As filed with the Securities and Exchange Commission on October 27, 1998
Registration No. 333-39247
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 56-1871668
(State of incorporation) (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 registrant's principal executive offices)
With Copies to:
Ronald P. Gibson, President Brad S. Markoff, Esq.
Highwoods Properties, Inc. Alston & Bird LLP
3100 Smoketree Court, Suite 600 3605 Glenwood Avenue,
Suite 310 Raleigh, North Carolina
Raleigh, North Carolina 27604 27612
(919) 872-4924 (919) 420-2210
(Address, including zip code, and telephone number, including area code, of
agent for service)
Approximate date of commencement of 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. [ ]
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, 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. [ ]
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HIGHWOODS PROPERTIES, INC.
PROSPECTUS
2,340,000 SHARES
COMMON STOCK
We are offering and selling up to 2,340,000 shares of common stock with
this prospectus. An accompanying prospectus supplement will set forth the
specific number of shares of common stock to be sold. Our shares are listed for
trading on the New York Stock Exchange under the symbol "HIW." On October 26,
1998, the last reported sale price of our common stock on the New York Stock
Exchange was $26 11/16 per share.
See "Risk Factors" at page 5 for certain factors that you should consider
before you invest in the common stock being sold with the prospectus.
UBS AG, London Branch ("UB-LB") is an underwriter with respect to all of
the offered shares and has received a placement fee equal to $1,445,625 with
respect to 1.8 million of the shares, which represents 2.5% of the gross
proceeds. Our agreement with UB-LB also contains certain purchase price
adjustments that essentially guarantee a return on UB-LB's purchase equal to
LIBOR plus 75 basis points. We will pay UB-LB an additional placement fee equal
to approximately $290,000 if we issue any additional shares to UB-LB under the
purchase price adjustment provisions of our agreement with them.
A prospectus supplement will set forth the public offering price per
share, the name of any lead or managing underwriters and the underwriters'
discounts and commissions from the sale. See "Plan of Distribution" at page 38.
The mailing address and phone number of our executive offices are: 3100
Smoketree Court, Suite 600, Raleigh, North Carolina 27604, (919) 872-4924.
The Securities and Exchange Commission has not approved or disapproved of
these securities, or determined if this prospectus is truthful or complete.
Neither has any state securities commission approved or disapproved of these
securities, or determined if this prospectus is truthful or complete. It is
illegal for any person to tell you otherwise.
This prospectus may not be used to consummate sales of shares of common
stock unless accompanied by a prospectus supplement.
The date of this Prospectus is October 27, 1998.
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information may be
inspected and copied, at prescribed rates, at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, DC 25049. Information may be
obtained on the operation of the Public Reference Room by calling the Commission
at 1-800-SEC-0330. Such reports, proxy statements and other information, when
available, also may be accessed through the Internet site maintained by the
Commission (http://www.sec.gov). The common stock of the Company, $.01 per value
per share (the "Common Stock"), is listed on the New York Stock Exchange (the
"NYSE"), and such material can also be inspected and copied at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the 2,340,000 shares registered
hereby. This prospectus ("Prospectus"), which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock reference is hereby
made to such Registration Statement, exhibits and schedules. The Registration
Statement may be inspected without charge at, or copies obtained upon payment of
prescribed fees from, the Commission. Any statements contained herein concerning
a provision of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference and made a part hereof:
1. The Company's annual report on Form 10-K for the year ended December
31, 1997 (as amended on April 29, 1998 and May 19, 1998);
2. The Company's quarterly reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
3. The description of the Common Stock of the Company included in the
Company's registration statement on Form 8-A, dated May 16, 1994; and
4. The Company's current reports on Form 8-K, dated January 9, 1997 (as
amended on February 7, 1997, March 10, 1997 and April 28, 1998), August
27, 1997 (as amended on September 23, 1997), October 1, 1997, November
17, 1997, January 22, 1998,
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February 2, 1998, February 4, 1998, April 20, 1998, April 29, 1998,
June 10, 1998, June 17, 1998, July 1, 1998 and July 3, 1998 (as amended
on September 28, 1998 and September 30, 1998).
All documents filed by the Company with the Commission pursuant to
Sections 13(a) and 13(c) of the Exchange Act and any definitive proxy statements
so filed pursuant to Section 14 of the Exchange Act and any reports filed
pursuant to Section 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Common Stock shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is incorporated by
reference herein modifies or supersedes such earlier statement. Any such
statements modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will furnish without charge upon written or oral request to
each person to whom a copy of this Prospectus is delivered, including any
beneficial owner, a copy of any or all of the documents specifically
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents). Requests should be made to: Investor Relations, 3100 Smoketree
Court, Suite 600, Raleigh, North Carolina 27604. The Company's telephone number
is (919) 872-4924.
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THE COMPANY
Unless the context otherwise requires, the term "Company" shall mean
Highwoods Properties, Inc., predecessors of Highwoods Properties, Inc. and those
entities owned or controlled by Highwoods Properties, Inc., including Highwoods
Realty Limited Partnership.
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that began operations through a predecessor in 1978. At July 31,
1998, the Company owned or had an ownership interest in 679 in-service office,
industrial, retail and service center properties encompassing approximately 46.8
million rentable square feet and 18 multifamily communities with 2,324 apartment
units (collectively, the "Properties"). The Properties are located in 22 markets
in North Carolina, Florida, Tennessee, Virginia, Georgia, Maryland, Missouri,
Kansas, Iowa, South Carolina and Alabama.
In addition, as of July 31, 1998, the Company had 43 properties (the
"Development Projects") under development in its existing markets which will
encompass approximately 4.3 million rentable square feet. At July 31, 1998, the
Company also owned approximately 1,800 acres (and had agreed to purchase an
additional 500 acres) of land for future development (the "Development Land").
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 Realty Limited Partnership (the "Operating
Partnership"). The Company is the sole general partner of the Operating
Partnership and as of July 31, 1998, owned 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 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 tenant 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 was formed in Maryland in 1994. The Company's executive
offices are located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina
27604, and its telephone number is (919) 872-4924. The Company maintains offices
in each of its primary markets.
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RISK FACTORS
Before you invest in our Common Stock, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors, together with all other information included in this
Prospectus and any attached prospectus supplement, before you decide to purchase
our Common Stock.
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this Prospectus. The risk factors noted in this section and other
factors noted throughout this Prospectus could cause our actual results to
differ materially from those contained in any forward-looking statement.
Operating Performance is Dependent on Southeastern Markets
Local economic and real estate conditions may affect our revenues and the
value of our properties. Business layoffs or downsizing, industry slowdowns,
changing demographics, and other similar factors may adversely affect the local
economic climate. The oversupply of or reduced demand for office, industrial,
and other competing commercial properties may adversely affect the real estate
market in particular geographic areas. On July 31, 1998, we owned properties in
21 markets in Alabama, Florida, Georgia, Iowa, Kansas, Maryland, Missouri, North
Carolina, South Carolina, Tennessee and Virginia. Our performance and ability to
make distributions to stockholders is dependent on the economic and real estate
conditions in the Southeast and in Florida and North Carolina in particular. We
can provide no assurances that the economies in our southeastern markets will
continue to grow.
Conflicts of Interest Could Result in Decisions Not in Your Best Interest
Potential Tax Consequences upon Sale or Refinancing of Properties. Holders
of Common Units may suffer adverse tax consequences upon certain of our
properties' sales or refinancings. Therefore, holders of Common Units, including
certain of our officers and directors, may have different objectives regarding
the appropriate pricing and timing of a property's sale or refinancing. Although
the Company, as the sole general partner of the Operating Partnership, has the
exclusive authority to sell or refinance an individual property, officers and
directors who hold Common Units may influence the Company not to sell or
refinance certain properties even if such sale or refinancing might be
financially advantageous to stockholders.
Potential Inability to Eliminate Conflicts of Interests. We have adopted
certain policies to eliminate 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
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a majority of the Company's independent directors or by a majority of the shares
of capital stock that disinterested stockholders hold. We can provide no
assurance that our policies will be successful in eliminating the influence of
such conflicts. If our policies are not successful, we may make decisions that
fail to reflect the interests of all stockholders.
Limited Ability of Stockholders to Effect a Change in Control
Limitation on Ownership of the Company's Capital Stock. The Company's
Articles of Incorporation prohibit any person from owning more than 9.8% of the
Company's outstanding capital stock. This restriction may delay, defer, or
prohibit a third party from acquiring control of the Company without consent of
the board of directors, even if a change in control would be in your (the
stockholders') best interest.
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 Operating Partnership's
outstanding Common Units. If the Company ever owns less than a majority of the
outstanding Common Units, this voting requirement might limit the possibility of
a change in control of the Company, even if a change in control would be in your
best interest. On July 31, 1998, the Company owned approximately 84% of the
Common Units.
Difficulty in Removing Current Directors. The Company's board of directors
has three classes of directors. Generally, shareholders elect each Director
class for a three-year term. The staggered directors' terms may affect the
stockholders' ability to change control of the Company even if such a change in
control would be in your best interest.
Anti-Takeover Protections of Operating Partnership Agreement. The
Operating Partnership Agreement contains certain provisions that may require a
potential acquiror to maintain the Operating Partnership structure and maintain
the limited partners' right to continue to hold Common Units with future
redemption rights. These provisions might limit the possibility of a change in
control of the Company, even if such change in control would be in your best
interest.
