PROSPECTUS 424B(3)
333-24165
4,509,630 SHARES
HIGHWOODS PROPERTIES, INC.
COMMON STOCK
This Prospectus relates to (i) the possible issuance by Highwoods
Properties, Inc. (the "Company") of up to 537,138 shares (the "Redemption
Shares") of common stock, par value $.01 per share (the "Common Stock"), if, and
to the extent that, holders of up to 537,138 units of partnership interest
("Units") in the Highwoods/Forsyth Limited Partnership (the "Operating
Partnership"), of which the Company is the sole general partner, exercise their
right to redeem such Units and the Company elects to satisfy such redemption
right through the issuance of Common Stock; (ii) the possible issuance by the
Company of up to 150,000 shares of Common Stock (the "Warrant Shares") issuable
upon exercise of up to 150,000 warrants; (iii) the offer and sale from time to
time of Redemption Shares or Warrant Shares by the holders thereof who may be
affiliates of the Company or who may have been affiliates of Eakin & Smith, Inc.
at the time of its acquisition by the Company (collectively, the "Affiliates");
(iv) the offer and sale from time to time of up to 543,477 shares of Common
Stock (the "Eakin & Smith Shares") by the holders thereof, which shares were
issued or are issuable in connection with the Company's acquisition of Eakin &
Smith, Inc.; and (v) the offer and sale from time to time of up to 3,279,015
shares of Common Stock (the "Restricted Shares") by the holders thereof which
may be issued upon the redemption of up to 3,179,015 Units and the exercise of
up to 100,000 warrants. The Affiliates and the holders of the Eakin & Smith
Shares and the Restricted Shares are together referred to herein as the "Selling
Stockholders." The Company has registered the resale of the Affiliate's
Redemption Shares and Warrant Shares, the Restricted Shares and the Eakin &
Smith Shares (collectively, the "Resale Shares") and has registered the issuance
of the Redemption Shares and Warrant Shares to permit the holders thereof to
sell such shares without restriction in the open market or otherwise, but such
registration does not necessarily mean that any of such shares will be issued by
the Company or offered or sold by the Selling Stockholders.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "HIW." To insure that the Company retains its status as a real
estate investment trust ("REIT"), ownership by any person is limited to 9.8% of
the outstanding shares of Common Stock, with certain exceptions.
SEE "RISK FACTORS" AT PAGE 3 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
The Company will receive no proceeds from the sale of any of the shares
in this offering except for the issuance of the Warrant Shares; however, the
Company has agreed to bear certain expenses of registration of the Common Stock
under the Federal and state securities laws. The Company will acquire additional
Units in the Operating Partnership in exchange for the issuance of any
Redemption Shares to holders of Units pursuant to this Prospectus.
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 REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Selling Stockholders from time to time may offer and sell the
Resale Shares held by them directly or through agents or broker-dealers on terms
to be determined at the time of sale. To the extent required, the names of any
agent or broker-dealer and applicable commissions or discounts and any other
required information with respect to any particular offer will be set forth in
an accompanying Prospectus Supplement. See "Plan of Distribution." The Selling
Stockholders reserve the right to accept or reject, in whole or in part, any
proposed purchase of the Resale Shares to be made directly or through agents.
The Selling Stockholders and any agents or broker-dealers that
participate with the Selling Stockholders in the distribution of the Resale
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and any commission received by
them and any profit on the resale of the Resale Shares may be deemed to be
underwriting commissions or discounts under the Securities Act. See
"Registration Rights" for a description of certain indemnification arrangements
between the Company and the Selling Stockholders.
The date of this Prospectus is April 17, 1997.
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the 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. The
Common Stock of the Company is listed on the NYSE, and such material can also be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act, with respect
to the Common Stock registered hereby. 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 and such
Common Stock, 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 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, 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; and
c. The Company's Current Report on Form 8-K, dated January 9,
1997 (as amended on Form 8-K/A on February 7, 1997 and March
10, 1997).
All documents filed by the Company 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 Common Stock 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 which 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.
The Company will furnish without charge upon written or oral request to
each person to whom a copy of this Prospectus is delivered, including any
beneficial owner, a copy 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). Requests should be made to: Investor Relations, 3100 Smoketree
Court, Suite 600, Raleigh, North Carolina 27604.
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THE COMPANY
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" SHALL MEAN
HIGHWOODS PROPERTIES, INC., PREDECESSORS OF HIGHWOODS PROPERTIES, INC. AND THOSE
ENTITIES OWNED OR CONTROLLED BY HIGHWOODS PROPERTIES, INC., INCLUDING
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP.
The Company is a self-administered and self-managed real estate
investment trust ("REIT") that began operations through a predecessor in 1978.
At December 31, 1996, the Company owned a portfolio of 292 in-service office and
industrial properties (the "Properties") encompassing approximately 17.5 million
square feet. At December 31, 1996, the Properties consisted of 181 suburban
office properties and 111 industrial properties (including 74 service centers),
located in 16 markets in North Carolina, Florida, Tennessee, Virginia, Georgia,
South Carolina and Alabama. As of December 31, 1996, the Properties were
approximately 92% leased to approximately 1,800 tenants.
In addition, as of December 31, 1996, the Company had 14 properties (12
suburban office properties and two industrial properties (collectively, the
"Development Projects")) under development in North Carolina, Virginia,
Tennessee and South Carolina, which will encompass approximately 1.0 million
square feet. At December 31, 1996, the Company also owned approximately 238
acres of land for future development and had committed to purchase over the next
six years an additional 311 acres (collectively, the "Development Land"). The
Development Land is zoned and available for office and/or industrial
development, substantially all of which has utility infrastructure already in
place.
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 March 14 , 1997, owned
84% 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
the cash value of one share of Common Stock or, at the Company's option, one
share (subject to certain adjustments) of 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.
In addition to owning the Properties, the Development Projects and the
Development Land, the Company provides leasing, property management, real estate
development, construction and miscellaneous tenant services for its properties
as well as for third parties. The Company conducts its third-party fee-based
services through Highwoods Services, Inc. and Forsyth Properties Services, Inc.,
which are subsidiaries of the Operating Partnership. The Company recently sold
its third-party brokerage business in the Research Triangle and the Piedmont
Triad and currently provides such brokerage services only in Nashville,
Tennessee.
The Company was formed in Maryland in 1994. The Company's executive
officers are located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina
27604, and its telephone number is (919) 872-4924. The Company also maintains
regional offices in Winston-Salem, Greensboro and Charlotte, North Carolina;
Richmond, Virginia; Nashville and Memphis, Tennessee; Atlanta, Georgia; and
Tampa and Boca Raton, Florida.
SECURITIES OFFERED
The Units redeemable for Redemption Shares (the "E&S Units") and the
warrants exercisable for Warrant Shares (the "E&S Warrants") were issued on
April 1, 1996 in connection with the acquisition of Eakin & Smith, Inc. ("Eakin
& Smith"). In addition, 502,936 Eakin & Smith Shares were issued as
consideration for the acquisition of Eakin & Smith. The remaining 40,541 Eakin &
Smith Shares (the "Earnout Shares") are issuable pursuant to earnout provisions
in the April 1, 1996 acquisition agreement. The Units redeemable and warrants
exercisable for Restricted Shares were issued in connection with other property
acquisitions dating from February 10, 1995 to April 3, 1997.
