, W.L. Lyons, Inc.................................................................. 1,875
Interstate/Johnson Lane Corporation.............................................................. 1,875
Janney Montgomery Scott Inc...................................................................... 1,875
Edward D. Jones & Co............................................................................. 1,875
Ladenburg, Thalmann & Co. Inc.................................................................... 1,875
Legg Mason Wood Walker, Incorporated............................................................. 1,875
Marion Bass Securities Corporation............................................................... 1,875
McDonald & Company Securities, Inc............................................................... 1,875
Morgan Keegan & Company, Inc..................................................................... 1,875
Piper Jaffray Inc................................................................................ 1,875
Principal Financial Securities, Inc.............................................................. 1,875
Ragen MacKenzie Incorporated..................................................................... 1,875
Rauscher Pierce Refsnes, Inc..................................................................... 1,875
Raymond James & Associates, Inc.................................................................. 1,875
S-2
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Southeast Research Partners, Inc................................................................. 1,875
Stephens Inc..................................................................................... 1,875
Sterne, Agee & Leach, Inc........................................................................ 1,875
Stifel, Nicolaus & Company, Incorporated......................................................... 1,875
Sutro & Co. Incorporated......................................................................... 1,875
Tucker Anthony Incorporated...................................................................... 1,875
Wheat, First Securities, Inc..................................................................... 1,875
-------
Total................................................................................... 250,000
=======
</TABLE>
As previously described, the shares offered hereby are being sold by
the Company to the Underwriters at a price of $27.375 per share so that they may
cover a portion of their short position resulting from over-allotments in
connection with the June Offering.
S-3
<PAGE>
PROSPECTUS
$1,000,000,000
HIGHWOODS PROPERTIES, INC.
COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
DEBT SECURITIES
Highwoods Properties, Inc. (the "Company") may from time to time offer in
one or more series (i) shares of common stock, $.01 par value per share ("Common
Stock"), (ii) shares of preferred stock, $.01 par value per share ("Preferred
Stock") and (iii) shares of Preferred Stock represented by depositary shares
(the "Depositary Shares"), with an aggregate public offering price of up to
$650,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be determined at the
time of offering. Highwoods/Forsyth Limited Partnership (the "Operating
Partnership") may from time to time offer in one or more series unsecured
non-convertible debt securities ("Debt Securities"), with an aggregate public
offering price of up to $350,000,000 (or its equivalent in another currency
based on the exchange rate at the time of sale) in amounts, at prices and on
terms to be determined at the time of offering. The Common Stock, Preferred
Stock, Depositary Shares and Debt Securities, (collectively, the "Securities")
may be offered, separately or together, in separate series in amounts, at prices
and on terms to be set forth in one or more supplements to this Prospectus (each
a "Prospectus Supplement"). If any Debt Securities issued by the Operating
Partnership are rated below investment grade at the time of issuance, such Debt
Securities will be fully and unconditionally guaranteed by the Company as to
payment of principal, premium, if any, and interest (the "Guarantees"). Debt
securities rated investment grade may also be accompanied by a Guarantee to the
extent and on the terms described herein and in the accompanying Prospectus
Supplement. The Company conducts substantially all of its activity through, and
all of its properties are held directly or indirectly by, the Operating
Partnership. Consequently, the Company's operating cash flow and its ability to
service its financial obligations, including the Guarantees, is dependent upon
the cash flow of and distributions or other payments from the Operating
Partnership to the Company.
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 title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of
Depositary Shares, the fractional share of Preferred Stock represented by each
such Depositary Share; and (iv) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at the option of the Operating Partnership or repayment at the option
of the holder, terms for sinking fund payments, covenants, applicability of any
Guarantees and any initial public offering price. 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 appropriate to preserve
the status of the Company 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.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A DESCRIPTION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
The Securities may be offered directly, through agents designated from time
to time by the Company or the Operating Partnership, 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 an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRE-
SENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is June 20, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the
information requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith the Company
files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission") and the Operating
Partnership will file reports with the Commission. Such reports, proxy
statements and other information may be inspected and copied, at
prescribed rates, at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, DC 25049, Room 1024, and at the
Commission's New York regional office at Seven World Trade Center, New
York, New York 10048 and at the Commission's Chicago regional office at
Citicorp Center, 500 W. Madison Street, Chicago, Illinois 60661. Copies
of such material can also be obtained at prescribed rates by writing to
the public reference section of the Commission at 450 Fifth Street,
N.W., Washington, DC 20549. In addition, the Common Stock of the Company
is listed on the New York Stock Exchange ("NYSE"), and similar
information concerning the Company can be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company and the Operating Partnership have filed with the Commission a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act, with respect to the Securities. This prospectus ("Prospectus"),
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and in the exhibits and
schedules thereto. For further information with respect to the Company, the
Operating Partnership and the Securities, reference is hereby made to such
Registration Statement, exhibits and schedules. The Registration Statement may
be inspected without charge at, or copies obtained upon payment of prescribed
fees from, the Commission and its regional offices at the locations listed
above. Any statements contained herein concerning a provision of any document
are not necessarily complete, and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (Commission File No. 1-13100)
with the Commission pursuant to the Exchange Act are incorporated herein by
reference and made a part hereof:
a. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (as amended on Form 10-K/A on June 3, 1996 and
June 18, 1996);
b. The description of the Common Stock of the Company included in the
Company's Registration Statement on Form 8-A, dated May 16, 1994;
c. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 (as amended on Form 10-Q/A on June 3, 1996 and June
18, 1996); and
d. The Company's Current Reports on Form 8-K, dated February 10, 1995,
July 12, 1995 (as amended on Form 8-K/A on September 6, 1995 and
June 3, 1996), December 18, 1995, April 1, 1996 (as amended on Form
8-K/A on June 3, 1996 and June 18, 1996), and April 29, 1996 (as
amended on Form 8-K/A on June 3, 1996 and June 18, 1996).
All documents filed by the Company or the Operating Partnership with the
Commission pursuant to Sections 13(a) and 13(c) of the Exchange Act and any
definitive proxy statements so filed pursuant to Section 14 of the Exchange Act
and any reports filed pursuant to Section 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering of the
Securities to which this Prospectus relates shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that is incorporated by reference herein
modifies or supersedes such earlier statement. Any such statements modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of any or all of the documents specifically incorporated herein by
reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents) will be furnished
without charge to each person, including any beneficial owner, to whom a copy of
this Prospectus is delivered upon written or oral request. Requests should be
made to: Investor Relations, 3100 Smoketree Court, Suite 600, Raleigh, North
Carolina 27604.
2
<PAGE>
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that began operations through a predecessor in 1978. At May 31,
1996, the Company owned a portfolio of 200 office and industrial properties (the
"Properties"), together with approximately 215 acres of land (the "Development
Land") for future development. The Properties consist of 102 suburban office
properties and 98 industrial (including 62 service center) properties, located
in Raleigh-Durham, Winston-Salem, Greensboro and Charlotte, North Carolina,
Nashville, Tennessee and Richmond, Virginia. As of May 31, 1996, the Properties
consisted of approximately 10.3 million square feet, which were leased to
approximately 1,100 tenants.
The Company conducts substantially all of its activities through, and all
of the Properties are held directly or indirectly by, Highwoods/Forsyth Limited
Partnership (the "Operating Partnership"). The Company is the sole general
partner of the Operating Partnership and as of May 31, 1996, owned 82% of the
partnership interests (the "Units") in the Operating Partnership. The remaining
Units are owned by limited partners (including certain officers and directors of
the Company). Each Unit may be redeemed by the holder thereof for cash or, at
the Company's option, one share (subject to certain adjustments) of the Common
Stock. With each such exchange, the number of Units owned by the Company and,
therefore, the Company's percentage interest in the Operating Partnership, will
increase. Because the Company conducts substantially all of its activity
through, and all of its properties are held directly or indirectly by, the
Operating Partnership, the description of the business, property information,
policies with respect to certain activities, investment policies and management
information for the Operating Partnership are the same as the Company. Such
information may be found in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
The only businesses or assets of the Company which are not conducted or
owned directly or indirectly through the Operating Partnership are the brokerage
and property management business and related assets acquired on April 1, 1996
through the Company's merger with Nashville, Tennessee-based Eakin & Smith, Inc.
(the "Eakin & Smith Transaction"). In addition to owning the Properties and the
Development Land, the Operating Partnership also provides services associated
with leasing, property management, real estate development, construction and
miscellaneous tenant services for the Properties as well as for third parties.
The Company conducts its third-party fee-based services through two subsidiaries
of the Operating Partnership, Highwoods Services, Inc. and Forsyth Properties
Services, Inc. (the "Service Companies"), and Forsyth-Carter Brokerage L.L.C.
("Forsyth-Carter Brokerage"), a joint venture with Carter Oncor International.
On April 29, 1996, the Company entered into a merger agreement (the "Merger
Agreement") with Crocker Realty Trust, Inc. ("Crocker") pursuant to which the
Company will acquire 58 suburban office properties and 12 service center
properties (the "Crocker Properties") located in 15 Southeastern markets in
Florida, North Carolina, South Carolina, Tennessee, Georgia, Virginia and
Alabama. The Crocker Properties encompass 5.7 million rentable square feet and,
at March 31, 1996, were 95% leased. Through the merger with Crocker (the
"Merger"), which is expected to occur in the third quarter of 1996, the Company
will establish itself as one of the largest real estate operating companies in
the Southeastern United States specializing in the ownership, management,
acquisition and development of suburban office and industrial properties. Under
the terms of the Merger Agreement, the Company will acquire all of the
outstanding capital stock of Crocker in exchange for a cash payment of $11.02
per share, subject to certain adjustments. Based on Crocker's 26,981,087 million
shares of outstanding capital stock at May 31, 1996, the purchase price will
total approximately $297 million. In addition, the Company will cash out certain
existing options and warrants to purchase Crocker common stock for an estimated
$4.2 million and assume approximately $240 million of Crocker's currently
outstanding indebtedness, having a weighted average interest rate of 8.6%. In
connection with the Merger, the Company has also entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with certain stockholders of Crocker,
who together own approximately 83% of Crocker's outstanding common stock
(collectively, the "Crocker Selling Stockholders"), which obligates such
stockholders to sell their shares to the Company at a cash price of $11.02,
subject to the same adjustments as required under the Merger Agreement. The
approximately $247 million purchase price for such shares is part of the total
approximately $297 million purchase price for all of Crocker's outstanding
shares. The Merger Agreement and the Stock Purchase Agreement may be terminated
by the respective parties only in certain limited circumstances. In addition,
under the terms of the Merger Agreement, certain specified assets and
liabilities of Crocker will not be acquired by the Company. The Merger will be
accounted for by
3
<PAGE>
the Company under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations," as amended.
Under this method of accounting, the purchase price will be allocated to assets
acquired and liabilities assumed based on their estimated fair value at the
closing date of the Merger.
The Company is a Maryland corporation that was incorporated in 1994. The
Operating Partnership is a North Carolina limited partnership formed in 1994.
The Company's and the Operating Partnership's executive offices are located at
3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and their
telephone number is (919) 872-4924. The Company maintains offices in each of its
primary markets.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing offered Securities.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The Company intends to limit the extent of its borrowing to less than 50%
of its total market capitalization (i.e., the market value of issued and
outstanding shares of Common Stock and Units plus total debt), but the
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness the Company might incur. The Indenture (as
defined herein), however, will contain limits on the Company's ability to incur
indebtedness. If the Company's policy limiting borrowing were changed, the
Company could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Company's funds from operations and
ability to make expected distributions to stockholders and in an increased risk
of default on its obligations. As of May 31, 1996, the Company's ratio of debt
to total market capitalization was approximately 28%.
