<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File No. 011-13254
---------
WEEKS CORPORATION
(Exact name of Registrant as specified in its Charter)
Georgia 58-1525322
- ------------------------ ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
4497 Park Drive, Norcross, Georgia 30093
(Address of principal executive offices, including zip code)
(770)923-4076
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (90) days. (X) YES ( ) NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date (19,821,212 shares of
common stock outstanding as of May 10, 1999)
<PAGE>
INDEX PAGE
================================================================================
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
at March 31, 1999 and December 31, 1998............. 3
Consolidated Condensed Statements of Operations
for the three months ended March 31, 1999 and 1998.. 4
Consolidated Condensed Statements of Cash Flows
for the three months ended March 31, 1999 and 1998.. 5
Notes to Consolidated Condensed Financial
Statements.......................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk......................................... 32
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 2. Changes in Securities............................... 33
Item 6. Exhibits and Reports on Form 8-K.................... 33
SIGNATURES...................................................... 34
- --------------------------------------------------------------------------------
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Weeks Corporation
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
(Unaudited; in thousands, except share data) 1999 1998
=========================================================================================================================
<S> <C> <C>
ASSETS
Real estate assets
Land $ 176,915 $ 169,443
Buildings and improvements 1,069,829 1,031,617
Accumulated depreciation (101,640) (96,383)
- -------------------------------------------------------------------------------------------------------------------------
Operating real estate assets 1,145,104 1,104,677
- -------------------------------------------------------------------------------------------------------------------------
Developments in progress 166,239 160,783
Land held for future development 37,118 42,438
- -------------------------------------------------------------------------------------------------------------------------
Net real estate assets 1,348,461 1,307,898
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 2,159 1,503
Receivables 15,336 15,316
Deferred costs, net 28,405 29,163
Investments in and notes receivable
from unconsolidated service companies 42,926 43,639
Investments in unconsolidated real estate entities 7,676 35,204
Other assets 14,781 14,869
- -------------------------------------------------------------------------------------------------------------------------
Total assets $1,459,744 $1,447,592
=========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt
Mortgage notes payable $ 243,764 $ 251,399
Unsecured bank borrowings 225,140 203,025
Unsecured notes 200,000 200,000
- -------------------------------------------------------------------------------------------------------------------------
Total debt 668,904 654,424
- -------------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 28,785 32,977
Other liabilities 10,160 9,626
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 707,849 697,027
- -------------------------------------------------------------------------------------------------------------------------
Minority interests in Operating Partnership
Preferred partnership interests 100,000 100,000
Common partnership interests 135,762 135,653
- -------------------------------------------------------------------------------------------------------------------------
Total minority interests 235,762 235,653
- -------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Preferred Stock, at $25.00 liquidation preference; 20,000,000 shares
authorized; 6,000,000, 8% series A cumulative redeemable
shares issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 150,000 150,000
Common Stock, $0.01 par value; 100,000,000 shares authorized;
19,754,070 and 19,674,412 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 198 197
Common stock warrants 1,400 1,400
Additional paid-in capital 432,315 430,191
Deferred compensation (861) (668)
Accumulated deficit (66,919) (66,208)
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 516,133 514,912
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,459,744 $1,447,592
=========================================================================================================================
The accompanying notes are an integral part of these consolidated condensed balance sheets.
</TABLE>
3
<PAGE>
Weeks Corporation
Consolidated Condensed Statements Of Operations
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
(Unaudited; in thousands, except per share data) March 31, 1999 March 31, 1998
===================================================================================================================
<S> <C> <C>
Revenues
Rental income $38,520 $28,345
Tenant reimbursements 5,561 3,960
Other 340 388
- -------------------------------------------------------------------------------------------------------------------
44,421 32,693
- -------------------------------------------------------------------------------------------------------------------
Expenses
Property operating, maintenance
and management 6,341 4,721
Real estate taxes 3,912 2,746
Depreciation and amortization 11,344 8,361
Interest, including amortization of
deferred financing costs 9,103 6,102
General and administrative 1,756 1,280
- -------------------------------------------------------------------------------------------------------------------
32,456 23,210
- -------------------------------------------------------------------------------------------------------------------
Income before Equity in Earnings of
Unconsolidated Entities, Interest Income
and Gain on Sale of Real Estate Assets 11,965 9,483
Equity in earnings of unconsolidated
service companies 503 488
Equity in earnings of unconsolidated
real estate entities 89 68
Interest income 325 279
Gain on sale of real estate assets 4,899 --
- -------------------------------------------------------------------------------------------------------------------
Income before Minority Interests 17,781 10,318
- -------------------------------------------------------------------------------------------------------------------
Minority Interests
Preferred partnership interests (2,102) --
Common partnership interests (3,432) (1,940)
- -------------------------------------------------------------------------------------------------------------------
(5,534) (1,940)
- -------------------------------------------------------------------------------------------------------------------
Net Income 12,247 8,378
Dividends to preferred shareholders (3,000) (3,000)
- -------------------------------------------------------------------------------------------------------------------
Net Income Available to Common Shareholders $ 9,247 $ 5,378
- -------------------------------------------------------------------------------------------------------------------
Net Income per Common Share
Basic $ 0.47 $ 0.29
Diluted 0.47 0.29
- -------------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares
Basic 19,728 18,276
Diluted 27,177 25,063
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
4
<PAGE>
Weeks Corporation
Consolidated Condensed Statements Of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
(Unaudited; in thousands) March 31, 1999 March 31, 1998
==============================================================================================================
<S> <C> <C>
Operating Activities
Net income $ 12,247 $ 8,378
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 5,534 1,940
Depreciation and amortization 11,344 8,361
Amortization of deferred financing costs 516 281
Amortization of deferred compensation 107 72
Straight-line rent revenue (1,089) (251)
Gain on sale of real estate assets (4,899) --
Undistributed earnings of unconsolidated entities -- (556)
Net change in:
Deferred costs (2,011) (1,350)
Receivables and other assets (144) (1,361)
Accounts payable and accrued expenses (4,081) (194)
Other liabilities 534 618
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,058 15,938
- --------------------------------------------------------------------------------------------------------------
Investing Activities
Property acquisition, development and construction (63,560) (108,297)
Investments in and advances to unconsolidated entities (4,864) (18,494)
Real estate loans -- (4,857)
Proceeds from sale of real estate assets 51,832 --
Collections on real estate loans, notes receivable and other 1,231 224
Distributions in excess of earnings of unconsolidated entities 127 --
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (15,234) (131,424)
- --------------------------------------------------------------------------------------------------------------
Financing Activities
Common share offering proceeds -- 48,600
Underwriting commissions and offering costs -- (1,400)
Proceeds from issuance of common stock warrants,
stock option exercises and dividend reinvestment plan 1,825 2,871
Unsecured note borrowings -- 100,000
Line of credit proceeds (repayments), net 22,115 (14,975)
Payments of mortgage notes payable (7,635) (4,698)
Deferred financing costs -- (6,132)
Dividends to common and preferred shareholders (12,935) (11,233)
Distributions to common and preferred minority interests (5,538) (2,487)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,168) 110,546
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 656 (4,940)
Cash and cash equivalents, beginning of period 1,503 5,421
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,159 $ 481
==============================================================================================================
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
The Company's 1999 acquisition and development activity was net of the issuance
of Common Units valued at $300,000 and net of the Company's investment and
advances to unconsolidated entities of $32,733,000 (see Note 3).
The Company's 1998 property acquisition and development activity was net of the
settlement of real estate loans of $7,898,000, the assumption of other
liabilities in excess of other assets of $4,224,000, the assumption of
indebtedness of $80,897,000 and the issuance of Common Units valued at
$36,123,000.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
WEEKS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. THE COMPANY
Weeks Corporation and its subsidiaries own, operate, develop, construct, acquire
and manage industrial and suburban office buildings in the southeast United
States and Texas. As used herein, the term "Company" includes Weeks Corporation
and its subsidiaries, including Weeks Realty, L.P. (the "Operating
Partnership"), unless the context indicates otherwise. The Company, through its
subsidiaries, is the general partner of and owns a majority interest in the
Operating Partnership which, including the operations of its subsidiaries,
conducts substantially all of the on-going operations of the Company. The
Company has elected to qualify and operate as a self-administered and self-
managed real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"). As a REIT, the Company will not generally be
subject to corporate federal income taxes as long as it satisfies certain
technical requirements of the Code relating to the composition of its income and
assets, and including the requirement to distribute 95% of its taxable income to
its shareholders.
As of March 31, 1999, the Company had outstanding 19,754,070 shares of common
stock and owned the same number of units of common limited partnership interest
in the Operating Partnership ("Common Units"), and the Company's ownership
interest in the Operating Partnership was 73.0%. Common Units held by persons
other than the Company totaled 7,324,677 as of March 31, 1999, and represented a
27.0% common minority interest in the Operating Partnership. Common Units are
convertible by their holders into shares of common stock on a one-for-one basis,
or into cash, at the Company's option. The Company's weighted average common
ownership interest in the Operating Partnership was 72.9% and 73.5% for the
three months ended March 31, 1999 and 1998, respectively.
The Company conducts its third-party service businesses through two subsidiary
companies (the "Service Companies"): Weeks Realty Services, Inc. and Weeks
Construction Services, Inc. Together the Service Companies and their
subsidiaries conduct third-party development, construction, landscape, property
management and commercial brokerage services. The Company holds 100% of the
nonvoting and 1% of the voting common stock of the Service Companies. The
remaining voting common stock is held by three executive officers of the
Company. The ownership of the common stock of the Service Companies entitles
the Company to substantially all (99%) of the economic benefits from the results
of the Service Companies' operations.
As of March 31, 1999, the Company's in-service property portfolio, including two
properties totaling 336,000 square feet held in unconsolidated entities,
consisted of 270 industrial properties, 34 suburban office properties and 5
retail properties comprising 25,926,000 square feet. The Company's primary
markets and the concentration of the Company's in-service portfolio (based on
square footage) are Atlanta, Georgia (53.3%), Nashville, Tennessee (11.2%),
Raleigh-Durham-Chapel Hill, North Carolina (9.8%), Miami, Florida (9.4%),
Dallas/Ft. Worth, Texas (7.1%), Orlando, Florida (3.8%), Jacksonville, Florida
(2.5%), Spartanburg, South Carolina (1.5%), Tampa, Florida (0.7%) and Ft.
Lauderdale, Florida (0.7%). In addition, 42 industrial and suburban office
properties were under development or in lease-up and one industrial property was
under agreement to acquire as of March 31, 1999, comprising an additional
4,450,000 square feet.
6
<PAGE>
Announced Merger Transaction
On March 1, 1999, the Company announced that it had entered into an Agreement
and Plan of Merger (the "REIT Merger Agreement") with Duke Realty Investments,
Inc., an Indiana based REIT specializing in industrial and office building
development and ownership ("Duke"), and that the Operating Partnership had
entered into an Agreement and Plan of Merger (the "OP Merger Agreement" and,
together with the REIT Merger Agreement, the "Merger Agreements") with Duke
Realty Limited Partnership, an Indiana limited partnership of which Duke is the
managing general partner ("Duke OP"). The Merger Agreements provide for a
merger of the Company with and into Duke (the "REIT Merger") and a merger of the
Operating Partnership with and into Duke OP (the "OP Merger" and, together with
the REIT Merger, the "Mergers"). At the effective time of the Mergers, Duke
will change its name to Duke-Weeks Realty Corporation.
Pursuant to the Merger Agreements: (i) each outstanding share of common stock,
par value $0.01 per share, of the Company ("Weeks Common Stock") will be
converted into the right to receive 1.38 shares of common stock, par value $0.01
per share, of Duke ("Duke Common Stock"), (ii) each issued and outstanding share
of 8.0% Series A Preferred Stock, par value $0.01 per share, of the Company will
be converted into the right to receive one preference share representing 1/1000
of a share of 8.0% Series F Cumulative Redeemable Preferred Stock, par value
$0.01 per share, of Duke; (iii) each issued and outstanding share of 8.625%
Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, of
the Company will be converted into the right to receive one preference share
representing 1/1000 of a share of 8.625% Series H Cumulative Redeemable
Preferred Stock, par value $0.01 per share, of Duke; (iv) each issued and
outstanding Common Unit in the Operating Partnership will be converted into 1.38
common units of limited partnership interest in Duke OP; (v) each issued and
outstanding 8.0% Series A Preferred Unit in the Operating Partnership will be
converted into one 8.0% Series F Cumulative Redeemable Preferred Unit in Duke
OP; (vi) each issued and outstanding 8.0% Series C Preferred Unit in the
Operating Partnership will be converted into one 8.0% Series G Cumulative
Redeemable Preferred Unit in Duke OP; and (vii) each issued and outstanding
8.625% Series D Preferred Unit in the Operating Partnership will be converted
into one 8.625% Series H Cumulative Redeemable Preferred Unit in Duke OP.
Holders representing 2% of the outstanding Weeks Common Stock have entered into
voting agreements, agreeing to vote their shares in favor of the transactions
contemplated by the Merger Agreements. Holders representing 5% of the
outstanding Duke Common Stock have entered into voting agreements, agreeing to
vote their shares in favor of the transactions contemplated by the Merger
Agreements. The requisite approvals of the partners of Duke OP and the
Operating Partnership to the transactions have been obtained.
The consummation of the transactions contemplated by the Merger Agreements is
expected to occur on or about June 30, 1999 and is subject to approval by the
stockholders of Duke and the shareholders of the Company and satisfaction of
certain other customary closing conditions. Additionally, the consent of
certain Company debt holders, lenders and others will be required to consummate
the Mergers. There can be no assurance that the transactions contemplated by
the Merger Agreements will be consummated. The Company has agreed with Duke
that if the REIT Merger Agreement is terminated under certain circumstances, the
Company will pay Duke certain fees and expenses. Duke has agreed with the
Company that if the REIT Merger Agreement is terminated under certain other
circumstances, Duke will pay the Company certain fees and expenses.
7
<PAGE>
2. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include the
consolidated condensed financial position of the Company and its subsidiaries at
March 31, 1999, and December 31, 1998, and their results of operations and cash
flows for the three months ended March 31, 1999 and 1998. The Service Companies
and their subsidiaries are reflected in the accompanying consolidated condensed
financial statements on the equity method of accounting. All significant
intercompany balances and transactions have been eliminated in the consolidated
condensed financial statements.
The accompanying interim unaudited financial statements have been prepared by
the Company's management in accordance with generally accepted accounting
principles for interim financial information and in conformity with the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, the interim financial statements presented herein reflect all
adjustments of a normal and recurring nature which are necessary to fairly state
the interim financial statements. The results of operations for the interim
periods are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. These financial statements should be read in
conjunction with the Company's audited financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
Recent Accounting Pronouncements
In June 1998, SFAS 133, "Accounting for Derivative Instruments and for Hedging
Activities," was issued prescribing new accounting standards for the accounting
and disclosures of derivative instruments and hedging transactions. SFAS 133
will require the Company to record all derivative instruments on the balance
sheet at fair value. Changes in derivative fair values will either be recorded
in earnings along with the changes in fair value of related hedged assets or
liabilities or as an adjustment to shareholders' equity depending on the nature
and type of derivative instrument. SFAS 133 will be effective for the Company
beginning January 1, 2000. The Company is evaluating the provisions of SFAS 133
and plans to adopt SFAS 133 in its financial statements beginning in 2000. The
impact of SFAS 133 on the Company's financial statements will depend on the
extent, type and effectiveness of the Company's hedging activities. However,
the Company does not believe the effect of adopting SFAS 133 will be material to
its financial position or results of operations.
3. ACQUISITIONS/DISPOSITIONS
In January 1999, the Company acquired four industrial buildings located in
Dallas, Texas from NWI Warehouse Group, L.P. ("NWI"), a related entity, for
aggregate acquisition consideration of approximately $35,054,000, which resulted
in a gain to NWI, net of intercompany eliminations, of approximately $245,000.
In periods prior to the acquisition of the buildings from NWI, the Company had
invested and advanced approximately $32,733,000 under the terms of loan and
option agreements with NWI. The Company accounted for these arrangements with
NWI as an investment in real estate under the equity method of accounting. In
the first quarter of 1999, the Company recognized earnings of $19,000 under the
equity method with respect to this transaction.
Also in January 1999, the Company sold 21 buildings totaling approximately
1,181,000 square feet located in Atlanta, Georgia for net proceeds of
approximately $51,832,000, resulting in a gain of approximately $4,899,000. For
income tax purposes, the Company has and intends to use the proceeds from the
sale to complete a tax-deferred, like-kind exchange. As part of this agreement,
the Company
8
<PAGE>
has also agreed to sell, upon the completion of construction, an additional
building totaling approximately 182,000 square feet for approximately
$7,300,000.
4. BORROWINGS
Total borrowings at March 31, 1999 and December 31, 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 31, December 31,
1999 1998
================================================================================
<S> <C> <C>
Unsecured Notes
Due 2005, interest at 6.875% $100,000 $100,000
Due 2007, interest at 7.375% 100,000 100,000
- --------------------------------------------------------------------------------
200,000 200,000
- --------------------------------------------------------------------------------
Unsecured Bank Borrowings
Credit Facility 140,140 118,025
Term Loan 85,000 85,000
- --------------------------------------------------------------------------------
225,140 203,025
- --------------------------------------------------------------------------------
Mortgage Notes Payable
Fixed rate notes, interest at 6.00% to 9.80%,
due in 1999 to 2012 243,164 250,788
Variable rate industrial revenue bonds,
interest at 6.06% at March 31, 1999,
due in 2010 600 611
- --------------------------------------------------------------------------------
243,764 251,399
- --------------------------------------------------------------------------------
Total Borrowings $668,904 $654,424
================================================================================
</TABLE>
Unsecured Notes
At March 31, 1999, the Operating Partnership had outstanding $100,000,000 of
6.875% unsecured notes due March 15, 2005 and $100,000,000 of 7.375% unsecured
notes due August 1, 2007. These unsecured notes are subject to certain
covenants, including those governing the Operating Partnership's interest and
fixed charge coverage and total leverage.
Unsecured Bank Borrowings
Credit Facility
At March 31, 1999, the Operating Partnership financed its operations through a
$225,000,000 syndicated revolving line of credit (the "Line of Credit") and a
$20,000,000 swing revolving credit facility (the "Swing Facility") with a bank
lending group. Together, the combined Line of Credit and Swing Facility are
referred to herein as the "Credit Facility." The Credit Facility is unsecured
and can be used for development and construction, acquisitions and general
corporate purposes. The entire Credit Facility is guaranteed by the Company.
