SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
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Check the appropriate box:
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[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HIGHWOODS PROPERTIES, INC.
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(Name of Registrant as Specified in Its Charter)
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HIGHWOODS PROPERTIES, INC. [GRAPHIC LOGO APPEARS HERE]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on June 2, 1999
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You are cordially invited to attend the 1999 annual meeting of stockholders
of Highwoods Properties, Inc. to be held on Wednesday, June 2, 1999, at 11:00
a.m., at the Raleigh Marriott Crabtree Valley, 4500 Marriott Drive, Raleigh,
North Carolina, for the following purposes:
1. To elect four directors;
2. To ratify the appointment of Ernst & Young LLP as independent auditors
of Highwoods for the 1999 fiscal year; and
3. To transact such other business as may properly come before such
meeting or any adjournments thereof.
Only stockholders of record at the close of business on April 6, 1999 will
be entitled to vote at the meeting or any adjournments thereof.
IF YOU ARE UNABLE TO BE PRESENT AT THE MEETING IN PERSON, PLEASE SIGN AND
DATE THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
EDWARD J. FRITSCH
Executive Vice President, Chief
Operating Officer
and Secretary
<PAGE>
HIGHWOODS PROPERTIES, INC.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
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To Be Held On June 2, 1999
This proxy statement is furnished to stockholders of Highwoods Properties,
Inc., a Maryland corporation, in connection with the solicitation of proxies for
use at the 1999 annual meeting of stockholders of Highwoods to be held on
Wednesday, June 2, 1999, at 11:00 a.m., at the Raleigh Marriott Crabtree Valley,
4500 Marriott Drive, Raleigh, North Carolina, for the purposes set forth in the
notice of meeting. This solicitation is made on behalf of the Board of Directors
of Highwoods.
Holders of record of shares of common stock of Highwoods as of the close of
business on the record date, April 6, 1999, are entitled to receive notice of,
and to vote at, the meeting. The outstanding common stock constitutes the only
class of securities entitled to vote at the meeting, and each share of common
stock entitles the holder thereof to one vote. At the close of business on April
6, 1999, there were 61,628,377 shares of common stock issued and outstanding.
Shares represented by proxies in the form enclosed, if such proxies are
properly executed and returned and not revoked, will be voted as specified.
Where no specification is made on a properly executed and returned form of
proxy, the shares will be voted FOR the election of all nominees for director,
FOR the proposal to ratify the appointment of Ernst & Young LLP as independent
auditors and FOR authorization of the proxy to vote upon such other business as
may properly come before the meeting or any adjournments thereof. To be voted,
proxies must be filed with the secretary of Highwoods prior to the close of
voting at the meeting. Proxies may be revoked at any time before exercise
thereof by filing a notice of such revocation or a later dated proxy with the
secretary of Highwoods or by voting in person at the meeting.
Proposal One, the election of certain directors of Highwoods, requires the
vote of a plurality of all of the votes cast at the meeting provided that a
quorum is present. For purposes of the election of directors, abstentions will
not be counted as votes cast and will have no effect on the result of the vote,
although they will count toward the presence of a quorum.
Proposal Two, ratification of the appointment of Ernst & Young LLP,
requires the affirmative vote of a majority of the votes cast on the proposal
provided that a quorum is present. For purposes of the vote on Proposal Two,
abstentions will not be counted as votes cast and will have no effect on the
result of the vote, although they will count toward the presence of a quorum.
Highwoods' 1998 Annual Report has been mailed with this proxy statement.
This proxy statement, the form of proxy and the 1998 Annual Report were mailed
to stockholders on or about May 3, 1999. The principal executive offices of
Highwoods are located at 3100 Smoketree Court, Suite 600, Raleigh, North
Carolina 27604.
PROPOSAL ONE:
ELECTION OF DIRECTORS
Board of Directors
The directors of Highwoods are divided into three classes, with
approximately one-third of the directors elected by the stockholders annually.
Thomas W. Adler, Kay Nichols Callison and Willard H. Smith Jr., whose terms of
office expire at the meeting, have been nominated for election at the meeting as
directors for three-year terms, to hold office until the 2002 annual meeting of
stockholders and until their successors are elected and qualified. William E.
Graham, Jr., whose term of office also expires at the meeting, has been
nominated for election at the meeting as a director for a one-year term, to hold
office until the 2000 annual meeting of stockholders and until his successor is
elected and qualified.
The Board of Directors of Highwoods recommends a vote FOR Messrs. Adler,
Graham and Smith and Ms. Callison as directors to hold office until the
expiration of the terms for which they have been nominated and until their
successors are elected and qualified. Should any one or more of these nominees
become unable to serve for any reason, the Board of
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Directors may designate substitute nominees, in which event the person named in
the enclosed proxy will vote for the election of such substitute nominee or
nominees, or may reduce the number of directors on the Board of Directors.