GEOGRAPHIC CONCENTRATION
The Company's revenues and the value of its Properties may be affected by a
number of factors, including the local economic climate (which may be adversely
impacted by business layoffs or downsizing, industry slowdowns, changing
demographics and other factors) and local real estate conditions (such as
oversupply of or reduced demand for office and other competing commercial
properties). As of May 31, 1996, the Properties were located in the following
areas (with the number of Properties noted parenthetically): Raleigh-Durham,
North Carolina (60); Greensboro, Winston-Salem and High Point, North Carolina
(100); Charlotte, North Carolina (22); Richmond, Virginia (11); and Nashville,
Tennessee (7). Using March 1996 base rent totals, the North Carolina properties
represented 87.5% of the annualized base rent of the Properties, with
Raleigh-Durham Properties alone constituting 53.1%. Although the Merger would
broaden the Company's geographic focus by adding 11 new markets throughout the
Southeastern United States, based on March 1996 rent rolls, the North Carolina
Properties would still represent 56.4% of the Company's annualized rental
revenue, with properties located in Raleigh-Durham accounting for 31.8%
following the Merger. The Company's performance and its ability to make
distributions to stockholders is therefore dependent on the economic conditions
in these market areas. In addition, there can be no assurance as to the
continued growth of the economy in these markets.
ABILITY OF THE COMPANY TO PAY ON GUARANTEES
With the exception of the Nashville, Tennessee brokerage and property
management operations, all other operations of the Company are conducted by the
Operating Partnership. The principal asset of the Company is its interest (82%
as of May 31, 1996) in the Operating Partnership. As a result, the Company is
dependent upon the receipt of distributions or other payments from the Operating
Partnership in order to meet its financial obligations, including its
obligations under any Guarantees. Any Guarantees will be effectively
subordinated to existing and future liabilities of the Operating Partnership. At
May 31, 1996, the Operating Partnership had approximately $275 million of
indebtedness outstanding, of which approximately $207 million is secured by
interests in certain real estate assets. The Operating Partnership is a party to
loan agreements with various bank lenders which require the Operating
Partnership to comply with various financial and other covenants before it may
make distributions to the Company. Although the Operating
4
<PAGE>
Partnership presently is in compliance with such covenants, there is no
assurance that it will continue to be in compliance and that it will be able to
continue to make distributions to the Company.
RISKS IN THE EVENT OF CERTAIN TRANSACTIONS BY THE OPERATING PARTNERSHIP OR THE
COMPANY
The Indenture does not contain any provisions that would afford holders of
Debt Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Operating Partnership, the management of the Operating
Partnership or the Company, or any affiliate of any such party, (ii) a change of
control, or (iii) certain reorganizations, restructures, mergers or similar
transactions involving the Operating Partnership or the Company.
CONFLICTS OF INTERESTS IN THE BUSINESS OF THE COMPANY
TAX CONSEQUENCES UPON SALE OR REFINANCING OF PROPERTIES. Holders of Units
may suffer different and more adverse tax consequences than the Company upon the
sale or refinancing of any of the Properties and, therefore, such holders,
including certain of the Company's officers and directors, and the Company may
have different objectives regarding the appropriate pricing and timing of any
sale or refinancing of such Properties. While the Company, as the sole general
partner of the Operating Partnership, has the exclusive authority as to whether
and on what terms to sell or refinance an individual Property, those members of
the Company's management and Board of Directors of the Company who hold Units
may influence the Company not to sell or refinance the Properties even though
such sale might otherwise be financially advantageous to the Company, or may
influence the Company to refinance Properties with a high level of debt.
POLICIES WITH RESPECT TO CONFLICTS OF INTERESTS. The Company has adopted
certain policies relating to conflicts of interest. These policies include a
bylaw provision requiring all transactions in which executive officers or
directors have a conflicting interest to be approved by a majority of the
independent directors of the Company or a majority of the shares of capital
stock held by disinterested stockholders. There can be no assurance that the
Company's policies will be successful in eliminating the influence of such
conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of all stockholders.
COMPETITIVE REAL ESTATE ACTIVITIES OF MANAGEMENT. John W. Eakin and Thomas
S. Smith, both of whom became officers and directors of the Company in
connection with the Eakin & Smith Transaction, maintain an ownership interest in
an office building in the central business district of Nashville, Tennessee,
which building may compete for potential tenants with the Company's Nashville
office properties.
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
OWNERSHIP LIMIT. The Company's Articles of Incorporation prohibit ownership
of more than 9.8% of the outstanding capital stock of the Company by any person.
Such restriction is likely to have the effect of precluding acquisition of
control of the Company by a third party without consent of the Board of
Directors even if a change in control were in the interest of stockholders.
REQUIRED CONSENT OF THE OPERATING PARTNERSHIP FOR MERGER OR OTHER
SIGNIFICANT CORPORATE ACTION. The Company may not merge, consolidate or engage
in any combination with another person or sell all or substantially all of its
assets unless such transaction includes the merger of the Operating Partnership,
which requires the approval of the holders of a majority of the outstanding
Units. Should the Company ever own less than a majority of the outstanding
Units, this voting requirement might limit the possibility for acquisition or
change in the control of the Company. As of May 31, 1996, the Company owned
approximately 82% of the Units.
STAGGERED BOARD. The Board of Directors of the Company has three classes of
directors, the terms of which will expire in 1996, 1997 and 1998. Directors for
each class will be chosen for a three-year term. The staggered terms for
directors may affect the stockholders' ability to change control of the Company
even if a change in control were in the stockholders' interest.
5
<PAGE>
DEPENDENCE ON DISTRIBUTIONS FROM OPERATING PARTNERSHIP IN ORDER TO QUALIFY AS A
REIT
To obtain the favorable tax treatment associated with REITs, the Company
generally will be required each year to distribute to its stockholders at least
95% of its net taxable income. Because the Company conducts substantially all of
its business activities through the Operating Partnership, the ability of the
Company to make such distributions is dependent upon the receipt of
distributions or other payments from the Operating Partnership.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
The Company and the Operating Partnership intend to operate in a manner so
as to permit the Company to remain qualified as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"). Although the Company believes
that it will operate in such a manner, no assurance can be given that the
Company will remain qualified as a REIT. If in any taxable year the Company were
to fail to qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates.
BROAD DISCRETION IN USE OF PROCEEDS
The Company and the Operating Partnership may use the proceeds from sales
of Securities for many different purposes and will not be restricted by any
provisions of the Articles of Incorporation of the Company or the agreement of
limited partnership of the Operating Partnership. As a result, no assurance can
be given that such proceeds will be employed in a manner consistent with the
current investment practices of the Company and the Operating Partnership.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of income generated and expenses incurred. If the
Company's properties do not generate revenues sufficient to meet operating
expenses, including debt service, tenant improvements, leasing commissions and
other capital expenditures, the Company may have to borrow additional amounts to
cover fixed costs and the Company's cash flow and ability to make distributions
to its stockholders will be adversely affected.
The Company's revenues and the value of its properties may be adversely
affected by a number of factors, including the national economic climate; the
local economic climate; local real estate conditions; the perceptions of
prospective tenants of the attractiveness of the property; the ability of the
Company to provide adequate management, maintenance and insurance; and increased
operating costs (including real estate taxes and utilities). In addition, real
estate values and income from properties are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.
COMPETITION. Numerous office and industrial properties compete with the
Company's properties in attracting tenants to lease space. Some of these
competing properties are newer or better located than some of the Company's
properties. Significant development of office or industrial properties in a
particular area could have a material effect on the Company's ability to lease
space in its properties and on the rents charged.
BANKRUPTCY AND FINANCIAL CONDITION OF TENANTS. At any time, a tenant of the
Company's Properties may seek the protection of the bankruptcy laws, which could
result in the rejection and termination of such tenant's lease and thereby cause
a reduction in the cash flow available for distribution by the Company. Although
the Company has not experienced material losses from tenant bankruptcies, no
assurance can be given that tenants will not file for bankruptcy protection in
the future or, if any tenants file, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in the failure to make rental payments when due.
If tenant leases are not affirmed following bankruptcy or if a tenant's
financial condition weakens, the Company's income may be adversely affected.
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RENEWAL OF LEASES AND RELETTING OF SPACE. The Company will be subject to
the risks that upon expiration of leases for space located in its properties,
the leases may not be renewed, the space may not be relet or the terms of
renewal or reletting (including the cost of required renovations) may be less
favorable than current lease terms. If the Company were unable to promptly relet
or renew the leases for all or a substantial portion of this space or if the
rental rates upon such renewal or reletting were significantly lower than
expected rates, then the Company's cash flow and ability to make expected
distributions to stockholders may be adversely affected.
ILLIQUIDITY OF REAL ESTATE. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
In addition, the Code limits the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell properties
without adversely affecting returns to holders of Common Stock.
CHANGES IN LAWS. Because increases in income, service or transfer taxes are
generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make distributions
to stockholders. The Properties are also subject to various Federal, state and
local regulatory requirements, such as requirements of the Americans with
Disabilities Act and state and local fire and life safety requirements. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currently in compliance with all such
regulatory requirements. However, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
which would require significant unanticipated expenditures by the Company and
could have an adverse effect on the Company's cash flow and expected
distributions.
CONSEQUENCES OF INABILITY TO SERVICE MORTGAGE DEBT. Pursuant to loan
agreements with bank lenders, a portion of the Properties are mortgaged to
secure payment of such indebtedness, and if the Company or the Operating
Partnership were to be unable to meet such payments, a loss could be sustained
as a result of foreclosure on the Properties by the bank lenders.
RISK OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
The Company intends to actively continue development and construction of
office and industrial properties, including development on the Development Land.
Risks associated with the Company's development and construction activities,
including activities relating to the Development Land, may include: abandonment
of development opportunities; construction costs of a property exceeding
original estimates, possibly making the property uneconomical; occupancy rates
and rents at a newly completed property may not be sufficient to make the
property profitable; financing may not be available on favorable terms for
development of a property; and construction and lease-up may not be completed on
schedule, resulting in increased debt service expense and construction costs. In
addition, new development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention. Development activities are also subject to risks relating to
the inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy, and other required governmental permits and authorizations.
The Company intends to actively continue to acquire office and industrial
properties. Acquisitions of office and industrial properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment.
Although the Company has limited its development, acquisition, management
and leasing business primarily to markets with which management is familiar, the
Company may expand its business to new geographic markets. Management believes
that much of its past success has been a result of its local expertise. The
Company may not initially possess the same level of familiarity with new
markets, which could adversely affect its ability to develop, acquire, manage or
lease properties in any new localities.
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POSSIBLE ENVIRONMENTAL LIABILITIES
Under various Federal, state and local laws, ordinances and regulations,
such as the Comprehensive Environmental Response Compensation and Liability Act
or "CERCLA," and common laws, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental fines
and injuries to persons and property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's or operator's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of such substances at a disposal or treatment
facility, whether or not such facility is owned or operated by such person.
Certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may seek recovery from owners or
operators of real property for personal injuries associated with
asbestos-containing materials.
As of the date hereof, all but one of the Properties had been subjected to
a Phase I environmental assessment. These assessments have not revealed, nor is
management of the Company aware of, any environmental liability that it believes
would have a material adverse effect on the Company's financial position,
operations or liquidity taken as a whole. This projection, however, could prove
to be incorrect depending on certain factors. For example, the Company's
assessments may not reveal all environmental liabilities or there may be
material environmental liabilities of which the Company is unaware. In addition,
assumptions regarding groundwater flow and the existence of contamination are
based on available sampling data, and there are no assurances that the data is
reliable in all cases. Moreover, there can be no assurance that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Properties will not be
affected by tenants, by the condition of land or operations in the vicinity of
the Properties (such as the presence of underground storage tanks), or by third
parties unrelated to the Company.
Some tenants use or generate hazardous substances in the ordinary course of
their respective businesses. These tenants are required under their leases to
comply with all applicable laws and have agreed to indemnify the Company for any
claims resulting from noncompliance, and the Company is not aware of any
environmental problems resulting from tenants' use or generation of hazardous
substances. There are no assurances that all tenants will comply with the terms
of their leases or remain solvent and that the Company may not at some point be
responsible for contamination caused by such tenants.