Dilutive Effect of Shareholders' Rights Plan. On October 4, 1997, the
Company's board of directors adopted a Shareholders' Rights Plan and declared a
distribution of one preferred share purchase right for each outstanding share of
Common Stock. The rights were issued on October 16, 1997 to each stockholder of
record on such date. The rights have certain anti-takeover effects. The rights
would cause substantial dilution to a person or group that attempts to acquire
the Company on terms of which the Company's board of directors does not approve.
The rights should not interfere with any merger or other business combination
the board of directors approves since the Company may redeem the rights for $.01
per right, prior to the time that a person or group has acquired beneficial
ownership of 15% or more of the Common Stock.
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Adverse Impact on Distributions of Failure to Qualify as a REIT
We believe that we operate in a manner that enables the Company to remain
qualified as a REIT for Federal income tax purposes. We have not requested, and
do not plan to request, a ruling from the Internal Revenue Service that we
qualify as a REIT. We, however, have received an opinion from the law firm of
Alston & Bird LLP that we met the requirements for qualification as a REIT for
the taxable years ended December 31, 1994 through 1997, and that we are in a
position to continue such qualification for the taxable year that will end
December 31, 1998, if we satisfy certain requirements throughout the year and
for the year as a whole. See "Federal Income Tax Considerations--Taxation of
the Company as a REIT," on page 22.
You should be aware that opinions of counsel are not binding on the
Internal Revenue Service or any court. Furthermore, the conclusions stated in
the opinion are based solely on factual representations of ours and are
conditioned on, and our continued qualification as a REIT will depend on, our
meeting various requirements. Such requirements are discussed in more detail
under the heading "Federal Income Tax Considerations--Requirements for
Qualification" beginning on page 24.
If we fail to qualify as a REIT, we would not be allowed a deduction for
distributions to stockholders in computing our taxable income and would be
subject to Federal income tax at regular corporate rates. We also could be
subject to the Federal alternative minimum tax. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for four taxable years following the year during which we were disqualified.
Therefore, if we lose our REIT status, the funds available for distribution to
you would be reduced substantially for each of the years involved. See "Federal
Income Tax Considerations--Failure to Qualify," on page 29.
Factors that Could Cause Poor Operating Performance of the Properties
Reliance on Performance of Properties. 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 our properties do not generate revenues sufficient to meet
operating expenses, including debt service, tenant improvements, leasing
commissions, and other capital expenditures, our ability to make distributions
to stockholders may be adversely affected.
Several factors may adversely affect our revenues and the value of our
properties. These include, among others:
o the national economy;
o local economies;
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o local real estate conditions;
o prospective tenants' perceptions of each property's attractiveness;
o our ability to provide adequate management, maintenance, and insurance;
and
o increased operating costs (including real estate taxes and utilities).
Such factors as applicable laws, including tax laws, interest rate levels, and
the availability of financing also affect real estate values and properties'
income. In addition, safety perceptions, the convenience and attractiveness of
our multifamily properties, the quality of local schools, and the availability
of alternatives, such as single family homes, may affect our multifamily
properties' performance.
Potential Adverse Effect of Competition on Operating Performance. Numerous
properties compete with our properties in attracting tenants to lease space.
Some of these competing properties are newer or better located than some of our
properties. Significant office or industrial property development in a
particular area could have a material effect on our ability to lease space in
our properties and on the rents we charge.
Bankruptcy or Weak Financial Condition of Tenants. At any time, one of our
tenants may seek the protection of the bankruptcy laws. This could result in the
rejection and termination of that tenant's lease and thereby reduce our cash
flows. Although we have not experienced material losses from tenant
bankruptcies, we cannot assure you 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 its failure to make timely rental
payments. If a bankrupt tenant does not affirm its lease, or if a tenant's
financial condition weakens, our income and stockholder distributions may be
adversely affected.
Uncertainty in Renewal of Leases and Reletting of Space. When our tenants
decide not to renew their leases, we may not be able to relet the space. Even if
the tenants do renew or we can relet the space to other tenants, the terms of
renewal or reletting (including the cost of required renovations) may be less
favorable than current lease terms. If we were unable to relet or renew promptly
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 our cash flow and ability to make expected distributions to you may
be adversely affected.
Illiquidity of Real Estate. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit our ability to vary our portfolio
promptly in response to changes in economic or other conditions. In addition,
Federal tax laws limit our ability to sell properties we hold for less than four
years. This limitation may affect our ability to sell properties at a time that
would otherwise be in your best interests. It may also affect our ability to
sell properties without adversely affecting our financial performance.
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Potential Adverse Effect on Results of Operations Due to 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 our cash
flow and our ability to make distributions to you. Our properties are also
subject to various Federal, state, and local regulatory laws, such as the
Americans with Disabilities Act and state and local fire and safety
requirements. If we fail to comply with these requirements, governmental
agencies could impose fines, or private litigants could be awarded damages. We
believe our Properties comply in all material respects with such regulatory
requirements. However, if these requirements change or if authorities impose new
requirements, we may incur significant unanticipated expenditures that could
adversely affect our cash flow and expected distributions.
Potential Problems in Development, Construction and Acquisition Activities
We intend to continue developing and constructing office and industrial
properties, including developing the Development Land and completing the
Development Projects. Our development and construction activities, including
activities relating to the Development Land and the Development Projects, may be
subject to certain risks, including the following:
o abandoning development opportunities;
o a property's construction costs exceeding original estimates, possibly
making the property uneconomical;
o occupancy rates and rents at a newly completed property may be
insufficient to make the property profitable;
o financing may not be available on favorable terms to develop a
property; and
o 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. Our development activities may also be subject
to risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy, and other required governmental
permits and authorizations. These risks may adversely affect our results of
operations and ability to make distributions to you.
We also intend to continue to acquire office and industrial properties.
Such acquisitions entail risks that investments will fail to perform in
accordance with our expectations, which could adversely affect our operations
and stockholder distributions. Estimates of the costs to bring an acquired
property up to market standards may prove inaccurate. Furthermore, we are likely
to be involved in negotiations (at various stages) to acquire one or more
properties or portfolios. However, we cannot assure you that we will consummate
any of the proposed acquisitions.
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Instead of purchasing properties directly, we may invest as a partner or a
co-venturer. Under certain circumstances, this type of investment may involve
risks not otherwise present, including the possibility that a partner or
co-venturer might become bankrupt or that a partner or co-venturer might have
business interests or goals inconsistent with ours. Also, such a partner or
co-venturer may be in a position to take action contrary to our instructions or
requests or contrary to our policies or objectives, including our qualification
as a REIT. We may also risk an impasse on decisions because neither the partner
nor the co-venturer would have full control over the partnership or joint
venture. We will, however, seek to maintain sufficient control of such
partnerships or joint ventures to permit us to achieve our objectives.
Potential Problems Associated with New Markets
We have generally limited our development, acquisition, management, and
leasing business to suburban office and industrial properties in southeastern
markets. However, we have recently moved into certain midwestern markets and
have acquired several retail properties and multifamily communities in those
markets. We may continue to expand our business to new geographic areas and
property types. We believe that much of our past success has been a result of
our local expertise in the Southeast and our experience in the ownership,
management, and development of suburban office and industrial properties. We may
not initially possess the same level of familiarity with new geographic areas
and property types to develop, acquire, manage, or lease newly acquired
properties as profitably as we do for our existing properties. We cannot
guarantee that we will succeed in integrating acquired properties into our
existing property portfolio. Failure to successfully integrate acquired
properties could adversely affect our operational results.
Some of the risks related to entry into new markets include, among others:
o lack of market knowledge and understanding of local economies;
o inability to obtain land for development or identify acquisition
opportunities; and
o unfamiliarity with local governmental and permitting procedures.
Potential Adverse Effect of Incurrence of Debt
Potential Inflexibility of Debt Financing. Our business is subject to risks
normally associated with debt financing. Cash flow could be insufficient to pay
distributions at expected levels and meet required payments of principal and
interest. We may not be able to refinance existing indebtedness (which in
virtually all cases requires substantial principal payments at maturity). Even
if we can, the terms of such refinancing might not be as favorable as the terms
of existing indebtedness. We may attempt to raise proceeds from capital
transactions, such as new equity capital, to refinance, extend, or pay principal
payments due at maturity. If we cannot successfully complete capital
transactions, our cash flow may be insufficient in all years to repay all
maturing debt. Additionally, prevailing interest rates or other factors at the
time of refinancing (such as the possible reluctance of lenders to make
commercial real estate loans) may
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result in higher interest rates. This would increase our interest expense, which
would adversely affect cash flow and our ability to service debt and make
distributions to you.
Adverse Effect of Potential Increase in Market Interest Rates. We have
incurred and expect in the future to incur variable-rate indebtedness in
connection with acquiring and developing properties. Also, additional
indebtedness that we may incur under our existing revolving credit facility will
bear interest at variable rates. We may purchase interest rate protection
arrangements relating to variable-rate debt. But if we do not, increases in
interest rates would increase our interest costs, which would adversely affect
our results of operations.
