Reg. No. 333-43745
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Amendment No. 1
To
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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HIGHWOODS PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland 56-1871668
(State of Incorporation) (I.R.S. Employer Identification No.)
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
(919) 872-4924
(Address, including zip code, and telephone number, including area code,
of agent for service)
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
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. |_|
<TABLE>
<CAPTION>
Calculation of Registration Fee
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Unit(1) Aggregate Offering Price Registration Fee
- --------------------------- ---------- -------------------------- ------------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock 3,090,141 $35.4375 $109,506,872 $33,184
Warrants(2) 1,479,290 $35.4375 $ 52,422,340 $15,886
</TABLE>
(1) Computed pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee on the
basis of the average high and low prices of the Registrant's common stock
reported on the New York Stock Exchange on December 29, 1997.
(2) Includes the resale of up to 1,444,290 shares of Common Stock issuable
upon exercise of 1,444,290 Warrants, which Warrants may be deemed to be
held by affiliates of the Company.
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.
<PAGE>
PROSPECTUS
HIGHWOODS PROPERTIES, INC.
3,090,141 SHARES OF COMMON STOCK
and
1,479,290 WARRANTS
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), and warrants to purchase shares of Common Stock (the "Warrants") of
Highwoods Properties, Inc. (the "Company") offered hereby (the "Securities") are
being offered by the Selling Stockholders. See "Selling Stockholders." The
Company will not receive any of the proceeds from the sale of the Securities
offered hereby; however, the Company has agreed to bear certain expenses of
registration of the Securities under the Federal and state securities laws.
SEE "RISK FACTORS" AT PAGE 5 FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT
IN THE SECURITIES.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "HIW." To ensure that the Company retains its status as a real
estate investment trust ("REIT"), ownership by any person is limited to 9.8% of
the outstanding shares of Common Stock, with certain exceptions. The Warrants
are not listed on an exchange.
The Selling Stockholders from time to time may offer and sell the
Securities held by them directly, indirectly through brokers or dealers or in a
distribution by one or more underwriters on a firm commitment or best efforts
basis, in the over-the-counter market, on any national securities exchange on
which the Securities are listed or traded, in privately negotiated transactions
or otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. To the extent
required, the names of any agent or broker-dealer and applicable commissions or
discounts and any other required information with respect to any particular
offer will be set forth in an accompanying Prospectus Supplement. See "Plan of
Distribution."
The Selling Stockholders and any agents or broker-dealers that participate
with the Selling Stockholders in the distribution of the Securities may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commission received by them and any
profit on the resale of the Securities may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of Distribution"
for a description of certain indemnification arrangements between the Company
and the Selling Stockholders.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 10, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied, at prescribed
rates, at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, DC 25049, Room 1024, and at the Commission's New York regional
office at Seven World Trade Center, New York, New York 10048 and at the
Commission's Chicago regional office at Citicorp Center, 500 W. Madison Street,
Chicago, Illinois 60661. Such information, when available, also may be accessed
through the Commission's electronic data gathering, analysis and retrieval
system ("EDGAR") via electronic means, including the Commission's home page on
the Internet (http://www.sec.gov). The Common Stock of the Company is listed on
the NYSE, and such material can also be inspected and copied at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
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 such Common
Stock, reference is hereby made to such Registration Statement, exhibits and
schedules. The Registration Statement may be inspected without charge at, or
copies obtained upon payment of prescribed fees from, the Commission and its
regional offices at the locations listed above. Any statements contained herein
concerning a provision of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference and made a part hereof:
a. The Company's annual report on Form 10-K for the year ended December
31, 1996;
b. The description of the Common Stock of the Company included in the
Company's Registration Statement on Form 8-A, dated May 16, 1994;
c. The Company's Current Reports on Form 8-K, dated April 1, 1996 (as
amended on June 3, 1996 and June 18, 1996), April 29, 1996 (as
amended on June 3, 1996 and June 18, 1996) (except for the financial
statements of AP Fontaine III Partners, L.P. for the period from
October 28, 1993 (date of inception) through December 31, 1993, and
the combined balance sheet of Southeast Realty Corp., AP Southeast
Portfolio Partners, L.P. and AP Fontaine III Partners, L.P., which
are not incorporated herein), January 9, 1997 (as amended on
February 7, 1997 and March 10, 1997), February 12, 1997, August 27,
1997 (as amended on September 23, 1997), September 18, 1997,
September 25, 1997, October 1, 1997, October 4, 1997, November 17,
1997, and December 22, 1997; and
d. The Company's quarterly reports on Form 10-Q for the periods ended
March 31, 1997, June 30, 1997 and September 30, 1997.
All documents filed by the Company with the Commission pursuant to
Sections 13(a) and 13(c) of the Exchange Act and any definitive proxy statements
so filed pursuant to Section 14 of the Exchange Act and any reports filed
pursuant to Section 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Securities 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
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be deemed to be modified or superseded for the purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which is incorporated by reference herein modifies or supersedes such
earlier statement. Any such statements modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will furnish without charge upon written or oral request to
each person to whom a copy of this Prospectus is delivered, including any
beneficial owner, a copy of any or all of the documents specifically
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents). Requests should be made to: Investor Relations, 3100 Smoketree
Court, Suite 600, Raleigh, North Carolina 27604. The Company's telephone number
is (919) 872-4924.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that began operations through a predecessor in 1978. The Company
owns a portfolio of 480 in-service office and industrial properties (the
"Properties") encompassing approximately 31.0 million rentable square feet. The
Properties consist of 341 office properties and 139 industrial properties
(including 73 service centers), located in 19 markets in North Carolina,
Florida, Tennessee, Virginia, Georgia, South Carolina, Maryland and Alabama. As
of September 30, 1997, the Properties were approximately 91% leased to
approximately 3,200 tenants.
In addition, the Company has 33 properties (26 office properties and seven
industrial properties (collectively, the "Development Projects")) under
development in North Carolina, Virginia, Tennessee, Maryland and South Carolina,
which will encompass approximately 3.1 million square feet. The Company also
owns approximately 800 acres (and has agreed to purchase an additional 337
acres) of land for future development (collectively, the "Development Land").
The Development Land is zoned and available for office and/or industrial
development, substantially all of which has utility infrastructure already in
place.
The Company conducts substantially all of its activities through, and all
of the Properties are held directly or indirectly by, Highwoods/Forsyth Limited
Partnership (the "Operating Partnership"). The Company is the sole general
partner of the Operating Partnership and owns 82% 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 its properties
as well as for third parties. The Company conducts its third-party fee-based
services through Highwoods/ Tennessee Properties, Inc., a wholly owned
subsidiary of the Company, and Highwoods Services, Inc., a wholly owned
subsidiary of the Operating Partnership.
The Company was formed in Maryland in 1994. The Company's executive
officers are located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina
27604, and its telephone number is (919) 872-4924. The Company also maintains
regional offices in Winston-Salem, Greensboro and Charlotte, North Carolina;
Richmond, Virginia; Nashville and Memphis, Tennessee; Atlanta, Georgia; and
Tampa and Boca Raton, Florida.
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RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE
IDENTIFIED BY WORDS SUCH AS "EXPECT," "ANTICIPATE," "SHOULD" AND WORDS OF
SIMILAR IMPORT. ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN
THE FORWARD- LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW UNDER "RISK FACTORS." AN
INVESTMENT IN THE COMMON STOCK INVOLVES VARIOUS RISKS. THE FOLLOWING
INFORMATION, IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES.
Geographic Concentration
The Company's revenues and the value of its Properties may be affected by
a number of factors, including the local economic climate (which may be
adversely affected by business layoffs, downsizing, industry slowdowns, changing
demographics and other factors) and local real estate conditions (such as
oversupply of or reduced demand for office, industrial and other competing
commercial properties). The Properties are located in 18 southeastern markets,
and, based on September 1997 results, approximately 34% of the total annualized
rental revenue is represented by Properties located in North Carolina and
approximately 35% of the total annualized rental revenue is represented by
Properties located in Florida. The Company's performance and its ability to make
distributions to stockholders is therefore dependent on the economic conditions
in the Southeast, particularly in North Carolina and Florida. There can be no
assurance as to the continued growth of the southeastern economy.
Tax Consequences upon Sale or Refinancing of Properties
Holders of Common Units may suffer adverse tax consequences upon the sale
or refinancing of any of the Company's properties; therefore, such holders,
including certain of the Company's officers and directors, and the Company may
have different objectives regarding the appropriate pricing and timing of any
sale or refinancing of such properties. Although the Company, as the sole
general partner of the Operating Partnership, has the exclusive authority as to
whether and on what terms to sell or refinance an individual property, those
members of the Company's management and Board of Directors who hold Common Units
may influence the Company not to sell or refinance certain properties even
though such sale or refinancing might otherwise be financially advantageous to
the Company.
Limitations on Acquisition and Change in Control
Ownership Limit. The Company's Articles of Incorporation prohibit
ownership of more than 9.8% of the outstanding Common Stock by any person. Such
restriction is likely to have the effect of precluding acquisition of control of
the Company by a third party without consent of the Board of Directors even if a
change in control were in the interest of stockholders.