Additionally, the Company and the Operating Partnership are required to meet
certain financial and non-financial covenants including those governing the
Company's and the Operating Partnership's maximum unsecured borrowings, interest
and fixed charge coverage, total leverage, limitations on secured borrowings and
a restriction on the amount of dividends and distributions to not more than 95%
of "funds from operations," a REIT industry measure of operating performance,
unless the additional amounts are necessary to maintain the Company's REIT
status under the Code. The Line of Credit matures on December 31, 2000, and may
be extended annually through December 31, 2002, subject to annual extension fees
of 0.10% and the prior consent of the banks in the
9
<PAGE>
bank lending group. The Swing Facility matures on June 30, 1999, and may be
extended annually, subject to the prior consent of the lender.
Interest under the Credit Facility accrues at bank prime minus 0.25% or at LIBOR
plus 0.80% at the election of the Operating Partnership. In addition, the
Operating Partnership pays annual facility fees equal to 0.15% of the total Line
of Credit. The weighted average interest rate on Credit Facility borrowings,
excluding the effect of the interest rate swap agreements described below, was
5.9% at March 31, 1999. Prior to July 1998, interest under the Credit Facility
accrued at bank prime minus 0.25% or at LIBOR plus 1.05%, at the election of the
Operating Partnership, and fees on the unused portion of the Credit Facility
were 0.15%.
At March 31, 1999, the Operating Partnership had in place two interest rate swap
agreements with a commercial bank to effectively change the interest costs on
$40,000,000 of Credit Facility borrowings from the variable rates discussed
above to fixed rates. The agreements, with notional principal amounts of
$10,000,000 and $30,000,000, mature in July 1999 and July 2001 with effective
fixed interest rates of 7.3% and 7.6%, respectively.
Term Loan
At March 31, 1999, the Operating Partnership had outstanding an $85,000,000
unsecured syndicated bank term loan (the "Term Loan") with a group of five
banks. Interest accrues on the Term Loan at LIBOR plus 1.25% and the Term Loan
matures on December 31, 2001. Simultaneously with the execution of the Term
Loan, the Operating Partnership entered into three interest rate swap agreements
with three commercial banks to effectively change the interest costs on the
entire $85,000,000 Term Loan from its variable rate to fixed rates. The
interest rate swap agreements, with notional principal amounts of $35,000,000,
$25,000,000 and $25,000,00, mature on December 31, 2001, and effectively convert
interest costs on the Term Loan to a fixed rate of approximately 6.3% through
maturity.
Mortgage Notes Payable
At March 31, 1999, fixed rate mortgage notes payable included 29 notes with a
weighted average interest of 8.3%. The weighted average term to maturity of
fixed rate mortgage notes payable was 6.4 years at March 31, 1999. Total
mortgage indebtedness decreased by $7,635,000 in 1999 due to principal
repayments and retirements. Certain Company officers and Common Unitholders
guarantee a portion of the fixed rate mortgage notes.
Debt Maturities
Scheduled maturities of total borrowings at March 31, 1999, are summarized as
follows (in thousands):
---------------------------------------------
Year Amount
=============================================
1999 $ 62,083(a)
2000 158,853(a)
2001 91,352
2002 9,874
2003 7,854
2004 and thereafter 338,888
---------------------------------------------
$668,904
=============================================
(a) Includes $16,990 maturing in 1999 under the Swing Facility and $123,150
maturing in 2000 under the Line of Credit, assuming that no extensions are
exercised.
10
<PAGE>
Interest paid, net of amounts capitalized, totaled $11,818,000 and $5,037,000
for the three months ended March 31, 1999 and 1998, respectively. Interest
costs capitalized totaled $3,398,000 and $2,162,000 for the three months ended
March 31, 1999 and 1998, respectively.
5. INVESTMENTS IN AND NOTES RECEIVABLE
FROM UNCONSOLIDATED SERVICE COMPANIES
The Company conducts its third-party development, construction, landscape,
property management and commercial brokerage businesses through the Service
Companies and their subsidiaries. Additionally, the Service Companies and their
subsidiaries also own land held for sale or future development, either directly
or through ownership interests in real estate partnerships and joint ventures.
The Company intends, based on market conditions, to acquire land from the
Service Companies and their subsidiaries for the development of future
properties. The Service Companies and their subsidiaries are accounted for on
the equity method of accounting. Under the equity method, the Company
recognizes, in its consolidated statements of operations, its economic share
(99%) of the earnings or losses of the Service Companies and their subsidiaries.
The following information summarizes the financial position, results of
operations and cash flows of the Service Companies and their subsidiaries on a
combined basis (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------
March 31, December 31,
Financial Position 1999 1998
========================================================================
<S> <C> <C>
Assets
Real estate assets $20,230 $22,768
Investments in unconsolidated entities 12,304 12,096
Receivables and other assets 33,187 26,634
------------------------------------------------------------------------
$65,721 $61,498
========================================================================
Liabilities and Equity
Borrowings from the Operating Partnership $44,214 $44,575
Other borrowings 2,309 2,309
Other liabilities 20,466 15,472
Total equity (deficit) (1,268) (858)
------------------------------------------------------------------------
$65,721 $61,498
========================================================================
</TABLE>
The operations of the Service Companies and their subsidiaries are financed
through borrowings from the Operating Partnership. These line of credit
borrowings accrue interest at bank prime plus 1%, payable monthly, and are due
on demand. As part of these financing arrangements, the Service Companies and
their subsidiaries have agreed not to incur any additional unsecured borrowings
other than through borrowings from the Operating Partnership. Borrowings from
the Operating Partnership also include $10,876,000 of 12% notes due in 2004.
11
<PAGE>
At March 31, 1999, the Company's investment in and notes receivable from the
Service Companies and their subsidiaries totaling $42,926,000 includes notes
receivable from the Service Companies and their subsidiaries of $44,214,000 and
the Company's investment in the Subsidiaries of ($1,288,000).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
Results of Operations March 31, 1999 March 31, 1998
===============================================================================
<S> <C> <C>
Revenue
Construction and development fees $1,099 $ 652
Landscape 2,563 1,035
Commissions 190 232
Property management fees and other 300 79
------------------------------------------------------------------------------
4,152 1,998
------------------------------------------------------------------------------
Costs and expenses
Direct costs 2,476 804
Interest expense - Operating Partnership 936 391
Interest expense - third parties 51 167
General and administrative 916 817
Other 390 88
------------------------------------------------------------------------------
4,769 2,267
------------------------------------------------------------------------------
Loss before gains on sale of
real estate and equity in earnings
of unconsolidated entities (617) (269)
Gain on sale of real estate - third parties -- 377
Gain on sale of real estate - Operating
Partnership -- 142
Equity in earnings of
unconsolidated entities 208 244
------------------------------------------------------------------------------
Net income (loss) $ (409) $ 494
------------------------------------------------------------------------------
Net income (loss) attributable
to Operating Partnership $ (405) $ 489
Interest expense - Operating Partnership 936 391
Elimination of intercompany
profits - Operating Partnership (28) (392)
------------------------------------------------------------------------------
Equity in earnings of Service Companies $ 503 $ 488
===============================================================================
Distributions and interest paid
to Operating Partnership $ 610 $ --
===============================================================================
------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
Cash Flows March 31, 1999 March 31, 1998
===============================================================================
Operating activities $3,057 $ 2,105
Investing activities 1,549 (8,749)
Financing activities (971) 1,810
------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
6. SHAREHOLDERS' EQUITY
In January 1999, the Company declared and paid common stock dividends of
$9,935,000 or $0.505 per share relating to fourth quarter 1998 operating results
and also declared and paid dividends on its Series A Preferred Stock of
$3,000,000 or $0.50 per share. Additionally, in January 1999, the Operating
Partnership made distributions to the minority Common Unitholders of $3,646,000
or $0.505 per Common Unit relating to fourth quarter 1998 operating results and
made distributions to the holders of the series C preferred units of $662,000 or
$0.47 per unit and the series D preferred units of $1,230,000 or $0.47 per unit.
In April 1999, the Company declared and paid quarterly common stock dividends
and made distributions to Common Unitholders relating to the first quarter of
1999 of $9,976,000 or $0.505 per common share and $3,698,000 or $0.505 per
Common Unit, respectively. Additionally, in April 1999, the Company declared
and paid a quarterly series A preferred stock dividends of $3,000,000 or $0.50
per share and made distributions to the holders of the series C preferred units
of $700,000 or $0.50 per unit and the series D preferred units of $1,402,000 or
$0.539 per unit.
7. NET INCOME PER COMMON SHARE
Reconciliations of net income available to common shareholders and weighted
average common shares used in the Company's basic and diluted net income per
common share computations are detailed below (in thousands, except per share
data):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Computation of Net Income Available to Common Shareholders
Net income available to common
shareholders - basic $ 9,247 $ 5,378
Minority interests in earnings of Common
Unitholders in the Operating Partnership 3,432 1,940
- ---------------------------------------------------------------------------------------------
Net income available to common
shareholders - diluted $12,679 $ 7,318
- ---------------------------------------------------------------------------------------------
Computation of Weighted Average Common Shares
Weighted average common shares - basic 19,728 18,276
Dilutive securities -
Common Units of limited partnership interest in
the Operating Partnership 7,323 6,592
Stock options 126 195
- ---------------------------------------------------------------------------------------------
Weighted average common shares - diluted 27,177 25,063
- ---------------------------------------------------------------------------------------------
Net Income per Common Share
Basic $ 0.47 $ 0.29
Diluted 0.47 0.29
- ---------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Basic net income per common share for the periods presented was computed by
dividing net income available to common shareholders by the weighted average
number of shares of common stock outstanding during the period. Diluted net
income per common share was computed assuming that the weighted average number
of Common Units outstanding were converted into the equivalent number of shares
of common stock and based on the dilutive effect of stock options outstanding.
The Company had 789,000 and 76,000 additional outstanding stock options,
respectively, and 350,000 outstanding stock warrants that were not dilutive in
the three months ended March 31, 1999 and 1998. In addition, the convertible
feature of the series C preferred units was not dilutive in the three months
ended March 31, 1999.
8. SEGMENT DATA
The Company operates as a self-administered and self-managed REIT whose primary
business is the acquisition, development and ownership of industrial and
suburban office properties in the southeast United States and Texas. At March
31, 1999, the Company's in-service operating property portfolio (based on square
footage) consisted of 89.6% industrial properties, 8.6% suburban office
properties and 1.8% retail and other properties.
The Company manages its properties and operating business through geographic
markets. Each geographic market is managed by local market managers who are
knowledgeable about the specific real estate fundamentals and characteristics of
the market. The Company executes its business plan through this geographic
market strategy of utilizing local market knowledge coupled with meaningful
concentrations of properties in those markets.
Segment operating performance is measured on segment earnings before interest
expense and depreciation and amortization expense. Segment revenues consist
primarily of property operating revenues from in-service properties, but also
include other miscellaneous segment revenues. Segment earnings consist
primarily of segment revenues less segment property operating, maintenance,
management and real estate tax expenses and direct segment general and
administrative expenses. To the extent an operating segment generates earnings
from unconsolidated entities, such earnings are included in the measurement of
segment earnings. The Company's measurement of segment earnings is consistent
with the Company's calculation of segment unleveraged "funds from operations," a
REIT industry measure of operating performance. Intersegment transactions are
not material to the presentation of the segment data.
14
<PAGE>
A summary of reportable segment revenues, segment earnings and segment assets is
detailed below (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
North South Segment
Georgia Carolina Florida Tennessee Other(a) Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 1999
Segment revenues $ 22,165 $ 6,908 $ 5,778 $ 4,762 $ 4,808 $ 44,421
- -----------------------------------------------------------------------------------------------------------------
Segment earnings $ 17,684 $ 5,180 $ 3,957 $ 3,754 $ 3,432 $ 34,007
- -----------------------------------------------------------------------------------------------------------------
Segment assets(b) $605,761 $222,372 $195,232 $185,478 $229,940 $1,438,783
- -----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1998
Segment revenues $ 18,381 $ 5,249 $ 4,807 $ 3,002 $ 1,254 $ 32,693
- -----------------------------------------------------------------------------------------------------------------
Segment earnings $ 14,912 $ 3,787 $ 3,187 $ 2,417 $ 762 $ 25,065
- -----------------------------------------------------------------------------------------------------------------
Segment assets(b) $539,261 $171,812 $183,779 $124,066 $ 66,651 $1,085,569
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of segment earnings to consolidated net income is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Segment earnings $ 34,007 $ 25,065
Depreciation and amortization expense (11,344) (8,361)
Interest expense (9,103) (6,102)
Corporate general and administrative expense (1,003) (563)
Interest income 325 279
Gain on sale of real estate assets 4,899 --
Minority interests (5,534) (1,940)
- -----------------------------------------------------------------------------------------------------------------
Consolidated net income $ 12,247 $ 8,378
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate data for operating segments below the quantitative
threshold prescribed by SFAS 131.
(b) At period end.
15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
consolidated condensed financial statements and notes thereto, included
elsewhere herein. In addition to historical information, management's
discussion and analysis and other statements issued or made from time to time by
the Company or its representatives contain statements which may constitute
"Forward-looking Statements" within the meaning of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended, each as amended
by the Private Securities Litigation Reform Act of 1995, 15 U.S.C.A. Sections
77z-2 and 78u-5 (Supp. 1996). Those statements include statements regarding the
intent, belief or current expectations of the Company and members of its
management team as well as the assumptions on which such statements are based.
Any such Forward-looking Statements are not guarantees of future performance and
the Company's actual results could differ materially from those set forth in
such Forward-looking Statements. Factors currently known to management that
could cause actual results to differ materially from those set forth in such
Forward-looking Statements include general economic conditions, local real
estate conditions, timely re-leasing of occupied square footage upon expiration,
interest rates, availability of equity and debt financing, current construction
schedules, the status of lease negotiations with potential tenants, the
satisfactory completion of due diligence procedures and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission, including Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and Annual Reports on Form 10-K. The Company undertakes no
obligation to update or revise Forward-looking Statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
General Background
The Company was founded in 1965 and operated as a private real estate company
until August 1994, when it completed an initial public offering and elected to
be taxed as a REIT. As a self-administered and self-managed REIT, the Company
owns, develops, acquires and manages primarily high-quality industrial and
suburban office properties in the southeast United States and Texas. For a
further description of the Company, see Note 1 to the consolidated condensed
financial statements.
Announced Merger Transaction
On March 1, 1999, the Company announced that it had entered into an Agreement
and Plan of Merger (the "REIT Merger Agreement") with Duke Realty Investments,
Inc., an Indiana based REIT specializing in industrial and office building
development and ownership ("Duke"), and that the Operating Partnership had
entered into an Agreement and Plan of Merger (the "OP Merger Agreement" and,
together with the REIT Merger Agreement, the "Merger Agreements") with Duke
Realty Limited Partnership, an Indiana limited partnership of which Duke is the
managing general partner ("Duke OP"). The Merger Agreements provide for a
merger of the Company with and into Duke (the "REIT Merger") and a merger of the
Operating Partnership with and into Duke OP (the "OP Merger" and, together with
the REIT Merger, the "Mergers"). At the effective time of the Mergers, Duke
will change its name to Duke-Weeks Realty Corporation.
Pursuant to the Merger Agreements: (i) each outstanding share of common stock,
par value $0.01 per share, of the Company ("Weeks Common Stock") will be
converted into the right to receive 1.38 shares
16
<PAGE>
of common stock, par value $0.01 per share, of Duke ("Duke Common Stock"),
(ii) each issued and outstanding share of 8.0% Series A Preferred Stock, par
value $0.01 per share, of the Company will be converted into the right to
receive one preference share representing 1/1000 of a share of 8.0% Series F
Cumulative Redeemable Preferred Stock, par value $0.01 per share, of Duke;
(iii) each issued and outstanding share of 8.625% Series D Cumulative Redeemable
Preferred Stock, par value $0.01 per share, of the Company will be converted
into the right to receive one preference share representing 1/1000 of a share of
8.625% Series H Cumulative Redeemable Preferred Stock, par value $0.01 per
share, of Duke; (iv) each issued and outstanding Common Unit in the Operating
Partnership will be converted into 1.38 common units of limited partnership
interest in Duke OP; (v) each issued and outstanding 8.0% Series A Preferred
Unit in the Operating Partnership will be converted into one 8.0% Series F
Cumulative Redeemable Preferred Unit in Duke OP; (vi) each issued and
outstanding 8.0% Series C Preferred Unit in the Operating Partnership will be
converted into one 8.0% Series G Cumulative Redeemable Preferred Unit in Duke
OP; and (vii) each issued and outstanding 8.625% Series D Preferred Unit in the
Operating Partnership will be converted into one 8.625% Series H Cumulative
Redeemable Preferred Unit in Duke OP.
Holders representing 2% of the outstanding Weeks Common Stock have entered into
voting agreements, agreeing to vote their shares in favor of the transactions
contemplated by the Merger Agreements. Holders representing 5% of the
outstanding Duke Common Stock have entered into voting agreements, agreeing to
vote their shares in favor of the transactions contemplated by the Merger
Agreements. The requisite approvals of the partners of Duke OP and the
Operating Partnership to the transactions have been obtained.
The consummation of the transactions contemplated by the Merger Agreements is
expected to occur on or about June 30, 1999 and is subject to approval by the
stockholders of Duke and the shareholders of the Company and satisfaction of
certain other customary closing conditions. Additionally, the consent of
certain Company debt holders, lenders and others will be required to consummate
the Mergers. There can be no assurance that the transactions contemplated by
the Merger Agreements will be consummated. The Company has agreed with Duke
that if the REIT Merger Agreement is terminated under certain circumstances, the
Company will pay Duke certain fees and expenses. Duke has agreed with the
Company that if the REIT Merger Agreement is terminated under certain other
circumstances, Duke will pay the Company certain fees and expenses.
17
<PAGE>
Results of Operations
Operating information relating to the Company's properties for the three months
ended March 31, 1999 and 1998, is summarized below (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Three Months Three Months
Ended Ended %
March 31, 1999 March 31, 1998 Change
============================================================================
<S> <C> <C> <C>
Rental revenues $38,520 $28,345 35.9%
Tenant reimbursements 5,561 3,960 40.4%
- ----------------------------------------------------------------------------
Property operating revenues 44,081 32,305 36.5%
- ----------------------------------------------------------------------------
Operating, maintenance and
management expenses 6,341 4,721 34.3%
Real estate taxes 3,912 2,746 42.5%
Depreciation and amortization 11,344 8,361 35.7%
- ----------------------------------------------------------------------------
Property operating expenses 21,597 15,828 36.4%
- ----------------------------------------------------------------------------
Property operating revenues less
property operating expenses $22,484 $16,477 36.5%
============================================================================
</TABLE>
Period to period comparisons of property operating revenues and expenses for
1999 and 1998 are discussed herein using the categories "core properties,"
"development properties" and "acquisition properties." Core properties are
defined as properties which were stabilized and operating as of January 1, 1998.
The Company defines a property as stabilized upon the earlier of substantial
lease-up or one year from building shell completion. Development properties
reflect properties completed and stabilized, and acquisition properties are
properties acquired, subsequent to January 1, 1998.