EFFECT ON COMMON STOCK PRICE OF SHARES AVAILABLE FOR FUTURE SALE UPON CONVERSION
OF UNITS
Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices of
the Common Stock. In connection with the Company's initial formation and public
offering and certain subsequent acquisitions, as of the date hereof,
approximately 4.2 million Units have been issued to various holders, including
certain officers and directors of the Company. In connection with the issuance
of Units, each holder thereof agreed not to sell or otherwise dispose of such
Units or shares of Common Stock received upon exchange of such Units for a
period of one year. At the conclusion of such period, any shares of Common Stock
issued upon exchange of Units may be sold in the public markets upon
registration or available exemptions from registration. No prediction can be
made about the effect that future sales of Common Stock will have on the market
price of shares. At May 31, 1996, the one-year lock-up period with respect to
3.4 million Units had expired.
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USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company and the Operating Partnership intend to use the net proceeds from the
sale of Securities for general corporate purposes, including the development and
acquisition of additional properties and other acquisition transactions, the
payment of certain outstanding debt, and improvements to certain properties in
the Company's portfolio. The Company is required, by the terms of the
partnership agreement of the Operating Partnership, to invest the net proceeds
of any sale of Common Stock, Preferred Stock or Depositary Shares in the
Operating Partnership in exchange for additional Units or preferred Units, as
the case may be.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The ratios of earnings to combined fixed charges and preferred stock
dividends for the Company and the Operating Partnership for the three months
ended March 31, 1996 and for the years ended December 31, 1995, 1994, 1993, 1992
and 1991 were 2.93x, 3.00x, 2.42x, 0.97x, 0.95x and 0.79x, respectively.
Earnings were inadequate to cover fixed charges by $171,000, $239,000 and
$913,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
These deficiencies occurred prior to the Company's initial public offering of
Common Stock in June 1994. Prior to the completion of this offering, the
Company's predecessor (the "Highwoods Group") operated in a manner as to
minimize taxable income to the owners. As a result, although the Properties have
generated positive net cash flow, the Highwoods Group had net losses for the
years ended December 31, 1991 through 1993. The initial public offering allowed
the Operating Partnership to significantly deleverage the Properties and improve
its ratio of earnings to fixed charges.
The ratios of earnings to combined fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of income from
continuing operations before minority interest and fixed charges. Fixed charges
consist of interest expense (including interest costs capitalized) and the
amortization of debt issuance costs. To date, the Company has not issued any
Preferred Stock.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
between the Operating Partnership, the Company and a trustee to be named prior
to the first issuance of Debt Securities. A form of the Indenture has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part
and will be available for inspection at the corporate trust office of the
trustee or as described above under "Available Information." The Indenture is
subject to, and governed by, the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made hereunder relating to the Indenture and the Debt
Securities to be issued thereunder are summaries of certain provisions thereof
and do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. At May 31, 1996, the total
outstanding debt of the Operating Partnership was $275 million, $207 million of
which was secured debt. The Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of the
Board of Directors of the Company as sole general partner of the Operating
Partnership or as established in one or more indentures supplemental to the
Indenture. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the holders of the Debt Securities of such series, for issuances of additional
Debt Securities of such series (Section 301).
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If any Debt Securities are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest.
The Indenture provides that there may be more than one trustee (the
"Trustee") thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under the Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series (Section 608). In the event that
two or more persons are acting as Trustee with respect to different series of
Debt Securities, each such Trustee shall be a trustee of a trust under the
Indenture separate and apart from the trust administered by any other Trustee
(Section 609), and, except as otherwise indicated herein, any action described
herein to be taken by a Trustee may be taken by each such Trustee with respect
to, and only with respect to, the one or more series of Debt Securities for
which it is Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or dates,
from which any interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which any such date shall be determined, the
person to whom such interest shall be payable, and the basis upon
which interest shall be calculated if other than that of a 360-day
year of twelve 30-day months;
(7) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange
and notices or demands to or upon the Operating Partnership in respect
of such Debt Securities and the Indenture may be served;
(8) the period or periods within which, the price or prices at which and
the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Operating
Partnership, if the Operating Partnership is to have such an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay
or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the
period or periods within which, the price or prices at which and the
terms and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, as a whole or in part, pursuant to such
obligation;
(10) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not be, based on a currency, currencies,
currency unit or
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units or composite currency or currencies) and the manner in which
such amounts shall be determined;
(12) the events of default or covenants of such Debt Securities, to the
extent different from or in addition to those described herein;
(13) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and terms and conditions
relating thereto;
(15) with respect to any series of Debt Securities rated below investment
grade at the time of issuance, the Guarantees (the "Guaranteed
Securities");
(16) if the defeasance and covenant defeasance provisions described herein
are to be inapplicable or any modification of such provisions;
(17) whether and under what circumstances the Operating Partnership will
pay additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in
lieu of making such payment;
(18) with respect to any Debt Securities that provide for optional
redemption or prepayment upon the occurrence of certain events (such
as a change of control of the Operating Partnership), (i) the possible
effects of such provisions on the market price of the Operating
Partnership's or the Company's securities or in deterring certain
mergers, tender offers or other takeover attempts, and the intention
of the Operating Partnership to comply with the requirements of
Regulation 14E under the Exchange Act and any other applicable
securities laws in connection with such provisions; (ii) whether the
occurrence of the specified events may give rise to cross-defaults on
other indebtedness such that payment on such Debt Securities may be
effectively subordinated; and (iii) the existence of any limitation on
the Operating Partnership's financial or legal ability to repurchase
such Debt Securities upon the occurrence of such an event (including,
if true, the lack of assurance that such a repurchase can be effected)
and the impact, if any, under the Indenture of such a failure,
including whether and under what circumstances such a failure may
constitute an Event of Default;
(19) if other than the Trustee, the identify of each security registrar
and/or paying agent; and
(20) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
Federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under "Merger, Consolidation or Sale" or as may be set
forth in any Prospectus Supplement, the Indenture does not contain any other
provisions that would limit the ability of the Operating Partnership to incur
indebtedness or that would afford holders of the Debt Securities protection in
the event of (i) a highly leveraged or similar transaction involving the
Operating Partnership, the management of the Operating Partnership or the
Company, or any affiliate of any such party, (ii) a change of control, or (iii)
a reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the holders of the Debt
Securities. In addition, subject to the limitations set forth under "Merger,
Consolidation or Sale," the Operating Partnership or the Company may, in the
future, enter into certain transactions, such as the sale of all or
substantially all of its assets or the merger or consolidation of the Operating
Partnership or the Company, that would increase the amount of the Operating
Partnership's indebtedness or substantially reduce or eliminate the Operating
Partnership's assets, which may have an adverse effect on the Operating
Partnership's ability to service its indebtedness, including the Debt
Securities. In addition, restrictions on ownership and transfers of the
Company's common stock and preferred stock which are designed to preserve its
status as a REIT may act to prevent or hinder a change of control.
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See "Description of Common Stock -- Certain Provisions Affecting Change of
Control" and "Description of Preferred Stock -- Restrictions on Ownership."
Reference is made to the applicable Prospectus Supplement for information with
respect to any deletions from, modifications of or additions to the events of
default or covenants that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
Reference is made to " -- Certain Covenants" below and to the description
of any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities by the Board of
Directors of the Company as sole general partner of the Operating Partnership or
by the Trustee unless the Holders of at least majority in principal amount of
all outstanding Debt Securities of such series consent to such waiver, except to
the extent that the defeasance and covenant defeasance provisions of the
Indenture described under " -- Discharge, Defeasance and Covenant Defeasance"
below apply to such series of Debt Securities. See " -- Modification of the
Indenture."
GUARANTEES
The Company will fully, unconditionally and irrevocably guarantee the due
and punctual payment of principal of, premium, if any, and interest on any Debt
Securities rated below investment grade at the time of issuance by the Operating
Partnership, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
In addition, Debt Securities rated investment grade may also be accompanied by a
Guarantee to the extent and on the terms described in the applicable Prospectus
Supplement.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series which are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities which are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000 (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 301, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to
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cover any tax or other governmental charge payable in connection therewith
(Section 305). If the applicable Prospectus Supplement refers to any transfer
agent (in addition to the Trustee) initially designated by the Operating
Partnership with respect to any series of Debt Securities, the Operating
Partnership may at any time rescind the designation of any such transfer agent
or approve a change in the location through which any such transfer agent acts,
except that Operating Partnership will be required to maintain a transfer agent
in each place of payment for such series. The Operating Partnership may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before selection of the Debt Securities to be
redeemed and ending at the close of business on the day of such selection, or
(ii) to register the transfer of or exchange any Registered Security so selected
for redemption in whole or in part, except, in the case of any Registered
Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except that
such a Bearer Security may be exchanged for a Registered Security of that series
and like tenor, provided that such Registered Security shall be simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Debt Security not to be so
repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership or the Company may consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity, provided that (a) the Operating Partnership or the
Company, as the case may be, shall be the continuing entity, or the successor
entity (if other than the Operating Partnership or the Company, as the case may
be) formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the Debt Securities and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; (b) immediately after giving effect to
such transaction, no Event of Default under the Indenture, and no event which,
after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other than
intercompany debt (representing Debt to which the only parties are the Company,
the Operating Partnership and any of their Subsidiaries (but only so long as
such Debt is held solely by any of the Company, the Operating Partnership and
any Subsidiary) that is subordinate in right of payment to the Debt Securities)
if, immediately after giving effect to the incurrence of such additional Debt,
the aggregate principal amount of all outstanding Debt of the Operating
Partnership and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles is greater than 60% of
the sum of (i) the Operating Partnership's Total Assets (as defined below) as of
the end of the calendar quarter covered in the Operating Partnership's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the Commission (or, if such filing is not permitted under
the Exchange Act, with the Trustee) prior to the incurrence of such additional
Debt and (ii) the increase in Total Assets from the end of such quarter
including, without limitation, any increase in Total Assets resulting from the
incurrence of such additional Debt (such increase together with the Operating
Partnership's Total Assets shall be referred to as the "Adjusted Total Assets")
(Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the property of the Operating Partnership, or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt, the aggregate principal amount of all
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outstanding Secured Debt of the Operating Partnership and its Subsidiaries on a
consolidated basis is greater than 40% of the Operating Partnership's Adjusted
Total Assets (Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5 to 1.0 on a pro forma basis
after giving effect to the incurrence of such Debt and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt incurred by the Operating Partnership or its Subsidiaries since the
first day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Debt, had occurred at the beginning of
such period, (ii) the repayment or retirement of any other Debt by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter period
had been incurred, repaid or retired at the beginning of such period (except
that, in making such computation, the amount of Debt under any revolving credit
facility shall be computed based upon the average daily balance of such Debt
during such period), (iii) the income earned on any increase in Adjusted Total
Assets since the end of such four-quarter period had been earned, on an
annualized basis, during such period, and (iv) in the case of any acquisition or
disposition by the Operating Partnership or any Subsidiary of any asset or group
of assets since the first day of such four-quarter period, including, without
limitation, by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments with respect to
such acquisition or disposition being included in such pro forma calculation
(Section 1011).
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership and its Subsidiaries on a consolidated basis whenever the Operating
Partnership and its Subsidiaries on a consolidated basis shall create, assume,
guarantee or otherwise become liable in respect thereof.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Operating Partnership is
required to maintain Total Unencumbered Assets of not less than 200% of the
aggregate outstanding principal amount of all outstanding Unsecured Debt
(Section 1013).