Nominees for Election to Term Expiring 2002
Thomas W. Adler, 58, has been a director of Highwoods since its initial
public offering in June 1994. Mr. Adler is managing partner of NewGar, Ltd. in
Cleveland, Ohio. Mr. Adler has served five years as a member of the executive
committee and board of governors of the National Association of Real Estate
Investment Trusts, and he was national president in 1990 of the Society of
Industrial and Office Realtors. Mr. Adler formerly served on the board of
directors of the National Association of Realtors and the board of governors of
the American Society of Real Estate Counselors.
Kay Nichols Callison, 55, has been a director of Highwoods since its
merger with J.C. Nichols Company in July 1998. Ms. Callison previously served
as a director of J.C. Nichols Company since 1982. For more than five years, Ms.
Callison has been active in charitable activities in the Kansas City
metropolitan area.
Willard H. Smith Jr., 62, has been a director of Highwoods since April
1996. Mr. Smith previously served as a managing director of Merrill Lynch from
1983 to 1995. Mr. Smith is a member of the boards of directors of Cohen & Steers
Realty Shares, Cohen & Steers Realty Income Fund, Cohen & Steers Special Equity
Fund, Inc., Cohen & Steers Total Return Realty Fund, Cohen & Steers Equity
Income Fund, Essex Property Trust, Inc., Realty Income Corporation and Willis
Lease Financial Corporation.
Nominees for Election to Term Expiring 2000
William E. Graham, Jr., 69, has been a director of Highwoods since its
initial public offering. Mr. Graham is a lawyer in private practice with the
firm of Hunton & Williams. Before joining Hunton & Williams on January 1, 1994,
Mr. Graham was vice chairman of Carolina Power & Light Company and had
previously served as its general counsel. Mr. Graham is a former member of the
board of directors of Carolina Power & Light Company and currently serves as
chairman of the Raleigh board of directors of BankAmerica Corp. He also serves
on the board of trustees of BB&T Mutual Funds Group.
Incumbent Directors -- Term Expiring 1999
Stephen Timko, 70, has been a director of Highwoods since February 1995.
Mr. Timko has been serving as treasurer of Beaunit Corporation, a real estate
investment company, since 1983. He has served as associate vice president of
financial affairs for Temple University and chief financial officer and
executive vice president of finance and administration for Beaunit Corporation.
Mr. Timko will retire from the Board of Directors at the meeting.
Incumbent Directors -- Term Expiring 2000
Gene H. Anderson, 53, has been a director and senior vice president of
Highwoods since its combination with Anderson Properties, Inc. in February
1997. Mr. Anderson previously served as president of Anderson Properties, Inc.
since 1978. Mr. Anderson is an officer and former director of the National
Association of Industrial and Office Properties.
Ronald P. Gibson, 54, has been president, chief executive officer and a
director of Highwoods since its first election of officers in March 1994. Mr.
Gibson is a founder of Highwoods' predecessor, served as its president since its
incorporation in 1992 and served as its managing partner since its formation in
1978. Mr. Gibson is a member of the Society of Industrial and Office Realtors
and is a director of Capital Associated Industries.
O. Temple Sloan, Jr., 60, is chairman of the Board of Directors, a position
he has held since March 1994. Mr. Sloan is a founder of the predecessor of
Highwoods. He has been chairman and chief executive officer of General Parts,
Inc., a nationwide distributor of automobile replacement parts, since its
founding in 1961. Mr. Sloan is a director of BankAmerica Corp. and Southern
Equipment Company and is a trustee of St. Andrews College.
John L. Turner, 52, has been vice chairman of the Board of Directors and
chief investment officer of Highwoods since its combination with Forsyth
Partners in February 1995. Mr. Turner co-founded the predecessor of Forsyth
Partners in 1975 and served as its chairman of the board of directors and chief
executive officer prior to joining Highwoods. Mr. Turner is active in several
Piedmont Triad economic development and business recruiting organizations. Mr.
Turner served on the University of North Carolina board of visitors and on the
Winston-Salem board of directors of BankAmerica Corp.
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Incumbent Directors -- Term Expiring 2001
James R. Heistand, 47, has been a senior vice president of Highwoods since
its merger with Associated Capital Properties, Inc. in October 1997. On April
30, 1999, Mr. Heistand resigned as an executive officer of Highwoods in order
to pursue other interests but will remain as a director and serve as a
consultant to Highwoods. Mr. Heistand has been a director of Highwoods since
May 1998. Mr. Heistand previously served as chairman of Associated Capital
Properties, Inc. from 1989 to 1997.
