As Filed with the Securities and Exchange Commission on July 11, 1997
Registration No. 333-
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HIGHWOODS PROPERTIES, INC. HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
(Exact names of registrants as specified in their
respective governing documents)
MARYLAND NORTH CAROLINA
(State or other jurisdiction of incorporation or
organization of each registrant)
56-1871668 56-1869557
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
3100 Smoketree Court
Suite 600
Raleigh, North Carolina 27604
(919) 872-4924
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
Ronald P. Gibson, President
Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
(919) 872-4924
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Brad S. Markoff, Esq. Catherine S. Gallagher, Esq.
Smith Helms Mulliss & Moore, L.L.P. Andrews & Kurth L.L.P.
2800 Two Hannover Square 1701 Pennsylvania Avenue, N.W.
Raleigh, North Carolina 27601 Washington, D.C. 20006
(919) 755-8700 (202) 662-2700
Approximate date of commencement of the proposed sale to the public: From
time to time after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
I-1
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Amount of
Title of Each Class Being Registered(1) Aggregate Offering Price(2) Registration Fee(3)
<S> <C> <C>
Highwoods Properties, Inc.
Common Stock, $.01 par value(4).......
Preferred Stock, $.01 par value.......
Depositary Shares(5).................. $728,891,005(6) $220,877(7)
Guarantees(8).........................
Highwoods/Forsyth Limited Partnership
Non-convertible Debt Securities....... $280,000,000(9) $84,849(10)
====================================================================== ====================
</TABLE>
(1) This registration statement also covers contracts that may be issued by
the registrants under which the counterparty may be required to purchase
Debt Securities, Preferred Stock, Depositary Shares or Common Stock
covered hereby.
(2) In U.S. Dollars or the equivalent thereof denominated in one or more
foreign currencies or units of two or more foreign currencies or
composite currencies (such as European Currency Units).
(3) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act.
(4) Highwoods Properties, Inc. (the "Company") also registers hereunder an
indeterminate number of shares of Common Stock that may be issued upon
conversion of Preferred Stock or Depositary Shares. No separate
consideration will be received for Common Stock as may from time to time
be issued upon conversion of Preferred Stock or Depositary Shares.
(5) To be represented by Depositary Receipts representing an interest in all
or a specified portion of a share of Preferred Stock.
(6) Excludes $101,108,995 of securities previously registered on Form S-3
File No. 333-3890 and carried forward hereto.
(7) Excludes the registration fee of $34,865.17, which was previously paid
with respect to $101,108,995 of securities carried forward from
Registration Statement No. 333-3890.
(8) Debt Securities issued by Highwoods/Forsyth Limited Partnership may be
accompanied by a Guarantee to be issued by the Company. No separate
consideration will be received for any Guarantee.
(9) Excludes $140,000,000 of non-convertible debt securities previously
registered on Form S-3 File No. 333-3890-01 and carried forward hereto.
(10) Excludes the registration fee of $48,275.86, which was previously paid
with respect to $140,000,000 of debt securities carried forward from
Registration Statement File No. 333-3890-01.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS INCLUDED
IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND RELATES TO
REGISTRATION STATEMENT NOS. 333-3890 AND 333-3890-01 PREVIOUSLY FILED BY THE
REGISTRANTS ON FORM S-3 AND DECLARED EFFECTIVE ON JUNE 20, 1996.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 11, 1997
PROSPECTUS
$1,250,000,000
Highwoods Properties, Inc.
Common Stock, Preferred Stock and Depositary Shares
Highwoods/Forsyth Limited Partnership
Debt Securities
Highwoods Properties, Inc. (the "Company") may from time to time offer
in one or more series (i) shares of common stock, $.01 par value per share
("Common Stock"), (ii) shares of preferred stock, $.01 par value per share
("Preferred Stock"), and (iii) shares of Preferred Stock represented by
depositary shares (the "Depositary Shares"), with an aggregate public offering
price of up to $830,000,000 (or its equivalent in another currency based on the
exchange rate at the time of sale) in amounts, at prices and on terms to be
determined at the time of offering. Highwoods/Forsyth Limited Partnership (the
"Operating Partnership") may from time to time offer in one or more series
unsecured non-convertible debt securities ("Debt Securities"), with an aggregate
public offering price of up to $420,000,000 (or its equivalent in another
currency based on the exchange rate at the time of sale) in amounts, at prices
and on terms to be determined at the time of offering. The Common Stock,
Preferred Stock, Depositary Shares and Debt Securities (collectively, the
"Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each a "Prospectus Supplement"). If any Debt Securities issued
by the Operating Partnership are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest (the
"Guarantees"). Debt Securities rated investment grade may also be accompanied by
a Guarantee to the extent and on the terms described herein and in the
accompanying Prospectus Supplement. The Company conducts substantially all of
its activities through, and substantially all of its assets are held by,
directly or indirectly, the Operating Partnership. Consequently, the Company's
operating cash flow and its ability to service its financial obligations,
including the Guarantees, is dependent upon the cash flow of, and distributions
or other payments from, the Operating Partnership to the Company.
The specific terms of the Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Common Stock,
any initial public offering price; (ii) in the case of Preferred Stock, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
(iii) in the case of Depositary Shares, the fractional share of Preferred Stock
represented by each such Depositary Share; and (iv) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Operating
Partnership or repayment at the option of the holder, terms for sinking fund
payments, covenants, applicability of any Guarantees and any initial public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust ("REIT") for Federal income tax purposes.
The applicable Prospectus Supplement will also contain information,
where applicable, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE
SECURITIES.
The Securities may be offered directly, through agents designated from
time to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying Prospectus
<PAGE>
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such series of Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is July ____, 1997.
(The red herring language appears in the left side of the page rotated 90
degrees.)
The information contained herein is subject to completion or amendment. A
registration statement has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective. This prospectus
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such offer,
solicitation, or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
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<PAGE>
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith the Company files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission") and the Operating Partnership files reports with the
Commission. Such reports, proxy statements and other information may be
inspected and copied, at prescribed rates, at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 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. Such information, when
available, also may be accessed through the Commission's electronic data
gathering, analysis and retrieval system ("EDGAR") via electronic means,
including the Commission's home page on the Internet (http://www.sec.gov). In
addition, the Common Stock of the Company and certain debt securities of the
Operating Partnership are listed on the New York Stock Exchange ("NYSE"), and
similar information concerning the Company or the Operating Partnership can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
The Company and the Operating Partnership have filed with the
Commission registration statements on Form S-3 under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Securities. This
prospectus ("Prospectus"), which constitutes a part of the registration
statements, does not contain all of the information set forth in the
registration statements and in the exhibits and schedules thereto. For further
information with respect to the Company, the Operating Partnership and the
Securities, reference is hereby made to such registration statements, exhibits
and schedules. The registration statements 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 statements 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 or the Operating
Partnership 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 Operating Partnership's annual report on Form 10-K for
the year ended December 31, 1996;
c. The Company's quarterly report on Form 10-Q for the quarter ended March
31, 1997;
d. The Operating Partnership's quarterly report on Form 10-Q for the
quarter ended March 31, 1997;
e. The Company's current reports on Form 8-K, dated April 1, 1996 (as
amended on June 3, 1996 and June 18, 1996), April 29, 1996 (as amended
on June 3, 1996 and June 18, 1996), January 9, 1997 (as amended on
February 7, 1997 and March 10, 1997) and February 12, 1997;
f. The Operating Partnership's current reports on Form 8-K, dated January
9, 1997 (as amended on February 7, 1997 and March 10, 1997) and
February 12, 1997; and
g. The description of the Common Stock of the Company included in the
Company's registration statement on Form 8-A, dated May 16, 1994.
All documents filed by the Company or the Operating Partnership with
the Commission pursuant to Sections 13(a) and 13(c) of the Exchange Act and any
definitive proxy statements so filed pursuant to Section 14 of the Exchange Act
and any reports filed pursuant to Section 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering of the
Securities to which this Prospectus relates shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that is incorporated by reference herein
modifies or supersedes such earlier statement. Any such statements modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
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<PAGE>
Copies of any or all of the documents specifically incorporated herein
by reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents) will be furnished
without charge to each person to whom a copy of this Prospectus is delivered
upon written or oral request. Requests should be made to: Highwoods Properties,
Inc., Investor Relations, 3100 Smoketree Court, Suite 600, Raleigh, North
Carolina 27604.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed real estate
investment trust ("REIT") that began operations through a predecessor in 1978.
At June 30, 1997, the Company owned a portfolio of 361 in-service office and
industrial properties (the "Properties"), and 543 acres (and had agreed to
purchase an additional 369 acres) of undeveloped land suitable for future
development (the "Development Land"). In addition, as of June 30, 1997, an
additional 32 properties (the "Development Projects"), which will encompass
approximately 2.6 million square feet, were under development. The Properties
consist of 223 suburban office properties and 138 industrial (including 74
service center) properties located in 16 markets in North Carolina, Florida,
Tennessee, Georgia, Virginia, South Carolina and Alabama. As of June 30, 1997,
the Properties consisted of approximately 21.6 million rentable square feet,
which were leased to approximately 2,600 tenants.
The Company conducts substantially all of its activities through, and
substantially all of its interests in 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 June 30, 1997, owned approximately 84% of the common
partnership interests (the "Common Units") in the Operating Partnership. The
remaining Common Units are owned by limited partners (including certain officers
and directors of the Company). Each Common 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 the Common Stock. With
each such exchange, the number of Common 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 services for the Properties as well
as for third parties. The Company conducts its third-party fee-based services
through Highwoods Services, Inc., a subsidiary of the Operating Partnership
("Highwoods Services"), and through Highwoods/Tennessee Properties, Inc., a
wholly owned subsidiary of the Company.
The Company is a Maryland corporation that was incorporated in 1994.
The Operating Partnership is a North Carolina limited partnership formed in
1994. The Company's and the Operating Partnership's executive offices are
located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and
their telephone number is (919) 872-4924. The Company maintains offices in each
of its primary markets.
RISK FACTORS
Prospective investors should carefully consider, among other factors,
the matters described below before purchasing offered Securities.
Geographic Concentration
The Company's revenues and the value of its properties may be affected
by a number of factors, including the local economic climate (which may be
adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for office and other competing commercial
properties). As of March 31, 1997, the North Carolina Properties represented 45%
of the annualized rental revenue of the Properties, with Research Triangle
Properties alone constituting 26%. The Company's performance and its ability to
make distributions to stockholders is dependent on the economic conditions in
its southeastern markets and in its North Carolina markets in particular. In
addition, there can be no assurance as to the continued growth of the economy in
these markets.
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Conflicts of Interest in the Business of the Company
Tax Consequences upon Sale or Refinancing of Properties. Holders of
Common Units may suffer adverse tax consequences upon the sale or refinancing of
any of the Company's properties; 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 Common
Units may influence the Company not to sell or refinance certain properties even
though such sale or refinancing might otherwise be financially advantageous to
the Company.
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.
Limitations on Acquisition and Change in Control
Ownership Limit. The Company's Articles of Incorporation prohibit
ownership of more than 9.8% of the outstanding capital stock of the Company by
any person. Such restriction is likely to have the effect of precluding
acquisition of control of the Company by a third party without consent of the
board of directors even if a change in control were in the interest of
stockholders.
Required Consent of the Operating Partnership for Significant Corporate
Action. The Company may not engage in certain change of control transactions
without the approval of the holders of a majority of the outstanding Common
Units. Should the Company ever own less than a majority of the outstanding
Common Units, this voting requirement might limit the possibility for an
acquisition or change in the control of the Company. As of June 30, 1997, the
Company owned approximately 84% of the Common Units.
Staggered Board. The board of directors of the Company has three
classes of directors, the terms of which will expire in 1998, 1999 and 2000.
Directors for each class will be chosen for a three-year term. The staggered
terms for directors may affect the stockholders' ability to change control of
the Company even if a change in control were in the stockholders' interest.
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's ability to make distributions to its
stockholders and the Operating Partnership's ability to make payments of
interest and principal on any Debt Securities may be adversely affected.
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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 each 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.
Illiquidity of Real Estate. Equity real estate investments are
relatively illiquid. Such illiquidity will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions. In addition, the Code limits the Company's ability to sell
properties held for fewer than four years, which may affect the Company's
ability to sell properties without adversely affecting its financial
performance.
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 Company's 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 comply in all material respects with 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.
Risk of Development, Construction and Acquisition Activities
The Company intends to continue development and construction of office
and industrial properties, including development on the Development Land and the
completion of the Development Projects. Risks associated with the Company's
development and construction activities, including activities relating to the
Development Land and the Development Projects, 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
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<PAGE>
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 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.
Financing Risks
Debt Financing. The Company and the Operating Partnership are subject
to the risks associated with debt financing, including the risk that the cash
provided by operating activities will be insufficient to meet required payments
of principal and interest, the risk of rising interest rates on floating rate
debt, the risk that the Company and the Operating Partnership will not be able
to prepay or refinance existing indebtedness (which generally will not have been
fully amortized at maturity) or that the terms of such refinancing will not be
as favorable as the terms of existing indebtedness. If refinancing of such
indebtedness could not be secured on acceptable terms, the Company and/or the
Operating Partnership might be forced to dispose of properties upon
disadvantageous terms, which might result in losses and might adversely affect
the cash flow available for distribution to equity holders or debt service. An
inability to secure refinancing could also cause the Company to issue equity
securities when its valuation is low, which could adversely affect the market
price of such securities. In addition, if a property or properties are mortgaged
to secure payment of indebtedness and the Company is unable to meet mortgage
payments, the mortgage securing the property could be foreclosed upon by, or the
property could be otherwise transferred to, the mortgagee with a consequent loss
of income and asset value to the Company.