Required Consent of the Operating Partnership for Significant Corporate
Action. The Company may not engage in certain change of control transactions
without the approval of the holders of a majority of the outstanding Common
Units. Should the Company ever own less than a majority of the outstanding
Common Units, this voting requirement might limit the possibility for
acquisition or change in the control of the Company. The Company owns
approximately 82% of the Common Units.
Staggered Board. The Board of Directors of the Company has three classes
of directors, the terms of which will expire in staggered, three-year intervals.
The staggered terms for directors may affect the stockholders' ability to change
control of the Company even if a change in control were in the stockholders'
interest.
Operating Partnership Agreement. The Operating Partnership Agreement was
recently amended to clarify the provisions relating to limited partners'
redemption rights in the event of certain changes of control of the Company.
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Because these provisions require 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 amendment could have the effect of discouraging a third party from
making an acquisition proposal for 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 shareholder 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.
Adverse Impact on Distributions of Failure to Qualify as a REIT
The Company and the Operating Partnership intend to operate in a manner so
as to permit the Company to remain qualified as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"). Although the Company believes
that it will operate in such a manner, no assurance can be given that the
Company will remain qualified as a REIT. If in any taxable year the Company were
to fail to qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates.
Real Estate Investment Risks
General Risks. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of income generated and expenses incurred. If the
Company's properties do not generate revenues sufficient to meet operating
expenses, including debt service, tenant improvements, leasing commissions and
other capital expenditures, the Company may have to borrow additional amounts to
cover fixed costs, and the Company's cash flow and ability to make distributions
to its stockholders will be adversely affected.
The Company's revenues and the value of its properties may be adversely
affected by a number of factors, including the national economic climate; the
local economic climate; local real estate conditions; the perceptions of
prospective tenants of the attractiveness of the property; the ability of the
Company to provide adequate management, maintenance and insurance; and increased
operating costs (including real estate taxes and utilities). In addition, real
estate values and income from properties are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.
Competition. Numerous office and industrial properties compete with the
Company's properties in attracting tenants to lease space. Some of these
competing properties are newer or better located than some of the Company's
properties. Significant development of office or industrial properties in a
particular area could have a material effect on the Company's ability to lease
space in its properties and on the rents charged.
Bankruptcy and Financial Condition of Tenants. At any time, a tenant of
the Company's properties may seek the protection of the bankruptcy laws, which
could result in the rejection and termination of such tenant's lease and thereby
cause a reduction in the cash flow available for distribution by the Company.
Although the Company has not experienced material losses from tenant
bankruptcies, no assurance can be given that tenants will not file for
bankruptcy protection in the future or, if any tenants file, that they will
affirm their leases and continue to make rental payments in a timely manner. In
addition, a tenant from time to time may experience a downturn in its business,
which may weaken its financial condition and result in the failure to make
rental payments when due. If tenant leases are not
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affirmed following bankruptcy or if a tenant's financial condition weakens, the
Company's income may be adversely affected.
Renewal of Leases and Re-letting of Space. The Company will be subject to
the risks that upon expiration of leases for space located in its properties,
the leases may not be renewed, the space may not be re-let or the terms of
renewal or re-letting (including the cost of required renovations) may be less
favorable than current lease terms. If the Company were unable to promptly
re-let or renew the leases for all or a substantial portion of this space or if
the rental rates upon such renewal or re-letting were significantly lower than
expected rates, then the Company's cash flow and ability to make expected
distributions to stockholders may be adversely affected.
Illiquidity of Real Estate. Equity real estate investments are relatively
illiquid. Such liquidity will tend to limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
In addition, the Code limits the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell properties
without adversely affecting returns to holders of Common Stock.
Changes in Laws. Because increases in income, service or transfer taxes
are generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make distributions
to stockholders. The Properties are also subject to various Federal, state and
local regulatory requirements, such as requirements of the Americans with
Disabilities Act and state and local fire and life safety requirements. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currently in compliance with all such
regulatory requirements. However, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
which would require significant unanticipated expenditures by the Company and
which could have an adverse effect on the Company's cash flow and expected
distributions.
Risk of Development, Construction and Acquisition Activities
The Company intends to actively continue development and construction of
office and industrial properties, including development on the Development Land.
Risks associated with the Company's development and construction activities,
including activities relating to the Development Land, may include: abandonment
of development opportunities; construction costs of a property exceeding
original estimates, possibly making the property uneconomical; occupancy rates
and rents at a newly completed property may not be sufficient to make the
property profitable; financing may not be available on favorable terms for
development of a property; and construction and lease-up may not be completed on
schedule, resulting in increased debt service expense and construction costs. In
addition, new development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention. Development activities are also subject to risks relating to
the inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy, and other required governmental permits and authorizations.
The Company intends to actively continue to acquire office and industrial
properties. Acquisitions of office and industrial properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment.
Financing Risks
Debt Financing. The Company and the Operating Partnership are subject to
the risks associated with debt financing, including the risk that the cash
provided by operating activities will be insufficient to meet required payments
of principal and interest, the risk of rising interest rates on floating rate
debt, the risk that the Company and the Operating Partnership will not be able
to prepay or refinance existing indebtedness (which generally will not have been
fully amortized at maturity) or that the terms of such refinancing will not be
as favorable as the terms of existing
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indebtedness. If refinancing of such indebtedness could not be secured on
acceptable terms, the Company and/or the Operating Partnership might be forced
to dispose of properties upon disadvantageous terms, which might result in
losses and might adversely affect the cash flow available for distribution to
equity holders or for debt service. An inability to secure refinancing could
also cause the Company to issue equity securities when its valuation is low,
which could adversely affect the market price of such securities. In addition,
if a property or properties are mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgage securing the
property could be foreclosed upon by, or the property could be otherwise
transferred to, the mortgagee with a consequent loss of income and asset value
to the Company.
Risk of Rising Interest Rates. The Company and the Operating Partnership
have incurred and expect in the future to incur floating rate indebtedness in
connection with the acquisition and development of properties as well as for
other purposes. Also, additional indebtedness that the Company and the Operating
Partnership incur under the existing revolving credit facility bears interest at
a floating rate. Accordingly, increases in interest rates would increase
interest costs (to the extent that the related indebtedness was not protected by
interest rate protection arrangements).
Possible Environmental Liabilities
Under various Federal, state and local laws, ordinances and regulations,
such as the Comprehensive Environmental Response Compensation and Liability Act,
or "CERCLA," and common law, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental fines
and injuries to persons and property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's or operator's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of such substances at a disposal or treatment
facility, whether or not such facility is owned or operated by such person.
Certain environmental laws impose liability for release of asbestos- containing
materials ("ACM"), and third parties may seek recovery from owners or operators
of real property for personal injuries associated with ACM. A number of the
Properties contain ACM or material that is presumed to be ACM. In connection
with the ownership and operation of its properties, the Company may be liable
for such costs. In addition, it is not unusual for property owners to encounter
on-site contamination caused by off-site sources, and the presence of hazardous
or toxic substances at a site in the vicinity of a property could require the
property owner to participate in remediation activities in certain cases or
could have an adverse effect on the value of such property. In a few situations,
contamination from adjacent properties has migrated onto property owned by the
Company; however, based on current information, management of the Company does
not believe that any significant remedial action is necessary at these affected
sites.
As of the date hereof, substantially all of the Properties had been
subjected to a Phase I environmental assessment. These assessments have not
revealed, nor is management of the Company aware of, any environmental liability
that it believes would have a material adverse effect on the Company's results
of operations, liquidity or financial position taken as a whole. This
projection, however, could prove to be incorrect depending on certain factors.
For example, the Company's assessments may not reveal all environmental
liabilities, or may underestimate the scope and severity of environmental
conditions observed, with the result that there may be material environmental
liabilities of which the Company is unaware, or material environmental
liabilities may have arisen after the assessments were performed of which the
Company is unaware. In addition, assumptions regarding groundwater flow and the
existence and source of contamination are based on available sampling data, and
there are no assurances that the data is reliable in all cases. Moreover, there
can be no assurance that (i) future laws, ordinances or regulations will not
impose any material environmental liability or (ii) the current environmental
condition of the Properties will not be affected by tenants, by the condition of
land or operations in the vicinity of the Properties, or by third parties
unrelated to the Company.
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Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. These tenants are required under their leases to
comply with all applicable laws and are responsible to the Company for any
damages resulting from the tenants' use of the property. The Company is not
aware of any material environmental problems resulting from tenants' use or
generation of hazardous substances. There are no assurances that all tenants
will comply with the terms of their leases or remain solvent and that the
Company may not at some point be responsible for contamination caused by such
tenants.
USE OF PROCEEDS
This Prospectus relates to Securities being offered and sold for the
accounts of the Selling Securityholders. The Company will not receive any
proceeds from the sale of the Securities but will pay all expenses related to
the registration of the Securities.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The authorized capital stock of the Company consists of 110,000,000 shares
of capital stock, $.01 par value, of which 100,000,000 shares are classified as
Common Stock and 10,000,000 shares are classified as preferred stock ("Preferred
Stock"). The following description of the terms and provisions of the shares of
capital stock of the Company and certain other matters does not purport to be
complete and is subject to and qualified in its entirety by reference to the
applicable provisions of Maryland law and the Company's Articles of
Incorporation and Bylaws, as amended.