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All issued securities described above were issued without registration
in reliance on the exemption under Section 4(2) of the Securities Act or Rule
506 of Regulation D. The Company also intends to issue the Earnout Shares and
Restricted Shares, if any, pursuant to those exemptions from registration.
As part of the acquisitions referred to above, the Company entered into
registration rights and lockup agreements (the "Registration Rights Agreements")
pursuant to which the Company agreed to file a shelf registration statement so
that the Eakin & Smith Shares and any shares of Common Stock issued upon
redemption of Units or exercise of warrants would be freely tradeable by the
holders thereof. The Registration Rights Agreements also prohibit the transfer
(including the redemption or exercise) of the E&S Units and the E&S Warrants for
one year from the date of their issuance. The transfer of the other securities
issued in the acquisition transactions referred to above was also restricted by
the Registration Rights Agreements. The Company has filed the Registration
Statement, of which this Prospectus is a part, in order to comply with its
obligations under the Registration Rights Agreements.
Other than the Units received upon issuance of the Redemption Shares,
the Company will not receive any proceeds from such issuances. The Company will
receive $28.00 upon the issuance of each Warrant Share. The Company will not
receive any proceeds from the sale of the Resale Shares by the Selling
Stockholders.
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RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS
ARE IDENTIFIED BY WORDS SUCH AS "EXPECT," "ANTICIPATE," "SHOULD" AND WORDS OF
SIMILAR IMPORT. ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW UNDER "RISK FACTORS." AN
INVESTMENT IN THE COMMON STOCK INVOLVES VARIOUS RISKS. THE FOLLOWING
INFORMATION, IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, SHOULD BE CAREFULLY CONSIDERED BY UNIT HOLDERS BEFORE SEEKING TO
REDEEM THEIR UNITS AND BY PROSPECTIVE PURCHASERS OF THE RESALE SHARES.
TAX CONSEQUENCES OF REDEMPTION OF UNITS
The exercise by a Unit holder of the right to require the redemption of
his or her Units will be treated for tax purposes as a taxable sale or exchange
of the Units by the limited partner. The redeeming limited partner will be
treated as realizing proceeds in an amount equal to the sum of the cash (or the
value of the Common Stock) received in the exchange plus the amount of the
reduction in any Operating Partnership liabilities allocable to the redeeming
limited partner. It is possible that the amount of gain recognized or even the
tax liability resulting from such gain could exceed the amount of cash or the
value of Common Stock received upon such disposition. See "Redemption of
Units--Tax Consequences of Redemption." In addition, the ability of the limited
partner to raise cash through the sale of his or her Common Stock to pay tax
liabilities associated with the redemption of Units may be limited because, as a
result of fluctuations in the stock price, the price the limited partner
receives for such shares may not equal the value of his or her Units at the time
of redemption.
POTENTIAL CHANGE IN INVESTMENT UPON REDEMPTION OF UNITS
If a limited partner exercises the right to require the redemption of
his or her Units, such limited partner may receive, at the option of the Company
as general partner of the Operating Partnership, cash or shares of Common Stock
of the Company in exchange for the Units. If the limited partner receives cash,
the limited partner will no longer have any interest in the Company and will not
benefit from any subsequent increases in share price and will not receive any
future distributions from the Company (unless the limited partner currently owns
or acquires in the future additional shares of Common Stock or Units). If the
limited partner receives shares of Common Stock, the limited partner will become
a stockholder of the Company rather than a holder of Units in the Operating
Partnership. See "Redemption of Units--Comparison of Ownership of Units and
Shares of Common Stock."
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 affected by business layoffs, downsizing, industry slowdowns, changing
demographics and other factors) and local real estate conditions (such as
oversupply of or reduced demand for office, industrial and other competing
commercial properties). As of December 31, 1996, the Properties were located in
16 southeastern markets, and 53% of the total annualized rental revenue was
represented by Properties located in North Carolina. The Company's performance
and its ability to make distributions to stockholders is therefore dependent on
the economic conditions in the Southeast, particularly in North Carolina. There
can be no assurance as to the continued growth of the southeastern economy.
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 Common Stock 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
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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 March 14, 1997, the Company owned approximately 84% of the Units.
STAGGERED BOARD. The Board of Directors of the Company has three
classes of directors, the terms of which will expire in staggered, three-year
intervals. 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.
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.
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.
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.
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ILLIQUIDITY OF REAL ESTATE. Equity real estate investments are
relatively illiquid. Such liquidity 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.
EXISTING DEBT MATURITIES, BALLOON PAYMENTS AND REFINANCING RISKS. The
Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest. Because the Company anticipates
that only a small portion of the principal of the Company's mortgage
indebtedness will be repaid prior to maturity, it will be necessary for the
Company to refinance debt. Accordingly, there is a risk that existing
indebtedness on the Properties will not be able to be refinanced or that the
terms of such refinancing will not be as favorable as the terms of the existing
indebtedness.
RISK OF RISING INTEREST RATES. The Company incurred and expects in the
future to incur floating rate indebtedness in connection with the acquisition
and development of properties, as well as for other purposes. In addition,
additional indebtedness that the Company incurs under the Company's existing
revolving credit facility also bears interest at a floating rate. Accordingly,
increases in interest rates would increase the Company's interest costs (to the
extent that the related indebtedness was not protected by the Company's interest
rate protection arrangements).
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 historically limited its development,
acquisition, management and leasing business primarily to markets with which
management is familiar, the Company has expanded its business to new geographic
markets. Management believes that much of its past success has been a result of
its local expertise. The
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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.
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. Although 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.
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.
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 ("ACM") into the air, and third parties may
seek recovery from owners or operators of real property for personal injuries
associated with ACM. In connection with its ownership and operation of its
properties, the Company may be potentially liable for these costs. In addition,
the presence of hazardous or toxic substances at a site adjacent to or in the
vicinity of a property could require the property owner to participate in
remediation activities in certain cases or could have an adverse effect on the
value of such property.
As of December 31, 1996, substantially all 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 results
of operations, liquidity or financial position taken as a whole, nor is the
Company aware of any such material environmental liability. Nevertheless, it is
possible that the Company's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. In addition, assumptions regarding the existence and
nonexistence of contamination and groundwater flow 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,
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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.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The authorized capital stock of the Company consists of 110,000,000
shares of capital stock, $.01 par value, of which 100,000,000 shares are
classified as Common Stock and 10,000,000 shares are classified as preferred
stock ("Preferred Stock"). The following description of the terms and provisions
of the shares of capital stock of the Company and certain other matters does not
purport to be complete and is subject to and qualified in its entirety by
reference to the applicable provisions of Maryland law and the Company's
Articles of Incorporation and Bylaws, as amended.
COMMON STOCK
Each holder of Common Stock is entitled to one vote at stockholder
meetings for each share of Common Stock held. Neither the Articles of
Incorporation nor the Bylaws provide for cumulative voting for the election of
directors. Subject to the prior rights of any series of Preferred Stock that may
be classified and issued, holders of Common Stock are entitled to receive, pro
rata, such dividends as may be declared by the board of directors out of funds
legally available therefor, and also are entitled to share, pro rata, in any
other distributions to stockholders. The Company currently pays regular
quarterly dividends to holders of Common Stock. Holders of Common Stock do not
have any preemptive rights or other rights to subscribe for additional shares.
The Common Stock is listed for trading on the New York Stock Exchange
(the "NYSE").