Risk of Rising Interest Rates. The Company and the Operating
Partnership have incurred and expect in the future to incur floating rate
indebtedness in connection with the acquisition and development of properties,
as well as for other purposes. Also, additional indebtedness that the Company
and the Operating Partnership incur under the existing revolving credit facility
bears interest at a floating rate. Accordingly, increases in interest rates
would increase interest costs (to the extent that the related indebtedness was
not protected by interest rate protection arrangements).
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"), and third parties may seek recovery
from owners or operators of real property for personal injuries associated with
ACM. A number of the Properties contain ACM or material that is presumed to be
ACM. In connection with the ownership and operation of its properties, the
Company may be liable for such costs. In addition, it is not unusual for
property owners to encounter on-site contamination caused by off-site sources,
and the presence of hazardous or toxic substances at a site in the vicinity of a
property could require the property owner to participate in remediation
activities in certain cases or could have an adverse affect on the value of such
property.
As of the date hereof, substantially all of the Properties have been
subjected to a Phase I environmental assessment or assessment update. These
assessments have not revealed, nor is management of the Company aware of, any
environmental liability that it believes would have a material adverse effect on
the Company's financial position, operations or liquidity taken as a whole. This
projection, however, could prove to be incorrect depending on certain factors.
For example, the Company's assessments may not reveal all environmental
liabilities, or may underestimate the scope and severity of environmental
conditions observed, with the result that there may be material environmental
liabilities of which
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the Company is unaware, or material environmental liabilities may have arisen
after the assessments were performed of which the Company is unaware. In
addition, assumptions regarding groundwater flow and the existence and source of
contamination are based on available sampling data, and there are no assurances
that the data is reliable in all cases. Moreover, there can be no assurance that
(i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties, or by third parties unrelated to
the Company.
Some tenants use or generate hazardous substances in the ordinary
course of their respective businesses. These tenants are required under their
leases to comply with all applicable laws and are responsible to the Company for
any damages resulting from the tenants' use of the property. The Company is not
aware of any material environmental problems resulting from tenants' use or
generation of hazardous substances. There are no assurances that all tenants
will comply with the terms of their leases or remain solvent and that the
Company may not at some point be responsible for contamination caused by such
tenants.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company and the Operating Partnership intend to use the net proceeds from the
sale of Securities for general corporate purposes, including the development and
acquisition of additional properties and other acquisition transactions, the
payment of certain outstanding debt, and improvements to certain properties in
the Company's portfolio. The Company is required, by the terms of the
partnership agreement of the Operating Partnership (the "Operating Partnership
Agreement"), to invest the net proceeds of any sale of Common Stock, Preferred
Stock or Depositary Shares in the Operating Partnership in exchange for
additional partnership interests.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The ratios of earnings to fixed charges for the Company for the three
months ended March 31, 1997 and for the year ended December 31, 1996 were 2.49x
and 2.53x, respectively. The ratios of earnings to fixed charges for the
Operating Partnership for the three months ended March 31, 1997 and for the year
ended December 31, 1996 were 2.45x and 2.55x, respectively. The ratios of
earnings to fixed charges for both the Company and the Operating Partnership for
the years ended December 31, 1995, 1994, 1993 and 1992 were 3.00x, 2.42x, 0.97x
and 0.95x, respectively. Earnings were inadequate to cover fixed charges by
$171,000 and $239,000 for the years ended December 31, 1993, and 1992,
respectively. These deficiencies occurred prior to the Company's initial public
offering (the "IPO") of Common Stock in June 1994. Prior to the completion of
the IPO, the Company's predecessor (the "Highwoods Group") operated in a manner
as to minimize taxable income to the owners. As a result, although its
properties have generated positive net cash flow, the Highwoods Group had net
losses for the years ended December 31, 1992 and 1993. The IPO allowed the
Company to significantly deleverage its properties and improve its ratio of
earnings to fixed charges.
On February 12, 1997, the Company issued 125,000 8 5/8% Series A
Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares"), which
was its first and, to date, only issuance of preferred stock. See "Description
of Series A Preferred Shares." For the three months ended March 31, 1997, the
ratio of earnings to combined fixed charges and preferred stock dividends was
2.24x for the Company and 2.21x for the Operating Partnership.
The ratio of earnings to combined fixed charges and preferred stock
dividends is computed as income from operations before extraordinary items plus
fixed charges (excluding capitalized interest) divided by fixed charges and
preferred stock dividends. Fixed charges and preferred stock dividends consist
of interest costs, including amortization and debt discount and deferred
financing fees, whether capitalized or expensed, the interest component of
rental expense, plus any dividends on outstanding preferred stock.
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DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will be issued under an indenture dated as of December 1, 1996
(the "Indenture"), between the Operating Partnership, the Company and First
Union National Bank, as trustee (together with any other trustees appointed in a
supplemental indenture with respect to a particular series, the "Trustee"). The
Indenture has been filed as an exhibit to the registration statements of which
this Prospectus is a part and is available for inspection at the corporate trust
office of the Trustee or as described above under "Available Information." The
Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as
amended (the "TIA"). The statements made hereunder relating to the Indenture and
the Debt Securities to be issued thereunder are summaries of certain provisions
thereof and do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
General
The Debt Securities will be direct, unsecured obligations of the
Operating Partnership and will rank equally with all other unsecured and
unsubordinated indebtedness of the Operating Partnership. At June 30, 1997, the
total outstanding debt of the Operating Partnership was $645.4 million, $363.0
million of which was secured debt. The Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the board of directors of the Company as sole general partner of
the Operating Partnership or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
If any Debt Securities are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest.
The Indenture provides that there may be more than one Trustee
thereunder, each with respect to one or more series of Debt Securities. Any
Trustee under the Indenture may resign or be removed with respect to one or more
series of Debt Securities, and a successor Trustee may be appointed to act with
respect to such series (Section 608). In the event that two or more persons are
acting as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Section 609), and, except as
otherwise indicated herein, any action described herein to be taken by a Trustee
may be taken by each such Trustee with respect to, and only with respect to, the
one or more series of Debt Securities for which it is Trustee under the
Indenture.
Reference is made to the Prospectus Supplement relating to the series
of Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal
amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity
thereof;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be
payable;
(5) the rate or rates (which may be fixed or variable), or the
method by which such rate or rates shall be determined, at
which such Debt Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or
dates, from which any interest will accrue, the dates on which
any such interest will be payable, the record dates for such
interest payment dates, or the method by which any such date
shall be determined, the person to whom such interest shall be
payable, and the basis upon which interest shall be calculated
if other than that of a 360-day year of twelve 30-day months;
(7) the place or places where the principal of (and premium, if
any) and interest, if any, on such Debt Securities will be
payable, such Debt Securities may be surrendered for
registration of transfer or
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exchange and notices or demands to or upon the Operating
Partnership in respect of such Debt Securities and the
Indenture may be served;
(8) the period or periods within which, the price or prices at
which and the terms and conditions upon which such Debt
Securities may be redeemed, as a whole or in part, at the
option of the Operating Partnership, if the Operating
Partnership is to have such an option;
(9) the obligation, if any, of the Operating Partnership to
redeem, repay or purchase such Debt Securities pursuant to any
sinking fund or analogous provision or at the option of a
holder thereof, and the period or periods within which, the
price or prices at which and the terms and conditions upon
which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in
which such Debt Securities are denominated and payable, which
may be a foreign currency or units of two or more foreign
currencies or a composite currency or currencies, and the
terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium,
if any) or interest, if any, on such Debt Securities may be
determined with reference to an index, formula or other method
(which index, formula or method may, but need not be, based on
a currency, currencies, currency unit or units or composite
currency or currencies) and the manner in which such amounts
shall be determined;
(12) the events of default or covenants of such Debt Securities, to
the extent different from or in addition to those described
herein;
(13) whether such Debt Securities will be issued in certificated
and/or book-entry form;
(14) whether such Debt Securities will be in registered or bearer
form and, if in registered form, the denominations thereof if
other than $1,000 and any integral multiple thereof and, if in
bearer form, the denominations thereof if other than $5,000
and terms and conditions relating thereto;
(15) with respect to any series of Debt Securities rated below
investment grade at the time of issuance, the Guarantees (the
"Guaranteed Securities");
(16) if the defeasance and covenant defeasance provisions described
herein are to be inapplicable or any modification of such
provisions;
(17) whether and under what circumstances the Operating Partnership
will pay additional amounts on such Debt Securities in respect
of any tax, assessment or governmental charge and, if so,
whether the Operating Partnership will have the option to
redeem such Debt Securities in lieu of making such payment;
(18) with respect to any Debt Securities that provide for optional
redemption or prepayment upon the occurrence of certain events
(such as a change of control of the Operating Partnership),
(i) the possible effects of such provisions on the market
price of the Operating Partnership's or the Company's
securities or in deterring certain mergers, tender offers or
other takeover attempts, and the intention of the Operating
Partnership to comply with the requirements of Regulation 14E
under the Exchange Act and any other applicable securities
laws in connection with such provisions; (ii) whether the
occurrence of the specified events may give rise to
cross-defaults on other indebtedness such that payment on such
Debt Securities may be effectively subordinated; and (iii) the
existence of any limitation on the Operating Partnership's
financial or legal ability to repurchase such Debt Securities
upon the occurrence of such an event (including, if true, the
lack of assurance that such a repurchase can be effected) and
the impact, if any, under the Indenture of such a failure,
including whether and under what circumstances such a failure
may constitute an Event of Default;
(19) if other than the Trustee, the identify of each security
registrar and/or paying agent; and
(20) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal
amount thereof to be payable upon declaration of acceleration of the maturity
thereof ("Original Issue Discount Securities"). If material or applicable,
special U.S. Federal income tax, accounting and other considerations applicable
to Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
Except as described under "-- Merger, Consolidation or Sale" and "--
Certain Covenants" or as may be set forth in any Prospectus Supplement, the
Indenture does not contain any other provisions that would limit the ability of
the Operating Partnership to incur indebtedness or that would afford holders of
the Debt Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Operating Partnership, the management of the Operating
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Partnership or the Company, or any affiliate of any such party, (ii) a change of
control, or (iii) a reorganization, restructuring, merger or similar transaction
involving the Operating Partnership or the Company. In addition, subject to the
limitations set forth under "-- Merger, Consolidation or Sale," the Operating
Partnership or the Company may, in the future, enter into certain transactions,
such as the sale of all or substantially all of its assets or the merger or
consolidation of the Operating Partnership or the Company, that would increase
the amount of the Operating Partnership's indebtedness or substantially reduce
or eliminate the Operating Partnership's assets, which may have an adverse
effect on the Operating Partnership's ability to service its indebtedness,
including the Debt Securities. In addition, restrictions on ownership and
transfers of the Company's Common Stock and Preferred Stock which are designed
to preserve its status as a REIT may act to prevent or hinder a change of
control. See "Description of Common Stock -- Certain Provisions Affecting Change
of Control" and "Description of Preferred Stock -- Restrictions on Ownership."
Reference is made to the applicable Prospectus Supplement for information with
respect to any deletions from, modifications of or additions to the events of
default or covenants that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
Reference is made to " -- Certain Covenants" below and to the
description of any additional covenants with respect to a series of Debt
Securities in the applicable Prospectus Supplement. Except as otherwise
described in the applicable Prospectus Supplement, compliance with such
covenants generally may not be waived with respect to a series of Debt
Securities by the board of directors of the Company as sole general partner of
the Operating Partnership or by the Trustee unless the Holders of at least
majority in principal amount of all outstanding Debt Securities of such series
consent to such waiver, except to the extent that the defeasance and covenant
defeasance provisions of the Indenture described under " -- Discharge,
Defeasance and Covenant Defeasance" below apply to such series of Debt
Securities. See " -- Modification of the Indenture."
Guarantees
The Company will fully, unconditionally and irrevocably guarantee the
due and punctual payment of principal, premium, if any, and interest on any Debt
Securities rated below investment grade at the time of issuance by the Operating
Partnership, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
In addition, Debt Securities rated investment grade may also be accompanied by a
Guarantee to the extent and on the terms described in the applicable Prospectus
Supplement.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series which are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities which are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000 (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 301, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor
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of different authorized denominations upon surrender of such Debt Securities at
the corporate trust office of the Trustee referred to above. In addition,
subject to certain limitations imposed upon Debt Securities issued in book-entry
form, the Debt Securities of any series may be surrendered for registration of
transfer thereof at the corporate trust office of the Trustee referred to above.
Every Debt Security surrendered for registration of transfer or exchange shall
be duly endorsed or accompanied by a written instrument of transfer. No service
charge will be made for any registration of transfer or exchange of any Debt
Securities, but the Trustee or the Operating Partnership may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith (Section 305). If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the Trustee) initially designated
by the Operating Partnership with respect to any series of Debt Securities, the
Operating Partnership may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, except that Operating Partnership will be required to
maintain a transfer agent in each place of payment for such series. The
Operating Partnership may at any time designate additional transfer agents with
respect to any series of Debt Securities (Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i)
to issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before selection of the Debt Securities to be
redeemed and ending at the close of business on the day of such selection, or
(ii) to register the transfer of or exchange any Registered Security so selected
for redemption in whole or in part, except, in the case of any Registered
Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except that
such a Bearer Security may be exchanged for a Registered Security of that series
and like tenor, provided that such Registered Security shall be simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Debt Security not to be so
repaid (Section 305).