L. Glenn Orr, Jr., 59, has been a director of Highwoods since February
1995. Mr. Orr has been president and chief executive officer of Orr Management
Company, which provides investment banking and consulting services for middle
market companies, since 1995. Mr. Orr is a director of BB&T Financial and was
chairman of the board of directors, president and chief executive officer of
Southern National Corporation from 1990 until its merger with Branch Banking &
Trust in 1995. Mr. Orr is a member of the boards of directors of Ladd Furniture
Company and The Polymer Group. Mr. Orr previously served as president and chief
executive officer of Forsyth Bank and Trust Co., president of Community Bank in
Greenville, S.C. and president of the North Carolina Bankers Association. He is
a trustee of Wake Forest University.
Committees of the Board of Directors; Meetings
The Board of Directors has established an audit committee that currently
consists of Messrs. Graham, Smith and Timko. The audit committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of Highwoods' internal accounting controls. During 1998, the audit
committee held four meetings.
The Board of Directors has established an executive compensation committee
to determine compensation for Highwoods' executive officers and to implement
Highwoods' Amended and Restated 1994 Stock Option Plan (the "Stock Option
Plan"). The compensation committee consists of Messrs. Adler, Graham, Orr and
Sloan. During 1998, the compensation committee held five meetings.
The Board of Directors has established an investment committee consisting
of Messrs. Adler, Gibson, Heistand, Sloan and Turner. The investment committee
oversees the acquisition, new development and asset disposition process. The
investment committee generally meets weekly to review new opportunities and to
make formal recommendations to the Board of Directors concerning such
opportunities.
The Board of Directors has established an executive committee consisting of
Messrs. Adler, Gibson, Heistand, Orr, Sloan and Turner. The executive committee
meets on call by the chairman of the Board of Directors during the intervals
between meetings of the full Board of Directors and may exercise all of the
powers of the Board of Directors, subject to the limitations imposed by
applicable law, the bylaws or the Board of Directors.
The Board of Directors held four meetings in 1998.
Compensation of Directors
Highwoods pays directors who are not employees of Highwoods fees for their
services as directors. During 1998, non-employee directors received annual
compensation of $15,000 plus a fee of $1,250 (plus out-of-pocket expenses) for
attendance in person at each meeting of the Board of Directors, $500 for each
committee meeting attended and $250 or $400 for each telephone meeting of the
Board of Directors or a committee. The annual compensation amount for
non-employee directors has been increased to $18,000 effective January 1, 1999.
In addition, non-employee directors on the investment committee received an
additional annual retainer of $30,000 and $1,000 per day for property visits in
1998. Upon becoming a director of Highwoods, each non-employee director received
options to purchase 10,000 shares of common stock at an exercise price equal to
the fair market value on the date of grant. Non-employee directors are also
eligible for discretionary awards of stock options and may elect to receive a
portion of their retainer and meeting fees in the form of stock options.
Officers of Highwoods who are directors are not paid any director fees.
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EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of Highwoods (the "Named Executive Officers") for
the year ended December 31, 1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Securities
---------------------- Underlying All Other
Name and Principal Position Year Salary Bonus(1) Options(#)(2) Compensation(3)
- --------------------------------------- ------ ----------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Ronald P. Gibson 1998 $347,352 $437,500 30,000 $4,446
President and Chief Executive Officer 1997 $285,551 $375,000 350,000 $4,750
1996 $205,000 $268,750 20,000 $4,750
John L. Turner 1998 $240,134 $312,500 -- $4,800
Chief Investment Officer 1997 $199,836 $250,000 210,000 $4,750
1996 $161,250 $206,250 -- $4,750
Edward J. Fritsch 1998 $264,839 $343,750 30,000 $4,770
Executive Vice President, Chief 1997 $177,262 $200,000 100,000 $4,750
Operating Officer and Secretary 1996 $142,500 $150,000 10,000 $4,750
James R. Heistand 1998 $206,585 $350,000 30,000 $2,782
Senior Vice President 1997 $ 49,692 $ 47,500 75,000 $1,538
1996 -- -- -- --
Carman J. Liuzzo 1998 $216,189 $275,000 30,000 $4,800
Vice President, Chief Financial 1997 $170,168 $200,000 220,000 $4,750
Officer and Treasurer 1996 $122,500 $ 68,500 10,000 $4,750
</TABLE>
- ---------
(1) Includes amounts earned in the indicated period that were paid in the
following year. Twenty percent of the bonus was in the form of units of
phantom stock. The Named Executive Officers were credited with a specified
number of units of phantom stock equal to such number of shares of common
stock as could be purchased with 25% of the employee's cash bonus. Five
years from the date of the phantom stock grant, the Named Executive
Officers will receive the value of a share of common stock for each unit of
phantom stock and an additional amount equal to the value of the dividends
paid during the period on the corresponding common stock assuming dividend
reinvestment. Payouts with respect to phantom stock grants may be made in
shares of common stock or cash or both. If a Named Executive Officer leaves
Highwoods' employ for any reason (other than death, disability or normal
retirement) prior to the end of the five-year period, all phantom stock
awards will be forfeited.