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 143,750 shares of Series A
Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Preferred
Shares"). As of the date of this Prospectus, there were 125,000 Preferred Shares
outstanding. The summary of certain terms and provisions of the Preferred Shares
contained here does not purport to be complete and is subject to and qualified
in its entirety by reference to the terms and provisions of the Articles
Supplementary relating to the Preferred Shares.
The Preferred Shares will rank senior to the Common Stock with respect
to payment of dividends and amounts upon liquidation, dissolution or winding up.
Dividends on the Preferred Shares are cumulative from the date of original
issue, February 12, 1997, and will be payable quarterly in arrears on the last
calendar day (or if such day is not a business day, the next business day
thereafter) of each February, May, August and November, commencing on or about
May 31, 1997 at the rate of 85/8% of the liquidation preference per annum.
In the event of any liquidation, dissolution or winding up of the
affairs of the Company, the holders of the Preferred Shares are entitled to be
paid out of the assets of the Company legally available for distribution to its
stockholders liquidating distributions in cash or property at its fair market
value as determined by the Company's Board of Directors in the amount of a
liquidation preference of $1,000 per share, plus an amount equal to any accrued
and unpaid dividends to the date of such liquidation, dissolution or winding up,
before any distribution of assets is made to holders of Common Stock or any
other capital shares that rank junior to the Preferred Shares as to liquidation
rights. After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Shares will have no right or
claim to any of the remaining assets of the Company. The consolidation or merger
of the Company with or into any other entity or the sale, lease, transfer 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.
The Preferred Shares are not redeemable prior to February 12, 2027. On
and after such date, the Preferred Shares may be redeemed in whole or in part,
at the option of the Company, at a redemption price of $1,000.00 per share, plus
all accrued and unpaid dividends. The Preferred Shares have no stated maturity
and will not be subject to any sinking fund or mandatory redemption and are not
convertible into any other securities of the Company.
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PREFERRED STOCK
Under the Company's Articles of Incorporation, the board of directors
may issue, without any further action by the stockholders, shares of capital
stock in one or more series having such preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption as the board of directors may determine
and as may be evidenced by Articles Supplementary to the Articles of
Incorporation adopted by the board of directors.
Through its power to establish the preferences and rights of additional
series of capital stock without further stockholder vote, the board of directors
may afford the holders of any series of senior capital stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of Common
Stock. The issuance of any such senior capital stock could have the effect of
delaying or preventing a change in control of the Company.
CLASSIFICATION OF BOARD OF DIRECTORS; REMOVAL OF DIRECTORS; OTHER PROVISIONS
The Company's Articles of Incorporation provide for the board of
directors to be divided into three classes of directors, with each class to
consist as nearly as possible of an equal number of directors. At each annual
meeting of stockholders, 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. Because holders of Common Stock will have no
right to cumulative voting for the election of directors, at each annual meeting
of stockholders, the holders of a majority of the shares of Common Stock will be
able to elect all of the successors of the class of directors whose term expires
at that meeting.
The Articles of Incorporation also provide that, except for any
directors who may be elected by holders of a class or series of capital stock
other than Common Stock, directors may be removed only for cause and only by the
affirmative vote of stockholders holding at least two-thirds of the votes
entitled to be cast for the election of directors. Vacancies on the board of
directors may be filled by the affirmative vote of the remaining directors.
These provisions may make it more difficult and time-consuming to
change majority control of the board of directors of the Company and, thus, may
reduce the vulnerability of the Company to an unsolicited proposal for the
takeover of the Company or the removal of incumbent management. The Company's
officers and directors are and will be indemnified under Maryland law, the
Articles of Incorporation of the Company and the agreement of limited
partnership of the Operating Partnership (the "Partnership Agreement") against
certain liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company, the Company
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
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 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
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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.
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 capital 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 capital stock bear a legend
referring to the restrictions described above.
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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 and Preferred
Shares is First Union National Bank, Charlotte, North Carolina.
REDEMPTION OF UNITS
GENERAL
Each limited partner may, subject to certain limitations, require that
the Operating Partnership redeem all or a portion of such partner's Units
beginning one year from the date of issuance by delivering a notice to the
Operating Partnership. Upon redemption, a limited partner will receive, at the
option of the Company, as general partner of the Operating Partnership, either
(i) a number of shares of Common Stock equal to the number of Units redeemed or
(ii) cash in an amount equal to market value of the number of shares of Common
Stock the partner would have received pursuant to (i) above. The market value of
the Common Stock for this purpose will be equal to the average of the closing
trading price of the Company's Common Stock for the 10 trading days before the
day on which the redemption notice was received by the Operating Partnership.
In lieu of the Operating Partnership redeeming Units, the Company, as
general partner, in its sole discretion, has the right to assume directly and
satisfy the redemption right of the limited partner. The Company anticipates
that it generally will elect to assume directly and satisfy any redemption right
exercised by a limited partner through the issuance of the shares of Common
Stock pursuant to this Prospectus, whereupon the Company will acquire the Units
being redeemed and will become the owner of the Units. Such an acquisition by
the Company will be treated as a sale of the Units to the Company for Federal
income tax purposes. See "--Tax Consequences of Redemption" below. Upon
redemption, such limited partner's right to receive distributions with respect
to the Units redeemed will cease. However, the limited partner will then have
rights as a stockholder of the Company from the time of his or her acquisition
of Common Stock, including the payment of dividends.
A limited partner must notify the Company, as general partner of the
Operating Partnership, of such partner's desire to require the Operating
Partnership to redeem Units by sending a notice in the form attached as an
exhibit to the Partnership Agreement, a copy of which is available from the
Company. A limited partner must request the redemption of at least 1000 Units
(or all of the Units held by such holder, if less). A redemption generally will
occur on the 10th business day after the notice is delivered by the limited
partner, except that no redemption can occur if the delivery of shares of Common
Stock would be prohibited under the provisions of the Articles of Incorporation
to protect the Company's qualification as a REIT.
TAX CONSEQUENCES OF REDEMPTION
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a limited partner who exercises his right
to require the redemption of his Units.
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TAX TREATMENT OF REDEMPTION OF UNITS. If a limited partner exercises
his or her right to require the redemption of Units, the Partnership Agreement
provides that the redemption will be treated by the Company, the Operating
Partnership and the redeeming limited partner, for tax purposes, as a sale of
Units. Such sale will be fully taxable to the redeeming limited partner. Such
limited partner generally will be treated as realizing for tax purposes an
amount equal to the sum of either the cash or the value of the Common Stock
received plus the amount of any Operating Partnership liabilities allocable to
the redeemed Units at the time of the redemption. The determination of the
amount of gain or loss is discussed more fully below.
If the Company elects not to issue shares of Common Stock in exchange
for a limited partner's Units, and the Operating Partnership or the Company
redeems such Units for cash to effect the redemption, the tax consequences would
be as described in the previous paragraph. However, if the Operating Partnership
redeems less than all of a limited partner's Units, the limited partner would
not be permitted to recognize any loss occurring on the transaction and would
recognize taxable gain only to the extent that the cash, plus the amount of any
Operating Partnership liabilities allocable to the redeemed Units, exceeded the
limited partner's adjusted basis in all of such limited partner's Units
immediately before the redemption. The methodology used by the Operating
Partnership to allocate its liabilities to its partners will likely result in a
varying amount of such liabilities being allocated to different partners. Under
that methodology, which is based on principals set forth in Treasury
Regulations, it is possible that partners who hold an identical number of Units
are allocated different amounts of liabilities of the Operating Partnership for
Federal income tax purposes.