Common Stock
Each holder of Common Stock is entitled to one vote at stockholder
meetings for each share of Common Stock held. Neither the Articles of
Incorporation nor the Bylaws provide for cumulative voting for the election of
directors. Subject to the prior rights of any series of Preferred Stock that may
be classified and issued, holders of Common Stock are entitled to receive, pro
rata, such dividends as may be declared by the Board of Directors out of funds
legally available therefor, and also are entitled to share, pro rata, in any
other distributions to stockholders. The Company currently pays regular
quarterly dividends to holders of Common Stock. Holders of Common Stock do not
have any preemptive rights or other rights to subscribe for additional shares.
The Common Stock is listed for trading on the New York Stock Exchange (the
"NYSE").
Series A Preferred Shares
The following description of the Company's 8 5/8% Series A Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series A Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the Articles Supplementary applicable to the Series A
Preferred Shares. The Company is authorized to issue 143,750 Series A Preferred
Shares, 125,000 of which were issued and outstanding as of the date hereof.
With respect to the payment of dividends and amounts upon liquidation, the
Series A Preferred Shares rank pari passu with the Series B Preferred Shares
(discussed below) 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 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
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A Preferred Shares have a liquidation preference of $1,000 per share, plus an
amount equal to any accrued and unpaid dividends.
The Series A Preferred Shares are not redeemable prior to February 12,
2027. On and after February 12, 2027, the Series A Preferred Shares will be
redeemable for cash at the option of the Company, in whole or in part, at $1,000
per share, plus any accrued and unpaid dividends thereon to the date fixed for
redemption. The redemption price (other than the portion thereof consisting of
accrued and unpaid dividends) is payable solely out of the sale proceeds of
other capital stock of the Company, which may include other series of Preferred
Stock, and from no other source.
If dividends on the Series A Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series A Preferred Shares (voting separately as a class with all
other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors to serve on the Board of Directors of the Company until all
dividend arrearages have been paid.
The Series A Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series A Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for Federal income tax purposes.
Series B Preferred Shares
The following description of the Company's 8% Series B Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series B Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the Articles Supplementary applicable to the Series B
Preferred Shares. The Company is authorized to issue 6,900,000 Series B
Preferred Shares, all of which were issued and outstanding as of the date
hereof.
With respect to the payment of dividends and amounts upon liquidation, the
Series B Preferred Shares rank pari passu with the Series A Preferred Shares and
with any other equity securities of the Company the terms of which provide that
such equity securities rank on a parity with the Series B Preferred Shares and
rank senior to the Common Stock and any other equity securities of the Company
which by their terms rank junior to the Series B Preferred Shares. Dividends on
the Series B Preferred Shares are cumulative from the date of original issue and
are payable quarterly on March 15, June 15, September 15 and December 15 of each
year commencing December 15, 1997, at the rate of 8% of the $25 liquidation
preference per annum (equivalent to $2.00 per annum per share). Dividends on the
Series B Preferred Shares will accrue whether or not the Company has earnings,
whether or not 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.
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Preferred Stock
Under the Company's Articles of Incorporation, the Board of Directors may
issue, without any further action by the stockholders, shares of capital stock
in one or more series having such preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption as the Board of Directors may determine and
as may be evidenced by Articles Supplementary to the Articles of Incorporation
adopted by the Board of Directors.
Through its power to establish the preferences and rights of additional
series of capital stock without further stockholder vote, the Board of Directors
may afford the holders of any series of senior capital stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of Common
Stock. The issuance of any such senior capital stock could have the effect of
delaying or preventing a change in control of the Company.
Warrants
Beginning October 1, 2002, each 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
(the "Purchase Price"), 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 Warrant.
Alternatively, the holder of a 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
Warrant(s) exercised, where such value is calculated as the product of (a) the
number of shares covered by the exercise of such Warrant(s) times (b) the excess
of the fair market value per share of Common Stock over the Purchase Price
divided by (ii) the fair value of a single share of Common Stock. The Warrants
have not been approved for listing on any national securities exchange.
Classification of Board of Directors; Removal of Directors; Other Provisions
The Company's Articles of Incorporation provide for the Board of Directors
to be divided into three classes of directors, with each class to consist as
nearly as possible of an equal number of directors. At each annual meeting of
stockholders, the class of directors to be elected at such meeting will be
elected for a three-year term, and the directors in the other two classes will
continue in office. Because holders of Common Stock will have no right to
cumulative voting for the election of directors, at each annual meeting of
stockholders, the holders of a majority of the shares of Common Stock will be
able to elect all of the successors of the class of directors whose term expires
at that meeting.
The Articles of Incorporation also provide that, except for any directors
who may be elected by holders of a class or series of capital stock other than
Common Stock, directors may be removed only for cause and only by the
affirmative vote of stockholders holding at least two-thirds of the votes
entitled to be cast for the election of directors. Vacancies on the Board of
Directors may be filled by the affirmative vote of the remaining directors.
These provisions may make it more difficult and time-consuming to change
majority control of the Board of Directors of the Company and, thus, may reduce
the vulnerability of the Company to an unsolicited proposal for the takeover of
the Company or the removal of incumbent management. The Company's officers and
directors are and will be indemnified under Maryland law, the Articles of
Incorporation of the Company and the agreement of limited partnership of the
Operating Partnership (the "Operating Partnership Agreement") against certain
liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company, the Company
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
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Certain Provisions Affecting Change of Control
General. Pursuant to the Company's Articles of Incorporation and the
Maryland General Corporation Law (the "MGCL"), the Company cannot merge into or
consolidate with another corporation or enter into a statutory share exchange
transaction in which it is not the surviving entity or sell all or substantially
all of the assets of the Company unless the Board of Directors adopts a
resolution declaring the proposed transaction advisable and a majority of
stockholders entitled to vote thereon (voting together as a single class)
approve the transaction. In addition, the Operating Partnership Agreement
requires that any such merger 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.
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.
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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 or the average closing
price for the 10 trading days immediately preceding the redemption or to sell
such shares at the direction of the Company, in which case the Company will be
reimbursed for its expenses in connection with the sale and will receive any
amount of such proceeds that exceeds the amount such person paid for the shares.
If the Company repurchases such shares, it may pay for the shares with Common
Units. The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors and the stockholders (by the affirmative vote of
the holders of two-thirds of the outstanding shares of capital stock entitled to
vote on the matter) determine that it is no longer in the best interests of the
Company to continue to qualify as a REIT.
All certificates representing shares of capital stock bear a legend
referring to the restrictions described above.
Every beneficial owner of more than 5% (or such lower percentage as
required by the Code or regulations thereunder) of the issued and outstanding
shares of capital stock must file a written notice with the Company no later
than January 30 of each year, containing the name and address of such beneficial
owner, the number of shares of Common Stock and/or Preferred Stock owned and a
description of how the shares are held. In addition, each stockholder shall be
required upon demand to disclose to the Company in writing such information as
the Company may request in order to determine the effect of such stockholder's
direct, indirect and constructive ownership of such shares on the Company's
status as a REIT.
These ownership limitations could have the effect of precluding
acquisition of control of the Company by a third party unless the Board of
Directors and the stockholders determine that maintenance of REIT status is no
longer in the best interest of the Company.
Operating Partnership Agreement. The Operating Partnership Agreement
requires that any merger (unless the surviving entity contributes substantially
all of the assets of the Operating Partnership for Common Units) or sale of all
or substantially all of the assets of the Operating Partnership be approved by a
majority of the holders of Common Units (including Common Units owned by the
Company). The Operating Partnership Agreement also contains provisions relating
to a limited partner's redemption right in the event of certain changes of
control of the Company and under certain circumstances allows for limited
partners to continue to hold Common Units in the Operating Partnership following
such a change of control, thereby maintaining the tax basis in their Common
Units. The covered changes of control (each, a "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
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Trading Price (as defined in the Operating Partnership Agreement) of a REIT
Share as of the Trigger Event and the denominator of which is the Average
Trading Price of a Replacement Share as of the Trigger Event.
If the acquiror in a Trigger Event is a REIT, it must make provision to
preserve an operating partnership structure with terms no less favorable to the
limited partners than currently in place. In addition, the Operating Partnership
Agreement provides that, if a distribution of cash or property is made in
respect of a Replacement Share, the Operating Partnership will distribute the
same amount in respect of a Common Unit as would have been received by a limited
partner had such partner's Common Units been redeemed for Replacement Shares
prior to such distribution.
Because the Operating Partnership Agreement requires an acquiror to make
provision under certain circumstances to maintain the Operating Partnership
structure and maintain a limited partner's right to continue to hold Common
Units with future redemption rights, the terms of the Operating Partnership
Agreement could also have the effect of discouraging a third party from making
an acquisition proposal for the Company.
These provisions of the Operating Partnership Agreement may only be waived
or amended upon the consent of limited partners holding at least 75% of the
Common Units (excluding those held by the Company).