Merger, Consolidation or Sale
The Operating Partnership or the Company may consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity, provided that (a) the Operating Partnership or the
Company, as the case may be, shall be the continuing entity, or the successor
entity (if other than the Operating Partnership or the Company, as the case may
be) formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the Debt Securities and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; (b) immediately after giving effect to
such transaction, no Event of Default under the Indenture, and no event which,
after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
Certain Covenants
Limitations on Incurrence of Debt. The Operating Partnership will not,
and will not permit any Subsidiary to, incur any Debt (as defined below), other
than intercompany debt (representing Debt to which the only parties are the
Company, the Operating Partnership and any of their Subsidiaries (but only so
long as such Debt is held solely by any of the Company, the Operating
Partnership and any Subsidiary) that is subordinate in right of payment to the
Debt Securities) if, immediately after giving effect to the incurrence of such
additional Debt, the aggregate principal amount of all outstanding Debt of the
Operating Partnership and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles is greater than 60% of
the sum of (i) the Operating Partnership's Total Assets (as defined below) as of
the end of the calendar quarter covered in the Operating Partnership's annual
report on Form 10-K or quarterly report on Form 10-Q, as the case may be, most
recently filed with the Commission (or, if such filing is not permitted under
the Exchange Act, with the Trustee) prior to the incurrence of such additional
Debt and (ii) the increase in Total Assets from the end of such quarter
including, without limitation, any increase in Total Assets resulting from the
incurrence of such additional Debt (such increase together with the Operating
Partnership's Total Assets shall be referred to as the "Adjusted Total Assets")
(Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest
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of any kind upon any of the property of the Operating Partnership, or any
Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt of the Operating Partnership and its Subsidiaries on a consolidated
basis is greater than 40% of the Operating Partnership's Adjusted Total Assets
(Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5 to 1.0 on a pro forma basis
after giving effect to the incurrence of such Debt and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt incurred by the Operating Partnership or its Subsidiaries since the
first day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Debt, had occurred at the beginning of
such period, (ii) the repayment or retirement of any other Debt by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter period
had been incurred, repaid or retired at the beginning of such period (except
that, in making such computation, the amount of Debt under any revolving credit
facility shall be computed based upon the average daily balance of such Debt
during such period), (iii) the income earned on any increase in Adjusted Total
Assets since the end of such four-quarter period had been earned, on an
annualized basis, during such period, and (iv) in the case of any acquisition or
disposition by the Operating Partnership or any Subsidiary of any asset or group
of assets since the first day of such four-quarter period, including, without
limitation, by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments with respect to
such acquisition or disposition being included in such pro forma calculation
(Section 1011).
For purposes of the foregoing provisions regarding the limitation on
the incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership and its Subsidiaries on a consolidated basis whenever the Operating
Partnership and its Subsidiaries on a consolidated basis shall create, assume,
guarantee or otherwise become liable in respect thereof.
Maintenance of Total Unencumbered Assets. The Operating Partnership is
required to maintain Total Unencumbered Assets of not less than 200% of the
aggregate outstanding principal amount of all outstanding Unsecured Debt
(Section 1012).
Existence. Except as permitted under "-- Merger, Consolidation or
Sale," the Operating Partnership and the Company are required to do or cause to
be done all things necessary to preserve and keep in full force and effect their
existence, rights and franchises; provided, however, that the Operating
Partnership or the Company shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities (Section 1007).
Maintenance of Properties. The Operating Partnership is required to
cause all of its material properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and to cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Operating
Partnership may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that the Operating Partnership and its Subsidiaries shall not be
prevented from selling or otherwise disposing for value their respective
properties in the ordinary course of business (Section 1005).
Insurance. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies (Section 1006).
Payment of Taxes and Other Claims. Each of the Operating Partnership
and the Company is required to pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges levied or imposed upon it or any Subsidiary or upon its
income, profits or property or that of any
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Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Operating
Partnership, the Company, or any Subsidiary; provided, however, that the
Operating Partnership and the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings (Section 1013).
Provision of Financial Information. The Holders of Debt Securities
will be provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents that the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have been
required so to file such documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as
their names and addresses appear in the Security Register, without cost to such
Holders, copies of the annual reports and quarterly reports which the Operating
Partnership would have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Operating Partnership were
subject to such Sections and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents that the Operating Partnership
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Operating Partnership were subject to such
Sections and (y) if filing such documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1014).
As used herein and in the Prospectus Supplement:
"Annual Service Charge" as of any date means the amount which is
expensed in any 12-month period for interest on Debt (as defined below).
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries (i) plus amounts which have been deducted for (a) interest on Debt
of the Operating Partnership and its Subsidiaries, (b) provision for taxes of
the Operating Partnership and its Subsidiaries based on income, (c) amortization
of debt discount, (d) depreciation and amortization, (e) the effect of any
noncash charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period, (f) amortization of deferred charges,
(g) provisions for or realized losses on properties and (h) charges for early
extinguishment of debt and (ii) less amounts that have been included for gains
on properties.
"Consolidated Net Income" for any period means the amount of
consolidated net income (or loss) of the Operating Partnership and its
Subsidiaries for such period determined on a consolidated basis in accordance
with generally accepted accounting principles ("GAAP").
"Debt" means any indebtedness, whether or not contingent, in respect of
(i) borrowed money evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property, (iii) the reimbursement obligations,
contingent or otherwise, in connection with any letters of credit actually
issued or amounts representing the balance deferred and unpaid of the purchase
price of any property except any such balance that constitutes an accrued
expense or trade payable or (iv) any lease of property which would be reflected
on a consolidated balance sheet as a capitalized lease in accordance with GAAP,
in the case of items of indebtedness under (i) through (iii) above to the extent
that any such items (other than letters of credit) would appear as a liability
on a consolidated balance sheet in accordance with GAAP, and also includes, to
the extent not otherwise included, any obligation to be liable for, or to pay,
as obligor, guarantor or otherwise (other than for purposes of collection in the
ordinary course of business), indebtedness of another person.
"Subsidiary" means a corporation, partnership or limited liability
company, a majority of the outstanding voting stock, partnership interests or
membership interests, as the case may be, of which is owned or controlled,
directly or
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indirectly, by the Operating Partnership or by one or more other Subsidiaries of
the Operating Partnership. For the purposes of this definition, "voting stock"
means stock having the voting power for the election of directors, general
partners, managers or trustees, as the case may be, whether at all times or only
so long as no senior class of stock has such voting power by reason of any
contingency.
"Total Assets" as of any date means the sum of (i) the Undepreciated
Real Estate Assets and (ii) all other assets of the Operating Partnership and
its Subsidiaries on a consolidated basis determined in accordance with GAAP (but
excluding intangibles and accounts receivable).
"Total Unencumbered Assets" means the sum of (i) those Undepreciated
Real Estate Assets not subject to an encumbrance and (ii) all other assets of
the Operating Partnership and its Subsidiaries not subject to an encumbrance
determined in accordance with GAAP (but excluding intangibles and accounts
receivable).
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"Unsecured Debt" means Debt of the Operating Partnership or any
Subsidiary which is not secured by any mortgage, lien, charge, pledge or
security interest of any kind upon any of the properties owned by the Operating
Partnership or any of its Subsidiaries.
Additional Covenants. Any additional or different covenants of the
Operating Partnership or the Company with respect to any series of Debt
Securities will be set forth in the Prospectus Supplement relating thereto.
Events of Default, Notice and Waiver
The Indenture provides that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (a)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (b) default in the payment of the principal of (or
premium, if any on) any Debt Security of such series at its maturity; (c)
default in making any sinking fund payment as required for any Debt Security of
such series; (d) default in the performance of any other covenant of the
Operating Partnership or the Company contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), such default having
continued for 60 days after written notice as provided in the Indenture; (e)
default in the payment of an aggregate principal amount exceeding $5,000,000 of
any evidence of recourse indebtedness of the Operating Partnership or the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled, such default having continued for 10 days after notice as provided in
the Indenture; (f) certain events of bankruptcy, insolvency or reorganization,
or court appointment of a receiver, liquidator or trustee of the Operating
Partnership, the Company or any Significant Subsidiary or any of their
respective property; and (g) any other Event of Default provided with respect to
a particular series of Debt Securities. The term "Significant Subsidiary" means
each significant subsidiary (as defined in Regulation S-X promulgated under the
Securities Act) of the Operating Partnership or the Company (Section 501).
If an Event of Default under the Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms thereof) of all of the Debt Securities of that
series to be due and payable immediately by written notice thereof to the
Operating Partnership and the Company (and to the Trustee if given by the
Holders); provided, that in the case of an Event of Default described under
provision (f) of the preceding paragraph, acceleration is automatic. However, at
any time after such a declaration of acceleration with respect to Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) has been made, but before a judgment or decree
for payment of the money due has been obtained by the Trustee, the Holders of
not less than a majority in principal amount of Outstanding Debt Securities of
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such series (or of all Debt Securities then Outstanding under the Indenture, as
the case may be) may rescind and annul such declaration and its consequences if
(a) the Operating Partnership or the Company shall have deposited with the
Trustee all payments of the principal of (and premium, if any) and interest on
the Debt Securities of such series (or of all Debt Securities then Outstanding
under the Indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of the Trustee and (b) all Events of Default, other
than the non-payment of accelerated principal of (or specified portion thereof),
or premium (if any) or interest on the Debt Securities of such series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be) have
been cured or waived as provided in the Indenture (Section 502). The Indenture
also provides that the Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) may waive any past default
with respect to such series and its consequences, except a default (x) in the
payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or (y) in respect of a covenant or provision contained
in the Indenture that cannot be modified or amended without the consent of the
Holder of each Outstanding Debt Security affected thereby (Section 513).
The Trustee will be required to transmit notice to the Holders of a
series of Debt Securities within 90 days of a default under the Indenture unless
such default has been cured or waived; provided, however, that the Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 602).
The Indenture provides that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it (Section
507). This provision will not prevent, however, any holder of Debt Securities
from instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
The Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 601). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred upon the
Trustee with respect to the Debt Securities of such series. However, the Trustee
may refuse to follow any direction which is in conflict with any law or the
Indenture or would subject the Trustee to personal liability, or which may be
unduly prejudicial to the holders of Debt Securities of such series not joining
therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company (if the Debt Securities are Guaranteed Securities)
must deliver to the Trustee a certificate, signed by one of several specified
officers of the Company, stating whether or not such officer has knowledge of
any default under the Indenture and, if so, specifying each such default and the
nature and status thereof (Sections 1009 and 1010).
Modification of the Indenture
Modifications and amendments of the Indenture will be permitted to be
made only with the consent of the Holders of not less than a majority in
principal amount of all Outstanding Debt Securities or series of Outstanding
Debt Securities which are affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each such Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or premium (if any) or any installment of interest
on, any such Debt Security, reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect any
right or repayment of the holder of any such Debt Security, change the place of
payment, or the coin or currency, for payment of principal of, premium, if any,
or interest on any such Debt Security or impair the right to institute suit for
the enforcement of any payment on or with respect to any
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such Debt Security; (b) reduce the above-stated percentage of outstanding Debt
Securities of any series necessary to modify or amend the Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
Indenture; (c) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligations of the Company in respect of the payment of
principal (and premium, if any) and interest on any Guaranteed Securities; or
(d) modify any of the foregoing provisions or any of the provisions relating to
the waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership and/or the Company with certain
covenants relating to such series of Debt Securities in the Indenture (Section
1008).
Modifications and amendments of the Indenture will be permitted to be
made by the Operating Partnership, the Company and the Trustee without the
consent of any Holder of Debt Securities for any of the following purposes: (i)
to evidence the succession of another Person to the Operating Partnership as
obligor or the Company as guarantor under the Indenture; (ii) to add to the
covenants of the Operating Partnership or the Company for the benefit of the
Holders of all or any series of Debt Securities or to surrender any right or
power conferred upon the Operating Partnership or the Company in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities; (iv) to add or change any provisions of the Indenture
to facilitate the issuance of, or to liberalize certain terms of, Debt
Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided that such action shall not adversely
affect the interests of the Holders of the Debt Securities of any series in any
material respect; (v) to amend or supplement any provisions of the Indenture,
provided that no such amendment or supplement shall materially adversely affect
the interests of the Holders of any Debt Securities then Outstanding; (vi) to
secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series; (viii) to provide for the acceptance of appointment by
a successor Trustee to facilitate the administration of the trusts under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; or (x) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of any series
of such Debt Securities, provided that such action shall not adversely affect
the interests of the Holders of the Debt Securities of any series in any
material respect (Section 901). In addition, with respect to Guaranteed
Securities, without the consent of any Holder of Debt Securities, the Company,
or a subsidiary thereof, may directly assume the due and punctual payment of the
principal of, any premium and interest on all the Guaranteed Securities and the
performance of every covenant of the Indenture on the part of the Operating
Partnership to be performed or observed. Upon any such assumption, the Company
or such subsidiary shall succeed to, and be substituted for and may exercise
every right and power of, the Operating Partnership under the Indenture with the
same effect as if the Company or such subsidiary had been the issuer of the
Guaranteed Securities and the Operating Partnership shall be released from all
obligations and covenants with respect to the Guaranteed Securities. No such
assumption shall be permitted unless the Company has delivered to the Trustee
(i) an officer's certificate and an opinion of counsel, stating, among other
things, that the Guarantee and all other covenants of the Company in the
Indenture remain in full force and effect and (ii) an opinion of independent
counsel that the Holders of Guaranteed Securities shall have no United States
Federal tax consequences as a result of such assumption, and that, if any Debt
Securities are then listed on the New York Stock Exchange, that such Debt
Securities shall not be delisted as a result of such assumption (Section 805).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed Outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
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the Indenture, and (iv) Debt Securities owned by the Operating Partnership, the
Company or any other obligor upon the Debt Securities or any affiliate of the
Operating Partnership, the Company or of such other obligor shall be
disregarded.
The Indenture contains provisions for convening meetings of the Holders
of Debt Securities of a series (Section 1501). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by the Operating
Partnership, the Company (in respect of a series of Guaranteed Securities) or
the holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in the
Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments of
the Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present will be permitted to be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a specified
percentage which is less than a majority in principal amount of the Outstanding
Debt Securities of a series may be taken at a meeting at which a quorum is
present by the affirmative vote of Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of such series (Section
1504).
Discharge, Defeasance and Covenant Defeasance
The Operating Partnership may discharge certain obligations to Holders
of any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be (Section 401).