For the comparable three months ended March 31, 1999 and 1998, operating results
of the core properties, exclusive of core properties sold in January 1999 (see
Note 3 to the consolidated condensed financial statements), are summarized below
(in thousands). Core properties information represents the operating results of
223 properties totaling approximately 15,942,000 square feet and excludes the
operating results of 19 properties totaling 1,073,000 square feet, sold in
January 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Three Months Three Months
Ended Ended %
March 31, 1999 March 31, 1998 Change
==============================================================================
<S> <C> <C> <C>
Rental revenues $22,728 $22,447 1.3%
Tenant reimbursements 3,533 3,234 9.3%
- ------------------------------------------------------------------------------
Property operating revenues 26,261 25,681 2.3%
- ------------------------------------------------------------------------------
Operating, maintenance and
management expenses 3,561 3,418 4.2%
Real estate taxes 2,129 2,032 4.8%
Depreciation and amortization 7,068 6,726 5.1%
- ------------------------------------------------------------------------------
Property operating expenses 12,758 12,176 4.8%
- ------------------------------------------------------------------------------
Property operating revenues less
property operating expenses $13,503 $13,505 0.0%
==============================================================================
Average occupancy 94.8% 96.4%
==============================================================================
</TABLE>
18
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1999, to
the Three Months Ended March 31, 1998
Property operating revenues (rental revenue plus tenant reimbursements)
increased $11,776,000 or 36.5% between periods. Of this increase, $5,304,000
and $7,098,000 were attributable to acquisition and development properties,
respectively, and such increases were offset by a decrease in property operating
revenues from core properties of $626,000. The increases relating to
acquisition and development properties were due to the acquisition of 49
properties (48 in 1998 and 1 in 1999) totaling approximately 5,187,000 square
feet and the stabilization of 37 development properties (27 in 1998 and 10 in
1999) and one property expansion in 1998 totaling approximately 4,568,000 square
feet. The decrease relating to core properties was due primarily to the sale of
19 core properties totaling 1,073,000 square feet in January 1999. Property
operating expenses increased $5,769,000 or 36.4% between periods due primarily
to the growth in the property portfolio resulting from the acquisition and
development properties, offset somewhat by the decreased property operating
expenses of the core properties sold as discussed above.
Property operating revenues from core properties, exclusive of the core
properties sold in January 1999, increased 2.3% despite a decrease in overall
average occupancy of approximately 1.6%. This increase in property operating
revenues was due primarily to both rental rate and tenant reimbursement
increases between periods. Property operating expenses increased 4.8% due
primarily to increased utility and real estate tax expense in 1999. Property
operating revenues less property operating expenses from core properties
increased 1.7%, exclusive of depreciation and amortization expense.
Interest expense increased by $3,001,000 or 49.2% from $6,102,000 for the three
months ended March 31, 1998, to $9,103,000 for the three months ended March 31,
1999, due to increased net interest expense on unsecured bank borrowings and
unsecured note borrowings due primarily to higher average borrowings used to
finance the Company's growth in 1999 compared to 1998.
Company general and administrative expenses increased by $476,000 or 37.2% from
$1,280,000 for the three months ended March 31, 1998, to $1,756,000 for the
three months ended March 31, 1999, due primarily to increased personnel and
related costs associated with the Company's geographic expansion, including the
opening of an office in Dallas, Texas during the third quarter of 1998 and the
continued growth of its existing offices in Orlando and Tampa, Florida during
1998. As a percentage of total revenue, general and administrative expenses
remained comparable between periods at 4.0% in the first quarter of 1999 and
3.9% in the first quarter of 1998.
Equity in earnings of unconsolidated service companies represents the Company's
99% economic interest in the earnings of the Service Companies and their
subsidiaries after the elimination of interest expense and intercompany profits
to the Company (see Note 5 to the consolidated condensed financial statements).
Equity in earnings of the Service Companies and their subsidiaries increased by
$15,000 or 3.1% from $488,000 for the three months ended March 31, 1998, to
$503,000 for the three months ended March 31, 1999, due primarily to increased
profits from construction service operations and from the Service Companies'
equity investment in Codina Group, Inc., offset by reduced profits from third-
party land sales. Equity in earnings of unconsolidated real estate entities of
$89,000 in 1999 and $68,000 in 1998 primarily represents the Company's 50% share
of earnings from a single building equity investment.
19
<PAGE>
The gain on sale of real estate assets of $4,899,000 in the three months ended
March 31, 1999, represents the profit from the sale of 21 buildings (19 core
properties and two development properties) totaling 1,181,000 square feet (see
Note 3 to the consolidated condensed financial statements).
Segment Operations
The Company manages its business through geographic operating segments and
segment operating performance is measured based on profits before interest
expense and depreciation and amortization expense, referred to herein as
"segment earnings." See note 8 to the consolidated condensed financial
statements for an additional discussion and presentation of segment information.
A comparison of segment earnings for the three months ended March 31, 1999 and
1998 is detailed below (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Three Months Three Months
Ended Ended
Operating Segments March 31, 1999 March 31, 1998
- -----------------------------------------------------------
<S> <C> <C>
Georgia $17,684 $14,912
North Carolina 5,180 3,787
South Florida 3,957 3,187
Tennessee 3,754 2,417
Other 3,432 762
- -----------------------------------------------------------
Total $34,007 $25,065
===========================================================
</TABLE>
Segment earnings, as defined, increased $8,942,000 or 35.7% from $25,065,000 in
the three months ended March 31, 1998 to $34,007,000 in the three months ended
March 31, 1999. Segment earnings in Georgia increased due primarily to the
stabilization of development properties throughout 1998 and in the first quarter
of 1999. North Carolina segment earnings increased due primarily to both
acquisitions and the stabilization of development properties subsequent to March
31, 1998. South Florida segment earnings in the first quarter of 1999 reflect a
full quarter of earnings from properties acquired in January 1998 plus earnings
from an additional development property stabilized in 1999 compared to a partial
quarter of earnings from the acquisition properties in 1998. Segment earnings
in Tennessee increased due primarily to properties acquired in 1998. Other
segment earnings increased due primarily to the earnings from properties
acquired in the Company's entry into the Dallas/Ft. Worth, Texas market in June
1998, additional earnings from 1998 acquisition properties in the Jacksonville,
Florida market and from the stabilization of development properties in Orlando,
Florida in 1998 and 1999.
Liquidity and Capital Resources
The Company continues to generate increasing cash flows from operations. Cash
provided by operating activities increased 13.3% from $15,938,000 for the three
months ended March 31, 1998, to $18,058,000 for the three months ended March 31,
1999, due primarily to the growth in the Company's operating income resulting
from 37 development properties (27 in 1998 and 10 in 1999) and one property
expansion in 1998 stabilized and from 49 buildings acquired (48 in 1998 and one
in 1999).
The Company's net cash flow from operations is currently sufficient to meet the
Company's current operational needs and to satisfy the Company's current
quarterly dividends on both its common and preferred stock. Company management
believes that operating cash flows will continue to be adequate to fund these
requirements for the remainder of 1999. The Company operates as and intends to
20
<PAGE>
maintain its qualification as a REIT under the Code. As a REIT, the Company
will generally not be subject to corporate federal income taxes as long as it
satisfies certain technical requirements of the Code, including the requirement
to distribute 95% of its taxable income to its shareholders.
During the three months ended March 31, 1999, the Company invested $63,560,000
of cash in property acquisition, development and construction activities. This
compares to $108,297,000 for the same three month period in 1998. This
decreased cash investment activity reflects primarily the decreased cash
component of the Company's building acquisition activity in 1999 compared to
1998 of approximately $54,252,000 offset by increased development activity. In
addition, during the first quarter of 1999, the Company received net proceeds of
$51,832,000 from the sale of operating real estate assets.
Financing for the Company's property investment activities, in excess of
activities funded through operating real estate asset sales, consisted primarily
of $22,115,000 of Credit Facility borrowings in the three months ended March 31,
1999 compared to $47,200,000 from common equity offerings and $94,141,000 of net
proceeds from unsecured note borrowings, offset somewhat by reduced Credit
Facility borrowings, in the three months ended March 31, 1998. The debt and
equity components of the Company's ongoing financing strategy may differ based
on market conditions.
In addition to its operating cash flow, the Company has aggregate borrowing
capacity of $245,000,000 under the Credit Facility (see Note 4 to the
consolidated condensed financial statements), which may be used, among other
things, to meet its operational obligations and annual REIT dividend
requirements. The Company currently intends to finance its development,
construction and acquisition activities primarily through borrowings under the
Credit Facility, refinanced, as necessary, through the issuance of both common
and preferred equity securities and public and private unsecured debt
obligations. Additionally, the Company may continue to selectively use real
estate asset sales and other joint venture arrangements to supplement the
financing of its development pipeline. As of March 31, 1999, the Company had
available capacity under the Credit Facility of approximately $104,860,000.
The Company believes it has adequate liquidity, borrowing capacity and sources
of capital and cash flow, including available capacity under its existing Credit
Facility, remaining capacity of approximately $550,000,000 under a universal
shelf registration statement and cash flow generated from selective real estate
asset sales and other joint venture arrangements, to meet its current
operational requirements, to fund annual principal repayments under existing
mortgage notes payable, and to fund its current development and acquisition
activity. It is management's expectation that the Company will continue to have
access to the additional capital resources necessary to further expand and
develop its business and to refinance mortgage notes payable as they mature.
These resources include the expansion of the available borrowing capacity under
the Credit Facility, other forms of debt and equity financing, in both public
and private markets. As an alternative to the more traditional debt and equity
financings used in prior years, the Company has in early 1999, and may continue,
to utilize selective real estate asset sales and other joint venture
arrangements to provide additional sources of capital in periods where the
pricing, terms and availability of other traditional financing sources are not
advantageous to the Company. Future development and acquisition activities will
be undertaken by the Company only as suitable opportunities arise. Such
activities are not expected to be undertaken unless adequate sources of
financing are available and a satisfactory budget with an appropriate return on
investment has been internally approved.
21
<PAGE>
Total consolidated debt amounted to $668,904,000 at March 31, 1999, including
unsecured note borrowings of $200,000,000, unsecured bank borrowings of
$225,140,000 and mortgage notes payable of $243,764,000. Of the $243,764,000 of
mortgage indebtedness, $243,164,000 is fixed rate and $600,000 is variable rate.
At March 31, 1999, the weighed average interest rate on the Company's fixed rate
mortgage debt was 8.3% and on its variable rate mortgage debt was 6.1%. The
weighted average interest rates under the Credit Facility and the unsecured term
loan, exclusive of the impact of the interest rate swap agreements, at March 31,
1999, were 5.9% and 6.3%, respectively. The weighted average interest rate on
the Company's unsecured notes was 7.125% at March 31, 1999. Based on the
outstanding balance of mortgage notes payable at March 31, 1999, the weighted
average interest rates on the mortgage notes with a final maturity in each
of the next five years and thereafter were 7.3% in 1999, 9.0% in 2000, 7.9%
in 2001, 8.2% in 2002, 8.3% in 2003 and 8.5% thereafter.
Including total consolidated debt obligations of $668,904,000 and $2,309,000 of
other notes payable on unconsolidated properties, the total debt obligations of
the Company and its unconsolidated entities was $671,213,000 or 40% of total
market capitalization (defined as total debt plus the market equity value of the
Company's equity securities as calculated below) at March 31, 1999 (assuming the
exchange of all of the Common Units of the Operating Partnership for shares of
common stock). Based on the closing price of the common stock of $28.5625, on
March 31, 1999, and assuming the exchange of all of the Common Units of the
Operating Partnership for shares of common stock, there would be 27,078,747
shares of common stock outstanding with a total market value of $773,437,000,
6,000,000 shares of preferred stock outstanding with a liquidation value of
$150,000,000, 4,000,000 preferred partnership units outstanding with a
liquidation value of $100,000,000 and 350,000 common stock warrants outstanding
with a book value of $1,400,000, resulting in total equity value of
$1,024,837,000.
Current Development and Acquisition Activity
At March 31, 1999, the Company had committed developments and acquisitions
totaling approximately $280,049,000, representing 42 buildings totaling
4,450,000 square feet. Including new development activity, net of the
stabilization of development properties, between March 31, 1999 and May 10,
1999, the Company had, at May 10, 1999, committed developments and acquisitions
totaling approximately $325,735,000, representing 50 buildings totaling
5,264,000 square feet. Properties under agreement to acquire as of May 10,
1999, consisted of one building, totaling 90,000 square feet, with a total
expected cost of approximately $5,100,000. Development properties as of May 10,
1999, consisted of 49 buildings totaling 5,174,000 square feet, with a total
expected cost of approximately $320,635,000.
It is expected that such development and acquisition properties will stabilize
or be acquired as detailed below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Square Estimated
Year Buildings Feet Cost(a)
- -----------------------------------------------------------------
<S> <C> <C> <C>
1999 17 1,683,000 $115,554,000
2000 33 3,581,000 210,181,000
- -----------------------------------------------------------------
50 5,264,000 $325,735,000
- -----------------------------------------------------------------
</TABLE>
22
<PAGE>
(a) For development properties represents the entire estimated cost of the
property at the estimated stabilization date.
In addition, the Company has committed, subject to closing conditions and the
completing and updating of due diligence procedures, to acquire development land
totaling approximately $32,641,000 over various periods ranging up to five
years.
The information provided above includes Forward-looking Statements about
expected property acquisitions or stabilizations that is based on current
construction schedules, the status of lease negotiations with potential tenants,
the successful completion of due diligence procedures and other relevant factors
currently available to the Company. There can be no assurance that any of these
factors will not change or that any change will not affect the accuracy of such
Forward-looking Statements.
Supplemental Disclosure of Funds from Operations
The Company believes that funds from operations provides an additional indicator
of the financial performance of the Company. Funds from operations is defined
by the National Association of Real Estate Investment Trusts ("NAREIT") to mean
net income (loss) determined in accordance with generally accepted accounting
principles ("GAAP") excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization of real property, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. Funds from
operations is influenced not only by the operations of the properties, but also
by the capital structure of the Company. Accordingly, the Company expects that
funds from operations will be one of the factors considered by its Board of
Directors in determining the amount of cash dividends the Company will pay to
its shareholders. The Company computes funds from operations under the current
NAREIT definition by subtracting from net income the dividends to preferred
shareholders before making an adjustment for the non-cash items described above.
Funds from operations does not represent cash flow from operating, investing and
financing activities as defined by GAAP, which are discussed under "Liquidity
and Capital Resources." Additionally, funds from operations does not measure
whether cash flow is sufficient to fund all cash flow needs, including principal
amortization, capital expenditures and dividends to shareholders, and should not
be considered as an alternative to net income for purposes of evaluating the
Company's operating performance or as an alternative to cash flow, as defined by
GAAP, as a measure of liquidity. Funds from operations presented herein is not
necessarily comparable to funds from operations presented by other real estate
companies due to the fact that not all real estate companies calculate funds
from operations in the same manner. However, the Company's funds from
operations is comparable to the funds from operations of real estate companies
that use the current NAREIT definition.
The Company's calculation of funds from operations follows the guidelines issued
by NAREIT, including the recognition of rental income on the "straight-line"
basis consistent with its treatment in the Company's statement of operations
under GAAP. The "straight-line" rental adjustment increased rental revenues by
$1,089,000 and $251,000 for the three months ended March 31, 1999 and 1998,
respectively. In accordance with the NAREIT guidelines, the Company excludes
gains or losses on sales of operating (previously depreciated) real estate
assets in calculating funds from operations, but includes gains or losses on
sales of undepreciated assets (land) that are of a recurring nature. Pre-tax
gains on land sales are included in funds from operations in the amount of $0
and $419,000 for the three months ended March 31, 1999 and 1998, respectively.
23
<PAGE>
For the three months ended March 31, 1999, funds from operations increased by
$2,544,000 or 22.1% to $14,078,000 compared to funds from operations of
$11,534,000 for the three months ended March 31, 1998. Funds from operations
for the three months ended March 31, 1999 and 1998 are detailed below (in
thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
======================================================================================
<S> <C> <C>
Net income available to
common shareholders $ 9,247 $ 5,378
Minority interests of common unitholders 3,432 1,940
Depreciation and amortization 11,344 8,361
Depreciation and amortization -
unconsolidated entities 180 15
Gain on sale of operating real estate assets (4,899) --
- --------------------------------------------------------------------------------------
Funds from operations available to
common shareholders
(Common Units fully converted) $19,304 $15,694
Percentage attributable to common
shareholders(1) 72.9% 73.5%
- --------------------------------------------------------------------------------------
Funds from operations attributable to
common shareholders $14,078 $11,534
- --------------------------------------------------------------------------------------
Weighted average common shares
Basic 19,728 18,276
Diluted(2) 27,177 25,063
======================================================================================
</TABLE>
(1) Represents the Company's weighted average common ownership percentage of
the Operating Partnership for the period.
(2) Represents the weighted average shares of common stock outstanding plus the
weighted average Common Units of limited partnership interest in the
Operating Partnership outstanding (Common Units are convertible into common
stock on a one-for-one basis) and the dilutive effect of outstanding stock
options. Weighted average Common Units outstanding totaled 7,323,000 and
6,592,000 for the three months ended March 31, 1999 and 1998, respectively.
Common stock equivalents related to outstanding stock options totaled
126,000 and 195,000 for the three months ended March 31, 1999 and 1998,
respectively.
24
<PAGE>
Supplemental Information on Capital Expenditures and Leasing Costs
The following table details the Company's capital expenditures and leasing costs
for the three months ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
======================================================================================
<S> <C> <C>
Building acquisitions(1)(2) $43,117 $179,581
Development and land acquisition activity(3)(4) 52,706 60,380
Non-revenue-producing building
improvements 626 378
Tenant improvement and leasing costs
on second-generation leases(5) 2,054 1,827
- --------------------------------------------------------------------------------------
$98,503 $242,166
======================================================================================
</TABLE>
(1) Building acquisitions in 1998 included two buildings acquired while still
under development.
(2) Reflects aggregate acquisition costs including the Company's investment
and advances to unconsolidated entities of $32,733,000 in the three months
ended March 31, 1999. Reflects aggregate acquisition costs including the
assumption of indebtedness of $80,897,000, the issuance of $29,824,000 of
Common Units and other assumed liabilities, net of other assets, of
$4,224,000 in the three months ended March 31, 1998.
(3) Includes first-generation leasing costs on stabilized development
properties totaling $1,068,000 and $543,000 in the three months ended March
31, 1999 and 1998, respectively.
(4) Reflects aggregate development and leasing costs including of the issuance
of $300,000 of Common Units and including the increase in construction
payables of $101,000 in the three months ended March 31, 1999. Reflects
aggregate development and leasing costs including the settlement of real
estate loans of $7,898,000, the issuance of $6,299,000 of Common Units and
exclusive of the decrease in construction payables of $3,727,000 in the
three months ended March 31, 1998.