Shareholders Rights Plan. On October 4, 1997, the Company's Board of
Directors adopted a Shareholders Rights Plan and declared a distribution of one
preferred share purchase right (a "Right") for each outstanding share of Common
Stock. The Rights were issued on October 16, 1997 to each shareholder 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 shares of
Preferred Stock is First Union National Bank, Charlotte, North Carolina.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain Federal income tax considerations to the
Company is based on current law, is for general purposes only, and is not tax
advice. The summary addresses the material Federal income tax considerations
relating to the Company's REIT status, as well as material Federal income tax
considerations relating to the Operating Partnership and the Company's
stockholders. The federal income tax treatment of any investor in the Securities
will vary depending upon such investor's particular situations.
EACH INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING
THE TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF THE
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of the Company as a REIT
General. Commencing with its taxable year ended December 31, 1994, the
Company has elected to be taxed as a real estate investment trust under Sections
856 through 860 of the Code. The Company believes that, commencing with its
taxable year ended December 31, 1994, it has been organized and has operated in
such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that it has operated or will operate in a manner so as to qualify or
remain qualified.
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These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the Federal income
tax treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretation thereof.
Alston & Bird LLP has acted as tax counsel to the Company in connection
with the offering of the Securities 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 1996, 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 ended December 31, 1997, and 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
qualification and taxation as a REIT at any time during the 1997 and 1998 years
is dependent, among other things, upon its meeting the requirements of Section
856(a) of the Code throughout each of such years and for each year as a whole.
Accordingly, because the Company's satisfaction of the REIT requirements for
such years will depend upon future events, including precise terms and facts of
proposed transactions, and the final determination of operational results, no
assurance can be given that the actual results of the Company's operations for
the taxable year ended December 31, 1997, or the taxable year that will end
December 31, 1998, will satisfy the REIT requirements.
Federal Income Taxation of the Company
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct distributions paid to
its stockholders, substantially eliminating the Federal "double taxation" on
earnings (once at the corporate level when earned and once again at the
stockholder level when distributed) that usually results from investments in a
corporation. Nevertheless, the Company will be subject to Federal income tax as
follows. First, the Company will be taxed at regular corporate rates on its
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" as a consequence of its items of tax preference.
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails either the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each year at least the sum of (i) 85% of its ordinary income for such
year, (ii) 95% of its capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently recognizes gain on
the disposition of such asset during the 10-year period (the "Recognition
Period") beginning on the date on which the asset was acquired by the Company,
then, to the extent of the excess of (a) the fair market value of the asset as
of the beginning of the applicable Recognition Period over (b) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period (the
"Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the 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
Company's Articles of Incorporation currently include certain restrictions
regarding transfer of its Common Stock, which restrictions are intended (among
other things) to assist the Company in continuing to satisfy conditions (v) and
(vi) above.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and asset tests. Thus, the Company's proportionate share
of the assets, liabilities, and items of income of the Operating Partnership
(including the Operating Partnership's share of the assets, 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 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"), repeals 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
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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.
The Operating Partnership does provide certain services with respect to
the Properties. The Company believes that the services with respect to the
Properties that are and will be provided directly are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants and, therefore, that the provision of
such services will not cause rents received with respect to the Properties to
fail to qualify as rents from real property. Services with respect to the
Properties that the Company believes may not be provided by the Company or the
Operating Partnership directly without jeopardizing the qualification of rent as
"rents from real property" are and will be performed by independent contractors.
The Operating Partnership and the Company receive fees in consideration of
the performance of property management and brokerage and leasing services with
respect to certain Properties not owned entirely by the Operating Partnership.
Such fees will not qualify under the 75% or the 95% gross income test. The
Operating Partnership also may receive certain other types of income with
respect to the properties it owns that will not qualify for either of these
tests. In addition, dividends on the Operating Partnership's stock in Highwoods
Services will not qualify under the 75% gross income test. The Company believes,
however, that the aggregate amount of such fees and other non-qualifying income
in any taxable year will not cause the Company to exceed the limits on
non-qualifying income under either the 75% or the 95% gross income test.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under a certain provision of the Code. This relief
provision generally will be available if (i) the Company's failure to meet these
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the nature and amount of each item of income to
its Federal income tax return and (iii) the inclusion of any incorrect
information on such schedule is not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances the Company would
be entitled to the benefit of this relief provision. For example, if the Company
fails to satisfy the gross income tests because non-qualifying income that the
Company intentionally incurs exceeds the limits on such income, the IRS could
conclude that the Company's failure to satisfy the tests was not due to
reasonable cause. As discussed above in " - Federal Income Taxation of the
Company," even if this relief provision applies, a 100% tax would be imposed
with respect to the portion of the Company's taxable income that fails the 75%
or 95% gross income test.
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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 (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 and the Operating Partnership." Neither the Company nor the
Operating Partnership, however, will own more than 1% of the voting securities
of Highwoods Services. In addition, the Company and its senior management do not
believe that the Company's pro rata share of the value of the securities of
Highwoods Services exceeds 5% of the total value of the Company's assets. The
Company's belief is based in part upon its analysis of the estimated value of
the securities of Highwoods Services owned by the Operating Partnership relative
to the estimated value of the other assets owned by the Operating Partnership.
No independent appraisals will be obtained to support this conclusion, and
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 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
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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 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
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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) 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
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 Disposition of Shares"), the IRS recently 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 below 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.
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
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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, 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 18 months 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 18 months 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 maximum rate of capital gains tax for capital assets held more than one year
but not more than 18 months remains at 28%. The taxation of capital gains of
corporations was not changed by the Taxpayer Relief 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 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.
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 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
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in its Common Stock (but not below zero) and then as gain from the disposition
of such shares, the tax treatment of which is described under the rules
discussed below with respect to dispositions of Common Stock.
Distributions by the Company that are attributable to gain from the sale
or exchange of a United States real property interest will be taxed to a
Non-U.S. Stockholder under the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Stockholder as if the distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a Non-U.S. Stockholder will be
taxed at the normal capital gain rates applicable to a U.S. Stockholder (subject
to any applicable alternative minimum tax and a special alternative minimum tax
in the case of non-resident alien individuals). Distributions that are taxable
under FIRPTA 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. 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. A distribution in excess of the Company's earnings and profits may
be subject to 30% dividend withholding (unless such Non-U.S. Stockholder is
entitled to a lower rate under an income tax treaty) or 10% FIRPTA withholding.
If the amount of tax withheld by the Company with respect to a distribution to a
Non-U.S. Stockholder exceeds the stockholder's United States tax liability with
respect to such distribution, the Non-U.S. Stockholder may file for a refund of
such excess from the IRS.
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 New York Stock Exchange) on which
the Common Stock will be listed and the selling stockholder owned no more than
5% of the Common Stock throughout the 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 non-resident 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 non-resident alien individual who
is present in the United States for 183 days or more during the taxable year and
certain other conditions apply, in which case the non-resident alien individual
will be subject to a 30% tax on his or her U.S. source capital gains.
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 New York Stock Exchange. 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.
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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. Non-U.S. Stockholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding.
Warrants
Upon a holder's exercise of a Warrant, the holder will, in general, (i)
not recognize any income, gain, or loss for federal income tax purposes, (ii)
receive an initial tax basis in the Common Stock received equal to the sum of
the holder's tax basis in the exercised Warrant and the exercise price paid for
such Common Stock, and (iii) have a holding period for the Common Stock received
beginning on the date of exercise. If a holder of a Warrant sells or otherwise
disposes of such Warrant (other than by its exercise), the holder generally will
recognize capital gain or loss equal to the difference between (i) the cash and
fair market value of other property received and (ii) the holder's tax basis (on
the date of disposition) in the Warrant sold. Such a holder generally will
recognize a capital loss upon the expiration of an unexercised Warrant equal to
the holder's tax basis in the Warrant on the expiration date. HOLDERS OF
WARRANTS PARTICIPATING IN STRADDLE TRANSACTIONS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE ADDITIONAL RULES THAT APPLY TO STRADDLE
TRANSACTIONS.
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 generally is 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
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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."
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.
23
<PAGE>
Sale of the Properties. The Company's share of gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See " - Requirements for Qualification - Income Tests." Such
prohibited transaction income also may have an adverse effect upon the Company's
ability to satisfy the income tests for qualification as a REIT. Under existing
law, whether property is held as inventory or primarily for sale to customers in
the ordinary course of the Operating Partnership's trade or business is a
question of fact that depends on all the facts and circumstances with respect to
the particular transaction. The Operating Partnership intends to hold the
Properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning, and operating the Properties (and
other properties) and to make such occasional sales of the Properties, including
peripheral land, as are consistent with the Operating Partnership's investment
objectives.
Other Tax Considerations
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from the Operating Partnership through distributions on
stock of Highwoods Services held by the Operating Partnership. Highwoods
Services will not qualify as a REIT and will pay Federal, state, and local
income taxes on its taxable income at normal corporate rates. Any Federal,
state, or local income taxes that Highwoods Services is required to pay will
reduce the cash available for distribution by the Company to its stockholders.
As described above, the value of the securities of Highwoods Services held
by the Company cannot exceed 5% of the value of the Company's assets at a time
when a Common Unit holder in the Operating Partnership exercises his or her
redemption right (or the Company otherwise is considered to acquire additional
securities of Highwoods Services). See " - Federal Income Taxation of the
Company." This limitation may restrict the ability of Highwoods Services to
increase the size of its business unless the value of the assets of the Company
is increasing at a commensurate rate.