LIMITATIONS ON DISTRIBUTIONS. The Operating Partnership will not make any
distribution, by reduction of capital or otherwise (other than distributions
payable in securities evidencing interests in the Operating Partnership's
capital for the purpose of acquiring interests in real property or otherwise)
unless, immediately after giving pro forma effect to such distribution (a) no
default under the Indenture or event of default under any mortgage, indenture or
instrument under which there may be issued, or by which there may be secured or
evidenced, any Debt of the Operating Partnership, the Company or any Subsidiary
shall have occurred or be continuing, and (b) the aggregate sum of all
distributions made after the date of the Indenture shall not exceed the sum of
(i) 95% of the aggregate cumulative Funds From Operations of the Operating
Partnership accrued on a cumulative basis from the date of the Indenture until
the end of the last fiscal quarter prior to the contemplated payment, and (ii)
the aggregate Net Cash Proceeds received by the Operating Partnership after the
date of the Indenture from the issuance and sale of Capital Stock of the
Operating Partnership or the Company; provided, however, that the foregoing
limitation shall not apply to any distribution or other action which is
necessary to maintain the Company's status as a REIT, under the Code, if the
aggregate principal amount of all outstanding Debt of the Company and the
Operating Partnership on a consolidated basis at such time is less than 60% of
Adjusted Total Assets (Section 1012).
Notwithstanding the foregoing, the Operating Partnership will not be
prohibited from making the payment of any distribution within 30 days of the
declaration thereof if at such date of declaration such payment would have
complied with the provisions of the immediately preceding paragraph.
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," the
Operating Partnership and the Company are required to do or cause to be done all
things necessary to preserve and keep in full force and effect their existence,
rights and franchises; PROVIDED, HOWEVER, that the Operating Partnership or the
Company shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business and that the loss thereof is not disadvantageous in any material
respect to the Holders of the Debt Securities (Section 1007).
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MAINTENANCE OF PROPERTIES. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that the
Operating Partnership and its Subsidiaries shall not be prevented from selling
or otherwise disposing for value their respective properties in the ordinary
course of business (Section 1005).
INSURANCE. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies (Section 1006).
PAYMENT OF TAXES AND OTHER CLAIMS. The Operating Partnership and the
Company are required to pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon it or any Subsidiary or upon its
income, profits or property or that of any Subsidiary, and (ii) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon the property of the Operating Partnership, the Company, or any
Subsidiary; PROVIDED, HOWEVER, that the Operating Partnership and the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings (Section 1014).
PROVISION OF FINANCIAL INFORMATION. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents that the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have been
required so to file such documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as
their names and addresses appear in the Security Register, without cost to such
Holders, copies of the annual reports and quarterly reports which the Operating
Partnership would have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Operating Partnership were
subject to such Sections and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents that the Operating Partnership
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Operating Partnership were subject to such
Sections and (y) if filing such documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1015).
As used herein and in the Prospectus Supplement:
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed
and capitalized in any 12-month period for interest on Debt.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any preferred stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of this Prospectus.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries (i) plus amounts which have been deducted for (a) interest on Debt
of the Operating Partnership and its Subsidiaries, (b) provision for taxes of
the
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Operating Partnership and its Subsidiaries based on income, (c) amortization of
debt discount, (d) depreciation and amortization, (e) the effect of any noncash
charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period, (f) amortization of deferred charges
and (g) provisions for or realized losses on properties and (ii) less amounts
that have been included for gains on properties.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles ("GAAP").
"DEBT" means any indebtedness, whether or not contingent, in respect of (i)
borrowed money evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property, (iii) the reimbursement obligations,
contingent or otherwise, in connection with any letters of credit actually
issued or amounts representing the balance deferred and unpaid of the purchase
price of any property except any such balance that constitutes an accrued
expense or trade payable or (iv) any lease of property which would be reflected
on a consolidated balance sheet as a capitalized lease in accordance with GAAP,
in the case of items of indebtedness under (i) through (iii) above to the extent
that any such items (other than letters of credit) would appear as a liability
on a consolidated balance sheet in accordance with GAAP, and also includes, to
the extent not otherwise included, any obligation to be liable for, or to pay,
as obligor, guarantor or otherwise (other than for purposes of collection in the
ordinary course of business), indebtedness of another person.
"FUNDS FROM OPERATIONS" ("FFO") for any period means the Consolidated Net
Income of the Operating Partnership and its Subsidiaries for such period without
giving effect to depreciation and amortization, gains or losses from
extraordinary items, gains or losses on sales of real estate, gains or losses on
investments in marketable securities and any provision/benefit for income taxes
for such period, plus the allocable portion, based on the Operating
Partnership's ownership interest, of funds from operations of unconsolidated
joint ventures, all determined on a consistent basis.
Management considers Funds from Operations to be a useful financial
performance measure of the operating performance of an equity REIT because,
together with net income and cash flows, Funds from Operations provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. Funds
from Operations does not represent net income or cash flows from operations as
defined by GAAP and Funds from Operations should not be considered as an
alternative to net income as an indicator of the Operating Partnership's
operating performance or as an alternative to cash flows as a measure of
liquidity. Funds from Operations does not measure whether cash flow is
sufficient to fund all of the Company's cash needs including principal
amortization, capital improvements and distributions to stockholders. Funds from
Operations does not represent cash flows from operating, investing or financing
activities as defined by GAAP. Further, Funds from Operations as disclosed by
other REITS, may not be comparable to the Company's calculation of Funds from
Operations, as described above.
"NET CASH PROCEEDS" means the proceeds of any issuance or sale of Capital
Stock or options, warrants or rights to purchase Capital Stock, in the form of
cash or cash equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or cash equivalents (except to the extent that such obligations are
financed or sold with recourse to the Operating Partnership or any Subsidiary),
net of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"SUBSIDIARY" means any entity of which the Operating Partnership or one or
more other Subsidiaries owns or controls, directly or indirectly, more than 50%
of the shares of Voting Stock.
"TOTAL ASSETS" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with GAAP (but
excluding intangibles and accounts receivable).
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"TOTAL UNENCUMBERED ASSETS" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an encumbrance and (ii) all other assets of the
Operating Partnership and its Subsidiaries not subject to an encumbrance
determined in accordance with GAAP (but excluding intangibles and accounts
receivable).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"UNSECURED DEBT" means Debt of the Operating Partnership or any Subsidiary
which is not secured by any mortgage, lien, charge, pledge or security interest
of any kind upon any of the properties owned by the Operating Partnership or any
of its Subsidiaries.
"VOTING STOCK" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees, provided that stock that carries only the right to vote
conditionally on the happening of an event shall not be considered Voting Stock.
ADDITIONAL COVENANTS. Any additional or different covenants of the
Operating Partnership or the Company with respect to any series of Debt
Securities will be set forth in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (b) default in the payment of the principal of (or premium, if any
on) any Debt Security of such series at its maturity; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance of any other covenant of the Operating Partnership or
the Company contained in the Indenture (other than a covenant added to the
Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), such default having continued for 60 days
after written notice as provided in the Indenture; (e) default in the payment of
an aggregate principal amount exceeding $5,000,000 of any evidence of recourse
indebtedness of the Operating Partnership or the Company or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled; (f) certain
events of bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of the Operating Partnership, the Company or any
Significant Subsidiary or any of their respective property; and (g) any other
Event of Default provided with respect to a particular series of Debt
Securities. The term "Significant Subsidiary" means each significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act) of the
Operating Partnership or the Company (Section 501).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Operating
Partnership and the Company (and to the Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
the Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the Trustee, the
Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (a) the Operating Partnership or the Company shall have
deposited with the Trustee all required payments of the principal of (and
premium, if any) and interest on the Debt Securities of such series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be), plus
certain fees, expenses, disbursements and advances of the Trustee and (b) all
Events of Default, other than the non-payment of accelerated principal of (or
specified portion thereof), or premium (if any) or interest on the Debt
Securities of such series (or of all
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Debt Securities then Outstanding under the Indenture, as the case may be) have
been cured or waived as provided in the Indenture (Section 502). The Indenture
also provides that the Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) may waive any past default
with respect to such series and its consequences, except a default (x) in the
payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or (y) in respect of a covenant or provision contained
in the Indenture that cannot be modified or amended without the consent of the
Holder of each Outstanding Debt Security affected thereby (Section 513).
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless such default
has been cured or waived; PROVIDED, HOWEVER, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 602).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of indemnity reasonably satisfactory to it (Section 507). This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 601). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. However, the Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, or which may be
unduly prejudicial to the holders of Debt Securities of such series not joining
therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company (if the Debt Securities are Guaranteed Securities)
must deliver to the Trustee a certificate, signed by one of several specified
officers of the Company, stating whether or not such officer has knowledge of
any default under the Indenture and, if so, specifying each such default and the
nature and status thereof (Sections 1009 and 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of Outstanding Debt
Securities which are affected by such modification or amendment; PROVIDED,
HOWEVER, that no such modification or amendment may, without the consent of the
Holder of each such Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or premium (if any) or any installment of interest
on, any such Debt Security, reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect any
right or repayment of the holder of any such Debt Security, change the place of
payment, or the coin or currency, for payment of principal of, premium, if any,
or interest on any such Debt Security or impair the right to institute suit for
the enforcement of any payment on or with respect to any such Debt Security; (b)
reduce the above-stated
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percentage of outstanding Debt Securities of any series necessary to modify or
amend the Indenture, to waive compliance with certain provisions thereof or
certain defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; (c) modify or affect in any manner
adverse to the Holders the terms and conditions of the obligations of the
Company in respect of the payment of principal (and premium, if any) and
interest on any Guaranteed Securities; or (d) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership and/or the Company with certain
covenants relating to such series of Debt Securities in the Indenture (Section
1008).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership, the Company and the Trustee without the consent of
any Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another Person to the Operating Partnership as obligor or the
Company as guarantor under the Indenture; (ii) to add to the covenants of the
Operating Partnership or the Company for the benefit of the Holders of all or
any series of Debt Securities or to surrender any right or power conferred upon
the Operating Partnership or the Company in the Indenture; (iii) to add Events
of Default for the benefit of the Holders of all or any series of Debt
Securities; (iv) to add or change any provisions of the Indenture to facilitate
the issuance of, or to liberalize certain terms of, Debt Securities in bearer
form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect; (v) to amend or supplement any provisions of the Indenture, provided
that no such amendment or supplement shall materially adversely affect the
interests of the Holders of any Debt Securities then Outstanding; (vi) to secure
the Debt Securities; (vii) to establish the form or terms of Debt Securities of
any series; (viii) to provide for the acceptance of appointment by a successor
Trustee to facilitate the administration of the trusts under the Indenture by
more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in
the Indenture, provided that such action shall not adversely affect the
interests of Holders of Debt Securities of any series in any material respect;
or (x) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect (Section 901). In addition, with respect to Guaranteed Securities,
without the consent of any Holder of Debt Securities the Company, or a
subsidiary thereof, may directly assume the due and punctual payment of the
principal of, any premium and interest on all the Guaranteed Securities and the
performance of every covenant of the Indenture on the part of the Operating
Partnership to be performed or observed. Upon any such assumption, the Company
or such subsidiary shall succeed to, and be substituted for and may exercise
every right and power of, the Operating Partnership under the Indenture with the
same effect as if the Company or such subsidiary had been the issuer of the
Guaranteed Securities and the Operating Partnership shall be released from all
obligations and covenants with respect to the Guaranteed Securities. No such
assumption shall be permitted unless the Company has delivered to the Trustee
(i) an officer's certificate and an opinion of counsel, stating, among other
things, that the Guarantee and all other covenants of the Company in the
Indenture remain in full force and effect and (ii) an opinion of independent
counsel that the Holders of Guaranteed Securities shall have no United States
Federal tax consequences as a result of such assumption, and that, if any Debt
Securities are then listed on the New York Stock Exchange, that such Debt
Securities shall not be delisted as a result of such assumption (Section 805).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue
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Discount Security, the U.S. dollar equivalent on the issue date of such Debt
Security of the amount determined as provided in (i) above), (iii) the principal
amount of an Indexed Security that shall be deemed Outstanding shall be the
principal face amount of such Indexed Security at original issuance, unless
otherwise provided with respect to such Indexed Security pursuant to the
Indenture, and (iv) Debt Securities owned by the Operating Partnership, the
Company or any other obligor upon the Debt Securities or any affiliate of the
Operating Partnership, the Company or of such other obligor shall be
disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by the Operating
Partnership, the Company (in respect of a series of Guaranteed Securities) or
the holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in the
Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments of
the Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present will be permitted to be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; PROVIDED, HOWEVER, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a specified
percentage which is less than a majority in principal amount of the Outstanding
Debt Securities of a series may be taken at a meeting at which a quorum is
present by the affirmative vote of Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of such series (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be (Section 401).
