<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HIGHWOODS PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
-----------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
HIGHWOODS PROPERTIES, INC.
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 14, 1998
----------------------------------------
You are cordially invited to attend the 1998 annual meeting of
stockholders of Highwoods Properties, Inc. (the "Company") to be held on
Thursday, May 14, 1998, at 3:00 p.m., at the Raleigh Marriott Crabtree Valley,
4500 Marriott Drive, Raleigh, North Carolina, for the following purposes:
1. To elect four directors;
2. To consider and vote upon a proposal to amend the Company's Amended and
Restated 1994 Stock Option Plan to increase the number of shares of common
stock authorized for issuance thereunder;
3. To consider and vote upon a proposal to amend the Company's Amended and
Restated Articles of Incorporation to increase the number of shares of
common stock and preferred stock authorized for issuance thereunder;
4. To ratify the appointment of Ernst & Young LLP as independent auditors of
the Company for the 1998 fiscal year; and
5. To transact such other business as may properly come before such meeting
or any adjournments thereof.
Only stockholders of record at the close of business on March 17, 1998
will be entitled to vote at the meeting or any adjournments thereof.
IF YOU ARE UNABLE TO BE PRESENT AT THE MEETING IN PERSON, PLEASE SIGN AND
DATE THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS,
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
EDWARD J. FRITSCH
Executive Vice President, Chief Operating Officer
and Secretary
<PAGE>
HIGHWOODS PROPERTIES, INC.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
-------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
-------------------------------
To Be Held On May 14, 1998
This proxy statement is furnished to stockholders of Highwoods Properties,
Inc., a Maryland corporation (the "Company"), in connection with the
solicitation of proxies for use at the 1998 annual meeting of stockholders (the
"Meeting") of the Company to be held on Thursday, May 14, 1998, at 3:00 p.m.,
at the Raleigh Marriott Crabtree Valley, 4500 Marriott Drive, Raleigh, North
Carolina, for the purposes set forth in the notice of meeting. This
solicitation is made on behalf of the board of directors of the Company (the
"Board of Directors").
Holders of record of shares of common stock (the "Common Stock") of the
Company as of the close of business on the record date, March 17, 1998, are
entitled to receive notice of, and to vote at, the Meeting. The outstanding
Common Stock constitutes the only class of securities entitled to vote at the
Meeting, and each share of Common Stock entitles the holder thereof to one
vote. At the close of business on March 17, 1998, there were 50,604,018 shares
of Common Stock issued and outstanding.
Shares represented by proxies in the form enclosed, if such proxies are
properly executed and returned and not revoked, will be voted as specified.
Where no specification is made on a properly executed and returned form of
proxy, the shares will be voted FOR the election of all nominees for director,
FOR the amendment of the Company's Amended and Restated 1994 Stock Option Plan,
FOR the amendment of the Company's Amended and Restated Articles of
Incorporation, FOR the proposal to ratify the appointment of Ernst & Young LLP
as independent auditors and FOR authorization of the proxy to vote upon such
other business as may properly come before the meeting or any adjournments
thereof. To be voted, proxies must be filed with the Secretary of the Company
prior to the close of voting at the Meeting. Proxies may be revoked at any time
before exercise thereof by filing a notice of such revocation or a later dated
proxy with the Secretary of the Company or by voting in person at the Meeting.
Proposal One, the election of the directors of the Company, requires the
vote of a plurality of all of the votes cast at the Meeting provided a quorum
is present. For purposes of the election of directors, abstentions will not be
counted as votes cast and will have no effect on the result of the vote,
although they will count toward the presence of a quorum.
Proposal Two, the approval of an amendment to the Company's Amended and
Restated 1994 Stock Option Plan to increase the number of shares of Common
Stock authorized for issuance thereunder, requires the affirmative vote of a
majority of the votes cast on the proposal, provided that the total vote cast
on the proposal represents over 50% in interest of all shares of Common Stock
entitled to vote on the proposal. For purposes of the vote on Proposal Two, an
abstention or a broker non-vote (i.e., shares held by a broker or nominee which
are represented at the Meeting but with respect to which such broker or nominee
is not empowered to vote on a proposal) will have the effect of a vote against
the proposal, unless holders of more than 50% in interest of all securities
entitled to vote on the proposal cast votes, in which event neither an
abstention nor a broker non-vote will have any effect on the result of the
vote.
Proposal Three, approval of an amendment to the Company's Amended and
Restated Articles of Incorporation to increase the numbers of shares of Common
Stock and preferred stock authorized for issuance thereunder, requires the
affirmative vote of a majority of all of the votes entitled to be cast on the
matter. For purposes of the vote on Proposal Three, abstentions and broker
non-votes will have the same effect as votes against the proposal, although
they will count toward the presence of a quorum.
Proposal Four, ratification of the appointment of Ernst & Young LLP,
requires the affirmative vote of a majority of the votes cast on the proposal
provided that a quorum is present. For purposes of the vote on Proposal Four,
an abstention will not be counted as votes cast and will have no effect on the
result of the vote, although they will count toward the presence of a quorum.
1
<PAGE>
The Company's 1997 Annual Report for the year ended December 31, 1997 has
been mailed with this proxy statement. This proxy statement, the form of proxy
and the 1997 Annual Report were mailed to stockholders on or about April 14,
1998. The principal executive offices of the Company are located at 3100
Smoketree Court, Suite 600, Raleigh, North Carolina 27604.
PROPOSAL ONE:
ELECTION OF DIRECTORS
Board of Directors
The directors of the Company are divided into three classes, with
approximately one-third of the directors elected by the stockholders annually.
John W. Eakin and L. Glenn Orr, Jr., whose terms of office expire at the
Meeting, have been nominated for election at the Meeting as directors for
three-year terms, to hold office until the 2001 annual meeting of stockholders
and until their successors are elected and qualified. Stephen Timko, whose term
of office also expires at the Meeting and who desires to retire from the Board
of Directors at the next annual meeting of stockholders, has been nominated for
election at the Meeting as a director for a one-year term, to hold office until
the 1999 annual meeting of stockholders and until his successor is elected and
qualified. In addition, to fill a vacancy created by an increase in the
authorized number of directors, James R. Heistand, a senior vice president of
the Company, has been nominated for election at the Meeting as a director for a
three-year term, to hold office until the 2001 annual meeting of stockholders
and until his successor is elected and qualified.
The Board of Directors of the Company recommends a vote FOR Messrs. Eakin,
Orr, Timko and Heistand as directors to hold office until the expiration of the
terms for which they have been nominated and until their successors are elected
and qualified. Should any one or more of these nominees become unable to serve
for any reason, the Board of Directors may designate substitute nominees, in
which event the person named in the enclosed proxy will vote for the election
of such substitute nominee or nominees, or may reduce the number of directors
on the Board of Directors.
Nominees for Election to Term Expiring 2001
John W. Eakin, 43, has been a director and senior vice president of the
Company since the Company's merger with Eakin & Smith, Inc. in April 1996. Mr.
Eakin previously served as president of Eakin & Smith, Inc. from 1987 to 1996.
Mr. Eakin is a member of the boards of directors of CCA Prison Realty Trust and
Central Parking Corporation and the advisory board of First American National
Bank of Nashville.