Possible Environmental Liabilities
Under various laws, ordinances, and regulations, such as the Comprehensive
Environmental Response Compensation and Liability Act, and common law, an owner
or operator of real estate is liable for the costs to remove or remediate
certain hazardous or toxic chemicals or substances on or in the property. Owners
or operators are also liable for certain other costs, including governmental
fines and injuries to persons and property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of the hazardous or toxic chemicals or 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, treatment, or transportation of hazardous or toxic chemicals or
substances may also be liable for the same types of costs at a disposal,
treatment, or storage facility, whether or not that person owns or operates that
facility. Certain environmental laws also impose liability for releasing
asbestos-containing materials. Third parties may seek recovery from owners or
operators of real property for personal injuries associated with
asbestos-containing materials. A number of our Properties contain
asbestos-containing materials or material that we presume to be
asbestos-containing materials. In connection with owning and operating our
properties, we 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.
The presence of hazardous or toxic chemicals or substances at a site close to a
property could require the property owner to participate in remediation
activities or could adversely affect the value of the property. Contamination
from adjacent properties has migrated onto at least three of our properties;
however, based on current information, we do not believe that any significant
remedial action is necessary at these affected sites.
As of the date of this Prospectus, we have obtained Phase I environmental
assessments on 99% of our Properties. These assessments have not revealed, nor
are we aware of, any environmental liability that we believe would materially
adversely affect our financial position, operations or liquidity taken as a
whole. This projection, however, could be incorrect depending on certain
factors. For example, our assessments may not reveal all environmental
liabilities or may underestimate the scope and severity of environmental
conditions observed. If so, we may not be aware of material environmental
liabilities, or material environmental liabilities may have arisen after the
assessments were performed. In addition, we base our assumptions regarding
environmental conditions, including groundwater flow and the existence and
source of
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contamination, on readily available sampling data. We cannot guarantee
that such data is reliable in all cases. Moreover, we cannot assure you (i) that
future laws, ordinances, or regulations will not impose a material environmental
liability or (ii) that tenants, the condition of land or operations in the
vicinity of our Properties, or unrelated third parties will not affect the
current environmental condition of our Properties.
Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. In their leases, we require these tenants to
comply with all applicable laws and to be responsible to us for any damages
resulting from their use of the property. We are not aware of any material
environmental problems resulting from tenants' use or generation of hazardous or
toxic chemicals or substances. We cannot assure you, however, that all tenants
will comply with the terms of their leases or remain solvent. If tenants do not
comply or do not remain solvent, we may at some point be responsible for
contamination caused by such tenants.
Potential Dilution of Capital Stock or Decrease of Liquidity in Connection with
Settlement of Forward Contract
The Company has entered into a Purchase Agreement with UB-LB involving the
sale of 1.8 million shares of Common Stock and a related Forward Contract
providing for certain purchase price adjustments. See "Plan of Distribution" at
page 38 for additional information about these agreements.
The Forward Contract generally provides that if the Market Price (as
defined below) of a share of Common Stock on the maturity date is less than a
certain amount, which we refer to as the "Forward Price," we must pay UB-LB the
difference times 1.8 million. (Similarly, if the Market Price of a share of
Common Stock is above the Forward Price, UB-LB must pay us the difference in
shares of Common Stock.) If we choose not to or cannot settle in freely tradable
shares of Common Stock, we must repurchase the 1.8 million shares at the Forward
Price in cash. The Forward Price is approximately $32.16 and will be adjusted by
LIBOR plus 75 basis points, minus any dividends received on the shares. (As of
August 28, 1998, the Forward Price had increased by $.04 since August 28, 1997.)
In addition, the Forward Contract provides for quarterly payments of
collateral equal to 1.8 million times 110% of the amount by which the market
price of a share of Common Stock is below the Forward Price. The collateral may
be in the form of cash or freely tradeable shares of Common Stock. As a result
of the difference between the closing price of a share of Common Stock on August
28, 1998 and the Forward Price, we gave UB-LB cash collateral of $12.8 million
on September 12, 1998. UB-LB will return the cash with interest for freely
tradeable shares of Common Stock of equal value.
The maturity date of the Forward Contract is February 28, 1999; however,
if the closing price of the Common Stock falls below $19.28, UB-LB has the right
to force a complete settlement under the Forward Contract. UBS also has the
right to force a complete settlement under the Forward Contract if, among other
things, we (i) are in default with respect to certain financial covenants under
the Forward Contract, (ii) are in default under our $600 million credit
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facility with a syndicate of lenders or any other unsecured lending agreement,
(iii) fail to post sufficient cash collateral, or (iv) fail to deliver to UBS,
on or before November 2, 1998, an effective registration statement covering the
issuance through UB-LB of the shares of Common Stock delivered to UB-LB.
In order to have the option of settling the Forward Contract or paying
collateral in shares of Common Stock, the shares must be freely tradeable by
UB-LB pursuant to an effective registration statement. We can provide no
assurance that a registration statement will be effective at the time of any
settlement or collateral payment.
Quarterly payments of collateral and the ultimate settlement of the
Forward Contract could adversely affect our liquidity or dilute our Common
Stock. If the Market Price (defined as the average closing price of the Common
Stock for the 35-trading-day period beginning February 28, 1999) is lower than
the Forward Price, settlement in shares of Common Stock would cause our
outstanding shares of Common Stock to represent a smaller ownership interest in
the Company with no increase in the value of the Company. The table below shows
the change in the value of a share of Common Stock as a result of settling the
Forward Contract at various Market Prices:
Increase/(Dilution) in Value
Market Price Of Common Stock (1)
------------- -------------------------------
$40 .5%
$35 .2%
$30 (.2%)
$25 (.7%)
$20 (1.6%)
- ---------------
(1) Assumes no change in our capital stock except for redemption of all Common
Units. Also assumes a Forward Price of $32.16.
Settlement of the Forward Contract in cash would reduce our liquidity.
Settlement in cash would involve the repurchase of 1.8 million shares at a price
per share equal to the Forward Price. Assuming the Forward Price remains at
$32.16, our repurchase price would total approximately $57.9 million. Having
already paid $12.8 million as collateral, settlement in cash would require the
Company to pay approximately $45.1 million in additional funds. The Company
believes that it can obtain these funds from several sources:
o its existing $600 million credit facility, which has approximately $90
million remaining;
o other borrowings;
o the disposition of certain non-core assets; and
o equity offerings.
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USE OF PROCEEDS
Of the shares offered hereby, 1.8 million shares (the "Initial Shares")
were purchased by UB-LB, as successor to Union Bank of Switzerland, London
Branch ("UBS"), on August 28, 1997 for net proceeds of $56.7 million. Such
proceeds were used to discharge approximately $34 million of indebtedness under
the Company's then-existing $280 million revolving loan. The interest rate on
such discharged indebtedness had a weighted average rate of 7.9%. The revolving
loan was due to mature on October 31, 1999. The remaining $22.7 million of
proceeds were used (i) to acquire four properties for approximately $17 million
and (ii) to fund development projects.
The other shares offered hereby (the "Forward Shares" and, together with
the Initial Shares, the "Shares") are issuable under the terms of the Forward
Contract. See "Risk Factors C Potential Dilution of Capital Stock or Decrease of
Liquidity in Connection with Settlement of Forward Contract" above for a
description of the Forward Contract. Other than the $56.7 million received in
1997, the Company will not receive any additional proceeds from any sale of the
Shares by UB-LB.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The authorized capital stock of the Company consists of 250,000,000 shares
of capital stock, $.01 par value, of which 200,000,000 shares are classified as
Common Stock and 50,000,000 shares are classified as preferred stock ("Preferred
Stock"). The following description of the terms and provisions of the shares of
capital stock of the Company and certain other matters does not purport to be
complete and is subject to and qualified in its entirety by reference to the
applicable provisions of Maryland law and the Company's Articles of
Incorporation and bylaws, as amended.
Common Stock
Each holder of Common Stock is entitled to one vote at stockholder
meetings for each share of Common Stock held. Neither the Articles of
Incorporation nor the bylaws provide for cumulative voting for the election of
directors. Subject to the prior rights of any series of Preferred Stock that may
be classified and issued, holders of Common Stock are entitled to receive, pro
rata, such dividends as may be declared by the board of directors out of funds
legally available therefor, and also are entitled to share, pro rata, in any
other distributions to stockholders. The Company currently pays regular
quarterly dividends to holders of Common Stock. Holders of Common Stock do not
have any preemptive rights or other rights to subscribe for additional shares.
The Common Stock is listed for trading on the NYSE.
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Preferred Stock
Under the Company's Articles of Incorporation, the board of directors may
issue, without any further action by the stockholders, shares of capital stock
in one or more series having such preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption as the board of directors may determine and
as may be evidenced by Articles Supplementary to the Articles of Incorporation
adopted by the board of directors.
Through its power to establish the preferences and rights of additional
series of capital stock without further stockholder vote, the board of directors
may afford the holders of any series of senior capital stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of Common
Stock. The issuance of any such senior capital stock could have the effect of
delaying or preventing a change in control of the Company.
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 not 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 B Preferred
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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.
Series B Preferred Shares. The following description of the Company's 8%
Series B Cumulative Redeemable Preferred Shares, par value $.01 per share (the
"Series B 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 B
Preferred Shares. The Company is authorized to issue 6,900,000 Series B
Preferred Shares, all of which were issued and outstanding as of the date
hereof.