Unless otherwise provided in the applicable Prospectus Supplement, the
Operating Partnership may elect either (a) to defease and discharge itself and
the Company (if such Debt Securities are Guaranteed Securities) from any and all
obligations with respect to such Debt Securities (except for the obligation to
pay additional amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") or (b) to release itself
and the Company (if such Debt Securities are Guaranteed Securities) from their
obligations with respect to such Debt Securities under certain sections of the
Indenture
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(including the restrictions described under "Certain Covenants") and if provided
pursuant to Section 301 of the Indenture, their obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to such Debt Securities
("covenant defeasance"), in either case upon the irrevocable deposit by the
Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) with the Trustee, in trust, of an amount, in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable at Stated Maturity, or Government Obligations
(as defined below), or both, applicable to such Debt Securities which through
the scheduled payment of principal and interest in accordance with their terms
will provide money in an amount sufficient to pay the principal of (and premium,
if any) and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor (Section 402).
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership or the Company (if the Debt Securities are
Guaranteed Securities) has delivered to the Trustee an Opinion of Counsel (as
specified in the Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States Federal income tax law occurring
after the date of the Indenture (Section 402).
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government that issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government that issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, and that, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, PROVIDED that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the Indenture or the terms of such Debt Security to receive payment
in a currency, currency unit or composite currency other than that in which such
deposit has been made in respect of such Debt Security, or (b) a Conversion
Event (as defined below) occurs in respect of the currency, currency unit or
composite currency in which such deposit has been made, the indebtedness
represented by such Debt Security shall be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of (and
premium, if any) and interest on such Debt Security as they become due out of
the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
Conversion Event based on the applicable market exchange rate (Section 402).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country that issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established. Unless otherwise provided in the applicable Prospectus
Supplement, all payments of principal of (and premium, if any) and interest on
any
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Debt Security that is payable in a foreign currency that ceases to be used by
its government of issuance shall be made in U.S. dollars.
If the Operating Partnership effects covenant defeasance with respect to
any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default other than the Event of
Default described in clause (d) under "Events of Default, Notice and Waiver"
with respect to Sections no longer applicable to such Debt Securities or
described in clause (g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Operating Partnership and the Company (if such Debt
Securities are Guaranteed Securities) would remain liable to make payment of
such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
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DESCRIPTION OF PREFERRED STOCK
GENERAL
The Company is authorized to issue 10,000,000 shares of preferred stock,
$.01 par value per share, of which no Preferred Stock was outstanding at the
date hereof.
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 Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and Bylaws and any applicable
amendment to the Articles of Incorporation designating terms of a series of
Preferred Stock (a "Designating Amendment").
TERMS
Subject to the limitations prescribed by the Articles of Incorporation, the
board of directors is authorized to fix the number of shares constituting each
series of Preferred Stock and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution of the board of directors. The Preferred Stock will, when
issued, be fully paid and nonassessable by the Company and will have no
preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including
the conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) A discussion of Federal income tax considerations applicable to such
Preferred Stock;
(13) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(14) 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 the Company; and
(15) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
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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 the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock; (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 Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the board of directors of the Company, out of assets
of the Company 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 the Company on such record dates as shall be fixed by the
board of directors of the Company.
Dividends on any series of the 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 the Company 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 the
Company 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 is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company 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 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 the Company ranking junior to or
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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 the Company 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 the Company (except by
conversion into or exchange for other capital shares of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, 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 shares of such
Preferred Stock that shall be redeemed by the Company 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 Preferred Stock does 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 the Company, the terms of such
Preferred Stock may provide that, if no such capital shares shall 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
the Company 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 the Company 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 dividends 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, the Company shall
not purchase or otherwise acquire directly or indirectly any shares of Preferred
Stock of such series (except by conversion into or exchange for capital shares
of the Company 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 the Company 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 shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of 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 the
Company.
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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
the Company. 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 shares of Preferred Stock of any series are to be redeemed, the notice
mailed to each such holder thereof shall also specify the number of shares 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 the Company 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 the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
shares of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to shareholders
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
the Company. If, upon any such voluntary or involuntary liquidation, dissolution
or winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital shares of the Company 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 the Company 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
the Company 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
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of the 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 shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
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 the
Company at a special meeting called by the holders of record of at least 10% of
any series of Preferred Stock so in arrears (unless such request is received
less than 90 days before the date 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 shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been 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
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not have a cumulative dividend, four consecutive quarterly dividends shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment. In such case, the entire board of directors of the Company
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, the Company 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 the Company 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 Company's
Articles of Incorporation 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 holders thereof; PROVIDED,
HOWEVER, with respect 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,
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 Preferred Stock and provided further
that (x) any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock, or (y) 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.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into shares of 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 conversion will be at the option of the holders of the
Preferred Stock or the Company, 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.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no shareholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Certain Provisions
Affecting Change of Control -- OWNERSHIP LIMITATIONS AND RESTRICTIONS ON
TRANSFERS," for the Company to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (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 ensure that the Company remains a qualified REIT, the
Articles of Incorporation provide that no holder (other than persons approved by
the directors at their option and in their discretion) may own, or be deemed to
own by virtue of the
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attribution provisions of the Code, more than 9.8% of the issued and outstanding
capital stock of the Company. To assist the Company in meeting this requirement,
the Company may take certain actions to limit the beneficial ownership, directly
or indirectly, by a single person of the Company's outstanding equity
securities, including any Preferred Stock of the Company. 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
The Company 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. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, 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 the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company 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 the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock that has been converted or
exchanged.
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WITHDRAWAL OF STOCK
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
shares of 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 shares 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 the Company redeems shares of 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 shares
of the Preferred Stock so redeemed, provided the Company 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 the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of 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
that 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 the Company will agree to take all reasonable action that 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.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference
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accorded each share of Preferred Stock 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 the Company. 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 the Company to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of stock, and the Company 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 the Company 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 that will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company 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 holder 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 the Company upon
not less that 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company'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 shares of 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. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company 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 the Company 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 the Company not so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred
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Stock Depositary in connection with the performance of its duties under a
Deposit Agreement. However, holders of Depositary Receipts will pay certain
other transfer and other taxes and governmental charges as well as the fees and
expenses of a Preferred Stock Depositary for any duties required 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 the Company notice of its election to do so, and the Company 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 the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Depositary Agreement. The obligations of the
Company and a 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 the Company 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 shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of 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 the Company, on the other hand, such Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company includes 100,000,000 shares of
Common Stock, $.01 par value per share. Each outstanding share of Common Stock
entitles the holder to one vote on all matters presented to shareholders for a
vote. Holders of Common Stock have no preemptive rights. As of the date hereof,
there were 19,898,970 shares of Common Stock outstanding and 4,269,590 shares
reserved for issuance upon exchange of outstanding Units.
Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list
the additional shares of Common Stock to be sold pursuant to any Prospectus
Supplement, and the Company anticipates that such shares will be so listed.
All shares of Common Stock issued will be duly authorized, fully paid, and
non-assessable. Distributions may be paid to the holders of Common Stock if and
when declared by the board of directors of the Company out of funds legally
available therefor. The Company intends to continue to pay quarterly dividends.
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Under Maryland law, shareholders are generally not liable for the Company's
debts or obligations. If the Company 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 the Company.
The Articles of Incorporation of the Company provide for the board of
directors to be divided into three classes of directors, each class to consist
as nearly as possible of one-third of the directors. At each annual meeting of
shareholders, the class of directors to be elected at such meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. The overall effect of the provisions in the Articles of
Incorporation with respect to the classified board may be to render more
difficult a change of control of the Company or removal of incumbent management.
Holders of Common Stock have no right to cumulative voting for the election of
directors. Consequently, at each annual meeting of shareholders, the holders of
a plurality of the shares of Common Stock are able to elect all of the
successors of the class of directors whose term expires at that meeting.
Directors may be removed only for cause and only with the affirmative vote of
the holders of two-thirds of the shares of capital stock entitled to vote in the
election of directors.
CERTAIN PROVISIONS AFFECTING CHANGE OF CONTROL
GENERAL. Pursuant to the Company's Articles of Incorporation and the
Maryland general corporation law (the "MGCL"), the Company cannot merge into or
consolidate with another corporation or enter into a statutory share exchange
transaction in which it is not the surviving entity or sell all or substantially
all of the assets of the Company unless the Board of Directors adopts a
resolution declaring the proposed transaction advisable and a majority of
stockholders entitled to vote thereon (voting together as a single class)
approve the transaction. In addition, the agreement of limited partnership of
the Operating Partnership (the "Operating Partnership Agreement") requires that
any such merger or sale of all or substantially all of the assets of the
Operating Partnership be approved by a majority of the holders of Units
(including Units owned by the Company).
MARYLAND BUSINESS COMBINATION AND CONTROL SHARE STATUTES. The MGCL
establishes special requirements with respect to business combinations between
Maryland corporations and interested stockholders unless exemptions are
applicable. Among other things, the law prohibits for a period of five years a
merger and other specified or similar transactions between a company and an
interested stockholder and requires a supermajority vote for such transactions
after the end of the five-year period. The Company's Articles of Incorporation
contain a provision exempting the Company from the requirements and provisions
of the Maryland business combination statute. There can be no assurance that
such provision will not be amended or repealed at any point in the future.
The MGCL also provides that control shares of a Maryland corporation
acquired in a control share acquisition have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquiror or by officers or directors who
are employees of the Company. The control share acquisition statute does not
apply to shares acquired in a merger, consolidation or share exchange if the
Company is a party to the transaction, or to acquisitions approved or exempted
by the Articles of Incorporation or bylaws of the Company. The Company's bylaws
contain a provision exempting from the control share acquisition statute any and
all acquisitions by any person of the Company's stock. There can be no assurance
that such provision will not be amended or repealed, in whole or in part, at any
point in the future.
The Company's Articles of Incorporation (including the provision exempting
the Company from the Maryland business combination statute) may not be amended
without the affirmative vote of at least a majority of the shares of capital
stock outstanding and entitled to vote thereon voting together as a single
class, provided that certain provisions of the Articles of Incorporation may not
be amended without the approval of the holders of two-thirds of the shares of
capital stock of the Company outstanding and entitled to vote thereon voting
together as a single class. The Company's bylaws may be amended by the Board of
Directors or a majority of the shares cast of capital stock entitled to vote
thereupon at a duly constituted meeting of stockholders.
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If either of the foregoing exemptions in the Articles of Incorporation or
bylaws is amended, the Maryland business combination statute or the control
share acquisition statute could have the effect of discouraging offers to
acquire the Company and of increasing the difficulty of consummating any such
offer.
OWNERSHIP LIMITATIONS AND RESTRICTIONS ON TRANSFERS. For the Company to
remain qualified as a REIT under the Code, not more than 50% in value of its
outstanding shares of Common Stock may be owned, directly or indirectly, by five
or fewer individuals (defined in the Code to include certain entities) during
the last half of a taxable year, and such shares must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. To ensure that the
Company remains a qualified REIT, the Articles of Incorporation provide that no
holder (other than persons approved by the directors at their option and in
their discretion) may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% (the "Ownership Limit") of the issued and
outstanding capital stock of the Company. The Board of Directors may waive the
Ownership Limit if evidence satisfactory to the Board of Directors and the
Company's tax counsel is presented that the changes in ownership will not
jeopardize the Company's status as a REIT.