James R. Heistand, 45, has been a senior vice president of the Company
since the Company's merger with Associated Capital Properties, Inc. in October
1997. Mr. Heistand previously served as chairman of Associated Capital
Properties, Inc. from 1989 to 1997. The Master Agreement of Merger and
Acquisition by and among the Company, Highwoods/Forsyth Limited Partnership,
Associated Capital Properties, Inc. and its shareholders dated August 27, 1997
provided for Mr. Heistand's nomination to the Board of Directors for election
at the Meeting.
L. Glenn Orr, Jr., 57, has been a director of the Company since February
1995. Mr. Orr has been president and chief executive officer of Orr Management
Company, which provides investment banking and consulting services for middle
market companies, since 1995. Mr. Orr is a director of BB&T Financial and was
chairman of the board of directors, president and chief executive officer of
Southern National Corporation from 1990 until its merger with Branch Banking &
Trust in 1995. Mr. Orr is a member of the boards of directors of Ladd Furniture
Company and The Polymer Group. Mr. Orr previously served as president and chief
executive officer of Forsyth Bank and Trust Co., president of Community Bank in
Greenville, S.C. and president of the North Carolina Bankers Association. He is
a trustee of Wake Forest University.
Nominees for Election to Term Expiring 1999
Stephen Timko, 69, has been a director of the Company since February 1995.
Mr. Timko has been serving as treasurer of Beaunit Corporation, a real estate
investment company, since 1983. He has served as associate vice president of
financial affairs for Temple University and chief financial officer and
executive vice president of finance and administration for Beaunit Corporation.
2
<PAGE>
Incumbent Directors -- Term Expiring 1999
Thomas W. Adler, 57, has been a director of the Company since its initial
public offering in June 1994 (the "IPO"). Mr. Adler has been a principal of
Cleveland Real Estate Partners, a fee-based real estate service company based
in Cleveland, Ohio, since 1988. Mr. Adler has served five years as a member of
the executive committee and board of governors of the National Association of
Real Estate Investment Trusts ("NAREIT"), and he was national president in 1990
of the Society of Industrial and Office Realtors. Mr. Adler formerly served on
the board of directors of the National Association of Realtors and currently
serves on the board of governors of the American Society of Real Estate
Counselors.
William E. Graham, Jr., 68, has been a director of the Company since the
IPO. Mr. Graham is a lawyer in private practice with the firm of Hunton &
Williams. Before joining Hunton & Williams on January 1, 1994, Mr. Graham was
vice chairman of Carolina Power & Light Company and had previously served as
its general counsel. Mr. Graham is a former member of the board of directors of
Carolina Power & Light Company and currently serves as chairman of the Raleigh
board of directors of NationsBank. He also serves on the board of trustees of
BB&T Mutual Funds Group.
Willard H. Smith Jr., 61, has been a director of the Company since April
1996. Mr. Smith previously served as a managing director of Merrill Lynch from
1983 to 1995. Mr. Smith is a member of the boards of directors of Cohen &
Steers Realty Shares, Cohen & Steers Realty Income Fund, Cohen & Steers Special
Equity Fund, Inc., Cohen & Steers Total Return Realty Fund, Cohen & Steers
Equity Income Fund, Essex Property Trust, Inc., Realty Income Corporation and
Willis Lease Financial Corporation.
William T. Wilson III, 43, has been a director of the Company since the
Company's combination with Forsyth Partners in February 1995. Mr. Wilson served
as executive vice president of the Company from February 1995 until June 1997.
Mr. Wilson joined Forsyth Partners in 1982 and became its president in 1993.
Mr. Wilson is currently managing partner of Magnolia Capital, which makes
private equity and debt investments in small regional companies. Mr. Wilson
also serves on the board of directors of Amos Cottage Rehabilitation Hospital,
an affiliate of the department of pediatrics of Bowman Gray School of Medicine,
and the board of visitors of Wake Forest University School of Law.
Incumbent Directors -- Term Expiring 2000
Gene H. Anderson, 52, has been a director and senior vice president of the
Company since the Company's combination with Anderson Properties, Inc. in
February 1997. Mr. Anderson previously served as president of Anderson
Properties, Inc. since 1978. Mr. Anderson is an officer and former director of
the National Association of Industrial and Office Properties ("NAIOP").
Ronald P. Gibson, 53, has been president, chief executive officer and a
director of the Company since its first election of officers in March 1994. Mr.
Gibson is a founder of the Company's predecessor, served as its president since
its incorporation in 1992 and served as its managing partner since its
formation in 1978. Mr. Gibson is a member of the Society of Industrial and
Office Realtors and is a director of Capital Associated Industries.
O. Temple Sloan, Jr., 59, is chairman of the Board of Directors, a
position he has held since March 1994. Mr. Sloan is a founder of the
predecessor of the Company. He has been chairman and chief executive officer of
General Parts, Inc., a nationwide distributor of automobile replacement parts,
since its founding in 1961. Mr. Sloan is a director of NationsBank, N.A. and
Southern Equipment Company and is a trustee of St. Andrews College.
John L. Turner, 51, has been vice chairman of the Board of Directors and
chief investment officer of the Company since the Company's combination with
Forsyth Partners in February 1995. Mr. Turner co-founded the predecessor of
Forsyth Partners in 1975 and served as its chairman of the board of directors
and chief executive officer prior to joining the Company. Mr. Turner is active
in several Piedmont Triad economic development and business recruiting
organizations. Mr. Turner served on the University of North Carolina board of
visitors and on the Winston-Salem board of directors of NationsBank.
Committees of the Board of Directors; Meetings
The Board of Directors has established an audit committee that consists of
Messrs. Graham, Smith and Timko. The audit committee makes recommendations
concerning the engagement of independent public accountants, reviews with the
independent public accountants the plans and results of the audit engagement,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants, considers the
range of audit and non-audit fees and reviews the adequacy of the Company's
internal accounting controls. During 1997, the audit committee held five
meetings.
3
<PAGE>
The Board of Directors has established an executive compensation committee
to determine compensation for the Company's executive officers and to implement
the Company's Amended and Restated 1994 Stock Option Plan (the "Stock Option
Plan"). The compensation committee consists of Messrs. Adler, Graham, Orr and
Sloan. During 1997, the compensation committee held four meetings.
The Board of Directors has established an investment committee consisting
of Messrs. Adler, Gibson, Sloan, Turner and Eakin. Mr. Heistand has served as a
non-voting member of the investment committee since joining the Company in
October 1997. The investment committee oversees the acquisition and new
investment process. The investment committee generally meets weekly to review
new investment opportunities with the Company's acquisition personnel and to
make formal recommendations to the Board of Directors concerning such
opportunities.
The Board of Directors has established an executive committee consisting
of Messrs. Adler, Gibson, Orr and Sloan. The executive committee meets on call
by the chairman of the Board of Directors during the intervals between meetings
of the full Board of Directors and may exercise all of the powers of the Board
of Directors, subject to the limitations imposed by applicable law, the bylaws
or the Board of Directors.
The Board of Directors held seven meetings in 1997.