(5) Includes second-generation leasing costs totaling $943,000 and $807,000 in
the three months ended March 31, 1999 and 1998, respectively.
25
<PAGE>
The following table summarizes by period the Company's capitalized tenant
improvement and leasing costs incurred in the renewal or re-leasing of
previously occupied space for the three months ended March 31, 1999, and the
year ended December 31, 1998, respectively. The information detailed below is
presented based on the date the tenants occupy the leased space.
<TABLE>
<CAPTION>
Capitalized Tenant Improvements and Leasing Costs
- -----------------------------------------------------------------------------------------------
Three Months Year
Ended Ended
(In thousands, except per square foot information) March 31, 1999 Dec. 31, 1998
===============================================================================================
<S> <C> <C>
Industrial Properties
Re-leasing
Square feet re-leased 490 1,843
Capitalized tenant improvements and leasing commissions $ 532 $3,826
Capitalized tenant improvements and leasing commissions
per square foot $1.09 $ 2.08
Renewal
Square feet renewed 195 2,173
Capitalized tenant improvements and leasing commissions $ 92 $1,582
Capitalized tenant improvements and leasing commissions
per square foot $0.47 $ 0.73
Total
Square feet 685 4,016
Capitalized tenant improvements and leasing commissions $ 624 $5,408
Capitalized tenant improvements and leasing commissions
per square foot $0.91 $ 1.35
===============================================================================================
Suburban Office Properties
Re-leasing
Square feet re-leased 16 103
Capitalized tenant improvements and leasing commissions $ 65 $ 347
Capitalized tenant improvements and leasing commissions
per square foot $4.04 $ 3.36
Renewal
Square feet renewed 40 92
Capitalized tenant improvements and leasing commissions $ 109 $ 160
Capitalized tenant improvements and leasing commissions
per square foot $2.70 $ 1.74
Total
Square feet 56 195
Capitalized tenant improvements and leasing commissions $ 174 $ 507
Capitalized tenant improvements and leasing commissions
per square foot $3.08 $ 2.60
===============================================================================================
</TABLE>
26
<PAGE>
Supplemental Disclosure of Tenant and Lease Expiration Information
Tenants
As of March 31, 1999, the Company's properties were leased to 1,028 tenants
including local, regional, national and international companies. The Company's
30 largest tenants (measured by annualized base rent for leases in place in
stabilized properties and in properties under development or in lease-up where
tenants were paying rent at March 31, 1999) occupy a total of approximately
5,788,000 square feet and represent 25.9% of the annualized base rent as shown
in the table below.
<TABLE>
<CAPTION>
30 Largest Tenants Measured By Annualized Base Rent
- ---------------------------------------------------------------------------------------------------
% of Total
Number Annualized
Square of Annualized Base
Rank Tenant Feet Leases Base Rent(1) Rent(1) State
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Northern Telecom, Inc.(2) 401,349 8 $ 3,002,853 1.9% NC,TN
2 Interpath Communications, Inc. 189,875 4 2,417,325 1.5% NC
3 United States Postal Service 409,026 5 2,340,518 1.5% FL,TX
4 Scientific Atlanta, Inc. 469,633 8 2,244,179 1.4% GA
5 Federal Express Corporation 237,890 4 2,098,942 1.3% FL,TN
6 Hussmann Corporation 374,045 1 1,984,687 1.2% GA
7 PPD Pharmaco, Inc. 164,495 5 1,895,200 1.2% NC
8 United Healthcare Services, Inc. 146,106 3 1,642,260 1.0% GA,FL,SC
9 Radiant Systems, Inc. 106,631 1 1,609,789 1.0% GA
10 Alltel 114,476 7 1,541,124 1.0% NC
11 Honeywell, Inc. 119,961 4 1,501,052 0.9% GA
12 Ikon Office Solutions, Inc. 177,000 4 1,468,400 0.9% GA
13 GTE Mobilnet Service Corporation 126,124 3 1,382,317 0.9% NC,GA
14 Tech Data Corporation 181,230 2 1,367,722 0.9% FL
15 Radian International LLC 90,159 2 1,177,399 0.7% NC
16 Innotrac Corporation 303,481 2 1,124,905 0.7% GA
17 Moore U.S.A., Inc. 274,951 2 1,085,266 0.7% TX,FL
18 AIG Claim Services, Inc. 52,372 1 1,050,059 0.7% GA
19 Pioneer-Standard Electronics, Inc. 109,957 2 1,035,436 0.6% GA
20 Square D Company 102,262 2 1,000,749 0.6% TN,FL
21 DeVry Inc. 64,981 1 928,269 0.6% GA
22 The Athlete's Foot Group, Inc. 162,651 1 924,069 0.6% GA
23 Anixter, Inc. 167,460 2 913,150 0.6% GA
24 Merisel, Inc. 142,487 2 900,147 0.6% FL
25 Fisher Scientific Company 223,219 1 875,019 0.5% GA
26 Reckitt & Colman, Inc. 356,000 2 871,840 0.5% GA
27 Tekelec 98,210 3 858,680 0.5% NC
28 Fritz Companies, Inc. 282,400 4 841,118 0.5% GA,TN
29 Data General Corporation 89,680 2 817,304 0.5% GA
30 National Data Corporation 50,283 4 786,776 0.4% GA
- --------------------------------------------------------------------------------------------------
5,788,394 92 $41,686,554 25.9%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized cash base rent net of rental concessions, if any, based on
leases in place for stabilized properties and in properties under
development or in lease-up where tenants were paying rent as of March 31,
1999.
(2) Leases with Northern Telecom totaling 370,824 square feet expire on June
30, 2005, but are subject to an early-termination right that permits
Northern Telecom to terminate any of the leases on June 30, 2000, by
delivering an early-termination notice to the Company on or before June 30,
1999. In the event it exercises its early-termination option, Northern
Telecom will be obligated to make certain termination payments to the
Company.
27
<PAGE>
Lease Expirations
The following tables show scheduled lease expirations for the Company's total
property portfolio, for its industrial property portfolio and for its suburban
office portfolio, respectively, based on leases under which tenants were paying
rent in both stabilized and pre-stabilized properties as of March 31, 1999,
assuming no exercise of renewal options or termination rights, if any:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Square Annualized % of Total
Year of Feet % of Total Base Rent(1) Annualized
Expiration (In thousands) Square Feet (In thousands) Base Rent(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Portfolio
1999 3,067 12.2% 17,267 10.3%
2000 3,413 13.6% 21,650 12.9%
2001 3,088 12.3% 18,519 11.0%
2002 3,206 12.8% 25,989 15.5%
2003 3,494 13.9% 27,322 16.2%
2004 1,696 6.7% 12,082 7.2%
2005 1,470 5.8% 4,971 3.0%
2006 739 2.9% 4,094 2.4%
2007 1,280 5.1% 7,940 4.7%
2008 1,589 6.3% 13,881 8.3%
2009 701 2.8% 4,852 2.9%
2010 65 0.3% 90 0.1%
2011 405 1.6% 2,201 1.3%
2012 191 0.8% 2,167 1.3%
2013 and later 735 2.9% 5,113 2.9%
- --------------------------------------------------------------------------------------------------
25,139(2) 100.0% $168,138 100.0%
==================================================================================================
Industrial Properties
1999 2,884 12.7% 15,073 11.6%
2000 3,181 14.1% 18,399 14.1%
2010 2,950 13.0% 16,587 12.7%
2002 2,691 11.9% 17,456 13.4%
2003 3,051 13.5% 19,575 15.0%
2004 1,507 6.7% 8,662 6.6%
2005 1,439 6.4% 4,511 3.5%
2006 721 3.2% 3,767 2.9%
2007 1,224 5.4% 7,348 5.6%
2008 1,296 5.7% 8,428 6.5%
2009 628 2.8% 3,481 2.7%
2010 -- -- -- --
2011 349 1.5% 2,121 1.6%
2012 126 0.6% 1,003 0.8%
2013 and later 585 2.5% 4,032 3.0%
- --------------------------------------------------------------------------------------------------
22,632 100.0% $130,443 100.0%
==================================================================================================
(Table continued on following page)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Square Annualized % of Total
Year of Feet % of Total Base Rent(1) Annualized
Expiration (In thousands) Square Feet (In thousands) Base Rent(1)
==================================================================================================
<S> <C> <C> <C> <C>
Suburban
Office Properties
1999 140 6.7% 1,845 5.3%
2000 180 8.6% 2,699 7.8%
2001 129 6.2% 1,782 5.1%
2002 507 24.3% 8,385 24.2%
2003 428 20.5% 7,422 21.4%
2004 180 8.6% 3,209 9.3%
2005 26 1.2% 382 1.1%
2006 17 0.8% 309 0.9%
2007 56 2.7% 592 1.7%
2008 286 13.7% 5,453 15.8%
2009 73 3.5% 1,371 4.0%
2010 -- -- -- --
2011 -- -- -- --
2012 65 3.2% 1,166 3.4%
2013 and later -- -- -- --
- --------------------------------------------------------------------------------------------------
2,087 100.0% $34,615 100.0%
==================================================================================================
</TABLE>
(1) Annualized base rent represents the annualized monthly base rental at
the time of lease expiration.
(2) The total square footage as of March 31, 1999, is comprised of
approximately 24,559,000 square feet of leases in in-service properties,
and approximately 580,000 square feet of leases in properties under
development or in lease-up where tenants are paying rent as of March 31,
1999.
Recent Accounting Pronouncements
In June 1998, SFAS 133, "Accounting for Derivative Instruments and for Hedging
Activities," was issued prescribing new accounting standards for the accounting
and disclosures of derivative instruments and hedging transactions. SFAS 133
will require the Company to record all derivative instruments on the balance
sheet at fair value. Changes in derivative fair values will either be recorded
in earnings along with the changes in fair value of related hedged assets or
liabilities or as an adjustment to shareholders' equity depending on the nature
and type of derivative instrument. SFAS 133 will be effective for the Company
beginning January 1, 2000. The Company is evaluating the provisions of SFAS 133
and plans to adopt SFAS 133 in its financial statements beginning in 2000. The
impact of SFAS 133 on the Company's financial statements will depend on the
extent, type and effectiveness of the Company's hedging activities. However,
the Company does not believe the effect of adopting SFAS 133 will be material to
its financial position or results of operations.
29
<PAGE>
Impact of Inflation
In the last three years, inflation has not had a significant impact on the
Company because of the relatively low inflation rate. Substantially all tenant
leases do, however, contain provisions designed to protect the Company from the
impact of inflation. Most of the leases require tenants to pay their share of
operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation. In addition, many of the leases
are for terms of less than seven years, which may enable the Company to replace
existing leases with new leases at higher base rentals if rents under the
existing leases are below the then-existing market rate. However, there can be
no assurance that the Company would be able to replace existing leases with new
leases at higher base rentals.
Year 2000
General. The term "year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery and equipment as the
year 2000 is approached and reached. The year 2000 issue is the result of many
computer programs recognizing a date ending with "00" as the year 1900 rather
than 2000, causing potential system failures or miscalculations which could
result in disruptions of normal business operations.
State of Readiness. The Company's primary financial and operating systems are
supplied by third-party suppliers. Based on communications with these third-
party suppliers, internal evaluations of the third-party systems and internal
assessments of in-house information systems, the Company expects these systems
to be year 2000 compliant by the end of the second quarter of 1999.
Additionally, the Company has evaluated its telephone systems and such systems
are expected to be fully year 2000 compliant before the end of 1999.
The Company is also assessing the potential impact of the year 2000 issue
resulting from the potential failure of its key building mechanical systems or
the failure of its major vendors, suppliers and tenants to be year 2000
compliant. Key building mechanical systems include, but are not limited to,
HVAC systems, elevators and security systems. Major vendors and suppliers
include providers of utility services and suppliers of raw materials utilized in
the development and construction of buildings. The Company's assessments
include the use of questionnaires and direct discussions with such vendors,
suppliers and tenants. The Company anticipates the completion of its
assessments and evaluations in these areas in the first half of 1999.
Cost to Address Year 2000 Issues. Through March 31, 1999, the Company has spent
approximately $101,000 to upgrade and replace certain computer hardware systems
and its telecommunication system to ensure year 2000 compliance. The Company
estimates that it will spend an additional $87,000 on computer hardware system
upgrades and replacements during 1999 relating to year 2000 compliance issues.
A significant portion of such actual and future expenditures are part of the
Company's on-going technology enhancement program and, as such, these
expenditures are not incremental costs associated with year 2000 readiness. The
Company does not expect to incur additional incremental costs in excess of
amounts stated above relating to year 2000 compliance and the Company does not
believe the total costs of year 2000 compliance to be material to the Company's
consolidated financial condition or results of operations taken as a whole. The
Company continues to allocate the time and resources necessary to timely resolve
significant year 2000 issues.
30
<PAGE>
Risks Presented by Year 2000 Issues. The Company's major and most reasonably
likely worse case risks associated with the year 2000 issue relate to the
failure of key vendors, suppliers and tenants to be fully year 2000 compliant.
Failures of critical utility systems or other building mechanical systems could
lead to significant business disruptions for tenants. Failures of tenants'
businesses that rely heavily on information technology or that are involved in
the information technology business could also lead to significant business
disruptions or failures. These occurrences could impact the Company's cash flow
and results of operations should these disruptions lead to a tenants' inability
to continue to meet their rental obligations to the Company.
Failures of major suppliers to deliver building raw materials to the Company due
to year 2000 issues could result in the Company being unable to complete
buildings in a timely manner or at the costs budgeted by the Company. This
could result in slower overall business growth and increased costs of
constructing new buildings, both of which could impact the Company's future
financial condition and results of operations.
Based on information obtained from such third parties to date, the Company does
not believe that the impact of the year 2000 issue will have a material adverse
impact on the Company's financial condition or results of operations. However,
such conclusions are based upon communications, evaluations, and assessments to
date, and if future negative events occur which cannot be resolved in a timely
manner, it could result in material financial risk to the Company.
Contingency Plans. To date, the Company has not established any contingency
plans for possible year 2000 issues. After its assessments are completed in the
first half of 1999, the Company anticipates evaluating and developing
contingency plans to the extent such plans are feasible, to address identified
risks. It is anticipated that any such plans will be developed in the second
half of 1999.
The information provided above regarding the Company's year 2000 preparedness
includes Forward-looking Statements based upon management's current assessment
of year 2000 issues impacting the Company. Such assessments are, in part, based
on representations of other third parties regarding their year 2000
preparedness. Such Forward-looking Statements involve risks and uncertainties
and there can be no assurance that any of the factors or statements regarding
the year 2000 issue will not change and that any change will not affect the
accuracy of the Company's Forward-looking Statements.
31
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal market risk relates to its exposure to interest changes,
primarily changes in short-term LIBOR and U.S. prime interest rates and medium-
term U.S. treasury security interest rates used as the benchmark interest rate
for the Company's seven to ten year fixed rate unsecured notes. Changes in
short-term interest rates cause the Company's interest costs on unhedged line of
credit borrowings to increase or decrease on a period to period basis. Changes
in medium-term U.S. treasury security interest rates will cause the Company's
interest costs on expected future medium-term unsecured note borrowings to
increase or decrease based on changes in the interest rates.
The Company's primary derivative and other financial instruments subject to
interest rate risk are the Company's fixed and variable rate borrowing
arrangements and outstanding interest rate swap arrangements. The Company's
other financial instruments (cash and cash equivalents, receivables, other
assets, accounts payable and other liabilities) are not generally subject to
interest rate risks due to the short-term nature andtype of these instruments.
The Company used interest rate swap and treasury rate guarantee hedge
arrangements to manage its exposure to interest rate changes. At March 31,
1999, outstanding interest rate swap arrangements serve to decrease the negative
impact of increased short-term interest rates on the Company's financial results
by fixing interest rates on otherwise variable rate debt instruments. In prior
years, the Company used treasury rate guarantee hedge arrangements to
effectively fix the interest rate on anticipated future debt issuances, however,
at March 31, 1999, the Company had no outstanding treasury rate guarantee hedge
arrangements.
Following is a summary of the terms of the Company's fixed and variable rate
borrowing arrangements and interest rate swap arrangements at March 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Principal/ Average Average
Notional Fair Interest Years to
Amount Value Rate Maturity
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Mortgage Debt
Fixed rate $243,164 $251,787 8.3% 6.4
Variable rate 600 600 6.1% 11.6
Unsecured notes -- fixed rate 200,000 199,575 7.1% 7.1
Unsecured term loan -- variable rate 85,000 85,000 6.3% 2.7
Unsecured line of credit facilities -- variable rate 140,140 140,140 5.9% 1.6
Interest Rate Swaps
Unsecured line of credit swaps $ 40,000 $ (1,083) -- 1.8
Average pay rate -- -- 6.7% --
Average receive rate -- -- 5.0% --
Unsecured term loan swaps 85,000 896 -- 2.7
Average pay rate -- -- 5.0% --
Average receive rate -- -- 5.0% --
</TABLE>
If interest rates under the unsecured line of credit facilities and term loan,
in excess of the $125,000,000 effectively converted to fixed rates discussed
above, and under the Company's variable rate mortgage debt fluctuated by 1.0%,
interest costs to the Company, based on outstanding borrowings at March 31,
1999, would increase or decrease by approximately $1,000,000 on an annualized
basis.
As reflected in the table above, the interest rate swap arrangements would
require the net payment of approximately $187,000 (at March 31, 1999), if the
arrangements were terminated. Under current accounting rules, these potential
costs are not recognized currently in the Company's financial statements, but
instead are reflected as part of interest expense over the life of the related
hedged borrowings, causing reported interest costs to be higher than current
interest costs on similar unhedged indebtedness. The costs associated with
terminated swap and hedge arrangements can result in charges to operations to
the extent hedged borrowings are not completed or are no longer outstanding.
At March 31, 1999, the Company does not have any exposure to foreign currency
exchange risk, equity price risk or other material market risks.
32
<PAGE>
PART II--OTHER INFORMATION
ITEM 2--CHANGE IN SECURITIES
During the three months ended March 31, 1999, the Company caused the
Operating Partnership to issue a total of 10,676 Common Units in the
Operating Partnership, in partial consideration for the acquisition of
real estate properties. The aggregate value of the properties acquired
by the Company in exchange for such Common Units was approximately
$300,000. Common Units are convertible by their holders into shares of
common stock on a one-for-one basis, or into cash, at the Company's
option. The Common Units were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act in reliance, in
part, upon the representations and warranties set forth in the
acquisition agreements. Certain of these Common Units are subject to
registration rights and lock-up agreements which generally restrict the
disposition of the Common Units until the designated lock-up periods
expire.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Sixteenth amendment to the Second Amended and Restated
Agreement of Limited Partnership of Weeks Realty, L.P. dated
January 14, 1999.