If any stockholder purports to transfer shares to a person and either the
transfer would result in the Company failing to qualify as a REIT, or the
stockholder knows that such transfer would cause the transferee to hold more
than the Ownership Limit, the purported transfer shall be null and void, and the
stockholder will be deemed not to have transferred the shares. In addition, if
any person holds shares of capital stock in excess of the Ownership Limit, such
person will be deemed to hold the excess shares in trust for the Company, will
not receive distributions with respect to such shares and will not be entitled
to vote such shares. The person will be required to sell such shares to the
Company for the lesser of the amount paid for the shares and the average closing
price for the 10 trading days immediately preceding the redemption or to sell
such shares at the direction of the Company, in which case the Company will be
reimbursed for its expenses in connection with the sale and will receive any
amount of such proceeds that exceeds the amount such person paid for the shares.
If the Company repurchases such shares, it may pay for the shares with Units.
The foregoing restrictions on transferability and ownership will not apply if
the Board of Directors and the stockholders (by the affirmative vote of the
holders of two-thirds of the outstanding shares of capital stock entitled to
vote on the matter) determine that it is no longer in the best interests of the
Company to continue to qualify as a REIT.
All certificates representing shares of Common Stock bear a legend
referring to the restrictions described above.
Every beneficial owner of more than 5% (or such lower percentage as
required by the Code or regulations thereunder) of the issued and outstanding
shares of capital stock must file a written notice with the Company no later
than January 30 of each year, containing the name and address of such beneficial
owner, the number of shares of Common Stock and/or Preferred Stock owned and a
description of how the shares are held. In addition, each stockholder shall be
required upon demand to disclose to the Company in writing such information as
the Company may request in order to determine the effect of such stockholder's
direct, indirect and constructive ownership of such shares on the Company's
status as a REIT.
These ownership limitations could have the effect of precluding acquisition
of control of the Company by a third party unless the Board of Directors and the
stockholders determine that maintenance of REIT status is no longer in the best
interest of the Company.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is First Union
National Bank, Charlotte, North Carolina.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain Federal income tax considerations to the
Company is based on current law, is for general purposes only, and is not tax
advice. The summary addresses the material Federal income tax considerations
relating to the Company's REIT status, as well as material Federal income tax
considerations relating to the Operating Partnership. The tax treatment of a
holder of any of the Securities will vary depending upon the terms of the
specific securities acquired by such holder, as well as his particular
situation, and this discussion does not attempt to address any aspects of
Federal income taxation relating to holders of Securities. Certain Federal
income tax considerations relevant to holders of the Securities will be provided
in the applicable Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL. Commencing with its taxable year ended December 31, 1994, the
Company has elected to be taxed as a real estate investment trust under sections
856 through 860 of the Code. The Company believes that, commencing with its
taxable year ended December 31, 1994, it has been organized and is operating in
such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that it has operated or will operate in a manner so as to qualify or
remain qualified.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the Federal income
tax treatment of a REIT and its shareholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretation thereof.
Smith Helms Mulliss & Moore, L.L.P. has acted as tax counsel to the Company
in connection with the offering of the Securities and the Company's election to
be taxed as a REIT and in the opinion of Smith Helms Mulliss & Moore, L.L.P.,
commencing with the Company's taxable year ended December 31, 1994, the Company
has been organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code, and the Company's current
organization and proposed method of operation will enable it to continue to meet
the requirements for qualification and taxation as a REIT under the Code. This
opinion is based on the factual representations of the Company concerning its
business and properties. Moreover, such qualification and taxation as a REIT
depends upon the Company's ability to meet the various qualification tests
imposed under the Code discussed below on a continuing basis, through actual
annual operating results, distribution levels and diversity of stock ownership.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year will satisfy such requirements.
FEDERAL INCOME TAXATION OF THE COMPANY
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct distributions paid to
its stockholders substantially eliminating the Federal "double taxation" on
earnings (once at the corporate level when earned and once again at the
stockholder level when distributed) that usually results from investments in a
corporation. Nevertheless, the Company will be subject to Federal income tax as
follows: First, the Company will be taxed at regular corporate rates on its
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" as a consequence of its items of tax preference.
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
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(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 the
Company should fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but 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 the
Company fails either the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each year at least the sum of (i) 85% of its ordinary income for such
year, (ii) 95% of its capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently recognizes gain on
the disposition of such asset during the 10-year period (the "Recognition
Period") beginning on the date on which the asset was acquired by the Company,
then, to the extent of the excess of (a) the fair market value of the asset as
of the beginning of the applicable Recognition Period over (b) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period (the
"Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the IRS (the "Built-In Gain
Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company has elected to be so treated and must
meet the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to stockholders.
ORGANIZATIONAL REQUIREMENTS. The Code defines a REIT as a corporation,
trust or association: (i) that 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) that would be taxable as
a domestic corporation but for the REIT requirements, (iv) that 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,
and (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, through the
application of certain attribution rules, by five or fewer individuals (as
defined in the Code to include certain entities). In addition, certain other
tests regarding the nature of its income and assets, described below, also must
be satisfied. 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. For purposes of
conditions (v) and (vi), pension funds and certain other tax-exempt entities are
treated as individuals or persons, subject to a "look-through" exception in the
case of condition (vi). In addition, the Company's Articles of Incorporation
currently include certain restrictions regarding transfer of its Common Stock,
which restrictions are intended (among other things) to assist the Company in
continuing to satisfy conditions (v) and (vi) above.
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 income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and asset tests. Thus, the Company's proportionate share
of the assets, liabilities and items of income of the Operating Partnership
(including the Operating Partnership's share of the assets and liabilities and
items of income with respect to any partnership in which it holds an interest)
will be treated as assets, liabilities and items of income of the Company for
purposes of applying the requirements described herein.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company'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; including investments in other REITs, or mortgages on
real property (including
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"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments, dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing). Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of the Company's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above 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, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% of more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, 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," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue,
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property.
The Company does not currently charge and does not anticipate charging rent
that is based in whole or in part on the income or profits of any person. The
Company also does not anticipate either deriving rent attributable to personal
property leased in connection with real property that exceeds 15% of the total
rents or receiving rent from Related Party Tenants.
The Operating Partnership does provide certain services with respect to the
Properties. The Company believes that the services with respect to the
Properties that are and will be provided directly are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants and therefore that the provision of
such services will not cause rents received with respect to the Properties to
fail to qualify as rents from real property. Services with respect to the
Properties that the Company believes may not be provided by the Company or the
Operating Partnership directly without jeopardizing the qualification of rent as
"rents from real property" will be performed by independent contractors.
The Operating Partnership and the Company receive fees in consideration of
the performance of property management and brokerage and leasing services with
respect to certain Properties not owned entirely by the Operating Partnership.
Such fees will not qualify under the 75% or the 95% gross income tests. The
Operating Partnership also may receive certain other types of income with
respect to the properties it owns that will not qualify for either of these
tests. In addition, distributions on the Operating Partnership's stock in the
Service Companies and its allocable portion of the income earned by
Forsyth-Carter Brokerage will not qualify under the 75% gross income test. The
Company believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year, which represents approximately 3.6%
of the Company's gross income on a pro forma basis and 1.0% of the Company's
income on an actual basis for the year ended December 31, 1995, will not cause
the Company to exceed the limits on non-qualifying income under either the 75%
or the 95% gross income test.
If the Company 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 that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its Federal income
tax return and (iii) any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether in
all circumstances the
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Company would be entitled to the benefit of these relief provisions. For
example, if the Company fails to satisfy the gross income tests because
non-qualifying income that the Company intentionally incurs exceeds the limits
on such income, the IRS could conclude that the Company's failure to satisfy the
tests was not due to reasonable cause. As discussed above in " -- Federal Income
Taxation of the Company," even if these relief provisions apply, a tax would be
imposed with respect to the excess net income. No similar mitigation provision
provides relief if the Company fails the 30% income test, and in such case, the
Company would cease to qualify as a REIT.
ASSET TESTS. At the close of each quarter of its taxable year, the Company
also must satisfy three tests relating to the nature and diversification of its
assets. First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, including shares in other REITs, cash, cash
items and government securities. Second, no more than 25% of the Company'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 the Company may not exceed 5% of the value of the
Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities.
The 5% test must generally be met for any quarter in which the Company
acquires securities of an issuer. Thus, this requirement must be satisfied not
only on the date on which the Company acquired the securities of the Service
Companies, but also each time the Company increases its ownership of their
respective securities (including as a result of increasing its interest in the
Operating Partnership as limited partners exercise their redemption rights).
Although the Company plans to take steps to ensure that it satisfies the 5%
value test for any quarter with respect to which retesting is to occur, there
can be no assurance that such steps will always be successful or will not
require a reduction in the Company's overall interest in either of the Service
Companies.
The Operating Partnership owns 100% of the nonvoting stock and 1% of the
voting stock of each of the Service Companies, and by virtue of its ownership of
Units, the Company will be considered to own its pro rata share of such stock.
See "The Company and the Operating Partnership". Neither the Company nor the
Operating Partnership, however, will own more than 1% of the voting securities
of either of the Service Companies. In addition, the Company and its senior
management do not believe that the Company's pro rata share of the value of the
securities of either of the Service Companies exceeds 5% of the total value of
the Company's assets. The Company's belief is based in part upon its analysis of
the estimated value of the securities of each of the Service Companies owned by
the Operating Partnership relative to the estimated value of the other assets
owned by the Operating Partnership. No independent appraisals will be obtained
to support this conclusion, and Smith Helms Mulliss & Moore, L.L.P., in
rendering its opinion as to the qualification of the Company as a REIT, is
relying on the conclusions of the Company and its senior management as to the
value of the securities of each of the Service Companies. There can be no
assurance, however, that the IRS might not contend that the value of such
securities held by the Company (through the Operating Partnership) exceeds the
5% value limitation.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to be taxed as a REIT, the
Company is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (a) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends-paid
deduction and the Company's capital gain) and (ii) 95% of the net income, if
any, from foreclosure property in excess of the special tax on income from
foreclosure property, minus (b) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year, if declared before the Company timely files its
Federal income tax return for such year and if paid on or before the first
regular dividend payment after such declaration. Even if the Company satisfies
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the foregoing distribution requirements, to the extent that the Company does not
distribute all of its net capital gain or "REIT taxable income" as adjusted, it
will be subject to tax thereon at regular capital gains or ordinary corporate
tax rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (a) 85% of its ordinary income for that year,
(b) 95% of its capital gain net income for that year and (c) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. In addition, during its Recognition Period, if the Company disposes
of any asset subject to the Built-In Gain Rules, the Company will be required,
pursuant to guidance issued by the IRS, to distribute at least 95% of the
Built-In Gain (after tax), if any, recognized on the disposition of the asset.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the Operating Partnership
Agreement authorizes the Company, as general partner, to take such steps as may
be necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the 95%
distribution requirement. It is possible, however, that the Company, from time
to time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement or to distribute such greater amount as may be
necessary to avoid income and excise taxation, due to timing differences between
(i) the actual receipt of income and the actual payment of deductible expenses
and (ii) the inclusion of such income and the deduction of such expenses in
arriving at taxable income of the Company, or as a result of nondeductible cash
expenditures such as principal amortization or capital expenditures in excess of
noncash deductions. In the event that such timing differences occur, the Company
may find it necessary to arrange for borrowings or, if possible, pay taxable
stock dividends in order to meet the distribution requirement.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends. The Company
will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to stockholders will be dividends,
taxable as ordinary income, except that, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless the Company is entitled to relief under specific statutory
provisions, the Company 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 the Company would be
entitled to such statutory relief. For example, if the Company fails to satisfy
the gross income tests because non-qualifying income that the Company
intentionally incurs exceeds the limit on such income, the IRS could conclude
that the Company's failure to satisfy the tests was not due to reasonable cause.