With respect to the payment of dividends and amounts upon liquidation, the
Series B Preferred Shares rank pari passu with the Series A Preferred Shares and
with any other equity securities of the Company the terms of which provide that
such equity securities rank on a parity with the Series B 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 B Preferred Shares. Dividends on
the Series B Preferred Shares are cumulative from the date of original issue and
are payable quarterly on March 15, June 15, September 15 and December 15 of each
year commencing December 15, 1997, at the rate of 8% of the $25 liquidation
preference per annum (equivalent to $2.00 per annum per share). Dividends on the
Series B 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 B Preferred
Shares have a liquidation preference of $25 per share, plus an amount equal to
any accrued and unpaid dividends.
The Series B Preferred Shares are not redeemable prior to September 25,
2002. On and after September 25, 2002, the Series B Preferred Shares will be
redeemable for cash at the option of the Company, in whole or in part, at $25
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 B Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series B 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.
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The Series B Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series B Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for Federal income tax purposes.
Series D Preferred Shares. The following description of the Company's 8%
Series D Cumulative Redeemable Preferred Shares, par value $.01 per share (the
"Series D 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 D
Preferred Shares. The Company is authorized to issue 400,000 Series D Preferred
Shares. As of the date hereof, the Company has outstanding 4,000,000 Depository
Shares, each of which represents 1/10 of a share of the Series D Preferred
Shares.
With respect to the payment of dividends and amounts upon liquidation, the
Series D Preferred Shares rank pari passu with the Series A Preferred Shares and
Series B Preferred Shares and with any other equity securities of the Company
the terms of which provide that such equity securities rank on a parity with the
Series D 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
D Preferred Shares. Dividends on the Series D Preferred Shares are cumulative
from the date of original issue and are payable quarterly on or about the last
day of January, April, July and October of each year commencing July 31, 1998,
at the rate of 8% of the liquidation preference per annum (equivalent to $20 per
annum per share or $2 per annum per Depository Share). Dividends on the Series D
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 D Preferred Shares have a
liquidation preference of $250 per share (equivalent to $25 per Depository
Share), plus an amount equal to any accrued and unpaid dividends.
The Series D Preferred Shares are not redeemable prior to April 23, 2003.
On and after April 23, 2003, the Series D Preferred Shares will be redeemable
for cash at the option of the Company, in whole or in part, at $250 per share
(equivalent to $25 per Depository 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 D Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series D 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 D Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series D Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for Federal income tax purposes.
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Classification of Board of Directors; Removal of Directors; Other Provisions
The Company's Articles of Incorporation provide for the board of directors
to be divided into three classes of directors, with each class to consist as
nearly as possible of an equal number of directors. At each annual meeting of
stockholders, the class of directors to be elected at such meeting will be
elected for a three-year term, and the directors in the other two classes will
continue in office. Because holders of Common Stock will have no right to
cumulative voting for the election of directors, at each annual meeting of
stockholders, the holders of a majority of the shares of Common Stock will be
able to elect all of the successors of the class of directors whose term expires
at that meeting.
The Articles of Incorporation also provide that, except for any directors
who may be elected by holders of a class or series of capital stock other than
Common Stock, directors may be removed only for cause and only by the
affirmative vote of stockholders holding at least two-thirds of the votes
entitled to be cast for the election of directors. Vacancies on the board of
directors may be filled by the affirmative vote of the remaining directors.
These provisions may make it more difficult and time-consuming to change
majority control of the board of directors of the Company and, thus, may reduce
the vulnerability of the Company to an unsolicited proposal for the takeover of
the Company or the removal of incumbent management. The Company's officers and
directors are and will be indemnified under Maryland law, the Articles of
Incorporation of the Company and the agreement of limited partnership of the
Operating Partnership (the "Operating Partnership Agreement") against certain
liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company, the Company
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Certain Provisions Affecting Change of Control
General. Pursuant to the Company's Articles of Incorporation and the
Maryland General Corporation Law (the "MGCL"), the Company cannot merge into or
consolidate with another corporation or enter into a statutory share exchange
transaction in which it is not the surviving entity or sell all or substantially
all of the assets of the Company unless the board of directors adopts a
resolution declaring the proposed transaction advisable and a majority of
stockholders entitled to vote thereon (voting together as a single class)
approve the transaction. In addition, the Operating Partnership Agreement
requires that any such merger or sale of all or substantially all of the assets
of the Operating Partnership be approved by a majority of the holders of 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
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for a period of five years a merger and other specified or similar transactions
between a company and an interested stockholder and requires a super majority
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 capital stock may be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year, and such shares must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year. To ensure that
the Company remains a qualified REIT, the Articles of Incorporation provide that
no holder (other than persons approved by the directors at their option and in
their discretion) may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% (the "Ownership Limit") of the issued and
outstanding capital stock of the Company. The board of directors may waive the
Ownership Limit if evidence satisfactory to the board of directors and the
Company's
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tax counsel is presented that the changes in ownership will not jeopardize the
Company's status as a REIT.
If any stockholder purports to transfer shares to a person and either the
transfer would result in the Company failing to qualify as a REIT, or the
stockholder knows that such transfer would cause the transferee to hold more
than the Ownership Limit, the purported transfer shall be null and void, and the
stockholder will be deemed not to have transferred the shares. In addition, if
any person holds shares of capital stock in excess of the Ownership Limit, such
person will be deemed to hold the excess shares in trust for the Company, will
not receive distributions with respect to such shares and will not be entitled
to vote such shares. The person will be required to sell such shares to the
Company for the lesser of the amount paid for the shares and the average closing
price for the 10 trading days immediately preceding the redemption or to sell
such shares at the direction of the Company, in which case the Company will be
reimbursed for its expenses in connection with the sale and will receive any
amount of such proceeds that exceeds the amount such person paid for the shares.
If the Company repurchases such shares, it may pay for the shares with 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 capital 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.
Operating Partnership Agreement. The Operating Partnership Agreement
requires that any merger (unless the surviving entity contributes substantially
all of the assets of 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). The Operating Partnership Agreement also contains provisions relating
to a limited partner's redemption right in the event of certain changes of
control of the Company and under certain circumstances allows for limited
partners to continue to hold Common Units in the Operating Partnership following
such a change of control, thereby maintaining the tax basis in their Common
Units. The covered changes of control (each, a
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"Trigger Event") are: (i) a merger involving the company in which the Company is
not the surviving entity; (ii) a merger involving the Company in which the
Company is the survivor but all or part of the Company's shares are converted
into securities of another entity or the right to receive cash; and (iii) the
transfer by the Company to another entity of substantially all of the assets or
earning power of the Company or the Operating Partnership.
Upon occurrence of a Trigger Event, the rights of a limited partner to
receive a share of the Company's Common Stock (a "REIT Share") or cash equal to
the fair market value of a REIT Share upon redemption of a Common Unit is
converted into the right to receive a share (a "Replacement Share") or cash
equal to the fair market value thereof of the acquiror or a parent of the
acquiror. If the acquiror does not have publicly traded securities and a parent
of the acquiror does, the publicly traded equity securities of the parent entity
with the highest market capitalization will be the Replacement Shares. If
neither the acquiror nor any parent has publicly traded equity securities, the
Replacement Shares will be the equity securities of the entity with the highest
market capitalization. The number of Replacement Shares to be received by a
limited partner (or to be used to calculate the cash payment due) upon a
redemption of Common Units shall be equal to the number of REIT Shares issuable
prior to the Trigger Event multiplied by (i) the number of Replacement Shares
the holder of a single REIT Share would have received as a result of the Trigger
Event or, if the Replacement Shares have not been publicly traded for one year,
(ii) a fraction, the numerator of which is the Average Trading Price (as defined
in the Operating Partnership Agreement) of a REIT Share as of the Trigger Event
and the denominator of which is the Average Trading Price of a Replacement Share
as of the Trigger Event.
If the acquiror in a Trigger Event is a REIT, it must make provision to
preserve an operating partnership structure with terms no less favorable to the
limited partners than currently in place. In addition, the Operating Partnership
Agreement provides that, if a distribution of cash or property is made in
respect of a Replacement Share, the Operating Partnership will distribute the
same amount in respect of a Common Unit as would have been received by a limited
partner had such partner's Common Units been redeemed for Replacement Shares
prior to such distribution.
Because the Operating Partnership Agreement requires an acquiror to make
provision under certain circumstances to maintain the Operating Partnership
structure and maintain a limited partner's right to continue to hold Common
Units with future redemption rights, the terms of the Operating Partnership
Agreement could also have the effect of discouraging a third party from making
an acquisition proposal for the Company.
These provisions of the Operating Partnership Agreement may only be waived
or amended upon the consent of limited partners holding at least 75% of the
Common Units (excluding those held by the Company).
Shareholders' Rights Plan. On October 4, 1997, the Company's board of
directors adopted a Shareholders' Rights Plan and declared a distribution of one
preferred share purchase right (a "Right") for each outstanding share of Common
Stock. The Rights were issued on October 16, 1997 to each stockholder of record
on such date. The Rights have certain anti-
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takeover effects. The Rights will cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the
Company's board of directors. The Rights should not interfere with any merger or
other business combination approved by the board of directors since the Rights
may be redeemed by the Company for $.01 per Right prior to the time that a
person or group has acquired beneficial ownership of 15% or more of the Common
Stock.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Common Stock and all shares of
Preferred 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 and the Company's
stockholders. The Federal income tax treatment of any investor in the Shares
will vary depending upon such investor's particular situation.