(2) Options include incentive stock options and nonqualified stock options.
Options have varying vesting schedules of no less than four years beginning
with the date of grant. Amounts shown include options granted during the
indicated period with respect to the prior year's performance.
(3) Represents amounts contributed by Highwoods under the Salary Deferral and
Profit Sharing Plan.
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The following table sets forth certain information with respect to options
granted in 1998 to the Named Executive Officers:
Option Grants in 1998
<TABLE>
<CAPTION>
Percent of Potential Realizable
Number of Total Options Annual Rates of
Securities Granted to Exercise Stock Price Appreciation
Underlying Employees Price Expiration for Option Term (2)
Name Options (1) in 1998 Per Share Date 5% 10%
- --------------------------- ------------- -------------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald P. Gibson .......... 30,000 4.1% $ 31.06 July 27, 2008 $586,004 $1,485,049
John L. Turner ............ -- -- -- -- -- --
Edward J. Fritsch ......... 30,000 4.1% $ 31.06 July 27, 2008 $586,004 $1,485,049
James R. Heistand ......... 30,000 4.1% $ 31.06 July 27, 2008 $586,004 $1,485,049
Carman J. Liuzzo .......... 30,000 4.1% $ 31.06 July 27, 2008 $586,004 $1,485,049
</TABLE>
- ---------
(1) Options granted in 1998 were based on 1997 performance. Options granted in
1998 generally vest over a four-year period beginning with the date of
grant.
(2) Realizable values have been reduced by the per share option exercise price
that each optionee will be required to pay to Highwoods in order to
exercise the options.
The following table sets forth certain information with respect to options
held by the Named Executive Officers as of December 31, 1998:
Disposition of Options in 1998/1998 Year-End Option Values
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Underlying Underlying Options at In-the-Money
Options Value 1998 Year-End (1) Options at 1998 Year-End (2)(3)
Name Disposed of Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------ --------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ronald P. Gibson .......... -- -- 41,300 398,700 $142,500 $ 47,500
John L. Turner ............ -- -- 28,800 226,200 $112,500 $112,500
Edward J. Fritsch ......... -- -- 31,300 138,700 $106,875 $ 35,625
James R. Heistand ......... -- -- -- 105,000 -- --
Carman J. Liuzzo .......... -- -- 27,550 257,450 $ 89,063 $ 29,688
</TABLE>
- ---------
(1) Options include incentive stock options and nonqualified stock options.
Options have varying vesting schedules of no less than four years beginning
with the date of grant.
(2) Based on a closing price of $25.75 per share of common stock on December
31, 1998.
(3) Up to one-third of the nonqualified stock options granted to the Named
Executive Officers in 1997 were accompanied by a dividend equivalent right
(a "DER") pursuant to the 1997 Performance Award Plan. If the total return
on a share of common stock exceeds certain thresholds, the exercise price
of such a stock option will be reduced by an amount equal to the sum of all
dividends and other distributions that are made with respect to such a
share during the period beginning on the date of grant and ending upon
exercise of such stock option. Therefore, the exercise price per share of
nonqualified stock options accompanied by DERs may be lower upon exercise,
and the potential realizable value of such options may be higher upon
exercise, than the amounts set forth in the table.
Employment Contracts and Change-in-Control Arrangements
On April 30, 1999, Mr. Heistand resigned as an executive officer of
Highwoods in order to pursue other interests but will remain as a director and
serve as a consultant to Highwoods. Mr. Heistand entered into a one-year
consulting agreement pursuant to which Highwoods will pay him $100,000. In
addition, Mr. Heistand is restricted under the terms of his original employment
contract from competing with Highwoods until October 7, 2001.
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Highwoods has entered into a change in control contract with each of
Messrs. Gibson, Turner, Fritsch and Liuzzo. The contracts generally provide that
if within three years from the date of a change in control (as defined below),
the employment of Messrs. Gibson, Turner, Fritsch or Liuzzo is terminated
without cause, or if they terminate their respective employment (a) at any time
because their responsibilities are changed, their salaries are reduced or their
responsibilities are diminished, or (b) for any reason during the 90-day period
beginning on the first anniversary of the change in control, such terminated
executive will be entitled to receive 2.99 times a base amount. An executive's
base amount for these purposes is equal to 12 times the highest monthly salary
paid to the executive during the twelve-month period ending prior to the change
of control plus the greater of (1) the average annual bonus for the preceding
three years or (2) the last annual bonus paid or payable to the executive.
Additionally, the Stock Option Plan, the phantom stock plan and the 1997
Performance Award Program provide for the immediate vesting of all options and
benefits upon a change of control. Additionally, the executive will receive a
lump sum cash payment equal to a stated multiple of the value of all of the
executive's unexercised stock options. The multiple is three times for Mr.