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that (for Federal income tax purposes) (a) is a citizen or resident of the
United States, (b) is a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or (c) is an estate or trust, the income of which is subject
to Federal income taxation regardless of its source. For any taxable year for
which the Company qualifies for taxation as a REIT, amounts distributed to
taxable U.S. Stockholders will be taxed as discussed below.
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DISTRIBUTIONS GENERALLY. Distributions to U.S. Stockholders, other than
capital gain dividends discussed below, will constitute dividends up to the
amount of the Company's current or accumulated earnings and profits and, to that
extent, will be taxable to the stockholders as ordinary income. These
distributions are not eligible for the dividends-received deduction for
corporations. To the extent that the Company makes a distribution in excess of
its current or accumulated earnings and profits, the distribution will be
treated first as a tax-free return of capital, reducing the tax basis in the
U.S. Stockholder's Common Stock, and the distribution in excess of such basis
will be taxable as gain realized from the sale of its Common Stock. Dividends
declared by the Company in October, November or December of any year payable to
a stockholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the stockholders on December 31 of
the year, provided that the dividends are actually paid by the Company during
January of the following calendar year. Stockholders are not allowed to include
on their own Federal income tax returns any tax losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
" -- Federal Income Taxation of the Company" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of the Company's earnings and profits. As a result,
stockholders may be required to treat certain distributions that would otherwise
result in a tax-free return of capital as taxable dividends.
CAPITAL GAIN DISTRIBUTIONS. Distributions to U.S. Stockholders that are
properly designated by the Company as capital gain distributions will be treated
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain) for the taxable year without regard to the period for
which the stockholder has held his stock. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Capital gain dividends are not eligible for the dividends-received
deduction for corporations.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS. Distributions
from the Company and gain from the disposition of Common Stock will not be
treated as passive activity income, and therefore stockholders will not be able
to apply any "passive losses" against such income. Dividends from the Company
(to the extent they do not constitute a return of capital) will generally be
treated as investment income for purposes of the investment interest limitation;
net capital gain from the disposition of Common Stock or capital gain dividends
generally will be excluded from investment income.
CERTAIN DISPOSITIONS OF SHARES. Losses incurred on the sale or exchange of
Common Stock held for less than six months (after applying certain holding
period rules) will be deemed long-term capital loss to the extent of any capital
gain dividends received by the selling stockholder from those shares.
TREATMENT OF TAX-EXEMPT STOCKHOLDERS. Distributions from the Company to a
tax-exempt employee pension trust or other domestic tax-exempt shareholder
generally will not constitute "unrelated business taxable income" ("UBTI")
unless the stockholder has borrowed to acquire or carry its Common Stock.
Qualified trusts that hold more than 10% (by value) of the shares of certain
REITs may be required to treat a certain percentage of such a REIT's
distributions as UBTI. This requirement will apply only if (i) the REIT would
not qualify as such for Federal income tax purposes but for the application of a
"look-through" exception to the five or fewer requirement applicable to shares
held by qualified trusts and (ii) the REIT is "predominantly held" by qualified
trusts. A REIT is predominantly held if either (i) a single qualified trust
holds more than 25% by value of the REIT interests or (ii) one or more qualified
trusts, each owning more than 10% by value of the REIT interests, hold in the
aggregate more than 50% of the REIT interests. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the REIT. A de minimis exception applies where the ratio set forth in the
preceding sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust described in Section 401 (a) of the Code and exempt from tax
under Section 501(a) of the Code. 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 upon the "look-through"
exception. The restrictions on ownership of Common Stock in the Articles of
Incorporation generally will prevent
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application of the provisions treating a portion of REIT distributions as UBTI
to tax-exempt entities purchasing Common Stock, absent a waiver of the
restrictions by the Board of Directors.
SPECIAL TAX CONSIDERATIONS FOR NON-U.S. STOCKHOLDERS
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex, and the following
discussion is intended only as a summary of these rules. Prospective Non-U.S.
Stockholders should consult with their own tax advisors to determine the impact
of Federal, state and local income tax laws on an investment in the Company,
including any reporting requirements.
In general, Non-U.S. Stockholders will be subject to regular Federal income
tax with respect to their investment in the Company if the investment is
"effectively connected" with the Non-U.S. Stockholder's conduct of a trade or
business in the United States. A corporate Non-U.S. Stockholder that receives
income that is (or is treated as) effectively connected with a U.S. trade or
business may also be subject to the branch profits tax under Section 884 of the
Code, which is payable in addition to regular United States Federal corporate
income tax. The following discussion will apply to Non-U.S. Stockholders whose
investment in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain distribution will be
treated as an ordinary income dividend to the extent that it is made out of
current or accumulated earnings and profits. Generally, any ordinary income
dividend will be subject to a Federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
Such a distribution in excess of the Company's earnings and profits will be
treated first as a return of capital that will reduce a Non-U.S. Stockholder's
basis in its Common Stock (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of Common Stock.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Stockholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the
normal capital gain rates applicable to a U.S. Stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals).
Although tax treaties may reduce the Company's withholding obligations, the
Company generally will be required to withhold from distributions to Non-U.S.
Stockholders, and remit to the IRS, (i) 35% of designated capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (ii) 30% of ordinary dividends paid out of
earnings and profits. In addition, if the Company designates prior distributions
as capital gain dividends, subsequent distributions, up to the amount of such
prior distributions, will be treated as capital gain dividends for purposes of
withholding. A distribution in excess of the Company's earnings and profits will
be subject to 30% dividend withholding. If the amount of tax withheld by the
Company with respect to a distribution to a Non-U.S. Stockholder exceeds the
stockholder's United States tax liability with respect to such distribution, the
Non-U.S. Stockholder may file for a refund of such excess from the IRS.
Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S.
Stockholder generally will not be subject to Federal income taxation. The Common
Stock will not constitute a United States real property interest if the Company
is a "domestically controlled REIT." A domestically controlled REIT is a REIT in
which at all times during a specified testing period less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Stockholders. It is
currently anticipated that the Company will be a domestically controlled REIT
and therefore that the sale of Common Stock will not be subject to taxation
under FIRPTA. However, because the Common Stock will be publicly traded, no
assurance can be given that the Company will continue to be a domestically
controlled REIT. Notwithstanding the foregoing, capital gains not subject to
FIRPTA will be taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder is
a non-resident alien individual who is
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present in the United States for 183 days or more during the taxable year and
certain other conditions apply, in which case the non-resident alien individual
will be subject to a 30% tax on his or her U.S. source capital gains. If the
Company were not a domestically controlled REIT, whether a Non-U.S.
Stockholder's sale of Common Stock would be subject to tax under FIRPTA as a
sale of a United States real property interest would depend on whether the
Common Stock were "regularly traded" on an established securities market (such
as the New York Stock Exchange) on which the Common Stock will be listed and on
the size of the selling stockholder's interest in the Company. If the gain on
the sale of Common Stock were subject to taxation under FIRPTA, the Non-U.S.
Stockholder would be subject to the same treatment as a U.S. Stockholder with
respect to the gain (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of non-resident alien individuals). In
addition, distributions that are treated as gain from the disposition of Common
Stock and that are subject to tax under FIRPTA also may be subject to a 30%
branch profit tax when made to a foreign corporate stockholder that is not
entitled to either a reduced rate or an exemption under a treaty. In any event,
a purchaser of Common Stock from a Non-U.S. Stockholder will not be required to
withhold under FIRPTA on the purchase price if the purchased Common Stock is
"regularly traded" on an established securities market or if the Company is a
domestically controlled REIT. Otherwise, under FIRPTA the purchaser of Common
Stock from a Non-U.S. Stockholder may be required to withhold 10% of the
purchase price and remit this amount to the IRS.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
the holder (i) fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security Number),
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he or she has
failed to report properly payments of interest and dividends or is otherwise
subject to backup withholding or (iv) under certain circumstances, fails to
certify, under penalties of perjury, that he or she has furnished a correct TIN
and (a) that he or she has not been notified by the IRS that he or she is
subject to backup withholding for failure to report interest and dividend
payments or (b) that he or she has been notified by the IRS that he or she is no
longer subject to backup withholding. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against the U.S. Stockholder's United
States Federal income tax liability and may entitle the U.S. Stockholder to a
refund, provided that the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
GENERAL. Substantially all of the Company's investments are held through
the Operating Partnership. In general, partnerships are "pass-through" entities
which are not subject to Federal income tax. Rather, partners are allocated
their proportionate shares of the items of income, gain, loss, deduction and
credit of a partnership, and are potentially subject to tax thereon, without
regard to whether the partners receive a distribution from the partnership. The
Company includes in its income its proportionate share of the foregoing
Operating Partnership items for purposes of the various REIT income tests and in
the computation of its REIT taxable income. Moreover, for purposes of the REIT
asset tests, the Company includes its proportionate share of assets held by the
Operating Partnership.
ENTITY CLASSIFICATION. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge by
the IRS of the status of the Operating Partnership as a partnership (as opposed
to an association taxable as a corporation) for Federal income tax purposes. If
the
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Operating Partnership is treated as an association, it would be taxable as a
corporation and therefore subject to an entity-level tax on its income. In such
a situation, the character of the Company's assets and items of gross income
would change, which would prevent the Company from qualifying as a REIT. See
" -- Failure to Qualify" above for a discussion of the effect of the Company's
failure to meet such tests for a taxable year. In addition, any change in the
Operating Partnership's status for tax purposes might be treated as a taxable
event in which case the Company might incur a tax liability without any related
cash distributions.
An organization formed as a partnership will be treated as a partnership
for Federal income tax purposes rather than as a corporation only if it has no
more than two of the four corporate characteristics that the Treasury
Regulations use to distinguish a partnership from a corporation for tax
purposes. These four characteristics are (i) continuity of life, (ii)
centralization of management, (iii) limited liability and (iv) free
transferability of interests. The Operating Partnership has not requested, and
does not intend to request, a ruling from the IRS that it will be treated as a
partnership for Federal income tax purposes. Instead, in connection with the
filing of the Registration Statement of which this Prospectus is a part, Smith
Helms Mulliss & Moore, L.L.P. has delivered its opinion dated June 3, 1996 to
the effect that based on the provisions of the Operating Partnership's
partnership agreement (the "Partnership Agreement"), certain factual assumptions
and certain representations described in the opinion, the Operating Partnership
will be treated as a partnership for Federal income tax purposes. Smith Helms
Mulliss & Moore, L.L.P. undertakes no obligation to update this opinion
subsequent to such date. Unlike a private letter ruling, an opinion of counsel
is not binding on the IRS, and no assurance can be given that the IRS will not
challenge the status of the Operating Partnership as a partnership for Federal
income tax purposes.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss in generally equal to the difference between the fair market
value of contributed property at the time of contribution, and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for Federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property (including the Properties). Consequently, the Partnership
Agreement requires such allocations to be made in a manner consistent with
Section 704(c) of the Code.
In general, the partners who have contributed partnership interests in the
Properties to the Operating Partnership (the "Contributing Partners") will be
allocated lower amounts of depreciation deductions for tax purposes than such
deductions would be if determined on a pro rata basis. In addition, in the event
of the disposition of any of the contributed assets (including the Properties)
which have a Book-Tax Difference, all income attributable to such Book-Tax
Difference will generally be allocated to the Contributing Partners, and the
Company will generally be allocated only its share of capital gains attributable
to appreciation, if any, occurring after the closing of any offering of
Securities. This will tend to eliminate the Book-Tax Difference over the life of
the Operating Partnership. However, the special allocation rules of Section
704(c) do not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such a sale. Thus, the
carryover basis of the contributed assets in the hands of the Operating
Partnership will cause the Company to be allocated lower depreciation and other
deductions, and possibly amounts of taxable income in the event of a sale of
such contributed assets in excess of the economic or book income allocated to it
as a result of such sale. This may cause the Company to recognize taxable income
in excess of cash proceeds, which might adversely affect the Company's ability
to comply with the REIT distribution requirements. See " -- Requirements for
Qualification -- ANNUAL DISTRIBUTION REQUIREMENTS."
