File No. 333-61913
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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 27604 Raleigh, North Carolina 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. [ ]
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed Proposed
Title of each class of Amount maximum offering maximum aggregate Amount of
securities to be registered to be registered price per unit offering price registration fee
- --------------------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common Stock 56,330 (1) $26.75 (2) $1,506,828 $419 (1)
</TABLE>
(1) Prior filings of this Registration Statement (file no. 333-61913)
registered a total of 2,489,678 shares for a total fee of $20,596. In
accordance with Rule 429 under the Securities Act of 1933, the Prospectus
contained in this Registration Statement also relates to a total of
9,223,915 shares and 1,479,290 warrants carried forward from earlier
registration statements as follows:
<TABLE>
<CAPTION>
Registration Statement No. and Type of Filing Fee Associated with
File No. Security Registered Securities Carried Forward
---------------------- ------------------- --------------------------
<S> <C> <C>
33-93572 3,078,852 shares $26,012
333-08985 81,976 shares $771
333-13519 89,609 shares $914
333-24165 3,937,879 shares $38,767
333-43745 2,035,599 shares $21,860
1,479,290 warrants $15,886
------------------ --------
10,703,205 shares and warrants $104,210
============================== ========
</TABLE>
Registration Statement (file no. 333-43745) also covered the resale of
1,444,290 shares of common stock issuable upon exercise of warrants.
(2) Calculated pursuant to Rule 457(c) of the Securities Act of 1933, based on
the average of the high and low prices reported on the New York Stock
Exchange on October 28, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus contained
in this registration statement also relates to the following earlier
registration statements: 33-93572, 333-08985, 333-13519, 333-24165 and
333-43745.
<PAGE>
HIGHWOODS PROPERTIES, INC.
PROSPECTUS
11,769,923 SHARES OF COMMON STOCK
WARRANTS TO PURCHASE 1,479,290 SHARES OF COMMON STOCK
We are offering 4,611,351 shares of common stock. Of these shares, we are
offering 150,000 for $4.2 million ($28 per share) upon the exercise of
outstanding warrants. We are offering the remaining 4,461,351 shares in exchange
for the same number of units in Highwoods Realty Limited Partnership, which is
the operating partnership through which we conduct substantially all of our
business.
In addition, the selling securityholders named in this Prospectus may
offer up to 10,506,077 shares of common stock and warrants to purchase 1,479,290
shares of common stock. (The shares being offered by the selling securityholders
include 2,391,400 shares that we are also registering the issuance of with this
Prospectus and 956,125 shares issuable upon exercise of the warrants.) The
warrants are exercisable for shares of common stock for $32.50 per share and may
not be exercised until October 1, 2002. See "Description of Resale Warrants" on
page 22.
The purchase price of any shares offered by the selling securityholders
will be the market price of a share of common stock at that time unless
otherwise indicated in an accompanying prospectus supplement. A prospectus
supplement will also set forth the purchase price of any warrants offered by the
selling securityholders. We will not receive any proceeds from the sale of any
of the securities offered by the selling securityholders. See "Selling
Securityholders" at page 49.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD WITH
THIS PROSPECTUS.
Our common stock is listed on the New York Stock Exchange under the symbol
"HIW." On October 28, 1998, the last reported sale price of our common stock was
$26 15/16 per share. The warrants are not listed on any national securities
exchange or the Nasdaq Stock Market.
The selling securityholders and any agents or broker-dealers that
participate with the selling securityholders in the distribution of common stock
or warrants may be deemed to be "underwriters" under the Securities Act of 1933.
See "Plan of Distribution" beginning on page 58.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR
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.
Prospectus dated October 30, 1998.
<PAGE>
NEITHER WE NOR THE SELLING SECURITYHOLDERS HAVE AUTHORIZED ANY PERSON TO
MAKE A STATEMENT THAT DIFFERS FROM THIS PROSPECTUS. IF ANY PERSON DOES MAKE A
STATEMENT THAT DIFFERS FROM THIS PROSPECTUS, YOU SHOULD NOT RELY ON IT. THIS
PROSPECTUS IS NOT AN OFFER TO SELL, NOR IS IT SEEKING AN OFFER TO BUY, THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION IN THIS PROSPECTUS IS COMPLETE AND ACCURATE AS OF ITS DATE, BUT THE
INFORMATION MAY CHANGE AFTER THAT DATE.
AVAILABLE INFORMATION
Highwoods Properties, Inc. (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 information
may be inspected and copied, at prescribed rates, at the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 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). In addition, the Company's
common stock, $.01 par value per share ("Common Stock"), is listed on the New
York Stock Exchange ("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 securities 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:
a. 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);
b. The Company's quarterly reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
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<PAGE>
c. 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
d. 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, 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: Highwoods Properties, Inc., Investor
Relations, 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604. The
Company's telephone number is (919) 872-4924.
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<PAGE>
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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<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR SECURITIES, 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 SECURITIES.
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.
Tax Consequences of Redemption of Common Units
The exercise by a Common Unit holder of the right to require redemption of
his or her Common Units will be treated for tax purposes as a taxable sale or
exchange of the Common Units by the holder. The holder will be treated as
realizing proceeds in an amount equal to the sum of the cash (or the value of
the Common Stock) received upon redemption, plus the amount of the reduction in
any Operating Partnership liabilities allocable to the holder. It is possible
that the amount of gain recognized or even the tax liability resulting from such
gain could exceed the amount of cash or the value of Common Stock that the
holder received upon redemption. See "Federal Income Tax Considerations - Tax
Consequences of Redemption" beginning on page 46. In addition, the Common Unit
holder may not be able to raise sufficient cash through the sale of the Common
Stock he or she received to pay tax liabilities associated with the redemption
of the Common Units because, as a result of stock price fluctuations, the price
the holder receives for the Common Stock may not equal the value of his or her
Common Units at the time of redemption.
Potential Change in Investment Upon Redemption of Common Units
If a Common Unit holder exercises the right to require redemption of his
or her Common Units, the holder may receive, at the Company's option, cash or
Common Stock in exchange for the Common Units. If the holder receives cash, he
or she will no longer have any interest in the Company and will not benefit from
any subsequent increases in the Common Stock price and will not receive any
subsequent distributions from the Company (unless the holder owns or acquires
additional Common Stock or Common Units). If the holder receives Common Stock,
he or she will become a stockholder in the Company, rather than a limited
partner in the Operating Partnership. See "Redemption of Common Units Comparison
of Common Units and Shares of Common Stock" beginning on page 24.
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<PAGE>
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 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
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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.
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 whole. See "Federal Income Tax Considerations - Taxation of the
Company as a REIT," beginning on page 31.
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 33.
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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," beginning on 38.
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;
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.
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<PAGE>
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.
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:
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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.
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
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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 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
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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 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.
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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 UBS AG, London
Branch ("UB-LB") involving the sale of 1.8 million shares of Common Stock and a
related Forward Contract providing for certain purchase price adjustments. 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 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
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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.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of any of
the securities offered by the securityholders named in this Prospectus. In
connection with the issuance of the shares offered by the Company through this
Prospectus (the "Issuance Shares"), the Company will receive:
o one Common Unit for each of the 8,135,839 shares issuable upon
redemption of the same number of outstanding Common Units and
o $4.2 million ($28.00 per share) issuable upon exercise of 150,000
outstanding warrants.
The Company has no current specific plan for such cash proceeds.
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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.
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
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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 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
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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.
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
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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.
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.
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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 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.
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The Company's Articles of Incorporation (including the provision exempting
the Company from the Maryland business combination statute) may not be amended
without the affirmative vote of at least a majority of the shares of capital
stock outstanding and entitled to vote thereon voting together as a single
class, provided that certain provisions of the Articles of Incorporation may not
be amended without the approval of the holders of two-thirds of the shares of
capital stock of the Company outstanding and entitled to vote thereon voting
together as a single class. The Company's bylaws may be amended by the board of
directors or a majority of the shares cast of capital stock entitled to vote
thereupon at a duly constituted meeting of stockholders.
If either of the foregoing exemptions in the Articles of Incorporation or
bylaws is amended, the Maryland business combination statute or the control
share acquisition statute could have the effect of discouraging offers to
acquire the Company and of increasing the difficulty of consummating any such
offer.
Ownership Limitations and Restrictions on Transfers. For the Company to
remain qualified as a REIT under the Code, not more than 50% in value of its
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year, and such shares must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year. To ensure that
the Company remains a qualified REIT, the Articles of Incorporation provide that
no holder (other than persons approved by the directors at their option and in
their discretion) may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% (the "Ownership Limit") of the issued and
outstanding capital stock of the Company. The board of directors may waive the
Ownership Limit if evidence satisfactory to the board of directors and the
Company's tax counsel is presented that the changes in ownership will not
jeopardize the Company's status as a REIT.
If any stockholder purports to transfer shares to a person and either the
transfer would result in the Company failing to qualify as a REIT, or the
stockholder knows that such transfer would cause the transferee to hold more
than the Ownership Limit, the purported transfer shall be null and void, and the
stockholder will be deemed not to have transferred the shares. In addition, if
any person holds shares of capital stock in excess of the Ownership Limit, such
person will be deemed to hold the excess shares in trust for the Company, will
not receive distributions with respect to such shares and will not be entitled
to vote such shares. The person will be required to sell such shares to the
Company for the lesser of the amount paid for the shares and the average closing
price for the 10 trading days immediately preceding the redemption or to sell
such shares at the direction of the Company, in which case the Company will be
reimbursed for its expenses in connection with the sale and will receive any
amount of such proceeds that exceeds the amount such person paid for the shares.
If the Company repurchases such shares, it may pay for the shares with 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.
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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
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 "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.
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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-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 series of
Preferred Stock is First Union National Bank, Charlotte, North Carolina.
DESCRIPTION OF RESALE WARRANTS
This Prospectus relates in part to the resale of warrants exercisable for
an aggregate of 1,479,290 shares of Common Stock (the "Resale Warrants").
Beginning October 1, 2002, each Resale Warrant entitles the holder thereof to
purchase, at a purchase price per share of $32.50, subject to adjustments
relating to stock splits or the issuance of stock dividends, rights, options,
warrants, convertible or exchangeable securities or distributions of securities,
a number of shares of Common Stock less than or equal to the number of shares of
such Common Stock so stated in each such Resale Warrant. Alternatively, the
holder of a Resale Warrant may, at his election, opt to receive a number of
shares of Common Stock equal to the quotient of (i) the value of the Resale
Warrant(s) exercised, where such value is calculated as the product of (a) the
number of
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shares covered by the exercise of such Resale Warrant(s) times (b) the excess of
the fair market value per share of Common Stock over the exercise price divided
by (ii) the fair value of a single share of Common Stock. The Resale Warrants
have not been approved for listing on any national securities exchange or the
Nasdaq Stock Market. See "Description of Capital Stock of the Company" for a
summary discussion of the Common Stock and other information concerning
ownership of the Common Stock.
REDEMPTION OF UNITS
General
Each limited partner of the Operating Partnership may, subject to certain
limitations, require that the Operating Partnership redeem all or a portion of
such partner's Common Units after expiration of an agreed-upon lock-up period
(generally, one year). Upon redemption, a limited partner will receive, at the
option of the Company, as general partner of the Operating Partnership, either
(i) a number of shares of Common Stock equal to the number of Common Units
redeemed or (ii) cash in an amount equal to market value of the number of shares
of Common Stock the partner would have received pursuant to (i) above. The
market value of the Common Stock for this purpose will be equal to the average
of the closing trading price of the Company's Common Stock for the 10 trading
days before the day on which the redemption notice was received by the Operating
Partnership.
The Company anticipates that it generally will elect to satisfy any
redemption right exercised by a limited partner through the issuance of the
shares of Common Stock, whereupon the Company will acquire the Common Units
being redeemed and will become the owner of the Common Units. Such an
acquisition by the Company will be treated as a sale of the Common Units to the
Company for Federal income tax purposes. See "Federal Income Tax Considerations
- - Tax Consequences of Redemption." Upon redemption, such limited partner's right
to receive distributions with respect to the Common Units redeemed will cease.
However, the limited partner will then have rights as a stockholder of the
Company from the time of his or her acquisition of Common Stock, including the
payment of dividends.
A limited partner must notify the Company, as general partner of the
Operating Partnership, of such partner's desire to require the Operating
Partnership to redeem Common Units by sending a notice in the form attached as
an exhibit to the Operating Partnership Agreement, a copy of which is available
from the Company. A limited partner must request the redemption of at least
1,000 Common Units (or all of the Common Units held by such holder, if less). A
redemption generally will occur on the 10th business day after the notice is
delivered by the limited partner, except that no redemption can occur if the
delivery of shares of Common Stock would be prohibited under the provisions of
the Articles of Incorporation to protect the Company's qualification as a REIT.
For a summary discussion of certain Federal income tax considerations
relevant to the redemption of Common Units, see "Federal Income Tax
Considerations - Tax Consequences of Redemption."
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Comparison of Ownership of Common Units and Shares of Common Stock
Generally, the nature of any investment in shares of Common Stock of the
Company is substantially equivalent economically to an investment in Common
Units in the Operating Partnership. A holder of a share of Common Stock receives
the same distribution that a holder of a Common Unit receives, and stockholders
and Common Unit holders generally share in the risks and rewards of ownership in
the enterprise being conducted by the Company (through the Operating
Partnership). However, there are differences between ownership of Common Units
and ownership of Common Stock, some of which may be material to investors.
The information below highlights a number of the significant differences
between the Operating Partnership and the Company relating to, among other
things, form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees and investor rights, and compares
certain legal rights associated with the ownership of Common Units and Common
Stock. These comparisons are intended to assist limited partners of the
Operating Partnership in understanding how their investment will be changed if
their Common Units are redeemed for Common Stock. This discussion is summary in
nature and does not constitute a complete discussion of these matters, and
holders of Common Units should carefully review the balance of this Prospectus
and the Registration Statement, including the exhibits thereto, of which this
Prospectus is a part for additional important information about the Company.
Form of Organization and Assets Owned. The Operating Partnership is
organized as a North Carolina partnership. Substantially all of the Company's
operations are conducted through the Operating Partnership.
The Company is a Maryland corporation. The Company has elected to be taxed
as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), and
intends to maintain its qualification as a REIT. The Company's interest in the
Operating Partnership, which gives the Company an indirect investment in the
properties and other assets owned by the Operating Partnership, represents
substantially all of its assets.