Unless otherwise provided in the applicable Prospectus Supplement, the
Operating Partnership may elect either (a) to defease and discharge itself and
the Company (if such Debt Securities are Guaranteed Securities) from any and all
obligations with respect to such Debt Securities (except for the obligation to
pay additional amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") or (b) to release itself
and the Company (if such Debt Securities are Guaranteed Securities) from their
obligations with respect to such Debt Securities under certain sections of the
Indenture (including the restrictions described under "-- Certain Covenants")
and if provided pursuant to Section 301 of the Indenture, their obligations with
respect to any other covenant, and any omission to comply with such obligations
shall not constitute a default or an Event of Default with respect to such Debt
Securities ("covenant defeasance"), in either case upon the irrevocable deposit
by the Operating Partnership or the Company (if the Debt Securities are
Guaranteed Securities) with the Trustee, in trust, of an amount, in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at Stated Maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities which through the scheduled payment of principal and interest in
accordance with their terms will provide money
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in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor (Section 402).
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership or the Company (if the Debt Securities are
Guaranteed Securities) has delivered to the Trustee an Opinion of Counsel (as
specified in the Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States Federal income tax law occurring
after the date of the Indenture (Section 402).
"Government Obligations" means securities that are (i) direct
obligations of the United States of America or the government that issued the
foreign currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged or (ii)
obligations of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government that issued
the foreign currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, and that,
in either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Operating Partnership or the Company (if the Debt Securities are
Guaranteed Securities) has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
Conversion Event based on the applicable market exchange rate (Section 402).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country that issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established. Unless otherwise provided in the applicable Prospectus
Supplement, all payments of principal of (and premium, if any) and interest on
any Debt Security that is payable in a foreign currency that ceases to be used
by its government of issuance shall be made in U.S. dollars.
If the Operating Partnership effects covenant defeasance with respect
to any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default other than the Event of
Default described in clause (d) under "-- Events of Default, Notice and Waiver"
with respect to Sections no longer applicable to such Debt Securities or
described in clause (g) under "-- Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Operating Partnership and the Company (if such Debt
Securities are Guaranteed Securities) would remain liable to make payment of
such amounts due at the time of acceleration.
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The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such defeasance or covenant defeasance, including
any modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
No Conversion Rights
The Debt Securities will not be convertible into or exchangeable for
any capital stock of the Company or equity interest in the Operating
Partnership.
Global Securities
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF PREFERRED STOCK
General
The Company is authorized to issue 10,000,000 shares of preferred
stock, $.01 par value per share, of which 125,000 8 5/8% Series A Cumulative
Redeemable Preferred Shares have been issued and are outstanding as of the date
hereof. See "Description of Series A Preferred Shares."
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and Bylaws and any applicable
amendment to the Articles of Incorporation designating terms of a series of
Preferred Stock (a "Designating Amendment").
Terms
Subject to the limitations prescribed by the Articles of Incorporation,
the board of directors is authorized to fix the number of shares constituting
each series of Preferred Stock and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution of the board of directors. The Preferred Stock will, when
issued, be fully paid and nonassessable by the Company and will have no
preemptive rights.
Reference is made to the Prospectus Supplement relating to the
Preferred Stock offered thereby for specific terms, including:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of
such Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to
such Preferred Stock;
(4) the date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) the procedures for any auction and remarketing, if any, for
such Preferred Stock;
(6) the provision for a sinking fund, if any, for such Preferred
Stock;
(7) the provision for redemption, if applicable, of such Preferred
Stock;
(8) any listing of such Preferred Stock on any securities
exchange;
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(9) the terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock of the
Company, including the conversion price or manner of
calculation thereof;
(10) whether interests in such Preferred Stock will be represented
by Depositary Shares;
(11) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) a discussion of Federal income tax considerations applicable
to such Preferred Stock;
(13) the relative ranking and preferences of such Preferred Stock
as to dividend rights and rights upon liquidation, dissolution
or winding up of the affairs of the Company;
(14) any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred
Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; and
(15) any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate
to preserve the status of the Company as a REIT.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term "equity
securities" does not include convertible debt securities.
Dividends
Holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the board of directors of the Company, out
of assets of the Company legally available for payment, cash dividends at such
rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as shall
be fixed by the board of directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the board of directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum
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of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other capital
shares ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital shares of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any shares of Common Stock, or any other capital shares of the Company ranking
junior to or on a parity with the Preferred Stock of such series as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital shares of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if Preferred Stock does not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital shares of the Company, the terms of such
Preferred Stock may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital shares of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends of the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no shares of any
series of Preferred Stock shall be redeemed unless all outstanding Preferred
Stock of such series is simultaneously redeemed; provided, however, that the
foregoing shall not prevent the purchase or acquisition of Preferred Stock of
such series to preserve the REIT status of the Company or pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding Preferred
Stock of such series. In addition, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividends periods and the then current dividend period, and
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any shares of Preferred
Stock of such series (except by conversion into or exchange for capital shares
of the Company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation); provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of
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the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Stock
of any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock or any other class or series of
capital shares of the Company ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of the Company legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of the Company. If, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Stock and the corresponding amounts payable on all shares
of other classes or series of capital shares of the Company ranking on a parity
with the Preferred Stock in the distribution of assets, then the holders of the
Preferred Stock and all other such classes or series of capital shares shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all
holders of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital shares
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights
Holders of the Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears
for six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two
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additional directors of the Company at a special meeting called by the holders
of record of at least 10% of any series of Preferred Stock so in arrears (unless
such request is received less than 90 days before the date fixed for the next
annual or special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire board of directors of
the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock remain outstanding, the Company will not, without
the affirmative vote or consent of the holders of at least two-thirds of the
shares of each series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Articles of Incorporation or the Designating Amendment for such
series of Preferred Stock, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; provided, however, with respect to the occurrence of any of the Events
set forth in (ii) above, so long as the Preferred Stock remains outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event, the Company may not be the surviving entity, the
occurrence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of
Preferred Stock and provided further that (x) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (y) any increase in the amount of authorized shares of such
series or any other series of Preferred Stock, in each case ranking on a parity
with or junior to the Preferred Stock of such series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
Conversion Rights
The terms and conditions, if any, upon which any series of Preferred
Stock is convertible into shares of Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the shares of Preferred Stock are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Stock.
Stockholder Liability
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no stockholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
Restrictions on Ownership
As discussed below under "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- Ownership Limitations and Restrictions
on Transfers," for the Company to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), not more than 50% in value of its
outstanding capital shares may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable
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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% of the
issued and outstanding capital stock of the Company. To assist the Company in
meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities, including any Preferred Stock of the
Company. Therefore, the Designating Amendment for each series of Preferred Stock
may contain provisions restricting the ownership and transfer of the Preferred
Stock. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Stock.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
DESCRIPTION OF SERIES A PREFERRED SHARES
The following description of the Company's 8 5/8% Series A Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series A Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the Articles Supplementary applicable to the Series A
Preferred Shares. The Company is authorized to issue 143,750 Series A Preferred
Shares, 125,000 of which were issued and outstanding as of the date hereof.
With respect to the payment of dividends and amounts upon liquidation,
the Series A Preferred Shares rank pari passu with any other equity securities
of the Company the terms of which provide that such equity securities rank on a
parity with the Series A Preferred Shares and rank senior to the Common Stock
and any other equity securities of the Company which by their terms rank junior
to the Series A Preferred Shares. Dividends on the Series A Preferred Shares are
cumulative from the date of original issue and are payable quarterly on or about
the last day of February, May, August and November of each year commencing May
31, 1997, at the rate of 8 5/8% of the liquidation preference per annum
(equivalent to $86.25 per annum per share). Dividends on the Series A Preferred
Shares will accrue whether or not the Company has earnings, whether or nor there
are funds legally available for the payment of such dividends and whether or not
such dividends are declared. The Series A Preferred Shares have a liquidation
preference of $1,000 per share, plus an amount equal to any accrued and unpaid
dividends.
The Series A Preferred Shares are not redeemable prior to February 12,
2027. On and after February 12, 2027, the Series A Preferred Shares will be
redeemable for cash at the option of the Company, in whole or in part, at $1,000
per share, plus any accrued and unpaid dividends thereon to the date fixed for
redemption. The redemption price (other than the portion thereof consisting of
accrued and unpaid dividends) is payable solely out of the sale proceeds of
other capital stock of the Company, which may include other series of Preferred
Stock, and from no other source.
If dividends on the Series A Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series A Preferred Shares (voting separately as a class with all
other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors to serve on the board of directors of the Company until all
dividend arrearages have been paid.
The Series A Preferred Shares are not convertible or exchangeable for
any other property or securities of the Company. The Series A Preferred Shares
are subject to certain restrictions on ownership intended to preserve the
Company's status as a REIT for Federal income tax purposes. See "Description of
Preferred Stock -- Restrictions on Ownership" and "Description of Common Stock
- -- Certain Provisions Affecting Change of Control -- Ownership Limitations and
Restrictions on Transfer."
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DESCRIPTION OF DEPOSITARY SHARES
General
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Stock represented by such Depositary Shares (including
dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
Dividends and Other Distributions
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock that has been converted or
exchanged.
Withdrawal of Stock
Upon surrender of the Depositary Receipts at the corporate trust office
of the applicable Preferred Stock Depositary (unless the related Depositary
Shares have previously been called for redemption or converted), the holders
thereof will be entitled to delivery at such office, to or upon each such
holder's order, of the number of whole or fractional shares of the applicable
Preferred Stock and any money or other property represented by the Depositary
Shares evidenced by such Depositary Receipts. Holders of Depositary Receipts
will be entitled to receive whole or fractional shares of the related Preferred
Stock on the basis of the proportion of Preferred Stock represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such shares of Preferred Stock will not thereafter be entitled to
receive Depositary Shares therefor. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the applicable Preferred Stock Depositary will be required to deliver
to such holder at the same time a new Depositary Receipt evidencing such excess
number of Depositary Shares.
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Redemption of Depositary Shares
Whenever the Company redeems shares of Preferred Stock held by a
Preferred Stock Depositary, such Preferred Stock Depositary will be required to
redeem as of the same redemption date the number of Depositary Shares
representing shares of the Preferred Stock so redeemed, provided the Company
shall have paid in full to such Preferred Stock Depositary the redemption price
of the Preferred Stock to be redeemed plus an amount equal to any accrued and
unpaid dividends thereon to the date fixed for redemption. The redemption price
per Depositary Share will be equal to the redemption price and any other amounts
per share payable with respect to the Preferred Stock. If fewer than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will
be selected pro rata (as nearly as may be practicable without creating
fractional Depositary Shares) or by any other equitable method determined by the
Company.
From and after the date fixed for redemption, all dividends in respect
of the shares of Preferred Stock so called for redemption will cease to accrue,
the Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
Voting of the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
that represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action that may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of each Depositary
Receipt will be entitled to the fraction of the liquidation preference accorded
each share of Preferred Stock represented by the Depositary Share evidenced by
such Depositary Receipt, as set forth in the applicable Prospectus Supplement.
Conversion of Preferred Stock
The Depositary Shares, as such, will not be convertible into Common
Stock or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct the Company to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of stock, and the Company will agree that
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion
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will result in a fractional share being issued, an amount will be paid in cash
by the Company equal to the value of the fractional interest based upon the
closing price of the Common Stock on the last business day prior to the
conversion.
Amendment and Termination of a Deposit Agreement
Any form of Depositary Receipt evidencing Depositary Shares that will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holder of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company
upon not less that 30 days' prior written notice to the applicable Preferred
Stock Depositary if (i) such termination is necessary to preserve the Company's
status as a REIT or (ii) a majority of each series of Preferred Stock affected
by such termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange. In
addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
Charges of a Preferred Stock Depositary
The Company will pay all transfer and other taxes and governmental
charges arising solely from the existence of a Deposit Agreement. In addition,
the Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of a
Preferred Stock Depositary for any duties required by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
Resignation and Removal of Depositary
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
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Miscellaneous
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if
it is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under a Depositary Agreement. The
obligations of the Company and a Preferred Stock Depositary under a Deposit
Agreement will be limited to performing their duties thereunder in good faith
and without negligence (in the case of any action or inaction in the voting of
Preferred Stock represented by the applicable Depositary Shares), gross
negligence or willful misconduct, and neither the Company nor any applicable
Preferred Stock Depositary will be obligated to prosecute or defend any legal
proceeding in respect of any Depositary Receipts, Depositary Shares or shares of
Preferred Stock represented thereby unless satisfactory indemnity is furnished.
The Company and any Preferred Stock Depositary will be permitted to rely on
written advice of counsel or accountants, or information provided by persons
presenting shares of Preferred Stock represented thereby for deposit, holders of
Depositary Receipts or other persons believed in good faith to be competent to
give such information, and on documents believed in good faith to be genuine and
signed by a proper party.
In the event a Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, such Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF COMMON STOCK
General
The authorized capital stock of the Company includes 100 million shares
of Common Stock, $.01 par value per share. Each outstanding share of Common
Stock entitles the holder to one vote on all matters presented to stockholders
for a vote. Holders of Common Stock have no preemptive rights. As of June 30,
1997, there were approximately 35.9 million shares of Common Stock outstanding,
and approximately 6.8 million shares reserved for issuance upon exchange of
outstanding Common Units.
Shares of Common Stock currently outstanding are listed for trading on
the New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE to
list the additional shares of Common Stock to be sold pursuant to any Prospectus
Supplement, and the Company anticipates that such shares will be so listed.
All shares of Common Stock issued will be duly authorized, fully paid,
and non-assessable. Distributions may be paid to the holders of Common Stock if
and when declared by the board of directors of the Company out of funds legally
available therefor. The Company intends to continue to pay quarterly dividends.
Under Maryland law, stockholders are generally not liable for the
Company's debts or obligations. If the Company is liquidated, subject to the
right of any holders of preferred stock, if any, to receive preferential
distributions, each outstanding share of Common Stock will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company.