Compensation of Directors
The Company pays directors who are not officers of the Company
("Independent Directors") fees for their services as directors. Independent
Directors receive annual compensation of $15,000 plus a fee of $1,250 (plus
out-of-pocket expenses) for attendance in person at each meeting of the Board
of Directors, $500 for each committee meeting attended and $250 or $400 for
each telephone meeting of the Board of Directors or a committee. In addition,
non-officer members of the investment committee receive an additional annual
retainer of $30,000 and $1,000 per day for property visits. Upon becoming a
director of the Company, each Independent Director receives options to purchase
10,000 shares of Common Stock at an exercise price equal to the fair market
value on the date of grant. Independent Directors are also eligible for
discretionary awards of stock options and may elect to receive a portion of
their retainer and meeting fees in the form of stock options. Officers of the
Company who are directors are not paid any director fees.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation of the chief executive officer and the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
for the year ended December 31, 1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Securities
---------------------- Underlying All Other
Name and Principal Position Year Salary Bonus(1) Options(#)(2) Compensation(3)
- ------------------------------------------- ------ ----------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Ronald P. Gibson 1997 $285,551 $375,000 350,000 $4,750
President and Chief Executive Officer 1996 $205,000 $268,750 20,000 $4,750
1995 $173,397 $218,750 -- $2,310
John L. Turner 1997 $199,836 $250,000 210,000 $4,750
Chief Investment Officer 1996 $161,250 $206,250 -- $4,750
1995 $125,230 $119,531 45,000 $2,250
Edward J. Fritsch 1997 $177,262 $200,000 100,000 $4,750
Executive Vice President, 1996 $142,500 $150,000 10,000 $4,750
Chief Operating Officer and Secretary 1995 $113,750 $105,000 -- $4,559
John W. Eakin 1997 $199,836 $200,000 100,000 $4,750
Senior Vice President 1996 $108,750 $ 87,000 42,500 --
1995 -- -- -- --
Carman J. Liuzzo 1997 $170,168 $200,000 220,000 $4,750
Vice President, Chief Financial Officer 1996 $122,500 $ 68,500 10,000 $4,750
and Treasurer 1995 $130,282 $ 90,000 -- $ 756
</TABLE>
- ---------
(1) Includes amounts earned in the indicated period which were paid in the
following year. Twenty percent of the bonus is in the form of units of
phantom stock. Employees are credited with a specified number of units of
phantom stock equal to such number of shares of Common Stock as could be
purchased with 25% of the employee's cash bonus. Five years from the date
of the phantom stock grant, employees will receive the value of a share of
Common Stock for each unit of phantom stock. At the end of such five-year
period, phantom stock holders also receive the value of the dividends paid
during the period on the corresponding Common Stock assuming dividend
reinvestment. Payouts with respect to phantom stock grants may be made in
shares of Common Stock or cash or both. If an executive officer leaves the
Company's employ for any reason (other than death, disability or normal
retirement) prior to the end of the five-year period, all awards under the
deferred compensation plan will be forfeited.
(2) Options include: (i) incentive stock options; (ii) nonqualified stock
options; and (iii) Common Unit options. Options generally vest over a
five-year period beginning with the date of grant. Amounts shown include
options granted during indicated period with respect to prior year's
performance.
(3) Represents amounts contributed by the Company under the Salary Deferral and
Profit Sharing Plan.
5
<PAGE>
The following table sets forth certain information with respect to options
granted in 1997 to the Named Executive Officers:
Option Grants in 1997
<TABLE>
<CAPTION>
Percent of
Number of Total Options
Securities Granted to Exercise
Underlying Employees Price
Name Options(1) in 1997 Per Share
- ------------------------------------- ------------ -------------- ----------------
<S> <C> <C> <C>
Ronald P. Gibson
Incentive Stock Options ............ 18,900 .8% $ 31.63
Nonqualified Stock Options (3) ..... 50,000 2.2 31.63 (3)
Common Unit Options (4) ............ 81,100 3.6 31.63
Common Unit Options (4) ............ 200,000 8.9 34.31
------- ----
Total ............................ 350,000 15.5%
======= ====
John L. Turner
Incentive Stock Options ............ 18,900 .8% $ 31.63
Nonqualified Stock Options (3) ..... 40,000 1.8 31.63 (3)
Common Unit Options (4) ............ 61,100 2.7 31.63
Common Unit Options (4) ............ 90,000 4.0 34.31
------- ----
Total ............................ 210,000 9.3%
======= ====
Edward J. Fritsch
Incentive Stock Options ............ 18,900 .8% $ 31.63
Nonqualified Stock Options (3) ..... 33,330 1.5 31.63 (3)
Common Unit Options (4) ............ 47,770 2.1 31.63
------- ----
Total ............................ 100,000 4.4%
======= ====
John W. Eakin
Incentive Stock Options ............ 18,900 .8% $ 31.63
Nonqualified Stock Options (3) ..... 33,330 1.5 31.63 (3)
Common Unit Options (4) ............ 47,770 2.1 31.63
------- ----
Total ............................ 100,000 4.4%
======= ====
Carman J. Liuzzo
Incentive Stock Options ............ 18,900 .8% $ 31.63
Nonqualified Stock Options (3) ..... 40,000 1.8 31.63 (3)
Common Unit Options (4) ............ 61,100 2.7 31.63
Common Unit Options (4) ............ 100,000 4.4 34.31
------- ----
Total ............................ 220,000 9.4%
======= ====
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Expiration Option Term (2)
Name Date 5% 10%
- ------------------------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Ronald P. Gibson
Incentive Stock Options ............ April 29, 2007 $ 375,921 $ 952,749
Nonqualified Stock Options (3) ..... April 29, 2007 994,500(3) 2,520,500(3)
Common Unit Options (4) ............ April 29, 2007 1,613,079 4,088,251
Common Unit Options (4) ............ November 4, 2007 4,316,000 10,936,000
------------ ---------------
Total ............................ $7,299,500 $ 18,497,500
============ ===============
John L. Turner
Incentive Stock Options ............ April 29, 2007 $ 375,921 $ 952,749
Nonqualified Stock Options (3) ..... April 29, 2007 795,600(3) 2,016,400(3)
Common Unit Options (4) ............ April 29, 2007 1,215,279 3,080,051
Common Unit Options (4) ............ November 4, 2007 1,942,200 4,921,200
------------ ---------------
Total ............................ $4,329,000 $ 10,970,400
============ ===============
Edward J. Fritsch
Incentive Stock Options ............ April 29, 2007 $ 375,921 $ 952,749
Nonqualified Stock Options (3) ..... April 29, 2007 662,934(3) 1,680,165(3)
Common Unit Options (4) ............ April 29, 2007 950,145 2,408,086
----
Total ............................ $1,989,000 $ 5,041,000
============ ===============
John W. Eakin
Incentive Stock Options ............ April 29, 2007 $ 375,921 $ 952,749
Nonqualified Stock Options (3) ..... April 29, 2007 662,934(3) 1,680,165(3)
Common Unit Options (4) ............ April 29, 2007 950,145 2,408,086
----
Total ............................ $1,989,000 $ 5,041,000
============ ===============
Carman J. Liuzzo
Incentive Stock Options ............ April 29, 2007 $ 375,921 $ 952,749
Nonqualified Stock Options (3) ..... April 29, 2007 795,600(3) 2,016,400(3)
Common Unit Options (4) ............ April 29, 2007 1,215,279 3,080,051
Common Unit Options (4) ............ November 4, 2007 2,158,000 5,468,000
------------ ---------------
Total ............................ $4,544,800 $ 11,517,200
============ ===============
</TABLE>
- ---------
(1) Options granted in 1997 were based on 1996 performance. Accordingly,
amounts are shown in Summary Compensation Table above as 1996
compensation. Options generally vest over a five-year period beginning
with the date of grant.