Length of Investment. The Operating Partnership has a stated termination
date of December 31, 2092, although it may be terminated earlier under certain
circumstances. The Company has a perpetual term and intends to continue its
operations for an indefinite time period.
Purpose and Permitted Investments. The purpose of the Operating
Partnership includes the conduct of any business that may be lawfully conducted
by a limited partnership formed under North Carolina law, except that the
Operating Partnership Agreement requires the business of the Operating
Partnership to be conducted in such a manner that will permit the Company to be
classified as a REIT for Federal income tax purposes. The Operating Partnership
may, subject to the foregoing limitation, invest or enter into partnerships,
joint ventures or similar arrangements and may own interests in any other
entity.
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Under its Articles of Incorporation, the Company may engage in any lawful
activity permitted under Maryland law. Under the Operating Partnership
Agreement, however, the Company must conduct substantially all of its business
and own substantially all of its assets through the Operating Partnership.
Additional Equity. The Operating Partnership is authorized to issue Common
Units and other partnership interests to the partners or to other persons for
such consideration and on such terms and conditions as the Company, in its sole
discretion, may deem appropriate. In addition, the Company may cause the
Operating Partnership to issue to the Company additional Common Units or other
partnership interests in different series or classes that may be senior to the
Common Units in conjunction with the offering of securities of the Company
having substantially similar rights, in which the proceeds thereof are
contributed to the Operating Partnership. No limited partner has any preemptive,
preferential or similar rights with respect to additional capital contributions
to the Operating Partnership or the issuance or sale of any interests therein.
The board of directors of the Company may issue, in its discretion,
additional equity securities consisting of Common Stock or Preferred Stock;
provided, however, that the total number of shares issued does not exceed the
authorized number of shares of capital stock set forth in the Company's Articles
of Incorporation. As long as the Operating Partnership is in existence, the
proceeds (or a portion thereof) of all equity capital raised by the Company will
be contributed to the Operating Partnership in exchange for Common Units or
other interests in the Operating Partnership, provided that the General
Partner's contribution will be deemed to be an amount equal to the net proceeds
of any such offering plus any underwriter's discount or other expenses incurred
in connection with such issuance.
Borrowing Policies. The Company as general partner has full power and
authority to borrow money on behalf of the Operating Partnership. The Company
(as general partner), through its board of directors, has adopted a policy that
currently limits total borrowing to 50% of the total market capitalization of
the Company and the Operating Partnership, but this policy may be altered at any
time by the board of directors. The foregoing reflects the Company's general
policy over time and is not intended to operate in a manner that inappropriately
restricts the Company's ability to raise additional capital, including
additional debt, to implement its planned growth, to pursue attractive
acquisition opportunities that may arise or to otherwise act in a manner that
the board of directors believes to be in the best interests of the Company and
its stockholders. The board of directors, with the assistance of management of
the Company, may reevaluate from time to time its debt and other capitalization
policies in light of then current economic conditions, including the relative
costs of debt and equity capital, the market value of its properties, growth and
acquisition opportunities, the market value of its equity securities in relation
to the Company's view of the market value of its properties, and other factors,
and may modify its debt policy. Such modification may include increasing or
decreasing its general ratio of debt to total market capitalization or
substituting another measuring standard.
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The Company is not restricted under its governing instruments from
incurring borrowings.
Other Investment Restrictions. Other than restrictions precluding
investments by the Operating Partnership that would adversely affect the
qualification of the Company as a REIT, there are no restrictions in the
Operating Partnership Agreement on the Operating Partnership's authority to
enter into certain transactions, including, among others, making investments,
lending Operating Partnership funds, or reinvesting the Operating Partnership's
cash flow and net sale or refinancing proceeds.
Neither the Company's Articles of Incorporation nor its bylaws impose any
restrictions upon the types of investments made by the Company except that under
the Articles of Incorporation, the board of directors is prohibited from taking
any action that would terminate the Company's REIT status, unless a majority of
the stockholders vote to terminate such REIT status.
Management Control. All management powers over the business and affairs of
the Operating Partnership are vested in the general partner of the Operating
Partnership, and no limited partner of the Operating Partnership has any right
to participate in or exercise control or management power over the business and
affairs of the Operating Partnership. The general partner may not be removed by
the limited partners for any reason.
The board of directors has exclusive control over the Company's business
and affairs subject only to the restrictions in the Articles of Incorporation,
the bylaws and the Operating Partnership Agreement. The board of directors is
classified into three classes of directors. At each annual meeting of the
stockholders, the successors of the class of directors whose terms expire at
that meeting will be elected. The policies adopted by the board of directors may
be altered or eliminated without advice of the stockholders. Accordingly, except
for their vote in the elections of directors, stockholders have no control over
the ordinary business policy of the Company.
Fiduciary Duties. Under North Carolina law, the general partner of the
Operating Partnership is accountable to the Operating Partnership as a fiduciary
and, consequently, is required to exercise good faith in all of its dealings
with respect to partnership affairs. However, under the Operating Partnership
Agreement, the general partner is under no obligation to take into account the
tax consequences to any partner of any action taken by it. The general partner
will have no liability to a limited partner as a result of any liabilities or
damages incurred or suffered by, or benefits not derived by, a limited partner
as a result of any action or inaction of the general partner so long as the
general partner acted in good faith.
Under Maryland law, the directors must perform their duties in good faith,
in a manner that they believe to be in the best interests of the Company and
with the care an ordinarily prudent person would exercise under similar
circumstances. Directors of the Company who act in such a manner generally will
not be liable to the Company for monetary damages arising from their activities.
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Management Liability and Indemnification. The Operating Partnership
Agreement generally provides that the general partner will incur no liability to
the Operating Partnership or any limited partner for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or omission
if the general partner acted in good faith. In addition, the general partner is
not responsible for any misconduct or negligence on the part of its agents
provided the general partner appointed such agents in good faith. The general
partner may consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisors. Any action
the general partner takes or omits to take in reliance upon the opinion of such
persons, as to matters which the general partner reasonably believes to be
within their professional or expert competence, shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
The Operating Partnership Agreement also provides for indemnification of the
general partner, the directors and officers of the general partner, and such
other persons as the general partner may from time to time designate, against
any and all losses, claims, damages, liabilities, expenses, judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings that relate to the operations of the Operating Partnership
in which such person may be involved, or is threatened to be involved, to the
fullest extent permitted under North Carolina law.
As permitted by Maryland law, the Articles of Incorporation include a
provision limiting the liability of the Company's directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions. The law does not, however, permit the liability of directors and
officers to the corporation or its stockholders to be limited to the extent that
(i) it is proved that the person actually received an improper benefit or profit
in money, property or services or (ii) a judgment or other final adjudication is
entered in a proceeding based on a finding that the person's action, or failure
to act, was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. This charter provision does
not limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Anti-Takeover Provisions. Except in limited circumstances, the general
partner of the Operating Partnership has exclusive management power over the
business and affairs of the Operating Partnership. The general partner may not
be removed by the limited partners with or without cause. Under the Operating
Partnership Agreement the general partner may, in its sole discretion, prevent a
limited partner from transferring his interest or any rights as a limited
partner except in certain limited circumstances. The general partner may
exercise this right of approval to deter, delay or hamper attempts by persons to
acquire an interest in the Operating Partnership.
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The Articles of Incorporation and bylaws of the Company and the Operating
Partnership Agreement contain a number of provisions that may have the effect of
delaying or discouraging an unsolicited proposal for the acquisition of the
Company or the removal of incumbent management. See "Risk Factors - Limited
Ability of Stockholders to Effect a Change in Control" and "Description of
Capital Stock of the Company - Classification of Board of Directors; Removal of
Directors; Other Provisions" and "- Certain Provisions Affecting Change of
Control."
Voting Rights. Under the Operating Partnership Agreement, the limited
partners generally do not have voting rights relating to the operation and
management of the Operating Partnership. Limited partners do have the right to
vote on certain amendments to the Operating Partnership Agreement. The ownership
of Common Units does not entitle the holder thereof to vote on any matter to be
voted upon by the stockholders of the Company.
Stockholders of the Company have the right to vote on, among other things,
a merger or sale of all or substantially all of the assets of the Company,
amendments to the Articles of Incorporation, certain amendments to the bylaws
and dissolution of the Company. The Company is managed and controlled by a board
of directors consisting of three classes having staggered terms of office. Each
class is to be elected by the stockholders at annual meetings of the Company.
All shares of Common Stock have one vote, and the Articles of Incorporation
permit the board of directors to classify and issue Preferred Stock in one or
more series having voting power which may differ from that of the Common Stock.
Amendment of the Operating Partnership Agreement or the Articles of
Incorporation. Amendments to the Operating Partnership Agreement may be proposed
by the general partner or by any limited partners holding 10 percent or more of
the partnership interests. Approval of such an amendment requires the vote of
the general partner and the holders of a majority of the Common Units, including
those Common Units held by the general partner. Certain amendments may be
approved solely by the general partner, such as, among other things, amendments
that would add to the obligations of the general partner, reflect the admission,
substitution, termination or withdrawal of partners, or satisfy any legal
requirements. Certain amendments that affect the fundamental rights of a limited
partner must be approved by each affected limited partner.
The Company's Articles of Incorporation may not be amended without the
affirmative vote of at least a majority of the shares of capital stock
outstanding and entitled to vote thereon voting together as a single class,
provided that certain provisions of the Articles of Incorporation may not be
amended without the approval of the holders of two-thirds of the shares of
capital stock of the Company outstanding and entitled to vote thereon voting
together as a single class, and further provided that any amendment of the
Articles of Incorporation adversely and materially affecting the outstanding
Series A Preferred Stock, Series B Preferred Stock or Series D Preferred Stock
requires the approval of the holders of two-thirds of the outstanding shares of
such affected series. The Company's bylaws may be amended by the board of
directors or a majority of the shares cast of capital stock entitled to vote
thereupon at a duly constituted meeting of stockholders.
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Vote Required to Dissolve the Operating Partnership or the Company. Under
North Carolina law, the Operating Partnership may be dissolved, other than in
accordance with the terms of the Operating Partnership Agreement, only upon the
unanimous vote of the limited partners.
Under Maryland law, the Company may be dissolved by (i) the affirmative
vote of a majority of the entire board of directors declaring such dissolution
to be advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of stockholders, and (ii) upon
proper notice, stockholder approval by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled to vote thereon
voting as a single class.
Vote Required to Sell Assets or Merge. Under the Operating Partnership
Agreement, the sale, exchange, transfer or other disposition of all or
substantially all of the Operating Partnership's assets or the merger or
consolidation of the Operating Partnership requires the consent of the general
partner and holders of a majority of the outstanding Common Units (including
Common Units held by the general partner).
Under the MGCL, a corporation generally cannot sell substantially all of
its assets or merge without the approval of the holders of two-thirds of the
shares entitled to vote on the matter unless a lesser percentage is set forth in
the corporation's charter. The Company's Articles of Incorporation contain such
a provision and provides that such actions may be taken if approved by a
majority of the shares outstanding and entitled to vote thereon. The MGCL
establishes special requirements with respect to "business combinations" between
Maryland corporations and "interested stockholders" unless exemptions are
applicable. Among other things, the law prohibits for a period of five years a
merger and other specified or similar transactions between a corporation 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 charter provisions will not be amended at any point in the future.
Compensation, Fees and Distributions. The general partner does not receive
any compensation for its services as general partner of the Operating
Partnership. As a partner in the Operating Partnership, however, the general
partner has the same right to allocations and distributions as other partners of
the Operating Partnership. In addition, the Operating Partnership reimburses the
general partner for substantially all expenses incurred relating to the ongoing
operation of the Company and any offering of partnership interests in the
Operating Partnership or capital stock of the Company.
The directors and officers of the Company receive compensation for their
services.
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Liability of Investors. Under the Operating Partnership Agreement and
applicable North Carolina law, the liability of the limited partners for the
Operating Partnership's debts and obligations is generally limited to the amount
of their investment in the Operating Partnership.
Under Maryland law, stockholders are not personally liable for the debts
or obligations of the Company.
Nature of Investment. The Common Units constitute equity interests
entitling each limited partner to a pro rata share of cash distributions made to
the limited partners of the Operating Partnership. The Operating Partnership
generally intends to retain and reinvest proceeds of the sale of property or
excess refinancing proceeds in its business.
The shares of Common Stock constitute equity interests in the Company. The
Company is entitled to receive its pro rata share of distributions made by the
Operating Partnership with respect to the Common Units, and each stockholder
will be entitled to his pro rata share of any dividends or distributions paid
with respect to the Common Stock. The dividends payable to the stockholders are
not fixed in amount and are only paid if, when and as declared by the Board of
Directors. In order to qualify as a REIT, the Company must distribute 95% of its
taxable income (excluding capital gains), and any taxable income (including
capital gains) not distributed will be subject to corporate income tax.
Potential Dilution of Rights. The general partner of the Operating
Partnership is authorized, in its sole discretion and without limited partner
approval, to cause the Operating Partnership to issue additional limited
partnership interests and other equity securities for any partnership purpose at
any time to the limited partners or to other persons on terms established by the
general partner.
The board of directors of the Company may issue, in its discretion,
additional shares of Common Stock and has the authority to issue from the
authorized capital stock a variety of other equity securities of the Company,
with such powers, preferences and rights as the board of directors may designate
at the time. The issuance of additional shares of either Common Stock or other
similar equity securities may result in the dilution of the interests of the
stockholders.
Liquidity. The limited partners generally may transfer all or a portion of
their interests in the Operating Partnership to a transferee, subject to the
one-year lock-up provisions and certain limitations imposed by Federal and state
securities laws. No transferee, however, will be admitted to the Operating
Partnership as a substitute limited partner having the rights of a limited
partner without the consent of the Company as the general partner and
satisfaction of certain other conditions, including an agreement to be bound by
the terms and conditions of the Operating Partnership Agreement.
Upon the effectiveness of the Registration Statement of which this
Prospectus is a part, the shares to be issued by the Company, upon issuance
(except when issued to an investor who is an affiliate of the Company or who
otherwise may be deemed to be an underwriter), and the securities to be resold
by the selling securityholders, upon resale, will be freely transferable as
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registered securities under the Securities Act. The Common Stock is listed on
the NYSE. The breadth and strength of this market will depend, among other
things, upon the number of shares outstanding, the Company's financial results
and prospects, the general interest in the Company's and other real estate
investments and the Company's dividend yield compared to that of other debt and
equity securities.