The Articles of Incorporation of the Company provide for the board of
directors to be divided into three classes of directors, each class to consist
as nearly as possible of one-third of the directors. At each annual meeting of
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. The overall effect of the provisions in the Articles of
Incorporation with respect to the classified board may be to render more
difficult a change of control of the Company or removal of incumbent management.
Holders of Common Stock have no right to cumulative voting for the election of
directors. Consequently, at each annual meeting of stockholders, the holders of
a plurality of the shares of Common Stock are able to elect all of the
successors of the class of directors whose term expires at that meeting.
Directors may be removed only for cause and only with the affirmative vote of
the holders of two-thirds of the shares of capital stock entitled to vote in the
election of directors.
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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 (unless the surviving entity contributes
substantially all of its assets to the Operating Partnership for Common Units)
or sale of all or substantially all of the assets of the Operating Partnership
be approved by a majority of the holders of Common Units (including Common Units
owned by the Company).
Maryland Business Combination and Control Share Statutes. The MGCL
establishes special requirements with respect to business combinations between
Maryland corporations and interested stockholders unless exemptions are
applicable. Among other things, the law prohibits for a period of five years a
merger and other specified or similar transactions between a company and an
interested stockholder and requires a supermajority vote for such transactions
after the end of the five-year period. The Company's Articles of Incorporation
contain a provision exempting the Company from the requirements and provisions
of the Maryland business combination statute. There can be no assurance that
such provision will not be amended or repealed at any point in the future.
The MGCL also provides that control shares of a Maryland corporation
acquired in a control share acquisition have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquiror or by officers or directors who
are employees of the Company. The control share acquisition statute does not
apply to shares acquired in a merger, consolidation or share exchange if the
Company is a party to the transaction, or to acquisitions approved or exempted
by the Articles of Incorporation or bylaws of the Company. The Company's bylaws
contain a provision exempting from the control share acquisition statute any and
all acquisitions by any person of the Company's stock. There can be no assurance
that such provision will not be amended or repealed, in whole or in part, at any
point in the future.
The Company's Articles of Incorporation (including the provision
exempting the Company from the Maryland business combination statute) may not be
amended without the affirmative vote of at least a majority of the shares of
capital stock outstanding and entitled to vote thereon voting together as a
single class, provided that certain provisions of the Articles of Incorporation
may not be amended without the approval of the holders of two-thirds of the
shares of capital stock of the Company outstanding and entitled to vote thereon
voting together as a single class. The Company's bylaws may be amended by the
board of directors or a majority of the shares cast of capital stock entitled to
vote thereupon at a duly constituted meeting of stockholders.
If either of the foregoing exemptions in the Articles of Incorporation
or bylaws is amended, the Maryland business combination statute or the control
share acquisition statute could have the effect of discouraging offers to
acquire the Company and of increasing the difficulty of consummating any such
offer.
Ownership Limitations and Restrictions on Transfers. For the Company to
remain qualified as a REIT under the Code, not more than 50% in value of its
outstanding shares of Common Stock may be owned, directly or indirectly, by five
or fewer individuals (defined in the Code to include certain entities) during
the last half of a taxable year, and such shares must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. To ensure that the
Company remains a qualified REIT, the Articles of Incorporation provide that no
holder (other than persons approved by the directors at their option and in
their discretion) may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% (the "Ownership Limit") of the issued and
outstanding capital stock of the Company. The board of directors may waive the
Ownership Limit if evidence satisfactory to the board of directors and the
Company's tax counsel is presented that the changes in ownership will not
jeopardize the Company's status as a REIT.
If any stockholder purports to transfer shares to a person and either
the transfer would result in the Company failing to qualify as a REIT, or the
stockholder knows that such transfer would cause the transferee to hold more
than the Ownership Limit, the purported transfer shall be null and void, and the
stockholder will be deemed not to have transferred the shares.
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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 Common Units. The foregoing restrictions on transferability and
ownership will not apply if the board of directors and the stockholders (by the
affirmative vote of the holders of two-thirds of the outstanding shares of
capital stock entitled to vote on the matter) determine that it is no longer in
the best interests of the Company to continue to qualify as a REIT.
All certificates representing shares of Common Stock bear a legend
referring to the restrictions described above.
Every beneficial owner of more than 5% (or such lower percentage as
required by the Code or regulations thereunder) of the issued and outstanding
shares of capital stock must file a written notice with the Company no later
than January 30 of each year, containing the name and address of such beneficial
owner, the number of shares of Common Stock and/or Preferred Stock owned and a
description of how the shares are held. In addition, each stockholder shall be
required upon demand to disclose to the Company in writing such information as
the Company may request in order to determine the effect of such stockholder's
direct, indirect and constructive ownership of such shares on the Company's
status as a REIT.
These ownership limitations could have the effect of precluding
acquisition of control of the Company by a third party unless the board of
directors and the stockholders determine that maintenance of REIT status is no
longer in the best interest of the Company.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Common Stock is First Union
National Bank, Charlotte, North Carolina.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain Federal income tax considerations to
the Company is based on current law, is for general purposes only, and is not
tax advice. The summary addresses the material Federal income tax considerations
relating to the Company's REIT status, as well as material Federal income tax
considerations relating to the Operating Partnership. The tax treatment of a
holder of any of the Securities will vary depending upon the terms of the
specific securities acquired by such holder, as well as his particular
situation, and this discussion does not attempt to address any aspects of
Federal income taxation relating to holders of Securities. Certain Federal
income tax considerations relevant to holders of the Securities will be provided
in the applicable Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE
OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company as a REIT
General. Commencing with its taxable year ended December 31, 1994, the
Company has elected to be taxed as a real estate investment trust under sections
856 through 860 of the Code. The Company believes that, commencing with its
taxable year ended December 31, 1994, it has been organized and has operated in
such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that it has operated or will operate in a manner so as to qualify or
remain qualified.
These sections of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
Federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its
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entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretation thereof.
Smith Helms Mulliss & Moore, L.L.P. has acted as tax counsel to the
Company in connection with the offering of the Securities and the Company's
election to be taxed as a REIT and in the opinion of Smith Helms Mulliss &
Moore, L.L.P., commencing with the Company's taxable year ended December 31,
1994, the Company has been organized and has operated in conformity with the
requirements for qualification and taxation as a REIT under the Code, and the
Company's current organization and proposed method of operation will enable it
to continue to meet the requirements for qualification and taxation as a REIT
under the Code. This opinion is based on the factual representations of the
Company concerning its business and properties. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet the various
qualification tests imposed under the Code discussed below on a continuing
basis, through actual annual operating results, distribution levels and
diversity of stock ownership. Accordingly, no assurance can be given that the
actual results of the Company's operations for any particular taxable year will
satisfy such requirements.
Federal Income Taxation of the Company
If the Company qualifies for taxation as a REIT, it generally will not
be subject to Federal corporate income tax on that portion of its ordinary
income or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct distributions paid to
its stockholders substantially eliminating the Federal "double taxation" on
earnings (once at the corporate level when earned and once again at the
stockholder level when distributed) that usually results from investments in a
corporation. Nevertheless, the Company will be subject to Federal income tax as
follows: First, the Company will be taxed at regular corporate rates on its
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" as a consequence of its items of tax preference.
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails either the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each year at least the sum of (i) 85% of its ordinary income for such
year, (ii) 95% of its capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently recognizes gain on
the disposition of such asset during the 10-year period (the "Recognition
Period") beginning on the date on which the asset was acquired by the Company,
then, to the extent of the excess of (a) the fair market value of the asset as
of the beginning of the applicable Recognition Period over (b) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period (the
"Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the IRS (the "Built-In Gain
Rules").
Requirements for Qualification
To qualify as a REIT, the Company has elected to be so treated and must
meet the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to stockholders.
Organizational Requirements. The Code defines a REIT as a corporation,
trust or association: (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest, (iii) that would be taxable as
a domestic corporation but for the REIT requirements, (iv) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code, (v) the beneficial ownership of which is held by 100 or more persons,
and (vi) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, through the
application of certain
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attribution rules, by five or fewer individuals (as defined in the Code to
include certain entities). In addition, certain other tests regarding the nature
of its income and assets, described below, also must be satisfied. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. For purposes of conditions (v) and (vi), pension funds
and certain other tax-exempt entities are treated as individuals or persons,
subject to a "look-through" exception in the case of condition (vi). In
addition, the Company's Articles of Incorporation currently include certain
restrictions regarding transfer of its Common Stock, which restrictions are
intended (among other things) to assist the Company in continuing to satisfy
conditions (v) and (vi) above.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and asset tests. Thus, the Company's proportionate share
of the assets, liabilities and items of income of the Operating Partnership
(including the Operating Partnership's share of the assets and liabilities and
items of income with respect to any partnership in which it holds an interest)
will be treated as assets, liabilities and items of income of the Company for
purposes of applying the requirements described herein.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property; including investments in other REITs, or mortgages on
real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property investments, dividends, interest and gain from the sale or disposition
of stock or securities (or from any combination of the foregoing). Third,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income (including gross income from prohibited transactions) for each
taxable year.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents received
from a tenant will not qualify as "rents from real property" in satisfying the
gross income tests if the REIT, or an owner of 10% of more of the REIT, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue,
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property.
The Company does not currently charge and does not anticipate charging
rent that is based in whole or in part on the income or profits of any person.
The Company also does not anticipate either deriving rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents or receiving rent from Related Party Tenants.
The Operating Partnership does provide certain services with respect to
the Properties. The Company believes that the services with respect to the
Properties that are and will be provided directly are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants and therefore that the provision of
such services will not cause rents received with respect to the Properties to
fail to qualify as rents from real property. Services with respect to the
Properties that the Company believes may not be provided by the Company or the
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Operating Partnership directly without jeopardizing the qualification of rent as
"rents from real property" will be performed by independent contractors.
The Operating Partnership and the Company receive fees in consideration
of the performance of property management and brokerage and leasing services
with respect to certain Properties not owned entirely by the Operating
Partnership. Such fees will not qualify under the 75% or the 95% gross income
tests. The Operating Partnership also may receive certain other types of income
with respect to the properties it owns that will not qualify for either of these
tests. In addition, distributions on the Operating Partnership's stock in
Highwoods Services and its allocable portion of the income earned by Forsyth
Center Brokerage will not qualify under the 75% gross income test. The Company
believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under either the 75% or the 95% gross income
test.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
that year if it is eligible for relief under certain provisions of the Code.
These relief provisions will be generally available if (i) the Company's failure
to meet these tests was due to reasonable cause and not due to willful neglect,
(ii) the Company attaches a schedule of the sources of its income to its Federal
income tax return and (iii) any incorrect information on the schedule is not due
to fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross income
tests because non-qualifying income that the Company intentionally incurs
exceeds the limits on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause. As discussed above
in " -- Federal Income Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income. No similar
mitigation provision provides relief if the Company fails the 30% income test,
and in such case, the Company would cease to qualify as a REIT.
Asset Tests. At the close of each quarter of its taxable year, the
Company also must satisfy three tests relating to the nature and diversification
of its assets. First, at least 75% of the value of the Company's total assets
must be represented by real estate assets, including shares in other REITs,
cash, cash items and government securities. Second, no more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets, and the Company may not own more than
10% of any one issuer's outstanding voting securities.
The 5% test must generally be met for any quarter in which the Company
acquires securities of an issuer. Thus, this requirement must be satisfied not
only on the date on which the Company acquired the securities of Highwoods
Services, but also each time the Company increases its ownership of its
respective securities (including as a result of increasing its interest in the
Operating Partnership as limited partners exercise their redemption rights).
Although the Company plans to take steps to ensure that it satisfies the 5%
value test for any quarter with respect to which retesting is to occur, there
can be no assurance that such steps will always be successful or will not
require a reduction in the Company's overall interest in Highwoods Services.
The Operating Partnership owns 100% of the nonvoting stock and 1% of
the voting stock of Highwoods Services, and by virtue of its ownership of Common
Units, the Company will be considered to own its pro rata share of such stock.
See "The Company and the Operating Partnership." Neither the Company nor the
Operating Partnership, however, will own more than 1% of the voting securities
of Highwoods Services. In addition, the Company and its senior management do not
believe that the Company's pro rata share of the value of the securities of
Highwoods Services exceeds 5% of the total value of the Company's assets. The
Company's belief is based in part upon its analysis of the estimated value of
the securities of Highwoods Services owned by the Operating Partnership relative
to the estimated value of the other assets owned by the Operating Partnership.
No independent appraisals will be obtained to support this conclusion, and Smith
Helms Mulliss & Moore, L.L.P., in rendering its opinion as to the qualification
of the Company as a REIT, is relying on the conclusions of the Company and its
senior management as to the value of the securities of Highwoods Services. There
can be no assurance, however, that the IRS might not contend that the value of
such securities held by the Company (through the Operating Partnership) exceeds
the 5% value limitation.
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After initially meeting the asset tests at the close of any quarter,
the Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance.
Annual Distribution Requirements. In order to be taxed as a REIT, the
Company is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (a) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends-paid
deduction and the Company's capital gain) and (ii) 95% of the net income, if
any, from foreclosure property in excess of the special tax on income from
foreclosure property, minus (b) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year, if declared before the Company timely files its
Federal income tax return for such year and if paid on or before the first
regular dividend payment after such declaration. Even if the Company satisfies
the foregoing distribution requirements, to the extent that the Company does not
distribute all of its net capital gain or "REIT taxable income" as adjusted, it
will be subject to tax thereon at regular capital gains or ordinary corporate
tax rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (a) 85% of its ordinary income for that year,
(b) 95% of its capital gain net income for that year and (c) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. In addition, during its Recognition Period, if the Company disposes
of any asset subject to the Built-In Gain Rules, the Company will be required,
pursuant to guidance issued by the IRS, to distribute at least 95% of the
Built-In Gain (after tax), if any, recognized on the disposition of the asset.