TAX TREATMENT OF DISPOSITION OF UNITS BY LIMITED PARTNER GENERALLY. If
a Unit is redeemed in a manner that is treated as a sale of the Unit, or a
limited partner otherwise disposes of a Unit, the determination of gain or loss
from the sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the tax basis in such Unit. See
"--BASIS OF UNITS" below. Upon the sale of a Unit, the "amount realized" will be
measured by the sum of the cash or fair market value of Common Stock received
plus the reduction in the amount of any Operating Partnership liabilities
allocable to the Unit holder. To the extent that the amount of cash or property
received plus the reduction in the allocable share of any Operating Partnership
liabilities exceeds the limited partner's basis in his or her interest in the
Operating Partnership, such limited partner will recognize gain. It is possible
that the amount of gain recognized or even the tax liability resulting from such
gain could exceed the amount of cash or the value of Common Stock received upon
such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit attributable to a limited partner's share of "unrealized
receivables" of the Operating Partnership (as defined in Section 751 of the
Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include amounts
that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
BASIS OF UNITS. In general, a limited partner who was deemed at the
time of the transaction in which he or she received Units to have received his
or her Units upon liquidation of a partnership had an initial tax basis in the
Units ("Initial Basis") equal to his or her basis in the partnership interest at
the time of such liquidation. Similarly, in general, a limited partner who at
the time of the transaction in which he or she received Units contributed a
partnership interest in exchange for his or her Units had an Initial Basis in
the Units equal to his or her basis in the contributed partnership interest. A
limited partner's Initial Basis in his or her Units generally is increased by
(i) such limited partner's share of Operating Partnership taxable and tax-exempt
income and (ii) increases in such partner's share of the liabilities of the
Operating Partnership (including any increase in his or her share of liabilities
occurring in connection with the transaction in which he or she received Units).
Generally, such partner's basis in his or her Units is decreased (but not below
zero) by (A) his or her share of Operating Partnership distributions, (B)
decreases in his or her share of liabilities of the Operating Partnership
(including any decrease in his or her share of liabilities of the Operating
Partnership occurring in connection with the transaction in which he or she
received Units), (C) his or her share of losses of the Operating Partnership and
(D) his or her share of nondeductible expenditures of the Operating Partnership
that are not chargeable to capital account.
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POTENTIAL APPLICATION OF THE DISGUISED SALE REGULATIONS TO A REDEMPTION
OF UNITS. There is a risk that a redemption of Units issued in a transaction in
whereby a limited partner received Units may cause the original transfer of
property to the Operating Partnership in exchange for Units in connection with
such transaction to be treated as a "disguised sale" of property. Section 707 of
the Code and the Treasury Regulations thereunder (the "Disguised Sale
Regulations") generally provide that, unless one of the prescribed exceptions is
applicable, a partner's contribution of property to a partnership and a
simultaneous or subsequent transfer of money or other consideration (including
the assumption of or taking subject to a liability) from the partnership to the
partner will be presumed to be a sale, in whole or in part, of such property by
the partner to the partnership. Further, the Disguised Sale Regulations provide
generally that, in the absence of an applicable exception, if money or other
consideration is transferred by a partnership to a partner within two years of
the partner's contribution of property, the transactions are presumed to be a
sale of the contributed property unless the facts and circumstances clearly
establish that the transfers do not constitute a sale. The Disguised Sale
Regulations also provide that if two years have passed between the transfer of
money or other consideration and the contribution of property, the transactions
will be presumed not to be a sale unless the facts and circumstances clearly
establish that the transfers constitute a sale.
Accordingly, if a Unit is redeemed, the Internal Revenue Service could
contend that the Disguised Sale Regulations apply because the limited partner
will thus receive cash or shares of Common Stock subsequent to his previous
contribution of property to the Operating Partnership. In that event, the IRS
could contend that any of the transactions whereby limited partners received
Units which may be redeemed for shares of Common Stock which may be sold hereby
were taxable as a disguised sale under the Disguised Sale Regulations. Any gain
recognized thereby may be eligible for installment reporting under Section 453
of the Code, subject to certain limitations.
COMPARISON OF OWNERSHIP OF UNITS AND SHARES OF COMMON STOCK
Generally, the nature of any investment in shares of Common Stock of
the Company is substantially equivalent economically to an investment in Units
in the Operating Partnership. A holder of a share of Common Stock receives the
same distribution that a holder of a Unit receives, and stockholders and Unit
holders generally share in the risks and rewards of ownership in the enterprise
being conducted by the Company (through the Operating Partnership). However,
there are some differences between ownership of Units and ownership of Common
Stock, some of which may be material to investors.
The information below highlights a number of the significant
differences between the Operating Partnership and the Company relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, investor rights and
Federal income taxation and compares certain legal rights associated with the
ownership of Units and Common Stock. These comparisons are intended to assist
limited partners of the Operating Partnership in understanding how their
investment will be changed if their Units are redeemed for Common Stock. This
discussion is summary in nature and does not constitute a complete discussion of
these matters, and holders of Units should carefully review the balance of this
Prospectus and the Registration Statement of which this Prospectus is a part for
additional important information about the Company.
FORM OF ORGANIZATION AND ASSETS OWNED. The Operating Partnership is
organized as a North Carolina partnership. All of the Company's operations are
conducted through the Operating Partnership, except that the Eakin & Smith
brokerage and third-party property management operations are conducted at the
Company level.
The Company is a Maryland corporation. The Company has elected to be
taxed as a REIT under the Code and intends to maintain its qualification as a
REIT. The Company's interest in the Operating Partnership, which gives the
Company an indirect investment in the properties and other assets owned by the
Operating Partnership, is its only material asset (other than the Eakin & Smith
third-party brokerage and property management business).
LENGTH OF INVESTMENT. The Operating Partnership has a stated
termination dated of December 31, 2092, although it may be terminated earlier
under certain circumstances. The Company has a perpetual term and intends to
continue its operations for an indefinite time period.
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PURPOSE AND PERMITTED INVESTMENTS. The purpose of the Operating
Partnership includes the conduct of any business that may be lawfully conducted
by a limited partnership formed under North Carolina law, except that the
Partnership Agreement requires the business of the Operating Partnership to be
conducted in such a manner that will permit the Company to be classified as a
REIT for Federal income tax purposes. The Operating Partnership may, subject to
the foregoing limitation, invest or enter into partnerships, joint ventures or
similar arrangements and may own interests in any other entity.
Under its Articles of Incorporation, the Company may engage in any
lawful activity permitted under Maryland law. Under the Partnership Agreement,
however, the Company may not conduct any business other than the business of the
Operating Partnership and cannot own any assets other than its interest in the
Operating Partnership and such bank accounts or similar instruments as are
necessary to carry out its responsibilities under the Partnership Agreement or
its organizational documents, except that the Partnership Agreement allows for
the direct ownership of (i) the Eakin & Smith third-party business and (ii) a
.01% economic interest in certain Properties, consisting mainly of certain
Properties acquired in the Company's merger with Crocker Realty Trust, Inc.