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 shares of
Common Stock 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 shares
of Common Stock, 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 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 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 will be in a position to continue its 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.
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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 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").
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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 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
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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.
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.
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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 Operatin0g 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
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
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(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.
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
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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.
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
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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.
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
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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 "- 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 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.
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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 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
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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 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
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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 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.
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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, 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.
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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 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."
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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.
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
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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.
Tax Consequences of Redemption
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a limited partner who exercises his or
her right to require the redemption of his or her Common Units.
Tax Treatment of Redemption of Common Units. If a limited partner
exercises his or her right to require the redemption of Common Units and the
Company elects to acquire the Common Units in exchange for Common Shares and/or
cash, the acquisition will be treated as a sale of Common Units for Federal
income tax purposes. Such sale will be fully taxable to the limited partner.
Such limited partner generally will be treated as realizing for tax purposes an
amount equal to the sum of either the cash or the fair market value of the
Common Stock received and the amount of any Operating Partnership liabilities
allocable to the redeemed Common Units at the time of the redemption. The
determination of the amount of gain or loss is discussed more fully below.
If the Company does not elect to acquire the Common Units and instead the
Operating Partnership redeems the limited partner's Common Units for cash, the
tax consequences would be as described in the previous paragraph. However, if
the Operating Partnership redeems less than all of a limited partner's Common
Units, the limited partner would not recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the cash
plus the amount of any Operating Partnership liabilities allocable to the
redeemed Common Units exceeded the limited partner's adjusted basis in all of
such limited partner's Common Units immediately before the redemption.
The methodology used by the Operating Partnership to allocate its
liabilities to its partners will likely result in varying amounts of such
liabilities being allocated to different partners. Under that methodology, which
is based on principles set forth in Treasury Regulations, it is possible that
partners who hold an identical number of Common Units are allocated different
amounts of liabilities of the Operating Partnership for Federal income tax
purposes.
Tax Treatment of Disposition of Common Units by Limited Partner Generally.
If a Common Unit is redeemed or a limited partner otherwise disposes of a Common
Unit, the determination of gain or loss from the redemption or other disposition
will be based on the difference between the amount realized for tax purposes and
the tax basis in such Common Unit. See "- Basis of Common Units" below. Upon the
sale of a Common Unit, the "amount realized" will be the sum of the cash or fair
market value of
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Common Stock or other property received plus the reduction in the amount of any
Operating Partnership liabilities allocable to the Common Unit holder. To the
extent that the amount of cash or property received plus the reduction in the
allocable share of any Operating Partnership liabilities exceeds the limited
partner's basis in his or her interest in the Operating Partnership, such
limited partner will recognize gain. It is possible that the amount of gain
recognized or even the tax liability resulting from such gain could exceed the
amount of cash or the value of Common Stock received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Common Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent that the amount realized upon the
sale or other disposition of a Common Unit attributable to a limited partner's
share of "unrealized receivables" of the Operating Partnership (as defined in
Section 751 of the Code) exceeds the basis attributable to those assets,
however, such excess will be treated as ordinary income. Unrealized receivables
include, to the extent not previously included in Operating Partnership income,
any rights to payment for services rendered or to be rendered. Unrealized
receivables also include amounts that would be subject to recapture as ordinary
income if the Operating Partnership had sold its assets at their fair market
value at the time of the transfer of a Common Unit.
Basis of Common Units. In general, a limited partner who was deemed to
have received his or her Common Units upon liquidation of a partnership had an
initial tax basis in the Common Units ("Initial Basis") equal to his or her
basis in the partnership interest at the time of such liquidation. Similarly, in
general, a limited partner who contributed a partnership interest in exchange
for his or her Common Units had an Initial Basis in the Common Units equal to
his or her basis in the contributed partnership interest. A limited partner's
Initial Basis in his or her Common Units generally is increased by (i) such
limited partner's share of Operating Partnership taxable and tax-exempt income
and (ii) increases in such partner's share of the liabilities of the Operating
Partnership (including any increase in his or her share of liabilities occurring
in connection with the transaction in which he or she received Common Units).
Generally, such partner's basis in his or her Common Units is decreased (but not
below zero) by (a) his or her share of Operating Partnership distributions, (b)
decreases in his or her share of liabilities of the Operating Partnership
(including any decrease in his or her share of liabilities of the Operating
Partnership occurring in connection with the transaction in which he or she
received Common Units), (c) his or her share of losses of the Operating
Partnership, and (d) his or her share of nondeductible expenditures of the
Operating Partnership that are not chargeable to capital account.
Potential Application of the Disguised Sale Regulations to a Redemption of
Common Units. There is a risk that a redemption of Common Units, which were
issued in a transaction where a limited partner received Common Units, may cause
the original transfer of property to the Operating Partnership in exchange for
Common Units to be treated as a "disguised sale" of property. Section 707 of the
Code and the Treasury Regulations thereunder (the "Disguised Sale Regulations")
generally provide that a partner's contribution of property to a partnership and
the partnership's simultaneous or subsequent transfer of money or other
consideration (including the assumption of or taking subject to a liability) to
the partner, which would not have been made but for the transfer of property,
will be presumed to be a sale, in whole or in part, of such property by
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the partner to the partnership unless one of the prescribed exceptions is
applicable. Further, the Disguised Sale Regulations generally provide that, if a
partner's transfer of property to the partnership is within two years of the
partnership's transfer of money or other consideration to a partner, the
transfers are presumed to be a sale of the property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale. The
Disguised Sale Regulations also provide that if the transfers are made more than
two years apart, the transfers are presumed not to be a sale unless the facts
and circumstances clearly establish that the transfers do constitute a sale.
Accordingly, if a Common Unit is redeemed, the IRS could contend that the
Disguised Sale Regulations apply because the limited partner will receive
consideration subsequent to his or her previous contribution of property to the
Operating Partnership. In that event, the IRS could contend that any of the
transactions where limited partners received Common Units that may be redeemed
for shares of Common Stock that may in turn be sold are taxable as a disguised
sale under the Disguised Sale Regulations. Any gain recognized as a result of
the disguised sale treatment may be eligible for installment reporting under
Section 453 of the Code, subject to certain limitations.
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 and localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
stockholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective stockholders should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Common Stock of the Company.
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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.
SELLING SECURITYHOLDERS
This Prospectus relates, in part, to the resale of 10,506,097 shares of
Common Stock and warrants to purchase 1,479,290 shares of Common Stock
(collectively, the "Resale Securities") by the Selling Securityholders named
herein (the "Selling Securityholders"). The Resale Securities comprise:
o 973,738 shares of Common Stock,
o 8,249,206 shares underlying Common Units,
o 1,256,125 shares underlying outstanding warrants,
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o 27,028 shares of Common Stock that may be issued pursuant to certain
earn-out provisions, and
o the Resale Warrants, which are exercisable for a total of 1,479,290
shares of Common Stock.
The Resale Securities may be offered from time to time by the Selling
Securityholders. The following table provides the name of each Selling
Securityholder and the number of shares of Common Stock beneficially owned and
offered hereby and the number of shares of Common Stock underlying the Resale
Warrants offered hereby by each Selling Securityholder. The number of shares of
beneficially owned Common Stock provided in the following table includes the
number of shares that may be acquired by each Selling Securityholder upon (i)
redemption of Common Units, (ii) exercise of warrants (including the Resale
Warrants), whether or not currently exercisable, and (iii) exercise of
outstanding stock options that are currently exercisable. Because the Selling
Securityholders may offer all or some of the Resale Securities, no estimate can
be given as to the amount of shares that will be held by the Selling
Securityholders after completion of the offering.
Number of
Number of Number of Shares
Shares Shares Underlying
Name of Beneficially Offered Resale
Selling Securityholder (1) Owned(2) Hereby (2) Warrants
- -------------------------- -------- ---------- -----------
8-H Partnership 20,833 20,833 0
1985 Trust F/B/O Clate 2,936 2,936 0
Joseph Korsant L.B.M.
Family Limited
Partnership
1985 Trust F/B/O 2,936 2,936 0
Justin Frederick
Korsant
4501 Alexander
Associates (3) 144,392 8,155 0
Alfus Family Limited
Partnership 47,661 47,661 0
Gene Anderson (4) 618,579(5) 250,000 0
Ariel Associates,
L.L.C. 32,424 7,583 0
Arthur S. DeMoss
Foundation 92,046 92,046 0
ASP Partners (3) 5,941 5,941 0
The Audri May Tendler
Trust 2,929 2,929 0
Bennie Auerbach 32,486 32,486 0
Hyman Auerbach 46,759 46,759 0
Leon Auerbach 32,828 32,828 0
James W. Ayers 280,04 280,044 0
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Number of
Number of Number of Shares
Shares Shares Underlying
Name of Beneficially Offered Resale
Selling Securityholder (1) Owned(2) Hereby (2) Warrants
- -------------------------- -------- ---------- -----------
James Babb III 1,289 1,289 0
Gary T. Baker 172,682 172,682 0
Linda Barry 31,971 31,971 0
Bennett Family
Revocable Trust 2,092 2,092 0
Geoffrey Beer 817 817 0
Karen Blakely 10,000(6) 0 10,000
Geoffrey Boisi 2,623 2,623 0
Brainard Holdings,
Inc. 16,378 16,378 0
Burden Direct
Investment Fund I 46,255 46,255 0
CMS Oakbrook Summit, L.P. 104 104 0
CMS Operating Real
Estate Properties II, L.P. 20,728 20,728 0
P. Michael Caruso 11,507 11,507 0
Max C. Chapman 14,634 14,634 0
Charpat Properties 82,936 82,936 0
Charter Properties, Inc. 24,556 24,556 0
The Condon Family Trust 763,750 763,750 0
Cypress Westshore, Inc. 83,947 83,947 0
Mary L. Demetree 25,309 25,309 0
Allen C. de Olazarra 835,249(7) 347,084(8) 488,165
Jeff Dishner 815 815 0
John W. Eakin (4) (9) 328,504 (10) 322,391(10) 0
J. Roger Edwards, Jr. 11,704 11,704 0
Jonathan Eilian 13,664 13,664 0
Steuart A. Evans 14,902 14,902 0
William G. Evans 32,308 (11) 1,539 (11) 0
Mike Fann 29,851 29,851 0
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Number of
Number of Number of Shares
Shares Shares Underlying
Name of Beneficially Offered Resale
Selling Securityholder (1) Owned(2) Hereby (2) Warrants
- -------------------------- -------- ---------- -----------
Terry Jay Feldman 2,308 2,308 0
James K. Flannery, Jr. 30,000 (12) 30,000 (12) 0
Edward J. Fritsch (9)(13) 72,329 (14) 33,529 (14) 0
James R. Gates 835 835 0
Gene Anderson Family
Partnership, L.P. (15) 359,779 359,779 0
Jeffery L. Gibbs 3,505 3,505 0
GT Investment
Corporation 11,438 11,438 0
Ronald P. Gibson (4)(9) 192,248 (16) 140,124 (16) 0
Norman Goldbach 8,777 8,777 0
Jay and Patricia
Goldberg 1,255 1,255 0
Robert Goldman 202,112 202,112
Steve Goldman 2,104 2,104 0
Eugene Gorab 8,446 8,446 0
David L. Gordon 1,046 1,046 0
Madison Grose 16,541 16,541 0
Sidney J. Gunst 13,054 13,054 0
Edward W. and Kathleen
Hayes 1,535 1,535 0
James R. Heistand (4)(9) 1,512,946 (17) 1,491,710 (17) 852,575
Henry K. Solomon RKS Trust 4,850 4,850 0
Thomas A. Hunter III 4,965 4,965 0
Ted B. Jacobson 7,703 7,703 0
The James R. Gates
Charitable Remainder
Trust I 10,381 10,381 0
Jerome Janger 198,062 198,062 0
Linda Janger 4,394 4,394 0
Jewish Communal Fund 11,391 11,391 0
Dale Johannes (9) 203,222 (18) 203,222 (18) 103,550
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Number of
Number of Number of Shares
Shares Shares Underlying
Name of Beneficially Offered Resale
Selling Securityholder (1) Owned(2) Hereby (2) Warrants
- -------------------------- -------- ---------- -----------
Neal S. Johnston 5,385 5,385 0
Crawley F. Joyner 13,053 13,053 0
Parke D. Joyner 13,053 13,053 0
Susan Kellett 30,220 1,485 0
Kennington Ltd., Inc. 503,948 503,948 0
James A. Kleeman 163 163 0
Merrick Kleeman 8,863 8,863 0
Kollman Properties
Corp. 119,716 119,716 0
Lowell D. Kraff 238 238 0
John Kukral 24,016 24,016 0
L.B.M. Family Limited
Partnership 40,683 40,683 0
LPK Investments, L.L.C. 32,424 7,583 0
Lambster Partners 2,317 2,317 0
Alice Victoria M. Langley 27,122 27,122 0
Eugene Martin Langley, Jr. 16,196 16,196
Arthur Laub 9,035 9,035 0
Deborah Laub 1,046 1,046 0
Marmour Living Trust 26,820 26,820 0
Mary Sue McCarthy 10,000 (12) 10,000 (12) 0
Michael J. McCarthy 40,000 (12) 40,000 (12) 0
Stephen D. McCarthy 10,000 (12) 10,000 (12) 0
William J. McCarthy 10,000 (12) 10,000 (12) 0
Meyer Capital, L.P. 47,661 47,661 0
Montrose Corp. 146,649 146,649 0
Charles E. Mueller 311 311 0
Michael Mueller 1,142 1,142 0
Nashville Community
Foundation, Inc. 4,000 4,000 0
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<PAGE>
Number of
Number of Number of Shares
Shares Shares Underlying
Name of Beneficially Offered Resale
Selling Securityholder (1) Owned(2) Hereby (2) Warrants
- -------------------------- -------- ---------- -----------
Jack Nash 12,019 12,019 0
Newman Enterprises 12,366 12,366 0
The Nussbaum Family Trust 856 856 0
Dennis L. Olive 4,122 4,122 0
L. Glenn Orr (19) 10,000 (20) 250 (21) 0
Patewood Associates
Limited Partnership 18,982 18,982 0
Paul S. Bennett Family Trust 1,712 1,712 0
Peter Family Revocable Trust 5,897 5,897 0
Alan Petroff 5,358 5,358 0
Graydon O. Pleasants 36,400 36,400 0
W. Brian Reames (9) 177,838 (22) 183,244 (22) 0
John E. Reece (9) 83,501 (23) 71,251 (23) 0
Michael Rubel 10,265 10,265 0
SECC Partners 75,881 5,941 0
SJ Company (24) 23,466 23,466 0
William E. Salter 10,724 10,724 0
Chris B. Schoen 31,971 31,971 0
Alan Schwartz 4,254 4,254 0
Gerry E. Shannon 2,061 2,061 0
Jerome Silvey 1,538 1,538 0
E. Samuel Simpson 2,635 2,635 0
Judy Sirody 856 856 0
O. Temple Sloan, Jr. (9)(24) 513,599 (25) 342,893 (25) 0
David Smith 52,720 1,485 0
Margaret Smith 52,720 1,485 0
Mark C. Smith 39,522 39,522 0
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<PAGE>
Number of
Number of Number of Shares
Shares Shares Underlying
Name of Beneficially Offered Resale
Selling Securityholder (1) Owned(2) Hereby (2) Warrants
- -------------------------- -------- ---------- -----------
Robert E. Smith 143,445 1,485 0
Thomas S. Smith (26) 266,580 (27) 16,216 (27) 0
Stanley and Audri
Tendler Family Trust 7,811 7,811 0
Star Investors, GP 62,307 62,307 0
Starwood Capital Group I, L.P. 2,900 2,900 0
Starwood Capital Group, L.L.C. 69,231 69,231 0
Starwood Office
Investors I, Inc. 4,015 4,015 0
Starwood Opportunity
Fund IV, L.P. 1,055,711 1,055,711 0
Henry F. Stern 16,316 16,316 0
Barry Sternlicht 132,256 132,256 0
Stony Point Limited
Partnership II 104,228 104,228 0
Jay Sugarman 3,548 3,548 0
Theresa Goldbach
Testamentary Trust 258 258 0
Stephen F. Thornton 10,677 10,677 0
Stephen Timko (3)(9)(19) 208,368 (28) 160,697 0
Triad Properties Holdings -
Georgia, L.L.C. 145,258 145,258 0
Trust FBO Grant L.