The Company intends to make timely distributions sufficient to satisfy
the annual distribution requirements. In this regard, the Operating Partnership
Agreement authorizes the Company, as general partner, to take such steps as may
be necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution requirements.
It is expected that the Company's REIT taxable income will be less than
its cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the 95%
distribution requirement. It is possible, however, that the Company, from time
to time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement or to distribute such greater amount as may be
necessary to avoid income and excise taxation, due to timing differences between
(i) the actual receipt of income and the actual payment of deductible expenses
and (ii) the inclusion of such income and the deduction of such expenses in
arriving at taxable income of the Company, or as a result of nondeductible cash
expenditures such as principal amortization or capital expenditures in excess of
noncash deductions. In the event that such timing differences occur, the Company
may find it necessary to arrange for borrowings or, if possible, pay taxable
stock dividends in order to meet the distribution requirement.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency dividends.
The Company will, however, be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable
year and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to stockholders will be dividends,
taxable as ordinary income, except that, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless the Company is entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years
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following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief. For example, if the Company fails to satisfy the gross income
tests because non-qualifying income that the Company intentionally incurs
exceeds the limit on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause.
Taxation of U.S. Stockholders
As used herein, the term "U.S. Stockholder" means a holder of Common
Stock that (for Federal income tax purposes) (a) is a citizen or resident of the
United States, (b) is a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or (c) is an estate or, subject to certain limitations, a
trust, the income of which is subject to Federal income taxation regardless of
its source. For any taxable year for which the Company qualifies for taxation as
a REIT, amounts distributed to taxable U.S. Stockholders will be taxed as
discussed below.
Distributions Generally. Distributions to U.S. Stockholders, other than
capital gain dividends discussed below, will constitute dividends up to the
amount of the Company's current or accumulated earnings and profits and, to that
extent, will be taxable to the stockholders as ordinary income. These
distributions are not eligible for the dividends-received deduction for
corporations. To the extent that the Company makes a distribution in excess of
its current or accumulated earnings and profits, the distribution will be
treated first as a tax-free return of capital, reducing the tax basis in the
U.S. Stockholder's Common Stock, and the distribution in excess of such basis
will be taxable as gain realized from the sale of its Common Stock. Dividends
declared by the Company in October, November or December of any year payable to
a stockholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the stockholders on December 31 of
the year, provided that the dividends are actually paid by the Company during
January of the following calendar year. Stockholders are not allowed to include
on their own Federal income tax returns any tax losses of the Company.
The Company will be treated as having sufficient earnings and profits
to treat as a dividend any distribution by the Company up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed in
" -- Federal Income Taxation of the Company" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of the Company's earnings and profits. As a result,
stockholders may be required to treat certain distributions that would otherwise
result in a tax-free return of capital as taxable dividends.
Capital Gain Distributions. Distributions to U.S. Stockholders that are
properly designated by the Company as capital gain distributions will be treated
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain) for the taxable year without regard to the period for
which the stockholder has held his stock. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Capital gain dividends are not eligible for the dividends-received
deduction for corporations.
Passive Activity Loss and Investment Interest Limitations.
Distributions from the Company and gain from the disposition of Common Stock
will not be treated as passive activity income, and therefore stockholders will
not be able to apply any "passive losses" against such income. Dividends from
the Company (to the extent they do not constitute a return of capital) will
generally be treated as investment income for purposes of the investment
interest limitation; net capital gain from the disposition of Common Stock or
capital gain dividends generally will be excluded from investment income.
Certain Dispositions of Shares. Losses incurred on the sale or exchange
of Common Stock held for less than six months (after applying certain holding
period rules) will be deemed long-term capital loss to the extent of any capital
gain dividends received by the selling stockholder from those shares.
Treatment of Tax-Exempt Stockholders. Distributions from the Company to
a tax-exempt employee pension trust or other domestic tax-exempt stockholder
generally will not constitute "unrelated business taxable income" ("UBTI")
unless the stockholder has borrowed to acquire or carry its Common Stock.
Qualified trusts that hold more than 10% (by value) of the shares of certain
REITs may be required to treat a certain percentage of such a REIT's
distributions as UBTI. This requirement will apply only if (i) the REIT would
not qualify as such for Federal income tax purposes but for the application of a
"look-through" exception to the five or fewer requirement applicable to shares
held by qualified trusts and (ii) the REIT
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is "predominantly held" by qualified trusts. A REIT is predominantly held if
either (i) a single qualified trust holds more than 25% by value of the REIT
interests or (ii) one or more qualified trusts, each owning more than 10% by
value of the REIT interests, hold in the aggregate more than 50% of the REIT
interests. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (a) the UBTI earned by the REIT (treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI) to (b) the total gross
income (less certain associated expenses) of the REIT. A de minimis exception
applies where the ratio set forth in the preceding sentence is less than 5% for
any year. For these purposes, a qualified trust is any trust described in
Section 401 (a) of the Code and exempt from tax under Section 501(a) of the
Code. The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying upon the "look-through" exception. The
restrictions on ownership of Common Stock in the Articles of Incorporation
generally will prevent application of the provisions treating a portion of REIT
distributions as UBTI to tax-exempt entities purchasing Common Stock, absent a
waiver of the restrictions by the board of directors.
Special Tax Considerations for Non-U.S. Stockholders
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex, and the following
discussion is intended only as a summary of these rules. Prospective Non-U.S.
Stockholders should consult with their own tax advisors to determine the impact
of Federal, state and local income tax laws on an investment in the Company,
including any reporting requirements.
In general, Non-U.S. Stockholders will be subject to regular Federal
income tax with respect to their investment in the Company if the investment is
"effectively connected" with the Non-U.S. Stockholder's conduct of a trade or
business in the United States. A corporate Non-U.S. Stockholder that receives
income that is (or is treated as) effectively connected with a U.S. trade or
business may also be subject to the branch profits tax under Section 884 of the
Code, which is payable in addition to regular United States Federal corporate
income tax. The following discussion will apply to Non-U.S.
Stockholders whose investment in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain distribution will be
treated as an ordinary income dividend to the extent that it is made out of
current or accumulated earnings and profits. Generally, any ordinary income
dividend will be subject to a Federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
Such a distribution in excess of the Company's earnings and profits will be
treated first as a return of capital that will reduce a Non-U.S. Stockholder's
basis in its Common Stock (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of Common Stock.
Distributions by the Company that are attributable to gain from the
sale or exchange of a United States real property interest will be taxed to a
Non-U.S. Stockholder under the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Stockholder as if the distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a Non-U.S. Stockholder will be
taxed at the normal capital gain rates applicable to a U.S. Stockholder (subject
to any applicable alternative minimum tax and a special alternative minimum tax
in the case of non-resident alien individuals).
Although tax treaties may reduce the Company's withholding obligations,
the Company generally will be required to withhold from distributions to
Non-U.S. Stockholders, and remit to the IRS, (i) 35% of designated capital gain
dividends (or, if greater, 35% of the amount of any distributions that could be
designated as capital gain dividends) and (ii) 30% of ordinary dividends paid
out of earnings and profits. In addition, if the Company designates prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions, will be treated as capital gain dividends
for purposes of withholding. A distribution in excess of the Company's earnings
and profits will be subject to 30% dividend withholding. If the amount of tax
withheld by the Company with respect to a distribution to a Non-U.S. Stockholder
exceeds the stockholder's United States tax liability with respect to such
distribution, the Non-U.S. Stockholder may file for a refund of such excess from
the IRS.
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Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S.
Stockholder generally will not be subject to Federal income taxation. The Common
Stock will not constitute a United States real property interest if the Company
is a "domestically controlled REIT." A domestically controlled REIT is a REIT in
which at all times during a specified testing period less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Stockholders. It is
currently anticipated that the Company will be a domestically controlled REIT
and therefore that the sale of Common Stock will not be subject to taxation
under FIRPTA. However, because the Common Stock will be publicly traded, no
assurance can be given that the Company will continue to be a domestically
controlled REIT. Notwithstanding the foregoing, capital gains not subject to
FIRPTA will be taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder is
a non-resident alien individual who is present in the United States for 183 days
or more during the taxable year and certain other conditions apply, in which
case the non-resident alien individual will be subject to a 30% tax on his or
her U.S. source capital gains. If the Company were not a domestically controlled
REIT, whether a Non-U.S. Stockholder's sale of Common Stock would be subject to
tax under FIRPTA as a sale of a United States real property interest would
depend on whether the Common Stock were "regularly traded" on an established
securities market (such as the New York Stock Exchange) on which the Common
Stock will be listed and on the size of the selling stockholder's interest in
the Company. If the gain on the sale of Common Stock were subject to taxation
under FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as
a U.S. Stockholder with respect to the gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals). In addition, distributions that are treated as gain from the
disposition of Common Stock and that are subject to tax under FIRPTA also may be
subject to a 30% branch profit tax when made to a foreign corporate stockholder
that is not entitled to either a reduced rate or an exemption under a treaty. In
any event, a purchaser of Common Stock from a Non-U.S. Stockholder will not be
required to withhold under FIRPTA on the purchase price if the purchased Common
Stock is "regularly traded" on an established securities market or if the
Company is a domestically controlled REIT. Otherwise, under FIRPTA the purchaser
of Common Stock from a Non-U.S. Stockholder may be required to withhold 10% of
the purchase price and remit this amount to the IRS.
Information Reporting Requirements and Backup Withholding Tax
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
the holder (i) fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security Number),
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he or she has
failed to report properly payments of interest and dividends or is otherwise
subject to backup withholding or (iv) under certain circumstances, fails to
certify, under penalties of perjury, that he or she has furnished a correct TIN
and (a) that he or she has not been notified by the IRS that he or she is
subject to backup withholding for failure to report interest and dividend
payments or (b) that he or she has been notified by the IRS that he or she is no
longer subject to backup withholding. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against the U.S. Stockholder's United
States Federal income tax liability and may entitle the U.S. Stockholder to a
refund, provided that the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and
backup withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should
consult their tax advisors with regard to U.S. information reporting and backup
withholding.
Tax Aspects of the Operating Partnership
General. Substantially all of the Company's investments are held
through the Operating Partnership. In general, partnerships are "pass-through"
entities which are not subject to Federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company includes in its income its proportionate share of the
foregoing Operating Partnership items for purposes of the various REIT income
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tests and in the computation of its REIT taxable income. Moreover, for purposes
of the REIT asset tests, the Company includes its proportionate share of assets
held by the Operating Partnership.
Tax Allocations with Respect to the Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss in generally equal to the difference between the fair market
value of contributed property at the time of contribution, and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for Federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property (including the Properties). Consequently, the Operating
Partnership Agreement requires such allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, the partners who have contributed partnership interests in
the Properties to the Operating Partnership (the "Contributing Partners") will
be allocated lower amounts of depreciation deductions for tax purposes than such
deductions would be if determined on a pro rata basis. In addition, in the event
of the disposition of any of the contributed assets (including the Properties)
which have a Book-Tax Difference, all income attributable to such Book-Tax
Difference will generally be allocated to the Contributing Partners, and the
Company will generally be allocated only its share of capital gains attributable
to appreciation, if any, occurring after the closing of any offering of
Securities. This will tend to eliminate the Book-Tax Difference over the life of
the Operating Partnership. However, the special allocation rules of Section
704(c) do not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such a sale. Thus, the
carryover basis of the contributed assets in the hands of the Operating
Partnership will cause the Company to be allocated lower depreciation and other
deductions, and possibly amounts of taxable income in the event of a sale of
such contributed assets in excess of the economic or book income allocated to it
as a result of such sale. This may cause the Company to recognize taxable income
in excess of cash proceeds, which might adversely affect the Company's ability
to comply with the REIT distribution requirements. See " -- Requirements for
Qualification -- Annual Distribution Requirements."
Treasury Regulations under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the "traditional method" under current law,
or the election of certain methods which would permit any distortions caused by
a Book-Tax Difference to be entirely rectified on an annual basis or with
respect to a specific taxable transaction such as a sale. The Operating
Partnership and the Company have determined to use the "traditional method" for
accounting for Book-Tax Differences with respect to the Properties contributed
to the Partnership. As a result of such determination, distributions to
stockholders will be comprised of a greater portion of taxable income rather
than a return of capital. The Operating Partnership and the Company have not
determined which of the alternative methods of accounting for Book-Tax
Differences will be elected with respect to Properties contributed to the
Partnership in the future.
With respect to any property purchased by the Operating Partnership,
such property will initially have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
Basis in Operating Partnership Interest. The Company's adjusted tax
basis in its interest in the Operating Partnership generally (i) will be equal
to the amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's income and (b) its allocable
share of indebtedness of the Operating Partnership and (iii) will be reduced,
but not below zero, by the Company's allocable share of (a) losses suffered by
the Operating Partnership, (b) the amount of cash distributed to the Company and
(c) by constructive distributions resulting from a reduction in the Company's
share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating
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Partnership (such decreases being considered a cash distribution to the
partners), exceed the Company's adjusted tax basis, such excess distributions
(including such constructive distributions) constitute taxable income to the
Company. Such taxable income will normally be characterized as a capital gain,
and if the Company's interest in the Operating Partnership has been held for
longer than the long-term capital gains. Under current law, capital gains and
ordinary income of corporations are generally taxed at the same marginal rates.
Sale of the Properties. The Company's share of gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See " -- Requirements for Qualification -- Income Tests." Such
prohibited transaction income may also have an adverse effect upon the Company's
ability to satisfy the income tests for qualification as a REIT. Under existing
law, whether property is held as inventory or primarily for sale to customers in
the ordinary course of the Operating Partnership's trade or business is a
question of fact that depends on all the facts and circumstances with respect to
the particular transaction. The Operating Partnership intends to hold the
Properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning, and operating the Properties (and
other properties) and to make such occasional sales of the Properties, including
peripheral land, as are consistent with the Operating Partnership's investment
objectives.