10.2 - Registration Rights Agreement dated January 14, 1999, by and
between Weeks Corporation and Paragon Legacy Associates, Ltd.
27.1 - Financial data schedule.
(b) Reports on Form 8-K
Form 8-K dated February 28, 1999 and filed on March 5, 1999,
announcing the execution of an Agreement and Plan of Merger between
Weeks Corporation and Duke Realty Investments, Inc.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEEKS CORPORATION
--------------------------------------
(Registrant)
May 14, 1999 /s/ A. R. Weeks, Jr.
--------------------------------------
A. R. Weeks, Jr.
Chairman of the Board and
Chief Executive Officer
May 14, 1999 /s/ David P. Stockert
--------------------------------------
David P. Stockert
Senior Vice President and
Chief Financial Officer
34
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
10.1 Sixteenth amendment to the Second Amended and Restated Agreement of
Limited Partnership of Weeks Realty, L.P. dated January 14, 1999.
10.2 Registration Rights Agreement dated January 14, 1999, by and
between Weeks Corporation and Paragon Legacy Associates, Ltd.
27.1 Financial data schedule.
35
<PAGE>
EXHIBIT 10.1
SIXTEENTH AMENDMENT
TO THE
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WEEKS REALTY, L.P.
THIS SIXTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF WEEKS REALTY, L.P. (the "Amendment") is entered into as
of the 14th day of January, 1999 by and among WEEKS GP HOLDINGS, INC., a Georgia
corporation (the "General Partner"), WEEKS CORPORATION, a Georgia corporation
(the "Company"), and PARAGON LEGACY ASSOCIATES, LTD. (the "Contributor").
RECITALS
--------
Weeks Realty, L.P. (the "Partnership") is a Georgia limited partnership.
The General Partner is the sole general partner of the Partnership and is a
wholly owned subsidiary of the Company. The partnership agreement of the
Partnership is that certain Second Amended and Restated Agreement of Limited
Partnership of Weeks Realty, L.P., dated as of October 30, 1996, as amended by
the First Amendment to the Partnership Agreement dated November 1, 1996, the
Second Amendment to the Partnership Agreement dated December 31, 1996, the Third
Amendment to the Partnership Agreement dated January 31, 1997, the Fourth
Amendment to the Partnership Agreement dated August 1, 1997, the Fifth Amendment
to the Partnership Agreement dated October 7, 1997, the Sixth Amendment to the
Partnership Agreement dated October 27, 1997, the Seventh Amendment to the
Partnership Agreement dated as of December 30,1997 and effective as of August 1,
1997, the Eighth Amendment to the Partnership Agreement dated January 9, 1998,
the Ninth Amendment to the Partnership Agreement dated January 22, 1998, the
Tenth Amendment to the Partnership Agreement dated as of April 3, 1998, the
Eleventh Amendment to the Partnership Agreement dated as of May 26, 1998, the
Twelfth Amendment to the Partnership Agreement dated as of June 3, 1998, the
Thirteenth Amendment to the Partnership Agreement dated as of August 7, 1998,
the Fourteenth Amendment to the Partnership dated as of November 6, 1998, and
the Fifteenth Amendment to the Partnership dated as of November 12, 1998 (the
"Partnership Agreement"). Capitalized terms used herein without definition
shall have the meanings ascribed to them in the Partnership Agreement.
Pursuant to the agreements and instruments listed or referred to on Exhibit
-------
A hereto (the "Transaction Documents"), and the transactions effected by the
- -
Transaction Documents, effective as of the date hereof the Contributor has
contributed, directly or indirectly, certain properties to the capital of the
Partnership.
Pursuant to the Partnership Agreement (including, without limitation,
Section 9.3 and Section 15.7(b)(ii) thereof), the General Partner is authorized
(without the consent of any Limited Partner) to admit additional Limited
Partners to the Partnership for such Capital Contributions as are determined by
the General Partner to be appropriate, and to amend the Partnership Agreement to
reflect such admissions.
The General Partner wishes to amend the Partnership Agreement as set forth
herein to reflect the
<PAGE>
admission of the Contributor as a Limited Partner of the Partnership, and the
Contributor wishes to enter into this Amendment to memorialize their agreement
as to certain matters relating to their becoming a Limited Partner of the
Partnership.
AGREEMENT
---------
In consideration of the circumstances referred to in the Recitals, the
consummation of the transactions effected pursuant to the Transaction Documents,
the mutual covenants and agreements contained herein, and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Admission. The Contributor is hereby admitted to the Partnership
---------
as a Limited Partner, effective as of the date hereof, and the Contributor
hereby agrees to be bound by the Partnership Agreement, including, but not
limited to, the transfer restrictions contained in Article IX thereof.
2. Capital Contributions. The Contributor has agreed to have made,
---------------------
as of the date hereof, the Capital Contributions set forth on Exhibit B hereto.
---------
The agreed to gross fair market values of any property other than money
contributed by the Contributor, which shall be such property's initial Gross
Asset Value, are shown on Exhibit B.
---------
3. Initial Partnership Units; Rights.
---------------------------------
(a) The Partnership Units attributable to the Partnership Interests of
the Contributor, effective upon its admission as a Limited Partner at
the date hereof, are as set forth on Exhibit B hereto, and the
---------
Partnership Agreement is hereby amended to reflect the Contributor's
having such Partnership Units.
(b) The Partnership does hereby grant to the Contributor, and it does
hereby accept, the right, but not the obligation (herein such rights
being sometimes referred to as the "Rights"), to require the
Partnership to redeem all or a portion of the Partnership Units issued
to them pursuant to the Transaction Documents, on the terms and
subject to the conditions and restrictions contained in Exhibit D
---------
hereto. The Rights are governed solely by this Amendment and Exhibit
-------
D hereto, and the Contributor shall have none of the rights with
-
respect to the "Rights" provided for in Section 11.1 and Exhibit B-1
-----------
to the Partnership Agreement. The Rights granted hereunder may be
exercised by the Contributor, on the terms and subject to the
conditions and restrictions contained in Exhibit D hereto, upon
---------
delivery to the Partnership of a Conversion Exercise Notice, in the
form of Schedule 1 attached to Exhibit D, which notice shall specify
---------
the Partnership Units with respect to which the Rights are being
exercised. Once delivered, the Conversion Exercise Notice shall be
irrevocable, subject to compliance by the General Partner and the
Partnership with the terms of the Rights.
4. Restated Percentage Interests. After giving effect to the
-----------------------------
admission of the Contributor as a Limited Partner at the date hereof, the
Percentage Interests of the Contributor has been reflected on Exhibit C hereto,
---------
and the Partnership Agreement is hereby amended accordingly.
5. Future Contributions. The parties acknowledge that, pursuant to
--------------------
and subject to the terms and conditions of the Transaction Documents, the
Contributor may make additional Capital
<PAGE>
Contributions. Concurrently with any such additional Capital Contribution, the
General Partner shall supplement this Amendment by executing and attaching
hereto supplements to Exhibits B and C (which shall be captioned "Exhibit B-1,"
---------------- -----------
"Exhibit B-2," "Exhibit C-1," "Exhibit C-2," and so on and shall identify the
----------- ----------- -----------
Capital Contribution to which each relates) that will, respectively, reflect (to
the extent determinable at such time) the Capital Contribution made by the
Contributor at that time, the initial Gross Asset Value of any property other
than money included in such Capital Contribution, the additional Partnership
Units attributable to the Partnership Interest associated with such Capital
Contribution, and the resulting restated Percentage Interests of all of the
Partners. Such supplements shall be in accordance with the terms of the
Transaction Documents. The Partnership Agreement shall be deemed to be amended
as reflected in each such supplement to this Amendment.
6. Adjustments to Partnership Units. The parties acknowledge that the
--------------------------------
Transaction Documents provide for adjustments to the Partnership Units of the
Contributor in certain circumstances, and further provide that the Contributor's
Partnership Interests and Units, and the resulting restated Percentage Interests
of all of the Partners, may not be capable of determination at the time a
Capital Contribution is made after the date hereof. At the times of adjustment
and final determination provided for in the Transaction Documents, the General
Partner shall supplement this Amendment by executing and attaching hereto either
additional supplements to Exhibits B and C (in the form described above), or
----------------
amended and restated versions of prior supplements to Exhibits B and C, as
----------------
applicable. Such supplements shall be in accordance with the terms of the
Transaction Documents. The Partnership Agreement shall be deemed to be amended
as reflected in each such supplement to this Amendment.
7. Proration of Distributions. Notwithstanding any contrary
--------------------------
provision of the Partnership Agreement, including, without limitation, Section
6.2 thereof, the Contributor agrees that the distribution of Net Operating Cash
Flow made for the calendar quarter in which the Partnership Units are issued, by
reason of each Capital Contribution made pursuant to the Transaction Documents
shall be equal to the amount of Net Operating Cash Flow otherwise distributable
with respect to such Partnership Units under the terms of the Partnership
Agreement, multiplied by a fraction, the numerator of which is the number of
calendar days beginning on the date of issuance of the Partnership Units and
ending on the last day of such calendar quarter and the denominator of which is
the total number of days in the calendar quarter in which the Partnership Units
are issued.
8. Representations and Warranties.
------------------------------
(a) Contributor's Representations. The Contributor hereby
-----------------------------
reaffirms and makes to each of the Partnership and the General Partner
those representations and warranties contained in the Acquisition
Agreement identified in Exhibit A attached hereto. In addition, the
Contributors hereby represents and warrants to the Partnership and the
General Partner that (i) such Contributor is acquiring the Partnership
Units for the Contributor's own account and not with a view to, or for
sale in connection with, the "distribution," as such term is used in
Section 2(11) of the Securities Act of 1933, as amended (the
"Securities Act"), of any of the Partnership Units in violation of the
Securities Act; (ii) Contributor is an "accredited investor," as
that term is defined in Rule 501(a) of Regulation D promulgated under
the Securities Act; (iii) Contributor understands that the Partnership
Units have not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities
Act which depends upon, among other things, the nature of the
investment intent and the accuracy of Contributor's representations as
expressed herein; (iv) Contributor has had an opportunity
<PAGE>
to discuss the Partnership's business, management and financial
affairs with the Partnership's management and the opportunity to
review the Partnership's financial records; (v) Contributor
understands and acknowledges that no public market now exists for any
of the Partnership Units and that there can be no assurance that a
public market will ever exist for the Partnership Units; and (vi)
Contributor has such knowledge and experience in financial and
business matters, or has been adequately advised by Contributor's
financial representatives, that Contributor is capable of evaluating
the merits and risks of the purchase of the Partnership Units pursuant
to this Agreement and of protecting Contributor's interests in
connection herewith.
(b) No Liens. The Contributor represents and warrants to the
--------
Partnership and the General Partner that at the date hereof none of
the Partnership Units issued or issuable to the Contributor pursuant
to the Transaction Documents, and none of the shares of Common Stock
that may be acquired by the Contributor upon exercise of Rights, is
subject to any Lien, other than the security interest created by
paragraph 11 hereof.
(c) Definition. All of the representations, warranties, covenants and
----------
agreements of the Contributor referred to in this paragraph 8 are
referred to collectively as the "Representations and Warranties."
(d) General Partner Representations. The General Partner represents
-------------------------------
and warrants to the Contributor as follows:
(i) Organization. The General Partner is duly incorporated, validly
------------
existing and in good standing under the laws of the State of
Georgia.
(ii) Due Authorization; Binding Agreement. The execution, delivery
------------------------------------
and performance of this Amendment by the General Partner have
been duly and validly authorized by all necessary action of the
General Partner and the Partnership. This Amendment has been
duly executed and delivered by the General Partner and
constitutes a legal, valid and binding obligation of the General
Partner and the Partnership, enforceable against the General
Partner and the Partnership in accordance with the terms hereof.
(iii) Consents and Approvals. No consent, waiver, approval or
----------------------
authorization of, or filing, registration or qualification with,
or notice to, any governmental unit or any other Person is
required to be made, obtained or given by the General Partner in
connection with the execution, delivery and performance of this
Amendment, other than consents, waivers, approvals or
authorizations that have been obtained prior to the date hereof.
(iv) Partnership Units. The Partnership Units issued pursuant to the
-----------------
Transaction Documents are duly authorized and, when issued in
accordance with the Transaction Documents, will be duly issued,
fully paid and nonassessable and will be unencumbered except for
the security interest created by paragraph 11 hereof.
9. Survival of Representations and Warranties. All of the
------------------------------------------
Representations and Warranties shall survive the consummation of the
transactions contemplated by the Transaction
<PAGE>
Documents; provided, however, that no claim for a breach of any Representation
or Warranty may be maintained by the Partnership, the Company or the General
Partner unless the Partnership, the Company or the General Partner shall have
delivered a written notice ("Notice of Breach") specifying the details of such
claimed breach to the respective Contributor or before the first anniversary of
the last issuance of Units pursuant to the Transaction Documents (the "Survival
Period").
10. Indemnification.
---------------
(a) The Contributor indemnifies and holds harmless the Partnership,
the Company and the General Partner against and from all liabilities,
demands, claims, actions or causes of action, assessments, losses,
fines, penalties, costs, damages and expenses (including, without
limitation, reasonable attorneys' and accountants' fees and expenses
actually incurred) sustained or incurred by the Partnership, the
Company or the General Partner as a result of or arising out of any
inaccuracy in or breach of a Representation or Warranty.
(b) The Partnership, the Company and the General Partner shall not be
entitled to indemnification hereunder unless a Notice of Breach has
been delivered by the Partnership, the Company or the General Partner
to the Contributors.
(c) If a claim for indemnification is asserted by the Partnership, the
Company or the General Partner against the Contributor, the
Contributor shall have the right, at its own expense, to participate
in the defense of any claim, action or proceeding asserted against the
Partnership, the Company or the General Partner that resulted in the
claim for indemnification, and if such right is exercised, the parties
shall cooperate in the defense of such action or proceeding.
(d) Indemnification of the Partnership, the Company and the General
Partner pursuant to this paragraph 10 shall be the exclusive remedy of
the Partnership, the Company and the General Partner for any breach of
any Representation or Warranty contained in this contained in this
Agreement. Nothing contained herein shall limit any remedy the
Partnership (or any affiliate of the Partnership including, without
limitation, any affiliate of the Partnership as determined with
respect to the voting or economic control held by or in the
Partnership) may have under the Transaction Documents, including,
without limitation, the remedy of specific performance for any failure
by the Contributor to contribute a property or otherwise limit any
remedy the Partnership, the Company or the General Partner may have
for any commission of fraud made by the Contributor.
<PAGE>
11. Security and Remedies.
---------------------
(a) The Contributor hereby grants to the Partnership a lien upon and a
continuing security interest in the Partnership Units issued to each
of them pursuant to the Transaction Documents and the shares of Common
Stock acquired by each of them upon exercise of Rights with respect to
such Partnership Units (the "Collateral"), which shall be security for
the indemnification obligations of the Contributor under paragraph 10
hereof. Except as otherwise provided in this Amendment, the
indemnification obligations of the Contributor hereunder with respect
to breaches of Representations and Warranties shall be payable out of
the Contributor's entire Collateral; provided, however, that the
Contributor may satisfy all or any part of such indemnification
obligation of the Contributor in cash if the Contributor so elect.
Any Transfer by a Contributor of its Collateral shall be subject to
the lien and security interest granted hereby.
(b) In the event the General Partner asserts that the Contributor
has an indemnification obligation to the Partnership, the Company or
the General Partner under paragraph 10 hereof, the General Partner
shall deliver written notice (the "Indemnification Notice") to the
Contributor describing in reasonable detail the circumstances giving
rise to such obligation and the amount thereof. If, within thirty (30)
days after the receipt of an Indemnification Notice, the Contributor
deliver written notice to the General Partner indicating that the
Contributor dispute the circumstances giving rise to or the amount of
such claimed indemnification obligation, the General Partner may
submit such matter for binding arbitration in accordance with the
provisions of Article XIV of the Partnership Agreement by delivering a
Demand Notice to the Contributor pursuant to such Article XIV. If,
after receiving timely notice of a dispute hereunder from the
Contributor, the General Partner fails to so submit the matter for
arbitration within twenty (20) days after receipt of such notice from
the Contributor, then the Contributor shall be relieved of the claimed
indemnification obligation described in the Indemnification Notice. In
the event the Contributor (i) receives an Indemnification Notice and
fails to timely deliver notice to the General Partner of their dispute
as to the indemnification obligation and fails to make payment within
thirty (30) days after delivery of an Indemnification Notice or (ii)
has an indemnification obligation to the Partnership or the General
Partner under paragraph 10 hereof as determined pursuant to Article
XIV of the Partnership Agreement, and do not satisfy such obligation
within ten (10) days after the decision rendered in the arbitration,
then, in either event, the Partnership shall have any and all remedies
of a secured creditor under the Uniform Commercial Code, and, in
addition thereto, at the election of the Partnership, the Partnership
shall, to the extent permitted by law, be deemed, without the payment
of any further consideration or the taking of any further action
required by the Contributor, to have acquired from the Contributor
such portion of the Collateral as shall be equal in value (based, in
the case of Partnership Units, on the Current Per Share Market Price
as computed as of the date immediately preceding such deemed
acquisition of the number of shares of Common Stock for which such
Partnership Units could be redeemed if the General Partner assumed the
redemption obligation and elected to pay the Redemption Price (as
defined in Exhibit D) in shares of Common Stock (assuming the
---------
ownership limits in the Articles of Incorporation would not prohibit
the issuance of any such shares of Common Stock to the Contributors),
and, in the case of shares of Common Stock, on the Current Per Share
Common Stock Price computed as of the date immediately preceding such
deemed acquisition) to the amount recoverable from the Contributor
under paragraph
<PAGE>
10 hereof. In the event the Partnership shall have acquired from the
Contributor any Collateral pursuant to this paragraph 11, the General
Partner shall deliver written notice to the Contributor within ten
(10) days thereafter identifying the specific Collateral acquired and,
if such Collateral consists of Partnership Units, the Percentage
Interests of the Contributor following such acquisition. Unless and
until the Partnership shall have acquired from the Contributor any
Collateral pursuant to this paragraph 11, the Contributor shall retain
all rights with respect to the Collateral not expressly limited herein
or in the Partnership Agreement, including, without limitation, rights
to distributions provided for in the Partnership Agreement and rights
to dividends on shares of Common Stock. The Contributor hereby agrees
to take any and all actions and to execute and deliver any and all
documents or instruments necessary to perfect the security interest
created by this Amendment, including delivering the certificates
representing the Partnership Units or shares of Common Stock to the
General Partner.