Wilson Dated Aug. 2, 1976 32,894 1,456 0
Trust FBO Grant L.
Wilson Dated Dec. 17, 1984 61,850 1,213 0
Trust FBO Kirsten
Wilson Dated Aug. 2, 1976 32,893 1,456 0
Trust FBO Kirsten
Wilson Dated Dec. 17, 1984 61,851 1,213 0
Trust FBO Sara Wilson
Dated Oct. 13, 1976 32,893 1,456 0
Trust FBO Sara Wilson
Dated Dec. 17, 1984 61,850 1,213 0
John L. Turner (4)(9) 470,341 (29) 434,541 (29) 0
-55-
<PAGE>
Number of
Number of Number of Shares
Shares Shares Underlying
Name of Beneficially Offered Resale
Selling Securityholder (1) Owned(2) Hereby (2) Warrants
- -------------------------- -------- ---------- -----------
Robert Turner 10,000 (6) 0 10,000
Harrison A. Underwood III 2,635 2,635 0
Mark Walsh 15,000 (6) 0 15,000
Glenn Weathers 5,344 5,344 0
Kenneth M. Weiss 223 223 0
Wendy's of North Alabama, Inc. 21,161 21,161 0
The Westminster
Presbyterian Church 1,000 1,000 0
Roderick T. White 124,540 124,540 0
William A. White, Jr. 9,805 9,805 0
Robert A. Wilkins 10,000 (12) 10,000 (12) 0
William T. Wilson III (5)(9) 424,754 (30) 293,204 (30) 0
Ziff Investors Partnership,
L.P. II 230,954 230,954 0
---------- ---------
TOTAL 10,506,097 1,479,290
========== =========
- --------------------------------------------------------------------------------
(1) A "Selling Securityholder" shall also include any person or entity that
receives Resale Securities (or Common Units or warrants redeemable or
exercisable for Resale Securities) as a result of (i) their pro rata
distribution by an entity to its equity holders, (ii) a gift, or (iii) a
pledge. Any Selling Securityholder who is not specifically named in the
foregoing table will be named in a supplement to the Prospectus if such a
supplement is required by the rules and regulations of the Securities and
Exchange Commission at the time such Selling Securityholder offers any
Resale Securities.
(2) Unless otherwise noted, number shown represents shares issuable upon
redemption of Common Units.
(3) Stephen Timko, a general partner of ASP Partners and 4501 Alexander
Associates, is a director of the Company.
(4) Director and executive officer.
(5) Includes the 359,779 shares issuable upon redemption of the Common Units
held by Gene Anderson Family Partnership, L.P., a Selling Securityholder
listed below, 2,500 shares of Common Stock and 6,300 shares issuable upon
exercise of currently exercisable options.
(6) Represents shares issuable upon exercise of Resale Warrants.
(7) Includes 28,769 shares of outstanding Common Stock and 488,165 shares
issuable upon exercise of Resale Warrants.
-56-
<PAGE>
(8) Includes 28,769 shares of outstanding Common Stock.
(9) The resale of the Selling Securityholder's Issuance Shares are being
registered hereby should such Selling Stockholder be deemed to be an
affiliate of the Company or otherwise an underwriter of such shares.
(10) Includes 201,579 shares of outstanding Common Stock, 60,000 shares
issuable upon exercise of warrants and 16,925 shares issuable upon
exercise of currently exercisable options. The number of shares offered
also includes 10,812 shares issuable pursuant to earn-out arrangements.
(11) Includes 1,539 shares of outstanding Common Stock.
(12) Number of shares shown represents shares that may be issued upon exercise
of outstanding warrants.
(13) Executive officer.
(14) Includes 23,385 shares of outstanding Common Stock. The number of shares
beneficially owned also includes 38,800 shares issuable upon exercise of
currently exercisable stock options.
(15) Gene Anderson is the general partner of Gene Anderson Family Partnership,
L.P.
(16) Includes 69,076 shares of outstanding Common Stock. The number of shares
beneficially owned also includes 51,300 shares issuable upon exercise of
currently exercisable options. Number of shares offered hereby includes
only 68,252 shares of outstanding Common Stock.
(17) Includes 74,005 shares of outstanding Common Stock and 852,575 shares
issuable upon exercise of Resale Warrants. Number of shared offered hereby
includes only 52,769 shares of outstanding Common Stock.
(18) Includes 9,231 shares of outstanding Common Stock and 103,550 shares
issuable upon the exercise of Resale Warrants.
(19) Director.
(20) Includes 9,000 shares issuable upon exercise of currently exercisable
options and 250 shares of Common Stock.
(21) Represents shares of outstanding Common Stock.
(22) Includes 107,838 shares of Common Stock and 30,000 shares issuable upon
exercise of outstanding warrants. The number of shares offered also
includes 5,406 shares issuable pursuant to earn-out arrangements.
(23) Includes 1,000 shares of outstanding Common Stock and 30,000 shares
issuable upon exercise of outstanding warrants. The number of shares
beneficially owned also includes 11,250 shares issuable upon exercise of
currently exercisable options.
(24) O. Temple Sloan, Jr., a general partner of SJ Company, is a director of
the Company.
(25) Includes 104,924 shares of outstanding Common Stock. Number of shares
beneficially owned includes 23,466 shares issuable upon redemption of
Common Units held by SJ Company, a Selling Securityholder, and 147,040
shares issuable upon exercise of currently exercisable options. Number of
shares offered hereby includes only 104,724 shares of outstanding Common
Stock.
(26) Thomas S. Smith is a former director and officer of the Company.
(27) The number of shares beneficially owned includes 60,000 shares issuable
upon exercise of outstanding warrants and 206,580 shares of outstanding
Common Stock. The number of shares offered represents shares issued or
issuable pursuant to earn-out arrangements.
-57-
<PAGE>
(28) Includes 33,210 shares issuable upon redemption of Common Units held by
4501 Alexander Associates, of which Mr. Timko is a general partner, 3,089
shares issuable upon redemption of Common Units held by ASP Partners, of
which Mr. Timko is a general partner, and 11,372 shares issuable upon
exercise of currently exercisable options.
(29) Includes 7,000 shares of outstanding Common Stock and 35,000 issuable upon
exercise of warrants. The number of shares beneficially owned also
includes 28,800 shares issuable upon exercise of currently exercisable
options. None of the shares offered hereby include outstanding shares of
Common Stock.
(30) Includes 7,800 shares of outstanding Common Stock and 35,000 shares
issuable upon exercise of warrants. The number of shares beneficially
owned also includes 123,750 shares issuable upon exercise of currently
exercisable options. None of the shares offered hereby include outstanding
shares of Common Stock.
PLAN OF DISTRIBUTION
This Prospectus relates to the issuance of 4,611,351 shares of Common
Stock by the Company and the resale of the Resale Securities by the Selling
Securityholders.
With respect to the Issuance Shares, 150,000 shares will be issued upon
exercise of certain outstanding warrants at a price of $28.00 per share. The
remaining 4,461,351 Issuance Shares are offered for an equal number of Common
Units in Highwoods Realty Limited Partnership, which is the operating
partnership through which the Company conducts substantially all of its
business. The holders of Common Units generally have the right to redeem them
for the market value of an equal number of shares of Common Stock. At the time
the Common Units are presented for redemption, the Company has an option to
purchase such Common Units for an equal number of shares of Common Stock or the
cash value thereof.
The Company is registering the Resale Securities on behalf of the Selling
Securityholders. As used herein, "Selling Securityholders" includes any person
or entity that receives Resale Securities (or Common Units or warrants
redeemable or exercisable for Resale Securities) as a result of (i) their pro
rata distribution by an entity to its equity holders, (ii) a gift, or (iii) a
pledge. All costs, expenses and fees (estimated to be $260,000) in connection
with the registration of the Resale Securities and Issuance Shares offered
hereby will be borne by the Company. Brokerage commissions and similar selling
expenses, if any, attributable to the sale of Resale Securities will be borne by
the Selling Securityholders. Sales of Resale Securities may be effected by
Selling Securityholders from time to time in one or more types of transactions
(which may include block transactions) on the NYSE, in the over-the-counter
market, in negotiated transactions, through put or call options transactions
relating to the Resale Securities, through short sales of Resale Securities, or
a combination of such methods of sale, at market prices prevailing at the time
of sale, or at negotiated prices. Such transactions may or may not involve
brokers or dealers. The Selling Securityholders have not advised the Company
that they have entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their securities, or
that there is an underwriter or coordinating broker acting in connection with
the proposed sale of Resale Securities by the Selling Securityholders.
-58-
<PAGE>
The Selling Securityholders may effect such transactions by selling Resale
Securities directly to purchasers or to or through broker-dealers, which may act
as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the Selling Securityholders
and/or the purchasers of Resale Securities for whom such broker-dealers may act
as agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in connection
with the sale of Resale Securities might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by such broker-dealers and any profit on the resale of the Resale Securities
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act. The Company has agreed to
indemnify each Selling Securityholder against certain liabilities, including
liabilities arising under the Securities Act. The Selling Securityholders may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the Resale Securities against certain
liabilities, including liabilities arising under the Securities Act.
Because the Selling Securityholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Securityholders will be subject to the prospectus delivery requirements of the
Securities Act, which may include delivery through the facilities of the NYSE
pursuant to Rule 153 under the Securities Act. The Company has informed the
Selling Securityholders that the anti-manipulative provisions of Regulation M
promulgated under the Exchange Act may apply to their sales in the market.
The Selling Securityholders also may resell all or a portion of the Resale
Securities in open market transactions in reliance upon Rule 144 under the
Securities Act, provided they meet the criteria and conform to the requirements
of such Rule.
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 & 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
-59-
<PAGE>
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.
-60-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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 offering of the Issuance Shares and Resale Securities.
Securities and Exchange Commission Registration Fee................ 125,225
Fees and Expenses of Counsel....................................... 75,000
Miscellaneous ..................................................... 49,775
TOTAL........................................................$250,000
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 reason of their service in those or other capacities unless it is
established that the act or omission of the director or officer was material to
the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty, or the director or officer
actually received an improper personal benefit in money, property or services,
or in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
The Operating Partnership Agreement also provides for indemnification of
the Company and its officers and directors to the same extent indemnification is
provided to officers and directors of the Company in its Articles of
Incorporation and limits the liability of the Company and its officers and
directors to the Operating Partnership and its partners to the same extent
liability of officers and directors of the Company to the Company and its
stockholders is limited under the Company's Articles of Incorporation.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 16. EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 (1) 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 (2) 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 (2) 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 (3) Contribution and Exchange Agreement by and among Century Center
group, the Operating Partnership and the Company, dated December 31,
1996
II-1
<PAGE>
2.5 (3) 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 (4) 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 (5) 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 (6) 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 (6) Purchase Agreement between the Company, UBS Limited and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
4.4 (6) Forward Stock Purchase Agreement between the Company and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
4.5 Form of Letter Agreement between the Company and UBS AG, London
Branch, dated as of August 28, 1998, and Waiver in respect thereof
4.6 (10) Form of certificate representing shares of Common Stock
4.7 Form of Resale Warrant
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)
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 Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(2) Filed as part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(3) Filed as part of the Company's Current Report on Form 8-K dated January 9,
1997 and incorporated herein by reference.
(4) Filed as part of Registration Statement No. 33-88364 with the Securities
and Exchange Commission and incorporated herein by reference.
(5) Filed as part of the Company's Current Report on Form 8-K dated August 27,
1997 and incorporated herein by reference.
(6) 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.
(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.
II-2
<PAGE>
(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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
Provided, however, that the undertakings set forth in paragraphs (a)(1)
(i) and (a)(1)(ii) do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the 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.
II-3
<PAGE>
(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 above,
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.
II-4
<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 Amendment No. 2 to
Registration Statement 333-61913, Post-Effective Amendment No. 2 to Registration
Statement No. 33-93572 and Post-Effective Amendment No. 1 to Registration
Statement Nos. 333-08985, 333-13519, 333-24165 and 333-43745 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Raleigh,
State of North Carolina, on October 30, 1998.