(2) Realizable values have been reduced by the per share option exercise price
that each optionee will be required to pay to the Company in order to
exercise the options.
(3) Nonqualified stock options granted in 1997 were accompanied by a dividend
equivalent right (a "DER") pursuant to the 1997 Performance Award Plan.
The exercise price of such a stock option may be reduced by an amount
equal to the sum of all dividends and other distributions that are made
with respect to a share of Common Stock during the period beginning on the
date of grant and ending upon exercise of such stock option. Therefore,
the exercise price per share of nonqualified stock options accompanied by
DERs may be lower upon exercise, and the potential realizable values of
such options may be higher upon exercise, than the corresponding amounts
set forth in the table.
(4) The Common Unit options were issued pursuant to the Highwoods/Forsyth
Limited Partnership 1997 Unit Option Plan. Common Unit options are similar
to nonqualified stock options except that the holder is entitled to
purchase common partnership interests ("Common Units") in
Highwoods/Forsyth Limited Partnership (the "Operating Partnership"). The
Operating Partnership is controlled by the Company as its sole general
partner. Each Common Unit received upon the exercise of a Common Unit
option may be redeemed by the holder thereof for the cash value of one
share of Common Stock. Assuming approval of the proposed amendment to the
Stock Option Plan contained herein, the Company intends to allow holders
of Common Unit options to convert them to nonqualified stock options. See
"Proposal Two: Amendment to Amended and Restated 1994 Stock Option Plan."
6
<PAGE>
The following table sets forth certain information with respect to options
held by the Named Executive Officers at year-end 1997:
Disposition of Options in 1997/1997 Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-Money
Shares Unexercised Options at Options at 1997 Year-End
Underlying Options Value 1997 Year-End (1) (2)(3)
Name Disposed of Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- -------------------- --------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ronald P. Gibson ...... -- -- 23,150 386,850 $341,314 $1,905,086
John L. Turner ........ -- -- 14,400 240,600 $202,464 $1,463,736
Edward J. Fritsch ..... -- -- 18,150 121,850 $260,364 $ 875,736
John W. Eakin ......... -- -- 3,150 139,350 $ 17,514 $ 950,311
Carman J. Liuzzo ...... -- -- 15,650 239,350 $219,889 $1,234,461
</TABLE>
- ---------
(1) Options include: (i) incentive stock options, (ii) nonqualified stock
options and (iii) Common Unit options. Options generally vest over a
five-year period beginning with the date of grant.
(2) Based on a closing price of $37.19 per share of Common Stock on December
31, 1997.
(3) Nonqualified stock options granted in 1997 were accompanied by a DER
pursuant to the 1997 Performance Award Plan. The exercise price of such a
stock option may be reduced by an amount equal to the sum of all dividends
and other distributions that are made with respect to a share of Common
Stock during the period beginning on the date of grant and ending upon
exercise of such stock option. Therefore, the exercise price per share of
nonqualified stock options accompanied by DERs may be lower upon exercise,
and the potential realizable value of such options may be higher upon
exercise, than the amounts set forth in the table.
Employment Contracts
Mr. Turner entered into a three-year employment contract with the Company
in February 1995 and Mr. Eakin entered into a three-year employment contract
with the Company in April 1996. These contracts provide for a minimum annual
base salary at the rate of $150,000 for Mr. Turner and $145,000 for Mr. Eakin.
The minimum annual base salary may be increased by the Board of Directors. As
of December 31, 1997, the annual base salary rate was $200,000 for both Mr.
Turner and Mr. Eakin. Each contract includes provisions restricting the
officers from competing with the Company during employment and, except in
certain circumstances, for a limited period of time after termination of
employment. Each of the employment contracts provides for severance payments in
the event of termination by the Company without cause equal to the officer's
base salary at the rate then in effect for the later of one year from the date
of termination or three years from the contract date.
The Company has entered into a change in control contract with each of
Messrs. Gibson, Turner, Fritsch, Eakin and Liuzzo. The contracts generally
provide that if within 24 months from the date of a change in control (as
defined below), the employment of Messrs. Gibson, Turner, Fritsch, Eakin or
Liuzzo is terminated without cause, their responsibilities are changed, their
salaries are reduced or their responsibilities are diminished, Messrs. Gibson,
Turner, Fritsch, Eakin and Liuzzo will be entitled to receive 2.99 times a base
amount. An executive's base amount for these purposes is his average annual
compensation includible in his gross taxable income for the five years
preceding the year in which the change in control occurs (or, if he has been
employed by the Company for less than those five years, for the number of those
years during which he has been employed by the Company, with any partial year
annualized), including base salary and annual bonus. Additionally, the change
in control contract vests all options granted pursuant to the Stock Option Plan
and the Unit Option Plan and benefits awarded under the 1997 Performance Award
Program. Additionally, the executive will receive a lump sum cash payment equal
to a stated multiple of the value of all of the executive's unexercised stock
options and Common Unit options. The multiple is three times for Mr. Gibson,
two times for Messrs. Turner and Liuzzo and one time for Messrs. Fritsch and
Eakin. The contracts are effective until March 31, 2000, and are automatically
extended for one additional year commencing at March 31, 1998 and each March 31
thereafter.
For purposes of the contracts described in the preceding paragraph,
"change in control" generally means any of the following events: (i) the
acquisition by a third party of 20% or more of the then outstanding Common
Stock of the Company; (ii) individuals who currently constitute the Board of
Directors (or individuals who subsequently become a director whose election or
nomination was approved by at least a majority of the directors currently
constituting the Board of Directors) cease for any reason to constitute a
majority of the Board of Directors; (iii) approval by the Company's
stockholders of a
7
<PAGE>
reorganization, merger or consolidation in which the Company is not the
surviving entity; or (iv) approval by the Company's stockholders of a complete
liquidation or dissolution of the Company or the sale or other disposition of
all or substantially all of the assets of the Company.
Executive Compensation Committee Interlocks and Insider Participation
The executive compensation committee (the "Committee") consists of Messrs.
Adler, Graham, Orr and Sloan. None of the members of the Committee is an
employee of the Company. Mr. Sloan is a former officer of the predecessor of
the Company.
On March 18, 1997, the Company purchased 5.68 acres of development land in
Raleigh, North Carolina for $1,298,959 from Rex Drive Associates, a partnership
in which Mr. Sloan has an 8.5% limited partnership interest. Mr. Sloan is
chairman of the Board of Directors. The purchase price was reached through
negotiation with the managing partner of Rex Drive Associates, who is not an
affiliate of the Company. The Company believes the purchase price was at market
rates.
Committee Report on Executive Compensation
The executive compensation committee makes recommendations to the Board of
Directors regarding compensation and benefit policies and practices and
incentive arrangements for executive officers and key managerial employees of
the Company. The Committee also considers and grants awards under the Stock
Option Plan, the 1997 Performance Award Plan and the Highwoods/Forsyth Limited
Partnership 1997 Unit Option Plan (the "Unit Option Plan").