ADDITIONAL EQUITY. The Operating Partnership is authorized to issue
Units and other partnership interests to the partners or to other persons for
such consideration and on such terms and conditions as the Company, in its sole
discretion, may deem appropriate. In addition, the Company may cause the
Operating Partnership to issue to the Company additional Units or other
partnership interests in different series or classes which may be senior to the
Units in conjunction with the offering of securities of the Company having
substantially similar rights, in which the proceeds thereof are contributed to
the Operating Partnership. No limited partner has any preemptive, preferential
or similar rights with respect to additional capital contributions to the
Operating Partnership or the issuance or sale of any interests therein.
The Board of Directors of the Company may issue, in its discretion,
additional equity securities consisting of Common Stock or Preferred Stock;
provided, however, that the total number of shares issued does not exceed the
authorized number of shares of capital stock set forth in the Company's Articles
of Incorporation. As long as the Operating Partnership is in existence, the
proceeds (or a portion thereof) of all equity capital raised by the Company will
be contributed to the Operating Partnership in exchange for Units or other
interests in the Operating Partnership, provided that the General Partner's
contribution will be deemed to be an amount equal to the net proceeds of any
such offering plus any underwriter's discount or other expenses incurred in
connection with such issuance.
BORROWING POLICIES. The Company as general partner has full power and
authority to borrow money on behalf of the Operating Partnership. The Company
(as general partner), through its Board of Directors, has adopted a policy that
currently limits total borrowing to 50% of the total market capitalization of
the Company and the Operating Partnership, but this policy may be altered at any
time by the Board of Directors. The foregoing reflects the Company's general
policy over time and is not intended to operate in a manner that inappropriately
restricts the Company's ability to raise additional capital, including
additional debt, to implement its planned growth, to pursue attractive
acquisition opportunities that may arise or to otherwise act in a manner that
the Board of Directors believes to be in the best interests of the Company and
its stockholders. The Board of Directors, with the assistance of management of
the Company, may reevaluate from time to time its debt and other capitalization
policies in light of then current economic conditions, including the relative
costs of debt and equity capital, the market value of its properties, growth and
acquisition opportunities, the market value of its equity securities in relation
to the Company's view of the market value of its properties, and other factors,
and may modify its debt policy. Such modification may include increasing or
decreasing its general ratio of debt to total market capitalization or
substituting another measuring standard.
The Company is not restricted under its governing instruments from
incurring borrowings.
OTHER INVESTMENT RESTRICTIONS. Other than restrictions precluding
investments by the Operating Partnership that would adversely affect the
qualification of the Company as a REIT, there are no restrictions on the
Operating Partnership's authority to enter into certain transactions, including,
among others, making investments, lending Operating Partnership funds, or
reinvesting the Operating Partnership's cash flow and net sale or refinancing
proceeds.
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Neither the Company's Articles of Incorporation nor its bylaws impose
any restrictions upon the types of investments made by the Company except that
under the Articles of Incorporation, the Board of Directors is prohibited from
taking any action that would terminate the Company's REIT status, unless a
majority of the stockholders vote to terminate such REIT status.
MANAGEMENT CONTROL. All management powers over the business and affairs
of the Operating Partnership are vested in the general partner of the Operating
Partnership, and no limited partner of the Operating Partnership has any right
to participate in or exercise control or management power over the business and
affairs of the Operating Partnership. The general partner may not be removed by
the limited partners for any reason.
The Board of Directors has exclusive control over the Company's
business and affairs subject only to the restrictions in the Articles of
Incorporation, the bylaws and the Partnership Agreement. The Board of Directors
is classified into three classes of directors. At each annual meeting of the
stockholders, the successors of the class of directors whose terms expire at
that meeting will be elected. The policies adopted by the Board of Directors may
be altered or eliminated without advice of the stockholders. Accordingly, except
for their vote in the elections of directors, stockholders have no control over
the ordinary business policy of the Company.
FIDUCIARY DUTIES. Under North Carolina law, the general partner of the
Operating Partnership is accountable to the Operating Partnership as a fiduciary
and, consequently, is required to exercise good faith in all of its dealings
with respect to partnership affairs. However, under the Partnership Agreement,
the general partner is under no obligation to take into account the tax
consequences to any partner of any action taken by it. The general partner will
have no liability to a limited partner as a result of any liabilities or damages
incurred or suffered by, or benefits not derived by, a limited partner as a
result of any action or inaction of the general partner so long as the general
partner acted in good faith.
Under Maryland law, the directors must perform their duties in good
faith, in a manner that they believe to be in the best interests of the Company
and with the care an ordinarily prudent person would exercise under similar
circumstances. Directors of the Company who act in such a manner generally will
not be liable to the Company for monetary damages arising from their activities.
MANAGEMENT LIABILITY AND INDEMNIFICATION. The Partnership Agreement
generally provides that the general partner will incur no liability to the
Operating Partnership or any limited partner for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if the
general partner acted in good faith. In addition, the general partner is not
responsible for any misconduct or negligence on the part of its agents provided
the general partner appointed such agents in good faith. The general partner may
consult with legal counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisors. Any action the general
partner takes or omits to take in reliance upon the opinion of such persons, as
to matters which the general partner reasonably believes to be within their
professional or expert competence, shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion. The
Partnership Agreement also provides for indemnification of the general partner,
the directors and officers of the general partner, and such other persons as the
general partner may from time to time designate, against any and all losses,
claims, damages, liabilities, expenses, judgments, fines, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings
that relate to the operations of the Operating Partnership in which such person
may be involved, or is threatened to be involved, to the fullest extent
permitted under North Carolina law.
As permitted by Maryland law, the Articles of Incorporation include a
provision limiting the liability of the Company's directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions. The law does not, however, permit the liability of directors and
officers to the corporation or its stockholders to be limited to the extent that
(i) it is proved that the person actually received an improper benefit or profit
in money, property or services or (ii) a judgment or other final adjudication is
entered in a proceeding based on a finding that the person's action, or failure
to act, was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. This charter provision does
not limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
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<PAGE>
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ANTI-TAKEOVER PROVISIONS. Except in limited circumstances, the general
partner of the Operating Partnership has exclusive management power over the
business and affairs of the Operating Partnership. The general partner may not
be removed by the limited partners with or without cause. Under the Partnership
Agreement the general partner may, in its sole discretion, prevent a limited
partner from transferring his interest or any rights as a limited partner except
in certain limited circumstances. The general partner may exercise this right of
approval to deter, delay or hamper attempts by persons to acquire an interest in
the Operating Partnership.
The Articles of Incorporation and bylaws of the Company contain a
number of provisions that may have the effect of delaying or discouraging an
unsolicited proposal for the acquisition of the Company or the removal of
incumbent management. See "Risk Factors -- Limits on Changes in Control."
VOTING RIGHTS. Under the Partnership Agreement, the limited partners
generally do not have voting rights relating to the operation and management of
the Operating Partnership. Limited partners do have the right to vote on certain
amendments to the Partnership Agreement. The ownership of Units does not entitle
the holder thereof to vote on any matter to be voted upon by the stockholders of
the Company.
Stockholders of the Company have the right to vote on, among other
things, a merger or sale of all or substantially all of the assets of the
Company, amendments to the Articles of Incorporation, certain amendments to the
bylaws and dissolution of the Company. The Company is managed and controlled by
a Board of Directors consisting of three classes having staggered terms of
office. Each class is to be elected by the stockholders at annual meetings of
the Company. All shares of Common Stock have one vote, and the Articles of
Incorporation permit the Board of Directors to classify and issue Preferred
Stock in one or more series having voting power which may differ from that of
the Common Stock.
AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE ARTICLES OF
INCORPORATION. Amendments to the Partnership Agreement may be proposed by the
general partner or by any limited partners holding 10 percent or more of the
Partnership interests. Approval of such an amendment requires the vote of the
general partner and the holders of a majority of the Units, including those
Units held by the general partner. Certain amendments may be approved solely by
the general partner, such as, among other things, amendments that would add to
the obligations of the general partner, reflect the admission, substitution,
termination or withdrawal of partners, or satisfy any legal requirements.
Certain amendments that affect the fundamental rights of a limited partner must
be approved by each affected limited partner.
The Company's Articles of Incorporation 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.
VOTE REQUIRED TO DISSOLVE THE OPERATING PARTNERSHIP OR THE COMPANY.
Under North Carolina law, the Operating Partnership may be dissolved, other than
in accordance with the terms of the Partnership Agreement, only upon the
unanimous vote of the limited partners.
Under Maryland law, the Company may be dissolved by (i) the affirmative
vote of a majority of the entire Board of Directors declaring such dissolution
to be advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of stockholders, and (ii) upon
proper notice, stockholder approval by the affirmative vote of the holders of a
majority of the total number of shares of Stock outstanding and entitled to vote
thereon voting as a single class.
VOTE REQUIRED TO SELL ASSETS OR MERGE. Under the Partnership Agreement,
the sale, exchange, transfer or other disposition of all or substantially all of
the Operating Partnership's assets or the merger or consolidation of the
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Operating Partnership requires the consent of the general partner and holders of
a majority of the outstanding Units (including Units held by the general
partner).
Under the MGCL, a corporation generally cannot sell substantially all
of its assets or merge without the approval of the holders of two-thirds of the
shares entitled to vote on the matter unless a lesser percentage is set forth in
the corporation's charter. The Company's charter contains such a provision and
provides that such actions may be taken if approved by a majority of the shares
outstanding and entitled to vote thereon. 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
charter provisions will not be amended at any point in the future.
COMPENSATION, FEES AND DISTRIBUTIONS. The general partner does not
receive any compensation for its services as general partner of the Operating
Partnership. As a partner in the Operating Partnership, however, the general
partner has the same right to allocations and distributions as other partners of
the Operating Partnership. In addition, the Operating Partnership reimburses the
general partner for substantially all expenses incurred relating to the ongoing
operation of the Company and any offering of partnership interests in the
Operating Partnership or capital stock of the Company.
The directors and officers of the Company receive compensation for
their services.
LIABILITY OF INVESTORS. Under the Partnership Agreement and applicable
North Carolina law, the liability of the limited partners for the Operating
Partnership's debts and obligations is generally limited to the amount of their
investment in the Operating Partnership.
Under Maryland law, stockholders are not personally liable for the
debts or obligations of the Company.
NATURE OF INVESTMENT. The Units constitute equity interests entitling
each limited partner to a pro rata share of cash distributions made to the
limited partners of the Operating Partnership. The Operating Partnership
generally intends to retain and reinvest proceeds of the sale of property or
excess refinancing proceeds in its business.
The shares of Common Stock constitute equity interests in the Company.
The Company is entitled to receive its pro rata share of distributions made by
the Operating Partnership with respect to the Units, and each stockholder will
be entitled to his pro rata share of any dividends or distributions paid with
respect to the Common Stock. The dividends payable to the stockholders are not
fixed in amount and are only paid if, when and as declared by the Board of
Directors. In order to qualify as a REIT, the Company must distribute 95% of its
taxable income (excluding capital gains), and any taxable income (including
capital gains) not distributed will be subject to corporate income tax.
POTENTIAL DILUTION OF RIGHTS. The general partner of the Operating
Partnership is authorized, in its sole discretion and without limited partner
approval, to cause the Operating Partnership to issue additional limited
partnership interests and other equity securities for any partnership purpose at
any time to the limited partners or to other persons on terms established by the
general partner.
The Board of Directors of the Company may issue, in its discretion,
additional shares of Common Stock and have the authority to issue from the
authorized capital stock a variety of other equity securities of the Company
with such powers, preferences and rights as the Board of Directors may designate
at the time. The issuance of additional shares of either Common Stock or other
similar equity securities may result in the dilution of the interests of the
stockholders.
LIQUIDITY. The limited partners generally may transfer all or a portion
of their interests in the Operating Partnership to a transferee, subject to the
one-year lock-up provisions and certain limitations imposed by federal and
17
<PAGE>
state securities laws. No transferee, however, will be admitted to the Operating
Partnership as a substitute limited partner having the rights of a limited
partner without the consent of the Company as the general partner and provided
that certain other conditions are met, including an agreement to be bound by the
terms and conditions of the Partnership Agreement.
Upon the effectiveness of the Registration Statement of which this
Prospectus is a part, the Redemption Shares, Eakin & Smith Shares and Registered
Shares will be freely transferable as registered securities under the Securities
Act. The Common Stock is listed on the NYSE. The breadth and strength of this
market will depend, among other things, upon the number of shares outstanding,
the Company's financial results and prospects, the general interest in the
Company's and other real estate investments and the Company's dividend yield
compared to that of other debt and equity securities.
18
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Smith Helms Mulliss & Moore, L.L.P., tax counsel to
the Company, commencing with the Company's first taxable year ended December 31,
1994, the Company has been organized in conformity with the requirements for
qualification as a "real estate investment trust" under the Code, and its method
of operation will enable it to continue to meet the requirements for
qualification and taxation as a "real estate investment trust" under the Code,
provided that the Company operated and continues to operate in accordance with
various assumptions and factual representations made by the Company concerning
its business, properties and operations. No assurance can be given, however,
that such requirements have been or will continue to be met. Such qualification
depends upon the Company's having met and continuing to meet the various
requirements imposed under the Code through actual operating results. Smith
Helms Mulliss & Moore, L.L.P. has relied on the Company's representations
regarding its operations and has not and will not review these operating
results. Accordingly, no assurance can be given that actual operating results
will meet these requirements.
The Company believes it has operated, and the Company intends to
continue to operate, in such manner as to qualify as a REIT under the Code, but
no assurance can be given that it will at all times so qualify.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the Federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the Federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a
REIT generally will not be subject to Federal income tax with respect to income
that it distributes to its stockholders. If the Company fails to qualify during
any taxable year as a REIT, unless certain relief provisions are available, it
will be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, which could have a material adverse
effect upon its stockholders.
In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by the Company as capital gain
dividends will be taxed as long-term capital gain income to the stockholders. To
the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than dividend or
capital gain income, and will reduce the basis for the stockholder's Common
Stock with respect to which the distribution is paid or, to the extent that they
exceed such basis, will be taxed in the same manner as gain from the sale of
those Common Stock.
Investors are urged to consult their own tax advisors with respect to
the appropriateness of an investment in the Common Shares offered hereby and
with respect to the tax consequences arising under federal law and the laws of
any state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in the Company, including the possibility of United States
income tax withholding on Company distributions.
19
<PAGE>
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this
Prospectus is a part pursuant to its obligations under the Registration Rights
Agreements executed in conjunction with the acquisition of certain properties.
Under the Registration Rights Agreements, the Company is obligated to use its
reasonable efforts to keep the Registration Statement continuously effective for
a period expiring on the date on which all of the Common Stock covered by the
Registration Rights Agreements has been sold pursuant to the Registration
Statement or Rule 144 of the Securities Act. Any shares that have been sold
pursuant to the Registration Rights Agreements, or have been otherwise
transferred and new certificates for them have been issued without legal
restriction on further transfer of such shares, will no longer be entitled to
the benefits of the Registration Rights Agreements.