HIGHWOODS PROPERTIES, INC.
By: /s/ Carman J. Liuzzo
---------------------------------------
Carman J. Liuzzo
Vice President, Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement 333-61913, Post-Effective Amendment No. 2 to
Registration Statement No. 33-93572 and Post-Effective Amendment No. 1 to
Registration Statement Nos. 333-08985, 333-13519, 333-24165 and 333-43745 has
been signed by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ O. Temple Sloan, Jr.* Chairman of the Board of Directors October 30, 1998
- --------------------------
O. Temple Sloan, Jr.
/s/ Ronald P. Gibson* President, Chief Executive Officer October 30, 1998
- -------------------------- and Director
Ronald P. Gibson
/s/ John L. Turner* Chief Investment Officer and Vice October 30, 1998
- -------------------------- Chairman of the Board of Directors
John L. Turner
/s/ Gene H. Anderson* Senior Vice President October 30, 1988
- --------------------------
Gene H. Anderson
/s/ John W. Eakin* Senior Vice President October 30, 1988
- -------------------------
John W. Eakin
/s/ James R. Heistand* Senior Vice President October 30, 1988
- -------------------------
James R. Heistand
/s/ Thomas W. Adler* Director October 30, 1988
- -------------------------
Thomas W. Adler
II-5
<PAGE>
/s/ Kay Nichols Callison Director October 30, 1988
- -------------------------
Kay Nichols Callison
/s/ William E. Graham, Jr.* Director October 30, 1988
- -------------------------
William E. Graham, Jr.
/s/ L. Glenn Orr, Jr.* Director October 30, 1988
- -------------------------
L. Glenn Orr, Jr.
/s/ Willard H. Smith, Jr.* Director October 30, 1988
- -------------------------
Willard H. Smith, Jr.
/s/ Stephen Timko* Director October 30, 1988
- -------------------------
Stephen Timko
/s/ William T. Wilson, III* Director October 30, 1988
- -------------------------
William T. Wilson, III
/s/ Carman J. Liuzzo Vice President, Chief Financial October 30, 1988
- ------------------------- Officer (Principal Financial Officer
Carman J. Liuzzo and Principal Accounting Officer)
and Treasurer
</TABLE>
* By: /s/Carman J. Liuzzo
----------------------------------
Carman J. Liuzzo (Attorney-In-Fact)
II-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 (1) 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 (2) 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 (2) 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 (3) Contribution and Exchange Agreement by and among Century Center
group, the Operating Partnership and the Company, dated December 31,
1996
2.5 (3) 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 (4) 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 (5) 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 (6) 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 (6) Purchase Agreement between the Company, UBS Limited and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
4.4 (6) Forward Stock Purchase Agreement between the Company and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
4.5 Form of Letter Agreement between the Company and UBS AG, London
Branch, dated as of August 28, 1998, and Waiver in respect thereof
4.6 (10) Form of certificate representing shares of Common Stock
4.7 Form of Resale Warrant
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)
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 Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(2) Filed as part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(3) Filed as part of the Company's Current Report on Form 8-K dated January 9,
1997 and incorporated herein by reference.
<PAGE>
(4) Filed as part of Registration Statement No. 33-88364 with the Securities
and Exchange Commission and incorporated herein by reference.
(5) Filed as part of the Company's Current Report on Form 8-K dated August 27,
1997 and incorporated herein by reference.
(6) 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.
(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.
August 28, 1998
Highwoods Properties, Inc.
3100 Smoketree Court
Suite 600
Raleigh, NC 27604
Attn.: Carmen Liuzzo
Ladies and Gentlemen:
This letter agreement between Highwoods Properties, Inc. (the "Company")
and UBS AG, London Branch ("UB-LB"), as successor to UBS (as defined), acting
through its agent Warburg Dillon Read LLC, modifies and amends, in part, certain
of the terms and conditions of that certain Forward Stock Purchase Confirmation,
dated August 25, 1997 (the "Forward Agreement") between the Company and Union
Bank of Switzerland, London Branch ("UBS"), as such may have been amended
through the date hereof. Defined terms not otherwise defined herein shall have
the meanings ascribed to them under the Forward Agreement.
Notwithstanding the terms and conditions of the Forward Agreement, the
Company and UB-LB agree as follows:
1. The "Maturity Date" of the Transaction shall be February 28, 1999.
2. In consideration of the agreement to extend the Maturity Date, the Company
shall pay to UB-LB on or before August 28, 1998, a commitment fee of 0.50%
($289,125) of the product obtained by multiplying the Initial Price by the
number of Underlying Shares, plus reasonable legal fees.
3. For the avoidance of doubt:
a) In the definition of "Initial Price" in Section IV of the Forward
Agreement, the term "[closing price]" shall be deleted and replaced by
"$32.125".
b) In the definition of "Mandatory Unwind Thresholds" in Section IV of the
Forward Agreement, the term "Current Price" shall be deleted and replaced by
"Initial Price", and
<PAGE>
c) The day of the month referred to in the definitions of "Trade Date",
"Effective Date", and "Reset Dates" shall be the 28th, not the 25th.
4. Notwithstanding any provision of the Forward Agreement to the contrary, under
no circumstances shall the Company be permitted to use common shares to fulfill
any of its obligations under the Forward Agreement after October 12, 1998
(including without limitation, Settlement or Interim Settlement obligations),
unless a registration statement contemplated by Section II.A.5. of the Forward
Agreement is effective with respect to such shares.
5. Effective August 28, 1998, Exhibit A to the Forward Agreement (which contains
financial covenants of the Company, the breach of any of which constitutes a
Mandatory Unwind Event under Section V of the Forward Agreement) shall be
replaced in its entirety by the new Exhibit A that is attached to this letter.
6. a) Before "Mandatory Unwind Event" in Section V, the following provision
shall be added:
Early Settlements
with respect
to Other
Substantially Similar
Transactions: The Company agrees that (i) prior to the early
settlement, unwind or liquidation of any
transaction that is substantially similar to the
transaction contemplated by this Forward Stock
Contract (an "Other Transaction"), the Company
shall promptly, after learning that any such event
may occur, give telephone notice to no less than
two (2) UB-LB officers, one of which must be an
officer of the Real Estate Finance Group
(confirmed in writing by both fax and next day
mail) of such upcoming settlement, unwind or
liquidation, (ii) any such settlement, unwind or
liquidation shall constitute a Mandatory Unwind
Event under clause (ii) of "Mandatory Unwind
Event" in this Section V, and (iii) UBS may
require all or part of the Transaction to be
settled prior to or coincident with such other
Transaction.
b) Subclause (5) of clause (ii) under "Mandatory Unwind Event" in Section V
shall be deleted in its entirety and replaced as follows:
(5) any failure of the Company to post collateral pursuant to Section III
herein,
-2-
<PAGE>
c) To clause (ii) under "Mandatory Unwind Event" in Section V, the following
shall be added:
(6) the Company settles, unwinds or liquidates any transaction that is
substantially similar to this Transaction, thus giving rise to a
Mandatory Unwind Event under "Early Settlements with respect to Other
Substantially Similar Transactions" of this Section V, and/or
(7) failure to deliver to UBS on or before October 12, 1998, an effective
registration statement as contemplated by Section II.A.5. above.
7. The agreement of UBS of the modifications and amendments provided for herein
shall not constitute or imply any agreement or undertaking to agree to any other
modification or amendment with respect to the Forward Agreement.
Sincerely,
UBS AG, London Branch:
By:________________________________ By:________________________________
Name: Name:
Title: Title:
Date: Date:
AGREED TO AND ACCEPTED
Highwoods Properties, Inc.
By:_______________________________ By:_________________________________
Name: Name:
Title: Title:
Date: Date:
-3-
<PAGE>
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
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION
PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO A REGISTRATION RIGHTS
AND LOCK-UP AGREEMENT DATED AS OF OCTOBER 1, 1997 (AS THE SAME MAY BE AMENDED,
MODIFIED OR SUPPLEMENTED, THE "REGISTRATION RIGHTS AGREEMENT"), A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND MAY BE OBTAINED UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
Warrant No.
Date of Issuance: ____________, 1997
Right to Purchase ________ Shares of Common Stock, $.01 par value
per share, of Highwoods Properties, Inc.
HIGHWOODS PROPERTIES, INC.
Common Stock Purchase Warrant
Highwoods Properties, Inc., a corporation incorporated under the laws of
the State of Maryland (the "Company"), hereby certifies that, for value
received, __________ or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time on or after
October 1, 2002, ______________ fully paid and nonassessable shares of Common
Stock, $.01 par value per share, of the Company, at a purchase price per share
of $32.50 per share (such purchase price per share as adjusted from time to time
as herein provided is referred to herein as the "Purchase Price"). The number
and character of such shares of Common Stock and the Purchase Price are subject
to adjustment as provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the "Warrants")
evidencing the right to purchase shares of Common Stock of the Company issued
pursuant to that certain Master Agreement of Merger and Acquisition (as the same
may be amended, modified or supplemented, the "Merger Agreement"), dated as of
August 27, 1997, by and among the Company, Highwoods/Forsyth Limited
Partnership, Associated Capital Properties, Inc. ("ACP") and the shareholders of
ACP, and subject to the Registration Rights Agreement, copies of which
agreements are on file at the principal office of the Company, and the holder of
this Warrant shall be entitled to all of the benefits of the Registration Rights
Agreement, as provided therein.
<PAGE>
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include any corporation which shall
succeed to or assume the obligations of the Company under this Warrant.
(b) The term "Common Stock" includes the Company's Common Stock,
$.01 par value per share, as authorized on the date of the Merger Agreement and
any other securities into which or for which any of such Common Stock may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
(c) The term "Fair Market Value" means, in any case in which the
Common Stock is publicly traded, the daily closing price per share of Common
Stock on the date of exercise of a Warrant. The closing price for any day shall
be the last sale price or, in case no sale takes place on such day, the average
of the closing bid and asked prices in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading; or, if not listed or admitted to trading on any national
securities exchange, the last quoted price (or, if not so quoted, the average of
the last quoted high bid and low asked prices) in the over-the-counter market,
as reported by the National Association of Securities Dealers Automated
Quotations System or such other system then in use; or, if on any such date no
bids are quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in such
security reasonably selected by the Board of Directors of the Company with
utmost good faith to the holder of this Warrant. If on any such date, no market
maker is making a market in the Common Stock, the Fair Market Value of such
security on such date shall be determined reasonably and with utmost good faith
to the holder of this Warrant by the Board of Directors of the Company. If the
Common Stock is not publicly held or not so listed or traded, "Fair Market
Value" shall mean the fair value per share determined reasonably and with utmost
good faith to the holder of this Warrant by the Board of Directors of the
Company.
1. EXERCISE OF WARRANT.
1.1. FULL EXERCISE. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription at the
end hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then exercisable by the
Purchase Price then in effect.
1.2. PARTIAL EXERCISE. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Subsection
1.1 except that the amount payable by the holder on such partial exercise shall
be the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Purchase Price then in effect. On any such partial exercise the Company at its
expense will
2
<PAGE>
immediately issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder may request, calling in the aggregate on the face or faces thereof for
the number of shares of Common Stock for which such Warrant or Warrants may
still be exercised.
1.3. NET ISSUE ELECTION. The holder hereof may elect to receive,
without the payment by such holder of any additional consideration, shares equal
to the value of this Warrant or any portion hereof by the surrender of this
Warrant or such portion to the Company, with the form of subscription at the end
hereof duly executed by such holder, at the office of the Company. Thereupon,
the Company shall issue to such holder such number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares to be issued to such holder pursuant to this
Subsection 1.3.
Y = the number of shares covered by this Warrant in respect of which the
net issue election is made pursuant to this Subsection 1.3.
A = the Fair Market Value of one share of Common Stock as of the date on
which the net exercise election is made pursuant to this Subsection 1.3.
B = the Purchase Price in effect under this Warrant at the time the net
issue election is made pursuant to this Subsection 1.3.
1.4. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof, acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant and the Registration Rights Agreement. If the
holder shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such rights.
1.5. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 4.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 12 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder may direct, a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock to which such
3
<PAGE>
holder shall be entitled on such exercise, plus, in lieu of any fractional share
to which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then current Fair Market Value of one full share, together
with any other stock or other securities and property (including cash, where
applicable) to which such holder is entitled upon such exercise, pursuant to
Section 1 or otherwise.
3. ADJUSTMENTS.
(a) If the outstanding shares of Common Stock shall be subdivided
into a greater number of shares or a dividend in Common Stock shall be declared
or distributed in respect of the Common Stock or the outstanding shares of
Common Stock shall be combined or reclassified into a smaller number of shares,
the Purchase Price in effect immediately after the record date for such dividend
or distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Purchase Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such dividend, distribution, subdivision,
combination or reclassification, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after such dividend,
distribution, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event specified above shall occur.
(b) If the Company shall fix a record date for the issuance of
rights, options, warrants or convertible or exchangeable securities to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share of Common Stock less than the Fair Market
Value per share of Common Stock on such record date, the Purchase Price shall be
adjusted immediately thereafter so that it shall equal the price determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date (plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the Fair Market Value per share of Common Stock on
such record date), and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase. Such adjustment
shall be made successively whenever such a record date is fixed. Notwithstanding
the foregoing, if the securities referred to in this Subsection 3(b) entitle the
holder on some future date or upon the happening of some future event to
subscribe for or purchase shares of Common Stock at a price per share less than
the Fair Market Value per share on such record date, then the Purchase Price
adjustment referred to above shall be made on such future date or upon the
happening of such future event. If this Warrant is exercised after such record
date but prior to such future time or the happening of such future event, the
holder of this Warrant shall receive upon the exercise hereof (in addition to
the number of shares of Common Stock set forth above, as adjusted, if necessary,
in accordance with the provisions hereof) such rights, options, warrants or
convertible or exchangeable securities that such holder would have been entitled
to receive if, immediately prior to such record date, such holder had held the
number of shares of Common Stock which were then purchasable upon the exercise
of this Warrant. To the extent that any rights, options, warrants or convertible
or exchangeable securities referred to in this Subsection 3(b) are not so issued
or expire
4
<PAGE>
unexercised, the Purchase Price then in effect shall be readjusted to the
Purchase Price that would then be in effect if such unissued or unexercised
rights, options, warrants or convertible or exchangeable securities had not been
issuable.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of shares of Common Stock (i) of shares of any class
other than Common Stock or (ii) of evidences of its indebtedness or (iii) of
assets (excluding cash dividends or distributions (other than extraordinary cash
dividends or distributions), and dividends or distributions referred to in
Subsection 3(a) hereof) or (iv) of rights, options, warrants or convertible or
exchangeable securities (excluding those rights, options, warrants or
convertible or exchangeable securities referred to in Subsection 3(b) hereof),
then in each such case the Purchase Price in effect immediately thereafter shall
be determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding on such record date multiplied by the Fair
Market Value per share of Common Stock on such record date, less the aggregate
fair market value as determined in good faith by the Board of Directors of the
Company of said shares or evidences of indebtedness or assets or rights,
options, warrants or convertible or exchangeable securities so distributed, and
of which the denominator shall be the total number of shares of Common Stock
outstanding on such record date multiplied by the Fair Market Value per share of
Common Stock on such record date. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such distribution is not
so made, the Purchase Price then in effect shall be readjusted to the Purchase
Price which would then be in effect if such record date had not been fixed.