The Committee is comprised of Independent Directors. During 1997, the
Committee met four times to review and evaluate executive compensation and
benefit programs.
Executive Officer Compensation Policies. The Committee's executive
compensation policies are designed to (a) attract and retain the best
individuals critical to the success of the Company, (b) motivate and reward
such individuals based on corporate, business unit and individual performance,
and (c) align executives' and stockholders' interests through equity-based
incentives.
Compensation for executives is based on the following principles: variable
compensation should comprise a significant part of an executive's compensation,
with the percentage at-risk increasing at increased levels of responsibility;
employee stock ownership aligns the interests of employees and stockholders;
compensation must be competitive with that offered by companies that compete
with the Company for executive talent; and differences in executive
compensation within the Company should reflect differing levels of
responsibility and performance.
A key determinant of overall levels of compensation is the pay practices
of public equity real estate investment trusts that have revenues comparable to
the Company's (the "peer group"). The peer group was chosen by the Company's
independent compensation and benefit consultants.
There are three components to the Company's executive compensation
program: base salary, annual incentive compensation and long-term incentive
compensation. The more senior the position, the greater the portion of
compensation that varies with performance.
Base salaries are set by the Committee and are designed to be competitive
with the peer group companies described above. Changes in base salaries are
based on the peer group's practices; the Company's performance; the
individual's performance, experience and responsibility; and increases in cost
of living indices. The corporate performance measures used in determining
adjustments to executive officers' base salaries are the same performance
measures used to determine annual and long-term incentive compensation
discussed below. Base salaries are reviewed for adjustment annually.
The Company's executive officers participate in a bonus program whereby
the individual executives are eligible for cash bonuses based on a percentage
of their annual base salary rate as of the prior December. The bonus percentage
is determined by competitive analysis and the executive's ability to influence
overall performance of the Company. The eligible bonus percentage is allocated
in part to Company, divisional and individual performance, in part to the
achievement of individual goals and in part to discretionary evaluation by the
Committee. The Committee considers growth in funds from operations ("FFO") per
share, the volume and quality of acquisitions and development, completed
financing activity and other measures in assessing the performance of the
Company. Sixty to seventy-five percent of the eligible bonus percentage is
awarded upon achievement of 10% FFO growth. Growth in per-share FFO for 1997
was 14%.
In addition to the cash bonus, and as an incentive to retain executive
officers, the Company's deferred compensation plan provides for the issuance of
phantom stock. Under the deferred compensation plan, employees are credited
with a
8
<PAGE>
specified number of units of phantom stock equal to such number of shares of
Common Stock as could be purchased with 25% of the employee's cash bonus. Five
years from the date of the phantom stock grant, employees will receive the
value of a share of Common Stock for each unit of phantom stock. At the end of
such five-year period, phantom stock holders also receive the value of the
dividends paid during the period on the corresponding Common Stock assuming
dividend reinvestment. At the discretion of the Committee, payouts with respect
to phantom stock grants may be made in shares of Common Stock or cash or both.
If an executive officer leaves the Company's employ for any reason (other than
death, disability or normal retirement) prior to the end of the five-year
period, all awards under the deferred compensation plan will be forfeited.
Long-term incentive compensation is also paid in the form of stock options
granted under the Stock Option Plan and Common Unit options granted under the
Unit Option Plan. The Committee believes that grants of stock options align
stockholder value and executive officer interests. The size of previous grants
and the number of shares held by an executive are not considered in determining
annual award levels. The Committee has not yet issued options with respect to
1997 performance pending evaluation of information from the Company's
independent compensation and benefits consultants.
Stock options and Common Unit options are granted with an exercise price
equal to the fair market value per share on the date of grant. The options
generally vest over a five-year period beginning with the date of grant.
Options granted to executives in 1997 vest 20% after the third year, 30% after
the fourth year and 50% after the fifth year following the date of grant. No
stock option or Common Unit option awards are made in the absence of
satisfactory performance, which is evaluated by the Committee based on the
executive's individual contribution to the long-term health and growth of the
Company.
Nonqualified stock options granted to executive officers in 1997 were
accompanied by a dividend equivalent right (a "DER") pursuant to the 1997
Performance Award Plan. The exercise price of such a stock option will be
reduced by an amount equal to the sum of all dividends and other distributions
that are made with respect to a share of Common Stock during the period
beginning on the date of grant and ending upon exercise or expiration of such
stock option.
In 1997, the Board of Directors of the Company ratified and approved the
adoption of the Operating Partnership's Unit Option Plan. The Unit Option Plan
was established, and permits the Company, as general partner of the Operating
Partnership, to reward employees for valuable service and encourage the
continuation of such service by providing equity compensation to certain
employees of the Operating Partnership. Common Unit options are similar to
nonqualified stock options except that the holder is entitled to purchase
Common Units in the Operating Partnership. The Operating Partnership is
controlled by the Company as its sole general partner. Each Common Unit
received upon the exercise of a Common Unit option may be redeemed by the
holder thereof for the cash value of one share of Common Stock. Assuming
approval of the proposed amendment to the Stock Option Plan contained herein,
the Company intends to allow holders of the Common Unit options to convert them
to nonqualified stock options. See "Proposal Two: Amendment to Amended and
Restated 1994 Stock Option Plan."
Section 162(m) of the Internal Revenue Code generally denies a deduction
for compensation in excess of $1 million paid to certain executive officers,
unless certain performance, disclosure and stockholder approval requirements
are met. Option grants and certain other awards under the Stock Option Plan and
the Unit Option Plan are intended to qualify as "performance-based"
compensation not subject to Section 162(m) deduction limitation. The Committee
believes that a substantial portion of compensation awarded under the Company's
compensation program would be exempted from the $1 million deduction
limitation. The Committee's present intention is to qualify to the extent
reasonable, a substantial portion of each executive officer's compensation for
deductibility under applicable tax laws.
Chief Executive Officer Compensation. The salary and long-term incentive
awards of the Company's Chief Executive Officer, Mr. Ronald P. Gibson, are
determined substantially in conformity with the policies described above for
all other executive officers of the Company. Mr. Gibson was paid $285,551 in
base salary, $300,000 in annual incentive compensation and 2,017 units of
phantom stock valued at $75,000 in long-term incentive compensation for 1997.
Also, Mr. Gibson was granted 350,000 stock and Common Unit options during 1997
with respect to 1996 performance. Option amounts for 1997 performance have not
yet been determined.
Executive Compensation Committee
Thomas W. Adler William E. Graham, Jr. L. Glenn Orr, Jr.