The Resale Shares may not be resold pursuant to the Registration
Statement unless Selling Stockholders or their assignees (each, a "Holder")
first give notice to the Company of their intention to dispose of the Resale
Shares and have received notice from the Company that the Registration Statement
and any amendments thereto are effective. After 60 days from receipt of such
notice from the Company, Holders must once again give notice to the Company
prior to making offers or sales under the Registration Statement.
Pursuant to the Registration Rights Agreements, the Company has agreed
to pay all expenses in connection with the registration of the Resale Shares
(other than underwriting discounts and commissions, fees and disbursements of
counsel representing the Holders, and transfer taxes, if any). The Company has
also agreed to indemnify each Holder and its officers and directors and any
person, if any, who controls any Holder against certain losses, claims, damages
and expenses arising from any untrue statement or alleged untrue statement or
omission or alleged omission, provided that such statement or omission cannot be
traced back to the Holder. In addition, each Holder has agreed to indemnify the
Company and other Holders, and each of their respective directors and officers,
to the same extent as discussed above. However such indemnification shall be
provided only for any loss, claim, damage or expense arising out of written
information furnished to the Company by such Holder expressly for use in the
Registration Statement or Prospectus, or any amendment or supplement thereto.
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<PAGE>
SELLING STOCKHOLDERS
The Resale Shares offered by this Prospectus may be offered from time
to time by the Selling Stockholders named below. The following table provides
the name of each Selling Stockholder and the number of shares of Common Stock
beneficially owned and offered hereby by each Selling Stockholder. The number of
shares of Common Stock provided in the following table includes (i) the number
of shares that may be acquired by each Selling Stockholder upon redemption of
Units or exercise of warrants, (ii) Earnout Shares that may be issued to Selling
Stockholders pursuant to certain contractual obligations and (iii) the number of
shares of Common Stock the Selling Stockholders have the right to acquire within
60 days from the date of this Prospectus upon exercise of options. Since the
Selling Stockholders may sell all, some or none of their Resale Shares, no
estimate can be made of the percentage of shares of Common Stock will be owned
by each Selling Stockholder upon completion of the offering to which this
Prospectus relates.
The Resale Shares offered by this Prospectus may be offered from time
to time by the Selling Stockholders name below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES
NAME BENEFICIALLY OWNED(1) SHARES(2) OFFERED HEREBY (1)
- ---- --------------------- --------- ---------------
ADG Interests, Inc. 26,892 * 26,892
Alfus Family Limited Partnership 47,661 * 47,661
Gene Anderson(3) 549,887(4) 1.5% 359,651
Anderson Properties, Inc. 190,226 * 190,226
David Arenstein 4,393 * 4,393
ASP Partners(5) 5,060 * 5,060
Bennie Auerbach 32,486 * 32,486
Hyman Auerbach 46,759 * 46,759
Leon Auerbach 32,828 * 32,828
James W. Ayers 241,178 * 241,178
Bennett Family Revocable Trust 2,092 * 2,092
Paul S. Bennett Family Trust 1,712 * 1,712
CMS Oakbrook Summit, L.P. 121 * 121
CMS Operating Real Estate Properties II, L.P. 23,949 * 23,949
Century Center Group 1,649,789 4.4% 1,649,789
The Condon Family Trust 7,811 * 7,811
John W. Eakin(3) 336,281(6) 1.2% 390,880(6)
J. Roger Edwards, Jr. 11,704 * 11,704
Terry Jay Feldman 2,308 * 2,308
G&R Investment Associates, LLC 102,651 * 102,651
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<PAGE>
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES
NAME BENEFICIALLY OWNED(1) SHARES(2) OFFERED HEREBY (1)
- ---- --------------------- --------- ---------------
Norman Goldbach 8,777 * 8,777
Theresa Goldbach Testamentary Trust 258 * 258
Jan and Patricia Goldberg 1,255 * 1,255
Robert Goldman 22,887 * 22,887
David L. Gordon 1,046 * 1,046
Sidney J. Gunst, Jr. 5,858 * 5,858
Edward W. and Kathleen Hayes 1,535 * 1,535
Innsbrook Corporation 10,159 * 10,159
Innsbrook North Associates 29,801 * 29,801
Ted B. Jacobson 8,554 * 8,554
Jerome Janger 8,623 * 8,623
Linda Janger 4,394 * 4,394
Crawley F. Joyner 5,858 * 5,858
Parke D. Joyner 5,858 * 5,858
Susan Kellett 52,500 * 1,265
L.B.M. Family Limited Partnership 40,683 * 40,683
Alice Victoria M. Langley 27,122 * 27,122
Eugene Martin Langley, Jr. 16,196 * 16,196
Arthur Laub 9,035 * 9,035
Deborah Laub 1,046 * 1,046
Marmor Living Trust 26,820 * 26,820
Nashville Community Foundation, Inc. 4,000 * 4,000
Meyer Capital, L.P. 47,661 * 47,661
The Nussbaum Family Trust 856 * 856
Patewood Associates Limited Partnership 18,982 * 18,982
Peter Family Revocable Trust 5,897 * 5,897
The Westminster Presbyterian Church 1,000 * 1,000
Brian W. Reames(7) 210,154(8) * 210,154(8)
John E. Reece(9) 72,251(10) * 30,000(11)
SECC Partners 75,011 * 5,060
SJ Company(12) 23,466 * 23,466
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<PAGE>
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES
NAME BENEFICIALLY OWNED(1) SHARES(2) OFFERED HEREBY (1)
- ---- --------------------- --------- ---------------
E. Samuel Simpson 2,635 * 2,635
Judy Sirody 856 * 856
Smith Realty Interests, L.P.(7) 26,178 * 26,178
David Smith 52,500 * 1,265
Margaret Smith 52,500 * 1,265
Robert E. Smith 143,225 * 1,265
Thomas S. Smith(7) 441,280(13) 1.2% 415,102(13)
Henry K. Solomon RKS Trust 4,850 * 4,850
Henry F. Stern 7,323 * 7,323
The Audri May Tendler Trust 2,929 * 2,929
Stanley and Audri Tendler Family Trust 7,811 * 7,811
Three Star, L.P.(7) 45,401 * 45,401
John L. Turner(3) 450,791(14) 1.2% 35,000(11)
Harrison A. Underwood, III 2,635 * 2,635
Kenneth M. Weiss 223 * 223
Roderick T. White 10,916 * 10,916
Trust FBO Grant L. Wilson 32,471 * 1,033
Dated Aug 2, 1976
Trust FBO Grant L. Wilson 61,887 * 1,240
Dated Dec 17, 1984
Trust FBO Kirsten Wilson 32,471 * 1,033
Dated Aug 2, 1976
Trust FBO Kirsten Wilson 61,888 * 1,240
Dated Dec 17, 1984
Trust FBO Sara Wilson 32,471 * 1,033
Dated Oct 13, 1976
Trust FBO Sara Wilson 61,887 * 1,240
Dated Dec 17, 1984
William T. Wilson III(3) 312,254(15) * 35,000(11)
----------- ----------
TOTAL 5,959,447 4,371,730
========== =========
- --------------------
</TABLE>
* Less than 1%.