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
Shares, 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
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 Internal Revenue Code of 1986, as amended (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
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretation thereof.
Alston & Bird LLP has acted as tax counsel to the Company in connection
with the offering of the Shares and the Company's election to be taxed as a
REIT. Alston & Bird LLP is of the opinion that the Company has been organized
and has operated in conformity with the requirements for qualification and
taxation as a REIT under the Code for its taxable years ended December 31, 1994
through 1997, and that the Company is in a position to continue its
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qualification and taxation as a REIT within the definition of Section 856(a) of
the Code for the taxable year that will end December 31, 1998. This opinion is
based on factual representations of the Company concerning its business
operations and its properties and Alston & Bird LLP has not independently
verified these facts. In addition, the Company's status as a REIT at any time
during 1998 is dependent, among other things, upon the Company meeting the
requirements of Section 856 through 860 of the Code throughout the year and for
the year as a whole. Accordingly, because the Company's satisfaction of such
requirements will depend upon future events, including the precise terms and
conditions of proposed transactions, the final determination of operational
results and the effect of certain provisions contained in the President's Budget
Proposal for the Fiscal Year 1999 on the Company's REIT status, no assurance can
be given that the Company will satisfy the requirements to be a REIT during the
taxable year that will end December 31, 1998.
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
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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 Internal Revenue Service
("IRS") (the "Built-In Gain Rules").
Requirements for Qualification
To qualify as a REIT, the Company must elect to be so treated and must
meet the requirements, discussed below, relating to the Company's organization,
sources of income, and nature of assets.
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,
(vi) during the last half of each taxable year, not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, through the
application of certain attribution rules, by five or fewer individuals (as
defined in the Code to include certain entities), (vii) files an election to be
taxed as a REIT on its return for each taxable year, and (viii) satisfies the
95% and 75% income tests and the 75%, 25%, 10%, and 5% asset tests, as described
below. 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 condition (v), certain
pension funds and other tax-exempt entities are treated as persons. For purposes
of condition (vi), the beneficiaries of a pension or profit-sharing trust under
section 401(a) of the Code are treated as REIT stockholders. In addition, the
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, 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 two 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
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REITs or mortgages on real property (including "rents from real property" and,
in certain circumstances, interest). 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). In addition, for taxable years ended on or before
December 31, 1997, 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). The Taxpayer Relief Act of 1997, enacted August 5, 1997
("Taxpayer Relief Act"), repealed the 30% gross income test for taxable years
beginning after August 5, 1997. Accordingly, the 30% gross income test will not
apply to the Company beginning with its taxable year that will end December 31,
1998.
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 but can be based on a fixed
percentage of gross receipts or gross sales. Second, "rents from real property"
excludes any amount received directly or indirectly from any tenant if the
Company, or an owner of 10% of more of the Company, directly or constructively,
owns 10% or more of such tenant taking into consideration the applicable
attribution rules (a "Related Party Tenant"). Third, rent attributable to
personal property is excluded from "rents from real property" except where such
personal property is leased in connection with a lease of real property and the
rent attributable to such personal property is less than or equal to 15% of the
total rent received under the lease. Finally, amounts that are attributable to
services furnished or rendered in connection with the rental of real property,
whether or not separately stated, will not constitute "rents from real property"
unless such services are customarily provided in the geographic area. Customary
services that are not provided to a particular tenant (e.g., furnishing heat and
light, the cleaning of public entrances, and the collection of trash) can be
provided directly by the Company. Where, on the other hand, such services are
provided primarily for the convenience of the tenants and are provided to such
tenants, such services must be provided by an independent contractor. In the
event that an independent contractor provides such services, the Company must
adequately compensate the independent contractor, the Company must not derive
any income from the independent contractor, and neither the independent
contractor nor certain of its shareholders may, directly or indirectly, own more
than 35% of the Company, taking into consideration the applicable ownership
rules. Pursuant to the Taxpayer Relief Act and beginning with the Company's
taxable year that will end December 31, 1998, the Company's rental income will
not cease to qualify as "rents from real property" merely because the Company
performs a de minimis amount of impermissible services to the tenants. For
purposes of the preceding sentence, (i) the amount of income received from such
impermissible services cannot exceed one percent of all amounts received or
accrued during such taxable year, directly or indirectly, by the Company with
respect to such property and (ii) the amount treated as received by the Company
for such impermissible services cannot be less than 150 percent of the direct
cost of the Company in furnishing or rendering such services.
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The Company does not currently charge and does not anticipate charging
rent that is based in whole or in part on the income or profits of any person.
The Company also does not anticipate either deriving rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents or receiving rent from Related Party Tenants.
The Operating Partnership does provide certain services with respect to
the Properties. The Company believes that the services with respect to the
Properties that are and will be provided directly are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants and, therefore, that the provision of
such services will not cause rents received with respect to the Properties to
fail to qualify as rents from real property. Services with respect to the
Properties that the Company believes may not be provided by the Company or the
Operating Partnership directly without jeopardizing the qualification of rent as
"rents from real property" are and 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 test. 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, dividends on the Operating Partnership's stock in Highwoods
Services 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 a certain provision of the Code. This relief
provision generally will be 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 nature and amount of each item of income to
its Federal income tax return and (iii) the inclusion of any incorrect
information on such 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 this relief provision. 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 this relief provision applies, a 100% tax would be imposed
with respect to the portion of the Company's taxable income that fails the 75%
or 95% gross income test.
Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy four 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, cash and cash items (including receivables),
and government securities. Second, no more than 25% of the value of the
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Company's total assets may be represented by securities other than those in the
75% asset class. Third, not more than 5% of the value of the Company's assets
may consist of securities of any one issuer (other than those securities
includible in the 75% asset test). Fourth, not more than 10% of the outstanding
voting securities of any one issuer may be held by the Company (other than those
securities includible in the 75% asset test).
The 5% test generally must 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 through the Operating Partnership 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." 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 Alston & Bird LLP,
in rendering its opinion as to the qualification and taxation 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.
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.
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Annual Distribution Requirements
In order to be taxed as a REIT, the Company is required to make
distributions (other than capital gain distributions) 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. Dividends paid in the subsequent year,
however, will be treated as if paid in the prior year for purposes of such prior
year's 95% distribution requirement if one of the following two sets of criteria
are satisfied: (i) the dividends were declared in October, November, or
December, the dividends were payable to stockholders of record on a specified
date in such a month, and the dividends were actually paid during January of the
subsequent year; or (ii) the dividends were declared before the Company timely
files its Federal income tax return for such year, the dividends were
distributed in the twelve month period following the close of the prior year and
not later than the first regular dividend payment after such declaration, and
the Company elected on its Federal income tax return for the prior year to have
a specified amount of the subsequent dividend treated as if paid in the prior
year. Even if the Company satisfies the foregoing distribution requirements, the
Company will be subject to tax thereon at regular capital gains or ordinary
corporate tax rates to the extent that it does not distribute all of its net
capital gain or "REIT taxable income" as adjusted. 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
generally will 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. In such event, the Company may
find it necessary to arrange for borrowings or, if possible, pay taxable stock
dividends in order to meet the distribution requirement.
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In the event that the Company is subject to an adjustment to its REIT
taxable income (as defined in Section 860(d)(2) of the Code) resulting from an
adverse determination by either a final court decision, a closing agreement
between the Company and the IRS under Section 7121 of the Code, or an agreement
as to tax liability between the Company and an IRS district director, the
Company may be able to rectify any resulting failure to meet the 95% annual
distribution requirement by paying "deficiency dividends" to stockholders that
relate to the adjusted year but that are paid in a subsequent year. To qualify
as a deficiency dividend, the distribution must be made within 90 days of the
adverse determination and the Company also must satisfy certain other procedural
requirements. If the statutory requirements of Section 860 of the Code are
satisfied, a deduction is allowed for any deficiency dividend subsequently paid
by the Company to offset an increase in the Company's REIT taxable income
resulting from the adverse determination. The Company, however, will be required
to pay statutory interest on the amount of any deduction taken for deficiency
dividends to compensate for the deferral of the tax liability.
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 positive current and
accumulated earnings and profits, all distributions to stockholders will be
dividends, taxable as ordinary income, except that, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless the Company is entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief. For example, if the
Company fails to satisfy the gross income tests because non-qualifying income
that the Company intentionally incurs exceeds the limit on such income, the IRS
could conclude that the Company's failure to satisfy the tests was not due to
reasonable cause.
Taxation of U.S. Stockholders
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that (for Federal income tax purposes) (a) is a citizen or resident of the
United States, (b) is a corporation or partnership (including an entity treated
as a corporation or partnership for United States Federal income tax purposes)
created or organized in or under the laws of the United States or of any
political subdivision thereof, (c) is an estate, the income of which is subject
to Federal income taxation regardless of its source or (d) is any trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust, and one or more United States persons have the
authority to control all substantial decisions of the trust. For any taxable
year for which the Company qualifies for taxation as a REIT, amounts distributed
to taxable U.S. Stockholders will be taxed as discussed below.
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Distributions Generally. Distributions to U.S. Stockholders, other than
capital gain dividends discussed below, will constitute dividends up to the
amount of the Company's positive current and accumulated earnings and profits
and, to that extent, will be taxable to the U.S. 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 positive current and 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 then 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 U.S. 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. U.S.
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.
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 U.S. Stockholder has held his or her 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.