State and Local Tax
The Company and its stockholders may be subject to state and local tax in
various states 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.
SELLING SECURITYHOLDERS
This Prospectus relates to the offer and sale by the holders thereof from
time to time of up to (i) 117,617 shares (the "Original Shares") of the
Company's Common Stock; (ii) 2,972,524 shares (the "Redemption Shares") of
Common Stock by which shares may be issued by the Company to the extent that
holders of up to 2,972,524 Common Units exercise their right to redeem such
Units and the Company elects to satisfy such redemption right through the
issuance of Common Stock; (iii) 1,444,290 shares (the "Warrants Shares") of
Common Stock issuable upon the exercise of up to 1,444,290 Warrants, which
Warrants may be deemed to be held by affiliates of the Company; and (iv)
1,479,290 Warrants.
The Company has agreed to indemnify the Selling Securityholders against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), or to contribute to payments the
Selling Securityholders may be required to make in respect thereof. Insofar as
indemnification of the Selling Securityholders for liabilities arising under the
Securities Act may be permitted pursuant to such agreements, the Company has
been informed that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
24
<PAGE>
Because the Selling Securityholders may offer all or some of the
Securities, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Securities that will be
held by the Selling Securityholders after completion of the offering, no
estimate can be given as to the principal amount of the Securities that will be
held by the Selling Securityholders after completion of the offering.
The Selling Securityholders and any broker or dealer to or through whom
any of the Securities are sold may be deemed to be underwriters within the
meaning of the Securities Act with respect to the Securities offered hereby, and
any profits realized by the Selling Securityholders or such brokers or dealers
may be deemed to be underwriting commissions. Brokers' commissions and dealers'
discounts, taxes and other selling expenses to be borne by the Selling
Securityholders are not expected to exceed normal selling expenses for sales.
The registration of the offering of the Securities by the selling
Securityholders under the Securities Act shall not be deemed an admission by the
Selling Securityholders or the Company that the Selling Securityholders are
underwriters for purposes of the Securities Act of any Securities offered under
this Prospectus.
The Securities offered by this Prospectus may be offered from time to time
by the Selling Securityholders named below. The following table provides the
name of each Selling Securityholder and the number of shares of Common Stock or
Warrants beneficially owned and offered hereby by each Selling Securityholder.
The number of shares of Common Stock provided in the following table includes
the number of shares that may be acquired by each Selling Securityholder upon
redemption of Units or upon exercise of Warrants.
The Securities offered by this Prospectus may be offered from time to time
by the Selling Securityholders named below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
of Common Stock of Common Number of Number of
Name of Selling Owned Prior to Stock Warrants Owned Warrants
Securityholder Offering offered hereby prior to Offering offered hereby
- -------------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
James R. Heistand(1) 1,491,660(2) 1,491,660(2) 852,575 852,575
Allen C. de 835,350(2) 835,350(2) 488,165 488,165
Olazarra(3)
Dale Johannes(3) 203,171(2) 203,171(2) 103,550 103,550
Karen Blakely NA NA 10,000 10,000
Mary L. Demetree 25,309 25,309 NA NA
William G. Evans 1,539 1,539 NA NA
Robert Turner NA NA 10,000 10,000
Mark Walsh NA NA 15,000 15,000
Starwood Capital 1,761,539(2) 1,761,539(2) NA NA
Group
Starwood Exchange 215,863(2) 215,863(2) NA NA
Partners, L.P.
</TABLE>
- ----------
(1) Executive officer. Company has agreed to name Mr. Heistand a director
prior to October 7, 1998.
(2) Number of shares shown includes Redemption Shares that may be issued upon
redemption of outstanding Units even if not currently redeemable and
Warrant Shares issuable upon exercise of outstanding Warrants even if not
currently exercisable.
25
<PAGE>
(3) The Selling Securityholder's Redemption Shares and Warrant Shares are
being registered hereby should such stockholder be deemed to be an
underwriter under Rule 145 of the Securities Act or an affiliate. The
Company disclaims that the Selling Securityholder is an underwriter or an
affiliate of the Company.
PLAN OF DISTRIBUTION
The sale or distribution of all or any portion of the Securities may be
effected from time to time by the Selling Securityholders directly, indirectly
through brokers or dealers or in a distribution by one or more underwriters on a
firm commitment or best efforts basis, in the over-the-counter market, on any
national securities exchange on which such Securities are listed or traded, in
privately negotiated transactions or otherwise, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company will not receive any of the proceeds from the
sale of the Securities.
The methods by which the Securities may be sold or distributed include,
without limitation, (i) a block trade (which may involve crosses) in which the
broker or dealer so engaged will attempt to sell the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (ii) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus, (iii)
exchange distributions and/or secondary distributions in accordance with the
rules of the national securities exchange on which such Securities are listed,
if any, (iv) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, (v) pro rata distributions as part of the
liquidation and winding up of the affairs of the Selling Securityholders, and
(vi) privately negotiated transactions.
The Company will pay all expenses in connection with the registration of
the offering of the Securities by the Selling Securityholders. The Selling
Securityholders will pay for any brokerage or underwriting commissions and taxes
of any kind (including, without limitation, transfer taxes) with respect to any
disposition, sale or transfer of the Securities.
Securities not sold pursuant to the registration statement on Form S-3 of
which this Prospectus is a part (the "Registration Statement") may be subject to
certain restrictions under the Securities Act and could be sold, if at all, only
pursuant to Rule 144 or another exemption from the registration requirements of
the Securities Act. In general, under Rule 144, a person (or persons whose
Securities are aggregated) who has satisfied a one-year holding period may,
under certain circumstances, sell within any three-month period a number of
Securities which does not exceed the greater of one percent of the Company's
outstanding Common Stock or the average weekly reported trading volume of the
Company's Common Stock during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of Securities by a
person who is not an affiliate of the Company and who has satisfied a two-year
holding period without any volume limitation.
Therefore, both during and after the effectiveness of the Registration
Statement, sales of the Securities may be made by the Selling Securityholders
pursuant to Rule 144.
EXPERTS
The consolidated financial statements and schedule of Highwoods
Properties, Inc., incorporated herein by reference from the Company's annual
report (Form 10-K) for the year ended December 31, 1996, and of
Highwoods/Forsyth Limited Partnership, incorporated herein by reference from the
Operating Partnership's annual report (Form 10-K) for the year ended December
31, 1996, the statements of revenue 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 in Form 8-K
dated November 17, 1997, the statements of revenue and certain expenses of
Anderson Properties, Inc. and Century Center Group for the year ended December
31, 1996 incorporated herein by reference from the Company's current report on
Form 8-K dated January 9, 1997 (as amended on Forms 8-K/A dated February 7, 1997
and March 10, 1997), the combined financial statements and schedule of Eakin &
Smith as of and for the year ended December 31, 1995, incorporated by reference
from the Company's current report on Form 8-K dated April 1, 1996 (as amended on
Forms 8-K/A filed June 3, 1996 and June 18, 1996), and the Historical Summary of
Gross Income and Direct Operating Expenses for certain properties owned by
Towermarc Corporation for
26
<PAGE>
the year ended December 31, 1995, incorporated herein by reference from the
Company's Current Report on Form 8-K dated April 29, 1996 (as amended on Forms
8-K/A filed June 3, 1996 and June 18, 1996), have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The 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 September 23, 1997), and October 1, 1997, have been so
incorporated in reliance upon the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Crocker Realty Trust, Inc. as of
December 31, 1995 and for the year then ended, the financial statements of
Crocker & Sons, Inc. as of December 31, 1994 and for the year then ended, and
the financial statements of Crocker Realty Investors, Inc. as of December 31,
1994 and 1993, and for each of the years in the two year period ended December
31, 1994, have been incorporated by reference herein from the Company's current
report on Form 8-K dated April 29, 1996 (as amended on Forms 8-K/A filed June 3,
1996 and June 18, 1996), in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The combined financial statements of Southeast Realty Corp., AP Southeast
Portfolio Partners, L.P. and AP Fontaine III Partners, L.P. for the year ended
December 31, 1994 incorporated herein by reference from the Company's current
report on Form 8-K dated April 29, 1996 (as amended on Forms 8-K/A filed June 3,
1996 and June 18, 1996), have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The financial statements of AP Southeast Portfolio Partners, L.P. for the
period from its date of inception (November 17, 1993) through December 31, 1993
incorporated herein by reference from the Company's current report on Form 8-K
dated April 29, 1996 (as amended on Forms 8-K/A filed June 3, 1996 and June 18,
1996), have been so included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
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.
27
<PAGE>
PART II
SUPPLEMENTAL INFORMATION
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimates of the various expenses to be
paid by Highwoods Properties, Inc. (the "Company") in connection with the
registration of the offering of the Securities by the selling Securityholders.