(d) In case the Company shall sell and issue Common Stock or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase shares of Common Stock, for a consideration
consisting, in whole or in part, of property (other than cash) or services or
its equivalent, then in determining the "price per share of Common Stock"
referred to in Subsection 3(b) above, the Board of Directors of the Company
shall determine, in good faith and on a reasonable basis, the fair value of said
property.
(e) When any adjustment is required to be made in the Purchase Price
as a result of the operation of Subsections 3(a), 3(b) or 3(c) hereof, the
number of shares of Common Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(f) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 3(a)
above), or any consolidation or merger of the Company with or into another
entity (other than a merger or consolidation in which the Company is the
surviving corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such outstanding shares
of Common Stock into shares of other stock or other securities or property), or
a transfer of all or substantially all of the assets of the Company then, as
part of any such reorganization, reclassification, consolidation, merger or
transfer, as the case may be, lawful provision shall be made so that the holder
of this Warrant shall receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which such holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or transfer as the case may
5
<PAGE>
be, such holder had held the number of shares of Common Stock which were then
purchasable upon the exercise of this Warrant, provided that, in all cases,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth herein with respect to the rights and interests thereafter of the holder
of this Warrant, such that the provisions set forth in this Section 3 (including
provisions with respect to adjustment of the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant, and in the case of any consolidation or merger, the successor
or acquiring entity (if other than the Company) shall expressly assume the due
and punctual observance and performance of each and every provision of this
Warrant.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrants above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the exercise of all Warrants from time to
time outstanding, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of the Warrants.
5. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock issuable on the
exercise of the Warrants, the Company at its expense will promptly cause
independent certified public accountants of recognized standing selected by the
Company to compute such adjustment or readjustment in accordance with the terms
of the Warrants and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or receivable by the Company for any additional shares of Common Stock issued or
sold or deemed to have been issued or sold, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Purchase Price and
the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such issue or sale and as adjusted and
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to each holder of a Warrant, and will, on the written
request at any time of any holder of a Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
6
<PAGE>
6. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any
class or securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution (excluding cash
dividends or distributions (other than extraordinary cash dividends or
distributions)), or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up, and (iii) the amount and character of any stock or other securities,
or rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall be
mailed at least ten (10) days prior to the date specified in such notice on
which any such action is to be taken. Failure to mail such notice or any defect
therein shall not affect the validity of any such action.
7. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock from time
to time issuable on the exercise of the Warrants.
8. EXCHANGE OF WARRANTS. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
7
<PAGE>
9. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction of any Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
10. WARRANT AGENT. The Company may, by written notice to each holder of a
Warrant, appoint an agent for the purpose of issuing Common Stock on the
exercise of the Warrants pursuant to Section 1, exchanging Warrants pursuant to
Section 8, and replacing Warrants pursuant to Section 9, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
11. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred by: (i) endorsement (by
the holder hereof executing the form of assignment at the end hereof) and
(ii) delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered
to transfer absolute title hereto by endorsement and delivery hereof to a
bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of each
such bona fide purchaser, and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary.
12. NOTICES, ETC. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, or by Federal Express or other recognized
overnight courier, to such address as may have been furnished to the Company in
writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.
13. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of North Carolina. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The
8
<PAGE>
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
Dated: ___________, 1997 HIGHWOODS PROPERTIES, INC.
By: ______________________________________
Name: Mack D. Pridgen, III
Title: Vice President and General Counsel
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO HIGHWOODS PROPERTIES, INC.:
The undersigned, the holder of the within Warrant, hereby elects to
exercise all or a portion of this Warrant for, and to purchase thereunder,
.......... shares of Common Stock of Highwoods Properties, Inc. and herewith
either (a) makes payment of $......... therefor, or (b) elects to exercise this
Warrant in the amount indicated on a net basis, and in any event, requests that
the certificates for such shares be issued in the name of, and delivered to
................, whose address is
.....................................................
Dated: ..............................
(Signature must conform to name of
holder as specified on the face of the
Warrant)
......................................
(Address)
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<PAGE>
------------------------
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto .............. the right represented by the within Warrant to purchase
................. shares of Common Stock of Highwoods Properties, Inc. to which
the within Warrant relates, and appoints ........................, Attorney to
transfer such right on the books of Highwoods Properties, Inc. with full power
of substitution in the premises.
Dated: ..............................
(Signature must conform to name of
holder as specified on the face of the
Warrant)
......................................
(Address)
Signed in the presence of:
.............................
11
ALSTON&BIRD LLP
3605 Glenwood Avenue, Suite 310
P. O. Drawer 31107
Raleigh, NC 27622-1107
919-420-2200
Fax: 919-420-2260
www.alston.com
ROBERT H. BERGDOLT DIRECT DIAL: 919-420-2216 E-MAIL: [email protected]
OCTOBER 30, 1998
Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
Re: Legality of shares covered by Registration Statement on Form S-3
(file no. 333-61913)(the "Registration Statement")
------------------------------------------------
Ladies and Gentlemen:
We are acting as counsel for Highwoods Properties, Inc., a Maryland
corporation (the "Company"), in connection with the preparation and filing of
the Registration Statement, which covers the registration by the Company of the
Issuance Shares and the resale of the Resale Securities. All capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to them
in the prospectus that is part of the Registration Statement.
We have reviewed such documents and considered such matters of law and
fact as we, in our professional judgment, have deemed appropriate to render the
opinions contained herein. We are familiar with the proceedings taken and
proposed to be taken by the Company in connection with the authorization and
issuance of the Issuance Shares and the Resale Securities and for the purpose of
this opinion, have assumed such proceedings will be timely completed in the
manner presently proposed.
Based upon and subject to the foregoing and the further limitations and
qualifications hereinafter expressed, it is our opinion that:
1. The outstanding Resale Securities have been duly authorized and validly
issued, and are fully paid and nonassessable.
2. The Company has the authority pursuant to its charter to issue the
Issuance Shares and the unissued Resale Securities, and such securities will be
duly authorized, validly issued, fully paid and nonassessable upon (a) the
adoption by the board of directors of a resolution in form and content required
by Maryland law, and (b) delivery of the consideration contemplated by (i) the
Agreement of Limited Partnership of Highwoods Realty Limited Partnership with
respect to the shares issuable upon
<TABLE>
<CAPTION>
<S> <C> <C>
One Atlantic Center 1211 East Morehead Street 601 Pennsylvania Avenue, N.W.
1201 West Peachtree Street P.O. Drawer 34009 North Building, 11th Floor
Atlanta, Georgia 30309-3424 Charlotte, NC 28234-4009 Washington, DC 20004-2601
404-881-7000 704-331-6000 202-756-3300
Fax: 404-881-7777 Fax: 704-334-2014 Fax: 202-756-3333
</TABLE>
<PAGE>
Highwoods Properties, Inc.
October 30, 1998
Page 2
redemption of Common Units, or (ii) the applicable warrant with respect to the
shares issuable upon exercise of warrants.
Our opinions expressed herein are as of the date hereof, and we undertake
no obligation to advise you of any changes in applicable law or any other
matters that may come to our attention after the date hereof that may affect our
opinions expressed herein.
Very truly yours,
ALSTON & BIRD LLP
By: /s/ ROBERT H. BERGDOLT, PARTNER
-------------------------------
Robert H. Bergdolt, Partner
RHB/ppb
ALSTON&BIRD LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-4777
www.alston.com
PINNEY L. ALLEN DIRECT DIAL: 404-881-7485
October 30, 1998
Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
Re: Registration Statement on Form S-3 Relating to 11,769,923
Shares of Common Stock and Warrants to Purchase 1,479,290
Shares of Common Stock of Highwoods Properties, Inc.
Ladies and Gentlemen:
In connection with the registration statement on Form S-3, File No.
333-61913, as in the form filed on October 30, 1998, relating to the
registration of 11,769,923 shares of common stock and warrants to purchase
1,479,290 shares of common stock by Highwoods Properties, Inc. (the "Company"),
you have requested our opinion concerning certain of the federal income tax
consequences to the Company of its election to be taxed as a real estate
investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code").
This opinion is based solely on various facts and factual assumptions as
set forth in the Registration Statement and is conditioned upon certain
representations made by the Company as to factual matters through certificates
of officers of the Company (the "Officers' Certificates") attached hereto and
made a part hereof. We have made no independent inquiry as to the factual
matters set forth herein. In addition, we have examined no documents other than
the Registration Statement for purposes of this opinion and, therefore, our
opinion is limited to matters determined through an examination of such document
and the factual matters set forth in the Officers' Certificates.
In rendering the opinions set forth herein, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures thereon, the legal capacity of natural persons executing such
documents and the conformity to authentic original documents of all documents
submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the federal income tax laws of the United States and we express no opinion with
respect to the applicability thereto, or the effect thereon, of other federal
laws, the laws of any other jurisdiction, the laws of any state or as to any
matters of municipal law or the laws of any other local agencies within any
state.
1211 East Morehead 3605 Glenwood Avenue, 601 Pennsylvania
Street Suite 310 Avenue, N.W.
P. O. Drawer 34009 P. O. Drawer 31107 North Building, 11th Floor
Charlotte, NC 28234-4009 Raleigh, NC 27622-1107 Washington, DC 20004-2601
704-331-6000 919-420-2200 202-756-3300
Fax: 704-334-2014 Fax: 919-881-3175 Fax: 202-756-3333
<PAGE>
Highwoods Properties, Inc.
October 30, 1998
Page 2
Based solely on the facts in the Registration Statement and the facts in
the Officers' Certificates, we are 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
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. With respect to
1998, we note that the Company's status as a REIT at any time during such year
is dependent, among other things, upon the Company meeting the requirements of
Sections 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, it is not possible to assure
that the Company will satisfy the requirements to be a REIT during the taxable
year that will end December 31, 1998.
In addition, we have participated in the preparation of the material under
the heading "Federal Income Tax Considerations" of the Registration Statement
and we are of the opinion that the federal income tax treatment described
therein is accurate in all material respects.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officers' Certificates may affect the opinions stated herein.
This opinion is limited to the specific matters covered hereby and should
not be interpreted to imply that the undersigned has offered its opinion on any
other matter. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement.
Very truly yours,
ALSTON & BIRD
By: /s/ PINNEY L. ALLEN
__________________________
Pinney L. Allen
<PAGE>
CERTIFICATE
I, MACK D. PRIDGEN, III, in my capacity as Vice-President and General
Counsel of Highwoods Properties, Inc. (the "Company"), do hereby certify, to the
best of my knowledge and belief after making appropriate inquiries with respect
to all matters set forth below, as follows:
1. That I am a Vice-President and the General Counsel of the Company
and I am licensed to practice law in the state of North Carolina;
2. That in such capacity, I have access to relevant information
regarding each of the factual matters set forth below;
3. That for purposes of this Certificate,
(a) "Affiliated Limited Liability Companies" means, collectively:
(i) Shockoe Plaza Investors LLC, a Virginia limited liability
company that is owned 99% by Highwoods Realty Limited Partnership and 1% by
Highwoods Services;
(ii) HPI Title Agency LLC, a North Carolina limited liability
company that is owned 100% by Highwoods Realty Limited Partnership;
(iii) Nine Crondall Associates, LLC, a Maryland limited
liability company that is owned 100% by Highwoods Realty Limited Partnership;
(iv) Eight Crondall Associates LLC, a Maryland limited
liability company that is owned 100% by Highwoods Realty Limited Partnership;
(v) Seven Crondall Associates LLC, a Maryland limited
liability company that is owned 100% by Highwoods Realty Limited Partnership;
(vi) 9690 Derecho Rd. LLC, a Maryland limited liability
company that is owned 100% by Highwoods Realty Limited Partnership;
(vii) Highwoods/Florida GP, LLC, a Florida limited liability
company that is owned 100% by Highwoods Realty Limited Partnership;
(viii) Kessinger/Hunter LLC, a Missouri limited liability
company that is owned 30% by the Company;
(ix) Dallas County Partners III, LC, an Iowa limited liability
company that is owned 50% by Highwoods Realty Limited Partnership; and
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<PAGE>
(x) Highwoods Finance, LLC, a Delaware limited liability
company that is owned 100% by Highwoods Properties, Inc.