(c) On the first day immediately following the expiration of the
Survival Period as defined in paragraph 9 hereof (or, if a Notice of
Breach has been delivered to the Contributor prior to such date, then
on the first day immediately following the resolution of such Notice
of Breach) the Contributor will be relieved of the restrictions on
transferability provided for by this Amendment (except that the
transfer restrictions contained in the Partnership Agreement shall
continue) and the security interest in the Collateral shall terminate
without further action, and the Partnership, at the request of the
Contributor, shall promptly execute and deliver any document or
instrument reasonably requested by the Contributor to evidence such
termination.
12. Recourse. Notwithstanding anything contained in this Amendment
--------
or in the Partnership Agreement to the contrary, the recourse of the General
Partner, the Company or the Partnership under paragraph 10 hereof with respect
to breaches of Representations and Warranties of the Contributor shall not be
limited to the Contributor's Collateral.
13. Restriction on Transfer. In connection with the security
-----------------------
interests granted by the Contributor under paragraph 11 hereof, the Contributor
agrees that any shares of Common Stock and any portion of such Contributor's
Partnership Interests included in the Collateral shall not be Transferred
without the consent of the General Partner; provided, however, that the
Contributor may Transfer all or any portion of such shares of Common Stock or
Partnership Interests to an Affiliate of such person (so long as such Affiliate
remains an Affiliate of such person), subject to the prior security interest
granted in paragraph 11 hereof and to the restrictions contained in Article IX
of the Partnership Agreement. Upon exercise of the Rights with respect to any
Partnership Units included in a Contributor's Collateral, the Partnership, in
perfection of the security interest herein granted, shall retain the
certificate(s) representing the portion of the Common Stock issued upon such
exercise that is included in such Collateral. If any portion of the Partnership
Interests of a Contributor included in such Contributor's Collateral is
represented by certificates, the Partnership shall retain such certificates in
perfection of the security interest herein granted. On the first day
immediately following the expiration of the Survival Period as defined in
paragraph 9 hereof (or, if a Notice of Breach has been delivered to the
Contributor prior to such date, then on the first day immediately following the
resolution of such Notice of Breach) the Contributor will be relieved of the
restrictions on transferability provided for by this paragraph 13 without
further action, and the Partnership, at the request of the Contributor, shall
promptly execute and deliver any document or instrument reasonably requested by
the Contributor to evidence such termination.
<PAGE>
14. Miscellaneous. This Amendment shall be governed by and construed
-------------
in conformity with the laws of the State of Georgia. For the purposes of the
notice provisions of the Partnership Agreement, the address of the Contributor
is as set forth on the signature page hereof. Except as expressly amended
hereby, the Partnership Agreement shall remain in full force and effect. This
Amendment and all the terms and provisions hereof shall be binding upon and
shall inure to the benefit of the parties, and their legal representatives,
heirs, successors and permitted assigns.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
as of the date first above written.
WEEKS REALTY, L.P., a Georgia limited
partnership
By: Weeks GP Holdings, Inc., a Georgia
corporation, its Sole General Partner
By: /s/ Thomas D. Senkbeil
___________________________
Name: Thomas D. Senkbeil
Title: Vice Chairman and
Chief Investment Officer
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
CONTRIBUTOR:
PARAGON LEGACY ASSOCIATES, LTD.,
By: WRC Turtle Creek, Inc.,
a Texas corporation
By:
--------------------------
Name:
Title:
Address:
Solely to evidence its agreement to its
undertakings in Exhibit D hereto:
---------
WEEKS CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE>
CONTRIBUTOR:
PARAGON LEGACY ASSOCIATES, LTD.,
By: WRC Turtle Creek, Inc.,
a Texas corporation
By:
--------------------------
Name:
Title:
Address:
Solely to evidence its agreement to its
undertakings in Exhibit D hereto:
---------
WEEKS CORPORATION
By: /s/ Thomas D. Senkbeil
----------------------------------
Name: Thomas D. Senkbeil
Title: Vice Chairman and
Chief Investment Officer
<PAGE>
Exhibit A
---------
TRANSACTION DOCUMENTS
That certain Contribution Agreement (the "Contribution Agreement") dated as of
----------------------
December 17, 1998, between the Partnership and Contributor, covering the "Phase
II Lease" and other property described therein, together with the other
documents executed and delivered pursuant to such Contribution Agreement.
<PAGE>
Exhibit B
---------
Capital Contribution:
- --------------------
Paragon Legacy Associates, Ltd. Capital Contribution: All assets, properties
Capital Contribution: and businesses transferred from Paragon Legacy
Associates, Ltd. on January 14, 1999, to the
Partnership pursuant to the Contribution
Agreement (as defined in Exhibit A to the
foregoing Amendment)
Gross Fair Market Value of Property Contributions:
- -------------------------------------------------
Gross Fair Market Value of all
property other than money included in
Contribution: $1,500,000.00*
* This is the gross value of the property being contributed pursuant to the
Contribution Agreement as of the closing of the contribution. At such closing,
pursuant to the Contribution Agreement, Contributor is to receive a cash
distribution from the Partnership in the amount of $1,200,004.40, reimbursing
Contributor for costs and expenses relating to the property, together with Units
having a value of $299,995.60.
<PAGE>
Exhibit C
---------
Weeks Realty, L.P.
Partnership Interests as of 1/13/99
No. Person/Entity Units Percent
- ----------------- ----- -------
Common Partnership Interests
General Partner:
1 Weeks GP Holdings, Inc. 337,503 1.250%
Limited Partners:
2 Weeks LP Holdings, Inc. 19,336,919 71.621%
3 NWI Warehouse Group, L.P. 2,685,649 9.947%
4 A. Ray Weeks, Jr. 614,079 2.274%
5 John P. Weeks 239,791 0.888%
6 Marsha L. Weeks 228,047 0.845%
7 A.R. Weeks, Jr., as Trustee U/W of
Alvin Ray Weeks dated March 1, 1983,
f/b/o Marsha Lee Weeks, A.R. Weeks,
Jr., Deborah Weeks Felker, Patricia
Weeks and John Phillip Weeks 212,663 0.788%
8 Patricia L. Weeks 206,607 0.765%
9 Deborah Weeks Felker 198,339 0.735%
10 Harry T. Weeks, A.R. Weeks, Jr., and
Martha Patterson Weeks as Trustees
under Trust Agreement dated 10/27/76,
as amended, f/b/o/ Marsha Lee Weeks,
A.R. Weeks, Jr., Deborah Weeks Felker,
Patricia Louise Weeks and John Phillip
Weeks. 187,492 0.694%
11 Helen B. Weeks 163,048 0.604%
12 Weeks Horizon Corp. 116,012 0.430%
13 Oakdale Land Management, Inc. 110,493 0.409%
14 Weeks Hillside Corp. 78,145 0.289%
15 Thomas D. Senkbeil 52,817 0.196%
16 Weeks Southridge Corp. 42,993 0.159%
17 Forrest W. Robinson 28,877 0.107%
18 Harry T. Weeks 27,535 0.102%
19 Louis C. Robinson 20,016 0.074%
20 Buckley & Company Real Estate, Inc. 20,000 0.074%
21 HV, Inc. 17,074 0.063%
22 Clyde H. Duckett 5,627 0.021%
23 John C. Atwell 5,627 0.021%
24 Robert G. Cutlip 5,138 0.019%
25 Klay W. Simpson 4,110 0.015%
26 Mark W. Flowers 1,541 0.006%
27 Weeks Management Corp. 1,142 0.004%
28 RTF Management Corp. 257 0.001%
29 Marie Antoinette Robinson 268,508 0.995%
30 Harold S. Lichtin 36,639 0.136%
31 Noel A. Lichtin 298 0.001%
32 Perimeter Park West Associates
Limited Partnership 351,484 1.302%
33 Amy R. Ehrman 2,053 0.008%
34 Roland G. Robertson 2,053 0.008%
35 Timothy Nichols 1,757 0.007%
<PAGE>
No. Person/Entity Units Percent
- ----------------- ----- -------
36 Roderick Duncan 2,928 0.011%
37 James McCabe 39 0.000%
38 Anne Broaddus 1,561 0.006%
39 Harold S. Lichtin Family
Limited Partnership 342,569 1.269%
40 GB Partners, Ltd. 18,461 0.068%
41 Armando Codina 124,523 0.461%
42 Codina Family Investments, Ltd. 30,351 0.112%
43 Codina West Dade Development Corporation 117,692 0.436%
44 The Benenson Capital Company 320,721 1.188%
45 Raha Associates, Inc. 7,281 0.027%
46 Preston R. Tisch 164,001 0.607%
47 PCTC Associates, LLC 47,273 0.175%
48 Sanford H. Orkin 40,789 0.151%
49 Barbara H. Orkin, as Trustee of the
Sheri Orkin Life Trust U/A with
Sanford H. Orkin, dated December
27, 1973 6,798 0.025%
50 Barbara H. Orkin, as Trustee of the
Laurie Orkin Life Trust U/A with
Sanford H. Orkin, dated December
27, 1973 6,798 0.025%
51 Barbara H. Orkin, as Trustee of the
Michael Orkin Life Trust U/A with
Sanford H. Orkin, dated December
27, 1973 6,798 0.025%
52 Barbara H. Orkin, as Trustee of the
Kenneth Orkin Life Trust U/A with
Sanford H. Orkin, dated December
27, 1973 6,798 0.025%
53 The Futrell Properties Limited
Partnership No. 1 45,895 0.170%
54 Thomas M. Beckman 28,643 0.106%
55 Thomas B. Fowler, Jr. 28,643 0.106%
56 Ackerman & Co. 29,528 0.109%
57 Paragon Legacy Associates, Ltd. 10,676 0.040%
---------- ------
Total Common Partnership Interests 26,999,099 100.00%
========== ======
Preferred Partnership Interests
Series A Preferred Units
Weeks LP Holdings, Inc. 6,000,000
----------
Series C Preferred Units
AEW Targeted Securities Fund, L.P. 1,400,000
----------
Series D Preferred Units
Greene Street 1998 Exchange Fund, L.P. 2,600,000
----------
Total Preferred Partnership Interests 10,000,000
==========
<PAGE>
Exhibit D
---------
RIGHTS TERMS
------------
The Rights granted by the Partnership to the Contributor (referred to in
this Exhibit as "Limited Partners"), pursuant to paragraph 3(b) of the foregoing
Amendment shall be subject to the following terms and conditions:
1. Definitions. Capitalized terms used in this Exhibit without definition
-----------
shall have the meanings given to them in the Partnership Agreement or the
foregoing Amendment, as applicable, and the following terms and phrases shall,
for purposes of this Exhibit D, the Partnership Agreement and the foregoing
Amendment, have the meanings set forth below:
"Cash Purchase Price" shall have the meaning set forth in Paragraph 4
-------------------
hereof.
"Closing Notice" shall mean the written notice to be given by the
--------------
General Partner to the Exercising Partner(s) in response to the receipt by the
General Partner of a Conversion Exercise Notice from such Exercising Partner(s).
The form of the Closing Notice is attached hereto as Schedule 2.
"Computation Date" shall mean the date on which a Conversion Exercise
-----------------
Notice is delivered to the General Partner.
"Conversion Exercise Notice" shall have the meaning set forth in
--------------------------
Paragraph 2 hereof.
"Conversion Factor" shall mean 100%, provided that such factor shall
-----------------
be adjusted in accordance with the provisions of paragraph 10 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any successor statute.
"Exercising Partners" shall have the meaning set forth in Paragraph 2
-------------------
hereof.
"Offered Partnership Units" shall mean the Partnership Units of the
-------------------------
Exercising Partner(s) identified in a Conversion Exercise Notice that, pursuant
to the exercise of Rights, must be redeemed by the Partnership or acquired by
the General Partner and/or Weeks LP Holdings under the terms hereof.
"Redemption Price" shall mean the Cash Purchase Price or the Stock
----------------
Purchase Price.
"Rights" shall have the meaning set forth in paragraph 3(b) of the
------
foregoing Amendment.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any successor statute.
"Stock Purchase Price" shall have the meaning set forth in Paragraph 4
--------------------
hereof.
<PAGE>
2. Delivery of Conversion Exercise Notices. Any one or more Limited
---------------------------------------
Partners ("Exercising Partners") may, subject to the limitations set forth
herein, deliver to the General Partner written notice (the "Conversion Exercise
Notice") pursuant to which such Exercising Partners elect to exercise the
Rights. The form of Conversion Exercise Notice is attached hereto as Schedule
1.
3. Limitations on Exercise of Rights; Deemed Exercise.
--------------------------------------------------
(a) No Conversion Exercise Notice, with respect to any Unit may be
delivered to the General Partner by a Limited Partner until the later
of (i) the first anniversary of the date of each such issuance, or
(ii) the date on which either (A) there is a registration statement
effective under the Securities Act with respect to the issuance of any
shares of Common Stock that could be issued to such Limited Partner
pursuant to such exercise of Rights and with respect to any resale by
such Limited Partner of any of such shares of Common Stock, or (B) in
the opinion of counsel to Weeks, shares of Common Stock that could be
issued to such Limited Partner pursuant to such exercise of Rights may
be issued without registration under the Securities Act.
(b) A Limited Partner may not exercise the Rights for less than one
thousand (1,000) Partnership Units or, if such Limited Partner holds
less than one thousand (1,000) Partnership Units, all of the
Partnership Units held by such Limited Partner.
(c) Neither the General Partner nor the Partnership shall have any
obligation or authority to redeem or purchase Offered Partnership
Units to the extent that issuance of shares of Common Stock in payment
of the Stock Purchase Price for any part of the Offered Partnership
Units would result (i) in the violation of the General Ownership Limit
(as such term is defined in the Articles of Incorporation), (ii) would
cause Weeks to fail the stock ownership test of Section 856(a)(6) of
the Code, or (iii) would otherwise cause Weeks to fail to qualify as a
REIT; provided that in any such case, the General Partner or the
Partnership shall purchase for cash those offered Partnership Units
which may not be redeemed with shares of Common Stock. Each
Exercising Partner shall provide to the General Partner such
information as the General Partner may request regarding such
Exercising Partner's actual and constructive ownership of Common Stock
(and of individuals, and entities related to such Exercising Partner)
in order for the General Partner to determine, in its sole discretion,
whether a purchase or redemption of the Offered Partnership Units for
shares of Common Stock would result in a violation of such
restrictions.
(d) If, after complying with all applicable provisions of the
Partnership Agreement, any Person with an ownership interest in any of
the Contributor becomes the owner of any Partnership Units previously
owned by the any of the Contributor, such Person may exercise the
Rights granted with respect to such Partnership Units in accordance
with the terms hereof.
4. Computation of Redemption Price/Form of Payment. The Redemption Price
-----------------------------------------------
payable by the Partnership to each Exercising Partner for the Offered
Partnership Units shall be payable, at the election of the General Partner, by
the delivery by the Partnership of the Redemption Price. Notwithstanding the
foregoing, at the election of the General Partner, the Redemption Price may be
the Stock Purchase Price for part of the Offered Partnership Units and the Cash
Purchase Price for the
<PAGE>
remainder of the Offered Partnership Units. The "Stock Purchase Price" shall
mean the number of shares of Common Stock equal to the product, expressed as a
whole number, of (i) the number of Offered Partnership Units, multiplied by (ii)
the Conversion Factor. The "Cash Purchase Price" shall mean an amount of cash
(in immediately available funds) equal to (i) the number of shares of Common
Stock that would be issued to the Exercising Partner if the Stock Purchase Price
were paid for such Offered Partnership Units, multiplied by (ii) the Current Per
Share Market Price computed as of the Computation Date. To the extent the
Partnership elects to pay the Stock Purchase Price, it shall obtain the
necessary shares of Common Stock in exchange for the issuance of additional
Partnership Interests to the General Partner, Weeks LP Holdings, or any
combination thereof, as determined by the General Partner in its sole
discretion, and the General Partner and/or Weeks LP Holdings shall obtain the
necessary shares of Common Stock in exchange for the issuance of additional
capital stock to Weeks.
5. Closing; Delivery of Closing Notice. The closing of the redemption of
-----------------------------------
Offered Partnership Units shall, unless otherwise mutually agreed, be held at
the principal office of the Partnership, as follows:
(a) Within ten (10) days after the receipt by the Partnership of the
Conversion Exercise Notice, the Partnership shall deliver a Closing
Notice to the Exercising Partner(s). The Closing Notice shall state a date
for the closing of the redemption of the Offered Partnership Units, which
date shall not be later than the later of (i) twenty (20) days after the
receipt by the Partnership of the Conversion Exercise Notice (forty-five
(45) days as to the Offered Partnership Units for which the Cash Purchase
Price will be paid), and (ii) the first (1st) business day after the
expiration or termination of the waiting period applicable to each
Exercising Partner, if any, under the Hart-Scott Act.
(b) If applicable, the Closing Notice shall (i) specify the
Partnership's election to pay the Cash Purchase Price for some or all of
the Offered Partnership Units and (ii) set forth the computation of the
Cash Purchase Price to be paid by the Partnership to such Exercising
Partner(s). The Cash Purchase Price shall be paid by wire transfer of
immediately available funds to such account of the Exercising Partner as is
designated in the Conversion Exercise Notice.
6. Assumption by the General Partner and/or Weeks LP Holdings.
----------------------------------------------------------
Notwithstanding anything in this Exhibit D to the contrary, the General Partner,
Weeks LP Holdings or any combination thereof (an "Assumer" or, collectively, the
"Assumers") may, in the sole and absolute discretion of the General Partner,
assume directly and satisfy the exercise of a Right by paying the Electing
Partner the Redemption Price. In such event, the Assumers shall acquire the
Offered Partnership Units and shall be treated for all purposes of this
Agreement as the owner of such Partnership Units, which shall be held by the
Assumers in their respective existing capacities as general partner or Limited
Partners, as the case may be. In the event the General Partner shall exercise
the Assumers' right to satisfy a Right in the manner described in this Paragraph
6, the Partnership shall have no obligation to pay any amount to the Exercising
Partner with respect to such Exercising Partner's exercise of a Right; provided,
however, that the Partnership shall remain liable to the Exercising Partner to
the extent that any such Exercising Partner's Right is not fully satisfied; and
each of the Exercising Partner, the Partnership, and the Assumers shall treat
the transaction between the Assumers and the Exercising Partner as a sale of the
Exercising Partner's Partnership Units to the Assumers for federal income tax
purposes. To the extent the Assumers elect to pay the Stock Purchase Price,
they shall obtain the necessary shares of Common Stock in exchange for the
issuance of additional capital stock to Weeks. Each Exercising Partner agrees
to execute such documents as the General Partner may reasonably require in
connection with the issuance of Common Stock upon exercise of a Right.