Gibson and two times for Messrs. Turner, Liuzzo and Fritsch. The contracts are
effective until March 31, 2002, and are automatically extended for one
additional year commencing at March 31, 2000 and each March 31 thereafter.
For purposes of the contracts described in the preceding paragraph, "change
in control" generally means any of the following events: (1) the acquisition by
a third party of 20% or more of the then outstanding common stock of Highwoods;
(2) individuals who currently constitute the Board of Directors (or individuals
who subsequently become a director whose election or nomination was approved by
at least a majority of the directors currently constituting the Board of
Directors) cease for any reason to constitute a majority of the Board of
Directors; (3) approval by Highwoods' stockholders of a reorganization, merger
or consolidation in which Highwoods is not the surviving entity; or (4) approval
by Highwoods' stockholders of a complete liquidation or dissolution of Highwoods
or the sale or other disposition of all or substantially all of the assets of
Highwoods.
Executive Compensation Committee Interlocks and Insider Participation
The executive compensation committee consists of Messrs. Adler, Graham,
Orr and Sloan. None of the members of the executive compensation committee is
an employee of Highwoods. Mr. Sloan is a former officer of the predecessor of
Highwoods.
Committee Report on Executive Compensation
The executive compensation committee makes recommendations to the Board of
Directors regarding compensation and benefit policies and practices and
incentive arrangements for executive officers and key managerial employees of
Highwoods. The executive compensation committee also considers and grants awards
under the Stock Option Plan. During 1998, the executive compensation committee
met five times to review and evaluate executive compensation and benefit
programs.
Executive Officer Compensation Policies. The executive compensation
committee's compensation policies are designed to (a) attract and retain the
best individuals critical to the success of Highwoods, (b) motivate and reward
such individuals based on corporate, business unit and individual performance,
and (c) align executives' and stockholders' interests through equity-based
incentives.
Compensation for executives is based on the following principles: variable
compensation should comprise a significant part of an executive's compensation,
with the percentage at-risk increasing at increased levels of responsibility;
employee stock ownership aligns the interests of employees and stockholders;
compensation must be competitive with that offered by companies that compete
with Highwoods for executive talent; and differences in executive compensation
within Highwoods should reflect differing levels of responsibility and
performance.
A key determinant of overall levels of compensation is the pay practices of
public equity real estate investment trusts that have revenues comparable to
Highwoods. This peer group was chosen by Highwoods' independent compensation and
benefit consultants.
There are three components to Highwoods' executive compensation program:
base salary, annual incentive compensation and long-term incentive compensation.
The more senior the position, the greater the portion of compensation that
varies with performance.
Base salaries are set by the executive compensation committee and are
designed to be competitive with the peer group companies described above.
Changes in base salaries are based on the peer group's practices; Highwoods'
performance; the individual's performance, experience and responsibility; and
increases in cost of living indices. The corporate performance
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<PAGE>
measures used in determining adjustments to executive officers' base salaries
are the same performance measures used to determine annual and long-term
incentive compensation discussed below. Base salaries are reviewed for
adjustment annually.
Highwoods' executive officers participate in a bonus program whereby the
individual executives are eligible for cash bonuses based on a percentage of
their annual base salary rate as of the prior December. The bonus percentage is
determined by competitive analysis and the executive's ability to influence
overall performance of Highwoods. The eligible bonus percentage is allocated in
part to overall, divisional and individual performance, in part to the
achievement of individual goals and in part to discretionary evaluation by the
executive compensation committee. The executive compensation committee considers
growth in funds from operations ("FFO") per share, the volume and quality of
acquisitions and development, completed financing activity and other measures in
assessing the performance of Highwoods. Sixty to seventy-five percent of the
eligible bonus percentage is awarded upon achievement of 10% FFO growth. Growth
in per-share FFO for 1998 was 19%. For 1999 and subsequent years, the bonus
program has been revised to include performance measures other than growth in
FFO, such as operational and peer group performance.
In addition to the cash bonus, and as an incentive to retain executive
officers, Highwoods' deferred compensation plan provides for the issuance of
phantom stock. Under the deferred compensation plan, certain Highwoods employees
were credited with a specified number of units of phantom stock equal to such
number of shares of common stock as could be purchased with 25% of the
employee's cash bonus. Five years from the date of the phantom stock grant,
employees will receive the value of a share of common stock for each unit of
phantom stock and an additional amount equal to the value of the dividends paid
during the period on the corresponding common stock assuming dividend
reinvestment. At the discretion of the executive compensation committee, payouts
with respect to phantom stock grants may be made in shares of common stock or
cash or both. If an executive officer leaves Highwoods' employ for any reason
(other than death, disability or normal retirement) prior to the end of the
five-year period, all awards under the deferred compensation plan will be
forfeited.