Pursuant to the Taxpayer Relief Act and beginning with the Company's
taxable year that will end December 31, 1998, the Company may elect to retain
and pay income tax on net long-term capital gain that it received during the tax
year. If such election is made, (i) the U.S. Stockholders will include in their
income their proportionate share of the undistributed long-term capital gains as
designated by the Company; (ii) the U.S. Stockholders will be deemed to have
paid their proportionate share of the tax, which would be credited or refunded
to such stockholders, and (iii) the basis of the U.S. Stockholders' shares will
be increased by the amount of the undistributed long-term capital gains (less
the amount of capital gains tax paid by the Company) included in such
stockholders' long-term capital gains.
As a result of the changes made to the capital gain rates by the Taxpayer
Relief Act (See " C Certain Dispositions of Shares"), the IRS issued Notice
97-64 outlining (i) when a REIT may designate its dividends as either a 20% rate
gain distribution, an unrecaptured section 1250 gain distribution (taxed at 25%
as noted in "Certain Disposition of Shares"), or a 28% rate gain distribution
and (ii) how to calculate the amount of such distributions, which may be subject
to certain deferral or bifurcation adjustments. When a REIT designates a
distribution as a capital gain dividend, which is attributable to a taxable year
ending after May 7, 1997, for purposes of
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the annual distribution requirement, the REIT also may designate such dividend
as a 20% rate gain distribution, as unrecaptured section 1250 gain distribution,
or a 28% rate gain distribution. Where no such designation is provided, the
dividend will be treated as a 28% rate gain distribution. These additional
designations by the REIT are effective only to the extent that they do not
exceed certain limitations. For example, the maximum amount of each distribution
that can be classified as either a 20% rate gain distribution, an unrecaptured
section 1250 gain distribution, or a 28% rate gain distribution must be
calculated in accordance with the Code and the IRS Notice.
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, U.S. 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) generally
will 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 unless the U.S.
Stockholder elects to have such gain taxed at ordinary income rates.
Certain Dispositions of Shares. In general, U.S. Stockholders will realize
capital gain or loss on the disposition of Common Stock equal to the difference
between (i) the amount of cash and the fair market value of any property
received on such disposition, and (ii) such stockholders' adjusted basis in such
Common Stock. 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 U.S. Stockholder from those shares. As a result of the
Taxpayer Relief Act, and the Internal Revenue Service Restructuring and Reform
Act of 1998 ("IRS Restructuring Act"), the maximum rate of tax on net capital
gains on individuals, trusts, and estates from the sale or exchange of assets
held for more than one year has been reduced to 20%, and such maximum rate is
further reduced to 18% for assets acquired after December 31, 2000, and held for
more than five years. For 15% percent bracket taxpayers, the maximum rate on net
capital gains is reduced to 10%, and such maximum rate is further reduced to 8%
for assets sold after December 31, 2000, and held for more than five years. The
maximum rate for net capital gains attributable to the sale of depreciable real
property held for more than one year is 25% to the extent of the deductions for
depreciation with respect to such property. Long-term capital gain allocated to
U.S. Stockholders by the Company will be subject to the 25% rate to the extent
that the gain does not exceed depreciation on real property sold by the Company.
The taxation of capital gains of corporations was not changed by the Taxpayer
Relief Act or the IRS Restructuring Act.
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
pension-held 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
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requirement applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held if either
(i) at least one 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. In the event that this
ratio is less than 5% for any year, then the qualified trust will not be treated
as having received UBTI as a result of the REIT dividend. 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 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. This discussion is
based on current law, which is subject to change, and assumes that the Company
qualifies for taxation as a REIT. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of Federal, state,
local, and foreign income tax laws on an investment in the Company, including
any reporting requirements.
In general, Non-U.S. Stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company, if the
income from such 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 also may be subject to the branch
profits tax under Section 884 of the Code, which is imposed in addition to
regular United States federal income tax generally at the rate of 30%, subject
to reduction under a tax treaty, if applicable. Certain certification
requirements must be met in order for effectively connected income to be exempt
from withholding. The following discussion will apply to Non-U.S. Stockholders
whose income from their investments in the Company is not so effectively
connected (except to the extent that the FIRPTA rules discussed below treat such
income as effectively connected income).
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 of the Company. Generally, any
ordinary income dividend will be subject to a Federal income tax equal to 30% of
the gross amount of the dividend, withheld by the Company, unless this tax is
reduced by an applicable tax treaty. Such a distribution in excess of the
Company's earnings and profits will be
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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 nonresident alien individuals). Such distributions also may be
subject to a 30% branch profits tax when made to a foreign corporation that is
not entitled to an exemption or reduced branch profits tax rate under an income
tax treaty.
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, unless reduced by an applicable tax treaty. In
addition, if the Company designates prior distributions as capital gain
dividends, subsequent distributions, up to the amount of such prior
distributions that were designated as capital gains dividends, will be treated
as capital gain dividends for purposes of withholding. In addition, the Company
may be required to withhold 10% of distributions in excess of the Company's
current and accumulated earnings and profits. If the amount of tax withheld by
the Company with respect to a distribution to a Non-U.S. Stockholder exceeds the
stockholder's United States tax liability with respect to such distribution, the
Non-U.S. Stockholder may file for a refund of such excess from the IRS.
Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S.
Stockholder generally will not be subject to Federal income taxation. The Common
Stock will not constitute a United States real property interest if the Company
is a "domestically-controlled REIT." A domestically-controlled REIT is a REIT in
which at all times during a specified testing period less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Stockholders. It currently
is 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 be a domestically-controlled REIT. If the
Company were not a domestically controlled REIT, 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 unless the Common Stock were "regularly traded" on
an established securities market (such as the NYSE) on which the Common Stock
will be listed and the selling stockholder owned no more than 5% of the Common
Stock throughout the applicable testing period. If the gain on the sale of
Common Stock were subject to taxation under FIRPTA, the
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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 nonresident alien
individuals). 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
nonresident 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 nonresident alien individual will be subject to a 30% tax on his or her U.S.
source capital gains.
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, 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. The Company's Common Stock
currently is a regularly traded security on the NYSE. The Company believes that
it qualifies under both the regularly traded and the domestically-controlled
REIT exceptions to withholding but cannot provide any assurance to that effect.
Upon the death of a nonresident alien individual, such individual's Common
Stock will be treated as part of such individual's U.S. estate for purposes of
the U.S. estate tax, except as may be otherwise provided in an applicable estate
tax treaty.
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
(i) the payee fails to furnish his or her taxpayer identification number ("TIN")
(which, for an individual, would be his or her Social Security Number) to the
payor as required, (ii) the IRS notifies the payor that the taxpayer
identification number furnished by the payee is incorrect, (iii) the IRS has
notified the payee that such payee has failed to properly include reportable
interest and dividends in the payee's return or has failed to file the
appropriate return and the IRS has assessed a deficiency with respect to such
underreporting, or (iv) the payee has failed to certify to the payor, under
penalties of perjury, that the payee is not subject to withholding. In addition,
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. For example, on October 7, 1997, the
Treasury Department issued new regulations (the "New Regulations") that make
certain modifications to the withholding,
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backup withholding, and information reporting rules. On March 27, 1998, the
Treasury Department and the IRS released Notice 98-16, which announced that the
effective date of the New Regulations will be extended to apply generally to
payments made to foreign persons after December 31, 1999. Non-U.S. Stockholders
should consult their tax advisors with regard to U.S. information reporting and
backup withholding.
Tax Aspects of the Operating Partnership
General. Substantially all of the Company's investments are held through
the Operating Partnership. In general, partnerships are "pass-through" entities
which are not subject to Federal income tax. Rather, partners are allocated
their proportionate shares of the items of income, gain, loss, deduction, and
credit of a partnership, and are potentially subject to tax thereon, without
regard to whether the partners receive a distribution from the partnership. The
Company includes in its income its proportionate share of the foregoing
Operating Partnership items for purposes of the various REIT income tests and in
the computation of its REIT taxable income. Moreover, for purposes of the REIT
asset tests, the Company includes its proportionate share of assets held by the
Operating Partnership.
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
the unrealized gain or unrealized loss, respectively, associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is 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)
that have a Book-Tax Difference, all taxable income attributable to such
Book-Tax Difference generally will be allocated to the Contributing Partners,
and the Company generally will be allocated only its share of capital gains
attributable to appreciation, if any, occurring after the closing of the
acquisition of such properties. 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) of the Code do not always entirely eliminate
the Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as 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
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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 "--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 the "traditional method" that may leave some of the Book-Tax
Differences unaccounted for, or the election of certain methods which would
permit any distortions caused by a Book-Tax Difference at this time 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 initially will 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)
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners) exceed the Company's adjusted tax basis, such
excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income normally will be
characterized as a capital gain if the Company's interest in the Operating
Partnership has been held for longer than one year, subject to reduced tax rates
described above (See "--Taxation of U.S. Stockholders--Capital Gain
Distributions"). Under current law, capital gains and ordinary income of
corporations generally are taxed at the same marginal rates.
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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 also may 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 through 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 localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
stockholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective stockholders should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Common Stock of the Company.
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Proposed Legislation
Under current law, the Company cannot own more than 10% of the outstanding
voting securities (other than those securities includible in the 75% asset test)
of any one issuer and qualify for taxation as a REIT. See "--Requirements for
Qualification--Asset Tests". For example, 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 is considered to own its
pro rata share of such stock. Neither the Company nor the Operating Partnership,
however, own more than 1% of the voting securities of Highwoods Services and the
10% test is satisfied.