(b) "Affiliated Partnerships" means, collectively:
(i) AP-GP Southeast Portfolio Partners, L.P., a Delaware
limited partnership that is owned 1% by Highwoods Realty GP Corp. and 99% by
Highwoods Realty Limited Partnership;
(ii) Highwoods/Tennessee Holdings, L.P., a Tennessee limited
partnership that is owned .01% by Highwoods/Tennessee Properties, Inc. and
99.99% by Highwoods Realty Limited Partnership;
(iii) AP Southeast Portfolio Partners, L.P., a Delaware
limited partnership that is owned 1% by AP-GP Southeast Portfolio Partners, L.P.
and 99% by Highwoods Realty Limited Partnership;
(iv) Highwoods/Florida Holdings, L.P., a Delaware limited
partnership that is owned .01% by Highwoods/Florida GP, Corp. and 99.99% by
Highwoods Realty Limited Partnership;
(v) Pinellas Northside Partners, Ltd., a Florida limited
partnership that is owned 99% by Highwoods/Florida Holdings, L.P. and 1% by
Highwoods Realty Limited Partnership;
(vi) Interstate Business Park, Ltd., a Florida limited
partnership that is owned 99% by Highwoods/Florida Holdings, L.P. and 1% by
Highwoods Realty Limited Partnership;
(vii) Pinellas Bay Vista Partners, Ltd., a Florida limited
partnership that is owned 99% by Highwoods/Florida Holdings, L.P. and 1% by
Highwoods Realty Limited Partnership;
(viii) Pinellas Pinebrook Partners, Ltd., a Florida
limited partnership that is owned 99% by Highwoods/Florida Holdings, L.P. and 1%
by Highwoods Realty Limited Partnership;
(ix) Downtown Clearwater Tower, Ltd., a Florida limited
partnership that is owned 99% by Highwoods/Florida Holdings, L.P. and 1% by
Highwoods Realty Limited Partnership;
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<PAGE>
(x) BDBP, Ltd., Cross Bayou, Ltd., a Florida limited
partnership that is owned 99% by Highwoods/Florida Holdings, L.P. and 1% by
Highwoods Realty Limited Partnership;
(xi) SISBROS, Ltd., a Florida limited partnership that is
owned 99% by Highwoods/Florida Holdings, L.P. and 1% by Highwoods Realty
Limited Partnership;
(xii) Highwoods/Interlachen Holdings, L.P., a Florida limited
partnership that is owned 99% by Highwoods/Florida Holdings, L.P. and 1%
by Highwoods Realty Limited Partnership;
(xiii) Center Court Partners, a Florida general
partnership that is owned 50% by the Company;
(xiv) FHDT, LP, a limited partnership that is owned 33.33% by
the Company;
(xv) Raphael Hotel Group LP, a Missouri limited partnership
that is owned 5% by the Company;
(xvi) 4600 Madison Associates, LP, a Missouri limited
partnership that is owned 12.50% by the Company;
(xvii) Marley Continental Homes of Kansas, a Kansas general
partnership that is owned 99% by Highwoods Realty Limited Partnership;
(xviii) Fountain One, an Iowa general partnership that is
owned 90% by Highwoods Realty Limited Partnership;
(xix) Fountain Two, an Iowa general partnership that is owned
60% by Highwoods Realty Limited Partnership;
(xx) Fountain Three, an Iowa general partnership that is owned
50% by Highwoods Realty Limited Partnership;
(xxi) J.C. Nichols Iowa Partners, an Iowa general partnership
that is owned 86 2/3% by Highwoods Realty Limited Partnership;
(xxii) Neptune Building Partners, L.P., an Iowa limited
partnership that is owned 50% by Highwoods Realty Limited Partnership;
(xxiii) Dallas County Partners, an Iowa general partnership
that is owned 50% by Highwoods Realty Limited Partnership;
3
<PAGE>
(xxiv) Dallas County Partners II, an Iowa general partnership
that is owned 50% by Highwoods Realty Limited Partnership;
(xxv) Meridith Drive Associates, LP, an Iowa limited
partnership that is owned 49.5% by Highwoods Realty Limited Partnership;
(xxvi) Terrace Place Partners, an Iowa general partnership
that is owned 50% by Highwoods Realty Limited Partnership;
(xxvii) Village Court Associates, an Iowa general
partnership that is owned 75% by J.C. Nichols Iowa Partners;
(xxviii) Corporate Center Associates, LP, an Iowa limited
partnership that is owned 90% by Neptune Building Partners, LP;
(xxix) Highwoods/Florida Holdings GP, L.P., a Delaware limited
partnership that was owned 1% by Highwoods/Florida GP Corp. and 99% by
Highwoods/Forsyth Limited Partnership (currently known as Highwoods Realty
Limited Partnership) and that was merged out of existence on December 31, 1997;
and
(xxx) Highwoods/Tennessee Holdings GP, L.P., a Tennessee
limited partnership that was owned 1% by Highwoods/Tennessee Properties, Inc.
and 99% by Highwoods/Forsyth Limited Partnership (currently known as Highwoods
Realty Limited Partnership) and that was merged out of existence on December 31,
1997;
(c) "Code" means the Internal Revenue Code of 1986, as amended;
(d) "Foreclosure Property" means real property (including interests
in real property), and any personal property incident to such real property,
acquired by the real estate investment trust as a result of such trust having
bid in such property at foreclosure, or having otherwise reduced such property
to ownership or possession by agreement or process of law, after there was
default (or default was imminent) on a lease of such property or on an
indebtedness that such property secured;
(e) "Highwoods Services" means Highwoods Services, Inc., a North
Carolina corporation, the equity ownership of which is owned 99% by
Highwoods/Forsyth Limited Partnership and .5% each by Ronald P. Gibson and
Edward J. Fritsch;
(f) "Independent Contractor" means any person who does not own,
directly or indirectly, more than 35% of the shares in the REIT, and, if such
person is a corporation, not more than 35% of the total combined voting power of
whose stock (or 35% of the total shares of all classes of whose stock), or, if
such person is not a
4
<PAGE>
corporation, not more than 35% of the interest in whose assets or net profits is
owned, directly or indirectly, by one or more persons owning 35% or more of the
shares in the REIT;
(g) "Operating Partnership" means Highwoods Realty Limited
Partnership (formerly Highwoods/Forsyth Limited Partnership), a North Carolina
partnership of which the Company is the sole general partner with an approximate
85.5% ownership interest, including a 1% general partnership interest and an
84.4% limited partnership interest, and various others (including officers and
directors of the Company) are the remaining limited partners with an approximate
14.5% aggregate interest;
(h) "Operating Partnership Agreement" means the First Amended and
Restated Agreement of Limited Partnership of Highwoods Realty Limited
Partnership, dated June 14, 1994, as amended;
(i) "Prohibited Transaction" means a sale or other disposition of
property, other than foreclosure property, that is stock in trade of the
taxpayer or other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary
course of trade or business;
(j) "Qualified REIT Subsidiary" means (1) any corporation in which a
real estate investment trust owned stock during any taxable year ended on or
before December 31, 1997, if 100% of the stock of such corporation was held by
the real estate investment trust at all times during the period such corporation
was in existence and (2) any corporation in which a real estate investment trust
owns stock after the taxable year ended December 31, 1997, if 100% of the stock
of such corporation is held by the real estate investment trust;
(k) "Real Estate Assets" means real property (including interests in
real property and interests in mortgages on real property) and shares (or
transferable certificates of beneficial interest) in other entities qualifying
to be taxed as real estate investment trusts;
(l) "Registration Statement" means the Form S-3, File No.
333-361913, as in the form filed on October 30, 1998, relating to the
registration of 11,769,923 shares of the Company's common stock and warrants to
purchase 1,479,290 shares of the Company's common stock;
(m) "REIT" means a real estate investment trust;
(n) "REIT Election" means an election to be taxed as a REIT under
Code Section 856(c)(1); and
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<PAGE>
(o) "Service" means the Internal Revenue Service;
4. That I have consulted with other employees and officers of the Company
regarding the matters set forth below and such persons have agreed in all
respects with the representations made below;
5. That, except as otherwise noted, all representations made below are
true and complete for each of the taxable years ended December 31, 1994, through
December 31, 1997, and through the date hereof; and that I have no reason to
believe that such representations will not continue to be true for the taxable
year that will end December 31, 1998;
6. That the Company has operated and will continue to operate in
accordance with Maryland law, its articles of incorporation, and its bylaws and
in accordance with the statements and representations made in the Registration
Statement;
7. That the Operating Partnership has operated and will continue to
operate in accordance with North Carolina law, the Operating Partnership
Agreement, and the statements and representations made in the Registration
Statement;
8. That I am a licensed attorney familiar with the requirements for
qualification as a REIT under applicable provisions of the Code, that all such
requirements have been satisfied for the Company's taxable years ended December
31, 1994, through December 31, 1997; that I have no reason to believe that such
requirements will not continue to be satisfied in the taxable year that will end
December 31, 1998; and that I have exercised ordinary business care and prudence
to attempt to satisfy such requirements and I have advised Alston & Bird LLP of
any matter of which I am aware that could cause reason for concern as to whether
those requirements have been or will be satisfied;
9. That the Company filed an election to be taxed as a REIT with its tax
return for the taxable year ended December 31, 1994, and has not taken any
action to terminate such election; that I have no reason to believe that the
Company will not continue such election or that it will take any action to
terminate such election for the period that will end December 31, 1998; and that
the Company has received no notification formally or informally from the Service
or any other person that such election may not be valid or has been revoked or
withdrawn in any respect;
10. That the Company is and will continue to be managed by one or more of
its directors who have exclusive authority over the management of the Company,
the management of its officers, and the management and disposition of the
Company's property;
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<PAGE>
11. That the beneficial ownership of the Company is and will continue to
be evidenced by transferable shares; and that there are no restrictions on the
transferability of such shares either in the Articles of Incorporation or in any
agreement to which the Company is a party, other than the restrictions set forth
in the Articles of Incorporation that permit the directors to redeem shares or
refuse to transfer shares in any case where such directors, in good faith,
believe that a failure to redeem or that a transfer of shares would result in
the loss of the Company's REIT status;
12. That the Company has been a domestic corporation during its entire
existence;
13. That the Company has not been, is not, and will not be (i) a bank, a
mutual savings bank, a cooperative bank, a domestic building and loan
association or other savings institution, a small business investment company
operating under the Small Business Investment Act of 1958, or a corporation
created under state law for the purpose of promoting, maintaining, and assisting
the economy within a state by making loans, or (ii) an insurance company;
14. That at no time during the last half of any taxable year for which a
REIT election has been made has more than 50% of the value of the Company's
outstanding stock been beneficially owned by five or fewer individuals, taking
into consideration the applicable attribution rules, which generally apply a
look-through provision to determine constructive stock ownership; and that the
Company will take all measures within its control to ensure that, at no time
during the last half of any taxable year for which a REIT election will be made
will more than 50% of the value of the Company's outstanding stock be
beneficially owned by or for five or fewer individuals;
15. That the record and beneficial ownership of the Company has been and
will be held by 100 or more persons;
16. That at least 95% of the gross income derived by the Company
(including the income derived through its ownership of the Operating
Partnership, the Affiliated Partnerships, and the Affiliated Limited Liability
Companies) in all taxable years consisted of: (i) amounts derived from rental of
real property, including rents attributable to personal property as described in
representation (20) below and including charges for services customarily
furnished or rendered in connection with the rental of such real property,
whether or not such charges are separately stated, but excluding rents received
from parties in which the Company owns 10% or more of the vote or value of
equity ownership of such party and excluding amounts received or accrued with
respect to any real or personal property if the Company furnishes noncustomary
services to the tenants or manages or operates such property other than through
an Independent Contractor from which neither the Company nor the Operating
Partnership derives any form of income; (ii) interest; (iii) gain realized upon
the sale of all or a portion of a Real Estate Asset that is not a Prohibited
Transaction; (iv) dividends; (v) abatements and refunds of tax; (vi)
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<PAGE>
income and gain from Foreclosure Property; and (vii) amounts for making loans by
secured properties or to purchase or lease real property; and that I have no
reason to believe that such 95% gross income test will not continue to be met
for the taxable year that will end December 31, 1998;
17. That at least 75% of the gross income derived by the Company
(including the income derived through its ownership of the Operating
Partnership, the Affiliated Partnerships, and the Affiliated Limited Liability
Companies) in all taxable years consisted of: (i) amounts derived from rental of
real property, including rents attributable to personal property as described in
representation (20) below and including charges for services customarily
furnished or rendered in connection with the rental of such real property,
whether or not such charges are separately stated, but excluding rents received
from parties in which the Company owns 10% or more of the vote or value of
equity ownership of such party and excluding amounts received or accrued with
respect to any real or personal property if the Company furnishes noncustomary
services to the tenants or manages or operates such property other than through
an Independent Contractor from which neither the Company nor the Operating
Partnership derives any form of income; (ii) interest on obligations secured by
mortgages on real property or on interests in real property; (iii) gain realized
upon the sale of all or a portion of the real property; (iv) abatements and
refunds of property tax; (v) income and gain derived from Foreclosure Property;
(vi) amounts for agreeing to make loans secured by real property or to purchase
or lease real property; and (vii) gain from the sale or disposition of a Real
Estate Asset that is not a Prohibited Transaction; and that I have no reason to
believe that such 75% gross income test will not continue to be met for the
taxable year that will end December 31, 1998;
18. That, for taxable years ended on or before December 31, 1997, less
than 30% of the gross income of the Company (including the income derived
through its ownership of the Operating Partnership, the Affiliated Partnerships,
and the Affiliated Limited Liability Companies) in all taxable years was derived
from (i) the sale or other disposition of stock or securities held for less than
one year; (ii) property in a transaction that is a Prohibited Transaction; and
(iii) real property (including interests in real property and interests in
mortgages on real property) held for less than four years other than property
compulsorily or involuntarily converted and property that is Foreclosure
Property;
19. That the Company, the Operating Partnership, the Affiliated
Partnerships, and the Affiliated Limited Liability Companies have not entered
into and will not enter into any lease, agreement, or other arrangement in
connection with the rental of real property under which any amount payable to
the Company, the Operating Partnership, the Affiliated Partnerships, or the
Affiliated Limited Liability Companies depends or will depend in whole or in
part on the income or profits derived from any tenant (or sub-tenant) of such
real property (except that such an amount may be based on a fixed percentage or
percentages of gross receipts or sales);
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<PAGE>
20. That (i) any personal property directly or indirectly leased by the
Company, the Operating Partnership, the Affiliated Partnerships, and the
Affiliated Limited Liability Companies has been and will be leased under or in
connection with a lease of the real property; and (ii) the average of the
adjusted bases of such personal property at the beginning and at the end of the
taxable year is less than 15% of the average of the aggregate adjusted bases of
both the real property and the personal property at the beginning and at the end
of the taxable year, as calculated on a lease by lease basis;
21. That for purposes of Items 16 and 17 above, "rent" does not include
rent received for any real property directly or indirectly from any person in
which the Company owns (i) in the case of a corporation, 10% or more of the
total combined voting power of all classes of stock entitled to vote, or 10% or
more of the total number of shares of all classes of stock; or (ii) in the case
of an entity other than a corporation, an interest of 10% or more in the assets
or net profits of such entity; (for purposes of this representation, ownership
is determined by taking into account the attribution rules, which generally
apply a look-through provision to determine constructive stock ownership);
22. That the fair market value of any real property (or, with respect to
any construction loan, the fair market value of the land plus the reasonably
estimated cost of the improvements other than personal property) securing a
note, determined at the time the Company became bound to make the loan, is equal
to or exceeds the amount of the loan;
23. That no interest (including interest on obligations secured by
mortgages on real property or interests in real property) received or accrued,
directly or indirectly, by the Company, its Qualified REIT Subsidiaries, the
Operating Partnership, the Affiliated Partnerships, or the Affiliated Limited
Liability Companies has been or will be determined in whole or in part by
reference to the income or profits derived by any person;
24. That neither the Company, its Qualified REIT Subsidiaries, the
Operating Partnership, the Affiliated Partnerships, nor the Affiliated Limited
Liability Companies have owned any Foreclosure Property (other than property the
income from which would not cause the statements contained in Items 16 and 17
above to no longer be true).