Long-term incentive compensation is also paid in the form of stock options
granted under the Stock Option Plan. The executive compensation committee
believes that grants of stock options align stockholder value and executive
officer interests. The size of previous grants and the number of shares held by
an executive are not considered in determining annual award levels.
Stock options are granted with an exercise price equal to the fair market
value per share on the date of grant. The options generally vest over a period
of no less than four years beginning with the date of grant. Options granted to
executives in 1998 vest ratably over a four-year period following the date of
grant. No stock option awards are made in the absence of satisfactory
performance, which is evaluated by the executive compensation committee based on
the executive's individual contribution to the long-term health and growth of
Highwoods.
Section 162(m) of the Internal Revenue Code generally denies a deduction
for compensation in excess of $1 million paid to certain executive officers,
unless certain performance, disclosure and stockholder approval requirements are
met. Option grants and certain other awards under the Stock Option Plan are
intended to qualify as "performance-based" compensation not subject to Section
162(m) deduction limitation. The executive compensation committee believes that
a substantial portion of compensation awarded under Highwoods' compensation
program would be exempted from the $1 million deduction limitation. The
executive compensation committee's present intention is to qualify to the extent
reasonable, a substantial portion of each executive officer's compensation for
deductibility under applicable tax laws.
Chief Executive Officer Compensation. The salary and long-term incentive
awards of Highwoods' Chief Executive Officer, Mr. Ronald P. Gibson, are
determined substantially in conformity with the policies described above for
all other executive officers of Highwoods. Mr. Gibson was paid $347,352 in base
salary, $350,000 in cash incentive compensation and 3,398 units of phantom
stock valued at $87,500 in long-term incentive compensation for 1998. Also, Mr.
Gibson was granted 30,000 stock options during 1998 with respect to 1997
performance.
Executive Compensation Committee
Thomas W. Adler William E. Graham, Jr.
L. Glenn Orr, Jr. O. Temple Sloan, Jr.
The foregoing report should not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that Highwoods specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of common
stock as of December 31, 1998 for each person or group known to Highwoods to be
holding more than 5% of the common stock and, as of April 6, 1999, for each
director and Named Executive Officer and the directors and executive officers of
Highwoods as a group. The number of shares shown represents the number of shares
of common stock the person beneficially owns plus the number of shares that may
be issued upon redemption of common partnership interests ("Common Units") in
Highwoods Realty Limited Partnership (the "Operating Partnership"), whether or
not such Common Units are currently redeemable. The Operating Partnership is
controlled by Highwoods as its sole general partner. Following the expiration of
a contractually imposed lockup period, the Operating Partnership is obligated to
redeem each Common Unit at the request of the holder thereof for the cash value
of one share of common stock or, at Highwoods' option, one share of common
stock. Unless otherwise indicated in the footnotes, the indicated person or
entity has sole voting and investment power with respect to the shares of common
stock. The number of shares and Common Units shown are those "beneficially
owned," as determined by the rules of the SEC, and such information is not
necessarily indicative of beneficial ownership for purposes of compliance with
the ownership limit contained in Highwoods' charter or for any other purpose.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name of Beneficial Owner Beneficially Owned All Shares (1)
- ------------------------------------------------------------------------- -------------------- ---------------
<S> <C> <C>
O. Temple Sloan, Jr. (2) ................................................ 547,899 *
Ronald P. Gibson (3)(4) ................................................. 192,398 *
Gene H. Anderson (5) .................................................... 622,285 1.0%
Edward J. Fritsch (3)(6) ................................................ 70,079 *
James R. Heistand (7) ................................................... 1,513,066 2.4%
Carman J. Liuzzo (8) .................................................... 34,638 *
John L. Turner (9) ...................................................... 484,741 *
Thomas W. Adler (10) .................................................... 45,940 *
Kay Nichols Callison (11) ............................................... 590,005 1.0%
William E. Graham, Jr. (12) ............................................. 25,841 *
L. Glenn Orr, Jr. (13) .................................................. 14,000 *
Willard H. Smith Jr. (14) ............................................... 12,500 *
Stephen Timko (15) ...................................................... 215,031 *
Cohen & Steers Capital Management, Inc. (16) ............................ 7,040,900 11.8%
Templeton Global Advisors Limited and Franklin Resources, Inc. (17) ..... 4,365,374 7.3%
All executive officers and directors as a group (16 persons) ............ 4,411,723 6.8%
</TABLE>
- ---------
* Less than 1%
(1) The total number of shares outstanding used in calculating this percentage
assumes that none of the Common Units, stock options or warrants held by
other persons are exchanged for shares of common stock.
(2) Number of shares beneficially owned includes 167,985 shares currently
issuable upon exercise of options and 274,990 shares issuable upon
redemption of Common Units.