The Company conducts its third-party fee-based services (i.e., leasing,
property management, real estate development, construction and other
miscellaneous services) through Highwoods Services. The President's Budget
Proposal for Fiscal Year 1999 ("Budget Proposal") includes a provision to
restrict these types of activities conducted by REITs under current law by
expanding the ownership limitation from no more than 10% of the voting
securities of an issuer to no more than 10% of the vote or value of all classes
of the issuer's stock. The Company, therefore, could not own stock (either
directly or indirectly through the Operating Partnership) possessing more than
10% of the vote or value of all classes of any issuer's stock.
The Budget Proposal would be effective only with respect to stock directly
or indirectly acquired by the Company on or after the date of first committee
action. To the extent that the Company's stock ownership in Highwoods Services
is grandfathered by virtue of this effective date, that grandfathered status
will terminate if Highwoods Services engages in a trade or business that it is
not engaged in on the date of first committee action or acquires substantial new
assets on or after that date. Such restriction, if enacted, would adversely
affect the ability to expand the business of Highwoods Services. The Budget
Proposal, however, will not become effective until legislation is duly passed by
Congress and signed by the President. Consequently, it is not possible to
determine at this time all the ramifications that would result from legislation
based on the Budget Proposal.
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time of up to
an aggregate of 2,340,000 shares of Common Stock by the Company. Such shares
include the 1,800,000 Initial Shares purchased by UB-LB, as successor to UBS,
pursuant to the Purchase Agreement by and among the Company, UBS Limited and UBS
dated August 28, 1997 (the "Purchase Agreement"). The remaining 534,000 Forward
Shares may be issued pursuant to a letter agreement between the Company and UBS
dated August 25, 1997, as amended by a letter agreement between the Company and
UB-LB dated August 28, 1998 (the "Forward Contract").
Under the Purchase Agreement, the Initial Shares were sold to UB-LB at
$32.125 per share. A placement fee of 2.5% of the gross proceeds or $1,445,625
has been paid to UB-LB or its affiliates pursuant to the Forward Contract. A
description of the terms of the Forward
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Contract is set forth above at "Risk Factors--Potential Dilution of Capital
Stock or Decrease of Liquidity in Connection with Settlement of the Forward
Contract." The Forward Contract provides for certain purchase price adjustments
that essentially guarantee a return to UB-LB equal to LIBOR plus 75 basis
points. To the extent the Forward Contract is settled in shares of Common Stock,
UB-LB will also be entitled to receive an additional placement fee equal to
approximately $290,000.
The sale or distribution of all or any portion of the Shares may be
effected from time to time by UB-LB or any of its broker-dealer affiliates, who
may sell Shares through brokers or dealers or in a distribution by one or more
additional underwriters on a firm commitment or best efforts basis, on the NYSE,
in the over-the-counter market, on any other national securities exchange on
which shares of the Common Stock are listed or traded, in privately negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
shares are currently traded on the following exchanges: the NYSE, the Boston
Stock Exchange, the Chicago Stock Exchange, the Pacific Stock Exchange and the
Philadelphia Stock Exchange. Except as described above, the Company will not
receive any proceeds from sales of the Shares.
In effecting sales, brokers or dealers engaged by UB-LB may arrange for
other brokers or dealers to participate. Any public offering price and any
discount or concessions allowed or reallowed or paid to dealers may be changed
from time to time. UB-LB may from time to time deliver all or a portion of the
Shares to cover a short sale or sales or upon the exercise, settlement or
closing of a call equivalent position or a put equivalent position.
In connection with a sale of any Shares, the following information will,
to the extent then required, be provided in the Prospectus Supplement relating
to such sale or in a post-effective amendment to the Registration Statement of
which this Prospectus is a part: the number of shares of Common Stock to be
sold; the purchase price; the public offering price; the method of distribution;
the name of any underwriter, agent or broker-dealer; and any applicable
commissions, discounts or other items constituting compensation to such
underwriters, agents or broker-dealers with respect to the particular sale.
UB-LB and any broker-dealers participating in the distribution of the
Shares are "underwriters" within the meaning of the Securities Act and any
profit on the sale of the Shares by any of them, together with the return to
UB-LB and the placement fees described above, will be regarded as underwriting
commissions under the Securities Act. UB-LB is entitled, under agreements with
the Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
The Company will pay all reasonable expenses in connection with the
registration of the Shares. The applicable underwriter will be responsible for
any brokerage or underwriting commissions and taxes of any kind (including,
without limitation, transfer taxes) due to a third party with respect to any
disposition, sale or transfer of the Shares, and legal, accounting and other
expenses incurred by it.
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In connection with the sale or distribution of the Shares, the rules of
the Commission permit any underwriter to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If any underwriter creates a short position in the Common Stock in
connection with the sale or distribution of the Shares--i.e., if the
underwriter sells more shares of Common Stock than are set forth on the cover
page hereof, such underwriter may reduce that short position by purchasing
shares of Common Stock in the open market.
Any managing underwriter(s) may also impose a penalty bid on certain
underwriters and selling group members. This means that, if any managing
underwriter purchases shares of Common Stock in the open market to reduce any
underwriter's short position, or to stabilize the price of the Common Stock,
such managing underwriter may reclaim the amount of the selling concession from
any such underwriters and selling group members who sold those Shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any underwriter makes any representation or
prediction as to the direction or magnitude of any effect that any of the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any underwriter makes any representation that
any underwriter will engage in any such transaction or that any such
transaction, once commenced, will not be discontinued without notice.
In order to comply with the securities laws of certain states, if
applicable, the Shares offered hereby will be sold in such jurisdictions only
through registered or licensed brokers or dealers.
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, 1997 (as amended on Form
10-K/A filed on April 29, 1998 and May 19, 1998), the statement of revenues and
certain expenses of Garcia Properties for the year ended December 31, 1997
incorporated herein by reference from the Company's current report on Form 8-K
dated February 4, 1998, the statements of revenues and certain expenses of
Shelton Properties, Riparius Properties and Winners Circle for the year ended
December 31, 1996 incorporated herein by reference from the Company's current
report on Form 8-K dated November 17, 1997, and 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
filed on February 7, 1997, March 10, 1997 and April 28, 1998), have been audited
by Ernst
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& 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 combined statement of revenue and certain operating expenses of the
Associated Capital Properties Portfolio for the year ended December 31, 1996,
and the combined statement of revenue and certain operating expenses of the 1997
Pending Acquisitions for the year ended December 31, 1996, incorporated by
reference herein from the Company's current reports on Form 8-K dated August 27,
1997 (as amended on Form 8-K/A filed September 23, 1997) and dated October 1,
1997, have been so incorporated in reliance upon the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of J.C. Nichols Company and
subsidiaries as of December 31, 1997 and each of the years in the three-year
period then ended, incorporated by reference herein from the Company's current
report on Form 8-K dated July 3, 1998 (as amended on Form 8-K/A filed September
28, 1998 and Form 8-K/A filed September 30, 1998) have been so incorporated in
reliance upon the report of KPMG Peat Marwick LLP, independent accountants,
given on the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by Alston &
Bird LLP, Raleigh, North Carolina. In addition, Alston & Bird LLP has rendered
its opinion with respect to certain Federal income tax matters relating to the
Company.
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PART II
SUPPLEMENTAL INFORMATION
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimates of the various expenses to be
paid by Highwoods Properties, Inc. (the "Company") in connection with the
registration of the Registerable Securities.
Securities and Exchange Commission Registration Fee .. $23,314
Fees and Expenses of Counsel ......................... 50,000
Miscellaneous ........................................ 1,686
-----
TOTAL .......................................... $75,000
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.
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ITEM 16. EXHIBITS
Exhibit No. Description
1.1(1) Purchase Agreement between the Company, UBS Limited and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
1.2(1) Forward Stock Purchase Agreement between the Company and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
1.3* Form of Letter Agreement between the Company and UBS AG, London
Branch, dated as of August 28, 1998
1.4 Waiver in respect of August 28, 1998 Letter Agreement between the
Company and UBS AG, London Branch
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 dated April 1, 1996
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
2.6 (5) Amended and Master Agreement of Merger and Acquisition dated January
9, 1995 by and among Highwoods Realty Limited Partnership, Forsyth
Partners Holdings, Inc., Forsyth Partners Brokerage, Inc., John L.
Turner, William T. Wilson III, John E. Reece II, H. Jack Leister and
the partnerships and corporations listed therein
2.7 (6) Master Agreement of Merger and Acquisition by and among the Company,
the Operating Partnership, Associated Capital Properties, Inc. and
its shareholders dated August 27, 1997
2.8 (1) Agreement and Plan of Merger by and among the Company, Jackson
Acquisition Corp. and J.C. Nichols Company dated December 22, 1997
2.9 (7) Amendment No. 1 to Agreement and Plan of Merger by and among the
Company, Jackson Acquisition Corp. and J.C. Nichols Company dated
April 23, 1998
4.1 (8) Amended and Restated Articles of Incorporation of the Company
4.2 (9) Rights Agreement, dated as of October 6, 1997, between the Company
and First Union National Bank
4.3 (10) Form of certificate representing shares of Common Stock
5* Opinion of Alston & Bird LLP re legality
8* Opinion of Alston & Bird LLP re tax matters
23.1* Consent of Alston & Bird LLP (included as part of Exhibits 5 and 8)
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23.2 Consent of Ernst & Young LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of KPMG Peat Marwick LLP
24* Power of Attorney (included on the signature page hereof)
- -----------------
*Previously filed.