Securities and Exchange Commission Registration Fee..............$49,070
Fees and Expenses of Counsel......................................12,500
Miscellaneous .....................................................8,430
TOTAL......................................................$70,000
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 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 (incorporated by reference to the
Company's Current Report on Form 8-K dated August 27, 1997)
2.2 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 (incorporated by reference to the Company's Current
Report on Form 8-K dated January 9, 1997)
28
<PAGE>
2.3 Agreement and Plan of Merger by and among the Company, Crocker Realty
Trust, Inc. and Cedar Acquisition Corporation dated as of April 29, 1996
(incorporated by reference to the Company's Current Report on Form 8-K
dated April 29, 1996)
2.4 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
(incorporated by reference to the Company's Current Report on Form 8-K
dated April 1, 1996)
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to the Company's Current Report on Form 8-K dated September
25, 1997)
3.2 Bylaws (incorporated by reference to the Company's Registration
Statement on Form S-11(File No. 33- 76952))
4.1 Rights Agreement, dated as of October 6, 1997, between Highwoods
Properties, Inc. and First Union National Bank, including the form of
Right Certificate as Exhibit A and the Summary of Rights to Purchase
Preferred Shares as Exhibit C (incorporated by reference to the
Company's Current Report on Form 8-K dated October 4, 1997)
4.2 Indenture dated as of December 1, 1996, between the Operating
Partnership, the Company and First Union National Bank (incorporated by
reference to the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996)
4.3 Articles Supplementary of the Company dated October 10, 1997 designating
the terms of the Series C Preferred Shares (incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K dated October 4,
1997)
5.1 Opinion of Alston & Bird LLP regarding the legality of the shares of
Common Stock being registered
8.1 Opinion of Alston & Bird LLP regarding certain federal tax matters
23.1 Consent of Alston & Bird LLP (included as part of Exhibits 5.1 and 8.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of Price Waterhouse LLP
23.6 Consent of Coopers & Lybrand LLP
24.1** Power of Attorney of O. Temple Sloan, Jr.
24.2** Power of Attorney of Ronald P. Gibson
24.3** Power of Attorney of John L. Turner
24.4** Power of Attorney of Gene H. Anderson
24.5** Power of Attorney of John W. Eakin
24.6** Power of Attorney of William T. Wilson, III
29
<PAGE>
24.7** Power of Attorney of William E. Graham, Jr.
24.8** Power of Attorney of Stephen Timko
24.9 Power of Attorney of L. Glenn Orr
24.10 Power of Attorney of Thomas W. Adler
** Previously filed
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; provided, however, that any increase or decrease
in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and
(ii) also shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described under Item 15 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
30
<PAGE>
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.
31
<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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Raleigh, State of North Carolina, on February 6, 1998
HIGHWOODS PROPERTIES, INC.
By: /s/ Carman J. Liuzzo
------------------------------------------
Carman J. Liuzzo
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ O. Temple Sloan, Jr.* Chairman of the Board of Directors February 6, 1998
- ------------------------------
O. Temple Sloan, Jr.
/s/ Ronald P. Gibson* President, Chief Executive Officer and February 6, 1998
- ------------------------------ Director
Ronald P. Gibson
/s/ John L. Turner* Chief Investment Officer and Vice Chairman February 6, 1998
- ------------------------------ of the Board of Directors
John L. Turner
/s/ Gene H. Anderson* Senior Vice President and Director February 6, 1998
- ------------------------------
Gene H. Anderson
/s/ John W. Eakin* Senior Vice President and Director February 6, 1998
- ------------------------------
John W. Eakin
/s/ William T. Wilson, III* Director February 6, 1998
- ------------------------------
William T. Wilson, III
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Thomas W. Adler* Director February 6, 1998
- ------------------------------
Thomas W. Adler
/s/ William E. Graham, Jr.* Director February 6, 1998
- ------------------------------
William E. Graham, Jr.
/s/ L. Glenn Orr, Jr.* Director February 6, 1998
- ------------------------------
L. Glenn Orr, Jr.
Director February 6, 1998
- ------------------------------
Willard H. Smith, Jr.
/s/ Stephen Timko* Director February 6, 1998
- ------------------------------
Stephen Timko
/s/ Carman J. Liuzzo Vice President, Chief Financial Officer and February 6, 1998
- ------------------------------ Treasurer (Principal Accounting Officer)
Carman J. Liuzzo
</TABLE>
* By /s/ Carman J. Liuzzo
-----------------------------------
Carman J. Liuzzo (Attorney-in-Fact)
33
Exhibit 5.1
February 6, 1998
Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
Re: Resale Prospectus of up to 3,090,141 Shares of Common Stock of
Highwoods Properties, Inc. and 1,479,290 Warrants to Purchase Shares
of Common Stock of Highwoods Properties, Inc.
Ladies & Gentlemen:
We are acting as counsel for Highwoods Properties, Inc., a Maryland
corporation (the "Company"), in connection with the registration of the offering
on Form S-3, File No. 333-43745 (the "Registration Statement") by the holders
thereof (the "Selling Securityholders") of up to (i) 117,617 shares (the
"Original Shares") of the Company's common stock, par value $0.01 per share (the
"Common Stock"); (ii) 2,972,524 shares (the "Redemption Shares") of Common Stock
which shares may be issued by the Company to the extent that holders of up to
2,972,524 limited partnership interests ("Units") in Highwoods/Forsyth Limited
Partnership, a North Carolina limited partnership, exercise their right to
redeem such Units and the Company elects to satisfy such redemption right
through the issuance of Common Stock; (iii) 1,479,290 warrants to purchase
shares of Common Stock (the "Warrants"); and (iv) 1,444,290 shares (the
"Warrants Shares," and together with the Original Shares, the Redemption Shares,
and the Warrants, the "Securities") of Common Stock issuable upon the exercise
of up to 1,444,290 Warrants, which Warrants may be deemed to be held by
affiliates of the Company.
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings (the "Resolutions") taken by the Company in
connection with the authorization and issuance of the Securities. In addition,
we have made such legal and factual examinations and inquiries, including an
examination of originals and copies, certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.
Based upon and subject to the foregoing, it is our opinion that:
The Company has authority pursuant to its Articles of Incorporation to
issue the Securities, the offering by the Selling Securityholders of which is to
be registered under the Registration Statement and (a) the Original Shares and
the Warrants have been duly authorized and validly issued and are fully paid and
non-assessable and (b) the Redemption Shares and the Warrant Shares, upon
issuance and delivery of and payment for such Redemption Shares and Warrant
Shares in the manner contemplated by the Resolutions and the Registration
Statement, will be duly authorized and validly issued and are fully paid and
non-assessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the prospectus provided therein.
<PAGE>
Very truly yours,
ALSTON & BIRD LLP
/s/ Robert H. Bergdolt
----------------------
Robert H. Bergdolt, Partner
EXHIBIT 8.1
Pinney L. Allen Direct Dial: 404-881-7485
February 6, 1998
Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
Re: Registration Statement on Form S-3 Relating to 3,090,141 Shares of
Common Stock and 1,479,290 Warrants of Highwoods Properties, Inc.
Ladies and Gentlemen:
In connection with the registration statement on Form S-3 being filed by
you on February 6, 1998, with the Securities and Exchange Commission regarding
the registration of 3,090,141 shares of common stock and 1,479,290 warrants of
Highwoods Properties, Inc. (the "Company") (the "Registration Statement") under
the Securities Act of 1933, as amended, you have requested our opinion
concerning certain of the federal income tax consequences to the Company of its
election to be taxed as a real estate investment trust ("REIT") under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code").
This opinion is based solely on various assumptions and facts as set forth
in the Registration Statement and is conditioned upon certain representations
made by the Company as factual matters through a certificate of an officer of
the Company (the "Officer's Certificate") 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 Officer's Certificate.
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.
Based solely on the facts in the Registration Statement and the Officer's
Certificate, 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 1996,
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 ended December 31, 1997, and the taxable year that will end December
31, 1998. With respect to 1997 and 1998, we note that the Company's status as a
REIT at any time during such years is
<PAGE>
dependent, among other things, upon the Company meeting the requirements of
Sections 856 through 860 of the Code throughout each of such years and for each
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, and the final determination of operational
results, it is not possible to assure that the Company will satisfy the
requirements to be a REIT during the taxable year that ended December 31, 1997,
or 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 Officer's Certificate may affect the opinions stated herein.