(3) Messrs. Gibson and Fritsch each own 49.5 shares (representing in the
aggregate a 1% economic interest) of the Class A (voting) stock of
Highwoods Services, Inc., a subsidiary of the Operating Partnership.
(4) Number of shares beneficially owned includes 49,450 shares currently
issuable upon exercise of options and 71,872 shares issuable upon
redemption of Common Units.
(5) Number of shares beneficially owned includes 9,450 shares currently
issuable upon exercise of options and 609,779 shares issuable upon
redemption of Common Units.
(6) Number of shares beneficially owned includes 36,950 shares currently
issuable upon exercise of options and 10,144 shares issuable upon
redemption of Common Units.
(7) Number of shares beneficially owned includes 852,574 shares issuable upon
exercise of warrants and 583,338 shares issuable upon redemption of Common
Units.
(8) Number of shares beneficially owned includes 33,200 shares currently
issuable upon exercise of options.
(9) Number of shares beneficially owned includes 43,200 shares currently
issuable upon exercise of options, 35,000 shares issuable upon exercise of
warrants and 399,541 shares issuable upon redemption of Common Units.
8
<PAGE>
(10) Number of shares beneficially owned includes 28,440 shares currently
issuable upon exercise of options.
(11) Number of shares beneficially owned includes 2,500 shares currently
issuable upon exercise of options.
(12) Number of shares beneficially owned includes 20,841 shares currently
issuable upon exercise of options.
(13) Number of shares beneficially owned includes 13,000 shares currently
issuable upon exercise of options.
(14) Number of shares beneficially owned includes 9,000 shares currently
issuable upon exercise of options.
(15) Number of shares beneficially owned includes 20,224 shares currently
issuable upon exercise of options and 194,807 shares issuable upon
redemption of Common Units.
(16) Address is 757 Third Avenue, New York, New York 10017. Owner has sole
investment power with respect to all shares and sole voting power with
respect to 6,100,500 shares. Information obtained from Schedule 13G filed
with the SEC.
(17) Address with respect to Templeton Global Advisors Limited is Lyford Cay,
P.O. Box N-7759, Nassau, Bahamas. Address with respect to Franklin
Resources, Inc. is 777 Mariners Island Boulevard, San Mateo, CA 94404.
Templeton Global Advisors Limited has sole voting and investment power with
respect to 3,569,387 shares. Franklin Advisers, Inc. has sole voting and
investment power with respect to 716,600 shares. Templeton Investment
Management Limited has sole voting and investment power with respect to
72,000 shares. Franklin Management, Inc. has sole investment power with
respect to 7,387 shares. Information obtained from Schedule 13G filed with
the SEC.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 1, 1997, Gateway Holdings LLC, a limited liability company
controlled by Mr. Turner, purchased the Ivy Distribution Center in
Winston-Salem, North Carolina from Highwoods for $2,050,000. Mr. Turner is vice
chairman of the Board of Directors and chief investment officer of Highwoods.
Highwoods believes the purchase price was at market rates. On the date of
closing, Gateway Holdings LLC executed a promissory note in favor of Highwoods
for the full amount of the purchase. The note bore interest at 8% per annum and
was paid in full on September 1, 1998.
On October 8, 1998, Highwoods purchased the Bluegrass Valley office
development project from R&A Development Properties, L.L.C., a limited liability
company controlled by Mr. Anderson, for approximately $2.5 million. Mr. Anderson
is a senior vice president and director of Highwoods. Highwoods believes the
purchase price did not exceed market value.
On April 30, 1999, Mr. Heistand resigned as an executive officer of
Highwoods in order to pursue other interests but will remain as a director and
serve as a consultant to Highwoods. Mr. Heistand entered into a one-year
consulting agreement pursuant to which Highwoods will pay him $100,000. In
addition, Mr. Heistand is restricted under the terms of his original employment
contract from competing with Highwoods until October 7, 2001.
PROPOSAL TWO:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of the audit committee, has
appointed the accounting firm of Ernst & Young LLP to serve as independent
auditors of Highwoods for the fiscal year ending December 31, 1999, subject to
ratification of this appointment by the stockholders of Highwoods. Ernst & Young
LLP has served as independent auditors of Highwoods since its commencement of
operations and is considered by management of Highwoods to be well qualified.
Highwoods has been advised by that firm that neither it nor any member thereof
has any financial interest, direct or indirect, in Highwoods or any of its
subsidiaries in any capacity.
Representatives of Ernst & Young LLP will be present at the meeting, will
have the opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
Proposal Two requires the affirmative vote of a majority of the votes cast
on the proposal provided that a quorum is present. For purposes of the vote on
Proposal Two, an abstention will not be counted as votes cast and will have no
effect on the result of the vote, although they will count toward the presence
of a quorum.
The Board of Directors recommends a vote FOR the proposal to ratify the
appointment of Ernst & Young LLP as independent auditors of Highwoods for the
1999 fiscal year.