(1) Unless otherwise noted, number of shares shown represents Restricted
Shares that may be issued upon redemption of outstanding Units.
23
<PAGE>
(2) Assumes that all Units held by the Selling Stockholder are redeemed for
shares of Common Stock even if not currently redeemable. The total
number of shares outstanding used in calculating the percentage assumes
that none of the Units held by other persons are redeemed for Common
Stock.
(3) Director and executive officer.
(4) Includes the shares held by Anderson Properties, Inc. shown below.
(5) Stephen Timko, who is the general partner of the Selling Stockholder,
is a director of the Company.
(6) Shares shown include 118,489 Redemption Shares, 60,000 Warrant Shares,
196,174 Eakin & Smith Shares and 16,217 Earnout Shares. The number of
shares beneficially owned includes 45,401 Units owned by Three Star,
L.P., which is a Selling Stockholder listed below.
(7) The Selling Stockholder's Resale Shares are being registered hereby
should such stockholder be deemed to be an underwriter under Rule 145
of the Securities Act. The Company disclaims that the Selling
Stockholder is an underwriter.
(8) Shares shown represent 71,458 Redemption Shares, 30,000 Warrant Shares,
100,588 Eakin & Smith Shares and 8,108 Earnout Shares. Mr. Reames'
Redemption Shares and Warrant Shares are being registered
hereby should he be deemed to be an underwriter under Rule 145 of
the Securities Act. The Company disclaims that Mr. Reames is an
underwriter.
(9) Executive officer.
(10) Number of shares beneficially owned includes 41,251 Restricted Shares
issuable upon redemption of Units, 30,000 Restricted Shares issuable
upon exercise of warrants and 1,000 shares of outstanding Common Stock.
(11) Shares shown represent Restricted Shares issuable upon exercise of
outstanding warrants.
(12) O. Temple Sloan, Jr., who is a general partner of SJ Company, is a
director of the Company.
(13) Shares shown include 137,712 Redemption Shares, 60,000 Warrant Shares,
201,174 Eakin & Smith Shares and 16,216 Earnout Shares. The number of
shares beneficially owned includes 26,178 shares owned by Smith Realty
Investments, L.P., which is a Selling Stockholder listed above. Mr.
Smith's Redemption Shares and Warrant Shares are being registered
hereby should he be deemed to be an underwriter under Rule 145 of the
Securities Act. The Company disclaims that Mr. Smith is an
underwriter.
(14) Number of shares beneficially owned includes 11,250 shares currently
issuable upon exercise of options 35,000 issuable upon exercise of
warrants, 399,541 shares issuable upon redemption of Units and 5,000
shares of outstanding Common Stock.
(15) Number of shares beneficially owned includes 11,250 shares currently
issuable upon exercise of options 35,000 issuable upon exercise of
warrants, 258,204 shares issuable upon redemption of Units and 7,800
shares of outstanding Common Stock.
PLAN OF DISTRIBUTION
This Prospectus relates to (i) the possible issuance by the Company of
the Redemption Shares if, and to the extent that the Company elects to issue
such Redemption Shares to the holders of E&S Units upon the redemption of such
Units; (ii) the possible issuance by the Company of the Warrant Shares if, and
to the extent that, the holders of the E&S Warrants exercise such warrants;
(iii) the offer and sale from time to time of Redemption Shares or Warrant
Shares by the Affiliates; (iv) the offer and sale from time to time of the Eakin
& Smith Shares by the holders thereof; and (v) the offer and sale from time to
time of the Restricted Shares by the holders thereof, which shares may be issued
upon the redemption of Units or the exercise of warrants. The Company has
registered the resale of the Resale Shares and the issuance of the Redemption
Shares and Warrant Shares to permit the holders thereof to sell such shares
without restriction on the open market or otherwise, but registration does not
necessarily mean that any such shares will be issued by the Company or offered
or sold by the Selling Stockholders.
Other than the Units received upon issuance of the Redemption Shares,
the Company will not receive any proceeds from such issuances. The Company will
receive $28.00 upon the issuance of each Warrant Share. The Company will not
receive any proceeds from the sale of the Resale Shares by the Selling
Stockholders.
The distribution of Resale Shares may be effected from time to time in
one or more underwritten transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Any such underwritten
offering may be on a
24
<PAGE>
"best efforts" or a "firm commitment" basis. In connection with any such
underwritten offering, underwriters or agents may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders or
from purchasers of Resale Shares for whom they may act as agents. Underwriters
may sell Resale Shares to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents.
The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of Resale Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of Resale Shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
At the time a particular offer of Resale Shares is made, a Prospectus
Supplement, if required, will be distributed that will set forth the name and
names of any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from the Selling Stockholders and any
other required information.
The sale of the Resale Shares by the Selling Stockholders may also be
effected from time to time by selling Resale Shares directly to purchasers or to
or through broker-dealers. In connection with any such sale, any such
broker-dealer may act as agent for the Selling Stockholders or may purchase from
the Selling Stockholders all or a portion of the Resale Shares as principal, and
may be made pursuant to any of the methods described below. Such sales may be
made on the NYSE or other exchanges on which the Common Shares are then traded,
in the over-the-counter market, in negotiated transactions or otherwise at
prices and at terms then prevailing or at prices related to the then-current
market prices or at prices otherwise negotiated.
The Resale Shares may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to a Prospectus Supplement; (c)
a special offering, an exchange distribution or a secondary distribution in
accordance with applicable NYSE or other stock exchange rules; (d) ordinary
brokerage transactions and transactions in which any such broker-dealer solicits
purchasers; (e) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (f)
sales in other ways not involving market makers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers engaged
by the Selling Stockholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other compensation from the Selling
Stockholders in amounts to be negotiated immediately prior to the sale that will
not exceed those customary in the types of transactions involved. Broker-dealers
may also receive compensation from purchasers of the Resale Shares, which is not
expected to exceed that customary in the types of transactions involved.
In order to comply with the securities laws of certain states, if
applicable, the Resale Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Resale Shares may not be
sold unless they have been registered or qualified for sale in such state or an
exemption from such registration or qualification requirement is available and
is complied with.
In the event of a "distribution" of the shares, the Selling
Stockholders, underwriters or other persons who are participating in a
distribution and their affiliated purchasers may be subject to Regulation M
under the Federal securities laws, which would prohibit, with certain
exceptions, any such person from bidding for, purchasing or attempting to induce
any person to bid for or purchase, the Company's Common Stock during a specified
period. In addition, Regulation M also restricts "stabilizing" for the purpose
of pegging, fixing or stabilizing the price of a security in connection with an
offering.
All expenses incident to the offering and the sale of the Resale
Shares, other than the fees of counsel and the commissions, discounts and fees
of underwriters, broker-dealers or agents, shall be paid by the Company. The
Company has agreed to indemnify the Selling Stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities Act.
See "Registration Rights."
25
<PAGE>
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, 1996, and the financial
statements with respect to Anderson Properties dated January 23, 1997 and the
financial statements with respect to Century Center dated January 9, 1997
incorporated herein by reference from the Company's Current Report on Form 8-K
dated January 9, 1997 (as amended on Form 8-K/A dated February 7, 1997 and March
10, 1997) 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.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by Smith
Helms Mulliss & Moore, L.L.P., Raleigh, North Carolina. In addition, Smith Helms
Mulliss & Moore, L.L.P. has rendered its opinion with respect to certain Federal
income tax matters relating to the Company.
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