Other Tax Considerations
A portion of the amounts to be used to fund distributions to
stockholders is expected to come from the Operating Partnership from
distributions on stock of Highwoods Services held by the Operating Partnership.
Highwoods Services will not qualify as a REIT and will pay Federal, state and
local income taxes on its taxable income at normal corporate rates. Any Federal,
state or local income taxes that Highwoods Services is required to pay will
reduce the cash available for distribution by the Company to its stockholders.
As described above, the value of the securities of Highwoods Services
held by the Company cannot exceed 5% of the value of the Company's assets at a
time when a Common Unit holder in the Operating Partnership exercises his or her
redemption right (or the Company otherwise is considered to acquire additional
securities of Highwoods Services). See " -- Federal Income Taxation of the
Company." This limitation may restrict the ability of Highwoods Services to
increase the size of its business unless the value of the assets of the Company
is increasing at a commensurate rate.
State and Local Tax
The Company and its stockholders may be subject to state and local tax
in various states and localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
stockholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective stockholders should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Common Stock of the Company.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Securities to
one or more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents or through a combination of
any such method of sale. Any such underwriter or agent involved in the offer and
sale of the Securities will be named in the applicable Prospectus Supplement.
The distribution of Securities may be effected from time to time in
transactions at a fixed price or prices, which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Company and the Operating Partnership also
may, from time to time, authorize underwriters acting as their agents to offer
and sell the Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Securities,
underwriters may be deemed to have received compensation from the Company or the
Operating Partnership in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of Securities for whom they may act
as agent. Underwriters may sell Securities to or through dealers, and such
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dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, are set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company and the Operating
Partnership, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company
and the Operating Partnership will authorize dealers acting as their agents to
solicit offers by certain institutions to purchase Securities from them at the
public offering price set forth in such Prospectus Supplement pursuant to
Delayed Delivery Contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company and the Operating Partnership. Contracts will not
be subject to any conditions except (i) the purchase by an institution of the
Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject, and (ii) if the Securities are being sold to
underwriters, the Company and the Operating Partnership shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and the
Operating Partnership in the ordinary course of business.
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 of
Highwoods/Forsyth Limited Partnership, incorporated herein by reference from the
Operating Partnership's annual report (Form 10-K) for the year ended December
31, 1996, the financial statements with respect to Anderson Properties, Inc. and
the financial statements with respect to Century Center Group incorporated
herein by reference from the Company's current report on Form 8-K dated January
9, 1997 (as amended on Forms 8-K/A dated February 7, 1997 and March 10, 1997),
the combined financial statements and schedule of Eakin & Smith for the year
ended December 31, 1995, incorporated by reference from the Company's current
report on Form 8-K dated April 1, 1996 (as amended on Forms 8-K/A filed June 3,
1996 and June 18, 1996), and the Historical Summary of Gross Income and Direct
Operating Expenses for certain properties owned by Towermarc Corporation for the
year ended December 31, 1995, incorporated herein by reference from the
Company's Current Report on Form 8-K dated April 29, 1996 (as amended on Forms
8-K/A filed June 3, 1996 and June 18, 1996), have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Crocker Realty Trust, Inc. as of December
31, 1995 and for the year then ended, the financial statements of Crocker &
Sons, Inc. as of December 31, 1994 and for the year then ended, and the
financial statements of Crocker Realty Investors, Inc. as of December 31, 1994
and 1993, and for each of the years in the two year period ended December 31,
1994, have been incorporated by reference herein from the Company's current
report on Form 8-K dated April 29, 1996 (as amended on Forms 8-K/A filed June 3,
1996 and June 18, 1996), in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
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The combined financial statements of Southeast Realty Corp., AP
Southeast Portfolio Partners, L.P. and AP Fontaine III Partners, L.P. as of
December 31, 1994 and for the year ended December 31, 1994, and the financial
statements of AP Fontaine III Partners, L.P. for the period from October 28,
1993 (date of inception) through December 31, 1993 incorporated herein by
reference from the Company's current report on Form 8-K dated April 29, 1996 (as
amended on Forms 8-K/A filed June 3, 1996 and June 18, 1996), have been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their reports
thereon included therein and incorporated herein by reference and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of AP Southeast Portfolio Partners, L.P. for
the period from its date of inception (November 17, 1993) through December 31,
1993 incorporated herein by reference from the Company's current report on Form
8-K dated April 29, 1996 (as amended on Forms 8-K/A filed June 3, 1996 and June
18, 1996), have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the Securities offered hereby is being passed upon for
the Company and the Operating Partnership by Smith Helms Mulliss & Moore,
L.L.P., Raleigh, North Carolina. Certain legal matters will be passed upon for
any underwriters, dealers or agents by Andrews & Kurth L.L.P., Washington, D.C.
In addition, the description of Federal income tax consequences
contained in this Prospectus entitled "Federal Income Tax Considerations" is
based upon the opinion of Smith Helms Mulliss & Moore, L.L.P.
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PART II
SUPPLEMENTAL INFORMATION
Item 14. Other Expenses of Issuance and Distribution
The expenses, other than underwriting discounts and commissions, in
connection with the offering of the securities being registered are set forth
below. All of such expenses are estimates, except the Securities Act
registration fee.
Securities Act registration fee........................ $305,726
Legal fees and expenses................................ 300,000
Printing fees.......................................... 150,000
Accounting fees and expenses........................... 150,000
New York Stock Exchange listing fees................... 91,000
Trustee expenses and fees.............................. 22,500
Fees of rating agencies................................ 150,000
Miscellaneous.......................................... 30,774
TOTAL.................................................. $1,200,000
Item 15. Indemnification of Directors and Officers
The Company's officers and directors are and will be indemnified
against certain liabilities in accordance with the MGCL, the Articles of
Incorporation and bylaws of the Company and the Operating Partnership Agreement.
The Articles of Incorporation require the Company to indemnify its directors and
officers to the fullest extent permitted from time to time by the MGCL. The MGCL
permits a corporation to indemnify its directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reasons of their service in those or other capacities unless it
is established that the act or omission of the director or officer was material
to the matter giving rise to the proceeding and was committed in bad faith or
was the result of active and deliberate dishonesty, or the director or officer
actually received an improper personal benefit in money, property or services,
or in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
The Operating Partnership Agreement also provides for indemnification
of the Company and its officers and directors to the same extent indemnification
is provided to officers and directors of the Company in its Articles of
Incorporation and limits the liability of the Company and its officers and
directors to the Operating Partnership and its partners to the same extent
liability of officers and directors of the Company to the Company and its
stockholders is limited under the Company's Articles of Incorporation.
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 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.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
1.1(1) Form of Underwriting Agreement for Debt Securities
1.2(1) Form of Underwriting Agreement for Common Stock, Preferred Stock and Depositary
Shares
2.1(2) Master Agreement of Merger and Acquisition by and among the Company, the
Operating Partnership, Eakin & Smith, Inc. and the partnerships and limited liability
companies listed therein
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
2.2(3) Stock Purchase Agreement among AP CRTI Holdings, L.P., AEW Partners, L.P.,
Thomas J. Crocker, Barbara F. Crocker, Richard S. Ackerman and Robert E. Onisko
and the Company and Cedar Acquisition Corporation, dated April 29, 1996
2.3(3) Agreement and Plan of Merger by and among the Company, Crocker Realty Trust, Inc.
and Cedar Acquisition Corporation, dated as of April 29, 1996
2.4(4) Contribution and Exchange Agreement by and among Century Center group, the
Operating Partnership and the Company, dated December 31, 1996
2.5(4) Master Agreement of Merger and Acquisition by and among the Company, the
Operating Partnership, Anderson Properties, Inc., Gene Anderson, and the
partnerships and limited liability companies listed therein, dated January 31, 1997
4.1(5) Indenture dated as of December 1, 1996,
between the Operating Partnership, the
Company and First Union National Bank of
North Carolina, as trustee
4.2(6) Articles Supplementary of the Company dated February 12, 1997 designating terms
of Series A Preferred Shares
4.3(7) Form of Designation Amendment relating to Preferred Stock
4.4(7) Form of Preferred Stock Certificate
4.5(7) Form of Deposit Agreement
5 Opinion of Smith Helms Mulliss & Moore, L.L.P., regarding the legality of the
Securities being registered
8 Opinion of Smith Helms Mulliss & Moore, L.L.P., regarding certain Federal tax
matters
12.1 Company's statement of computation of ratios
12.2 Operating Partnership's statement of computation of ratios
23.1 Consent of Smith Helms Mulliss & Moore, L.L.P. (included as part of Exhibits 5 and
8)
23.2 Consent of Ernst & Young LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of Price Waterhouse, LLP
24 Power of Attorney (included on page II-4)
25 (8) Statement of Eligibility of Trustee on Form T-1
- --------------------
(1) Previously filed. See Registration Statement Nos. 333-3890 and 333-3890-01.
(2) Previously filed. See current report on Form 8-K of Highwoods Properties, Inc. dated April 1, 1996.
(3) Previously filed. See current report on Form 8-K of Highwoods Properties, Inc. dated April 29, 1996.
(4) Previously filed. See current report on Form 8-K of Highwoods Properties, Inc. dated January 9, 1997.
(5) Previously filed. See current report on Form 8-K of Highwoods/Forsyth Limited Partnership dated December 2,
1996.
(6) Previously filed. See current report on Form 8-K of Highwoods Properties, Inc. dated February 12, 1997.
(7) To be filed by amendment or incorporated by reference in connection with the offering of the applicable offered
Securities.
(8) The Statement of Eligibility of Trustee on Form T-1 with respect to the
Trustee has been previously filed. See the current report on Form 8-K/A
of Highwoods/Forsyth Limited Partnership dated November 15, 1996. In
the event Debt Securities covered by a separate indenture and trustee
are to be sold hereunder, the applicable Statement of Eligibility on
Form T-1 will be filed by a current report on Form 8-K.
</TABLE>
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
II-2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the registration statement;
Provided, however, that the undertakings set forth in paragraphs 1(i)
and 1(ii) shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Exchange Act that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrants hereby further undertake that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised 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. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it or
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) The undersigned registrants hereby further undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
(e) If and when applicable, the undersigned registrants hereby further undertake
to file an application for the purpose of determining the eligibility of the
Trustee to act under subsection (a) of Section 310 of the Trust Indenture Act
("Act") in accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Raleigh, State of North Carolina, on July 11, 1997.
HIGHWOODS PROPERTIES, INC.
By: /s/ Ronald P. Gibson
Ronald P. Gibson
President
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., in its
capacity as General Partner
By: /s/ Ronald P. Gibson
Ronald P. Gibson
President
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Highwoods Properties, Inc., hereby severally constitute Ronald P.
Gibson and Carman J. Liuzzo and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the registration statement filed
herewith and any and all amendments to said registration statement, and
generally to do all such things in our names and our capacities as officers and
directors to enable Highwoods Properties, Inc. and Highwoods/Forsyth Limited
Partnership to comply with the provisions of the Securities Act, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signature as they may be signed by our said attorneys, or any of
them, to said registration statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ O. Temple Sloan, Jr. Chairman of the Board of July 11, 1997
O. Temple Sloan, Jr. Directors
/s/ Ronald P. Gibson President, Chief Executive July 11, 1997
Ronald P. Gibson Officer and Director
/s/ John L. Turner Vice Chairman of the Board July 11, 1997
John L. Turner and Chief Investment Officer
/s/ Gene H. Anderson Senior Vice President and July 11, 1997
Gene H. Anderson Director
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/s/ John W. Eakin Senior Vice President and July 11, 1997
John W. Eakin Director
/s/ William T. Wilson III Director July 11, 1997
William T. Wilson III
/s/ Thomas W. Adler Director July 11, 1997
Thomas W. Adler
/s/ William E. Graham, Jr. Director July 11, 1997
William E. Graham, Jr.
/s/ L. Glenn Orr, Jr. Director July 11, 1997
L. Glenn Orr, Jr.
/s/ Willard H. Smith Jr. Director July 11, 1997
Willard H. Smith Jr.
/s/ Stephen Timko Director July 11, 1997
Stephen Timko
/s/ Carman J. Liuzzo Vice President and Chief July 11, 1997
Carman J. Liuzzo Financial Officer (Principal
Financial Officer and
Principal Accounting
Officer) and Treasurer
</TABLE>
II-6
<PAGE>
EXHIBIT 5
July 11, 1997
Highwoods Properties, Inc.
Highwoods/Forsyth Limited Partnership
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
Re: $1,250,000 Aggregate Offering Price of Securities of Highwoods
Properties, Inc. and Highwoods/Forsyth Limited Partnership
Ladies and Gentlemen:
We are acting as counsel for Highwoods Properties, Inc., a Maryland
corporation (the "Company"), and Highwoods/Forsyth Limited Partnership, a North
Carolina limited partnership (the "Operating Partnership"), in connection with
the shelf registration by the Company and the Operating Partnership of
$1,250,000,000 in maximum aggregate offering price of (i) shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), (ii)
shares or fractional shares of the Company's preferred stock ("Preferred
Stock"), (iii) shares of the Company's Preferred Stock represented by depositary
shares ("Depositary Shares"), and (iv) debt securities of the Operating
Partnership ("Debt Securities"). The Common Stock, Preferred Stock, Depositary
Shares and Debt Securities are the subject of a registration statement (the
"Registration Statement") filed by the Company and the Operating Partnership on
Form S-3 under the Securities Act of 1933, as amended (the "Act").
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization and issuance of the Common Stock,
Preferred Stock and Depositary Shares, and by the Operating Partnership in
connection with the authorization and issuance of the Debt Securities, and for
the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such legal
and factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
Based upon and subject to the foregoing, it is our opinion that:
(1) The Company has authority pursuant to its Articles of
Incorporation to issue the shares of Common Stock to be registered under the
Registration Statement and (a) upon the adoption by the Board of Directors of a
resolution in form and content required by applicable law, (b) upon compliance
with the applicable provisions of the Act and such state "blue sky" or
securities laws as may be applicable and (c) upon issuance and delivery of and
payment for such shares in the manner contemplated by the Registration Statement
and/or the applicable prospectus supplement, such shares of Common Stock will be
legally issued, fully paid and nonassessable.