O. Temple Sloan, Jr.
The foregoing report should not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Common Stock as of December 31, 1997 for each person or group known to the
Company to be holding more than 5% of the Common Stock and, as of March 17,
1998, for each director and Named Executive Officer and the directors and
executive officers of the Company as a group. The number of shares shown
represents the number of shares of Common Stock the person beneficially owns
plus the number of shares that may be issued upon redemption of Common Units,
whether or not such Common Units are currently redeemable. (Following the
expiration of a contractually imposed lockup period, the Operating Partnership
is obligated to redeem each Common Unit at the request of the holder thereof
for the cash value of one share of Common Stock or, at the Company's option,
one share of Common Stock.) Unless otherwise indicated in the footnotes, the
indicated person or entity has sole voting and investment power with respect to
the shares of Common Stock. The number of shares and Common Units shown are
those "beneficially owned," as determined by the rules of the Securities and
Exchange Commission, and such information is not necessarily indicative of
beneficial ownership for purposes of compliance with the ownership limit
contained in the Company's charter or for any other purpose.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name of Beneficial Owner Beneficially Owned All Shares(1)
- -------------------------------------------------------------------------- -------------------- --------------
<S> <C> <C>
O. Temple Sloan, Jr. (2) ................................................. 519,454 1.0%
Ronald P. Gibson(3)(4) ................................................... 172,248 *
Gene H. Anderson(5) ...................................................... 616,079 1.2%
John W. Eakin(6) ......................................................... 353,099 *
Edward J. Fritsch(3)(7) .................................................. 57,329 *
James R. Heistand(8) ..................................................... 1,523,917 2.9%
Carman J. Liuzzo(9) ...................................................... 22,244 *
John L. Turner(10) ....................................................... 470,341 *
Thomas W. Adler(11) ...................................................... 22,520 *
William E. Graham, Jr.(12) ............................................... 16,051 *
L. Glenn Orr, Jr.(13) .................................................... 10,000 *
Willard H. Smith, Jr.(14) ................................................ 9,000 *
Stephen Timko(15) ........................................................ 205,679 *
William T. Wilson III(16) ................................................ 451,004 *
ABKB/LaSalle Securities Limited Partnership and LaSalle Advisors Capital
Management, Inc.(17) .................................................... 2,821,277 5.6%
Cohen & Steers Capital Management, Inc.(18) .............................. 4,054,500 8.0%
Templeton Global Advisors Limited and Franklin Resources, Inc.(19) ....... 3,662,460 7.2%
All executive officers and directors as a group (15 persons) ............. 4,486,247 8.2%
</TABLE>
- ---------
* Less than 1%
(1) The total number of shares outstanding used in calculating this percentage
assumes that none of the Common Units, stock options or warrants held by
other persons are exchanged for shares of Common Stock.
(2) Number of shares beneficially owned includes 139,540 shares currently
issuable upon exercise of options and 274,990 shares issuable upon
redemption of Common Units.
(3) Messrs. Gibson and Fritsch each own 49.5 shares (representing in the
aggregate a 1% economic interest) of the Class A (voting) stock of
Highwoods Services, Inc., a subsidiary of the Operating Partnership.
(4) Number of shares beneficially owned includes 31,300 shares currently
issuable upon exercise of options and 71,872 shares issuable upon
redemption of Common Units.
(5) Number of shares beneficially owned include 6,300 shares currently
issuable upon exercise of options and 609,779 shares issuable upon
redemption of Common Units.
(6) Number of shares beneficially owned includes 16,925 shares currently
issuable upon exercise of options, 60,000 shares issuable upon exercise
of warrants, and 75,000 shares issuable upon redemption of Common Units.
(7) Number of shares beneficially owned includes 23,800 shares currently
issuable upon exercise of options and 10,144 shares issuable upon
redemption of Common Units.
(8) Number of shares beneficially owned includes 75,000 shares currently
issuable upon exercise of options, 887,574 shares issuable upon exercise
of warrants and 583,338 shares issuable upon redemption of Common Units.
10
<PAGE>
(9) Number of shares beneficially owned includes 21,300 shares issuable upon
redemption of Common Units.
(10) Number of shares beneficially owned includes 28,800 shares currently
issuable upon exercise of options, 35,000 shares issuable upon exercise of
warrants and 399,541 shares issuable upon redemption of Common Units.
(11) Number of shares beneficially owned includes 15,000 shares currently
issuable upon exercise of options.
(12) Number of shares beneficially owned includes 11,051 shares currently
issuable upon exercise of options.
(13) Number of shares beneficially owned includes 9,000 shares currently
issuable upon exercise of options.
(14) Number of shares beneficially owned includes 5,500 shares currently
issuable upon exercise of options.
(15) Number of shares beneficially owned includes 10,872 shares currently
issuable upon exercise of options and 194,807 shares issuable upon
redemption of Common Units.
(16) Number of shares beneficially owned includes 150,000 shares currently
issuable upon exercise of options, 35,000 shares issuable upon exercise of
warrants and 258,204 shares issuable upon redemption of Common Units.
(17) Address is 200 East Randolph Drive, Chicago, Illinois 60601. LaSalle
Advisors Capital Management, Inc. has sole voting power and investment
power with respect to 953,626 shares and shared investment power with
respect to 378,700 shares. ABKB/LaSalle Securities Limited Partnership has
sole voting and investment power with respect to 355,900 shares, shared
voting power with respect to 1,019,391 shares and shared investment power
with respect to 1,133,051 shares. Information obtained from Schedule 13G
filed with the Securities and Exchange Commission (the "SEC").
(18) Address is 757 Third Avenue, New York, New York 10017. Owner has sole
investment power with respect to all shares and sole voting power with
respect to 3,530,400 shares. Information obtained from Schedule 13G filed
with the SEC.
(19) Address with respect to Templeton Global Advisors Limited is Lyford Cay,
P.O. Box N-7759, Nassau, Bahamas. Address with respect to Franklin
Resources, Inc. is 777 Mariners Island Boulevard, San Mateo, CA 94404.
Templeton Global Advisors Limited has sole voting and investment power
with respect to 2,857,200 shares. Franklin Advisers, Inc. has sole voting
and investment power with respect to 709,000 shares. Templeton Investment
Management Limited has sole voting and investment power with respect to
87,000 shares. Franklin Management, Inc. has sole investment power with
respect to 9,260 shares. Information obtained from Schedule 13G filed with
the SEC.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 18, 1997, the Company purchased 5.68 acres of development land in
Raleigh, North Carolina for $1,298,959 from Rex Drive Associates, a partnership
in which Mr. Gibson and Mr. Sloan each has an 8.5% limited partnership
interest. Mr. Gibson is president and chief executive officer and a director of
the Company, and Mr. Sloan is chairman of the Board of Directors. The purchase
price was reached through negotiation with the managing partner of Rex Drive
Associates, who is not an affiliate of the Company. The Company believes the
purchase price was at market rates.
On October 1, 1997, Gateway Holdings LLC, a limited liability company
controlled by Mr. Turner, purchased the Ivy Distribution Center in
Winston-Salem, North Carolina from the Company for $2,050,000. Mr. Turner is
vice chairman of the Board of Directors and chief investment officer of the
Company. The Company believes the purchase price was at market rates. On the
date of closing, Gateway Holdings LLC executed a promissory note in favor of
the Company for the full amount of the purchase. The note bears interest at 8%
per annum and is payable in full on September 1, 1998.
PROPOSAL TWO:
AMENDMENT TO AMENDED AND RESTATED 1994 STOCK OPTION PLAN
The Board of Directors has adopted a resolution recommending that the
stockholders approve an amendment to the Stock Option Plan that would increase
the number of shares authorized to be issued under the Stock Option Plan from
2,500,000 to 6,000,000. The Board of Directors believes this increase is
appropriate in light of the continuing rapid increase in the number of
employees of the Company from approximately 325 at the time of the approval of
the 2,500,000 share limit to approximately 520 today. Information regarding the
Stock Option Plan is set forth below.