This opinion is furnished only to you, is solely for your use in
connection with the Registration Statement, and 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. This opinion may be
relied upon only by the party to whom it is addressed and may not be quoted,
circulated, or used for any other purpose without our prior written
<PAGE>
consent. We, however, 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 LLP
By: /s/ PINNEY L. ALLEN
-------------------
Pinney L. Allen
PLA:MMH
AD980350.176
<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 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 Partnerships" means AP-GP Southeast Portfolio
Partners, L.P., Highwoods/Tennessee Holdings, L.P., AP Southeast Portfolio
Partners, L.P., and Highwoods/Florida Holdings, L.P., collectively;
(b) "Code" means the Internal Revenue Code of 1986, as amended;
(c) "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;
(d) "Garcia Transaction" means the transaction that will close in
1998 pursuant to the terms and conditions set forth in the Master Acquisition
Agreement, dated December 21, 1997, by and among Highwoods Properties, Inc.,
Highwoods/Forsyth Limited Partnership, Martin L. Garcia, the Garcia Partnerships
(i.e., Pinellas Bay Vista Partners, Ltd., BDBP, Ltd., Downtown Clearwater Tower,
Ltd., Cross Bayou, Ltd., Interstate Business Park, Ltd., Pinellas Northside
Partners, Ltd., Pinellas Pinebrook Partners, Ltd., and Sisbros, Ltd.), and the
Garcia Corporations (i.e., Westshore Square, Inc., Garcia Property Management,
Inc., Garcia, Meyers Co., and Garcia Enterprises of Tampa, Inc.), which provides
that (1) the Garcia Partners (as defined in the Master Acquisition Agreement)
will sell their interests in the Garcia Partnerships to Highwoods/Forsyth
Limited Partnership; (2) Garcia Enterprises of Tampa, Inc. will sell its
ownership interest in the Properties (as defined in the Master Acquisition
Agreement) to Highwoods/Forsyth Limited Partnership; and (3) Highwoods/Forsyth
Limited Partnership, Martin L. Garcia, the Garcia Partnerships, and the Garcia
Corporations will combine business operations;
(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
<PAGE>
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 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/Forsyth Limited
Partnership, a North Carolina partnership of which the Company is the sole
general partner with an approximate 82% ownership interest, including a 1%
general partnership interest and an 81% limited partnership interest, and
various others (including officers and directors of the Company) are the
remaining limited partners with an approximate 18% aggregate interest;
(h) "Operating Partnership Agreement" means the First Amended and
Restated Agreement of Limited Partnership of Highwoods/Forsyth 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
may own 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 real estate
investment trusts that meet the requirements of Code Sections 856 through 860;
(l) "Registration Statement" means the Form S-3 being filed by the
Company on February 6, 1998, with the Securities and Exchange Commission
regarding the registration of 3,090,141 shares of common stock and 1,479,290
warrants of the Company under the Securities Act of 1933, as amended;
(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);
(o) "Service" means the Internal Revenue Service; and
(p) "Subsequent ACP Mergers" means (1) the merger of Associated
Capital Equities Corp. II with and into Highwoods Properties, Inc. pursuant to
Articles of Merger, dated
<PAGE>
October 7, 1997; (2) the merger of Euro II, Inc., with and into
Highwoods/Florida GP Corp. pursuant to Articles of Merger, dated November 20,
1997; (3) the merger of Comeau Building, Inc., ACP-Atrium CG, Inc.,
ACP-Dadeland, Inc., ACP-F, Inc., ACP-Lakeview, Inc., ACP-Lee Road, Inc., ACP-L,
Inc., ACP Pine Street GP, Inc., ACP-Tampa Bay, Inc., ACP-W, Inc.,
ACP-Eastpointe, Inc., JH Property Investments, Inc., ACP-5400, Inc., ACP-C,
Inc., ACP-Grand, Inc., ACP-I, Inc., ACP- Southpoint, Inc., ACP Florida Office
Properties, Inc., ACP-Fireman, Inc., and ACP Venture Corp. with and into
Highwoods Properties, Inc. pursuant to Articles of Merger, dated November 20,
1997; (4) the merger of 319 Clematis Associates, Ltd., ACP-Atrium CG, Limited
Partnership, ACP- Dadeland, Limited Partnership, ACP-F, Limited Partnership,
ACP-Lakeview, Limited Partnership, ACP-Lee Road, Limited Partnership, ACP-L,
Limited Partnership, ACP Pine Street, Limited Partnership, ACP-Tampa Bay,
Limited Partnership, ACP-W, Limited Partnership, Eastpointe Towers Associates,
Ltd., Eller Drive Limited Partnership, ACP Venture I Limited Partnership, SCGACP
Master Limited Partnership, SCG-ACP I Limited Partnership, SOFI-IV Tampa Office
Limited Partnership, ACP-5400, Limited Partnership, ACP-C, Limited Partnership,
ACP-Grand, Limited Partnership, ACP-I, Limited Partnership, SOFI-IV Tallahassee
Office Limited Partnership, ACP- Southpoint Limited Partnership,
ACP-Reflections, Limited Partnership, and One Winter Park Associates with and
into Highwoods/Florida Holdings, LP, pursuant to Articles of Merger, dated
December 5, 1997; and (5) the merger of The Shoppes of Interlachen, Inc. with
and into Florida Transition Co. II;
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 (except for the election to be taxed as a
REIT for the taxable year ended December 31, 1997, which will be made on the
federal income tax return for such taxable year as noted in Item 9 below); 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;
<PAGE>
9. That the Company has filed an election, in accordance with applicable
Code requirements, to be taxed as a REIT with each of its tax returns for the
periods ended December 31, 1994 through December 31, 1996, and has not taken any
action to terminate such election; that the Company will file an election, in
accordance with applicable Code requirements, to be taxed as a REIT with its tax
return for the period ended December 31, 1997, and has not taken any action to
prevent such election; that I have no reason to believe that the Company will
not continue to file 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;
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 or during the taxable year ended December 31, 1997,
for which a REIT election will be made has more than 50% of the value of the
Company's outstanding stock been beneficially owned by five or fewer
individuals; 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 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
and the Affiliated Partnerships) 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
<PAGE>
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 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) 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
and the Affiliated Partnerships) 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
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 less than 30% of the gross income of the Company (including the
income derived through its ownership of the Operating Partnership and the
Affiliated Partnerships) 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 and the Affiliated
Partnerships, 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, or the
Affiliated Partnerships 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);
20. That (i) less than 15% of the rent received or accrued from any lease
of real property has been and will be attributable to personal property; (ii)
any such personal property has been and will be leased under or in connection
with a lease of the real property; and (iii) no personal property
<PAGE>
owned by the Company or the Operating Partnership at any time has had or will
have significant value in excess of its adjusted basis for federal income tax
purposes;
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 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 the Company has reviewed and will continue to review all leases
for each property to ensure that such leases conform with all REIT requirements;
24. That neither the Company, the Operating Partnership, nor the
Affiliated Partnerships, have provided or will provide any services to any
tenant other than 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;
25. That no Independent Contractor providing management and operating
functions for either the Company, the Operating Partnership, or the Affiliated
Partnerships, or any of their properties has any ownership interest in the
Company in excess of 35%;
26. 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 and the Affiliated Partnerships, has or will consist of Real Estate
Assets, cash and cash items (including receivables), and government securities;
27. 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 or the Affiliated Partnerships) 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;
28. 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 1% of the voting stock of
Highwoods Services is owned by Ronald P. Gibson and Edward J. Fritsch; that the
Company has no informal or formal agreement with Highwoods Services
<PAGE>
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;
29. That at the close of each quarter of any taxable year that the Company
has made or will make a REIT election the Company has not owned and will not own
directly or indirectly securities in any one issuer, including mutual funds,
having an aggregated value in excess of 5% of the value of the total assets of
the Company;
30. That the Company, the Operating Partnership, and the Affiliated
Partnerships 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;
31. That for each taxable year for which a REIT election has been or will
be made the Company has distributed or will distribute 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;
32. That for each taxable year for which a REIT election has been or will
be made the Company has and will (i) maintain stock records that disclose actual
ownership of the Company's outstanding stock, and (ii) within 30 days of each
taxable year end, demand a written statement from shareholders of record,
including holders of the Company's stock warrants, for the purpose of disclosing
actual ownership as required by Treas. Reg. Section 1.857-8;
33. That the Company has at all times adopted and will continue to use a
calendar year accounting period;
34. That other than the direct ownership of the stock in Highwoods/Florida
GP Corp., Highwoods Realty GP Corp., Highwoods/Tennessee Properties, Inc.,
Jackson Acquisition Corporation, and Florida Transition Co. II, each of which is
a Qualified REIT Subsidiary, and the indirect ownership of stock in Highwoods
Services and its subsidiaries, Southeast Realty Options Corp. and PSC
Acquisition Corporation (which is owned through RC One LLC), the Company has
owned no stock or other voting securities in any corporation at the close of any
quarter of any taxable year ended on or before December 31, 1997, or as of the
date hereof;
35. That Highwoods Properties Company was merged with and into the
Company; that such merger was intended to qualify as a tax-free reorganization
within the meaning of Section 368 of the Code; that I have no reason to believe
such merger did not so qualify and, for purposes hereof, you may assume that it
did so qualify; and that, at the time of such merger, neither Highwoods
Properties Company nor any corporation that it directly or indirectly owned had
any earnings and profits accumulated from a year when it was taxable as a "C"
corporation;
<PAGE>
36. That Eakin & Smith, Inc. was merged with and into the Company; and
that, at the time of such merger, neither Eakin & Smith, Inc. nor any
corporation that it directly or indirectly owned had any earnings and profits
accumulated from a year when it was taxable as a "C" corporation;
37. That Crocker Realty Trust, Inc. was merged with and into the Company;
that, at the time of such merger, Crocker Realty Trust, Inc. qualified as a
REIT; that during the course of the due diligence conducted in connection with
such merger, I had no reason to believe that Crocker Realty Trust, Inc. did not
so qualify; and that neither Crocker Realty Trust, Inc., nor any corporation
that it directly or indirectly owned had any Subchapter C earnings and profits;
38. That Associated Capital Properties, Inc. was merged with and into the
Company; that such merger was intended to qualify as a tax-free reorganization
within the meaning of Section 368 of the Code; that I have no reason to believe
such merger did not so qualify and, for purposes hereof, you may assume that it
did so qualify; and that, at the time of such merger, neither Associated Capital
Properties, Inc., nor any corporation that it directly or indirectly owned had
any earnings and profits accumulated from a year when it was taxable as a "C"
corporation;
39. That the Operating Partnership, AP-GP Southeast Portfolio Partners,
L.P., Highwoods/Tennessee Holdings, L.P., AP Southeast Portfolio Partners, L.P.,
and Highwoods/Florida Holdings, L.P. were formed as partnerships under the laws
of the applicable states; that Shockoe Plaza LLC, which is owned 99% by the
Operating Partnership and 1% by Highwoods Services, was formed as a limited
liability company under the laws of Virginia and elected to be treated as a
partnership for federal income tax purposes; and that such partnerships
(including Shockoe Plaza LLC) have made no election to be treated as a
corporation or any other type of entity for federal income tax purposes;
40. That I have no reason to believe that the Garcia Transaction 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;
41. That the acquisition by the Company of the membership interest in RC
One LLC, which owns 100% of the stock of PSC Acquisition Corporation, from
Riparius Development Corporation ("Riparius") was consummated pursuant to the
terms and conditions of the Master Agreement of Merger and Acquisition by and
among the Company, the Operating Partnership, Highwoods Services, Riparius,
Michael J. McCarthy, and James K. Flannery, Jr., and the Purchase Agreement by
and among the Company and Riparius occurred on January 8, 1998; and that the
membership interest in RC One LLC was transferred to Highwoods Services on
January 22, 1998;
42. That the Company has filed timely 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;
43. That no proceedings are pending or, to the knowledge of the
undersigned, threatened against the Operating Partnership, the Company, any of
their subsidiaries (including corporations, limited and general partnerships,
joint ventures and other entities, whether directly or indirectly controlled) or
any of their properties, before or by any Federal state or other commission,
board, court, or administrative agency wherein an unfavorable decision, ruling,
or finding would materially
<PAGE>
and adversely affect the business, property, financial condition, or income of
the Company, the Operating Partnership, and their subsidiaries considered as one
enterprise or any of their properties.