25. That the Company has reviewed and will continue to review all leases
for each property to ensure that such leases conform with all REIT requirements;
26. That, for taxable years prior to 1998, neither the Company, the
Operating Partnership, the Affiliated Partnerships, nor the Affiliated Limited
Liability Companies have provided any services to any tenant, other than through
an Independent Contractor
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from whom no income was derived or received by any such entity, except for
services that would be considered customarily furnished or rendered in
connection with the rental of real property, such as the furnishing of water,
heat, lights, trash collection, and maintenance of common areas; that, for
taxable years beginning after December 31, 1997, neither the Company, the
Operating Partnership, the Affiliated Partnerships, nor the Affiliated Limited
Liability Companies have provided or will provide services that would generate
impermissible service income in an amount that exceeds 1% of all amounts
received or accrued during the taxable year, directly or indirectly, by the
Company with respect to such property, with the amount treated as received or
accrued by the Company for such impermissible services not being less than 150%
of the direct cost of the Company in furnishing or rendering such services (for
purposes of this representation, impermissible service income means any amount
received or accrued directly or indirectly by the Company for services furnished
or rendered by the Company to the tenants of its property or for managing or
operating such property, unless (i) such services, management, or operations are
provided through an Independent Contractor from whom the Company has not derived
or received and will not derive or receive any income or (ii) such services are
customarily furnished or rendered in connection with the rental of real
property, such as the furnishing of water, heat, lights, trash collection, and
maintenance of common areas);
27. That no independent contractor providing management and operating
functions for either the Company, the Operating Partnership, the Affiliated
Partnerships, or the Affiliated Limited Liability Companies or any of their
properties has any ownership interest in the Company in excess of 35%;
28. That at the close of each quarter of any taxable year that the Company
has made or will make a REIT election, at least 75% of the total combined value
of its assets, including its proportionate share of the assets of the Operating
Partnership, the Affiliated Partnerships, and Affiliated Limited Liability
Companies has or will consist of Real Estate Assets, cash and cash
items (including receivables), and government securities;
29. That at the close of each quarter of any taxable year that the Company
has made or will make a REIT election not more than 25% of the value of the
Company's total assets (including those assets owned indirectly through the
Operating Partnership, the Affiliated Partnerships, or Affiliated Limited
Liability Companies) has been or will be represented by securities (other than
government securities) for purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value of the
total assets of the Company and to not more than 10% of the outstanding voting
securities of such issuer;
30. That the Company's pro rata share of the value of the securities of
Highwoods Services has not exceeded 5% of the total value of the Company's
assets at the end of any calendar quarter; that 99% of the voting stock of
Highwoods Services is owned by Ronald P. Gibson and Edward J. Fritsch; that the
Company has no informal or
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formal agreement with Highwoods Services or the other shareholders of Highwoods
Services regarding the voting of the Highwoods Services stock; and that the
stock owned by Ronald P. Gibson and Edward J. Fritsch is not subject to any
voting or purchase agreement that effectively would deny such individuals of the
economic rights of such stock;
31. That the Company, the Operating Partnership, the Affiliated
Partnerships, and the Affiliated Limited Liability Companies have held and hold
all real property and all other assets for investment purposes and not as (i)
stock in trade or other property of a kind which would properly be includible in
inventory if on hand at the close of the taxable year, or (ii) property held
primarily for sale to customers in the ordinary course of the trade or business
of the Operating Partnership or the Company;
32. That for each taxable year for which a REIT election has been made the
Company has distributed an amount equal to or exceeding the sum of 95% of the
Company's real estate investment trust taxable income for such taxable year,
determined without regard for the deduction for dividends paid and by excluding
any net capital gain, and 95% of the excess of the net income from Foreclosure
Property over the tax imposed on such income, reduced by, any excess noncash
income;
33. That, in each taxable year for which a REIT election has been made,
the dividends paid by the Company on the Company's common stock were made pro
rata, with no preference to any share of the common stock as compared with other
such shares;
34. That for each taxable year for which a REIT election has been made the
Company has (i) maintained stock records that disclose actual ownership of the
Company's outstanding stock, and (ii) within 30 days of each taxable year end,
demanded a written statement from shareholders of record of five percent of more
of the Company's stock for the purpose of disclosing actual ownership;
35. That the Company has at all times adopted and used a calendar year
accounting period;
36. That other than (i) the direct ownership of the stock in
Highwoods/Florida GP Corp., Highwoods Realty GP Corp., Highwoods/Tennessee
Properties, Inc., Jackson Acquisition Corporation, Florida Transition Co. II,
Garcia Property Management, Inc., Westshore Square, Inc., Garcia, Meyers Co.,
Alemada Towers Development Company, The Bay Plaza Companies, Inc., Board of
Trade Redevelopment Corporation, Challenger, Inc., Guardian Management, Inc.,
Nichols Plaza West, Inc., Ozark Mountain Village, Inc., and Plaza Land Company,
and (ii) the indirect ownership of stock in Highwoods Services and its direct
and indirect subsidiaries, Southeast Realty Options Corp., Atrium Acquisition
Corp., 5565 Sterrett Place, Inc., PSC Acquisition Corporation (which is owned
through RC One LLC), Pikesville Sportsman Club, Inc., First Geary Corp, Board of
Trade Investment Company, Kan-Build, Inc., Someday, Inc., J.C. Nichols Realty
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Company, and K.C. Condor, Inc., the Company has owned no stock or other voting
securities in any corporation (including mutual funds) at the close of any
quarter of any taxable year ended on or before December 31, 1997, or at the
close of any quarter through the date hereof;
37. That other than (i) the direct ownership of the stock in
Highwoods/Florida GP Corp., Highwoods Realty GP Corp., Highwoods/Tennessee
Properties, Inc., Alemada Towers Development Company, The Bay Plaza Companies,
Inc., Board of Trade Redevelopment Corporation, Challenger, Inc., Guardian
Management, Inc., Nichols Plaza West, Inc., Ozark Mountain Village, Inc., and
Plaza Land Company, and (ii) the indirect ownership of stock in Highwoods
Services and its direct and indirect subsidiaries, Southeast Realty Options
Corp., Atrium Acquisition Corp., 5565 Sterrett Place, Inc., Pikesville Sportsman
Club, Inc. (which is owned through RC One LLC), First Geary Corp, Board of Trade
Investment Company, Kan-Build, Inc., Someday, Inc., J.C. Nichols Realty Company,
and K.C. Condor, Inc., the Company owns no stock or other voting securities in
any corporation (including mutual funds) as of the date hereof;
38. That each of Highwoods/Florida GP Corp., Highwoods Realty GP Corp.,
Highwoods/Tennessee Properties, Inc., Jackson Acquisition Corporation, Florida
Transition Co. II, Garcia Property Management, Inc., Westshore Square, Inc.,
Garcia, Meyers Co., Alemada Towers Development Company, The Bay Plaza Companies,
Inc., Board of Trade Redevelopment Corporation, Challenger, Inc., Guardian
Management, Inc., Nichols Plaza West, Inc., Ozark Mountain Village, Inc., and
Plaza Land Company was or has been a Qualified REIT Subsidiary at the close of
each quarter during the entire period of time in which the Company has held an
ownership interest in such corporation;
39. That the Company acquired J.C. Nichols Company in accordance with the
terms and conditions set forth in the Agreement and Plan of Merger, dated
December 22, 1997, by and among the Company, Jackson Acquisition Corp., and J.C.
Nichols Company, pursuant to which J.C. Nichols Company was merged with and into
Jackson Acquisition Corp., a wholly-owned subsidiary of the Company, (the
"Merger"); that at the time of the Merger, J.C. Nichols Company did not have any
earnings and profits accumulated from a year when it was taxable as a "C"
corporation; that as a result of the Merger, the Company was required to
complete certain restructuring events to continue its REIT status and that all
such restructuring events were completed on or before September 30, 1998; that I
have no reason to believe that the acquisition of J.C. Nichols Company or the
ownership of any of the properties acquired directly or indirectly thereby will
cause the Company to fail to satisfy any of the matters set forth in this
Certificate or to fail to qualify as a REIT in the taxable year that will end
December 31, 1998;
40. That the Operating Partnership and the Affiliated Partnerships are the
only partnerships in which the Company has held a direct or indirect interest at
the close of any quarter of any taxable year ended on or before December 31,
1997, or at the close of any quarter through of the date hereof and each of
these partnerships were formed as
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partnerships under the laws of the applicable states; that the Affiliated
Limited Liability Companies and RC One LLC, a Maryland limited liability company
that is owned 100% by Highwoods Services, are the only limited liability
companies in which the Company has held a direct or indirect interest at the
close of any quarter of any taxable year ended on or before December 31, 1997,
or at the close of any quarter through the date hereof, and each of these
limited liability companies, Highwoods Finance, LLC, a Delaware limited
liability company that is owned 100% by the Company, and Highwoods Wellness,
LLC, a North Carolina limited liability company that is owned 100% by Highwoods
Services, were formed as limited liability companies under the laws of the
applicable states and elected to be treated as partnerships for federal income
tax purposes; that all such partnerships (including the Affiliated Limited
Liability Companies, RC One LLC, Highwoods Finance, LLC, and Highwoods Wellness,
LLC) have made no election to be treated as a corporation or any other type of
entity for federal income tax purposes; and that the Company has received no
notification formally or informally from the Service or any other person
challenging the status of any of these entities as a partnership for federal
income tax purposes;
41. That the Operating Partnership and the Affiliated Partnerships
(excluding Highwoods/Florida Holdings GP, L.P. and Highwoods/Tennessee Holdings
GP, L.P.) are the only partnerships in which the Company holds a direct or
indirect interest as of the date hereof; and that the Affiliated Limited
Liability Companies, RC One LLC, Highwoods Finance, LLC, and Highwoods Wellness,
LLC, are the only limited liability companies in which the Company holds a
direct or indirect interest as of the date hereof;
42. That the Company is not a party to any stock or asset purchase
agreement, including any plan of merger or reorganization, that will cause the
Company to fail to satisfy any of the matters set forth in this Certificate or
to fail to qualify as a REIT in the taxable year that will end December 31,
1998;
43. That the Company has filed timely income tax returns in each year of
its existence and has not included any information in such returns due to fraud
with an intent to evade taxes;
44. That the Company's ownership interests in the Operating Partnership
and its other directly or indirectly held subsidiaries are held free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or equity;
45. That the Company will undertake to advise you of any change in the
representations made herein for so long as the Registration Statement referred
to above remains in effect; and
46. That, in rendering an opinion in connection with the Registration
Statement, Alston & Bird is entitled to rely on the factual representations set
forth in previous Officer's Certificates to the extent that such representations
are not otherwise
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reflected herein; and that, in rendering future opinions, Alston & Bird is
entitled to rely on the factual representations set forth in this Officer's
Certificate except to the extent that the facts covered herein are otherwise
reflected or altered by the content of any future Officer's Certificates.
The foregoing Certification is provided to Alston & Bird LLP in connection
with rendering an opinion regarding the qualification of the Company as a REIT
and may not be relied upon for any other purpose or by any other party except as
otherwise provided herein. It is understood that such opinion is limited to the
factual matters revealed pursuant hereto and other materials provided to them
and that to the extent required, I have asked questions of the appropriate
individuals to confirm the foregoing answers, and to the best of my knowledge
and belief such answers are true, correct, and complete and in no way are
misleading.
October 30, 1998 /s/ MACK D. PRIDGEN, III
----------------------------------
MACK D. PRIDGEN, III
Vice-President and General Counsel
Highwoods Properties, Inc.
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CERTIFICATE
I, CARMAN J. LIUZZO, in my capacity as Vice-President, Chief Financial
Officer, and Treasurer of Highwoods Properties, Inc. (the "Company"), do hereby
certify, to the best of my knowledge and belief after making appropriate
inquiries with respect to all matters set forth below, as follows:
1. That I am a Vice-President, Chief Financial Officer, and Treasurer
of the Company;
2. That in such capacity, I have access to relevant information regarding
each of the factual matters set forth below;
3. That for purposes of this Certificate, "Registration Statement" means
the Form S-3, File No. 333-361913, as in the form filed on October 30, 1998,
relating to the registration of 11,769,923 shares of the Company's common stock
and warrants to purchase 1,479,290 shares of the Company's common stock;
4. That the description of the Company, its properties, and its method of
operation contained in the Registration Statement is accurate and complete in
all material aspects with respect to this opinion; and
5. That the Company will undertake to advise you of any change in the
representations made herein for so long as the Registration Statement referred
to above remains in effect.
The foregoing Certification is provided to Alston & Bird LLP in connection
with rendering an opinion regarding the qualification of the Company as a real
estate investment trust and may not be relied upon for any other purpose or by
any other party. It is understood that such opinion is limited to the factual
matters revealed pursuant hereto and other materials provided to them and that
to the extent required, I have asked questions of the appropriate individuals to
confirm the foregoing answers, and to the best of my knowledge and belief such
answers are true, correct, and complete and in no way are misleading.
October 30, 1998 /s/ Carman J. Liuzzo
____________________________
CARMAN J. LIUZZO
Vice-President, Chief Financial
Officer, and Treasurer
Highwoods Properties, Inc.
1
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. 333-61913) and the related Prospectus of
Highwoods Properties, Inc. for the registration of 11,769,923 shares of its
common stock and 1,479,290 warrants to purchase 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 28, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement on Form S-3 (File No. 333-61913) 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 29, 1998
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
Form S-3 (No. 333-61913) 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 29, 1998