(1) Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.
(2) Filed as part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(3) Filed as part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(4) Filed as part of the Company's Current Report on Form 8-K dated January 9,
1997 and incorporated herein by reference.
(5) Filed as part of Registration Statement No. 33-88364 with the Securities
and Exchange Commission and incorporated herein by reference.
(6) Filed as part of the Company's Current Report on Form 8-K dated August 27,
1997 and incorporated herein by reference.
(7) Filed as part of Registration Statement No. 333-51671 with the Securities
and Exchange Commission and incorporated herein by reference.
(8) Filed as part of the Company's Current Report on Form 8-K dated September
25, 1997 and amended by Articles Supplementary filed as part of the
Company's Current Report on Form 8-K dated October 4, 1997 and Articles
Supplementary filed as part of the Company's Current Report on Form 8-K
dated April 20, 1998, each of which is incorporated herein by reference.
(9) Filed as part of the Company's Current Report on Form 8-K dated October 4,
1997 and incorporated herein by reference.
(10) Filed as part of Registration Statement No. 33-76952 with the Securities
and Exchange Commission and incorporated herein by reference.
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 the Registration Statement:
(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; provided, however, that any increase or decrease
in volume of securities offered (if the total dollar value of securities
offered
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<PAGE>
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 (i) and
(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 by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described under Item 15 of the
Registration Statement, or otherwise, the registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment No. 3 to Registration Statement 333-39247 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Raleigh, State of North Carolina, on October 27, 1998.
HIGHWOODS PROPERTIES, INC.
By: /s/ Carman J. Liuzzo
------------------------
Carman J. Liuzzo
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to Registration Statement 333-39247 has been
signed by the following persons in the capacities and on the dates indicated:
Name Title Date
/s/ O. Temple Sloan* Chairman of the Board of Directors October 27, 1998
- --------------------
O. Temple Sloan, Jr.
/s/Ronald P. Gibson* President, Chief Executive October 27, 1998
- -------------------- Officer and Director
Ronald P. Gibson
/s/John L. Turner* Chief Investment Officer and October 27, 1998
- -------------------- Vice Chairman of the Board of
John L. Turner Directors
/s/Gene H. Anderson* Senior Vice President and Director October 27, 1998
- --------------------
Gene H. Anderson
/s/John W. Eakin* Senior Vice President and Director October 27, 1998
- --------------------
John W. Eakin
/s/William T. Wilson III* Director October 27, 1998
- -------------------------
William T. Wilson, III
/s/Thomas W. Adler* Director October 27, 1998
- --------------------
Thomas W. Adler
/s/William E. Graham, Jr.* Director October 27, 1998
- --------------------
William E. Graham, Jr.
II-5
<PAGE>
/s/L. Glenn Orr, Jr.* Director October 27, 1998
- ---------------------
L. Glenn Orr, Jr.
/s/Willard H. Smith, Jr.* Director October 27, 1998
- -------------------------
Willard H. Smith, Jr.
/s/Stephen Timko* Director October 27, 1998
- --------------------
Stephen Timko
/s/James R. Heistand Senior Vice President and Director October 27, 1998
- --------------------
James R. Heistand
/s/ Kay Nichols Callison Director October 27, 1998
- ------------------------
Kay Nichols Callison
Vice President, Chief Financial October 27, 1998
/s/ Carman J. Liuzzo Officer and Treasurer (Principal
- -------------------- Financial Officer and Principal
Carman J. Liuzzo Accounting Officer)
* By /s/ Carman J. Liuzzo
----------------------------------
Carman J. Liuzzo (Attorney-in-Fact)
II-6
<PAGE>
Exhibit Index
Exhibit No. Description
1.1 (1) Purchase Agreement between the Company, UBS Limited and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
1.2 (1) Forward Stock Purchase Agreement between the Company and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
1.3* Form of Letter Agreement between the Company and UBS AG, London
Branch, dated as of August 28, 1998
1.4 Waiver in respect of August 28, 1998 Letter Agreement between the
Company and UBS AG, London Branch
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 dated April 1, 1996
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
2.6 (5) Amended and Master Agreement of Merger and Acquisition dated January
9, 1995 by and among Highwoods Realty Limited Partnership, Forsyth
Partners Holdings, Inc., Forsyth Partners Brokerage, Inc., John L.
Turner, William T. Wilson III, John E. Reece II, H. Jack Leister and
the partnerships and corporations listed therein
2.7 (6) Master Agreement of Merger and Acquisition by and among the Company,
the Operating Partnership, Associated Capital Properties, Inc. and
its shareholders dated August 27, 1997
2.8 (1) Agreement and Plan of Merger by and among the Company, Jackson
Acquisition Corp. and J.C. Nichols Company dated December 22, 1997
2.9 (7) Amendment No. 1 to Agreement and Plan of Merger by and among the
Company, Jackson Acquisition Corp. and J.C. Nichols Company dated
April 23, 1998
4.1 (8) Amended and Restated Articles of Incorporation of the Company 4.2
(9) Rights Agreement, dated as of October 6, 1997, between the Company
and First Union National Bank
4.3 (10) Form of certificate representing shares of Common Stock
5* Opinion of Alston & Bird LLP re legality
8* Opinion of Alston & Bird LLP re tax matters
23.1* Consent of Alston & Bird LLP (included as part of Exhibits 5 and 8)
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<PAGE>
23.2 Consent of Ernst & Young LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of KPMG Peat Marwick LLP
24* Power of Attorney (included on the signature page hereof)
- -----------------
*Previously filed.
(1) Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.
(2) Filed as part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(3) Filed as part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(4) Filed as part of the Company's Current Report on Form 8-K dated January 9,
1997 and incorporated herein by reference.
(5) Filed as part of Registration Statement No. 33-88364 with the Securities
and Exchange Commission and incorporated herein by reference.
(6) Filed as part of the Company's Current Report on Form 8-K dated August 27,
1997 and incorporated herein by reference.
(7) Filed as part of Registration Statement No. 333-51671 with the Securities
and Exchange Commission and incorporated herein by reference.
(8) Filed as part of the Company's Current Report on Form 8-K dated September
25, 1997 and amended by Articles Supplementary filed as part of the
Company's Current Report on Form 8-K dated October 4, 1997 and Articles
Supplementary filed as part of the Company's Current Report on Form 8-K
dated April 20, 1998, each of which is incorporated herein by reference.
(9) Filed as part of the Company's Current Report on Form 8-K dated October 4,
1997 and incorporated herein by reference.
(10) Filed as part of Registration Statement No. 33-76952 with the Securities
and Exchange Commission and incorporated herein by reference.
UBS AG, London Branch has verbally agreed to extend the deadline for an
effective registration statement relating to the sale of the Shares from October
12, 1998 to November 2, 1998. Such deadline is set forth in Paragraph 4 of the
August 28, 1998 Letter Agreement between the Company and UBS, AG London Branch.
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. 333-39247) and the related Prospectus of
Highwoods Properties, Inc. for the registration of 2,340,000 shares of its
common stock. We also consent to the incorporation by reference therein of our
reports (a) dated February 20, 1998, 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, 1997 (as amended on Form
10-K/A dated April 29, 1998 and May 19, 1998), (b) 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 the Current Report on Form 8-K of Highwoods Properties, Inc. dated
January 9, 1997 (as amended on Form 8-K/A on February 7, 1997, March 10, 1997
and April 28, 1998), (c) dated January 16, 1998, with respect to the Combined
Statements of Revenues and Certain Expenses of Shelton Properties and Riparius
Properties and the Statement of Revenues and Certain Expenses of Winners Circle
for the year ended December 31, 1996 included in the Current Report on Form 8-K
of Highwoods Properties, Inc. dated November 17, 1997, and (d) dated January 30,
1998 with respect to the Combined Statement of Revenues and Certain Expenses of
Garcia Properties for the year ended December 31, 1997 included in the Current
Report on Form 8-K of Highwoods Properties, Inc. dated February 4, 1998, all
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Raleigh, North Carolina
October 22, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 3 to Registration Statement on Form S-3 (File No. 333-39247) of our reports
dated September 12, 1997, on our audits of the combined statement of revenues
and certain operating expenses of the Associated Capital Properties Portfolio
for the year ended December 31, 1996, and the combined statement of revenues and
certain operating expenses of the 1997 Pending Acquisitions for the year ended
December 31, 1996, which reports are included in the Form 8-K of Highwoods
Properties, Inc. dated August 27, 1997 (as amended on September 23, 1997) and
October 1, 1997. We also consent to the reference to our firm under the caption
"Experts."
/s/ PricewaterhouseCoopers LLP
Memphis, Tennessee
October 26, 1998
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
Form S-3 (No. 333-39247) and related Prospectus of Highwoods Properties, Inc. of
our report on the consolidated financial statements of J. C. Nichols Company and
subsidiaries as of December 31, 1997 and for each of the years in the three-year
period then ended, which was dated March 6, 1998.
/s/ KPMG PEAT MARWICK LLP
October 27, 1998