<PAGE>
7. Closing Deliveries. At the closing, payment of the Redemption Price
------------------
shall be accompanied by proper instruments of transfer and assignment for the
Offered Partnership Units and by the delivery of (i) representations and
warranties of (A) the Exercising Partner with respect to its due authority to
sell all of the right, title and interest in and to the Offered Partnership
Units and with respect to the status of the Offered Partnership Units being
sold, free and clear of all Liens, and (B) the Partnership or the Assumers, as
applicable, with respect to due authority for the redemption or purchase of such
Offered Partnership Units, and (ii) to the extent that shares of Common Stock
are issued in payment of the Stock Purchase Price, (A) an opinion of counsel for
Weeks, reasonably satisfactory to the Exercising Partner(s), to the effect that
such shares of Common Stock have been duly authorized, are validly issued,
fully-paid and nonassessable, and (b) a stock certificate or certificates
evidencing the Common Stock to be issued and registered in the name of the
Exercising Partner(s) or its (their) designee.
8. Covenants of Weeks. To facilitate the Partnership's and the Assumers'
------------------
ability to fully perform their obligations hereunder, Weeks covenants and agrees
as follows:
(a) At all times during the pendency of the Rights, Weeks shall
reserve for issuance such number of shares of Common Stock as may be
necessary to enable Weeks to issue shares of Common Stock in full payment
of the Stock Purchase Price in regard to all Partnership Units that are
from time to time outstanding and with respect to which Rights exist.
(b) During the pendency of the Rights, the Limited Partners shall
receive in a timely manner all communications transmitted from time to time
by Weeks to its shareholders generally.
9. Limited Partners' Covenants. Each Limited Partner covenants and agrees
---------------------------
that all Offered Partnership Units tendered in accordance with the exercise of
Rights shall be delivered free and clear of all Liens. Should any Liens exist
or arise with respect to such Offered Partnership Units, neither the Assumers
nor the Partnership shall be under any obligation to redeem or acquire the same
unless, in connection therewith, the General Partner has elected to pay a
portion of the Redemption Price in the form of the Cash Purchase Price in
circumstances in which such Cash Purchase Price will be sufficient to cause such
existing Lien to be discharged in full upon application of all or a part of the
Cash Purchase Price. The Partnership and the Assumers are expressly authorized
to apply such portion of the Cash Purchase Price as may be necessary to
discharge such Lien in full. Each Limited Partner further agrees that, in the
event any state or local property transfer tax is payable as a result of the
transfer of its Offered Partnership Units to the Partnership or the Assumers,
such Limited Partner shall assume and pay such transfer tax.
10. Antidilution Provisions
-----------------------
(a) The Conversion Factor shall be subject to adjustment from time to
time effective upon the occurrence of the following events and shall be
expressed as a percentage, calculated to the nearest one-thousandth of one
percent (.001%):
(i) In case Weeks shall pay or make a dividend or other distribution
on any class of stock of Weeks in shares of Common Stock, the
Conversion Factor in effect at the opening of business on the day
following the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be
increased in proportion to the increase in outstanding shares of
Common Stock resulting from such dividend or other distribution,
such increase to become effective immediately after the opening
of business on the day following the
<PAGE>
record date fixed for such dividend or other distribution.
(ii) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares, the Conversion Factor in effect
at the opening of business on the day following the day upon
which such subdivision becomes effective shall be proportionately
increased, and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares,
the Conversion Factor in effect at the opening of business on the
day following the day upon which such combination becomes
effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately
after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
(b) In case Weeks shall issue rights, options or warrants to all
holders of its shares of Common Stock entitling them to subscribe for or
purchase Common Stock or other securities convertible into shares of Common
Stock at a price per share less than the Current Per Share Market Price as
of the day before the "ex date" with respect to the issuance or
distribution, each Limited Partner holding Rights shall be entitled to
receive such number of such rights, options or warrants, as the case may
be, as he would have been entitled to receive had he exercised all of his
then existing Rights immediately prior to the record date for such issuance
by Weeks. The term "ex date" shall mean the first date on which shares of
Common Stock trade regular way without the right to receive such issuance
or distribution.
(c) In case the shares of Common Stock shall be changed into the same
or a different number of shares of any class or classes of stock, whether
by capital reorganization, reclassification, or otherwise (other than
subdivision or combination of shares described in subparagraph (a) (ii) of
this Paragraph), then and in each such event the Limited Partners holding
Rights shall have the right thereafter to exercise their Rights for the
kind and amount of shares and other securities and property that would have
been received upon such reorganization, reclassification or other change by
holders of the number of shares of Common Stock with respect to which such
Rights could have been exercised immediately prior to such reorganization,
reclassification or change.
(d) The General Partner may, but shall not be required to, make such
adjustments to the number of shares of Common Stock issuable upon exercise
of Rights, in addition to those required by this Paragraph 10, as the
General Partner considers to be advisable in order that any event treated
for federal income tax purposes as a dividend of stock or stock rights
shall not be taxable to the recipients. The General Partner shall have the
power to resolve any ambiguity or correct any error in the adjustments made
pursuant to this Paragraph and its actions in so doing shall be final and
conclusive, absent manifest error by the General Partner in taking such
action.
11. Fractions of Shares. No fractional shares of Common Stock shall be
-------------------
issued upon exercise of Rights. If Rights shall be exercised with respect to
more than one Offered Partnership Unit at one time by the same Exercising
Partner, the number of full shares of Common Stock comprising the Stock Purchase
Price (or the cash equivalent amount thereof to the extent the Cash Purchase
Price is paid) shall be computed on the basis of the aggregate number of Offered
Partnership Units. Instead of any fractional share of Common Stock that would
otherwise be issuable upon exercise of Rights, the Partnership or the Assumers
shall pay a cash adjustment in respect of such fraction in an amount equal to
the Cash Purchase
<PAGE>
Price computed hereunder for such fraction of a share.
12. Notice of Adjustments of Conversion Factor. Whenever the Conversion
------------------------------------------
Factor is adjusted as herein provided:
(a) the General Partner shall compute the adjusted Conversion Factor
in accordance with Paragraph 10 hereof and shall prepare a certificate
signed by the chief financial officer or the Treasurer of the General
Partner setting forth the adjusted Conversion Factor and showing in
reasonable detail the facts upon which such adjustment is based; and
(b) notice stating that the Conversion Factor has been adjusted and
setting forth the adjusted Conversion Factor shall forthwith be mailed by
the General Partner to all holders of Rights at their last addresses on
record under this Agreement.
13. Notice of Certain Corporate Actions.
-----------------------------------
In case:
(a) Weeks shall declare a dividend (or any other distribution) on its
Common Stock payable otherwise than in cash; or
(b) Weeks shall authorize the granting to the holders of its Common
Stock of rights, options or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights; or
(c) of any reclassification of the shares of Common Stock (other than
a subdivision or combination of its outstanding Common Stock, or of any
consolidation, merger or share exchange to which Weeks is a party and for
which approval of any shareholders of Weeks is required), or of the sale or
transfer of all or substantially all of the assets of Weeks; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of Weeks;
then the General Partner shall cause to be mailed to all holders of Rights at
their last addresses on record under this Agreement, at least 20 days (or 12
days in any case specified in clause (a) or (b) above) prior to the applicable
record date hereinafter specified, a notice stating (i) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights,
options or warrants, or, if a record is not to be taken, the date as of which
the holders of shares of Common Stock of record to be entitled to such dividend,
distribution, rights, options or warrants are to be determined, or (ii) the date
on which such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of shares of
Common Stock of record shall be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up.
14. Provisions in Case of Consolidation, Merger or Sale of Assets.
-------------------------------------------------------------
In case of any consolidation of Weeks with, or merger of Weeks into, any
other Person, any merger or consolidation of another Person into Weeks (other
than a merger that does not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of Common Stock), any
<PAGE>
acquisition of the outstanding Common Stock by share exchange, or any sale or
transfer of all or substantially all of the assets of Weeks, the Person formed
by such consolidation or resulting from such merger or that acquires the
outstanding Common Stock or such assets of Weeks as the case may be, shall
execute and deliver to each holder of Rights an agreement providing that such
holder shall have the right thereafter, during the period such rights shall be
exercisable (which shall be at least as long as the period for which the Rights
can be exercised under the other provisions of this Agreement), to exercise the
Rights for the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, share exchange, sale or transfer by a holder of
the number of shares of Common Stock for which the Rights might have been
exercised immediately prior to such consolidation, merger, share exchange, sale
or transfer, assuming both that (a) such holder of shares of Common Stock is not
a Person with which Weeks consolidated or into which Weeks merged or that merged
into Weeks, or that acquired the outstanding Common Stock by share exchange, or
to which such sale or transfer was made, as the case may be (a "Constituent
Person"), or an Affiliate of a Constituent Person, and that (b) such holder does
not exercise his right of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
share exchange, sale or transfer (provided that if the kind or amount of
--------
securities, cash and other property receivable upon such consolidation, merger,
share exchange, sale or transfer is not the same for each share of Common Stock
in respect of which such right of election, if any, is not exercised ("non-
electing Share"), then for the purpose of this Paragraph 14, the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, share exchange, sale or transfer by each non-electing Share shall be
deemed to be the kind and amount so receivable per non-electing Share by a
plurality of the non-electing Shares). Such agreement shall provide for
adjustments that, for events subsequent to the effective date of such agreement,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Exhibit D.
The above provisions of this Paragraph 14 shall similarly apply to
successive consolidations, mergers, sales or transfers.
<PAGE>
SCHEDULE 1
CONVERSION EXERCISE NOTICE
--------------------------
To: Weeks Realty, L.P.
Reference is made to that certain Sixteenth Amendment (the "Amendment") to
the Second Amended and Restated Agreement of Limited Partnership of Weeks
Realty, L.P. (the "Partnership"). Capitalized terms used but not defined herein
shall have the meanings set forth in Amendment. Pursuant to Exhibit D to the
Amendment, the undersigned, being a limited partner of the Partnership (an
"Exercising Partner"), hereby elects to exercise its Rights as to the number of
Offered Partnership Units specified opposite its name below:
Number of Offered
Exercising Limited Partner Partnership Units
-------------------------- -----------------
_______________________________________
Signature of Exercising Limited Partner
Date:
----------------------------------
<PAGE>
SCHEDULE 2
CLOSING NOTICE
--------------
To: Exercising Limited Partner(s)
Reference is made to that certain Sixteenth Amendment (the "Amendment") to
the Second Amended and Restated Agreement of Limited Partnership of Weeks
Realty, L.P. (the "Partnership"). Capitalized terms used but not defined herein
shall have the meaning set forth in Amendment. The closing of the redemption of
the Offered Partnership Units shall occur at _______, ________, Georgia, on
___________. Pursuant to Exhibit D to the Amendment, the Partnership hereby
notifies the Exercising Partner(s) that it has elected to pay the Cash Purchase
Price to the Exercising Partner(s) for the number of Offered Partnership Units
set forth below, and that the computation of the Cash Purchase Price is set
forth on an attachment hereto
NUMBER OF OFFERED CASH PURCHASE
EXERCISING PARTNER(S) PARTNERSHIP UNITS PRICE
- --------------------- ----------------- -------------------------
WEEKS REALTY, L.P.
By: Weeks GP Holdings, Inc.,
General Partner
By:
------------------------
Title:
------------------
Date:____________________
<PAGE>
EXHIBIT 10.2
================================================================================
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
Dated as of January 14, 1999
by and among
WEEKS CORPORATION
and
PARAGON LEGACY ASSOCIATES, LTD.
-----------------------------
<PAGE>
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
THIS REGISTRATION RIGHTS AND LOCK-UP AGREEMENT (this "Agreement") is made
and entered into as of January 14, 1999 by and among WEEKS CORPORATION, a
Georgia corporation (the "Company"), and PARAGON LEGACY ASSOCIATES, LTD., a
Texas limited partnership (the "Holder").
WHEREAS, this Agreement is made pursuant to the Contribution Agreement by
and between Weeks Realty, L.P., a Georgia limited partnership (the "Operating
Partnership") and Holder dated as of December 17, 1998 (the "Acquisition
Agreement").
WHEREAS, the Holder will become the owner of Units (as defined below) in
the Operating Partnership in connection with the transactions described in the
Acquisition Agreement;
WHEREAS, in order to induce the Company and the Operating Partnership to
enter into the transactions described in the Acquisition Agreement, the Holder
has agreed to the Holder Lock-up (as defined below) set forth in Section 2
hereof; and
WHEREAS, in order to induce the Holder to enter into the transactions
described in the Acquisition Agreement, the Company has agreed, with respect to
the Units issued pursuant to the Acquisition Agreement to provide the Holder
with the registration rights set forth in Section 3 hereof;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"Acquisition Agreement" shall have the meaning set forth in the Preamble.
---------------------
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
------------
the Company.
"Company" shall have the meaning set forth in the Preamble and also shall
-------
include the Company's successors.
"Control" shall mean the ability, whether by the direct or indirect
-------
ownership of shares or other equity interests, by contract or otherwise, to
select a majority of the directors of a corporation, to select the managing
partner of a partnership, to select the manager of a limited liability company
or otherwise to select, or have the power to remove and then select, a majority
of those persons exercising governing authority over an Entity. In the case of a
limited partnership, the sole general partner, each of the general partners that
has equal management control and authority, or the designated managing general
partner or
<PAGE>
managing general partners thereof shall be deemed to have control of such
partnership. In the case of a trust, any trustee thereof or any Person having
the right to select any such trustee shall be deemed to have control of such
trust.
"Dispose of" shall have the meaning set forth in Section 2 hereof.
----------
"Entity" shall mean any general partnership, limited partnership,
------
corporation, limited liability company, joint venture, trust, business trust,
cooperative or association.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Holder" shall have the meaning set forth in the Preamble.
------
"Holder Lock-up" shall have the meaning set forth in Section 2 hereof.
--------------
"Holder Lock-up Period" shall have the meaning set forth in Section 2
---------------------
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
----
"Operating Partnership" shall have the meaning set forth in the Preamble
---------------------
and also shall include the Operating Partnership's successors and assigns.
"Partnership Agreement" shall mean the Second Amended and Restated
---------------------
Agreement of Limited Partnership of the Operating Partnership, as amended.
"Person" shall mean any individual or Entity.
------
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended from
--------------
time to time.
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions and transfer taxes applicable to the sale of Shelf Registrable
Securities and disbursements of underwriters.
"Shares" shall mean any Common Stock issued or issuable to the Holder upon
------
the redemption of Units.
"Shelf Prospectus" shall mean the prospectus included in the Shelf
----------------
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, including any supplement relating to the terms of the
offering of any portion of the Shelf Registrable Securities covered by the Shelf
Registration Statement, and in each case including all material incorporated by
reference therein.
"Shelf Registration" shall mean a registration required to be effected
------------------
pursuant to Section 3 hereof.
<PAGE>
"Shelf Registrable Securities" shall mean the Shares held by the Holder,
----------------------------
excluding (i) Shares that have been registered under any other effective
registration statement, (ii) Shares sold or otherwise transferred pursuant to
Rule 144 under the Securities Act, and (iii) Shares held by the Holder if all of
such Shares are eligible for sale pursuant to Rule 144 under the Securities Act
and could be sold in one transaction in accordance with the volume limitations
contained in Rule 144(e)(1)(i) under the Securities Act.
"Shelf Registration Expenses" shall mean any and all expenses incident to
---------------------------
performance of or compliance with this Agreement, including, without limitation:
(i) all SEC, stock exchange and NASD registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with state securities or
"blue sky" laws (including reasonable fees and disbursements of counsel in
connection with qualification of any of the Shelf Registrable Securities under
any state securities or blue sky laws and the preparation of a blue sky
memorandum) and compliance with the rules of the NASD, (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing and
distributing the Shelf Registration Statement, any Shelf Prospectus,
certificates and other documents relating to the performance of and compliance
with this Agreement, (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Shelf Registrable Securities on any securities
exchange or exchanges pursuant to Section 4(l) hereof, (v) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, and (vi) all other costs and expenses normally associated with the
issuance and sale of newly issued public securities other than Selling Expenses.
"Shelf Registration Notice" shall have the meaning set forth in Section
-------------------------
4(b) hereof.
"Shelf Registration Statement" shall mean a registration statement of the
----------------------------
Company (and any other entity required to be a registrant with respect to such
registration statement pursuant to the requirements of the Securities Act) that
covers all of the Shelf Registrable Securities to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, or any similar
rule that may be adopted by the SEC, and all amendments (including post-
effective amendments) to such registration statement, and all exhibits thereto
and materials incorporated by reference therein.
"Units" shall mean the limited partnership interests of the Operating
-----
Partnership issued to the Holder pursuant to the Acquisition Agreement, which
interests are redeemable for Common Stock, or at the Operating Partnership's
option, cash.
2. Lock-Up Agreement.
-----------------
(a) Lock-up for Holder. The Holder hereby agrees that with respect to all
------------------
Units issued pursuant to the Acquisition Agreement from the date of issuance of
each Unit until the first anniversary of the date of each such issuance, without
the prior written consent of the Company, Holder will not offer, sell, contract
to sell, distribute, redeem, convert or otherwise dispose of (collectively,
"Dispose of"), directly or indirectly, to any Person any such Units
(collectively, the lock-ups are referred to as the "Holder Lock-up" and the
lock-up periods are referred to as the "Holder Lock-up Period").
<PAGE>
(b) Lock-up of the Beneficial Interest Held by each of William R. Cooper
--------------------------------------------------------------------
and Craig A. Cooper in the Holders. Each of William R. Cooper and Craig A.
- ----------------------------------
Cooper hereby agrees that until the first anniversary of the last issuance of
Units to the Holder under the Transaction Documents which are subject to the
lock-up contained in Section 2(a) hereof, without the prior written consent of
the Company, such individual will not Dispose of, directly or indirectly, any
beneficial ownership interest that such individual holds in the Holders, except
that the foregoing restriction will not be applicable to William R. Cooper in
the event of his death or to Craig A. Cooper in the event of his death.
3. Shelf Registration Under the Securities Act for the Benefit of the
------------------------------------------------------------------
Holder.
------
(a) Filing of Shelf Registration Statement. Following the expiration of
--------------------------------------
the Holder Lock-up Period, the Company shall cause to be filed during the third
quarter of each calendar year, or as soon as practicable thereafter, a Shelf
Registration Statement providing for the sale by the Holder of all Shelf
Registrable Securities, not theretofore registered, in accordance with the terms
hereof and will use its reasonable and diligent efforts to cause such Shelf
Registration Statement to be declared effective by the SEC as soon as
practicable thereafter. The Company agrees to use its reasonable and diligent
efforts to keep the Shelf Registration Statement with respect to the Shelf
Registrable Securities continuously effective so long as the Holder holds such
Shelf Registrable Securities. Subject to Section 4(b) and Section 4(i), the
Company further agrees to amend the Shelf Registration Statement if and as
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the Securities Act or any rules and regulations thereunder; provided,
--------
however, that the Company shall not be deemed to have used its reasonable and
- -------
diligent efforts to keep the Shelf Registration Statement effective during the
applicable period if it voluntarily takes any action that would result in the
Holder not being able to sell Shelf Registrable Securities covered thereby
during that period, unless such action is required under applicable law or the
Company has filed a post-effective amendment (other than one which removes Shelf
Registrable Securities from effective registration under the Securities Act) to
the Shelf Registration Statement and the SEC has not declared it effective or
except as otherwise permitted by the last three sentences of Section 4(b).