General. The Stock Option Plan is administered by the executive
compensation committee (the "Committee"). Officers, employees, independent
directors and independent contractors of the Company and its subsidiaries
generally are eligible to participate in the Stock Option Plan.
11
<PAGE>
The Stock Option Plan authorizes the issuance of up to 2,500,000 shares of
Common Stock, of which not more than 200,000 may be restricted stock granted as
provided in clause (v) below, pursuant to the grant of (i) stock options that
qualify as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code (the "Code"), (ii) stock options that do not so qualify as ISOs,
(iii) phantom stock awards, (iv) stock appreciation rights and (v) restricted
Common Stock ("Restricted Stock"), contingent upon the attainment of
performance goals or subject to other restrictions. If the affirmative vote of
a majority of the shares of Common Stock present and entitled to vote at the
Meeting is received approving the proposed amendment to the Stock Option Plan,
the number of shares authorized to be issued under the Stock Option Plan will
be increased to 6,000,000.
In connection with the grant of options under the Stock Option Plan, the
Committee determines the option term, any vesting requirements, and within
certain limits, the exercise price. The options granted under the Stock Option
Plan have 10-year terms and generally vest over a five-year period beginning
with the date of grant, subject to acceleration of vesting upon a change in
control of the Company. Generally, options terminate three months after
termination of employment with the Company and six months after an Independent
Director ceases to serve on the Board of Directors. The Committee may, however,
provide that an option may be exercised over a longer period following
termination of employment, but in no event beyond the expiration date of the
option. Any shares of Common Stock subject to options that are forfeited or
otherwise terminated other than by exercise will again be available for
granting under the Stock Option Plan. To date, the exercise price of options
granted under the Stock Option Plan has been equal to the fair market value of
the Common Stock on the date of grant. Payment for shares of Common Stock
granted under the Stock Option Plan may be made either in cash or by exchanging
Common Stock having a fair market value equal to the option exercise price.
Phantom stock awards, stock appreciation rights ("SARs") and Restricted
Stock may be granted pursuant to the terms and conditions established by the
Committee. Payments with respect to such grants may be in the form of cash or
shares of Common Stock. Recipients of the phantom stock awards granted to date
under the Stock Option Plan are not entitled to receive payment with respect to
such awards until five years from the date of grant. The Committee has not
granted SARs or Restricted Stock under the Stock Option Plan.
The Stock Option Plan may be amended or terminated by the Board of
Directors, but no amendment that is required to be approved by the stockholders
of the Company (i) as a condition of exemption of purchases from Section 16(b)
of the Securities and Exchange Act of 1934 or (ii) to ensure the options
granted qualify as ISOs under the Code shall be effective until it is so
approved.
Tax Treatment. There are no federal income tax consequences to an
individual or to the Company upon the grant of a non-discounted, non-qualified
stock option under the Stock Option Plan. Upon the exercise of a non-qualified
stock option, an individual will recognize ordinary compensation income in an
amount equal to the excess of the fair market value of the shares at the time
of exercise over the exercise price of the non-qualified stock option, and the
Company generally will be entitled to a corresponding federal income tax
deduction. Upon the sale of shares acquired by the exercise of a non-qualified
stock option, an individual will have a capital gain or loss at a rate
depending upon the amount of time the grantee held the shares in an amount
equal to the difference between the amount realized upon the sale and the
individual's adjusted tax basis in the shares (the exercise price plus the
amount of ordinary income recognized by the individual at the time of exercise
of the non-qualified stock option).
An employee will not recognize federal taxable income, upon either the
grant or exercise of the ISO. However, the amount by which the fair market
value of the shares at the time of exercise exceeds the option exercise price,
is a tax preference item possibly giving rise to alternative minimum tax. An
employee who disposes of the shares acquired upon exercise of an ISO after two
years from the date the ISO was granted and after one year from the date such
shares were transferred to him or her upon exercise of the ISO will recognize
capital gain or loss at a rate depending upon the amount of time the grantee
held the shares in the amount of the difference between the amount realized on
the sale and the exercise price, and the Company will not be entitled to any
tax deduction by reason of the grant or exercise of the ISO. As a general rule,
if an employee disposes of the shares acquired upon exercise of an ISO before
satisfying both holding period requirements (a "disqualifying disposition"),
his or her gain recognized on such a disposition will be taxed as ordinary
income to the extent of the difference between the fair market value of such
shares on the date of exercise and the exercise price, and the Company will be
entitled to a deduction in that amount. The gain, if any, in excess of the
amount recognized as ordinary income on such a disqualifying disposition will
be capital gain, taxed at a rate depending upon the amount of time the grantee
held the shares.
Common Unit Options. Certain of the Company's executive officers and
directors have received Common Unit options pursuant to the Unit Option Plan.
Common Unit options are similar to non-qualified stock options except that the
holder is
12
<PAGE>
entitled to purchase Common Units in the Operating Partnership. The Operating
Partnership is controlled by the Company as its sole general partner. Each
Common Unit received upon the exercise of a Common Unit option may be redeemed
by the holder thereof for the cash value of one share of Common Stock. Assuming
approval of the proposed amendment to the Stock Option Plan contained herein,
the Company intends to allow holders of the Common Unit options to convert them
to non-qualified stock options.
The following table sets forth the number of stock options granted under
the Stock Option Plan since its inception to the Named Executive Officers,
nominees for election to the Board of Directors, the Company's current
executive officers as a group, the Company's directors who are not executive
officers as a group and all employees of the Company who are not executive
officers as a group:
<TABLE>
<CAPTION>
Number of Number of
Name and Position Stock Options Common Unit Options (1)
- ---------------------------------------------------------------------------- --------------- ------------------------
<S> <C> <C>
Ronald P. Gibson ........................................................... 128,900 281,100
John L. Turner ............................................................. 103,900 151,100
Edward J. Fritsch .......................................................... 92,230 47,770
John W. Eakin .............................................................. 94,730 47,770
Carman J. Liuzzo ........................................................... 93,900 161,100
James R. Heistand .......................................................... 33,400 41,600
L. Glenn Orr, Jr. .......................................................... 14,000 --
Stephen Timko .............................................................. 15,872 --
Executive Officers as a Group (8 persons) .................................. 638,190 799,310
Non-Executive Directors as a Group (7 persons) ............................. 432,463 125,000
Non-Executive Officer Employees as a Group (approximately 300 persons) ..... 1,227,529 210,000
</TABLE>
- ---------
(1) Common Unit Options were issued pursuant to the Unit Option Plan. Assuming
approval of the proposed amendment to the Stock Option Plan, the Company
intends to allow holders of Common Unit Options to convert them to non-
qualified stock options.
Proposal Two requires the affirmative vote of a majority of the votes cast
on the proposal, provided that the total vote cast on the proposal represents
over 50% in interest of all shares of Common Stock entitled to vote on the
proposal. For purposes of the vote on Proposal Two, an abstention or a broker
non-vote (i.e., shares held by a broker or nominee which are represented at the
Meeting but with respect to which such broker or nominee is not empowered to
vote on a proposal) will have the effect of a vote against the proposal, unless
holders of more than 50% in interest of all securities entitled to vote on the
proposal cast votes, in which event neither an abstention nor a broker non-vote
will have any effect on the result of the vote.