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" under current law, or the
election of certain methods which would permit any distortions caused by a
Book-Tax Difference to be entirely rectified on an annual basis or with respect
to a specific taxable transaction such as a sale. The Operating Partnership and
the Company have determined to use the "traditional method" for
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accounting for Book-Tax Differences with respect to the Properties contributed
to the Partnership. As a result of such determination, distributions to
shareholders will be comprised of a greater portion of taxable income rather
than a return of capital. The Operating Partnership and the Company have not
determined which of the alternative methods of accounting for Book-Tax
Differences will be elected with respect to Properties contributed to the
Partnership in the future.
With respect to any property purchased by the Operating Partnership, such
property will initially have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners), exceed the Company's adjusted tax basis,
such excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gains. Under
current law, capital gains and ordinary income of corporations are generally
taxed at the same marginal rates.
SALE OF THE PROPERTIES. The Company's share of gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See " -- Federal Income Taxation of the Company -- INCOME TESTS."
Such prohibited transaction income may also have an adverse effect upon the
Company's ability to satisfy the income tests for qualification as a REIT. Under
existing law, whether property is held as inventory or primarily for sale to
customers in the ordinary course of the Operating Partnership's trade or
business is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. The Operating Partnership intends to
hold the Properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating the
Properties (and other properties) and to make such occasional sales of the
Properties, including peripheral land, as are consistent with the Operating
Partnership's investment objectives.
OTHER TAX CONSIDERATIONS
FEDERAL TAX ASPECTS OF THE CROCKER ACQUISITION. Under the terms of the
Merger Agreement, Cedar Acquisition Corporation ("Cedar"), a newly formed
subsidiary of Highwoods, will merge into Crocker with Highwoods becoming the
sole stockholder of Crocker. Highwoods intends to contribute the shares of
common stock of Crocker to the Operating Partnership in exchange for limited
partnership interests therein. As a result, Crocker would become a subsidiary of
the Operating Partnership. Except for the Federal and state income taxes that
might be payable upon the distribution of certain assets which will be
distributed directly or indirectly to the stockholders of Crocker prior to the
Merger (the "Excluded Assets"), which taxes are to be reimbursed to Crocker by
the distributee stockholders, the Merger has been structured to defer any tax
recognition to Crocker. To accomplish this, the Company intends to maintain
Crocker's separate status as an operating REIT. To maintain Crocker's REIT
status, the Company intends to cause Crocker to sell a sufficient amount of
common stock to at least 110 individuals to enable Crocker to meet the test for
qualification of a REIT under Section 856(a)(5) of the Code. The aggregate
amount of common stock to be issued to such minority stockholders is not
expected to exceed 1.0% of the equity of Crocker.
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The Merger is a taxable purchase of 100% of the outstanding stock of
Crocker, which will be taxable to the selling stockholders of Crocker but,
except as described below relative to the Excluded Assets, will not be taxable
at the Crocker corporate or subsidiary level. The Company's tax basis in its
Crocker stock will be equal to the total cash it pays in the Merger for the
Crocker stock, stock options and warrants. No gain or loss will result to the
Company from the Merger. Following the Merger, the Company will transfer all of
the stock of Crocker to the Operating Partnership in exchange for Units and the
settlement of certain intercompany indebtedness that was used to finance the
Merger. This transaction will be a nontaxable transfer of property to a
partnership in exchange for ownership interests in the partnership. The
Company's tax basis in the Units so acquired will be equal to its tax basis in
the Crocker stock transferred to the Operating Partnership and no gain or loss
should be realized by Crocker, the Company or the Operating Partnership as a
result of this transaction.
The Company expects Crocker at all times to maintain its status as a REIT
and to continue to be organized and operated so as to maintain its qualification
as a REIT. Since the ownership of Crocker stock by the Operating Partnership is
considered to be the ownership of a real estate asset for purposes of the REIT
qualification tests and since distributions received from a REIT are income
included in both the 95% and 75% income tests of Code Sections 856(c)(2) and
(3), the Company's qualification as a REIT should not be affected by the
acquisition and ownership of Crocker. If, however, Crocker fails to qualify as a
REIT for any reason while its shares are owned by the Company or the Operating
Partnership, the Company will no longer qualify as a REIT and the Company would
be taxed as if it were a domestic corporation and its stockholders would be
taxed in the same manner as stockholders of ordinary corporations. In that
event, the Company could be subject to potentially significant tax liabilities
and, therefore, the amount of cash available for distribution to its
stockholders would be substantially reduced or eliminated.
The Company believes, and Crocker has represented that, commencing with
Crocker's taxable year ended December 31, 1995, Crocker has operated in such a
manner so as to meet the Code requirements for qualification as a REIT.
Crocker's qualification as a REIT is a condition to the Company's obligation to
consummate the Merger.
SERVICE COMPANIES. A portion of the amounts to be used to fund
distributions to stockholders is expected to come from the Operating Partnership
from distributions on stock of the Service Companies held by the Operating
Partnership. Neither of the Service Companies will qualify as a REIT, and the
Service Companies will pay Federal, state and local income taxes on their
taxable incomes at normal corporate rates. Any Federal, state or local income
taxes that the Service Companies are required to pay will reduce the cash
available for distribution by the Company to its stockholders.
As described above, the value of the securities of each of the Service
Companies held by the Company cannot exceed 5% of the value of the Company's
assets at a time when a Unit holder in the Operating Partnership exercises his
or her redemption right (or the Company otherwise is considered to acquire
additional securities of either of the Service Companies). See " -- Federal
Income Taxation of the Company." This limitation may restrict the ability of
each of the Service Companies to increase the size of its respective business
unless the value of the assets of the Company is increasing at a commensurate
rate.
STATE AND LOCAL TAX
The Company and its stockholders may be subject to state and local tax in
various states and localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
stockholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective stockholders should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Common Stock of the Company.
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PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Securities to one or
more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents. Any such underwriter or
agent involved in the offer and sale of the Securities will be named in the
applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company and the Operating Partnership
also may, from time to time, authorize underwriters acting as their agents to
offer and sell the Securities upon the terms and conditions as are set forth in
the applicable Prospectus Supplement. In connection with the sale of Securities,
underwriters may be deemed to have received compensation from the Company or the
Operating Partnership in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of Securities for whom they may act
as agent. 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 agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, are set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933 (the "Securities Act").
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company and the Operating Partnership, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company and
the Operating Partnership will authorize dealers acting as their agents to
solicit offers by certain institutions to purchase Securities from them at the
public offering price set forth in such Prospectus Supplement pursuant to
Delayed Delivery Contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company and the Operating Partnership. Contracts will not
be subject to any conditions except (i) the purchase by an institution of the
Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject, and (ii) if the Securities are being sold to
underwriters, the Company and the Operating Partnership shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and the
Operating Partnership in the ordinary course of business.
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EXPERTS
The consolidated financial statements and schedule of Highwoods Properties,
Inc., incorporated herein by reference from the Company's Annual Report (Form
10-K) for the year ended December 31, 1995, the Combined Statement of Revenue
and Certain Expenses of TBC Parkway Plaza, Inc. for the year ended December 31,
1994, incorporated herein by reference from the Company's Current Report on Form
8-K, dated December 18, 1995, the Combined Statement of Revenue and Certain
Expenses of the Acquired Properties for the year ended December 31, 1994,
incorporated herein by reference from the Company's Current Report on Form 8-K,
dated July 12, 1995 (as amended on Form 8-K/A on September 6, 1995), the
Combined Statement of Revenue and Certain Expenses of Research Commons for the
year ended December 31, 1994, incorporated herein by reference from the
Company's Current Report on Form 8-K, dated February 10, 1995, the combined
financial statements and schedule of Eakin & Smith for the year ended December
31, 1995, incorporated by reference from the Company's Current Report on Form
8-K/A dated April 1, 1996 as amended on June 3, 1996 and June 18, 1996 and the
Historical Summary of Gross Income and Direct Operating Expenses for certain
properties owned by Towermarc Corporation for the year ended December 31, 1995,
incorporated herein by reference from the Company's Current Report on Form
8-K/A, dated April 29, 1996 as amended on June 3, 1996 and June 18, 1996 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements and schedule of Highwoods/Forsyth Limited
Partnership at December 31, 1995 and for the period June 14, 1994 to December
31, 1994 and the year ended December 31, 1995 and the combined financial
statements of the Highwoods Group at December 31, 1993 and for the period
January 1, 1994 to June 13, 1994 and the year ended December 31, 1993 appearing
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The combined financial statements and the schedule of real estate and
accumulated depreciation of the Forsyth Group, incorporated herein by reference
from the Company's Current Report on Form 8-K, dated February 10, 1995, have
been audited by Deloitte & Touche LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
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.
The financial statements of Crocker Realty Trust, Inc. as of December 31,
1995 and for the year then ended, the financial statements of Crocker & Sons,
Inc. as of December 31, 1994 and for the year then ended, and the financial
statements of Crocker Realty Investors, Inc. as of December 31, 1994 and 1993,
and for the two years ended December 31, 1994, have been incorporated herein by
reference from the Company's Current Report on Form 8-K/A dated April 29, 1996
as amended on June 3, 1996 and June 18, 1996, in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere incorporated by reference herein, and upon the authority of said firm
as experts in accounting and auditing.
The combined financial statements of Southeast Realty Corp., AP Southeast
Portfolio Partners, L.P. and AP Fontaine III Partners, L.P. as of December 31,
1994 and for the year ended December 31, 1994, and the financial statements of
AP Fontaine III Partners, L.P. for the period from October 28, 1993 (date of
inception) through December 31, 1993 incorporated herein by reference from the
Company's Current Report on Form 8-K/A dated April 29, 1996 as amended on June
3, 1996 and June 18, 1996, have been audited by Deloitte & Touche LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated herein by reference and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The financial statements of AP Southeast Portfolio Partners, L.P. for the
period from its date of inception (November 17, 1993) through December 31, 1993
incorporated herein by reference from the Company's Current Report on Form 8-K/A
dated April 29, 1996 as amended on June 3, 1996 and June 18, 1996,
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have been so included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the Securities offered hereby is being passed upon for the
Company and the Operating Partnership by Smith Helms Mulliss & Moore, L.L.P.,
Raleigh, North Carolina. Certain legal matters will be passed upon for any
underwriters, dealers or agents by Andrews & Kurth L.L.P., Washington, D.C.
In addition, the description of Federal income tax consequences contained
in this Prospectus entitled "Federal Income Tax Considerations" is based upon
the opinion of Smith Helms Mulliss & Moore, L.L.P.
Smith Helms Mulliss & Moore, L.L.P. and Andrews & Kurth L.L.P. may rely as
to matters of Maryland law on the opinion of Piper & Marbury L.L.P., Baltimore,
Maryland.
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No individual has been authorized to give any information or make any
representations not contained or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus in connection with the offer made by
this Prospectus Supplement and the accompanying Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus Supplement and the accompanying
Prospectus do not constitute an offer to sell, or a solicitation of an offer to
buy, any of the securities covered by this Prospectus Supplement and the
accompanying Prospectus in any jurisdiction where, or to any person to whom, it
is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus Supplement and the accompanying Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus Supplement and the
accompanying Prospectus or in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Plan of Distribution............................S-2
PROSPECTUS
Available Information.............................2
Incorporation of Certain Documents by
Reference......................................2
The Company and Operating Partnership.............3
Risk Factors......................................4
Use of Proceeds ..................................9
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends..........9
Description of Debt Securities....................9
Description of Preferred Stock...................23
Description of Depositary Shares.................28
Description of Common Stock......................31
Federal Income Tax Considerations................34
Plan of Distribution.............................45
Experts..........................................46
Legal Matters....................................47
HIGHWOODS
PROPERTIES, INC.
250,000 Shares of
Common Stock
PROSPECTUS SUPPLEMENT
July 8, 1996