(b) Expenses. The Company shall pay all Shelf Registration Expenses in
--------
connection with each registration pursuant to Section 3(a). Holder shall pay
all Selling Expenses and the fees and disbursements of counsel representing the
Holder, if any, relating to the sale or disposition of such Shelf Registrable
Securities pursuant to the Shelf Registration Statement.
(c) Inclusion in Shelf Registration Statement. If Holder does not
-----------------------------------------
provide the information reasonably requested by the Company in connection with
the Shelf Registration Statement as promptly as practicable after receipt of
such request, but in no event later than ten (10) days thereafter, it shall not
be entitled to have its Shelf Registrable Securities included in the Shelf
Registration Statement.
4. Shelf Registration Procedures.
-----------------------------
In connection with the obligations of the Company with respect to each
Shelf Registration Statement contemplated by Section 3 hereof, the Company
shall:
<PAGE>
(a) prepare and file with the SEC, within the time period set forth in
Section 3 hereof, the Shelf Registration Statement, which Shelf
Registration Statement (i) shall be available for the sale of the Shelf
Registrable Securities in accordance with the intended method or methods of
distribution by the Holder covered thereby and (ii) shall comply as to form
in all material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed therewith;
(b) subject to the last three sentences of this Section 4(b) and
Section 4(i) hereof, (i) prepare and file with the SEC such amendments to
such Shelf Registration Statement as may be necessary to keep such Shelf
Registration Statement effective for the applicable period; (ii) cause the
Shelf Prospectus to be amended or supplemented as required and to be filed
as required by Rule 424 or any similar rule that may be adopted under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the SEC with respect to the Shelf Registration Statement or
any amendment thereto; and (iv) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered
by such Shelf Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
Holder covered thereby. Notwithstanding anything to the contrary
contained herein, the Company shall not be required to take any of the
actions described in clauses (i), (ii) or (iii) in this Section 4(b),
Section 4(d) or Section 4(i) with respect to the Shelf Registrable
Securities (x) to the extent that the Company is in possession of material
non-public information that it deems advisable not to disclose or is
engaged in active negotiations or planning for a merger or acquisition or
disposition transaction and it delivers written notice to the Holder to
the effect that the Holder may not make offers or sales under the Shelf
Registration Statement for a period not to exceed ninety (90) days from
the date of such notice; provided, however, that the Company may deliver
-------- -------
only two such notices within any twelve-month period, and (y) unless and
until the Company has received a written notice (a "Shelf Registration
Notice") from the Holder that it intends to make offers or sales under the
Shelf Registration Statement as specified in such Shelf Registration
Notice; provided, however, that the Company shall have ten (10) business
-------- -------
days to prepare and file any such amendment or supplement after receipt of
the Shelf Registration Notice. Once the Holder has delivered a Shelf
Registration Notice to the Company, the Holder shall promptly provide to
the Company such information as the Company reasonably requests in order
to identify the method of distribution in a post-effective amendment to
the Shelf Registration Statement or a supplement to the Shelf Prospectus.
The Holder also shall notify the Company in writing upon completion of
such offer or sale or at such time as the Holder no longer intends to make
offers or sales under the Shelf Registration Statement;
(c) after the Holder has delivered a Shelf Registration Notice to the
Company, furnish the Holder, without charge, as many copies of each Shelf
Prospectus and any amendment or supplement thereto in order to facilitate
the public sale or other disposition of the Shelf Registrable Securities;
the Company consents to the use of the Shelf Prospectus and any amendment
or supplement thereto by the Holder of Shelf Registrable Securities in
connection with the offering and sale of the Shelf Registrable Securities
covered by the Shelf Prospectus or amendment or supplement thereto;
<PAGE>
(d) use its reasonable and diligent efforts to register or qualify
the Shelf Registrable Securities by the time the Shelf Registration
Statement is declared effective by the SEC under all applicable state
securities or blue sky laws of such jurisdictions in the United States and
its territories and possessions as the Holder shall reasonably request in
writing, keep each such registration or qualification effective during the
period such Shelf Registration Statement is required to be kept effective
or during the period offers or sales are being made by the Holder after
they have delivered a Shelf Registration Notice to the Company, whichever
is shorter; provided, however, that in connection therewith, the Company
-------- -------
shall not be required to (i) qualify as a foreign corporation to do
business or to register as a broker or dealer in any such jurisdiction
where it would not otherwise be required to qualify or register but for
this Section 4(d), (ii) subject itself to taxation in any such
jurisdiction where is not otherwise subject to taxation, or (iii) file a
general consent to service of process in any such jurisdiction;
(e) notify the Holder promptly and confirm in writing, (i) when the
Shelf Registration Statement and any post-effective amendments thereto
have become effective, (ii) when any amendment or supplement to the Shelf
Prospectus has been filed with the SEC, (iii) of the issuance by the SEC
or any state securities authority of any stop order suspending the
effectiveness of the Shelf Registration Statement or any part thereof or
the initiation of any proceedings for that purpose, (iv) if the Company
receives any notification with respect to the suspension of the
qualification of the Shelf Registrable Securities for offer or sale in any
jurisdiction or the initiation of any proceeding for such purpose, and (v)
of the happening of any event during the period the Shelf Registration
Statement is effective as a result of which (A) such Shelf Registration
Statement contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (B) the Shelf Prospectus as then
amended or supplemented contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement or
any part thereof as promptly as possible;
(g) after the Holder has delivered a Shelf Registration Notice to the
Company, furnish to the Holder, without charge, at least one conformed
copy of the Shelf Registration Statement and any post-effective amendment
thereto (without documents incorporated therein by reference or exhibits
thereto, unless requested);
(h) cooperate with the selling Holder to facilitate the timely
preparation and delivery of certificates representing Shelf Registrable
Securities to be sold and not bearing any Securities Act legend; and
enable certificates for such Shelf Registrable Securities to be issued for
such numbers of shares as the Holder may reasonably request at least two
business days prior to any sale of Shelf Registrable Securities;
(i) subject to the last three sentences of Section 4(b) hereof, upon
the occurrence of
<PAGE>
any event contemplated by clause (x) of Section 4(b) or clause (v) of
Section 4(e) hereof, use its reasonable and diligent efforts promptly to
prepare and file an amendment or a supplement to the Shelf Prospectus or
any document incorporated therein by reference or prepare, file and obtain
effectiveness of a post-effective amendment to the Shelf Registration
Statement, or file any other required document, in any such case to the
extent necessary so that, as thereafter delivered to the purchasers of the
Shelf Registrable Securities, such Shelf Prospectus as then amended or
supplemented will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading;
(j) after the Holder has provided a Shelf Registration Notice to the
Company, make available for inspection by the Holder covered thereby and
any counsel, accountants or other representatives retained by the Holder
all financial and other records, pertinent corporate documents and
properties of the Company and cause the officers, directors and employees
of the Company to supply all such records, documents or information
reasonably requested by the Holder, counsel, accountants or
representatives in connection with the Shelf Registration Statement;
provided, however, that such records, documents or information which the
-------- -------
Company determines in good faith to be confidential and notifies the
Holder, counsel, accountants or representatives in writing that such
records, documents or information are confidential shall not be disclosed
by the Holder, counsel, accountants or representatives unless (i) such
disclosure is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction or governmental agency, or (ii) such records,
documents or information become generally available to the public other
than through a breach of this Agreement;
(k) a reasonable time prior to the filing of any Shelf Registration
Statement or any amendment thereto, or any Shelf Prospectus or any
amendment or supplement thereto, provide copies of such document (not
including any documents incorporated by reference therein unless
requested) to the Holder covered thereby after the Holder has provided a
Shelf Registration Notice to the Company;
(l) use its reasonable and diligent efforts to cause all Shelf
Registrable Securities to be listed on any securities exchange on which
similar securities issued by the Company are then listed;
(m) provide a CUSIP number for all Shelf Registrable Securities, not
later than the effective date of a Shelf Registration Statement; and
(n) use its reasonable efforts to make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
at least 12 months which shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder or any similar rule as may be
adopted by the SEC.
The Company may require the Holder to furnish to the Company in writing
such information regarding the proposed distribution by the Holder as the
Company may from time to time reasonably
<PAGE>
request in writing.
In connection with and as a condition to the Company's obligations with
respect to the Shelf Registration Statement pursuant to Section 3 hereof and
this Section 4, the Holder covenants and agrees that (i) it will not offer or
sell any Shelf Registrable Securities under the Shelf Registration Statement
until it has provided a Shelf Registration Notice pursuant to Section 4(b) and
has received copies of the Shelf Prospectus as then amended or supplemented as
contemplated by Section 4(c) and notice from the Company that the Shelf
Registration Statement and any post-effective amendments thereto have become
effective as contemplated by Section 4(e); (ii) upon receipt of any notice from
the Company contemplated by Section 4(b) or Section 4(e) (in respect of the
occurrence of an event contemplated by clause (v) of Section 4(e)), the Holder
shall not offer or sell any Shelf Registrable Securities pursuant to the Shelf
Registration Statement until the Holder receives copies of the supplemented or
amended Shelf Prospectus contemplated by Section 4(i) hereof and receives notice
that any post-effective amendment has become effective, and, if so directed by
the Company, the Holder will deliver to the Company (at the expense of the
Company) all copies in its possession, other than permanent file copies then in
the Holder's possession, of the Shelf Prospectus as amended or supplemented at
the time of receipt of such notice; (iii) all offers and sales by the Holder
under the Shelf Registration Statement shall be completed within sixty (60) days
after the first date on which offers or sales can be made pursuant to clause (i)
above, and upon expiration of such sixty (60) day period, the Holder will not
offer or sell any Shelf Registrable Securities under the Shelf Registration
Statement until it has again complied with the provisions of clause (i) above;
(iv) the Holder and any of its beneficial owners, officers, directors or
affiliates, if any, will comply with the provisions of Regulation M promulgated
by the SEC as applicable to them in connection with sales of Shelf Registrable
Securities pursuant to the Shelf Registration Statement; (v) the Holder and any
of its beneficial owners, officers, directors or affiliates, if any, will comply
with the prospectus delivery requirements of the Securities Act as applicable to
them in connection with sales of Shelf Registrable Securities pursuant to the
Shelf Registration Statement; and (vi) the Holder and any of its beneficial
owners, officers, directors or affiliates, if any, will enter into such written
agreements as the Company shall reasonably request to ensure compliance with
clause (iv) and (v) above.
5. Holdback Agreements. The Holder agrees not to effect any public sale
-------------------
or distribution (including sales pursuant to Rule 144) of equity securities of
the Company, or any securities convertible into or exchangeable or exercisable
for such securities, during the 7 days prior to (provided that the Holder
receives a notice from the Company of the commencement of such 7-day period) and
the 90-day period beginning on the effective date of any underwritten offering
of securities by the Company (except as part of such underwritten registration),
unless the underwriters managing the registered public offering otherwise agree.
6. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless the Holder and the beneficial owners, officers and directors and
each Person, if any, who controls the Holder within the meaning of Section 15 of
the Securities Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as
<PAGE>
incurred, to which the Holder, or any beneficial owner, officer, director
or controlling Person may become subject under the Securities Act or
otherwise (A) that arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Shelf
Registration Statement or any amendment thereto, or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (B)
that arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Shelf Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or alleged untrue
statement or any omission or alleged omission, if such settlement is
effected with the written consent of the Company; and
(iii) subject to the limitations set forth in Section 6(c),
against any and all expense whatsoever, as incurred (including reasonable
fees and disbursements of counsel), reasonably incurred in investigating,
preparing or defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 6(a)
- -------- -------
shall not apply with respect to any loss, liability, claim, damage or expense
that arise out of or are based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the Holder (i)
expressly for use in the Shelf Registration Statement or any amendment thereto,
or the Shelf Prospectus or any amendment or supplement thereto or (ii) pursuant
to any representation, warranty or other statement contained in the Acquisition
Agreement or any admission amendment to the Partnership Agreement.
(b) Indemnification by the Holder. The Holder agrees to indemnify and
-----------------------------
hold harmless the Company, and each of its respective directors and officers
(including each director and officer of the Company who signed the Shelf
Registration Statement), and each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, to the same extent as
the indemnity contained in Section 6(a) hereof, but only insofar as such loss,
liability, claim, damage or expense arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
the Shelf Registration Statement or any amendment thereto, or the Shelf
Prospectus or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use therein. In no event, however shall the liability of a Holder
exceed the cumulative net proceeds received by the Holder from any offering made
in connection with a
<PAGE>
Shelf Registration Statement.
(c) Conduct of Indemnification Proceedings. Each indemnified party shall
--------------------------------------
give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity agreement provided
in Section 6(a) or (b) above, unless and to the extent it did not otherwise
learn of such action and the lack of notice by the indemnified party materially
prejudices the indemnifying party or results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) shall not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided under Section 6(a) or
(b) above. After receipt of such notice, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, jointly with any
other indemnifying party so notified, to assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by such
indemnifying party and approved by the indemnified party, which approval shall
not be unreasonably withheld; provided, however, that, if the defendants in any
-------- -------
such action or proceeding include both the indemnified party and the
indemnifying party and the indemnified party reasonably determines, upon advice
of counsel, that a conflict of interest exists or that there may be legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party, then the indemnified
party shall be entitled to separate counsel (which shall be limited to a single
law firm), the reasonable fees and expenses of which shall be paid by the
indemnifying party. If the indemnifying party does not assume the defense of
any such action or proceeding, after having received the notice referred to in
the first sentence of this paragraph, the indemnifying party will pay the
reasonable fees and expenses of counsel (which shall be limited to a single law
firm) for the indemnified party. In such event, however, the indemnifying party
will not be liable for any settlement effected without the written consent of
such indemnifying party. If the indemnifying party assumes the defense of any
such action or proceeding in accordance with this paragraph, such indemnifying
party shall not be liable for any fees and expenses of counsel for the
indemnified party incurred thereafter in connection with such action or
proceeding, except as set forth in the proviso in the second sentence of this
Section 6(c).
(d) Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in this Section 6
is for any reason held to be unenforceable although applicable in accordance
with its terms, the Company and the selling Holder shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and the selling
Holder, in such proportion as is appropriate to reflect the relative fault of
and benefits to the Company on the one hand and the selling Holder on the other
(in such proportion that the selling Holder is severally, not jointly,
responsible for the balance), in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits to the
indemnifying party and indemnified parties shall be determined by reference to,
among other things, the total proceeds received by the indemnified party and
indemnified parties in connection with the offering to which such losses,
claims, damages, liabilities or expenses relate. The relative fault of the
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether the action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or the
<PAGE>
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), a Holder shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Shelf Registrable Securities of such Holder were offered to
the public exceeds the amount of any damages which such Holder would otherwise
have been required to pay by reason of such untrue statement or omission.
Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6(d), each Person,
if any, who controls the Holder within the meaning of Section 15 of the
Securities Act and beneficial owners, directors and officers of the Holder shall
have the same rights to contribution as any member of the Holder, and each
director of the Company, each officer of the Company who signed the Shelf
Registration Statement, and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Company.
(e) In the event any sale pursuant to a Shelf Registration is an
underwritten offering, then the Company agrees to indemnify and hold harmless
each underwriter of Shelf Registrable Securities to the same extent and on
substantially similar terms as the Company's indemnification of the members of
the Holder as set forth in Section 6(a) above.
7. Rule 144 Sales.
--------------
(a) Compliance. The Company covenants that, so long as it is subject to
----------
the reporting requirements of the Exchange Act, it will file the reports
required to be filed by it under the Exchange Act so as to enable the Holder to
sell Shelf Registrable Securities pursuant to Rule 144 under the Securities Act.
(b) Cooperation with the Holder. In connection with any sale, transfer or
---------------------------
other disposition by a Holder of any Shelf Registrable Securities pursuant to
Rule 144 under the Securities Act, the Company shall cooperate with the Holder
to facilitate the timely preparation and delivery of certificates representing
Shelf Registrable Securities to be sold and not bearing any Securities Act
legend, and enable certificates for such Shelf Registrable Securities to be for
such number of shares as the Holder may reasonably request at least two business
days prior to any sale of Shelf Registrable Securities.
8. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified, supplemented or
waived, nor may consent to departures therefrom be given, without the written
consent of the Company and the Holder.
<PAGE>
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery,
(i) if to the Holder, at the respective addresses set forth in the Acquisition
Agreement, or (ii) if to the Company, at 4497 Park Drive, Norcross, Georgia
30093, Attention: A. R. Weeks, Jr.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; or at
the time delivered if delivered by an air courier guaranteeing overnight
delivery.
(c) No Assignment. This Agreement shall inure to the benefit of and be
-------------
binding upon the parties hereto and, where applicable, their successors and
permitted assigns. No party to this Agreement may assign or delegate all or any
portion of its rights, obligations, or liabilities under this Agreement without
the prior written consent of each other party to this Agreement. Nothing
expressed or implied herein is intended or shall be construed to confer upon or
give to any third party any rights or remedies by virtue hereof.
(d) Third Party Beneficiaries. There shall be no third party
-------------------------
beneficiaries or intended beneficiaries of this Agreement
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia without giving effect to the
conflicts of law provisions thereof.
(h) Specific Performance. The parties hereto acknowledge that there would
--------------------
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having jurisdiction.
(i) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
<PAGE>
[Signatures begin on following page]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above
WEEKS CORPORATION
By:
___________________________
Name:
Title:
PARAGON LEGACY ASSOCIATES, LTD.,
By: WRC Turtle Creek, Inc.,
a Texas corporation
By:
_______________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above
WEEKS CORPORATION
By: /s/ Thomas D. Senkbeil
----------------------------
Name: Thomas D. Senkbeil
Title: Vice Chairman
PARAGON LEGACY ASSOCIATES, LTD.,
By: WRC Turtle Creek, Inc.,
a Texas corporation
By:
_______________________
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,159
<SECURITIES> 0
<RECEIVABLES> 15,336
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,348,461
<DEPRECIATION> 101,640
<TOTAL-ASSETS> 1,459,744
<CURRENT-LIABILITIES> 0
<BONDS> 668,904
0
150,000
<COMMON> 198
<OTHER-SE> 365,935
<TOTAL-LIABILITY-AND-EQUITY> 1,459,744
<SALES> 0
<TOTAL-REVENUES> 44,421
<CGS> 0
<TOTAL-COSTS> 32,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,103
<INCOME-PRETAX> 12,247
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,247
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,247
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
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