The Board of Directors recommends a vote FOR the Proposal to Amend the
Stock Option Plan to increase the number of shares reserved for issuance under
the Stock Option Plan from 2,500,000 to 6,000,000 shares.
PROPOSAL THREE:
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
The present capital structure of the Company authorizes 100,000,000 shares
of Common Stock and 10,000,000 shares of Preferred Stock each having a par
value of $.01 per share. The Board of Directors believes this capital structure
is inadequate for the present and future needs of the Company. Therefore, the
Board of Directors has unanimously approved the amendment of the Company's
Amended and Restated Articles of Incorporation (the "Articles") to increase the
authorized number of shares of Common Stock from 100,000,000 to 200,000,000 and
the authorized number of shares of Preferred Stock from 10,000,000 to
50,000,000. The Board of Directors believes this capital structure more
appropriately reflects the present and future needs of the Company and
recommends such amendment to the Company's stockholders for approval. On March
17, 1998, approximately 50.6 million shares of Common Stock were outstanding
and approximately 15.6 million shares of Common Stock were reserved for
issuance upon (i) redemption of outstanding Common Units, (ii) exercise of
outstanding warrants and (iii) exercise of outstanding stock options and Common
Unit Options. In addition, approximately 7.0 million shares of Preferred Stock
were outstanding.
13
<PAGE>
The Board of Directors believes that the proposed increase is desirable so
that, as the need may arise, the Company will have more flexibility to issue
shares of Common Stock, without the expense and delay of a special
stockholders' meeting, in connection with equity financings, acquisitions
(involving Common Stock or Common Units), incentive compensation of directors
and employees, and for other corporate purposes for which the issuance of
Common Stock may be advisable.
The increase in authorized Common Stock will not have any immediate effect
on the rights of existing stockholders. However, the Board of Directors will
have the authority to issue authorized Common Stock without requiring future
stockholder approval of such issuances, except as may be required by applicable
law or stock exchange regulations. To the extent that additional authorized
shares are issued in the future, they will decrease the existing stockholders'
percentage equity ownership and, depending upon the price at which they are
issued, could be dilutive to the existing stockholders. The holders of Common
Stock have no preemptive rights.
The Preferred Stock may be issued in such classes or series as the Board
of Directors may determine and the Board of Directors may establish from time
to time the number of shares of Preferred Stock to be included in any such
class or series and to fix the designation and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the shares of any such
class or series, and such other subjects or matters as may be fixed by
resolution of the Board of Directors. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company or other transaction in which holders of shares of Preferred Stock
might receive a premium for such shares over the market price.
Proposal Three requires the affirmative vote of a majority of all of the
votes entitled to be cast on the matter. For purposes of the vote on Proposal
Three, abstentions and broker non-votes will have the same effect as votes
against the proposal, although they will count toward the presence of a quorum.
The Board of Directors recommends a vote FOR the proposal to amend the
charter to increase the number of authorized shares of common stock to
200,000,000 and to increase the number of authorized shares of preferred stock
to 50,000,000.
PROPOSAL FOUR:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of the audit committee,
has appointed the accounting firm of Ernst & Young LLP to serve as independent
auditors of the Company for the fiscal year ending December 31, 1998, subject
to ratification of this appointment by the stockholders of the Company. Ernst &
Young LLP has served as independent auditors of the Company since its
commencement of operations and is considered by management of the Company to be
well qualified. The Company has been advised by that firm that neither it nor
any member thereof has any financial interest, direct or indirect, in the
Company or any of its subsidiaries in any capacity.
Representatives of Ernst & Young LLP will be present at the Meeting, will
have the opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Proposal Four requires the affirmative vote of a majority of the votes
cast on the proposal provided that a quorum is present. For purposes of the
vote on Proposal Four, an abstention will not be counted as votes cast and will
have no effect on the result of the vote, although they will count toward the
presence of a quorum.
The Board of Directors recommends a vote FOR the proposal to ratify the
appointment of Ernst & Young LLP as independent auditors of the Company for the
1998 fiscal year.
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OTHER MATTERS
The Company's management knows of no other matters that may be presented
for consideration at the Meeting. However, if any other matters properly come
before the Meeting, it is the intention of the person named in the proxy to
vote such proxy in accordance with his judgment on such matters.
STOCK PRICE PERFORMANCE GRAPH
The following stock price performance graph compares the Company's
performance to the S&P 500 and the index of equity real estate investment
trusts prepared by National Association of Real Estate Investment Trusts
("NAREIT"). The stock price performance graph assumes an investment of $100 in
the Company on June 7, 1994 (the effective date of the IPO) and the two indices
on May 31, 1994 and further assumes the reinvestment of all dividends. Equity
real estate investment trusts are defined as those that derive more than 75% of
their income from equity investments in real estate assets. The NAREIT equity
index includes all tax qualified real estate investment trusts listed on the
New York Stock Exchange, the American Stock Exchange or the NASDAQ National
Market System. Stock price performance is not necessarily indicative of future
results.
(The performance graph appears here. The plot points are listed in the table
below.)
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Period Ending
- --------------------------------------------------------------------------------------------------
Index 6/10/94 12/31/94 12/31/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Highwoods Properties, Inc. 100.00 105.47 148.42 189.02 221.10
- --------------------------------------------------------------------------------------------------
S&P 500 100.00 101.70 139.92 171.91 229.28
- --------------------------------------------------------------------------------------------------
NAREIT All Equity REIT Index 100.00 96.42 111.01 150.66 181.19
- --------------------------------------------------------------------------------------------------
</TABLE>
The stock price performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director and officer of the Company is required to file with the
Securities and Exchange Commission, by a specified date, reports regarding his
or her transactions involving the Company's Common Stock. To the Company's
knowledge, based solely on the information furnished to the Company and written
representations that no other reports were required,
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during the fiscal year ended December 31, 1997, all such filing requirements
were complied with, except that (i) one transaction by Mr. Anderson was
reported late, (ii) one transaction by Mr. Adler was reported several days late
and (iii) one report, which set forth nine related transactions by Mr. Timko,
was filed several days late.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders to be presented at the 1999 annual meeting of
stockholders must be received by the Secretary of the Company prior to December
15, 1998 to be considered for inclusion in the 1999 proxy material.
COSTS OF PROXY SOLICITATION
The costs of preparing, assembling and mailing the proxy material will be
borne by the Company. The Company will also request persons, firms and
corporations holding shares in their names or in the names of their nominees,
which shares are beneficially owned by others, to send the proxy material to,
and to obtain proxies from, such beneficial owners and will reimburse such
holder for their reasonable expenses in doing so.
The Company has retained Corporate Communications, Inc. and First Union
National Bank (collectively, the "Consultants") to assist in the process of
identifying and contacting stockholders for the purpose of soliciting proxies.
The entire expense of engaging the services of the Consultants to assist in
proxy solicitation is projected to be $5,000 in fees paid to them, exclusive of
certain other fees paid to First Union National Bank in connection with the
operation of the annual meeting.
Your vote is important. Please complete the enclosed proxy card and mail
it in the enclosed postage-paid envelope as soon as possible. Thank you.
By Order of the Board of Directors
O. TEMPLE SLOAN, JR.
Chairman of the Board of Directors
April 14, 1998
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