(2) The Company has authority pursuant to its Articles of
Incorporation to issue the shares of Preferred Stock to be registered under the
Registration Statement and (a) upon the adoption by the Board of Directors of a
resolution in form and content required by applicable law, (b) upon compliance
with the applicable provisions of the Act and such state "blue sky" or
securities laws as may be applicable, (c) upon the adoption by the Company's
Board of Directors and the due execution and filing by the Company with the
Maryland State Department of Assessments and Taxation the Articles Supplementary
establishing the preferences, limitations and relative voting and other rights
of each series of Preferred Stock prior to issuance thereof and (d) upon
issuance and delivery of and payment for such shares in the manner contemplated
by the Registration Statement and/or the applicable prospectus supplement, such
shares of Preferred Stock will be legally issued, fully paid and nonassessable.
(3) The Company has authority pursuant to its Articles of
Incorporation to issue Depositary Shares to be registered under the Registration
Statement and when (a) a deposit agreement substantially as described in the
Registration
<PAGE>
Statement has been duly executed and delivered by the Company and a depositary,
(b) the depositary receipts representing the Depositary Shares in the form
contemplated and authorized by such deposit agreement have been duly executed
and delivered by such depositary and delivered to and paid for by the purchasers
thereof in the manner contemplated by the Registration Statement and/or the
applicable prospectus supplement and (c) all corporate action necessary for the
issuance of such Depositary Shares and the underlying Preferred Stock has been
taken (including but not limited to action establishing the preferences,
limitations and relative voting and other rights of such Preferred Stock prior
to issuance thereof), such Depositary Shares will be legally issued and will
entitle the holders thereof to the rights specified in the deposit agreement
relating to such Depositary Shares.
(4) The Operating Partnership has authority to issue the Debt
Securities to be registered under the Registration Statement and when (a) the
applicable provisions of the Act and such state "blue sky" or securities laws as
may be applicable have been complied with and (b) the Debt Securities have been
issued and delivered for value as contemplated in the Registration Statement,
such Debt Securities will be legally issued and will be binding obligations of
the Operating Partnership and the Company, respectively.
To the extent that the obligations of the Company under the deposit
agreement or the obligations of the Company as guarantor and the Operating
Partnership as obligor under an indenture may be dependent upon such matters, we
have assumed for purposes of this opinion (i) that the applicable depositary or
trustee, as the case may be, is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and is duly
qualified to engage in the activities contemplated by the applicable deposit
agreement or indenture as the case may be, (ii) that such deposit agreement or
indenture, as the case may be, has been duly authorized, executed and delivered
by and constitutes the legal, valid and binding obligation of such depositary or
trustee, as the case may be, enforceable in accordance with its respective
terms, (iii) that such depositary or trustee, as the case may be, is in
compliance, generally and with respect to acting as a depositary or trustee,
respectively, under the applicable deposit agreement or indenture, with all
applicable laws and regulations and (iv) that such depositary or trustee has the
requisite organizational and legal power and authority to perform its
obligations under the applicable deposit agreement or indenture, as the case may
be.
The opinions set forth above are subject to the following exceptions,
limitations and qualifications: (i) the effect of bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights and remedies of
creditors; (ii) the effect of general principles of equity, whether enforcement
is considered in a proceeding in equity or law, in the discretion of the court
before which any proceeding therefor may be brought; (iii) the unenforceability
under certain circumstances under law or court decisions of provisions providing
for the indemnification of or contribution to a party with respect to a
liability where such indemnification or contribution is contrary to public
policy; (iv) we express no opinion concerning the enforceability of the waiver
of rights or defenses contained in Section 514 of the Indenture; and (v) we
express no opinion with respect to whether acceleration of Debt Securities may
affect the collectibility of any portion of the stated principal amount thereof
which might be determined to constitute unearned interest thereon.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus included therein.
Very truly yours,
SMITH HELMS MULLISS & MOORE, L.L.P.
/s/ Smith Helms Mulliss & Moore, L.L.P.
<PAGE>
EXHIBIT 8
July 11, 1997
Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
Re: $1,250,000,000 Aggregate Offering Price of Securities (the "Securities")
of Highwoods Properties, Inc. (the"Company") and Highwoods/Forsyth Limited
Partnership
Ladies and Gentlemen:
In connection with the registration statement on Form S-3 (the
"Registration Statement") being filed by you on or about July 11, 1997 with the
Securities and Exchange Commission regarding the registration of the Securities
under the Securities Act of 1933, as amended, you have requested our opinion
concerning certain of the federal income tax consequences to the Company of its
election to be taxed as a real estate investment trust. This opinion is based on
various assumptions, and is conditioned upon certain representations made by the
Company as to factual matters through a certificate of an officer of the Company
(the "Officer's Certificate"). In addition, this opinion is based upon the
factual representations of the Company concerning its business and properties as
set forth in the Registration Statement.
In our capacity as counsel to the Company, we have made such legal
and factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and other instruments, as we have deemed necessary or
appropriate for purposes of this opinion.
In our examinations, we have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures
thereon, the legal capacity of natural persons executing such documents and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction
only of the federal income tax laws of the United States and we express no
opinion with respect to the applicability thereto, or the effect thereon, of
other federal laws, the laws of any other jurisdiction, the laws of any state or
as to any matters of municipal law or the laws of any other local agencies
within any state.
Based on the facts in the Registration Statement and the Officer's
Certificate, it is our opinion that:
(1) Commencing with the Company's taxable year ending December 31,
1994, the Company has been organized in conformity with the requirements for
qualification as a "real estate investment trust," and its proposed method of
operation, as described in the representations of the Company referred to above,
will enable it to meet the requirements for qualification and taxation as a
"real estate investment trust" under the Internal Revenue Code of 1986, as
amended (the "Code").
(2) The statements in the Registration Statement set forth under the
caption "Certain Federal Income Tax Considerations" to the extent such
information constitutes matters of law, summaries of legal matters, or legal
conclusions, have been reviewed by us and are accurate in all material respects.
No opinion is expressed as to any matter not discussed herein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the
<PAGE>
Registration Statement or the Officer's Certificate may affect the conclusions
stated herein. Moreover, the Company's qualification and taxation as a real
estate investment trust depends upon the Company's ability to meet (through
actual annual operating results, distribution levels and diversity of stock
ownership) the various qualification tests imposed under the Code, the results
of which have not and will not be reviewed by Smith Helms Mulliss & Moore,
L.L.P. Accordingly, no assurance can be given that the actual results of the
Company's operation for any one taxable year will satisfy such requirements.
This opinion is furnished only to you, and is solely for your use in
connection with the Registration Statement. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement and to the use of our
name under the caption "Legal Matters" in the Registration Statement.
Very truly yours,
SMITH HELMS MULLISS & MOORE, L.L.P.
/s/ Smith Helms Mulliss & Moore, L.L.P.
<PAGE>
HIGHWOODS PROPERTIES, INC.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Earnings(1)(2)
Income (loss) from continuing operations....... $19,554 $48,242 $28,934 $ 8,159 $ (155) $ (239)
Interest....................................... 11,460 24,699 12,101 4,955 5,185 5,059
Amortization of loan costs..................... 575 1,911 1,619 738 -- --
Total Earnings................................. $31,589 $74,852 $42,654 $13,852 $5,030 $4,820
Fixed charges and preferred stock
dividends (2)
Interest....................................... $11,460 $24,699 $12,101 $ 4,955 $5,185 $5,059
Interest capitalized........................... 645 2,935 507 17 16 --
Amortization of loan costs expensed............ 575 1,911 1,619 738 -- --
Amortization of loan costs capitalized......... -- -- -- -- -- --
Total fixed charges............................ $12,680 $29,545 $14,227 $ 5,710 $5,201 $5,059
Preferred stock dividends...................... 1,407 -- -- -- -- --
Ratio of earnings to fixed charges............. 2.49 2.53 3.00 2.43 0.97 0.95
Ratio of earnings to combined fixed charges
and preferred stock dividends............... 2.24 2.53 3.00 2.43 0.97 0.95
</TABLE>
(1) The calculation does not include amortization of previously capitalized
interest.
(2) On February 12, 1997, Highwoods Properties, Inc. issued 125,000 8 5/8%
Series A Preferred Shares, which was its first and, to date, only issuance
of preferred stock.
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Earings(1)(2)
Income (loss) from continuing operations....... $19,077 $46,674 $28,934 $ 8,159 $ (155) $ (239)
Interest....................................... 11,460 23,360 12,101 4,955 5,185 5,059
Amortization of loan costs..................... 575 1,870 1,619 738 -- --
Total Earnings................................. $31,112 $71,904 $42,654 $13,852 $5,030 $4,820
Fixed charges and preferred stock
dividends (2)
Interest....................................... $11,460 $23,360 $12,101 $ 4,955 $5,185 $5,059
Interest capitalized........................... 645 2,935 507 17 16 --
Amortization of loan costs expensed............ 575 1,870 1,619 738 -- --
Amortization of loan costs capitalized......... -- -- -- -- -- --
Total fixed charges............................ $12,680 $28,165 $14,227 $ 5,710 $5,201 $5,059
Preferred stock dividends...................... 1,407 -- -- -- -- --
Ratio of earnings to fixed charges............. 2.45 2.55 3.00 2.43 0.97 0.95
Ratio of earnings to combined fixed charges
and preferred stock dividends............... 2.21 2.55 3.00 2.43 0.97 0.95
</TABLE>
(1) The calculation does not include amortization of previously capitalized
interest.
(2) On February 12, 1997, Highwoods Properties, Inc. issued 125,000 8 5/8%
Series A Preferred Shares, which was its first and, to date, only issuance
of preferred stock.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3, No. 333- ______) and related Prospectus of
Highwoods Properties, Inc. for the registration of up to $830,000,000 of common
stock, preferred stock and depositary shares and Highwoods/Forsyth Limited
Partnership for the registration of up to $420,000,000 of debt securities. We
also consent to the incorporation by reference therein of our reports (a) dated
February 14, 1997, with respect to the consolidated financial statements and
schedule of Highwoods Properties, Inc. included in its Annual Report (Form 10-K)
for the year ended December 31, 1996 and (b) dated February 14, 1997, with
respect to the financial statements and schedule of Highwoods/Forsyth Limited
Partnership included in its Annual Report (Form 10-K) for the year ended
December 31, 1996 and (c) dated April 17, 1996 with respect to the combined
audited financial statements and schedule of Eakin & Smith for the year ended
December 31, 1995 included in Highwoods Properties, Inc.'s Current Report on
Form 8-K dated April 1, 1996 as amended on June 3, 1996 and June 18, 1996 and
(d) dated February 26, 1996 with respect to the audited Historical Summary of
Gross Income and Direct Operating Expenses for certain properties owned by
Towermarc Corporation for the year ended December 31, 1995 included in
Highwoods Properties, Inc.'s Current Report on Form 8-K dated April 29, 1996
as amended on June 3, 1996 and June 18, 1996 and (e) dated January 24, 1997
and January 25, 1997 with respect to the Combined Statements of Revenues and
Certain Expenses of Century Center and Anderson Properties, respectively,
included in Highwoods Properties, Inc.'s and Highwoods/Forsyth Limited
Partnership's Current Reports on Forms 8-K dated January 9, 1997 (as amended
on Form 8-K/A dated February 7, 1997 and March 10, 1997) and February 12,
1997, respectively, all filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Raleigh, North Carolina
July 11, 1997
<PAGE>
EXHIBIT 23.3
ACCOUNTANTS' CONSENT
The Board of Directors
Highwoods Properties, Inc.:
We consent to the incorporation by reference in the Form S-3 of Highwoods
Properties, Inc. of our report dated March 4, 1996, with respect to the
consolidated balance sheet of Crocker Realty Trust, Inc. as of December 31, 1995
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1995, and our report dated February
3, 1995 with respect to the balance sheets of Crocker Realty Investors, Inc. as
of December 31, 1994 and 1993, and the related statements of operations,
stockholders' equity and cash flows for the years then ended, and our report
dated February 23, 1995 with respect to the balance sheet of Crocker & Sons,
Inc. as of December 31, 1994, and the related statements of operations,
stockholders' equity and cash flows for the year then ended which reports appear
in Form 8-K/A of Highwoods Properties, Inc. dated April 29, 1996, as amended
June 3, 1996 and June 18, 1996. We also consent to the reference to our firm
under the heading "Experts" in the registration statement.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Fort Lauderdale, Florida
July 11, 1997
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of Highwoods Properties, Inc. of our report dated February 21, 1995,
with respect to the combined financial statements of Southeast Realty Corp., AP
Southeast Portfolio Partners, L.P. and AP Fontaine III Partners, L.P. for the
year ended December 31, 1994, and of our report dated February 10, 1995, on the
financial statements of AP Fontaine III Partners, L.P. for the period from
October 28, 1993 (date of inception) to December 31, 1993, which report appears
in the Form 8-K/A of Highwoods Properties, Inc. dated April 29, 1996, as amended
on June 3, 1996 and June 18, 1996. We also consent to the reference to our firm
under the heading "Experts" in the prospectus that is part of the Registration
Statement.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
Dallas, Texas
July 11, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement (No. 333-_____) on Form S-3 of Highwoods Properties, Inc. of our
report dated March 7, 1994 relating to the financial statements of AP Southeast
Portfolio Partners, L.P. which appears on Page F-13 in the Form 8-K/A of
Highwoods Properties, Inc. dated April 29, 1996, as amended June 3, 1996 and
June 18, 1996. We also consent to the references under the heading "Experts" in
the prospectus that is part of such Registration Statement.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Dallas, Texas
July 11, 1997
<PAGE>