44. That the Company's ownership interests in the Operating Partnership
and its other directly or indirectly held subsidiaries (the "Subsidiaries") are
held free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity, except for security interests granted in respect
to indebtedness of the Company or the Subsidiaries as described in the
Registration Statement.
45. 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
46. 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 REIT
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.
February 6, 1998 /s/ MACK D. PRIDGEN, III
------------------------
MACK D. PRIDGEN, III
Vice-President and General Counsel
Highwoods Properties, Inc.
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. 333-43745) for the registration of
3,090,141 shares of common stock and 1,479,290 warrants to purchase common stock
of Highwoods Properties, Inc. We also consent to the incorporation by reference
therein of our reports (a) dated February 14, 1997, with respect to the
consolidated financial statements and schedule of Highwoods Properties, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1996;
(b) dated February 14, 1997, with respect to the financial statements and
schedule of Highwoods/Forsyth Limited Partnership included in its Annual Report
(Form 10-K) for the year ended December 31, 1996; (c) dated April 17, 1996 with
respect to the combined audited financial statements and schedule of Eakin &
Smith for the year ended December 31, 1995 included in Highwoods Properties,
Inc.'s Current Report on Form 8-K dated April 1, 1996 as amended on June 3, 1996
and June 18, 1996; (d) dated February 26, 1996 with respect to the audited
Historical Summary of Gross Income and Direct Operating Expenses for certain
properties owned by Towermarc Corporation for the year ended December 31, 1995
included in Highwoods Properties, Inc.'s Current Report on Form 8-K dated April
29, 1996 as amended on June 3, 1996 and June 18, 1996; (e) dated January 24,
1997 and January 25, 1997 with respect to the Combined Statements of Revenues
and Certain Expenses of Century Center and Anderson Properties, respectively,
included in Highwoods Properties, Inc.'s and Highwoods/Forsyth Limited
Partnership's Current Reports on Forms 8-K dated January 9, 1997 (as amended on
February 7, 1997 and March 10, 1997) and February 12, 1997 respectively, and (f)
dated January 16, 1998 with respect to the Statements of Revenues and Certain
Expenses of Riparius Properties, Shelton Properties, and Winners Circle included
in Highwoods Properties, Inc.'s and Highwoods/Forsyth Limited Partnership's
Current Reports on Form 8-K dated November 17, 1997, all filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
- ---------------------
Raleigh, North Carolina
February 5, 1998
EXHIBIT 23.3
Accountants' Consent
The Board of Directors
Highwoods Properties, Inc.:
We consent to the incorporation by reference in the Form S-3 of Highwoods
Properties, Inc. of our report dated March 4, 1996, with respect to the
consolidated balance sheet of Crocker Realty Trust, Inc. as of December 31, 1995
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1995, and our report dated February
3, 1995 with respect to the balance sheets of Crocker Realty Investors, Inc. as
of December 31, 1994 and 1993, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1994, and our report dated February 23, 1995 with respect to
the balance sheet of Crocker & Sons, Inc. as of December 31, 1994, and the
related statements of operations, stockholders' equity and cash flows for the
year then ended, which reports appear in Forms 8-K/A of Highwoods Properties,
Inc. dated April 29, 1996, as amended June 3, 1996 and June 18, 1996. We also
consent to the reference to our firm under the heading "Experts" in the
registration statement.
Signature:
/s/ KPMG Peat Marwick LLP
- -------------------------
Fort Lauderdale, Florida
Date: February 4, 1998
EXHIBIT 23.4
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of Highwoods Properties, Inc. of our report dated February 21, 1995,
with respect to the combined financial statements of Southeast Realty Corp., AP
Southeast Portfolio Partners, L.P. and AP Fontaine III Partners, L.P. for the
year ended December 31, 1994, which report appears in the Form 8-K/A of
Highwoods Properties, Inc. dated April 29, 1996, as amended on June 3, 1996 and
June 18, 1996. We also consent to the reference to our firm under the heading
"Experts" in the prospectus that is part of the Registration Statement.
Signature:
/s/ Deloitte & Touche LLP
-------------------------
Dallas, Texas
Date: February 3, 1998
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement (No. 333-43745) on Form S-3 of Highwoods Properties, Inc. of our
report dated March 7, 1994 relating to the financial statements of AP Southeast
Portfolio Partners, L.P. which appears on Page F-13 in the Form 8-K/A of
Highwoods Properties, Inc. dated April 29, 1996, as amended June 3, 1996 and
June 18, 1996. We also consent to the references under the heading "Experts" in
the prospectus that is part of such Registration Statement.
Signature:
/s/ PRICE WATERHOUSE LLP
- ------------------------
Dallas, Texas
Date: February 5, 1998
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-3 (File No. 333-43745) 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 expense of
the 1997 Pending Acquisitions for the year ended December 31, 1996, which
reports are included in the Forms 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".
Signature:
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Memphis, Tennessee
February 5, 1998
EXHIBIT 24.9
POWER OF ATTORNEY
OF
L. GLENN ORR
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Highwoods
Properties, Inc. (the "Company"), hereby constitutes and appoints Ronald P.
Gibson, Carman J. Liuzzo, Edward J. Fritsch and/or Mack D. Pridgen his true and
lawful attorneys-in-fact and agents, each acting alone, with full powers to sign
for me and in my name the Registration Statement on Form S-3 to register the
shares and warrants of the Company, as contemplated by the Registration Rights
and Lockup Agreements between the Company and the holders listed therein, dated
as of October 7, 1997, and as of October 1, 1997, and generally to do all such
things in my name and in my capacity as a director to enable the Company to
comply with the provisions of the Securities Act of 1933, as amended, hereby
ratifying and confirming my signature as it may be signed by my said
attorneys-in-fact, or any of them, to said Registration Statement and any
amendments thereto.
Signature:
Date: January 5, 1998 /s/ L. Glenn Orr
-----------------
L. Glenn Orr
EXHIBIT 24.10
POWER OF ATTORNEY
OF
THOMAS W. ADLER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Highwoods
Properties, Inc. (the "Company"), hereby constitutes and appoints Ronald P.
Gibson, Carman J. Liuzzo, Edward J. Fritsch and/or Mack D. Pridgen his true and
lawful attorneys-in-fact and agents, each acting alone, with full powers to sign
for me and in my name the Registration Statement on Form S-3 to register the
shares and warrants of the Company, as contemplated by the Registration Rights
and Lockup Agreements between the Company and the holders listed therein, dated
as of October 7, 1997, and as of October 1, 1997, and generally to do all such
things in my name and in my capacity as a director to enable the Company to
comply with the provisions of the Securities Act of 1933, as amended, hereby
ratifying and confirming my signature as it may be signed by my said
attorneys-in-fact, or any of them, to said Registration Statement and any
amendments thereto.
Signature:
Date: January 5, 1998 /s/ Thomas W. Adler
--------------------
Thomas W. Adler