OTHER MATTERS
Highwoods' management knows of no other matters that may be presented for
consideration at the meeting. However, if any other matters properly come before
the meeting, it is the intention of the person named in the proxy to vote such
proxy in accordance with his judgment on such matters.
10
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following stock price performance graph compares Highwoods' performance
to the S&P 500 and the index of equity real estate investment trusts prepared by
National Association of Real Estate Investment Trusts ("NAREIT"). The stock
price performance graph assumes an investment of $100 in Highwoods on June 10,
1994 (the effective date of Highwoods' initial public offering) and the two
indices on May 31, 1994 and further assumes the reinvestment of all dividends.
Equity real estate investment trusts are defined as those that derive more than
75% of their income from equity investments in real estate assets. The NAREIT
equity index includes all tax qualified real estate investment trusts listed on
the New York Stock Exchange, the American Stock Exchange or the NASDAQ National
Market System. Stock price performance is not necessarily indicative of future
results.
(LINE GRAPH APPEARS HERE)
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
Period Ending
--------------------------------------------------------------------------
Index 6/10/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
----- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Highwoods Properties, Inc. 100.00 105.47 148.42 189.02 221.10 163.68
S&P 500 100.00 101.70 139.92 171.91 229.28 294.80
NAREIT All Equity REIT Index 100.00 95.78 110.36 151.51 183.57 153.05
</TABLE>
The stock price performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that Highwoods
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
11
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director and executive officer of Highwoods is required to file with
the SEC, by a specified date, reports regarding his or her transactions
involving Highwoods' common stock. To Highwoods' knowledge, based solely on the
information furnished to Highwoods and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all such
filing requirements were complied with, except that (1) one transaction by Mr.
Heistand was reported late and (2) one transaction by John W. Eakin was reported
late.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders to be presented at the 2000 annual meeting of
stockholders must be received by the secretary of Highwoods prior to January 4,
2000 to be considered for inclusion in the 2000 proxy material.
COSTS OF PROXY SOLICITATION
The cost of preparing, assembling and mailing the proxy material will be
borne by Highwoods. Highwoods will also request persons, firms and corporations
holding shares in their names or in the names of their nominees, which shares
are beneficially owned by others, to send the proxy material to, and to obtain
proxies from, such beneficial owners and will reimburse such holder for their
reasonable expenses in doing so.
Highwoods has retained Corporate Communications, Inc. and First Union
National Bank to assist in the process of identifying and contacting
stockholders for the purpose of soliciting proxies. The entire expense of
engaging the services of such consultants to assist in proxy solicitation is
projected to be $5,000 in fees paid to them, exclusive of certain other fees
paid to First Union National Bank in connection with the operation of the annual
meeting.
Your vote is important. Please complete the enclosed proxy card and mail it
in the enclosed postage-paid envelope as soon as possible. Thank you.
By Order of the Board of Directors
O. TEMPLE SLOAN, JR.
Chairman of the Board of Directors
May 3, 1999
12
<PAGE>
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
P R O X Y
HIGHWOODS PROPERTIES, INC.
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 2, 1999
The undersigned hereby (a) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of Highwoods Properties, Inc. (the "Company") to be
held on June 2, 1999, and the Proxy Statement in connection therewith; (b)
appoints Ronald P. Gibson as Proxy (the "Proxy") with the power to appoint a
substitute; and (c) authorizes the Proxy to represent and vote, as
designated below, all the shares of Common Stock of the Company, held of
record by the undersigned on April 6, 1999, at such Annual Meeting and at
any adjournment(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THESE PROPOSALS:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees (except as indicated to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees
Thomas W. Adler Kay Nichols Callison
Willard H. Smith Jr. William E. Graham, Jr.
(Instruction: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
write that nominee's name in the space below.)
________________________________________________________________________________
2. RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS for the fiscal year ending December 31, 1999
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. OTHER BUSINESS: In his discretion, the Proxy is authorized to vote
upon such other business as may properly come before the meeting or
any adjournments thereof.
[ ] FOR [ ] WITHHOLD AUTHORITY
(CONTINUED ON OTHER SIDE)
<PAGE>
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
4. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" ELECTION OF ALL NOMINEES FOR DIRECTOR AND
"FOR" PROPOSAL TWO.
DATED:____________________ __________________________________
Signature of Stockholder
__________________________________
Signature if held jointly
(Please sign exactly as your
name appears hereon. When
signing on behalf of a
corporation, partnership,
estate, trust or in any other
representative capacity, please
sign your name and title. For
joint accounts, each joint owner
must sign.)
Please mark, date and sign this
proxy and return it promptly in
the enclosed envelope so as to
ensure a quorum at the meeting.
This is important whether you
own few or many shares. Delay in
returning your proxy may subject
the Company to additional
expense.
